NASA was focused on costs when considering options for a key contract to land astronauts on the moon again, and that played right into the hands of Elon Musk's SpaceX.
But while the contract is now awarded, the risks for both NASA and SpaceX remain high. Here's a look behind the scenes at the process by which the space agency chose the manufacturer for the landing system for its ambitious Artemis program, and what will come next for all parties involved.
The budget isn't what NASA thought it would be
NASA had originally intended to pick two winners to ensure redundancy, but SpaceX beat out Jeff Bezos' Blue Origin and Leidos Holdings' (LDOS 1.73%) subsidiary Dynetics in what turned out to be a winner-take-all $2.9 billion contract largely due to budgetary pressures.
Kathryn Lueders, the head of NASA's human spaceflight program, said in the 24-page statement explaining the decision, that the agency had to call an audible due to the quotes received for the human landing system (HLS) and the amount of money that had been allocated by Congress.
"While it remains the Agency's desire to preserve a competitive environment at this stage of the HLS Program, at the initial prices and milestone payment phasing proposed by each of the Option A offerors, NASA's current fiscal year budget did not support even a single Option A award," she wrote.
Returning to the moon as soon as possible was a priority of the previous administration, but even before November's election, it was unclear how much political support there was in Washington for that to happen on such a rapid timeline. Last year, Congress appropriated $850 million for Artemis, well short of the $3.3 billion NASA said it would take to accomplish the mission by then-President Trump's 2024 target date. In its recent budget proposal for fiscal 2022, the Biden White House only allocated $325 million to Artemis.
The good news is that with Trump's artificial deadline no longer driving the process, NASA will have more time, and could eventually add additional contractors. But with attention in Washington largely dominated by the pandemic, economic stimulus efforts, major infrastructure packages, and the many other priorities of President Biden, the budget constraints that forced NASA's hand on HLS could be a harbinger of things to come for the agency and contractors that rely on it for funding.
SpaceX takes on risk in hopes of a reward
Lueders wrote that while SpaceX's technical specs were impressive, the award came down to total price. While she did not reveal numbers other than the $2.9 billion SpaceX award, she did say that "Blue Origin's total evaluated price was significantly higher than this, followed by Dynetics' total evaluated price, which was significantly higher than Blue Origin's."
Dynetics, as part of publicly traded defense contractor Leidos, has to be mindful of margins, and arguably doesn't have the same incentive as a newcomer like SpaceX to use low prices to further establish itself with NASA. Blue Origin, though a privately held start-up similar to SpaceX, was working with Lockheed Martin (LMT 0.83%) and Northrop Grumman (NOC 1.63%) on its bid, so perhaps it also lacked the level of financial flexibility enjoyed by SpaceX.
SpaceX is also more willing to take on risks associated with the project. According to the assessment, the company "plans to self-fund and assume financial risk for over half of the development and test activities," a real plus for a budget-constrained government agency.
That will mean more pressure on SpaceX, but it fits nicely into the company's multifaceted approach to space. In addition to working with NASA and the Pentagon, the company is also developing commercial ventures including Musk's ambitious plan to build the Starship, a massive rocket capable of propelling a human mission to Mars and bringing it home again. The company's ability to spread the HLS research over a number of its other projects allows NASA to get its work done at a discount.
"I found SpaceX's significant strength for its comprehensive plan to leverage its HLS contract performance to advance a multi-faceted approach to commercializing its underlying Starship capability to be a highlight of its management proposal," Lueders wrote. "This contribution not only significantly reduces the cost to the government (which is reflected in SpaceX's lower price), but it also demonstrates a substantial commitment to the success of HLS public-private partnership commercial model and SpaceX's commitment to commercializing technologies and abilities."
The space landscape is changing
NASA raised a few eyebrows in early 2020 when it picked Dynetics and two relative newcomers as finalists for the HLS, and SpaceX's win here only serves to emphasize that the company, with its novel public/private approach, has solidified its position as a trusted NASA vendor.
SpaceX is already shuttling astronauts to and from the International Space Station, a mission it shares with Boeing (BA 2.28%), even if so far, only SpaceX has been up to the challenge. And SpaceX is present in other areas of the Artemis project, with its Starship expected to eventually be used to bring astronauts from Earth's orbit to the moon and back.
Space is seen by defense contractors as an area ripe for growth, and the Pentagon's need for ever more advanced satellites, sensors, and orbital weapons should help fuel sales for years to come. But for investors in incumbents like Boeing, Lockheed, Northrop, and even Leidos, this decision is a blow to hopes that NASA might turn into a big-budget profit center.
If nothing else, the HLS award is proof that there are a growing number of viable competitors looking for a piece of a pie that might not be as big as we once hoped. Expectations need to be adjusted accordingly.