Concept of Privatization of the Space Shuttle Program (Executive Summary)


Excerpt from Concept of Privatization of the Space Shuttle Program, 28 September 2001, NASA JSC (Full report - Adobe Acrobat)

Concept of Privatization of the Space Shuttle Program
Ronald D. Dittemore
Manager, Space Shuttle Program
September 28, 2001

PREFACE

The contents and considerations relative to the privatization of the Space Shuttle Program (SSP) contained in this document are the results of comprehensive reviews conducted from June through September 2001. Participants included: NASA representatives from each of the NASA space flight Centers ((Johnson Space Center (JSC), Marshall Space Flight Center (MSCF), Kennedy Space Center (KSC), and Stennis Space Center (SSC)); NASA Headquarters (HQ); and the United Space Alliance contractor. Team membership is provided in Appendix A. For the purposes of developing a concept for privatization, five specific areas of emphasis were identified. These areas of emphasis address specific topics necessary for successful implementation of SSP privatization. A set of criteria, previously established by the Associate Administrator, Human Exploration and Development of Space (HEDS), was utilized to guide the discussions (reference Appendix B).

1. SAFETY: Maintaining Critical Checks and Balances, led by Mr. Ralph Roe

2. SAFETY: Independent Assessment, led by Mr. William Harris

3. MERGER: Relationships, Interfaces, and Asset Management, led by Mr. James Costello

4. CIVIL SERVANT TRANSITION: Transition of Critical Functions and Expertise, led by Mr. Ronald Dittemore

5. CONTRACT STRUCTURE, led by Mr. Randy Gish

Privatization represents a significant departure from the way NASA has typically managed programs and provides a new avenue for increased involvement of private industry in human space flight. It establishes increased private industry accountability for human space flight and enables future commercialization opportunities.

This document identifies concepts for the privatization of the SSP. Additional work is required to develop a detailed implementation plan.

Any questions or comments regarding the concept contained in this document should be directed to Mr. Ronald D. Dittemore, Manager, Space Shuttle Program.

Concept of Privatization of the Space Shuttle Program

1.0 Executive Summary

1.1 Vision

Establish private industry accountability for Space Shuttle operations, combining the experience of NASA and private industry to form a strong company that maintains and develops the skills and experience required for safe, efficient, long-term Space Shuttle operations and future human space flight operations International Space Station (ISS), next generation reusable launch vehicles, exploration, etc.

1.2 Objectives

1. Preserve safe and successful operations of the Space Shuttle for the next 20 years, including the development and infusion of new technology into the fleet.

2. Privatize Space Shuttle operations consistent with the President's "A Blueprint for New Beginnings, A Responsible Budget for America's Priorities" and the NASA Strategic Plan.

3. Establish private industry accountability for human space flight operations, enabling future commercialization opportunities.

1.3 Why Privatize?

The safety of the Space Shuttle Program (SSP) is dependent upon strong check and balance processes. These processes are integral to the structure of the program and must be maintained in order to safely conduct space flight operations. Just as process drift or creep can affect the capability of hardware components, organizational requirements and responsibilities can also drift and significantly affect established checks and balances critical to sustained safe operations. Erosion of critical skills and experience through attrition and personnel change can result in similar impacts.

Since 1993, the NASA SSP civil service workforce has been reduced nearly 50 percent, resulting in a significant loss of skills and experience. The NASA skill base continues to erode as more functions transition to the Space Flight Operations Contract (SFOC).

For the last 5 years, the SSP has approached privatization through a series of contract consolidations. The transition from NASA oversight to insight associated with these consolidations, has evolved far enough in the last several years to recognize that continuing transition, combined with the continuing loss of NASA skills and experience, will result in serious erosion of checks and balances within the program, critical to safety and mission success. Continued consolidation utilizing the existing approach results in a serious threat to safety and mission success. A different approach is required to sustain safe and successful operations for the next 20 years.

Additionally, existing contracts are structured such that contract length and terms significantly influence the contractor to make short-term, profit motivated decisions. An overemphasis on profit can result in program weakness with reduction of critical skills and erosion of checks and balances, biasing program and project decisions. Privatization must address accountability and long-term sustainability, redirecting the profit motive to allow long-term investments and supportability to be a strong factor in decision making.

