Angry McCain Demands Answers on ULA No-bid Decision
John McCain
WASHINGTON, D.C. (John McCain PR) – U.S. Senator John McCain (R-Ariz.), Chairman of the Senate Armed Services Committee, sent a letter yesterday to Secretary of Defense Ash Carter on the Department of Defense’s national security space launch program and its continued reliance on Russian-made rocket engines. Chairman McCain expressed his concern about dubious claims made by United Launch Alliance (ULA) as to why it will not compete for the first competitive launch opportunity for the launch of a GPS III satellite. In particular, Chairman McCain called for a freeze on launch subsidy payments until an audit takes place to assess ULA’s claim that it cannot differentiate launch costs. Additionally, Chairman McCain criticized ULA’s apparent attempts to create an artificial need for relief from legislative restrictions on the use of Russian rocket engines enacted in response to Russia’s invasion of Ukraine and annexation of Crimea.
Chairman McCain sent a previous letter to U.S. Senator Thad Cochran (R-Miss.), Chairman of the Senate Appropriations Committee, opposing any legislative language that would undermine sanctions on Russian rocket engines.
The text of the letter is below.
Dear Secretary Carter:
I write to express concern about the direction of the Department of Defense’s (DoD) national security space launch program, the Evolved Expendable Launch Vehicle (EELV) program. I am troubled, in particular, by the explanations that the incumbent contractor, United Launch Alliance (ULA), has offered for why it will not compete for the first competitive launch opportunity under Phase 1A of EELV, which provides for the launch of a GPS III satellite. These assertions have major implications for both the DOD and the Congress, especially the clearly-established legislative priority to eliminate the DoD’s reliance on Russian-made rocket engines and whether the DoD should continue paying ULA a nearly $1 billion annual subsidy whether it actually launches satellites under the program or even chooses to compete for those launches.
Among the troubling and specious claims that ULA has made in connection with its announcement not to compete for the Phase 1A launch is its assertion that it (1) cannot submit a proposal that complies with the request for proposals (RfP) because it does not have the cost accounting systems needed to certify that funds from other government contracts, such as federal government subsidy payments, will not benefit the GPS III launch mission; and (2) does not have any Atlas engines available to bid in order to submit a timely proposal. ULA’s assertion that the Phase 1A launch is basically a “lowest price, technically acceptable” competition, unsuitable for launch contracts, is erroneous. In form and substance, this competition clearly contemplates a “best value” source selection, supported by a request for proposals that calls for a careful evaluation of performance, launch operations, schedule and price.
ULA’s claim that it lacks the accounting systems needed to certify that funds from other government contracts, such as the EELV Launch Capability (ELC) subsidy, will not benefit the Phase 1A launch is particularly troublesome. As you know, the RfP’s requirement in this regard is important because it ensures that the Air Force is able to conduct an “apples-to-apples” comparison with new entrants that have not similarly benefited from government subsidies and ensure that such subsidies will not unfairly benefit ULA’s proposal to launch GPS III.
As you are aware, on September 29, 2015, the Air Force awarded an ELC contract to ULA valued at $882 million—the latest such contract the Air Force has awarded to ULA since ULA became the only source for launches under the EELV program. The ELC contract, unlike other payments that the Air Force makes to ULA for launch services, subsidizes costs not directly related to the launch-vehicle hardware, including the depreciation of ULA’s launch vehicles and infrastructure. In paying ULA for such fixed launch costs and executing the EELV program under a cost-plus contract, the DoD has reimbursed ULA for allowable, reasonable, and allocable costs for its launches, while requiring ULA to reimburse it on a per-launch basis for launches that ULA sells to its non-DoD customers. To do so, ULA has had to maintain sufficient cost accounting systems within the company.
Yet now, in connection with the proposed Phase IA launch, ULA asserts it is unable to differentiate such costs sufficiently in order to submit a compliant proposal. If true, this would call into question the cost-reasonableness determinations that the Air Force has conducted to date in connection with its reimbursements to ULA. It would also suggest that ULA will not be able to compete for any future launch that would require an “apples-to-apples” comparison between the highly-subsidized incumbent and unsubsidized new entrants.
