NASA IG Blasts NASA for Excluding $17.5 Billion From Orion Cost Estimate

NASA’s Office of Inspector General (OIG) issued a strongly critical report today asserting that NASA is not being transparent about the Life Cycle Costs of the Orion crew spacecraft.  By its calculations, NASA is excluding $17.5 billion from what it calls the “tailored” estimate of $12.2 billion NASA uses. The report also lays out the program’s many schedule delays and says the uncrewed test flight of the Orion spacecraft atop the Space Launch System (SLS), Artemis I, now is expected in November 2021. The crewed test flight, Artemis II, will not take place until August 2023.

Lockheed Martin is the prime contractor for Orion, which has been in development since 2006.  Originally it was part of the Constellation program under President George W. Bush and designed to take astronauts to the International Space Station on Ares I rockets and to the Moon on Ares V.

President Obama terminated the Constellation program, but Congress directed NASA to build a big new rocket and a “Multi-Purpose Crew Vehicle” (MPCV) to go with it.  SLS replaced the Ares rockets, but Orion was retained as the MPCV.

NASA’s $12.2 billion cost estimate does not include the $6.3 billion spent on Orion during the Constellation program.  It also excludes $819.6 million for development costs for missions beyond Artemis II (the first flight with a crew), $181.5 million in other costs NASA determines not to be life-cycle costs, and $10 billion in production costs.  Production costs usually are included in NASA Life Cycle Cost estimates, but the agency waived this requirement for the Orion program resulting in the tailored or “customized” cost estimate it uses according to the report.

The OIG does not agree these costs should be omitted either from the Agency Baseline Commitment (ABC) or Life Cycle Cost estimates.

We found that NASA’s exclusion of more than $17 billion in Orion‐related costs has hindered the overall transparency of the vehicle’s complete costs. Both federal law and NASA policy call for a Life Cycle Cost estimate for all major science and space programs costing more than $250 million, and for the Agency Baseline Commitment (ABC) to be based on all formulation and development costs. The Orion Program received approval from the NASA Associate Administrator to deviate from those requirements, resulting in exclusion of $17.5 billion in Orion‐related costs from fiscal year (FY) 2006 to FY 2030 due to the Agency’s tailored approach to program management and cost reporting. Although these exclusions have been approved, the tailoring of these cost reporting requirements significantly limits visibility into the total amount spent on development and production efforts.

Later the report adds:

In our judgement, reporting these cost categories as separate from the Life Cycle Cost—which includes both ABC and non-ABC costs—gives an incomplete picture of total program costs. Since only a portion of these costs are currently tracked through the established quarterly Life Cycle Cost reporting process, outside stakeholders are limited in their ability to track progress and determine whether a replan or rebaseline of program funding and schedule expectations is required. Furthermore, without a complete and comprehensive picture of Orion’s Life Cycle Cost, it is difficult for Congress and other stakeholders to have the information necessary to inform strategic decisions regarding future human exploration priorities.

The OIG also found that since the ABC was set in 2015, Orion experienced $900 million in cost growth through 2019, which “is expected to rise to at least $1.4 billion by 2023.”

In total, the OIG pegs Orion’s Life Cycle Cost through 2030 at $29.5 billion, not including the costs of at least two European Service Modules for Artemis I and II.  The service modules are attached to the crew modules and provide propulsion and power.  The European Space Agency (ESA) is providing at least two at no cost to NASA as part of a barter agreement to cover ESA’s share of common operating costs of the International Space Station.

Meanwhile the schedule for the uncrewed Orion flight test, Artemis I (previously Exploration Mission-1), has slipped more than three years already and the OIG expects further delays, with the crewed test flight, Artemis II, not until August 2023.

The head of NASA’s human spaceflight program, Kathy Lueders, did, in fact, just state that Artemis II will take place in 2023.  That conforms with the baseline commitment NASA made to Congress in 2015 to launch the first crew in April 2023.  However, NASA has been using 2021 as an “internal planning date” since then and that date is often incorporated into NASA briefings, so it is easy to perceive 2023 as a two-year slip.

Orion is being built through a traditional “cost plus” contract where Lockheed Martin can earn award fees and incentive fees based on NASA’s rating of its performance on top of the contract value.

The OIG also criticized NASA’s award fee practices, concluding they “hindered the program’s control of contract costs.”  NASA has been “overly generous” because of the “subjective nature of award fee evaluations coupled with nebulous and dated criteria.”   It questions $27.8 million of the $740.9 million in award fees paid to Lockheed Martin from 2006-2020.

The report does give NASA credit for a series of ongoing initiatives to reduce and control costs, but said it is too soon to evaluate their effectiveness.

In their response to the report (published as an appendix), Lueders and Monica Manning, NASA’s Assistant Administrator for Procurement, concurred with the report’s three recommendations.  However, the OIG still has an issue with how the agency will address transparency about the full cost of the Orion.

The OIG recommended that all the costs, including those from the Constellation era, be included in future reports.  NASA did not agree because “it was a different program, outside of the current Orion Program of Record.”  The OIG said it will continue to discuss the issue with the agency.