Dem Donor Wants Defense Contracts

Billionaire Elon Musk attempts to break open DoD contract bidding

Elon Musk / AP
April 29, 2014

A billionaire Obama donor trying to break into a market for Defense Department contracts says he will save taxpayers millions, but military officials and defense policy observers warn he could end up costing the country money and leaving the Pentagon reliant on an industry greenhorn.

The policy fight pits defense industry kingpins against an upstart contractor with little experience, high media visibility, and a hefty political footprint that includes deep ties to the Obama White House.

Private spaceflight company Space Exploration Technologies, commonly known as SpaceX, filed a legal complaint on Friday seeking to end a sole-source DOD contract for the United Launch Alliance (ULA), a joint venture of aerospace companies Boeing and Lockheed Martin.

Those two defense giants enjoy exclusive rights to the construction of 36 Evolved Expendable Launch Vehicles (EELV) over the next few years. The contract subjected "up to" 14 launch missions to competitive bidding by fiscal year 2017, but the Air Force this year reduced that number to seven.

Billionaire SpaceX CEO Elon Musk said his company could save taxpayers millions if allowed to compete for all of the missions, including those set aside as sole source ULA contracts.

"This exclusive deal unnecessarily costs U.S. taxpayers billions of dollars and defers meaningful free competition for years to come," Musk said in a Friday statement announcing a legal complaint to compel the Pentagon to consider SpaceX bids for EELV contracts.

The Air Force does not share Musk’s optimistic projections for the costs of competitive bidding for those contracts.

"There is no question that [ending ULA’s sole-source contract] would add extra expense into the launch program," Gen. William Shelton, commander of Air Force Space Command, recently told the House Armed Services Committee. "And I’m talking about significant expense."

Senior civilian officials at the Pentagon echoed that warning.

"We don’t know what it would ultimately cost," Gil Klinger, a space and intelligence official in the Pentagon’s acquisition office, told the committee. "We know that it's at least in excess of $370 million dollars. We don't know the exact figure."

Defense policy experts said minimizing costs to American taxpayers is indeed crucial, but that mission success should be the overriding factor.

"Looking at it from the U.S. Air Force’s point of view, the military needs extremely high reliability and a consistent schedule above all else for its launches; cost is a secondary consideration," noted Douglas Messier, co-founder of the Earth and Space Foundation and managing editor of the aerospace news website Parabolic Arc.

It is also unclear if SpaceX has the experience and expertise necessary to fulfill EELV contracts currently reserved for ULA.

"The reality is that the United States needs reliable access to space that is also affordable. Reliable here means not only systems reliability, i.e., do the rockets work, but also supply-chain reliability," Heritage Foundation research fellow Dean Cheng said in an email.

"A foolproof system that isn’t available because component suppliers can’t or won’t provide key parts is as bad, in some ways, as a system that might blow up on the launch pad—at the end of the day, a key payload is not entering orbit when we need it to," Cheng said.

SpaceX has completed two of the three successful EELV launches for a certification required of all contractors in the program. It expects to be fully certified later this year.

The company’s relative inexperience makes it a risky bet for DOD procurement officials, according to Jeff Kueter, president of the George C. Marshall Institute.

"Experience matters a lot when you are dealing with billion dollar, largely irreplaceable assets (i.e., national security satellites)," Kueter said in an email. "More competition is a good thing. Granted, SpaceX doesn’t have nearly as much experience, and their first several actual launches nearly failed."

Kueter acknowledged that that creates something of a "chicken-and-egg problem—if no one uses SpaceX, how are they to gain experience?"

Barring a legal decision in their favor, SpaceX will still be able to gain experience, but not on the 36 missions for which ULA contracts were set aside.

Underscoring concerns about SpaceX’s relative inexperience as a defense and aerospace contractor was Musk’s apparent ignorance of basic contracting procedures.

The lawsuit filed last week came months after the Air Force awarded ULA its 36 core contracts in December, which reduced the number of launches for which SpaceX would be allowed to compete.

Asked why the company waited so long to pursue legal action, Musk said he was unaware of the changes until March, when the Senate Appropriations Committee held a hearing on the issue.

However, Marcia Smith, president of the Space and Technology Policy Group, noted that the changes were posted on a federal government website listing contract availabilities in December.

"It’s inconceivable that Musk didn’t know about the bulk buy contract for three months. Everyone else did," Messier wrote. "The U.S. Air Force did nothing to hide it."

The company’s legal complaint last week is the latest in an intense pressure campaign to push up that timetable. It has "tried to get this decision reversed through political channels," Messier noted.

A defense industry source with knowledge of the contracting process said that Musk’s political sway in the Obama administration has been conspicuous in its fight with ULA.

"There’s no question, [SpaceX is] working the political angle both at the White House and Congress," the source said. "They went to the Hill and [falsely] convinced quite a number of people that there’s something nefarious going on" in the reduction of competitively bid EELV contracts.

Musk is a major political donor. He has given to both sides of the aisle, but was very supportive of President Obama’s reelection effort, joining a cast of Democratic moneymen in California in 2011 for a $35,000-per-plate fundraiser for the president.

SpaceX’s lawsuit signals an "escalation" from behind-the-scenes politicking to a full battle over DOD procurement policies with some of the largest companies in the business, defense industry analyst Jeff Foust told Forbes magazine.

"SpaceX has decided that they don’t see any other recourse against what they feel is an unfair contract. So they’ve decided to pursue a formal contract protest," Foust said.

A pillar of Musk’s messaging on the Hill has been his competitors’ ties to Russian businessmen being targeted by U.S. sanctions over that country’s invasion of Crimea.

ULA has a $2.8 billion contract with NPO Energomash, a Russian firm, to purchase RD-180 rockets for ULA launch vehicles.

"How is that we’re sending hundreds of millions in U.S. taxpayer dollars to Russia?" Musk said of the contract.

However, industry observers note that the United States comprises a mere 0.04 percent of Russia’s conventional arms trade, meaning Moscow will likely shrug off U.S. attempts to target that market.

"The cancellation of these contracts by Western and Central European countries would have very little effect," Dr. Sam Perlo-Freeman, an expert on military spending and arms production with the Stockholm International Peace Research Institute, told the Hill.

SpaceX did not return requests for comment.

Published under: Barack Obama , Elon Musk