This is What Ash Carter’s Reform Looks Like

Upon assuming the office of Secretary of Defense in February 2015, Ashton Carter prioritized recruiting private sector companies – especially those in technology industries – to bid on contracts awarded by the Department of Defense (DOD).  Carter, who holds a PhD in theoretical physics and lectured at Stanford, had the chops to appeal to Silicon Valley tech mavens. 

Beyond the desire to tap into the innovation that exists in the private sector, the Pentagon is taking other steps to increase competition in contract bidding.  According to a 2014 report by the Center for Strategic and International Studies, half of the proposals listed by the DOD receive only one bid.  Part of the problem is the DOD is viewed by many contractors as being biased toward large, traditional contractors.  Carter has endorsed simplifying the procurement process to encourage startups to bid. 

The ascendancy of SpaceX to the competition for the next round of contract bids to launch DOD satellites represents a victory for the Carter procurement model.

SpaceX’s competitor for the contracts is most likely to be the United Launch Alliance (ULA), a joint venture of long-established aerospace contractors Lockheed Martin and Boeing, even though ULA stated on November 16, 2015 that it would not take part in the bidding.  This development left SpaceX as the sole remaining outfit certified for such launches, which was a shocking development, considering the company sued in April 2014 just to be allowed to bid.  SpaceX already transports astronauts and cargo to the International Space Station (ISS), and has claimed it could launch the DOD satellites at a drastically reduced cost compared to ULA. 

During the course of its decade-long monopoly on national security satellite launches, ULA’s Atlas V launch vehicle utilized a Russian-made RD-180 engine.  This became problematic following Russia’s incursion into Ukraine in 2014, which prompted objections from members of Congress over reliance on Russia for DOD missions.  The FY 2015 National Defense Authorization Act (NDAA) prohibited future use of the RD-180 for national security launches, but the FY 2016 bill, which passed the House but not the Senate, revised that policy to allow ULA to use four engines. 

ULA then claimed that even if it would be allowed to use four RD-180s, the engines it had in stock had already been assigned to other contracts.  Dropping out of the competition in November appeared to be a transparent attempt to force Congress to relax all restrictions on importing Russian engines. 

In a December 8, 2015 letter to Carter, Sen. John McCain (R-Ariz.) described the claim by ULA that it did not have any free engines as “especially dubious.”  He said, “Instead of setting those engines aside for national security launches, ULA rushed to assign them to non-national security launches that are unrestricted in their use of Russian engines.”  Sen. McCain also urged the Senate Appropriations Committee in a November 2015 letter to maintain the FY 2016 NDAA language allowing ULA to only use four engines.

However, the omnibus spending bill agreed to by Congress on December 18, 2015 reverses the ban on RD-180 imports, ostensibly allowing ULA back into the competition.  The legislation also appropriates $227 million to hasten development of a replacement for the Russian engine, $143 million more than the administration requested. 

The likely culprit for this gift to ULA is Senate Defense Appropriations Subcommittee member Richard Shelby (R-Ala.), who, on November 20, 2015, declared his intention to enable ULA to purchase additional RD-180s.  Of course, it just so happens that Decatur, Alabama is home to a ULA plant that manufactures the Atlas V.

Despite its victory in the omnibus appropriations bill, ULA may still face an uphill battle to retain the business it dominated for the past decade.  In explaining why the company initially dropped out of the competition, ULA Chief Executive Tory Bruno remarked that even if Congress allowed unfettered access to RD-180s, the conglomerate would still be at a disadvantage.  In a November 16, 2015 Washington Post article, Bruno stated, “The key elements of reliability and schedule, certainly our most important strengths, are not allowed to be considered to differentiate bidders … It comes down to being a price-only comparison, which takes our biggest strengths off the table.”

Lower prices are kind of the point of creating increased competition.

In the meantime, other new entrants in the aerospace market are making an impact.  Blue Origin, established by Amazon.com founder Jeff Bezos, made headlines on November 24, 2015 when its New Shepard craft completed a vertical landing of a returning rocket, which will allow it to be reused, cutting costs.  SpaceX has thus far failed in its attempts to land the Falcon 9 in a similar fashion, though the company faces a more difficult task, as its vessels reach an orbital altitude.  The Blue Origin, using BE-3 engines, is designed for brief suborbital flight (technically in space) for paying customers, not for heavy-lift launches.

ULA took notice of the upstart’s success, and on September 10, 2015 announced an agreement with Blue Origin to use the company’s BE-4 engines in its Vulcan rocket, a heavy-launch vehicle designed to carry substantial loads into space.  ULA expects the Vulcan, the successor to the Atlas V, to be ready by 2019.

All of these companies are engaged in a race to reusability, which will drive down costs for future contracts.  This competition is the natural result of allowing new participants to bid.  The cost savings achieved by reusability of rockets and engines would have been far less likely under the previous status quo, dominated by a sole contractor.

The forthcoming competition between SpaceX and ULA using the Atlas V (and potentially its replacement, the Vulcan, down the road) can be seen as a victory for Carter’s model of DOD reform.  Now the challenge will be to encourage more startups to apply for contracts in other areas of defense procurement.  Relaxing barriers to entry for firms to bid will help facilitate this goal.  Time will tell if the burgeoning competition over satellite launches will portend an era of increased participation in DOD contracting by new entrants from the tech sector, as envisioned by Carter, or if traditional defense contractors will continue to dominate a system that has been quite beneficial to them for many years.