DoD Background Briefing with Senior Defense Officials at the DoD Briefing Room, The Pentagon, Arlington, Va.

MODERATOR: Ladies and gentlemen, thank you for joining us this morning for this background session. As you know, we did a comprehensive briefing on the record yesterday. But that was before the draft proposal was on the street. Now that it is, we thought some of you that cover this, in a little bit greater detail perhaps, might have some questions about the draft RFP.

We are streaming this. And there will be a transcript. So for purposes of the transcript and because we're on background here, the gentleman in the middle there is our senior Defense official one. And on his left, senior Defense official two. And of course, our military official is here on the right of our principals.

So please refer to them appropriately. And when using any of their comments in your stories, on background, they should be attributed as either a senior Defense official or a senior military official. Do we have any questions on mechanics, administrative stuff?

If not, I'm not -- I'm not certain that you have a lot of introduction here. But you were going to kind of get into some of their questions.

SR. DEFENSE OFFICIAL: You have in front of you yesterday a pretty exhaustive depiction of the draft RFP and the process. It's probably more readable than the draft RFP itself. But you've now had the opportunity to read the draft RFP. And so we're here to clarify anything that all of that information already available to you might not have completely clarified.

Q Colin Clark with DOD Buzz.

Could you offer us a detailed and simple explanation of the fixed-price approach to this?

SR. DEFENSE OFFICIAL: Yes, and I'm going to refer you to chart 12 in the briefing yesterday, which explains what the contractors will be -- the offerors will be asked to propose. And there are basically four parts to it.

The first is for the engineering and manufacturing development phase. And that's a fixed-price incentive structure, if you're familiar with that in contracting matter, and we can go into that at any level of detail that you want. Then for the lots one through five of a total buy of 13 lots, a firm fixed price will be asked; and lots six through 13, a not-to-exceed -- in other words, an upper limit; and then finally, initial contractor support for a five-year period at a firm fixed price. Those are the four ingredients.

The important point about that approach is the fixed-price nature. That's different from last time. It is in accordance with the department's -- one of the thrusts of the department's acquisition reforms, which is to use fixed price more, including in the development phase, when it's appropriate to do so.

And one of the criteria one uses to determine whether it's appropriate or not is whether the product we're asking for is well enough defined that the offeror can reasonably be asked to name a price. If you're building something that's never been built before, or nothing like it has ever been built before, then you're feeling your way along. Then it's reasonable to have a cost-plus contract structure, because it's not reasonable for the contractor to know what it's going to cost, because it's never been done before. Here, you're talking about aircraft that are derivatives of commercial aircraft made in great numbers of a kind that have been operated for decades. So as the briefing indicated yesterday, this isn't the Manhattan Project.

Q Sir, Boeing said this morning that it was studying whether to offer it's 767 modified, or a 777 modified, or both. I wonder what you think about the possibility of having two offers -- two aircraft proposed by anyone offering.

SR. DEFENSE OFFICIAL: Well, it's not up to us to decide what the offerors offer. That's up to them. They now have very clearly depicted what we're looking for and how we're going to pick a winner, so they will need to make their own decision about whether they want to offer -- what airplane they want to offer, and whether they want to offer more than one airplane.

Q Could you -- are there any circumstances under which you can imagine that the department -- the Air Force might choose to go with two aircraft as a purchase -- acquisition strategy here?

SR. DEFENSE OFFICIAL: We have looked many times at the economics of having two sources for this aircraft. And whichever way you look at it, it's more expensive -- much more expensive -- for the department to have two aircraft instead of one. You have to pay for the development of two aircraft. You then have to have two sustainment chains, maintenance and so forth, for the lifetime of this aircraft. So it's not economical for the department to buy two types of aircraft, when it can buy one type of aircraft.

Q I have a couple of questions, one on accountability. On page 9, you talk about if it turns out later that they can't meet those parameters, the contract price will be adjusted accordingly. What does that mean in layman's language?

SR. DEFENSE OFFICIAL: I'll tell you what it means in layman's language, and then I'm going to ask the other civilian official here to go into any level of detail you -- you want to.

