WASHINGTON – The U.S. Air Force is defending its sole-source buy of launches from United Launch Alliance (ULA) as a “good deal” for the taxpayer, amid a lawsuit from upstart Space Exploration Technologies (SpaceX), which claims to have been unfairly excluded from competing and potentially providing a better price.

The service broke its silence on the matter in an interview with Aviation Week following SpaceX’s April 28 filing of the suit in Federal Claims Court. “The only reason we have taken any of the actions we have goes back to the fact that we have one single mission, which is getting these payloads on orbit to defend the nation,” says Lt. Gen. C.R. Davis, military deputy to the Air Force procurement chief. “As we were getting to that point where we had to negotiate that contract [with ULA] and obligate that money, I will remind everybody there was no certified [new] entrant. There were no documents submitted. There were no three launches,” Davis said, referring to the three Falcon 9 v1.1 certification launches required of SpaceX to qualify for national security missions. “There was nothing we could [anticipate] other than [getting] a worse deal for the taxpayer through buying less cores from the company that has gotten us there 70 times before.” ULA’s Atlas Vs and Delta IVs have delivered 70 payloads to orbit.

To be certified to compete against ULA, SpaceX was required to execute three successful launches of its Falcon 9 v1.1 and deliver required documentation to the Air Force for review. Davis says SpaceX has now met that requirement and is eligible to receive a request for proposals for forthcoming launch competitions. Though eligible to bid, the company cannot win a contract until the Air Force certifies it. Davis says the service expects that it will be certified by March 2015.

The National Reconnaissance Office (NRO) is planning to award a launch next year for a 2017 mission. Davis says the Air Force and NRO are trying to schedule the award to allow for a competition. “We’d love to have them done by the end of December of this year. Our best guess that we think we’ll end up with is March of next year,” he says. “If we can work to slip the award to March or April of next year … we are trying to go through that debate right now.” The service is spending $250 million to conduct the certification work, Davis says.

The service also is conducting an audit of the company’s engineering, accounting and other processes; since SpaceX is a commercial launch service provider, it does not adhere to the onerous paperwork requirements set up by the Pentagon.

The Falcon 9 v1.1’s first flight was Sept. 29, 2013. Though it successfully delivered the primary payload, a Canadian Cassiope satellite, into polar orbit, a planned upper-stage restart failed due to an embarrassing design oversight—engineers forgot to insulate propulsion lines, which froze in space. They have since fixed the issue.

SpaceX’s claims essentially hinge on two factors: the timing of the bulk award to ULA and the number of cores included in the deal. Signed less than a month before the third of its three required certification launches, SpaceX founder and CEO Elon Musk argues that the Air Force could have waited to award the bulk buy until SpaceX delivered its materials earlier this year.

But the Air Force’s launch strategy was hatched in 2011, and Davis says the service was eager to get the deal inked and garner the anticipated savings. “If we had delayed that [we would] award a lot less and pay a lot more,” Davis said.

The service has been forced in recent years to substantially cut its budget in light of sequestration and other spending constraints. The contract cost $1.2 billion less than an independent cost estimate over five years of work and the budget allocated toward the Evolved Expendable Launch Vehicle program decreased by $4 billion over five years due to a variety of cuts. “[Some of] these are launches that we had to get on contract to be able to launch on time … There was no way to just sit and wait around to be able to sign a contract,” he says.

Davis defends the decision to guarantee ULA 36 cores worth of work — 28 launches (as some require multiple cores) — over five years despite common knowledge that SpaceX, and eventually Orbital Sciences with its Antaress rocket, were breaking into the market.

“When we realized there was no way at the time as we looked at it for new entrants to pick up additional launches, there was no reason to go below 36 [cores]. The more you buy the better price break we are going to get,” Davis says. Studies prompted the Air Force to originally plan for a 50-core deal, Davis says. However, Pentagon procurement chief Frank Kendall directed the service in a Nov. 27, 2012 acquisition decision memorandum to “procure up to 36 EELV core across five years” and “introduce a competitive procurement environment in the EELV program by competing up to 14 cores with initial contract awards as early as fiscal 2015.”

Musk, however, asserts that the Falcon 9 v1.1 could be capable of performing 12-24 of those missions and he wants a chance to bid. Davis acknowledges that in at least one case, the launch of a Space-Based Infrared System (Sbirs) missile warning satellite was pulled from the 14 originally set aside for competition and handed to ULA to fulfill its 36-core commitment. “It was a satellite that — granted the new entrant is capable of launching — but it can’t because we got the good deal,” Davis says.

Though Air Force planners had expected those 14 launches to be open for competition in December, half of them evaporated in the fiscal 2015 budget request that went to Capitol Hill a few months later. This underpins Musk’s worry that he will not have ample opportunity to compete in the near term. “Our fear with future launches [is] these seven launches are very much in question,” he says. Five of them are GPS launches that have been slipped beyond the five-year defense plan.

Another that was not identified was deemed not suitable for the Falcon 9 v1.1. The remaining satellite was that Sbirs bird shifted to ULA’s work plan. “We still were trying to give the new entrants everything they could launch at the time — plus or minus one or two satellites — to keep the [ULA] contract whole,” Davis says.

This constraint in the contract is at the crux of SpaceX’s complaint. “The fundamental mistake with the contract is that the 36-core number cannot go below 36,” Musk says. “This is the fundamental mistake [Scott] Correll made … If we are fully able and capable … we still would not be able to compete if ULA has not gotten their 36.”
Correll is the Air Force’s former program executive officer for space launch, who retired in December after 30 years of service.

The service is exploring an option to possibly pull one of the missions included in ULA’s deal and put it up for competition; that would require the Air Force to fund up to $130 million should SpaceX win the work, Davis says. “We’d have to buy another core to put into the ULA buy that we could allocate to SpaceX but it would be potentially a ’15 award [and] we are working our way through that.” He did not say what the spacecraft would be for that mission.  

Musk said May 4 in an interview with Aviation Week that he is open to an out-of-court settlement. Davis declined to outline any settlement options, citing sensitivity with the ongoing litigation. However, he said that it is not advisable to break the deal with ULA. “For ULA to be able to continue to be able to deliver at the price that they gave us over that period of years, we have to buy 36 launch cores worth of service,” Davis says. “If we don’t buy that, ULA will have the opportunity to say we have to readjust the prices … there is probably a cost increase that would occur in there … Anything you pull out of the contract suddenly results in us reopening the contract, which drives more cost that has been negotiated on a very competitive quantity.”