Musk Open to EELV Settlement, USAF Finally Issues a No Comment

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SpaceX's Elon Musk is open to an out-of-court settlement, but playing hardball with USAF EELV protest.

Elon Musk, the rocket market upstart who has filed a bid protest against the U.S. Air Force alleging anticompetitive practices, says there is room for an out-of-court settlement with what he hopes will become a solid customer for his company, Space Exploration Technologies (SpaceX).

“If there is some settlement to be attained, I am all for it,” Musk told Aviation Week during a May 4 interview. “Our goal is not to be obstructionist.” At issue for SpaceX is the Air Force’s December contracting action with the United Launch Alliance (ULA), which holds a monopoly for large military and intelligence satellite launches. SpaceX is in the midst of being certified by the Air Force to launch national security and intelligence payloads based on three launches – on each in September, December and January.

A week after Musk filed his protest, the Air Force has finally issued a statement, though it only states why the service is not talking.

"The allegations regarding the EELV program and the Air Force contract with ULA in the pending lawsuit filed by Space X are currently being litigated by
the Department of Justice and the Air Force legal team in the Court of Federal Claims.  Thus while the litigation is pending, we are limited in our
ability to comment publicly on matters that go to the merits of the litigation," the statement says.

The service reached terms for ULA’s sole-source deal of 36 rocket cores in December (intermediate and medium launches require on core apiece while Delta IV Heavy launches require three cores each). The deal was negotiated by Scott Correll, the program executive officer for space launch that retired in December after 30 years of service. Termination liability has been listed as low as $370 million but as high as “in the billions,” according to Mark Bitterman, a spokesman for the ULA.

What began as a plan for buying 50 cores from ULA over five years was outlined in 2011 when pressure over the rising cost of Evolved Expendable Launch Vehicles – the Atlas V and Delta IV – grew from Congress and the Office of the Secretary of Defense. Negotiations, however, took longer than expected and the Air Force siphoned 14 of those cores/launches for potential competition, leaving 36 remaining for the bulk buy. Those 14, however, were gutted to seven in the fiscal 2015 budget request from the Air Force, a concern to Musk. “Our fear with future launches [is] these seven launches are very much in question,” he says.

The $531 million contact modification was awarded to ULA Dec. 16, 2013, for the first of the 36 cores over five years. The service has boasted that the deal achieves $4 billion in savings over procuring the launches one at a time as was done prior to the block buy. However, the Pentagon’s selected acquisition report lists a per-launch cost of $400 million for ULA while Musk boasts that he can deliver a payload into orbit on a Falcon 9 v1.1 for $100 million, including a $30 million premium for the due diligence paperwork and reviews required for the Air Force’s “assured access” requirement.

The Dec. 16 deal includes two Air Force Atlas Vs (one 501 and one 511 configuration), two Air Force Delta IVs (one 4,2 and one 5,4 configuration) as well as a National Reconnaissance Office Delta IV Heavy. ULA has already begun issuing contracts to its long-lead suppliers for 50 cores; the company has opted to take the financial risk for those 14 launches in order to secure lower pricing in the near term, according to a company official. If a settlement is reached and the Air Force buys fewer than the 36 planned, there will be cost implications. “If they want to buy less during the period [of performance], the cost will vary,” the official says.

At issue for Musk is that the December arrangement with ULA guarantees the company a sale of no less than 36 cores for launches well into the future when he feels his company should be allowed to compete. He claims this guarantee is not only anticompetitive, but counter to direction from Pentagon procurement chief Frank Kendall, who in a Nov. 27, 2012 acquisition decision memorandum approved a strategy to sell “up to” 36 cores to ULA while holding 14 aside for competition. “The fundamental mistake with the contract is that the 36-core number cannot go below 36,” Musk says. “This is the fundamental mistake Correll made…If we are fully able and capable…we still would not be able to compete if ULA has not gotten their 36.”

Already SpaceX won two USAF contracts in 2012 that were put up for new-entrant bidding; ULA was excluded from competing. SpaceX bested Orbital Sciences and will be launching the Deep-Space Climate Observatory and a Space Test Program payload. DSCOVR is slated for launch as soon as November.

Discuss this Blog Entry 1

on May 5, 2014

Why do I get the feeling that SpaceX is making a BIG mistake by suing it's potentially largest customer? I imagine a lot of people in power and/or command are really pissed off by now.

This will be interesting to watch unfold.

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