But when the offeror makes a proposal, they'll give us a depiction of the aircraft, and they'll say it has a certain -- it burns fuel at a certain rate, for example. Now, then the question is -- from our point of view is, can we believe that or not? We want to make sure that they are accurate, conservatively accurate, when they depict what their aircraft can do.

And a way of enforcing that is to write into the contract that if it turns out that you have not -- your aircraft does not perform as you describe, there will be a penalty for that.

And now let me ask my colleague here to elaborate.

SR. DEFENSE OFFICIAL: What the RFP -- or what we will require is that on every production buy we will measure fuel usage. And if the fuel usage is in line with what the offeror described to us we could expect over the life of this program, then everything will be fine. If it's not, then he'll have one of two choices: to make the necessary corrections to the aircraft, at no cost to the taxpayer, in order to get the fuel usage that he proposed; or we will adjust the price downward, to be equivalent of the value of the fuel, the extra fuel that we're now going to have to use as a result of not meeting the fuel usage that was proposed.

Q You drop the price per plane -- per-plane price?

SR. DEFENSE OFFICIAL: We will drop the contract price, the overall contract price of that particular contract. We may be buying 12; we may be buying 15; we may be buying whatever.

Q Can I just follow up on a different sort of -- past performance, it wasn't in these charts. I haven't read through the RFP yet, but can you walk through, again in layman's language, how past performance will be a factor? Will each company have to select several programs and then the Air Force select several programs? And how will those be weighed in?

SR. DEFENSE OFFICIAL: Yes, we will assess past performance. It is, at the upper level of that chart there, a test that he offerors must pass.

For details, you can -- do you have anything else you want to say?

SR. DEFENSE OFFICIAL: Yeah. Right. Typically, what does happen and what will happen on this RFP is that the contractors will submit what they believe are relevant contracts that describe their past performance. We -- in this case, the Air Force will select those contracts that it believes are relevant, and then we will measure past performance in terms of acceptability or nonacceptability. So he either has sufficient past performance to demonstrate to us that he can execute the work, or he does not.

Q And this is the last -- the past performance, could that be a deal-breaker? If there was a track record of poor performance on programs, but their price was attractive, could that potentially be a deal-breaker, or is it too early to say?

SR. DEFENSE OFFICIAL: If we found that past performance was unacceptable, then, yeah, the contract would be nonawardable.

SR. DEFENSE OFFICIAL: But it's a "Yes" or "No."

SR. DEFENSE OFFICIAL: Yeah, you have to have acceptable or nonacceptable past performance.

SR. DEFENSE OFFICIAL: Past performance is acceptable or not acceptable. It's not something that is traded off.

Q Oh, it's not? Okay.

SR. DEFENSE OFFICIAL: No. It is -- in the very top there, it is one of the requirements. And they will be judged acceptable or not acceptable.

Q To the military official, do you have any insight as to how the Air Force will play into this?

SR. DEFENSE OFFICIAL: Well, exactly as they have said. We will look at those contracts that are provided and determine whether or not those are representative of the types of contracts that we would look at in this type of past performance review.

SR. DEFENSE OFFICIAL: And if I could just add, we will also examine other contracts that we believe are relevant, if they're not provided by the contractor.

Q You mean like non-aircraft types of --

SR. DEFENSE OFFICIAL: There could be -- there could be several different types of relevant experience in doing this kind of work.

Q Sir, on the -- the evaluation, as this draft goes out and when you get the feedback, and the feedback comes from Congress and Congress says by law --

Q Exactly.

Q -- we want WTO [World Trade Organization] factored into this, do you factor in the WTO? Does that -- I mean, on that tree we saw yesterday, is that something you look at the top? Is that something you consider along with the MILCONs? Does that become a type of --

SR. DEFENSE OFFICIAL: I don't have anything more to add on the subject of WTO than what the deputy said yesterday.

Q Okay.

SR. DEFENSE OFFICIAL: He was very clear, and he repeated himself several times.

Q Let me ask a question maybe you can answer.

