The U.S. Government continues to increase its Federal investment in space – not for exploration, but rather as a defense strategy – and this continued investment provides significant opportunity for commercial entities to partner with the Federal Government on space projects. On April 2, 2024, the Department of Defense (“DoD”) released its first ever Commercial Space Integration Strategy (the “DoD Strategy”) and, just a few days later, on April 8, 2024, the U.S. Space Force released its Commercial Space Strategy (the “Space Force Strategy”) (together the “Strategies”). The Strategies are complementary and formalize the U.S. Government’s commitment to “making commercial solutions integral—and not just supplementary—to national security space architectures.” The Strategies include a few key takeaways for both commercial space and satellite companies and traditional government contractors working in space-related activities. Here are the highlights:
Out with Legacy Solutions, In with Commercial Solutions
The Strategies state the Government will shift away from “legacy practices,” including procurements for bespoke, DoD-specific capabilities and will instead rely more heavily on procurement of commercial solutions. The resulting contracts (and “other agreements,” which likely means Other Transactions Agreements) should be less burdensome (i.e., include fewer requirements) than traditional, non-commercial government contracts. But, commercial companies must remember that, despite the streamlining rhetoric, the Government is not a commercial consumer. There will be significant strings attached to these procurement of commercial solutions, including (among other things) “the cyber, data, and supply chain security requirements that commercial entities will need to meet to work with the Department.” Commercial companies must carefully consider each particular opportunity before signing on the dotted line.
Commercial Customers May Have to take a Backseat
Unless you’re really paying attention, the DoD Strategy includes a single sentence that contains critical content and is easy to miss: “As necessary, contracts will enable prioritization of Department requirements and capability needs over other commercial clients in specific situations.” Commercial entities unfamiliar with selling to the Federal government should take note here: this sentence forewarns that the resulting DoD contracts and orders may be “rated” under the Defense Production Act (DPA). When invoked, the DPA requires the commercial entity fulfilling the order to prioritize that order above all others, whether commercial or Federal. In other words, the U.S. Government gets to jump to the front of the line, whether your commercial customers like it or not. The regulations implementing the DPA are somewhat complex and require immediate attention (depending on the rating use, orders require a response within 10 or 15 days). Under certain circumstances, a failure to follow these regulations is a Federal crime. Commercial entities seeking contracts in this space (pun intended) must be cognizant of these requirements.
The Government Intends to Provide Protection for Commercial Space Solutions
This one is interesting. The Government intends to use a range of approaches to mitigate risk to commercial space operators where required to support national security space operations. This includes (1) providing best practices and norms for behavior in space, (2) sharing threat information, (3) providing financial protection (including commercial insurance, commercial war-risk insurance, U.S.-Government-provided insurance, and indemnification), and (4) “[i]n appropriate circumstances, the use of military force to protect and defend commercial assets.” So, even though there may be more strings attached to doing business with the Government, it may come with certain benefits not customary in commercial contracting – including the forceful protection of on-orbit, commercial assets. It will be important for commercial entities to ensure those government benefits explicitly are provided under the terms of each contract.
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We expect to see an increasing number of contracting opportunities as the Federal Government continues to focus more and more of its attention in space. The recently-released Strategies are a subtle acknowledgement of the space industry’s efforts to address the Government’s often frustratingly opaque operating contracting processes and signal the Government’s enthusiasm to leverage the speed and innovation provided by commercial solutions. In the ongoing “build vs. buy” debate, the Strategies indicate a willingness by the Government to devote more resources to buying commercial services across a variety of space-based sectors.
That said, satellite and space companies considering these opportunities must appreciate the risks involved. If you have any questions about the Strategies, our Commercial Products and Services and Space & Satellite Teams are here to help.