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The U.S. Air Force is preparing to award an $85 billion program to develop and produce the nation’s next-generation intercontinental ballistic missile (ICBM). Apparently there will not be a competition, nor will there be a firm ceiling on how much money the contractor can spend to develop the missile. It will be a “cost-plus” contract.
This is not the kind of buying strategy you would expect from a military service that says it favors competition to discipline price and performance. The main reason federal agencies are typically allowed to make “sole-source” awards is because only one qualified offeror exists.
That is not the case here. There are, or were, two highly qualified offerors. But one of them, Boeing, says the competition to develop a new ICBM is so severely skewed in favor of its rival, Northrop Grumman, that there is no point in bidding.
We know Boeing (a contributor to my think tank) and Northrop Grumman are both highly qualified, because they have worked together to sustain the nation’s existing Minuteman ICBM fleet for over half a century. Technical qualifications and experience have nothing to do with why Boeing is not bidding on a program it should have had a good chance of winning.
What went wrong for Boeing was the process. A series of inept moves by the federal government diminished the world’s biggest aerospace company to the status of a sure loser, while conferring upon Northrop Grumman the prospective status of monopoly provider for not just one, but both parts of the strategic nuclear deterrent operated by the Air Force.
I won’t discuss the bomber program, where Northrop bid far, far below what experts predicted it would cost to develop a long-range strike aircraft. In the case of the ICBM, it tried a different tack. It bought the only domestic company building the large solid-fuel rocket motors to be used on each of the three stages of the new ICBM.
The acquired company was called Orbital, and its merger with Northrop Grumman was disclosed only one month after the Air Force awarded preliminary risk-reduction contracts for the ICBM to Boeing and Northrop in 2017. The transaction was a total surprise to everybody outside the two companies, and not part of the Air Force’s original plan for how the ICBM competition would be run.
The plan had been to give Boeing and Northrop Grumman 36 months to develop rival designs, during which time each company would decide how to secure motors for its missile. But when Orbital was bought by Northrop, the whole competitive landscape changed. Boeing figured it had to buy motors from Orbital to minimize the cost and risks of its proposal, but that meant buying from a company that now belonged to the other team.
So how did Northrop Grumman manage to get federal approval for such a transaction? Basically, by promising regulators that it would firewall Orbital for the purposes of the ICBM competition and let it operate as a merchant (neutral) supplier. The Federal Trade Commission (FTC) issued a consent order requiring that step as a condition for approving the transaction. Otherwise, competition for ballistic missiles and space boosters would be threatened.
But it takes a long time to consummate a merger, and meanwhile the ICBM program was chugging along. When Northrop Grumman’s ownership of Orbital was finally confirmed, the company then took much longer (about eight months) to let Boeing see how the former Orbital unit was designing rocket motors for the ICBM. So Boeing was in the dark about how its design should interface with the motors, among other details.
Even if it hadn’t been in the dark, there were pricing advantages that Northrop Grumman achieved by purchasing Orbital that should have been mitigated by the FTC’s consent decree. But the agency did little to enforce its consent order, even after Boeing began complaining that the merger had put it at a decided disadvantage in the ICBM competition. It started complaining in April of 2018, but didn’t get a hearing with the FTC until nearly a year later.
By that time, Boeing was so far behind where it had planned to be in the competition that it began warning its Air Force customer it might not be able to bid at all. What it wanted was for the government to enforce the conditions demanded when Orbital was acquired, and to get back the eight months it had lost waiting for an information-sharing agreement to be put in place.
We now know that the FTC has launched an investigation into whether Northrop complied with its consent order, but that came quite late in the process. Meanwhile, the Air Force balked at giving Boeing the time it needed to get back in the game. It claimed that moving forward with the ICBM program was too urgent to wait eight months (bear in mind it has been delaying development of a Minuteman replacement for decades).
In July of this year, the head of Boeing’s defense unit sent a letter to the Air Force stating that the “current acquisition approach does not provide a level playing field for fair competition.” She therefore said that Boeing would not be bidding, which is how Northrop Grumman ended up being the only qualified offeror.
The Air Force recently took away the unexpended money Boeing was awarded in 2017 to develop its ICBM design, and appears intent on conducting a sole-source negotiation with Northrop Grumman. Boeing, repository of much of the nation’s ICBM technical expertise, looks likely to be shut out of the next-generation program.
Boeing isn’t well positioned at the moment to elicit sympathy, and few people are rushing to its defense. But is this the way Washington wants to go about buying a nuclear deterrent vital to the survival of the republic? Is the Air Force really going to award one of the most important contracts in its history because of a corporate merger rather than a competitive outcome based on merit?
So it seems. For all the Air Force’s talk about competition, it is in the process of creating a monopoly that will be the only viable source of large solid rocket motors in the future. No doubt about it, Northrop Grumman made a smart corporate move when it bought Orbital. But what does that have to do with buying the best replacement for America’s land-based nuclear deterrent?