I know you're not taking into consideration long-term maintenance costs on this aircraft. I was wondering if any of you could explain what the logic of that -- I know with like the CSAR-X contract, that was a major issue. In fact it was, you know -- (off mike) -- reasons it was overturned.

SR. DEFENSE OFFICIAL: It depends on the situation. And in this situation, that will not differentiate between the two offerers. It is a real activity that the government will pay real money for. But that money we expect to be the same between the two aircraft. So it is not a differentiator. Therefore it doesn't show up on the chart, which explains how we're going to differentiate the two offerers.

Do you want to add something to that?

SR. DEFENSE OFFICIAL: Yeah.

I mean, the depot maintenance cycle will be exactly the same with either aircraft. You know, we will -- this is an organically maintained plane. The United States Air Force will maintain these planes. And they will be -- both planes, irrespective of which plane we select, will go on the same maintenance cycle.

Q Will this be something that's carried on, to future projects, whether it be, you know, a fighter, helicopter?

SR. DEFENSE OFFICIAL: No. It depends on the circumstance. It's just in this particular circumstance, it's not a differentiator.

Q Thank you, sir. Jason Simpson, Inside the Air Force.

The last round of this competition was touted as a model of transparency, to avoid competitor protests. Just wondering, in this latest round, what failsafe, if you will -- more routine correspondence with the competitors or so forth -- are put in place to avoid the same pitfalls from the last round, in terms of protests?

SR. DEFENSE OFFICIAL: Well, this RFP differs in several important respects from the previous one. But one important respect in which it differs is the clarity with which it describes the method by which the winner will be picked. And that has two consequences, both beneficial to the department.

The first is that the offerers will know, which they did not know and said they did not know exactly last time, which factors would be more important and how they would be weighted in the final evaluation. As you saw from the briefing yesterday, we're being crystal clear this time.

The other advantage is that, come next summer, when our winner's picked, you'll all know and be able to see exactly why one plane won and one plane lost.

Q And will there be a -- kind of interim reviews, more so than in the past, prior to this summer, to let the competitors know where they stand?

SR. DEFENSE OFFICIAL: Well, the -- there's -- the -- let me say a little -- something more general about the process now by which we expect to get from the offerors, we expect to get from members of Congress various comments on the RFP questions of clarification, even suggestions of how we might do things differently. That's normal in a draft RFP process, and we will, you know, look at them and take them into account and see if our approach can be improved in some way that we think improves it.

That's going to be an open and transparent process. People will be asked to make their comments, to do so in writing. Everybody will get to see everybody else's comments. They will be evaluated. And this will all be done by the Air Force, which is the source-selection authority, but overseen by the Office of the Secretary of Defense. And that'll result in a final RFP.

And there's lots of dialogue with industry. I -- you probably know this, but again, I'll let –

SR. DEFENSE OFFICIAL: Yes, sir.

SR. DEFENSE OFFICIAL: -- can you elaborate in just a moment? But yesterday, the CEOs and their teams from the two offerors were briefed by the same people who briefed -- that is, Secretary Lynn, Secretary Donley and Secretary Carter -- who briefed on the Hill, so that they, you know, early on would be able to hear and be in the know and so forth.

So as a courtesy to them and as part of our wish -- and I've -- we've all said this many times -- our desire to have a good and open and partner-like relationship with industry, that started in this case yesterday.

SR. DEFENSE OFFICIAL: The other thing that we're doing -- Secretary Donley yesterday mentioned that there are -- will be a number of independent review teams and that that process has now been fully laid in throughout the department on how we do independent reviews. But in addition to our normal independent review teams, different than the last competition, there will be a(n) independent technical review team.

So every response or every evaluation where there is a question, the question goes to an offeror, an offeror responds with what he thinks is the solution, will be independently reviewed by a(n) independent technical team of experts to ensure that the technical evaluation and the questions coming back and forth from the contractors during the evaluation process are in fact reviewed independently to, again, provide additional substantiation to the department that in fact we have correctly evaluated these offers.

Q One final. How much leeway for IOC is there if there are any more delays or protests in this next round?

