SpaceX to increase price of cargo delivery to space station by 50%

[pb2000]

SpaceX took every dime NASA gave them and used it for an absolutely stunning amount of innovation, job creation and making America dominant in space again.

OrbitalATK reported quarterly profits.

Is SpaceX charging closer to market rate really a bad thing?

[francesco nicoli]

I can't believe anyone is surprised.
Since the end of 19th century we know that any commercial company with a technological advancement will set the price a iota below the best competitor and absorb whatever share of the market it can absorb. If the other company drops the prices, they will decrease their prices a iota below. It's called "competition à la Bertrand", or Oligopolistic competition. The downward price dynamics depends on the Nr. of companies able cut costs.
This means:
(1) one single reusable rocket company will have minimal market size effect since price won't decrease substantially and demand won't be stimulated accordingly. Savings translate in profits rather and are not passed to the customer (except for the iota required to beat competition).
(2) even in presence of multiple reusable rocket companies, if the N is small, the contract rounds should be very short and very frequent to actually lead sizeable downward price shifts. Once multiple providers are available, NASA should bid each single mission openly and independently. Otherwise demand is simply not frequent enough to generate sufficient price cuts due to competition.

[Rocket Science]

Still a bargain since Congress really wanted Orion to service ISS...

[DistantTemple]

I like your clear reasoned and knowledgeable arguments. So here's my opinionated and speculative 200 penny's worth... which in my opinion, contains logic... as well as some emotion!
Q1. How does CRS2 relate or contribute to SX's Goal?
Q2. Is SX being properly respected and rewarded for its fantastic progress and innovations?

Answer: SpaceX's avowed goals are to; "Make Humanity a Multi Planet Species", and do things that support that, including "dropping the cost of space launch/travel by a factor of 100".

Charging NASA 2/3 of the going rate actually goes against both of these goals. Most obviously it gives SX less money to invest in further progress, including the BFR, Mars, general R&D, and further cost reducing technologies. SX is throwing away a valuable financial resource to no purpose (according to my ongoing points below.)

It is offensive that Orbital ATK is paying dividends instead of working on reusability. (although if the space industry can support dividends it is a good sign it is healthy). If the American public can pay ATK's dividends, it can jolly well pay (towards) SX's development costs, which have a greater return in increasing the value and stature of American industry.

Charging the going rate allows other companies (more time) to invest in reusability, and justifies their prices. It is relevant that Dream Chaser is reusable, and will be a competitor/alternative provider (at this price point?) Despite EM's negative comments about wings and runways, DC is contributing to EM's overall vision of evolving space industry. (I love DC, and imagine its HSF business blossoming in the coming years). Holding the price too low is more likely to force out providers, and reduce funds for R&D. (Even if that is not immediate as prices are now fixed I think)

NASA has had SX's cheap prices, for few years, and it hasn't forced others down to its own price point. Therefore a lower SX price does not follow SX's aim of lowering launch costs.

NASA has enjoyed SX's lower costs for years, but has effectively dragged its feet, and put SX through endless trials in developing Dragon 2, and been timid and inflexible about SX's new technologies, which SX has had to scale back, causing extra work. In particular not accepting propulsive landing. This must not only have cost SX a lot in manpower, but delayed their general progress.

In the press the delays are presented as "SX and Boeing working hard to meet qualification targets", and dates "slipping to the right". But some of the slips are known to be NASA being slow to set up qualification procedures, and I bet a lot more of it is endless meetings and creating hoops for SX to jump through. Is there also deliberate delay of SX to stop Boeing being shown up as .... slow? EDIT: strikethrough. That was uncalled for and unworthy of this site.

With NASA effectively "giving SX the run-around" its damn time SX is charging the going rate.

So NASA will get discounts for used items. Good. Maybe the current price rise, is part of creating a differential and having more room to incentivize reuse of F9 and Dragon 2.

As BFS is developed and deployed, I expect NASA will be slow to qualify the BFS to dock at the ISS. So SX is likely to have a long period of maintaining the ability to fly (legacy) F9s and D2's. Getting the price right now will place SX better for that period, so they can create public pressure, and incentivize NASA and Congress, to see the light, and switch to the cheaper BFS sooner.

Last of all SX is still only getting mild respect from government and the incumbent space providers. SX is still talked about as a startup, despite F9 being the most launched rocket of any in 2017!!!! On that metric it should be "Market leader SpaceX... " not "Startup... ". And now they are building a factory to make rockets similar to Boeing's biggest airliners... that are totally reusable!

No: Right now they need to charge the market rate to get respect. SX will continue to be downplayed, and walked all over as long as it undervalues its launches.

The fastest way for SPaceX to develop its technologies, get BFR flying, get to Mars, and change the world is to come out and say "We are the best. We have the best technology. We are massively improving American industry and leadership. We are the largest provider of launches, and we are still competitive... We are the WORLD LEADERS in space launch, show us the respect due". This will give them more money to help them benefit human progress, correct perceptions, and position them to achieve their goals.   QED!
Edit grammer

[Dave G]

Also, the CRS-2 contract still requires all-new boosters, which probably adds a significant cost (or more precisely, a cost risk) given that SpaceX is planning on making fewer boosters and reusing them more often. NASA can still negotiate for reused boosters on CRS-2, and OIG recommended that NASA request a discounted cost rather than extra services in return for allowing used boosters.

I think this is the crux of the issue. 

Once Block 5 is proven, if it meets expectations for reusability, then a stock of maybe a dozen Block 5 boosters will support hundreds of launches.  At that point, SpaceX can stop building F9 boosters, and move the people make those over to building BFR.

But that plan won't work if NASA insists on using new boosters for CRS-2 missions.  So to encourage NASA to accept used boosters, SpaceX is charging them 50% more for new boosters. 

In other words, I suspect the negotiated price for CRS-2 missions with used boosters will be close to what NASA is paying now.

[Jim]

NASA has enjoyed SX's lower costs for years, but has effectively dragged its feet, and put SX through endless trials in developing Dragon 2, and been timid and inflexible about SX's new technologies, which SX has had to scale back, causing extra work. In particular not accepting propulsive landing. This must not only have cost SX a lot in manpower, but delayed their general progress.

In the press the delays are presented as "SX and Boeing working hard to meet qualification targets", and dates "slipping to the right". But some of the slips are known to be NASA being slow to set up qualification procedures, and I bet a lot more of it is endless meetings and creating hoops for SX to jump through. Is there also deliberate delay of SX to stop Boeing being shown up as .... slow?

Just stop with the unsubstantiated nonsense.     
Just another case of lowering the S/N ratio on this forum.

[AbuSimbel]

NASA has enjoyed SX's lower costs for years, but has effectively dragged its feet, and put SX through endless trials in developing Dragon 2, and been timid and inflexible about SX's new technologies, which SX has had to scale back, causing extra work. In particular not accepting propulsive landing. This must not only have cost SX a lot in manpower, but delayed their general progress.

In the press the delays are presented as "SX and Boeing working hard to meet qualification targets", and dates "slipping to the right". But some of the slips are known to be NASA being slow to set up qualification procedures, and I bet a lot more of it is endless meetings and creating hoops for SX to jump through. Is there also deliberate delay of SX to stop Boeing being shown up as .... slow?

Just stop with the unsubstantiated nonsense.     
Just another case of lowering the S/N ratio on this forum.

To me jim the only noise here is people being disrespectful with others, frankly.
He was just stating his opinion.

[DistantTemple]

NASA has enjoyed SX's lower costs for years, but has effectively dragged its feet, and put SX through endless trials in developing Dragon 2, and been timid and inflexible about SX's new technologies, which SX has had to scale back, causing extra work. In particular not accepting propulsive landing. This must not only have cost SX a lot in manpower, but delayed their general progress.

In the press the delays are presented as "SX and Boeing working hard to meet qualification targets", and dates "slipping to the right". But some of the slips are known to be NASA being slow to set up qualification procedures, and I bet a lot more of it is endless meetings and creating hoops for SX to jump through. Is there also deliberate delay of SX to stop Boeing being shown up as .... slow? Edit: line through, sorry that was uncalled for, and not worthy of this site.

Just stop with the unsubstantiated nonsense.     
Just another case of lowering the S/N ratio on this forum.

You are right  it does increase the noise/signal ratio. And I didn't provide any substantiation. The following isn't much: parabolicarc.com

NASA and the Obama Administration have blamed Congressional cuts for delays in the program, which was originally schedule to begin flying in 2015. The under funding has led to additional costs as NASA has been forced to buy more Soyuz seats from the Russians.

In a report released last month, the NASA Inspector General reported that delays in the program over the past two years under the CCtCap contracts are due to SpaceX and Boeing running into technical challenges with their vehicles. Further, NASA has experienced delays in its safety review process.

My bold.
The second/last point is a particular signal I have noticed before, in the noise of reporting. This justifies me bringing it up and as I said at the top this is an emotive piece. As quite a few posts in this thread are.

