Main Engine Cut Off - T+122: National Security SpaceX Lawsuit

Episode Date: May 28, 2019

NSSL, LSA, OMG! Last week, SpaceX filed a lawsuit against the US Air Force over the Launch Service Agreement development contracts. We’re mere months away from bids being due for the National Security Space Launch Phase 2 launch contracts, so I figured now would be a good time to take a step back to explain what these programs are, why they matter, and why SpaceX is filing this lawsuit at this moment in time. This episode of Main Engine Cut Off is brought to you by 40 executive producers—Kris, Pat, Matt, Jorge, Brad, Ryan, Jamison, Nadim, Peter, Donald, Lee, Jasper, Chris, Warren, Bob, Russell, John, Moritz, Joel, Jan, David, Grant, Mike, David, Mints, Joonas, Robb, Tim Dodd the Everyday Astronaut, Frank, Rui, Julian, Lars, Heather, Tommy, and six anonymous—and 251 other supporters on Patreon. Crunch time: Rocket companies in all-out battle for Air Force award - SpaceNews.com SpaceX’s Redacted Filing (PDF, 4.2 MB) SpaceX launches new legal battle against U.S. Air Force - SpaceNews.com Email your thoughts, comments, and questions to [e-mail] Follow @WeHaveMECO Listen to MECO Headlines Join the Off-Nominal Discord Subscribe on Apple Podcasts, Overcast, Pocket Casts, Spotify, Google Play, Stitcher, TuneIn or elsewhere Subscribe to the Main Engine Cut Off Newsletter Buy shirts and Rocket Socks from the Main Engine Cut Off Shop Support Main Engine Cut Off on Patreon Music by Max Justus

I know a lot of you out there thought I would start the show off with a hot drama alarm, but I am not going to do that here today on Main Engine Cutoff. I am Anthony Colangelo, and I wanted to check in on some of this politicking, some of this bickering that's happening over the U.S. Air Force's National Security Space Launch Program. Last week, SpaceX, or it didn't happen last week, but it came out last week that SpaceX is suing the Air Force once again. Everything old is new again here in 2019. They're suing the Air Force over a previous round of contracting that they were left out of. So this is all a lot of acronyms, a lot of, you know, contract talk. So I want to give a quick refresher on where we're at with this program, what it is, where we're going, to give you a little overview,

because I know it's hard to keep track of every single day. And then we'll talk about what SpaceX is doing here and why I think it's just another, you know another note in the story of them becoming, and maybe now officially being, the old entrenched launch provider here in the US, which is quite an interesting change that we've been tracking for a couple of years, but I think this might be the time to call it. So let's break all that down. Let's start with the National Security Space Launch Program. This is a program from the US Air Force that handles the launching of their bigger payloads. So these are the things that typically fly on Falcon 9s, Falcon Heavies, Atlas 5, Delta 4s, the bigger rockets here in the U.S. And this is the phase two of this program. It was formerly

known as the Evolved Expendable Launch Vehicle Program. Those names are now out considering the fact that two of the four in the running for phase two are reusable and not expendable. So it was renamed this year. It is the National Security Space Launch Program. I don't know if we're going by NUZZLE. What is the acronym we're calling it? NSSL is a mouthful, so I'm probably just going to be calling it the National Security Space Launch Program, because that's less annoying to say. So where we're at with this is that on the launch side of things, the Air Force is looking for two launch providers to fly, now it sounds like 34 launches over the next couple of years. And they will split those launches between two providers. One of the providers will get 60% of launches, one will get 40% of the launches. And they've identified two because they've kind of done these

trades against how many providers is actually beneficial from a cost perspective from the Air Force. Is managing three cost effective? And they said, no, managing two is cost effective. You get better economies of scale when you can provide that many launches to a given launch provider. So they are going to target two launches. Now, it's an important footnote here that not every national security launch in the U.S. flies under this program. There are oddballs that come through other contracting means. SpaceX has flown a couple of those. If you remember, they flew the Air Force's X-37B spacecraft not too long ago. They had an NRO flight. They had that mysterious Zuma launch. So there are national security launches that happen outside of this program. But this is a huge chunk of launches that are promised to launch providers. And at a time where the commercial industry, the commercial industry for

