Artemis 1 Mission Space Launch System (SLS) rocket
Frank Michaux / NASA
The head of the National Aeronautics and Space Administration on Tuesday discussed a fundamental shift in the way the agency plans to issue contracts for space exploration programs, citing success in cost-effective competitive bidding.
NASA Administrator Bill Nelson, while testing before a Senate subcommittee on the agency’s budget for landing astronauts on the Moon, has staunchly endorsed fixed-price contracts with companies — and decried more variable-cost contracts as a “plague” for the agency.
Nelson’s focus on competition will likely be a boon to the growing group of space companies looking to provide low-cost services to NASA, and a sharp cutback for aerospace and defense contractors that have traditionally benefited from additional cost deals.
Fixed-price contracts set a maximum payment for a good or service, while additional cost agreements result in the government paying the cost of the work, as well as additional fees, which can balloon over the course of the project.
The biggest difference between the contract structures comes down to who gets to bill for delays or cost overruns: a fixed price assumes that the companies that build the systems absorb any unexpected expenses, while the extra cost leaves NASA in a bind.
NASA has agreements for every chassis for the most expensive parts of its Artemis lunar program: a Space Launch System (SLS) rocket, an Orion capsule designed to carry astronauts into lunar orbit, under cost-plus contracts, and a SpaceX Starship to carry the rocket. Astronauts on the Moon, under a fixed-price deal.
NASA has awarded several multi-billion dollar plus cost-plus contracts to a wide range of contractors for the development of the SLS and Orion, primarily to Boeing, the prime contractor for building the SLS; Lockheed Martin, Orion Development Lead; and Northrop Grumman to supply missile boosters.
Since 2012, NASA has spent about $20 billion developing the SLS, and more than $12 billion on Orion, according to the agency’s inspector general. Excluding development funding, the cost of each SLS launch has ballooned eightfold since 2012: from $500 million to $4.1 billion, with the launch of the missile delayed by five years and that number still rising.
By comparison, NASA has had consistent success with major fixed-price contracts — most notably through its Commercial Crew program. Under the leadership of Commercial Crew, the agency has given SpaceX about $3.1 billion and Boeing about $4.8 billion over the past decade to develop spacecraft to deliver astronauts to the International Space Station.
With the Crew Dragon debuting in 2020, NASA began purchasing transportation services for its crew from Elon Musk. And while Boeing’s Starliner spacecraft has yet to fly with a crew, the costs of the delay have been absorbed by the company, rather than by NASA.
NASA estimates that due to a competitive approach, the Commercial Crew program saves the agency between $20 billion and $30 billion.
SpaceX last year won a $2.9 billion fixed-price contract from NASA to use the company’s Starship rocket to fly astronauts from orbit around the moon to the surface of the moon. SpaceX was the only winner in a competition against two other privately-led vehicles, from teams led by Jeff Bezos’ Blue Origin and Leidos subsidiary Dynetics.
Nelson’s comments Tuesday come as he urges Congress to approve funds for another competition, to develop a second lunar lander. He stressed that SpaceX won because its offering was “by far the most economical of the three,” but said the agency now wants a second landing craft because “in that competitive spirit, you can get it done cheaper.”
“We can leverage that money by working with a commercial industry and, through competition, lowering those costs to NASA,” Nelson added.