However a lot of my post argues the logic that SX doesn't serve its goals by keeping its prices below the market. PR((and emotion) developing people's perception of SX and feelings of acceptance of a vision for Mars) is part of SX's goals, and the forgotten signal that NASA caused delays by not having a safety review process up and running sufficiently quickly, is relevant to my argument. (although I admit "dragging feet" is over the top without further evidence)

EDIT... Big Quote original source NASA-2016ManagementChallenges.pdf

... We also reported that although
Boeing and SpaceX were making steady progress in the initial stages of development, the Program faced
several obstacles, including an unstable funding stream, aligning cost estimates with Program schedule,
providing timely requirement and certification guidance to Boeing and SpaceX, and coordinating with
other Federal agencies that have a stake in manned space flight. We concluded that failure to address
these challenges in a timely manner could significantly delay the availability of commercial crew
transportation services...

[envy887]

...
Just stop with the unsubstantiated nonsense.     
Just another case of lowering the S/N ratio on this forum.

You are right  it does increase the noise/signal ratio. And I didn't provide any substantiation.

Jim is referring to this part:

...Is there also deliberate delay of SX to stop Boeing being shown up as .... slow?

There is no reason to even suggest that.

[DJPledger]

SpaceX have increased ISS cargo delivery prices to fund BFR dev.

[DistantTemple]

Jim is referring to this part:

...Is there also deliberate delay of SX to stop Boeing being shown up as .... slow?

There is no reason to even suggest that.

You are right.. that was out of order... This site is great for its fair, and reasoned debate, and its avoidance of abuse, and negative comment. I'd edit it out but I don't know if that's etiquette!

Edit: Thinking about it I expect there has had to be some scrupulous fairness and deliberate avoidance of any such unfair practice.

[kevinof]

Don't be silly, or just biased. The reasons they increased the prices are in the PDF. End of.

SpaceX have increased ISS cargo delivery prices to fund BFR dev.

[testguy]

SpaceX can not charge as much as the market will bear on a government contract.  SpaceX's bid is to the Government Statement of Worknad (SOW) its bid must be consistant with the requirements in the requirements within the government Specification.  It is the provided government documents that will drive the price along with a resonable profit.  The government sends in an audit team, prior to a cvontract award, to do fact finding on the contrctor bid.  SpaceX must justify its bid and/or negotiate a price.  The best way to lower costs is to adjust the SOW and Specification.  If the SOW specifys new booster for every flight that will drive SpaceX's cost and be reflected in its price to the government.  Allow reusability to reduce price.  Having 3 contractors reduces the efficiency of each because you are reducing the scale.  You can't have the same unit pricing on a car if you produce 500 units v. 500,000.

SpaceX has already said it is going to fund BFR/S largely from profits generated from Falcon 9 & Heavy flights.  This is nothing new.

[Joffan]

"SpaceX to increase price of cargo delivery to space station by 50%"


... and still be comfortably below any competitor price. This is especially true when accounting for delivery in both directions, which is often overlooked in articles - every SpaceX mission is like two missions if you regard upmass and downmass as separate services.

[joek]

It’s not a cost-plus contract. That means SpaceX can charge higher prices.
...

Up to a point.  CRS-2 is an IDIQ FFP contract.  Providers can bid lower but not higher than they commited their proposal--which tends to increase prices if there is future uncertainty (see below).  Presumably the guaranteed mission prices have already been baked.  Beyond that it is going to be competitive bidding on task orders by all qualified providers.

Reasons for cost increases provided by SpaceX on p28:

SpaceX officials said its increased prices are due to new CRS-2 contract terms that required a redesign of the spacecraft’s interior to increase the useable cargo volume by 30 percent, longer duration missions, accelerated cargo loading and unloading time frames, and quicker access to time-critical research cargo after the Dragon 2 returns to Earth.  They also indicated that their CRS-2 pricing reflected a better understanding of the costs involved after several years of experience with cargo resupply missions.  Further, they said their proposed prices took into account the uncertainty at the time of providing fixed per-mission pricing without knowing whether NASA wanted them to fly the Dragon 1 or Dragon 2, which would require keeping open two production lines.  Other factors, such as the new requirement for contractors to carry up to $100 million worth of insurance per flight and reduced discounts due to fewer missions flown contributed to SpaceX’s increased CRS-2 pricing.

Important point there... Some of those services were/are optional (e.g., late load and fast return).  While they may be "contact terms" as presently cast, some are more properly described as additional capabilities which NASA chose to exercise at additional cost.

