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[Senate Hearing 114-608]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-608

    MILITARY SPACE LAUNCH AND THE USE OF RUSSIAN	MADE ROCKET ENGINES

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON ARMED SERVICES
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            JANUARY 27, 2016

                               __________

         Printed for the use of the Committee on Armed Services

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Available via the World Wide Web: http://www.fdsys.gov/

                                   ______

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                      COMMITTEE ON ARMED SERVICES

                       JOHN McCAIN, Arizona, Chairman
JAMES M. INHOFE, Oklahoma             JACK REED, Rhode Island
JEFF SESSIONS, Alabama                BILL NELSON, Florida
ROGER F. WICKER, Mississippi          CLAIRE McCASKILL, Missouri
KELLY AYOTTE, New Hampshire           JOE MANCHIN III, West Virginia
DEB FISCHER, Nebraska                 JEANNE SHAHEEN, New Hampshire
TOM COTTON, Arkansas                  KIRSTEN E. GILLIBRAND, New York
MIKE ROUNDS, South Dakota             RICHARD BLUMENTHAL, Connecticut
JONI ERNST, Iowa                      JOE DONNELLY, Indiana
THOM TILLIS, North Carolina           MAZIE K. HIRONO, Hawaii
DAN SULLIVAN, Alaska                  TIM KAINE, Virginia
MIKE LEE, Utah                        ANGUS S. KING, JR., Maine
LINDSEY GRAHAM, South Carolina        MARTIN HEINRICH, New Mexico
TED CRUZ, Texas                      
                                     
                   Christian D. Brose, Staff Director
                   Elizabeth L. King, Minority Staff 
                                  Director

                                  (ii)

  

                         C O N T E N T S

_________________________________________________________________

                            January 27, 2016

                                                                   Page

Military Space Launch and the Use of Russian-Made Rocket Engines.     1

James, Honorable Deborah Lee, Secretary of the Air Force.........     4
Kendall, Honorable Frank III, Under Secretary of Defense for         11
  Acquisition, Technology and Logistics.

Questions for the Record.........................................    35

                                 (iii)

 
    MILITARY SPACE LAUNCH AND THE USE OF RUSSIAN-MADE ROCKET ENGINES

                              ----------                              

                      WEDNESDAY, JANUARY 27, 2016

                                       U.S. Senate,
                               Committee on Armed Services,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m. in Room 
SH-216, Hart Senate Office Building, Senator John McCain 
(chairman) presiding.
    Committee members present: Senators McCain, Sessions, 
Ayotte, Fischer, Cotton, Rounds, Ernst, Tillis, Sullivan, Lee, 
Reed, Manchin, Shaheen, Gillibrand, Blumenthal, Donnelly, 
Hirono, King, and Heinrich.

       OPENING STATEMENT OF SENATOR JOHN McCAIN, CHAIRMAN

    Chairman McCain. Good morning.
    The committee meets today to receive testimony on military 
space launch and the use of Russian-made rocket engines from 
Under Secretary of Defense for Acquisition, Technology and 
Logistics Frank Kendall and Secretary of the Air Force Deborah 
James. We thank the witnesses for their service and for 
appearing before the committee.
    With Russia and China aggressively weaponizing space, we 
can no longer take for granted the relative peace we have 
enjoyed in space for nearly 60 years. Both Russia and China are 
pursuing unprecedented counter-space programs and investing 
robust resources to challenge United States superiority in 
space. As Secretary James explained to ``60 Minutes'' last 
April, Russia and China are testing and investing in anti-
satellite weapons, including direct assent missiles, ground-
based lasers, and satellite jammers. To respond to these 
provocations, the Defense Department is investing $5 billion 
and reviewing nearly every facet of the way we operate in space 
and utilize our space-based capabilities.
    In stark contrast to the reviews underway for satellites 
already in space, the Department appears less interested in 
rapidly addressing our most immediate threat, our reliance on 
Russian-made rocket engines. Today Russia holds many of our 
most precious national security satellites at risk before they 
ever get off the ground. Yet the Department of Defense has 
actively sought to undermine, with the support of the United 
Launch Alliance, ULA, and the parochial motivations of Senator 
Shelby and Senator Durbin, the direction of this committee to 
limit that risk and end the use of the Russian-made RD-180 by 
the end of this decade.
    My views on this matter are well known. The benefits to 
Vladimir Putin, his network of corruption, and the Russian 
military industrial complex are also well known. Yet despite 
the availability of alternatives, a select few still want to 
prolong our dependence on Russia while they target our 
satellites, occupy Crimea, destabilize Ukraine, bolster Assad 
in Syria, send weapons to Iran, and violate the 1987 
Intermediate Range Nuclear Forces Treaty.
    Our hearing today will closely evaluate the arguments of 
those making the same empty promises and proposing the same 
gradual transition that had been promised since the Department 
of Defense first allowed the use of Russian-made engines in 
1995. Even then, Secretary of Defense Bill Perry recognized the 
inherent risks and made domestic production within 4 years a 
condition for using the RD-180. That was back in 1995. Yet 20 
years later, after numerous stalling efforts rooted in 
corporate greed and naive assertions of defense cooperation 
with Russia, little progress has been made in limiting the 
influence of Russia on space launch. This is unacceptable. I 
will do everything in my power to prohibit the use of Russian-
made rocket engines in the future.
    This committee has debated this issue at length. In 
hearings, in markup, and on the Senate floor, not once but 
twice. The Fiscal Year 2016 National Defense Authorization Act 
[NDAA] included compromise language that facilitates 
competition by allowing for nine Russian rocket engines to be 
used as the incumbent space launch provider transitions its 
launch vehicles to non-Russian propulsion systems. I certainly 
did not get the immediate prohibition I would have otherwise 
wanted, but was willing to compromise to send a unified message 
that the continued use of Russian technology to launch our 
satellites, not to mention the continued subsidy to Putin's 
military and close friends, was not in our national security 
interests.
    At every turn, the Air Force and ULA [United Launch 
Alliance] have replied with stalling tactics, stale arguments, 
and suspect assertions. After years of reaping the benefits as 
a monopoly provider of space launch capabilities, ULA complains 
that eliminating the RD-180 will somehow result in replacing 
one monopoly for another. The fact is that ULA has two launch 
vehicles, and if the Air Force were to pursue split buys for a 
short period of time until a new engine is developed, we could 
eliminate our dependence on the RD-180 today without 
compromising future competition.
    The Air Force has also complained time and again that it 
cannot develop a new rocket engine by 2019. It says an awful 
lot about the current acquisition system when the default 
assertion from the Air Force is that it takes longer to develop 
a rocket engine today than it took to develop the entire Saturn 
V launch vehicle that took us to the moon in the 1960s.
    It is unfortunate that it took the threat of today's 
hearing for the Air Force to award a contract for a prototype 
to replace the RD-180. 2 years after Russia invaded Crimea, the 
Pentagon just recently signaled its desire to allocate over 
$250 million for a prototype replacement engine. Even this 
welcome gesture appears fraught with non-compliance to 
congressional direction. Instead of picking two promising 
designs, the Air Force appears poised to dilute the limited 
resources across numerous concepts, some of which would require 
the development of an entirely new launch vehicle. In doing so, 
they will all but guarantee that no one will be able to develop 
an engine to replace the RD-180 by 2019.
    ULA appears to be willing to take whatever steps necessary 
to extend its questionable dealings with Russia. We saw this 
most recently when ULA took steps to manufacture a crisis by 
artificially diminishing the stockpile of engines they 
purchased prior to the Russian invasion of Crimea. That crisis 
proved short-lived. Just days after the signing of the omnibus 
appropriations bill, ULA announced it had ordered 20 new RD-
180s, a nearly half a billion dollar windfall for Putin and the 
Russian military industrial complex with the added benefit of 
stringing out our dependence on Russian-made rocket engines. We 
must label ULA's behavior for the manipulative extortion that 
it is. I look forward to hearing from our witnesses today 
whether they support the actions ULA took when they sought to 
coerce a change in the law by not competing for the GPS III 
launch late last year.
    Tomorrow I will be introducing legislation with House 
Majority Leader Kevin McCarthy to strike language air-dropped 
into the 2,000-page omnibus bill last month. This legislation 
is the first of many actions I will take this year to ensure we 
end our dependence on Russian rocket engines and stop 
subsidizing Vladimir Putin and his gang of corrupt cronies.
    I thank the witnesses again for appearing before the 
committee, and I look forward to their testimony.
    By the way, I did not mention the unprecedented and 
outrageous $800 million a year that ULA is paid for doing 
nothing, an unusual and incredible expenditure of taxpayers? 
dollars, which fortunately we have cut off as a result of this 
year's defense authorization bill.
    Senator Reed?

                 STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you very much, Mr. Chairman, and let me 
thank you also for holding this hearing. It is a very important 
and vital subject.
    I thank the witnesses for appearing and also for their 
service to the Nation in many different capacities.
    I believe that today's hearing has three issues that the 
committee needs to understand and follow up.
    First, what are we doing to develop a replacement for the 
Russian RD-180 engine? This committee has spoken forcefully, as 
the chairman pointed out, in two National Defense Authorization 
Acts to fund a replacement for it by 2019. The Congress has 
appropriated $444 million in the past 2 years in support of 
this effort, $304 million, indeed, that was above the sum 
requested by the Department of Defense. This is one of the rare 
events where the Department is getting substantially more 
funding than they are proposing. I believe we are sending a 
strong message, and we want your response.
    Second, I believe we need to understand what the Department 
actually needs in terms of RD-180 engines based upon what 
current Atlas V rocket can uniquely lift that other competitors 
cannot currently lift. We have been told that Atlas V will 
operate through 2022 until a new rocket with a U.S. engine can 
replace it.
    Third, I think we need to understand what the Department is 
doing to encourage the entrance of other competitors to the DOD 
launch market. The United Launch Alliance, or ULA, has to build 
an entirely new rocket. We should be encouraging other entrants 
as a hedge so that we avoid SpaceX being the only provider of 
launch, much like ULA was. In case there are delays with the 
replacement to this Atlas V rocket, we do not want to be in 
that position.
    With that, let me thank everyone for their participation 
today, and I look forward to a very important hearing.
    Thank you, Mr. Chairman.
    Chairman McCain. Welcome, witnesses. Secretary James?

STATEMENT OF HONORABLE DEBORAH LEE JAMES, SECRETARY OF THE AIR 
                             FORCE

    Ms. James. Thank you, Chairman McCain, Senator Reed, and 
other members of the committee.
    Frank Kendall and I welcome the opportunity to provide our 
perspectives today on space launch.
    The U.S. relies upon space as an essential element of our 
national security. Space provides us with the ability to 
operate effectively around the world, to understand what our 
own forces are doing, and to stay ahead of our adversaries. 
Space is key to projecting credible and effective power around 
the world to support our allies and deter aggression. 
Maintaining our advantage requires the ability to modernize and 
replenish our space architecture through a reliable launch 
capability. For this reason, maintaining assured access to 
space remains our number one priority. Indeed, this is 
memorialized in title 10 U.S. Code.
    You may recall a string of launch failures in the late 
1990s that resulted in the loss of billions of dollars of 
hardware and launches were suspended at that time for nearly 8 
months while investigations were conducted. This experience 
reinforced the importance of having multiple pathways to space. 
Two highly reliable launch systems protect the Nation's ability 
to access space, if one system were to suffer a failure that 
grounded an entire fleet.
    Assured access by law needs to be provided by U.S. 
commercial providers where space transportation services are 
required. Moreover, all of us--all of us--want competition 
between launch service providers because competition which, by 
the way, is also required by law, can help to control costs to 
the taxpayer and spur innovation in launch technology.
    While we continue to believe that having access to about 18 
RD-180s is prudent over the next few years to maintain 
competition in the short term, we also recognize very strongly 
the requirement in the fiscal year 2016 NDAA to transition away 
from the use of Russian engines through full and open 
competition. I assure you we are working all of these mandates 
in law as quickly as possible.
    Now, this is an exciting time to be in space launch. 
Whereas in the 1960s and 1970s, Government investment largely 
drove technology development in this field, today private 
sources of funding have joined forces to spur a new generation 
of innovation in launch capabilities. That is a great deal for 
the taxpayer because it means that not all of the funding for 
these endeavors has to come from us the way it did in the 1960s 
and 1970s.
    We are optimistic about these new commercial entrants and 
have contributed our time, resources, energy, and expertise to 
help develop their systems, understand needs, certify them for 
Government applications, learn from their failures, and 
celebrate their successes.
    For example, I recently spoke with Elon Musk to 
congratulate him on the achievement of returning a first-stage 
rocket to earth in a controlled manner, which is an event that 
may someday allow reuse of a major rocket component and reduce 
cost to the U.S. taxpayer, as well as other customers. So we 
look forward to continue working with U.S. companies to help 
mature these capabilities.
    In the meantime, however, we must keep in mind the only 
launch vehicles that can reach the full range of orbits and 
carry our heaviest payloads today remain the Atlas and Delta 
families. ULA builds and flies the Atlas and Delta for the U.S. 
Government and other commercial customers, and they currently 
enjoy an unprecedented record of successful launches, 90 of 
which were accomplished under the EELV program.
    Now, this achievement was enabled by very high levels of 
mission assurance, including rigorous engineering review and 
component testing. Funding for these government-mandated 
mission assurance requirements, along with the costs of 
maintaining launch infrastructure and a skilled workforce, came 
through a contract vehicle with the government known as the 
EELV Launch Capability Arrangement, otherwise known as the ELC.
    Now, while ULA operated in a sole-source environment, the 
ELC was an effective way to cover the government-mandated costs 
for the EELV, particularly the block buy. In a competitive 
environment, however, it is being phased out, just as the NDAA 
says, and it certainly will not be necessary in the future 
because we are moving into a world of competition.
    In the interim, we have put in place an apples-to-apples 
cost adjustment situation for launch competitions to ensure 
fairness in those competitions.
    Now, like some of you--perhaps all of you--I was very 
surprised and disappointed when ULA did not bid on a recent GPS 
competitive launch opportunity. Given the fact that there are 
taxpayer dollars involved with this ELC arrangement I just 
described to you, I have asked my legal team to review what 
could be done about this. They are looking at options, 
including early termination of the ELC arrangement and how such 
an early termination could possibly impact the repricing of 
remaining block buy launches.
    Another complication to consider is the state of play on 
the Delta, which is no longer commercially competitive. Given 
the restrictions on the use of Atlas, DOD must look for ways to 
meet the mandate of at least two commercially viable launch 
vehicles or family of launch vehicles capable of launching 
national security payloads.
    In a global launch environment, commercial viability is all 
about cost. How do you incentivize industry to make the 
investments needed to spur the innovation that will bring down 
those costs? Well, we decided to ask industry that question 
directly, which is why we issued an RFI and obtained data to 
address that matter about a year and a half ago.
    Now, after studying the responses to this RFI, we selected 
public-private partnership as the best way to ensure access to 
at least two domestic launch service providers. This business 
model, I want to say again, is a better deal for the taxpayer 
because it uses to a degree other people's money to help 
eliminate our dependency on the RD-180. Our fiscal year 2017 
budget request will reflect this approach.
    Now, let me give you an update on our plan and our progress 
to date.
    Our plan includes first implementing robust risk reduction 
and technology maturation efforts. The science involved with 
rocket launch and getting into space is hard science, and 
technology maturation and risk reduction is a good first step 
for hard science problems.
    The second step is we are using other transaction authority 
agreements to execute fast and flexible teaming arrangements 
with industry partners for launch system development. While we 
expected that some rocket propulsion system work might be 
required within these agreements, we never intended to focus 
solely on rocket engines. Unfortunately, the NDAA limits our 
effort in fiscal year 2016 to development of rocket engines. Of 
course, we are complying with this requirement. The Department, 
however, would strongly prefer not to fund a rocket engine 
alone because a rocket alone will not get us to space. We need 
an entire capability, not just one single component. If we were 
to continue down the path of funding rocket engines alone, we 
believe this effort would benefit only one--only one--launch 
service provider, which we do not really believe is anyone's 
intent.
    In fiscal year 2017, we need and intend to apply our 
investment to ensure the availability of a complete launch 
system through public-private partnerships. This in fact is 
step three of the plan.
    Finally, in step four, we will award contracts for launch 
services projected to occur in the fiscal year 2022 and 2023 
time frame. We believe this is the best approach to achieve our 
mandate of assured access to space with two certified 
commercially competitive domestic launch providers.
    Implementing the fiscal year 2017 elements of this plan 
will require the removal of language that restricts the use of 
these funds to engine development alone, and we would greatly 
appreciate this committee's support of this approach. So far, 
of the $260 million authorized and appropriated, which is $41 
million that was reprogrammed in fiscal year 2014 and $220 
million authorized and appropriated in fiscal year 2015, we 
have obligated just over $176 million, which is all of the 2014 
money that was reprogrammed and $135 million of the fiscal year 
2015 dollars. The balance will be obligated soon pending, of 
course, successful outcome on negotiations with industry. All 
of these monies are directed toward the first two components of 
the plan that I just described to you.
    To summarize, Mr. Chairman, we remain committed to assured 
access to space through at least two commercially viable 
domestic launch providers. We believe in competition. We think 
this is in the best interest of the taxpayer, and it ultimately 
will contribute to a healthy industrial base in the future over 
time.
    We affirm we are moving as quickly as we can to eliminate 
the use of the RD-180 engine, consistent with the NDAA.
    Finally, we remain committed to maintaining full compliance 
with sanctions against Russia. Yesterday I asked the Under 
Secretary for Policy and the General Counsel of DOD to work 
with our colleagues in the Departments of State, Commerce, and 
Treasury to update a previous ruling on the matter of 
Energomosh, given that there have been recent changes over the 
last few weeks in the management of the Russian space sector. 
We will get back to you on this soonest.
    I thank you. I would yield to Mr. Kendall, and we look 
forward to your questions.
    [The joint prepared statement of Ms. James and Mr. Kendall 
follows:]

