Bids in space: When should we outsource government science?

by Carolyn Gramling
Thursday, January 5, 2012

Government research and development has its limits: Time, money and bureaucracy can all hamper the timely progress of research. As a result, many federal agencies are looking to private companies to help drive new innovation and keep costs down — but it’s never that simple. Two current hot-button topics — returning humans to space and geoengineering — highlight a range of issues related to how private and public investment in science can coexist. This month, we focus on NASA.

Paying for the moon

When the U.S. budget briefings for fiscal year 2011 were held last February, NASA’s budget was one of the most eagerly anticipated. Rumors were flying that the agency might cancel the troubled Constellation program, an ambitious plan by the second Bush administration to return humans to the moon by 2020. The still-under-construction Constellation program had fallen behind schedule and run over budget.

One basis for those rumors was an independent panel, commissioned by the Obama administration in early 2009 to review the future of human spaceflight — and the fate of the Constellation program was one of the most urgent questions on the agenda. The fiscal year 2010 budget, announced in February 2009, had cut NASA’s budget for human space exploration by $3.4 billion. Through 2020, Constellation would receive $80 billion, $28 billion less than NASA had expected when it devised the program.

After several months of review, the panel released its findings in September 2009: They found that the agency simply didn’t have enough money to execute its existing human spaceflight plans. Given those limitations, the committee recommended using the commercial sector to defray its costs. It also recommended that NASA take a “flexible path” to develop new technologies that will ultimately take humans to Mars. Such a path would involve first exploring stepping-stone missions beyond low-Earth orbit, such as flybys of Venus and Mars and landing on an asteroid. But all of this will take money that NASA currently doesn’t have.

In search of space taxis

The fiscal year 2011 budget, announced by NASA Administrator Charles Bolden earlier this year, adopted many of the panel’s recommendations and proposed to introduce major changes, not only to the agency’s missions but also to its business model for developing new vehicles and other technologies. Under the new budget, the Constellation program would indeed be scrapped — and in addition, the three remaining, aging space shuttles would be retired in 2011.

Cutting those programs grabbed headlines. But it was the Obama administration’s plan to outsource NASA’s launch industry that really made news. As part of its proposed new direction, the agency announced it was seeking new private partners to develop spacecraft and technologies to take humans back into low-Earth orbit. In February, NASA awarded five American firms contracts totaling $50 million, in addition to two existing contracts totaling $3.5 billion through 2016 — all to become part of a new, commercial “space taxi” industry.

These plans have met with vehement congressional and public opposition. In late February and again in March, Bolden defended NASA’s budget proposal in hearings before the House Committee on Science and Technology, whose members expressed fears that cutting the Constellation and space shuttle programs would result in job losses and over-reliance on the Russian Soyuz spacecraft to ferry astronauts to the International Space Station while the new launch vehicles were being designed. The committee also expressed deep reservations about the push for privatization of space technology: During the March hearing, Gabrielle Giffords, D-Ariz., noted that these changes “would make this country dependent on yet-to-be developed ‘commercial crew’ services of unknown cost and safety, with no government-backup system available.” Regardless, the agency is moving ahead.

A history of public-private partnerships

In fact, plans to privatize the U.S. space program are hardly unique to the Obama administration. NASA has been pondering how to create a commercial space market for decades, says Henry Hertzfeld, an expert in space policy at George Washington University in Washington, D.C. Those plans began to pick up steam after the loss of the space shuttle Challenger in 1986, which highlighted the need for additional types of spacecraft. Then, in the 1990s, NASA began to explore the feasibility of an alternate access program to supply the International Space Station. This led to the Alternate Access Project, part of the Space Launch Initiative, a joint NASA-Department of Defense research and technology project to determine what new launch technologies would be necessary for the future of human space flight.

NASA commissioned a number of assessment reports on the topic by economists and private companies. In late 2005, then-NASA Administrator Michael Griffin made the case for privatization, stating that creating a competitive market would be more cost-effective and, in fact, a financial necessity, if NASA were going to complete its mission to return humans to the moon by 2020. In 2006, NASA moved a little further forward with these outsourcing plans, creating the Commercial Orbital Transportation Services (COTS) program, which awards funds to private companies to develop vehicles that would deliver crews and cargo to the International Space Station. The next phase of this plan, called the Commercial Resupply Services program, awards contracts for the actual delivery of crews and cargo.

