This morning there was a business plan competition, which I skipped, needing my sleep more. The first session after lunch is titled, “NewSpace Policy: Accelerating Development Or Picking Winners?” It’s moderated by Ken Davidian of FAA-AST. Panelists are space-policy analyst/lobbyist Jim Muncy, Bruce Pittman of the Ames Commercial Space Portal, Space Show host David Livingston, and Doug Comstock of NASA HQ. The show is a little delayed because Ken isn’t back from lunch yet, and Comstock’s plane got in late.

[Update]

Apparently Davidian and Comstock are stuck in the traffic of all the people coming to Moon Day at Ames. Muncy starting with them. Question is how to include government in your business plan. Government dominant customer in space goods economy if you don’t count ground segment. To extent that government breathes in the vicinity of NewSpace, it can have a huge impact, regardless of whether or not you want it to (Davidian walks in). On one hand business advisers say to stay as far away as government as possible. On other hand we have a right-stuff astronaut who admires Franklin Chang-Diaz not because he swam from Cuba but because he is an entrepreneur who has invented a new propulsion system. We have an administration that is potentially very supportive of commercial space.

Davidian talking now, quoting Will Rogers that the two ways to learn is by reading and the other is by associating with smarter people, so glad to have this panel. Introducing David Livingston and Bruce Pittman (Comstock hasn’t shown up yet).

Livingston: Government as a customer is a fact of life and if you don’t like it get over it. Question is how to manage the relationship. Doesn’t see it as that different from private sector companies, though risks are different. Government has potential to be fantastic customer for space, but run the risk of dependence, and this can be bad in a time of change. Relationship needs to be well thought out, but is glad they’re there as a customer.

Pittman: Speaking as someone who does business with the government, has its good sides and opportunities, but policies and procedures are different, and you have to understand the FAR to do business with them — it’s the law. NASA has some different ways to do things (OTA, Other Transactions Authority). COTS is doing this, DARPA does it a lot, and NASA hasn’t traditionally, but they can, and are starting to now. Big difference is response time — rapid for entrepreneurs, glacially slow for government. A lot of good people working as hard as they can, but it just takes time.

Davidian: Government trying to be a good customer, but constrained by FAR. Overspecifying can cause issues, and government seems unable to buy off the shelf. Citing specific example of Zero G, and nonsensical requirement to handle combustion experiments, even though none were contemplated to be flown. What are advantages and disadvantages of this from both government and private perspective. Is it a good thing to overspecify if the government is capable of paying for it?

Muncy: No objective answer, but from his perspective, government is made of human beings, and humans like to change their mind. Fixed services tend to be fixed, but the government doesn’t like to accept things as is, and views it as a reduction in its freedom to change its mind. Talk about R&D being hard, and leading in unknown directions, but leads to cost-plus paradigm that eliminates the possibility of lower costs, and getting more for available resources. Had to fight a couple years ago and go to the head of an agency to convince an agency to allow a fixed-price SBIR contract ($750K). They were essentially saying that they didn’t want a ten-million-dollar product for less than a million bucks, but they still didn’t want to “risk” the money. It’s a very intractable problem. Administration has to decide whether it wants to build program, or industry, with and industrial base that can support more activity. if it only wants to build a program, they won’t get the benefits of private partnership.

Pittman: Not an or, but an and. Government must be “a” customer, not “the” customer. Talks about HP model where they shipped things to government out of a catalog and did nothing special. Disagrees that the government “distorts” the marketplace — if government is major customer, it is the market. Have to make a business decision as to whether or not to have government as a customer. Tip of the iceberg of a bigger thing called “acquisition reform,” all through the government right now. People on the government side are much more open than he’s seen to look at new ways of doing business.

Livingston: Two-way relationship, and he assumes that management of the business is competent. Management makes lots of decisions, some good some bad, and you sometimes don’t find out for years which were which. Many companies start out wanting to avoid government, but discover that they need it as a customer. Has experience with private customers who are just as finicky about requirements, the difference being that they’re not generally cost plus. If you want to do business with the government, understand their rules, if you want to do business with private entities, they’ll have their own rules.

