The federal government should increase its use of firm fixed price (FFP) contracts for programs with multiple or block buys of identical items with no competition to help lower the price of national security space programs, according to a leading aerospace industry trade group.

The Aerospace Industries Association (AIA) released a report Monday on reducing the cost of military space capabilities. AIA said increasing the use of FFP contracts could protect taxpayers under government regulations, establish defined costs for the government, incentivize long-term cost reduction and enable adequate government oversight without additional burdens on industry. AIA also cited the Government Accountability Office (GAO) reporting FFP practices could also help reduce costs, shorten the length of time to complete major programs and improve stability and predictability in the space industry, which AIA said has been plagued by program cancellations and frequent changes.

Pictured is artist's illustration of an Advanced Extremely High Frequency (AEHF) communications satellite. AEHF is an example of a national security space program. Photo: Lockheed Martin.
Pictured is artist’s illustration of an Advanced Extremely High Frequency (AEHF) communications satellite. AEHF is an example of a national security space program. Photo: Lockheed Martin.

The Defense Department defines a FFP contract as a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract. This contract type places upon the contractor maximum risk and full responsibility for all costs and resulting profit or loss. It provides maximum incentive for the contractor to control costs and perform effectively and imposes a minimum administrative burden upon the contracting parties, according to DoD.

To successfully utilize FFP for development programs, AIA said requirements need to be defined and stabilized early in the development process. With stable requirements that are clearly defined, FFP becomes less risky for both industry and government. For service applications, including space launch services where mission requirements are well understood, FFP contracting offers a means to reduce costs through competition while keeping industry’s risks manageable.

AIA said FFP practices, however, are not appropriate for a number of situations. Such contracts can increase risk for contractors and may not be feasible for complex space system acquisitions. Moreover, cost increases under FFP contracts can be damaging to the industry’s supplier base and may discourage firms from building innovative solutions. Government partners should consider the complexity and scale of a project when developing the optimal contract mechanism.

AIA cited the Air Force’s 2011 reorganization of its Evolved Expendable Launch Vehicle (EELV) program to introduce FFP block buys and commercial competition to reduce growing costs associated with the program. AIA noted that the block buy is not completely FFP, only the launch services will be procured from United Launch Alliance (ULA) on a FFP basis. The launch capability will continue to be procured on a cost-plus basis for the 36 core block buy of national security space launches. ULA is a joint venture of Lockheed Martin [LMT] and Boeing [BA].

Space Exploration Technologies Corp. (SpaceX) is one example of acquisition success using FFP contracts, according to AIA. Under NASA’s Commercial Orbital Transportation Services (COTS) program, AIA said SpaceX successfully demonstrated how FFP, performance-based development partnerships can encourage innovation, reduce costs and ensure substantial government insight, without the added expense of traditional contracting mechanisms. COTS is a program to deliver cargo and goods to the International Space Station (ISS).

AIA, overall, made a number of suggestions that it believes would reduce national security space program costs. These include increasing acquisition stability by defining and stabilizing program requirements before program authority to proceed, seeking legislative support for multi-year procurement authority, securing multi-year funding and utilizing block buys when appropriate and ensuring defensible program plans. AIA also suggests improving contracting and communication through government agencies using an open industry dialogue before request for proposals (RFP) releases. This would optimize contract type for the program application before competition. AIA proposed investing to develop “big payoffs” innovations and technologies, such as the Defense Advanced Research Projects Agency’s (DARPA) Phoenix initiative, to repurpose in-space assets for productive use beyond their original service life.