OIG Recommends Transition of SLS Production to Commercial Service Contract
OIG Recommends Transition of SLS Production to Commercial Service Contract
Components Currently Being Produced Under a Sole-Source Contract Structure
The NASA Office of Inspector General (OIG) has released another in a series of audits examining NASA’s development of space flight systems for its Artemis IV and future missions. In the report OIG recommends transitioning production of major components of the Space Launch System to a Commercial Services Contract, rather than the Sole-Source Contract structure that is currently being used.
"NASA may want to consider whether other commercial options should be a part of its mid- to long-term plans to support its ambitious space exploration goals."
NASA OIG Report
According to the OIG report, Development of the Space Launch System (SLS) is key to the success of the program that intends to return humans to the lunar surface. In December 2022, Artemis I completed its 25-day uncrewed test mission after launch delays of nearly 4 years and billions of dollars in cost increases. NASA’s total Artemis campaign costs are projected to reach $93 billion from fiscal year 2012 through 2025, with SLS Program costs representing 26 percent ($23.8 billion) of that total. NASA’s development of space flight systems for Artemis IV includes the Gateway outpost, a Human Landing System, and a more powerful variant of the SLS rocket—known as the Block 1B—that will make the Artemis campaign more complicated and expensive.
In an effort to increase the affordability of Artemis, NASA is preparing to award a sole-sourced services contract, known as the Exploration Production and Operations Contract (EPOC), to Deep Space Transport, LLC (DST)—a newly formed joint venture of The Boeing Company and Northrop Grumman Systems Corporation—for the production, systems integration, and launch of at least 5 and up to 10 SLS flights beginning with Artemis V scheduled for 2029. Boeing and Northrop Grumman currently supply the SLS core and upper stages and boosters, respectively, that power the SLS. Before entering into EPOC, NASA intends to use a 3-year Pre-EPOC contract to evaluate DST’s readiness to assume the new contract’s tasks. The OIG audit projections estimate a single SLS rocket produced under EPOC will cost $2.5 billion, a figure NASA hopes to reduce by 50 percent through workforce reductions, manufacturing and contracting efficiencies, and expanding the SLS’s user base. Given the enormous costs of the Artemis campaign, failure to achieve substantial savings will significantly hinder the sustainability of NASA’s deep space human exploration efforts.
After reassessing NASA’s planned strategy to shift SLS production, systems integration, and launch services to DST under a services rather than the current sole-source contract structure, the Exploration Systems Development Mission Directorate added 3 years to the timeline for transitioning these responsibilities and consolidating existing SLS-related contracts under DST. During this 3-year evaluation and readiness period, NASA will continue to manage the individual SLS contracts until DST is ready to fully assume that role. We believe this Pre-EPOC transition contract is a positive step as it will include an insight/oversight team to monitor and evaluate DST’s ability to manage the full scope of SLS production and integration. For example, the transition period provides Boeing more time to improve its quality control efforts for core and upper stage production at NASA’s Michoud Assembly Facility, a concern raised by DCMA since 2019.
The OIG analysis shows a single SLS Block 1B will cost at least $2.5 billion to produce—not including Systems Engineering and Integration costs—and NASA’s aspirational goal to achieve a cost savings of 50 percent is highly unrealistic. Specifically, the OIG review determined that cost saving initiatives in several SLS production contracts such as reducing workforce within Boeing’s Stages contract and gaining manufacturing efficiencies with Aerojet Rocketdyne’s RS-25 Restart and Production Contract were not significant and, as a result, a single SLS will cost more than $2 billion through the first 10 SLS rockets produced under EPOC.
That said, moving SLS production from separate cost-reimbursable contracts to a combined commercial services approach may potentially reduce SLS production costs in the long term if a fixed-price contract is used to codify a reduced price. However, the Agency has yet to determine the extent to which fixed-price contracts will be used with DST. Considering the $4.3 billion cost increase the Agency incurred with cost-reimbursable contracts used to build the space flight systems for the first Artemis mission, continuing to use this type of contract under EPOC calls into question the suitability, affordability, and effectiveness of NASA’s contracting approach to SLS production. Moreover, a contractor’s ability to manage costs has typically accounted for only 25 percent of its evaluation under the SLS’s current cost-reimbursable contracts, so the SLS Program’s significant past cost overruns have had little impact on the award fees NASA provided to Boeing and Northop Grumman.
Additionally, NASA’s ability to reduce SLS costs and negotiate a fixed-price contract with DST will be impeded by a lack of competition for heavy-lift launch services, a characteristic that historically has helped drive down costs. Further, NASA has permitted current SLS contractors to incorporate limited rights data into the design of the core stage and Exploration Upper Stage, effectively blocking other contractors from competing to build the SLS system. That said, inclusion of several Federal Acquisition Regulation provisions in EPOC such as incentive fees may assist NASA in contract negotiations, mitigate the impact to schedule and cost overruns, and ensure remaining data rights are retained to the fullest extent possible by the government. Finally, while DST intends to reduce costs by increasing economies of scale by building more SLSs, its efforts to find customers outside of NASA have been unsuccessful to date. Although the SLS is the only launch vehicle currently available that meets Artemis mission needs, in the next 3 to 5 years other human-rated commercial alternatives that are lighter, cheaper, and reusable may become available. Therefore, NASA may want to consider whether other commercial options should be a part of its mid- to long-term plans to support its ambitious space exploration goals.
To improve the sustainability of the SLS system as the EPOC strategy is finalized, the OIG recommended the Associate Administrator for Exploration Systems Development Mission Directorate:
establish achievable cost saving metrics beginning with Artemis IV SLS elements and production contracts;
transition the core stage and Exploration Upper Stage contracts to fixed price with a per mission price to codify actual costs;
if keeping contracts as cost-plus- award-fee, increase the percentage of cost as a factor when conducting contractor evaluations for award fee purposes;
conduct a detailed review of all contractor-submitted documents to ensure the government’s rights to data and processes are not unnecessarily transferred to the contractor;
include contract flexibility on future SLS acquisitions that will allow NASA to pivot to other commercial alternatives;
for each Artemis SLS rocket under EPOC, add compensation to the DST contract such as incentive fees for when the contractor achieves specific cost saving goals; and
ensure Government Mandatory Inspection Points and government oversight teams remain throughout the EPOC transition period.
The report was provided to NASA management, who concurred or partially concurred with the recommendations and described planned actions to address them. OIG says in the report it considers management’s comments responsive; therefore, the recommendations are resolved and will be closed upon completion and verification of the proposed corrective actions.