This article originally appeared in the May 20, 2019 issue of SpaceNews magazine.

The U.S. Air Force has given United Launch Alliance, SpaceX, Northrop Grumman and Blue Origin until Aug. 1 to submit their bids to become one of just two launch providers that will be entrusted to carry high-value national security payloads to orbit in the decade ahead.

After months of behind behind-the-scenes battles over the timing of the most consequential U.S. launch competition in the 20 years since the Air Force chose Atlas 5 and Delta 4 as its workhorse rockets, the battleground has shifted to theoretically neutral territory: the bid proposal.

But in the days since the May 3 release of the Air Force’s formal call for proposals for the National Security Space Launch Phase 2 Launch Service Procurement, new squabbles have arisen as bidders scrutinize the final solicitation for anything that might tilt the competition in a rival’s favor.

Biased or not, ULA, SpaceX, Northrop Grumman and Blue Origin have less than 90 days to deliver detailed bids that will convince Air Force rocket buyers they deserve to be one of the two companies that will split 60/40 as many as 34 missions the military and intelligence community expect to need launched between 2022 and 2026.

The stakes could not be higher for the field of competitors. ULA and SpaceX currently launch the bulk of U.S. national security satellites while Northrop Grumman and Blue Origin are looking to break in. All except SpaceX are developing brand-new rockets for the competition.

When the Air Force chooses its two providers in 2020, the winners stand to earn billions of dollars lifting military and spy satellites into orbit. They’re also poised to become central players in the geopolitics of space over the next decade. As the United States gears up for a strategic space race against China and Russia, the rockets the Air Force picks will become shining symbols of the nation’s grander ambitions in space.

“Space is absolutely critical to us from a warfighting point of view,” Undersecretary of Defense for Acquisition and Sustainment Ellen Lord told reporters May 10. “Launching into space is a critical capability for us.”

The Air Force has been preparing for this competition for years. ULA became the military’s sole launch provider in 2006 when Boeing and Lockheed Martin combined their rocket divisions but the rise of SpaceX and the intrusion of world events changed the landscape. By 2014, lawmakers were pushing the Air Force to end ULA’s monopoly and allow new entrant SpaceX to compete in the Evolved Expendable Launch Vehicle (EELV) program.

The launch business also became engulfed in a political firestorm when Russia’s 2014 invasion of Crimea prompted U.S. lawmakers to demand the Air Force end reliance on the Russian RD-180 engines that have powered ULA’s Atlas 5 since the rocket’s 2002 debut. After a protracted battle on Capitol Hill, Congress in the 2017 National Defense Authorization Act allowed the Air Force to order up to 18 Atlas 5 missions between Dec. 23, 2016, and Dec. 31, 2022. A spokesman for the Air Force Space and Missile Systems Center told SpaceNews May 15 in a statement that the Air Force has procured six Atlas 5 launches since the NDAA restrictions went into effect, so it can still order 12 more before Dec. 31, 2022. ULA currently has 10 national security launches on Atlas 5’s manifest for 2019-2022. None of the seven Atlas 5 missions ULA flew for national security customers in 2017 and 2018 counted toward the 18-mission limit since those launches were ordered before the law took effect.

EELV ORIGINS

The Air Force initiated the EELV program in 1995 to develop a new generation of launch vehicles. Lockheed Martin and McDonnell Douglas (before it merged with Boeing) were chosen to develop rival rockets. By 2000, market forecasts showed that the demand for commercial launch services upon which the Air Force based its EELV acquisition strategy would not materialize. In 2005, Boeing and Lockheed Martin announced plans to form a joint venture named United Launch Alliance, and combined Boeing’s Delta 4 and Lockheed Martin’s Atlas 5 launch vehicles. The combination was intended to save the government money.

ULA began operations in December 2006 as the sole-source contractor for EELV. But cost growth in the EELV program prompted the Air Force to restructure the contract with ULA. EELV Phase 1 was awarded to ULA in 2013 and funded the company’s capability to launch military payloads through 2019. In parallel with the Phase 1 contract with ULA, the Air Force in 2014 certified SpaceX’s Falcon 9 rocket and introduced competitive launches in what was called Phase 1A. The Air Force said it does not plan to award any new contracts under Phase 1A and is ready to move to Phase 2.

