Congress has been busy with launch indemnification and termination liability legislation, but its work on those issues is far from done. (credit: J. Foust)

Sweating the small stuff in space policy

by Jeff Foust
Monday, December 16, 2013

When people talk about space policy, they often focus on the big picture issues. This includes the size of NASA’s overall budget, and funding allocated to key programs like exploration and commercial crew. It also includes the direction NASA should be going, such as its plans for an asteroid redirect mission and whether the agency should focus instead on a return to the Moon or going directly to Mars.

Beyond that big picture, though, are many smaller issues that are often overlooked even within the space community as they focus on those bigger issues. While it’s tempting to recall the adage “don’t sweat the small stuff,” some of these smaller issues are becoming critical now, from the continuation of protection for commercial launch providers from catastrophic third-party damages to the fate of space-related export control reform. The ability to execute on some of those bigger policy issues—or even, potentially, their relevance—may depend on what happens with these smaller issues.

Renewing—again—commercial launch indemnification

Perhaps the most pressing of these smaller issues is the renewal of third-party commercial launch indemnification. In the late 1980s, the federal government established a system to protect commercial launch companies from damages in the event of a catastrophic launch accident. Launch providers that receive a launch license from the FAA’s Office of Commercial Space Transportation (FAA/AST) are required to demonstrate financial responsibility, usually in the form of insurance, for third-party losses from an accident up to a “maximum probable loss” (MPL) amount determined by the FAA during the licensing process. The government would then indemnify the provider from any third-party losses that exceed the MPL amount, up to $1.5 billion in 1988 dollars (about $2.9 billion today.) Responsibility for any losses that exceed this amount would revert back to the launch provider.

In practice, this indemnification system has never been used, since there has never been an FAA-licensed launch that caused significant third-party damages, let alone one that exceeded the MPL amount for that launch. Nonetheless, the commercial launch industry has long supported a continuation of this indemnification regime, noting that other countries provide similar or even better protection, and have asked Congress for long-term or even permanent extensions of it.

Congress, though, has been reticent to do so, and typically has extended it by only a few years at a time. Late last year, Congress passed a bill that extended the indemnification regime by one year, until December 31, 2013, meaning that Congress must act again this month to extend it again. But differing bills passed by the House and Senate could delay action on another extension until next year, even as the commercial launch industry in the US shows new signs of life.

On December 2, the House passed HR 3547, a bill that would extend the indemnification regime again for one year. The bill passed by a 376–5 vote after a brief floor debate where no one spoke out in opposition to the bill.

That floor debate, though, illustrated differences in opinion between the Republican and Democratic leadership of the House Science Committee, where the bill originated last month. “I would have preferred a longer extension,” said Rep. Lamar Smith (R-TX), chairman of the committee, noting the NASA authorization bill his committee had approved this summer included a five-year extension; the full House has yet to take up that bill.

“While that is less than some in the industry would like,” Rep. Eddie Bernice Johnson (D-TX), ranking member of the committee, said on the floor, “I believe it is an appropriate length, and that is because much has changed since the risk-sharing, liability, and indemnification regime was established in 1988.” A short-term extension, she argued, would allow for a more thorough review of the regime. “A one-year extension provides the Congress with the time to conduct necessary hearings, perform our due diligence, and enable the enactment of a comprehensive update to existing commercial space legislation.”

While the House passed a one-year extension, the Senate was considering a longer extension. Last month, Sen. Bill Nelson (D-FL) introduced a bill that offered a three-year extension of launch indemnification. Nelson originally hoped to pass this bill through a mechanism called “unanimous consent” used to expedite passage of non-controversial legislation. However, he was unable to get it through before the House passed its bill, so instead he decided to take up the House bill, but amended so that it also provided a three-year extension.

On Thursday, the Senate passed the amended version of HR 3547 via unanimous consent. “A competitive launch industry is critical to our national space program, so this legislation is a common sense move,” Nelson said in a statement issued by his office late Thursday. “The certainty of a three year extension will help the US commercial space industry continue to grow and thrive, both here in Florida and around the country.”

