The federal government’s available resources for financial recourse in regards to failed satellite contracts is limited compared to its overall investment in the sector, according to a Government Accountability Office (GAO) report released Friday.
GAO’s report, Satellite Acquisitions: Agencies May Recover a Limited Portion of Contract Value When Satellites Fail (GAO-17-490), analyzed contract data from 19 satellite programs across the Department of Defense, NASA and the National Oceanic and Atmospheric Administration (NOAA), as well as conducted 12 case studies to gain details on incentive and recourse options.
Most of the satellite programs studied for the report use cost-reimbursement contracts aimed to balance out the high development risks with sending out a device that only be assessed once it’s in space. For lower-risk tools such as spacecraft and communications satellites, firm-fixed-price contracts are more commonly used.
From the $52.1 billion in contracts and orders across the 19 programs reviewed, $43.1 billion was relegated to cost-reimbursement contracts and the remaining $9 billion was for firm-fixed-price contracts.
The 12 case studies in the report had modest efforts for financial recourse due to the limited nature of on-orbit incentives included in satellite contracts, according to the report. The on-orbit incentive is met following success performance in space, but the amount at-risk varied from no incentive offered at all to around 10 percent of the contract value, for the programs studied.
In its assessment, the GAO raised doubts about the effectiveness of increasing on-orbit incentives due to the rare amount of failures and factors such as contractor experience and design maturity. The most cost effective way to reduce loss in the event of a satellite failure is to reduce cost growth and schedule delays using best practices during development, the GAO has previously recommended.