  Joint Prepared Statement by the Honorable Deborah Lee James and the 
                      Honorable Frank Kendall III
    Chairman McCain, Ranking Member Reed, and distinguished Members of 
the committee, thank you for the opportunity to appear before you to 
discuss how we deliver national security space capabilities to the 
nation's warfighters and intelligence community (IC). These 
capabilities provide our nation decisive advantage in situational 
awareness, precision navigation and targeting, and command and control, 
and without assured access to space via reliable launch services, that 
advantage would be at risk.
    Combatant commanders rely on space-based effects, including 
worldwide precision navigation, threat warning, protected strategic and 
tactical communications, for every military operation. Launch systems 
must provide assured access to space to ensure the benefits of space 
for military operations, diplomatic engagements, and the continued 
development of the economy. The loss of access to space would have an 
immediate and devastating impact on Department operations. 
Consequently, in today's increasingly contested space domain, the 
Department cannot depend entirely on only one source for critical 
national security satellites.
    By way of background, the Department is both guided and constrained 
by public law in how we develop, sustain, and acquire national security 
space launch capability. The Department's number one priority in space 
launch is assured access to space, as codified in title 10, section 
2273 of the US Code and the National Space Transportation Policy. 
Assured access to space as mandated by title 10 requires ``the 
availability of at least two space launch vehicles (or families of 
space launch vehicles) capable of delivering into space any payload 
designated by the Secretary of Defense or the Director of National 
Intelligence as a national security payload.'' Ultimately, this law 
allows for continued access to space should one system suffer a fleet-
grounding event or otherwise become unavailable.
    The Department utilizes commercial space transportation services to 
meet its requirements, as mandated by the Commercial Space Act (51 
U.S.C. 50131) and currently procures launch services for National 
Security Space launches. The Department does not take ownership of any 
launch hardware and plans to continue using the launch service approach 
to manage the transition from use of the RD-180.
       historical significance and getting to where we are today
    In the early days of U.S. space exploration, Government intellect 
and investment drove the development of launch capability it its 
entirety. The Gemini and Apollo programs in particular required systems 
with both the scale necessary for large payloads and the mission 
assurance standards for manned spaceflight. Industry provided 
significant contributions through cooperative research and development 
agreements as well as direct investment through traditional contracts, 
but the Government was the prime integrator, and owned the design and 
the key technologies developed for heavy launch. This arrangement--
where any changes driven by the payloads rippled through the designs of 
the rocket propulsion system and the rocket itself, and the Government 
covered all of the costs--persisted until the Nixon Administration's 
decision in 1972 to merge the launch efforts of the U.S. Government for 
defense, scientific, and commercial purposes in a single Space 
Transportation System (STS). A primary goal of the STS, or Space 
Shuttle, was to obtain cost efficiencies across the Federal Government 
through sustained launch rates of mostly reusable hardware.
    Tomorrow marks the 30th anniversary of the Space Shuttle Challenger 
accident. Many of us remember exactly where we were on that cold 
January morning in 1986 when the nation mourned the loss of seven brave 
astronauts. In the wake of Challenger, the Air Force modernized its 
expendable launch vehicle families--Atlas, Delta, and Titan--to launch 
critical national security payloads that would be grounded until the 
Space Shuttle returned to flight. The last years of the 1980s and the 
early years of the 1990s were spent launching these national security 
payloads on expendable launchers--as well as some remaining Space 
Shuttle launches--to meet the Department's growing need for space 
systems such as Global Positioning System (GPS) and Defense Support 
Program theater missile warning as demonstrated by their groundbreaking 
use during Operation DESERT STORM in 1991.
    By the mid-1990s, the Department settled upon the Evolved 
Expendable Launch Vehicle (EELV) program as the path to establishing 
assured access to space. A large commercial launch market for 
commercial telecommunications satellites was expected to sustain the 
marketplace for multiple domestic U.S. launch vehicle providers so that 
the Federal Government could leverage economies of scale in a market-
driven cost environment, and sustain alternatives should one launch 
vehicle family be grounded for any reason. At this juncture, The Boeing 
Company (Boeing) and Lockheed Martin Corporation (Lockheed Martin) were 
our two sources of launch capability in this class, but two events 
occurred that changed the landscape. First, a series of launch failures 
resulted in the loss of three national security payloads and more than 
$5.0 billion worth of hardware. The resultant failure investigations 
halted launch operations for nearly eight months, and reinforced the 
importance of access to multiple pathways to space.
    Second, the commercial market did not materialize as predicted. To 
preserve the U.S. Government's assured access to space, in 2006 the 
U.S. Government supported the establishment of United Launch Alliance, 
a joint venture of Lockheed Martin and Boeing that combined the 
production of the Government space launch services of the two companies 
into one central plant, and co-located engineering functions to improve 
cost efficiency.
    Since 2006, much has changed within the launch industry and the 
global security environment. New sources of domestic supply, such as 
Space Exploration Technologies (SpaceX), have successfully demonstrated 
their ability to deliver payloads into space. New arrangements between 
government and industry, as witnessed by NASA's Commercial Orbital 
Transportation Services (COTS) and Commercial Resupply Services (CRS) 
contracts with Orbital Sciences (now Orbital ATK) and SpaceX, have 
shown that innovative public-private partnerships can be leveraged to 
obtain reliable space launch services at reasonable costs. New 
commercial applications of space, including large constellations in low 
earth orbit for persistent remote sensing and global internet services, 
are driving growth in projected launch demand. Finally, growing 
concerns with the acceptability and availability of Russian-supplied 
engines in the wake of the 2014 Crimean crisis have called into 
question the United States Government's previous strategy of utilizing 
Russian RD-180 rocket engines for national security missions. Our 
strategy, in the early 2000s was to manufacture RD-180 engines for 
national security missions in the United States. We deferred co-
production and ultimately moved towards a two-year stockpile of engines 
to mitigate disruptions to the supply chain. We are all in agreement 
with the need to end the use of the RD-180 with minimal impacts to 
national security as soon as possible.
                      competition and new entrants
    As noted, competition between launch service providers both 
complies with the terms of the Commercial Space Act and serves as a way 
of controlling cost and spurring innovation. While government 
investment has traditionally driven technology development in this 
field, private sources of funding have now joined forces to spur a new 
generation of innovation in launch capabilities.
    We remain optimistic about these new entrants to the market, and 
have contributed significant time, energy and expertise to help them 
develop their systems, understand customer needs, certify them for 
government applications, learn from their failures, and celebrate their 
successes. We look forward to working with these companies to continue 
to mature their capabilities. In the meantime, we remain dependent on 
the Atlas and Delta families as the only launch vehicles that can reach 
the full range of orbits and carry our heaviest payloads.
    United Launch Alliance builds and flies the Atlas and Delta 
families for the U.S. Government and commercial customers, and they 
currently enjoy an unprecedented record of successful launches, 90 of 
which were accomplished under the EELV program. This exceptional 
achievement was accomplished with very high levels of mission 
assurance, including rigorous engineering review and component testing.
    In this constrained budget environment, we believe that competition 
between certified launch providers on a level playing field is the best 
mechanism to incentivize the innovation required to do so. The simple 
fact is that the Delta family is not cost competitive, and with the 
restrictions on the use of Atlas, the Department must continue to look 
for alternative launch capabilities which are compliant with the law.
                          statutory challenges
    Section 1604 of the 2015 NDAA requires that we develop a domestic 
next-generation rocket propulsion system suitable for national security 
use by 2019, that it be available for purchase by all domestic space 
launch providers, be developed using full and open competition, and 
that we examine the benefits of public-private partnerships to do so. 
We have examined the feasibility of public-private partnerships through 
the use of a Request for Information (RFI). The Air Force released a 
RFI in August 2014 to solicit industry inputs on propulsion and launch 
systems. The conclusion from the RFI responses is that a solution at 
the propulsion level alone would not result in a launch vehicle 
solution capable of meeting the National Security Space (NSS) 
requirements. In contrast to the early days of space exploration, the 
U.S. Government no longer controls the technical baseline through 
ownership of the designs or integrating the launch systems. Shared 
investment with launch providers and competition for launch services--
much like the original EELV program and the NASA Commercial Orbital 
Transportation Services (COTS), Cargo, and Commercial Crew programs--is 
the most cost-effective approach to transition from the RD-180, while 
ensuring the existence of two or more domestic, commercially viable 
launch providers that also meet NSS requirements by the end of fiscal 
year 2022.
    The Defense Appropriations for fiscal year 2015 provided 
$220,000,000 to accelerate rocket propulsion system development to 
fiscal year 2019. The agreement directs the Department, in consultation 
with the NASA Administrator, to develop an affordable, innovative, and 
competitive strategy for this development effort that includes an 
assessment of the potential benefits and challenges of using public-
private partnerships, innovative teaming arrangements, and small 
business considerations. The strategy should include plans for targeted 
risk reduction projects and technology maturation efforts to buy down 
risk and accelerate potential launch system solutions.
    Section 1608 of the 2015 National Defense Authorization Act (NDAA) 
restricts the use of the RD-180 rocket engine. Just as the Department 
complied with Congressional direction to incentivize industry to adopt 
the RD-180 in the 1990s, we are now taking steps to eliminate strategic 
reliance on Russian engines while maintaining assured access to space. 
As we testified last year, we continue to believe that provision of 18 
RD-180 engines will be sufficient to maintain a competitive environment 
during the transition period. The Department is committed to 
transitioning off of the RD-180 as quickly as possible while minimizing 
impacts to national security .
                  launch services, not rocket engines
    Assured access to space requires end-to-end space launch services 
and not just a rocket engine. As many Department of Defense witnesses 
have testified to this and other congressional committees, simply 
replacing the RD-180 with a new engine will not deliver the performance 
of the current design. To explain why, it is necessary to describe the 
relationship between a rocket and its engine, as well as how modern 
rockets are different from earlier launch systems.
    To deliver a payload to orbit safely, rocket engines must release 
and direct tremendous amounts of energy in order to escape gravity, 
while protecting the payload from the shock and vibration unleashed by 
that energy. In the early days of space launch, the Government owned 
the technical baseline, and built larger engines and heavier structures 
in the rocket body to handle the shock. However, this approach resulted 
in launch systems that were both inefficient and very expensive. Modern 
launch systems are designed to be more efficient, by reducing the 
weight of the rocket structure itself. To handle the stresses, every 
modern rocket is designed around its engine and the performance 
envelope defined by its payloads. For example, the Atlas V was built 
around the RD-180 engine to efficiently deliver a wide range of 
payloads into a variety of orbits. As a result, any effort to simply 
replace the RD-180 with a substitute engine would require extensive 
design and engineering changes, as well as significant dynamic and 
acoustic testing, and would ultimately result in a new launch system, 
which would require recertification.
           united launch alliance and eelv launch capability
    Consistent with the Commercial Space Act, the Department procures 
launch services rather than the individual hardware components used to 
provide those services. The Department does not have contractual 
control over ULA's internal allocation of RD-180 engines; therefore, 
ULA is in the best position to provide detailed information relating to 
the timing of ULA's assignment of the five RD-180 engines that meet the 
requirements of the Fiscal Year 2015 NDAA without the need for a 
waiver. We understand that ULA seeks to minimize the inventory it 
carries and the time between engine testing and launch. Given this 
understanding along with the engine production timelines and launch 
manifest, both the Department and NASA do not believe ULA's decision to 
assign these five engines to support its current manifest was early to 
need.
    The current EELV Launch Capability (ELC) arrangement is a contract 
option awarded as part of the EELV contract in 2006 to fund the fixed 
cost of maintaining ULA launch infrastructure critical to assuring 
access to space. The purpose of ELC was to ensure that ULA, as the sole 
launch provider at the time, could be ready to launch when critical 
national security payloads were needed, as opposed to waiting for a 
slot on a manifest. It accomplished this goal by stabilizing the 
engineering workforce, supporting launch infrastructure maintenance, 
funding costs associated with the Government's independent mission 
assurance process, and sustaining launch site operations. This approach 
was appropriate for the EELV sole-source environment, and resulted in 
both cost savings and increased flexibility for the Government in 
scheduling launches. As we transition to a competitive environment, the 
Department has reached an agreement with ULA on the equitable 
allocation of ELC cost to each launch for the remainder of the contract 
duration, in order to ensure a level playing field for competing launch 
providers. The current ELC structure will end with the completion of 
the EELV Phase I Block Buy contract, currently projected in fiscal year 
2019.
                               way ahead
    The Department delivered a strategy to the Congress in August 2015 
that described our use of targeted risk reduction projects and 
technology maturation efforts to buy down risk and accelerate potential 
launch system solutions. Our objective is a more commercial model than 
the Department would normally follow. We intend to competitively select 
future launch service providers and to enter into tailored public-
private partnership business arrangements that result in affordable, 
competitive launch services for national security missions. The exact 
form of these arrangements will depend on the needs of each of the 
selected launch service providers. The strategy also calls for the use 
of Other Transaction Authority (OTA) agreements, consistent with the 
Fiscal Year 2016 NDAA, which broadens the use of OTAs. We plan to 
execute innovative teaming arrangements and joint investments with 
industry partners for launch system development (which is expected to 
include propulsion system development) consistent with the launch 
service provider's business needs and our launch services needs.
    Unfortunately, at this time we are constrained by statute to work 
only on space propulsion engines. The Department would strongly prefer 
to not have to pay for the development of an RD-180 engine replacement 
that would benefit only one launch service provider. Consistent with 
this legal constraint, we are currently implementing robust risk 
reduction and technology maturation efforts covering propulsion system 
Material and Manufacturing Development, Advanced Technologies, Modeling 
& Design Tools, and Critical Component integration and testing through 
the use of Broad Agency Announcement awards, which involve 
universities, NASA, and the Air Force Research Laboratory. We expect 
some of this work will transition into the launch service provider 
public-private partnership agreements we intend to award in fiscal year 
2017.
    In order to transition from the RD-180 and ensure the Department 
has at least two viable domestic launch service providers for assured 
access to space as quickly as possible, we must shift from propulsion 
development to launch capability development as soon as possible. The 
Department would greatly appreciate the committee's support for our 
planned launch service acquisition activities.
                               conclusion
    Mister Chairman, Mr. Ranking Member, Members of the Committee, the 
Department is committed to transitioning off the Russian RD-180 rocket 
engine. We must maintain assured access to space, and we believe a 
public-private partnership with launch providers is the best means to 
that end. Maintaining at least two of the existing systems until at 
least two launch providers are available will be necessary to protect 
our Nation's assured access to space. As we move forward, we 
respectfully request this committee allow the Department the 
flexibility to develop and acquire the launch capabilities our 
warfighters and Intelligence Community need. Thank you for your 
support.