Given ULA’s assertion, I ask that you provide me with an assessment of ULA’s assertion that it does not have the requisite business systems needed to provide a compliant proposal, as well as an opinion of whether the DoD can conduct the needed “apples-to-apples” comparison in connection with the GPS III launch without the cost accounting system that ULA says it needs to provide a compliant proposal. In addition, given the implications of ULA’s assertion for the Air Force’s ability to ensure that it has been paying, and will continue to pay, only fair and reasonable costs for ULA launches under the EELV program, I ask that the DoD also audit ULA’s business systems—sufficient to ensure that it will be able to meet its contractual accounting requirements—and provide the results of that audit to the Senate Armed Services Committee prior to the obligation or expenditure of any additional ELC funds.
I also find ULA’s claim regarding the unavailability of Atlas engines, which it insists is necessitated by the National Defense Authorization Act for Fiscal Year 2015 and its restrictions on the use of Russian-made RD-180 rocket engines for the EELV program, especially dubious. While that law restricted the use of the RD-180 for EELV launches, the Air Force recently concluded, in declining ULA’s request for a waiver from those restrictions under that law’s national security exception, that no immediate action is required to address the future risk of having only one source of space launch services. This suggests that the basis for ULA’s decision not to compete for the Phase IA launch was manufactured since its waiver request just recently.
Indeed, notwithstanding those restrictions, the FY 2016 NDAA recognized that a small number of Russian engines could be needed to ensure a near-term competitive environment. That includes five engines that ULA currently has in its possession, which are not limited by the sanctions, since they were fully paid for prior to the Russian invasion of Crimea. Instead of setting those engines aside for national security launches, ULA rushed to assign them to non-national security launches that are unrestricted in their use of Russian engines.
ULA’s use of these tactics is unacceptable. It artificially created a need for relief from legislative restrictions on its ability to continue using RD-180—relief that, with the DoD’s active assistance, ULA’s is actively seeking in the fiscal year 2016 omnibus appropriations bill that is being developed now in the Congress. Put simply, there was no compelling reason to re-purpose DoD engines other than to attempt to compel Congress to award the Russian military-industrial base by easing sanctions targeted at Vladimir Putin and his cronies.
I feel strongly that these tactics are inappropriate and intended to support an effort in the Congress to subvert the authorization process, which has fully considered and addressed this matter in an open and transparent manner and pursuant to Regular Order. With this in mind, I ask you to explain, with reference to source contractual documents, when ULA first began assigning rockets to specific launches and when it first started to reassign launches to prevent the use of RD-180s that were originally available for competitive launches. Furthermore, I ask you to determine jointly with the Administrator of the National Aeronautics and Space Administration (NASA), and notify the committee of that determination, whether ULA’s reassigning those engines was early-to-need and if ULA could have procured other engines in time to meet actual launch dates. Given these actions and ULA’s decision not to compete for a Phase 1A launch, the Armed Services Committee will need to assess the establishment of an unrestricted prohibition of the use of Russian rocket engines.
Sincerely,
John McCain
Chairman
Senate Armed Services Committee
54 responses to “Angry McCain Demands Answers on ULA No-bid Decision”
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Well, there is the other shoe!
Question is, if McCain is really upset that ULA is trying to walk away from EELV with a fist full of cash, or is this a gambit to somehow game (their own) process so that they are still competitive with SpaceX? McCain is a willey old fox…
Atlas and Delta were funded by the DOD with the idea that they would compete. Then Boeing and L-Mart were found to be cheating so, they merged the 2 companies and allowed ULA to bid as 1.
Now, bronu wants to stop the delta, bid only with the atlas, while getting 1B subsidy.