SR. DEFENSE OFFICIAL: Well, Secretary Gates has made it pretty clear that he thinks that this delay has gone on long enough, we really do need a tanker, and we just can't afford to have further delay. So we're expecting to award a contract next summer, and we're expecting for everybody to be able to see why we're awarding that contract, exactly why we're awarding that contract.

Q I wanted to follow up on the point regarding the independent review teams and independent technical team that you just mentioned. First, on the review team. Is that going to be the same group that was overseeing the previous iteration of the competition prior to the shift over to OSD, or is it going get a new kind of make-up?

SR. DEFENSE OFFICIAL: Yeah, I'm going to give you a -- I'm going to let my colleague here walk you through each layer -- because you're asking a very particular question now, but I think it's worth everybody knowing exactly who populates each of the lawyers of the source selection process, starting with the source selection authority.

(To colleague.) Will you -- would you do that?

SR. DEFENSE OFFICIAL: The -- yes, sir. The source selection authority, the source selection advisory council -- that is, the senior advisers to the source selection authority -- and the leaders of the source selection evaluation team -- that's the third layer, the folks that actually do the evaluations -- are all --

SR. DEFENSE OFFICIAL: From your Chart 8.

SR. DEFENSE OFFICIAL: -- are all new.

The independent review teams -- the technical independent review team is obviously new, because it was -- wasn't there last time. The independent review team may have one or two people who were on -- from an OSD staff point of view, who participated. But I want to reemphasize that the process that Secretary Donley described, which is much more comprehensive, where the team looks at it before the RFP is issued, during the RFP, right before the decision will be made, is very different than what was done last time around.

And so there will effectively be essentially all-new participants in the independent review team. There might be one or two people, but if that's the case, it'll be unusual.

Q And just for a clarification point, I know it's on Chart 8 -- thank you for pointing that out, sir -- but these new processes, the new layers that you just laid out, do you think that was sort of -- and the military official could chime in as well -- a reaction to the stand-up of the original team during the last iteration? Because it was described as these OSD teams looking over the shoulder of the Air Force as they moved through this --

SR. DEFENSE OFFICIAL: No, I think the independent teams that we are describing are inherent to the way we do business now within the department. Every major source selection will go through the same type of independent review team reviews. We may not have as comprehensive a technical team as we're going to have on this, for a variety of reasons, or in fact we may have a larger team on -- it -- just give-and-take. But the process is -- has been laid into the department. This is the way we do business now.

SR. DEFENSE OFFICIAL: Yeah, and let me make a more general point on that. And one of the reasons why it was so strongly recommended to Secretary Gates by his own staff that source selection -- that the source-selection authority be a(n) Air Force official was because that's the normal way of doing business. And so what you see here is basically just unfolding what is a normal source-selection process. And that's the way it should be.

Q In the briefing yesterday to the CEOs of these two companies, what was the message to them?

SR. DEFENSE OFFICIAL: The -- Secretary Lynn, Secretary Carter and Secretary Donley gave exactly the same briefing from the same charts that they gave three times on Capitol Hill and once in the Pentagon press room.

Q Did -- the team that did the presentation yesterday, did they reinforce the message from Secretary Gates to -- sort of, you know, the point about corporate food fights?

SR. DEFENSE OFFICIAL: Absolutely.

Q What did you hear back from the CEOs?

SR. DEFENSE OFFICIAL: Absolutely. That's a very -- well, these are our colleagues. We work with them on many programs. And we, I think, all understand that we collectively, on their side and on our side, have a responsibility to defend the integrity and decorum of the way in which the taxpayers' money is spent. And I think they understand that perfectly well.

SR. DEFENSE OFFICIAL: May I add something? I can assure you that the meetings were businesslike, professional and with business decorum that we would expect.

Q Yesterday the secretaries were asked how many people were involved in the process on the government side. Did you ever come up with a number for that?

SR. DEFENSE OFFICIAL: I think I can answer that. It'll be approximately -- somewhere between 150 and 200 people will be involved in this evaluation process in total.

Q On the government side alone.

SR. DEFENSE OFFICIAL: That's correct.

Q Including the independent auditors ?

