On Monday I wrote an issue brief arguing that the defense department can no longer afford to sustain second sources for military systems. I used General Electric’s alternate engine for the F-35 joint strike fighter as an example, and warned that rather than producing benefits, sustaining a second engine source would weaken the primary source while “leading to collusive pricing when both sides realize they are guaranteed some portion of the market for their product.” General Electric executive Jeffrey DeMarrais responded thusly:
# # # # #
The fear of fair competition in Mr. Thompson’s comments is palpable.
The U.S. Government, Armed Forces and the American taxpayer are entitled to the best product at the best price. History clearly shows that a fair competition will yield both benefits; today, GE’s engine powers every combat F-16 in the active U.S. Air Force, thanks to Congressional insistence on adding competition to improve the program.
The opportunity for cost savings through competition on the Joint Strike Fighter is outstanding, as cited by the Government Accountability Office and many other procurement experts. This is exactly why Congress has supported the development of two engines for the Joint Strike Fighter for 15 years.
As to Mr. Thompson’s comments regarding collusive pricing, we find this highly offensive and believe that he owes us an apology.
# # # # #
Mr. DeMarrais is right about my misuse of the word “collusive.” What I meant was that sustaining two suppliers might not produce price discipline once the competitors realized they were assured of getting at least some of the engine business. But I didn’t mean they would actively collude to set prices, so I apologize for my wording.
Find Archived Articles: