SATELLITE 

ACQUISITIONS

Agencies May 

Recover a Limited 

Portion of Contract 

Value When Satellites 

Fail

Report to Congressional Addressees

June 2017

GAO-17-490

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-17-490, a report to 

congressional addressees

June 2017

SATELLITE ACQUISITIONS

Agencies May Recover a Limited Portion of Contract 

Value When Satellites Fail

What GAO Found

Given high development risks and uncertain requirements in satellite programs, 

most government satellite acquisitions use cost-reimbursement contracts. When 

lower-risk items are being acquired, such as standard spacecraft and 

communications satellites, agencies used firm-fixed-price contracts. Overall, 

across 19 programs GAO reviewed at the Department of Defense (DOD), 

National Aeronautics and Space Administration (NASA), and the Department of 

Commerce’s National Oceanic and Atmospheric Administration (NOAA), about 

$43.1 billion of $52.1 billion was obligated on cost-reimbursement contracts and 

orders, while the remaining $9 billion were on firm-fixed-price and fixed-price 

incentive contracts and orders.

Satellite Program Obligations by Agency and Contract Type

Most of the 12 selected programs that GAO reviewed contained an on-orbit 

incentive—incentives based on successful performance in space; however, they

varied widely in terms of the amount at-risk for the contractor and the timing of 

payments. For example, the on-orbit incentives included on the contracts and 

orders for the 12 selected programs ranged from no on-orbit incentive to 

approximately 10 percent of the contract value. GAO also found variation in how 

the at-risk amount was spread out over a satellite’s mission life. For example, 

some contracts included on-orbit incentives that covered a satellite’s entire 

mission life while other contracts covered only a portion of the mission life.

The government’s recourse in the event of a catastrophic satellite failure is 

limited, relative to its overall investment. Given the small on-orbit incentive 

amounts included in contracts, the government’s maximum financial recovery

potential is modest. This is by design, however, as on-orbit incentives are not 

intended to make the government whole in the event of total failure. The 

government accepts this level of risk, in part because such failures are rare, 

according to government and industry experts. Also, it is unclear whether larger 

on-orbit incentives would reduce on-orbit failures given numerous other factors 

that affect a program’s success, including requirements stability, design maturity 

and contractor experience. As a result, the most cost effective way to limit the 

government’s loss in the rare case of a catastrophic failure may be to reduce cost 

growth and schedule delays by using best practices during satellite development, 

as GAO has previously recommended.

View GAO-17-490. For more information, 

contact Cristina Chaplain at (202) 512-4841 or 

chaplainc@gao.gov.

Why GAO Did This Study

Acquiring and fielding satellites are

high stakes endeavors. Each year, 

DOD, NASA, and NOAA spend billions 

of dollars acquiring satellites. Unlike 

with other major acquisitions, such as 

ships or aircraft, an agency can only 

determine the quality of a satellite after

it is launched. That means any defects 

that occur may be impossible to repair, 

and in space, a single failure can be 

catastrophic for a mission’s success.

As a result, contractor performance is 

critical to a program’s success, and 

contract incentives can be particularly 

important in aligning government and 

contractor interests—both in achieving 

mission success and ensuring 

responsible financial management.

This report addresses (1) the types of 

contracts DOD, NASA, and NOAA use 

to develop satellites, (2) how selected 

programs structure on-orbit incentives, 

and (3) what recourse, if any, the 

government has in the event of satellite

failure or underperformance. To 

conduct this work, GAO analyzed 

contract obligations data and 

documentation for 19 current satellite 

programs; reviewed policies and 

guidance regarding contact types and 

incentives; selected 12 case studies to 

determine incentive structures and 

recourse options; and interviewed 

program and contracting officials at 

each agency, as well as commercial 

representatives and industry experts. 

What GAO Recommends

GAO is not making any 

recommendations in this report. 
Page i GAO-17-490 Satellite Acquisitions

Letter 1

Background 5

Agencies Generally Use Cost-Reimbursement Contracts with 

Incentives for Satellite Acquisitions 13

On-Orbit Incentives Varied among Selected Programs 18

Government’s Recourse Is Limited When a Satellite Fails 24

Agency Comments 29

Appendix I Descriptions of Missions, Costs, and Quantities for 

Satellite Programs in GAO Review 32

Appendix II Objectives, Scope, and Methodology 37

Appendix III Contract Type and On-Orbit Incentives At-Risk for 

GAO Satellite Program Case Studies 41

Appendix IV GAO Contact and Staff Acknowledgments 44

Tables

Table 1: Typical Contract Types and General Use in Government 

Satellite Acquisitions 7

Table 2: Examples of How the Government Tied Incentives to 

Cost, Schedule, and Performance Goals for Satellite 

Acquisitions 17

Table 3: Department of Defense (DOD) Satellite Programs 32

Table 4: National Aeronautics and Space Administration (NASA) 

Space Projects 33

Table 5: Department of Commerce’s National Oceanic and 

Atmospheric Administration (NOAA) Satellite Programs 36

Table 6: GAO Satellite Program Case Studies and Associated 

Number of Contracts and Orders and Space Vehicles 38

Table 7: Department of Defense (DOD) Contracts for Selected 

Satellite Acquisition Programs 41

Contents
Page ii GAO-17-490 Satellite Acquisitions

Table 8: National Aeronautics and Space Administration (NASA) 

Contracts or Orders for Selected Satellite Acquisition 

Programs 42

Table 9: Department of Commerce’s National Oceanic and 

Atmospheric Administration (NOAA) Contracts or Orders 

for Selected Satellite Acquisition Programs 43

Figures

Figure 1: Notional Government Satellite Acquisition Life-Cycle 8

Figure 2: Portion of Notional Government Satellite Contract Value 

at Risk Due to On-Orbit Performance by Contract Type 10

Figure 3: Satellite Program Obligations by Agency and Contract 

Type as of September 2016 14

Figure 4: On-Orbit Percentage of Overall Contract Value for 

Selected Programs at DOD, NASA and NOAA 20
Page iii GAO-17-490 Satellite Acquisitions

Abbreviations

AEHF Advanced Extremely High Frequency

CPAF cost-plus-award-fee

CPARS Contractor Performance Assessment Reporting System

CPFF cost-plus-fixed-fee

CPIF cost-plus-incentive-fee

DCI data collection instrument

DMSP Defense Meteorological Satellite Program

DOD Department of Defense

FAR Federal Acquisition Regulation

FFP firm-fixed-price

FFRDC federally funded research and development center

FPAF fixed-price-award-fee

FPI fixed-price incentive

FPDS-NG Federal Procurement Data System-Next Generation

GEO geosynchronous earth orbit

GOES Geostationary Operational Environmental Satellite

GPM Global Precipitation Measurement (mission)

GPS Global Positioning System

GRACE-FO Gravity Recovery and Climate Experiment Follow-On

HEO highly elliptical orbit

ICESat-2 Ice, Cloud, and Land Elevation Satellite-2

JPL Jet Propulsion Laboratory

JPSS Joint Polar Satellite System

JWST James Webb Space Telescope

LDCM Landsat Data Continuity Mission

MMS Magnetospheric Multiscale

MUOS Mobile User Objective System

NASA National Aeronautics and Space Administration

NOAA National Oceanic and Atmospheric Administration

OCO-2 Orbiting Carbon Observatory 2

SBIRS Space Based Infrared System

SMAP Soil Moisture Active and Passive

SMC Air Force’s Space and Missile Systems Center

SWOT Surface Water and Ocean Topography

TDRS Tracking and Data Relay Satellite

TESS Transiting Exoplanet Survey Satellite

WGS Wideband Global SATCOM
Page iv GAO-17-490 Satellite Acquisitions

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-17-490 Satellite Acquisitions

441 G St. N.W.

Washington, DC 20548

June 9, 2017

Congressional Addressees

The Department of Defense (DOD), National Aeronautics and Space 

Administration (NASA), and the Department of Commerce’s National 

Oceanic and Atmospheric Administration (NOAA) spend billions of dollars 

each year on major satellite acquisition programs to satisfy a diverse set 

of missions, from protected communications and global positioning, to 

weather and deep space observations. Satellite acquisitions are unique 

because, unlike other types of acquisitions, such as for ships or aircraft, 

testing in an operational environment—space—is extremely difficult. 

Moreover, satellites, each of which can cost over $1 billion, are 

purchased in limited quantities; defects likely cannot be fixed once a 

satellite has been launched; and a single failure can be catastrophic to 

the mission. As a result, when satellites fail prematurely or do not meet 

mission requirements once they are on-orbit, the government can lose 

billions of dollars in investments, years of technology development and 

production, and opportunities to utilize advanced capabilities to conduct 

important undertakings, such as scientific research and national defense. 

For example, in 2015, a NASA science mission experienced a partial 

satellite failure on-orbit; while the value of the failed instrument was in the 

tens of millions of dollars, NASA estimated the loss of investment to the 

mission in the hundreds of millions of dollars.

With so much at stake, especially at a time when more resources may be 

needed to protect space systems and to recapitalize the space portfolio, 

the government places great emphasis on mission success during the 

satellite acquisition process. Many factors can affect a program’s 

success, including, for example, requirements and funding stability, 

technology and design maturity, government and contractor experience, 

and launch vehicle reliability. Contractor performance is also critical for 

program success. When contracting for satellite programs, the 

government weighs the use of various contract types and incentive 

structures to motivate optimal contractor performance and achieve 

mission success while at the same time, controlling costs and meeting 

schedule milestones. Contract terms such as on-orbit incentives, which 

are incentives based on successful on-orbit performance, can be 

important for aligning the interests of the government and contractors, 

and for achieving mission success while ensuring responsible financial 

Letter
Page 2 GAO-17-490 Satellite Acquisitions

management. We have reported on how the government shares risk with 

contractors for space acquisitions for many years.1

To assess DOD, NASA, and NOAA’s contract and incentive structures, 

under the authority of the Comptroller General to conduct evaluations on 

his own initiative, we examined (1) the types of contracts and incentive 

structures government satellite programs use to develop satellites and 

why, (2) how selected programs structure on-orbit incentives, and (3) 

government options for recourse, if any, when a satellite fails or 

underperforms.

To determine the types of contracts and incentive structures government 

satellite programs use to develop satellites and the reasons why, we 

analyzed contract obligations data from the Federal Procurement Data 

System-Next Generation (FPDS-NG) for 19 programs, comprising all 

current major satellite programs across DOD, NASA, and NOAA. To 

assess the reliability of the FPDS-NG data, we reviewed relevant internal 

control documents and data quality summaries. We determined that the 

FPDS-NG data were sufficiently reliable for the purposes of this 

engagement. For DOD, we included major defense acquisition programs, 

and at NASA and NOAA, we included programs with a life-cycle cost 

greater than $250 million.2 See appendix I for a description of the 

missions, costs, and quantities for each program in our review. For our 

analysis, we included each program’s development and production 

contracts and orders for the spacecraft and instruments and generally 

excluded contracts and orders related to launch, ground systems, 

maintenance, operations, and support services if they were separate 

contracts and orders. If these items or services were included within the 

development and production contract or order, we included them in our 

analysis. For each contract and order, we determined the predominant 

contract type for the design, development, and production of the satellites 

 1

GAO, NASA Procurement: Approach to Sharing Risk Under Certain Research and 

Development Contracts Is Starting to Change, GAO/T-NSIAD-92-12 (Washington, D.C.: 

Mar. 18, 1992).

