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Block buy launch costs - Motley Fool article
by
FutureSpaceTourist
on 30 Mar, 2015 19:57
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This article has been mentioned in another
thread but not with a focus on block buy launch costs:
http://www.fool.com/investing/general/2015/03/29/can-spacex-cut-cost-of-space-travel-75-percent.aspxThe article, with key input from Tony Bruno, attempts to determine what individual launch costs under the block buy are (and thus resolve whether SpaceX's repeated claims of $400M per launch stand scrutiny).
The article believes $225M per launch is a more accurate figure, although that number appears to take no account of the annual $1B EELV Launch Capability payment.
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#1
by
rayleighscatter
on 30 Mar, 2015 20:55
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The article believes $225M per launch is a more accurate figure, although that number appears to take no account of the annual $1B EELV Launch Capability payment.
It seems to:
Launching the cores -- which costs about $1 billion a year, to send up an estimated 10 missions per year. This $1 billion "EELV Launch Capability" or "ELC" payment is the annual "retainer," or "subsidy," that ULA is often accused of receiving from the government.
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#2
by
FutureSpaceTourist
on 30 Mar, 2015 23:28
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Here's the derivation of the $225M from the article:
As Bruno explained, there are at least three parts to the Air Force "block buy" in question:
- Manufacture of 36 "new" rocket cores -- which costs $10 billion.
- Manufacture of 42 "heritage" cores previously ordered by the Air Force but not yet launched. These will cost $6.6 billion in addition to the $11 billion "block buy."
- Launching the cores -- which costs about $1 billion a year, to send up an estimated 10 missions per year. This $1 billion "EELV Launch Capability" or "ELC" payment is the annual "retainer," or "subsidy," that ULA is often accused of receiving from the government.
Put it all together, and ULA estimates the total cost of building and launching 78 rocket cores for the Air Force will approximate $17.6 billion, or about $225 million per core.
So depending what the additional $1B to the 36 new cores in the block buy is for, there's at most one year's worth of the ELC payment for 78 launches!
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#3
by
Lars-J
on 31 Mar, 2015 03:30
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So depending what the additional $1B to the 36 new cores in the block buy is for, there's at most one year's worth of the ELC payment for 78 launches!
I've read this sentence multiple times - backwards and forwards - and it still makes no sense. Can you clarify?
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#4
by
pippin
on 31 Mar, 2015 03:53
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What he's saying is that while the launch capability subsidy is about 1B$ _per year_ they only add one billion (one year) in the article.
That said: as I understand it the launch capability contract is being re-negotiated every year so one can't really say how high it will be in the years to come.
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#5
by
su27k
on 31 Mar, 2015 03:55
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Yeah, only one year worth of ELC is included in the $225 million figure, which makes the number suspect since you can't possibly launch all the cores in one year. The only way the $225 million number works is ELC will be removed after one year. If we assume ELC is still in effect and assume 10 launches per year, then the price per core is ($10 billion + $6.6 billion)/(36+42) + $1 billion / 10 = $313 million, not that far from $400 million is it.
Also
- Manufacture of 36 "new" rocket cores -- which costs $10 billion.
- Manufacture of 42 "heritage" cores previously ordered by the Air Force but not yet launched. These will cost $6.6 billion in addition to the $11 billion "block buy."
Why does heritage core cost less than new ones?
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#6
by
FutureSpaceTourist
on 31 Mar, 2015 04:19
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Yes, apologies for being too terse, pippin & su27k are correct.
It's hard to accept the $225M as a true (average) cost per launch, unless the ELC payments really aren't needed ...
As for the heritage cores being cheaper, my take is that some of their costs (raw materials?) have already been paid for so the $6.6B is a cost to complete rather than a total cost. Of course that raises more questions about why that money has been spent if there's no commitment yet to actually use those cores.
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#7
by
jongoff
on 31 Mar, 2015 05:10
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Yes, apologies for being too terse, pippin & su27k are correct.
It's hard to accept the $225M as a true (average) cost per launch, unless the ELC payments really aren't needed ...
As for the heritage cores being cheaper, my take is that some of their costs (raw materials?) have already been paid for so the $6.6B is a cost to complete rather than a total cost. Of course that raises more questions about why that money has been spent if there's no commitment yet to actually use those cores.
It's also possible that the article had some of their facts garbled. It wouldn't be the first time I saw a report on a technical topic screw up information. The fact that ULA is saying $225M suggest that number is right and something else in the math or logic is wrong somewhere, because I doubt Bruno would intentionally lie on something easily detected like that.
Personally my bet is on, either they screwed up somewhere in the reporting on the numbers, or ULA is expecting or asking for the ELC to go away after one more year and thus they only budgeted for one year of ELC in the total.
~Jon
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#8
by
woods170
on 31 Mar, 2015 07:58
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Yes, apologies for being too terse, pippin & su27k are correct.
It's hard to accept the $225M as a true (average) cost per launch, unless the ELC payments really aren't needed ...
As for the heritage cores being cheaper, my take is that some of their costs (raw materials?) have already been paid for so the $6.6B is a cost to complete rather than a total cost. Of course that raises more questions about why that money has been spent if there's no commitment yet to actually use those cores.
It's also possible that the article had some of their facts garbled. It wouldn't be the first time I saw a report on a technical topic screw up information. The fact that ULA is saying $225M suggest that number is right and something else in the math or logic is wrong somewhere, because I doubt Bruno would intentionally lie on something easily detected like that.
Personally my bet is on, either they screwed up somewhere in the reporting on the numbers, or ULA is expecting or asking for the ELC to go away after one more year and thus they only budgeted for one year of ELC in the total.
~Jon
The numbers from the article are false by definition, thanks to the inclusion of only one year of ELC. It is correct that ELC is on the way out; that is being looked in right now. But, the current scenario sees a decline of yearly ELC payment, spread out over several years. If that scenario becomes reality, than (reduced) ELC could be in play for as many as five more years.
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#9
by
Lobo
on 31 Mar, 2015 18:14
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Yes, apologies for being too terse, pippin & su27k are correct.
It's hard to accept the $225M as a true (average) cost per launch, unless the ELC payments really aren't needed ...
