Image by Daves Portfolio via FlickrThere was quite a furor over the bidding for building new refueling tankers for the Air Force. It took ten years to award the contract. Boeing won the contract on the third iteration of the process. The Air Force thought it would cost $4.9 billion to build 18 of these planes. Boeing thought otherwise and bid $3.6 billion. How could they bid almost 25% less than the Air Force's estimate? Well, the name of the game with some defense contracts for new items is that the Air Force will share in any cost overruns, sometimes up to a certain limit. So, now only five months after the contract was awarded, Boeing is talking about an overrun from their $3.6 billion number. This overrun will cost us $300,000,000. Was Boeing's bid based on the cost sharing factor?
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