NASA partnerships: The creation of effective partnerships between NASA and private companies

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1 NASA partnerships: The creation of effective partnerships between NASA and private companies Gautam Kanumuru School of Engineering & Applied Science, Department of Engineering and Society, Policy Internship Program Keywords: Commercial Orbit Transportation Services, Space Act Agreements, Partnership Engagement, Partnership Effectiveness

2 Gautam Kanumuru is a third-year computer engineering and economics student from Ashburn, Va. During summer 2013, he conducted policy research Division at NASA headquarters in Washington, D.C. as part of the SEAS Department of Engineering and Society s Policy Internship Program. While interning, Kanumuru was placed at the forefront of NASA s various practices that the agency used to promote it. At the University, Kanumuru helps run the Engineering School s student-taught classes program and is a teaching assistant for various computer science classes. He is also an active member of the Engineering Student Council and an Engineering School guide. SOCIAL IMPACT With the retirement of the space shuttle program in 2011, NASA lost its capability to access low Earth orbit and the International Space Station, which has negative implications for national defense and astronaut safety. Although the Russian Soyuz rocket provided a temporary solution, the agency decided to turn to the private market to develop viable commercial options for space travel. NASA initiated the Commercial Orbital Transportation Services and Commercial Crew Development programs, which helped lead to the rise of companies such as SpaceX. Since the initiation and success of the two programs, the agency has been pressured by The perceived risk that comes with dealing with a private company can outweigh the partnerships provide. budget constraints and Congress to increase its participation in public-private partnerships. These partnerships represent a powerful tool for the agency to continue its mission of space exploration, and new policies ABSTRACT By partnering with private companies on large projects, NASA has the ability to lower project costs while expanding commercial market growth in the space industry. Although the agency has had the authority to partner with private companies since its creation in 1958, NASA has only begun taking advantage of this possibility in the past years. Unlike with traditional projects, a public-private partnership forces NASA to relinquish control over many aspects of the project and instead to focus on high-level requirements and over- projects and has inhibited engagement in private partnerships. The perceived risk that comes with dealing with a policy analysis of three alternative solutions to increase NASA s participation in private partnerships. The analysis considers three factors: feasibility in terms of available resources and political support, assessment of partnership prior to engagement, and potential for generating successful partnerships. A policy centered on promoting more funded and unfunded Space Act agreements is recommended.

3 Acronyms COTS: Commercial Orbital Transportation Services ISS: International Space Station NASA: National Aeronautics and Space Administration SAA: Space Act agreement Introduction According to the National Aeronautics and Space Act of 1958, the federal statute that established the National Aeronautics and Space Administration (NASA), one of the functions of the administration is: (8) To establish within the Administration such to provide for the greatest possible coordination of its activities under this Act with related by other public and private agencies and organizations. (National Aeronautics and Space Administration, 1958) Although the Space Act of 1958 encourages collaboration between the agency and other parties, NASA has always focused on complete end-to-end control over its projects. In the past, NASA has contracted the help of privately-owned companies such as Boeing and Lockheed Martin for particular services as opposed to engaging in true public-private partnerships (NASA Interview, Personal Communication). Following support from the Bush administration and Congress, partnerships have become more prevalent within the agency, albeit sparingly (NASA, 2004 and NASA, 2005). Due to the public enthusiasm for private space exploration and increased technological capability of the private sector, President George W. Bush, and later President Barack Obama, pushed NASA to promote commercial participation in space exploration as a means of bolstering the United States economy and science capabilities (NASA Interview, Personal Communication). Partnerships with private companies are not considered highly by many parties within NASA, especially those in which funds are exchanged (NASA Interview, Personal Communication). Since public-private partnerships involve sharing objectives and requirements with another party, NASA is forced to relinquish some quently, the use of public-private partnerships for larger projects equivalent to the International Space Station (ISS) or the Space Shuttle program would