Mike Griffin Reveals His Commercialization Vision for NASA: Part 1

NASA will start doing business the way the rest of the world does, if Mike Griffin has his way.

Griffin addressed a sold out breakfast sponsored by the Space Transportation Association Tuesday morning in Washington, DC. The audience was a typical mixture of commercial representatives, members of Congress and their staff, space media, and NASA personnel.

Griffin chose the occasion to address a topic that he admitted he had not sent a lot of time on since taking the helm of NASA: commercialization policy. He advised the audience that as the summer progresses that some of the things he’d discuss would be transformed into action.

As someone who has listened to innumerable NASA presentations on what NASA thinks “commercialization” means, I had all but lost hope that someone from the real world – with hands-on commercial experience – would show up at NASA and not only enlighten the NASA/contractor community about what happens in the real world – but, moreover, try and steer the agency and its contractors in that direction.

Indeed, I vented my frustration in The Economist back in 2001: “there is a difference between the government giving companies money to give the impression of commercialization, versus the government opening up space to the factors that drive commercialization.”

Dan Goldin never took commercial forces seriously. Rather, he rolled out one buzz word-enabled scheme after another, many the brainchild of his commercialization guru Dan Tam, the most notable being the Dreamtime media misadventure – and other commercialization-flavored efforts such as the ill-fated Space Launch Initiative (SLI) which produced nothing except broken promises and scrap hardware.

Sean O’Keefe was brought in to fix what was broken at NASA. He demonstrated no real interest in new commercialization efforts. His fix-it tenure was interrupted, and his task transformed, by the Columbia accident, so we’ll never know what he might have done otherwise.

Mike Griffin brings a real world savvy to the topic. It is obvious that one of the things he will need if he is going to successfully accelerate CEV activities are new economic motivators and more efficient ways of doing things. Based on his comments and responses to questions after his main presentation, he has clearly given a lot of cogent thought to the topic. From the viewpoint of a ‘NASA Watcher” it is a breath of fresh air.

What follows is a verbatim transcript of Griffin’s comments edited for sentence structure and context. What mystifies me is why no one from NASA PAO thought enough to record this event or transcribe it. Given the multiple policy announcements and descriptions Griffin made, you’d think that a series of talking points or a press release highlighting his ideas would have been produced. Instead, PAO and Griffins’ Strategic Communications Manager Joe Davis (who was present at the event) defaulted to trusting the media to get the word out – and to do so accurately. Not a wise move.

Griffin’s comments:

“The idea of putting more emphasis on commercial space comes from the observation that we have a $10 trillion economy – the greatest that the world has ever seen. We produce $2 trillion more each year in goods and services than we can even consume ourselves. The ability of this economy and the principles upon which it is established to generate wealth is an amazement to the entire world. It largely draws on the ground rules of – I want to say unfettered competition – but we actually ‘fetter’ the competition in order to have rules of the road and to make it reasonably fair and ethical.

The grounding principle of US economic growth has been competition. I have spent considerable time out in Silicon Valley and I would say that if you want to see the most competitive end of the spectrum that’s the place to go – its quite eye opening. I am not suggesting that everything should be like that but I am suggesting that everyone understand it and know it.

So the question is in the space business, and I think we can all admit that that type of competition is largely lacking from today’s aerospace business. So, for me, as NASA Administrator, the problem is how do we engage that engine of competition more productively so that it can work on behalf of the space business?

I would have to say that for all of my admiration for entrepreneurs – people who take risks and start businesses – 9 out of 10 of them fail. They go on to start another business and fail again. 1 out of 10 of them succeed. They build the business up, and then sell it out to a larger business or take it public and become part of the American industrial landscape.

For all of my admiration for that community – and I have been part of it (I was one of the failures) I think I would have to say that we are aware that there is a cacophony of voices out there from what we’ll call the ‘non traditional space community’ raising their hands saying “I can do it. I can do it. If the government (read Air Force and NASA) would just put some money out available for us – that was dedicated to us – we could perform and you would see.”

For the moment, however, based on actual product delivered, I have to consider that mostly noise – with not much signal. Because real competitive businesses develop their own business plan, find their own money, they acquire a team, they produce a product, and they try to see if it will sell. That is what real businesses do. They don’t come to the government saying “set aside some money for us – and trust us – and watch us perform.” That’s not how it works. I guess some people try to do that but it is not a notably successful approach. That is not [in the] the sprit of American industrial and economic competition.

