Sued from Orbit: SpaceX and the EELV Contract
On April 25/14, aerospace innovator SpaceX filed suit in US Federal District Court against the US government and the firm’s ULA competitor. Their legal challenge centers around the USAF’s multi-year sole-source, 36-core EELV contract with ULA, which was finalized on Dec 16/13. SpaceX claims that the USAF changed the rules for eligibility mid-stride, bent its own rules to remove planned competitive launches, locked in a contract with secret terms that further restrict competition, and made commitments that will cost the USA more than $6 billion.
The suit is significant enough that upon review, DID has expanded our coverage, and decided to dedicate a specific article to the suit as a single point of reference.
SpaceX Suit: Background & Structure
EELV is not a small program. US military budgets alone sit above $1.5 billion per year, plus almost $1 billion per year in infrastructure costs. In the Pentagon’s April 17/14 SAR brief, the program as a whole was listed as being worth an astonishing $67.622 billion through 2030. EELV has had a rocky history, and projected cost escalations after the 2005 merger of Boeing & Lockheed into the United Launch Alliance grew so high that in 2011, they forced a new acquisition strategy. The Pentagon & NRO’s homework included both intrusive and detailed pricing data for individual ULA rocket components, and self-scrutiny of the government’s own launch processes. A multi-year FY 2014 – 2017 contract for 35 cores was finalized in December 2013.
The original goal of NASA and the Pentagon’s EELV certification program was to compete 14 launches over the FY 2014 – 2017 block-buy period, but that was cut sharply in practice. Worse, the Dec 16/13 multi-year block-buy contract with the ULA isn’t public in any way, and there have been rumors that some terms cut competition even further. The full suit, as amended May 19/14, is structured as follows:
NATURE OF THE ACTION
JURISDICTION AND STANDING
A. The EELV Program
B. SpaceX Becomes an Established Launch Provider.
C. The Air Force’s Relationship with and Sole Source EELV Awards to ULA Face Criticism.
D. The 2012 Solicitation and J&A
E. The Under Secretary of Defense’s Acquisition Decision Memorandum, and the Air Force’s Commitment to Compete Launches When a New Entrant Becomes Qualified
F. SpaceX Completes All Requirements to Be Qualified to Compete for Single Core Launch Vehicles, and Will Be Certified to Perform EELV Launches This Year.
G. Recent Statements From Air Force Officials Indicate That the Air Force Will Continue to Order Single Core Launch Vehicles on a Sole Source Basis.
H. The Air Force Improperly “Early Awarded” One Launch Vehicle in December 2013, Three Years Prior to the Anticipated Launch Date.
I. The Continued Use of Less Than Full and Open Competition Will Cost Taxpayers Close to $6.6 Billion.
COUNT I – DECLARATORY JUDGMENT THAT THE AIR FORCE MUST PROCURE EELV LAUNCH VEHICLES CONSISTENT WITH CICA AND FAR PART 6.
COUNT II – REQUEST FOR PERMANENT INJUNCTIVE RELIEF TO DIRECT THE AIR FORCE TO CONDUCT FULL AND OPEN COMPETITION FOR ALL FUTURE ORDERS FOR EELV SINGLE CORE LAUNCH VEHICLES
COUNT III – REQUEST FOR PERMANENT INJUNCTIVE RELIEF TO DIRECT THE AIR FORCE TO CONDUCT FULL AND OPEN COMPETITION FOR ANY DECEMBER 2013 “EARLY ORDER” LAUNCH VEHICLES THAT ARE NOT SCHEDULED TO LAUNCH UNTIL FY2017
More information can be found at “The Rockets’ Red Ink: from EELV to a Competitive Space Launch Future“:
Contracts & Key Events
May 22/14: Twitter Accusation. Elon Musk’s Twitter account fires a shot at former USAF PEO Space launch Scott Correll, who negotiated ULA’s block contract and is now at Aerojet-Rocketdyne as VP Government Acquisition and Policy:
“Air Force official awards $10B+ contract uncompeted & then takes lucrative job w funds recipient [DID: link]”
“V likely AF official Correll was told by ULA/Rocketdyne that a rich VP job was his if he gave them a sole source contract”
“Reason I believe this is likely is that Correll first tried to work at SpaceX, but we turned him down. Our competitor, it seems, did not.”
