GPS 3 Storage Costs Could Eat Into Block-buy Savings

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WASHINGTON — The U.S. Air Force has credited its block-buy strategy for saving money on satellite programs, but on its next generation of GPS navigation satellites any such savings could be offset in part by storage costs, the service said in a report to Congress.

The block-buy approach entails buying satellites two or more at a time, which enables the contractor to order components in bulk and find production efficiencies, both of which save money. The service recently claimed $1 billion in savings by buying a pair of missile warning satellites together rather than individually, for example.

But on its next-generation GPS 3 positioning, navigation and timing satellites, the service faces countervailing forces that could limit theses benefits, according to the report, titled “Global Positioning System 3 Space Segment Suitability for Multi-Year Procurement.” The report was given to congressional defense committees in late April.

The report notes that the Air Force’s current generation of GPS satellites is lasting longer on orbit than expected, and that the service already has eight of the next-generation GPS 3 satellites on order from prime contractor Lockheed Martin Space Systems of Denver. As the service considers buying additional satellites, it faces a buildup of inventory on the ground that could prove costly since spacecraft must be stored in specially controlled environments.

“Substantial savings can be achieved by providing a stable, long-term commitment and a stable production environment for the prime contractor and its supply chain,” the report said.

But a “healthy constellation reduces the need for larger annual buys of GPS 3 satellites in the near term,” the report said. “In addition, early-to-need procurement would require unnecessary funding for satellite storage. In a budget-constrained environment, the Air Force would not procure more GPS 3 satellites than are needed to maintain the constellation.”

The GPS 3 satellites, slated to begin launching in 2016, are expected to last an average of 25 percent longer on orbit than the current-generation GPS 2F satellites built by Boeing Space and Intelligence Systems of El Segundo, California, the report said. Those satellites have a design life of 12 years.

In a letter accompanying the report, Eric Fanning, undersecretary of the Air Force, said the document “does not constitute an Air Force position, but rather one option the Air Force is evaluating for procuring future GPS III satellites at a reduced unit price.”

Nevertheless, the service in March said it was reducing its planned procurement of GPS 3 satellites in fiscal year 2015 from two to one, in part because of the longevity of the existing constellation. Under the previous plan, the satellites were expected to cost $225 million apiece; service officials have acknowledged that the unit price will increase under the new plan.

The future of the GPS 3 program, meanwhile, is unclear. Although the Air Force seems likely to buy additional satellites from Lockheed Martin, the service recently requested information from possible providers of an alternative that would compete against GPS 3 for a future order of up to 22 platforms. That contract notionally would be awarded in 2017 or 2018, the Air Force said in a sources sought notice issued in June.