I am literally besieged by entrepreneurs who insist that if I just dump the money into their area we’ll get results. OK – maybe so. But I have to deal with the fact that if I gamble money in that direction – and product is not delivered – then public money has been spent on something which didn’t come true. [Moreover] it was money that could have been spent on a higher odds proposition – and I have to account for why I did that.

So, the task in front of me as a manager of our civil space program is how to recognize and deal with the fact that publicly funded space programs have goals and objectives which have to be achieved. The NASA Administrator, the Director of the NRO, Secretary of he Air Force – all the folks who have high level budgeting and strategic authority as to where the money goes – have goals and objectives that have to be met. And the meeting of those goals cannot be treated as a lottery – where we’ll just spread money around and let a thousand flowers bloom.

But at the same time we, as stewards of public money, have to recognize that a way needs to be found to engage the engine of competition. One measure of our success in allocating public dollars is using those dollars to help create the kind of economy that made America great – and it has largely been lacking in the aerospace industry.

So it is a real dilemma – it is a real dichotomy: how do we engage competition and position ourselves to take advantage of the successes and accept the failures which inevitable occur in that environment while, at the same time, meeting the goals and objectives that we have as managers?

What I’ve come to, after considerable thinking (with some discussion and modifications to come) – for NASA: the best way to do that is to utilize the market that is offered by the International Space Station and its requirements to supply crew and cargo as the years unfold. For the next few years, we are going to be completing the assembly of the space station and supplying cargo to it using the space shuttle. That is in accordance with the President’ s policy directions initiated on January 14th 2004 in his major speech and following up with the space transportation policy. So for the next few years that is what we are going to be doing.

In the post-shuttle world (after 2010) we will have available the Crew Exploration Vehicle (CEV) that will be the follow-on to the shuttle for getting people in space. The CEV will have the requirement to carry astronauts to the Moon, and later, to Mars, but it will also have the requirement to carry astronauts to and from the space station. In our architecture planning we are making certain that unmanned versions can also carry cargo to the station.

So, there will – and there must – be a government-derived capability to service the space station even after the shuttle is retired. But because there must be such a capability does not imply to us that that is the way we would most prefer – to have cargo and crew logistics requirements for the station satisfied. What I would like to do is be able to buy those services from industry – and in fact I’d like to be able to buy those services from the industry represented in this group: the Space Transportation Association.

Let me remind you that in other venues the government operates military air. I have been on many military air flights. The government also buys tickets on commercial airlines. So one approach does not exclude the other. Today we don’t have, in the space industry, the equivalent of the airline tickets or the airline cargo delivery services. But, using the NASA market for this traffic to the space station, I believe we can help create one. And I believe that if we do it will lower the amount of money we have to pay for such services – because I think we all know that when we can engage the engine of competition, [using] American industrial prowess, services will be provided in a far more efficient fashion than when the government has to do it.

So, in keeping with these thoughts, what should we expect – and how am I trying to balance the conflicting requirements between the appropriate stewardship of public money and the desire to engage the engine of competition? What should you expect over the next few months?

There is a line in our budget called “ISS Crew and Cargo”. It is not overly well-funded right now – a couple of hundred million dollars – or something (I don’t keep that number in my head). We plan to use that to get us started on that process. I would expect to see – right from the outset – a departure from the more traditional RFP leading to a prime contract that we’ve all come to expect from NASA. You might expect to see a BAA for example. You might expect to see other transactional agreements – which NASA can do – as opposed to a classic prime contractor. There was a Rand Corporation study a couple of years ago citing the efficacy of other transactional agreements within the government as a mechanism for accomplishing stewardship of public funds (Its a very interesting report – one that I recommend to you).

[You can] expect to see the government looking to “make a deal” in a commercial sense. Again, rather than issuing a prime contract focused on process and on very detailed specifications on “how to do” things, [you should] look for a deal-making arrangement where we tell you what it is we want the requested services or good to be able to perform. For those of you that have spent any time in the world of communication satellites – look for that to be the model rather than the CEV procurement.

What are some characteristics of the deal that we might be willing to make? Despite the wishes and entreaties of those who would like me to dump $400-500 million on their enterprise (hopefully) – or on some enterprise – and then just stand back and wait to see if the results come in – that’s not going to happen.

If you are familiar with true commercial space arrangements, both sides have to have “skin” in the game. If I am a provider of a communications satellite capability to a firm that really only wants to make money, and, from their point of view, the satellite is just a transponder on a tall telephone pole, there is a very healthy tension that operates. The satellite owner has to pick a satellite provider. It doesn’t have the money to go out and pick two or three. It might have a leader-follower – or be carrying a couple [of companies] along, but by in large has to pick one in fairly short order and get on with it.

