NASA Inspector General Sees Possible Delays in Orbital ATK Cargo Missions

A massive explosion occurred right after the Antares rocket hit the ground.
A massive explosion occurred right after the Antares rocket hit the ground.

An audit by NASA’s Inspector General has raised the possibility of delays in Orbital ATK’s plan to fly four cargo mission to the International Space Station (ISS) by the end of 2016 under its Commercial Resupply Services (CRS) contract with NASA.

The report also cites NASA for financial decisions involving the CRS program that add up to more than $150 million in what the Inspector General says are unnecessary costs to the agency.

Orbital ATK plans to fly four enhanced Cygnus cargo ships to the station over the next 15.5 months. Two would be launched aboard United Launch Alliance (ULA) Atlas V rockets, with the remainder on Orbital ATK’s re-engineered Antares boosters.

A Cygnus freighter was destroyed last October when the first stage of its Antares booster failed. Orbital ATK elected to replace the AJ-26 engines blamed for the explosion with newer, Russian-built RD-181 motors.

The audit cited three main concerns about the schedule.

First, although the Atlas V has a strong flight record and is a suitable rocket for Orbital missions, the company will be integrating its Cygnus capsule with the Atlas rocket for the first time.

Second, Orbital must accelerate development of its modified Antares launch system, refitting it with new engines for two planned launches in 2016. This tight schedule does not include a test flight for the modified system and provides limited opportunities for qualification and certification testing.

Third, although NASA has increased monitoring of Orbital’s milestone plan and RD-181 engine testing for the modified Antares, the Agency has not conducted detailed technical assessments of the modified system and the associated qualification testing results.

Orbital ATK was originally scheduled to fly five additional cargo missions to ISS under its contract. However, the company has dropped one of the flights because the increased lifting capacity of the Atlas V and re-engineered Antares will allow it to fully complete its obligations under the agreement.

“We believe Orbital’s plan to drop one of its scheduled resupply flights may disadvantage NASA by decreasing the Agency’s flexibility in choosing the type and size of cargo the company transports to the ISS,” the audit states.

Cygnus and Cygnus Enhanced cargo ships (Credit: Orbital ATK)
Cygnus and Cygnus Enhanced cargo ships (Credit: Orbital ATK)

The Inspector General recommend that NASA “complete a detailed technical assessment of the Antares 230, including the qualification test results and risk mitigation plan before the Antares returns to flight.” The space agency agreed with the recommendation.

The audit found NASA did not invoke a provision in its contract with Orbital ATK that could have saved taxpayers $84 million.

“Specifically, when flight schedules slipped such that Orbital was making multiple flights in a year, 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 only $2 million,” the report states.

“Agency officials contend that invoking this provision may have reopened negotiations on pricing and potentially given Orbital the opportunity to press for higher prices, which could have resulted in the Agency ultimately paying more,” according to the report. “However, negotiations and modifications to the contract were already underway as a result of the schedule delays, and we believe it would have been in NASA’s interest to at least broach the issue with Orbital.”

The agency also accepted a change in how cargo pricing is calculated that will require it to pay Orbital ATK $65 million more for remaining cargo flights than if the method stipulated in the contract was used.

“When calculating the cost to NASA for the remaining four flights, Orbital 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,” the report states.

“By accepting this pricing structure, NASA committed to paying $65 million more for these missions than the Agency would have paid if the original pricing had been used. While Orbital offered NASA some consideration in exchange for the adjustments made in its Return to Flight Plan, we question the value of these services,” the audit added.

The Cygnus Pressurized Cargo Module for the OA-4 mission arrived at the Kennedy Space Centerfor processing in preparation for the upcoming CRS space station resupply mission to be launched from Florida in early December. (Credit: Orbital ATK)
The Cygnus Pressurized Cargo Module for the OA-4 mission arrived at the Kennedy Space Centerfor processing in preparation for the upcoming CRS space station resupply mission to be launched from Florida in early December. (Credit: Orbital ATK)

The Inspector General recommended that NASA update mission pricing and take advantage of provisions in the contract that allow for discounts when multiple missions are flow in a calendar year. The space agency concurred with the recommendation, but the Inspector General was not satisfied with planned actions.

“Specifically, we are troubled that despite our findings that the Agency failed to take advantage of contractual mechanisms that could have saved it millions of dollars, NASA’s comments do not suggest it intends to do anything differently in the future to ensure it receives the best value,” the report states. “Accordingly, we are leaving the recommendation unresolved pending our review of NASA’s actions regarding future contract modifications.”

