SpaceX and ULA Offer Competing Views in Senate Hearing

Ready to Compete
Credit: SpaceX

The U.S. Senate Appropriations Committee held a sub-committee hearing this morning to examine changes taking place in the Department of Defense Evolved Expendable Launch Vehicle Program (EELV.)

Prior to today’s hearing, the GAO released a report regarding cost accounting in the EELV program, and like a number of prior reports it leaves the clear impression once again that the Department of Defense does not have adequate insight into what it has been paying United Launch Alliance for the services it receives.     

The report also helped to frame one of the key issues for today’s hearing, which involved which contracting method the U.S. government should employ as new entrants enter the EELV program.

Historically, United Launch Alliance has been paid through two mechanisms, the ELS contract which pays for launch services, and the ELC contract which is a blanket subsidy which covers a wide variety of overhead costs for 8 launches per year, regardless of how many launches ULA actually conducts.  As of 2013, the accounts were consolidated to provide a bit more clarity, but the distinction between individual launches and the overhead subsidy remains. As the GAO found, the split mechanism effectively confuses what any given launch costs, and ULA has included easily definable per launch costs such as rocket fuel as part of the subsidy rather than breaking it out by launches.

The question going forward then, is whether to attempt to compare bids between two very different systems, or to force both parties into a common frame of reference.

Should SpaceX be required to price its product as ULA does, installing similarly complex, and obviously somewhat expensive and confusing accounting standards?  

Or, should ULA be required to simply present straight forward per launch bids in open competition?

Not surprisingly, ULA desperately wants to avoid the latter scenario and keep its launch subsidy. Over the course of his statements, company president Michael Gass repeatedly referred to the launch market collapse in the late 1990’s as a justification for maintaining the “standing army” of engineers via the capability contract which he insisted was not a subsidy. Although when pressed by California Senator Diane Feinstein, Gass declared that ULA was “ready, willing and able” to engage in open competition, the balance of his statements suggested otherwise.

For his part, the soft spoken Elon Musk asserted that SpaceX could compete under any scenario, suggesting that in the case of highly specialized requirements, the Air Force could openly bid the launch and then issue a cost plus contract for the smaller portion of the award which called for capabilities outside industry norms.

Senator Richard Shelby of Alabama, whose antipathy towards SpaceX is palpable, began the hearing with a recitation of what seemed to be ULA talking points and then used his time for questions to explore whether or not open completion would present an unfair advantage because SpaceX would not have to comply with the same accounting and pricing standards that ULA does under the current system. It was a line of approach which seemed to overlook the fact that the GAO found such accounting to be lacking in the first place, and was further undercut when the GAO’s Christina Chaplain observed that under a competitive bidding process, ULA would no longer be required to adhere to those standards.

Musk also pointed out that even though SpaceX’s cost per launch for DOD at approximately $90 million is significantly higher than its commercial launch price at $60 million, due to the need for mission assurance, it is still far lower than ULA’s average cost per mission which is well in excess of $300 million. Not explicitly stated was the obvious conclusion that any increased overhead required by adhering to the current model would still be far less than prices charged by the incumbent.

The most significant issue on the table however, was one raised to a unusually high profile by recent events, ULA’s reliance on the Russian built RD-180 main engine for the Atlas V.  Here, Gass sought to allay fears by stating that his company maintains at least a 2 year stock of engines in the U.S., which Musk rebuffed by pointing out that the block buy is for 5 years, adding that he didn’t think it was a good policy that the U.S. has to ask Mr. Putin for permission to purchase the engines used for national security launches.

When pressed about domestic production, Gass asserted that his company has spent “hundreds of millions of dollars” translating Russian drawings and “proving” that the engine could be built in the U.S. He did not however, offer any explanation of why no actual engines have been built, and nobody pressed on this point. Also unaddressed was the lawsuit levied by Orbital Sciences against ULA over access to the same engine, and any mention of the Federal Trade Commission investigation of the same issue. 

It was up to Elon Musk to point out the obvious.  With two independent routes to orbit in the ULA Delta IV series and the SpaceX Falcon family, the logical solution is a phase-out of the Atlas V, a vehicle which has substantial foreign content in addition to the first stage engine.

In addition to the testimony given today, hearing Chair Richard Durbin of Illinois took the interesting step of requesting Mr. Musk and Mr. Gass to submit 10 additional questions to be asked of each other, the answers to which will be made public at a later date.