By Dietrich Knauth

Law360, New York (July 1, 2011, 5:07 PM EDT) — In its efforts to promote commercial space flight, NASA must develop clear safety and performance requirements while taking care to avoid potential conflicts of interest, according to a Thursday report by the agency’s inspector general.
NASA Inspector General Paul K. Martin said that the agency has made significant progress in working with commercial partners, awarding more than $300 million in contracts through its commercial crew development program, but still needed to finalize regulations, develop a procurement strategy and coordinate safety standards with the Federal Aviation Administration.

In the wake of the space shuttle program, which will be retired after the July 8 launch of the shuttle Atlantis, NASA is simultaneously working on building a next-generation government spacecraft and kick-starting a commercial space industry.

NASA has never launched a manned mission on a commercially-developed vehicle and the transition will be challenging, the report said. Getting it right will be critical because the U.S. will rely on Russian Soyuz spacecraft to access low Earth orbit and the International Space Station until it develops an alternative.

“NASA faces an imperative to nurture development of a U.S. commercial transportation service to re-establish the nation’s ability to access low Earth orbit and the space station as soon as possible,” the report said.

NASA’s shuttle successor was scheduled for completion by 2016, but NASA recently indicated that the target may be overly optimistic, the report said, making commercial partnerships even more pressing.

In its commercial crew development program, NASA is focusing on promoting innovation and development, and is not dictating specific system concepts or mandating compliance with NASA requirements, according to the report, leading to a risk that companies will develop space vehicles that are ultimately unsuitable for NASA missions.

To mitigate that risk, NASA is considering an approach that would proactively identify significant design differences that could prevent a partner from obtaining NASA certification in future acquisitions. However, that strategy carries a risk of its own because companies without commercial crew development program contracts could complain that the advice represents an unfair competitive advantage, the report said.

Failure to mitigate the apparent conflicts of interest could lead to bid protests, which would delay and jeopardize NASA’s commercial crew program, according to the report.

In its commercial space transport acquisition strategy, which will be submitted to Congress later this summer, NASA will likely announce its reliance on competitive procurements or fixed-price contracts to keep costs down.

But fixed-price contracts could be risky, too, as they would require NASA to commit large sums of money while relevant regulations may be subject to change, according to the report.

“Some of NASA’s potential commercial crew partners are building spacecraft for the first time and design and development are under way without fully defined and finalized requirements,” the IG said. “In this type of environment, there is a risk that during the period of contract performance NASA’s requirements may change so significantly that contractors can successfully argue that the agency is changing the contract’s scope, in which case NASA could be required to pay the contractor to make necessary modifications.”

In 2010, the year after the start of the commercial crew development initiative, NASA awarded $50 million to companies working on space transport projects. The agency announced in April that it was ramping up the program, awarding $269.3 million to accelerate the availability commercial space capabilities.

Because of uncertain progress in developing both commercial and U.S. spacecraft, the report recommended that NASA consider extending its purchase of seats on the Russian Soyuz spacecraft as a contingency plan.

Although NASA has arranged with Russia to continue missions via the Soyuz until 2016, the length of time needed to procure additional seats means that NASA will have to make a decision in 2013, about three years before commercial systems are expected to be ready, the report said.

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