The Real Reason Behind The Success Of Commercial Spaceflight
And no, it isn't the efficiency of the market
Companies competing in the market will always be more efficient than the government. Or so “common sense” might tell us. This is a conclusion seemingly solidified, at least within the spaceflight community, by the relative success of NASA’s commercial program. “Relatively routine activities in Earth orbit require the efficiency of the market,” many argue, “and NASA should focus on science and exploration.” Some point to competition. Others to NASA’s move away from cost-plus contracts. But neither of these explanations really offers a generalized explanation for success. With NASA still the primary customer and still relatively few launch companies, especially with human rated vehicles, competition (at least between firms) is too weak a mechanism to explain much of anything. And using formats other than cost-plus contracts certainly discourages bloat, but it also introduces risk. Why did companies like SpaceX or Orbital ATK succeed where companies like Boeing did not? What prevented NASA from supporting a bunch of failed projects as they have in the past when trying to commercialize? Competition and contracts aren’t wrong answers per se, they just aren’t complete answers. What underlying systems, which could potentially be replicated, can we find to explain the success of the commercial program?
Pluralist Competition
The commercial program was very contentious, even compared to past programs, like the shuttle. Moreover, it was contentions among political elites and organizations with enough authority to actually have a say over the policy. Decision-makers were split about the proposed commercial spaceflight program from the then recently elected Obama administration.
Soon after his election in 2008, Obama created a transition team for NASA headed by Lori Garver. The team's main task was to determine if Obama should back the existing Constellation program. Right from the get go, administrator Mike Griffon challenged Garver and her team because, as a key architect of the Constellation program, he hoped to see it through. Unfortunately for him, his required resignation was accepted. His successor was retired Marine Major General Charles Bolden, with Garver as deputy administrator. Just before their appointment, the White House formed the 10-person “Review of United States Human Spaceflight Plans Committee” more typically called the Augustine Committee.
In October, 2009 the Augustine Committee released its report, concluding that the Constellation program was unsustainable. Their main recommendation, the flexible path approach, focused on the commercialization of orbital activities. NASA’s budget proposal to the White House, however, reflected a continuation of the Constellation program. Already, two opposing sides were beginning to form.
In response, the administration formed a secret group in January of 2010. This group included actors from a diverse set of interests: people from the OMB, the Office of Science and Technology Policy (OSTP), the National Security Council (NSC), and presidential advisors. But it excluded NASA program and center officials. They announced their policy both to NASA officials and congress last minute for FY2011 budgeting in February. Key to the administration’s budget was $6B over 5 years for commercial launcher development, and no funds in the 5 year budget for a NASA launch vehicle.
Many in Congress were against this new budget for reasons discussed in a previous article. Senator Shelby of Alabama was able to pass a law prohibiting NASA from canceling Constellation contracts. Many thought that abandoning the $9B already spent on Constellation was imprudent. Industry contractors also rallied quickly and lobbied hard to keep Constellation. But space policy does not exist in a vacuum. Given that other political goals, like healthcare, were on the line, Democrats did not want a fight between Congress, which they controlled, and their own President. In addition, a congressional representative who fought too hard against this new policy might risk losing leverage to gain new contracts if the new policy succeeded. Finally, Boeing broke ranks with the other traditional space contractors, putting in a bid for commercial crew.
Influential actors, from bureaucrats in the administration, congressional representatives and from aerospace contractors to NASA officials lined up on both sides of the debate. With so much disagreement neither side could politically overpower the other and force their own policy through. So a compromise was made in the Senate, who passed an authorization bill that would keep the heavy lift launch vehicle and the crew capsule from Constellation but would fund the Commercial Crew and Cargo program (C3PO).
On the one hand, with the aid of hindsight to see that the C3PO was a success, Senators like Bill Nelson (now NASA Administrator) have been accused of being overly political for preferring Constellation over commercialization. But it is exactly this politics that forced C3PO to proceed incrementally.
Like the final in the world cup, where the teams are evenly matched, the contest over commercial spaceflight was a win for the crowd. On one side of the pitch were most congressional representatives, NASA center directors, and aerospace contractors minus Boeing. On the other side was the Obama administration, NASA administrators, New Space companies, Boeing, and a plethora of administrative bureaucrats from the OMB, NSTP, and the NSC. Equally matched, the door was opened for commercial spaceflight, but proponents still had to prove their policy could succeed.
