Because now Sierra Nevada is suing them.
Well, not them, precisely. Rather, Sierra Nevada -- the third company believed to have a shot at winning NASA contracts to restart manned spaceflights, carrying astronauts to and from the International Space Station in 2017 -- has filed a "legal challenge" against NASA itself. In a press release last week, Sierra Nevada confirmed that it has appealed to the Government Accountability Office to overturn Commercial Crew awards of $4.2 billion to Boeing, and $2.6 billion to SpaceX -- and give at least one of these contracts to Sierra Nevada instead.
A principled objection
Mind you, this is not an action Sierra Nevada embarks upon lightly. As the company explains, "In its 51 year history SNC has never filed a legal challenge to a government contract award." (Sierra Nevada often refers to itself as "SNC," perhaps to reduce confusion with its namesake Sierra Nevada -- the Californian bierbrauer).
Actually, Sierra Nevada has more often been on the receiving end of such contract challenges, most notably in 2012 and 2013, when rival aerospace firm Beechcraft -- now owned by Textron (NYSE:TXT) -- tried to strip Sierra Nevada of a contract win to supply fighter aircraft to Afghanistan. That legal tussle cost Sierra Nevada more than a year's worth of delays, and lost revenues -- so the company clearly knows how serious a matter it is, to upset the timetable of a government contract awards process.
So why is Sierra Nevada upsetting the apple cart anyway?
As the company explains, NASA found each of Boeing, SpaceX, and Sierra Nevada's bids on the Commercial Crew contract to be "compliant and awardable." They crossed all the t's, dotted all the i's, and offered NASA a viable spaceship in their Dream Chaser shuttle -- a shuttle that, by NASA's own admission, scored less than 60 "points" lower (out of 1,000 points possible) on NASA's checklist for evaluating the companies' various bids.
Regardless, NASA chose to give one contract to Boeing -- despite Boeing charging $4.2 billion to run missions with its CST-100 space capsule, versus a Sierra Nevada bid of approximately $3.3 billion, and despite NASA having emphasized that price was "the primary evaluation criteria for the proposals." That's the NASA decision that seems to really stick in Sierra Nevada's craw -- not, the hiring of SpaceX to run Commercial Crew contract missions for $2.8 billion, which underpriced Sierra Nevada, but their awarding Boeing a contract for a price 27% more than what Sierra Nevada had bid.
And so, for the first time in its history, Sierra Nevada is challenging NASA's decision, and demanding that the Government Accountability Office conduct "a thorough review... of the award decision."
What does it mean for investors?
In an oblique response to Sierra Nevada's challenge, contained in a report released to The Wall Street Journal Thursday, NASA appears to justify its awarding a contract to Boeing for far more than Boeing's rivals were charging, but for the same work. According to the report, dated September 15, Boeing's Commercial Crew contract bid ranked "excellent" for "mission suitability," "technical approach," and "program management" -- better grades than its rivals earned, and enough to give NASA "high confidence" that Boeing's offering would fit the bill for Commercial Crew.
In contrast, NASA notes that Sierra Nevada's bid suffered from "technical uncertainty and schedule risk" because the Dream Chaser's hardware and software are not yet complete.
If GAO ends up backing NASA's assessment of the three companies' bids, it's entirely possible that Sierra Nevada's first appeal of a government contract award will also result in its first loss. But that's a question for the courts to decide. What we want to know as investors -- and taxpayers -- is how this kerfuffle will affect the contract the companies involved, and what it will mean for America's planned return to self-powered space travel by 2017.
The answer is... it depends. For investors, the most obvious effects are these:
- In the best case, Boeing will now have to wait a bit longer to begin earning money from its Commercial Crew contract. In the worst case, it could lose the contract entirely.
- Conversely, Boeing rival Lockheed Martin (NYSE:LMT) has partnered with Sierra Nevada on developing Dream Chaser. Lockheed Martin's prospects, therefore, just got a bit brighter, as Sierra Nevada still has a chance of winning the contract for itself and its team.
And just when might those revenues arrive? On the one hand...
- GAO regulations say that the agency is required to issue a report on Sierra Nevada's bid protest within 30 days of its filing. That would appear to make October 26 the deadline for resolving Phase 1 of this dispute.
- Sierra Nevada then gets 10 days to comment on GAO's decision.
- Then, GAO may take as many as 60 more days to issue a final decision (so we're up to 100 days post-protest, if you're counting).
And even then, the matter may not be resolved. Sierra Nevada may decide to take its challenge out of administrative proceedings before GAO, and challenge GAO's decision in a court of law.
The upshot for investors, taxpayers, and everyone else
To put all of this in context, when Beechcraft challenged Sierra Nevada's win in the Afghan fighter contract in January 2012, it took 18 months before the dispute finally ended with a decision in Sierra Nevada's favor. So conceivably, this challenge by Sierra Nevada could delay development of America's new Commercial Crew space vehicle from its hoped-for "2017" launch date, into 2018 or even 2019 -- and force NASA to continue paying Russian $70.7 million a pop for each U.S. astronaut hitching a ride on Russian rockets to ISS.
Suffice it to say, the sooner these companies put this dispute to bed, the better. And the sooner the cheaper, too.
Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin and Textron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.