At this time, I think that DOD should threaten to :
1) stop the subsidy;
2) allow Airbus, and SpaceX to compete against ULA on MOST of the launches;
3) offer up money to BO to finish their orbital system faster.
IOW, the DOD should NOT Be held hostage by these companies that are making MASSIVE profits from them.
I don’t think Airbus would be allowed to launch from US soil, and I don’t think the NSA wants it’s spy satellites launching from French Guiana. BO’s orbital system and Vulcan are both dependent on BO finishing the BE-4.
hence why I said MOST sats. For example, the GPS and our weather and comm sats could be launched. A number of the DOD sats do not need that tight of security. In addition, put a small number of troops to guard any of these.
And with a bit of money, I would bet that BO would get the BE-4 done quicker.
But the only purpose of DOD is to maximize the profits of some special interests. What did you think, that they attempted to protect your security 😀
but would that include the Russians?
Apparently. One of the rationalizations of the RD-180 deal was to keep Russian rocketeers honestly employed.
uh. Yeah. Ok.
The same problem as the SLS craptastic adventure. Those senators in power are payed by the companies in their districts to keep those jobs open and elected by the people in them to keep those jobs there.
If there were 5 engines in storage that ULA used for commercial missions instead of saving those for DOD missions, then they should be allowed to replace those engines with new stock. If McCain doesn’t want ULA to be able to compete for NASA and commercial missions, then he is going to need to guarantee some level of DOD business.
Except they aren’t competitive against SpaceX (at their heretofore expected ROI), with or without the RD-180s. So it maximizes their profit to simply walk away from the table with the money the DoD has put up for “services rendered”, than to risk staying in a game that has changed because a new player has joined.
there is nothing that stops ULA from buying new engines for NASA, private, etc. So, no, this is not an issue. However, the engines that are here are the ONLY ones allowed to be used by the DoD. THis is not only to punish Russia, but the fact is, that Russia might choose to put in a subtle bug that blows it up just to get back for sanctions.
IOW, getting more engines for DOD would be a horrible mistake.
Put simply, ULA is trying to subvert an Act of Congress and McCain is calling them out. Whether we agree with the Act is another matter entirely. Bring yourself into line ULA, you obviously feel that you are above the law and that is the real problem here.
Don’t hate the player….
Thank you for your reply, JS_faster, I don’t hate ULA, but, I do not like what, in this instance, they are trying to do, which is to subvert US Law. This, IMO, is a very serious situation and they must be brought to heal. Regards, Paul.
Actually they are being good agents for their shareholders and stewards of corporate value. They are acting well within the contract and under US Law. That it is “unfair” (and taking candy from a baby like) is more a testament to how poor US procurement contracting and law-making has gotten. It will be interesting to see if they are brought to “heel” or if the US Government is going to follow its own law or not.
Their reward, then, for their unwillingness to comply with the legislation or, as you have expressed it, they’re “being good agents for their shareholders and stewards of corporate value”, should be stopping the Assured Access To Space subsidy that they currently enjoy. When this is accomplished then, and only then, are they free, IMO, to do as they please. Talk about the tail wagging the dog, it’s well and truly time for them (ULA) to be brought to heal. To this end, I fully support Senator McCain’s efforts and wish that he was being shown more support by his peers, instead of being, currently in this matter, the “lone voice in the wilderness”.
On re-reading my posts, the tounge-in-cheek-ness of it wasn’t as evident as I’d intended. Yes you are right, companies that have had their bread buttered by the Government for so long should feel a sense of obligation to not take advantage of it.
But sadly, if you read about some of the program fiascos and fiscal malfeasance, past and present, that the mil-industral-complex regularly engages in, this is really small-potatoes. So either ULA is going to be really shocked that McCain is making a stink about this, or there is a shell game going on.
You don’t mess around with Big John
Thanks for your reply, Nernst. The “Act” doesn’t say, what does say they (ULA) should is the almost one billion dollar annual Assured Access To Space checks that they have been banking over the years. These really serious amounts of money say that ULA should not try and behave like an un-encumbered entity when it comes to the US Government launch requirements. Regards, Paul.