2

We defined current major satellite acquisition programs as Earth-orbiting satellite 

acquisition programs in development, production, or with at least one satellite on-orbit 

within its mission life as of September 2016 and NASA’s James Webb Space Telescope 

(JWST), given that JWST is the largest major program within NASA’s portfolio. To 

maintain consistency with selection criteria used in our annual assessments of NASA’s 

major projects, we used a $250 million life-cycle cost threshold. For more on our annual 

NASA project assessments, see NASA: Assessments of Major Projects, GAO-16-309SP 

(Washington, D.C.: Mar. 30, 2016).
Page 3 GAO-17-490 Satellite Acquisitions

on the contract. We also reviewed DOD, NASA, and NOAA policies and 

guidance on contracting and incentives, and Federal Acquisition 

Regulation (FAR) and agencies’ FAR supplements for regulations and 

procedures on contracting.

To determine the range of on-orbit incentive structures and government 

options for recourse should a satellite fail or underperform, of the 19 

major satellite programs in our review, we selected 12 programs as case 

studies for more in-depth review based on program size, contract type, 

contractor, mission, or notable on-orbit performance characteristics. Our 

selected case study programs included:

DOD

• Global Positioning System (GPS) IIF,

• GPS III,

• Mobile User Objective System (MUOS),

• Space Based Infrared System (SBIRS), and

• Wideband Global SATCOM (WGS) Blocks I, II, and II Follow-On;

NASA

• Ice, Cloud, and Land Elevation Satellite-2 (ICESat-2),

• James Webb Space Telescope (JWST),

• Soil Moisture Active and Passive (SMAP),

• Tracking and Data Relay Satellite (TDRS) K, L, M, and

• Transiting Exoplanet Survey Satellite (TESS);

NOAA

• Geostationary Operational Environmental Satellite (GOES)-R series 

(GOES R, S, T, U) and

• Joint Polar Satellite System (JPSS).

Across the 12 case study programs, there were 23 contracts or orders 

and 56 space vehicles. For each case study, we analyzed contract files 

and conducted interviews with program and contracting officials at DOD, 

NASA, and NOAA to discuss contract types and incentive structures, 

rationale for the use of specific contract types and incentive structures, 

on-orbit performance, and programmatic outcomes.
Page 4 GAO-17-490 Satellite Acquisitions

In addition to the case studies above, we reviewed the Defense 

Meteorological Satellite Program 19 (DMSP-19) because of its recent onorbit failure.3 We reviewed DMSP-19’s follow-on storage, maintenance, 

and support contracts. These contracts contained information on the onorbit incentives and relevant options for government recourse after the 

on-orbit failure occurred.

For the seven remaining satellite programs at DOD and NASA that were 

not included in our case studies, we developed agency-specific data 

collection instruments (DCI) that we pre-tested, administered, and from 

which we analyzed the information collected. We tailored the DCIs to 

each agency based on agency policies and guidelines for contracting to 

obtain program-specific contract details, values, obligations to-date, 

special clauses used, incentive structures, and performance periods. The 

seven programs for which we used the DCIs to collect information 

included:

DOD

• Advanced Extremely High Frequency (AEHF);

NASA

• Global Precipitation Measurement (GPM) Mission,

• Gravity Recovery and Climate Experiment Follow-On (GRACE-FO),

• Landsat Data Continuity Mission (LDCM),

• Magnetospheric Multiscale (MMS),

• Orbiting Carbon Observatory 2 (OCO-2), and

• Surface Water and Ocean Topography (SWOT).

We also interviewed officials from a nongeneralizable sample of 

commercial companies: Ball Aerospace, DigitalGlobe, IntelSat, Lockheed 

Martin, and ViaSat to identify how selected commercial companies use 

on-orbit incentives and how commercial satellite acquisitions differ from 

government satellite acquisitions. In addition to commercial satellite 

companies, we also consulted satellite insurance brokers and one 

underwriter, to obtain information on the likelihood of satellite failures in 

the commercial and government markets, the general capacity of the 

 3

DMSP-19 suffered a catastrophic failure in the second year of its mission life when the Air 

Force lost the ability to control the satellite.
Page 5 GAO-17-490 Satellite Acquisitions

commercial satellite insurance market, and the dollar amounts associated 

with insuring commercial satellites. We reviewed Aerospace Corporation 

studies and briefings and interviewed Aerospace Corporation officials to 

identify the point during the life of a satellite in which most satellite failures 

occur, the frequency of government satellite failures, and to identify the 

various categories of satellite failures. See appendix II for additional 

details on our scope and methodology.

We conducted this performance audit from March 2016 to June 2017 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

In any acquisition, the contract type provides the foundation for 

incentivizing a contractor’s performance and is just one element of the 

contract, which may also include performance, cost, or delivery 

incentives, and other contract terms and conditions that incentivize 

performance. The type of contract used for any given acquisition 

inherently determines how risk will be distributed between the 

government and the contractor. Since the contract type and the contract 

price are interrelated, they must be considered together. The 

government’s objective is to negotiate a contract type and price (including 

cost and the contractor’s fee or profit) that will result in an acceptable 

level of risk to the contractor, while also providing the contractor with the

greatest incentive for effective and efficient performance.4

Incentive contracts, which include award fee contracts, are designed to 

attain specific acquisition objectives by including incentive arrangements 

that (1) motivate contractor efforts that might not otherwise be 

emphasized, and (2) discourage contractor inefficiency and waste. One of 

the main characteristics of award fees and other incentives is how they 

are administered in the contract. Award fees are generally subjectively

 4

In federal contracting, the terms “profit” and “fee” refer to the amount of money paid to the 

contractor above and beyond either a fixed price or a contractor’s reimbursable costs. The 

term “profit” is generally associated with fixed-price incentive contracts, and the profit is 

already included in the overall price of the contract, and the term “fee” is generally 

associated with cost-reimbursement contracts.

Background
Page 6 GAO-17-490 Satellite Acquisitions

determined and incentive fees are generally objectively determined. 

When incentive arrangements are done properly, the contractor has profit 

motive to keep costs low, deliver a product on time, and make decisions 

that help ensure the quality of the product. Our prior work has shown, 

however, that incentives are not always effective tools for achieving 

desired acquisition outcomes and that, in some cases, there are 

significant disconnects between program results and incentives paid. 

Additionally, we have repeatedly found that some agencies did not have 

methods to evaluate the effectiveness of award fees.5 More recently, in 

March 2017, we found that fixed-price incentive shipbuilding contracts did 

not always lead to desired outcomes, and that the Navy had not assessed 

whether adding incentives improved contractor performance. We made 

recommendations to the Navy, including that it conduct a portfolio-wide 

assessment of its use of additional incentives on fixed-price incentive 

contracts across its shipbuilding programs. DOD agreed with our 

recommendations.6

Numerous contract types are available to the government to provide 

flexibility in acquiring the supplies and services agencies need, including 

satellite acquisitions. Table 1 provides an overview of typical contract 

types and how they may be used to acquire satellites.

 5

GAO, Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees 

Regardless of Acquisition Outcomes, GAO-06-66 (Washington, D.C.: Dec. 19, 2005); 

NASA Procurement: Use of Award Fees for Achieving Program Outcomes Should Be 

Improved, GAO-07-58 (Washington, D.C.: Jan. 17, 2007); Federal Contracting: Guidance 

on Award Fees Has Led to Better Practices but Is Not Consistently Applied, GAO-09-630 

(Washington, D.C.: May 29, 2009).

6

GAO, Navy Shipbuilding: Need to Document Rationale for the Use of Fixed-Price 

Incentive Contracts and Study Effectiveness of Added Incentives, GAO-17-211 

(Washington, D.C.: Mar. 1, 2017). 
Page 7 GAO-17-490 Satellite Acquisitions

Table 1: Typical Contract Types and General Use in Government Satellite Acquisitions

Contract type Characteristics Generally appropriate for use when...

Firm-fixedprice

• Price is not subject to any adjustment on the 

basis of contractor’s cost experience.

• Provides maximum incentive for contractor to 

control costs.

• Requirements are well-defined and technical risks are 

low.

• Acquiring commercial items or other items with 

reasonably detailed specifications, such as satellite 

buses with proven designs.

Fixed-price 

incentive

• Provides for adjusting profit and establishing 

final contract price by application of a formula, 

known as a share line, based on the relationship 

of total final negotiated cost to total target cost.

• In accordance with the share line, government 

and contractor share responsibility for cost 

increases or decreases compared to the agreed 

upon target cost. When the final cost is less than 

the target cost, the contractor’s profit will be 

greater than if the final costs were more than the 

target cost.

• Firm-fixed-price is not suitable and placing partial 

responsibility for cost on contractor will incentivize 

effective cost control and performance, such as when 

programs are in the early production phase and the 

satellite being built has a cost history from prior builds. 

Cost-plusincentive-fee

• Government pays contractor allowable incurred 

costs to extent prescribed in contract.

• Fee is initially negotiated and later adjusted by a 

formula (known as a share ratio), based on the 

relationship of total allowable costs to total target 

costs.

• Target cost, target fee, minimum and maximum 

fees, and fee adjustment formula are specified at 

contract inception. After performance, amount of 

fee paid is determined by the negotiated 

formula.

• Requirements are not fully defined, technologies and 

design are not sufficiently mature, or integration risk is 

too great to use a fixed-price contract, such as when 

programs are in the technology development or 

engineering and manufacturing development phase.

• A target cost and a fee adjustment formula can be 

negotiated that will likely motivate the contractor to 

effectively manage its work.

Cost-plusaward-fee

• Government pays contractor allowable incurred 

costs to extent prescribed in contract.

• Base fee, which may be zero, is fixed at contract 

inception.

• Award fee is determined by subjective 

evaluation of the contractor’s performance.

• Requirements are not fully defined, technologies and 

design are not sufficiently mature, or integration risk is

too great to use a fixed-price contract, such as when 

programs are in the technology development or 

engineering and manufacturing development phase.

• Government cannot establish predetermined objective 

incentive fee targets.

• Likelihood of meeting acquisition objectives will be 

enhanced by the use of award fee.

• Additional administrative effort required to monitor and 

evaluate performance is justified by the expected 

benefits.

Cost-plusfixed-fee

• Government pays contractor allowable incurred 

costs to extent prescribed in contract.

• Negotiated fee is fixed at the inception of the 

contract and does not vary with actual cost but 

may be adjusted as a result of changes in the 

performed work.

• Provides minimal incentive to control costs.

• Requirements are not fully defined, technologies and 

design are not sufficiently mature, or integration risk is 

too great to use a fixed-price contract, such as when 

programs are in the technology development or 

engineering and manufacturing development phase

• Performing research, preliminary exploration or study, 

and the level of effort required is unknown.
Page 8 GAO-17-490 Satellite Acquisitions

Contract type Characteristics Generally appropriate for use when...

Cost with no 

fee

• Government pays contractor allowable incurred 

costs to extent prescribed in contract.

• Contractor receives no fee.

• Requirements are not fully defined, technologies and 

design are not sufficiently mature, or integration risk is 

too great to use a fixed-price contract, such as when 

programs are in the technology development or 

engineering and manufacturing development phase

• Research and development work, particularly with 

nonprofit educational institutions or other nonprofit 

organizations.

Source: GAO analysis of the Federal Acquisition Regulation, Defense Federal Acquisition Regulation Supplement, and DOD guidance. | GAO-17-490

When determining the contract and incentive structure for satellite 

acquisitions, the government may consider a number of factors:

• Where the satellite is in the acquisition phase. Satellite contracts 

can include design, development, integration, and testing, and can 

cover more than 15 years. The government can tailor the contract 

type and fees to meet the specific circumstances of the acquisition, for 

example, the phase of the acquisition cycle. Figure 1 shows the 

notional acquisition phases for a satellite.

