Getting Air Force Pricing Under Control

At 7:27 pm on November 16^th, America marveled at four astronauts propelled into orbit by SpaceX's Falcon 9 rocket on their way to the International Space Station. Relying on pageantry and SpaceX's acclaimed innovation, NASA has proclaimed a "new era in spaceflight." Certainly, the company's CEO and founder, Elon Musk, remains peerless in his iconic branding enterprise and the accompanying media adulation. He is credited for resuscitating NASA's tarnished public image by his association with that agency. But the question is whether taxpayers are getting a competent launch service at a competitive price.     

It appears that SpaceX added surcharges to its $316 million bid just to have taxpayers further subsidize its operations.

Mr. Musk's ostensible desire to have taxpayers pick up his costs for his missed contract has been long in the making. In May of last year, he tried suing the Air Force, alleging that the Phase 1 award "wrongly awarded" the funds "to a portfolio of three unproven rockets based on unstated metrics." The complaint asserted that "by any reasonable measure, SpaceX earned a place in the LSA [Phase 1 award] portfolio." This complaint came despite Musk acknowledging in a private meeting with then Acting Secretary of Defense Patrick Shanahan that SpaceX had written: "a poor proposal" that had "missed the mark," according to a report from the Pentagon's inspector general.

In August 2019, U.S. District Court for the Central District of California dismissed the Space X lawsuit. The Court ruled that the Air Force's actions were "not arbitrary, capricious, or in violation of the law, and that SpaceX was not entitled to any relief in this action." So, since its suit didn't pan out, SpaceX seemingly attempted to make taxpayers foot the bill for its missed contract within the next one instead.

The Air Force's $316 million award to SpaceX, in this case, becomes even more troubling when the other provider selected by the Air Force's Phase 2 award — the United Launch Alliance (ULA), a joint venture of Boeing and Lockheed Martin — charged $169 million per launch for two missions. According to Tony Bruno, ULA CEO, the $316 million SpaceX price tag was a surprise: "We did not expect that to be their number at all."

According to Bruno, his company's Phase 2 bid price was competitive because of the "corporate transformation we undertook when I came on board in 2014."  Moreover, Mr. Bruno explained that ULA cut overhead, shed facilities, eliminated staff, reorganized its supply chain, retired the Delta 2 and Delta 4 Medium vehicles, and reduced the number of Atlas 5 configurations.  SpaceX, on the other hand, added surcharges to its Phase 2 bid price that is inexplicable and has promised to escalate future launch service pricing for the government. Why is SpaceX exempted from the necessary corporate reform to deliver competitive pricing to taxpayers? 

Suffice it to say that taxpayers should be wary of Mr. Musk's offerings for the same reason that institutional investor confidence in his various companies is lagging: pervasive operational inefficiencies, poor financial controls, and Mr. Musk's mercurial management style. Most importantly, SpaceX's non-competitive pricing, quality control concerns, and anticipated price hikes for future launch service could leave taxpayers holding the bag for billions of dollars of contracted services, which may or may not be deliverable.  

Sue Ghosh Stricklett is a widely published author on topical issues concerning National Security Law.  A graduate of the Catholic University of America School of Law, she has practiced law for the past twenty five years.