 STATEMENT OF HONORABLE FRANK KENDALL III, UNDER SECRETARY OF 
       DEFENSE FOR ACQUISITION, TECHNOLOGY AND LOGISTICS

    Mr. Kendall. Thank you, Mr. Chairman.
    Chairman McCain, Ranking Member Reed, members of the 
committee, I am pleased to be here with Secretary James today 
to answer your questions about the Department of Defense's 
space launch program. Secretary James has already provided you 
with an overview of our priorities, some background, and our 
plans. I would like to use my opening statement to say more 
about the acquisition approach we would like to use to meet the 
Department's priorities of assured access to space, meaning at 
least two affordable and reliable sources of launch services 
for national security system launches, competition using 
commercial launch service providers to control cost, and ending 
the use of the RD-180 Russian engine for Department of Defense 
launches.
    The first thing I would like to emphasize is that the 
Department does not buy rockets or engines. We do not buy 
launch systems or propulsion systems. What we do buy is the 
transportation of our satellites to space by launch service 
providers. Given our desire to eliminate usage of the Russian 
RD-180 engine, which is currently used on ULA's Atlas launch 
system when ULA provides launch services to the Department, the 
obvious and direct thing for the Department to do would seem to 
be pay for a new engine to replace the RD-180. There are three 
problems with this.
    First, engines and rockets are designed to work together. A 
copy of the RD-180 would be an Atlas engine, and it would not 
be of general use to the commercial launch service community. 
We would likely be helping one specific commercial launch 
service provider, as Secretary James said, with one specific 
launch system, the venerable Atlas.
    Second, this would be expensive. Current estimates are that 
this would take about $3 billion.
    Third, the Department does not need an engine, certainly 
not an Atlas engine. It does need assured access to space 
through reliable, affordable, and efficient launch service 
providers.
    Second is the context in which we expect to acquire launch 
services over the next decade or longer. The commercial space 
launch business and space as an operational domain are both in 
transition. A number of commercial enterprises are planning 
large-scale constellations involving hundreds or even thousands 
of satellites. In this environment, the Department should be 
able to take advantage of the economies of scale associated 
with a large number of commercial launches each year. This 
potential market is motivating launch service companies like 
SpaceX, ULA, and others to invest in more modern and efficient 
space launch systems. The Department does not need to and 
should not carry all the cost of developing more efficient 
space launch systems. We need to capitalize on these commercial 
investments.
    Let me provide a word of caution, however. Some of us have 
seen this movie before. In the early 1990s, it was the promise 
of constellations like Teledesic, Iridium, and Global Star that 
led the Department to believe future launch costs would be much 
less than they turned out to be. We cannot be sure what will 
happen this time. We do know that significant investments are 
being made in the planned commercial constellations, and we 
should do our best to take advantage of the opportunity that 
this environment presents.
    From an operational perspective, Mr. Chairman, as you 
indicated, the Department is concerned about the ongoing 
foreign military acquisition of anti-satellite systems by 
countries like Russia and China. This development is causing a 
major rethinking of our space system designs with resiliency to 
possible attack now a much more important operational and 
technical consideration.
    One approach that offers some promise is called 
disaggregation, with the replacement of current small numbers 
of highly capable satellites with large numbers of satellites 
that are more distributed capabilities. This development also 
suggests the need for more efficient launch service providers 
to field those constellations.
    Given that we need launch services and not launch systems 
and given that we think the future commercial and military 
environments are both moving us toward the opportunity and the 
need for more efficient launch service providers, the answers 
seem clear. The Department has the opportunity to enter 
business arrangements with prospective launch service providers 
using a commercial model. The basic business deal we have in 
mind is that the Department will, through competition, provide 
at least two launch service providers with some of the capital 
they need to develop, test, and certify the launch systems they 
will use to provide us with launch services in the future, 
including any unique DOD requirements. In return for this 
investment, the Department will acquire the right to purchase 
launch services in the future at competitive prices and some 
degree of assurance that those systems will actually be 
available.
    This commercial model is an innovative, out-of-the-box 
approach being taken by the Department. We sometimes refer to 
it as a public-private partnership. The exact form of these 
business arrangements will take will be very dependent on the 
unique needs of each competing prospective launch service 
provider. The Department has received industry responses to 
formal requests for information that Secretary James commented 
on which tell us that this concept has a real chance of 
success.
    Our next step will be to release a draft request for 
proposals in the next few months. Contingent on the responses 
to the draft, we hope to have final RFPs on the street by the 
end of the year to support awards in fiscal year 2017.
    In most acquisition strategies, the Department specifies 
the product or service that it desires and industry bids to 
provide the specified deliverables. In this case, industry will 
have an important role in defining the terms of the arrangement 
or contract. Each selected launch service provider is expected 
to offer unique terms that will have to be negotiated.
    The competition will be conducted on a ``best value'' 
basis. The best value determination will take a number of 
factors into account. These plans are not complete, but the 
factors are likely to include the technical risk of completing 
the launch system and achieving certification, the schedule to 
provide launch services without Russian engines, the soundness 
of the business case to provide commercial launch services 
efficiently, the cost of any ``not to exceed'' future launch 
service options for DOD, and of course, the amount and timing 
of DOD funding needed to complete development and certification 
of the proposed launch system.
    Secretary James and I would like to ask the committee for 
its support in pursuing this novel commercial model. We believe 
it is very consistent with the direction to use more commercial 
acquisition models that the committee provided in the Fiscal 
Year 2016 NDAA. We are anxious to move forward so that we can 
end the use of the RD-180 and take advantage of the emerging 
commercial space launch service market. We will need your 
support for this approach in the 2017 NDAA by removing, as 
Secretary James said, the existing constraints that restrict 
our use of funds to only propulsion systems.
    We would be happy to answer any questions that you may 
have.
    Chairman McCain. Well, thank you very much.
    Mr. Secretary, I certainly appreciate your and Secretary 
James? advocacy for competition here.
    How much money are we paying, up until we prohibited it, to 
ULA just for staying in business? I guess it is called 
sustainable. Is that not about $800 million a year?
    Ms. James. That is about right.
    Chairman McCain. So we have been paying since--what--2006 
ULA $800 million a year to stay in business. It is kind of hard 
to compete if you are in the private sector when the Federal 
Government--for doing nothing, when the Department of Defense 
pays you $800 million a year for a, quote, sustainable. Then 
when it comes to the launch, a GPS III launch competition, they 
do not compete. Is that not a violation of the $800 million a 
year that we are paying them?
    Mr. Kendall. Senator McCain, let me address what we----
    Chairman McCain. Just tell me. Just answer the question. 
Should they be paid $800 million a year to be, quote, 
sustainable and they do not even compete on a launch? I would 
like an answer to the question. Should they have been paid $800 
million a year?
    Mr. Kendall. We agree with you that they should be bidding 
on our launches, and we are most disappointed----
    Chairman McCain. I am asking the question, should they be 
paid $800 million a year for sustainable and not even bid on a 
launch? That is a pretty straightforward question, Mr. 
Secretary.
    Mr. Kendall. Senator, we are all upset that they did not 
bid on the proposal----
    Chairman McCain. What is the penalty? What is the penalty 
for that?
    Mr. Kendall. As Secretary James indicated, we are looking 
into penalties.
    Chairman McCain. Well, you are looking into it. I see. 
Since 2006--that is 9 years, $800 million a year--that is 
astronomical, that sum of money of taxpayers? dollars, and 
after paying them $800 million a year for--my calculation--9 or 
10 years, then they do not even compete on a launch. Is that 
the appropriate use of the taxpayers? dollars?
    Ms. James. Senator, if I could jump in. You heard me in my 
opening statement say what worked in a sole-source environment 
will be anachronistic once we get off of the block buy and get 
beyond it.
    Chairman McCain. How can you compete when your competition 
is being paid $800 million a year just to stay in business?
    Mr. Kendall. Senator McCain, the ELC contract covers fixed 
and some variable costs associated with ULA's launch 
infrastructure. It was put in place to cover those costs to 
provide some stability.
    Chairman McCain. Do you know of any other arrangement that 
we have with any defense contractor that pays them for doing 
nothing?
    Mr. Kendall. Senator McCain, I cannot think of one off the 
top of my head.
    Chairman McCain. Except staying in business?
    Mr. Kendall. I would like to explain how----
    Chairman McCain. Do you know of any other? I would like you 
to answer the questions. Do you know of any other Federal 
arrangement with any other defense corporation where you pay 
them $800 million a year simply to remain in business? Do you 
know of another contract of that nature?
    Mr. Kendall. I am not aware of another one similar to this.
    Chairman McCain. Thank you.
    I am sure you are probably not familiar with the names Igor 
Komarov or Sergey Chemezov or maybe even Dmitry Rogozin. Those 
all are three individuals that the United States has 
sanctioned, and all three of those have something in common. 
They are on the board of directors of the organization that we 
are now buying these rocket engines from. A Reuters? 
investigation showed that the Russian rocket engine 
manufacturer, Energomosh, and Pratt & Whitney Rocketdyne 
collects $93 million in cost markups. The article uncovers that 
in the past RD-Amross was investigated by the Defense Contract 
Management Agency which determined that in a previous contract 
that RD-Amross had collected $80 million in, quote, unallowable 
excessive pass-through charges. So we now have senior Russian 
politicians, friends of Vladimir Putin, in the management that 
are making tens of millions of dollars in the pass-through 
money that is paid for the Russian rocket engines.
    Does that disturb you, Madam Secretary?
    Ms. James. Yes.
    Chairman McCain. You did not know anything about it?
    Ms. James. You brought to my attention several of those 
names yesterday, and you heard the action I took as follow-up 
yesterday, Senator.
    Chairman McCain. You were never made aware of all this 
information before I brought it to your attention, even though 
it was public knowledge as far back as 2014?
    Ms. James. The Russian names you gave me yesterday----
    Chairman McCain. No. I am talking about the $93 million in 
markups that are just pass-through money.
    Ms. James. What I am aware of is the Reuters article. I am 
also aware----
    Chairman McCain. Were you aware of it? Were you aware of 
it?
    Ms. James. Prior to the Reuters article?
    Chairman McCain. The article was in 2014. Did you know 
about it in 2014?
    Ms. James. I read the article in 2014.
    Chairman McCain. Then what action did you take?
    Ms. James. I inquired about it and learned that in the year 
2011 there was a price reasonableness analysis done between Air 
Force and DCMA, which is the regulating authority----
    Chairman McCain. That is 2011. In 2014, the Defense 
Contract Management Agency determined that in a previous 
contract they had collected $80 million in unallowable 
excessive pass-through charges. Were you aware of that, the 
Defense Contract Management Agency determination?
    Ms. James. My understanding is that was fixed for this 
contract of the block buy.
    Chairman McCain. It was fixed?
    Ms. James. That is my understanding.
    Chairman McCain. In other words, none of these individuals 
are now making money off of the sale of----
    Ms. James. The block buy was price reasonable per the 
analysis is my understanding.
    Chairman McCain. Mr. Rogozin and Chemezov and Komarov are 
not making any money off of this?
    Ms. James. I cannot talk to that. I have asked the 
appropriate authorities----
    Chairman McCain. You should be able to talk to it. These 
people are people who have been sanctioned by the United States 
of America.
    Ms. James. I am sure the appropriate authorities will get 
to the bottom of it.
    Chairman McCain. We are giving them millions of dollars of 
American tax dollars.
    Well, my time has expired but this is really, really, 
really remarkable, and we intend, frankly, to, in a totally 
bipartisan basis, try to fix this problem. When some of us are 
surprised, when our taxpayers are angry, when the people who 
think that we are not working for them in Washington and see 
this kind of thing where we are paying a company $800 million a 
year just to stay in business and then they do not even bid on 
a launch, you express concern when we are giving tens of 
millions of dollars to Russian corrupt oligarchs and taking no 
action to really resolve it and then, of course, work behind 
our backs, the authorizing committee, to try to nullify the 
action taken by this committee after hearings, after votes, 
after a debate, after talking about it on the floor of the 
Senate and you support the undermining of what we tried to do. 
Unacceptable.
    Senator Reed?
    Senator Reed. Thank you very much, Mr. Chairman.
    Secretary James and Secretary Kendall, could you give your 
opinion on whether we could be in a situation by 2018 where we 
only have one launch provider? What circumstances could lead to 
this? Because that would be a vulnerability that would be 
significant. Madam Secretary or Mr. Secretary?
    Mr. Kendall. We have been concerned for some time that with 
the course that we are on, we may end up with one launch 
service provider. ULA has been competing, has done one 
competition with SpaceX. ULA is disadvantaged in that they have 
an older system and the costs associated with that system. They 
have to bid the systems that they have. SpaceX has a more 
modern system that they are providing.
    We do make adjustments and we have corrected for a 
shortfall in the ELC contract that Senator McCain asked about 
so that we have a fair playing field. Secretary James mentioned 
this in her opening testimony. So we are making adjustments 
that further disadvantage ULA because they will now essentially 
be paying a penalty for the fact that the contract that Senator 
McCain was talking about exists and some of their costs are 
covered by that contract.
    So we are concerned that going forward they will not be 
very competitive. They recognize that and they know they need 
to get to a more efficient and affordable launch system, and 
they are trying to get on that path. Their viability and their 
ability to do that depends upon them having continued business 
over the next few years. That business comes in the form of 
Atlas and Delta launches. The Department stops using 180s, and 
it is questionable as to whether or not ULA will be able to 
remain in business using only Deltas.
    We will not use Deltas as a preferred system because it is 
much more expensive than Atlas and it is much more expensive 
than SpaceX's system. So SpaceX would be the default almost 
automatically. They would be in an almost sole-source position 
at that point. It is questionable whether or not ULA would 
survive. So we could very well be in a situation with only one 
launch service provider.
    ULA has provided us with 80 or 90 successful launches in a 
row. So that is a very important national capability. We have 
been able to rely on them very successfully. So we are not 
comfortable with being left with the risk of only being 
dependent upon SpaceX.
    Senator Reed. Madam Secretary, your comments?
    Ms. James. I really do not have anything to add. I think 
that was a good assessment.
    Senator Reed. Secretary Kendall, just to reiterate, the 
point I think you made is that your conclusion is that we 
cannot rely just on a ULA Delta lift system and SpaceX. So the 
Atlas will be needed. Is that your conclusion? What underlies 
that conclusion?
    Mr. Kendall. Delta is a possibility as a second source. The 
problem is it is much more expensive than Atlas or the SpaceX's 
Falcon 9. It also has some issues in terms of production 
capacity. There would be a multiyear lead time to get Delta up 
to the rate that we would need to replace the Atlas launches. 
There are some differences in terms of preparation time and so 
on that are not as significant. So Delta does not look to us 
like a good alternative to Atlas as a second source.
    The intelligence community has asked that we look into 
that.
    Senator Reed. Delta and the SpaceX would be using non-
Russian engines.
    Mr. Kendall. That would be all non-Russian engines. That is 
right.
    The intelligence community uses mostly Delta launches. So 
they have been interested in doing more Deltas because that 
would lower their cost for their launches because of the 
economies associated with that. For the Department of Defense, 
that does not look like the best business thing for us by a 
wide margin.
    As Secretary James mentioned, we will take another look at 
this. We will take a deep look at it again. I will be surprised 
if the answer comes out differently.
    Senator Reed. The chairman has outline some very disturbing 
aspects of this program going back many, many years, and we 
cannot deny that. In fact, his efforts particularly have been 
trying to fix this program.
    What I think you have suggested is the best path to a non-
subsidized, competitive marketplace is this public-private 
partnership approach which you are talking about so that we 
will no longer have to put someone on retainer who may or may 
not participate given their bottom line decisions. Is that sort 
of an overall sense of where you would like to go?
    Mr. Kendall. That is correct.
    Senator Reed, if I could take a moment to talk about the 
ELC contract, I would like to explain what that contract 
actually does, if I could do that.
    Senator Reed. Yes. My time is limited, but within a minute 
if you can do that.
    Mr. Kendall. It pays for costs associated with ULA's 
infrastructure, and it pays some variable costs associated with 
the launches. It was set up to provide a stable base for ULA to 
plan on and to have in place the capability to support about 
eight launches a year. When we had only ULA as a source of 
launches, that was a very reasonable business thing to do. It 
allowed us to take some of the variation and uncertainty out of 
the market and to stabilize this. We have been successful with 
the ELC in bringing some of those costs down. Nothing was as 
successful as the block buy and the introduction of 
competition. So that has been a very good motivator and we want 
to continue that.
    The ELC business deal was not a bad business deal. It is 
not a bad contract. It is not a subsidy. The original contract 
included a provision for ULA obtaining commercial launches 
outside the Department of Defense. If it did so, we made an 
adjustment in the contract so that there would be no subsidy 
for those commercial launches. What we did not put in the 
original contract was a similar provision for DOD competitions 
because at the time we started out, we did not anticipate 
competitions. We only had ULA to buy launches from.
    Now that SpaceX is competing, we realize had a problem 
there. SpaceX called that to our attention. They were correct.
    So we have gone back and we have negotiated an agreement 
that changes the ELC contract so that there is no unfair 
advantage to ULA in a competition with SpaceX or another 
competitor for DOD launches. We have made a significant 
adjustment, and I mentioned it earlier. It further raises the 
effective cost of ULA's bids making them less competitive, 
which adds to our concern about their viability.
    Senator Reed. Thank you. Thank you, Mr. Chairman. Thank 
you, Madam Secretary.
    Chairman McCain. There are other competitors besides 
SpaceX, Blue Origin, and a number of others. So to somehow 
portray it as just between those two is, of course, totally 
inaccurate.
    Senator Sessions?
    Senator Sessions. Thank you.
    Mr. Kendall, with regard to that point that Senator McCain 
made, are there other competitors, and what is the status of 
their ability to compete?
    Mr. Kendall. There are people who would like to be 
competitors, but they are not competitors yet. Blue Origin that 
Senator McCain mentioned is in development. The launch system 
providers all have modern systems in development to some 
degree. Orbital ATK is also considering a new system.
    So what we would like to do through the public-private 
partnerships that I mentioned is get business deals with at 
least two of these potential future suppliers so that we have 
modern systems after we get off of the RD-180 to replace it. 
Right now, the only certified launch providers are SpaceX and 
ULA.
    Senator Sessions. Well, first, this committee has been 
unanimous and I have been firmly committed to getting off the 
RD-180 as soon as possible. I will acknowledge that I have been 
critical of the length of time, but as I have learned more 
about it, I realize you have a more complicated situation than 
most of us fully understand.
    So in the interim, you have asked the committee last year 
for 14 RD-180s to be provided, and the committee, after much 
discussion in the subcommittee, was acceptable to your number. 
We ended up with nine. Senator McCain suggested nine, and that 
is the decision of our committee. Then the Appropriations 
Committee basically said to the Defense Department we will not 
put a cap on it. You decide how many RD-180s will be purchased. 
So that has caused a disturbance, let us say.
    Secretary James, you mentioned 18 now. You think it may be 
more than 14. Why do you need 18? Is this some sort of interim 
supply while this bid process goes forward? What is the reason 
you might need more than 14?
    Ms. James. If I may clarify, Senator. If you remember, 
there were five engines originally available, if you recall. 
Last year what we said was we said a total--this included the 
five--of about 18. You are saying 19. My recollection it was 
18.
    Senator Sessions. 18.
    Ms. James. On the order of about 18 to us seemed reasonable 
to get us over the hump and allow for competition as we 
transitioned to a full-up competitive environment away from the 
Russian-built engine. So 18 seemed to be a reasonable number to 
deal with to get over that hump. There were 34 competitions 
during this interim period, and to have 18 engines against 34 
competitions seemed to us to be reasonable. So I was simply 
restating that that was and remains our position, a prudent, 
reasonable way forward. That is what I was meaning to say.
    Senator Sessions. Now, the committee, as has been noted, 
authorized $220 million. You referred to that, and there is 
some more money left over from previous appropriations to fund 
this transition. What is taking so long, and what can Congress 
do? You have suggested there are some problems with the 
mandates we have placed on you. What are those problems? So do 
we have enough money? Are we on track to have more than one 
competitor?
    You would expect, Mr. Kendall, that any competition would 
be cheaper than the RD-180 ULA current system? If they are not 
cheaper, they are not going to win the proposal. Is that right? 
Where are we in this process and what is going to happen?
    Mr. Kendall. I would agree with that last statement, 
Senator Sessions.
    Senator Sessions. The last statement was that transitioning 
from the ULA system to the new system that SpaceX is competing 
for and others could compete for you would expect a cheaper 
launch system.
    Mr. Kendall. I expect a modernized system by any competitor 
to be cheaper, and it would not make any sense for us to----
    Senator Sessions. It would be fully American.
    Mr. Kendall. Yes, absolutely.
    The problem we have right now is that the current NDAA 
restricts us to work on propulsion systems, rocket engines. As 
I mentioned in my statement and Secretary James mentioned, that 
is not what we need. We need launch service providers with full 
launch systems that can take us into space. We want to get 
business deals that get us to that goal and that give us some 
assurance of reasonable prices for future launches. So that is 
where we need to go, and we need the constraint that we 
currently have removed so that we can do that effectively and 
efficiently.
    We have been trying to comply with the law, and we have 
complied with the law throughout this. We have tried to find a 
way to move forward by investing in propulsion systems. That is 
what the contracts that Secretary James talked about do for us. 
They are propulsion systems and we think they are linked to 
possible future launch systems, but what we really want is the 
commitment to get us that full future capability and we cannot 
do that with the constraint that we have right now.
    Senator Sessions. Have you submitted a proposed legislative 
change that we can consider?
    Mr. Kendall. I do not think we have, but we would be happy 
to do that.
    Senator Sessions. The reasons why would be appropriate I 
think. Thank you.
    Mr. Kendall. Yes, sir.
    Chairman McCain. Let me just point out that it is not 
rocket engine. It is rocket engines that we are buying from the 
Russians, not anything else. That is why we are focusing our 
attention on Russians making hundreds of millions of dollars. 
So we are not restricting anything except that we want to get 
rid of our dependency on Russian rocket engines. So for you to 
keep saying that we are making restrictions on it, we are not. 
