Not Our Problem

Boeing’s decision to aggressively price its KC-46A tanker proposal—to the extent that the company expects to lose money in developing the aircraft for the Air Force—is not disconcerting to the Defense Department, said Pentagon acquisition executive Ash Carter. “It’s not our problem because it’s a fixed-price contract and it was written with the protections for the taxpayer,” stated Carter last week during a Brookings Institution-sponsored symposium on the defense budget in Washington, D.C. Boeing is under a $4.9 billion fixed-price incentive firm contract to develop the KC-46A tanker and deliver the first airplanes by 2017. The company is liable for all costs above the $4.9 billion ceiling. Carter said the fixed-price contract mechanism means that the Pentagon is not left “open-endedly liable” if the costs do exceed the ceiling. Thus, Boeing’s strategy of losing money in development “in the hopes of making money in the production phase” is “not a problem from the department’s point of view.” Carter gave the keynote address during the July 15 event. (Carter transcript) (Webpage of event, including link to Carter audio)