Bloomberg News

GAO Calls for Review of Pentagon’s $15 Billion Rocket Buys

October 17, 2011

(Updates with contracting details, procurement strategy from 12th paragraph.)

Oct. 17 (Bloomberg) -- The U.S. Defense Department and National Reconnaissance Office plan to spend $15 billion on rocket booster cores without enough information to determine whether they’re getting a “fair and reasonable” price, according to government auditors.

A Government Accountability Office report released today questioned aspects of an Air Force and National Reconnaissance Office plan to buy eight booster cores a year from fiscal 2013 to 2017, a total of 40, to stabilize production. The booster core is the main component of a rocket.

“Some subcontractor data needed to negotiate fair and reasonable prices are lacking,” according to the report prepared for Representative C.W. Bill Young, a Republican from Florida, and Representative Norm Dicks, a Democrat from Washington. Young is the chairman of the House Appropriations Defense subcommittee and Dicks is the panel’s top Democratic member.

“The expected block buy may commit the government to buy more booster cores than it needs, and could result in a surplus of hardware requiring storage and potentially rework if stored for extended periods,” the GAO wrote.

The Pentagon “partially concurs” with GAO’s recommendation to reassess the length of the block-buy contract.

Space-Launch Competition

“The decision on specific contractual quantity and period of commitment will be balanced among price, operational requirements, budget realities and the potential for new entrant competition,” Ronald Jost, deputy assistant secretary of defense, wrote in a response included in the GAO report.

Getting certified cost and pricing data is sometimes “impractical,” Jost wrote. “It is not likely the prime contractor or the DOD will be able to obtain certified cost or pricing data for the Atlas V RD-180 engines, which are purchased from a Russian company.”

The report comes as the Air Force is finishing a procurement strategy and new entrant criteria for missions to launch national-security payloads, such as reconnaissance satellites. The strategy is expected to be completed “within the next few months,” according to the GAO.

United Launch Alliance LLC, a joint venture of Bethesda, Maryland-based Lockheed Martin Corp. and Chicago-based Boeing Co., is the government’s sole provider of military and spy satellite launches under a program called Evolved Expendable Launch Vehicle. The EELV program uses medium- and heavy-lift rockets to launch satellites into space.

Competition

The Air Force, National Reconnaissance Office, which manages the nation’s spy satellites, and the space agency NASA on Friday released a strategy designed to help companies compete for space-launch business. The agencies agreed to a common set of requirements and payload risk classifications.

“This strategy is intended to further enable competition and provide a consistent path for new entrants to compete,” according to the document.

Under the EELV program, the Pentagon awards a contract for each rocket as needed and a separate contract to cover ULA’s overhead and facilities cost, according to the GAO report. The bulk buy approach is designed to curb rising costs by stabilizing demand and production.

The GAO said more coordination between the Air Force, NRO and NASA may yield savings on fuel and other items that ULA buys for the EELV program office.

Savings Sought

“ULA charges up to an 18 percent profit on top of engine prices and to act as a broker for the program office on commodities like propellants bought from other government agencies, like NASA and the Defense Logistics Agency -- costs the program could avoid if it were to coordinate purchases directly from other agencies,” the report states.

The company buys engines under commercial subcontracts, which limits cost and pricing information available to the government, according to the GAO report.

The program office hasn’t had access to cost and pricing data for subcontractor hardware such as engines, motors and guidance systems on the Delta IV booster cores “for over a decade,” it states. The Air Force in 2007 waived Boeing from providing the information because it was not required under a commercial contract.

“Without certified cost or pricing data on the booster cores,” defense auditors “believe that program contracting officials have an inadequate basis on which to negotiate launch contracts,” according to the GAO report.

Less than half the EELV missions planned in recent years were actually launched, according to the GAO. The program’s launch rate was about 38 percent in the five-year period from fiscal 2005 through fiscal 2009, with 21 missions completed out of 56 missions planned.

“The Air Force believes a ‘bow wave’ of satellite payloads will be ready for launch in the near future as satellites previously delayed are nearing delivery and will require launch vehicles at an unprecedented rate,” according to the report.

--Editors: Steven Komarow, Terry Atlas

To contact the reporter on this story: Brendan McGarry in Washington at bmcgarry2@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net -0- Oct/17/2011 14:11 GMT


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