launches is tapering off, the time at which the military launches are kind of tapering off, there is a downturn in overall launches right now that some of the providers are worried about. off. There is a downturn in overall launches right now that some of the providers are worried about. If you've got a chance to nab 60% of 30-some launches, you want to do everything you can to get those launches. Now, there's another side to all of this that is also a big part of what we're talking about here, and it's what our main story today will focus on. And this is a separate part of the National Security Launch Program that is called the Launch Services Agreement, or Launch Service Agreements. I don't know which part is pluralized, but the LSA, you'll hear it referred to. And what that is, is a program that has run a couple of revisions at this point to develop new launch vehicles and to develop new

technologies that could be used on launch vehicles. And this kind of sprung out of all the politicking that was going on a couple of years ago, when the RD-180, the Russian engines that we use on Atlas V, when those came under fire because of sanctions regarding the Crimea situation. So in Congress, it was decided that we will not be buying any more of those after, I think it's 2022 at this point, we wouldn't be able to buy any more RD-180s for national security purposes. We could still fly those for NASA or civil programs like that, NOAA satellites, that kind of thing. But for national security programs that come with stricter safeguards around all this stuff, we wouldn't be using Russian engines after that point. We wouldn't be buying any more after 2022. after that point. We wouldn't be buying anymore after 2022.

So out of that program came a different kind of contracting round from the U.S. Air Force, where they were going to invest in rocket propulsion across the country to develop some new technologies to be able to replace our need for the RD-180. So Aerojet Rocketdyne got money for AR-1. ULA got money to develop Vulcan prototypes, which part of that money went to Blue Origin to develop the BE-4 engine. SpaceX got money for the Raptor engine that they're testing down in Texas now. Orbital ATK at the time got some money for a couple of different things in that program. Now they're part of Northrop Grumman. So this was a program that was meant to give money out to develop technologies that we could then rely on for new launch programs, launch services in the future that wouldn't rely on

Russian engines. And that kind of eased its way into this current round of prototyping and development contracts called the Launch Service Agreement. And what that was, see, we're like nine levels in to contracting at this point. So the launch service agreement contracts were given out back in October. These are to develop new launch vehicles. So there was contracts given to Blue Origin, Northrop Grumman, and United Launch Alliance. The figures that you'll hear are a couple hundred million dollars. They've only received, I think it's about $109 million at this point, and they would get more money as the program progressed if they were, in fact, chosen for the launch round. So the numbers that you're hearing out in the press

are the total value that they could get out of these contracts. It's not the total amount that they were already given. They were only given about $100 million to start, and they would get more based on milestones, based on if they're chosen in that National Security Space Launch Phase 2 contracting round. So that's an important footnote here as well. So the idea with the LSA, the Launch Service Agreement contracts, is to develop launch vehicles that could be bid for these launches that are upcoming in the National Security Space Launch Program. So again, it was Blue Origin, Northrop Grumman, and United Launch Alliance.

SpaceX did submit a bid for that LSA round, but they were not chosen. Now, this is a really weird situation because at the time, you know, I thought it would go the way that it actually did because SpaceX offers Falcon 9 and Falcon Heavy, which covers, with one caveat of being they're very short fairings, it covers all of the payload ranges that the Air Force needs from them. So there really isn't any new technology, save for those bigger fairings, or in some cases, vertical integration, which is not putting the payload on the rocket when it's laying down and then standing it up. It's actually putting the payload on top of the rocket while it is vertical, which is needed for some satellites that are flown as part of this program. Those are the two things that SpaceX doesn't currently do that the Air Force would need as

part of this program. And that is in part what their bid included. The other three, they are developing new generation vehicles. So if I'm the Air Force, you know, separating out the contract terms, which we'll get into, which is why SpaceX is suing. So it's about to get super wonky. Maybe not super wonky, but we'll touch on it. But if you're the Air Force and you're looking to do a round of proposals for a batch of launches and you want two launch providers and one already gives you everything you need and you hope that they would bid for that round of contracting and you've only got a set amount of money to give out, you would want to funnel that towards people that are developing new rockets that could be a competitor to SpaceX in that next round. Because right now, if everything was just dropped today, like SpaceX