We are not restricting SpaceX. We are not restricting Blue 
Origin. We are not restricting anybody that wants to get into 
the game. What we want to do is get out of the Russian rocket 
engine business and stop subsidizing one military industrial 
complex for $800 million a year of the taxpayers? money for 
nothing, and then they turn around and refuse to bid after we 
have given them $800 million to stay in business.
    Senator Heinrich?
    Senator Heinrich. Secretary James and Under Secretary 
Kendall, welcome.
    I remain supportive of efforts to end our Nation's reliance 
on the Russian-built RD-180 rocket engine, recognizing, as you 
said, that we need a complete launch capability.
    Since the 2014 Russian invasion of Crimea, I have certainly 
supported our Nation's ongoing investment to develop a new 
engine to replace that RD-180 as important to accomplish that 
goal. Over the last 3 years, we have appropriated $403 million 
I believe to accomplish that goal. Congress has been pretty 
clear and bipartisan in its desire to pursue a replacement 
engine and to do that quickly.
    I think what you are hearing here is a frustration in the 
speed at which we have been able to accomplish that and what 
appears from the outside as well as sort of a salami slice 
approach to all of this.
    So I want to ask what work specifically is being done in 
these other contracts. Is this work specifically tied to 
developing a replacement engine for the RD-180, or are other 
efforts being funded with this money that will not necessarily 
get us to that launch capability?
    Ms. James. I will start and then maybe Mr. Kendall can jump 
in.
    The $400 million and some that you referenced, Senator, 
includes $227 million I believe, if memory serves me, which was 
the fiscal year 2016 authorization/appropriation, which has 
been available to us for roughly 5 to 6 weeks. It only just 
became law in December. So the figures that I gave you were our 
efforts to obligate as quickly as possible the 2014 and 2015 
money. As I was attempting to portray, the vast majority of 
that now has been obligated, and we expect the balance to be 
obligated quite soon pending successful negotiations with 
industry. I do want to underscore that. It takes two to tango, 
and we can have all the urgency in the world, but we cannot 
give away the farm if the negotiation does not go well because 
the farm belongs to the U.S. taxpayers. So we are trying to 
have that balance between speed but getting a good deal for the 
taxpayer.
    You mentioned spreading the money around or salami slicing, 
words to that effect. The first part of this plan that I laid 
out for you has to do with what we call technology maturation 
and risk reduction. This is a typical approach when you are 
dealing with something new and difficult. Believe me, this is 
hard science. I have talked to enough of the technologists to 
believe that this is not as easy as it sounds. For something 
that difficult, something where the U.S. Government has not 
invested hugely in the past few decades, it is a prudent 
approach to try to reduce the risk and then share those 
learnings across industry so that it helps others in the 
future. So that is why this money is being sent to different 
locations in a full and open way, by the way, because I do want 
to emphasize that.
    Senator Heinrich. I recognize that. Are you worried that by 
sort of spreading this across multiple pathways that you 
actually push back the timeline to ending our reliance on this 
core capability, which is the RD-180?
    Mr. Kendall. I think the confusion is about what we are 
trying to do and how we are trying to do it and how the 
contracts we have let get us down that path.
    As I mentioned in my opening comments, one of the paths we 
could have taken was to simply buy an RD-180 replacement, buy a 
look-alike clone, if you will, of the RD-180. If we had done 
that or if we did do that, we would be buying ULA a new engine 
for Atlas, which would be perfectly fine for ULA, but it would 
not get us off of Atlas. It would not get us a modern, 
efficient, affordable launch system as a viable competitor to 
others like SpaceX.
    So what we did, given the restriction in the law--and the 
restriction came from the House side of the House Armed 
Services Committee in their bill. It basically said we cannot 
use the funds we are appropriated to develop or procure a new 
launch vehicle or related infrastructure. We were restricted to 
development of propulsion systems.
    So what we have done is look at the propulsion systems and 
evaluate them for ones that have a reasonable chance of being 
in a future launch system. Propulsion is not just about the 
first stage, which is what the RD-180 is. It is about the upper 
stages and other things.
    Senator Heinrich. I understand.
    Mr. Kendall. So the two contracts we have awarded--one of 
them is for some upper stage work; the other is for solid 
rocket motor work. We are going to award two more, which will 
cover--I cannot talk about the details of those yet because 
they are not awarded.
    So each of these is intended to move us down the path and 
reduce some of the technical risk associated with getting a new 
launch system that is much more efficient and affordable and 
modern. It does not accomplish that goal by itself. It is a 
step in the right direction.
    We would like to move much more quickly and directly to the 
goal that we have in mind. That is where we are asking the 
committee's support to allow us to do.
    Senator Heinrich. Thank you both. Obviously, my time has 
expired.
    I hope at some point you can get to the heart as well of 
dealing with whether the sustainment as a contract exercise is 
paying ULA to effectively do nothing. My time has expired and I 
will give back my time, Chairman.
    Chairman McCain. Senator Cotton?
    Senator Cotton. Secretary James, do you believe that Russia 
is an enemy of the United States?
    Ms. James. I have said publicly before and I will say 
again, sir, that I think Russia is the top threat to the United 
States.
    Senator Cotton. So you agree with the testimony of General 
Dunford and several other members of the Joint Chiefs that 
Russia is our number one threat geopolitically in the world?
    Ms. James. Yes.
    Senator Cotton. Has the United States ever had assured 
access to space?
    Ms. James. That is our top job is to make sure we have 
assured access to space.
    Senator Cotton. Under the current understanding, have we 
had assured access to space?
    Ms. James. Yes.
    Senator Cotton. We have. Okay.
    Could we end our reliance on these Russian-made rockets 
today and still maintain assured access to space by relying on 
Falcon 9 and Delta IV?
    Ms. James. I would say it is theoretically possible, but 
the devil would be very much in the details.
    Senator Cotton. So both of those rockets are certified. 
They can carry all kinds of lift, heavy, intermediate, and so 
forth. Why is that only theoretically possible?
    Ms. James. There is a current manifest based on warfighter 
needs and the intelligence community needs, and that manifest, 
to a certain degree, depends on a mixture of engines. If you 
were to suddenly swing and take one type of engine away and say 
hereforth it must be only this sort of engine, that would 
require probably delays in launches. I am thinking certainly it 
would be a lot more money because Delta is a much more 
expensive proposition. It would have to be reworked. There 
would be a lot of details to work through.
    Senator Cotton. What kind of gap would you fear if that 
were the case?
    Ms. James. Without doing an analysis, detailed, I would be 
totally guessing. I would guess years, but that is a guess.
    Senator Cotton. What is the current status of the 
possibility of replacing the RD-180 with an American-made 
rocket engine, say the AR-1 or the BE-4?
    Ms. James. We are marching toward 2019. That is the way all 
of our urgency is directed. Industry tells us and we certainly 
think it is possible, though it is going to be challenging to 
make 2019 for an engine. I must say an engine alone will not 
get us to space. It needs to be integrated with a rocket. It 
needs to be tested. It needs to be certified. To get all of 
that done, to have a launch capability, will be longer than 
2019.
    Senator Cotton. Which theoretically we could do now though 
with the Falcon 9 and the Delta IV, since they are certified.
    Ms. James. I say theoretically but it would require looking 
into all of those details.
    Senator Cotton. I am struggling with why you cannot 
maintain the promise of future competition if you just pursue a 
split buy for a few years of the 9 and the IV until this new 
engine is developed, if it is a top priority not to rely on 
these Russian-made rocket engines. Secretary Kendall, you look 
like you want to----
    Mr. Kendall. There are several problems with that. One is, 
obviously, the cost of Delta. It is tens of millions of dollars 
more than Atlas or Falcon 9.
    Senator Cotton. We have paid $800 million for no activity.
    Mr. Kendall. We paid $800 million toward specific costs 
associated with getting the infrastructure that ULA has for 
launching both Atlas and Delta. That cost is associated with 
the capacity to launch eight launches per year. Those costs 
have been reviewed many times. They are reasonable costs for us 
to bear. It is not nothing, as the chairman indicated. I am 
sorry about that.
    The difficulties with Delta are its effect--the loss of 
Atlas? effect on ULA's viability; the cost of Delta, tens of 
millions of dollars more; the amount of time it would take us 
to ramp up production of Delta, which would be on the order of 
3 years; and then some other minor issues that we could 
probably work our way around if we had to. So it is not 
impossible. It is just very difficult.
    Ms. James. Could I also add? Delta is the one that is not 
commercially competitive. So if we were to swing in that 
direction, we would be the sole customer I believe. The price--
again, likely, but we would have to examine the details--would 
go up even more than the differential today between Delta and 
Atlas because this ELC arrangement you have been hearing so 
much about--those costs I can pretty well guarantee you would 
somehow be calculated into the new price of Delta. Whether you 
call it an ELC arrangement or whether you call it something 
different, I believe the U.S. taxpayer would bear those costs.
    Senator Cotton. My time is concluding. I will say that in a 
program that spends billions of dollars over the years, tens of 
millions of dollars of costs to develop an American-made 
capability so we are not depending on our number geopolitical 
adversary's industrial base seems to me a reasonable cost to 
bear, in particular when their industrial base is going to be 
able to use those profits in part to develop their counter-
space capabilities. We are going to be putting into our rockets 
parts that are made in Russia that for all we know might be 
corrupted or have some kind of cyber threat to them. So I would 
opine that we might want to consider bearing those costs to 
develop domestic capabilities as quickly as we can to include 
the two rockets that are currently certified.
    Chairman McCain. Senator Hirono?
    Senator Hirono. Thank you, Mr. Chairman.
    I believe this committee has made clear that we do not want 
to continue to rely on these Russian-made engines.
    Secretary James, I am interested in the portion of your 
testimony wherein you say--and both of you have testified to 
this--at this time you are constrained by statute to work only 
on space propulsion engines. So I know that one of my 
colleagues had already asked this question, Senator Sessions. I 
would really like to see where in the NDAA you find this 
constraining language. First I would like to have that 
identified, and then I would like a proposal. We would like to 
see a proposal for additional language so that we can assure 
ourselves the access to space that is our goal. You may not 
have that language right now, but I certainly would be 
interested in those two areas that I asked about.
    Mr. Kendall. Senator, if I may. The section is section 1606 
of the fiscal year 2016 NDAA. We do not have language for you 
today, but we would be happy to provide that.
    Senator Hirono. The reason I am pursuing this is because 
there seems to be a dispute as to whether or not we do have 
constraining language on the Department.
    I would like to turn to small satellites and operationally 
responsive space (ORS). I am a supporter of the ORS office, 
especially in the area of developing smaller, cheaper systems, 
which can be launched more fast than conventional systems. I 
know that our more complex and larger systems will be needed 
for many payloads, but where the smaller and less complex 
systems can be used, we should do so.
    I know that you are investing in this. This is for 
Secretary James. I also believe strongly in research and 
development for these systems. Can you share your thoughts on 
ORS and what you would like to see in the future and talk about 
the R&D [research & development] side and the involvement of 
industry, universities, and labs as we develop these faster, 
smaller, and cheaper launch systems?
    Ms. James. So, Senator, I am a believer in ORS as well. I 
mean, there was a period where this was not being funded, and 
we are funding this going forward. So I certainly am a 
believer. When it comes to small satellites, this is of great 
interest to the Department. It is a trend, I will say, in the 
commercial arena. You have talked about universities and 
industry. We are in constant discussions with those who are 
attempting to excel so that we can learn from them and partner 
wherever possible.
    The other thing I will say about small satellites is it 
does hold promise for us in certain arenas for greater 
resiliency. So it is like you do not put all your eggs in one 
basket. You spread it out, so to speak. So it could help us in 
our resiliency quest, and also they tend to be a whole lot less 
expensive. So for all of these reasons, it is of great 
interest.
    Now, with all that said, we have to make sure that when we 
launch something, that it is going to fit within our 
architecture and that we do some proper technology 
demonstrations and experiments in advance. Indeed, this is 
where ORS can come into play in a bigger way.
    You may recall ORS is working on a couple of things right 
now. They are working on a follow-on for the SBSS, space-based 
space surveillance, program. They are also doing technology 
demonstration--or they are about to--with respect to the 
weather.
    So a big believer in ORS and very interested in small 
satellites to help us in the future.
    Senator Hirono. Secretary Kendall, would you like to add 
anything to that?
    Mr. Kendall. No. I think Secretary James covered it very 
well.
    One comment I would make is that as we move into an era 
where desegregated constellations are possible and we would be 
living in an environment in space with some massive commercial 
constellations in low earth orbit, that as we deal with the 
threats that Senator McCain mentioned, the attractiveness of an 
ORS type of an approach becomes much more so.
    Senator Hirono. Are we putting enough resources into this 
part of our access to space goal in terms of money for R&D?
    Ms. James. I believe we have it about right.
    Senator Hirono. What is it?
    Ms. James. Well, the details, of course, we will roll out 
shortly as part of our fiscal year 2017 budget and the 
accompanying 5-year plan. You will see that we have funded ORS 
throughout.
    Senator Hirono. I am going to have continuing interest in 
that, especially as I also serve on the Intelligence Committee.
    Secretary Kendall, there has been a discussion within 
Congress on the idea of giving more responsibility in the 
acquisition process to the Service Chiefs. I would be 
interested in what you think would be the benefits and the 
drawbacks of moving in that direction.
    Mr. Kendall. Thank you. I am a little disappointed, Mr. 
Chairman, that the hearing yesterday was canceled when the 
chiefs were going to come over. I read all their testimony, and 
I have no issues with what they were going to say.
    We have always supported that provision in the fiscal year 
2016 NDAA. Having the chiefs more engaged in requirements 
tradeoffs and assessments of programs and actively engaged I 
think is very beneficial to the Department and to the services.
    I have already met with each of the Service Chiefs, talked 
about the bill and how it affects them, and they are all off 
charging it--you know, how they would operate under that 
guidance.
    It is a work in progress.
    The only risk I see with it is that the chiefs are 
generally not experts in acquisition. They are experts in 
operational matters and requirements of leadership and so on. 
Their tendency is generally to try to go faster and get more 
and get it for less. We have gotten into a lot of trouble by 
making assumptions about how fast we could go and how much 
things would cost and how much they would do that prove out to 
be false.
    One of the reasons my position exists is to provide a check 
and balance to that tendency. So I would still think that such 
a check and balance is needed, but the law does not remove that 
capability. So I am supportive of that provision and looking 
forward to working with the chiefs in their new role.
    Senator Hirono. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman McCain. Senator Ernst?
    Senator Ernst. Thank you, Mr. Chair.
    Thank you to Secretary James and Secretary Kendall for 
being here as well.
    I think you have heard today we are all just very 
disappointed in the way the process has gone so far. We have an 
opportunity now to move forward in a different direction. So I 
am not going to hammer so much that, but the fact that I am 
assuming for decades the Air Force has known that the RD-180 
could be withheld by the Russians at some point. So why is the 
solution just now being addressed? I would have thought this is 
something that should have been part of our discussion years 
and years and years ago. Can somebody explain that to me?
    Mr. Kendall. It actually has been part of our discussion. I 
think this predates Secretary James? return to the Department.
    We have looked at budget issues to remove the dependency on 
the RD-180, but in the funding climate we have been in for the 
last several years, it has been unaffordable to the Department.
    Now, when the Crimean events occurred, that all changed and 
it became obvious that we could no longer accept the risk of 
continued reliance on the RD-180. So I think we are all in 
agreement now that we need to get off of it as quickly as 
possible.
    Prior to that point in time, we had consciously considered 
investing money to remove the RD-180 and develop a U.S. 
alternative, but it did not make the budget cuts, frankly, 
given the funding situation that we had.
    Senator Ernst. Was that an issue of Congress or was that a 
departmental decision?
    Mr. Kendall. That was within the Department.
    Senator Ernst. Should the Air Force have started a 
replacement engine program then long ago before it became so 
critical? Was that not a discussion that should have come to 
Congress?
    Mr. Kendall. With hindsight, we obviously should have. The 
expectation was that relationships with Russia after the end of 
the Cold War were going to be relatively benign. That has not 
turned out to be the case.
    Senator Ernst. Just so we do not repeat this error in 
judgment--and I think we need to look at many of our 
acquisition programs and the way we do business across the 
board, not just this particular propulsion system, but we need 
to take some lessons learned here and move forward. Who in DOD, 
if anyone, should have been responsible for conducting the 
long-term planning and architectural development for the 
national security space enterprise including launch? Is there 
one person? Who is that? How is that structured?
    Ms. James. Well, I would say today if there is a single 
person, it would be me. I am, in addition to be Secretary of 
the Air Force, the principal defense space advisor. So that 
means my job is to, in a joint fashion, look not only at the 
Air Force but look at the entirety of our budgets because, of 
course, there is Army space, there is some Navy space as well 
to be able to work across the requirements community. I do not 
do all of this by myself. I do not mean to suggest that, but to 
be a single point of contact who can then make independent 
advice to the Secretary and Deputy Secretary.
    Again, that is a new development. If you are going back in 
time, there probably were too many voices and no single 
independent voice that could reach across and provide that 
advice.
    Senator Ernst. Are there communications now then between 
yourself and the other service branches?
    Ms. James. Yes, there are. I chair what is called the 
Defense Space Council. I am the principal advisor now to the 
Deputy and Secretary in terms of what we call the DMAG, which 
is where all of the important money discussions occur, as we 
are building our POM and finalizing our budget and so on. So 
there are additional authorities of late.
    Senator Ernst. Can you describe that process then to me, 
because I am not familiar with that, how you do interact with 
the other services? Is this something we need to be aware of, 
any types of these situations that might happen with funding in 
the other branches as well?
    Ms. James. There certainly always crop up issues of policy 
and issues of funding across the Department of Defense. My role 
now as the principal defense space advisor is to stay well 
coordinated with the others, and even though at times I might 
be asked to go against my own Air Force budget, that is my job. 
That is my role to be able to rise above that and act in a 
joint way and be that independent voice.
    Senator Ernst. Well, my time is running short, but I think 
communication is very key here. When these things do crop up, 
it is important that we engage Congress as well. We cannot let 
this happen again. You have spoken many times over about the 
American taxpayer. They expect much better from us. We have to 
do better. So lessons learned. We need to move forward at this 
point, and I think we need to develop our own technology as 
quickly as possible.
    I thank you both for your time.
    Thank you, Mr. Chairman.
    Chairman McCain. Senator Tillis?
    Senator Tillis. Thank you, Mr. Chair. Sorry about your 
Cardinals.
    Chairman McCain. Thanks for bringing that up.
    [Laughter.]
    Senator Tillis. You know, first I share the frustration 
with the chair and the others that have spoken today. You know, 
it is amazing to me that creating this consistent capability 
since the time that we have started to where we are today has 
taken more time than the time between President Kennedy's 
aspiration to go the moon and getting to the moon.
    My question, though, relates to something--and I am sorry. 
I have got a concurrent Judiciary Committee hearing going. It 
relates to the supply chain and the missions that we currently 
have planned either within DOD or outside of DOD. If we put all 
of our emphasis on a domestic launch capability, what sort of 
risk do we have in terms of important payloads where we are 
already in the chute to get them put into space? So what sort 
of risk do we have? Particularly I know some of the DOD 
missions you cannot talk about. I am just trying to get some 
sense of what are we looking at as a real shift to the right of 
many things that we want to get up into space sooner rather 
than later.
    Ms. James. The shifts to the right or the possible delays--
I think I raised that as a detail that we would really have to 
think through carefully if we were to make the decision to stop 
all RD-180s and shift to have Delta on the one hand and the 
SpaceX on the other hand.
    Senator Tillis. I think as you go through that process, you 
should also look into the cost of delay because there is some 
inherent cost in having to carry those over and everything else 
that ripples through. I just think it is an important part of 
the decision-making process, while the real emphasis needs to 
be on getting that domestic capability. That is information we 
need sooner rather than later.
    I know I have asked for some of it back when we were doing 
the NDAA. So I am hopeful that we can get that pretty quickly.
    Mr. Chair, because I was out for most of the committee, I 
am not going to take any more time, but I did want to ask that 
question about getting the optics on the supply chain to us 
fairly quickly.
    Chairman McCain. Sorry you made it back.
    [Laughter.]
    Senator Tillis. Go Panthers.
    Chairman McCain. Senator Rounds?
    Senator Rounds. Thank you, Mr. Chairman.
    Let me just walk my way back through this program to make 
sure that the background that we are all working with is 
consistent.
    The intent originally, as I understand it, was that there 
was always going to be at least two organizations providing the 
delivery of our products into space. Originally we had two 
separate companies who then in 2006 joined together to create 
ULA. ULA then had two products, one from each of the two 
companies who they were at that time supporting, one being the 
Atlas V and also then the Delta IV, the Atlas V capable of 
intermediate lift capabilities, the Delta IV, the more 
expensive product, also capable of heavier lift capabilities.
    Am I so far correct?
    Ms. James. Yes.
    Senator Rounds. At the present time, you have then one 
organization now providing both of these products, but do both 
of these products not use commingling of parts in terms of 
their second stages? Even though we have got the RD-180 rocket 
under the Atlas, which is the Russian rocket motor, the Delta 
IV, being more expensive but also having more capabilities, 
both of them using the same products for their second stages 
and so forth. Is that correct? My understanding is that they 
are using the same product in both of those, or am I mistaken?
    Mr. Kendall. That is quite possible, but I do not know for 
certain if it is.
    Senator Rounds. The reason why I ask is because I think we 
have always wanted the capability to have separate and 
independent supply lines, but if my suggestion is correct, we 
have had a single-source point for both of these two vehicles 
in other parts of the payload delivery systems.
    Mr. Kendall. Sir, I have not looked at that. That is 
something we could take a look at. I think if there are parts 
that are dual use, they are generally low-risk parts where we 
do not expect failures to occur, and they are parts that an 
instruction to an individual company could be replicated 
relatively easy. I am not certain of that. I need to go check.
    Senator Rounds. Could you get back with us in terms of the 
second stage and so forth? The remaining part of this delivery 
product, as I understand it, has----
    Mr. Kendall. I understand. If there is a problem there, I 
am not aware of it. We would have to check.
    [The information referred to follows:]

