GAO disagreed with Blue Origin that the terms of the launch procurement unduly restrict competition

WASHINGTON — Blue Origin won a favorable ruling last week from the Government Accountability Office in its protest of the Air Force launch contract rules. GAO, however, dismissed outright one of the company’s central complaints that the Air Force set terms that discriminate against emerging competitors in the space launch industry.

GAO announced its decision Nov. 18 and released a redacted version of the full document Nov. 22.

GAO sustained Blue Origin’s objection to the evaluation criteria laid out in the request for proposals (RFP) issued by the Air Force May 3 for the National Security Space Launch (NSSL) Phase 2 Launch Service Procurement.

The Air Force said in the RFP that it will select two providers whose proposals, ”when combined,” offer the best value to the government. Those two providers will split launches 60/40 over the five-year contract. GAO ruled that evaluating independent bids as pairs is unreasonable and inconsistent with procurement laws.

Following GAO’s decision, the Air Force said it would remove that clause and evaluate each proposal on its own merit. Blue Origin, Northrop Grumman, SpaceX and United Launch Alliance are competing for the two slots.

Top procurement executive Will Roper said the revision will be made quickly to keep the program on schedule and award contracts in mid-2020.

GAO does not sustain many protests — only 13 percent of cases it handled in fiscal year 2019 resulted in favorable decisions for protesters. So this was a slap to the Air Force’s RFP.

Blue Origin, however, did not prevail on a central issue it has hammered on since before the RFP was issued: that the terms of the competition undermine new entrants and favor incumbent companies.

Aerospace and defense industry consultant Jim McAleese, of McAleese & Associates, called GAO’s decision a “pyrrhic victory” for Blue Origin. What the company sought and did not get was a ruling that objected to the Air Force’s strategy to award five-year contracts to two providers, McAleese said. “I believe that they really wanted a three-award outcome, but that is now gone. They will really have to sharpen their pencil now.”

Rationale revealed

In its decision, GAO explained why it did not buy Blue Origin’s arguments that the Air Force’s strategy undermines competition.

“Blue Origin is complaining that only making the minimum two awards required by statute will be insufficient to incentivize firms to continue to develop launch systems to compete for future awards,” GAO wrote.

Although federal acquisition rules require full and open competition, “they do not mandate that the government make multiple contract awards in order to incentivize future private investment necessary to satisfy the government’s fulfillment of its future requirements,” said the decision.

This argument is not about the fairness of the terms of the RFP but rather a policy disagreement between Blue Origin and the Air Force, said GAO.

“Blue Origin believes that the long term industrial base interests of the government would be better suited by an incremental procurement approach that would encourage private investment to develop viable commercial launch alternatives,” said GAO. An incremental procurement, for example, would be to award two-year contracts instead of five-year deals to allow more opportunities for companies to compete.

GAO said these arguments are beyond the scope of its bid protest function, which is to ensure that the government’s actions are “reasonable and in accordance with applicable procurement laws.”

GAO back Air Force schedule

GAO also disagreed with Blue Origin that the schedule for the Phase 2 contract awards favor incumbent companies that have certified launch vehicles, putting new entrants like Blue Origin at a disadvantage.

The Air Force in October 2018 signed cost-sharing agreements with Blue Origin, Northrop Grumman and ULA to help pay for vehicle development and launch infrastructure. The Air Force agreed to give Blue Origin $500 million between 2019 and 2024 to cover some of the costs of getting the New Glenn heavy-lift rocket and its infrastructure ready to support military launches. The amount of money Blue Origin agreed to invest was redacted from GAO’s decision.

Blue Origin claimed that awarding Phase 2 contracts in 2020 favors ULA and SpaceX which already have certified vehicles and launch infrastructure. Blue Origin also alleged the Air Force undermined the company’s efforts because the cost-sharing agreements were awarded a year later than anticipated.

In its decision, GAO disagreed.

“While Blue Origin may be at a disadvantage because it is currently working to develop, test, and certify its launch system as compared to firms that have already secured certification, this does not mean that the agency is improperly restricting competition. In this regard, the fact that a requirement may be burdensome or even impossible for a particular firm to meet does not make it objectionable if the requirement properly reflects the agency’s needs.”

A government agency, GAO said, “does not have to delay satisfying its own needs in order to allow a particular offeror time to develop the ability to meet the government’s requirements.”