Commercial-Like Acquisitions: Practices and Costs

Abstract Government attempts to procure space systems in a commercial-like manner usually involve a fixed-price contract for slightly modified commercial satellites or, in some cases, a completely new payload on a commercial product-line bus. Cost to deliver these systems ends up somewhere between a purely commercial contract and a traditional government cost-reimbursable program. While technical risks and engineering complexity play a big role, a system's final cost within this spectrum is also influenced by its “acquisition complexity,” which includes factors such as the amount and type of third-party oversight, the number of contract data deliverables, subcontractor management processes, parts/materials management requirements, and contract scope. Size of the contractor's business base is also a significant factor. Government cost estimating methods for commercial-like programs in the past have relied on decrements to government cost models by analogy to selected commercial programs. These methods have been difficult to substantiate and defend, so an approach to measure the cost impact of commercial acquisition practices is needed. With full participation from industry, the National Reconnaissance Office Cost Analysis Improvement Group (NRO CAIG) conducted a detailed data collection, survey, and analysis of over 60 commercial and commercial-like satellite acquisitions. Included were interviews with program managers, system engineers, and cost/pricing analysts from multiple satellite vendors. Results of this work built on prior commercial-vs.-government studies by quantifying the “acquisition complexity” of the systems studied and showing that it was strongly correlated to actual system costs. Our article includes an overview of the underlying commercial and government data, a description of the metrics collected, the acquisition-complexity scoring method, and the resulting model for estimating commercial-like acquisitions. This model assigns a score to any government or commercial procurement based on the details of its acquisition approach and then translates that score into a cost estimate. It is a valuable addition to the NRO CAIG's estimating toolkit, but it also serves as a feedback mechanism to NRO management about when a commercial-like acquisition approach may or may not be appropriate.