Trump’s NASA Nominee Backs Funding Method That Benefitted SpaceX

(Bloomberg) — Jared Isaacman, President Donald Trump’s pick for NASA chief, made history when he led the first all-civilian crew into space and completed the first commercial spacewalk. Now, the tech billionaire and CEO of Shift4 Payments is set to make his mark on the way the space agency finances its missions.

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Isaacman, whose nomination is headed to the full Senate for approval, has voiced support for paying companies lump sums upfront to build a rocket or hardware to go to the moon in so-called fixed-price contracts.

“Generally I am a fan of firm fixed-price contracts and being held accountable to what we bid,” Isaacman said during his April 9 confirmation hearing.

Such contracts are a departure from the so-called cost-plus deals that dominated the past, where NASA would often foot the entire bill for projects, even when companies missed deadlines and blew through initial budgets.

Fixed-price contracts now make up about 35% of NASA deals, up from roughly zero three decades ago, the agency told Bloomberg. They’re even more prevalent for the programs NASA is using to develop vehicles for its moon program, making up about half, NASA says. Isaacman has publicly praised the method as a way to get “the best service for the lowest price.”

The system was designed to reduce costs for NASA even before the Trump administration’s current drive to slash federal spending. On Friday, the White House proposed cutting NASA’s funding by $6 billion, which would be the largest single-year cut to NASA in US history.

Fixed-price contracting works well for well-trodden technology, such as the vehicles that carry people and supplies to space. It’s also greatly aided Elon Musk’s SpaceX, which has been the biggest beneficiary of this contracting method, by far.

But for the rest of the industry, there’s been limited success. It’s harder to make it work for novel endeavors without an established commercial market that would allow companies to make money outside of the government. Major defense contractors like Boeing Co. have struggled to make the numbers work, while a number of aerospace startups have gone bankrupt or given up trying to deliver products before money ran out.

“The issue for companies is, can they stay in business long enough to develop?” said Lori Garver, NASA’s deputy administrator from 2009 to 2013.

The resulting trend is an unintentionally consolidated industry, with NASA becoming more reliant on a handful of billionaires like Musk and Blue Origin’s Jeff Bezos who can reach into their own pockets or tap accessible investment when the space agency’s money runs out.

Moon Contracts

As NASA gears up to return astronauts to the moon, the agency first awarded three relatively unknown space startups multimillion-dollar contracts in 2019 to land robotic spacecraft on the lunar surface.

Of the three, one company dropped out of the program before ever reaching the launchpad. Another made it to the moon intact — though its spacecraft tipped over when it landed. A third company, Astrobotic Technology Inc., suffered a crippling tank failure just after it launched the first US-made lunar lander into space in more than 50 years.

The company blamed the lander’s demise on a bad valve, but Chief Executive Officer John Thornton said the problems can be traced back, in part, to the way NASA funded the project in the first place. The pressures of fixed-price contracting “made things harder,” he said.

When Astrobotic nabbed the nearly $80 million contract from NASA in 2019 to send a lander to the moon, it was a major boon to the Pittsburgh-based startup’s business. But it turned out not to be enough to cover the entire mission and the company was hard-pressed to raise money elsewhere for the yet-untested technology.

“If you only have this much money and you run into a technical problem, what do you do? You have to find an option that you can afford,” Thornton said in an interview. It’s a “pressure cooker.”

NASA didn’t respond directly to a request for comment on financial strain experienced by contractors, but an agency representative noted that risk is involved in fixed-price contracting.

Intuitive Machines, whose moon landers have tipped over twice, said the fixed-price model means the companies — not NASA — are on the hook when it comes to developing new technology.

NASA should have had a stipulation “that says ‘We’ll invest in R&D to help the missions get more capable,” said Intuitive Machines CEO Steve Altemus. “But they put that all on us, and that put a financial strain on the [companies] and we saw some bankruptcies.”

In March, Firefly Aerospace — which received $101.5 million from NASA for its first moon mission — successfully landed on the lunar surface upright and intact. But so far, the Texas-based startup remains the exception.

Off The Shelf

During the Soviet-era space race, NASA’s funding soared past 4% of the federal budget. The costs were justified, in part, because Congress wanted the space agency to invent new technologies to reach the moon. Beating the Soviets to the lunar surface was considered a matter of national security.

“We just didn’t know exactly how these things were going to work,” said Alex MacDonald, a former chief economist for NASA. “As a result, a lot of things cost more than people might have thought.”

By the early 2000s, the agency budget had shrunk to around half of 1% of the federal budget, where it still hovers today.

NASA began experimenting with fixed-price contracts when the space agency asked companies to bid on a contract to send cargo to the International Space Station — much like the way consumers send packages through Fedex. NASA didn’t want to build a service from scratch and manage the costs to run it, so it told companies it would pay a flat fee with the understanding that the winning bidder would keep the intellectual property and serve other customers outside the US space agency.

Among the winning bidders was what was then a fairly unknown startup called SpaceX, which got an initial contract worth $278 million from NASA. Meeting various milestones unlocked tranches of money, and ultimately, SpaceX became the first company to send a commercial spacecraft to the ISS in 2012.

Through the endeavor, Musk, who personally funded SpaceX in its early days, also walked away with the Falcon 9 rocket. The Falcon 9 made the company into the most prolific launch provider in the world.

SpaceX, now valued at $350 billion, has by far benefited most from these contracts, receiving more than $22.2 billion in unclassified contracts from NASA and the Defense Department since 2003.

SpaceX Chief Operating Officer Gwynne Shotwell, a public critic of old-school government contracting, said “I have not been shy about my disdain for the cost-plus contracting regime,” at a conference last year. “It is totally the wrong incentive for organizations to be effective and efficient.”

A New Era

SpaceX rival Blue Origin also has the deep pockets to compete on these contracts. In 2023, Blue Origin snagged a $3.4 billion contract to develop a second human lunar lander for NASA’s Artemis program.

The reason this has worked is “NASA had billionaires willing to say ‘we’re in,’ — willing to throw money in,” said Mike French, a consultant for the Space Policy Group. “It looked like free money — as if a company like Blue Origin was a philanthropy willing to provide incredible capabilities before generating revenue.”

SpaceX and Blue Origin’s competitors, however, have struggled to make fixed-price contracting work. Boeing, for example, incurred more than $2 billion in charges for the development on its problem-plagued Starliner spacecraft. Major defense companies have expressed concern about bidding on fixed-price contracts, while smaller space startups that relied on them as lifelines have shuttered altogether.

One issue is that NASA has struggled with relinquishing control of the design process and will often provide companies with a long list of criteria they must meet, which can sometimes change during development, industry analysts say. NASA’s Office of Inspector General found that the agency’s decision to move landing sites for its moon contractors contributed to cost increases, for instance.

Even if a startup does manage to successfully finish a project, there’s often limited commercial use for the technology it now owns. That makes it hard for it to stay in business, outside of doing more work for NASA. And if a company does wind up failing to meet the goals NASA sets out for them, that failure represents a heavy sunk cost for the space agency.

“There is no indication of a lunar gold rush,” according to an October report from the Center for Strategic and International Studies and it could be years until private companies find a commercial use case for the moon.

Now, with Isaacman potentially set to take the helm of NASA and the ability to introduce a more fixed-price friendly agenda, analysts and space companies urge caution.

“It really just depends on what we want to get out of space as a country,” said Astrobotic’s Thornton. “Are we okay with the same players getting the same thing, which is where we were 20 years ago before SpaceX?”

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