Interview, Personal Communication). Since partnerships are relatively new to NASA, the agency does not yet have well-established protocols and resources that facilitate successful partnerships with private companies. New policy options should be considered in order to help NASA embrace, effectively The Push for Public-Private Partnerships For the purposes of this paper, a public-private knowledge, resources, and/or funds toward achieving ence over the objectives and agenda of the project. There are many variations of partnerships, with each agreement between a private company and NASA usually tailored to the particular situation (Roberts, 2012). The private companies obtain access to some combination of the following: funding from NASA and and test facilities, experts and employees, and NASA-produced technology (Roberts, 2012). Since investors often look favorably upon collaboration with NASA, private companies are able to exploit their contractual agreements with NASA to obtain more private funding (NASA Interview, Personal Communication). In the past, NASA partnerships were encouraged because they helped the agency obtain relevant and important data on NASA-produced products, but lately NASA has pushed for larger partnerships out of necessity. When the Space Shuttle was retired in 2011, NASA still needed a way to bring crew and cargo to and from the ISS. Space vehicles that were in use or development by non-us space agencies did not provide the necessary cargo capacity to operate the ISS at full capacity, and therefore a domestic vehicle was necessary (GAO, 2012). Although there were programs within NASA working on replacements for the Space Shuttle program, these initiatives ended up running over budget and were eventually canceled (NASA Interview, Personal Communication). This forced the agency to turn to the commercial market to develop domestic vehicles for low Earth orbit and the ISS, resulting in commercially-oriented partnership programs such as the Commercial Orbital Transportation Service program (COTS). The COTS program funded two companies to provide the capability to take payloads up into low Earth orbit. With the successful completion of this program in 2013,

4 Table 1. Early Space Age Approach versus Commercial-Oriented Approach to NASA projects. There are a number of differences between the traditional and commercial approach, but most of the differences revolve around the way that the projects are funded and the control that NASA has on the project. (Table information from Mr. Human Exploration and Operations Mission Directorate, NASA). the United States became the only country to offer commercial space travel capabilities. Both companies under the COTS program now have customers from around the world. Following the success of this program, groups such as the Commercial Space- exploring ways to apply this commercially-oriented partnership approach to the development of other space technologies. Traditional versus Commercially- Oriented Approach There are a number of differences between the traditional NASA approach and the commerciallyoriented approach to undertaking large projects (Table 1). The variations come down to two primary NASA has, and the way that the project is funded. When engaging in a commercially-oriented partner- particular project details. The agency instead establishes higher-level capabilities and takes an oversight role over the project (GAO, 2011c), whereas NASA dictates the detailed requirements of the project for private contractors to carry out and has the ability to alter these requirements at any point in the traditional approach. The traditional approach follows a cost plus model, in which the government agrees to pay the entire cost of the project, along with a percentage-based product. The commercial partner is hopes of increasing the cost and therefore the commission they are receiving (NASA Interview, Personal Communication). The commercially-oriented in which the government investment is set and non-negotiable. While the lesser restrictions help the company innovate, burden on the commercial partner, but also increases the risk for the government because of the possibility that the partnership agreement (GAO, 2011a). Criteria for Initiating Public-Private Partnerships NASA public-private partnerships should only be engaged in when certain preliminary characteristics are met (GAO, 2010a and GAO, 2010b). Three essential characteristics that compose successful situations include a viable commercial market, an attainable goal, and NASA s willingness to concede operation of the product (Table 2). Decisions made by private companies are generally centered on expected investment returns. Most companies are not willing to invest in a project that lacks potential for commercial market success. SpaceX invested in to low Earth orbit, even though a commercial market was only predicted at the time. Now, launches for SpaceX s Falcon 9/Dragon project are booked through 2016 and into 2017 (SpaceX, 2013). Because projects related to space travel have enormous barriers to entry, a clear understanding of the partnership goals and requirements between NASA and the commercial partner is essential.

