GAO: Lack of EELV Pricing Transparency Could Hamstring Launch Negotiations

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Updated March 5 at 10:50 a.m. EDT

WASHINGTON — The U.S. Defense Department may not be able to take full advantage of new competition in the national security launch market because it cannot determine an accurate price for an individual launch by United Launch Alliance (ULA) of Denver, according to a new report from a congressional watchdog agency.

The Government Accountability’s March 4 report, “The Air Force’s Evolved Expendable Launch Vehicle (EELV) Competitive Procurement,” examined the EELV contract structure and forthcoming competition for new entrants.

“Minimal insight into contractor cost or pricing data meant DoD may have lacked sufficient knowledge to negotiate fair and reasonable launch prices,” the report said. “Coupled with uncertainties and possible instability in the launch vehicle industrial base, EELV program costs were predicted to rise at an unsustainable rate.”

The report was presented to the Senate’s Homeland Security and Governmental Affairs committee and comes as the heads of two launch services providers, ULA and Space Exploration Technologies Corp., are scheduled to testify before a Senate appropriations subcommittee March 5.

In 2012, the Air Force announced a plan to buy 36 rocket cores from ULA on a sole-source basis and competitively award an additional 14 missions, giving newcomers like SpaceX, a crack at the U.S. national security launch market.

ULA has had that market almost entirely to itself since it was created in 2006 when Boeing and Lockheed Martin merged their U.S. government launch businesses. Currently, ULA receives two separate lines of Air Force funding: one line for providing EELV launches and a second line for maintaining the capability to provide EELV launches.

SpaceX, which likely will be competing against ULA for those 14 missions and earn formal certification later this year, has repeatedly called for the service to eliminate the capability funding.

The GAO report said ULA’s capability contracts spares ULA from breaking out costs associated with each launch. Specifically, items such as propellants, the transportation of the completed launch vehicle and mission integration should have been tied to specific launches, the report said.

In addition, Defense Department officials had “limited insight into contractor costs.”

ULA spokeswoman Jessica Rye said in a March 5 statement that the U.S. government “has the data to develop an average cost of launch, but as [the] report stated the acquisition approach does not enable specific mission costing.”

Rye said ULA’s business practices, cost structures, and engineering data are “the most scrutinized and transparent in the launch industry”  — a fact ULA says explains its track record of 68 consecutive successful missions for the Atlas and Delta family of rockets.

“ULA remains fully committed to providing the government access to these costs, production processes and business practices to ensure our customers can continue to evaluate the value our critical launch systems provide the nation” Rye said. “As the [GAO] report pointed out, the new acquisition strategy addressed the shortfalls of the past while prioritizing mission reliability and cost reduction for the future. ULA is uniquely positioned to continue to provide the best value for the government with lowest launch risk for our critical national security, science and exploration payloads.”

In December, ULA and the U.S. Air Force announced they had come to contractual terms for the first batch of rockets in a long-awaited bulk purchase. That new contract includes increased levels of transparency, the report said, but DoD “may have difficulty identifying the total cost of an individual launch.” The contract may have also been spurred in part by looming competition, the GAO said.

“The new contract is also expected to provide DoD with a better understanding of individual launch costs than it had under previous contracts, as some costs are now directly attributable to specific launches,” the report said. “However, according to DoD, about 75 percent of the costs for cost-reimbursement contract items are combined and not broken out by individual launch costs, which may limit DoD’s ability to identify the cost of any given launch.”

It is not clear, the report said, if new entrants will follow the same contract structure in the bidding process.

The report also said that in previous contracts the Defense Department has paid all of ULA’s fixed costs and that the company provided a reimbursement to the government when another customer used ULA’s infrastructure and facilities.

“There have been concerns that the reimbursement was too small,” the report said.

The Defense Department recently negotiated a larger reimbursement in the most recent contract, the report said, but because individual launch costs are not broken out, the department may not know if it is receiving “fair and representative compensation.”