As for the heritage cores being cheaper, my take is that some of their costs (raw materials?) have already been paid for so the $6.6B is a cost to complete rather than a total cost. Of course that raises more questions about why that money has been spent if there's no commitment yet to actually use those cores.
It's also possible that the article had some of their facts garbled. It wouldn't be the first time I saw a report on a technical topic screw up information. The fact that ULA is saying $225M suggest that number is right and something else in the math or logic is wrong somewhere, because I doubt Bruno would intentionally lie on something easily detected like that.
Personally my bet is on, either they screwed up somewhere in the reporting on the numbers, or ULA is expecting or asking for the ELC to go away after one more year and thus they only budgeted for one year of ELC in the total.
~Jon
The numbers from the article are false by definition, thanks to the inclusion of only one year of ELC. It is correct that ELC is on the way out; that is being looked in right now. But, the current scenario sees a decline of yearly ELC payment, spread out over several years. If that scenario becomes reality, than (reduced) ELC could be in play for as many as five more years.
@this.
I can't imagine the ELC goes away after one year. And probably hangs around in some full or reduced manner for several years. I'd think probably more like $5 billion should have been added into the total number for the ELC component rather than just $1 billion. That'd cover 5 years at current rates or 7 years or so at a reducing rate (more likely I'd think).
If we're talking 78 total cores at about 10 cores per year being launched (and assuming 4 of those launches are D4H), that's about 7 years worth of launch operations. Is there any reason to believe that the ELC portion for the next 7 years would be significantly lower than $5 billion?
So that'd be more like $21.6 billion rather than $17.6 billion. Or about $277million per launch average.
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#10
by
marsman2020
on 31 Mar, 2015 18:26
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Here's the derivation of the $225M from the article:
As Bruno explained, there are at least three parts to the Air Force "block buy" in question:
- Manufacture of 36 "new" rocket cores -- which costs $10 billion.
- Manufacture of 42 "heritage" cores previously ordered by the Air Force but not yet launched. These will cost $6.6 billion in addition to the $11 billion "block buy."
- Launching the cores -- which costs about $1 billion a year, to send up an estimated 10 missions per year. This $1 billion "EELV Launch Capability" or "ELC" payment is the annual "retainer," or "subsidy," that ULA is often accused of receiving from the government.
Put it all together, and ULA estimates the total cost of building and launching 78 rocket cores for the Air Force will approximate $17.6 billion, or about $225 million per core.
So depending what the additional $1B to the 36 new cores in the block buy is for, there's at most one year's worth of the ELC payment for 78 launches!
The only way that the "heritage" cores are cheaper is if the USAF has already paid some of the costs of those cores under other contracts, and they are being rolled into the block buy now at a partly completed state. Not having the remainder of the information on those cores, they should not be considered in the calculation.
Also, I am pretty sure the ULA block buy is $11 billion which covers 36 cores to be used in 28 flights.
Lets think about only the "new" cores being added in the block buy. You end up with:
-ELC payment - $1 billion / approx 10 flights = $100 million/flight * 28 flights = $2.8 billion
-NEW cores - $11 billion for 36 cores
-Subtotal $13.8 billion
-Cost of the 28 flights with the current ELC cost structure -> $13.8 billion/28 = $492 million per flight
Seems like "$400 million" to me!
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#11
by
Lars-J
on 01 Apr, 2015 00:14
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It's also possible that the article had some of their facts garbled. It wouldn't be the first time I saw a report on a technical topic screw up information. The fact that ULA is saying $225M suggest that number is right and something else in the math or logic is wrong somewhere, because I doubt Bruno would intentionally lie on something easily detected like that.
If it isn't lying, it is called something else - misleading? - Because as far as I can tell all numbers cited by Bruno and ULA *always* exclude the yearly ELC payment/contract.
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#12
by
joek
on 01 Apr, 2015 01:34
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This is utter crap. Someone made a serious error. Including the 42 "heritage" cores in the cost calcuation is hugely distorting; to call it "misleading" is beyond charitable. Someone appers to have been counting--and worse averaging--since the inception of the EELV program (or close to it) for stuff long ago bought and launched.
There are a few of those "heritage" cores under acquisitions prior to the FY2013 block buy still to launch; there are nowhere near 42 (there might be 4). Not only is there no budget for purchase of those hypothetical 42 cores, there are nowhere near enough payloads to make use of them without budget commitments well beyond 2020 (which there are not).
From the USAF FY2016 budget request, the ELC cost through FY2016-2020 is projected to be ~$3B. ELC pays and provides for 8 launches/year (or did), not "approximately 10". NRO pays an additional 25%, so the total for USAF+NRO is ~$4B.
Present and future EELV $400M unit launch cost is much closer to the truth than $225M.
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#13
by
woods170
on 01 Apr, 2015 10:15
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This is utter crap. Someone made a serious error. Including the 42 "heritage" cores in the cost calcuation is hugely distorting; to call it "misleading" is beyond charitable. Someone appers to have been counting--and worse averaging--since the inception of the EELV program (or close to it) for stuff long ago bought and launched.
There are a few of those "heritage" cores under acquisitions prior to the FY2013 block buy still to launch; there are nowhere near 42 (there might be 4). Not only is there no budget for purchase of those hypothetical 42 cores, there are nowhere near enough payloads to make use of them without budget commitments well beyond 2020 (which there are not).
From the USAF FY2016 budget request, the ELC cost through FY2016-2020 is projected to be ~$3B. ELC pays and provides for 8 launches/year (or did), not "approximately 10". NRO pays an additional 25%, so the total for USAF+NRO is ~$4B.
Present and future EELV $400M unit launch cost is much closer to the truth than $225M.
The 42 heritage cores might not be the correct number, but a certain number of heritage cores still will be needed in the equation. You see, the first cores from the infamous block-buy are scheduled for delivery in late 2017.
In between the public announcement of the block-buy contract signing (early 2014) and launch of the first cores from the block-buy is a period of approximately four (4) years. With an average launch rate of 8 missions per year (for USAF and NRO) that adds up to at least 32 cores (not counting any additional cores due to the Delta IV-H configuration).