    The Atlas V and Delta IV second stage designs are substantially 
different but share some similar components. One example is the Aerojet 
Rocketdyne RL-10 upper stage engine; variants of this engine are used 
on both Atlas V and Delta IV launch systems. The SpaceX Falcon 9 
vehicle family, which was recently certified for use on Evolved 
Expendable Launch Vehicle launches, uses a completely different second 
stage engine relative to Atlas V and Delta IV reducing the concern over 
use of common and similar second stage components.

    Senator Rounds. Okay.
    Second question. I think Senator Cotton was on target when 
he started discussing about the fact that we wanted the assured 
access to space and at this time we believe that we have it. At 
the same time, we are talking about only intermediate delivery 
weights. If we are talking about heavy delivery weights, today 
we have only got one system out there and that is the Delta IV. 
Is that not correct?
    So then how do we say that we have the assured access to 
space with regard to our heavier payloads?
    Mr. Kendall. The short answer is we do not. We would like 
to have that, but it has been prohibitively expensive. If 
SpaceX develops their heavy vehicle----
    Senator Rounds. Excuse me. It would be consistent to say 
that we have the capability for intermediate payloads, but we 
do not for the heavier payloads at this time.
    Mr. Kendall. That is correct. One of the things we would 
like to be able to correct is that shortfall with future launch 
systems.
    Senator Rounds. Well, but my understanding also is that the 
Delta IV, which is the product which ULA is currently proposing 
to phase out, is the only delivery system currently available 
for the heavier payloads. Is that not correct?
    Mr. Kendall. I believe that ULA is phasing out one variant 
of the Delta, and I do not believe it would preclude our 
launch. Is that correct?
    Ms. James. Correct.
    Senator Rounds. Verify for me please. The Delta IV is----
    Mr. Kendall. Each of these rockets has different variants, 
and one of the variants of the Delta is being discontinued. ULA 
has announced they want to do that, but not all of them. I 
think it has not put our launches at risk.
    Senator Rounds. So you will still have heavier lift 
capabilities.
    Mr. Kendall. Yes, I believe so.
    Senator Rounds. Could you confirm that for the committee, 
please?
    Mr. Kendall. We will double check that, but I believe we 
would be all right.
    Senator Rounds. Okay.
    Another question on this. It seems to me that we now have 
two companies who at one time were competing with one another. 
They joined together in 2006. They have been since that time 
competing with two separate products but both of them they are 
responsible for. During this time, we have assumed that that 
provided us the assured access to space.
    Now, we have got these two organizations together, ULA. We 
have been providing them with a base. I understand the concern 
the chairman has about $800 million a year, but I also 
understand that you want a consistent capability that is there 
and available on short notice.
    My question to you, though, is this. This organization, 
while they have been buying product from Russia--and it appears 
that under our contracting program, we really did not care. We 
were looking the other way while they were using Russian rocket 
motors, the RD-180, during this time period because it was less 
expensive for us even though even back in the 1990s, there was 
a clear direction that if we ever used anything from the former 
Soviet Union, Defense Department policy clearly stated that it 
had to be phased out in 4 years. We appeared to just look the 
other way during this entire time frame?
    Mr. Kendall. You are correct about all that. ``Look the 
other way'' would probably be not the way I would characterize 
it.
    Senator Rounds. You looked at it and just ignored it?
    Mr. Kendall. No. The way I would characterize is we 
accepted the risk associated with continuing to use the RD-180. 
As I said in response to Senator Ernst's question, there were 
conscious considerations of this situation in the Department. 
We were well aware of it, and we knew there was an element of 
risk associated with it. It was a multibillion dollar bill to 
build a clone of the RD-180 in the United States. In the tight 
budget environments we were in, that did not make the cut in 
the Department of Defense. It was consciously considered. With 
hindsight, obviously, we would like to have done something 
different, but we did not. So here we are.
    Senator Rounds. Thank you, Mr. Chairman.
    Chairman McCain. Senator King?
    Senator King. I apologize for missing some of the 
questions.
    One of the pieces of analysis is the value to the taxpayers 
of a competitive launch versus using the Delta, which seems to 
be more expensive, if there is a lack of the 180s. Mr. Kendall, 
have you quantified that? What would the additional cost be?
    Mr. Kendall. Senator King, you put your finger on the 
question here. It is really a policy question of how much 
additional taxpayer money we should spend and how much risk we 
should take in the context of denying some income to the Russia 
oligarchs we have been talking about. That cost is on the order 
of tens of millions of dollars at least, and it depends upon 
how many launches and how much over a period of time. It also 
is a cost in delay, and it is a cost in risk in the viability 
of ULA if we go down that route. So there are a number of 
things there that weigh against moving in that direction.
    There are things that weigh for it. Senator McCain is very 
eloquent about that. It is a policy decision. At the end of the 
day, the Department of Defense will do whatever the law directs 
us to do. If we are directed to get off the RD-180 today, we 
will do that, and we will do the best that we can without it. 
There are costs associated with that.
    Senator King. I would hope for the record you could perhaps 
give us some more detailed analysis. Is it tens of millions, 
hundreds of millions? Because that has to weigh into our 
decision.
    Mr. Kendall. It is at least tens of millions. Depending on 
how many launches were affected, how long it takes us to get to 
a more efficient source, it could be hundreds of millions, and 
it is delays that are measured probably in years. We could try 
to give you some more definitive information on that, though, 
if you would like.
    Senator King. I would appreciate that.
    The second question is similar. As I understand it, there 
are a number of 180s in the pipeline that are approved under 
various discussions, but if we cut it off at different points, 
9, 12, 14, 20, whatever, there could be a competitive gap. In 
other words, there could be a period of years where there is no 
alternative. Is that accurate? If so, what is that period? When 
does it start? When does it end?
    Mr. Kendall. We believe it would be several years before we 
could have a certified replacement for the RD-180. Our best 
estimates are that 2021 or so would be the time we could have a 
replacement. We would like to go faster. If we look at public-
private partnerships, we would hope that some of those could go 
faster in terms of giving us a replacement. That is our best 
estimate right now.
    Senator King. Just because I am not sure what magnitude of 
dollars we are talking about, what does one of these rocket 
engines cost?
    Mr. Kendall. A medium launch is on the order of $100 
million a launch. It is a good figure just to keep in your 
head.
    Senator King. That is the cost of the launch.
    Mr. Kendall. Yes.
    Senator King. I am talking about ULA. When they buy the 
rocket engine from Russia, what does it cost?
    Mr. Kendall. I believe the engine cost is on the order of--
I am going to look to the people behind me. I think it is about 
$20 million. $30 million.
    Senator King. So $30 million is what we are talking about 
going to Russia. Of course, some significant part of that is 
the physical cost of building it. We do not know how much 
profit Brother Putin is making on those.
    I really appreciate the analysis and look forward to that 
detailed analysis of the cost differential because I think that 
is an important consideration for us. Thank you very much for 
your testimony.
    Thank you, Mr. Chairman.
    Mr. Kendall. Yes, sir. Thank you.
    Chairman McCain. I would like to point out to my colleague 
that both Blue Origin and SpaceX are developing and have had 
partial success with a reusable rocket engine. So that, of 
course, has a huge effect. There has been at least one success. 
So to somehow assume that it is going to be tens or hundreds of 
millions of dollars in extra costs ignores what these other 
non-ULA organizations are doing.
    I am thinking now that we will have these various 
organizations that are not being subsidized for $800 million a 
year up before the committee. I will tell you in information 
they have conveyed to us, reusable rocket engines are certainly 
something they have had some success with. That changes the 
equation dramatically.
    Senator King. It changes it completely. I fully agree. 
Thank you.
    Chairman McCain. Senator Lee?
    Senator Lee. Thank you, Mr. Chairman, for holding this 
hearing and for your attention to this important issue.
    Thank you, Secretary James and Secretary Kendall, for being 
here to discuss this with us and for your service to our 
country.
    I think we can all agree that in the coming years assured 
access to space is going to continue to be more and more 
important with each passing year. So I wanted to talk about 
what you think about the following question as we discuss both 
the short-term and the long-term considerations that have to be 
taken into account for a space launch. I am interested 
understanding how the Department of Defense and, to some 
extent, defense contractors might be looking toward the horizon 
for new, perhaps non-traditional forms of space launch 
technology that might be more cost-effective than our current 
technology.
    So can you discuss any steps the Department might have 
taken to consider alternative forms of technology, such as 
advances in solid rocket motors? Do you believe that exploring 
new launch services, instead of just exploring new engines, 
might be the most effective way to end our reliance on Russian 
space launch technology?
    Ms. James. So I definitely believe, Senator, that we need 
to expand our horizon and keep focusing on the launch 
capability in its totality, of which the engine is a key 
component, but it is not the only component. So I will say that 
up front.
    I will also say we are open to whatever types of--
particularly this year with the NDAA written as it is, what 
other types of rocket propulsion systems in a full and open 
competitive way could lead to having new competitors and new 
capabilities to get us to space. That is what this is in part 
all about. Indeed, the solid motor application is one that 
there has been an award made under one of these other 
transaction authorities. So we are open to this.
    There are fantastic developments in the commercial world. 
In my opening statement, I talked about how we are following 
them. We are celebrating them. We are putting some of our 
resources and time and energy toward trying to help them get 
there from here because we will all benefit from it. So totally 
open to it and one of the awards went in that direction.
    Senator Lee. My understanding is that the market for these 
small payload launches is growing in the United States and it 
is also growing around the world. As you know, the Russians 
have been converting ICBM [intercontinental ballistic missile] 
motors into launch vehicles for smaller payload missions. This 
is kind of a low-cost approach that has attracted a lot of 
commercial users from around the world, a lot of customers from 
all over the world, including customers in the United States.
    The Air Force, if I am not mistaken, stores more than 800 
American ICBMs at a cost of about $17 million per year. At this 
point in time when the United States is trying to reduce our 
reliance on Russian companies for space launches and it is also 
trying to find savings within our defense budget, do you think 
that we could explore allowing domestic commercial use of our 
excess ICBM motors as long as proper inventory control measures 
were put in place? Is that a possibility?
    Ms. James. If you will allow me to go back and confirm 
that. Again, I am open to any of these new ideas. I do not 
believe, however, that those ICBM motors would have sufficient 
power to launch the types of satellites that we are talking 
about in our EELV program, but perhaps there might be other 
applications that we should be thinking about. So if you will 
allow me to go back and explore that.
    Senator Lee. Okay.
    Secretary Kendall, you seem to be nodding. Do you want to 
add anything to that?
    Mr. Kendall. I am not aware of the possibilities there, but 
I think it is worth exploring. I think, as Secretary James 
indicated, it would be for smaller launches.
    We do want to exploit the technologies that are in 
development like the ones Senator McCain mentioned. We want 
those investments to be part of a path to assured launch 
service providers, and that is the distinction between just 
spending money on propulsion and hoping that these commercial 
ventures are successful and ultimately give us what we need or 
actually getting on a contractual path that gets us there for 
sure and provides the services that we need. That is the 
difference between the two approaches we have been talking 
about.
    Senator Lee. Right, right. So it is not just about the 
motors. It is also with the launch services. I would appreciate 
any information you can get back to me on that as a follow-up. 
Assuming there are some that would work, I question whether it 
would make sense to prohibit American launch providers from 
purchasing excess ICBM motors for commercial use while allowing 
Russians to take all of the business in that market, assuming 
there would be a market there.
    Thank you both and thank you, Mr. Chairman.
    Chairman McCain. Senator Shaheen I am told is on her way 
back. So I will just mention a couple things.
    We are going to have the various organizations that are 
developing these new technologies, including reusable rocket 
engines and others, before the committee.
    For the record, Secretary Kendall, you have said that it 
costs tens of millions, hundreds of millions of dollars extra 
if we just went with the Atlas rocket. I would like a much more 
definitive answer as to how much those additional costs are in 
your view.
    By the way, I am confident that one of these outfits is 
going to develop a reasonable rocket engine. They have already 
had success and they predict it. That then, of course, changes 
your estimates rather dramatically. That is why we need them 
before the committee.
    Jeff, did you have any additional questions or comments?
    Senator Sessions. No. Thank you, Mr. Chairman.
    Your goal, our goal I think of the committee would be to 
create a competitive environment where two or more innovative, 
creative American-based companies are producing our essential 
launch systems. I think we all agree on that. The sooner, the 
better.
    With regard to the $800 million, there are costs for 
maintaining, Secretary Kendall, the launch systems and the pads 
and all of that, but in the future, the way you are proposing 
it, everybody that bids, whether it is SpaceX or Blue Origin or 
ULA--they would explicitly put in their bid that cost. Is that 
the way they would do it?
    Mr. Kendall. We are phasing out that contract, and I do not 
foresee us using that type of contract again.
    Senator Sessions. They would just have to bid in there--I 
mean, they would have to include in their proposal probably the 
cost of maintaining a launch pad and all----
    Mr. Kendall. Yes, they would. For that reason, we made the 
adjustment to the current contract so that there is no 
effective subsidy of ULA any longer.
    Senator Sessions. I do think the Senator is right. My best 
judgment is we are in a transformative time. It would be great. 
SpaceX is out there doing some great work. I think Blue Origin 
has great capabilities, and others are talking about some plans 
that could work too.
    So thank you, Mr. Chairman.
    Chairman McCain. Well, thank you.
    I would just point out my rough estimate between 2005-
2016--that is about $7.2 billion we have paid ULA--that math 
may be wrong--for staying in business. There is plenty of 
corporations that do business with the Defense Department we do 
not pay $800 million a year just to stay in business. They do 
research. They do development. They do testing. They do work. 
This $800 million a year, and then not even bid on a launch. 
You talk about in your face.
    I am sorry. I do not think we can wait much longer.
    Go ahead.
    Senator Reed. Just let me make a brief statement.
    First, thank you, Mr. Chairman. I think the hearing has 
been very, very insightful.
    If Senator Shaheen--I will immediately yield to her if she 
arrives.
    Just one of the things that was revealed in the hearing is 
the complexity of all these issues. One aspect of this, for 
want of a better term, is reliability because a lot of this 
effort began in the late 1990s when we suffered a series of 
significant setbacks, not only billions of dollars of 
equipment, but intelligence capabilities that were absolutely 
critical and vital were lost.
    I do not know what the scientific correlation is but 
innovation is--there is a little tradeoff between reliability 
and innovation in sort of a street-wise sense. So I just want 
to simply say that that is one of the aspects that I think we 
have to look at.
    This has been a very important hearing, and the chairman's 
leadership has been I think in exactly the right direction. We 
are all sitting here saying we have got to stop buying RD-180s, 
do it smartly and do it quickly. That is the point the chairman 
has made repeatedly.
    Chairman McCain. We cannot impose on the time of the 
witnesses any longer. My regrets to Senator Shaheen.
    This hearing is adjourned. I thank the witnesses.
    [Whereupon, at 11:03 a.m., the hearing was adjourned.]

