House Report Calls for Slowdown in NRO Satellite Orders

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UPDATED Aug. 1 at 2:34 p.m. EDT

WASHINGTON — The U.S. National Reconnaissance Office is buying intelligence satellites at a faster rate than necessary and could save billions of dollars in the next decade by scaling back orders, according to a study released by the agency’s congressional overseers.

Following a broad, 18-month examination of intelligence community acquisition, the House Permanent Select Committee on Intelligence released a report recommending that the NRO consider purchasing some spy satellites on an as-needed basis.

The House panel delivered the mostly classified report to the NRO July 31, and released a statement along with a brief unclassified summary of the report to media.

Primarily, the report said, the NRO is buying satellites at an accelerated pace because it believes it needs to provide stability to the industrial base, particularly component suppliers. But it is not clear whether that belief is grounded in reality, the report said.

“The market for U.S. intelligence satellites lacks the efficiencies common to typical commercial markets,” the report summary said. The NRO’s “assumptions about how fast it needs to buy satellites in order to achieve industrial base stability have not been sufficiently scrutinized.”

The NRO’s assumptions are based in large part on information provided by its industrial prime contractors, the report said. But the agency lacks visibility into these businesses to verify that feedback, the report said.

“If the NRO plans to continue buying satellites faster than it strictly needs them to meet mission requirements, its assumptions about the industrial base should be verified,” the report summary said.

The report said the NRO also fears a slower acquisition pace could lead to higher unit costs and increased technical risk on programs. Another factor in the NRO’s buying habits is an abundance of caution despite the fact that its satellite failure rates are “extremely low,” the report said.

The economies of scale the NRO realizes by ordering satellites at the current rate must be weighed against the cost of building and launching excess inventory, the report said.

In one example cited in the report — it was hypothetical but based on a real capability — the NRO tacked two additional satellites onto one order, thereby realizing $140 million in savings through production efficiencies. But in the process the agency spent $2.5 billion building and launching satellites that it did not need.

“It is critical that we find the right balance of capability and cost effectiveness. We must always be good stewards of taxpayer dollars and take a hard look at the way we purchase very expensive satellites systems,” Reps. Mike Rogers (R-Mich.), the committee’s chairman, and C.A. “Dutch” Ruppersberger (D-Md.), the panel’s ranking member, said in a statement. “Our overhead capabilities are vital to America’s national security.”

The report showed that in some cases, letting a production line go cold, while expensive, was still significantly cheaper than buying excess satellites. “Even a very conservative estimate of increased risk from slowing the production pace” would not approach the costs of an additional satellite, the report said.

The NRO has conducted at least 11 satellite launching missions since September 2010, according to congressional testimony from United Launch Alliance, which launches the vast majority of U.S. national security satellites, both classified and unclassified. Those launches helped restore capabilities that had worn thin due to problems that in at least one case led to the cancellation of a major development program, the NRO has said.

The report recommends that the Office of the Director of National Intelligence verify the NRO’s assumptions about the industrial base and that the NRO justify its proposed satellite acquisition pace to Congress.

The report noted that in some cases, the NRO believes slowing down satellite orders could put some component suppliers — particularly small ones that manufacture unique hardware — at risk of going out of business. The report therefore recommended that satellite prime contractors be required to notify the NRO of any single-source component suppliers they use.

The NRO procures satellites that carry out classified missions that include optical and radar imagery gathering, signals intelligence, and communications.

Karen Furgerson, an NRO spokeswoman, did not reply to an email requesting comment on the House panel’s report.

According to documents leaked by former National Security Agency contractor Edward Snowden and published by The Washington Post in August 2013, the NRO requested $10.3 billion for its activities in fiscal year 2013. That figure would place it among the top five U.S. intelligence agencies in terms of spending, the documents show.

The agency’s budget has grown 12 percent since 2004, a far slower pace than the Central Intelligence Agency, the National Security Agency or the National Geospatial-Intelligence Agency, the documents show.