DCAA Publishes New Audit Guidance on Allowable Air Fares
In December
2009, we reported on changes to
allowability rules regarding air fare costs. We noted several problems
with the new rule and predicted problems with implementation and with
DCAA audit guidance.
We wrote, “based on our experience with Government auditors, that is not how
the rule will be interpreted in audits of such costs.”
We were correct. Implementation has proved difficult, and
DCAA has just issued audit guidance that will cause problems
and—likely—litigation.
On March 22, 2010 DCAA issued MRD
10-PAC-010(R) entitled “Audit
Guidance on Revision to FAR 31.205-46(b) and (c) – Limiting Airfare to
the Lowest Airfare Available to the Contractor.” See
the entire MRD here. The MRD contains the following guidance—
- Auditors should question airfare costs claimed in excess of the
lowest airfare available to the contractor.
- To
comply with the revised rule, the contractor’s policies and procedures
should provide for advance planning of travel to assure that the lowest
priced airfare available to the contractor for flights during normal
business hours is documented and utilized as the baseline allowable
airfare cost.
- To determine the lowest airfare
available to the contractor for flights during normal business hours,
the contractor must now consider nonrefundable airfares and lower
airfares negotiated with airlines, travel service providers, credit card
companies, etc. However, auditors should not question airfare costs
claimed in excess of nonrefundable airfare available during normal
business hours if the contractor’s data show that its experience with
cancelling nonrefundable tickets results in increased cost in comparison
to the cost of refundable tickets.
- Ordinarily,
with adequate advance planning, documentation substantiating the lowest
airfare available takes the form of quotations from competing airlines
or travel service providers from which the lowest priced airfare can be
selected, giving proper consideration to any potential discounts or
credits to the contractor’s cost. There may be instances where only one
flight is available for a given mission need and, therefore, only one
quote is obtained, in which case the one quotation would substantiate
the lowest priced airfare available. However, auditors observing
frequent instances in which a single quotation is obtained to support
the airfare should assess whether the design or execution of the
contractor’s policies and procedures results in unreasonable airfare
costs.
Notice that DCAA has taken the
ambiguous FAR rule and decided (without support for its position) that
contractors now need “quotations from competing airlines … from which
the lowest priced airfare can be selected….” If one is to comply with
DCAA’s position, one would need to run mini-competitions for each trip,
and justify any fare paid over the lowest price offered. This is a
patently absurd position and one that is almost certain to result in a
challenge from a contractor who has air fare costs questioned because of
a lack of such competing quotes.
We
predicted that the poorly drafted rule, whose language did not align
with the purpose articulated in the promulgating comments, would cause
unintended problems. We don’t necessarily relish saying so, but we were
right.
Contractors must review the rule and
their travel practices, establish a position (which may or may not
match DCAA’s flawed interpretation of the rule), and be prepared to
fight with DCAA regarding differing interpretations and compliance
mechanisms.
Not fun. We told you so. And we
were right.
Accounting for IR&D—What Does “Required” Mean?
There are a lot of hard things
about compliant cost
accounting in a Federal government environment. Preparing a cost impact
analysis pursuant to the CAS Administration clause is hard. Preparing a
segment closing pension adjustment pursuant to CAS 413 is hard. And up until recently, accounting for Independent Research
and Development (IR&D) expenses has been hard. However, a recent
case in the U.S. Court of Appeals, Federal Circuit, has clarified the rules quite a bit.
The case, known as ATK Thiokol, Inc. vs. United States, has wound its way through the courts over a period of
years. In 2005, the U.S. Court of Federal Claims issued an opinion in favor of the contractor, and the United States appealed.
By way of background, in 1990 ATK moved design of a new rocket
motor, the Castor® IVA-XL.
ATK marketed the motor and, in 1995, applied for an export license,
identifying Mitsubishi Heavy Industries as a potential buyer. At about
that same time, ATK moved production of Castor® motors to its Utah facility, which necessitated facility
enhancements (including new capital assets); ATK also undertook technical changes and testing of its
Castor® motors at the new
Utah facility. In 1999, ATK conducted a “first
article acceptance test firing” that was attended by ten potential
buyers, including Lockheed Martin, Orbital Sciences Corporation, and the
Japanese Government. As of 2004, however, ATK
had only sold the improved rocket motors to Mitsubishi.