“Either way, this case certainly deserves close examination by the DoD Inspector General per @SenJohnMcCain’s request [DID: link]”
SpaceX had made the point in a less directly accusatory way as item 106 in its original legal brief, but retreated even further to an arm’s length statement in their amended legal filing of May 19th (q.v. May 19/14), citing the same National Legal and Policy Center NGO article noted in Musk’s Tweet. From “Space Launch Deal Puts Spotlight on Revolving Door”:
“46. ….”From March 2011 to January of this year, Roger “Scott” Correll was the official at the Pentagon responsible for procuring launch services from private companies. One of his last official acts before his “retirement” in January was to oversee a deal with a company called United Launch Alliance (ULA) for a whopping 36 future launches. ULA is a joint venture of Boeing and Lockheed. This month, Correll popped up with a new job with Aerojet Rocketdyne, which just happens to supply rocket engines to ULA. His title is Vice President for Government Acquisition and Policy, seemingly more than befitting of his role.”
Musk’s Twitter volley more then negates any defensive legal benefits of that soft-pedaling. It’s an extremely serious accusation – people have gone to jail for this, which is why Correll’s hiring about a year after the contract’s signing was cleared through the USAF General Counsel. It’s also logically obvious that trying to work at SpaceX after awarding the block-buy would destroy the idea that the ULA contract was a quid pro quo. Legally, SpaceX had better have some proof that Correll solicited a job with them before he left the USAF, or there’s probably a defamation suit in Musk’s future. One wonders if triggering that kind of suit is the point here, given the additional opportunities it would give SpaceX for legal discovery procedures. Sources: elonmusk@Twitter, Tweet 1 | Tweet 2 | Tweet 3 | Tweet 4 || NLPC, “Space Launch Deal Puts Spotlight on Revolving Door” | Business Insider, “SpaceX’s Dispute With The Air Force Just Got Even Uglier” and “Elon Musk Isn’t Backing Off Some Of His Most Serious Accusations Against The Air Force” | Spaceflight Insider, “Elon Musk suggests former USAF officer got Aerojet Rocketdyne position for sole source contract with ULA” | Space News, “Editorial | Trial by Twitter.”
May 19/14: SpaceX suit. SpaceX amends its original suit in Federal District Court, and puts up a link on their FreedomtoLaunch.com site. These excerpts lay out the core of their suit, while mentioning that the Dec 16/13 order for GPS-III SV2 was far in advance of normal orders (FY 2015 would be more normal for an FY 2017 launch), and had the effect of depriving SpaceX of a likely opportunity to compete. We see the most critical excerpts as:
[fn. 29] On March 20, 2014, the Air Force issued a letter that violates Under Secretary Kendall’s representation to the GAO that the competitive solicitations be issued for future launch vehicle orders as soon as SpaceX submitted its flight data from its third qualifying launch. While recognizing that competition and final certification should occur “in parallel,” the March 20 letter imposed additional requirements for an RFP release…. Despite the fact that SpaceX is now qualified to compete for these missions and will be certified to perform them long before they are scheduled to launch, recent statements from Air Force officials indicate that it intends to continue to order Single Core Launch Vehicle on a sole source basis from ULA.
[fn. 30] At some point prior to March 6, 2014, the Air Force decided to postpone indefinitely five satellite missions, GPS III-7, -8, – 9, -10, and -11, all of which had previously been designated by the Air Force as missions to be competed w ith launches to be executed in FY2018-FY2019. The Air Force justified the delay based on its view that the GPS constellation of satellites is “healthy.” This justification is seemingly inconsistent with the Air Force’s prior representations that the constellation is fragile and in need of imminent replenishment. E.g., Gen. William Shelton, remarks at a Mitchell Institute breakfast (2/7/ 2014), available at http://www.nationaldefensemagazine.or g/blog/Lists/Posts/Post.aspx?ID=1402 …. It is also inconsistent with the fact that the Air Force recently funded certain GPS III missions as “early to need” on a sole source basis to ULA. Regardless, SpaceX is not at this time protesting the indefinite de lay of these five missions. All SpaceX asks is that whenever the Air Force decides to order these missions, it does so through full and open competition in accordance with the law.”
70. ….Any decision to enter into a long-term sole source contract with ULA on December 18, 2013, only days before SpaceX completed its final qualifying launch, in order to achieve “economies of scale” was patently irrational….
71. Finally, based on recent conversations with Air Force officials and consistent with Secretary James’s April 21 letter, SpaceX understands that the Air Force believes it has to procure from ULA a certain minimum “guaranteed” number of launch vehicle cores in each and every fiscal year (subject to appropriations) before it can open the procurement of any launch vehicles to competition. In other words, unless the Court directs otherwise, SpaceX will lose the opportunity to compete for hundreds of millions of dollars of business for which it is qualified compete, every year through FY2019.