would want, SpaceX is the only provider that would be able to fly those missions in the next round without a couple of political caveats in there as well so if you separate yourself from the paperwork side of things and you look strategically as the air force i think they made the right decision uh because they need to develop other launch vehicles to actually compete with spacex because right now spacex is doing amazing things on their own and offers the air force a great product that they're in most cases very happy with so that's pretty much where we stand today uh the only other thing that's out there is the actual request for proposals for that launch contract phase. Those requests for proposals have went out. Responses are due,

I think it's on August 1st. And then it would be about a year or so before we would actually hear who won those two provider spots for the Air Force. But those proposals are out there. They're waiting for responses to them within the next couple of months here over the summer. So that is underway. The launch service agreement contracts are in operation. The idea is that whoever is selected for the actual launches would continue to get their money out of the launch service agreement contracts. But if you are not selected for the actual launch round, your money would stop. So if Blue Origin made it in that round for contracting, for the actual launch contracts, their money would continue to come. If ULA did not, their money would be shut down right there. So it's a requirement to continue

to get the full amount of the money that was set aside. And the figures were $500 million for Blue Origin, $967 million for United Launch Alliance, $762 million for Northrop Grumman. In order to get that full amount, you have to make it in that round of contracting for the actual launches. Otherwise, you stop right where you are, which at this point is something in the $100 million range. Now, SpaceX is also allowed to bid on those launch contracts. You don't have to be in that launch service agreement contract to bid for the actual launches. If you've got a vehicle that fits the bill for what the Air Force is looking for, you can respond to that proposal and you can actually win launches, even though you didn't win the development contracts. And that's where things break down. I think sometimes people conflate these two things,

but in your mind, what I want you to take out of this 10-minute preamble is there are development contracts and there are launch contracts. And those are separate things. They interact in certain ways, but those are separate entities here. And that's important to keep in mind as we then dive in and talk about what this lawsuit is, why it's happening, and some of the politicking we've been watching the past year. So I hope that was a reasonable enough roundup. I'm sure I missed a couple of things here and there, but if you've got friends out there that are confused about this stuff, maybe that's a good five, 10-minute talk there to talk about where we're at with this thing and why it matters and where we're going. So before we dive into the

juicy politics, I want to say a huge thank you to all of you out there supporting Main Engine Cutoff every single week. All of you make this show possible. Every time I do it, it's because of you out there supporting the show. This is fully listener supported, listener funded, and I could not do it without your support. There are 291 of you supporting the show, including 40 executive producers who made this show possible. Thanks to Chris, Pat, Thank you all so much for your support. If you want to help support the show, we've got a new URL in action for this. It's just a redirect, but I want this URL to be out there forever. So it is mainenginecutoff.com slash support. Hopefully that's easier to spell. mainenginecutoff.com slash support if you want to help support the show and make this thing

possible. Thank you all so much for your help. So all that preamble aside, let's talk about why SpaceX is suing the government here over these launch service agreement contracts. And that is the important note. They are suing the Air Force over the development contracts, not the launch contracts. That is a separate thing. They're suing over the development contracts. And the basis of their article, there's a 79-page redacted protest that was posted last week. So you can read, there's some sections that are blacked out, but there's a lot of info there that is not blocked out. So this is talking through why they are protesting this bid, why they are filing this suit, and what they want the Air Force to do. So the basis of SpaceX's protest is that the decision to award money to Blue Origin, Northrop Grumman, and ULA was arbitrary and didn't follow the letter of the law, didn't follow the minutiae of the bid, not necessarily the decision,

