McCain: DOD shouldn't pay $1 billion for Air Force tanker contract cost overrun

Senate Armed Services Committee ranking member John McCain (R-Ariz.) wants Pentagon acquisition chief Ashton Carter to explain why the government might pay most of a $1 billion cost overrun for an Air Force tanker.

“Given the fiscal constraints facing the country, I would absolutely expect that taxpayers and Congress will not tolerate a $1 billion overrun on a contract to develop four airplanes,” McCain wrote in a letter to Carter.

Boeing won the $35 billion, 179-plane contract earlier this year, beating out rival Airbus in a bitter competition that went on for a decade. Boeing officials have said their bid was aggressive, with Pentagon officials making it clear the Chicago-based firm’s bid was much lower than that of its European rival.

“I can also assure you that Congress and taxpayers will find a $600 million subsidy of a low-ball bid by Boeing is something they feel they should not have to pay for,” McCain told Carter in the letter. “In the current era of fiscal austerity, we need to assure taxpayers that their interests are protected and that every scarce Defense dollar is being used wisely.”

Reuters reported this week that the revised cost estimate for the first four KC-45 aerial tankers was $4.9 billion. That is $1 billion higher than the previous estimate as stated when the contract was awarded to Boeing earlier this year.

Boeing is prepared to pay $300 million of that overrun, McCain’s letter stated. But the Pentagon, under the current arrangement, would pay the remaining amount.

“To me, that is gravely wrong,” McCain wrote, “and creates an incentive, particularly on very large programs, for contractors to low-ball a contract bid knowing that the taxpayer will subsidize at least some of the overruns that will be needed to actually complete the work. This is not truth in contracting, and, if true, would be an outrage to the taxpayer.”

The senator said he wants some answers from Carter.

Specifically, McCain wrote that he wants to know how the taxpayers’ interests are served by allowing Boeing to breach, by $1 billion, what was billed by Defense Department officials as a low-to-moderate-risk contract “before [Boeing] is required to bear 100 percent of any cost overrun.” He also asked Carter: “How [does] the taxpayers’ subsidizing 60 percent of that $1 billion overrun [promote] desired performance from Boeing … to control its costs?”

A Pentagon spokeswoman did not respond to an inquiry seeking comment.

The letter is dated Friday but was released Thursday by McCain’s office.