1.4 What is Privatization?

The success of the SSP is due to the complementary skills and experience of the NASA and contractor workforce. Individually, neither the contractor nor NASA has the necessary expertise and required skills to operate the SSP. However, collectively, the requisite skills and experience exist to maintain the safety and viability of the program. A hand over of government functions to a private company without providing the associated necessary skills and experience is a recipe for failure. The continued reliance of the prime contractors on NASA combined with the continuing erosion of NASA skills and experience is a serious threat. For the SSP to remain safe and viable, it is necessary to merge the required NASA and contractor skill and experience bases. Anything less than a FULL merger of the identified functions results in a continued threat to safety and mission success. The merger of skill bases, in addition to those already transitioned to SFOC, involves the following functions, representing approximately 700 - 900 civil servants:

1. Astronauts, including the flight crew members that operate the Space Shuttle
2. Space Shuttle Program and project management, including the orbiter, space shuttle main engine (SSME), reusable solid rocket motor (RSRM), external tank (ET), solid rocket booster (SRB), and extravehicular activity (EVA).
3. Mission operations, including the flight directors and flight controllers.
4. Ground operations and processing, including the launch director, process engineering, and flow management.

Privatization shifts Space Shuttle operational accountability and requirements ownership from NASA to a private company. If NASA continues to retain asset ownership and indemnify the private company, the role of NASA in day-to-day Space Shuttle operations is greatly reduced. NASA will still maintain a strong presence in assessing Shuttle safety through independent assessment of technical issues/concerns, resulting in a NASA safety commit-to-flight Go/No Go determination at the Flight Readiness Review (FRR) chaired and conducted by the private company.

NASA

Asset ownership (to be established)
Indemnify private company
Safety - independent assessment/insight
Contract/Budget
Technology development
Payload manifest determination

Private Company

Accountable
Requirements owner
Safety - direct accountability
Program/hardware element management
Mission operations
Ground operations/processing
Payload customer interface
Sustaining/supportability
Astronaut - Space Shuttle flight crew
Asset ownership (to be established)

The following address specific topics necessary for successful implementation of privatization:

1. Safety: A strong independent safety organization, within the private company, reporting to the Chief Executive Officer (CEO)/Chief Operating Officer (COO), is required to maintain program safety, viability, quality, and mission assurance. Additionally, privatization of Space Shuttle operations must include the Space Shuttle astronauts who operate the Space Shuttle to provide a strong safety and mission assurance check and balance. Astronaut ownership of program/project decisions, in addition to being an integral owner ofsafety and mission assurance (SMA) decisions, significantly enhances the safety of the program and provides a strong check and balance.

NASA will continue to maintain a strong independent assessment safety function, providing technical insight through surveillance and independent assessment. A healthy tension must be maintained between the private company and NASA within the SMA arena to ensure overall safety of the program. Additionally, independent reviews by the Aerospace Safety Advisory Panel (ASAP) and other appointed panels will continue as an essential ingredient to overall SMA.

2. Checks and Balances: The existing check and balance system within the SSP consists of established, healthy tension between program organizational elements responsible for hardware design and the elements responsible for operations and processing. Establishing an organizational structure in which vehicle operations and processing responsibilities are separate from vehicle hardware design, production, and sustaining engineering is critical in maintaining a healthy tension across the program.

A check and balance system is also maintained today between NASA and prime contractors. NASA project management and engineering/operations skills and experience complement the prime contractor workforce skills. Again, healthy tension exists that challenges assumptions to test results, procedures, processes, problem disposition recommendations, and planned work. This tension is an essential ingredient in today's program structure and constitutes a necessary check and balance process in the critical safety equation. The private company must establish a structure that maintains these checks and balances.

3. Profit Motive: Existing Space Shuttle contracts focus heavily on cost incentives and sharing of under-run for profit. An overemphasis on profit can bias decisions, resulting in prioritization that creates program weakness with reduction of critical skills and erosion of checks and balances. Privatization implementation needs to redirect the profit motive, allowing it to be a factor but not the decisive influencing criteria. Incentives and accountability must be established to ensure safe operations, implementation of upgrades, and investment in program infrastructure and supportability.

Profit reinvestment and company competitive proposal activities should not be restricted. Additionally, executive compensation and incentives should be structured to place emphasis on safety, effectiveness, and program viability, replacing an emphasis on maximization of fee to the company.

It is the intent of Space Shuttle privatization to expand the business base of the private company responsible for Space Shuttle operations to more than just Space Shuttle operations. It is envisioned that the private company will be a strong competitor for privatized ISS operations. Additionally, because the private company will have a strong resident core competency in human space flight operations, it is envisioned that the private company will be a strong competitor for future space operations contracts (next generation reusable launch vehicles, and Moon, Mars, or other exploration), both human space flight and nonhuman ventures.

4. Astronaut Selection/Management: Privatization of Space Shuttle operations must include the flight crew members, who operate the Space Shuttle, to provide a strong safety and mission assurance check and balance. Flight crew members will be integrated within the private company to provide opportunities for astronauts to manage and gain experience in company decision making. Astronaut selection and flight assignment will be the responsibility of the private company. Utilization of military astronauts may continue with the establishment of an agreement between the private company and the Department of Defense (DOD).