but the fact that the decision process was murky and arbitrary and certain things were weighted more heavily in favor of the competitors than in SpaceX's favor. So they've got some legitimate complaints. They've got a lot of stuff in here. Of course, the stuff that got all the play in the press was the pages and pages and pages of SpaceX just dunking on everybody else. You know, they're dunking on ULA and Blue Origin and Northrop Grumman. They're saying ULA has never been commercially competitive. They will never sell a commercial launch. Blue Origin's never been to orbit. Northrop Grumman is just being Northrop Grumman. You know, they didn't really talk too much about that, but they just dunked on them

incessantly, their competitors. And that's the stuff that was fun to put in the press, because people like Elon Musk dunks on Jeff Bezos, all that kind of stuff. But the real meat of it is that they are disagreeing with the decision on the fine line, the fine print of the decision by the Air Force, and specifically around their own bid. They bid Falcon 9 and Falcon Heavy for a majority of the launches, and then a couple of launches in 2025, 2026, that those can't do, presumably for payload faring reasons or maybe some integration reasons. They bid some Starship missions. This is their next generation launch vehicle that they're working on. They're welding it together in a couple of fields down in Texas and Florida.

And this would be able to meet the, it's called payload category C, that right now Falcon 9 and Heavy can't fly. So they bid those for missions, you know, in 2025, 2026. And they said that because of that, the Air Force unfairly weighted the rest of their bid because they included that for a few missions far off in the future. Now, that's where a lot of the redaction comes in. There's a lot of stuff about Starship that is redacted in this that they don't want to give away some costs, some schedule stuff, some capabilities, some functionality that they weren't willing to talk about. You know, in past months, we've seen Elon Musk sitting down with members of the Department of Defense with some Starship models. So presumably

he's talking up the capabilities of what a system like that could bring specifically for defense purposes. And I think a lot of that was redacted out. So there's a lot in here to read through. If you want to just jump right down to what they want out of this, that's kind of the thing I've been interested in is what do they want and why do they want it? If you scroll all the way to the bottom of this document, there's a couple of different counts that SpaceX is filing on. There's five or six counts in there, and at the end of each section describing the count that they're filing, there's a big WHEREFORE, all caps, and this tells them, you know, what we want as SpaceX. So let me read you one of those, and you'll kind of get an idea for what they're looking for. SpaceX respectfully requests that the court grant judgment in favor of SpaceX

on count one and declare that the LSA awards violate the requirement for competitive procedures because the agency, which is the Air Force here, based the awards on an investment cost evaluation that was unequal and deviated from the stated requirements and also resulted from misleading and not meaningful discussions. B, enjoin any further investment by the government under the LSAs and any further performance by ULA Blue Origin Northrop under the LSAs. And C, reopen the competitive competition, engage in meaningful discussions, and evaluate investment costs consistent with the LSA solicitation and equally treat all offers against those ground rules and make a new

award decision or revise the solicitation and reopen the competition and make a new award decision. And then D, provide such other relief as the court deems just and appropriate. So let me put that in human language rather than government and lawyer language. They want the court to declare that the LSA awards violated the requirements for the competitive procedures that were laid out by the Air Force. So they said, the awards did not follow the rules that were set, the ground rules that were set. And because of that, we want to stop all money flowing to ULA, Blue Origin, and Northrop Grumman under this contract, and then reopen the competition. Effectively pausing and, you know, canceling

this LSA round and stopping the money from going to their competitors to hope to get some for their own bids. So the rest of the counts have similar endings, which says, this is why the decision was invalid. What we want you to do is stop paying money to the three winners and reopen the competition or reconsider the decision. So that's kind of the root of everything that you need to know. They think that the LSA award was unfair, didn't follow their own rules, and in order to justify that or to rectify that, all money should stop flowing to the LSA program and it should be recompeted. Now, given where we're at in this cycle of contracting, if you remember from that 10-minute monologue

at the beginning, the RFPs for the actual launches are out. So those responses are due in August. So if you stop the LSA contracting round and all money that was heading their way had to stop, then you're going to hurt your competitors' chances at actually putting together a successful proposal, being positioned a successful proposal, being positioned for that proposal, and actually having a shot to win it. And that comes through in some of the statements that SpaceX gave out. So this article by Sandra Irwin over at Space News, she's got a statement to Space News from SpaceX that said, While we support the Air Force moving forward with its Phase two acquisition strategy for national security space launches as currently planned, we are formally challenging