Even if we use today's date as starting point there will still be the need for at least 24 (and possibly more) heritage cores to cover USAF and NRO launch needs until the first cores of the block buy are put into action:
Having a look over at Gunter's space page I see the need for at least 10 Delta IV cores up to late 2017 and no less than 14 Atlas 5 cores up to late 2017.
So, assuming that the 42 "heritage" cores don't belong in the equation is (at least partially) wrong IMO.
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#14
by
Chalmer
on 01 Apr, 2015 11:31
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Well let’s try and look only on the launches under the new block buy.
• 36 cores, or 28 flights at $11 Billion
• Assuming 7 USAF/NRO flights per that is 4 years of flights at 1 billion per year. Of course more flights per year will make it cheaper per flight since ELC is divided over more launches.
• $11B +$ 4B = $15 billion
• $15B / 28 = $535 Million
• Per core price is then $15B / 36 = $428 Million
Even completely ignoring the ELC payment, and averaging over the cores and not per flight you get
$11B / 36 = $305 Million.
So the only way to get to $225M as stated, the cores already ordered must be a lot cheaper than the cores in the block buy, which seems to be true at only $6.6B for 42 cores. That is a heritage core price of;
• $6.6B / 42 = $157 Million
Now all this is kind of weird since multiple rocket families and variations are included but as an average it is still true.
Funny enough: ((42*157)+(36*305) ) / (36+42) = 225
That is the average cost of all 78 cores, and must be what Tony Bruno is referring too. Then add ELC payment of $1 Billion x Years to launch all those 78 cores. Then you will get the nominal average price. I dont know how many years we are talking about though.
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#15
by
woods170
on 01 Apr, 2015 12:25
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Even completely ignoring the ELC payment, and averaging over the cores and not per flight you get
(Current block-buy)
$11B / 36 = $305 Million.
("Heritage" cores)
$6.6B / 42 = $157 Million
I know this view of things is probably way too simple, but, just for the sake of fun, let's assume that the above numbers are correct. After all, they are based on an article that supposedly had direct input from mr. Bruno himself.
The first question that comes to my mind is this: How the h*ll did the average core become nearly twice as expensive between the current block-buy and the previously bought cores?
The second thing that comes to mind is this:
From public reports, based on ULA information, the block-buy is supposed to have saved the tax payer $4.4B.
In other words: if the $4.4B savings had not been there, the cost of buying the 36 cores could potentially have been as expensive as $11B + $4.4B = $15.4B, or $427 Million per core.
Meaning that the per-core price would almost be triple that of the "heritage" cores. WTF? What the [bleep] changed to make the cores that much more expensive? I mean, twice as expensive is - IMO - silly, but triple would have been - IMO - ludicrous.
I can very much see where all the congressional complaints about the exploding cost of the EELV program is coming from.
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#16
by
Nomadd
on 01 Apr, 2015 13:04
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I take it that anybody who wasted 5 minutes reading that article isn't too familiar with pretty much everything Motley Fool has ever put out. It was about as bad as their financial advice.
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#17
by
joek
on 01 Apr, 2015 16:30
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Attached shows the actual and projected EELV $. Someone is double counting and discounting the cost of those "heritage" cores. Note that quantities are launches not cores.
edit: added second spreadsheet which shows only ELS (launch services) and ELC (EELV launch capability) costs for earlier years (FY2010 is included in prior years).
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#18
by
Kabloona
on 01 Apr, 2015 16:50
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Thanks for the spreadsheet, joek.
Edit per Jim's post below: How much of that "EELV" line item goes to ULA and how much is Air Force program office funding?
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#19
by
Jim
on 01 Apr, 2015 16:54
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EELV program costs does not equate to money given to ULA. And despite what Spacex has said, the NRO will be funding some sort of ELC for F9 launches to deal with the security.
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#20
by
joek
on 01 Apr, 2015 17:58
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Edit per Jim's post below: How much of that "EELV" line item goes to ULA and how much is Air Force program office funding?
I attached a second spreadsheet that eliminates the program support costs; it should more accurately reflect what is received by ULA (e.g., it excludes program support, administration, range). They have shifted some line items around over the years, which makes apples-to-apples comparisons difficult.
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#21
by
Kabloona
on 01 Apr, 2015 21:27
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Edit per Jim's post below: How much of that "EELV" line item goes to ULA and how much is Air Force program office funding?
I attached a second spreadsheet that eliminates the program support costs; it should more accurately reflect what is received by ULA (e.g., it excludes program support, administration, range). They have shifted some line items around over the years, which makes apples-to-apples comparisons difficult.
Thanks joe. So by your accounting, ULA is getting around $370 M per launch.
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#22
by
mkent
on 02 Apr, 2015 00:34
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Attached shows the actual and projected EELV $. Someone is double counting and discounting the cost of those "heritage" cores. Note that quantities are launches not cores.
I like this approach, but I'm not sure the numbers are accurate. They seem to severely discount ULA's flight rate, which averages 11 flights / year. Some of those are Delta II missions, which aren't part of the EELV program, and some of those are commercial and NASA missions, which aren't either. But just counting DoD launches on Delta IV and Atlas V, I get almost twice the flight rate.
Assuming the figures refer to launches and not orders, I get...(see below)...
Note that this is for DoD EELV launches only and does not count NASA, commercial, or Delta II launches. Even if they are orders, the overall multi-year average should be the same, just time-shifted.
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#23
by
joek
on 02 Apr, 2015 01:04
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Thanks joe. So by your accounting, ULA is getting around $370 M per launch.
Yes, I think that is in the right ballpark, although including NRO's ELC contribution may be incorrect; if that is omitted it is closer to $330M. But if you add back mission assurance, some of which gets paid to ULA, it goes back up closer to $350M.
eidt: The launch service numbers in the ELS line cover basic "vanilla" launch services only. Any mission-specific services are budged separately under that program (e.g., GPS, DMS, etc.), which adds costs.
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#24
by
joek
on 02 Apr, 2015 02:22
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I like this approach, but I'm not sure the numbers are accurate. They seem to severely discount ULA's flight rate, which averages 11 flights / year.