The first step in the path to Phase 2 was to leverage commercial launch investments to transition off the RD-180 engine and ensure access to space. The Air force in 2016 awarded cost-sharing research and development contracts worth $242 million to four companies — SpaceX, Orbital ATK (later acquired by Northrop Grumman), ULA and Aerojet Rocketdyne — to develop rocket propulsion technology. SpaceX and Aerojet were later awarded an additional $127 million in contract options.

Next came the award of Launch Service Agreements in October 2018. ULA, Northrop Grumman and new entrant Blue Origin were chosen to share $2.3 billion in funding to support development of next-generation rockets and infrastructure capable of meeting national security launch needs. All three are developing newly designed space vehicles: ULA is developing Vulcan Centaur, Northrop Grumman will offer OmegA, and Blue Origin will pitch New Glenn. The partially reusable Vulcan Centaur and New Glenn vehicles will both use Blue Origin’s liquid-fueled BE-4 engine for their first stage while the expendable OmegA rocket will consist of two solid-fueled boosters and a liquid-fueled third stage.

Two months after making the LSA awards, the Air Force released the first draft RPF for the National Security Space Launch Phase 2 Launch Service Procurement that laid out the plan to select two providers in 2020. Per the rules set by the Air Force, all three winners of LSA awards are required to compete in Phase 2, and the losers will have what remains of their LSA funding terminated. SpaceX did not win an LSA award but is still eligible to compete for a share of the Phase 2 launch contracts.

BATTLE LINES DRAWN

After issuing two more draft requests for proposal, the Air Force planned to issue the final RPF March 29. But the release was put on hold after House Armed Services Committee Chairman Adam Smith (D-Wash.) on March 28 sent a letter to Air Force Secretary Heather Wilson asking for a delay. He brought up concerns about the Phase 2 strategy that echoed complaints raised by Blue Origin, a company based in Smith’s home state.

Smith challenged the decision to cut off LSA funding to companies that don’t win in Phase 2. He also questioned the timing for choosing two providers in 2020, a year before any of the new vehicles are slated to fly, and argued that picking only two providers would create a duopoly, freezing out commercial players that are investing billions of dollars in new technology.

The Air Force rejected Smith’s call for a delay and insisted that the strategy for Phase 2 has been carefully drawn up to ensure a smooth transition to next-generation vehicles while meeting the congressional deadline to phase out the Atlas 5.

Lord, the undersecretary of defense, backed the Air Force’s decision. “I very much support the market working in a free and open way and market dynamics sorting out,” she said May 10. “We’ve stuck to what we had for an acquisition strategy on this program for multiple years now, and we are letting that strategy play out.”

Narrowing the field to two providers is a reasonable plan, she said. “There is a very large commercial market, along with a defense market,” Lord said. “Space is growing, so although we have two awards in this contract, there is enormous opportunity overall.”

But that is not how launch companies see it right now. With a slowdown in commercial orders for large rockets and no certainty that the market will bounce back in the near future, the National Security Space Launch program is an essential piece of business.

ULA and Northrop Grumman are entrenched national security players for whom the commercial market is a lesser priority. The difference is that ULA was purpose built to launch national security payloads and would likely not survive unless it wins Phase 2, whereas Northrop Grumman is a large defense and aerospace conglomerate that only recently gained its launch toehold with its acquisition of Orbital ATK. SpaceX and Blue Origin, on the other hand, are commercial companies led by billionaires with much broader ambitions than the national security launch market. They believe aggressive pricing and business strategies built around reusable rockets make them strong players.

SpaceX President Gwynne Shotwell said the company intends to submit a proposal for Phase 2. “I never say anything for sure, but we want to fly national security space payloads now and in the future,” Shotwell said May 7 at the Satellite 2019 conference in Washington.

Shotwell insisted that the company’s strategy of pursuing all segments of the launch market has not changed. “We purpose-built these vehicles to address national security space, civil space as well as commercial industry,” she said. “We certainly want to maintain that diversity because inevitably the economy changes. One market segment is going to bounce and the other one will tank a little bit. We’re seeing a little tanking right now on the commercial side. Hopefully, we recover.”

If SpaceX is selected for Phase 2, by the time the first mission launches in 2022 its rockets will be “the old guys on the block,” Shotwell said. The company is developing a new generation of space exploration vehicles, the Starship and the Super Heavy Lift System, which may or may not have a military application down the road.

With Falcon 9 and Falcon Heavy, “we figured out reusability,” Shotwell said. “We’re recovering and re-flying first stage boosters. With Starship, we think we can bring the first stage and upper stage back. That will provide more value.”

