Commercial businesses might be considering new ways to engage in government contracts to boost R&D efforts. Changes in the Department of Defense (DoD) structure present new options as the government is focusing on accelerating innovation across services. The United States Space Force (USSF) is of particular interest to us, as the newest service branch. They are charged with rapidly developing and fostering new technological innovations, and to do so will require new relationships with industry. In this whitepaper, we discuss the formation of the USSF, its charge from Congress to move quickly, its focus on innovation in technology and system acquisition, and an early look at some novel contracting methods outside the traditional, complex DoD acquisition system.
The USSF was founded as one of the eight U.S. uniformed services in December of 2019. The bulk of Space Force resources are from the US Air Force (USAF), with some additions expected from the US Navy and US Army. Since December 2019, the USSF has primarily depended on USAF resources. These resources have included human capital, funding, programs, and acquisition systems. Other branches of the DoD are expected to begin shifting their space operations to USSF control, but it is unclear whether those operations will include human capital and added funding. General Jay Raymond, the Chief of Space Operations, indicated that complete transfers of Army and Navy space resources are unlikely to happen until at least 2023.[i] However, Lloyd Austin, the 28th Secretary of Defense, indicated that a review of military roles related to space may be incorporated into the 2022 updated National Defense Strategy.[ii] Right now, the USSF is organized under the Chief of Space Operations, Vice Chief of Space Operations, and executive staff in charge of various directorates and staff, including individual soldiers – the Space Force guardians. Most staff have transferred from other DoD departments, but the Space Force is invested in training new guardians to serve in the USSF.
Following the Space Force’s expanded budget request, members of the House Appropriations Committee raised concerns about the USSF’s lack of progress, including for program and system acquisition reform. In a report on the annual defense appropriations bill, lawmakers expressed concerns that “the Air Force has not taken more aggressive action in addressing longstanding space acquisition issues and has made little progress in defining what the Space Force will be doing that is fundamentally different than when it was a component of the Air Force.”[iii] The Committee showed similar uncertainty of the Space Force’s operations by proposing they eliminate a $37 million budget request for the Space Warfighting Analysis Center (SWAC) and instead consolidate this organization into the existing Space Security and Defense Program (SSDP).[iv] Although SWAC and the SSDP have similar missions, General David Thompson expressed the need for SWAC to expand space security capabilities under Space Force operations. For the Space Force to truly stand on its own and address longstanding space acquisition issues, it will need control of organizations and sufficient funding to meet its goal.
As the US competes with countries like Russia and China for space leadership, the USSF acquisition budget is likely to increase further. Many field experts believe that the Space Force will dedicate significant resources to innovation that supports the US competitive advantage in space and defense against cyber and anti-satellite attacks.[v] Just who will have authority, for what value, of space defense acquisitions is unclear after the recent proposal for SWAC and SSDP to be merged into one organization, with less than half of their combined budget proposals. Regardless, if the increase in the Space Force budget is approved, it will create significant potential for new contracts – traditional and nontraditional – between the government, traditional defense industry suppliers, and commercial suppliers.
