The Death Spiral of Commercial Space / NASA Relations

With the retirement of the Space Shuttle moving ever closer to reality - and NASA's epic failure to develop a viable follow-on system in the last 30 years - the US space program has now firmly set its sights onto the burgeoning commercial space transportation industry to fill in the gap. Both entrepreneurial and established space companies have risen to the challenge; but as programs move into hardware development and operational flight at a break-neck pace (by NASA standards), the cultural divide between commercial fiscal realities and established practices of government program oversight is emerging as the primary roadblock towards success.

Throughout my participation in various space ventures, I repeatedly observed what I eventually termed the "Entrepreneurial space company / government customer spiral of death". While various government agency used to dealing with large aerospace contractors may look towards entrepreneurial ventures to breathe some fresh air into the inbred doldrums of the space launch industry, it will do so with (sometimes justified) skepticism towards a new company's ability to perform. Space systems are complex and expensive; awarding a multi-million dollar contract to a new-kid-on-the-block without a track record requires a significant leap of faith.

In order to manage the risks associated with awarding large aerospace procurements to smaller contractors with little history, assigned contracts are "fixed cost" / delivery based, rather than the traditional "cost plus" effort based variety. Under a fixed price contract, the contractor does not receive payment until after a specific deliverable has been achieved. So no matter how much time (and money) it takes for someone to develop a new rocket engine, the financial reward at the end remains unchanged. This places enormous pressure on small companies with limited cash reserves to perform as promised and on schedule.

While on the face of it there's nothing wrong with this approach, the devil is - as always - in the details. Since government customers are historically more familiar with "cost plus / effort based" contracts, .their agents have become accustomed to contractors appeasing their every request - no matter how whimsical or ill-advised. The contractor smiles and says "sure we can do that", and then simply adds another month to the program to accommodate the request, with cost growing accordingly. In addition, contractors promise impossible schedule and cost goals in the initial proposal phase, knowing full well that once the contract has been awarded both will be adjusted as needed to realign with reality.

In their desire to break into the commercial space transportation market, the new entrant then has little choice but to also promise the near impossible. Unlike larger players however, should the entrepreneurial company be successful in securing a contract, the fixed cost agreement then forces them to live up to their (often overly optimistic) claims. To make matter's worse, the government will follow established behavioral patterns, and voice a near continuous stream of requests for additional data, analysis, tests, etc. which reduce productivity and delay the program, thus placing extraordinary strain on the company's cash flow situation. The contractor may begin to falter and fall short on expected deliverables, or simply begin to increasingly deny customer requests for more insight in order to focus on financially crucial deliverables.

As the customer's trust erodes, ever more oversight and reporting burdens are placed on the contractor. I have personally participated in programs where the number of government personnel providing oversight was twice that of the people performing the work. Even if the contractor is able to hold the line against the onslaught of interference and complete the program successfully, at this point the relationship has become so acidic and confrontational that any type of follow-on award is highly unlikely.

In my experience there are two necessary ingredients to break out of the death-spiral, and the responsibility of implementing them are equally shared between government space agencies and hopeful space entrepreneurs:

1) Government customers are used to "cost plus / effort based" contracts. Even if government management understands the difference between that and a "fixed cost / deliverable based" contract, their front-line agents generally don't . Therefore, it is necessary to define extremely clear deliverables. Following that, if a request for additional work is received, the company's response should include an assessment for additional funds. This either results in the customer management becoming aware of the request and allocating more time/money, or (more often) the withdrawal of the request.

2) On the company's side, it is paramount to over deliver every time. Each time you deliver more than what was agreed to, the trust relationship improves and oversight by the customer gradually reduces, leading to improved productivity and happiness on both sides. This makes it again very important to be absolutely certain on what you commit to deliver in the first place when obtaining that all important initial agreement.

Without these two elements, the cultural divide between government agencies like NASA or DARPA and new space contractors will almost certainly lead to failure. As an entrepreneurial business leader it is paramount to manage and clearly communicate expectations, and then exceeding them whenever possible. Only then will government agencies used to control every aspect of program execution find the trust to get out of the way of the commercial space revolution and leverage its creative energy for the success of all - instead of molding its emerging talent back into the old way of doing things which has served us so poorly in the last 40 years.