Letter: Fly-off competitions and fairness

Regarding "The Lectern: Split buy for Air Force tanker?":  Using a fly-off competition for the Air Force tanker procurement is certainly worth considering. This procurement, with its high political visibility and high dollar value, appears to be a possible opportunity for a fly-off. But in general, fly-offs have inherent traps that must be factored into the acquisition decision. It’s somewhat counter-intuitive, but successful fly-offs depend on better prepared and more experienced program offices than single contract developments.

Fly-offs are tempting for program offices that are unsure of the requirements they are trying to meet, unsure whether their contractors can meet the requirements and unsure about both development and procurement costs. It may also be easier for a program office to “sell” an acquisition approach to management when the program office can argue that:

(1) it is not “in series” with a single contractor,

(2) it has two chances (instead of one) for a successful outcome, and

(3) that the program office gets to pick the “better” approach.

The obvious drawback of a fly-off is that it doubles the cost of the development contract. A less-obvious drawback is that a fly-off can increase the program office costs (e.g., for government manpower, and support contractors) to service both contracts. Even so, with all development costs factored in, a fly-off can make economic sense if the realistic development costs are only a fraction of the realistic procurement and support costs. (The tanker procurement probably qualifies.)

The hidden traps for a competitive fly-off result from two fundamental aspects of this approach. First, the program office is contracting for two fundamentally different things when it chooses between a single development contract and a competitive fly-off. In the former case the program office is selecting the most qualified vendor to “team” (right now) with the program office to develop the desired capability. It recognizes that any combination of performance, cost, and schedule may change as necessary and as suits the mutual interests of the program office and the contractor. But in a fly-off the program office is selecting at least two vendors to deliver a testable product (some years hence) that meets the requirements defined today. Second, the program office has to provide a transparently fair competition in two very different scenarios. In the former case (single contractor) the program office has only to run a fair selection. In the second case the program office must also maintain a scrupulously fair relationship with multiple contractors until the fly-off selection occurs.

In the single contractor development, risk is expected. Requirements may (and should) change, as operational, technical and cost issues become better understood. A cost-plus contract may be entirely appropriate. Technical and support people working for the program office can be used to resolve issues, analyze tradeoffs, and share their expertise. Requirements definition can be a collaborative team effort to deliver best value. Both contractor and program office people learn from each other.

 In the competitive fly-off, however, the contracts have been awarded on the basis of the selected contractors meeting the same, specified requirements. That means the requirements are virtually locked down when the competitive awards are made, that the contract should probably be fixed price and that both contractors have probably inflated their development costs to cover their risks in producing a qualified product for the fly-off.

It also means that the program office must be prepared during the initial source selection (i.e., years before the fly-off itself) to specify exactly how it will conduct the fly-off and select the winner. (How else could the contractors plan and bid a competitive effort?) (In the tanker procurement AF costs will be greatly influenced by logistics costs. How will the program office use a fly-off to assess and weight those logistics costs?) The program office that had hoped to lower its risk by using multiple contractors may be trapped by the need to rigorously define its requirements, rigorously define its fly-off criteria, and lock them both down for the duration of the competition!

In a single contractor development the program office has great flexibility to build a success-oriented team with his contractor. It shares the risks and consequences of its management decisions with the contractor, but with a fair selection of that contractor the program office does not need to live in fear of a protest. A program office running a competitive fly-off can make no decision without testing its fairness.

There can be no hint that the program office has a “favorite” or that the program office is “cross-fertilizing” information from one contractor to the other. To preclude any such perceptions the program office is often forced to maintain two completely separate teams to service the two contracts and may be forced to prohibit any flow of useful information from the program office to the contractors. The contractors are essentially quarantined from program office help in the name of competitive fairness.

Virtually no program office decision that affects cost, schedule, or performance can be made without risking competitive bias because two separate contractors using different technical and management approaches will be affected differently by any such decisions. The program office is trapped in a contract environment where every decision risks a protest by the adversely affected contractor. This is, in fact, a trap because the program office has already made a significant investment in both contractors. It can’t conduct its fly-off (and justify its larger development costs) unless both contractors qualify for the fly-off. But problems happen: one contractor needs more time to finish, one contractor fails a qualification test, budget realities change production quantities -- adversely affecting one contractor’s costs more than the other. The program office may be trapped into making decisions necessary to preserve the fly-off, but that now tie the program office to the cost, schedule and performance of the contractor with the worst problems!

The irony is that competitive fly-offs can be “sold” as a way to deal with programmatic risks, but the inherent traps can magnify risks instead. The tanker procurement might be an exception, but it really needs a realistic assessment.

Tim McChesney

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