This is how SpaceX won NASA’s Lunar Lander contract

NASA was focused on cost when considering options for a major contract to return astronauts to the moon, and that played into Elon Musk’s SpaceX card.

But while the contract is now being awarded, the risks to both NASA and SpaceX remain high. Here’s a behind-the-scenes look at the process by which the space agency chose the landing system manufacturer for its ambitious Artemis program, and what comes next for all parties involved.

Depiction of SpaceX’s human landing system. Image Source: SpaceX.

The budget is not what NASA thought it would be

NASA originally planned to pick two winners to provide redundancy, but SpaceX defeated Jeff Bezos’ Blue Origin and Read Holdings‘ (NYSE: LDOS) subsidiary Dynetics in what turned out to be a $ 2.9 billion contract, largely due to budgetary pressures.

Kathryn Lueders, the head of NASA’s manned space flight program, said in the 24-page statement explaining the decision that the agency had to make an audible call because of the bids received for the human landing system (HLS) and the amount of money it had. assigned by Congress.

While it remains the Agency’s desire to maintain a competitive environment at this stage of the HLS program, at the initial pricing and milestone payment phasing proposed by each of the Option A providers, NASA’s current annual fiscal budget did not support even a single Option A award. , ‘she wrote.

Returning to the Moon as soon as possible was a priority of the previous administration, but even before the November election, it was unclear how much political support there was in Washington for that to happen on such a fast timeline. Last year, Congress appropriated $ 850 million for Artemis, well below the $ 3.3 billion NASA said it would cost to complete the mission by then President Trump’s target date of 2024. In its recent budget proposal for fiscal 2022, Biden’s White House allocated just $ 325 million to Artemis.

The good news is that with Trump’s artificial deadline no longer driving the process, NASA will have more time and could eventually add additional contractors. But with the attention in Washington largely dominated by the pandemic, economic stimulus efforts, major infrastructure packages, and President Biden’s many other priorities, the budget constraints that forced NASA’s hand on HLS would be a harbinger of things to come for the agency and contractors. who rely on it for funding.

SpaceX takes risks in the hope of a reward

Lueders wrote that while SpaceX’s tech specs were impressive, the price came down to the overall price. While she did not disclose any numbers other than the $ 2.9 billion SpaceX award, she did say that “Blue Origin’s total evaluated price was significantly higher than this, followed by Dynetics’ total evaluated price, which was significantly higher than this. that of Blue Origin. “

Dynetics, as part of the publicly traded defense contractor Leidos, has to factor in margins and probably doesn’t have the same incentive as a newcomer like SpaceX to use low prices to further establish themselves at NASA. Blue Origin, although a private start-up similar to SpaceX, cooperated Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC) on its bid, so perhaps it also missed SpaceX’s level of financial flexibility.

SpaceX is also more willing to take risks associated with the project. According to the assessment, the company “intends to self-finance and take financial risk for more than half of its development and testing activities,” a real asset for a government agency with limited budgets.

Image Source: NASA.

That means more pressure on SpaceX, but it fits well with the company’s multi-faceted approach to space. In addition to partnering with NASA and the Pentagon, the company is also developing commercial ventures, including Musk’s ambitious plan to build the Starship, a massive rocket that can propel a human mission to Mars and bring it back home. The company’s ability to spread HLS research across a number of its other projects allows NASA to do its job at a discount.

“I found SpaceX’s significant strength due to its comprehensive plan to use its HLS contract performance to advance a multi-faceted approach to commercializing its underlying Starship capability as a culmination of its management proposal,” wrote Lueders. “This contribution not only significantly lowers costs to the government (reflected in the lower price of SpaceX), but it also demonstrates a substantial commitment to the success of the HLS public-private partnership commercial model and the deployment of SpaceX to commercialize technologies and capabilities. “

The space landscape is changing

NASA raised a few eyebrows in early 2020 when it selected Dynetics and two relative entrants as finalists for the HLS, and SpaceX’s win here only underlines that the company has cemented its position as a trusted NASA with its new public / private approach. seller.

SpaceX already transports astronauts to and from the International Space Station, a mission with which it shares Boeing (NYSE: BA), even though only SpaceX has taken up the challenge so far. And SpaceX is present in other parts of the Artemis project, where the spaceship is expected to eventually be used to transport astronauts from orbit to the moon and back.

Space is seen by defense contractors as an area ripe for growth, and the Pentagon’s need for increasingly sophisticated satellites, sensors and orbital weapons should drive sales in the coming years. But for investors in incumbent operators such as Boeing, Lockheed, Northrop, and even Leidos, this decision packs a punch in the hope that NASA could grow into a big-budget profit center.

In any case, the HLS award is proof that there are a growing number of viable competitors looking for a slice of pie that may not be as big as we once hoped. Expectations must be adjusted accordingly.