5 Projects that require a lot of technological innovation, such as landing on Mars, have too many unknown variables to be able to determine an appropriate cantly higher than originally estimated, then NASA will usually implement a more traditional project approach (GAO, 2007). Projects involving tasks and concepts that have previously been successfully achieved or proven greatly reduce the number of unknowns and would therefore be more appropriate for a commercially-oriented public-private partnership (NASA Interview, Personal Communication). During the X-33 project partnership between Lockheed Martin and NASA, good cost estimates and risk management plans were not established until several years after the project was initiated. As a result, the project was eventually canceled, and NASA ended up losing almost $900 million in the investment (GAO, 2011b; NASA Interview, Personal Communication). NASA s willingness to concede operation of the resulting product is also essential to a successful partnership. Often times NASA engages in these projects as a way to test certain NASA produced products or develop services for later use (NASA, 2013; GAO, 2012). NASA generally does not wish to operate the end product that is produced, so the commercial partners may obtain intellectual property or ownership through the partnership (NASA Interview, Personal Communication). However, for missions and projects that involve human risks such as a safety hazard (NASA, 2011). The agency has many safety regulations and requirements that can be burdensome for private companies. In order to expected from private partnerships, these require- through a new oversight model, which is challenging and tedious to develop and implement (NASA Inspector General, 2011). Characteristics of Successful Partnerships Even when public-private partnerships meet the initial engagement criteria, there is no guarantee that they will be successful. In fact, almost 50% of partnerships are unsuccessful or cancelled because they are over budget, the commercial partner cannot meet the demands, or the project is left in an incomplete stage (NASA Interview, Personal Table 2. Partnerships Characteristics Survey Results. Results are based on interviews and surveys with 15 different NASA employees involved with public-private partnerships. Participants were asked to determine the importance of each of the characteristics on a scale of 1 to 5. Communication). The lack of understanding within NASA as to what partnerships require has caused a lot of public-private partnerships to fall apart early on. For many teams and managers within NASA pursuing partnerships with private companies, lack of public-private partnership experience also presents problems. The team members are often not familiar with the requirements of public-private partnerships and the commercial market; they instead see them as an opportunity to get more funding to work on projects related to their divisions (NASA Interview, Personal Communication). During my time at NASA, I was asked to research what characteristics differentiate a successful partnership from a failed one. As part of this research, I conducted interviews and surveys of thirteen NASA employees and directors who have experience with partnerships between NASA and private companies. The results of the survey are shown (Table 2). The participants were asked to rate the importance of each one of these characteristics in a public-private the most important. There is a bias in the averages toward higher numbers on the scale, but results with a standard deviation greater than 0.8 represent the characteristics with notable variation in each partic- seven partnership characteristics shown, ordered from highest average rating to lowest average rating. Characteristics such as understanding of objectives, a known market, and understanding of

6 partner roles are discussed in the Criteria for Initiating Public-Private Partnerships section. The other characteristics, one or two champions, strong leadership, dedicated staff, and understanding of intellectual property rights play a larger role after the partnership has been established and are necessary The two characteristics with the highest averages, one or two champions and strong leadership, both highlight the need for dedicated, experienced individuals at the top of NASA s public-private partnerships. Although this is typical of any large project, strong leadership is especially important for publicprivate partnerships due to their complex structure and logistics arising from the involvement of multiple parties that are heavily invested in the project. A staff dedicated to the understanding and management of intellectual property rights was also found to contribute heavily to the success of public-private partnerships. Since most NASA partnerships involve the development of new products and services, it is important to clarify which property rights are designated to each partner before partnership is engaged. Intellectual property negotiations are different for every public-private