I believe that ULA still needs permission from the Russians to use Russian made engines on DoD launches. Considering how things are between the USA and Russia they may not get it.
I would think once Russia has delivered the engines and taken the cash that they would have little say so what ULA did with the engines??
Paid on delivery lol
ULA could hire these guys to secure the engines
That sort of trick works once then they discontinue future deliveries.
My Understanding is that while the RD-180 can be used for National Security missions, they cannot be used on Military Missions. Military Missions are defined as ‘All Launches sponsored and controlled by the DoD except Photo Reconnaissance,intel, Weather Prediction, Communication, Navigation” so, all the current missions are NatSec, but future missions could be Military.
well, the DoD has the right under Title 10 to seize any facility
for defense production…
while the DoD can’t make ULA bid, they could seize the factory and draft all the workers as ‘essential service employees’…
There is a pretty much zero probability of that being suggested much less happening.
ZERO chance of that going through.
Heh. I’ve suggested before that the US government should nationalise
Lockheed Martin.
They get something like 85% of their income from US govt contracts (mostly DoD), another 13% from foreign govt contracts (mostly defence sales) and just 2% from “other” sources (mostly as a subcontractor for other govt contractors.)
Apparently in awarding major contracts to them, such as F-35, the DoD has taken into consideration whether failure to win the award will cause the company to fail, and whether that failure will harm the DoD’s other acquisitions. LM have been deemed “too big to fail” as a contractor, and hence are not being judged on a competitive basis. Therefore any supposed advantages of commercially competing government contracts is lost. They are essentially a privately owned government agency. And they are treated like it. So why not bite the bullet and bring them completely in-house.
Can you imagine how much worse they would be run if they were a “State Factory”? Shudder.
It is a state factory. That’s why it doesn’t work well.
However, the image you have of a “state factory” is one that produces goods for the general public. (Soviet factories.) The comparison is with competition between multiple companies.
LM is entirely servicing the US govt. It is more like a privately owned government agency than a “state factory”. There’s no competition, therefore no efficiencies from capitalism. Bringing it “inhouse” would actually save money, and increase value.
Because “state factories” are vastly less efficient, and usually more corrupt, that normal competition in a capitalist economy, people think the key issue is “government” vs “private”. But it’s not, it’s “monopoly” vs “competition”. A lot of very dumb, wasteful and destructive “privatisation” decisions have been made by failing to understand that distinction.
Any monopoly is less efficient than a competitive market. The more protected the monopoly is, the less competitive.
But once you have a monopoly, if for whatever reason it is necessary, then you are always better off having it controlled by the entity paying for the service/product. Even if that entity is the govt/tax-payers.
Since the US has decided it needs a Defence force and a space program, then if you can’t have genuine competition between ordinary commercial suppliers, you are better off bringing your protected supplier completely in-house.
I’m glad you caught the implication of my choice of “State Factories”. However, the USSR usually had multiple (well, at least two) “design bureaus” for many products, military and civilian alike, in order to foster creativity and efficiency, if not competition (which is antithetical to socialist ethos). This is the exact same trend that we, the “free market, West” find ourselves descending into, with only a dwindling number of large conglomerate companies with which to choose for products or services. Do you really think copying the Soviet model for anything is a good idea?
When was the last time anyone accused a US Government agency of efficiency or effectiveness? To expect to take a hidebound, bureaucratic, but driven to produce a return for shareholders, organization like LM or Big B to suddenly become more cost conscious and effective because you’ve installed a couple of political appointees at the top and the rank and file employees now get paychecks from the US Treasury is…. can I get some of what you are drinking?
Sorry, but the fork in the road was decades ago when it was decided to let all the defense and aerospace contractors start to consolidate in an orgy of cannibalism that has directly led to today. Not only does the US (or world really) not have much of a choice, but it pays thru the nose for it as well.
