By Claire Bernish – May 16, 2016
Lockheed Martin and Boeing continue to hold an unnecessarily costly monopoly on the Defense Department’s space program, despite an alternative that would spare taxpayers no less than $250 million — each time a space launch is conducted. Government favoritism for the United Launch Alliance — an alliance turned monopoly between Lockheed and Boeing — has left Elon Musk’s SpaceX out in the cold despite enormous potential savings.
As a report from Politico revealed, each space launch conducted by the ULA comes with a whopping $350 million price tag, and though SpaceX can promise the same for less than $100 million, ULA’s chokehold on the program will perpetuate the Pentagon’s wasteful spending for years to come.
Worse, as Politico explains,
ULA is under investigation by the Pentagon for possible corrupt bidding practices and is preparing to lay off 25 percent of its workforce. Its long-term viability is in doubt.
Even the Pentagon’s acquisition chief grants that the creation of ULA — a monopoly criticized by the Federal Trade Commission when it was formed at the government’s behest a decade ago — may have been a mistake.
SpaceX, or Space Exploration Technologies Corp., sued the government to gain access to the bidding process — the terms of that out-of-court settlement were sealed and remain undisclosed — and subsequently won its first military contract on April 27. ULA haughtily refused to participate in the bid, despite it being the first opportunity to justify its costs in the face of competition.
“We did what we were asked to do,” affirmed ULA CEO Tory Bruno in an interview, noting the company’s successful record. “I think the government has been an excellent steward of their resources and of this mission, and ULA has done everything they have been asked to do.”
Lockheed and Boeing issued a joint statement to Politico, echoing ULA’s sentiment, which read, in part,
We are proud of our work with ULA. No other company has achieved 100 percent mission success in delivering critical national security, scientific and commercial satellites safely into their correct orbit every time.
Despite ULA’s self-congratulatory balking at criticism, taxpayers have no choice but to continue paying hundreds of millions for programs SpaceX can perform more cost-effectively. And that viable competition is precisely what concerned the FTC when the ULA monopoly was originally formed.
“The anticipated result of anticompetitive consolidation would be to reduce the rate of innovation and other non-price benefits and increase the prices that the government, including the Air Force, NASA and other government agencies, would pay for these services,” explained Michael Moiseyev, then-assistant director of the bureau of competition for the FTC, in July 2006.
“In short, the joint venture unambiguously will create a monopoly in the market for medium and heavy launch services for the U.S. government,” headded. “Monopolies almost always lead to higher prices, lower quality and inferior service … Here, the competition that would be lost is significant, and the economic benefits that may materialize are unlikely to trump the transaction’s harm to competition.”
Because the DoD was concerned about being left with only one company capable of launching satellites it deems essential to military operations, the FTC “concluded the ULA would improve national security and that the unique national security benefits from the joint venture would exceed any anticompetitive harm,” the Washington Post noted of the decision in 2006.
Since 2006, public documents from the Government Accountability Office show ULA has received at least $15 billion in federal funds — and in actuality, the figure may be far higher:
The exact number is difficult to calculate because ULA receives some of its funding through the so-called black budget, the confidential $50 billion-plus budget of the CIA, NSA, National Reconnaissance Office and other agencies.
That readily available funding might have driven ULA to significantly overestimate costs of carrying out its missions.
“As evidence that we were paying too much to ULA,” explained Frank Kendall, undersecretary of defense for acquisition, technology and logistics, in a statement to Politico, “as soon as there was even the threat of competition, their costs came down quite a bit. And they were obviously motivated at that point in time. Motivation matters. Financial incentives matter.”
Musk’s frustration over the DoD’s blatant favoritism of ULA came through in an interview with Bloomberg in 2015, cited by Politico, while he was attempting to attain certification for SpaceX.
“ULA has decided that they’re afraid even of an unfair competition,” Musk asserted. “They don’t want a fair competition. They don’t even want an unfair competition. They want no competition at all … They’re afraid that the huge gravy train that they have exclusive access to is now going to be not as big. We’re just talking about taking some portion of that.
SpaceX’s recently-awarded $83 million Air Force launch contract came in $55 million less than what the Air Force believed it would have spent for the same service from ULA. But the Lockheed-Boeing alliance will still get paid — the company receives an $800 million-per-year “capabilities contract,” whether or not its services are used.
“Do you know of any other federal arrangement with any other defense corporation where you pay them $800 million a year simply to remain in business?” Sen. John McCain asked Kendall at a hearing in January.
Perhaps Elon Musk’s innovative venture into the cosmos through SpaceX finally exposes excessive waste so common in the Pentagon’s bloated budget — an enormous chunk of which remains unaccounted for. A report last June found the Pentagon has essentially ‘lost track’ of around $8.5 trillion — yes, trillion — in taxpayer funded programs granted by Congress, just since 1996. As it turns out, the Pentagon has simply never complied with audits required by the government since that time; but as its fealty to ULA’s bloated space contracts shows, taxpayers are getting the shafted at every turn.