MARKET ASSUMPTIONS

Shotwell said the U.S. market today probably has enough work for three providers. ULA CEO Tory Bruno believes there is only enough domestic business for two providers, as the military market is softening. He said ULA needs anywhere from eight to 12 launches a year to remain financially healthy. Shotwell was less specific. “I like way more launches than that but obviously we can survive on what’s available,” she said. In lean years, SpaceX — which launched 18 times in 2017 and a record 21 times in 2018 — will scale back its considerable R&D spending, she said.

Blue Origin CEO Bob Smith said New Glenn will be ready to compete in Phase 2. The company designed New Glenn for the commercial, civilian and national security markets, he said. The commercial business model requires launch providers to fly a lot to recover their fixed costs, said Smith. Companies like ULA that fly “exquisite payloads” for defense and intelligence customers might recoup their investment faster than commercial companies that need to fly 20 times, he said.

Smith said new entrants “will have an impact” on the national security space market in light of the strategic competition with China and that country’s accelerating launch rates. “I don’t think we are now in the place that we’re going to be relative to national security,” he said. “Our competitors are not doing the same thing that we have been for a number of years. I think it would be a danger and a threat to our country if we actually participate in the same way.”

Bruno described Phase 2 as an “extraordinarily important acquisition” and “one of the most disciplined acquisitions I’ve ever been a part of.” It is ULA’s main and only focus right now, Bruno said. “We chose to center our rocket design for that set of requirements.”

Bruno said the Air Force in Phase 2 is challenging the industry to step up rocket performance to meet tough mission requirements. “These will be more difficult missions,” he said. “In the past we had eight masses to eight orbits, some hard, some not so hard. Under this procurement there are nine. Some are much harder to obtain,” he said. “Orbits are higher energy, more complex, the payloads are larger. Our existing vehicles cannot fly all those missions, so we’ll have to invest to meet that capability.”

Northrop Grumman’s vice president for the OmegA program, Kent Rominger, said his company, like ULA, is trying to win Phase 2 based on the vehicle’s performance and ability to meet the Air Force requirements and is less concerned about its commercial viability.

“Our business case can go down to a low rate, as low as two national security launches and a couple of others,” he said. The company is preparing to test fire its solid-fueled first stage May 30 in Utah followed in August by a test firing of the rocket’s solid-fueled second stage. The rocket’s cryogenic third stage will be powered by a variant of the RL-10 engine used on Atlas 5 and Delta 4 and chosen by ULA for Vulcan’s upper stage. OmegA is the only solid-propellant rocket in the competition, which might or might not play to its advantage, depending on what criteria the Air Force applies in the selection of providers. “Ours, we think, is the most reliable design out there,” Rominger said. “We designed OmegA for national security space,” he said. “The commercial market is hard to predict.”

RFP STICKING POINTS

While much attention has been paid to Blue Origin’s efforts to delay the competition, there are larger concerns competitors worry about as they write their proposals. Several industry sources agreed to discuss these issues only on condition of anonymity due to the sensitivity of the competition.

A major concern is the evaluation criteria for Phase 2. Both SpaceX and Blue Origin are said to have questioned the criteria during the draft RFP discussions with the Air Force. They worry that the selection factors are vague and subjective.

According to the RFP, “the government will select for award the two offerers that, when combined, represent the overall best value to the government.” Of the two offerers, the one who provides the overall best value to the government will be awarded the contract for “Requirement 1” and will get 60 percent of the missions. The other offerer will be awarded the contract for “Requirement 2” and will get 40 percent.

The determination of who provides the best value will be based on whether providers meet a series of evaluation criteria. The largest weight is given to “technical factors” including vehicle performance, vehicle capabilities, system readiness and mission assurance. Other factors are past performance, small business participation and price. But how the Air Force might score each factor and how they will go about selecting two offerers is a mystery to vendors. “The evaluation criteria is so broad … It’s best value when combined. It’s very subjective,” the source said. “There’s no way to know in the RFP how they will judge that.”

Contractors said the RFP gives the Air Force ample discretion to determine what best value means. If value means cost savings, the Air Force could decide it makes sense to pick two vehicles with the same booster engine, such as ULA and Blue Origin which both use Blue Origin’s BE-4. But if assured access to space ranks higher in the government’s best-value calculation that could drive the Air Force to choose suppliers that use different engines. The same issue applies to the upper stage engine. ULA’s Vulcan and Northrop Grumman’s OmegA have the same Aerojet Rocketdyne RL-10 upper stage engine and the same strap-on boosters made by Northrop Grumman. The Air Force could decide it wants completely independent supply chains. That could mean having to choose between SpaceX with its vertically integrated supply chain or ULA with a nationwide network of subcontractors. “They could make that call without that ever being an evaluation criteria, without that being written down,” one source said. Or they choose to pick a liquid and a solid engine (Northrop Grumman), the source said. “There’s no fairness in that.”