Two years later, in December 2008, NASA awarded COTS contracts totaling $3.5 billion to two companies — SpaceX (Space Exploration Technologies Corporation) and Orbital Sciences Corporation — to develop spacecraft that would supply cargo to the International Space Station. This funding marked the first time NASA had significantly outsourced a large chunk of a human spaceflight program to aerospace companies, rather than just using them as contractors. The five companies awarded grants earlier this year — Sierra Nevada Corporation, Boeing, United Launch Alliance (a joint venture between Boeing and Lockheed Martin), Blue Origin and Paragon Space Development Corporation — will be responsible for developing different aspects of the system that will launch crews into space, including upgrading rockets to make them safer, building a launch escape system and developing life support systems.

How much more can NASA privatize?

All of this appears to create a trend of increasing privatization. But there is a limit to how much privatization can actually happen in this business, Hertzfeld says. He was one of the experts commissioned by NASA to write a 2005 economic analysis of the prospects for a commercial launch vehicle industry — and he did not take a rosy view of those prospects. “This [business] is not something that would ever become completely privatized,” he says. “It will always be a partnership.”

One reason, he says, is that the launch industry is a high-risk, high-capital business that needs heavy government subsidies to operate. Previous analyses of the commercial prospects for the use of space assumed that the cost of space travel would decrease over time — but historical trends don’t bear that out; launching vehicles into space is as costly as it was in the 1960s.

But equally important, he adds, is the question of demand. Ultimately, the government is the top customer for these launch products, which means NASA controls the U.S. market. And NASA has specific requirements for safety and regulation that it must insist that its contractors adhere to. “For example,” Hertzfeld says, “any time a vehicle gets close to the [International Space Station], NASA gets nervous, because it is a very expensive, delicate and important piece of equipment up there. … I don’t think they’re going to let the definition of what is safe lie totally in the commercial, private sector’s hands. It is a question of who’s taking the risk with the money to build [the vehicles]. And when push comes to shove, it’s the government, because it’s the government that needs the capability” to launch into space, he says.

When discussing the fiscal year 2011 budget, lawmakers have also expressed concerns that NASA’s plan to further privatize might ultimately return the responsibility to NASA to complete a project, should a company building a vehicle fail mid-project for financial or other reasons, or fail to meet NASA’s safety criteria. Administrator Bolden has responded to these concerns by stating that with more companies bidding to develop spacecraft, multiple companies might meet those safety criteria and provide necessary redundancy, so that at least one of them would succeed. But the question of whether NASA might be forced to step in to rescue a project — and pay the attendant cost — is still unclear.

All of these questions, Hertzfeld says, highlight why the launch industry isn’t a business that can be fully privatized — because NASA can’t afford to take the kinds of risks that come with a free market. “Price is not the allocator” for this business, he says, adding that aerospace companies have built plenty of launch vehicles — more than needed for current demands to launch payloads into space.

A not-so-new business model?

During a speech at Cape Canaveral, Fla., on April 15, Obama noted that NASA has been relying on contractors for years, but now the agency is broadening the field “to make space more affordable.” That affordability, he said, will be necessary if the U.S. is going to meet its lofty goals for human space flight — goals that the administration states include missions beyond the moon by 2025, first to an asteroid, and then to Mars by the mid-2030s. To meet these goals, “we can’t keep doing space exploration the way we’ve been doing it,” he said in the speech.

But it is still unclear whether the Obama administration’s plan will be economically feasible. And in fact, because NASA has always had partnerships with the private sector, which already builds the launch vehicles that NASA uses, the Obama administration’s plans do not amount to a significant change in NASA’s public-private partnership business model, Hertzfeld says. There are some differences: Historically, NASA has been very aggressive with setting the specifications and overseeing the production, and the new plan shifts — a little — “to letting the companies build and offer the services, for a price, to the government,” Hertzfeld says. But it’s not quite the same as a free market, he adds.

Still, NASA Administrator Bolden has echoed the Obama administration’s sentiment that such changes are the best way forward in his own defenses of the administration’s new plan. “We need a fundamental reinvigoration of the space effort,” he said at the budget briefing in February. And NASA and the Obama administration are gambling that by drawing in private companies, that’s what will happen.

Check back next month for another look at privatization: how private companies are investing in geoengin­eering research.

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