In 2004, President George W. Bush announced his Vision for Space Exploration that included direction for NASA to pursue commercial opportunities for providing transportation and other services to support the space station after 2010. When the project was established in 2005, the approach that NASA laid out was a marked change in philosophy for how the agency planned to service the space station—by encouraging innovation in the private sector with the eventual goal of buying services at a reasonable price. As a result, the agency chose to utilize its other transaction authority under the National Aeronautics and Space Act of 1958, as opposed to a more traditional Federal Acquisition Regulation (FAR) based contract. Generally speaking, other transaction authority enhances the government’s ability to acquire cutting-edge science and technology, in part through attracting companies that typically have not pursued government contracts because of the cost and impact of complying with government procurement requirements. These types of agreements are not considered federal government contracts, and are therefore generally not subject to those federal laws and regulations that apply to federal government contracts. NASA established the Commercial Crew and Cargo program office at Johnson Space Center in 2005 and budgeted $500 million for fiscal years 2006 through 2010 for the development and demonstration of cargo transport capabilities. COTS partners, Orbital Sciences Corporation (Orbital) and Space Exploration Technologies Corporation (SpaceX), have also made significant investments in developing these capabilities. The COTS project was originally intended to be executed in two sequential phases: (1) private industry development of cargo transport capabilities in coordination with NASA and (2) procurement of commercial resupply services to the space station once cargo transport capabilities had been successfully demonstrated. In August 2006, NASA competitively awarded a $278 million Space Act agreement to SpaceX to develop and demonstrate end-to-end transportation systems, including the development of the Falcon 9 launch vehicle and Dragon spacecraft, ground operations, and berthing with the space station. In February 2008, NASA awarded a $170 million Space Act agreement to Orbital to develop two COTS cargo capabilities, unpressurized and pressurized cargo delivery and disposal, to culminate in one demonstration flight of its Taurus II launch vehicle and Cygnus spacecraft. Before either partner had successfully demonstrated its COTS cargo transport capabilities, the International Space Station program office awarded two CRS contracts in December 2008 to Orbital and SpaceX under a separate competitive procurement from COTS. These FAR-based contracts were for the delivery of at least 40 metric tons (approximately 88,000 pounds) to the space station between 2010 and 2015. Orbital was awarded 8 cargo resupply missions for approximately $1.9 billion and SpaceX was awarded 12 cargo resupply missions for approximately $1.6 billion. In June 2009, we found that while SpaceX and Orbital had made progress against development milestones, the companies were working under aggressive schedules and had experienced schedule slips that delayed upcoming demonstration launch dates by several months. In addition, we reported that the vehicles being developed through the COTS project were essential to NASA’s ability to fully utilize the space station after its assembly was completed and the space shuttle was retired. Finally, we found that NASA’s management of the COTS project generally adhered to critical project management tools and activities. Since our 2009 report, the two COTS project partners, Orbital and SpaceX, have made progress in the development of their respective vehicles. SpaceX successfully flew its first COTS demonstration mission in December 2010 and Orbital is planning to fly its COTS demonstration mission in December 2011. Both providers, however, are behind schedule—SpaceX’s first COTS demonstration mission slipped 18 months and Orbital’s first mission was initially planned for March 2011. Such delays are not atypical of development efforts, especially efforts that are operating under such aggressive schedules. Nonetheless, the criticality of these vehicles to the space station’s operations, as well as NASA’s ability to affordably execute its science missions has heightened the importance of their timely and successful completion and lessened the level of risk that NASA is willing to accept in this regard. As a result, the project recently requested and received an additional $300 million to augment the partner development efforts with, according to NASA, risk reduction milestones. SpaceX has successfully completed 18 of 22 milestones to date, but has experienced lengthy delays in completing key milestones since we last reported on the company’s progress in June 2009. SpaceX’s agreement with NASA established 22 development milestones that SpaceX must complete in order to successfully demonstrate COTS cargo capabilities. SpaceX’s first demonstration mission readiness review was completed 15 months behind schedule and its successful first demonstration mission was flown in December 2010, 18 months late. The company’s second and third demonstration missions have been delayed by almost 2 years to November 2011 