From: Government Accountability Office
Posted: Wednesday, March 5, 2014
What GAO Found
While the previous two-contract structure of the Evolved Expendable Launch Vehicle (EELV) program met Department of Defense (DOD) needs for unprecedented mission success and an at-the-ready launch capability, the scope of its capability contract limited DOD's ability to identify the cost of an individual launch, as direct launch costs were not separated from other costs. Minimal insight into contractor cost or pricing data meant DOD may have lacked sufficient knowledge to negotiate fair and reasonable launch prices.
Through DOD's development of a new acquisition strategy in 2011, and in preparation for contract negotiations with United Launch Alliance (ULA), DOD undertook significant efforts to obtain better contractor and subcontractor cost or pricing data. The December 2013 contract modification with ULA includes line items for both the fixed-price and cost-reimbursement portions funded under the previous two-contract structure, and DOD officials say the administrative burden of renegotiating new contracts every year will be substantially lessened due to the new contract's simplified structure. The new contract is also expected to provide DOD with a better understanding of individual launch costs than it had under previous contracts, as some costs are now directly attributable to specific launches.
ULA periodically sells launch services to customers outside of the EELV program, such as the National Aeronautics and Space Administration, and to commercial customers. Because DOD pays for ULA's fixed costs, DOD receives compensation for the use of ULA facilities on a per-launch basis for launches ULA sells to non-DOD customers. Under the new contract, compensation is based on some actual costs, and is approximately three times the dollar amount per-launch of reimbursements under previous contracts.
If DOD requires all offers to contain both fixed-price and cost-reimbursement features for launch services and capability, respectively, similar to the way it currently contracts with ULA, there could be benefits to DOD and ULA, but potential burdens to new entrants. Alternatively, if DOD implements a fixed-price commercial approach to launch proposals, DOD could lose insight into contractor cost or pricing. DOD could also require a combination of elements from each of these approaches, or develop new contract requirements for this competition.
Why GAO Did This Study
DOD's EELV program is the primary provider of launch vehicles and services for U.S. military and intelligence satellites. The most recent independent cost estimate projects the program will cost about $70 billion through 2030. From 2006 to 2013, the program acquired launch services from a single provider. In December 2013, DOD signed a five-year contract modification with that provider. DOD has also set aside up to 14 launches for competition among all certified launch vehicle providers, and is currently developing a methodology for comparing launch proposals for the competition, which is expected to begin in fiscal year 2015. The Senate Homeland Security and Governmental Affairs Committee, Permanent Subcommittee on Investigations, requested that GAO review DOD's upcoming competitive EELV procurement. The report addresses the following: (1) What insight did DOD have into launch costs under past EELV contracts? (2) How do recent changes to EELV contracts affect accounting for costs? (3) How is DOD compensated for costs when ULA sells launches to other customers? and (4) What are the implications if DOD requires competitors to submit offers using the same structure it currently uses with ULA or a commercial approach?
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