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NASA to allow bidders on de-orbiting ISS to work under cost-plus contracts

In a major change of recent policy trends, NASA has decided to allow any bidders on the project to deorbit ISS to have the choice of working under either a fixed-price or a cost-plus contract.

In a procurement notice posted Dec. 5, NASA announced it would allow companies the choice of using either firm fixed price or cost plus incentive fee contract structures for both the design and the production of the U.S. Deorbit Vehicle (USDV).

When NASA issued the original request for proposals (RFP) for the vehicle in September, the agency gave bidders a choice. They could propose to develop the vehicle using a cost-plus contract and then produce it under a fixed-price contract, a so-called “hybrid” approach. Alternatively, they could propose doing both development and production under fixed-price contracts.

The revised approach now adds an option to perform both the development and the production under cost-plus contracts. NASA, in both the procurement notice and a blog post, did not disclose the reason for the change.

In recent years NASA had been shifting more and more to fixed-price contracts, because it works. It either forces discipline on companies, making them get the job done at cost and on time, or it reveals that the company is incompetent (as in the case of Boeing and its Starliner capsule), valuable information for future bidding.

I suspect that Boeing’s recent decision to refuse to sign any fixed-price contracts played a hand in this decision. For the last decade or so there have been many government officials who like to treat Boeing as their best friend, despite its recent failures. By doing so they increase the chances the company will hire them as consultants when they retire from their government job. Also, politicians tend to bow to this big company due to its large footprint in many congressional districts.

The result is this shift back to cost-plus. This will also mean that this project will likely go overbudget and behind schedule, as such contracts routinely do. The winning bidder will have no incentive to rein in costs. In fact, the nature of the contract will encourage just the opposite, as any cost overruns will be picked up by the government.

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On Christmas Eve 1968 three Americans became the first humans to visit another world. What they did to celebrate was unexpected and profound, and will be remembered throughout all human history. Genesis: the Story of Apollo 8, Robert Zimmerman's classic history of humanity's first journey to another world, tells that story, and it is now available as both an ebook and an audiobook, both with a foreword by Valerie Anders and a new introduction by Robert Zimmerman.

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  • pzatchok

    I bid 10 million for the contract and I am willing to give to several campaign funds a million each if they let be pay a very small fine when the thing just crashes into the atmosphere.

    (I am just looking for a nice million bucks in my pocket at the end of all of it but keep this a secret Big Joe).

  • Dick Eagleson

    This move certainly does seem to represent a bow to retrogressive political influence and the obvious source of said influence is Boeing. That being said, however, the “victory” here is hardly unqualified. All-cost-plus has merely been added to the list of permissible bid frameworks, not substituted for them. Boeing can now bid on terms it prefers, but that hardly assures it will emerge from the bid process with a contract. And if it does get the nod for a strictly cost-plus proposal, one or more of the other bidders seem certain to file protests and/or take other legal action seeking to overturn said decision. Pull up a chair and pop some popcorn. This show is just getting started.

  • Max

    Cost plus is the quickest way for a congressman and his friends to retire early. It’s a Democrat tradition. (I know, it’s called a lobbyist)

    SpaceX will probably bid then push it to a parking orbit for Elon musk‘s personal vacation home…. just think of its potential as a future museum/tourist attraction!
    That only if the Russians don’t have another accident and deorbit the space station for free!

  • Richard M

    At the risk of defending NASA management, I do have to wonder if this is not one of those occasional instances where a cost-plus contract might make some sense. Unlike COTS, CRS, CCtCap, or HLS, there isn’t going to be any competition for this job. This will be a one-and-done affair. We’ll never need to deorbit the ISS again. As such, NASA’s leverage to control costs is not the same. And I have the sense, too, that the bad experiences Northrop is racking up now on the Gateway core station*, another one-and-done project (NASA has continued to modify requirements, and it is believed that Northrop is eating enough of those costs that it will probably lose money on the thing) hasn’t got aerospace contractors a little gun-shy on this thing. How confident is anyone that NASA won’t do the same with the Deorbit Vehicle?

    VSECOTSPE, the fellow who initiated and oversaw COTS at Bush’s OMB back in the day, had a worthwhile observation on this whole question a few weeks back over at the NSF forums:

    ….[F]ixed price is not a panacea. In my own fixed-price ISS cargo transport development program (COTS), we had a contractor (RocketPlane-Kistler) fall out because they couldn’t raise funds. In the fixed-price crew transport follow-on program (CCDev), Boeing is still struggling with technical issues in Starliner that have delayed its entry by years. Again, suggest you read up on these programs — link below to the COTS history doc — instead of repeatedly hitting the c-o-s-t-p-l-u-s-b-a-d keys on your laptop.