    [Questions for the record with answers supplied follow:]

             Questions Submitted by Senator Lindsey Graham
    military space launch and the use of russian-made rocket engines
    It has come to my attention that payments for RD-180 rocket engines 
may be made to the Russian company NPO Energomash in United States 
dollars (USD) through the middle-man RD AMROSS. Since the Russian 
invasion of Crimea nearly two years ago, this financial arrangement has 
become even more lucrative for the Russians due to the unprecedented 
strength of the USD against the ruble.

    1. Senator Graham. Is it accurate that these transactions are made 
in USD?
    Secretary Kendall. The Department purchases launch services, not 
launch vehicle hardware. The Air Force's contracts with United Launch 
Alliance (ULA) are for launch services utilizing the Atlas V launch 
vehicle. These contracts specify amounts in USD. The subcontracts 
between ULA and RD AMROSS for purchase of the RD-180 engines specify 
amounts in USD. However, how ULA subcontractor RD AMROSS pays their 
vendor NPO Energomash for the manufacture of the RD-180 engines should 
be addressed with ULA and RD AMROSS.

    2. Senator Graham. Are foreign transactions usually done in USD? If 
so, is there anything that can be done to stop this type of transaction 
which appears to greatly benefit the Russian Government?
    Secretary Kendall. The Department does not procure nor pay for the 
RD-180 rocket engines directly from a foreign supplier. The prime 
contractor, United Launch Alliance (ULA), pays its suppliers for space 
launch rocket components. Both ULA contracts with RD AMROSS and RD 
AMROSS contracts with NPO Energomash are specified and paid in USD. 
Absent suspension, debarment, statutory restriction, or a Presidential 
Executive Order sanction on contracting with a prohibited source, 
defense contractors would not be precluded from using normal commercial 
financing and payment terms with their suppliers.

    Senator Graham. I understand that the BE-4 engine under development 
will use liquefied natural gas (LNG) as its propellant instead of 
kerosene as is used in the Russian RD-180. I also understand that ULA 
is pursuing an entirely new rocket, the Vulcan that will use LNG. The 
use of LNG as a fuel, some experts have advised, may require launch pad 
modifications as well as other new infrastructure and equipment.
    3. Are you aware that significant changes to the launch pad and 
other modifications may be required if an LNG engine is used in the 
Vulcan?
    Secretary Kendall. Yes, the Department is aware that if the BE-4 
engine is selected as the propulsion system for the ULA Vulcan launch 
vehicle there will be a requirement for some launch pad modifications.

    4. Senator Graham. Have the additional funds been taken into 
account in the Department's future budget estimates?
    Secretary Kendall. The Department purchases launch services and 
does not directly invest in infrastructure that is required to perform 
the required service. Funding for infrastructure development is 
generally the responsibility of the launch service provider.
    If, however, United Launch Alliance is selected to enter into a 
public-private partnership with the Department as part of the Next 
Generation Launch System Investment activity, it is possible that some 
of the funding the Department has requested in the Fiscal Year 2017 
President's Budget could be used to support launch pad modification for 
the Vulcan program.

    5. Senator Graham. Who will be responsible to pay for these 
additional launch pad modifications and additional infrastructure?
    Secretary Kendall. In general, the Department purchases launch 
services and does not directly invest in infrastructure that is 
required to perform the required service. Funding for infrastructure 
development is generally the responsibility of the launch service 
provider.
    If, however, United Launch Alliance is selected to enter into a 
public-private partnership with the Department as part of the Next 
Generation Launch System Investment activity, it is possible that some 
of the funding the Department has requested in the Fiscal Year 2017 
President's Budget could be used to support launch pad modification for 
the Vulcan program.

    Senator Graham. You testified that current estimates for replacing 
the RD-180 rocket engine would be about $3 billion. That estimate 
greatly exceeds what some industry experts believe will be needed for 
development and integration of a new rocket engine.
    6. In order to understand your analysis better, please provide an 
accounting of your $3 billion estimate.
    Secretary Kendall. The Department's preferred approach for 
transitioning from the RD-180 engine is to invest, via public private 
partnerships, in launch service development and not to develop a 
replacement engine. An engine by itself does not provide the launch 
capability needed for national security space satellites. My testimony 
presented a very rough estimate for an engine program by itself. This 
engine program cost would include development and qualification engine 
hardware, refurbishing test stands, integration costs with the launch 
vehicle, and a demonstration launch late in the program. This program 
cost did not include potential costs for the use of Delta IV launch 
vehicles on planned Atlas V missions in the transition period.
                               __________
                Questions Submitted by Senator Jack Reed
                        number of rd-180 engines
    Senator Reed. There has been a lot of debate concerning the number 
of RD-180 engines we will need. My understanding is the current Falcon 
9.1 cannot lift all the satellites the Atlas can using the RD-180 
engine. This leaves a possible gap until some sort of replacement 
rocket for the Atlas comes on line.
    7. Is this gap in lift accurate and how many RD-180 engines do we 
need for the Atlas, for how long and why?
    Secretary James. We need assured access to space. If we are no 
longer allowed to use RD-180s, we may be forced to use more Deltas at a 
higher cost which is not in our budget. If United Launch Alliance (ULA) 
retires the Delta IV in the fiscal year 2018 timeframe as they have 
announced and the Atlas V becomes unavailable due to the RD-180 
restrictions, there will be a gap in assured access to space as well as 
a gap in competition for National Security Space (NSS) launch missions, 
during which time the SpaceX Falcon 9 Upgrade, the SpaceX Falcon 9 
Heavy (when certified), and the Delta IV Heavy launch vehicles become 
the only means of spacelift. As indicated last year, we believe 
authorization to use up to 18 RD-180 engines is a reasonable starting 
point for the transition timeframe. There are approximately 34 
competitive launch service opportunities/procurements during the fiscal 
year 2015-fiscal year 2022 timeframe. Use of the RD-180 mitigates risk 
associated with assured access to space and enables competition.
                               split buys
    Senator Reed. At times to preserve our industrial base, services 
such as the Navy have used an acquisition approach called dual 
allocation, which allocates set quantities to two providers.
    8. Do think such an approach is feasible between SpaceX and ULA if 
ULA were to retain the Delta IV until such time as a replacement for 
the Atlas IV is developed?
    Secretary James. A dual allocation approach between SpaceX and ULA 
is feasible. The Air Force is investigating several acquisition 
strategy approaches to preserve assured access to space and foster 
competition. One potential strategy is an allocation approach for 
Evolved Expendable Launch Vehicle (EELV) Phase 2 launch service 
procurements. Based on initial Air Force estimates, it would cost DOD 
in excess of $1.5B more to allocate between Falcon and Delta IV without 
access to the Atlas V launch vehicle. This cost estimate assumes there 
is no access to RD-180 engines for the 28 projected EELV Phase 2 
missions during the fiscal year 2018-fiscal year 2022 timeframe. For 
the 28 Phase 2 missions, the Air Force estimate assumes an even 
allocation of 14 missions for the Delta IV and 14 missions for the 
Falcon 9 based on discussions with the SASC staff.

    9. Senator Reed. How much added cost would this be (and why) until 
2022 at which time ULA is supposed to have certified a new launch 
system to replace the Atlas?
    Secretary James. The Air Force is investigating several acquisition 
strategy approaches to preserve assured access to space and foster 
competition. One potential strategy is an allocation approach for 
Evolved Expendable Launch Vehicle (EELV) Phase 2 launch service 
procurements. Based on initial Air Force estimates, it would cost DOD 
in excess of $1.5B more to allocate between Falcon and Delta IV without 
access to the Atlas V launch vehicle. This cost estimate assumes there 
is no access to RD-180 engines for the 28 projected EELV Phase 2 
missions during the fiscal year 2018-fiscal year 2022 timeframe. For 
the 28 Phase 2 missions, the Air Force estimate assumes an even 
allocation of 14 missions for the Delta IV and 14 missions for the 
Falcon 9 based on discussions with the SASC staff.
                  liquid rocket engine industrial base
    Senator Reed. If ULA were to cease production of the Delta IV 
purely for competitive reasons it would eliminate production of the RS-
68 engine produced by Rocketdyne--our only U.S. company solely focused 
on liquid propellant rocket engines for medium and heavy lift. NASA 
relies on Rocketdyne to produce engines as well for their Space Launch 
System, the RS-25.
    10. What is your assessment of the impact to Rocketdyne if ULA were 
to cease production of the Delta IV engine?
    Secretary Kendall. Based on Aerojet Rocketdyne (AR) financial 
reporting to the Security and Exchange Commission, ULA represents 
approximately 20 percent of AR's business base. This includes the Delta 
IV RS-68 engine, the RL-10 upper stage engine which flies on both the 
Atlas V and Delta IV vehicles, the Atlas V solid rocket boosters (SRB), 
and some development activities on the AR-1 main stage engine. In 2015, 
ULA competed its contract for SRBs and awarded the contract to Orbital 
ATK. As a result, AR will cease providing SRBs to ULA in 2018. If Delta 
IV production ends, a significant portion of AR's revenue could be lost 
as RS-68 production will be terminated, approximately 13 percent of 
their overall liquid rocket engine revenue, and production of the RL-10 
will be reduced. Further, a Delta IV production stop also has the 
potential to impact the NASA RS-25D/E production restart program in the 
form of increased overhead rates. Should United Launch Alliance, as a 
launch system integrator, select the AR-1 as the mainstage propulsion 
system for its next generation Vulcan-Centaur rocket, the loss of 
revenue from the RS-68 could somewhat be mitigated.
interpretation of fiscal year 2016 ndaa and section 8048 of the fiscal 
                  year 2016 omnibus appropriations act
    Senator Reed. As you know there are two provisions addressing the 
competition for DOD launch that have become law for fiscal year 2016. 
One is section 1607 of the Fiscal Year 2016 NDAA permitting the 
purchase of 4 additional RD-180 engines beyond the existing 36 core 
block buy with ULA and one in the section 8048 of the Fiscal Year 2016 
Omnibus Appropriations Act permitting any DOD ``certified'' provider of 
launch to compete--regardless of engine origin.
    11. What is your interpretation of these two provisions taken 
together?
    Secretary Kendall. Based on the Department's review, we believe the 
two provisions can be read together so that there is no inconsistency 
as they are applied to the present Air Force fiscal year 2016 
procurement plan. If the Air Force plans to contract for launch 
services with Atlas RD-180 engines for up to four engines, both 
statutes would authorize such a plan. However, if the Air Force plans 
to contract for launch services in Fiscal Year 2016 with more than four 
Atlas RD-180 engines, we believe section 8048 of the Fiscal Year 2016 
Omnibus Appropriations Act takes precedence to authorize such use of 
RD-180 engines.
                    rd-180 engine replacement effort
    Senator Reed. You have the rare circumstance where the Congress is 
appropriating more funds than you have requested--specifically for the 
replacement of the RD-180, the Congress has appropriated in the past 
two years about $300 million more than requested for this effort.
    12. Are you able to achieve the goal of the Fiscal Year 2015 NDAA 
to have a replacement by 2019 and if not why?
    Secretary James. Our engine experts have said that the timeline to 
get an engine by 2019 is very aggressive and challenging. It is 
possible to get an engine by 2019, but an engine alone does not get you 
to space. More time is needed to integrate the engine into a launch 
system. An independent review led by Gen (ret) Mitchell looked closely 
at this problem and gathered inputs from across both government and 
commercial industry. The team estimated that it would take 
approximately six years to build an engine from a cold start. As an 
example, the original RS-68 (Delta IV engine) development took eight 
years to get to first launch and cost 8$750M. The RS-68A upgrade 
development took six years and cost 8$250M.
                               __________
              Questions Submitted by Senator Kelly Ayotte
                            cost of launches
    13. Senator Ayotte. Secretary James and Secretary Kendall: Is ULA 
pursuing innovations with the Delta IV, Atlas V, or the Atlas successor 
that have the potential to achieve cost-competitiveness in a reusable 
vehicle marketplace?
    Secretary James. ULA is looking to transition from its legacy 
launch families, Delta IV and Atlas V, to its next generation launch 
family which is called Vulcan. It is the Air Force's understanding that 
ULA is evaluating ways to be competitive with Vulcan in the dynamic 
launch vehicle marketplace.
    Secretary Kendall. ULA has publicly stated that the reason for the 
shutdown of the Delta vehicle line and the transition from Atlas V to 
the Vulcan vehicle is to achieve cost competitiveness in the evolving 
launch service marketplace. ULA has also publicly indicated that they 
are exploring the cost effectiveness of adding a limited engine 
reusability capability to the evolving Vulcan design.

    14. Senator Ayotte. Are those sorts of innovations things that the 
Air Force is looking at while managing its booking of launches?
    Secretary James. The Air Force continues to foster competition and 
work with industry to certify new launch providers for our National 
Security Space (NSS) payloads. The Air Force has developed a cogent set 
of source selection criteria for deciding which certified launch 
provider will be chosen to launch each mission. The Air Force's 
strategy of full and open competition is intended to foster innovative 
approaches.
    Secretary Kendall. The Department awards launch service contracts 
only to certified launch providers that meet the requirements for 
specific missions. If an innovative solution is presented by a launch 
service provider, it would be considered as long as the innovation does 
not change the provider's certified baseline. Any innovations outside 
the certified baseline would drive a vehicle re-certification. While 
the Air Force encourages innovation, our highest priority is assured 
access to space using reliable launch services.
                          heavy lift launches
    15. Senator Ayotte. If phasing out the Delta IV medium-lift variant 
makes the Heavy variant more expensive, why is the Air Force supporting 
ULA's decision to phase out the Delta IV and rely on the Atlas V?
    Secretary James. The Air Force procures launch services and does 
not control United Launch Alliance's (ULA) internal business decisions. 
ULA's decisions to phase out the Delta IV and rely on the Atlas V are 
due to Delta IV's lack of cost competitiveness. The Air Force has 
funded ULA to analyze the cost impacts of retaining the Delta IV single 
core for National Security Space missions.
    Secretary Kendall. The Department's goal is to have at least two 
commercially viable launch service providers that utilize domestic 
rocket propulsion systems and meet all National Security Space (NSS) 
requirements. ULA has publicly stated that it made a business decision 
to eliminate all the Delta Medium and Medium+ variants in an effort to 
restructure its business in order to ensure it remains a viable launch 
service provider. The Air Force has not taken a position on whether or 
not this is a sound business decision.