Figure 1: Notional Government Satellite Acquisition Life-Cycle

During the design and development phase, when technology risks are 

higher, the government typically uses cost-reimbursement contracts. 

When the government is acquiring a “production-model” satellite, or a 

copy of a satellite with a proven design and build, a fixed-price contract 

may be used. In addition, for the on-orbit phase, the government typically 

negotiates with the contractor regarding the amount of incentives related 

to successful on-orbit performance.

• Which satellite component is being acquired. Satellites are 

generally comprised of the bus and the instruments or payloads. The 
Page 9 GAO-17-490 Satellite Acquisitions

bus is the body of the satellite. It carries the payload and is composed 

of a number of subsystems, like the power supply, antennas, 

telemetry and tracking, and mechanical and thermal control 

subsystems. The bus provides electrical power, stability, and 

propulsion for the entire satellite. The payload of a satellite, which is 

carried by the bus, refers to all the devices or instruments a satellite 

needs to perform its mission, and can differ for each type of satellite. 

Some examples include cameras to take pictures of cloud formations 

for a weather satellite, and transponders to relay television signals for 

a communications satellite. Generally, developing payloads is riskier 

than developing buses.

• Number of contracts used to acquire satellite components. The 

government can choose to award one contract for the development 

and production of the satellite bus and all associated payloads, or it 

can award separate contracts for the development and production of 

the bus and each individual instrument. In the contracts we reviewed, 

DOD typically awarded a single contract to a prime contractor for the 

development of the bus and payloads, and according to officials, the 

prime contractor often awards contracts to subcontractors to provide 

the various instruments and parts. In contrast, for the NASA contracts 

and orders we reviewed, NASA typically awarded separate contracts 

and orders to multiple contractors to develop the bus and each 

instrument.

• Number of space vehicles being acquired on a contract. The 

government can acquire a single satellite or multiple satellites under 

one contract, and one contract may also include components for 

multiple satellites. Further, depending on the mission, an agency may 

buy a single satellite (such as for scientific discovery) or blocks of 

satellites (such as for global communications).

The quality and performance of a satellite—including whether it meets onorbit requirements—usually cannot be determined until after it launches 

and reaches its intended orbit. Satellite development and production 

contracts may include on-orbit performance incentives aimed at ensuring 

that the satellite will meet performance requirements. Because the 

incentive is not earned until a satellite successfully demonstrates its 

performance on-orbit, an on-orbit performance incentive can be thought 

of as the dollar amount at risk if the contractor fails to meet the 

performance requirements specified in the contract (see figure 2).

On-Orbit Performance 

Incentives
Page 10 GAO-17-490 Satellite Acquisitions

Figure 2: Portion of Notional Government Satellite Contract Value at Risk Due to 

On-Orbit Performance by Contract Type

On-orbit incentives are typically documented in a satellite contract’s fee 

plans or in contract clauses. There are generally three mechanisms for 

on-orbit performance incentives: negative incentives, positive incentives, 

and withholding of milestone payments. Agencies can use a combination 

of these when designing on-orbit incentives, which are generally tied to 

objective performance criteria, such as successfully getting into the right 

orbit and achieving critical performance parameters once there.

When using negative incentives, the government generally pays the 

contractor incentives as the contractor completes work during the 

development or production phase. The contractor would have to pay back 

some or all of the incentives if the satellite fails to meet on-orbit 

performance parameters. With positive incentives, the government 

assesses satellite performance in any given period, such as 6 or 12 

months, to determine how much the contractor earns for that period. The 

amount at risk for the contractor could be the same for a positive 

incentive or a negative incentive.

Firm-fixed-price contracts for satellite programs may have progress or 

performance-based payment plans that require fixed payments to be 

made upon successful completion of milestones, such as preliminary 

design review, final system test, and successful on-orbit check-out. If a 

satellite fails prior to check-out, the government may withhold the final 

milestone payment from the contractor.
Page 11 GAO-17-490 Satellite Acquisitions

Because satellite acquisitions are unlike other acquisitions, the Air 

Force’s Space and Missile Systems Center (SMC) and NASA have 

tailored guidance on space acquisitions, and each specifically addresses 

on-orbit performance incentives.7

• SMC’s March 2007 incentives guide states that on-orbit incentives 

should be clearly written to ensure enforceability, and require fully 

demonstrable performance in order to earn fee.8 The guidance also 

specifies that the contract should contain specific descriptions as to 

the rights of the parties in the event of a failure, caused either by the 

contractor or by the government. One senior SMC contracting official 

stated that their contracting directorate maintains a repository of onorbit incentive plans and contract clauses that have been 

implemented. These incentives arrangements can be used as guides 

for SMC programs as they develop new contracts.

• NASA’s FAR supplement generally requires certain contracts for 

hardware deliverables worth more than $25 million to include 

performance incentives.9 In the case of satellite acquisitions, the onorbit incentives serve as performance incentives. In addition, NASA’s 

FAR supplement requires that for cost-plus-award-fee contracts for 

end items, where the true quality of contractor performance cannot be 

measured until the end of the contract, only the last evaluation is 

final.10 This allows NASA to evaluate the contractor’s total 

performance—after the end item is delivered—against the award fee 

plan to determine the total earned award fee from the contract award 

fee pool. In other words, under this “re-look provision,” the total award 

fee is not earned until the satellite has demonstrated its performance 

on-orbit.

In addition to on-orbit performance incentives, it is important to 

acknowledge the totality of the incentives and other terms in satellite 

contracts that are designed to motivate contractors to achieve the cost, 

schedule, and performance goals of the program. In many cases, multiple 

incentives are used to achieve such goals. The FAR provides that when 

 7

The Air Force is the lead service for the vast majority of military space acquisitions. The 

Air Force’s Space and Missile Systems Center develops, acquires, fields, and sustains 

many military space systems.

8

Air Force Space and Missile Systems Center, Incentives Guide (Mar. 7, 2007).

9

NASA FAR Supplement § 1816.402.

10NASA FAR Supplement § 1816.405. 
Page 12 GAO-17-490 Satellite Acquisitions

multiple incentives are used, a balance must be achieved in which no 

incentive is either so insignificant that it offers little reward for the 

contractor, or so large that it overshadows other areas and neutralizes 

their motivational effect.11 In addition, it requires all multiple incentive 

contracts to include a cost incentive that precludes rewarding a contractor 

for superior technical performance when their cost outweighs their value. 

For satellite programs, achievement of full mission performance is the 

primary objective, but cost and schedule goals also play key roles in a 

program’s success. Our body of prior work has shown that most major 

government satellite programs experience significant cost growth and 

schedule delays due to unmatched resources and requirements, 

immature technologies at program start, and inconsistent application of 

knowledge-based practices throughout the life of a program.12 As a result, 

although some programs may have successful on-orbit performance, they 

may also have had major cost overruns and schedule delays along the 

way.

There are many nuances when it comes to satellite failures. These can be 

especially important when considering government opportunities for 

recourse should a satellite fail or underperform. The Aerospace 

Corporation (Aerospace), a federally funded research and development 

center (FFRDC) that provides engineering and technical support to 

national security space programs, categorizes satellite anomalies based 

on the criticality or severity of the anomaly and distinguishes them based 

on their impact on the mission.13 For the purposes of this report, a 

catastrophic failure results in the total loss of a satellite, or a satellite that 

will never meet any of its mission requirements; a partial failure results in 

a satellite that fails to meet some of its mission requirements or that loses 

a redundant system.

When satellites fail, they often do so in the first few months they are in 

orbit. Aerospace reported in 2012 that mission-impacting anomalies—or 

 11FAR Subsection 16.402-4.

12GAO, Space Acquisitions: Actions Needed to Expand and Sustain Use of Best Practices, 

GAO-07-730T (Washington, D.C.: Apr. 19, 2007) and Space Acquisitions: Challenges 

Facing DOD as it Changes Approaches to Space Acquisitions, GAO-16-471T 

(Washington, D.C.: Mar. 9, 2016).

13FFRDCs are sponsored and funded by the government to meet specific long-term 

technical needs that cannot be met by existing in house or contractor resources. They are 

managed by universities, not-for-profit entities, nonprofit organizations, or industrial firms.

Satellite Failure Definitions 

and Causes
Page 13 GAO-17-490 Satellite Acquisitions

failures—that occur during the first 120 days of a satellite’s on-orbit life 

account for approximately 40 percent of all such failures that occur during 

the first 3 years of operation. Causes of failure during a satellite’s first 3 

years of operation varied according to Aerospace, but the top three 

reasons identified were issues related to a satellite’s design, parts, and 

software.14

Given high development risks and the likelihood of requirements changes 

in satellite programs, most government satellite acquisitions use costreimbursement contracts. New technologies and unstable requirements 

mean satellite program officials are unlikely to accurately predict 

development costs and schedules, making cost-reimbursement contracts 

a prudent choice. When lower-risk items are being acquired, such as 

standard spacecraft and communications satellites, agencies are more 

likely to use firm-fixed-price contracts. In both cases, agencies tend to 

use incentives in their contracts to help achieve cost, schedule and 

performance goals.

Across the 19 programs we reviewed at DOD, NASA and NOAA, about 

$43.1 billion of $52.1 billion (83 percent) was obligated on costreimbursement contracts and orders, while the remaining $9 billion (17 

percent) of obligations were on firm-fixed-price and fixed-price incentive 

contracts and orders.15 DOD satellite obligations comprised nearly 80 

percent of the government satellite acquisitions in our review (see figure 

3).

 14The Aerospace Corporation, Findings and Lessons Learned from Operational Anomaly 

Trending and Analysis (October 2012), reported specifically that the top reasons for 

satellite failures in the first 3 years were (1) design issues due to inadequate or incomplete

analysis that may have led to an unexpected behavior of the design, (2) parts issues, 

mostly due to random hardware failures or degradation, which could be alleviated through 

more perceptive parts screening during integration and test, and (3) software issues, 

which may call for better software verification efforts. 

15This data is as of September 2016. Of the approximately $9.0 billion obligated on fixedprice contracts, $5.4 billion was fixed-price incentive while $3.5 billion was firm-fixed-price.

Agencies Generally 

Use CostReimbursement 

Contracts with 

Incentives for Satellite 

Acquisitions

Agencies Primarily Used 

Cost-Reimbursement 

Contracts to Acquire 

Satellites Given 

Development Risk
Page 14 GAO-17-490 Satellite Acquisitions

Figure 3: Satellite Program Obligations by Agency and Contract Type as of 

September 2016

Note: We did not include the Defense Meteorological Satellite Program 19’s (DMSP-19) contract data 

in this analysis because the contracts used for the DMSP-19 case study were for follow-on storage, 

maintenance, and support, rather than for satellite development and production.

Government satellite programs are often designed to develop and 

incorporate innovative technologies unavailable in the commercial 

market. We reported in 2010 that DOD accepts greater technology and 

development risks with space acquisitions, and as such, costs associated 

with technology invention are difficult to estimate.16

For our 12 in-depth case study programs, 15 of the 23 contracts and 

orders we reviewed were cost-reimbursement type contracts (see 

appendix III for more detailed information on the contract types for our 

 16GAO, Briefing on Commercial and Department of Defense Space System Requirements 

and Acquisition Practices, GAO-10-315R (Washington, D.C.: Jan. 14, 2010).
Page 15 GAO-17-490 Satellite Acquisitions

case study programs).17 Several of the contract files for these programs 

cited technical complexity leading to uncertainties in cost performance or 

uncertain requirements as reasons their program used costreimbursement contracts. According to one program’s contract files, a 

firm-fixed-price contract would not be appropriate for the design and

development of the satellite’s primary instrument because of the 

program’s aggressive performance goals and flexible launch dates. In 

2010, we reported that firm-fixed-price contracting normally does not work 

for DOD space systems because programs tend to start with many 

unknowns about the technologies and costs needed to develop 

satellites.18 Since our 2010 report, however, DOD has begun to consider 

acquisition approaches that might be more productive using fixed-price 

contracts such as disaggregating large satellites and advancing 

technology incrementally.19 One senior SMC contracting official noted that 

in recent years, SMC has acquired a number of satellite programs on a 

fixed-price basis. In these instances, once the programs matured the 

technologies and reduced risks, the programs were able to shift to a 

production-type state and use fixed-price contracts.

