Space Development Agency request for bids challenged for ‘risk’ imposed on contractors

Maxar said in a statement it is "reviewing the new solicitation via OTA to determine what substantive changes have been made'

WASHINGTON — Maxar Technologies decided to challenge a Defense Department procurement of 126 satellites because of the financial burden the program imposed on contractors, the company said. 

Maxar believed that the terms of the Space Development Agency’s satellite buy “unduly burdened industry, favoring larger companies willing and able to take greater financial burden and risk,” a company spokesperson said in a statement Oct. 28 after SDA announced it was canceling the solicitation for the Transport Layer Tranche 1, a mesh network of small communications satellites in low Earth orbit projected to start launching in 2024.

The protest was dismissed Oct. 28 by the Government Accountability Office after SDA took down the request for proposals. The agency on the same day reissued the RFP under a different contracting method called Other Transaction Authority (OTA) that gives government buyers more leeway to run programs using commercial practices rather than the standard federal procurement processes.

The Maxar spokesperson said government procurements that favor companies willing to take on greater financial risks are “clearly inconsistent with certain requirements of federal procurement law.”

By switching the procurement from a Federal Acquisition Regulation (FAR) to an OTA procurement, SDA was able to get the protest dismissed but it’s not clear that an OTA contract substantially changes the “financial burden” issue raised by Maxar, the spokesperson said. “The substance of our concerns about unfairly burdening contractors may or may not have been addressed.”

“Maxar is reviewing the new solicitation via OTA to determine what substantive changes have been made,” said the spokesperson. “Maxar remains committed to supporting the SDA and all of our government customers’ missions with our innovative solutions in a fair and competitive market.”

SDA Director Derek Tournear Tournear has said repeatedly that the agency intends to have full and open competitions, and wants to create a stable market that will incentivize companies to invest knowing that every two years they can bid for new contracts. He said the agency wants to buy satellites at competitive prices under fixed-priced contracts.  

“SDA intends to leverage investments made by the private sector in space capabilities (e.g., hardware and software reuse, leasing of services), as well as industry best practices (e.g., mass production techniques for spacecraft buses, sensors, and user terminals),” said SDA in 2019 in a request for information. 

For the Transport Layer Tranche 1 procurement, SDA said it will select multiple vendors to collectively supply 126 satellites in batches of 21 satellites. If hypothetically three vendors are selected, each would have to deliver the first batch of 21 satellites for a September 2024 launch. 

Under a FAR contract, vendors would have to deliver the products in order to get paid. And if the government decided to terminate a contract, it would only owe the contractor whatever payment was agreed to in the contract regardless of how much upfront investment was made by the contractor to ramp up production. 

OTAs partially funded by contractors

Congress in the 1994 National Defense Authorization Act approved DoD’s use of OTA contracts for research and development projects. The 2015 NDAA expanded the authority to include any prototype project. The goal was to create a new vehicle for DoD to attract nontraditional companies to bid on technology projects. OTAs, for example, don’t require contractors to set up government unique cost accounting systems, an issue that deters many commercial companies from bidding on DoD contracts.

SDA is procuring commodity satellites but Tournear argued that the Transport Layer is a new constellation prototype and therefore the agency can use an OTA contract.

In its new solicitation, SDA said the agency will partner with industry teams to “jointly develop and operate the Transport Layer Tranche 1.”

To win an award, teams must include a nontraditional defense contractor or nonprofit research institution; and at least one-third of the total cost of the prototype project has to be paid by non-government funds. This last clause means companies can use independent research and development funds. Experts say OTAs give the government a blank sheet to negotiate terms, conditions and milestone schedules.

The speed at which OTA contracts move compared to the FAR is a key reason agencies use them, said Marie Mak, director of contracting and national security acquisitions at the Government Accountability Office.

In an interview with Federal News Network, Mark noted that the COVID-19 vaccines were developed under OTAs. “The main reason why they used OTAs instead of federal procurement that agency official citeds was speed in awarding these OTAs. They can expedite large vaccine development, manufacturing awards, because it streamlined the competitive process for evaluation and selection of awardees.”

Tournear in a social media post Oct. 28 praised SDA for quickly shifting gears on the Tranche 1 procurement. “Please join me in thanking the diligence of #teamSDA turning this new solicitation so quickly,” he wrote. Responses are due Nov. 24.

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