In 2011, the Air  Force established a process for certifying new competitors to be able to  launch national security satellites, and in November 2012, the Under  Secretary of Defense for Acquisitions, Technology, and Logistics directed  the Air Force to introduce a competitive procurement environment for up   At the time of this decision, those 14 missions were the  to 14 launches.only ones that were within the lift capability of the potential competitor,  SpaceX’s Falcon 9 launch vehicle; the missions that the Falcon 9 was not  capable of launching were included in ULA’s Phase 1 contract. The acquisition approach for the procurement of launch  services in Phase 2 is currently under development. The Air Force is Changing its Approach to Acquiring Launch Services, and Its New Approach Will Provide Less Insight Into Contract Costs and Performance in Favor of Incentivizing Competition

The Air Force is changing its approach to acquiring launch services with  the Phase 1A contracts, which will alter its insights into some program  cost and performance data. Specifically, the Air Force intends to  introduce competition for certain launches, treat these launches as a  commercial item procurement, and award firm-fixed-price contracts for  the launches. In addition to providing cost information, the data from ULA’s business  systems also gives the Air Force insight into contract performance. Air Force  officials use this data to identify risks in the program that could affect its  cost, schedule or performance, and allow them to identify these risks  early enough to mitigate them. While the Air Force considers the level of CCDR  data sufficient for monitoring launch costs in a competitive acquisition  environment, it is not a direct substitute for cost insight gained through  ULA’s current non-commercial contract. Had the Air Force chosen to make part  or all of the competitive launch contracts non-commercial cost- reimbursement, it would have required the contractors to submit data  from DOD-approved business systems. According to the Air Force, competition among  launch providers benefits the government both by having commercial  marketplace pressures assure prices are reasonable, and by growing  the launch industrial base, which increases the potential that more  than one launch company will be commercially viable in the future. Minimizes the Air Force’s cost risk: For the Phase 1A competitive  launches, the Air Force will use firm-fixed-price contracts, which place  greater responsibility upon the contractor for cost control and  minimize the service’s cost risk. The work that the Air Force  put into the PWS development gave the Air Force confidence that the  procurement of the launch services as a commercial item could be  successful, because the full scope of the Air Force’s needs were  considered and included in the PWS and thus, the contract. Restricts launch schedule flexibility: The contract structure for Phase  1A launches will limit the Air Force’s flexibility to make changes to the  launch schedule to manage satellite delays. The Air Force’s ability to  modify its launch schedule and exchange satellite payloads when  satellite production delays occur has been an important part of the  EELV program, and under the Phase 1 contract with ULA, it has  flexibility in this process. The EELV Program Faces Risks That Could Impact Future Competitions

The Air Force is currently updating its EELV acquisition strategy but it is  not clear whether it plans to gather sufficient knowledge to address the  EELV program’s future acquisitions risks. However, the commercial launch market is currently undergoing changes,  and the ability of both the federal government and the commercial launch  market to sustain two or more launch providers is unknown at this time. Given the lack of recent experience with the Air Force’s  competitive acquisition approach to procuring launch services and  uncertainties about the launch industry going forward, it is important for  DOD to ensure it can incorporate lessons learned from the first phase of  competition into future phases of its acquisition strategy. Recommendation for Executive Action

When planning for the next phase of national security space launches,  Phase 2, we recommend the Secretary of the Air Force consider using an  incremental approach to the next launch services acquisition strategy. Planning for acquisitions on a short term basis will help ensure that the  Air Force does not commit itself to a strategy until the appropriate amount  of data is available to make an informed decision, and will allow for  flexibility in responding to a changing launch industry. Appendix I: Scope and Methodology