Just yesterday.
By Bill Gates, no less.
No seriously, by coincidence I just recently read a quote by Gates. Apparently he was looking into how well the USG spent money on science and basic R&D, whether through NIH/NSF or DARPA, and considered it (surprisingly) efficient and well managed.
(Likewise, Medicare and VA apparently have less overheads (better bang for buck) than any comparable private medical insurer. Likewise most countries with universal health care find they get greater efficiency than the private US system.)
I know it’s a popular meme, but the government isn’t actually especially inefficient. All large organisations can be inefficient. And all monopolies tend to inefficiency and corruption. But there’s nothing magical about “the government” that makes it worse.
This meme leads to some foolish decisions because “business is more efficient than government” is such an easy sell for corrupt politicians looking to gift billions of tax payer dollars to their owners.
History tends to disagree with your assessment. Government is good at providing public goods that no one else can or wants to do, and where it/the people want it to have a monopoly on, such as dispensing justice and defense. But that does not mean it is efficient or effective. And you should fear a government that is. IMO.
Keep in mind the context of what Gates was saying and who he was saying it. He was buttering up politicians, the people who run governments, and was attempting to manipulate them to support his pet project, an even larger government program to “save” the planet from its climate.
If you actually believe that government is a good solution then…. you are living at the wrong point in history. You’re either late… or early. History will be the judge of that.
And this is the mindlessness that the meme breeds. The absolutism. I must be demanding all government for all things at all times. And hence I must be some kind of naive or stupid “liberal” who doesn’t understand the dangers of communism.
Well, you went there… I was trying to be polite, hoping you were the former not the later.
The second an entity with coercive power (ie; “government”) enters a “free market”, it destroys it. That is not “absolutism” or “mindlessness”, it is reality,
Bottom line (and to slew back on topic), is that, no. Allowing US aerospace to stovepipe into a few or one monolithic entities, either private or public, (which is the trajectory we have been on at the moment BTW) is a horrible idea. IMO.
But the process you described is just how Germany kept its manufacturing sector. Being free to export the US manufacturing sector to China is reason 1 the US just fell below 50% status for the middle class. You can believe all you want that gov ownership or gov influenced companies are less efficient than totally private firms, but since the 1970’s those economies have been having us for lunch, and are mopping the floor with our private firms. And those private firms love it because they are given assured return on investment in China with strategic loss to come later, and they are incapable of thinking about later. Open your eyes, the enterprises that are expanding in the world are gov owned and hybrid gov/private companies from China and Europe. American shipping (maritime), television and consumer electronics in the 70’s and 80’s, metals, automotive, machine tools (Bridgeport, SouthBend Lathe, Clausing, Cincinnati, Hardinge, Milwaukee etc), , large, medium, and small scale manufacturing were all shut down in the US by governments overseas very effectively targeting those industries to bring the work from the US to those nations. As American ‘free market’ types, we have some real soul searching to do.
Totally separate issue that is beyond the scope of what is being discussed here.
No, actually, it has everything to do with it.
Only in that the same government that you would entrust all of your national aerospace eggs to was directly responsible for creating the environment in which it happened. Opps…
You’re like all “true believers” someone brings up points counter to yours and you think they’re your enemies. I actually would rather have a functional private sector. However that private sector has to look beyond the next quarter, and has to understand that there’s more at stake than just the till. And that they have to invest in people and tools and maintain those investments. And in the face of competition they’ll have to be satisfied with a historical “honest 10%” return on investment. And that it’s not just about raping the enterprise on behalf of management and the share holders. If they can’t understand that, then the only thing left is government intervention. Look around the world. The US private sector has to compete and operate in a world of state run and state funded enterprises. I don’t know if you’ve noticed. They’re winning. They’re playing a rigged game, and American private enterprise refuses to make the changes needed to compete, instead they want in on the game.