As the USSF begins to stand on its own, it is pursuing contracting agreements outside of the USAF. Shawn Barnes, deputy assistant secretary of the Air Force for space acquisition and integration, says momentum is pushing the USSF towards new procurement methods.[vi] Given the imminent need for the expansion of US space operations to compete with China and Russia, it is likely that the USSF will pursue nontraditional contracting vehicles and agreements. This presents a unique opportunity for defense industry prime contractors and small-to-medium companies to compete for contracts with the Space Force. The USSF request for added funding to defend the United States’ technological edge may create opportunities for nontraditional Defense contractors and commercial companies to compete and fuel space innovation. Additionally, Congress is supporting faster innovation. The National Defense Authorization Act may establish a new pilot program for rapid procurement, as well as an expansion of the Navy’s Small Business Innovative Research (SBIR) program.[vii]
Government funding for the new space service was originally accommodated within the USAF annual budget, but in FY21 the USSF received its first independent budget of $15.4B. Of that $15.4B, $2.4B is funding Space procurement, and $10.3B is for Research, Development, Test, and Evaluation (RDT&E), a proven source of funding for industry. There has been a service-wide push to increase funding for innovation and most recently the House Armed Service Committee voted to add $4.2B to the draft FY22 National Defense Authorization act to fund “cyber and innovation”.[viii]
The USSF dedicates a sizable part of its budget to innovation compared to the other services. In total, 79% of the Space Force funding goes to RDT&E and procurement accounts.[ix] Sources say the Space Force is more reliant on technology than other services and their need for innovative technology is best met through collaborative industry relationships.[x] In order to help that relationship, the FY22 budget proposal increased USSF’s acquisition funding request by $1.4B.[xi] In the next five years that number is projected to grow an additional 13%.[xii]
As the USSF continues to establish itself as an independent DoD service, it will require an increasingly large budget that adds more human and capital investments. A larger budget will facilitate more contracted projects. In early June 2021, the USAF sent an unfunded priority list to Congress requesting an additional $832M. In this list, Space Force prioritized intelligence, surveillance, and reconnaissance (ISR) technologies. The Space Force highlighted essential investments in areas such as radio frequency (RF) payload research to prove the utility of a constellation network of satellites in low Earth orbit.[xiii] In the past, the Space Force has dedicated 40% of its acquisition budget to five major programs: Next Generation OPIR, National Security Space Launch, GPS IIIF, Protected Tactical Satellite Communications Program, and Evolved Strategic Satellite Communications Program (see fig. 1). Companies interested in contracting with the Space Force may have greater success in securing funding for technologies related to these programs since their funding is projected to increase through FY24.[xiv]
Traditional contracts with the DoD are governed by the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS). These heavy-weight regulations have limited the government’s ability to work with many nontraditional contractors who cannot foot the high administrative costs. This has led to increasing reliance on Other Transaction Authorities (OTAs) – agreements between government and company crafted outside the FAR and DFARS – which were created to facilitate innovative arrangements that give government agencies quick access to state-of-the-art technology. OTAs come in a variety of forms but are primarily used for Research, Development, Test and Evaluation (RDT&E) projects. OTA’s require the awardee to either be a nontraditional defense contractor, a small business, or a traditional contractor with at least one nontraditional contractor participating significantly or sharing a third of the cost.[i] Additionally, consortiums are a popular vehicle for OTAs for streamlined access to myriad enterprises with a common area of interest.
In a recent study, Rhys McCormick, fellow for the Defense-Industrial Initiatives Group, suggested that OTAs have partially replaced traditional defense contracts in the mid-to-late stages of development (see fig. 2). Between FY15 and FY19, defense R&D OTA obligations increased by 785%.[ii] The increase in OTA obligations offers a more attractive opportunity to new vendors that were unable to navigate traditional defense contracts. Additionally, the USSF has increased its use of the Space Enterprise Consortium (SpEC) to revamp OTAs. SpEC launched with a $100 million ceiling, but that was raised to $12 billion over the next 10 years.[iii]
OTAs were created to expedite the contracting process, lower costs, and reduce government intrusion.[i]However, experts warn that although there are many benefits to OTA obligations there are greater risks and more uncertainty to expected outcomes, as well. As McCormick said, “OTAs cannot and should not be a catch-all replacement to the traditional FAR-based acquisition system, but there is a substantial benefit in an alternative acquisition system that works best for certain scenarios”.[ii] OTAs benefit government agencies by attracting commercial firms that would otherwise avoid working with the DoD because of the complicated and expensive Federal acquisition process.
Along with these potential benefits, there are risks to achieving the goals of government-funded projects that include less oversight, exemption from laws designed to protect the government and taxpayer interests, and transparency of how these agreements are employed.[iii] Congress has expressed concerns that OTAs can be used to work around congressional intent and public policies such as “Buy America” requirements.[iv] And given the government’s need for a balanced acquisition portfolio, it is unlikely that the R&D paradigm for larger programs will shift completely to OTA obligations, but it may open the door for other rapid acquisition vehicles.
Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) contracts or agreements provide two additional ways for domestic small businesses to access government funding for R&D projects, working with various government agencies. Research suggests that government agencies might be moving more broadly towards SBIR/STTR “pitch day” events that facilitate truly rapid procurement. These programs allow small businesses to profit from product commercialization after program completion. SBIRs and STTRs are highly competitive and strictly for small businesses (typically defined as businesses located in the United States and ranging from less than 500 to as many as 1500 employees, depending on their work products and the associated NAICS codes[v]). STTRs are similar, but require a partnership with a nonprofit research institution. The nonprofit can be a college or university, a nonprofit research organization, or a federally funded R&D center (FFRDC). SBIRs and STTRs have three phases of awards that span six months to two years and awardees can be considered for one, two, or all three phases. Phase 1 is 6-12 months, Phase 2 is 1-2 years, and Phase 3 is typically 2 years. Small businesses that are awarded a Phase 1 contract can compete for a Phase 2 contract between six months and two years after the Phase 1 start date.
The Space Force is looking to develop innovative technology and new capabilities at the speed the commercial space industry is already going. According to Col. Russell Teehan, ISR, weather, launch, logistics, and servicing are growing mission areas with potential opportunities for small and non-traditional vendors.[vi] As the Space Force continues to stand on its own, it will likely rely, in part, on SBIR and STTR contracts with pitch day awards for the rapid procurement of innovative technology. There is a strategic benefit for the government to create new ways to work directly with these small and medium businesses rather than working through a large defense contractor, or with a Defense industry consortium which has grown in popularity in recent years under the OTA construct.
Pitch days are focused on educating small businesses on the details of the DoD acquisition process. The customer discovery guides can help each company understand how their technology can help various departments and projects within the USSF.[vii] Additionally, these pitch days offer small businesses funding without taking equity in the company as a venture capitalist would. The pitch day concept is extremely beneficial to small businesses and startups who cannot wait extended periods for funding. In fact, there is precedent for an immediate award, including initial payment by the government at the time of award during pitch day.
In the past few years, the Department of Defense has hosted several pitch day events associated with its SBIR/STTR program, including the Air Force’s AFWERX event. In 2019, the AFWERX event set the tone for rapid procurement. The average amount of time to award contracts and pay companies after a successful pitch was 15 minutes. To set up that rapid response, pitches, and proposals to be considered are submitted ahead of time, which hastens the pitch day process. Before this, the fastest award of this contract type was about 3 months. A retrospective view of the Space Force’s first year shows a similar focus on accelerated innovation through nontraditional vendors and startups.[viii] Experts find a need for flexible and responsive contract capabilities to catalyze space innovation.[ix]After a successful launch of the AFWERX pitch day event, the USSF announced the standup of SpaceWERX which is an AFWERX-affiliated pitch day event.
