May 5, 2022: -On Tuesday, the head of the National Aeronautics and Space Administration (NASA) discussed a dramatic shift in how the agency is planning to issue contracts for its space exploration programs, which cited success with cost-saving competitive bids.

NASA administrator Bill Nelson, who testifies before a Senate subcommittee on the agency’s budget for landing astronauts on the moon, strongly backed fixed-price contracts with companies and decried more variable cost-plus agreements as “a plague” on the agency.

Nelson’s emphasis on competition represents a boon for the growing swath of space companies looking to provide low-cost services to NASA and a sharp curtailing for aerospace and defense contractors that traditionally benefited from cost-plus deals.

Fixed-price contracts set a maximum payout for a good or service, while cost-plus agreements result in the government paying for the cost of the work, plus additional fees, which can balloon throughout the project.

The most significant difference between the contract structures is who picks up the bill for delays or cost overruns: fixed-price assumes the companies building the systems absorb any unanticipated expenses, while cost-plus leaves NASA on the hook.

NASA holds agreements of each structure for the most expensive parts of its lunar Artemis program: The Space Launch System (SLS) rocket and Orion capsule designed to take astronauts to the moon’s orbit, under cost-plus contracts, and SpaceX’s Starship rocket to carry the astronauts to the lunar surface, under a fixed-price deal.

NASA has awarded numerous multi-billion dollar cost-plus contracts to various contractors to develop SLS and Orion, primarily to Boeing, the lead contractor building SLS; Lockheed Martin, leading Orion development; and Northrop development Grumman, supplying the rocket’s boosters.

Since 2012, NASA has spent $20 billion to develop SLS, and more than $12 billion on Orion, according to the agency’s Inspector General. And, not including development funding, the cost of each SLS launch has ballooned eightfold since 2012: From $500 million to $4.1 billion, with the rocket’s debut delayed five years and counting.

By comparison, NASA has had steady success with major fixed-price contracts. Under Commercial Crew, the agency awarded SpaceX nearly $3.1 billion and Boeing nearly $4.8 billion for the past decade to develop spacecraft to deliver astronauts to the International Space Station.