partnership, so experts are needed to navigate these challenges and to help ensure their success. Also worth noting is the high standard deviation for agreements vary immensely in cost, from tens of millions to billions of dollars, there are varying degrees of risk associated with each partnership. In partnerships where the cost is expected to be lower, the effects of inaccurate cost estimates are minimal. relatively simple to exchange items of equal value instead of money or to increase funding under a smaller contract. It is essential for larger funded neous and unforeseen circumstances can lead to commercial partner, the risk with these larger part- sary. Policy Options for NASA Partnerships New NASA policies are needed to facilitate the use of public-private partnerships for larger projects equivalent in size and scope to the ISS and the Space Shuttle program. Three possible policy alternatives that may help NASA effectively utilize described below. Policy alternative (1) is to develop a separate partnership team or division within NASA composed of employees with experience in public-private partnerships. This group will act as a resource for NASA managers in other divisions when considering or engaging in public-private partnerships. As noted above, one of the major setbacks for previous NASA public-private partnerships has been the lack of experience with and understanding of partnerships and the requirements and characteristics that make them successful. This partnership team can act as a resource for other groups within NASA to resolve partnership-related problems and foster more successful partnerships. Policy alternative (2) is to increase the amount of reimbursable and non-reimbursable Space Act agreements (SAAs) accepted by NASA. Since the have received greater utilization (GAO, 2011d). By requiring the agency in engage in more SAAs, the amount of public-private partnerships would companies by providing access to NASA s extensive resources and knowledge, but also helps the agency maintain demand for many of their facilities. The increased use of SAAs would also add a generic structure to every new partnership that is engaged. The three most common types of SAAs are nonreimbursable, reimbursable, and funded. Non-Reimbursable SAAs: NASA and the partner fund their own collaborative agreements and agree to share information. Reimbursable SAAs: The partner pays NASA for use of the agency s resources and help. Often times instead of paying the full price, the partner is able to substitute some of the value of the SAA with items such as technology and equipment. (GAO, 2011d) Funded SAAs: NASA pays a partner to accomplish a goal consistent with NASA s mission. A funded SAA can only be used when the objectives cannot be accomplished through the use of a contract, cooperative agreement, or grant. (Roberts, 2012) Policy alternative (3) is to attribute a certain amount of NASA s budget for public-private partnerships. This alternative is less targeted than alternatives (1)

7 and (2), but allocating a certain amount of NASA s budget for partnerships gives the agency more leeway on the legal and logistical aspects of their public-private partnerships. Since this budget will be strictly for use in public-private partnerships, it can be expected that the amount of partnerships would increase overall. Policy Analysis A wide range of factors play a role in assessing the impact of these policy alternatives, and a number of stakeholders are involved in such policy decisions. It is nearly impossible to quantify all of these variables, so three qualitative criteria were selected in order to compare the alternatives. They are: Feasibility Feasibility how easily these policies may be implemented logistically and politically Partnership Engagement how well the policy alternatives ensure that public-private partnerships meet the key engagement criteria mentioned in the Criteria for Engagement of Public-Private Partnerships section, including a viable commercial market, an attainable goal, and NASA s willingness to concede operation of the product. Partnership Effectiveness how well the alternatives foster characteristics that make a partnership successful once it has been initiated, such as strong leadership, under- Although partnerships do offer potential for savings within NASA, policy alternatives (1) & (3) are both hindered by lack of funds. NASA in particular has seen a steady cut in funding every year since 2010 (Berger, 2011), with more cuts proposed through 2014 (Moskowitz, 2013); therefore, alternative (3) would further stretch the agency s already thin budget. It for the development of a new division. Alternative (1) would require the hiring of more employees or reor- physical resources to sustain such a project. Given the current political landscape and budget crisis, political feasibility of each of these alternatives is tied heavily into how much each will cost. Since actions such as the development of a new team or division for alternative (3) would both likely require additional government