    16. Senator Ayotte. If we had no more access to RD-180s 
immediately, could we instead shift Atlas V resources as we use 
existing RD-180 stock to the Delta IV and maintain our medium-lift 
assured access to space (with Delta IV and Falcon 9) and also preserve 
our current one-vehicle heavy lift capacity (with Delta IV Heavy)? 
Would that save taxpayer dollars?
    Secretary James. United Launch Alliance (ULA) has committed to 
maintaining the Delta IV Heavy capability as long as National Security 
Space (NSS) has a requirement for the vehicle, which will be at least 
until 2022. ULA has civil and commercial Atlas V missions. By shifting 
Atlas V NSS resources to Delta IV, we would cause the fixed costs 
allocation to those missions remaining on Atlas V to increase, thus 
jeopardizing the commercial viability of Atlas V and ULA's ability to 
support development of the Vulcan launch system. In addition, Tori 
Bruno, CEO of ULA, publicly stated at the HASC Strategic Forces 
Subcommittee hearing on June 26, 2015 that it costs 35 percent more to 
build a Delta IV launch vehicle than an Atlas V. Based on initial 
estimates, it would cost DOD in excess of $1.5B more to implement a 
Falcon 9 and Delta IV only approach for Evolved Expendable Launch 
Vehicle (EELV) Phase 2 (launch procurement in fiscal year 2018-2022).
    Secretary Kendall. If access to RD-180 engines were immediately cut 
off, the Department would work with ULA to evaluate the current 
inventory of RD-180s available for the Department's use and determine 
which National Security Space (NSS) missions, if any, to transfer to 
the appropriately-sized Delta IV. We would also work with SpaceX to 
determine availability and capability of Falcon vehicles. First, this 
re-manifesting to Delta IV and Falcon 9 would delay the launch of 
critical NSS missions. Second, the Department would incur not only 
reintegration costs but also storage costs due to the schedule delays. 
For each mission transferred to a Delta vehicle, a minimum of a 30 
percent increase in individual mission costs should be expected. Today, 
the Falcon Upgrade launch vehicle is only certified to launch into four 
of the eight EELV required orbits. If this situation were to occur, the 
Department could expect an overall significant increase in the cost of 
launch to the Government over the Future Years Defense Program.
             why moving so slow?--went to moon much faster
    17. Senator Ayotte. When is the earliest that we can develop a 
domestic rocket engine that can be integrated into the Atlas V?
    Secretary James. Our engine experts have said that the timeline to 
get an engine by 2019 is very aggressive and challenging. It is 
possible to get an engine by 2019, but an engine alone does not get you 
to space. More time is needed to integrate the engine into a launch 
system. We believe the 2022/2023 timeframe is the earliest a new engine 
integrated with a launch vehicle can be certified and ready for flight. 
An independent review led by Maj Gen Howard J. Mitchell (USAF-Ret) 
looked closely at this problem and gathered inputs from across both 
government and commercial industry. The team estimated that it would 
take approximately 6 years to build an engine from a cold start. As an 
example, the original RS-68 (Delta IV engine) development took eight 
years to get to first launch and cost 8$750M. The RS-68A upgrade 
development took six years and cost 8$250M.
    Secretary Kendall. The Department wants to end use of the RD-180 as 
soon as possible but does not believe this can be accomplished before 
2021 or 2022. To be clear, the Department does not intend to 
unilaterally pay for the development of a direct replacement engine for 
the RD-180 on the Atlas V. The costs would be excessive to the 
Department, and a specific engine program would only benefit one launch 
service provider.
    The Department's goal is competitive public-private partnerships 
with commercial launch service providers that result in new and 
improved launch service capabilities. This is the quickest and most 
efficient way to get off the RD-180.

    18. Senator Ayotte. What does it say to you about the state of our 
nation's defense industrial base and our acquisition system that it 
took less time in the 1960s to build the rocket that took us to the 
moon than it will take to build a new rocket engine today?
    Secretary James. The earliest test firings of components that 
became part of the Saturn V first-stage F-1 engine took place in 1957. 
The first manned Saturn V flight--the Apollo 8 circumlunar mission (the 
first lunar orbit mission)--occurred in December 1968. This represents 
a decade-long development cycle.
    With appropriate and sustained funding for engine development as 
part of an integrated launch system, as was the case with the F-1 and 
Saturn V, our nation's defense industrial base and our acquisition 
system could conceivably equal or surpass the achievements of the 
Saturn V example.
    Secretary Kendall. The F-1 engine that powered the rocket system 
that took us to the moon began development in 1955 and first flew in 
1967. The development of new propulsion and associated launch systems 
for the Evolved Expendable Launch Vehicle (EELV) program will require 
about five to seven years and remains one of the most challenging 
design and development activities the Nation pursues, as flawless 
technical performance is paramount. The Department remains committed to 
ending the use of the RD-180 engine as soon as possible while still 
maintaining the Nation's assured access to space. We plan on doing this 
in the most prudent but expeditious manner possible.

    19. Senator Ayotte. Is it true that you did not release contracts 
for the development of a prototype engine until just a couple weeks 
ago?
    Secretary James. After the Fiscal Year 2015 NDAA was passed in 
December 2014, the Air Force released the Request for Proposals (RFP) 
for the Booster Propulsion Technology Maturation Project Broad Agency 
Announcement (BAA) on June 2, 2015. After a full and open competition, 
the Air Force awarded the first BAA contract on November 4, 2015. The 
Air Force has awarded a total of ten contracts ($34.6M) under the BAA. 
These Booster Propulsion Tech Maturation Project BAA awards continue 
the strategy to transition off the RD-180 with a launch service 
approach. Specifically, they support the Fiscal Year 2015 Authorization 
and Appropriation Acts' direction to initiate engine risk reduction and 
technology maturation efforts to develop a next-generation rocket 
propulsion system. Separately, the Air Force released an innovative 
public-private partnership RFP on June 2, 2015 for investment in 
industry's rocket propulsion systems through full and open competition. 
The Air Force initiated rocket propulsion system development 
partnerships with industry on January 13, 2016 with the award of the 
first two Other Transaction Authority agreements ($80.5M). The final 
two of four Other Transaction Authority agreements were awarded on 
February 29, 2016 ($141.6M).
    Secretary Kendall. It is true that four Other Transaction Authority 
agreements for the Rocket Propulsion System project were recently 
awarded following source selection and congressional notification. Two 
were awarded January 13, 2016: one to SpaceX for a single project and 
one to Orbital ATK for three projects. Two more were awarded on 
February 29, 2016: one to Aerojet Rocketdyne for a single project and 
one to United Launch Alliance for two projects.

    20. Senator Ayotte. What took so long? It has been almost two years 
since Russia invaded Ukraine's Crimea.
    Secretary James. Since the Fiscal Year 2015 NDAA was passed in 
December 2014, the Air Force released the Request for Proposals (RFP) 
for the Booster Propulsion Technology Maturation Project Broad Agency 
Announcement (BAA) on June 2, 2015. After a full and open competition, 
the Air Force awarded the first BAA contract on November 4, 2015. The 
Air Force has awarded a total of ten contracts ($34.6M) under the BAA. 
These Booster Propulsion Tech Maturation Project BAA awards continue 
the strategy to transition off the RD-180 with a launch service 
approach. Specifically, they support the Fiscal Year 2015 Authorization 
and Appropriation Acts' direction to initiate engine risk reduction and 
technology maturation efforts to develop a next-generation rocket 
propulsion system. Separately, the Air Force released an innovative 
public-private partnership RFP on June 2, 2015 for investment in 
industry's rocket propulsion systems through full and open competition. 
The Air Force initiated rocket propulsion system development 
partnerships with industry on January 13, 2016 with the award of the 
first two Other Transaction Authority agreements ($80.5M). The final 
two of four Other Transaction Authority agreements were awarded on 
February 29, 2016 ($141.6M).
    Secretary Kendall. The release of these Rocket Propulsion System 
(RPS) Other Transaction Agreements (OTAs) is actually only the most 
recent portion of a multiple-year process that includes model 
development and technology maturation activities. These activities will 
result in new and improved launch services capabilities for the 
Department. In August 2014, the Air Force released a Booster Propulsion 
and Launch Systems Request for Information to obtain more detailed 
information regarding each domestic space launch service and rocket 
propulsion provider's proposed new or modified launch system(s), 
including the technical development plans and business cases. The first 
funding supporting the overall RPS activities was obligated for 
subscale testing in November 2014. In addition, a total of 10 Broad 
Area Announcement awards were made in CY 2015 and early CY 2016. The 
OTAs that were awarded in January 2016 were followed by additional RPS 
awards in February following required congressional notification. As 
requested in the Fiscal Year 2017 President's Budget, the final step in 
the Department's transition away from the RD-180 will be the release of 
a Draft Request for Proposals for the Government Launch Service 
Investment portion of the process that will result in new and improved 
launch service capabilities, powered by American-made rocket engines, 
for the Department and the Nation.
            spending tax dollar on u.s. protective equipment
    Senator Ayotte. The United States Government, through DOD, 
continues to support many allies who are fighting terrorism around the 
world. Part of that support comes from direct funding and FMF dollars 
given to specific nations that are designated to be spent on properly 
outfitting their warfighters with quality protective equipment and 
combat clothing. This equipping effort provides the opportunity to 
ensure that our allies have the essential combat clothing and body 
armor needed to maximize our allies' safety and performance, while 
strengthening the U.S. defense industrial base.
    21. Which laws or regulations do you believe govern whether those 
FMF funds must be spent in the United States?
    Secretary Kendall. The permanent authority for financing the 
procurement of defense articles, defense services, and design and 
construction services by friendly foreign countries and international 
organizations is section 23 of the Arms Export Control Act (AECA) of 
1976, as amended, title 22, U.S.C section 2763. Other provisions of the 
AECA restrict financed sales in the case of coproduction or licensed 
production outside of the United States (AECA section 42(b)) and 
restrict use of funds outside of the United States only upon 
determination that the procurement will not result in adverse effects 
on the U.S. economy or industrial mobilization base. AECA section 42(c) 
states that the determination must consider the balance between impacts 
on labor surplus areas and the balance of U.S. payments with the rest 
of the world against economic and other advantages to the United States 
for procurement outside of the United States. The authority to make 
this determination has been delegated to the Director, DSCA, in the 
Department of Defense, with concurrence from the Department of State 
and the Department of Commerce.
    To carry out section 23 of the AECA, FMF funds are appropriated in 
the annual Department of State, Foreign Operations, and Related 
Programs Appropriations Act. The Appropriations Acts contain recurring 
provisions that allow the Government of Israel to use a portion of its 
FMF allocation for procurements in Israel. The Acts also contain 
restrictions on making FMF available for procurement of defense 
articles, services, and design and construction services that are not 
sold by the U.S. Government.
    The Cargo Preference Act of 1954 as amended, title 46, U.S.C., 
section 55305, requires at least 50 percent of the gross tonnage 
(computed separately for dry bulk carriers, dry cargo liners, and 
tankers) of FMF-funded cargo be transported in privately-owned U.S. 
flag vessels to the extent such vessels are available at fair and 
reasonable rates as determined by the Maritime Administration (MARAD). 
DSCA, in support of the U.S. maritime industry, requires 100 percent of 
applicable cargoes to be carried by U.S. flag vessels unless a general 
or security waiver is granted by DSCA or a non-availability waiver is 
granted by MARAD.

    22. Senator Ayotte. How does DOD ensure compliance with those laws 
and regulations?
    Secretary Kendall. DOD works closely with the Department of State 
to submit to the Congress the Annual Classified Budget Justification 
Annex for Foreign Appropriations, which includes an annual detailed 
breakout of the proposed country FMF programs. This report is released 
annually in the June timeframe to Congress and updated regularly 
throughout the year. DOD and State work together to ensure FMF funds 
are spent for the purposes that are provided to Congress. Off-shore 
procurements using FMF are not approved unless the circumstances 
justify a determination permitting off-shore procurement with FMF funds 
under section 42(c) of the Arms Export Control Act. The DSCA Security 
Assistance Management Manual (SAMM) at C9.7.2.7.3 describes the process 
for considering requests for off-shore procurement using FMF funds. 
SAMM C7.7.1 describes in general terms the application of the Cargo 
Preference Act for shipping of defense articles procured with FMF 
funds.
                               __________
              Questions Submitted by Senator Dan Sullivan
                             alaskan f-35s
    23. Senator Sullivan. In about a month, the Air Force should reach 
a Record of Decision (``ROD'') on the basing of the F-35 at Eielson 
AFB. When will the ROD be officially announced?
    Secretary James. The ROD was officially announced on 4 April 2016.

    24. Senator Sullivan. How confidant are you that the two squadrons 
of F-35s will in fact be based at Eielson AFB, and what is the timeline 
for all of the aircraft, maintenance manning, and support arrive at 
these two squadrons?
    Secretary James. On 30 Jul 14, the Secretary of the Air Force 
identified Eielson AFB as the preferred alternative for the second 
operational F-35 location. The notice of availability for the final 
Environmental Impact Statement (EIS) was published in the Federal 
Register on 4 Mar 16 for 30 day public comment.
    The Air Force signed the record of decision finalizing the basing 
action on 4 April, announcing initial aircraft arrival in 2020.

    Senator Sullivan. By the summer of 2020, two squadrons of F-35s 
should have attained full operational capability at Eielson AFB. As you 
have stated, Close Air Support will be a primary mission of the F-35.
    25. What steps is the Air Force taking to ensure that the F-35s at 
Eielson will integrate with the US Army and synergize their Close Air 
Support training objectives?
    Secretary James. Currently the 3rd Air Support Operations Squadron 
(ASOS) at Joint Base Elmendorf-Richardson, and the 3rd ASOS DET 1 at 
Fort Wainwright, AK provide a liaison between Air Force and the Army 
units stationed in Alaska. The Air Force will continue to execute daily 
training interactions, as well as major exercises such as Red Flag and 
Distant Frontier to integrate Close Air Support Training between U.S. 
Air Force and Army units in Alaska.

    26. Senator Sullivan. What ground-based and air-based electronic 
warfare improvements are going to be made to the JPARC in order to 
maintain a robust and realistic training environment for daily 
integration of Alaska's F-35s and F-22s, as well as other joint and 
coalition partners?
    Secretary James. The JPARC is one of the Air Force's most robust 
and costly ranges with a total of 27 threat emitters, supported by the 
U.S. Air Force, which represent a broad range of Surface to Air 
capabilities. The Air Force recognizes the current threat inventory 
across the range enterprise does not fully replicate enemy threat radar 
waveforms and parametric signatures. As such, the Air Force is 
investing in the development of two Advanced Radar Threat Systems (ARTS 
v1 and v2), which will represent strategic and tactical systems in 
order to better replicate adversary capabilities. These systems are in 
the beginning phases of acquisition and will be added to JPARC's 
inventory when fielded. The Air Force is also working with industry to 
modernize and upgrade the current threat simulator fleet to quickly 
replicate current and future enemy systems. JPARC also has 15 former 
Soviet Union widely proliferated threats that cannot be modified or 
upgraded through the AF acquisition process. However, 8 of the 27 
threat emitters, supported by the U.S. Air Force, will be included in 
the modernization plan over the next four years. The result will be a 
broad range of threat capabilities that provides a full array of near-
peer capabilities.

    Senator Sullivan. Given that Alaska will have two squadrons of F-
35s, two squadrons of F-22s--nearly 100 5th Generation fighters--in 
addition to the Eielson Aggressors and a robust electronic warfare 
training range in the JPARC.
    27. Is it fair to say that Alaska has emerged as a hub of 5th 
Generation combat airpower and training for the USAF and the DOD at 
large?
    Secretary James. The Alaska training ranges and airspace indeed 
provide a wide variety of training opportunities for U.S. Air Force, 
Joint, and Coalition partners. The proximity of F-22 and F-35 units in 
Alaska, along with the JPARC range and Alaskan airspaces and our 
aggressor units, will significantly advance our opportunities to 
integrate 4th and 5th Generation airpower in high-end large force 
exercises and training.

