On Thursday, December 15, 2011, NASA management announced what seemed at first glance to be a very boring managerial decision. Future contracts with any aerospace company to launch astronauts to and from the International Space Station (ISS) will follow the same contractual arrangements used by NASA and SpaceX and Orbital Sciences for supplying cargo to the space station.

As boring that sounds, this is probably the most important decision NASA managers have made since the 1960s. Not only will this contractual approach lower the cost and accelerate the speed of developing a new generation of manned spaceships, it will transfer control of space exploration from NASA — an overweight and bloated government agency — to the free and competitive open market.

To me, however, the decision illustrates a number of unexpected consequences, none of which have been noted by anyone in the discussions that followed NASA’s announcement back in mid-December.

First, some background for those unversed in the complex bureaucratic battles of the space industry. For the past three decades NASA has used a fixed-price contractual arrangement when it wanted something built for its manned program. Under this system, NASA engineers conceived and designed the project. They then put it up for bid, and the contractor who won the bid built NASA’s design on a fixed budget.

Because NASA retained the right to supervise construction closely, with the further right to order changes or redesigns at any time, the final cost almost never matched the fixed price. With each change, the contractor would routinely submit additional bills, and the cost would rise and rise. Moreover, NASA’s constant and unpredictable supervision routinely slowed development down so much that quite often, nothing would get built at all. Consider, for example, the more than a half dozen attempts by NASA to build a space shuttle replacement. All together these projects cost the taxpayers billions. None were ever finished.

Sadly, this has been NASA’s history for the past three decades. Using the fixed-price contract system, nothing NASA has built for its manned program since the 1970s has come in on time or for its original budget.

And until the announcement on December 15, this was the contract system NASA wanted to use to hire private companies to build spaceships to get astronauts to low Earth orbit.

Not surprising, when NASA managers first announced that they wanted to use this approach at an engineering conference at the Johnson Space Center on July 21 2011, all the contractors involved protested loudly.

Elon Musk said he might pull out entirely. “We may not bid on it,” he noted during testimony at a House hearing on October 26, 2011. “It’s important that if the price is fixed, the terms must also be fixed.”

Nor was Musk alone. Practically every commercial space company designing manned spaceships for NASA expressed serious misgivings about using the old fixed-price system. Instead, these contractors wanted NASA to adopt the Commercial Orbital Transportation Services (COTS) contract used by NASA for the first time to hire SpaceX and Orbital Sciences to develop rockets and capsules for delivering cargo to ISS.

Under the COTS system, the design work was done entirely by the contractor. It was their rocket and capsule, with little supervision from NASA. All NASA did was certify periodically that the companies had met a sequence of general pre-agreed-to goals, which in turn resulted in a series of payments to the company.

The results from this system have been profound. Both SpaceX and Orbital Sciences successfully built their rockets and capsules for a tenth of the cost of what NASA would normally spend, and they did it in far less time. If all goes well, both companies will launch their first supply missions to ISS in 2012.

Despite this success, management at NASA wanted to go back to the fixed-price system, arguing mainly that without close NASA supervision there would be no way to guarantee safety.

Thus, for the past six months there has been a furious battle going on behind the scenes at NASA, with NASA managers demanding they retain control of future designs, and the new commercial companies telling them that they must give up that control. The entire future of the American space effort hinged on who would win that battle.

On December 15, 2011 we found out that the contractors were the victors. NASA managers had decided to use the COTS contract system, even though it means they no longer control future spaceship design.

So, what are the unexpected consequences from this decision?

First, the background to the decision illustrated forcefully how budget cuts are good for government operations, promoting efficiency and lower costs. In its original budget request, the Obama administration had requested $800 million for the commercial space program. Congress whittled that down to $406 million.

Though many in the commercial space arena complained loudly about this budget cut, by only getting half of its request the Obama administration was forced to rethink how it wanted to manage its commercial space program.

Had they gotten $800 million, NASA managers would have probably gone with the traditional fixed-price system. Though this system costs more, it also gives NASA more control. Moreover, though the system’s odious design requirements and paperwork would have eventually made that $800 million yearly budget completely inadequate, in the past this merely meant that NASA got more money, a totally good thing from a government manager’s perspective.

With only $400 million available and the likelihood that budgets would be tight in the future, however, NASA managers couldn’t go to the fixed-price system. There simply wasn’t enough money to make it work. “In the current budget environment . . . it’s really tough to lock into a firm, fixed-price contract with a number of providers that can keep us moving forward,” noted William Gerstenmaier, NASA’s human spaceflight chief.

Instead, they had no choice but to go with the much less expensive but more flexible COTS contract system, even if that meant they had to cede power to the private commercial companies.

The result for the taxpayer: more bang for the buck.

Second, this decision is probably a death sentence for the Congressionally mandated Space Launch System (SLS), the heavy-lift rocket that Congress wants NASA to build.

SLS doesn’t expect to fly its first unmanned test flight until 2017, followed by the first manned flight four years later, in 2021. During that time NASA expects this program to cost the taxpayer approximately $3 billion per year, with a total cost somewhere between $18 to $62 billion, depending on who you ask.

Under the COTS-type contract system, however, NASA will have anywhere from two to four companies competing to build manned spaceships. All should get built relatively quickly, in probably less than five years. Thus, it is likely that by 2016 the United States will have multiple ways to get humans into orbit, and they will have obtained the capability for probably less than $3 billion total.

Considering the dire state of the federal budget, and the likelihood that a much more fiscally conservative Congress will be in control after 2012, the foolishness of spending $3 billion a year for SLS, with very little payoff, will become increasingly obvious in the coming years. Why spend all that money for NASA’s rocket and capsule when there is a swarm of private companies providing the same thing for far less and far sooner?

My only complaint is that it will probably take Congress a few years to realize this obvious fact. But then, that is the way government operates.

SLS’s certain death, however, illustrates a third, far more important point: Thursday’s decision is eventually going to make NASA entirely irrelevant.

If a hoard of competing private companies can get us into space faster and for less money, why do we need a space agency? Wouldn’t it be better to let the free market decide where to go and how to do it? In coming years I expect the public and Congress will finally realize this fact, as these private companies demonstrate it for all to see.

Finally, this story illustrates a strange fact about space and history. While space exploration has always be considered the final frontier — a human activity on the edge of tomorrow — it has also predicted the future of human social activity, in ways completely unexpected.

For example, it was the Soviet space program in the 1980s that took the lead in introducing capitalism to the Soviet Union. The space program led, and the country followed.

In the United States, it was NASA’s space program in the 1960s that taught Americans to favor a government-run Soviet-style space program, rather than let private enterprise rule. Sadly, this Soviet-style American space program led, and the country followed. For the past half century the country has more and more emulated the Soviet Union in our love and reliance on government.

Now, space might be showing us a new path once again. This time, however, the path has more in common with older American values, of freedom and individuality and private enterprise, rather than a centrally designed government program conceived by politicians.

If so, let us all celebrate that future. For if private enterprise and freedom ends up taking us to the stars, it will also do so in the best way possible, allowing future explorers to live in a free society where they can follow their dreams and hopes, to the fullest, without hindrance.

And isn’t that the American way?