Incrementalism
Because there wasn't a strong agreement that enabled a single partisan group to push through a large commercial program all at once, the commercial program in the U.S. was implemented incrementally.
What would eventually become C3PO started out as the Commercial Orbital Transportation Program (COTS), initiated as part of the Constellation program in 2006. This program invested $500M over five years to develop commercial resupply services for the International Space Station (ISS). As part of COTS, NASA provided milestone based payments through funded Space Act Agreements (SAAs) rather than traditional cost-plus contracts. Participants were expected to finance a certain percentage of their own development. COTS participants would own the vehicles developed through the program and NASA would purchase launch services.
COTS, in turn, had several stages itself. NASA reevaluated each participant at each level. First, NASA held an initial competition, choosing two finalists: Rocketplane Kistler (RpK) and SpaceX. The next stage was capability demonstration: (1) unpressurized cargo delivery and disposal, (2) pressurized cargo delivery and disposal, and (3) pressurized return and recovery. Participants had to demonstrate each capability and raise their own share of the funds before receiving funding for the next demonstration. This approach proved important, as RpK did not raise sufficient funding and had their COTS agreement terminated. Because funding was broken up into such small chunks and contingent on regular evaluations, NASA still had $175M which they used to bring Orbital Science Corporation into the COTS program in February of 2008.
NASA had originally selected RpK as the sole contractor for COTS at $227M in 2004, but the GAO issued a ruling that the funding had to be competitive. Even at the outset, had commercialization not been so contentious, the program likely would have been an expensive failure. It was immediately obvious how both the pluralist disagreement and the incremental approach it led to not only reduced the overall cost, but likely saved the program as a whole.
Instead NASA was able to develop two supply launchers with two different companies for a total cost of $788M (an additional $288M was authorized on top of the original $500M for full demonstration flights) over only four years.
NASA followed on the COTS program with the Commercial Resupply Services (CRS) program. The first phase of CRS were demonstration flights, announced in December of 2008. SpaceX conducted the first demonstration two years later, in December of 2010, with their Dragon capsule. Orbital’s first demonstration flight was in April of 2013. By October of 2012 SpaceX made their first cargo delivery to the ISS, and Orbital was behind by less than two years with their first delivery in 2014.
The CRS, too, was divided into phases. NASA would reevaluate performance and requirements in between each phase and make adjustments as necessary. This phase-by-phase evaluation method again proved important, as NASA was able to make adjustments in response to launchpad failures and weight to volume inefficiencies in the first phase.
With the success of commercial cargo, NASA started the CCDev program in 2010. Rather than a full fledged program to build human rated launch vehicles, CCDev phase1 consisted of only $50M given to five companies for technology demonstrations. Each contract was fixed price and pay for performance with the same milestone evaluations we are by now familiar with. In April 2011 NASA expanded the program by awarding a second phase consisting of $270M to four companies to develop a crewed vehicle that could take astronauts to the ISS. Phase 3, called Commercial Crew Integrated Capability (CCiCap) narrowed the field of competitors and provided more substantial funding for fully integrated end-to-end crew rated vehicle operations. NASA awarded $1112.5M in funding to three companies in 2012. They then expanded the required milestones in 2013. Next, NASA required testing for certification for $30M. The final phase, Commercial Crew Transportation Capability (CCtCap), was announced in 2014. It included maximum contract amounts for SpaceX and Boeing, as well as cost per seat estimates, essentially finalizing the two companies that would fly astronauts to the ISS. After a number of setbacks, especially for Boeing which has so far lost half a billion dollars on crew development, SpaceX flew the first crewed demonstration flight in May of 2020. From 2010 to 2021 NASA spent a total of $8.6B on CCDev.
Since 2006 NASA has taken small and deliberate steps towards commercialization. What could have been a single massive commercialization program, NASA broke into two development programs and two operations programs. Each of which was in turn broken up into several different phases. In between these phases NASA had several forms of evaluation, and funding was allocated on a fixed basis and only dispersed after private partners demonstrated success and compliance with milestones. Those milestones were pre-established and NASA could modify them in response to changing needs. As such, this program was set up well equipped to avoid cost-overruns which could result from plunging blindly forward. It was oriented both towards learning from mistakes and towards correcting errors in response to learning.
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First, thanks for commenting on our article and getting us to check this out. Interesting. Why has SpaceX succeeded where Boeing failed? Or, to clarify, do you realize Boeing is the other contractor for commercial resupply/crew? They are. So why can't they do what SpaceX has been doing for years? What is the logic for their failure?