That NASA chose to exercise those capabilities, impose related or new requirements, or the need for providers to bank reserves due to NASA's uncertainty (typical of IDIQ FPP contracts, and all of which comes additional cost) should not be considered a fault of the providers.  This is business-as-usual.  The rest appears to be mostly posturing.

[joek]

SpaceX can not charge as much as the market will bear on a government contract.  SpaceX's bid is to the Government Statement of Worknad (SOW) its bid must be consistant with the requirements in the requirements within the government Specification.  It is the provided government documents that will drive the price along with a resonable profit.  The government sends in an audit team, prior to a cvontract award, to do fact finding on the contrctor bid.  SpaceX must justify its bid and/or negotiate a price.  The best way to lower costs is to adjust the SOW and Specification.  ...

In this case, yes they can.  CRS-2 is a commercial goods and services contract.  Providers of such do not have to justify squat; there is no concept of "reasonable profit" for such contracts (unlike, e.g., sole source or cost+X).

All the providers need to win an award is show that they can meet the contract requirements at lower cost than the competition; see Federal Acquisition Regulations (FAR) Part 12 (among others).

And they will not be hounded by packs of auditors.  FAR is quite specific on what evidence the Government can demand, and what providers must provide, in these situations.  From a FAR perspective, CRS-2 is marginally different than USG contracts for buying toilet paper, hotel rooms, or airplane seats.

[Ludus]

I have to say this surprised me. With the block 5 bringing more reusability, I thought prices would at least stay the same, not increase so much.

https://arstechnica.com/science/2018/04/nasa-to-pay-more-for-less-cargo-delivery-to-the-space-station/

One of the main reasons for this increase, the report says, is a 50-percent increase in prices from SpaceX,

the inspector general’s report notes the following about SpaceX’s reasoning: “They also indicated that their CRS-2 pricing reflected a better understanding of the costs involved after several years of experience with cargo resupply missions.” This suggests the company either under-bid on the first round of supply contracts or failed to achieve some of the cost savings it had hoped to achieve.

From the Ars Technical story:

SpaceX and Orbital ATK are expected to fly 31 supply missions between 2012 and 2020, the first phase of the supply contract. Of those, the new report states, SpaceX is scheduled to complete 20 flights at an average cost of $152.1 million per mission. Orbital ATK is scheduled to complete 11 missions at an average cost of $262.6 million per mission.

So even with a 50% increase in the new contract, SpaceX may still be the lowest cost supplier of the three.

[Oli]

The company supposed to allow people to go to Mars for peanuts increasing their prices by 50pct? Pretty significant.

Yep. They're now charging ~$230m for a cargo and ~$400m for a crewed flight (excluding launch), BFR will cost several times that much, everything else is wishful thinking.

[envy887]

The company supposed to allow people to go to Mars for peanuts increasing their prices by 50pct? Pretty significant.

Yep. They're now charging ~$230m for a cargo and ~$400m for a crewed flight (excluding launch), BFR will cost several times that much, everything else is wishful thinking.

I don't think that's accurate excluding launch. Launch (on a new booster every time) is part of the package, separate costs are not detailed anywhere that I know of.

Crew Dragon only has 2 flights per year. If BFR only flies twice per year, it will cost at least that much, but that rate is not sustainable - it will either fly much more (and lower cost per flight), or not at all.

[Brovane]

SpaceX officials said its increased prices are due to new CRS-2 contract terms that required a redesign of the spacecraft’s interior to increase the useable cargo volume by 30 percent, longer duration missions, accelerated cargo loading and unloading time frames, and quicker access to time-critical research cargo after the Dragon 2 returns to Earth.  They also indicated that their CRS-2 pricing reflected a better understanding of the costs involved after several years of experience with cargo resupply missions.  Further, they said their proposed prices took into account the uncertainty at the time of providing fixed per-mission pricing without knowing whether NASA wanted them to fly the Dragon 1 or Dragon 2, which would require keeping open two production lines.  Other factors, such as the new requirement for contractors to carry up to $100 million worth of insurance per flight and reduced discounts due to fewer missions flown contributed to SpaceX’s increased CRS-2 pricing.

I think what was left unsaid, CRS-1 was SpaceX's first big Govt contract and SpaceX's first big contract win, they were very aggressive when they bid on the contract.  It was the contract that rescued SpaceX back in 2008 and somewhat Tesla.  In early 2009, Musk borrowed $20M from SpaceX and then turned around and loaned that money to Tesla.  That CSR-1 contract was very much a must have.  Now SpaceX has a long list of vendors and they are established player in the aerospace field.  They don't have to be as aggressive in pricing early customers willing to take a risk on a new company.