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DEPUTY SECRETARY OF DEFENSE

1010 DEFENSE PENTAGON


WASHINGTON, DC 20301-1010

JAN 2 G 2015
The Honorable John McCain
Chairman
Committee on Armed Services
United States Senate
Washington, DC 20510
Dear Mr. Chairman:
Thank you for your December 8, 2015, letter regarding the Evolved Expendable Launch
Vehicle (EELV) Program. I am responding on behalf of Secretary Carter.
The Department is committed, as I know you and the Committee are, to ensuring assured
access to space for the United States. That access should ideally be provided by commerciallyviable, competitive, domestic launch service providers, without the use of Russian engines.
Furthermore, the Department strongly desires competition between launch service providers as a
way of controlling cost and spurring innovation. We have already seen significant savings
derived from just the mere fact of impending competition. We therefore view competition as the
key to our success and dominance in space now and for the future.
However, irrespective of the launch engine or provider, reliable launch capability remains
a prerequisite for all of our critical national security space capabilities including global
awareness, communications, strategic missile warning and indications, and position, navigation,
and timing information vital to land, air, and sea operations. History proves that launch service
cannot be taken for granted. You may recall a string of launch failures in the late 1990's that
resulted in the loss of three national security payloads and more than $5.0 billion worth of
hardware. At that time, national security launches were suspended for nearly eight months while
failure investigations were conducted. This experience demonstrated the importance of having
multiple pathways to space. As such, the Department's number one priority in space launch is
Assured Access to Space, as codified in 10 U.S.C. 2273 . This imperative requires that we
preserve redundancy in our launch system by maintaining access to two highly reliable launch
systems.
At the same time, the Department recognizes that we need to end our current dependency
on Russian engines as quickly as possible. Consistent with our plan to transition away from the
use of Russian RD-180 engines, the Department intends to work with the commercial launch
industry through tailored public-private partnership agreements that will ensure the Department
has at least two viable launch service providers for the foreseeable future. Our Fiscal Year (FY)
201 7 budget request will reflect this approach, which we believe is the most economical and
quickest way of removing the dependency on the RD-180. The results of our requests for
information to industry confirm the viability of this approach. Developing a specific propulsion
system or engine would, in all likelihood, only benefit one launch service provider and will
likely be more expensive than our planned approach. We plan to release draft requests for
proposal (RFPs) for public private-partnership arrangements to industry for comment in the next
few months.

In the meantime, due to congressional limitations placed on program funding and in order
to provide for technical progress on future propulsion systems, we are in the process of awarding
multiple research and development Other Transaction Agreements (OTAs) designed to mature
the rocket propulsion system (engine) technology base. Two OTAs for prototype systems have
been awarded already and more will be awarded shortly using rocket engine development
appropriations. We expect that some of this work will transition into the launch service provider
public-private partnership arrangements we intend to award in FY 2017. To avoid transition
delays and to introduce new domestic launch capabilities without the RD-180 engine as soon as
possible, the Department must shift from propulsion development to launch capability
development as soon as possible. Accordingly, the Department would greatly appreciate your
committee's support for our planned launch service development activities.
We do not believe that our space launch capability can realistically transition completely
off of the RD-180 prior to the 2021-2022 timeframe. Therefore, the Department has continued
to seek to preserve our assured access to space even if doing so requires the use of RD-180
engines, subject to any restrictions placed in law. Furthermore, if it is deemed necessary in order
to maintain two viable sources of launch services, sole source allocation of some launches will
be one of the options examined. We would need to be confident an allocation was required, and
it would be the minimum number of launches required to keep a second launch service provider
viable during the transition period.
With this as background, your letter raised a number of serious concerns. The primary
one centered on the purported reasons underlying the publicly announced decision by the United
Launch Alliance L.L.C. (ULA) to decline to submit a proposal in response to a competitive RFP
issued on September 30, 2015, by the U.S. Air Force (Air Force) for the launch of the Global
Positioning System Satellite 111-2 (GPS 111-2). ULA's decision not to submit a proposal was
based on its internal business and management deliberations, and the Department has no way to
compel ULA to bid. Nevertheless, your letter mentioned several reasons that you understand
ULA gave for not proposing and asked for DoD's views ofULA's ability to continue to perform
its current space launch service contract and compete for future contracts. Our responses to the
specific points identified in your letter are set forth below.
Your letter questioned ULA's claim that it could not submit a proposal that complied
with the RFP because it did not have the cost accounting systems needed to certify that funds
from other government contracts would not benefit the GPS III-2launch mission. The GPS 111-2
launch service RFP included a certification requirement that, except for a portion of the
allowable costs associated with the EELV Launch Capability (ELC) line item under ULA's
current sole source space launch service contract, "none of the costs of the effort required in the
performance of [the GPS 111-2] launch service contract will be charged to any other Government
contract." This was to provide assurance that no potential offeror, including ULA, had an unfair
competitive pricing advantage. We disagree with any statements made by ULA that it did not
have the accounting systems in place needed to make this certification. The DoD and Air Force
met with ULA several times, both before and after the solicitation was issued, regarding the use
of the certification provision and ULA's accounting treatment ofELC costs. We have always
contended that ULA had the ability to provide the required certification, and believe that ULA
would now be willing to make this certification, presuming it will be a requirement in future
EELV competitions.