SR. DEFENSE OFFICIAL: That's correct, yeah.

SR. DEFENSE OFFICIAL: Okay, let's see. Who hasn't had a question yet? You haven't. Go.

Q Just to play devil's advocate, just say, for instance, the contracts, they aren't completed by next summer. And obviously the Air Force does need this. Will there be some type of stopgap, retrofitting what you have now? Just because -- I mean, as wonderful as all this sounds, you know, for next summer -- but say it's delayed, for whatever reason, like a year?

SR. DEFENSE OFFICIAL: Well, the obvious answer to that is we're going to have to sustain the KC-135 and KC-10 fleet longer than it is optimal and economical to do so. And that's the whole reason we're trying to recapitalize the fleet and why it will not be a good outcome for the warfighter and the taxpayer if we don't award this contract next summer.

Q Okay. I'm just wondering if it was going to be a substantial investment or --

SR. DEFENSE OFFICIAL: There are already ongoing investments to sustain that fleet today. As you probably know, we are doing avionics modernization. We're taking care of some parts. Components of the aircraft that are no longer manufactured the way they used to be we're having put it new.

But as my colleagues have said to my left, we will be looking down the road at some substantial costs to sustain that fleet over the long period. So we are certainly eager to get on with this acquisition.

Q So you have just -- you've already got that essentially covered, just in case?

SR. DEFENSE OFFICIAL: That is ongoing, because as was noted yesterday, even with the program awarded next summer, the last aircraft could be as old as 80 years old by the time we finish, and so this is not something you sort of take your eye off of.

Q Okay. Thank you.

Q Could you address this question of the size of the aircraft that you're seeking? I didn't have a chance to go through the draft's RFP yet. But I wonder if you can compare and contrast the way you describe what you're seeking this time around with what was specified in the last competition.

SR. DEFENSE OFFICIAL: All right. That's probably a complicated -- (off mike).

SR. DEFENSE OFFICIAL: Yeah. The specifications -- the requirements are fundamentally unchanged.

And we do not specify the size of a particular aircraft. There are a variety of aircrafts that we believe can meet this mission. And what the size of the aircraft is going to be is really up to the contractors in terms of their interpretation of our requirement. But the requirement is fundamentally unchanged.

Q In terms of fuel uptake and cargo-carrying capability, is this also unchanged?

SR. DEFENSE OFFICIAL: Yeah. The threshold requirements are fundamentally unchanged.

SR. DEFENSE OFFICIAL: And those are predicated on the KC-135R. We are replacing the KC-135R.

Q Given that this has not exactly been a normal Pentagon acquisition process over the last five to seven years, you've had a chance to scrub the Air Force side, the OSD side; the 5,000 series has been rewritten before you redid this. Is this now something of a model for how you're going to do business for either the Air Force, OSD or both?

SR. DEFENSE OFFICIAL: I think it has some ingredients that we would be applying elsewhere as we try to improve the acquisition system and our approach to acquisitions. The example I gave you is of the fixed-priced development. That's something that we'd like to do more of, we think we should be doing more of, and is a perfect example. So it does reflect some of our acquisition reform efforts, including those that were included in the legislation introduced by Senators Levin and McCain.

One of the things they wanted us to emphasize was competition, and we're holding a competition. And another thing they wanted us to emphasize was using fixed-price contract vehicles wherever appropriate, including in the development phase. And it is appropriate in this case and we are doing it.

Q For the military official. Can you bound this in terms of the -- what is the proper dollar figure, even if it's a guesstimate, for the program? Do you see this as a $35 billion contract, $35 billion program, $40 billion program? Roughly, in the world of the possible, what's the most accurate figure we can use in these stories?

SR. DEFENSE OFFICIAL: Well, I think as you suggest, there are a lot of variables, and we are going to get some of those answers from the offers that come in. So I think I would simply bound it by saying it's somewhere between 25 (billion dollars) and $50 billion, and we will await the arrival of some proposals from --

SR. DEFENSE OFFICIAL: But we'll take a bid at 20. (Laughter.)

