NASA IG: NASA Missed Opportunity to Save Up to $84 Million After Antares Failure

NASA’s Office of Inspector General (OIG) reported today that NASA missed the opportunity to save up to $84 million on its Commercial Resupply Services (CRS) contract with Orbital ATK following the October 2014 Antares failure.  The agency will not pay more than the fixed price CRS contract’s value of $1.9 billion, but it could have reduced its costs under the terms of that contract.  The OIG also found Orbital ATK’s return to flight plan may be difficult to execute, citing the lack of a test flight of the revamped Antares rocket as one challenge.

Antares exploded 15 seconds after liftoff on October 28, 2014, dooming a Cygnus capsule full of supplies for the International Space Station (ISS).  It was the third of a planned eight Orbital Sciences Corporation launches under its CRS contract  — Orb-3.  Orbital Sciences merged with ATK earlier this year and is now Orbital ATK. 

The original CRS contract requires Orbital ATK to deliver 20 tons of cargo to the ISS by the end of 2016 for $1.9 billion. The company plans to fulfill that commitment by combining the remaining cargo into four rather than five more launches using a larger version of Cygnus.  Two will launch on United Launch Alliance (ULA) Atlas V rockets.  The other two are expected to use a new version of Antares that uses Russian RD-181 engines instead of the older Russian NK33/AJ26 engines that caused the failure.

Orbital ATK officials had laid out plans for returning Antares to flight in March 2016, preceded by a Cygnus launch on an ULA Atlas V on December 3, 2015.   Two weeks ago, however, Frank Culbertson, President of Orbital ATK’s Space Systems Division, said that the March 2016 launch will use another ULA Atlas V instead.  Antares will return to flight in the “spring,” he indicated, with two or three more launches that year.  (NASA awarded Orbital ATK additional launches under an extension of the CRS contract.)

The OIG report found that the return-to-flight plan may be difficult to execute on schedule.  Among its concerns is that Orbital ATK does not plan a test launch with the new RD-181 engines and NASA has not conducted detailed technical assessments of the new system.

The CRS contract is fixed price and NASA will not pay more, but the OIG report says that it could have reduced its costs by up to $84 million in two ways.  First, NASA “did not invoke a contract provision allowing for an adjustment to the mission pricing worth as much as $21 million, but instead received other nonmonetary considerations with an assessed value of $2 million.”   The report says NASA explained that invoking the provision might have led to a reopening of pricing negotiations and ultimately lead to higher costs.  The OIG replied that negotiations were already underway because of schedule delays, and NASA should have at least tried.

Second, when Orbital ATK decided to combine the remaining tonnage into four instead of five flights, it “did not use the per-kilogram pricing in the original contract and instead divided the price for the cancelled eighth mission by its contractual upmass requirement to arrive at a revised price-per-kilogram.”  Consequently, NASA is spending $65 million more than if the original pricing plan was used, according to the OIG.  In exchange, Orbital ATK offered NASA several “considerations,” such as flying 600 kilograms (kg) of cargo at no cost to NASA. The OIG questioned the value of those services, however.  For example, 400 kg of that amount was flown on an Antares demonstration flight in 2013 and “we question whether this is something NASA would have been required to pay.” 

The OIG also criticized NASA’s practice of paying for launches “far in advance of actual flight.”  Orbital ATK has “received almost $1.6 billion of the more than $2 billion contract value after flying only 2 successful missions of the 10 currently planned.”

Antares is launched from the Mid-Atlantic Regional Spaceport (MARS) at NASA’s Wallops Flight Facility, Wallops Island, VA.  MARS is owned by the Commonwealth of Virginia and operated by the Virginia Commercial Space Flight Authority (VCSFA).  Under its agreement with NASA, VCSFA was required to obtain insurance to cover liability and damage to NASA facilities, insure its own facilities, and waive all claims against the Government for damages that might arise.  “However, although NASA officials stated that VCSFA intended to self-insure … it is not clear from correspondence between VCSFA and NASA that this issue was understood or agreed upon by both parties.”  NASA ended up paying $5 million of the $15 million costs to repair the site.  (Virginia Governor Terry McAuliffe announced on August 12, 2015 that a new arrangement has been reached among the Commonwealth, Orbital ATK and VSCFA regarding insurance and repair costs.)

The OIG report also criticized the independence of Orbital ATK’s investigation of the accident.  This was a commercial launch licensed by the FAA, and while it meets the FAA’s requirements, it “lacks the level of independence required of NASA Mishap Investigation Boards.”

The OIG made a total of seven recommendations.  NASA agreed with all but one — that NASA establish procedures to ensure that insurance policies adhere to agreements and provide adequate financial liability and damage coverage.  In his response, printed in the report, NASA Associate Administrator for Human Exploration and Operations Bill Gerstenmaier said those procedures are already in place and were followed by Orbital and VCSFA, because VCSFA self insured for its own property during launch operations rather than purchasing insurance, which was a business decision.  “NASA was not required to contribute funds to the recovery effort at the site, but rather made an appropriate programmatic and policy-based decision to do so,” Gerstenmaier wrote.

NASA concurred with an OIG recommendation (number 4) to ensure the agency takes advantage of opportunities to save money, but the OIG said that it did not find NASA’s comments to be responsive.   The agency’s “comments do not suggest it intends to do anything differently in the future to ensure it receives the best value.”