funding, these two alternatives have low political feasibility. Policy alternative (2) is more viable. In response to the decreased budget that NASA has received, as well as the end of major programs like the Space underutilized (GAO, 2011d). By accepting additional SAAs, NASA can use these resources more ment for their services through funded SAAs, which provides a form of income that can be distributed to other NASA initiatives. Although this alternative will require some oversight so as to ensure that the partnerships are staying within NASA s mission and do not interfere with NASA-related projects, similar forms of oversight are already in place (GAO, 2011d). From a political standpoint, a move to accept more funded and unfunded SAAs would not require any shift within the agency would be necessary to encourage NASA members to engage with commercial partners through SAAs on their own initiative. Partnership Engagement Although none of the alternatives explicitly deal with the engagement criteria that helps lead to successful public-private partnerships, alternative (1) is most likely to ensure that potential partnerships meet these criteria. Since this dedicated team or division will be solely responsible for and experienced in helping groups within NASA engage in public-private partnerships, it will help ensure that each partnership is predicated on aspects such as a viable commercial market and achievable goals before it moves any further. Alternatives (2) and (3) do not facilitate the assessment of engagement criteria as well as alternative (1). Since the use of SAAs in alternative (2) adds a standard structure to NASA s public-private partnerships, the initial foundation strength of the partnership is likely to be addressed. Alternative (3) offers no structure to the partnerships and does nothing to ensure that partnerships meet certain criteria prior to engagement. Partnership Effectiveness Out of all the alternatives, policy alternative (1) would have the greatest impact on creating effective partnerships between NASA and private companies. Many divisions within NASA have no nerships and do not understand how to foster a successful partnership. As a resource to these divi-

8 sions, the dedicated partnership team will be able to help interested groups build sustainable partnerships based upon the characteristics considered to make public-private partnerships successful (Table 2). Alternative (2) would also facilitate the development of sustainable and effective public-private partnerships. Public-private partnerships involving reimbursable and non-reimbursable SAAs are more likely to be a success because SAAs provide a framework to manage funding, intellectual property rights, and coordination between the two parties. Since successful partnership characteristics such as strong leadership and a dedicated team are not explicitly covered by SAAs, the impact of partnership effectiveness for alternative (2) is moderate. As opposed to the other two alternatives, alternative (3) has a much more unpredictable effect on publicprivate partnerships. Although the allocation of money will force NASA to engage in more partner- of this money could go to waste if the partnerships are unsuccessful. The impact of allocating funding to public-private partnerships is highly dependent on the oversight the agency chooses to issue over it, and it does not directly affect issues such as leadership and intellectual property rights. staying in line with NASA s mission. If implemented correctly, alternative (2) has the potential to create successful partnerships by opening up NASA s resources to private companies while also acting as another funding source for NASA. Alternatives (1) and (3), especially in combination, should not be ruled out entirely. It would be hard to for partnerships due to the already stringent budget constraints. However, if the funding were available, a combination of these two alternatives has the potential to increase the success of public-private partnerships immensely. By implementing a partnership team or division within NASA, the success and effectiveness of public-private partnerships in the agency will greatly increase. Coupling this with the increase in the amount of partnerships caused by budget allocation would help NASA take a giant step forward in making these partnerships more common and better utilized. This could help bring about cultural change in favor of partnerships within NASA by establishing that they will play an essential role in NASA s future. Policy Recommendation The available policy alternatives were evaluated (Table 3). Taking into account the current budget crisis and due to its relatively high feasibility, policy alternative (2) is recommended. Because funding is unavailable for the creation of new programs, alter- initiate such a program. The success of this alternative is highly dependent on NASA s oversight. It is essential that the increase in funded and unfunded SAAs not interfere with other NASA initiatives while Table 3. Outcomes Matrix of Policy Alternatives.