April 25/14: SpaceX sues. SpaceX files a formal legal challenge to the USAF’s long-term, sole-source, 36-core EELV contract with ULA. Their release says that EELV is 58.4% above initially estimated costs on each launch, and estimate cost savings of 75% from each SpaceX launch. More to the point, however, the allege that the block-buy deal, which has not been made public, contained clauses that negated the government’s promise of open competition before 2018:
“The contract with ULA was negotiated and executed outside of public view and has never been made public…. What SpaceX did learn, the day after the March 5th Senate hearing on EELV competition, was that the 14 missions the Air Force had said it would compete had been cut to at most 7 (and potentially a few as 1), and that this reduction was required for the Air Force to comply with previously unknown requirements contained in the block buy contract….. Clearly the block buy contract is in direct opposition with the very notion of competition. It maintains the ULA monopoly until at least 2018, perhaps well beyond. And it will needlessly cost taxpayers billions of dollars…. To be clear, SpaceX is not seeking to be awarded any launch contracts. We are simply seeking the opportunity to compete—and not just for SpaceX, but for any qualified company. If we compete and we lose, that’s ok too.”
The SpaceX releases also cite The Atlas V’s Russian RD-180 engine, produced by state-owned NPO Energomash, which is overseen by Deputy Prime Minister of Russia in charge of defense industry Dmitry Rogozin. Rogozin is best known to the world as the guy who mocks other world leaders on Twitter when they criticize his government, and he had personal sanctions placed on him by the US government in March 2014. Sources: SpaceX, “SpaceX Announces Court Action To Open Air Force Space Launch Missions To Competition” and “EELV: The Right to Compete” | Washington Post’s The Switch, “Why Elon Musk is throwing his biggest potential customer under the bus”.
SpaceX sues for competition
April 25/14: Politics. Concurrent with the lawsuit filed by SpaceX, Sen. McCain [R-AZ] is taking actions of his own:
“The first letter is to Secretary of the Air Force Deborah Lee James requesting additional information about her recent testimony regarding the EELV program before the Senate Armed Services Committee on April 10, 2014, and conveying concern about the apparently incomplete and incorrect nature [DID: emphasis ours] of some of that testimony. The second letter is to the Department of Defense Inspector General Jon T. Rymer requesting that his office investigate recent developments regarding the EELV program.”
Sources: Sen. McCain’s office, “Senator Mccain Seeks Information On Air Force’s Evolved Expendable Launch Vehicle (EELV) Program”.
March 5/14: Politics. SpaceX CEO Elon Musk gives testimony to the Senate Committee on Appropriations’ Defense Subcommittee. His basic message is that once competition is possible, every launch should be competed on a firm fixed-price basis, and ULA’s $1 billion per year subsidy should be removed. His firm isn’t certified for national security launches yet, but he hopes that a very involved and intrusive process involving over 300 government officials will be done by year-end. Key excerpts:
“I commend the United Launch Alliance (ULA) on its launch successes to date. However, year after year, ULA has increased its prices…. In FY13 the Air Force paid on average in excess of $380 million for each national security launch, while subsidizing ULA’s fixed costs to the tune of more than $1 billion per year…. By contrast, SpaceX’s Falcon 9 price for an EELV mission is well under $100M… and SpaceX seeks no subsidies…. had SpaceX been awarded the missions ULA received under its recent non-competed 36 core block buy, we would have saved the taxpayer $11.6 billion…. now we have serious concerns that it may not be the case that 5 missions [planned outside the block buy] will be openly competed [in FY15]…. To be clear, every mission capable of being launched by qualified new entrants should be competed this year and every year moving forward…. Consistent with federal procurement regulations and DOD acquisition directives, when a competitive environment exists, the Government should utilize firm, fixed-price, FAR Part 12 contracts that properly incent contractors to deliver on-time and on-budget. That also means eliminating $1 billion subsidies to the incumbent, as those subsidies create an extremely unequal playing field.”
Air Force data that wasn’t public until the GAO’s report yesterday (q.v. March 4/14) show $2.247 billion in FY13 funding for 11 launches from all EELV customers, which works out to $204 million per launch. The comparison may not be exact – either way, ULA’s problem is that they’re unlikely to be able to compete with SpaceX on a level playing field, now that SpaceX has refined rockets whose significantly lower costs are a product of hardware research & design. The GAO has explained why pure fixed-price competition is best for SpaceX, but the implications go farther. ULA’s problem isn’t just competitive, it’s existential. Firm-fixed price competition for every launch, under a structure that eliminated byzantine cost-reporting systems, could turn ULA into a sharply-downsized bit player very quickly.