But, having picked a provider for a couple-of-hundred-million-dollar procurement, even in commercial terms it is a little bit like the joke about owing money to a bank i.e. if you owe $10,000 to a bank you’ve got a problem; if you owe $10 million to a bank they have a problem. Once I bet on you, if I am a commercial communications satellite procurer, I am now stuck. So I need to make sure that both sides have skin in the game.

If you are providing a satellite on commercial terms you never go into the black until that satellite is up, operating, and working – and maybe working for some time. In financial terms you’re always a little bit “pink”. I can’t allow you to go “deep red” because you might go out of business. And I won’t get many offerers if I make you do the whole thing on a vendor financing arrangement – the way I buy a car. I go down and buy a car that someone has already put their own money into building. That doesn’t work in the satellite world because what vendor is going to build a several hundred million dollar satellite built on spec? Not too many – and the price will be very high because competition is limited.

So, there is a tension between buyer and seller. The buyer has to provide milestone money and progress payment money depending on the meeting and achieving of certain milestones in the development of the bird (satellite) – but the seller never really makes money until the final product is delivered and working well. We need arrangements like that when we begin to develop this ISS crew and cargo procurement.

Another focus that we will be emphasizing is performance rather than process. In the communications satellite world I am interested in numbers of transponders, throughput of those transponders, projected life time of those transponders on orbit, pointing control of the satellite so that the antennas point in the right direction, numbers of spot beams, power levels – a variety of things like that – all of which can be characterized in performance terms. It is not up to me as the procurer of that service to determine how the engineers working for you provide that service. I do insist that you meet certain standards, capable of qualifying for insurance, because, if I am a procurer, I want to buy insurance on the spacecraft and the launch as part of the overall business package.

So, just like when we build ships and airplanes, there are standards to which such objects have to be designed and built – or they can’t be insured. The same thing is true in the true space arena. I would look for us to supply a floor of standards to which you must work. For example, if you are going to provide commercial crew services to us then human rating crew requirements must be respected. They don’t have to be respected to every ‘i’ dotted and ‘t’ crossed, and we are interested in push back on what is value added and what is not value added, but to ignore them is also not going to be acceptable.

Fundamentally, what we are going to be focusing on is what sort of performance crew and cargo delivery systems would require as opposed to what type of process they would have to follow.

[You should] look for us to conduct such a competitive procurement – and [you should] look for us to pick a “leader” with whom we will get started – and also to fund a couple of “followers” at the study level in case the leader falls off the track. Because, the leader is only going to continue to get his money if progress continues to be met. We will set up verifiable milestones, agreed upon in the deal, the way that any commercial deal would be done. When the terms and conditions are met, the money will be provided.

[You should] look for us to conduct our contracting on a fixed price basis. This is the way people buy things out in the world. I don’t go out and buy a car or an airplane or (pretty much) anything else on the basis of “why don’t you build me this car – and tell me how much it costs when you are done.” That’s not the way we are going to do things.

In exchange for that [you should] look to be required to provide a commitment to sell at a specified price if I provide a commitment to buy – at a specified number. Those are the kinds of commercial terms that people insist on. When you close a deal you usually have an option to buy a certain number of units at a certain price. There won’t be balloon payments at the end and there won’t be “get well” arrangements if you screw up. On the other hand, there will be fairly substantial rewards for people who can deliver.

Now when I say all of this – and I relate it to the one aspect of the space business that is truly commercial – or to other aspects of our economy with which we are all familiar – why is it that we call this kind of procurement in the space business “non-traditional”? We go around town and talk about setting aside money for ‘non-traditional’ providers – that has been a feature of our Exploration Systems Mission Directorate – one of which I heartily approve. When in fact, what I would offer is that we in the space business – and in fact in the government acquisition business in general – are the non-traditional procurers. Even as big as government procurement is, it is still (fortunately) only a fraction of the overall U.S. economy. The government budget is $2.5 trillion, whereas the economy is $10 trillion.

So, the traditional providers are the ones who are working in the fashion that I am describing – and that I want to bring to the space business. The non-traditional providers are what we have been doing. Not that it hasn’t worked well and accomplished many good things on our behalf. I still don’t think we can buy an ICBM or a launch vehicle quite yet from a “non-traditional provider”, although I’d like to get there.

So, I think my feet are firmly grounded in reality. But I am also grounded in the idea that we need to change some of the definition of reality. Think, that if we think about it, the “traditional” providers are the ones that we want to engage. So, over the next few months, look for these kinds of trends for us. I am going to try to meet those challenges – and I expect to do it with all of your help.

Thank you very much

Part 2: Questions and answers