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



Whatever Happened to Competition in Space Agency Procurement? 223

in the awards to the top tier of NASA contractors and whether the lack of
competition is caused by the presence of “few and big” contractors. Section IV
then looks at whether rent-control in the absence of competition can be compensated
for by the pattern of the type of contracts awarded by NASA to the industry. The
paper is summarized in Section V.

II. Background of NASA procurement policies

Space agencies are publicly funded organizations that operate under relevant
procurement policies. The choices made by a space agency like NASA include the
choice of space programs and equipment, the choice of contractor, and the choice
of contract (for a detailed discussion see Zervos 2001). In making those choices,
the agency seeks to implement the objectives of cost and rent minimization and
improvement of competitiveness of the domestic space industry.

Given that the choice of space program is largely a political decision by the
administration (a prominent example is the Apollo program), this paper focuses on
the choice of contractor (whether it is through competitive tendering and what
factors influence this process) as well as the choice of contract.

Government space programs are big business for space firms. This means that
the exclusion of a space firm from major government space programs is likely to
lead to scaling-down of operations, or even exit the market. In decreasing costs
industries, such as the space industry, competition can have controversial results.
On the one hand, it pushes in the direction of higher project costs (due to the loss
of economies of scale) while on the other hand, it enhances effort and lowers X-
inefficiency. Empirical evidence, primarily from the defence industry, point to overall
benefits from the presence of competition in contracting (Dews 1979, Lichtenberg
1995). Under closed public space markets, benefits from lack of international
competition are expected to take the form of lower production costs due to larger
scale (domestic consolidation), while costs are expected in the form of high prices
and losses associated with the presence of monopolistic domestic market structures.
Net benefits are expected in the case where efficient scale and competition is
achieved, which requires the presence of public procurement policies that are
open to overseas competition. This is not possible in the case of space programs,
as they are typically subject to national security considerations and frequently
also subject to export controls (see Commission 2002).

Different types of contracts provide a different mix of incentives towards cost
and rent minimization. Fixed-price contracts are mostly associated with competitive



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