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Jeff Bezos' Blue Origin Beats Air Force in Court -- but Does It Matter?

Some folks just won't take "yes" for an answer.

In a controversial decision, the United States Department of Defense last year awarded United Launch Alliance, Northrop Grumman, and Jeff Bezos' private space company Blue Origin a combined $2.25 billion in funding to develop new rockets that are large enough to lift massive "national security" satellites into high orbit above the Earth.

The decision angered SpaceX, which was awarded no development money. (Unlike ULA's planned Vulcan rocket, Northrop's unfinished OmegA, or Blue Origin's work-in-progress New Glenn, SpaceX's candidates for these launches -- Falcon 9 and Falcon Heavy -- are both already developed, certified by the Air Force, and flying regularly.) SpaceX also worried that it might face prejudice in future launch competitions if the Pentagon should favor launches on rockets that it helped pay to develop over rockets it didn't.

Four rockets shooting skyward.

Four top space companies are aiming to win a big Pentagon contract -- and at least two of them are suing their customer. Image source: Getty Images.

Putting its ire into action, SpaceX sued the government in the U.S. Court of Federal Claims earlier this year, demanding the Launch System Prototype (LSP) competition be reopened so SpaceX could get a chance at the cash or that, at the very least, the Pentagon would stop subsidizing SpaceX's competitors' rockets.

Which is understandable. As Danny DeVito once explained: "Everybody needs money. That's why they call it money." So of course SpaceX wants some.

But then a strange thing happened: Blue Origin sued too.

Is Blue Origin a sore winner?

Not over the LSP rocket development contract, of course. Blue Origin is totally fine with accepting its $500 million share of that award to help it build New Glenn. Rather, Blue Origin filed a complaint with the Government Accountability Office, arguing that the next contract to be awarded -- Launch Service Procurement (confusingly, it has the same initials as the current program), which will pick companies to launch rockets after they've been developed -- is rigged against it.

Under Launch Service Procurement (we'll call this one LSP-2), you see, the Pentagon intends to award contracts for about 25 satellite launches between 2022 and 2027. Problem is, the Pentagon intends to award these contracts to only two of the companies bidding and not all four.

Now, if Blue Origin is one of the winners, everything should be fine and dandy. But Blue Origin worries that if it doesn't win an LSP-2 contract, it could end up locked out of the government satellite launch business for the better part of a decade. Starved of funds, by the time 2028 rolls around, the company might no longer be in business to compete for any potential future LSP-3 contract.

Be careful what you ask for, because...

This wasn't Blue Origin's only objection. In addition to explaining the dire economic consequences for the losers of picking only two winners, Blue Origin also argued that the Pentagon unfairly told bidders it will pick two winners based on how attractive their proposals were to the Air Force "when combined."

I'll explain. Ordinarily, you might expect the Air Force to look at the four companies bidding on LSP-2 and pick company A for offering the best combination of price, payload, and reliability and also company B for offering the second-best combination -- rejecting bids from companies C and D as inferior.

That's not what the Air Force said in its Request for Proposals (RfP), though.

Rather, the RfP was written such that, individually, bids from both A and B could be objectively better than bids from either C or D. But if C's and D's bids, when viewed in conjunction, looked better to the Air Force than A-and-C's (or A-and-D's or B-and-C's or any other permutation you can imagine), then the Air Force would be free to reject both A and B and award contracts to C-and-D instead.

Blue Origin called this method of evaluating the bids "unreasonable," inasmuch as it effectively required bidding companies to guess at what their competitors might bid and try to tailor their own bids to arrive at the best-looking combination.

...you just might get it

Last month, the GAO agreed with Blue Origin about that.

Calling the Air Force's preferred method of evaluating bids "inconsistent with applicable procurement law and regulation, and otherwise unreasonable," the GAO recommended that the Air Force rewrite its RfP to evaluate each company's bid on its own merits, independent of what anyone else bid.

To an extent, that's a victory for Blue Origin. Unfortunately, it's not the victory the company really wanted. The GAO still rejected Blue Origin's plea that the Air Force be required to award more than just two contracts -- and that is still the plan.

Therefore, there's still a chance that Blue Origin will get to build its rocket on the government's dime -- but never sell any launches on that rocket. Similarly, winning LSP doesn't guarantee Northrop Grumman or United Launch Alliance an LSP-2 win. Nor does losing LSP necessarily mean that SpaceX can't win LSP-2.

Long story short, despite "winning" its argument before the GAO, Blue Origin and its rivals are all pretty much right back where they started, hoping to win an LSP-2 contract from the Pentagon -- and facing a very real risk of going out of business in a few years if they don't. For now, the only thing that's really changed is that the Air Force will be issuing a revised RfP, and all four companies will have to bid again to win it.

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