GAO-12-342SP: Science and the environment: 23. Space Launch Contract Costs

Science and the environment > 23. Space Launch Contract Costs

Increased collaboration between the Department of Defense and National Aeronautics and Space Administration could reduce launch contracting duplication.

Why This Area Is Important

 

The Department of Defense (DOD), the intelligence community, the National Aeronautics and Space Administration (NASA), and other government agencies rely on commercial domestic launch service providers to place their satellites into orbit. National policy generally requires that U.S. government payloads, including satellites, be launched on U.S. manufactured launch vehicles. National security space payloads, comprised of DOD, including National Reconnaissance Office (NRO)[1] payloads, are primarily launched by the main U.S. launch provider, the United Launch Alliance (ULA), on its Delta IV and Atlas V vehicles. NASA payloads are launched on a variety of launch vehicles from multiple launch providers, including ULA. In fiscal year 2012, DOD plans to complete nine launches on Delta IV and Atlas V launch vehicles, at a cost of roughly about $1.8 billion. Similarly, in fiscal year 2012, NASA plans to complete two launches on ULA’s Atlas V launch vehicle, at a cost of about $370 million. The government plans to spend about $15 billion on ULA’s launch services from fiscal year 2013 through 2017. In the past few years, ULA’s launch costs have risen, but there are currently no alternative launch vehicles in the commercial sector that have been certified to launch the larger national security satellites. Meanwhile, NASA, which has more options for launch providers due to the greater diversity of its space programs, tolerance for launch risk, and cooperation with international partners, typically uses ULA to launch a few satellites each year—averaging about two annually in the past few years.

DOD is considering a new space launch acquisition strategy beginning in 2013 which will likely allow DOD to procure a set number of launch vehicles from ULA each year in an effort to control cost increases and stabilize the launch industrial base. However, awards of launch services from ULA by NASA—which are negotiated in a separate acquisition process with a different acquisition office—were not directly included in DOD’s planned procurements.



[1]The NRO is responsible for research and development, acquisition, launch, deployment, and operation of overhead reconnaissance systems, and related data-processing facilities to collect intelligence and information to support national and DOD mission and other United States Government needs.

What GAO Found

 

Space launch acquisition processes for NASA and DOD are not formally coordinated, duplicate one another, and may not fully leverage the government’s investment because the government is not acting as a single buyer. As GAO reported in September 2008 and September 2011, opportunities exist to reduce duplication in government contracting for launch services by jointly negotiating launch acquisitions, which could reduce the number of contracts and potentially save time and money. The U.S. National Space Policy[1] directs agencies to work jointly to acquire space launch services, and a recently signed memorandum of understanding may help facilitate communication on launch acquisitions. However, the National Space Policy does not specifically direct agencies to jointly negotiate for launch services, and the changes to coordination resulting from the memorandum of understanding do not appear to be significant enough to decrease the duplication in how DOD and NASA procure their launch services and to leverage the combined buying power of DOD and NASA.

Currently, the Air Force’s Launch and Range Systems Directorate ensures DOD’s access to space. The directorate develops and acquires expendable launch systems by awarding contracts to commercial firms; manages the launch integration, mission assurance, and launch campaigns; and provides range systems for space launch operations. In the past, launch services had been procured one at a time as needed. However, DOD is considering a new acquisition strategy, slated to begin in 2013, to provide ULA with a minimum order quantity for each year from DOD without the need to negotiate a new launch vehicle contract for each launch. This new strategy will cover DOD launches, but will not include NASA launches, which are negotiated separately by NASA under a different contract.

NASA’s Launch Services II contract is an indefinite delivery, indefinite quantity[2] contract with four launch service providers—Lockheed Martin, Orbital Sciences, Space Exploration Technologies, and ULA. When a NASA mission needs to acquire launch services, the NASA Launch Service Program issues orders for launch services and generally provides the companies a fair opportunity to compete for each order under NASA’s Launch Services II contract. According to launch service program officials, competition between the launch service providers is intended to generate lower prices, but ULA is currently the only provider of intermediate class launch vehicles.

Since DOD and NASA negotiate for launch services separately, the current space launch acquisition environment may not leverage the government’s overall negotiating power to get the best prices for launch services from ULA. There is also no current way to ensure that the government is not paying twice for launch overhead costs through the separate acquisition processes. Recently, DOD, the NRO, and NASA signed a memorandum of understanding outlining future cooperation in space launch acquisitions. In this agreement, DOD agreed to acquire five launch vehicle common booster cores[3] per year for the next 5 years, and the NRO agreed to procure a minimum of three each year for the next 5 years. This large acquisition was intended to help control launch vehicle costs and stabilize production of launch vehicles. However, the agreement did not include a commitment from NASA to procure a minimum amount of boosters or services per year, though NASA will continue using its Launch Services II contract to procure launch services on the Atlas V launch vehicle from ULA separately from DOD’s negotiated acquisition. NASA officials believe that they have been successful at awarding contracts for launch services through their separate acquisition process. Since NASA has a “most favored customer” contractual clause on its contracts with ULA to ensure that it does not pay a higher price for standard launch services than the lowest price charged to other ULA commercial or government customers, they do not have a strong incentive to cooperate in these procurements. Though this approach minimizes NASA’s launch vehicle costs, it may not necessarily ensure the best price for the overall government nor does it eliminate the potential for redundant or unnecessary overhead costs.

