Bankrupt Company Run by Ex-Employees Must Compete for Mega-Contract

(Washington, D.C.) – Citizens Against Government Waste (CAGW) today chastised the National Aeronautics and Space Association (NASA) for trying to award a sole-source $277 million contract for launch services to Kistler Aerospace Corporation – a bankrupt company staffed by former NASA officials.  On Feb. 2, 2004, NASA issued a pre-soliticitation notice to Kistler for the contract to help demonstrate the ability of a commercial launch system to re-supply the International Space Station.  Following protests filed with the General Accounting Office (GAO), NASA yanked the notice yesterday. 

“It appears NASA tried to pull a fast one, bypassing full and open competition requirements by doing a sloppy job of assessing the qualifications of other applicants,” CAGW President Tom Schatz said.  “This comes on the heels of a presidential commission that recommended NASA rely more on the private sector.  An unwarranted sole-source contract that stinks of a kickback to former employees is a bad omen for NASA’s privatization efforts.”

NASA submitted the required documentation for a sole-source contract on May 3 – three months after the contract was effectively awarded, after NASA had rejected other interested applicants, and after a protest was filed at the GAO. 

When Kistler filed for bankruptcy protection in July of 2003, the company had slightly over $6 million of remaining assets, about $170 million in secured liabilities and over $400 million in unsecured liabilities.  The company's attorney put their chances of survival at 50-50.  Although Kistler has failed to produce a prototype of a reusable space vehicle after 11 years of work and $950 million of investment,  NASA expects the commercial launch systems data by the end of 2006.  Said NASA Deputy Chief Engineer Liam Sarsfield in an email: “I worry that Kistler’s financial arrangements are shaky (a conservative word), but the money is pocket change when you look at how much we blow through per annum.”

“NASA’s cavaliere treatment of $277 million shows that the agency has zero intention of easing its historic resistance to change,” Schatz continued.  “NASA thinks only in terms of gargantuan, budget-busting projects, real or imagined, and not of smaller-scale, low-cost missions. Mega-contracts, cost-overruns, contruction delays, accounting fiascos:  It’s all in a day’s work at NASA.  If Kistler wins the contract, it will perpetuate the black hole for tax dollars created by the International Space Station.”

Kistler’s management includes former NASA employees Dr. George Mueller, CEO and Chief Engineer, and Dick Kohrs.  Liam referenced the company’s NASA connections in justifying this award.  Kistler will require $650 million in additional funding to complete its first launch and $450 million to install its business plan.  In addition to the funds from NASA, Kistler is receiving debtor-in-possession (“DIP”) financing from the “distressed asset” investor Bay Harbour – best known in Washington for helping Nextwave Telecom hold onto and then sell billions of dollars of radio licenses after defaulting on $4.2 billion in auction fees it owed the government. 

“Everything about this contract screamed insider deal,” Schatz concluded.  “The process and the people involved did not ensure that the $277 million was well-spent.  Rescinding the sole-source contract might be a first step toward open and fair competition, or it might be a ruse to redirect the deal through a different channel.”

Citizens Against Government Waste is the nation’s largest nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, abuse, and mismanagement in government.