This includes only USAF EELV program budget and quantities; anything other than that does not show in this budget. Quantities are the year for which launch services are contracted, which is not necessarily the year of launch (budget money moves before and after launch), which is why there can be such significant year-to-year total unit cost variations.
Other agencies are responsible for budgeting their own EELV launch services and those do not show up in this USAF budget. E.g., NRO and Navy (MUOS). Thus, this does not represent total orders or total costs. NASA flights are not part of the EELV program and use a separate launch services contract (NLS) and separate pricing. Commercial launches are not part of the EELV program. Including NASA or commercial would thus require counting both the launches and the additional costs, and in any case would mix apples and oranges.
I think the best that can be determined from this is an overall figure for the cost of DoD EELV launches over 2-3 years intervals. I wouldn't read too much into an individual year; the trend and longer term averages are more useful.
I have attached an updated chart which omits everything except which the USAF has budgeted for basic launch services and ELC. This should be a lower bound on cost and what is paid to ULA. It does not mission-specific add-on costs, mission assurance (after FY2013), NRO which has a high-priced outlier with the DIV-H (which would increase per-launch price), etc.
Hope that helps.
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#25
by
93143
on 02 Apr, 2015 02:53
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What about
this?
The December 2013 contract modification with ULA, sometimes referred to as a "block buy" contract,
represents a major change from past year-to-year contracting approaches, and buys:
• Production of 35 launch vehicle booster cores over 5 years, from fiscal years
2013 through 2017
• Launch capability for six years, from fiscal years 2014 through 2019
Emphasis added.
This doesn't mesh with what the article says. And honestly $278M for manufacturing a core, exclusive of ELC and launch overhead, doesn't sound right either. I think the article writer may have gotten his wires crossed.
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#26
by
Prober
on 02 Apr, 2015 16:41
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EELV program costs does not equate to money given to ULA. And despite what Spacex has said, the NRO will be funding some sort of ELC for F9 launches to deal with the security.
Yes, this was pointed out before Congress; its in the video
You think SpaceX is going to turn down the money, don't think so.
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#27
by
joek
on 02 Apr, 2015 20:58
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The first question that comes to my mind is this: How the h*ll did the average core become nearly twice as expensive between the current block-buy and the previously bought cores?
...
Short version...
1. In the beginning there was buy-1: prices were below cost (fig 1).
2. Then came buy-2/2.5: prices went up significantly (fig 1), and were projected to increase a *lot* more (fig 2).
3. Then engine prices went up and threatened to explode: RS-68 ~$15M to >$60M; RD-180 $10M to >$35M.
4. Then came the FY13 block buy: prices came down from insane to merely absurd.
Long version...
See attached presentation and GAO report
here (among others).
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#28
by
Kabloona
on 02 Apr, 2015 21:08
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Nice work, joe. You should have been invited to testify in Congress!
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#29
by
joek
on 02 Apr, 2015 21:18
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Thanks, but credit belongs to Mr. Miller and Mr. Kohl. Those charts and the presentation were used for GAO (and maybe Congressional) briefings. A more complete presentation, although heavily redacted, can be found
here.
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#30
by
Misha Vargas
on 03 Apr, 2015 17:03
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Tory Bruno explains costs:
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#31
by
FutureSpaceTourist
on 03 Apr, 2015 18:05
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Ok so to reconcile that with the Motley Fool article would mean that the article both:
1. Confused cores and missions (ie 78 missions not 78 cores) and
2. Included virtually all the 7 years worth of ELC as part of the costs for the new (non heritage) missions
I could believe that but I don't understand what the $11B block buy cost includes! Ie the info graphic doesn't seem consistent with $11B?
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#32
by
kevin-rf
on 03 Apr, 2015 18:24
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I think it is more confusing than that...
The ELC only includes money spent, and doesn't include future spending, but not all the cores have flown yet.
The second block buy went from $128 million to $153.6 million, add in the ELC and you are at $242 million for block buy 2.
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#33
by
joek
on 03 Apr, 2015 23:08
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While I appreciate the effort, Mr. Bruno's info-graphic is a classic example of the "lie of the average" (or marketing run amok). It tells us little or nothing about current and future cost. If anything, this obfuscates current and future costs. ULA can and should do better. If Mr. Bruno is serious about more transparent pricing, then leave the past in the past.
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#34
by
HIP2BSQRE
on 03 Apr, 2015 23:58
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Here is a new article from the GAO --http://www.gao.gov/assets/670/668986.pdf.
Prime contractor: United Launch
Services, LLC
Program office: El Segundo, CA
Funding needed to complete:
R&D: $0.0 million
Procurement: $38,620.1 million
Total funding: $38,620.1 million
Procurement quantity: 94
That is over an average of $400 million.
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#35
by
Coastal Ron
on 03 Apr, 2015 23:59
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The question at hand is the Block Buy, not prior legacy orders. So I would agree that Bruno is throwing those in so that he can "average down" the overall core price.
It's easy to see why just looking at the graphic Bruno provided:
Prior Buy - $6.4B for 50 launches = $128M each/average
Block Buy - $4.3B for 28 launches - $153.6M each/average
So the Block Buy is, on average, 20% more expensive per mission. Now we don't have a mix of what the missions are, so this is a very general calculation, but it shows why Bruno would want to add in the prior buy to lower the overall cost estimates.
The 20% higher cost tracks with what the GAO has been seeing over the past few years, and this general approach of mixing up new orders with old orders is one of the reasons why the GAO has cited ULA for a lack of transparency in pricing.
I've done internal pricing, and rockets are not that complicated from a bill of material standpoint, so it's obvious that ULA just doesn't want to be transparent - choose your own reason.
But the silver lining in all of this is that the Block Buy is likely the last time ULA can get away with this type of price obfuscation, since in the future they will be competing more and more with "another company". Competition is good.
One other thing. Bruno mentions FAR 15, which is "Contracting by Negotiation". From the article:
"SpaceX states its new Falcon Heavy will close this gap. But Bruno stated that his clients are also working within more stringent regulating regimen (“FAR 15,” mentioning towards the “federal acquisition rules”) compared to FAR 12 regimen that governs contracts with SpaceX. He contended that working under FAR 15 contributes to ULA’s costs, and stated when the federal government will grant ULA to operate under FAR 12, then your company’s costs will decline."
