Northrop Grumman Reassessing Government Fixed Price Contracts After Loss on HALO

Northrop Grumman Reassessing Government Fixed Price Contracts After Loss on HALO

Northrop Grumman is reconsidering when to sign fixed price contracts with the government after experiencing a $36 million loss on NASA’s Habitation and Logistics Outpost. Company head Kathy Warden told reporters she will be ensuring fixed price contracts are used for commercial and production programs with stable requirements in the future.

HALO is the centerpiece of NASA’s Gateway space station that will serve as a hub in lunar orbit for operations on and around the Moon as part of the Artemis program. HALO and MAXAR’s Power and Propulsion Module (PPE) are scheduled to launch together on a SpaceX Falcon Heavy at the end of 2024.

Illustration of the Habitation and Logistics Outpost (HALO) module attached to the Power and Propulsion Element (PPE), with its large solar arrays, orbiting the Moon. Credit: NASA

Warden said they worked with NASA under a cost-plus contract through the Preliminary Design Review, but then transitioned into a Firm Fixed Price contract.

NASA said at the time the contract is valued at $935 million and includes Northrop Grumman integrating HALO and the PPE together, preparing it for launch, and activation and checkout during the flight to the Moon.

Close-up illustration of the HALO module. Credit: NASA

HALO is based on the Cygnus capsule built by Europe’s Thales Alenia Space that Northrop Grumman uses to send cargo to the International Space Station. The 19th Cygnus mission, NG-19, is enroute to the ISS right now following a successful launch last night from Wallops Island, VA. It will arrive at the ISS early Friday morning.

In a second quarter 2023 financial earnings statement and telecon with reporters, company officials said that while the space segment was strong overall with 17 percent sales growth, it included a $36 million “unfavorable estimate-at-completion (EAC) adjustment” on HALO “largely due to cost growth stemming from evolving Lunar Gateway architecture and mission requirements combined with macroeconomic challenges.”

Kathy Warden, Chair, Chief Executive Officer, and President of Northrop Grumman. Credit: Northrop Grumman.

Warden said they’ll be looking more closely at when to sign fixed price contracts in the future.

“We had worked with the government in a cost-plus structure through the Preliminary Design Review so we had a more mature design before transitioning into a fixed price contract structure. … We are being even more disciplined moving forward in ensuring that we work with the government to have the appropriate use of fixed price contracts. We think that is best applied for commercial items or production programs with stable requirements and a mature design. As it’s turning out on the HALO program, the requirements are not as stable as we or the government anticipated and we’re working with them to address that change management as we go forward.”

Northrop Grumman isn’t the only company to experience losses as NASA embraces Public-Private Partnerships and fixed price contracts for programs that previously would have been cost-plus, where the government shoulders the risk. Boeing has had to pay more than $1 billion of its own money for the Starliner commercial crew program because of technical problems and schedule delays.

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