As part of its agreement with Mitsubishi, ATK agreed not to
charge for its nonrecurring efforts where those efforts would also
benefit other Castor®
customers. In its proposal, ATK identified contract-unique nonrecurring
efforts for adapting the motor to Mitsubishi’s
needs, and other nonrecurring efforts that would
be benefit all Castor®
customers, which ATK would self-fund. ATK
notified its Defense Contract Management Agency (DCMA) Divisional
Administrative Contracting Officer (DACO) that it
would begin to incur nonrecurring development costs and agreed that such
costs would not be “specifically identified” in the Statement of Work
for the Castor® motor.” And
indeed, while the final contract with Mitsubishi called for Adaptation
efforts, it expressly excluded all other nonrecurring costs.
During the period in question, DCAA continuously reviewed
ATK’s cost accounting practices and found them to be compliant with
applicable requirements, including the Cost Accounting Standards (CAS).
ATK maintained a CAS Disclosure Statement that
clearly discussed how it distinguished direct costs from indirect
costs. Importantly, ATK
disclosed that it “classified a cost that is
normally an indirect cost as a direct cost only when: a) a contract
specifically required that [ATK] incur the cost; b) the contract paid for the cost; or c) at the
time [ATK] incurred the
cost, the cost had no reasonably foreseeable benefit to more than one
cost objective.” The
Disclosure Statement also addressed capitalization versus expensing of
various assets. Although DCAA from time to time
objected to ATK’s capitalization practices, the DACO overruled the
auditors’ concerns and consistently found that ATK’s cost accounting
practices were appropriate.
In 1999,
however, the DACO notified ATK that it intended to disallow nonrecurring
development costs and certain capital assets (tooling costs) because
the costs ““required by and specifically benefit the [Mitsubishi]
Contract, and [that] these costs should be charged to the Castor® IVA-XL
program.” Following the
process outlined in the Contract Disputes Act, ATK filed suit in the
U.S. Court of Federal Claims after the DACO denied its claim.
The Court had to interpret the FAR 31.205-18
cost principle, CAS 402, and CAS 420 in arriving
at its decision. The parties’ contentions turned on the meaning of the
phrase “required in the performance of a contract.” Allowable IR&D
costs are those that are not required in the performance of a contract,
but the issue was whether the words meant “specifically” or “expressly”
required, or whether they meant “implicitly” required. The Government
argued for “implicitly” required, which would mean that all of ATK’s
costs should have been charged as direct costs of the Mitsubishi
contract. ATK, on the other hand, argued for an “expressly” required
standard, which would permit costs not expressly required by the
contract to be treated as IR&D expenses.
The
Court looked at Interpretation No. 1 of CAS 402 (which deals with
direct versus indirect charging of B&P costs) and found what it was
looking for. In the language of CAS 402 Interpretation No. 1—
Under 9904.402, costs incurred in preparing,
submitting, and supporting proposals pursuant to a specific
requirement of an existing contract are
considered to have been incurred in different circumstances from the
circumstances under which costs are incurred in preparing proposals
which do not result from such specific requirement. The
circumstances are different because the costs of preparing proposals
specifically required by the provisions of an existing contract relate
only to that contract while other proposal costs relate to all work of
the contractor. [Emphasis added by the Court.]
As the Court discussed, “Accordingly, under CAS 402, the
definitions of ‘direct cost’ and ‘indirect cost’ and Interpretation No.
1, a contractor may, but is not required to, distinguish B&P costs
that are ‘Sometimes direct/Sometimes indirect,’ on the basis of whether
those costs are ‘specifically required by the provisions of an existing
contract.’” The Court used
that finding to interpret the requirements of CAS 420 and the cost
principle at FAR 31.205-18. The Court found the parties intended to
exclude certain development efforts from the contract, so that those
efforts were clearly “not required”—
… the court has determined that whether
IR&D costs are ‘required
in the performance of a contract,’ within the meaning of CAS 420, is determined by the
contracting parties’ intent. Accordingly, the court declines to
interpret ‘required in the
performance of a contract’
in the manner advocated by the Government, because doing so would
undermine CAS 402, eliminating the primacy that the CAS Board intended
the contracting parties intent to serve in the allocation of ‘Sometimes direct/Sometimes indirect’ costs. Nor will the court interpret ‘required in the performance of a
contract’ in that manner for
IR&D alone, because doing so would conflict with the identical
phrase in the definition of B&P costs, required by the CAS Board’s
retention of CAS 402 and Interpretation No. 1, when CAS 420 was
promulgated.
