WASHINGTON — The Pentagon’s acquisition czar cited a contracting arrangement that offers little incentive to control costs as a contributor to soaring prices on the program that launches the vast majority of U.S. government satellites.

In a July 12 letter to lawmakers, Frank Kendall, U.S. undersecretary of defense for acquisition, technology and logistics, said the projected cost of the U.S. Air Force’s Evolved Expendable Launch Vehicle (EELV) rocket program over 150 missions has more than doubled since 2004, to nearly $70 billion. The primary drivers of the cost growth are unstable demand, international market vagaries and industrial base issues, he said.

Kendall also said he has taken over milestone decision authority for the EELV program from the Air Force. Milestone decision authority refers to the authority to determine when a program is ready to move from one phase of development to the next.

The purpose of Kendall’s letter, copies of which were sent to congressional leaders and senior members of the defense oversight committees, was to recertify the EELV program as required by U.S. law for defense systems whose acquisition costs rise by 25 percent or more. Continuation of the EELV program is justified because, among other things, it is essential to national security, there are no immediately available alternatives, and the latest cost estimates are reasonable, he said.

The U.S. Defense Department has had trouble both pinpointing and controlling EELV costs because the program has been executed using multiple contracts with different, complex fee structures, according to documentation attached to Kendall’s letter. The Air Force funds the EELV program under two contracts with Denver-based United Launch Alliance (ULA), one that ostensibly covers the rockets themselves and another for related services.

The Air Force hopes to avoid this problem in the future by awarding ULA a single contract next year that incorporates these activities as separate line items, the documentation states. The service also intends to pursue a block buy strategy under which it commits to buying dozens of rockets over a multiyear period to reap the benefit of volume discounts, the documents say.

Citing a Pentagon analysis, the documentation says the EELV program’s problems stem from three main causes, two of which are beyond its control. “Nothing can change the inherently unstable nature of the demand for launch services since it is driven by space program execution and national priorities. The international space market and industrial base issues are also causal and likewise immutable,” the document says.

But the EELV program itself is not without blame, the document states. “The final cause is poor program execution in which little incentive for cost control, or threat of termination, exists for the vast proportion of EELV’s content which is not tied to the fixed infrastructure for space access,” the document says.

ULA, a Boeing-Lockheed Martin joint venture, has a monopoly in launching operational U.S. national security satellites and also handles the vast majority of civil government payloads.

“As a matter of policy, United Launch Alliance does not comment on intergovernmental affairs but appreciates the [Defense] Department’s efforts to consider acquisition strategies for achieving savings while enabling ULA to continue providing flexibility and maximum reliability for our government customer,” Jessica Rye, a company spokeswoman, said via email Aug. 23.

In a written response to questions, Air Force spokeswoman Maj. Tracy Bunko said the service appreciates Kendall’s leadership in keeping the EELV program on track and that the service is looking for ways to reduce costs and introduce competition in launch services. “In March 2011, the Air Force established a Program Executive Officer for Space Launch to focus exclusively on the Space Launch portfolio, and execute a new acquisition strategy that emphasizes improved cost management and the introduction of competition with commercial launch providers,” she said. “The Air Force published a New Entrant Certification Guide in November 2011, and is working with potential new entrants to achieve certification.”



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