Competitive contracts are making space exploration cheaper

The head of the National Aeronautics and Space Administration on Tuesday discussed a dramatic shift in how the agency plans to issue contracts for its space exploration programs, citing success with cost-saving competitive bids.

NASA administrator Bill Nelson, testifying before a Senate subcommittee on the agency’s budget for landing astronauts on the moon, strongly backed fixed-price contracts with companies – and decried more variable cost-plus contracts as “a plague” on the agency.

Nelson’s emphasis on competition likely represents a boon for the growing swath of space companies looking to provide low-cost services to NASA, and a sharp curtailing for aerospace and defense contractors that traditionally benefited from cost-plus deals.

Fixed-price contracts set a maximum payout for a good or service, while cost-plus agreements result in the government paying for the cost of the work, plus additional fees, which can balloon over the course of the project.

The biggest difference between the contract structures comes down to who picks up the bill for delays or cost overruns: fixed-price assumes the companies building the systems absorb any unanticipated expenses, while cost-plus leaves NASA on the hook.

NASA holds agreements of each structure for the most expensive parts of its lunar Artemis program: The Space Launch System (SLS) rocket and Orion capsule designed to take astronauts to the moon’s orbit, under cost-plus contracts, and SpaceX’s Starship rocket to carry the astronauts to the lunar surface, under a fixed-price deal.

NASA has awarded numerous multi-billion dollar cost-plus contracts to a wide variety of contractors to develop SLS and Orion, primarily to Boeing, the lead contractor building SLS; Lockheed Martin, leading Orion development; and Northrop Grumman, supplying the rocket’s boosters.

Since 2012, NASA has spent about $20 billion to develop SLS, and more than $12 billion on Orion, according to the agency’s Inspector General. And, not including development funding, the cost of each SLS launch has ballooned eightfold since 2012: From $500 million to $4.1 billion, with the rocket’s debut delayed five years and counting.

By comparison, NASA has had steady success with major fixed-price contracts – most notably through its Commercial Crew program. Under Commercial Crew, the agency awarded SpaceX about $3.1 billion and Boeing about $4.8 billion over the past decade to develop spacecraft to deliver astronauts to the International Space Station.

With the debut of SpaceX’s Crew Dragon in 2020, NASA began purchasing transportation services for its crew from Elon Musk’s company. And, while Boeing’s Starliner spacecraft has yet to fly crew, the company has absorbed the costs of its delays, rather than NASA.

NASA estimates that, due to the competitive approach, the Commercial Crew program is saving the agency between $20 billion and $30 billion.

SpaceX last year won a $2.9 billion fixed-price contract from NASA to use the company’s Starship rocket to deliver astronauts from lunar orbit down to the moon’s surface. SpaceX was the sole winner in a competition against two other privately-led landers, from teams led by Jeff Bezos’ Blue Origin and Leidos subsidiary Dynetics.

Nelson’s comments on Tuesday come as he urges Congress to approve funds for another competition, to develop a second lunar lander. He emphasized that SpaceX won because its bid was “by far the most economical of the three,” but said the agency now wants a second lander because, “with that competitive spirit, you get it done cheaper.”

“We can leverage that money by working with a commercial industry and, through competition, bring those costs down to NASA,” Nelson added.