7 February 2002
Features - Vehicles (Bad)
NASA SSP Privatization Disaster
Some problems. Some solutions.
by Carol Pinchefsky
by Michael Urban

The Space Shuttle Program ( SSP) privatization plan proposed by NASA ("Concept of Privatization of the Space Shuttle Program," which can be downloaded at the nasawatch site) seems to be a recipe for disaster. There are many reasons why this plan would fail as a privatization program. Solutions must be implemented lest the recipe comes to a full boil:

PROBLEM: NASA personnel drafting their own plan for privatization is a fundamentally flawed effort. It’s unreasonable to expect NASA to develop an objective plan when one of the best solutions might include eliminating jobs or budget resources.
SOLUTION: Only an experienced, impartial, and unbiased consultant (non-NASA personnel) could develop an objective privatization strategy. This also excludes consultants paid for by NASA.

PROBLEM: This plan completely overlooks the “liquidation” option. In technological terms, the shuttle is already an aging vehicle. Should the SSP even be continued, regardless of what organizational changes are made? Perhaps the SSP is no longer appropriate for military and civil needs.
SOLUTION: If appropriate, the program could be decommissioned over a reasonable length of time. It would remain a NASA program but the resource requirements would steadily diminish over time.

PROBLEM: This plan neither contributes to commercialization of the US space industry nor meets the primary goals of the Commercial Space Act (CSA) of 1998 in any way. The proposed plan is based on continuation of current NASA policies, resources, control, and oversight and will only perpetuate the status quo. No free market competition is created.
SOLUTION: NASA should be divesting its SSP operations, not developing an “outsourcing arrangement”. Only full “divestiture” will provide the maximum benefits of privatization.

PROBLEM: No rational, free market enterprise would enter into the partnership defined in this plan. Several critical items are conspicuously absent from this proposal. One of them is a non-compete agreement from NASA for any services provided by the new organization. Without this commitment NASA could be a direct competitor for the same customers.
SOLUTION: The talented people at NASA should instead focus on military and civil space programs. They should not be extending their political influence into the free enterprise (commercial) sector.

PROBLEM: Another missing item is an explanation of guaranteed procurement. NASA can’t commit to providing budget assurances if their budget is allocated by congressional authority. This would leave the new organization without guaranteed revenues. Without the usual government subsidies, the price/pound for shuttle payloads is far above the market average. If indemnities (and subsidies) were included in the deal, then it’s obvious that the United Space Alliance (USA) is the intended partner. This arrangement would simply continue the bilateral monopoly the USA currently enjoys, completely avoiding any true competition.
SOLUTION: The only way to attract a commercial partner for this venture would be to provide “protection” from any economic risk. The agency could provide contractual guarantees to continue procurement in the future, no matter what the cost. 

PROBLEM: The analysis section of this proposal goes into extensive detail regarding the possible organizational arrangements. The ambiguous “G-corporation” is even mentioned. These efforts seem to be aimed at developing an organization that will be covertly controlled by NASA policies, but that appears to be a commercial venture. Based on the terms of the plan, this new organization would be constrained by a vast array of interlocking contractual agreements. The allocation of organizational responsibilities would become extremely complex. The proposed plan effectively increases the amount of bureaucratic complexity and duplication that burdens SSP daily operations.
SOLUTION: NASA must divest itself of authority as well as responsibility and should not continue to oversee the daily operations. The new contract should specify that the contractor is responsible for all safety and security issues.

PROBLEM: Most of this plan seems to pivot on finding a business partner who is willing to accept all of the responsibility and none of the authority. The new organization would start out with all its assets encumbered by contractual agreement, and NASA would retain authority over the shuttle manifest. Future indemnity for unpredicted problems is unclear. The “Space Authority” (controlled by the State of Florida) may be the only organization interested in this partnership. Even though it would be a losing commercial venture, consumating the partnership could effectively preserve jobs within the state. Unfortunately, this solution would do nothing to promote development of the commercial space industry. Unlike a true commercial enterprise, state-controlled space authorities (agencies) are given exclusive protection by the special powers of a state government. Consequently, they aren’t subjected to free market competition.
SOLUTION: To successfully accomplish the true intent of privatization requires full divestiture of the entire SSP budget, assets, constructive control, and “special” powers. Regulatory authority would have to be transferred to the AST office of the Federal Aviation Administration.

PROBLEM: Last, but not least, is the issue of failure. No mention is made of bankruptcy or commercial failure as a possibility for the new organization. What if the new venture is unable to succeed, even with the “special” contractual arrangements NASA is willing to provide? Who will be accountable if the venture fails? Will the Federal government be called upon to bail out the new venture? Will the State government be called upon to support operations using general tax revenues? How will NASA successfully indemnify the new organization when they’ve been unable to protect themselves from past budget reductions? If the venture goes bankrupt, who gets authority over the remaining assets? And the list goes on.
SOLUTION: The new organization must be allowed to fail or succeed on it's own merits. The "economic darwinisim" of the free enterprise system is a rough place, but the strong do survive. Failure will prove that the program was not commercially viable anyway.

There are simply too many critical, unanswered questions created by the concepts in this plan.

Michael Urban can be contacted at mru3@hotmail.com.
Share |
Carol Pinchefsky 7 February 2002
Please send comments, critiques and queries to feedback@spacefuture.com.
All material copyright Space Future Consulting except as noted.