Blue Origin ‘gambled’ with its Moon lander pricing, NASA says in legal documents

Blue Origin, Jeff Bezos's Blue Origin, gambled last year with its Moon lander proposal by hoping NASA would negotiate the $5.9 million price tag. Agency attorneys made blunt legal filings that were obtained by The Verge. NASA was cash strapped and had a tight budget. In April, it turned down Blue Origins lunar landing pad and chose SpaceXs, prompting protests by Bezos' space company.
NASA officials have not spoken much about Blue Origins legal disputes, except occasional acknowledgments that Blue Origins protests first at a federal court and then at a watchdog agency is stalling the agency's efforts to land humans on Moon by 2024. In hundreds of pages of legal documents The Verge obtained through a Freedom of Information Act Request, NASA attorneys detailed NASAs defense of the Artemis Moon program. They also doubled down on their decision to select SpaceX for the first crewed lunar surface mission since 1972.

Round 1: A costly bid

NASAs main response to Blue Origins protest was filed in May. Senior agency attorneys accused Blue Origin of using a door-in the-face bidding strategy with its $5.9 million proposal for Blue Moon. Blue Origin is developing the lunar lander with a National Team which includes Lockheed Martin, Northrop Grumman, and Northrop Grumman. Blue Origin could have offered NASA a lower price but did not because it expected NASA would ask for and negotiate for a lower cost, according to the attorneys. This is based on a six-page declaration that Brent Sherwood, senior vice president of Blue Origin, wrote in April.

Jeff Bezos backs a private space company that is well-funded and has a lot of money

Sherwood claims that NASA didn't provide Blue Origin, a well funded private space company, with the opportunity to submit a revised position after NASA discovered it couldn't get enough money from Congress for two lander proposals. He stated that Blue Origin had already contributed nearly one billion dollars in corporate contributions and private investments for the Moon lander bid and had the financial capacity to increase this.

Blue Origin, the world's richest man, stated in its protest that SpaceX's proposed price of $5.9B was partly based on the assumption that NASA would have enough money from Congress to pay for it. This despite Congress indicating that it would not give NASA the funds it requested a month prior to Blue Origin's December proposal. NASA's attorneys responded that they had instructed companies to submit their best proposals first. They cited seven instances in which NASA had told bidders it would award the contract. The decision to choose one or two companies was determined by how much funding it received from Congress.

Blue Origin claimed that NASA should have canceled or modified the terms of its program after Congress gave it only 25% of what it asked. Blue Origin also claimed that NASA should have invited SpaceX to modify parts of its proposal only after it had been selected for an award. This is one of hundreds of legal rebuttals NASA has filed.

NASA called BS on this argument. It stated that Blue Origin had placed a wager and lost.

Blue Origin lost a bet.

Blue Origin assumed the Agencys HLS budget and built its proposal accordingly. Blue Origin also made a calculated wager that NASA would not be able to afford Blue Origins initial price and award the contract to Blue Origin. Blue Origin will engage in post-selection negotiation to reduce its price. The four NASA lawyers wrote that all of these assumptions were false in the so-called Agency Report dated May 26th. Blue Origin is now aware that it lost and gambled, and seeks to use GAO's procurement oversight function in order to force NASA to pay the consequences of Blue Origins ill-conceived decisions.

NASA's assessment is not supported by the company. Although I would not say we did not offer the best offer, we submitted our proposal. Megan Mitchell, Blue Origins vice-president of government relations, said that she believed we made a great offer to The Verge. I won't comment on NASA calling it gambling. We disagree with that.

NASA's lunar lander program is at the heart of its efforts to put humans on the Moon by following a fast 2024 timeline that was established two years ago. SpaceX, which is the only awardee for the Moonshot phase, will conduct two core missions. One, a demonstration mission to Moon's surface with no astronauts, and another mission with astronauts. Blue Origins National Team, and Defense Contractor Dynetics were two of the bidders for lunar lander proposals that SpaceX did not accept.

Blue Origins lost the bet this time.

Blue Origin executives might have believed that this negotiation tactic would work, as it has in the past. All three bidders received NASA development funding as part of an initial phase of NASA's program to aid them in building their lunar landing platforms. This was April 2020, one year before SpaceX's $2.9 billion award. SpaceX received $135 million, Dynetics received $253 million, Blue Origins National Team received $579 million.

Blue Origin initially offered $879 million to pay for these development contracts. NASA filings show that proposals were due November 2019. After NASA requested negotiations, Blue Origin offered a discount of approximately $300 million and dropped the price to $579 million. Blue Origins' attorneys claimed that the agency had negotiated with Blue Origins to win the largest amount of funding. Blue Origins then entered the next competition and sold its Blue Moon lander for $5.9billion. They wrote that NASA was not required to request a negotiation at the time.

Blue Origins lost the bet this time.

Sherwood's April declaration was one of many attempts to prove that NASA had discriminated against Blue Origin and was biased in favor of SpaceX. NASA stated that a vague commitment to a largeable, non-specific discount was not sufficient to prove prejudice. However, Bezos took the initiative and wrote a unique open letter to NASA administrator Bill Nelson. Bezos stated that he would offer the agency a $2B discount on Blue Origins proposals.

