Continuing a recent trend amongst major defense companies, Northrop Grumman is only bidding on projects that the company believes will generate the best financial returns on its investments.

That means that Northrop is refusing to put forward bids on programs such as the Air Force’s new GPS satellites or T-X advanced jet trainer or the U.S. Navy’s MQ-25 Stingray unmanned aerial refueling tanker. The company even ruled out bidding on certain programs where it is the incumbent, such as a new replacement electro-optical distributed aperture system (DAS)—the contract for which ended up going to Raytheon.

“We continue, however, to be very disciplined about the opportunities we select to bid,” Kathy Warden, Northrop Grumman president and chief operating officer told investors. “For example, we recently elected to not pursue two bids, GPS satellites and the next generation of F-35 DAS, as we determined that they were not attractive for us. We believe that applying strict assessment criteria in selecting our business pursuits is critical to long-term sustained performance.”

As Northrop Grumman chairman and chief executive officer Wes Bush explained, the company has decided to bid on projects by weighing the opportunity cost of trying to secure a particular program. “Just broadly the GPS decision had absolutely nothing to do with anything else going on in the space portfolio other than a relative comparison of the attractiveness of the different opportunities that we're pursuing there. And a look at – where it makes the most sense for us to invest our resources to pursue those opportunities,” Bush said. “So again it's how do individual opportunities stack up relative to our other opportunities and what's the best use of our resources to go and pursue those and support the customer community.”

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Moreover, Bush said it makes sense for a company to reevaluate its situation—even if it is the incumbent on a program—if proceeding to the next phase of the effort does not make financial sense. He used the Navy’s X-47B carrier-based unmanned aircraft as an example. “It is not unheard of for an incumbency position, if you will, to take a different view of the next step of any activity,” Bush said. “To some extent, the experience that we had on X-47B, everyone thought well, we're a shoo-in on MQ-25 why don't we just go do that. And when we looked at that deal, we said I don't think so. So we look at each and every one of these opportunities and test them aggressively to see is this something that merits our investment, merits the application of our broad set of resources and are we really going to be investing them in a wise way to pursue them. And that's how we conduct our business, that's how we're going to continue to conduct our business. I think it's served us very well over the years.”

Sometimes even when a company like Northrop Grumman wins a bid, the government changes the terms of the contract to the point where it is no longer worth the effort. A historical example might have been the Grumman F-14 Tomcat where the company simply could not deliver the aircraft at the set price without risking bankruptcy.

“There have been programs where we were the apparent winner and then the terms and conditions changed and we decided not to pursue them,” Bush said. “And I think in general, those decisions have been good decisions for our company. So these we put into that category and I really appreciate the discipline within our organization in making those decisions.”

Thus far, according to Bush, the strategy of only bidding when the company feels it will not only win but also make money has worked well for Northrop Grumman. “I think it's going exceptionally well for us,” Bush said.

Dave Majumdar is the defense editor for The National Interest. You can follow him on Twitter: @davemajumdar.

Image: Flickr