Whatever happened to competition in space agency procurement? The case of NASA



Whatever Happened to Competition in Space Agency Procurement? 231

variables insignificant and an R-square of 0.2). In addition, the forecast values
were persistently lower than the actual ones. On average, from 1998 to 2003, the
actual percentage value of contracts awarded by NASA on a non-competitive
basis were 12.5% higher than they would be without taking into account the
consolidation of the US industry. The forecast error varied between 0.23 in 1998
and 0.21 in 2001 with no strong trend, so a single dummy seems adequate.2

Given the absence of empirical evidence on the comparative impact of
competitive and non-competitive contracts on profit margins, we must be cautious
about making inferences that NASA’s awarding policy is expected to lead to an
increasing profit stream for the US space industry. A safer conclusion is that since
the mid-1990s, NASA procurement with regards to the level of competition applied
in the awarding process has resulted in less competitive outcomes, driven primarily
by industrial consolidation and a diminished “pool” of contractors.

IV. Rent control and contract distribution

Rent control can also be achieved in the absence of competition, through the
alternative use of specific types of contracts that provide the right type of
incentives, but this can be at the expense of higher program-costs as we will see
later. Information asymmetries between the agent and the principal and monitoring
costs make this mechanism less preferred to the “invisible hand” of competition.
In practice, NASA policy calls for price competition when possible, as “Normally
effective price competition results in realistic pricing and a fixed-price contract is
ordinarily in the Government’s interest” (NASA 1998: 4).3 The preference for fixed
price contracts over the cost-plus type of contracts is explained on the grounds
that the government bears less of the program risk and the firm has stronger
incentives to be cost-efficient.

2 In contrast, when the estimation of Table 2 was done with 6 forecasts (1998-2003), the
forecast standard error varied from 0.116 to 0.123 and the actual percentage value of contracts
awarded by NASA on a non-competitive basis from 1998 to 2003 were on average just 3%
higher than the forecasted values.

3 On the other hand, NASA guidelines of contracting include price competition, price analysis,
cost analysis, type and complexity of the requirement and urgency of the requirement (NASA
1998). Such guidelines allow room for discretion. The possibility of collusion between major
space integrators arises to exploit such discretionary policies especially during the presence of
large scale programs (Moon, Mars exploration). For example, the awarding of contracts has to
ensure that both Boeing and Lockheed Martin maintain their space business, so there is no
possibility of ‘winner takes all’ procurement policy implementation (see Zervos 2001).



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