SASC Report Lifts Veil on Commercial Satellite Imagery Rift

Insight into the battle over whether the government should continue to support two commercial companies to provide electro-optical satellite imagery emerged with the release of the Senate Armed Services Committee (SASC) report on DOD’s FY2013 authorization bill.  GeoEye and DigitalGlobe sell imagery to the government under the EnhancedView contract administered by the National Geospatial-Intelligence Agency (NGA).  The government contracts are a significant part of their businesses.  Substantial cutbacks in government purchases could mean that only one company would survive.

Rumors have been rampant for months that the government plans to scale back its commercial satellite imagery purchases because of reduced requirements and a decision to rely more on the government’s own satellites.   The spy satellites built and operated by the government’s National Reconnaissance Office (NRO) produce images with better resolution, but are highly classified and thus difficult to share with allies, for example.  The satellites also are costly.

After the September 11, 2001 terrorist attacks, U.S. government demands for imagery burgeoned to support the wars in Iraq and Afghanistan.  Decisions were made to contract for imagery from commercial companies to supplement NRO’s products.  While not as good as NRO imagery, commercial imagery is good enough for many purposes.

The EnhancedView contract NGA awarded to GeoEye and DigitalGlobe in 2010 is a follow-on to previous contracts called ClearView and NextView.  The EnhancedView contract is valued at $7.3 billion combined for the two companies if all options are exercised.  The 10-year contract is structured as a one-year contract with nine one-year options.

NGA’s budget is classified, so how much it is requesting for commercial imagery for FY2013 is unavailable, although the EnhancedView contract called for payments of $250 million per year for the first four years to the two companies.  SASC wants to add $125 million to whatever amount NGA requested to ensure that the government continues to support both companies.  Section 930 of SASC’s version of the FY2013 National Defense Authorization Act (NDAA) also requires two studies — one by the Joint Chiefs of Staff and another by the Congressional Budget Office — on the need for and cost effectiveness of commercial imagery. 

A lengthy section in SASC’s report (S. Rept. 112-173) explains the committee’s action, shedding light on how the debate has evolved.   Pieces of the story have been reported in a few media sources, notably an April 19, 2012 New York Times article, but this is the most detailed account to appear publicly in an official government document.

The debate intermixes three questions:  how much electro-optical satellite imagery does the U.S. government need;  what is the most cost-effective means for filling those requirements –  with the government’s own systems, by purchasing commercial imagery, or both; and what obligation does the government have to ensure the business success of the companies.

GeoEye and DigitalGlobe sell imagery with 0.5 meter resolution, though many say the images are better than that and the companies degrade the data for sale on the open market to abide by government policy requirements on what can be disseminated.   NGA’s purchases underpin the business models of the two companies, although they do have other customers such as Google.

The wars in Iraq and Afghanistan drove the govenrment’s need for more satellite imagery that could be easily shared with others.  With those conflicts ended or ending, the question arises as to how much imagery the government now needs and how best to obtain it. 

The SASC report traces the history of defense and Intelligence Community (IC) decision-making on the need for commercial imagery.  It points to a rift between the Vice Chairman of the Joint Chiefs of Staff and the Director of National Intelligence (DNI), who oversees the 17 organizations, including NRO, that comprise the IC.

The report states that the DNI rejected a Joint Staff proposal that commercial satellites be the primary means for collecting electro-optical imagery.  The DNI instead wanted to rely on NRO to enhance existing government systems and build new ones.  That dispute reached the White House, but at the last minute the DNI and the Secretary of Defense agreed to do both — buy commercial imagery and new government satellites.  With that settled, GeoEye and DigitalGlobe “proceeded towards adding the equivalent of two more satellites that would be available to meet government needs,” SASC says. 

The DNI, however, apparently did not want to stick with that agreement and the dispute escalated to Congress.  SASC relates that the Senate Select Committee on Intelligence conducted a study concluding “enhanced commercial satellites could meet or exceed the overwhelming majority of electro-optical imaging requirements at less cost and risk” and would “provide greater resilience and survivability, and a broader, competitive industrial base.”  DNI countered with its own study asserting that more, smaller commercial satellites would not be less expensive than NRO’s satellites.   SASC says that it responded in the classified annex to last year’s report on the FY2012 NDAA by directing DOD — specifically the Joint Staff and DOD’s Cost Assessment and Program Evaluation office — to conduct another analysis, but “DOD declined” to do so.

Instead, late last year at least one part of DOD, the Undersecretary of Defense for Intelligence, and the DNI reached agreement to reduce funding for commercial imagery.  SASC complains the decision was not based on new analysis, but was simply included in the FY2013 budget request.   SASC emphasizes that the decision “would result in the elimination” of one of the two commercial companies competing for government contracts, thereby imperiling that company’s business.    The government’s “wild swing in demand has exposed two healthy companies to financial risk,” SASC charges.

For now, SASC wants to maintain the status quo while two new studies are completed.   In addition to adding the $125 million for FY2013, SASC directs the Vice Chairman of the Joint Chiefs of Staff  to do a comprehensive analysis of DOD’s imagery requirements and the role of commercial imagery in meeting them and report to Congress by April 1, 2013.  It also directs the Congressional Budget Office (CBO) to report by September 15, 2013 on whether the proposed action is consistent with Presidential policy, Federal Acquisition Regulations, and law. 

Uncertainty about the government’s intentions already has impacted the companies.   GeoEye made an unsolicited offer to buy DigitalGlobe last month, which was summarily rejected by DigitalGlobe.  Both reported they have been assured of their promised EnhancedView funding for FY2012.   The question is what will happen in FY2013 and beyond.

SASC’s counterpart, the House Armed Services Committee (HASC), also noted the debate over commercial imagery in its report on the FY2013 NDAA (H.R. 4310, H. Rept. 112-479).  HASC, however, only included report language directing the Secretary of Defense to report to Congress by December 1, 2012 on the validated requirements for imagery and how DOD plans to meet them.  Unlike bill language, report language is not legally binding (though agencies are well advised to follow it).  SASC’s report requirements are in the bill itself.

Authorization bills like the NDAA set policy and recommend funding levels.   Only appropriations bills actually provide money, however.   The House Appropriations Committee did not mention commercial imagery in its report (H.R. 5856, H. Rept. 112-493) on the FY2013 defense appropriations bill.  The Senate Appropriations Committee has not acted on the bill yet.   Its defense subcommittee will hold a hearing tomorrow morning with Secretary of Defense Panetta and Chairman of the Joint Chiefs of Staff Dempsey.  It would be unusual for a detailed issue like this to arise at such a hearing, however.