The Air Force and the Defense Department’s acquisition team are working on changing the Pentagon’s launch capability contract with incumbent launch provider United Launch Alliance (ULA) in response to competition in the market for government launches.

“I don’t think you can have fair competition with that contract in place,” Air Force Space Command (AFSPC) chief Gen. John Hyten testified Wednesday during a House Armed Services Committee (HASC) hearing on national security space launch. “There will have to be a change.”

United Launch Alliance's Delta IV launches July 28 from Cape Canaveral Air Force Station, Fla. Photo: ULA.
United Launch Alliance’s Delta IV launches July 28 from Cape Canaveral Air Force Station, Fla. Photo: ULA.

The contract, formally known as the Evolved Expendable Launch Vehicle (EELV) Launch Capability Contract (ELC), was put in place in the mid-2000s to preserve what Hyten called a very fragile industrial base. DoD, he said, was facing an era in which national security satellites were not being delivered and the commercial launch marketplace did not evolve as expected.

In response, Hyten said, DoD created the ELC as a way to ensure that even if it didn’t launch, there would still be a healthy industrial base at the end of that period. He said ELC was also created to preserve the industrial base in event of a launch failure. As the launch marketplace eventually evolved into a competitive arena, Hyten said the existence of multiple capabilities and expected increased launch manifest provides the resilience necessary to get through those types of industrial base issues.

Though DoD will change the terms of the ELC, Hyten said it will be a “significant challenge” for DoD acquisition officials to figure out how to properly transition from the current structure to the future.

Dyke Weatherington, director of unmanned warfare and intelligence, surveillance, and reconnaissance (UW&ISR), strategic and tactical systems in the Office of the Secretary of Defense, testified Wednesday that DoD has flexibility in phase 1A, the competitive activity that is currently underway. DoD expects to soon compete another “block buy” of national security space launches in the near future.

According to the Government Accountability Office (GAO), DoD had two types of contracts with ULA to support the EELV program: a cost-plus-incentive-fee ELC and a firm-fixed-price EELV launch services contract (ELS). GAO said the EELV program awarded in July 2011 a launch capability contract as a cost-plus-incentive-fee contract, but the prior ELC contract was a cost-plus-award-fee contract.

A cost-plus-incentive-fee contract is a type of cost reimbursable contract that pays the contractor for allowable costs to the extent prescribed in the contract and allows for the initially negotiated fee to be adjusted later, based on a formula in the contract. The fee is based on the relationship of total allowable costs to total target cost. A firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor’s cost experience in performing the contract.

Rep. Jim Cooper (R-Tenn.) said last week in another HASC hearing on space launch that the ELC contract was worth about $1 billion annually. ULA did not respond to a request for comment by press time.

ULA is a joint venture of Lockheed Martin [LMT] and Boeing [BA].