The SpaceWERX pitch day is geared towards solving cutting-edge problems through new partnerships with small-to-medium businesses and startups. Before applying for the 2021 SpaceWERX pitch day, companies had to be awarded a Space and Missile Systems Center (SMC) SBIR Phase 1 contract for $50,000. In total, 46 companies took part in the Phase 1 SBIR program over the course of several months before submitting a pitch day proposal and 24 of those were selected to present at the pitch day event. Phase 2 contracts were awarded to 19 of the 24 companies, focused on “innovation in early missile detection and warning; space domain awareness; space communications, space visualization, multi-domain command and control; data mining; operations within electronically contested environments; artificial intelligence; responsive launch systems; space logistics; and protection of critical space assets” (see below for a full list of winners). [x]
Significant uncertainty surrounding the Space Force acquisition authority exists at present, as the Assistant Secretary of the Air Force for Space Acquisition has yet to be appointed. However, the Vice Chief of Space Operations, General David Thompson, suggested that the FY23 budget – still a year away – may shed light on how acquisitions – contracts – for capabilities such as tactical ISR will be controlled in the future.[xi] Recent conversations about Space Force acquisitions and budgets suggest a move towards acquisition portfolios rather than single platforms.[xii] This would make the Space Force more agile as it could move funding to more successful programs within the portfolio without submitting a reprogramming request. The Senate Armed Services Committee’s version of the FY22 defense policy bill includes language to ensure that critical defense functions are not completely dependent on commercial services.[xiii] However, the portfolio architect at the Space and Missiles System Center, Col. Russell Teehan, suggests that commercial contracts are vital to every mission area.[xiv] The Senate Armed Forces committee expressed support for commercial procurement specifically for space situational awareness (SSA).[xv]
The finalized FY22 appropriation should provide clarity on how space acquisitions will be handled in the short term. The Senate Armed Services Committee’s version of the FY22 defense policy bill hopes to expand the role of Assistant Secretary of the Air Force for Space Acquisition to include oversight of all DoD space programs.[xvi]President Biden will have the responsibility of appointing the new Assistant Secretary of the Air Force for Space Acquisition by October 2022. The newly established Space Systems command under Lt. Gen. Michael A. Guetlein will also be responsible for acquiring the latest technologies for space warfighters.[xvii]
Space Acquisition executives will have to strike a balance across commercial partnerships, OTAs, traditional contracts, and innovative pitch days. FY22 and FY23 will offer tremendous insight into the Space Force’s acquisition plans, but clearly, commercial enterprises will play a key role and small and non-traditional vendors may have a strategic advantage in this area. The USA Space Tech Expo on October 7-8th will also provide substantial information on DoD acquisition strategies and space innovation priorities.
“Archaius: Positioning, navigation and timing (PNT) devices for use in GPS-denied environments.
Astrobotic: Event camera (also known as neuromorphic camera) based sensor for spacecraft navigation and space domain awareness.
Architecture Technology Corp.: Software for satellite communication modems that enable seamless interoperability.
Caliola Engineering: Cyber security technology for hybrid government-private sector communications networks.
Cambrian Works: Software to allow satellites to create a low-latency, secure network.
CAMX Power: Long-life power cell and batteries for satellites.
Capella Space: Integration of space-based synthetic aperture radar data with unmanned air vehicles provide multi-domain intelligence.
Cognitive Space: Multilevel-security planning system to share data collected by satellites.
eBase Analytics: Game theory simulations to assess the risks of space assets in orbit.
Kestrel Corp.: 2D hyper-spectral imagery and data analytics to track moving targets.
Lunewave: 3D printed satellite antennas to monitor multiple satellites simultaneously.
Lux Semiconductors: Advanced electronics with greater radiation tolerance for space computing.
Orbit Fab: Satellite servicing vehicle for refueling satellites.
Phase Four: Satellite engine that uses a green propellant developed by the Air Force to enable multi-mode propulsion that combines the high thrust of chemical propulsion and the high efficiency of electric propulsion.
Rocket Communications: Advanced visualization tools to simplify satellite maneuvering and for training operators.
SimX: Virtual reality medical simulation training for crews that support space operations.
Starfish Space: Autonomous software for satellite proximity operations and docking.
The Provenance Chain Network: A open standards platform to track the supply chain materials and participants.
