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How NASA’s Bill Nelson got religion on fixed-price contracts

Is the US government tired of subsidizing Boeing, Bechtel, and other contractors?

Rep. Bill Nelson prepares to enjoy a freshly peeled grapefruit on the middeck of the earth-orbiting Space Shuttle Columbia.
NASA
Bill Nelson in space.
This story was published on our Space Business newsletter, a glimpse at the economic possibilities of space
  • Tim Fernholz
By Tim Fernholz

Senior reporter

Published

Dear readers,

Welcome to Quartz’s newsletter on the economic possibilities of the extraterrestrial sphere. Please forward widely, and let me know what you think. This week: Nelson loves a prix fixe, preparing for Starliner’s debut, and a private rocket engine bulk-buy.

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Has NASA seen the light?

The head of the US space agency, Bill Nelson, told lawmakers this week that cost-plus contracts—which guarantee a profit for companies hired by the government—are “the old way of doing business” and a “plague” on NASA because they leave it on the hook for bad management and forecasts made by contractors. He’s asked deputy administrator Pam Melroy to make them less central to NASA’s procurement process.

As an example, he cited the contract the agency signed with Bechtel, the engineering firm, to build a mobile launch platform for a future deep space rocket. Bechtel, he said, appears to have underbid to win a $383 million contract. Now, the company needs more money, and NASA has no choice but to cover the overages itself.

The alternative is a fixed-price contract, which forces contractors to be realistic about what they can accomplish and, if they fail to deliver, to eat the cost themselves. These contracts were pioneered on a large scale through NASA’s efforts with SpaceX and Orbital Sciences, now part of Northrop Grumman, to develop new vehicles to service the International Space Station after the Space Shuttle was retired in 2011.

But what happens when a fixed-price contract goes awry? There’s no better example than the Starliner, the human-carrying space capsule Boeing is building for NASA under the same commercial crew program that saw SpaceX’s Dragon begin regular service to low-Earth orbit in 2020.

Starliner ran into problems during its first flight test in late 2019, which revealed deficient testing and development. A second attempt to fly the vehicle was scrubbed in 2021 after a number of propulsion valves got stuck. Boeing is expected to attempt the demonstration again on May 19. It’s not clear exactly how much all that delay has cost the company, but it’s at least $585 million, according to its earnings reports—money that NASA would have had to put up in a cost-plus contract.

A good deal for NASA can be a bad deal for its contractor—if the contractor screws up. The initial terms of the commercial crew contracts were $2.6 billion for SpaceX and $4.2 billion for Boeing. SpaceX also delivered its product two years late, which likely drove down its profit, though we don’t know how much margin was built into its bid. It does seem likely that added costs of more than 10% took a knock out of Boeing’s earnings, too.

Asked this week what Starliner means for Boeing’s bottom line, the company’s chief space engineer Michelle Parker declined to answer directly, saying her team was focused on completing the test program. But it matters for this model of procurement—fixed-price agreements work best for NASA and its contractors when the technology has applications beyond the US space agency. SpaceX’s Dragon has already flown two private missions to orbit. Parker did note that the Starliner is slated to play a role in transporting people to Orbital Reef, the space habitat currently being planned by Blue Origin.

Is there any reason to favor cost-plus contracts? The main answer is when contractors are being asked to build something entirely new, with substantial invention required.

To their detractors, cost-plus contracts often smack of pork barrel politics and log-rolling, with Boeing’s Space Launch System and Lockheed’s Orion spacecraft, two of the most expensive and delayed NASA programs, as poster children. NASA typically defended the contract structure as necessary to develop advanced technology, although it also insisted it was basing most of the SLS’s most important components on tried-and-true Shuttle technology.

The previous NASA chief, Jim Bridenstine, was seen as a champion of the new approach to buying space services. What makes Nelson’s comments so notable is his own long association with the traditional approach as a senator in Florida, where he was a champion of funding the space agency, to the economic benefit of his own constituents.

But after the Space Shuttle’s cancellation wreaked havoc on the space coast, it was NASA’s move toward fixed-price contracts with new space companies that helped bring it back. And it is those same companies and contracts that have given NASA its newest capabilities. Nelson, like the agency he leads, is an old dog learning new tricks.

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Imagery interlude

Here’s Boeing’s Starliner space capsule on top of a crawler at Kennedy Space Center, on its way to the building where it will be strapped on top of an Atlas V rocket. (It was an almost uneventful trip.) NASA and Boeing are both hoping the third time is the charm for its orbital flight test in about two weeks.

Boeing’s CST-100 Starliner spacecraft rolls out from the company’s Commercial Crew and Cargo Processing Facility at NASA’s Kennedy Space Center in Florida on May 4, 2022.
Image copyright: NASA

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What’s your position on penne? Some pasta lovers swear by the smoothness of penne lisce, while others say the ridges on penne rigate help the sauce stick. Who’s right? Tuck into the answers with this week’s episode of the Quartz Obsession podcast, on the rise of pasta as a global staple.

Listen on: Apple Podcasts | Spotify | Google | Stitcher

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SPACE DEBRIS

Catch and release. Rocket Lab’s effort to develop a reusable rocket took another step forward this week when a one-ton booster that launched 34 satellites was snagged by helicopter as it parachuted back to Earth, but dropped for safety reasons a few minutes later.

Learning to speak Rogozin. The head of Russia’s space program, Dmitry Rogozin, is known for his impetuous rhetoric, and several news organizations reported on claims that he announced the end of his country’s cooperation at the ISS. That’s not what he actually said, and it might make sense to hit the pause button before covering his next big statement.

Starlink, from coast to coast. Just 2% of the users of SpaceX’s satellite internet network are outside the US, Europe, and Australia, and customers in emerging markets are feeling left out. Still, the biggest obstacle to more customers is getting local regulators to let SpaceX in; India, where potential customers have been disappointed, is notoriously protectionist when it comes to foreign telecom companies. As an example, SpaceX didn’t have much luck winning market access in Ukraine until the war started, and now it may have 150,000 customers there.

200 rocket engines, please. Phantom Space, a small launch vehicle start-up, has put down a deposit for an order of 200 engines built by Ursa Major, a company founded by SpaceX and Blue Origin veterans to build envelope-pushing propulsion systems.

Can you hear me now? AST SpaceMobile received US government permission to launch a satellite this summer, which is designed to prove out the publicly traded firm’s technology for linking mobile phones directly to a satellite network.

Can you hear ME now? I joined the podcast Are We There Yet? to talk with WFME’s Brendan Byrne about what Axiom Space’s successful private mission to the ISS means for the future of the LEO economy, and how Elon Musk’s purchase of Twitter could impact SpaceX.

your pal,

Tim

This was issue 131 of our newsletter. Hope your week is out of this world! Please send your analysis of Starlink’s international business, the case for cost-plus contracts, tips, and informed opinions to tim@qz.com.

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