Five of the 23 case study contracts and orders used firm-fixed-price type 

contracts, mostly to acquire lower-risk items. These included standard 

spacecraft buses (meaning, those with proven designs) and 

communications satellites, both of which have relatively lower technical 

risks. For example, some NASA and NOAA programs we reviewed used 

firm-fixed-price orders to acquire spacecraft buses from the NASA 

“catalog,” which contains proven designs from multiple contractors. In 

some cases, such as communication satellites, the commercial market 

produces satellites that government programs can use with only minor 

modifications. These satellites have typically been used in a commercial 

market—lowering technical risk—and may also have adequate pricing 

 17There are more contracts than case study programs in our review, because some 

programs used multiple contracts to acquire satellites. We specifically focused on the 

contract type related to the design, development, and production for the satellites. For two 

DOD contracts that included multiple satellites, some satellites were on costreimbursement contract line item numbers (CLIN) while others were on fixed-price 

incentive CLINs. Because the preponderance of the CLIN values for these contracts were 

cost-reimbursement, we categorized the entire contract as cost-reimbursement.

18GAO-10-315R.

19GAO, DOD Space Systems: Additional Knowledge Would Better Support Decisions 

about Disaggregating Large Satellites, GAO-15-7 (Washington, D.C.: Oct. 30, 2014). 
Page 16 GAO-17-490 Satellite Acquisitions

data available to accurately estimate costs, both of which lend 

themselves to firm-fixed-price contracting.

The remaining three of the 23 case study contracts and orders we 

reviewed used fixed-price-incentive contracts to acquire additional 

satellites in production. For instance, DOD’s SBIRS program bought its 

first four satellites under cost-reimbursement contracts, but bought the 

next two satellites with a fixed-price-incentive contract. According to the 

SBIRS contract file, program officials deemed the fixed-price incentive 

contract type the most appropriate because, given the maturity of the 

satellite vehicle design, they believed they could assess a fair and 

equitable ceiling price for the acquisition.20 Fixed-price incentive contracts 

can be complex, as noted in SMC’s guide to structuring incentives for 

fixed-price contracts, issued in November 2012.21 For example, how risk 

is apportioned on a fixed-price-incentive contract may resemble that of a 

cost-reimbursable contract or a firm-fixed-price contract, depending on 

the share ratio—a calculation which represents the allocation of cost risk 

between the government and the contractor—and the ceiling price.22 The 

guide also notes that fixed-price-incentive contracts can lead to 

unintended, negative outcomes if structured poorly or managed 

improperly.

All of our 12 case study programs used incentives—including award fees, 

incentive fees, or some combination of the incentives—to motivate 

contractors to achieve cost, schedule, or performance goals. Program 

officials told us they used award fees during the development phase to 

incentivize the contractor to achieve specific, short-term goals. With each 

award fee determination, which, for example, may occur every 6 months, 

the government can focus the contractor on specific tasks or areas. 

Program officials also said that award fee determinations can be effective 

in changing contractor behavior. For example, one NASA program official 

 20The ceiling price is generally the maximum amount the government pays a contractor, 

except for adjustments under other contract clauses.

21SMC, Guide to Structuring Incentives in a Fixed-Price Environment (Nov. 14, 2012).

22When the range between the target cost of a contract and the ceiling price is wide, and 

the government is responsible for a greater proportion of any cost overruns, the contractor 

has less incentive to control costs, similar to a cost-plus-fixed-fee contract. When the 

range between the target cost and ceiling price is narrow, and the government and 

contractor have an equal share in any cost overruns, this provides the contractor with 

greater incentive to control costs, similar to a firm-fixed-price contract.

Satellite Acquisition 

Programs Generally Used 

Incentives to Help Achieve 

Cost, Schedule, and 

Performance Goals
Page 17 GAO-17-490 Satellite Acquisitions

stated that during a particular award fee period, they informed the 

contractor that it needed to address planning for a complicated spacecraft 

thermal vacuum test that was behind schedule.23 The official said that 

after program officials documented their concerns in award fee letters, 

contractor performance improved, resolving the issue. Table 2 provides 

examples of how the government tied incentives to cost, schedule, and 

performance objectives for selected case studies.

Table 2: Examples of How the Government Tied Incentives to Cost, Schedule, and Performance Goals for Satellite 

Acquisitions

Type Cost Schedule Performance

Award fee For one program, the contractor 

received an “unsatisfactory” rating for 

cost performance because the 

contractor experienced over a 100 

percent increase over the baseline. 

This rating contributed to the 

contractor’s low overall award fee 

score and as a result, the contractor 

did not earn any of the award fee that 

period.

For one program, the contractor 

received an “unsatisfactory” rating for 

schedule performance because the 

instrument delivery date slipped by 

several months due to rework taking 

longer than expected, among other 

issues. This rating contributed to the 

contractor’s low overall award fee 

score and as a result, the contractor 

did not earn any of the award fee that 

period.

For one program, the contractor’s 

fee could be reduced depending on 

how degraded the instrument was—

no reduction in fee if fully 

operational, 15 percent reduction if 

slightly degraded, 40 percent 

reduction if moderately degraded, 75 

percent reduction if severely 

degraded, and 100 percent 

reduction if the instrument failed.

Fixed-price 

incentive or 

cost-plusincentives

For one program with a fixed-priceincentive contract, the contractor 

overran the target cost for two 

spacecraft and other associated 

costs by 38 percent and the ceiling 

price by 10 percent. The government 

paid 90 percent of the contractor’s 

total incurred costs.

For one program, the contractor has 

an opportunity to earn a total of $6 

million for achieving three key 

milestone deliveries ahead of 

schedule. The contractor earned 94 

percent of the $2 million fee available 

for the first milestone and program 

officials stated the fees helped 

motivate the contractor to stay on 

schedule.

For one program, the contractor can 

earn two incentive payments 

together worth nearly 5 percent of 

the contract value for successful 

demonstration of on-orbit 

performance, with one payment after 

launch and one payment one year 

into the mission.

Source: GAO analysis of DOD, NASA, and NOAA documents. | GAO-17-490

However, in addition to the 12 in-depth case study programs, several of 

the NASA programs in our review included contracts or orders with 

FFRDCs, academic institutions, or non-profit organizations that did not 

include incentives. In most of these cases, NASA awarded cost-plusfixed-fee or cost with no fee contracts or orders. For example, several 

programs used cost-plus-fixed-fee orders issued from an indefinite 

delivery / indefinite quantity contract between NASA and the California 

Institute of Technology, a private nonprofit educational institution, which 

 23Thermal vacuum tests are used to test spacecraft and components in a simulated space 

environment.
Page 18 GAO-17-490 Satellite Acquisitions

establishes the relationship for the operation of the Jet Propulsion 

Laboratory (JPL), an FFRDC.24 The contract includes both service and 

product deliverables and encompasses a large number of discrete 

programs and projects. According to NASA procurement officials, the 

desired program outcomes or objectives and performance requirements 

are defined in task orders issued under the contract. NASA officials stated 

that when there are no fees to pay or withhold from a contractor, NASA 

still has tools available to motivate contractor performance. In these 

instances, agencies rely on non-fee incentives, such as providing positive 

or negative evaluations of contractors in the Contractor Performance 

Assessment Reporting System (CPARS).25 The CPARS evaluations may 

affect the ability of FFRDCs and academic institutions to secure future 

contracts. Officials also stated the general reputation of contractors are 

important in winning future contracts. NASA officials also stated that with 

science missions, the academic institutions are self-motivated because 

they are interested in the data that satellites are collecting and within the 

science community, there is a sense of pride to be associated with a 

successful NASA mission.

Eleven of the 12 selected in-depth case study programs we reviewed 

used contract incentives tied to on-orbit performance on at least one 

contract. We found, however, that the characteristics of the on-orbit 

incentives—such as the amounts at risk or the timing of the incentive 

payments—varied widely. In one instance, a satellite program held the 

contractor’s entire fee at risk pending demonstration of satellite 

performance, but in other cases, the at-risk amount was a portion of the 

total fee or profit on the contract. Timing of payments also differed on a 

program-by-program basis, and in some cases, satellites within the same 

program had distinctive incentives. When asked how they developed onorbit incentives for their respective contracts, program officials cited 

 24The California Institute of Technology has operated JPL as an FFRDC since 1959 to 

meet certain government research and development needs. 

25CPARS is the single government-wide system for reporting contractor past performance 

information. The FAR notes the relationship between incentives and contractor 

performance, stating that although different subparts address recording contractor 

performance information and determining fees under award or incentive fee contracts, the 

fee amount paid to contractors should be reflective of the contractor’s performance and 

the past performance evaluation should closely parallel and be consistent with the fee 

determination. See FAR 42.1500.

On-Orbit Incentives 

Varied among 

Selected Programs
Page 19 GAO-17-490 Satellite Acquisitions

considerations such as other incentives in the contract, agency 

acquisition preferences, and past history.
Page 20 GAO-17-490 Satellite Acquisitions

On-orbit incentives varied widely across our 12 case study programs and 

in some cases, incentives varied between satellites under the same 

contract. To compare on-orbit incentives across these programs, we 

identified the two key characteristics that define each set of incentives—

specifically, the amount and timing of the incentives.

On-orbit incentive amount. Based on our analysis of 23 contracts and 

orders representing our 12 case study programs, we found that the 

amount of on-orbit incentives relative to the overall contract value varied 

widely (see figure 4).

Figure 4: On-Orbit Percentage of Overall Contract Value for Selected Programs at 

DOD, NASA and NOAA

Note: The 12 selected programs represented 23 contracts and orders, as some programs have 

multiple contracts.

Selected Programs Had 

Diverse On-Orbit Incentive 

Amounts and Payment 

Timing
Page 21 GAO-17-490 Satellite Acquisitions

On-orbit incentives included on the contracts and orders for our 12 case

study programs ranged from no on-orbit incentive to approximately 10 

percent of the contract value (see appendix III for more information on the 

on-orbit incentive amounts by contract).26 In some cases, on-orbit 

incentives were only a portion of the contractor’s expected fee or profit. 

For one contract we reviewed, the contractor’s full fee was contingent 

upon successfully demonstrating that the satellite met on-orbit 

performance requirements. Most of the contracts and orders we reviewed 

included multiple satellite vehicles, and the on-orbit incentive could vary 

by vehicle. For example, in one DOD contract we reviewed, the at-risk 

amount for the entire contract was 7 percent, but the at-risk amount for 

individual vehicles ranged from 5 percent to 13 percent.

The at-risk amount for individual satellites can also change depending on 

contractor performance during satellite development. Several contracts 

we reviewed define the potential on-orbit incentive amount as a 

percentage of the total award fee available, rather than a specific dollar 

amount. This means that poor contractor performance during the satellite 

development phase could reduce the amount of the on-orbit incentive. 