In addition, ATK’s tooling costs
were properly treated as capital assets whose depreciation was an
allowable cost of its indirect cost pools. Such costs were not required
to be treated as direct costs of the Mitsubishi contract.
The Government appealed, but only to the extent of the
IR&D costs. It chose not to appeal the Court of Federal Claims
decision regarding capital assets.
On appeal,
the Federal Circuit affirmed the Court of Federal Claims decision.
According to the appellate decision—
In
light of the language and interpretation of CAS 402, it was appropriate
for ATK to treat the Development Effort costs at issue in this case as
indirect costs. First, those costs were not specifically required by the
Mitsubishi contract. Second, as the trial court found, ATK had a
disclosed and established cost accounting practice of charging as
indirect costs those costs that were not paid for or required by a
particular contract and that had a reasonably foreseeable benefit to
more than one contract. … we agree with the trial court and ATK that the meaning of that
phrase in the definition of IR&D must be the same as the meaning of
the identical phrase in the definition of bid and proposal (‘B&P’)
costs. B&P costs are defined to mean costs incurred in preparing,
submitting, and supporting bids and proposals, but not to include the
costs of effort ‘required in the performance of a contract.’ FAR
31.205-18(a); CAS 420-30(a)(2).
B&P costs are addressed in the same regulations that govern
IR&D costs and are treated similarly to IR&D costs in all
pertinent respects. See generally FAR
31.205-18; CAS 420-30. B&P costs ‘benefit all business of a
contractor rather than a specific existing contract [and thus] treating
all such costs as indirect overhead is logical.’ … There is no support
anywhere in the text or history of the regulations for treating that
identical regulatory formulation differently. We therefore construe the
reference to costs ‘required in the performance of a contract’ to mean,
in both contexts, costs that are specifically required by the contract. …
Because the research and development costs at issue in this case were
related to the Mitsubishi contract but were not specifically required by
that contract, we uphold the trial court’s decision that those costs
were indirect IR&D costs within the meaning of the pertinent
regulatory provisions.
For the past seven years,
contractors have had to manage a certain amount of ambiguity in their
cost accounting practices, as they struggled to comply with an ambiguous
set of regulations. This important decision clarifies the proper cost
accounting for IR&D expense, and contractors are advised to study it
closely.
We believe that one of the lessons
to be learned is that a contractor’s Disclosure Statement is a key tool
to establishing its cost accounting practices. In our experience,
contractors too often fail to take advantage of the Disclosure Statement
to declare which costs will be direct and which will be indirect, and
under what circumstances. The second lesson is that the drafting of the
contract language matters. As the ATK decisions demonstrated, the
combination of clear Disclosure Statement language with clear contract
language is difficult to beat.
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FAPIIS Finally Here!
We told you about FAPIIS (Federal
Awardee Performance and Integrity Information System) last September,
when FAR Case 2008-027 (implementing § 827 of the FY 2009 Defense
Authorization Act) was published as a proposed rule. We called it “past
performance information on steroids” and said it was “a significant
proposed rule that may affect the ability of certain contractors to
receive Federal contract or grant awards.” On
March 23, 2010 the FAR Councils issued the final FAPIIS rule, which can
be found here.
Summary
of the final rule:
FAPIIS is intended to
significantly enhance the scope of information available to contracting
officers as they evaluate the integrity and performance of prospective
contractors. In addition to providing one-stop access to EPLS and PPIRS,
FAPIIS will also include contracting officers' non-responsibility
determinations (i.e., agency assessments that prospective contractors do
not meet requisite responsibility standards to perform for the
Government), contract terminations for default or cause, agency
defective pricing determinations, administrative agreements entered into
by suspension and debarment officials to resolve a suspension or
debarment, and contractor self-reporting of criminal convictions, civil
liability, and adverse administrative actions. The system will collect
this information, on an ongoing basis, from existing systems within the
Government (i.e., EPLS and PPIRS), contracting officers (for
determinations of non-responsibility and contract terminations),
suspension and debarment officials (for information on administrative
agreements), and contractors (for information related to criminal,
civil, and administrative proceedings).
We’re
not going to reiterate all the aspects of this fairly complex rule.
You can click the link to our original article to get the gist, or click
the link to the final rule to get all the details. Instead, we’re
going to focus on the FAR Councils’ promulgating comments, where they
disposition the public comments received. Here
are some (but not all) of the Councils’ comments.