Q This is for both acquisition -- research and acquisition of -- (inaudible).

SR. DEFENSE OFFICIAL: This is -- right.

Q Between 20 and 50 billion.

SR. DEFENSE OFFICIAL: This is for the program.

Q Thank you.

Q I want to ask -- for the military representative or whoever. One capability you're asking for the KC-135 doesn't have right now is a centerline drogue, full time.

SR. DEFENSE OFFICIAL: Yes.

Q In fact, I have never seen a tanker of any sort that has a centerline boom and a centerline drogue. All the tankers I've ever seen that do drogues are, I mean --

SR. DEFENSE OFFICIAL: On the pods. Mm-hmm.

Q How much -- is this a challenge, new technology for these, or the -- (inaudible) -- or is this something that's already out there?

SR. DEFENSE OFFICIAL: No, there are actually examples of that technology out there. So we're not stretching the envelope by any means to do this.

Q I have to point out for the record -- further, to the comments by the senior military official -- that yesterday Secretary Donley was asked about whether the $35 billion figure was still a good construct, and he said yes. And I believe that Dr. Carter at that time said: But we'll take a bid for less.

So Secretary Donley said yesterday that it was a $35 billion -- a projected $35 billion program.

SR. DEFENSE OFFICIAL: I think he was doing the same here. You're asking for a number that we can't possibly give you. So we're trying to give you a sense of ballpark, and his ballpark and Secretary Donley's ballpark are not inconsistent.

SR. DEFENSE OFFICIAL: And the last time I checked, 35's between 25 and 50.

Q Right.

SR. DEFENSE OFFICIAL: And certainly Secretary Carter's been very consistent in saying we'll take a lower number. (Scattered laughter.)

SR. DEFENSE OFFICIAL: And I will tell you that I'm sure that if you go back to the record, to the transcript, I know he qualified that in terms of approximately. He just doesn't know and we don't know. Until we see the offers, there's really no way to tell.

Q But just to follow up, what was the initial contract, perhaps cover, of that global total? If you're buying, say, 15 in the first year, how would it work?

SR. DEFENSE OFFICIAL: Yeah, the contract will be structured in a way that it will be for the entire program. So there will be -- the basic contract will be for the development of the aircraft and then there will be options for production options 1 through 13 in this contract. So all the pricing will be contained within this contract. It will be for the total program, as we know it. There may be some ancillary things that we buy down the road, like extra spares or extra engines, and then things like that. But the fundamental program will be under contract when we make the award, so that what we will do on an annual basis is exercise an option for a given quantity.

Q So it's accurate for the news accounts going forward to say this program could be worth as much as $50 billion?

SR. DEFENSE OFFICIAL: We don't know.

SR. DEFENSE OFFICIAL: You know, I think your best source for that is the offerors themselves.

SR. DEFENSE OFFICIAL: Yeah. Ask them.

SR. DEFENSE OFFICIAL: Ask them how big a program it is for them.

Q The reality is that journalism covering this thing -- the editors and the public would like a sense of scope. And you gave an honest rough order SWAG, between 20 (billion dollars) and 50 billion (dollars). I'd just ask you, as much as 50 billion (dollars) is qualfified, is that an accurate way to quantify this?

SR. DEFENSE OFFICIAL: I think you said it was a SWAG. And I think that's what it is.

SR. DEFENSE OFFICIAL: I think I've given you a ballpark figure. But that's -- as I said, we're eagerly awaiting the proposals.

Q Thank you.

SR. DEFENSE OFFICIAL: And I -- (off mike) -- try to bring this to a close. Maybe just one more if we've got somebody hasn't had an opportunity, or maybe we are done then.

Q One more question for the (position of briefer deleted). Is this a block developement? Are we going to see different versions of this plan? Are you expecting those first plans you get to be essentially the same as the last plans --

SR. DEFENSE OFFICIAL: I think the words yesterday are spot-on, because of the way the warfighter has helped it determine what these requirements are, and that is that if the aircraft is delivered, we'll be able to go to war on day one.

Thank you.

SR. DEFENSE OFFICIAL: All right. Thank you all.

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