This is interesting news: if this story is true, OSC is pulling out of the deal. I'm guessing they pulled a bait and switch on George French. When they made the original deal with RpK, OSC wasn't expecting a CEV win for Lockheed Martin, but now that they're on the Orion team, the COTS deal doesn't look as good to them, so I'm speculating that they tried to renegotiate it.

It's not clear what this means for the overall COTS deal going forward. I don't know to what degree having OSC in the proposal was a factor in the NASA award. But if they can't raise the money, they'll have to get out of the game, and NASA will have to award another COTS contract to one of the runners up.

[Update a little before 5 PM EDT]

Just to clarify, per the first comment. Why did things change when Lockheed Martin won the Orion contract? OSC was hungry, and they committed to a ten million dollar investment in RpK in order to get a lot of the work on COTS. Once they had their plate full with the Orion work, it didn't look like such a great deal to them any more. They pushed too hard for a do over, and RpK pulled the plug (partly, no doubt, because they didn't want to do business with someone who would renege on a deal).

[Late evening update]

Here is a semi-official statement from RpK:

• In June 2006, Rocketplane Kistler and Orbital Sciences initiated discussions regarding a strategic relationship in which Orbital would have both a significant role in the development of the K-1 and a significant financial interest in Rocketplane Kistler.

• Rocketplane Kistler has been very pleased with the programmatic and technical interfaces with the Orbital personnel.

• However, in recent weeks, Orbital has conditioned investment in Rocketplane Kistler on changes to the K-1 Program that Rocketplane Kistler does not believe are in the best interests of Rocketplane Kistler and would be inconsistent with the goals and objectives of NASA in entering into a Space Act Agreement with Rocketplane Kistler.

• As a result, Rocketplane Kistler and Orbital have decided to terminate their strategic relationship.

• As part of its planning processes, Rocketplane Kistler has anticipated the possibility that one or more of its contractors may elect not to participate in the K-1 program. While the company regrets Orbital's decision, the decision will not impair the ability of the company to meet its obligations to NASA under the SAA. Among other things, we are increasing near term RpK staffing plans for conducting SE&I related activities that were previously planned for Orbital. RpK is also continuing discussions with several potential industry strategic partners who have recently approached Rocketplane Kistler about participating in SE&I and other development and operational areas of interest on the K1. We anticipate completing those discussions in the very near future and finalizing appropriate agreements that will provide the best strategic and economic value to Rocketplane Kistler.
  

"When they made the original deal with RpK, OSC wasn't expecting a CEV win for Lockheed Martin"

Rand:

Would you explain Orbital's reasoning? It is unclear to me how the LM Orion win affects Orbital's role in the RpK COTS team.

OSC along with EADS, USA, hamilton-sunstrand, Honeywell
were the Lockheed team mates for CEV.

OSC probably made a pragmatic decision that CEV would be
worth $100-$200M of business with a 300% overhead,
a 7% profit, and a 2% B&P line, which would make OSC
about 10-$20M in profit, while COTS with RpK would
require a $10M investment, a shot at $100M in
business and would compete against Minotaur,
pegasus and CEV.

OSC couldn't make the business case for the investment,
and probably once they spent some time examining
Kistler and the Rocketplane team they probably didn't
want to be close to these chuckleheads.

Be careful.

Lots of preliminary agreements are dependent upon
an ability to negotiate statements of work, payment schedules,
Terms and conditions.

I'm sure OSC and RpK had never closed on these, having
merely done letters of intent. Once CEV closed,
OSC was probably looking for long schedules, investment
triggered upon conditions and timed late, easy escape
clauses etc. RpK was probably looking for $10M
up front, lots of penalty clauses, guarantees of
staffing, people, deliverables, penalties for non-performance.

Ultimately it's a business decision. If Lauer doesn't
know how to negotiate this, or French can't close it,
well, the deal can't be that good.

People do deals when it's good for both parties.

You continue to miss the point, which was that a deal that looked good before the Orion award didn't look so great afterward. I can imagine that OSC made a lot of promises before that they decided not to honor after.

Well, it's probably better to get this out of the way early.

OSC and RpK couldn't agree on a program.
If the deal was a good deal, they would have found a deal
both sides could live with.
How do you know OSC made promises they decided not to honor?
Maybe RpK made promises they couldn't deliver on?

Maybe you should write a monograph on the OSC-RPK deal.

And the troubled Kistler saga continues... were they too ambitious? Will it ever be built?

I'd really love to see some good technical stuff about K-1, are there any good sources?