and January 2012, respectively. Several factors contributed to the delay in SpaceX’s first demonstration mission readiness review and demonstration mission. These factors include, among others, delays associated with (1) launching the maiden Falcon 9 (non-COTS mission), such as Falcon 9 software and database development; (2) suppliers; (3) design instability and production; (4) Dragon spacecraft testing and software development; and (5) obtaining flight safety system approval. For example, SpaceX encountered welding issues during production of the Dragon propellant tanks and also had to redesign the Dragon’s battery. In preparing for its second COTS demonstration flight, SpaceX has experienced additional design, development, and production delays. For example, several propulsion-related components needed to be redesigned, the Dragon spacecraft’s navigation sensor experienced development testing delays, and delays were experienced with launch vehicle tank production. For example, SpaceX’s decision to incorporate design changes to meet future CRS mission requirements has delayed the company’s second demonstration mission. Integration challenges on the maiden Falcon 9 launch and the first COTS demonstration mission have also kept SpaceX engineers from moving on to the second COTS demonstration mission. SpaceX officials cited the completion of Dragon development efforts, NASA’s safety verification process associated with berthing with the space station, and transitioning into efficient production of the Falcon 9 and Dragon to support space station resupply missions as key drivers of technical and schedule risk going forward. For completing 18 of the 22 milestones, SpaceX has received $258 million in milestone payments thus far, with $20 million yet to be paid. Appendix I describes SpaceX’s progress meeting the COTS development milestones in its agreement with NASA. Orbital has successfully completed 15 of 19 COTS milestones to date—8 more than when we initially reported on the program in June 2009. Programmatic changes and developmental difficulties, however, have led to multiple delays of several months’ duration and further delays are projected for completing the remaining milestones. For example, according to Orbital officials, the demonstration mission of Orbital’s Taurus II launch vehicle and Cygnus spacecraft has been delayed primarily due to an increase in design effort to develop a pressurized cargo carrier in place of the original Cygnus unpressurized cargo design. After NASA awarded Orbital a CRS contract for eight pressurized cargo missions, NASA and Orbital amended their COTS demonstration agreement to replace the unpressurized cargo demonstration mission with a pressurized cargo demonstration. This delayed existing milestones, and the schedule was revised to shift the COTS demonstration mission from December 2010 to March 2011. Since that time, the schedule for some of Orbital’s milestones has been revised again and the demonstration mission is now planned for December 2011. COTS program and Orbital officials also noted technical challenges as reasons for milestone delays. For example, Orbital officials said there are several critical Taurus II engine and stage one system tests that need to be completed by the end of the summer, but that the risk inherent in these tests is mitigated through an incremental approach to testing. Specifically, single engine testing has been successfully completed, and testing will be extended this summer to the full stage one (i.e., two-engine) testing. COTS program and Orbital officials also noted delays in Cygnus avionics manufacturing, primarily driven by design modifications aimed at increasing the safety and robustness of the system. According to these officials, integration and assembly of the first Cygnus spacecraft has begun and is now in the initial electrical testing phase. Additionally, the completion of the company’s launch facilities at the Mid- Atlantic Regional Space Port in Wallops Island, Virginia, remains the key component of program risk. NASA COTS program and Orbital officials cite completion of the Wallops Island launch facilities as the critical factor for meeting the COTS demonstration mission schedule. Orbital officials said additional resources have been allocated to development of the launch complex to mitigate further slips, and an around-the-clock schedule will be initiated later this summer to expedite the completion of verification testing of the liquid fueling facility, which is the primary risk factor in completing the launch facility. For completing 15 of the 19 milestones, Orbital has received $157.5 million, with $12.5 million remaining to be paid. Appendix I depicts Orbital’s progress in meeting the COTS development milestones in its agreement with NASA. In addition to the prior milestones negotiated under the COTS project, NASA has amended its agreements with SpaceX and Orbital to include a number of additional milestones aimed at reducing remaining developmental and schedule risks. COTS officials told us that some milestones reflect basic risk reduction measures, such as thermal vacuum testing, that NASA would normally require on launch vehicle or spacecraft development. A series of amendments were negotiated from December 2010 to May 2011 after Congress authorized $300 million for commercial cargo efforts in fiscal year 2011.