The audit found NASA spent $5 million to help repair damage at the launch site on Wallops Island, Va., that resulted from the Antares failure.  The agency made the payment despite an agreement that the Virginia state authority that runs the launch site would obtain insurance and waive any claims against the federal government for damages caused by a launch accident.

“Although NASA officials stated that VCSFA intended to self-insure for damages resulting from launch operations, it is not clear from correspondence between VCSFA and NASA that this issue was understood or agreed upon by both parties. As a result, $5 million of NASA funds intended for other space operations projects were used to help fund the repairs,” the report states.

The audit recommended that NASA “establish procedures to ensure that insurance policies adhere to agreement requirements and provide adequate financial liability and damage coverage.” The space agency rejected this recommendation.

“Although Agency officials did not concur with recommendation 6, we believe NASA can take additional steps to help ensure clarity regarding who is responsible for paying for repairs in the event of a launch mishap,” the report concluded.

Key excerpts from the audit are below.

NASA’S RESPONSE TO ORBITAL’S OCTOBER 2014 LAUNCH FAILURE:
IMPACTS ON COMMERCIAL RESUPPLY OF THE INTERNATIONAL SPACE STATION
NASA Office of Inspector General
Report No. IG-5-023
September 17, 2015

Key Excerpts

What We Found

Orbital’s Return to Flight Plan contains technical and operational risks and may be difficult to execute as designed and on the timetable proposed. First, although the Atlas V has a strong flight record and is a suitable rocket for Orbital missions, the company will be integrating its Cygnus capsule with the Atlas rocket for the first time. Second, Orbital must accelerate development of its modified Antares launch system, refitting it with new engines for two planned launches in 2016. This tight schedule does not include a test flight for the modified system and provides limited opportunities for qualification and certification testing. Third, although NASA has increased monitoring of Orbital’s milestone plan and RD-181 engine testing for the modified Antares, the Agency has not conducted detailed technical assessments of the modified system and the associated qualification testing results. Finally, we believe Orbital’s plan to drop one of its scheduled resupply flights may disadvantage NASA by decreasing the Agency’s flexibility in choosing the type and size of cargo the company transports to the ISS.

In addition, although NASA will not pay Orbital more than the fixed price of $1.9 billion agreed to for the original eight flights, the Agency did not take advantage of provisions in the contract that could have reduced its costs by up to $84 million. Specifically, when flight schedules slipped such that Orbital was making multiple flights in a year, 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 only $2 million. Agency officials contend that invoking this provision may have reopened negotiations on pricing and potentially given Orbital the opportunity to press for higher prices, which could have resulted in the Agency ultimately paying more. However, negotiations and modifications to the contract were already underway as a result of the schedule delays, and we believe it would have been in NASA’s interest to at least broach the issue with Orbital. Further, when calculating the cost to NASA for the remaining four flights, Orbital 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. By accepting this pricing structure, NASA committed to paying $65 million more for these missions than the Agency would have paid if the original pricing had been used. While Orbital offered NASA some consideration in exchange for the adjustments made in its Return to Flight Plan, we question the value of these services. In addition, NASA recently took actions that will limit its ability to slow milestone payments caused by schedule delays for future cargo resupply missions, effectively increasing the Agency’s financial risk for its follow-on commercial resupply contract.

Further, the Space Act Agreement between NASA and VCSFA specified that VCSFA was required to obtain insurance at no cost to NASA to cover claims for liability and damage to NASA property, have insurance for its own property, and waive all claims against the Government for any damage arising under the Agreement. However, although NASA officials stated that VCSFA intended to self-insure for damages resulting from launch operations, it is not clear from correspondence between VCSFA and NASA that this issue was understood or agreed upon by both parties. As a result, $5 million of NASA funds intended for other space operations projects were used to help fund the repairs.

Finally, although Orbital’s Accident Investigation Board satisfies the requirements of the company’s Federal Aviation Administration license and the CRS-1 contract, the company’s investigation lacks the level of independence required of NASA Mishap Investigation Boards.