For example, if the total award fee for a contract is $100, and the on-orbit 

incentive is defined as 50 percent of the available award fee, the 

contractor could potentially earn $50 for on-orbit performance. If, 

however, the contractor loses $30 in potential award fee during the 

satellite development phase due to poor performance, the most the 

contractor could earn for on-orbit performance falls to $35 (50 percent of 

$70). Similarly, in one contract we reviewed, the at-risk amount on-orbit 

was capped as the lesser of 50 percent of the contractor’s realized profit 

or 50 percent of the target profit. In this case, if the contractor’s realized 

profit was zero dollars, there would be no payback to the government in 

the event of a failure.27

Because on-orbit incentives are realized near the end of a contract 

performance period, they can grow in importance to the contractor, 

relative to other incentives. For example, a contracting officer for one of 

our case study programs said that his program’s contract placed an equal 

priority on both on-orbit performance and cost and schedule incentives, 

 26Because program-specific contract incentive information is proprietary, in this report we 

refer to them generically.

27In this case, the payback cap applies at the contract level, not for an individual satellite. 

This means that if one satellite fails and the contractor reaches the payback cap, there is 

no payback amount for any subsequent failures.
Page 22 GAO-17-490 Satellite Acquisitions

but the contractor lost most of the cost incentives due to cost overruns. 

The contracting officer said that the on-orbit incentive was the largest 

remaining incentive available to the contractor, so in this case, the 

contractor was more intent on earning the on-orbit incentive and less 

focused on controlling costs—a potentially bad situation for the program.

Incentive timing. The timing of an on-orbit incentive represents how the 

at-risk amount is spread out over a satellite’s mission life. For some of the 

contracts and orders we reviewed for selected case study programs, the 

on-orbit incentives covered a satellite’s entire mission life. There were 

some contracts and orders, however, for which the on-orbit incentives 

covered only a portion of the mission life. Given that when satellites fail, it 

is usually early in their mission life, three of the five firm-fixed-price 

satellite contracts or orders in our case study programs had milestone 

payment plans that ended once the on-orbit vehicle completed its checkout. Under this arrangement, depending on the terms of the contract, the 

government could potentially withhold the last milestone incentive 

payment if a catastrophic failure occurred prior to check-out, but would 

not have on-orbit incentives that lasted the remainder of the mission life. 

In these cases, the government assumes all of the risk once the vehicles 

complete check-out. Similarly, the on-orbit incentives for one of the 

SBIRS contracts covered the first 4 years of the satellite’s mission life.

The WGS Block II and Block II follow-on contracts have a unique on-orbit 

incentive structure that includes a 10-year negative incentive followed by 

a 4-year positive incentive for the satellite’s 14-year mission life. The 

negative incentive includes calculations to determine how much money 

the contractor has to pay the government if its satellite fails to meet 

performance requirements during the first 10 years. The positive 

incentive, starting at year 11 of the satellite’s mission life, allows the 

contractor to offset any negative incentives assessed during that 

satellite’s first 10 years. At the end of 14 years, the government adds up 

the positive and negative incentive amounts to determine what, if 

anything, the contractor has to pay back.

Satellite or component storage on the ground may also affect on-orbit 

incentives. For example, the GPS IIF contract reduces the on-orbit 

performance period by 25 percent if any of the first six vehicles is stored 

on the ground for 4 years; more if stored longer.
Page 23 GAO-17-490 Satellite Acquisitions

DOD, NASA, and NOAA officials cited several factors when developing 

on-orbit incentives for their respective programs, including the other 

incentives in the contract, agency acquisition preferences, and individual 

program history.

• The overall contract. Program officials do not view on-orbit 

incentives in isolation, but rather as part of the larger negotiated 

agreement with the contractor. Officials told us that during contract 

negotiations, they may be willing to reduce the amount of fee on-orbit 

or alter the timing of on-orbit incentives, in return for contractor 

concessions in other areas. Programs negotiated overall incentives 

for a contract as well as how the incentives were spread out over the 

contract, including how much was tied to on-orbit performance. 

Officials said contractors generally prefer front-loaded incentives, 

whereas agencies may tend to prefer placing incentives at the end of 

the contract. The resulting contract and incentive structure depends 

on what the government and the contractor can agree to.

• Acquisition philosophy. Program officials told us on-orbit incentives 

reflect the acquisition policies, leadership preferences, and prevailing 

agency practices at the time the contract is being drafted. For 

example, DOD promotes the use of incentive fees, where possible, 

over award fees, to encourage greater use of objective fee criteria. 

Program officials also said they typically look at other satellite

program contracts in their respective agencies, explaining that 

incentives for new programs may be structured based on what other 

programs have agreed to.

• Program history, staff, and contractor experience. Program history 

can affect incentive structures in different ways. In the case of WGS, 

the on-orbit incentives for the Block II follow-on contracts were 

modeled after the incentives in the Block II contract. Further, program 

officials said they also modified past incentives or established new 

incentives based on their own contracting experience. They told us 

that prior experience executing specific incentive structures lends 

itself to structuring incentives the same way again. Similarly, they said 

that contractors may seek to negotiate incentive provisions based on 

their company’s past experience.

Contracting Officials 

across Selected Programs 

Cited Several

Considerations in 

Developing On-Orbit 

Incentives
Page 24 GAO-17-490 Satellite Acquisitions

The government’s recourse in the event of a catastrophic satellite failure 

on-orbit is generally limited to recovery of a portion of the on-orbit 

incentive. As discussed above, the on-orbit incentive amount on any 

given satellite contract can vary widely but is uniformly less than 10 

percent of the total satellite contract value. In all likelihood, the amount 

retained by or paid back to the government would be even less, as what 

the government may actually recoup depends on the circumstances of 

the failure. For example, if a contract includes no-fault provisions, when 

one contractor is at fault for the total loss of a satellite, the government 

may still be responsible for paying fees to the remaining contractors—

whose products were not to blame for the failure. By design, on-orbit 

incentives are only a portion of the total contract value and therefore will 

not make the government whole in the event of total failure. 

Overemphasizing on-orbit incentives could result in the contractor losing 

sight of cost and schedule goals. Further, the government accepts more 

of the on-orbit risk than the contractor, in part because catastrophic 

failures are rare, according to satellite studies and industry experts we 

spoke to.

For our 12 case study programs, we found that the aggregate on-orbit 

incentive amount at risk is around 4 percent of the aggregate contract 

value.28 This means that in a worst-case scenario in which all of the 

satellites failed prior to checkout, the maximum amount the government 

could recoup or withhold from the contractors is 4 percent of the total 

contract value. What the government could actually recoup or withhold 

depends on the terms of the contract and the circumstances of the failure, 

such as the extent to which technical parameters are met, the timing of 

the failure, and whether the contractor is found to be at fault.

Two satellites among the programs we reviewed experienced 

catastrophic or partial failures—DMSP-19 and SMAP. Program officials 

said the DMSP-19 spacecraft contractor repaid $2.7 million plus interest 

to the government as a result of the failure, but there was no repayment 

or payments withheld in the case of SMAP.

 28For contracts and orders we reviewed with on-orbit incentives, the highest on-orbit 

incentive was less than 10 percent of the total contract value and the lowest was just over 

1 percent.

Government’s 

Recourse Is Limited 

When a Satellite Fails

Modest Payback to 

Government When 

Satellites Fail
Page 25 GAO-17-490 Satellite Acquisitions

• DMSP-19 suffered a catastrophic failure in the second year of its 5-

year mission life when the Air Force lost the ability to control the 

satellite.29 There were two prime contractors on the DMSP 

contracts—one for the spacecraft and one for the sensors. According 

to program officials, the spacecraft contractor was found to be at fault 

for the failure, and had to reimburse $2.7 million in fee plus interest.30

Program officials stated that the sensor contractor was not 

responsible for the failure and therefore did not have to repay any fee.

• SMAP experienced a partial failure. One of SMAP’s two primary 

sensors—the radar—failed, while the other—the radiometer—is 

operating as intended. NASA was unable to identify the exact cause, 

but determined that the failure was related to the radar’s highpowered amplifier power supply. According to NASA’s SMAP mishap 

investigation report, without the radar, SMAP will not be able to meet 

mission requirements because the radiometer alone cannot meet 

resolution requirements. Because JPL built SMAP under a task order 

with no on-orbit incentives, the government had no monetary recourse 

when the radar sensor failed.31 The mishap investigation report 

estimated that the SMAP radar failure resulted in more than $550 

million in losses, though the cost of the radar accounted for only 11 

percent of that amount. Most of the estimated losses were related to 

investments in the science of the mission. However, NASA officials 

told us that the total science value of the shortfall in capability is highly 

uncertain. These officials noted that although not operating to its full 

resolution, SMAP provides higher resolution and more accurate soil 

moisture and sea surface salinity data than any prior NASA missions.

No-fault provisions can have implications for satellites with multiple prime 

contractors, as mentioned in the DMSP example. If one contractor is at 

 29The Air Force controlled the satellite by sending encrypted commands that the satellite 

decrypted and passed to the satellite’s computer. The decryption device lost power so the 

satellite can no longer decrypt messages it receives. It is still flying and transmitting 

information, but the Air Force expects its performance to degrade over time.

30DMSP-19 is unique in that it was built in 1995 and stored until 2014. The initial 

production contracts were completed in the late 1990s. The Air Force then awarded 

sustainment contracts. When those contracts expired, the Air Force awarded the current 

sustainment contracts.

31It is important to note that while the government had no recourse following the SMAP 

radar failure, the outcome was similar to what would have happened under a positive onorbit incentive approach. If a satellite with a positive on-orbit incentive failed, the 

government would simply not pay the incentive. With a negative incentive, the contractor 

may have had to payback some previously earned fee.
Page 26 GAO-17-490 Satellite Acquisitions

fault for the total loss of a satellite, the government may still be 

responsible for paying fees to the remaining contractors—whose products 

were not to blame for the failure—even though the satellite on which their 

products were riding was a total loss.

Representatives from commercial companies we spoke with said they 

typically purchase insurance to mitigate their risk in the event of satellite 

losses. According to satellite insurance company representatives, 

insurance for any one satellite is generally spread across multiple 

insurance companies, each of which insures only a portion of the total 

value of the satellite. The cost of insuring the launch and full mission life 

of a commercial satellite could add 10 to 20 percent of its total contract 

value, according to one insurance broker we spoke with, even though 

relatively few satellites suffer significant failures. He noted that, at this 

time, the small market of satellite insurance providers would not have the 

capacity to insure many government satellites, given their high costs to 

build and launch.

While tying some of a satellite contract’s incentive to on-orbit performance 

can help focus a contractor on building a quality satellite, 

overemphasizing performance through on-orbit incentives can 

unintentionally cause the contractor to lose sight of cost or schedule. For 

example, JWST program officials stated that the $56 million on-orbit 

incentive fee in the initial JWST contract encouraged the contractor to 

exceed performance requirements at the expense of cost and schedule. 

In other words, the cost and schedule incentives were relatively less 

significant to the contractor than the on-orbit performance incentive. In 

December 2014, we found that when the contract was renegotiated in 

December 2013, the JWST program and the contractor agreed to replace 

the on-orbit incentive with award fees that could be used to incentivize 

cost and schedule goals during development.32 Since that time, JWST 

officials told us the renegotiated award fees had contributed to better cost 

and schedule outcomes. Further, in another program’s contract 

negotiation documents we reviewed, the government was willing to put 

less of the contractor’s fee at-risk on-orbit in exchange for lower overall 

fees, which would reduce the contract price. Conversely, negotiation 

 32GAO, James Webb Space Telescope: Project Facing Increased Schedule Risk with 

Significant Work Remaining, GAO-15-100 (Washington, D.C.: Dec. 15, 2014). 

Overemphasizing On-Orbit 

Incentives May Not Benefit 

Programs
Page 27 GAO-17-490 Satellite Acquisitions

documents reflected that the government considered accepting higher 

overall fees in exchange for putting more of the contractor’s fee at-risk.

Also, it is unclear whether increased on-orbit incentives would decrease 

the likelihood of on-orbit failures. Program officials expressed a wide 

range of views on the relative importance of on-orbit incentives in 

achieving successful outcomes. Program officials agreed that poorly 

designed incentives might lead to bad program outcomes, but there was

no consensus on the effect of well-designed incentives. Officials we 

spoke with believed that on-orbit incentives were important, but the 

reasons cited were sometimes more related to how they can used in 

negotiations with the contractor—leading up to contract award and, in 

some cases, for contract modifications—than achieving successful onorbit performance. Attributing positive on-orbit performance directly to onorbit incentives is challenging, given the many factors that contribute to a 

satellite program’s success, including requirements and funding stability, 

technology maturity, and government and contractor experience. Further, 

on-orbit incentives are unlikely to flow down to the workers who actually 

build a satellite, or to sub-contractors who produce key parts and 

components. On-orbit incentives can span 10 years of performance, so 

the people who were directly involved in building a satellite may not even 

be with the company when the incentives are paid out.

Although contractors may be motivated to achieve on-orbit performance 

through on-orbit incentives, they are also motivated by other factors. For 

example, in 2005, we found that various considerations, such as securing 

future contracts with the government, can be stronger motivators than 

earning additional profit.33 Officials from agencies and commercial 

companies that we spoke to confirmed that this is still true today. 

Specifically, program officials we interviewed stated that contractors react 

strongly to negative CPARS evaluations, as this could affect their ability 

to win future contracts. Officials also noted that contractors take pride in 

their work and believe in the missions their satellites support. They 

believed that contractors would do their best to succeed even without onorbit incentives. They said that universities and FFRDCs are also 

motivated to do well because they are personally invested in advancing 

their scientific pursuits. According to program officials and commercial 

company representatives that we spoke to, the commercial satellite 

market is small but competitive, and satellite failures generate bad 

 33GAO-06-66. 
Page 28 GAO-17-490 Satellite Acquisitions

publicity that could affect a company’s ability to win commercial contracts 

and future government business.

Finally, satellite acquisition programs tend to have far more cost and 

schedule challenges than performance issues. We have a large body of 

work identifying cost growth and schedule delays for space programs, 

including some in our case studies, and have made a number of 

recommendations to address the causes of these challenges.34 For 

example, we have previously recommended that agencies should 

improve their program cost estimates, separate the process of technology 

discovery from acquisition, and match resources and requirements at 

program start.35 The cost growth for some of our case study programs is 

much larger than their on-orbit incentives. For example, JWST has 

experienced more than $3.6 billion in cost growth. That exceeds the 

combined on-orbit incentives for all 56 of the satellite vehicles in our case 

study programs. Similarly, the first two GPS III satellites have 

experienced more than $600 million in cost growth. That is more than 

double the entire amount of on-orbit incentives for all 10 GPS III satellites 

currently under contract.

A number of government officials and commercial companies we spoke 

with did not express concerns about the extent to which satellites 

experience catastrophic failures. Studies of satellite reliability vary 

depending on the timing and scope of the analysis, but the analyses we 

reviewed indicated that between 2 and 4 percent of satellites, including 

both government and commercial programs, experience a catastrophic 

 34GAO, Defense Acquisitions: Improvements Needed in Space Systems Acquisition 

Management Policy, GAO-03-1073 (Washington, D.C.: Sept. 15, 2003), Defense 

Acquisitions: Despite Restructuring, SBIRS High Program Remains at Risk of Cost and 

Schedule Overruns, GAO-04-48 (Washington, D.C.: Oct. 31, 2003); DOD is Making 

Progress in Adopting Best Practices for the Transformational Satellite Communications 

System and Space Radar but Still Faces Challenges, GAO-07-1029R (Washington, D.C.: 

Aug. 2, 2007) Space Acquisitions: DOD Needs to Take More Action to Address Unrealistic 

Initial Cost Estimates of Space Systems, GAO-07-96 (Washington, D.C.: Nov. 17, 2006); 

Space and Missile Defense Acquisitions: Periodic Assessment Needed to Correct Parts 

Quality Problems in Major Programs, GAO-11-404 (Washington, D.C.: June 24, 2011); 

Space Acquisitions: DOD Delivering New Generations of Satellites, but Space System 

Acquisition Challenges Remain, GAO-11-590T (Washington, D.C.: May 11, 2011); James 

Webb Space Telescope: Actions Needed to Improve Cost Estimate and Oversight of Test 

and Integration, GAO-13-4 (Washington, D.C.: Dec. 3, 2012); GAO-16-329SP; and Space 

Acquisitions: Challenges Facing DOD as it Changes Approaches to Space Acquisitions, 

GAO-16-471T (Washington, D.C.: Mar. 9, 2016). 

35GAO-03-1073, GAO-07-1029R, GAO-07-96, and GAO-13-4.
Page 29 GAO-17-490 Satellite Acquisitions

failure before the end of their mission lives. Aerospace officials we spoke 

with said the failure rate for government satellites is around 2 percent, 

and that this is somewhat remarkable given that government satellites are 

often highly complex. Further, many government satellites utilize new, 

unproven technologies which pose more risk than commercial satellites; 

commercial satellites tend to use proven designs and rely more on 

mature technologies. As a result, it appears the most cost effective way to 

limit the government’s loss in the event of a catastrophic failure may be to 

reduce cost growth and schedule delays by using best practices during 

satellite development, as we have previously recommended.

We provided a draft of this report to DOD, NASA, and NOAA for their 

review and comment. DOD and NOAA provided technical comments, 

which we incorporated as appropriate. NASA had no technical or written 

comments.

We are sending copies of this report to the appropriate congressional 

committees, the Secretaries of Defense and Commerce, and the NASA 

Administrator. In addition, the report will be available at no charge on 

GAO’s website at http://www.gao.gov.

If you or your staff have questions about this report, please contact me at 

(202) 512-4841, or chaplainc@gao.gov. Contact points for our Offices of

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix IV.

Cristina Chaplain

Director

Acquisition and Sourcing Management

Agency Comments
Page 30 GAO-17-490 Satellite Acquisitions

List of Addressees

The Honorable John McCain

Chairman

The Honorable Jack Reed

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Bill Nelson

Ranking Member

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable Thad Cochran

Chairman

The Honorable Richard Durbin

Ranking Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Deb Fischer

Chairwoman

The Honorable Joe Donnelly

Ranking Member

Subcommittee on Strategic Forces

Committee on Armed Services

United States Senate

The Honorable Edward Markey

Ranking Member

Subcommittee on Space, Science, and Competiveness

Committee on Commerce, Science, and Transportation

United States Senate
Page 31 GAO-17-490 Satellite Acquisitions

The Honorable Eddie Bernice Johnson

Ranking Member

Committee on Science, Space, and Technology

House of Representatives

The Honorable Kay Granger

Chairwoman

The Honorable Peter Visclosky

Ranking Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives

The Honorable Mike Rogers

Chairman

The Honorable Jim Cooper

Ranking Member

Subcommittee on Strategic Forces

Committee on Armed Services

House of Representatives
Appendix I: Descriptions of Missions, Costs, 

and Quantities for Satellite Programs in GAO 

Review

Page 32 GAO-17-490 Satellite Acquisitions

The following tables present the missions, original total program costs 

and quantities, current total program costs and quantities, and the 

number of satellites in orbit as of March 2017 for all 19 of the programs 

included in our review. The total acquisition or project costs include 

development and production costs of the space vehicles and in some 

cases, costs associated with the ground systems, launch vehicles, and 

other costs outside of the satellite vehicles. As a result, the total costs for 

a given program will be larger than the contracts values discussed in this 

report.

Table 3: Department of Defense (DOD) Satellite Programs

Program Mission

Original total 

acquisition cost (in 

fiscal 2017 dollars) 

and quantitya

Current total 

acquisition cost (in 

fiscal year 2017 

dollars) and quantitya

Number of 

satellites in orbit 

as of March 2017

Advanced Extremely 

High Frequency 

(AEHF)

Replenish the existing Milstar system 

with higher-capacity, survivable, jamresistant, worldwide secure 

communication capabilities for 

strategic and tactical warfighters.

Cost: $6.910 billion

Quantity: 5

Cost: $15.046 billion

Quantity: 6

3 of 6

Global Positioning 

System (GPS) IIFb To provide positioning, navigation and timing service to civil and military users 

worldwide.

Cost: No separate 

data available

because it is part of 

the NAVSTAR GPS 

program.

Quantity: 2

Cost: No separate data 

available because it is 

part of the NAVSTAR 

GPS program.

Quantity: 12

12 of 12

GPS IIIb To supplement and eventually replace 

a constellation of multiple generations 

of satellite that provide global 

positioning, navigation, and timing 

capability to both military and civil 

users worldwide.

Cost: $4.275 billion

Quantity: 8

Cost: $5.772 billion

Quantity: 10

0 of 10

Mobile User Objective 

System (MUOS)b Expected to provide a worldwide, multiservice population of mobile and 

fixed-site terminal users with increased 

narrowband communications capacity 

and improved availability for small 

terminal users.

Cost: $7.291 billion

Quantity: 6

Cost: $7.403 billion

Quantity: 6c

5 of 5c

Appendix I: Descriptions of Missions, Costs, 

and Quantities for Satellite Programs in GAO 

Review
Appendix I: Descriptions of Missions, Costs, 

and Quantities for Satellite Programs in GAO 

Review

Page 33 GAO-17-490 Satellite Acquisitions

Program Mission

Original total 

acquisition cost (in 

fiscal 2017 dollars) 

and quantitya

Current total 

acquisition cost (in 

fiscal year 2017 

dollars) and quantitya

Number of 

satellites in orbit 

as of March 2017

Space Based Infrared 

System (SBIRS)b Being developed to replace the Defense Support Program and perform 

a range of missile warning, missile 

defense, technical intelligence, and 

battlespace awareness missions. 

SBIRS is to consist of four 

geosynchronous earth orbit satellites, 

two sensors on host satellites in highly 

elliptical orbit, two replenishment 

satellites and sensors, and fixed and 

mobile ground stations.

Cost: $4.986 billion

Quantity: 5

Cost: $19.184 billion

Quantity: 6

3 of 6

Wideband Global 

SATCOM (WGS)b Provides worldwide communications services to U.S. warfighters, allies, and 

other special users.

Cost: $1.295 billion

Quantity: 3

Cost: $4.269 billion

Quantity: 8 (does not 

include 2 funded by 

international partners)

9 of 10

Source: GAO presentation of data from DOD’s Selected Acquisition Reports, with cost data reported in fiscal year 2017 dollars, and other DOD data. | GAO-17-490

a

Each program’s acquisition cost includes research and development and procurement costs and 

does not include acquisition-related operation and maintenance costs.

b

Denotes GAO case study programs.

c

The current cost and quantity reported are as of the December 2015 Selected Acquisition Report. As 

of March 2017, the quantity was reduced to 5.

Table 4: National Aeronautics and Space Administration (NASA) Space Projects

Project Mission

Baseline total 

project cost (in 

then year dollars) 

and quantitya

Current total project 

cost (in then year 

dollars) and 

quantitya

Number of 

satellites in orbit 

as of March 2017

Global Precipitation 

Measurement (GPM)

Mission

Seeks to improve the scientific 

understanding of the global water 

cycle and the accuracy of 

precipitation forecasts.

Cost: $975.9 million

(baseline fiscal year 

2010)

Quantity: 1

Cost: $928.1 million 

(estimate from Feb. 

2014)

Quantity: 1

1 of 1

Gravity Recovery and 

Climate Experiment 

Follow-On (GRACE-FO)

Continue and expand upon the 2002 

GRACE mission, which remains in 

operation. It will provide highresolution models of Earth’s gravity 

field and insight into water movement 

on and beneath the Earth’s surface 

over a 5-year period. These models 

will provide rates of ground water 

depletion and polar ice melt and 

enable improved planning for 

droughts and floods. 

Cost: $431.9 million

(baseline fiscal year 

2014)

Quantity: 2

Cost: $431.9 million

(latest estimate Feb. 

2016)

Quantity: 2

0 of 2
Appendix I: Descriptions of Missions, Costs, 

and Quantities for Satellite Programs in GAO 

Review

Page 34 GAO-17-490 Satellite Acquisitions

Project Mission

Baseline total 

project cost (in 

then year dollars) 

and quantitya

Current total project 

cost (in then year 

dollars) and 

quantitya

Number of 

satellites in orbit 

as of March 2017

Ice, Cloud, and Land 

Elevation Satellite-2 

(ICESat-2)b

A follow-on mission to ICESat 

designed to measure changes in 

polar ice-sheet mass and elevation. 

These measurements will provide a 

better understanding of the 

mechanisms that drive these 

changes and their associated effect 

on global sea level.

Cost: $860.3 million

(baseline fiscal year 

2013)

Quantity: 1

Cost: $1.1 billion

(latest estimate Feb. 

2016)

Quantity: 1

0 of 1

James Webb Space 

Telescope (JWST)b Large, infrared-optimized space telescope designed to help 

understand the origin and destiny of 

the universe, the creation and 

evolution of the first stars and 

galaxies, and the formation of stars 

and planetary systems. It will also

help further the search for Earth-like 

planets.

Cost: $4.964 billion

(baseline fiscal year 

2009)

Quantity: 1

Cost: $8.825 billion

(latest estimate Feb. 

2016)

Quantity: 1

0 of 1

Landsat Data Continuity 

Mission (LDCM)

Seeks to extend the ability to detect 

and quantify changes on the Earth’s 

surface at a scale where natural and 

man-made causes of change can be 

differentiated. It is the successor 

mission to Landsat 7.

Cost: $941.7 million

(baseline fiscal year 

2010)

Quantity: 1

Cost: $931.2 million

(estimate from Feb. 

2013)

Quantity: 1

1 of 1

Magnetospheric Multiscale 

(MMS)

Will investigate how magnetic fields 

around Earth connect and 

disconnect, explosively releasing 

energy via a process known as 

magnetic reconnection. MMS will 

provide a three-dimensional view of 

this fundamental process, which 

occurs throughout the universe and is 

one of the most important drivers of 

space weather.

Cost: $1.083 billion

(baseline fiscal year 

2009)

Quantity: 4

Cost: $1.123 billion

(estimate from Feb. 

2015)

Quantity: 4

4 of 4

Orbiting Carbon 

Observatory 2 (OCO-2)

Designed to enable more reliable 

predictions of climate change and is 

based on the original OCO mission 

that failed to reach orbit in 2009. It is 

making precise, time-dependent, 

global measurements of atmospheric 

carbon dioxide. These measurements 

will help scientists better understand 

the processes that regulate 

atmospheric carbon dioxide and its 

role in the carbon cycle.

Cost: $349.9 million

(baseline fiscal year 

2010)

Quantity: 1

Cost: $427.6 million

(estimate from Feb. 

2015)

Quantity: 1

1 of 1
Appendix I: Descriptions of Missions, Costs, 

and Quantities for Satellite Programs in GAO 

Review

Page 35 GAO-17-490 Satellite Acquisitions

Project Mission

Baseline total 

project cost (in 

then year dollars) 

and quantitya

Current total project 

cost (in then year 

dollars) and 

quantitya

Number of 

satellites in orbit 

as of March 2017

Soil Moisture Active and 

Passive (SMAP)b Provide new information on global soil moisture and its freeze/thaw state 

enabling new advances in 

hydrospheric science and 

applications. These measurements 

will improve understanding of 

regional and global water cycles and 

climate changes, and improve the 

accuracy of weather, flood, and 

drought forecasts.

Cost: $916.5 million

(baseline fiscal year 

2012)

Quantity: 1

Cost: $914.6 million

(estimate from Feb. 

2015)

Quantity: 1

1 of 1

Surface Water and Ocean 

Topography (SWOT)

Will use its wide-swath radar altimetry 

technology to take repeated highresolution measurements of the 

world’s oceans and freshwater bodies 

to develop a global survey. This 

survey will make it possible to 

estimate water discharge into rivers 

more accurately, and help improve 

flood prediction.

N/A Cost: $647 million -

$757 million (estimate 

is preliminary and as 

of Feb. 2016)

Quantity: 1

0 of 1

Tracking and Data Relay 

Satellite (TDRS) K, L, Mb Contribute to the existing network by providing continuous high-bandwidth 

digital voice, video, and mission 

payload data, as well as health and 

safety data relay services to Earthorbiting spacecraft.

Cost: $451.3 million

(baseline fiscal year 

2010)

Quantity: 2

Cost: $426.5 million

(estimate from Feb. 

2013)

Quantity: 2c

2 of 3c

Transiting Exoplanet 

Survey Satellite (TESS)b Use four identical, wide field-of-view cameras to conduct the first 

extensive survey of the sky from 

space. The mission’s goal is to 

discover exoplanets—or planets in 

other solar systems—during transit, 

the time when the planet’s orbit 

carries it in front of its star as viewed 

from Earth.

Cost: $378.4 million

(baseline fiscal year 

2015)

Quantity: 1

Cost: $351.7 million

(latest estimate Feb. 

2016)

Quantity: 1

0 of 1

Source: GAO presentation of NASA data. | GAO-17-490

a

All cost information is presented in nominal then-year dollars for consistency with budget data. 

Because of changes in NASA’s accounting structure, its historical cost data are relatively 

inconsistent. As such, we used then-year dollars to report data consistent with the data NASA 

reported to us. Then year dollars include the effects of inflation and escalation. Current baseline costs 

for all projects are adjusted to reflect the cost accounting structure in NASA’s fiscal year 2009 budget 

estimates. For the fiscal year 2009 budget request, NASA changed its accounting practices from fullcost accounting to reporting only direct costs at the project level.

b

Denotes GAO case study programs.

c

NASA has launched TDRS K and L and plans to launch TDRS M in the summer of 2017. The cost 

data presented only reflects a quantity of 2.
Appendix I: Descriptions of Missions, Costs, 

and Quantities for Satellite Programs in GAO 

Review

Page 36 GAO-17-490 Satellite Acquisitions

Table 5: Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) Satellite Programs

Program Mission

Baseline estimated 

life-cycle cost (in then 

year dollars) and 

quantity

Current estimated lifecycle cost (in then 

year dollars) and 

quantity

Number of 

satellites in orbit 

as of March 2017

Geostationary 

Operational

Environmental Satellite 

(GOES)-R Seriesa

A collaboration between NOAA 

and NASA, the GOES-R series, 

which includes GOES R, S, T, and 

U, will provide continuous imagery 

and atmospheric measurements of 

Earth’s Western Hemisphere, total 

lightning data, and space weather 

monitoring to provide critical 

atmospheric, hydrologic, oceanic, 

climatic, solar, and space data.

Cost: $7.6 billion 

Quantity: 2

Cost: $10.9 billion 

(through 2036)

Quantity: 4

1 of 4

Joint Polar Satellite 

System (JPSS)a A collaboration between NOAA and NASA, JPSS will deliver key 

observations for essential 

products and services, including 

forecasting severe weather, 

assessing environmental hazards, 

and provides continuity of critical 

global observations, including 

atmosphere, oceans, and land.

Cost: $11.9 billion

(estimate as of May 

2010 for life cycle of 

2010-2024, including 

$2.9 billion spent on 

National Polar-orbiting 

Operational 

Environmental Satellite 

System)

Quantity: 2

Cost: $11.3 billion

(estimate as of Dec. 

2014 for life cycle of

2010-2025, including 

$2.9 billion spent on 

National Polar-orbiting 

Operational 

Environmental Satellite 

System)

Quantity: 2b

0 of 4b

Source: GAO presentation of NOAA data. | GAO-17-490

a

Denotes GAO case study programs.

b

NOAA plans to launch 4 JPSS satellites. NOAA has only purchased 2 spacecraft to date, but has 

awarded contracts for 4 sets of instruments. The costs presented do not include the third or fourth 

JPSS satellites.
Appendix II: Objectives, Scope, and 

Methodology

Page 37 GAO-17-490 Satellite Acquisitions

To assess the Department of Defense (DOD), National Aeronautics and 

Space Administration (NASA), and the Department of Commerce’s 

National Oceanic and Atmospheric Administration’s (NOAA) contract and 

incentive structures, under the authority of the Comptroller General to 

conduct evaluations on his own initiative, we examined (1) the types of 

contracts and incentive structures government satellite programs use to 

develop satellites and why, (2) how selected programs structure on-orbit 

incentives, and (3) government options for recourse, if any, when a 

satellite fails or underperforms.

To determine the types of contracts and incentive structures government 

satellite programs use to develop satellites and the reasons why, we 

analyzed contract obligations data from the Federal Procurement Data 

System-Next Generation (FPDS-NG) as of September 2016 for 19 

programs, comprising all current major satellite programs across DOD, 

NASA, and NOAA. To assess the reliability of the FPDS-NG data, we 

reviewed relevant internal control documents and data quality summaries. 

We determined that the FPDS-NG data were sufficiently reliable for the 

purposes of this engagement. For DOD, we included major defense 

acquisition programs, and at NASA and NOAA, we included programs 

with a life-cycle cost greater than $250 million.1 For our analysis, we 

included each program’s development and production contracts and 

orders for the spacecraft and instruments and generally excluded 

contracts and orders related to launch, ground systems, maintenance, 

operations, and support services if they were separate contracts and 

orders. If these items or services were included within the development 

and production contract or order, we included them in our analysis. For 

each contract and order, we determined the predominant contract type for 

the design, development, and production of the satellites on the contract. 

We also reviewed DOD, NASA, and NOAA policies and guidance on 

contracting and incentives, and Federal Acquisition Regulation (FAR) and 

agencies’ FAR supplements for regulations and procedures on 

contracting.

To determine the range of on-orbit incentive structures and government 

options for recourse should a satellite fail or underperform, of the 19 

major satellite programs in our review, we selected 12 programs for in-

 1

We defined current major satellite acquisition programs as Earth-orbiting satellite 

acquisition programs in development, production, or with at least one satellite on-orbit 

within its mission life as of September 2016 and NASA’s James Webb Space Telescope 

(JWST) given that JWST is the largest major program within NASA’s portfolio. 

Appendix II: Objectives, Scope, and 

Methodology
Appendix II: Objectives, Scope, and 

Methodology

Page 38 GAO-17-490 Satellite Acquisitions

depth analysis as case studies based on program size, contract type, 

contractor, mission, or notable on-orbit performance. For each case 

study, we analyzed contract files and conducted interviews with program 

and contracting officials at DOD, NASA, and NOAA to discuss contract 

types and incentive structures, rationale for the use of specific contract 

types and incentive structures, on-orbit performance and programmatic 

outcomes. Across the 12 case study programs, there were 23 contracts 

and orders and 56 space vehicles (see table 6).

Table 6: GAO Satellite Program Case Studies and Associated Number of Contracts 

and Orders and Space Vehicles

Agency Program name

Number of 

contracts 

or orders 

GAO 

reviewed

Number of 

space 

vehicles 

total

DOD Global Positioning System (GPS) IIF 1 12

GPS III 1 10

Mobile User Objective System (MUOS) 1 5

Space Based Infrared System (SBIRS) (all three 

blocks)

3 6

Wideband Global SATCOM (WGS) Blocks I, II, 

and II Follow-On

3 10

NASA Ice, Cloud, and Land Elevation Satellite-2 

(ICESat-2)

2 1

James Webb Space Telescope (JWST) 1 1

Soil Moisture Active and Passive (SMAP) 1 1

Transiting Exoplanet Survey Satellite (TESS) 2 1

Tracking and Data Relay Satellite (TDRS) 1 3

NOAA Geostationary Operational Environmental Satellite 

(GOES)-R Series

2 4

Joint Polar Satellite System (JPSS) 5 2

Total 23 56

Source: GAO analysis of DOD, NASA, and NOAA contracts. | GAO-17-490

To determine the at-risk on-orbit incentive amount by contract or order, 

we reviewed contract clauses and fee plans for each of the 23 contracts 

and orders associated with the 12 case study programs to calculate the 

amount of money the contractor would not be paid or would need to pay 

back in the case of a catastrophic failure. We calculated the at-risk 

amount based on a hypothetical “worst case scenario” for each contract 

or order, in which the maximum payback or forgone payment would be 
Appendix II: Objectives, Scope, and 

Methodology

Page 39 GAO-17-490 Satellite Acquisitions

assessed for a complete failure of the satellites. The at-risk amounts 

included milestone payments that would be withheld, award and 

incentives fees that would not be paid, and amounts that would need to 

be paid back by the contractor. These at-risk amounts were divided by 

the current value of the contract or order to calculate a percentage of 

contract or order value that would be at risk. The contract scope varied 

across our case study contracts. For example, some contracts included 

costs associated with developing ground systems or sustainment costs 

whereas others only included satellite development and production costs. 

However, the contract scope did not significantly alter the at-risk 

calculations. For all of the contracts and orders we reviewed, regardless 

of scope, the at-risk amounts were less than 10 percent of the contract 

value.

For the seven remaining satellite programs at DOD and NASA that were 

not included in our case studies, we developed agency-specific data 

collection instruments (DCI) that we pre-tested, administered, and from 

which we analyzed the information collected. We tailored the DCIs to 

each agency based on agency policies and guidelines for contracting to 

obtain program-specific contract details, values, obligations to-date, 

special clauses used, incentive structures, and performance periods. We

determined that the data collected from the DCIs were sufficiently reliable 

for the purposes of this engagement. The seven programs for which we 

executed DCIs included:

DOD

• Advanced Extremely High Frequency (AEHF);

NASA

• Global Precipitation Measurement (GPM) Mission,

• Gravity Recovery and Climate Experiment Follow-On (GRACE-FO),

• Landsat Data Continuity Mission (LDCM),

• Magnetospheric Multiscale (MMS),

• Orbiting Carbon Observatory 2 (OCO-2), and

• Surface Water and Ocean Topography (SWOT).

In addition to the case studies above, we reviewed the Defense 

Meteorological Satellite Program 19 (DMSP-19) because of its recent onorbit failure. We reviewed DMSP-19’s follow-on storage, maintenance, 

and support contracts rather than the development and production 
Appendix II: Objectives, Scope, and 

Methodology

Page 40 GAO-17-490 Satellite Acquisitions

contracts because at the time of the failure, work was being performed 

under the follow-on contract. These contracts contained information on 

the on-orbit incentives and relevant options for government recourse after 

the on-orbit failure occurred.

We also interviewed officials from a nongeneralizable sample of 

commercial companies: Ball Aerospace, DigitalGlobe, IntelSat, Lockheed 

Martin, and ViaSat to identify how selected commercial companies use 

on-orbit incentives and how commercial satellite acquisitions differ from 

government satellite acquisitions. We selected the companies based on 

the type of satellites they build or acquire. In addition to commercial 

satellite companies, we also consulted satellite insurance brokers from 

Marsh and one underwriter, XL Catlin, to obtain information on the 

likelihood of satellite failures in the commercial and government markets, 

the general capacity of the commercial satellite insurance market, and the 

dollar amounts associated with insuring commercial satellites. We 

reviewed Aerospace Corporation studies and briefings and interviewed 

Aerospace Corporation officials to identify the point during the life of a 

satellite in which most satellite failures occur, the frequency of 

government satellite failures, and to identify the various categories of 

satellite failures.

We conducted this performance audit from March 2016 to June 2017 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix III: Contract Type and On-Orbit 

Incentives At-Risk for GAO Satellite Program 

Case Studies

Page 41 GAO-17-490 Satellite Acquisitions

The 12 in-depth case study satellite programs we reviewed included 23 

contracts and orders. For these contracts and orders, we determined the 

predominant contract type for the design, development, and production of 

the satellites; and percent of contract value at-risk for on-orbit 

performance; which are presented in the tables below. We determined 

the percent of contract value at-risk for on-orbit performance for each 

contract or order by dividing the maximum dollar amounts the contractor 

would not be paid or would have to pay back in the event of a 

catastrophic failure by the current contract value.

Table 7: Department of Defense (DOD) Contracts for Selected Satellite Acquisition Programs

Program

Contract work 

description Contract type

Contract value

As of date

Percentage of contract value 

at-risk for on-orbit 

performance

Global Positioning 

System (GPS) IIF

Spacecraft and payloads

12 space vehicles

Space vehicles 1-3: 

CPAF

Space vehicles 4-12: 

FPI

$3.9 billion

May 2016

Less than 3 percent

GPS III Spacecraft and payloads

10 space vehiclesa

Space vehicles 1-10: 

CPIF / AF

$3.7 billion

August 2016

6 percent to less than 10 percent

Mobile User 

Objective System 

(MUOS)

Spacecraft and payloads

5 space vehicles

Space vehicles 1-2: 

CPIF / AF

Space vehicles 3-5: 

FPI / AF

$5.0 billion

March 2017

3 percent to less than 6 percent

Space Based 

Infrared System 

(SBIRS)

Geosynchronous earth 

orbit (GEO) 1-2, highly 

elliptical orbit (HEO) 1-2 

payloads, ground systems

CPAF $9.5 billion

July 2016

Less than 3 percent

GEO 3-4, HEO 3-4 

payloads

CPAF $3.3 billion

August 2016

3 percent to less than 6 percent

GEO 5-6 FPI $1.9 billion

August 2016

6 percent to less than 10 percent

Wideband Global 

SATCOM (WGS)

Block I

3 space vehicles

FFP $842.6 million

April 2013

3 percent to less than 6 percent

Block II

3 space vehicles

FPI $1.2 billion

August 2016

Less than 3 percent

Block II Follow-On

4 space vehicles

FFP $1.8 billion

June 2016

6 percent to less than 10 percent

Legend: CPAF = cost-plus-award-fee, CPIF = cost-plus-incentive-fee, CPFF = cost-plus-fixed-fee, FPAF = fixed-price-award-fee, FPI = fixed-price incentive, FFP = firm-fixed-price

Source: GAO analysis of DOD program contracts. | GAO-17-490

a

The GPS III contract has options for 2 more satellites but we did not include these in the table 

because the options have not been exercised.

Appendix III: Contract Type and On-Orbit 

Incentives At-Risk for GAO Satellite Program 

Case Studies
Appendix III: Contract Type and On-Orbit 

Incentives At-Risk for GAO Satellite Program 

Case Studies

Page 42 GAO-17-490 Satellite Acquisitions

Table 8: National Aeronautics and Space Administration (NASA) Contracts or Orders for Selected Satellite Acquisition 

Programs

Program

Contract / order work 

description Contract / order type

Contract / order value

As of date

Percent of contract / order 

value at-risk for on-orbit 

performance

Tracking and Data 

Relay Satellite 

(TDRS)

Spacecraft and payload

3 space vehicles

FPI $1.1 billion

May 2016

6 percent to less than 10 percent

Transiting 

Exoplanet Survey 

Satellite (TESS)

Spacecraft CPFF / IF $83.4 million

March 2017

3 percent to less than 6 percent

Instrument Cost no fee $55 million

July 2016

Less than 3 percent

James Webb 

Space Telescope 

(JWST)

Observatory segment CPAF / IF $3.6 billion

July 2016

6 percent to less than 10 percent

Ice, Cloud, and 

Land Elevation 

Satellite-2 

(ICESat-2)

Spacecraft and missions 

operations center

FFP $186.5 million

March 2017

3 percent to less than 6 percent

Instrument – 3 lasers CPAF / IF $53.0 million

March 2017

6 percent to less than 10 percent

Soil Moisture 

Active and 

Passive (SMAP)

Phase C/D, including 

project management, 

systems engineering, and 

the radar

CPAF $344.3 million

April 2017

Less than 3 percent

Legend: CPAF = cost-plus-award-fee, CPIF = cost-plus-incentive-fee, CPFF = cost-plus-fixed-fee, FPI = fixed-price incentive, FFP = firm-fixed-price

Source: GAO analysis of NASA program contracts. | GAO-17-490
Appendix III: Contract Type and On-Orbit 

Incentives At-Risk for GAO Satellite Program 

Case Studies

Page 43 GAO-17-490 Satellite Acquisitions

Table 9: Department of Commerce’s National Oceanic and Atmospheric Administration (NOAA) Contracts or Orders for 

Selected Satellite Acquisition Programs

Program

Contract / order work 

description Contract / order type

Contract / order value

As of date

Percent of contract / order 

value at-risk for on-orbit 

performance

Geostationary 

Operational 

Environmental Satellite 

(GOES)-R Series

Spacecraft

4 space vehicles

CPAF $1.9 billion

June 2016

3 percent to less than 6 

percent

Advanced Baseline 

Imager instrument

4 instruments

CPAF $941.0 million

May 2016

Less than 3 percent

Joint Polar Satellite 

System (JPSS)

Spacecraft 1a FFP $339.4 million

March 2017

6 percent to less than 10 

percent

Spacecraft 2a FFP $244.5 million

March 2017

6 percent to less than 10 

percent

Advanced Technology 

Microwave Sounder

instrument

4 instruments

CPAF $411.5 million

March 2017

3 percent to less than 6 

percent

Cross-track Infrared 

Sounder instrument

4 instruments

CPAF / FF $701.8 million

March 2017

3 percent to less than 6 

percent

Visible Infrared 

Radiometer Suite 

instrument

4 instruments

CPAF / FF $1.1 billion

March 2017

3 percent to less than 6 

percent

Legend: CPAF = cost-plus-award-fee, CPFF = cost-plus-fixed-fee, FFP = firm-fixed-price

Source: GAO analysis of NOAA program contracts. | GAO-17-490

a

NOAA plans to launch 4 JPSS satellites. NOAA has only purchased 2 spacecraft to date, but has 

awarded contracts for 4 sets of instruments.
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 44 GAO-17-490 Satellite Acquisitions

Cristina T. Chaplain, (202) 512-4841 or chaplainc@gao.gov

In addition to the contact named above, key contributors to this report 

were Rich Horiuchi, Assistant Director; Emily Bond; Brandon Booth; 

Claire Buck; Claire Li; Michael Shaughnessy; Roxanna Sun; Jay Tallon; 

and Alyssa Weir.

Appendix IV: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(100752)
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