    Senator Sullivan. Alaska sits in a critical strategic location, and 
is the crucible where NORTHCOM, EUCOM, and PACOM all intersect. It 
carries a 24/7 alert mission to counter increased Russian aggression, 
has embedded strategic airlift with the C-17 and C-130s at JBER, and 
will eventually host 4 squadrons of the World's only 5th Generation 
fighters.
    28. With these critical nation security assets in such an enabling 
strategic location, does it make sense to base the KC-46 tanker in 
Alaska to add to these capabilities?
    Secretary James. The Air Force uses its deliberate, repeatable and 
standardized strategic basing process to determine the locations best 
suited to support any given mission. Should the Air Force pursue KC-46 
basing in the Pacific Air Forces (PACAF) area of responsibility, we 
will use the basing process to determine the location.
                               __________
               Questions Submitted by Senator Bill Nelson
              effect on defense department access to space
    29. Senator Nelson. What effect would the combination of an 
immediate ban on the use of Russian-made engines and early termination 
of the current EELV Launch Capability (ELC) contract have on Defense 
Department access to space, cost to the department for future launches, 
and on the U.S. commercial launch industry as a whole?
    Secretary Kendall. These two events would have a serious negative 
effect on the Department's ability to support the Warfighter by 
providing the timely launch of critical space assets.
    If access to RD-180 engines were immediately cut off, the 
Department would work with United Launch Alliance (ULA) to evaluate the 
current inventory of RD-180s available for the Department's use and 
determine which National Security Space (NSS) missions, if any, to 
transfer to the appropriately sized Delta IV. We would also work with 
SpaceX to determine availability and capability of Falcon vehicles. 
First, this re-manifesting to Delta IV and Falcon 9 would delay the 
launch of critical NSS missions. Second, the Department would incur not 
only reintegration costs but also storage costs due to the schedule 
delays. Finally, in the short term, for each mission transferred to a 
Delta vehicle, a minimum of a 30 percent increase in individual mission 
costs should be expected. Today, the Falcon Upgrade launch vehicle is 
only certified to launch into four of the eight EELV required orbits.
    The early termination of the ELC portion of the EELV contract 
combined with the loss of access to the RD-180 engine could require a 
renegotiation of the Air Force EELV ``block buy'' contract with ULA. At 
a minimum, this could potentially expose the Department to a Request 
for Equitable Adjustment (REA) from ULA and, depending on the 
circumstances, the REA could result in significant additional expense 
to the Government.
    Such a disruption could threaten the Nation's assured access to 
space and drive the Department into a near-term segmented sole source 
environment with Delta IV with ULA and Falcon 9 Upgrade with SpaceX.
    Secretary James. The combination of immediately banning the use of 
Russian-made engines and early termination of the current EELV Launch 
Capability (ELC) portion of the Phase 1 contract, FA8811-13-C-0003 
(a.k.a. Block Buy) would significantly disrupt National Security Space 
(NSS) launch.
    The Block Buy contract has two main elements. The first element, 
Launch Vehicle Production Services (LVPS), focuses on the hardware and 
touch labor to build the rocket. The second element, ELC, focuses on 
the infrastructure and critical skills to launch the rocket. These 
elements of cost are inherent to any and all launch services. If the 
ELC Fiscal Year 2017 option is not exercised, preliminary Air Force 
estimates indicate there will be at least a $700M cost impact above the 
current and projected contract cost to renegotiate similar capability 
scope to launch the remaining Block Buy contract missions (19 NSS 
satellites).
    In addition, if there is an immediate ban on RD-180 engines for NSS 
Atlas V missions, the Air Force would have to remanifest already 
awarded Atlas V missions to the more expensive Delta IV (and in some 
cases the very expensive Delta Heavy) as SpaceX's Falcon 9 is not 
capable of lifting those missions leading to a 3-4 year delay in the 
launch manifest. An independent review led by Gen (ret) Mitchell, and 
later revalidated by the Air Force, estimated an overall cost increase 
of as much as $5.1B to accomplish this remanifesting. This ``worst case 
scenario'' cost estimate assumes an immediate loss of access to RD-180 
engines. Thus, the estimate assumes no completion for the 37 Phase 1A 
and Phase 2 missions with a subset of these missions going to the more 
expensive Delta IV. In addition, the estimate includes the cost of 
procuring launch services on the Delta IV for the remaining Phase 1 
Atlas V missions that have not launched and the delay cost associated 
with re-manifesting these missions. Last, the estimate includes the 
cost of maintaining the supporting infrastructure and workforce for 
Delta IV production and operational activity.
                       effect on defense posture
    30. Senator Nelson. What effect has uncertainty regarding the use 
of Russian-made engines had on our defense posture? What effect would 
continued uncertainty have going forward?
    Secretary Kendall. The deteriorating relationship with Russia has 
made it clear that continued use of Russian manufactured RD-180 engines 
to launch national security payloads is not in our Nation's best 
interest. Therefore, the Department is working vigorously to end our 
use of the RD-180 as soon as possible by supporting the development of 
new and improved launch service capabilities. The near-term loss of 
access to RD-180 engines would likely delay the launch of some of our 
critical national security payloads, which could impair the 
Department's ability to support the Warfighter in the field--clearly an 
unacceptable option. The sooner the Department can meet its goal of at 
least two commercially viable launch service capabilities, using 
domestically sourced propulsion systems that support all National 
Security Space requirements, the better for the Nation.
    Secretary James. The loss of assured access to space would be 
extremely damaging to national security. The challenge before us is to 
ensure space services continue to be available at the time and place of 
our choosing in an increasingly contested space domain. The first step 
in this process is to assure our ability to provide safe and reliable 
access to space for national security payloads. Uncertainty regarding 
its future availability results in increased risk to our national 
security space (NSS) posture.
                               __________
             Questions Submitted by Senator Jeanne Shaheen
                             small business
    Senator Shaheen. I recently convened a meeting with my Small 
Business Advisory Council in New Hampshire and there were a number of 
issues raised that I would like to discuss. As you are aware, companies 
that do not win contract awards often protest the decision. The small 
businesses I talked to expressed concern with these numerous protests, 
as it causes delays and extra costs for their companies.
    31. Under Secretary Kendall, how can we improve this process to 
lessen the adverse impact on smaller businesses?
    Secretary Kendall. I am also concerned about the increased protest 
impact on small businesses, as well as the toll it takes on the overall 
contracting process. Unfortunately, this is not an easy fix. It is 
within contractors' rights under the current legislation to protest a 
decision, without penalty, where the protest has no merit.

    Senator Shaheen. One of the business owners I spoke with suggested 
charging the protesting company a fee of the total contract value, if a 
protest is denied.
    32. Do you believe this would reduce the number of protests?
    Secretary Kendall. As stated in a prior answer, I am also concerned 
about the increased protest impact on small businesses, as well as the 
toll it takes on the overall contracting process. Unfortunately, this 
is not an easy fix. It is within contractors' rights under the current 
legislation to protest a decision, without penalty, where the protest 
has no merit. The Department would be willing to work with the Congress 
on measures that would discourage frivolous or speculative protests.
                                  dod
    Senator Shaheen. In fiscal year 2014, the DOD spent more than $54 
billion in prime contracts on small businesses, but fell short in in 
contracting with groups like women-owned small businesses. Had DOD 
reached the 5 percent goal of working with women-owned small 
businesses, $2.3 billion would have been awarded to these firms.
    33. Can you tell me about the outreach DOD is doing to increase 
contracting subcontracting opportunities for women-owned small 
businesses?
    Secretary Kendall. I have charged the Acting Director of the Office 
of Small Business Programs, along with each of the Service Acquisition 
Executives, to keep up current momentum with our Small Business 
improvement over the last several years. The Department has set records 
for Small Business prime awards in three of the five categories for 
each of the previous two years, and I have no intention of slowing down 
small business initiatives. We are spearheading specific outreach for 
the two categories where the Department fell short during 2015, the 
HUBZone category and the Women-Owned Small Business category.
    The Department was less than 0.6 percent away from meeting the 
Women-Owned Small Businesses (WOSB) goal and has improved steadily in 
this area over the past three years. The Department has participated in 
two WOSB-focused events and is working on initiatives utilizing Small 
Business Innovation Research to improve WOSB in technology contracts 
with the Department.
                              sbir program
    Senator Shaheen. As you know, the SBIR program ensures that small 
businesses have an opportunity to conduct R&D for federal agencies, 
including Defense agencies. The program is up for reauthorization in 
2017. On the Senate Small Business Committee, we recently held hearing 
on this issue so we can get started on a bill to make the program 
permanent, which would give the program stability for the agencies and 
the small business partners to develop technology.
    34. In your view, does the SBIR program help defense agencies meet 
their technological needs?
    Secretary Kendall. Yes. The Small Business Innovation Research 
(SBIR) program is one of the Department's most valuable and impactful 
technology investment strategies and is an unquestionably vital 
initiative that should be made permanent for the Department. Its 
flexibility and agile buying process make the SBIR program highly 
effective.
    One in four SBIRs reaches commercialization and is incorporated and 
used either directly for DOD and our sister agencies or in the 
commercial marketplace. For early stage technology investments, this is 
a high level of transition.

    35. Senator Shaheen. Do you recommend permanent authorization for 
the SBIR and STTR programs?
    Secretary Kendall. Yes. The Small Business Innovation Research 
(SBIR) program and STTR are two of the Department's most valuable and 
impactful technology investment strategies and is an unquestionably 
vital initiative that should be made permanent for the Department.
    One in four SBIR projects reaches commercialization and is 
incorporated and used either directly for DOD and our sister agencies 
or in the commercial marketplace. This success ratio is much higher 
than that of comparable commercial projects.
                               __________
              Questions Submitted by Senator Joe Donnelly
               spacex launch failure investigation review
    Senator Donnelly. In June 2015 SpaceX experienced a launch failure. 
While SpaceX was not carrying a DOD payload at the time, I understand 
the Air Force monitored the investigation following the failure and is 
conducting an independent review of the data and findings.
    36. When do you expect to complete that review?
    Secretary James. The Air Force was an observer to the Federal 
Aviation Administration (FAA) and SpaceX-led investigation. The Space 
and Missile Systems Center (SMC) independent review is executing its 
standard mission assurance processes to determine root cause and 
corrective actions. These include assessment of the FAA and SpaceX 
investigation, additional analysis and test, and assessment of 
corrective actions. This independent assessment was completed on 31 
March 2016. It will be staffed through Department stakeholders by the 
end of May 2016. Meanwhile, SpaceX remains certified and eligible to 
win an award for National Security Space launches.

    Senator Donnelly. The FAA and SpaceX completed their investigation 
last fall. NASA completed their independent review of the investigation 
late last year.
    37. Why is the Air Force review is taking longer?
    Secretary James. The Air Force was an observer to the Federal 
Aviation Administration (FAA) and SpaceX-led investigation. The Space 
and Missile Systems Center (SMC) independent review is executing its 
standard mission assurance processes to determine root cause and 
corrective actions. These include assessment of the FAA and SpaceX 
investigation, additional analysis and test, and assessment of 
corrective actions. This independent assessment was completed on 31 
March 2016. It will be staffed through Department stakeholders by the 
end of May 2016. Meanwhile, SpaceX remains certified and eligible to 
win an award for National Security Space launches.
                            loss of atlas v
    38. Senator Donnelly. What are the implications of phasing Atlas V 
out of the U.S. launch vehicle inventory and relying on just Falcon 9 
and Delta IV? How would this impact relative cost to the taxpayer and 
the ability to meet the launch schedule?
    Secretary James. A majority of the launch services provided by 
United Launch Alliance (ULA) use the Atlas V launch family, the more 
cost competitive of ULA's two launch product offerings. Therefore, ULA 
has not maximized the throughput for the Delta IV family. It will take 
time and funding to increase manufacturing capability to support an 
increased number of launches, resulting in launch delays. These delays 
will lead to increased satellite storage costs and additional costs to 
counter obsolescence issues associated with the Delta IV vehicle.
    In addition to these assessed costs, Tori Bruno, CEO of ULA, 
publicly stated, during the HASC Strategic Forces Subcommittee hearing 
on June 26, 2015, that it costs 35 percent more to build a Delta IV 
launch vehicle than an Atlas V. Based on initial estimates, it would 
cost DOD in excess of $1.5B more to implement a Falcon 9 and Delta IV 
only approach for Evolved Expendable Launch Vehicle (EELV) Phase 2 
(launch procurement in fiscal year 2018-2022).

    39. Senator Donnelly. Please describe the additional cost for a 
Delta IV launch vehicle and the cost of launch, compared to an Atlas V.
    Secretary James. Any costs associated with the Delta IV and Atlas V 
launch vehicles are ULA Proprietary. However, Tori Bruno, CEO of ULA, 
publicly stated at the HASC Strategic Forces Subcommittee hearing on 
June 26, 2015 that it costs 35 percent more to build a Delta IV launch 
vehicle than an Atlas V. Based on initial estimates, it would cost DOD 
in excess of $1.5B more to implement a Falcon 9 and Delta IV only 
approach for Evolved Expendable Launch Vehicle (EELV) Phase 2 (launch 
procurement in fiscal year 2018-2022).

    40. Senator Donnelly. Is industry on the proper path to replace the 
RD-180 within the time criteria set forth in statute?
    Secretary Kendall. The Department wants to end use of the RD-180 as 
soon as possible but does not believe this can be accomplished before 
2021 or 2022. To be clear, the Department does not intend to 
unilaterally pay for the development of a direct replacement engine for 
the RD-180 on the Atlas V. The costs would be excessive to the 
Department, and a specific engine program would only benefit one launch 
service provider.
    The Department's goal is competitive public-private partnerships 
with commercial launch service providers that result in new and 
improved launch service capabilities. This is the quickest and most 
efficient way to get off the RD-180.

    41. Senator Donnelly. In your view, how much longer should RD-180 
equipped Atlases be allowed to fly?
    Secretary Kendall. The Department wants to end use of the RD-180 as 
soon as possible but does not believe this can be accomplished without 
significantly impacting operational requirements before 2021 or 2022. 
If new or improved launch service capabilities are certified before 
that time, the Department will transition to them as soon as they are 
available.
                          rd-180 availability
    Senator Donnelly. Discussion of the RD-180 issue often assumes that 
a ready supply of RD-180 engines are available for import on short 
notice.
    42. Can you briefly describe the timing of RD-180 imports? For 
example, how far in advance of use must they be ordered?
    Secretary James. United Launce Alliance (ULA) orders RD-180s two 
years in advance of our normal Launch Vehicle Production Services 
(LVPS) order timeline. ULA orders are based on forecasted commercial 
and Government sales, and they procure in advance to achieve economic 
order quantities. According to ULA, how far in advance varies depending 
on a number of factors, such as inventories, Atlas launch rates, etc.

    Senator Donnelly. It has been suggested that ULA created an 
artificial shortage of RD-180s by not setting aside five engines 
delivered prior to the invasion of Crimea for national security 
purposes.
    43. Did ULA approach the Air Force and offer to sell the five RD 
180s already committed to those missions?
    Secretary James. No, ULA did not approach the Air Force to purchase 
RD-180s because management of the RD-180 engines is based on ULA 
internal business practices. The Government procures launch services 
from ULA. ULA is in the best position to provide detailed information 
regarding the timing of ULA's assignment of RD-180 engines.

    44. Senator Donnelly. Of the missions these five RD-180s have been 
obligated to, how many support U.S. national security objectives?
    Secretary James. It is the Government's understanding that two of 
these RD-180's are being utilized for National Security Space (NSS) 
launch missions.
                           rd-180 replacement
    45. Senator Donnelly. Setting aside cost, what is the quickest, 
most reliable path for the U.S. to eliminate its dependence on the RD-
180? Please explain.
    Secretary James. U.S. Government support for a robust and diverse 
industrial base that can deliver safe and reliable National Security 
Space (NSS) launch services at a competitive price is central to 
assuring access to space. A strategy of shared investment with industry 
using public-private partnerships to develop new and/or upgraded launch 
services is absolutely imperative because it ensures industry shares 
some of the cost burden and responsibility for success, offers the best 
chance of solving technical challenges and provides the opportunity to 
harness industry's creative ideas in ways to achieve propulsion and 
launch system performance requirements. Following the Rocket Propulsion 
System investments we are making with fiscal year 2015 and fiscal year 
2016 funds, we plan to quickly shift towards an investment in one or 
more new or upgraded launch systems that can provide launch services to 
the NSS community. The goal is two or more domestic, commercially 
viable launch service providers that also meet NSS launch needs as 
quickly as possible, and it is the DOD's position that public-private 
partnerships are the quickest, most reliable path to meet that goal.
                               __________
             Questions Submitted by Senator Martin Heinrich
                           responsive launch
    Senator Heinrich. The Air Force has expressed its support for 
concepts such as ``disaggregation'' and ``rapid reconstitution'' that 
require new, more flexible, launch architectures. ORS experimented with 
such an approach last year with Super Strypi. An investigation is under 
way to determine what went wrong with that experimental launch.
    46. Is the Air Force still committed to developing low-cost launch 
capabilities?
    Secretary James. The Air Force is committed to lowering launch cost 
while maintaining mission assurance and providing assured access to 
space for validated operational requirements across the entire range of 
payload classes. The Air Force's Space and Missile Systems Center has 
two procurement initiatives currently in progress to maintain and 
expand access to the maturing small launch market as a complement to 
the AF's large launch capability. The Small Rocket Program (SRP)-4 is 
in development to add a 0-400 lb. to low earth orbit capability to a 
contract which has traditionally been used only for sounding rockets 
and targets, and we expect Super Strypi and others to compete for this 
multiple-award contract. Similarly, the rideshare/data for boosters 
initiative seeks to utilize an existing GSA schedule contract to 
procure cost-effective rideshare services on a range of commercial 
launch missions, including both small and large launch vehicles. The 
Air Force approach to the low cost, responsive aspects of launch is 
further documented in the Operationally Responsive Low-Cost Launch 
Report to Congress from June 2015.
    Secretary Kendall. The Air Force is continually exploring new 
development opportunities such as Super Strypi, Small Business 
Innovation Research activities, and rideshare opportunities. The Air 
Force's Space and Missile Systems Center has two procurement 
initiatives currently in progress to maintain and expand access to the 
maturing small launch market as a complement to the Air Force's large 
launch capability. The Small Rocket Program-4 in development will add 
an up to 400 lb low earth orbit capability, and we would expect the 
Super Strypi to compete on this contract. Similarly, the Rideshare/Data 
for Boosters initiative seeks to utilize an existing General Services 
Administration schedule contract to procure cost-effective rideshare 
services on a range of commercial launch missions, including both small 
and large launch vehicles.

    Senator Heinrich. The small launch industry has the potential to 
play an important role in the future of military launches. There are 
over 15 American companies developing small satellite launch vehicles 
that can put payloads under 2,000 pounds into orbit. These small launch 
systems have the capacity to reduce launch costs and increase access to 
space.
    47. What forms of low-cost launch is the Air Force exploring beyond 
Super Strypi, and how does Air Force plan to partner with industry in 
developing these innovative concepts?
    Secretary James. The Air Force is reaching out to the rapidly 
changing small launch industry on several fronts for low-cost launch 
capabilities. This includes planning for the future Small Rocket 
Program (SRP)-4 contract in support of future Super Strypi and other 
new small launch vehicle designs, small launch Small Business 
Innovation Research activities to foster development of the most 
promising technologies, and expanding rideshare opportunities such as 
Operationally Responsive Space (ORS)-6 and Data for Boosters. 
Additionally, the Air Force is a willing customer for commercial 
rideshare opportunities as an outgrowth of industry's efforts to 
develop small satellite launch vehicles.
    Secretary Kendall. The Air Force is reaching out to the rapidly 
changing small launch industry on several fronts for low-cost launch 
capabilities. This includes planning for the future Small Rocket 
Program-4 contract and working with industry on the future of Super 
Strypi and other new small launch vehicle designs. It also includes 
small launch Small Business Innovation Research activities intended to 
foster development of the most promising technologies, and expanding 
rideshare opportunities, such as Operationally Responsive Space-6 and 
the Data for ICBM Boosters initiative.

                                 [all]
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