The Evolved Expendable Launch Vehicle (EELV) program was established by the Air Force in 1995 to design, build, and launch new rockets to lift medium and heavy satellites into space. Since the beginning of the program, the Air Force has been awarding contracts on a competitive basis. However, starting in the spring of this year, everything changed.
In March 2005, after only one-week’s notice, the Air Force issued Request for Proposals (RFPs) for the next five years’ worth of anticipated launch missions exclusively to Boeing and Lockheed Martin.
Rather than awarding the contracts competitively based on price, the missions were instead individually assigned “in order to keep both rocket makers viable.” In addition, the Air Force provided them each with non-competitive, cost reimbursement contracts, which constitutes an annual multi-million dollar taxpayer-financed subsidy of Boeing’s and Lockheed Martin’s rocket businesses. Just two months later, rather than continuing to compete with each other, Boeing and Lockheed Martin proposed merging their government launch businesses to form the United Launch Alliance (ULA) with the Air Force’s support.
This major shift away from competition was in large part due to Boeing’s suspension for unethical behavior. During the 1998 EELV contract competition, Boeing had extraordinary knowledge about Lockheed Martin’s proprietary data. In July 2003, the Air Force suspended three of Boeing’s Integrated Defense System business units for possessing 66,000 stolen pages of Lockheed’s EELV rocket cost information, although the ban was twice lifted to allow Boeing to receive awards. In January 2005, the President announced his space transportation policy that directed the Department of Defense (DOD) to maintain two contractors in order to have “assured access” to space. However, since Boeing had Lockheed’s rocket cost data, Lockheed insisted that it could no longer compete. In March 2005, the Pentagon lifted the suspension, and shortly thereafter Lockheed agreed to drop its civil case against Boeing. Although the Boeing scandal soaked taxpayers for an estimated $230 million in extra costs, its punishment amounted to no more than a slap on the wrist from the government.
The Government Accountability Office (GAO) recently concluded that the EELV program, with Boeing and Lockheed as the sole providers, is on track for cost overruns of $13.2 billion, 70 percent above the approved budget of $18.8 billion, which includes substantial government subsidies of their commercial launch businesses. If approved, the ULA will have a virtual lock on all the medium to heavy government satellite launches for at least the next five years. With a unit cost growth of 81 percent since 1995 and little possibility of competition, the shortcomings of the EELV program will be exacerbated by the anti-competitive ULA merger.
In late October, the Federal Trade Commission delayed the approval process by asking for more information, indicating that the contractors are struggling to convince federal officials about the long-term merits of the proposal.
Widening the playing field to companies outside the defense contractor oligopoly is the best way to protect both the government and taxpayers from spiraling costs and decreased innovation.
GAO cautioned the DOD in 1998 to devise a way to maintain competitive pressure in its acquisition programs. If the Pentagon does not heed this warning for the EELV program, the government will be saddled with a monopolistic entity that will both ensure high costs for taxpayers and stifle innovation.
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