- The
Councils seek to ensure that FAPIIS provides contracting officers with
efficient and effective access to the information they need to evaluate
the business ethics and quality of prospective contractors competing for
Federal contracts. To achieve this goal, the Councils have taken a
phased approach to the implementation of FAPIIS, focusing first on the
information specifically identified by Congress in section 872(c) of the
FY 2009 NDAA. … Going forward, this approach will allow the Councils to
carefully consider policy and procedural issues as new sources of
information are identified pursuant to section 872(b) and (c)(6). For
the next phase of FAPIIS, the Councils and OMB are carefully considering
a proposed rule that would build on several suggestions made by the
public and augment reporting by: (1) lowering the threshold for covered
actions that trigger FAPIIS reporting from $500,000 to the simplified
acquisition threshold and (2) expanding the current scope of reporting
to include other violations of laws, as opposed to violations only in
the context of Federal contracts. This information can further enhance
the utility of FAPIIS and give contracting officers a fuller picture of a
contractor's history of compliance. However, a number of the other
above-described suggestions for expansion raised concerns for the
Councils. For example: Requiring the collection of information on all
proceedings, regardless of outcome, could potentially create instances
where negative judgments on contractors' responsibility are made
regardless of the outcome of the referenced proceedings. If information
regarding yet-to-be-concluded proceedings were allowed, negative
perceptions could unfairly influence contracting officers to find a
contractor non-responsible, even in situations that later end with the
contractor being exonerated. The Councils are strongly committed to
helping contracting officials avoid these types of
situations. Incorporating all the information from ORCA is
inappropriate. Much of the information in this system is not designed to
support contracting officers in making responsibility determinations.
Extending the archival period (for retaining information beyond five
years) is also inappropriate as this period was created for auditing
purposes, not for use by contracting officers in making responsibility
determinations.
- The Councils appreciate
the need to ensure that information included in FAPIIS will contribute
to the stated purpose of the database and that appropriate training is
provided to help contracting officers in their use of this information.
The Councils did not agree, however, that significant revisions were
warranted based on the requested refinements. In particular, the
collection of information on administrative agreements entered into to
resolve a suspension or debarment is required by section 872, so it must
be included in the system. Regarding the concern raised with the
definition of ``covered person,'' the existing requirement at FAR
52.209-5 includes certification regarding both the offeror and the
principals. Additionally, since the FAPIIS requirement for information
does not relate to all offenses by the principals, but only to those
that relate to the performance of a Federal contract or grant, this
information should be available to the offeror. As further
clarification, the Councils have removed an inconsistency within the
definition of ``principal'' between the stated meaning (person within
the business entity) and one of the examples (head of a subsidiary). A
subsidiary is not generally within the business entity, but is a
separate and distinct legal entity. Therefore, the Councils have removed
``head of a subsidiary'' from the list of examples in the definitions
of ``principal'' throughout the FAR, because it can imply a meaning
broader than the stated definition. Deletion of this example should not
result in any change of meaning, since this is just an example, and the
definition clearly states that principals are persons within the
business entity.
- … the Administrator of GSA shall develop policies to require the
timely and accurate input of information into the database. To this end,
the Councils will work with the FAPIIS Program Manager, the Federal
Acquisition Institute (FAI), and the Defense Acquisition University
(DAU) to develop guidance for contracting officials and SDOs on proper
input, accuracy, and timeliness of data into FAPIIS. In addition, the
Councils have added a requirement to the rule similar to that at FAR
4.604 for data entry into the Federal Procurement Data System, stating
that the contracting officers and SDOs are responsible for the timely
submission and sufficiency of the data. There is no single entity that
can be held accountable because the information in FAPIIS comes from
various sources. However, each system to which FAPIIS connects has its
own guidelines for timeliness and accountability and separate
initiatives are being pursued to strengthen these systems. For example,
OFPP's memorandum of July 29, 2009, Improving the Use of Contractor Performance Information … requires the
submission of report cards to the Past Performance Information Retrieval
System (PPIRS). PPIRS has a standard format for supplying all the
report card information collected from the Federal agencies to
authorized Government users for use in source selection decisions, and
the Government is working to improve compliance by Federal agencies in
reporting this data and the quality of the information entered into
PPIRS. In improving the compliance and quality of the data, over time,
the accuracy of the data should improve. In the meantime, the Councils
have added a requirement for timeliness and accountability for the
Government personnel who will be entering data directly into the
database. With respect to contractors, there are a range of penalties
available to the Government for non-compliance with the requirements of a
contract, such as determination of non-responsibility, termination for
default, or suspension or debarment.