To survive, ULA has 3 options: (1) Hope that lobbying funds can deliver them contracts by skewing competitive structures, and limiting competition, regardless of costs to the government, even as military budgets shrink; (2) Deliver new designs with different cost points, soon, thanks to major, fast-moving and wide-ranging internal design efforts that are already underway; (3) Hope that future accidents force SpaceX into a lesser launch status, and force Falcon redesigns with higher costs. Just to make things really interesting, and highlight the need for #2, Musk’s testimony makes a pointed reference to the Atlas V’s Russian engine:
“Our Falcon 9 and Falcon Heavy launch vehicles are truly made in America…. the United Launch Alliance’s most frequently flown vehicle, the Atlas V, which uses a Russian main engine and where approximately half the airframe is manufactured overseas. In light of Russia’s de facto annexation of the Ukraine’s Crimea region and the formal severing of military ties, the Atlas V cannot possibly be described as providing “assured access to space” for our nation when supply of the main engine depends on President Putin’s permission. Given this development, it would seem prudent to reconsider whether the 36 core uncompeted, sole source award to ULA is truly in the best interests of the people of the United States.”
Dec 16/13: FY14 Production. United Launch Services LLC in Littleton, CO receives a $530.8 million firm-fixed-price contract modification, which finalizes the multi-year FY 2014 – 2017 contract, and sets the FY 2014 buy (q.v. June 16/13, Oct 18/13: TL $2.558 billion). Which may explain why $679 million in FY 2014 funds can be committed immediately.
Recall that the FY 2014 budget (q.v. April 10/13) begins a split between EELV Launch Capability (ELC) and Launch Services (ELS). This is the ELC award. ULA will produce the following configurations: Air Force Atlas V 501, Air Force Atlas V 511, Air Force Delta IV 4,2, Air Force Delta IV 5,4, and a National Reconnaissance Organization Delta IV Heavy. Orders for FY 2015 – 2017 will have to be exercised separately.
Work will be performed at Centennial, CO; Vandenberg AFB, CA; and Cape Canaveral Air Station, FL, and is expected to be complete by Q2 2018. The USAF’s Launch Systems Directorate at the Space and Missile Systems Center (SMC), Los Angeles AFB, CA manages the contract (FA8811-13-C-0003, PZ0001).
ULA Rockets bought, Block buy finalized
April 10/13: FY14 Budget. The President releases a proposed budget at last, the latest in modern memory. The Senate and House were already working on budgets in his absence, but the Pentagon’s submission is actually important to proceedings going forward. See ongoing DID coverage.
This budget describes major changes in the EELV program, whose components have been moving into place for a couple of years now. These changes include the use of the Open Launch Framework to compete almost 30% of planned launched through FY 2017. In addition, beginning with the FY 2015 budget submission, EELV Launch Services (ELS) and EELV Launch Capability (ELC) support will become separate budget lines.
Major shifts for EELV
- US Court of Federal Claims – Civil Action No. 14-354C, SPACE EXPLORATION TECHNOLOGIES CORP. v. THE UNITED STATES and UNITED LAUNCH SERVICES, LLC. This is the legal suit as amended May 19/14.
- Business Insider (May 29/14) – This Legal Footnote Explains The High Stakes Of Elon Musk’s Lawsuit Against The Air Force.
- SpaceX (April 25/14) – SpaceX Announces Court Action To Open Air Force Space Launch Missions To Competition.
- DID – The Rockets’ Red Ink: from EELV to a Competitive Space Launch Future.
- Business Insider (June 5/14) – Elon Musk Isn’t Backing Off Some Of His Most Serious Accusations Against The Air Force. Includes a screenshot excerpt of item #106 from the original legal suit, which deals with Carroll. It was removed and replaced with Item #49 in the amended suit.
- Space News (June 2/14) – Editorial | Trial by Twitter. It says that Musk crossed a big red line. They’re right.
- Forbes (June 2/14) – SpaceX Versus The Air Force: The Other Side Of The Story. By Loren Thompson of the Lexington Institute. He explains a policy argument, but not the legal argument; indeed, he doesn’t address the lawsuit directly.
- National Legal and Policy Center (May 18/14) – Space Launch Deal Puts Spotlight on Revolving Door.
- US GAO (March 4/14, #GAO-14-377R) – The Air Force’s Evolved Expendable Launch Vehicle Competitive Procurement.