Toyon Research Corp.: Image processing framework to assess the performance of overhead persistent infrared sensors.”[xviii]
[i] “Army, Navy Funds Unlikely for Space Force Until 2023”, Breaking Defense, February 3, 2021. https://breakingdefense.com/2021/02/army-navy-funds-unlikely-for-space-force-until-2023/
[ii] “Army, Navy Funds Unlikely for Space Force Until 2023”, Breaking Defense, February 3, 2021. https://breakingdefense.com/2021/02/army-navy-funds-unlikely-for-space-force-until-2023/
[iii] “House lawmakers call out lack of progress with Space Force acquisition reforms,” Air Force Times, July 13, 2021. https://www.airforcetimes.com/battlefield-tech/space/2021/07/13/house-calls-out-lack-of-progress-with-space-force-acquisition-reforms
[iv] “FY-23 budget may offer clarity of responsibilities for space-based tactical ISR,” Inside Defense, July 28, 2021. https://insidedefense.com/daily-news/fy-23-budget-may-offer-clarity-responsibilities-space-based-tactical-isr
[v] “Under Secretary of the Air Force nominee testifies during Senate Armed Services Committee hearing,” Secretary of the Air Force Public Affairs, June 16, 2021. https://www.af.mil/News/Article-Display/Article/2661200/under-secretary-of-the-air-force-nominee-testifies-during-senate-armed-services/
[vi] “On National Security | In the new space era, a changing role for the U.S. government,” SpaceNews, August 23, 2021. On National Security | In the new space era, a changing role for the U.S. government – SpaceNews
[vii] “House Bill Aims to Bridge Acquisition ‘Valley of Death’ In Race to Counter China,” Defense One, August 25, 2021. https://www.defenseone.com/technology/2021/08/house-bill-aims-bridge-acquisition-valley-death-race-counter-china/184867/
[viii] “House adds $4.2B in cyber, innovation funding to NDAA,” Fed Scoop, September 2, 2021. https://www.fedscoop.com/house-adds-4-2b-in-cyber-innovation-funding-to-ndaa/
[ix] “Analysis of the FY 2021 Defense Budget,” Harrison, Tod, and Daniels, Seamus. Center for Strategic & International Studies, August 2020, https://www.csis.org/analysis/department-defense-other-transaction-authority-trends-new-rd-funding-paradigm
[x] “Space Force needs to make acquisition a critical capability, study says,” Fed Scoop, August 27, 2021. https://www.fedscoop.com/space-force-acquisition-study-rand/
[xi] USAF and USSF Total Budgets FY18-FY22. Data collected from the United States Department of Defense Budget Overview FY18, FY19, FY20, FY21, FY22.
[xii] “Analysis of the FY 2021 Defense Budget,” Harrison, Tod, and Daniels, Seamus. Center for Strategic & International Studies, August 2020, https://www.csis.org/analysis/department-defense-other-transaction-authority-trends-new-rd-funding-paradigm
[xiii] “U.S. Space Force sends wish list to Congress that includes space surveillance and communications satellites,” Military & Aerospace Electronics, June 15, 2021. https://www.militaryaerospace.com/sensors/article/14205134/space-force-budget-request-surveillance
[xiv] “Analysis of the FY 2021 Defense Budget,” Harrison, Tod, and Daniels, Seamus. Center for Strategic & International Studies, August 2020, https://www.csis.org/analysis/department-defense-other-transaction-authority-trends-new-rd-funding-paradigm
[xv] “Other Transaction Authority (OTA),” AcqNotes Program Management Tool for Aerospace, accessed August 6, 2021. https://acqnotes.com/acqnote/careerfields/other-transaction-authority-ota
[xvi] “Department of Defense Other Transaction Authority Trends: A New R&D Funding Paradigm,” McCormick, Rhys. Center for Strategic & International Studies, December 8, 2020, https://www.csis.org/analysis/department-defense-other-transaction-authority-trends-new-rd-funding-paradigm
[xvii] “Space Force expects $1 billion in contracts in first year of Space Enterprise Consortium Reloaded,” Defense News, September 8, 2021. https://www.defensenews.com/battlefield-tech/space/2021/09/08/space-force-expects-1-billion-in-contracts-in-first-year-of-space-enterprise-consortium-reloaded/