The number of launches up for grabs is another concern. Over the past two years, providers had been told to expect 25 missions over the five-year period. The final RFP says between 20 and 50 missions could be split, 60/40, between the two winners. The RFP notes, however, that the government’s best estimate for the five year period is about 34 missions, and it cautions that the actual number of launch services will vary, and “will likely be fewer than 34” due to delays in satellite developments.

The larger number of projected missions came as a surprise to companies, another industry source said. The pricing for 60-percent and 40-percent shares of 25 missions would not be the same for 60/40 splits of 34 or more missions, requiring bidders to adjust their proposals. According to the RFP, the total number of actual launch service orders “will depend on National Security Space Launch program launch service requirements, authorizations and appropriations.”

The larger envisioned manifest could reignite a discussion on whether there is room for three providers in Phase 2.

SECONDARY LAUNCH VEHICLE

The RFP includes a provision that would allow a provider to offer a “secondary launch vehicle” if the primary vehicle would not be ready to perform an assigned mission. Blue Origin and SpaceX, according to industry sources, have challenged the provision on the grounds that it would favor ULA, which would be able to offer the Atlas 5 or Delta 4 Heavy if Vulcan falls behind schedule. SpaceX, theoretically, could propose using a Falcon Heavy to launch a Falcon 9 payload, or vice versa, but with both rockets already in service and certified to carry Air Force payloads that scenario is unlikely. Blue Origin, meanwhile, doesn’t have an orbital rocket besides New Glenn and Northrop Grumman’s biggest existing launch vehicle, Antares, is too small for the bulk of Air Force missions and has only been used to carry cargo to the International Space Station.

The backup-launcher option, according to the RFP, only applies to launches ordered between Oct. 1, 2019, and Sept. 30, 2021. If a secondary vehicle is used, the RFP says, the government would still pay the price that was bid for the primary vehicle. For example, ULA could offer Atlas 5 or Delta 4 Heavy for certain early missions but would still have to charge the Air Force the lower Vulcan price.

If neither of the two launch providers the Air Force selects next year can meet the schedule of a given mission with their primary or secondary vehicles, the Air Force said it could go outside the contract to award the mission to a third provider. In theory, this would allow the Air Force to, say, pick Blue Origin and Northrop Grumman as its two providers, but then use Atlas 5, Delta 4 Heavy, Falcon 9 or Falcon Heavy for missions beyond New Glenn’s or OmegA’s early reach. Conversely, the Air Force could pick ULA and Blue Origin or Northrop Grumman but still tap SpaceX for some of the early missions. Or it could pass over Vulcan, but still buy a handful of Delta 4 Heavy or Atlas 5 launches.

CONGRESSIONAL ALLIES

In his March 28 letter to the Air Force, House Armed Services Committee Chairman Smith questioned the strategy of selecting two launch providers a year before any of the new vehicles fly and points out that allowing the use of an alternative vehicle suggests the Air Force is not confident that the new vehicles will be ready and therefore should delay the selection. The Air Force insists this is just prudent risk mitigation and that a Plan B is essential to avoid gaps in the launch schedule.

The battle for the Air Force launch contract also will unfold on Capitol Hill. While Blue Origin has a powerful ally in Chairman Smith, ULA enjoys widespread congressional support. Some 28 lawmakers signed an April 12 letter urging Wilson to stick with the Phase 2 strategy and release the RFP. “We commend your decision to allow all U.S. launch providers to compete for Phase 2 missions and request you do everything in your power to keep the acquisition on schedule,” the letter said. “Additionally, we ask that you refrain from weakening any performance requirements. It is critical that you limit Phase 2 missions to two providers.”

Smith has told industry executives the 2020 National Defense Authorization Act will include language critical of the Air Force’s Phase 2 strategy. A spokesperson for Smith did not respond to questions from SpaceNews. Industry sources said Smith is expected to act to reverse the Air Force’s decision to cut off LSA funding to companies that are not selected in Phase 2 so they can continue their development work and prepare for Phase 3.