Boeing projected to face $300 million overrun on tanker contract
Boeing is projected to exceed its cost ceiling by as much as $300 million — about 6 percent — on the initial contract to develop and build Air Force aerial-refueling tankers, according to government officials
Boeing is projected to exceed its cost ceiling by as much as $300 million — about 6 percent — on the initial contract to develop and build Air Force aerial-refueling tankers, according to government officials. The jet maker will have to absorb the extra costs.
Air Force officials this month briefed congressional defense committees and Pentagon officials on the projected increase on what's now a $4.9 billion engineering, manufacturing and development contract that includes four tanker aircraft.
The contract calls for 14 more tankers to be delivered by 2017.
The $300 million projection was obtained by Bloomberg News from government officials who spoke on condition of anonymity because they weren't authorized to comment publicly.
After the contract was awarded, Boeing revealed "that it proposed a ceiling price that is less than its actual projected cost to execute the contract," according to an Air Force statement from spokesman Lt. Col. Jack Miller. "There is no legal barrier that prohibits pursuing a below-cost proposal strategy, and Boeing's met all rules."
"Boeing is responsible for all costs over the $4.9 billion ceiling price," according to the Air Force statement.
Boeing spokesman Bill Barksdale confirmed the company projects it will exceed the $4.9 billion ceiling and is prepared to absorb the extra costs.
"We are not there yet. It's a projection," he said in a telephone interview. Barksdale declined to comment on the $300 million figure or outline when the company concluded it would exceed the ceiling.
Boeing in February beat out European Aeronautic, Defence & Space (EADS), ending an almost 10-year process for deciding who would build the new tankers. In March, EADS North America Chairman Ralph Crosby said, "What determined the outcome here was price," and he called Boeing's offer "an extremely lowball offer."
Barksdale said Boeing offered "an aggressive and responsible bid" that came with a risk the company might exceed the ceiling. "We decided to accept the risk," he said. "This was an intentional step."
"We completely understand our contractual requirement to pay above the ceiling, and we are prepared to do that," Barksdale said. "We are comfortable with how we bid. We had to be competitive."
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