At the recent FAA Commercial Space Transportation Conference in Washington, if you were given a dollar every time the term “public-private partnership” was mentioned, you could have broken even on the annual gathering’s increasingly substantial registration fee. Such partnerships, known as P3s, are alliances between a government entity and private enterprise to accomplish a common purpose.
P3s have been used fairly extensively and effectively for funding space activities, and P3s are attracting even more attention as sources of public financing grow scarce. It is inevitable that P3s will play a large role in future space activities. It’s time to examine the best practices and lessons learned from decades of experience with terrestrial infrastructure P3 projects and evaluate how best to adapt them to major space projects going forward, including projects with international participation.
Examples of P3s for space activities include NASA’s use of funded Space Act Agreements for Commercial Orbital Transportation Services (COTS) and the Commercial Crew Program (CCP), as well as DARPA and U.S. Air Force use of Other Transaction Authority (OTA) for programs such as the Robotic Servicing of Geosynchronous Satellites (RSGS) program. These agreements facilitate the combination of public and private financing, escape the burdens of the Federal Acquisition Regulations, and promote speed and innovation to secure new capabilities. They have helped SpaceX, Orbital ATK, NanoRacks and many other companies achieve success. At the state and local level, we have seen P3s used for space launch infrastructure projects such as Spaceport America in New Mexico and the Mid-Atlantic Regional Spaceport in Virginia.
P3s for space projects, however, have generally been fairly simple agreements involving one public entity and one private entity. Future large space activities such as privatizing the International Space Station and establishing a cislunar Deep Space Gateway and a base on the moon, will require far more complex contractual arrangements and international participation.
International participation is best exemplified by the ISS. The program has a complex legal structure based on an intergovernmental agreement signed by the government partners, four memoranda of understanding between NASA and other cooperating space agencies, and numerous bilateral implementing arrangements between space agencies. In many respects, the ISS has been a tremendous success and it is now facing issues of what to do next. Privatization using a P3 structure is one option.
Another example: Sierra Nevada Corp. has teamed with the UN Office for Outer Space Affairs in a type of international P3 where the Dream Chaser spaceplane will be used by countries to fly payloads or experiments. Mark Sirangelo, executive vice president of SNC Space Systems stated: “The benefits of a joint mission between government and private organizations on a level of this scale is incalculable.” Hopefully, it will open up the space arena to many governments otherwise unable to participate.
As space activities and investments mature, we must look to industries like construction and finance for lessons on major P3 projects. All involve large sums of capital and allocation of risk. To have people living and working in space will take P3 leverage of the government budget with commercial collaboration.
In evaluating P3s, the space industry should carefully review P3 experience on many large infrastructure projects and evaluate best practices and lessons learned. Typical infrastructure P3 projects have included airports, toll roads, higher education facilities, water projects, telecommunications, energy and utilities.
Europe, Canada and Australia have outpaced the United States in their use of P3s for infrastructure projects. The largest P3 project is the Channel Tunnel between England and France, now known as the Eurotunnel. It cost about $25 billion, took eight years to build, and was financed by private debt and sales of shares in a private company formed to build and maintain the tunnel under a long-term management contract. Although the project experienced significant financing problems during construction, it has certainly provided great benefit. The U.S. is catching up and is turning more toward P3s for infrastructure projects because of the limited availability of federal, state and local government funding for necessary projects.
The Trump administration infrastructure plan released in February outlines many new incentives and initiatives to facilitate $1.5 trillion in infrastructure investment over a 10-year period. Bootstrapping a $200 billion federal investment into $1.5 trillion will be challenging. The plan seeks to accomplish this by using investment from state and local governments, other public agencies, and substantial private investment including P3s. If P3s can help remedy vast infrastructure problems, perhaps P3s can also accomplish wonders for space projects, particularly if there is international support.
A full P3 project involves a partnership among all phases of a project from design-build construction and finance to operations and maintenance. Developing an equitable allocation of risks among partners over many decades is probably the most challenging task. Thanks to the vast number of P3 projects around the world, there has been considerable analysis of the various types of P3 projects.
P3 Best Practices
The commonly recognized P3 best practices generally include things such as: appropriately preparing, creating a shared vision, understanding the partners, clarifying long-term risks and rewards, establishing effective decision-making processes, negotiating fair and reasonable contracts that will withstand decades of implementation, and finding the right champion. That last one can be the most difficult since large projects tend to take many years to plan and implement. Politicians and administrators often have a limited shelf life. Policies, including National Space Policies, often change with new administrations.
The National Space Council should launch a task force to examine P3 best practices and lessons learned from terrestrial infrastructure projects and evaluate how to adapt them to large space projects, including P3s with international participation. This is not easy, but if we are to be successful in future space adventures, we must be nimble, creative, and quick. These are not characteristics of large government-led projects. Perhaps P3s can help fill this gap. Given the cost of going into space and accomplishing great things, we need to focus on how to combine public and private funding into mutually beneficial, synergistic approaches. Now would be a good time to start.
Milton “Skip” Smith is a Colorado Springs attorney who co-chairs Sherman & Howard’s space practice group and a longstanding member of the International Institute of Space Law.