From my viewpoint ULA has always had the ability to operate under FAR 12 (i.e. "Acquisition of Commercial Items"), at least to a certain degree, just as ULA has always had the ability to make "block buys" (but chose not to). There is no reason they couldn't have offered standard launch services under FAR 12, and then negotiate under FAR 15 for the additional payload specific handing requirements. I would imagine this is what SpaceX is planning to do, where they would offer their standard Falcon 9 pricing for the launch (~$60M), and negotiate the non-standard customer requirements (up to $30M), which would be the $80-90M figure Shotwell has mentioned.
Well at least this is all moving in the right direction... finally.
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#36
by
joek
on 04 Apr, 2015 02:08
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From my viewpoint ULA has always had the ability to operate under FAR 12 (i.e. "Acquisition of Commercial Items"), at least to a certain degree, just as ULA has always had the ability to make "block buys" (but chose not to). There is no reason they couldn't have offered standard launch services under FAR 12, and then negotiate under FAR 15 for the additional payload specific handing requirements. I would imagine this is what SpaceX is planning to do, where they would offer their standard Falcon 9 pricing for the launch (~$60M), and negotiate the non-standard customer requirements (up to $30M), which would be the $80-90M figure Shotwell has mentioned.
That is the way it nominally worked once-upon-a-time, only then the names were Boeing and Lockheed Martin, not ULA and SpaceX.
Back then, ELC (or more properly "mission assurance") was a per-mission add-on. Pretty much since the formation of ULA, things changed. Mission assurance and assured access morphed into a sole-source non-compete under FAR-15, with EELV launch services (ELS) sole-source firm-fixed price (FFP) and EELV launch capability (ELC) sole-source cost+x.
Since then there has not really any other option. If the DOD wanted a large block-buy in the past,* I'm sure ULA and its suppliers would have obliged (and they did offer, if not begged). ULA could not force a block-buy. It was the DOD's decision not to do so. ULA had little or no voice in the decision.
In the future this is likely to revert to the pre-ULA model. USAF has stated they want to move to not only more competitive acquisution, but also a more per-mission pricing model, including what is currently bundled into ELC--which I think is great. Back to the future!
It would be difficult if not impossible to do otherwise, once SpaceX--or any other competitor--enters the field. The rules will be dictated by FAR, and the DOD must adhere to those rules; SpaceX, ULA or whoever will have little choice in the matter if they want to play.
However, we need to recognize that al of this comes about and is feasible only if there is another competitor such as SpaceX on the field. Whether ULA wants the change or it is forced on them, they cannot do it alone; as long as ULA is the only team on the field, little can or will change.
* edit:prior to FY13; although it was clear that prior cheap buys (not exactly "block buys", but close) were unrealistic as a basis for costing going forward ~CY2010, if not sooner.
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#37
by
mlindner
on 04 Apr, 2015 09:50
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Nasawatch critiques:
https://twitter.com/NASAWatch/status/584113217498144768One question I have after seeing this. Is the 6.9B ELC for all 78 launches or only the new ELC for the block buy?
6.9B ELC seems to assume that 78 launches will be performed over a 6.9 year timespan or an average of 11 launches per year. Is this right?
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#38
by
woods170
on 04 Apr, 2015 11:46
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Nasawatch critiques:
https://twitter.com/NASAWatch/status/584113217498144768
One question I have after seeing this. Is the 6.9B ELC for all 78 launches or only the new ELC for the block buy?
6.9B ELC seems to assume that 78 launches will be performed over a 6.9 year timespan or an average of 11 launches per year. Is this right?
Not it isn't. ULA will not be performing 78 launches in 6.9 years. At least, not military- and NRO-related launches. Even with the record-breaking years 2013 and 2014 included, the average military- and NRO launch-rate for ULA, from 2007 to 2014 is 7.125 launches per year.
Outlook from government sources shows an average of 7 military- and NRO-related launches in 2016 and 2017.
The $6.9B ELC is not for the total of 78 launches, as indicated in the chart. This is verifibly false from USAF yearly budget books.
$6.9B is what the ELC contract value has been from FY2006 to FY2015 (included), or roughly the ELC monies that have been spent on those first 50 launches. The chart presented by Bruno does NOT include the projected ELC monies from FY2016 to the end of the block-buy period.
So, basically, he assumes that from this year forward, there will be no ELC payments. But that is wrong. USAF budget book shows at least $3.1B in ELC monies from FY2016 up to FY2020.
Conveniently overlooking those monies does press down the average cost of a ULA launch quite a bit from $265 Million to $225 Million.
And to add to that: for the FY2016 to FY2020 I have not yet included the NRO ELC monies. If we include those as well, the per-launch average cost goes up to $278 Million.
However, I will add that I find the Nasawatch number of $8.8B for ELC monies between FY2006 and FY2014 to be wrong. $6.1B is a much more likely number for that period. And that goes up to the presented $6.9B when FY2015 is included.
Summarizing: Bruno just threw another piece of disinformation out there by willingly and knowingly overlooking future ELC payments. And he knows it too. Unfortunately, he's counting on the fact that most Americans don't give a d*mn about rocket launches. And those folks that DO know that Bruno is willingly throwing garbage out there, don't make enough noise to get Bruno in serious trouble.
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#39
by
Kabloona
on 04 Apr, 2015 11:48
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While I appreciate the effort, Mr. Bruno's info-graphic is a classic example of the "lie of the average" (or marketing run amok). It tells us little or nothing about current and future cost. If anything, this obfuscates current and future costs. ULA can and should do better. If Mr. Bruno is serious about more transparent pricing, then leave the past in the past.
This is just embarrassing. Did Tory Bruno expect that releasing a misleading graphic on twitter would not result in someone immediately pointing out how wrong it was?
Maybe he should just stop trying to fudge numbers in public and focus instead on getting NGLS built.
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#40
by
Jim
on 04 Apr, 2015 12:36
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There is no reason they couldn't have offered standard launch services under FAR 12, and then negotiate under FAR 15 for the additional payload specific handing requirements.