As for your point about the US government creating the enterprise for the failure of US private enterprise vs foreign government sponsored enterprise. That government gave those private enterprises the latitude they asked for. This environment came out of the wants, desires, and legislative lobbying of private enterprise America.
I was just pointing out the gaping hole in your logic. For the longest time, US industry was quite capably of competing against state supported ones. I wonder what happened, hummm?
Like I said, you are opening a 55 gallon drum of worms to a simple question of what serves US national space launch needs the best.
I’ll sum it up in a paragraph. And give an example. Overseas state sponsored enterprise invested in people and tools to better a product at a rate that the US private enterprises were unwilling to. Examples are Toyota re tooling all their factories every 4 years, and Ford still running the same assembly lines, presses, and machines from the 1960’s in the 1990’s. Or Germany’s willingness to re-tool their steel industry on a decade by decade basis meanwhile US Steel insists on using the same blast furnaces the US gov forced them to buy/build in WWII.
Oh, that’s two examples. Private enterprise has unrealistic expectations on return on investment, and are unwilling to make the changes to their business model to compete against government sponsored industry.
You actually think that has anything to do with government?
Given that the money and a lot of the management came from governments, yes, governments are a major portion of the equation. Toyota got the money for the re-tooling from MITI. It’s called an industrial policy. The Germans likewise were part of a national policy to capture market share in steel.
Or the US equivalent in IT in the ’80s and early ’90s, government led industry efforts targeting the then growing Japanese power, which lead to the rise of Silicon Valley.
I remember those times. A lot of people were worried that silicon valley was in decline, and it was. The S Koreans were starting to produce medium end PC clones, and memory. I was not alive at the time, but I believe silicon valley started in the late 50’s early 60’s making transistors and diodes for government and consumer electronics. Strange as it may seem back then the East Coast was the major computer hub of the time.
Before you so glibly make that assertion do a little research into why the Nordic Ammunition Company of Norway and Finland (owned by the ministry of defence of both nations) is making the solid fuel for AIM-120.
Because it was an offset to get the Nordic countries to buy them? Because otherwise it would not be a viable business?
Because a private company forgot the recipe for the fuel and refused to invest the money needed to re-learn how to make it, and it took a state enterprise to knuckle under pay the money into people, tools, and experimentation to re-develop it, and get the job done, and get the work from the US gov.
Far better would be to split the company into say 3 equal companies, that compete in the same arena and bringing in new blood to run them.
Monopsonies will always trend towards (effective) monopolies. It’s inherent in the problem.
The only true solution is for there to be a wider market for the services the government wants. But that’s never going to be the case for defence, and is taking a bloody long time becoming the case for space.
In the latter case, then, the goal should be to stimulate the creation of a broader private market in the areas the government has decided it needs a space program. Once you realise that, programs like SLS are shown to be that more much harmful.
That is what Europe would do. In some of the Scandinavian countries I’ve studied, small enterprises are allowed to come and go with intervention from the gov on par with the US. However once you get big enough, the gov injects money and takes a seat on the board. And when you get really big, the gov takes you over. Ask yourself this. Have Exxon, and Texaco or Standard oil served the American people nearly as well as StatOil has Norwegians? I’m not glibly saying the US should operate that way, only that it does work. And can work out well. When an enterprise gets big, it becomes a state actor and plays a part in government. The question is who decides the terms of that state interaction?
Before WWII much of the function of defence contractors was done in gov arsenals. Lockheed has always been a troublesome company in its corruption of governments overseas (F-104) and domestically. Boeing comes in as well with it’s tanker fiascos and Delta program.
Actually, I think that the DoD SHOULD do a number of subsidized Delta IV flights for 3-4 years. That gives them plenty of time to get vulcan developed.
first off, ULA is wholly owned by Boeing and L-Mart i.e. no publicly traded stocks.
Secondly, ULA makes massive profits for Boeing and L-Mart.
Third, I said most of the launches, not all. Technically, Airbus could do the launches for us since we can secure the load all the way through.
But, it is preferred to keep it 100% under our control.