Your letter also asked DoD to audit ULA' s business systems to ensure that ULA will be
able to meet its ongoing contractual accounting requirements under its cost reimbursable type
contracts. Our assessment is that ULA's business accounting systems continue to comply with
the applicable Cost Accounting Standards (CAS). The Defense Contract Audit Agency
completed an audit of ULA' s accounting system as recently as March 31, 2015. Based on the
audit, as well as its own assessment, the Defense Contract Management Agency made a
determination on November 6, 2015, to approve ULA' s accounting system. Therefore, ULA is
able to meet its ongoing contractual commitments and ULA is not precluded from bidding on
future EELV competitive RFPs due to CAS compliance problems.
Finally, you asked for DoD ' s assessment ofULA's assertion that it did not have enough
RD-180 engines left in its inventory to respond to the GPS III-2 RFP given the restrictions on the
use of Russian made rocket engines in section 1608 of the Carl Levin and Howard P. "Buck"
McKeon National Defense Authorization Act (NDAA) ofFY 2015 (section 1608), particularly
since ULA had in its possession five engines that fall within an exception to section 1608. DoD
does not have contractual control over ULA' s internal allocation ofRD-180 engines for future
launches that are not on contract, and therefore ULA is in the best position to provide detailed
information relating to the timing ofULA' s assignment ofRD-180 engines. We understand that
ULA seeks to minimize the inventory it carries and the time between engine testing and launch
because long-term storage of RD-180 engines adds risk to space launch missions. Given this
understanding, along with the engine production timelines and launch manifest, the Department
has no reason to believe ULA's decision to assign the five engines to support its current manifest
was early to need. The Administrator ofthe National Aeronautics and Space Administration
concurs with this finding. However, this may no longer be an issue since the FY 2016 NDAA
provides for the use of four additional engines without a waiver to section 1608. We also
understand that ULA has ordered another 20 RD-180 engines, so there should be no immediate
concern about ULA' s access to RD-180 engines.
To summarize, the Department remains committed to assured access to space through at
least two viable commercial space launch providers. We maintain a strong desire for
competition as a means to control cost and encourage innovation. Additionally, we are moving
as quickly as we can to end our need to rely on space launch services using the RD-180 engine,
and we believe a public-private partnership with launch service providers is the best means to
that end. We have consistently taken these positions and they are based solely on our need to
safeguard our nation' s space launch capability. Finally, we are not aware of any constraints that
would preclude ULA from submitting a proposal in response to an RFP for any upcoming
competitive EELV launches; ultimately, however, such a decision is one for ULA to make.
We welcome your continued interest in the EELV Program and in ensuring the nation' s
ability to launch critical military and intelligence satellites into space while not rewarding
Russian aggression. We look forward to working with you on this important national security
issue going forward.
Sincerely,

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