There are many reasons why that is not feasible. There is no way of separating them.
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#41
by
Coastal Ron
on 04 Apr, 2015 15:13
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From my viewpoint ULA has always had the ability to operate under FAR 12 (i.e. "Acquisition of Commercial Items"), at least to a certain degree, just as ULA has always had the ability to make "block buys" (but chose not to)...
Since then there has not really any other option. If the DOD wanted a large block-buy in the past,* I'm sure ULA and its suppliers would have obliged (and they did offer, if not begged). ULA could not force a block-buy. It was the DOD's decision not to do so. ULA had little or no voice in the decision.
Let me explain what I meant about the Block Buy.
The U.S. Government, as the customer, is always looking for the best pricing for what they buy, be it pencils or launch services. But they don't tell their suppliers how to procure the parts and services needed for a government contract, so the government can only negotiate based on what the suppliers procurement and other costs are.
ULA, which handles 100% of a number of types of launches for the U.S. Government, has always had a number of options for how they could buy the material for their rockets.
The easiest, and least risky from a financial standpoint (i.e. profit & loss), would be to only buy what they need when they get a customer order. This is also the most expensive way to buy, since you don't leverage quantity buys. Prior to the Air Force "Bulk Buy" this appears to be how ULA procured rockets parts, and it's also the most profitable.
The more risky way to procure material for customer orders is to forecast future orders and group the material into "bulk buys" internally. ULA had excellent visibility into the future demand of it's customers, both because of it's monopoly and also because it's two corporate parents built many of the payloads ULA would eventually launch. That visibility should have extended beyond the long-lead horizon for buying just about everything needed for their rockets, so if they used this approach it too could have been virtually risk free from a financial standpoint.
So ULA has had the ability to offer the pricing advantage of the recently negotiated "Bulk Buy" without needing their customer to commit to their own "Bulk Buy". But they didn't because having the U.S. Government commit to a "Bulk Buy" locks out competitors (i.e. SpaceX) for the longest possible time, and it does lock in reasonably high prices due to the lack of transparency they have been able to achieve.
Once you have competition this whole situation should go away, especially when one of the competitors offers flat pricing for the basic launch services regardless how many you buy. The suppliers take on the burden of procuring their material in a way that reduces customer pricing the most, and the customers automatically reap the benefit without having to commit to "Block Buys".
Competition is good.
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#42
by
Coastal Ron
on 04 Apr, 2015 15:30
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There is no reason they couldn't have offered standard launch services under FAR 12, and then negotiate under FAR 15 for the additional payload specific handing requirements.
There are many reasons why that is not feasible. There is no way of separating them.
Sure there is - it's not rocket science. Every part and labor hour is quantifiable, so it's just a matter of coming to agreement on how it's sold.
If ULA knows the exact configuration of a rocket (which of course they do), then they know how much they cost. And there would be some point in the configuration of a rocket where it doesn't change, regardless who the customer is.
So for instance, let's say that no matter who the customer is that when they order an Atlas V 501 the 1st stage and the 2nd stage are always the same. That should be standard pricing under FAR 12.
What the customers put on top of the Atlas V 501, and how it's handled and the connections that have to be made... all that stuff that is unique to a payload, that is negotiated under FAR 15.
Where do you see the obstacles to doing this?
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#43
by
Jim
on 04 Apr, 2015 17:43
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and also because it's two corporate parents built many of the payloads ULA would eventually launch.
Quite wrong. There are firewalls between ULA and LM/Boeing spacecraft division. Also, the USAF spacecraft programs are managed separately from the EELVs
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#44
by
Jim
on 04 Apr, 2015 17:43
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There is no reason they couldn't have offered standard launch services under FAR 12, and then negotiate under FAR 15 for the additional payload specific handing requirements.
There are many reasons why that is not feasible. There is no way of separating them.
Sure there is - it's not rocket science. Every part and labor hour is quantifiable, so it's just a matter of coming to agreement on how it's sold.
If ULA knows the exact configuration of a rocket (which of course they do), then they know how much they cost. And there would be some point in the configuration of a rocket where it doesn't change, regardless who the customer is.
So for instance, let's say that no matter who the customer is that when they order an Atlas V 501 the 1st stage and the 2nd stage are always the same. That should be standard pricing under FAR 12.
What the customers put on top of the Atlas V 501, and how it's handled and the connections that have to be made... all that stuff that is unique to a payload, that is negotiated under FAR 15.
Where do you see the obstacles to doing this?
The USAF doesn't buy hardware, it buys launch services. The USAF doesn't order an Atlas V 501, it orders a launch service with the capability of a 501.
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#45
by
Coastal Ron
on 04 Apr, 2015 19:59
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...
So for instance, let's say that no matter who the customer is that when they order an Atlas V 501 the 1st stage and the 2nd stage are always the same. That should be standard pricing under FAR 12.
What the customers put on top of the Atlas V 501, and how it's handled and the connections that have to be made... all that stuff that is unique to a payload, that is negotiated under FAR 15.
The USAF doesn't buy hardware, it buys launch services. The USAF doesn't order an Atlas V 501, it orders a launch service with the capability of a 501.
I never said the USAF, all I said was "the customer". Who the customer is, for the most part, doesn't matter.
The point being that there are standard costs that go into an Atlas V 501 launch, and non-standard costs, and ULA knows what those are.
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#46
by
joek
on 04 Apr, 2015 21:14
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This is just embarrassing. Did Tory Bruno expect that releasing a misleading graphic on twitter would not result in someone immediately pointing out how wrong it was?
Note the omnipresent "FAR 15" in the info-graphic. That is, if ULA's USG certified cost accounting data says that is the number, then that must be the number. (And I have a bridge I'd like to sell you--my USG certified cost accounting system says it's a great deal--honest!).
Problem is, the GAO has spanked ULA and USAF more than once because of insufficient insight into costs. ULA was specifically spanked because it did not know how much it actually cost to build a rocket (go figure). Just because you have a FAR 15 USG certified accounting system means squat IMHO.