What We Recommended

In order to reduce schedule, performance, and financial risks in NASA’s CRS-1 contract and any similar future contracts, we made several recommendations, including that the Associate Administrator for Human Exploration and Operations complete a detailed technical assessment of Orbital’s revamped Antares rocket; use available contractual provisions to ensure the best value to the Government when making equitable adjustments due to a contractor’s deficiency; ensure mission pricing and payment are continually updated; and continue to incorporate lessons learned during CRS-1 into follow-on contracts and during the evaluation of return to flight plans.Further, in order to protect the United States against claims for damages caused by commercial spaceflight operations, we recommended the NASA General Counsel establish procedures to ensure that insurance policies adhere to agreement requirements and provide adequate financial liability and damage coverage. Finally, to address concerns regarding the independence of accident investigation boards, we recommended the Associate Administrator for Human Exploration and Operations consider whether relevant contract provisions should be revised to more closely align with NASA Mishap Investigation Board procedures.

In response to a draft of our report, the Associate Administrator concurred with six of seven recommendations and described corrective actions the Agency has or will take. Our recommendation about protecting NASA against claims for damages remains unresolved.

Recommendations, Management’s Response, and Our Evaluation

In order to reduce schedule, performance, and financial risks in NASA’s CRS contracts, we recommended the Associate Administrator for Human Exploration and Operations, in conjunction with the CRS-1 Contracting Officer, ensure the ISS Program

1. complete a detailed technical assessment of the Antares 230, including the qualification test results and risk mitigation plan before the Antares returns to flight;

2. establish a decision point for asking Orbital to provide a second Atlas V mission, thereby increasing the likelihood the company will meet its upmass requirements on a reasonable schedule;56 and

3. use available contract provisions to ensure the best value to the Government when making equitable adjustments due to a contractor’s deficiency.

In order to reduce risk in future CRS contracts, we recommended the Associate Administrator for Human Exploration and Operations, in conjunction with the CRS-1 and CRS-2 Contracting Officers,

4. ensure mission pricing and payment are continually updated to take advantage of discounts available for flying multiple missions in a single calendar year, using per-mission or per-kilogram pricing tables already established in the contract, and

5. continue to incorporate lessons learned during CRS-1 into follow-on contracts and during the evaluation of Return to Flight Plans. For example, limit percentage of mission payment to 50 percent at the Mission Integration Review (or lower), rather than the currently contemplated 60 percent and tie more payments to the launch date instead of the ATP.

In order to prevent claims against the United States for damages caused by commercial spaceflight operations, we recommended the NASA General Counsel

6. establish procedures to ensure that insurance policies adhere to agreement requirements and provide adequate financial liability and damage coverage.

To address concerns about the independence of accident investigation boards for NASA-sponsored commercial spaceflights, we recommended the Associate Administrator for Human Exploration and
Operations, in conjunction with the CRS-1 and CRS-2 Contracting Officers

7. consider whether contract provisions relating to the boards should be revised to more closely align with NASA Mishap Investigation Board procedures (NASA Procedural Requirements 8621.1B, Chapter 4).

In response to a draft of our report, the Associate Administrator concurred with recommendations 1, 2, 3, 4, 5, and 7 and described corrective actions the Agency has taken or will take to address them. Agency officials did not concur with recommendation 6.

We find the actions the Agency describes responsive to recommendations 1, 2, 3, 5, and 7 and will close these recommendations upon reviewing relevant contract documentation and verifying that the Agency has completed the described actions.

We do not find NASA’s comments responsive to recommendation 4. Specifically, we are troubled that despite our findings that the Agency failed to take advantage of contractual mechanisms that could have saved it millions of dollars, NASA’s comments do not suggest it intends to do anything differently in the future to ensure it receives the best value. Accordingly, we are leaving the recommendation unresolved pending our review of NASA’s actions regarding future contract modifications.

Although Agency officials did not concur with recommendation 6, we believe NASA can take additional steps to help ensure clarity regarding who is responsible for paying for repairs in the event of a launch mishap. Specifically, NASA officials stated that VCSFA intended to self-insure for damage resulting from launch operations; however, it is not clear from correspondence between VCSFA and NASA that this issue was understood or agreed upon by both parties. This lack of clarity may have contributed to
NASA’s decision to divert money intended for other projects to repair VCSFA property. Accordingly, we continue to urge NASA to assess whether it should take additional steps to ensure liability provisions and insurance requirements relating to launch failures are clear to all parties. This recommendation is unresolved pending further Agency response.

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56 This recommendation was made before Orbital announced in August 2015 that it would exercise the option to contract for an additional Atlas V rocket to launch Orb-6.