- FAPIIS
will provide access to data on active suspensions and debarments, even
if the suspension or debarment was imposed more than five years ago.
FAPIIS will also provide access to data on expired suspensions and
debarments for five years after the expiration date. To access records
after this period, agencies would need to utilize the Excluded Parties
List System's archives. With respect to the $10 million threshold, the
Councils concur that additional clarification is needed to capture the
value of modifications when calculating the total value of all current,
active contracts and grants. The language in the final rule has been
refined to clarify that offerors must consider the total value of the contracts and grants
including all priced options and modifications.
- The Councils appreciate the importance of helping contracting
officials obtain the skill and aptitude necessary to discern the
relevance and weight to be given the information reviewed. The Councils believe that training, rather than more specific
standards in the regulations, is a better way to achieve this goal. The
Councils will work with FAI and DAU to develop guidance and training for
contracting officials on the proper use of the information contained in
FAPIIS, and the type of information that would warrant submission to
agency SDOs.
- The Councils recognize
that some of the data in the database may not be relevant when
determining present responsibility and are committed to avoiding
situations of unjustified determinations of non-responsibility. Without
the language, contracting officers may think they are required to
utilize outdated information that has no bearing on a contractor's
present responsibility. The statement does not, as one commenter
suggested, limit a contracting officer from considering any information
that can be appropriately considered and that is relevant. In light of
the comments, the Councils have clarified the explanation for the
caution by stating that FAPIIS may contain information on any of the offeror's previous contracts and
therefore may contain information relating to contractors for products
or services that are completely different from those being acquired. The
Councils have also added cross references to FAR 15.305(a)(2) as a reminder of relevance
requirements in the consideration of past performance.
- In the final rule, FAR section 9.104-6 focuses just on
responsibility determinations. For past performance evaluations, the
contracting officer is referred to FAR section 15.305(a)(2), which addresses how to evaluate the
relevance of data and clearly states that this evaluation is separate
from the responsibility determination required under subpart 9.1. The
final rule also incorporates use of FAPIIS into the procedures
addressing agency evaluations of contractor performance in FAR 42.1503
since there may be information in FAPIIS, such as terminations for
default or cause and defective pricing assessments, that is not in PPIRS
but still may be appropriately used, along with the information in
PPIRS to evaluate an offeror's performance.
- The proposed language,
which has been retained without change in the final rule, requires
contracting officers to notify, prior to proceeding with award, the
agency official responsible for initiating debarment or suspension
action in accordance with agency procedures. This notification process
closely tracks that already established in FAR 9.104-5 for situations
where an offeror provides an affirmative response on its responsibility
certification and therefore should not create undue additional delay. In
addition, no changes have been made to procedures currently used to
ensure an opportunity for the offeror to provide its input where
responsibility is in question. The final rule follows the current
practice for providing offerors with an opportunity to explain their responsibility if the
contracting officer obtains relevant information from FAPIIS that could
lead to a non-responsibility determination. Similarly, the rule makes no
changes to the due process obligations associated with suspension or
debarment actions.
- The Councils disagree with
the arguments set forth to oppose application of the rule to commercial
item and COTS acquisitions. An exemption for commercial item and COTS
acquisitions would exclude a significant portion of Federal contractors,
thereby undermining an overarching public policy to achieve greater
integrity and performance quality in contracting that this law is
intended to further. There also does not appear to be any unique burden
that would undermine access to the commercial marketplace. The
requirement for contractors to submit information into FAPIIS applies to
those contractors with active Federal contracts and grants totaling
more than $10 million at the time of proposal submission, and
contractors with this level of activity generally should be equipped to
collect and update the information in the system. The commenter even
acknowledged that there is a reasonable likelihood a contractor offering
a commercial item or COTS item may already be covered by the reporting
requirement by virtue of past awards for other than commercial items and
COTS. … The required determinations have been made and, consistent
with these determinations, the final rule has been promulgated to cover
acquisitions of commercial items and COTS.
- The
Councils have incorporated the business rules that impact the
contractor into a new clause addressing updates of information regarding
responsibility matters: (1) The Contractor will receive notification
when the Government posts new information to the Contractor's record.