Based on USAF budget books and discounting non-ULA costs, that ELC number should probably be be closer to $9.5B (not $6.9B), which--if you believe the other numbers--yields a ULA lifetime EELV per-mission cost of closer to $260M for past and future missions. (I have no idea how Nasawatch arrived at $15.5B for ELC; that seems high.)
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#47
by
joek
on 04 Apr, 2015 21:36
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The point being that there are standard costs that go into an Atlas V 501 launch, and non-standard costs, and ULA knows what those are.
We wish. Up until fairly recently costs seemed to be determined more by a dart board. Figuring out exactly what the costs are, and how to properly allocate them, is something the GAO has been harping on for close to a decade. It is still a work in progress. Yes, it sucks. Yes, no typical commercial enterprise would operate that way.
Then again, ULA is not a typical commercial enterprise. ULA is the product of a shotgun marriage and is essentially a US government captive. The justification for ULA's existence is US national security needs. Its primary purpose is to launch government payloads, and do so with 100% mission success. It has done that well; everything else comes second.
Losing a $B payload could be a career-ending event for some at or near the top at both ULA and the DoD. No one wants to lose a payload (or coming close to losing one) on their watch. That produces a very conservative outlook and very conservative behavior from the top down. It also produces an incestuous and unhealthy dynamic.
You cannot and should not compare ULA's behavior based on how other commercial enterprises behave, or how we think they should behave--whether aerospace in general or other large government contractors. That will change with competition, and we see indications of that with, e.g., NGLS.
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#48
by
joek
on 04 Apr, 2015 22:09
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There is no reason they couldn't have offered standard launch services under FAR 12, and then negotiate under FAR 15 for the additional payload specific handing requirements.
There are many reasons why that is not feasible. There is no way of separating them.
It is feasible, at least to a greater extent than in the recent past. Separation was present in the past, back when there was no ELC and "mission assurance" was a per-mission add-on. That we forgot how (or considered it unnecessary) does not mean we cannot do it--or at least do it better.
That is one reason for the current discussions over modifying the ELC. ELC is a Big Bucket that contains and obfuscates too many costs, and does not properly allocate per-mission costs--as the GAO has pointed out on many occasions.
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#49
by
pippin
on 04 Apr, 2015 23:46
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Problem is, the GAO has spanked ULA and USAF more than once because of insufficient insight into costs. ULA was specifically spanked because it did not know how much it actually cost to build a rocket (go figure). Just because you have a FAR 15 USG certified accounting system means squat IMHO.
Here's your problem: you are all asking for conflicting things here. On the one hand you want fixed prices, long-term thinking, risk transfer to the launch supplier and so on.
And on the other hand you are asking exactly for the opposite: deep insight into cost structures down to the smallest screw and accountability for every action taken.
But these are in conflict. I don't know how many have you have worked on programs like that but for the ones I've been in I bet (actually it's not a bet, I've done some costing at times, too) there's almost as much cost going into documentation, accounting, supervision and other forms of red tape as into the actual hardware and operations. This is exactly what makes those cost-plus contracts so expensive: the need to keep reference of every single bit of cost.
OTOH is you want a fixed price and risks being taken by the contractor, then some of that risks will materialize and some stuff might be unnecessary but you standardize on it or you just do something because you do NOT want to calculate how much it costs to not do it. In such a scenario you will not be able to hold a supplier accountable for each and every item on your cost sheet. I'd bet that will be something eventually coming to haunt SpaceX, that after they win some business on low price they'll be asked to being held accountable on how they arrive at that cost and that alone will drive costs. It's a huge issue because it will not only hurt their cost structure for government launches, implementing more accounting doesn't stop on part of your business.
And then there's another thing: you are discussing a lot about what would change under competition but there is nothing like that in sight. You don't have competition in a duopoly as much as you don't have competition in a monopoly. You would have to have may suppliers so that you can afford to not give business to some of them to let it have any effect. Just adding a second supplier, even if cheaper, doesn't mean you get competition here because if you simply chose the lower cost bid your other supplier goes out of business and there goes your competition.
You might end up with a cheaper supplier at that point but you just run into the next monopoly. And if you want to avoid it you have to give some business to both which is both against your sourcing practices (you have to accept the higher bidder, too) and it means you again do not really drop a supplier on price,
Let's face it: this is monopoly business because you have very limited demand for very specialized services on very specific and highly capital intensive products. And it's going to stay that way, Spacex or not.
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#50
by
joek
on 05 Apr, 2015 00:46
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Here's your problem: you are all asking for conflicting things here. On the one hand you want fixed prices, long-term thinking, risk transfer to the launch supplier and so on.
And on the other hand you are asking exactly for the opposite: deep insight into cost structures down to the smallest screw and accountability for every action taken.
You are mixing past, present and future. No one has asked for cost down to the "smallest screw and accountability for every action taken". What has been asked for is a reasonable understanding of what it actually costs to build what ULA is building--which ULA was not able to provide. And to separate the cost of the LV from other other ELC-related costs, such as mission assurance, which ELC has obfuscated.
Did ULA have a reasonable understanding of their supplier costs? No, they did not--which was the reason for the "should cost" review conducted by the DOD. E.g., could ULA provide credible supplier engine costs data? No, they could not (not exactly the "smallest screw"). Those costs were suppose to have been certified under FAR 15--yet ULA and USAF by their own admission could not accurately account for them.
That is flatly and completely inexcusable. This has nothing to do with competition, and everything to do with an object failure of ULA--or more properly ULA+DOD--to accurately understand and account for costs. Again, this is not a new issue; GAO has been hammering on this since at least 2008.
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#51
by
pippin
on 05 Apr, 2015 01:05
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Did ULA have a reasonable understanding of their supplier costs? No, they did not--which was the reason for the "should cost" review conducted by the DOD. E.g., could ULA provide credible supplier engine costs? No, they could not (not exactly the "smallest screw"). Those costs were suppose to have been certified under FAR 15--yet ULA and USAF by their own admission could not accurately account for them.
Sure, that's exactly what I mean with "down to the last screw". Because all that certification down to the supplier level across different countries and accounting standards and so on COSTS ACTUAL MONEY. You don't get it for free.
