NASA Criticized for Excessive Pre-Payments to Orbital for Cargo Flights to ISS

NASA’s Office of Inspector General (OIG) is criticizing NASA for making excessive early payments to Orbital Sciences Corp. for Commercial Resupply Services (CRS) to the International Space Station (ISS).  Orbital is building the Antares rocket and Cygnus spacecraft as part of NASA’s Commercial Orbital Transportation Services (COTS) program.

NASA’s commercial cargo program involves two different arrangements with the two competitors, Orbital and Space X.  One is COTS, which uses Space Act Agreements for development of the space transportation systems (Antares/Cygnus for Orbital, Falcon 9/Dragon for Space X).  The other, CRS, is a Federal Acquisition Regulations (FAR)-based fixed-price contract.  Though neither company had launched their systems at the time, in 2008 NASA awarded $1.6 billion to SpaceX for 12 CRS missions and $1.9 billion to Orbital for 8 CRS missions. (Cygnus can accommodate more mass than Dragon so can deliver a fixed quantity of cargo to the ISS in fewer launches.)  The agency began making payments to both companies for the CRS flights before the companies demonstrated that their systems worked.

SpaceX completed its COTS development last year and is now conducting operational CRS missions.  Orbital, which joined the COTS program a year and a half after Space X, flew its first Antares test flight in April.   A demonstration mission was expected in June, but slipped to August or September. The OIG report released today is concerned that the demonstration flight could uncover problems that might take “costly rework and redesign” resulting in further delays to the operational CRS flights for which NASA already has paid substantial sums.

The OIG report says that both companies are “more than two years” behind schedule and expressed concern that NASA is taking on too much financial risk by paying Orbital in advance for the CRS missions when the demonstration flight still has not occurred.  “Under the current payment schedule, the company is on track to receive up to 70 percent of the funds associated with six of its eight CRS missions prior to having flown a demonstration mission,” the report says.  “In our judgment, NASA has been too slow to adjust its payment schedule to Orbital under the CRS contract given the substantial slippage in the launch schedule for the company’s resupply missions.”  

The report goes on to say that NASA’s Associate Administrator for Human Exploration and Operations (Bill Gerstenmaier) agreed that NASA needs to slow the pace of payments to Orbital for CRS missions, but did not agree that NASA accepted too much financial risk.  Instead, the report cites him as saying “that NASA determined that the programmatic risks of not starting hardware development needed for cargo resupply were substantially greater than the financial risks posed to the Agency by doing so.”   The OIG agrees “that balancing programmatic and financial risk is critical to ensure the success” of the program,  but nonetheless believes that NASA has been to slow in adjusting the payment schedule.

The report says that NASA paid Orbital $910 million, and SpaceX $858 million, under both COTS and CRS as of the end of FY2012.   All in all, the 46 page report provides an excellent history of the COTS and CRS programs.