Contractors Preserving Constellation Funds To Pay for Program Closeout

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WASHINGTON — Lockheed Martin could be forced to slow or stop work on the Orion Crew Exploration Vehicle this spring in order to preserve enough money to cover the cost of shutting down the project as soon as this fall, according to congressional sources.

Orion and the rest of NASA’s Constellation program are slated to end in 2011 as the U.S. space agency seeks to outsource human spaceflight to a fledgling commercial space sector.

While NASA is asking Congress for $2.5 billion to shutter Constellation, agency officials say they do not know whether that money will be enough to pay for the government’s closeout costs and still cover the termination expenses NASA contractors would incur as a result of having to cancel orders, vacate leases and pink-slip employees when the program is ordered shutdown.

As a result, some contractors — including Denver-based Lockheed Martin Space Systems — are preparing to slow or stop work on Constellation in order to set aside program money to cover their own termination expenses when NASA formally issues the shutdown orders.

“They have to either gamble that these programs are going to continue or they’re going to have to start slowing work and saving money for shutdown costs,” said one congressional source. “It’s an indirect but powerful way of shutting down those programs.”

President Barack Obama’s plan to pull the plug on Constellation after five years and more than $9 billion worth of effort has drawn bipartisan opposition from Congress, where lawmakers have pointedly reminded NASA that spending legislation enacted late last year prohibits the agency from using 2010 money to shut down any part of Constellation without congressional approval.

NASA Administrator Charles Bolden told the House Appropriations commerce, justice, science subcommittee March 23 the agency is complying with the law, but must also abide by a much older statute, the Anti-Deficiency Act. That law requires NASA to ensure that its contractors do not overspend the $3.5 billion Congress appropriated for Constellation for 2010. Although Constellation work continues despite NASA announcing in February its intent to kill the program, contractors that were unable to negotiate contract termination liability deals with NASA last year are keeping a close eye on their spending to ensure they hold enough 2010 money in reserve to cover their closeout costs should NASA get the go-ahead to shut down the program.

“I think most of the contractors are fully aware of what’s in their contract and they realize that they’re obligated by their contract to reserve funds that would be needed for termination liability,” Bolden told lawmakers.

Rep. Robert Aderholt (R-Ala.) asked Bolden whether NASA leaders prevented the agency’s procurement officials from adding clauses to all Constellation contracts last fall that would require NASA to pay for contract termination liability with money other than Constellation’s 2010 budget. Bolden said he did not know. According to congressional and industry sources, at least one Constellation contractor — Ares 1 upper-stage contractor Boeing — had a termination liability clause added to its contract last year before the practice was halted.

Boeing was picked in 2007 to build the Ares 1 rocket’s upper stage and instrument unit; Pratt & Whitney Rocketdyne was awarded a separate contract for the rocket’s upper-stage engine.

Boeing spokesman Ed Memi declined to comment on the company’s contract specifics, but said in a March 25 statement “the methodology by which the Agency chooses to fund termination liability is an internal NASA agency decision, and we are just executing the contract per its terms.”

Other major Constellation contracts — including Lockheed Martin’s Orion agreement and Minneapolis-based Alliant TechSystems’ (ATK) contract for the Ares 1 main stage  — do not include provisions for funding termination costs outside program coffers, congressional and industry sources said.

Lockheed Martin spokeswoman Joan Underwood and ATK spokesman George Torres both declined to comment on the matter.

Concerned that Constellation work will slow down or stop as NASA contractors try to preserve funding to cover shutdown costs, the House Science and Technology subcommittee on space and aeronautics took a similar line of questioning with NASA’s associate administrator for exploration systems, Doug Cooke, during a March 24 hearing.

Rep. Pete Olson (R-Texas) said “requiring Constellation contractors to fund termination liability out of existing [fiscal year 2010] funds … would be a blatant violation of the [fiscal year] 2010 appropriations law.”

Cooke said the agency is working to comply with multiple laws as it plans the Constellation program’s transition.

“There are laws that we are working with, and Anti-Deficiency is one of them,” Cooke said. “We are not changing our contracts and we have not directed anything — other than what’s in the contracts — to our contractors.”

Lawmakers also asked about letters NASA is preparing to send Constellation contractors to remind them of their obligation to preserve 2010 program funds to cover termination costs.

”Won’t the impact of those letters be such that in order to comply the contractors will still have to stop or delay work on Constellation that was planned for [fiscal year] 2010 despite the administration’s assurances to the contrary?” Rep. Donna Edwards (D-Md.) asked.

Rep. Gabrielle Giffords (D-Ariz.), the subcommittee’s chairwoman, urged NASA to consider lawmakers’ intent in enacting legislation last year preventing NASA from using 2010 funds to shutdown Constellation before Congress has a chance to weigh in.

“I would just suggest that NASA spend a little less time figuring out ways to wiggle out of some of these contracts and figure out how to negotiate this without thinking that we’re going to notice, and more on following what the direction of the Congress and the United States people had in mind,” she said.