[xviii] “Contract Comparison: Why Use an Other Transaction Authority (OTA) Contract Vs. Federal Acquisition Regulation (FAR) Based Contract?” Defense Acquisition Solutions Group, August 27, 2020. https://www.defenseacq.com/ota-contract-vs-far-based-contract/
[xix] “Department of Defense Other Transaction Authority Trends: A New R&D Funding Paradigm,” McCormick, Rhys. Center for Strategic & International Studies, December 8, 2020, https://www.csis.org/analysis/department-defense-other-transaction-authority-trends-new-rd-funding-paradigm
[xx] “Department of Defense Use of Other Transaction Authority: Background, Analysis, and Issues for Congress,” Congressional Research Service, February 22, 2019. https://fas.org/sgp/crs/natsec/R45521.pdf
[xxi] “Department of Defense Use of Other Transaction Authority: Background, Analysis, and Issues for Congress,” Congressional Research Service, February 22, 2019. https://fas.org/sgp/crs/natsec/R45521.pdf
[xxii] “Size Standards Used to Define Small Business Concerns. §121.201 What size standards has SBA identified by North American Industry Classification System codes?” Electronic Code of Federal Regulation, August 19, 2021. https://www.ecfr.gov/cgi-bin
[xxiii] “Space Force wants to introduce commercial capabilities to all mission areasC4ISR NET, April 16, 2021. https://www.c4isrnet.com/battlefield-tech/space/2021/04/16/space-force-wants-to-introduce-commercial-capabilities-to-all-mission-areas/
[xxiv] “Space Force Pitch Day Focuses on Pairing Companies with Innovative Technology to Meet USSF Mission Needs,” Space Systems Command, August 19, 2021. https://www.ssc.spaceforce.mil/News/Article-Display/Article/2739685/space-force-pitch-day-focuses-on-pairing-companies-with-innovative-technology-t
[xxv] “SPACE POWER, SPACE FORCE, AND SPACE LAW,” Lieber Institute West Point Articles of Water, September 10, 2020. https://lieber.westpoint.edu/space-power-space-force-space-law/
[xxvi] “Space Power Doctrine for Space Forces,” Space Capstone Publication, August 10, 2020. https://www.spaceforce.mil/Portals/1/Space%20Capstone%20Publication_10%20Aug%202020.pdf
[xxvii] “Space Force awards $32 million in contracts to startups and small businesses,” SpaceNews, August 20, 2021.https://spacenews.com/space-force-awards-32-million-in-contracts-to-startups-and-small-businesses/
[xxviii] “FY-23 budget may offer clarity of responsibilities for space-based tactical ISR,” Inside Defense, July 28, 2021. https://insidedefense.com/daily-news/fy-23-budget-may-offer-clarity-responsibilities-space-based-tactical-isr
[xxix] “The Space Force wants to manage acquisitions by portfolio,” C4ISR NET, August 4, 2021. https://www.c4isrnet.com/battlefield-tech/space/2021/08/04/the-space-force-wants-to-manage-by-portfolio/
[xxx] “Senate panel proposes expanding Space Force AQ exec authorities across DOD space architecture,” Inside Defense, July 23, 2021. https://insidedefense.com/daily-news/senate-panel-proposes-expanding-space-force-aq-exec-authorities-across-dod-space
[xxxi] “Space Force wants to introduce commercial capabilities to all mission areasC4ISR NET, April 16, 2021. https://www.c4isrnet.com/battlefield-tech/space/2021/04/16/space-force-wants-to-introduce-commercial-capabilities-to-all-mission-areas/
[xxxii] “Congress, Industry Chivvy Space Force on Commercial SSA”, Breaking Defense, September 14, 2021. https://breakingdefense.com/2021/09/congress-industry-chivvy-space-force-on-commercial-ssa/
[xxxiii] “Senate panel proposes expanding Space Force AQ exec authorities across DOD space architecture,” Inside Defense, July 23, 2021. https://insidedefense.com/daily-news/senate-panel-proposes-expanding-space-force-aq-exec-authorities-across-dod-space
[xxxiv] “SSC stands up, Guetlein takes command,” Space Systems Command, August 13, 2021. https://www.ssc.spaceforce.mil/News/Article-Display/Article/2731475/ssc-stands-up-guetlein-takes-command
[xxxv] “Space Force awards $32 million in contracts to startups and small businesses,” SpaceNews, August 20, 2021.https://spacenews.com/space-force-awards-32-million-in-contracts-to-startups-and-small-businesses