the Air Force's LSA decision to ensure a level playing field for competition. So Air Force, please continue with the round of contracting that we almost certainly will win. And please stop everything else that will help our competitors be a strong contender for number two, please stop everything else that will help our competitors be a strong contender for number two and maybe even win out. And that's really the part here that I think, you know, this is why it's all happening. What they want to do is undermine their competitors to put them in a worse position for the actual round of contracting. Because if you read the entire document, if you read those sections where SpaceX is just dunking on their competitors, those are all the reasons that SpaceX is positioned well to win the actual launch contracts. They are, you know, operating vehicles that are,

you know, they are vehicles the Air Force is very happy with and is currently flying missions with. And for that reason, they are a front runner because all the other ones are developing new vehicles. They're using new engines. They're flying new pieces of hardware. They're all new vehicles. And SpaceX has two that are fantastic products for the Air Force. So all of those reasons that SpaceX has in this lawsuit are specifically reasons why they are in the front running position for the actual launch contract round. So this is really just about delaying or significantly hurting the LSA, the Launch Service Agreement, the Development Contract Round. It's all about putting that off so that money stops going to the competitors for development. I don't think it's really about them trying to

get that money for their own development, because I think that ship has sailed. If they're able to just delay this long enough that the actual proposal comes back and the decision is granted on who's going to launch those missions, the development contracts don't mean anything. So really, this is just a way to kind of, you know, get under the skin of their competitors, undermine them a little bit, put them in a worse position for the actual contracting round that's coming up soon. And all of this was in an environment that was already very politically, there was a lot of people trying to exert political influence on this process. So the past couple of months, Blue Origin has been writing letters themselves, having their

representatives in Congress write letters to the Air Force, urging that the actual launch contracts are delayed about a year so that they wouldn't award them until next year because the development contracts were delayed about that. So when you see that coming from people that represent Blue Origin's districts, that's a good sign that Blue Origin is not fully confident about where they are with New Glenn in terms of being able to win the launch contracting round here. We've seen similar things from the representatives in SpaceX's district urging the Air Force to put out that RFP, the thing that has already went out for the actual launch contracts. They said, don't delay it. This is a time-critical thing. We need these launches. We got to get them booked. Put out the RFP right now because that was the plan all along.

So there's been this big politicking process happening the last year of people arguing over how this should go down. And this is really another one of those things in that process. This is a SpaceX, they saw an opportunity here to needle their opponents a little bit, to kind of undermine their efforts to put together a good proposal for the Air Force, and they're going to take the shot. And if they have a case over the actual letter of the law, then that's separate from it being a good decision for the Air Force's future. And I think those two things are in conflict here. And that's certainly, you know, they can be in conflict. Those are two separate issues.

So if SpaceX's lawyers and their legal team says, hey, I think we got a case here to either delay or annoy everybody else just enough to make our proposal better and more attractive, that's the shot they're taking. Now, the one additional thing there is that this might be a precursor to the actual contracting round. Because while SpaceX and Blue Origin are at odds on whether they should delay the RFP release, or they should do it now, or they should reward the contracts, or they should wait a while, they're in disagreement there.

The thing that they're both in agreement about is that the language in the request for proposal for those launch contracts is vague and seemingly leaves a lot of room for the Air Force to arbitrarily decide who would win. So the one sticking point that they've had, the biggest one, is there's some language in the launch contracting request that says that the winners would be determined based on the combined best value. So nobody's quite sure what that means. It's a vague statement. They don't know whether that means cost. They don't know whether that means redundancy between parts, you know, so shared parts, maybe Blue Origin and ULA using the same engine. Is that a good thing