5. Civil Servant (CS) Transition: Civil servant transition to the private company is required in order to provide the skills and experience necessary for safe Space Shuttle operations. Specific functions and associated CS will be merged with the contractor workforce. All CS associated with targeted functions will be encouraged to transfer with the function.

In order to achieve the necessary merger of NASA skills and experience within the private company, the CS must be incentivized to transfer and adequately compensated to account for any change of benefits. The following considerations must be addressed:

a. Compensation: Compensation must be comparable.
b. Benefits: Retirement plan and annuity, health benefits, leave, etc. must be compensated in order to keep benefits commensurate with Government benefits.
c. Job Security: A period of time established with no termination without cause.
d. Post employment restrictions: Restrictions must be removed to allow key personnel with critical skills and experience to transfer.
e. Incentives:
1) Additional years of service credit
2) Additional years to age credit
3) No penalty for early retirement
4) Buyout
5) Signing bonuses.

Additional cost will be incurred to establish privatization. These costs must be recognized and funding provided.

6. NASA's Role After Privatization: The primary role for NASA in Space Shuttle operations after privatization is implemented will be to provide an SMA independent assessment of the private company operations, processes, procedures, and communication utilizing audit and surveillance techniques. This independent assessment will provide NASA the insight required to determine adequacy of the private company operations and flight preparation process.

It is envisioned that the private company will conduct the FRR and that NASA will participate in an SMA role. The SMA role in independent assessment is basically unchanged from what exists today within the NASA SMA community, with the exception that additional experienced resources may be required to execute the independent assessment required to provide adequate insight.

Asset and facility ownership/management has not been determined. However, it is envisioned that NASA will still have a significant role in the ownership/management of infrastructure. The relationship between the NASA and the private company relative to NASA ownership of assets and facilities is still to be determined.

Privatization will represent a significant change in the business arrangement between the private company and NASA. It is envisioned that management of the business arrangement will be conducted at NASA HQ instead of the current lead Center concept. In addition, because of the high risks associated with human space flight, it is judged that NASA would still provide indemnification. The subject of indemnification and implications in a privatized environment needs further discussion and study.

7. NASA Engineering Core Competency: Privatization will not generally include the transfer of NASA engineering core competency to the private company. These skills and functions are necessary for the continued research and development activities that will remain in NASA. Appropriate agreements need to be established to allow private company utilization of Government laboratories and facilities along with the associated NASA engineering skills. However, the primary objective of privatization is to maintain the safety and viability of the SSP. By necessity, some engineering critical skills will be required to transition to the private company, although judged to be a relatively small number.

8. Legal/Legislation: Legal and/or legislative action may be required to provide necessary incentives for CS transition to the private company. The same may be true in order to remove post employment restrictions. The requirement for legal and/or legislative action to support privatization varies with the privatization option under consideration. Three options under primary consideration are:

a. Modification to the existing SFOC
b. Establishment of a Government corporation (G-corp)
c. Expanded competition that would leverage competition while expanding the number of participants in the process.

The option of modifying the existing SFOC involves the least legal and legislative action. Provisions already exist within the contract to pursue privatization of the SSP. Legal and legislative actions are considerations for incentivizing the CS workforce to transition to the private company. Separate legislation would not be required to establish the private company nor implement necessary contract modifications. Legislative action would be required to establish a G-corp for privatization of the SSP.

9. Contract Considerations: Privatization infers the shift from a cost-plus to a fixed-price contract environment. Stable core operations activities may be governed by a fixed price contract, while more volatile supportability and infrastructure activities may require a more creative business arrangement with NASA. Long-term contracting is required for stability; incentivize CS to transition to the private company; implementation of investment options; development, maintenance, and retention of critical skills; reduce cost through long-term/ volume agreements (subcontractors, suppliers, lease, etc.); and potentially attract investors.

10. Funding for Privatization: Additional funding will be required to establish privatization. Depending on the contract administration and the company structure, initial funding will vary. A long-term budget commitment from NASA is necessary for the stability of the privatization effort.

1.5 Summary

It is believed that utilization of the Space Shuttle for human access to space will continue through at least 2015 and possibly beyond 2020. The longevity and operational aspects of this program demand a different approach to operational management for the future. A different management strategy needs to be employed.

Privatization of the SSP has the potential to provide significant benefits to the Government. However, timing is critical. The continuing erosion of NASA skills and experience threatens the safety of the program. It is critical to take advantage of the existing NASA SSP expertise before further erosion affects the ability to plan and safely implement privatization. Today, the skill and knowledge legacy still remain to formulate the appropriate merger of the NASA SSP and private industry.

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