To determine the cost and performance data that the Department of  Defense (DOD) requires from contractors under the first competitive  launch contracts and how those data compare to what is required from  the incumbent contractor, we examined the first competitive launch  Request for Proposals issued in 2014, which was later canceled, as well  as the National Space Transportation Policies of 2004 and 2013, parts 12  and 15 of the Federal Acquisition Regulation (FAR), and the Commercial  Space Act of 1998. Additionally, we reviewed past and current Evolved  Expendable Launch Vehicle (EELV) program contracts and examined the  cost reporting requirements. To determine the benefits  and drawbacks of the Air Force’s approach for the first competitive  launches, we interviewed acquisition and contracting officials at DOD,  CAPE, the Air Force, and the EELV program office. To understand the risks  facing the Air Force when planning for future launch acquisitions, we  reviewed commercial launch market forecasts, the National Defense  Authorization Act for Fiscal Year 2015, and interviewed Air Force officials  regarding Phase 2 acquisition strategy planning.
Why GAO Did This Study

The Air Force's EELV program is the primary provider launches for military and intelligence satellites. The Air Force is working to introduce competition into the program, which for almost 10 years had one company capable of providing launches. In working to introduce competition into launch contracts, the Air Force is changing its acquisition approach for launch services, including the amount of cost and performance data that it plans to obtain under future launch contracts.
Given these expected changes, the National Defense Authorization Act for Fiscal Year 2015 included a provision for GAO to examine this new approach. This report examines the (1) Air Force's new approach for competing launches, the resulting changes on the types of cost or performance data required and commensurate business systems needed compared to what is currently required of the incumbent contractor, and the benefits and drawbacks of this approach; and (2) risks the Air Force faces when planning for future launch acquisitions. To address these questions, GAO reviewed acquisition documents and the contract request for proposals, and interviewed DOD and contractor officials.

What GAO Found

The Air Force intends to make significant changes to its acquisition approach for acquiring launch services under the Evolved Expendable Launch Vehicle (EELV) program which will alter its current access and insights into certain cost and performance data. The United Launch Alliance (ULA)—EELV's incumbent provider—currently provides national security space launch services under a cost-reimbursement contract for a non-commercial item. Under this type of contract, the Air Force is able to obtain from ULA cost and performance data from contractor business systems. The Air Force uses this business data for a variety of purposes, including monitoring contractor performance and identifying risks that could affect the program's cost, schedule, or performance. However, for at least the first phase of future launches, the Air Force chose to change its acquisition approach to procure launch as a commercial item using a firm-fixed-price contract, which will prevent the service from collecting business data at the same level of detail. As a result, the Air Force will have significantly less insight into program costs and performance than what it has under the current contract with ULA, though according to the Air Force the level of information gathered is sufficient for monitoring launch costs in a competitive environment.
The acquisition approach chosen for the first competitive launches offers some benefits to the government, including increased competition, but it could limit program oversight and scheduling flexibility. The Air Force asserts that the use of full and open competition procedures in a commercial item acquisition will increase the potential to keep more than one launch company viable. The Air Force's use of commercial item contracts eliminates the need for contractors to develop the business systems associated with a cost-reimbursement contract and generally places greater responsibility upon the contractor for cost control. However, the Air Force has struggled with EELV program management and lack of oversight in the past, and removing the requirement for cost and performance data could leave it vulnerable to similar problems in the future. Also, the first competitive contracts will limit the Air Force's flexibility in modifying its launch schedule, and schedule changes resulting from satellite production delays may result in added costs. Satellite delays have historically been an issue for the program, and the Air Force's ability to modify the launch schedule is an important component of the current acquisition approach with ULA.
The Air Force is at risk of making decisions about future EELV acquisitions without sufficient knowledge. The Air Force plans to develop an acquisition strategy for the next phase of competitive launches before it has any actionable data from the first competitive launches. In addition, the Air Force views competition as crucial to the success of its new acquisition strategy, yet the viability of a competitive launch industry is uncertain. The launch industry is undergoing changes, and the ability of the domestic industry to sustain two or more providers in the long-term, while desirable, is unclear. Additionally, only one company is currently certified to compete with ULA for national security launches, and there are no other potential competitors in the near future. To adequately plan for future competitions and ensure informed decision making before committing to a strategy, it will be important for the Air Force to obtain knowledge about its new acquisition approach and on the launch industry.

What GAO Recommends

GAO recommends that, when planning for the next phase of competition for launches, the Air Force use an incremental approach to the next acquisition strategy to ensure that it does not commit itself to a strategy until data is available to make an informed decision. DOD concurred with the recommendation.