(2) Only Government personnel and authorized users conducting business
on behalf of the Government can view system information, with the
exception that a Contractor can view its own information. Public
requests for information will be handled under the Freedom of
Information Act procedures including, where appropriate, procedures
promulgated under E.O. 12600. (3) The Contractor will have an
opportunity to post comments regarding information that has been posted
by the Government. The contractor comments will be
retained as long as the associated information is retained, i.e., for a
total period of six years. Contractor comments will remain a part of
the record unless the Contractor revises them.
- The Councils acknowledge the concern regarding standardization
of the collection of all past performance data in general. As mentioned
above, the Federal Government is making strides to improve the
collection of past performance information required by FAR subpart
42.15. This includes the memorandum issued by the Office of Federal
Procurement Policy (OFPP) on July 29, 2009, which required the
submission of report cards to the Past Performance Information Retrieval
System (PPIRS). PPIRS has a standard format for report card
information, and provides that information to all authorized Government
users for use in source selection decisions. We are working to improve
compliance with the requirement to submit data to this system and to
improve the quality of the data submitted. As these efforts proceed, the
accuracy of the data should improve.
There you
have it. FAPIIS is now in play and contractors will have to deal with
it.
TANKER UPDATE: Be Careful What You Wish For!
We have posted numerous articles on the sad soap-opera saga of
the US Air Force’s attempt to contract for its next generation aerial
tanker. Our latest article, discussing the current Request for
Proposals (RFP) and its Section M evaluation criteria, can be found here. In that same article, we concurred with the Northrop
Grumman (NOC) analysis (insofar as we understood it from published
accounts) that the EADS/NOC team essentially had zero chance of winning
its competition with Boeing, that the evaluation scheme was, in essence,
a “lowest-price, technically acceptable” (LPTA) instead of a true
“best-value trade-off”. A best-value trade-off would have permitted the
evaluators to trade a higher price for more military capability.
Instead, the RFP called for the offerors to be evaluated against pass/fail “Mission Capabilities” subfactors (including such areas as
Program Management and Past Performance). If each offeror passed the
Mission Capabilities subfactors, then the lowest price won. Period.
(Sure
there were 93 “non-mandatory technical requirements” that might have
helped the EADS/NOC team, but those factors would not be evaluated
unless the offerors’ prices
were within one percent of each other. In such circumstances, the 93
other factors would be used as a tie-breaker. The
chances of the offerors’
prices being within one percent of each other, given that Boeing was
proposing a significantly lighter plane?
Effectively zero.)
So NOC walked, and it
looked like a good decision to us. But that left EADS with no US
partner and, apparently, no chance of bidding. Boeing to win be default. But hold on a second.
First, reports emerged that the Air Force
was considering a delay in the RFP deadline, in order to give EADS a
chance to find another partner and to submit a bid without Northrop
Grumman. Next, according to this report, the Pentagon “indicated it would welcome” a bid from EADS. The Financial Times article noted that EADS might need more
time than the Defense Department would offer, reporting—
EADS executives were due yesterday to meet Pentagon officials
to discuss the terms of any bid extension. ‘It has got to be more than
just another 30 days," said a person close to the situation.
One
report stated that EADS was asking for a 90-day extension to the
deadline, in order to line up a new partner.
Now it gets weird.
We have been pessimistic about this competition for months. We thought
nothing could surprise us. But never would we have predicted this
bizarre turn of events. Never.
According
to this Wall Street Journal article, a Russian aircraft firm (United Aircraft) is planning to bid
on the contract, offering its Ilyushin-96 widebody jetliner, which would be called the Il-98. According to the
article—
The planes would be largely built in Russia, and
assembled in the U.S., this person says. United
Aircraft will partner with a ‘small U.S. defense
contractor,’ which will be
renamed United Aircraft Corp. America Inc., this person said, declining
to name that contractor.
According to this article on Wikipedia, each Il-96 has a unit cost of $40 to $50 million. Figure a 50% increase to meet military specs and you’re
looking at an offer of roughly $75 million per plane. Boeing’s KC-767
reportedly will have a unit cost of $130 to $150
million. Think about that for a moment.
Assuming Russia can
pass the Mission Capabilities subfactors, there is no way Boeing can come in with the low bid. The US
Air Force seems to have shot itself in the proverbial foot with its
flawed evaluation methodology.
We have written before about Russia’s recent defense activity, both on the import
and export side. It would be bitingly ironic if Russia ended up as the
Air Force’s tanker contractor, because it wanted to skew award to the
low bidder and damn the consequences. Well this is one possible
consequence that we hope does not come to pass.
Be
careful what you wish for, DOD. Because you may not like what you get.
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