NASA's minds were not changed by this. The GAO sided with NASA, stating that showing examples and prejudice was an essential part of any viable protest. Blue Origin, however, failed to do so. Blue Origin's claim that NASA's discussions with SpaceX were unfair was dismissed by the GAO. Blue Origin did not get the chance to speak with the GAO. The GAO stated that agency officials are free to meet with anyone they wish, regardless of the contracting rules. Thomas Armstrong, a GAO attorney, stated in a ruling that a decision by an agency not to initiate negotiations is something we will generally not review.

A small win at the GAO and a springboard for federal court

Blue Origins protest wasn't an absolute failure, however. Blue Origins claimed that NASA had given SpaceX an unfair advantage by not requiring it to schedule safety reviews with the government before every launch of its Starship vehicle. The Flight Readiness Reviews are safety reviews that should be completed 14 days prior to any rocket launch in the company's plan to reach the Moon. This is according to the rules of competition. Blue Origins proposed Blue Moon could be sent to the Moon in three commercial rocket launches, each with a safety review.

SpaceX's proposal included 16 launches and only one safety review. One launch of an orbital fuel stations, 14 launches fuel tankers to fuel the station in orbit and one launch by the Moon-bound Starship to fuel up at the station. (Loading off Earth takes a lot fuel so Starship will require a top-off before it can travel to the Moon). SpaceX claimed that each of the 14 fuel tankers would launch twelve days apart. This was contrary to NASA's requirement for a safety review fourteen days prior to each launch. NASA invited SpaceX for negotiations on the terms of their proposal. They agreed to have three reviews for each type rocket launch, one for each orbital depot, one to all the tankers and one to the Moon-bound Starship.

Blue Origin claims that NASA made a mistake here. The GAOs Armstrong agreed partially for the first time. NASA lawyers claimed that the agency's rules allowed for flexibility in reviewing reviews. Armstrong however sided with Blue Origins interpretation of the requirement that each launch must be reviewed by a single reviewer. Armstrong denied Blue Origins argument, stating that SpaceX's alleged missteps gave NASA an unfair advantage.

Round 2: Suing NASA

Blue Origin lawyers viewed the GAO ruling as valuable feedback in preparing for a new legal problem, this time at the US Court of Federal Claims, which is the last venue that can hear contract grievances.

Blue Origin sued NASA after it rejected the GAO's protest. The company's new complaint, which was kept under seal up to last week, focuses on the main issue it failed to address during the GAO dispute. It argues that NASA prejudiced Blue Origin and gave SpaceX an unfair edge. Its unfair advantage argument is based on the GAO's support for Blue Origin during SpaceXs Flight Readiness Reviews.

This is not the SpaceX proposal, it is not in final architecture. Blue Origins Mitchell stated that the revised safety reviews are a problem. This is a serious safety problem for Blue Origin and, I believe, the entire industry.

These claims by a losing bidder have been proven to be patently false

In a whitepaper sent to lawmakers earlier in the month, which The Verge obtained a copy, SpaceX stated that it will conduct safety reviews before every Starship launch. This is in line with its past practice for every operational launch and test flight. Blue Origin, however, claims it is confusing contract payment dates and actual safety reviews. It dismissed Blue Origin as a loser. This argument is absurd.

We always do flight readiness reviews! This argument is absurd. Elon Musk (@elonmusk September 22, 2021

Blue Origin claims in its 59-page complaint, that if it knew NASA would be flexible with safety review requirements, it would have engineered and proposed a completely different architecture at a lower cost that would have given it a significant chance of winning. It is not clear how NASA's flexibility would allow Blue Origin change its proposal for three launch-worthy launches. Although the company tried to explain it in a brief paragraph of its complaint, it was mostly deleted.

NASA did not mention Blue Origins safety review argument, in fact, it was absent from its main response to GAO's protest. It is also unclear what agency will say in court because so much of the information is sealed. NASA in April invited SpaceX to review its proposals. It stated that it believed each type of rocket launch would be subject to three safety reviews. NASA decided that its modified safety review arrangement was sufficient considering the unusual and surprising way SpaceX launched several Starships at once. SpaceX also claims that its unusual Starship approach was made possible by NASA allowing companies to suggest different architectures.

NASA now wants to end all litigation as quickly as possible in order to get its lunar lander program moving again. Last month, the agency agreed to suspend SpaceX's contract and allow the lawsuit to continue if Blue Origin agreed that a faster litigation schedule would be established. This will take place between November 1st and December 31st. Blue Origin, NASA and SpaceX are currently arguing before the court. They have been arguing about Blue Origins request for more documents and emails from NASA to be added to the courts record. NASA and SpaceX oppose the request of Blue Origin to release a less-redacted copy of their complaint.

If the court agrees with Blue Origin, and NASA is found to be in serious trouble, SpaceX would have to cancel its contract as Blue Origin requested. The agency would also likely have to reopen the competition for new proposals, a major setback to the agency's Moon program. Blue Origin losing would end the months-long SpaceX contract hold. This would allow work on Starship to resume, and Blue Origin would then be invited to pitch its lunar lander for future Moon lander competitions. NASA is already at risk from the delay. NASA lawyers expressed their concerns in one of the filings to GAO.

A simple delay in procurement can quickly turn into a lackluster political support, a siphoning of budget for other initiatives, and eventually a shelved mission.

The NASA Agency Report to GAO was lightly edited and filed in May as a response to Blue Origins' protest.