Muncy agrees that “distortion” is a mischaracterization. Government “distorts” more so in some places and less so in others. In yesterday’s propellant depot discussion issue came up with question of why satellite owners don’t want services. Government is dominant customer of broadband services. Could say, as it does with Civil Reserve Air Fleet, that they want special requirements imposed on satellites, and will pay up front to meet those requirements, including an amount up front to have first call on services in war time without extraordinary costs. This is a useful market distortion, but it serves a public purpose and it’s market friendly. Can we encourage pubic investment to service public needs while not destroying ability to serve the private market?

Question: Instead of government distorting market, can new providers with new products distort the market within the government to change the way it does business? Davidian says that FAA doesn’t use the FAR, but yet a different system.

Pittman says that Google and the Internet have changed the way we do business. But government is like driving a supertanker, takes a long time to change unless it’s a very attractive thing. Can be done but doesn’t typically happen quickly.

Muncy uses example of COTS. He found the former NASA general counsel who had gone to DARPA, and at DARPA he convinced Congress to give him OTA. Muncy found the academic papers of how it worked and his phone number, so that he could explain to NASA how his own former agency could use its own law. Need has to be desperate, but we may be in desperate times and they may be willing to change things. Hard for small entrepreneur to get a major agency to change its ways of doing business when it hasn’t even gotten into business itself.

Livingston: Needs to have strategies about what will work or not, with fallbacks and mitigations, and indicators to know when they have to fall back.

Wingo question: Went to NASA HQ as CEO of Orbital Recovery when they were looking into procurement of new TDRSS satellites. Put an offer on the table to prolong life of existing satellites for eighty millions dollars, saving them hundreds of millions of dollars in new ones. NASA didn’t know what to do with it. The best they could do would be to put out RFP, but then you wouldn’t be able to help them structure it because of conflict of interest, which means that someone else would get the business. FAR just doesn’t have that kind of flexibility.

Pittman: Purpose of culture is to prevent change, which is risky. Bigger the organization harder the culture is to change. Have to ask who is threatened, who will lose, or perceive that it is a threat, and find ways to satisfy them.

Davidian: Can the government be a good customer? Typically space enthusiasts ask government for money (tax abatements, contracts, whatever)?

Livingston: Can be a good customer, but requires a lot of due diligence and planning, and you have to have skin in the game and offer a value a proposition and be willing accept strings attached.

Pittman: One good thing that a government will do that private entities won’t necessarily is to accept risk (at least for R&D, in things like SBIRs and STTRs). You don’t necessarily want to take money from a VC, either. Strings are attached regardless of the money source.

Doug Comstock just walked in, from the Innovative Partnerships Office (responsible for things like Centennial Challenges, Davidian’s former boss). Question: disagrees that SBIRs and STTRs are a subsidy. Development of technologies that are of interest to the government, while also being of use to private industry that can generate products and services that provide returns to the taxpayer in increased revenues through economic growth. Should think of it as a great investment for the taxpayer.

Muncy: Yes, if you want to accelerate the amount of money into an industry, increase ability to make smallsats, new launch systems, that costs money. If you want it to happen, it is a subsidy, a federal decision to accelerate, then send money, but don’t send money the way you do to Constellation — do it in a way that is market friendly. SBIR/STTR are market friendly.

Argument from Pittman over subsidy versus investment and how to do the difference. How do we know when we’re merely transferring wealth and when we’re creating new industries and products and services?

Comstock: if you look at recent Space Foundation reports on global space markets, commercial revenue is about three times government revenue in the industry, and we’re developing the next generation of that. People raised these issues in the early days of NASA, that we should focus on planet, not space stuff, but a lot of good technology has come out of those investments.

Question from Lauer: Government as a whole sometimes does a good job of purchasing, but NASA seems to have problems. Does NASA have a way of learning from the past? Giving example of a NASA-initiated concept that they wanted to put on the station and give it to NASA for free, as long as they got contract rights. Started as sole-source, which then turned into something that had to be competed, got screwed up, same thing happened with Transhab, and they still have no free-flying camera on the station.

Comstock acknowledges history, but cites COTS as an example of ability to do things differently. Hopes it’s an indicator of where things are headed. Talking about a Sabotier reactor for water production on ISS that NASA won’t have to pay for. Hopes that NASA will be able to learn lessons.

Panel over. Clark Lindsey have notes as well.