Nelson criticizes “plague” of cost-plus NASA contracts

WASHINGTON — NASA Administrator Bill Nelson offered a surprisingly strong endorsement of fixed-price contracts and competition at a congressional hearing May 3, calling traditional cost-plus contracts a “plague” on the agency.

Testifying at a Senate appropriations subcommittee hearing on the agency’s fiscal year 2023 budget proposal, Nelson said the use of competition and fixed-price contracts was essential in its efforts to select a second commercial lunar lander alongside SpaceX’s Starship for the Human Landing System (HLS) program, something that many in Congress have sought.

“Then we would have two landers somewhere in the 2027 time frame, both having already landed,” he said. NASA plans to use the Starship lander for Artemis 3 no earlier than 2025, with the second lander flying as soon as Artemis 5 in 2027.

“I believe that that is the plan that can bring us all the value of competition, and get it done with that competitive spirit. You get it done cheaper, and that allows us to move away from what has been a plague on us in the past, which is a cost-plus contract,” he said.

The HLS program and some other commercial initiatives, like cargo and crew transportation for the ISS, have used fixed-price contracts where the agency pays a fixed amount regardless of how much it costs the company with the contract to deliver the product or service. NASA has traditionally used “cost-plus” contracts, where a contractor is reimbursed for its costs along with a fee.

Near the end of the hearing, Sen. Jeanne Shaheen (D-N.H.), chair of the commerce, justice and science subcommittee, brought up a “long-term problem” at NASA of cost and schedule overruns on major agency programs, citing reports by the Government Accountability Office. “Can you help us understand what you’re working on to improve this project management?” she asked.

“There is no excuse for cost overruns, but the old way of doing business was cost-plus,” Nelson responded. “Because of the competition we’ve been talking about, we have been moving to fixed-price where we can under procurement law.”

An example of the problems of cost-plus contracts, he said, was the award of a contract to Bechtel. NASA selected that company in June 2019 to build Mobile Launcher 2, a second mobile launch platform designed for the Block 1B version of the Space Launch System. The contract had an original value of $383 million over 44 months.

“Because Bechtel underbid on a cost-plus contract in order to, what appears, to get it,” he said, “they couldn’t perform. And NASA is stuck.”

NASA hasn’t disclosed details of Bechtel’s performance on Mobile Launcher 2. At a Jan. 27 meeting of NASA’s Aerospace Safety Advisory Panel, members reported that the agency sent a second “letter of concern” to Bechtel about its performance on the contract, requesting a response by Feb. 1, and that NASA was considering changes to the structure and management of the contract. Bechtel repeatedly declined to answer questions about its work on the contract in the weeks following that meeting.

Nelson said he’s met with Brendan Bechtel, chief executive of Bechtel, about that company’s work on Mobile Launcher 2, but suggested there was little else the agency could do. “There’s no way, under the contract, since it’s a cost-plus contract, that we can do anything but eat it,” he said. “And that’s not right. Times are changing.”

In contrast to the problems with cost-plus contracts, he cited as an example of the benefits of competition reduced launch costs thanks to the emergence of the Falcon 9 and Falcon Heavy by SpaceX. He said that, before his retirement last year, Air Force Gen. John Hyten, vice chair of the Joint Chiefs of Staff, claimed that the competition those vehicles enabled provided the Defense Department $40 billion in savings, although he did not say over what period of time.

Nelson said he’s assigned the position of chief acquisition officer to NASA’s deputy administrator, Pam Melroy. That move is intended to emphasize the importance of acquisition within the agency as it works to implement recommendations from GAO and NASA’s inspector general on contract performance. “I think we’re beginning to make some progress in closing out the GAO recommendations related to strengthening this acquisition process,” he said.

Senators were largely supportive of NASA’s proposed $26 billion budget for 2023 at the hearing, raising concerns only about minor issues, such as cuts in heliophysics or in support for spaceport infrastructure at the Wallops Flight Facility. Nelson made a specific plea for the increase in space technology funding in the proposal after Congress rejected increases in the past two years. “We need that extra oomph in our research and development,” he said, such as for space nuclear power and propulsion research.