After all, what has that dispute with the engine been about? It's not been about HOW MUCH these engines cost. That's known. The question is whether that cost was REASONABLE under accounting standards or whether they should have had some other price because somewhere down the supply chain for that engine someone might have marked up too much. Doesn't matter that those Russian engines were actually cheaper than their US counterparts, all that matters is whether they meet accountability rules and certified costing standards.
And it's exactly these kind of rules that generally make government contracts so expensive because they prohibit you from taking entrepreneurial decisions on any level. You can't just go out, when you've got to solve an issue or source a new part or something and just _buy_ something to save time or development cost or something, no you have to make sure that this process of _just buying_ something meets accountability standards, that the supplier uses a certified costing scheme, that you got enough competing offers or have your form sheets ready if you need to explain why you chose a single source and so on. This drives costs.
Granted: this is always an optimization issue. If you just keep spending without accountability costs can quickly get out of control, too, which is why you often see similar types of red tape in private industry sectors, too. But the difference is: there it's a management decision whether or not you implement an extensive controlling scheme and when you want to run a crash program, or you do something entirely new you often decide to forgo it because you know this will save you money overall. Or hope so.
But you can't do so if then later you are being held accountable for all that by your customer. That's why things like fixed prices, "competitive sourcing" etc. are in deep conflict with deep cost oversight.
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#52
by
Kabloona
on 05 Apr, 2015 02:38
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You might end up with a cheaper supplier at that point but you just run into the next monopoly. And if you want to avoid it you have to give some business to both which is both against your sourcing practices (you have to accept the higher bidder, too) and it means you again do not really drop a supplier on price,
I don't share your concern about another monopoly, or even a duopoly that fails to result in cost savings to the Government.
The Secretary of the Air Force has already said in public she's worried about a de facto SpaceX monopoly in the 2019-2022 time frame when ULA has to abandon the RD-180 but NGLS is not yet certified. Why? Because the Air Force does not want to get caught in this monopoly trap again...either with SpaceX or ULA.
So they adjust their procurement structure to keep both providers viable, and incentivize to keep them competitive.
And even if SpaceX did end up with a monopoly, they'd still be a less expensive monopoly than ULA, because Musk does genuinely believe that launches should cost the Government less than what they're paying ULA, and even the Government can't burden SpaceX's cost structure enough that a $60 M commercial launch service becomes a, say, $225 M service, to use Tory Bruno's wishful thinking cost number.
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#53
by
joek
on 05 Apr, 2015 18:18
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Sure, that's exactly what I mean with "down to the last screw". Because all that certification down to the supplier level across different countries and accounting standards and so on COSTS ACTUAL MONEY. You don't get it for free.
...
ContextYes, FAR-15 is a pain; I don't think anyone questions that. It is a necessary evil with USG sole source non-compete and cost+ contracts. ELS (EELV Launch Services) is sole source non-compete FFP. ELC (EELV Launch Capability) is cost+incentive.
FAR-15 is most onerous for programs involving R&D where, as you suggest, it can warp decisions and produce high drag and reporting costs. For mature programs the impact is less. The EELV program entered sustainment phase in 2008.
PastIn 2010 it was clear that EELV prices would increase substantially and unsustainably. Among other things: (1) the Delta IV inventory acquired in 1998 was going to run dry and there was no certified cost data under which a new contract could be based[1]; and (2) engine prices threatened to skyrocket (see attached snip).
When your only supplier (ULA) tells you prices will more than double Real Soon, you would want to understand the what and why before going into the next contract negotiation;
in fact you must given these types of contracts. The should-cost reviews were intended to accomplish that, as well as help identify what might be done to reduce costs.
One might expect that ULA, having operated under FAR-15 accounting standards for years, should have been able to produce credible cost numbers without undue effort. Unfortunately that was not the case; it took the better part of three years, culminating in the block buy contract.
PresentOne issue with ELC is that it covers costs that should properly be allocated under ELS. ELC also covers pretty much all of ULA's fixed costs. You don't need FAR-15 reporting to understand that needs to change for launch services to be competitively procured in the future. What happens with ELC we will have to wait and see.
FutureAgree there is potential danger in another duopoly. However, competitive acquisition--which requires at least two players--potentially allows for eliminating FAR-15 cost accounting requirements. (Whether that will be the case is TBD; the most recent NDAA requires a determination and we should see the decision shortly.)
In any case, I do not see how the situation could be much worse than today, or EELV costs any higher, with SpaceX entering the field. The bogey-man is not FAR-15 cost accounting standards; it is not the source of the ills that have plagued the EELV program; its contribution to EELV program costs is at best marginal.
[1] Acquired by Boeing and transferred to ULA; FAR-15 cost accounting requirements were waived:
The rationale for this decision was based on Boeing’s purchase of items from these subcontractors and suppliers under a commercial contract, and that certified cost or pricing data are not required for that type of contract. ... The waiver covered the entire lot of items that had been purchased by Boeing in 1998, comprising hardware such as engines, graphite motors and guidance systems, to build 42 common booster cores, as the prices negotiated under the large-quantity subcontracts may not have been achievable by the government at the time.
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#54
by
Coastal Ron
on 06 Apr, 2015 01:26
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The point being that there are standard costs that go into an Atlas V 501 launch, and non-standard costs, and ULA knows what those are.
We wish. Up until fairly recently costs seemed to be determined more by a dart board. Figuring out exactly what the costs are, and how to properly allocate them, is something the GAO has been harping on for close to a decade. It is still a work in progress. Yes, it sucks. Yes, no typical commercial enterprise would operate that way.
I agree that ULA has not been opaque with their costs to the U.S. Government, but my point was that ULA knows what their costs are internally. I've done internal pricing exercises with accounting where we would validate our material costs for different configurations of products, and as I've stated before a rocket is not that complicated.
Plus, it's one thing to have LIFO, FIFO and cost averaging challenges with pricing, but ULA prior to the "Block Buy" was pretty much just buying only what they had orders for, so they would very specific component pricing that they could use to roll up the overall material cost of any configuration of Atlas V or Delta IV. For instance, every SRM would be able to be traced back to a specific contract and line item that it was purchased under, with pricing.
Price rollups are not rocket science. However obfuscating that exact same information from an outside audit is an art...