In November 2001, the Air Force had drafted a document detailing what capabilities the new tankers needed. Colonel Mark Donohue, an official in the air mobility office, promptly sent it to Boeing for private comment, and the company sought and received concessions so the requirements matched what the 767 could do. Most importantly and extraordinarily, the Air Force agreed to drop a demand that the new tankers match or exceed the capabilities of the old ones.
And:
In her plea agreement Druyun admitted that, in addition to the tanker case, she had awarded $100m to Boeing as part of a NATO contract in 2002. She admitted that the payment could have been lower, but favoured Boeing because her daughter and son-in-law worked there and she was considering working there as well. She also oversaw a $4bn award to Boeing to modernize the avionics on C-130J aircraft in 2001. In this instance, she favoured Boeing over four competitors because the company had just employed her son-in-law. And she agreed topay $412m to the company as settlement over a dispute in a C-17 aircraft contract in 2000, at the time when her son-in-law was seeking the job.
And:
In September 2009, the bidding process was restarted once again, this time for 179 aircraft for $35bn over forty years. On this occasion Northrop withdrew in protest, claiming that the set-up of the competition favoured Boeing. Despite Northrop’s departure, EADS continued with the contest. Both sides accused the other of benefiting from illegal subsidies. The World Trade Organization (WTO) first ruled that Airbus had received illegal financial aid and then released an interim ruling that Boeing had also received illegal subsidies, though at a lower level than those received by Airbus.
And:
The Air Force’s intention at this point was to buy 339 planes for a projected cost of over $62bn – up from an initial proposal to buy 750 planes for $25bn. That’s less than half as many planes for more than double the price. This absurd situation arose because initially Lockheed Martin put in a low bid, knowing that the planes would cost far more than their initial estimate. This practice of ‘buying in’ allows a company to get the contract first and then jack up the price later. Then the Air Force engaged in ‘gold plating’ – setting new and ever more difficult performance requirements once the plane is already in development. And finally Lockheed Martin messed up aspects of the plane’s production, while still demanding costs for overheads and spare parts from the Pentagon. As Hartung observes, this is a time-tested approach that virtually guarantees massive cost overruns.
From inside the Pentagon, Chuck Spinney described the process as follows:
“When you start a programme the prime management objective is to make it hard to cancel. The way to think about this is in terms of managing risk: you have performance risk and the bearers of the performance risk are the soldiers who are going to fight with the weapon. You have an economic risk, the bearers of which are the people paying for it, the tax payers. And then you have programmatic risk, that’s the risk that a programme would be cancelled for whatever reasons. Whether you are a private corporation or a public operation you always have those three risks. Now if you look at who bears the programmatic risks it’s the people who are associated with and benefit from the promotion and continuance of that programme. That would include the military and civilians whose careers are attached to its success, and the congressman whose district it may be made in, and of course the companies that make it. If you look at traditional engineering, you start by designing and testing prototypes. To reduce performance risk you test it and redesign it and test it, redesign it. In this way you evolve the most workable design, which in some circumstances may be very different from your original conception. This process also reduces the economic risk because you work bugs out of it beforehand and figure out how to make it efficiently. But the process increases the programmatic risk, or the likelihood of it being cancelled because it doesn’t work properly or is too expensive.
“But the name of the game in the Pentagon is to keep the money flowing to the programme’s constituents. So we bypass the classical prototyping phase and rush a new programme into engineering development before its implications are understood. The subcontractors and jobs are spread all over the country as early as possible to build the programme’s political safety net. But this madness increases performance and economic risk because you’re locking into a design before you understand the future consequences of your decision. It’s insane. If you are spending your own money you would never do it this way but we are spending other people’s money and because we won’t be the ones to use the weapon – so we are risking other people’s blood. So protecting the programme and the money flow takes priority over reducing risk. That’s why we don’t do prototyping and why we lie about costs and why soldiers in the field end up with weapons that do not perform as promised.
“In the US government money is power. The way you preserve that power is to eliminate decision points that might threaten the flow of money. So with the F-22 we should have built a combat capable prototype. But the Cold War was ending, and the Air Force wanted that cow out of the barn door before the door closed.”
More (#5) from The Shadow World:
And:
And:
And: