Why compete? Defense Department can split tanker buy, and still save money.

• Author: Gansler, Jacques S.
• Position: Viewpoint

The benefits of competition are well established: innovation, efficiency, effectiveness, quality and performance. Although competition is frequently implemented in Defense Department programs, its practice is not being maximized.

One program that should consider the benefits of competition is the Air Force KC-X tanker. In this instance, there are two in-production commercial aircraft--made by Boeing and Airbus--with existing worldwide support. Yet the option of competitive dual-sourcing for production of tankers has been overruled with the hope that "this time will be different" and sole-source suppliers will achieve the desired performance and costs. The argument is that two, sole-source, "split buy" awards would not achieve the incentives of competition.

Competition during production is not a common practice, based on the mistaken belief that it will increase costs. In practice, competition during production routinely results in higher performance at lower costs, with steeper learning curves achieved by both suppliers. Numerous historical studies have demonstrated the benefits of including competition during production, with net cost savings that range from 12 percent to 52 percent.

Even in cases when competition is introduced later in production, the results have shown that the second source actually achieves a steeper learning curve--with improvements ranging from 2 to 9 percent. Furthermore, as the two firms progress down the learning curve in a competitive environment, the addition of the second source challenges the first producer's learning curve--ultimately contributing to far greater cost savings.

There are several high profile examples that demonstrate the dramatic improvements that are possible with production competition.

The so-called "Great Engine War" to supply the F-16 and F-15 aircraft demonstrated that the introduction of a second production source cut the pre-competition shop-visit rate, per 1,000 engine flight hours, in half. The scheduled-depot-return-rate went from every 900 cycles to every 4,000 cycles, all while reducing the warranty costs from an initial bid of $53 million for warranty coverage, on roughly $130 million worth of engines, to a mere 5 percent premium. All this resulted in a dramatic improvement in engine reliability, higher performance and lower unit costs from both suppliers.

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Another example is the production of Tomahawk missiles. The introduction of a...