The Insider

GAO: Lockheed took $2.7 million hit after DMSP-19 failure

June 13, 2017 |
Courtney Albon
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Lockheed Martin lost about $2.7 million in contract incentive fees last year after a weather satellite it built failed on orbit, according to a recent Government Accountability Office report.

The June 9 report -- which discusses methods for government agencies to recoup some costs when a satellite fails on orbit -- noted the Defense Department found Lockheed at fault for a February 2016 power failure on the 19th DMSP satellite. The power failure disabled on-board cryptographic equipment, which meant the Air Force could no longer send commands to the satellite.

The failure occurred just two years into the satellite's five-year design life. Details on Lockheed's fee have not been reported previously.

"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," the report states.

GAO, which reviewed 12 programs managed by the Defense Department, NASA and the National Oceanic and Atmospheric Administration, found that while the government typically invests a significant amount of money to develop and launch satellites, on-orbit incentive structures typically equate to about 10 percent of the contract value. As a result, depending on how a contract is structured, the negative incentives for on-orbit failure may be relatively low.

"The government's recourse in the event of a catastrophic satellite failure is limited, relative to its overall investment," the report states. "Given the small on-orbit incentive amounts included in contracts, the government's maximum financial recovery potential is modest."

The report says this structure is intentional because the incentives "are not meant to make the government whole in the event of a total failure." Because failures are relatively rare, the government is willing to accept that risk.

The best way to reduce the cost impact of an on-orbit failure, the report concludes, is to improve acquisition processes so satellites are developed and delivered on time and on budget.