9 References Berger, B. (2011). U.S. Budget Compromise Includes $18.5 Billion for NASA. Retrieved from: congress-compromise.html Carpenter, B. (July 9th, 2013). Personal Interview Crusan, J. (June 26th, 2013). Personal Interview Dumbacher, D. (July 17th, 2013). Personal Interview Gates, M. (July 10th, 2013). Personal Interview Procurement: Use of Award Fees for Achieving Program Outcomes Should Be Improved. Wash- Commercial Partners Are Making Progress, but Face Aggressive Schedules to Demonstrate Critical Space Station Cargo Transport Capabili- Defense Acquisitions: Assessments of Selected Weapons Programs (GAO SP). Wash- Defense Acquisitions: Managing Risk to Achieve Better Outcomes (GAO T). Washington, Commercial Launch Vehicles: NASA Taking Measures to Manage Delays and Risks. Wash- Key Controls NASA Employs to Guide Use and Management of Funded Space Act Agreements National Aeronautics And Space Administration: Acquisition Approach for Commercial Crew Transportation Includes Good Practices, but Faces - bursable Space Act Agreements: NASA Generally Adhering to Fair Reimbursement Controls, but and Sustainment of the International Space Station. Washington, DC: Government Printing Law Dec. 30th, 2005: NASA Authorization Act of Retrieved from: gpo.gov/fdsys/pkg/plaw-109publ155/pdf/plaw- 109publ155.pdf Guidi, J. (June 27th, 2013). Personal Interview tions: The DC-XA Composite Cryotank. Retrieved from: HPCJUL06.pdf Lindenmoyer, A. (July 10th, 2013). Telephone Interview Mango, E. (July 9th, 2013). Telephone Interview McAlister, P. (July 18th, 2013). Personal Interview Moore, C. (July 10th, 2013). Personal Interview Morse, G. (July 11th, 2013). Personal Interview Moskowitz, C. (2013). Proposed NASA Cuts Spark Bitter Debate in Congress. Retrieved from: National Aeronautics and Space Administration. (1958). National Aeronautics and Space Act of Retrieved from: National Aeronautics and Space Administration. (1996). Delta Clipper Test Program Off to Flying Start. Retrieved from: National Aeronautics and Space Administration (Feb. 2004). The Vision for Space Exploration. Retrieved from: pdf/55583main_vision_space_exploration2.pdf National Aeronautics and Space Administration, lenges Certifying and Acquiring Commercial Crew Transportation Services. Washington, DC: Govern-

10 National Aeronautics and Space Administration. (2011). NASA s Commercial Crew Development Program: Inspector General Testimony before the House Committee on Science, Space, and Technology. Washington, DC: Government Printing National Aeronautics and Space Administration, cial Cargo: NASA s Management of Commercial Orbital Transportation Services and ISS Commercial Resupply Contracts Washington, DC: National Aeronautics and Space Administration. (2013, July). X-33 History Project: The Policy Origins of the X-33. Retrieved from: hq.nasa.gov/pao/history/x-33/facts_2.htm Neumann, B. (June 18th, 2013). Personal Interview Roberts, M. (2012). Major Authorities Available to NASA: Legal Tools for Agency Relationship [PowerPoint Presentation]. Scimemi, S. (June 12th, 2013). Personal Interview Space Explorations Technology Corporation (2013). SpaceX Launch Manifest. Retrieved from: Suzuki, N. (July 17th, 2013). Personal Interview Younes, B. (July 3rd, 2013). Personal Interview Title Photo Credit: NASA HQ PHOTO Capitol Photo Credit: commons/b/b8/washington_05_183.jpg U.Va. engineers are challenged to solve real-world technical problems, from creating new transistors to developing medical technologies. For certain U.Va. undergrads, these problem-solving techniques are brought to Washington, D.C., to solve challenges of another nature: public policy. The problems that face this country energy, national security, privacy, health and the environment are partly technical, but are also deeply affected by economics and politics. Policy is profoundly relevant to engineering practice, and often determines whether innovative technical and engineering solutions reach their target consumers. Each year for the past 14 years, about a dozen U.Va. undergraduates have spent a summer (often in D.C., sometimes in Paris) working on a wide range of public policy issues. As participants in the Department of Engineering and Society s Policy Internship Program, students take a dedicated spring course that prepares them for their 10-week summer internship. During the summer, students live together in George Washington University dorms. They are placed with high-level policymakers, such as the director of the National Science Foundation, the Department of Energy and the Environmental Protection Agency. Students also work at nongovernmental organizations such as the National Academy of Sciences, the World Bank and others working on critical technology and policy topics.