McCain: Rocket Deal ‘Smacks of Cronyism’

Sen. John McCain, said the Air Force's recent contract with a Lockheed-Boeing joint venture prevents potential new competitors from bidding for some of the work.

A leading Republican senator criticized the U.S. Air Force’s multi-year contract for rocket launches from a Lockheed Martin Corp.-Boeing Co. joint venture, saying it smacks of cronyism.

Sen. John McCain, R-Ariz., questioned the service’s recent multi-billion-dollar, sole-source contract with United Launch Alliance LLC for 36 medium- and heavy-lift launches of military satellites through fiscal 2017, saying it prevents potential new competitors such as Space Explorations Technologies Corp. from bidding for some of the work.

“This smacks of the cronyism that we saw in the first tanker contract that ended up in a major scandal,” McCain told the Defense Department’s top weapons buyer, Frank Kendall, on Wednesday during a hearing of the Senate Armed Services Committee.

He was referring to the Air Force’s initial deal with Chicago-based Boeing for a fleet of new refueling aircraft. The agreement was canceled in 2004 amid a scandal involving Boeing’s chief financial officer, Michael Sears, who offered a job to the Air Force’s top procurement official, Darleen Druyun, during negotiations. Both were sentenced to serve jail time.

McCain added, “And I’m not saying that it is, but it doesn’t make any fiscal sense — the decisions that you have just made by cutting down on competitive launches.” The senator has already asked the Pentagon’s inspector general to investigate the terms of the agreement.

Kendall defended the so-called block buy contract as helping to lock in prices and curb rising costs in the program, known officially as Evolved Expendable Launch Vehicle, or EELV. He described it as the result of “very successful” negotiations with the contractor. “That contract is at a much better price than we had anticipated in our previous budgeting,” he said. “We saved on the order of $3 billion.”

The Air Force plans to buy three EELV launches in fiscal 2015, which begins Oct. 1, for a $1.38 billion, or about $460 million per liftoff, according to budget documents. SpaceX argues it could provide the same service for a quarter of the price.

Since its inception in the mid-1990s, the launch program is estimated to cost a total of $70 billion through fiscal 2030. The cost surged almost 80 percent in the past year alone — accounting for the vast majority of the Pentagon’s overall rise in weapons acquisition costs, according to a March report from the Government Accountability Office, the investigative arm of Congress. The costlier price tag was mostly due to an increase in expected launches.

SpaceX, headed by billionaire Elon Musk, last week sued the Air Force to challenge the block buy agreement and open more launches to competition. The company says the deal effectively boxes it out of military business, especially because the agreement includes medium-sized GPS satellites that could fit inside its Falcon 9 rockets. The company is seeking but hasn’t yet received certification to carry national-security payloads.

SpaceX has also sought to capitalize on the rising political tensions between the U.S. and Russia by pointing out that one of ULA’s boosters, the Atlas V, uses the RD-180 engine made by the Russian company NPO Energomash — and that Dmitry Rogozin, the head of Russia’s space sector, was recently sanctioned by the White House following Russia’s invasion of Ukraine’s Crimean peninsula.

McCain made a similar argument. “The motor made by the consortium is made in Russia, right?” he said. “That alone — that Vladimir Putin is responsible for our rocket motors — should be reason why we should be looking desperately for competition rather than narrowing it.”

Kendall said he put the acquisition program under his control to ensure competitive launches. He also said he has worked to expedite the certification process for new entrants such as SpaceX. “Competition is the single best tool that we have in the department to get costs out of our programs,” he said.

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Brendan McGarry
Brendan McGarry is the managing editor of Military.com. He can be reached at brendan.mcgarry@military.com. Follow him on Twitter at @Brendan_McGarry.