Reducing duplication in awarding contracts for space launch services is further hindered, in part, due to the lack of a governmentwide policy for space launch services acquisitions. Currently, in addition to launch services procurements, numerous federal agencies have responsibility for space activities, including the Federal Aviation Administration’s oversight of commercial space launches; NASA’s scientific and exploration space activities; the DOD’s national security space launches; the State Department’s involvement in international trade issues; and the Department of Commerce’s advocacy and promotion of the industry. Current National Space Policy broadly states a goal to energize the competitive domestic space industries, to include space launch, and to enhance capabilities for assured access to space. A governmentwide launch policy could more specifically clarify the overall government’s priorities in developing and introducing new launch providers and could establish guidance for cooperation on launch services procurements between agencies. It could also identify and fill gaps in federal policy concerning the commercial space launch industry, according to senior Federal Aviation Administration and Department of Commerce officials.

According to the National Academy of Sciences, aligning the strategies of the various civil and national security space agencies will address many current issues arising from or exacerbated by the current uncoordinated, overlapping, and unilateral strategies. According to the academy, a process of alignment offers the opportunity to leverage resources from various agencies to address such shared challenges as the diminished space industrial base, the dwindling technical workforce, and reduced funding levels. According to senior Federal Aviation Administration and Department of Commerce officials, the need for an overall U.S. space launch policy, which includes commercial space launches, was being discussed within the Department of Transportation and across other departments as part of the administration’s review of national space activities, but the development of a national policy had not yet begun. Guidance on launch acquisitions will, however, be included in the updated National Space Transportation Policy which is currently under development.



[1]National Space Policy of the United States of America, 28 June 2010.

[2]An indefinite delivery, indefinite quantity contract is a type of contract that provides for an indefinite quantity, within stated limits, of supplies or services during a fixed period of time under which the government places orders for individual requirements. Federal Acquisition Regulation (FAR), § 16.504(a).

[3]The booster core is the main body of a launch vehicle. ULA uses common booster cores to build all of the Atlas V and Delta IV launch vehicles. Medium and intermediate launch vehicles use one core each, while the Delta IV Heavy launch vehicle requires three.

Actions Needed

 

DOD, NRO, and NASA are taking steps to outline responsibilities on space launch services acquisitions through their recently signed memorandum of understanding. However, there are opportunities for the government to act as a single buyer to further reduce duplication in acquiring launch services. Specifically, the Office of Management and Budget should

  • assess and adopt mechanisms to ensure formal coordination of the DOD and NASA acquisition processes for awarding launch services contracts with an eye toward leveraging the government's buying power and ensuring that launch prices are competitive for all U.S. government customers; and
  • determine whether the government is paying twice for any overhead costs, and if duplication is found, develop a way to ensure that the government does not pay more than once for overhead costs through separate acquisition processes.

How GAO Conducted Its Work

The information contained in this analysis is based on findings from the products listed in the related GAO products section. In addition, GAO reviewed the March 2011 launch vehicle agreement by the Secretary of the Air Force, Director of the National Reconnaissance Office, and the Administrator of NASA. To identify important launch issues with potential bearing on current and future government launch acquisitions, GAO reviewed DOD launch studies and interviewed study leaders or participants in three of the five studies; GAO analyzed historical launch data and expected launch vehicle demand; reviewed other relevant government and industry reports; interviewed DOD, NASA, and contractor officials; and reviewed information from NRO.

Agency Comments & GAO Contact

 

In September 2011, GAO recommended that DOD examine how broader launch issues, such as greater coordination across federal agencies, can be factored into future launch acquisitions to increase efficiencies and cost savings. DOD concurred with this recommendation. In responding to this paper on duplication in launch contracting, NASA agreed that the goal of improving efficiency and maximizing the government’s buying power for intermediate launch vehicles is worthy, but believes that it is currently working with DOD in such a way as to achieve this goal while still allowing each agency to perform its assigned space-related responsibilities. GAO would encourage NASA to continue its coordination with DOD. Technical comments from NASA have been incorporated as appropriate.

The Office of Management and Budget agrees that clear benefits can be gained from avoiding unnecessary contracting duplication, and points out that this and prior administrations have taken steps to consolidate launch services. OMB also cites this administration’s current effort to develop an updated National Space Transportation Policy, which will include guidance on launch acquisition. OMB believes that the flexibility of separate acquisition approaches can be beneficial and that the unique mission requirements of DOD and NASA may not be met most efficiently by a “one size fits all” contracting approach. In addressing OMB, DOD, and NASA comments, GAO modified its original suggestion that DOD and NASA consolidate their acquisition processes, to a suggestion where these agencies enhance their coordination of launch services. GAO continues to believe that greater coordination efforts could help to leverage the government’s buying power, in addition to the specific actions outlined above. For example, by acting as a single buyer, the government can better leverage its requirements for multi-year purchases of launch vehicles, and jointly negotiate launch acquisitions to reduce the number of awarded launch service contracts.

As part of its routine audit work, GAO will track the extent to which progress has been made to address the identified actions and report to Congress. All written comments are reprinted in appendix IV of the PDF version of this report.

For additional information about this area, contact Cristina Chaplain at (202) 512-4841 or chaplainc@gao.gov,or Gerald Dillingham, Ph.D. at (202) 512-2834 or dillinghamg@gao.gov.

 

Comments from National Aeronautics and Space Administration

Comments from National Aeronautics and Space Administration

Comments from National Aeronautics and Space Administration (Page 2)