    At the risk of getting on a soapbox… cost-plus versus fixed-price is just one toggle or tool among many in a manager’s procurement dashboard or toolbox. For example, in my experience, maintenance of competition is much more important than cost-plus vs fixed-price. If a contractor has the government over a barrel as the monopoly provider, the government is usually screwed regardless of what type of contract is being used. Requirements definition is probably second only to competition in ensuring successful procurements and programs. Cost-plus vs fixed-price is farther down the list. Other toggles and tools include legal regime (FAR vs Space Act), degree of partnering and cost-sharing, etc.

    Where the vast majority of NASA managers fail is not learning that these toggles and tools even exist in the first place, what their implications are, where they best fit different program types and goals, and obtaining good procurement and legal advice and support (one of NASA’s many soft underbellies) to choose the right tools and execute well with them.

    * I prescind from the whole question of whether the Gateway is even a good idea in the first place. But that ship has already sailed.

  • Richard M: What your NASA manager fails to realize is that the fixed-price contract wasn’t a failure in those cases where the companies have had problems. It was instead like an engineering test where the rocket explodes after completing all of the test’s initial goals. Fixed-price revealed companies that were not up to the task.

    For example, the problems at Boeing with Starliner finally made NASA managers look honestly at the company, and when it bid on the manned lunar lander, NASA rejected it immediately, recognizing in it the same kind of errors committed in the Starliner bid.

    In other cases, such as Northrop Grumman, the problems give the company a chance to recognize issues in the company itself, and insitute reforms. Whether Northrop Grumman does so will in time become obvious, and will give NASA better information should it bid again for future projects.

  • Richard M

    Hello Bob,

    (Nota Bene: Actually, VSECOTSPE (who prefers his real name not be publicized) was at OMB, not NASA – he just oversaw appropriations and policy over NASA at that posting.)

    I do not think he is arguing that “firm fixed price” is a bad idea, or even that it failed under COTS and CRS – because it certainly didn’t. It also was not, he adds, an easy road, either, and it worked because certain premises were in place: capabilities that employed some pretty well characterized technologies, and multiple vendor providers to keep everyone honest. These premises might not always be present in every future endeavor that NASA undertakes, though…

    But more immediately, I keep coming back to what he said: “If a contractor has the government over a barrel as the monopoly provider, the government is usually screwed regardless of what type of contract is being used.” That hasn’t happened yet with Commercial Crew despite SpaceX’s de facto monopoly, but how much of that is because NASA has SpaceX under contract already, and maybe also because Elon Musk does not want to kill the golden calf. Elon won’t live forever, though…

    I have a lot of unease about the Deorbit Vehicle program and how NASA management is approaching it, but it does remain true that you can’t really do this with multiple vendors. Eventually, a single vendor will have to be selected to do this job, and there won’t be anyone else to keep ’em honest. And honestly, if I were that vendor, I would want the requirements absolutely locked in so that NASA could not keep kibitzing it like they have Gateway.

  • Edward

    Robert Zimmerman wrote: “Richard M: What your NASA manager fails to realize is that the fixed-price contract wasn’t a failure in those cases where the companies have had problems. It was instead like an engineering test where the rocket explodes after completing all of the test’s initial goals. Fixed-price revealed companies that were not up to the task.

    It isn’t certain that Kistler was not up to the task. This was in a time when it was difficult for investors to believe that the government was really going to go with fixed price contracts, which had been tried before with at least one Air Force contract.* Kistler did not have the funding to successfully get a rocket to orbit, which may have improved investor confidence.

    What may have saved SpaceX was its success in getting a Falcon 1 into orbit and that the Falcon 9 was almost ready for a first flight. That may have led investors to believe that SpaceX could conceivably execute the contract without losing too much money. Musk convinced enough investors to put up enough money to reach the first milestone of the contract, so they received the first milestone payment. Commercial satellite operators were also confident in Falcon 9, and started booking flights.

    These days, thanks to the advancement of commercial space due to NASA’s fixed price contracts, it is far easier to find investors in non-communication space companies. The government monopoly on space access has been broken, and government is no longer a gatekeeper to space. The government monopsony as the virtual sole customer for space launches is broken, and commercial companies are beginning to make their fortunes operating in space (e.g. Axiom, Made In Space, and Nanoracks).
    * The contractor went over the quoted price, paid out of its own pocket, then got sued by the auditors for mischarging on a contract, using their own funds rather than invoicing the Air Force, making it look like they performed to budget. When it got to court, the judge recognized what the auditor could not understand — fixed price meant that excess expenses came out of the contractor’s pocket. The judge threw the case out of court. The whole experience was so bad that it took a quarter century before anyone was foolish enough to try fixed price again, in 2008.

  • David M. Cook

    Wouldn‘t it be easier & better to push the ISS to lunar orbit, rather than throw all that mass (and money) into the Pacific, as if it were a used Kleenex tissue?

  • Jeff Wright

    I just hope the module is hacked to boost ISS instead.

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