or is that a bad thing? Do you want distinct parts? Do you want common parts? All of that is unclear and it could really be spun any way you want it. And so they're worried about this same sort of process happening in the actual launch contracting round where there are some opaque requirements that seem to be there to allow some finessing from the political angle or the strategy angle to say, oh no, we chose these two because for us it was the best value, which to us means, you know, insert reason here. Maybe not cost only. Maybe it's, you know, reliability or redundancy or comfort with the contractor. There's plenty of room there to kind of fudge things in the direction that you would like to make the decision that you would like and to have it stand up in court because it says combined best value, though that was not defined. So SpaceX might be putting this suit together because they see this kind of thing happening in the launch contracting round. And if that's the case, it puts Blue Origin

in a funny spot because they've been worried about the same thing SpaceX is here, but with the next round. You know, they made out OK in the development round, but on the launch round, they're worried about this kind of thing going down there as well. So, you know, if this, if, if they don't, if SpaceX gets this suit thrown out for the development round, we could see them join forces in the next round for that whole, you know, opaque language in the actual launch contracts. And that's, that would be an interesting turn of events if that were to happen here. Now, the one last thing I want to leave you with on this whole topic is that this

is definitely an instance of SpaceX being the kind of entrenched, the incumbent, the person that's on top of the launch industry right now here in the US. And this is a turn of events. If you just roll the clock back 10 years, you would see this kind a lawsuit coming out of a different launch agency. And it's interesting that 10 years later, one phase later, SpaceX is sitting on top. They are the favorite going into the next round of contracting, and they are doing all the politicking they can to undermine their opponents and maintain their incumbency. Now, this isn't worrying to me. It's not something that I'm losing sleep over. I see this as the circle of life. This is the life cycle of a company where you start as the

scrappy upstart who's disrupting everything, who's changing things up. You're the thing that everyone hates because you're changing the way that it works. And then you pick up a bunch of market share, you do really well. And then a couple of years down the line, you're the one who doesn't want to see too many changes come in. You're the one that's sitting in prime position for the next phase. And you're doing everything you can to hold your ground against these upstarts. Because when you look at their complaints about the different companies in the PDF document, it's pretty clear that SpaceX isn't worried about Northrop Grumman. They're not worried about ULA.

I think if they're worried about anyone harming their business, it has to be Blue Origin. I think their statements about ULA never winning a commercial launch contract and never having a chance at that and being overly expensive and being overly built for the defense department and not necessarily for the commercial market, Those are all valid complaints, and those are reasons why ULA has not made inroads into the commercial market, and they're reasons why SpaceX was able to get such a big market share. Their complaint against Blue Origin is they didn't make it to orbit. Knowing full well that Blue Origin has poached plenty of people from SpaceX and every other space company out there, does any company know anything? That's an internal debate. I think the people know things, not the company. There are certainly company culture, but people know things. Saying that Blue Origin has never

been to orbit is a totally BS excuse to me. There are plenty of people there that are incredibly smart and came from these very same programs that you're talking about for other reasons. So if that's their one complaint against Blue Origin, then I think that's tipping their hand a little bit about which one of these they're worried about getting the money and which one they actually see as a competitor in the long run. But all of that is to say, SpaceX has all grown up. They're heading off to school. They're getting on the bus. They're going to school every day, and we don't see them around the house too much anymore. Now, that's not to say that they're already old and crusty and they're already set in their ways and they're not willing to shake things up. They clearly are welding together a bunch of crazy starship things out in fields in

Texas and Florida. But it is to say that right now with Falcon 9, Falcon Heavy, with their relationship with the defense department here, they are the incumbent. They are the big player. They are the favorite going into the next round. So that changes the mindsets as we approach whatever the next year will hold for the National Security Space Launch Program. And it certainly will be fun to talk about. So that was a very long-winded wrap-up

of where we are with those things. I hope it was helpful to kind of set the stage for this, to explain some of the contracting, some of the arguing that's going on. So if you enjoy it, share a link. Send it to somebody who likes launch services, who likes talking about space policy. I think it's a fun discussion to have. And I'm interested to hear your thoughts.

So email me, anthonyatmanagingcutoff.com, if you would like to voice your concerns or anything like that. But for now, thank you all so much for your support. And I will talk to you next week.