Nelson’s staff had hoped that the bill would pass in time to allow it to go back to the House, which would have to approve the bill again, before the House adjourned at the end of the week. But the House wrapped up its work Thursday night and adjourned until January 7, meaning that it won’t have the opportunity to take up the Senate-amended bill until after the launch indemnification regime deadline passes. A spokesperson for Sen. Nelson said Friday afternoon that there were no plans by Nelson to have the Senate take an alternative action, like passing the original version of HR 3547; he would instead wait until the House took up the bill next month.

The failure of Congress to pass a launch indemnification extension bill doesn’t mean that the overall regime expires on December 31. Instead, the launch indemnification system remains in place for current licenses, and “complete and valid” license applications submitted by the end of the month, according to federal law. However, any license applications submitted after December 31 won’t have that same protection, at least until Congress finally extends the regime.

So why is it so difficult to extend launch indemnification? “It gets tied up with complicated issues,” said Ann Zulkosky, senior professional staff member on the Senate Commerce Committee’s space subcommittee, during a meeting of the Commercial Space Transportation Advisory Committee (COMSTAC) in Washington last week. There’s interest by some members to take a deeper look at launch indemnification and make changes, such as how the MPL value is calculated, “We haven’t gotten any direct opposition to extending it. It’s really just a question of how long we extend it for.”

Passing just a one-year extension, some have argued, would provide Congress with an impetus for that more comprehensive look at the launch indemnification regime, perhaps as part of a broader reauthorization of the Commercial Space Launch Act. However, there were similar hopes early this year after Congress approved a one-year extension, but neither the House nor the Senate took up the issue. Would they be able to do so next year, given the greater distractions offered during an election year?

Termination liability and protecting programs from cancellation

Another issue Congress has been considering has been the once-obscure topic of termination liability. NASA had been requiring major programs to set aside funds to cover costs of terminating contracts should those programs be cancelled. That raised concerns among some House members, such as Rep. Mo Brooks (R-AL), who thought that NASA was hoarding money that it should instead be spending on those programs.

On December 2, Brooks introduced HR 3625, a bill that would prohibit NASA from reserving funds to cover potential termination liability costs for three key NASA programs: the Space Launch Systems (SLS) heavy-lift rocket, the Orion crew spacecraft, and the International Space Station. In a statement, Brooks said those three programs combined had more than $500 million in termination liability reserves that he said he felt should be spent on those programs now. “Withholding scarce funds for termination liability slows development and hence increases the total cost of a project,” he said. “HR 3625 frees up that $507 million for productive work on SLS, Orion, and the Space Station.”

Perhaps more important that the ban on reserving funds for termination liability is another provision in the bill that prevents NASA from cancelling “for the convenience of the Government” the prime contracts for those three programs. NASA could only cancel those programs at the direction of Congress, which would then have to separately appropriate the costs of terminating those contracts.

The House Science Committee was scheduled to markup the bill during a session on December 5, but deferred action on it in order to work out details of an amendment proposed by Rep. Donna Edwards (D-MD), who sought to include the James Webb Space Telescope (JWST) in the protections offered by the bill. The committee did finally approve an amended version of the bill during a brief markup session on Wednesday, including JWST as well as refining the definition of prime contractor and making clear that the funds that had been reserved for termination liability “shall be promptly used to make maximum progress in meeting the established goals and milestones of the covered program.”

The bill’s future outside of the committee remains uncertain, despite the bipartisan support it had within the committee. One House member outside of the science committee is likely to support the bill. “Congress has appropriated, through a very difficult process in the House and Senate, a certain amount of money for a program. The agency should not withhold that money ‘just in case,’” said Mark Dawson, legislative director for Rep. Robert Aderholt (R-AL), a member of the House Appropriations Committee. “They should proceed with the work on the program.” Dawson, speaking at the COMSTAC meeting, said the way termination liability had been applied by NASA was “a real problem” for the SLS program in particular, and that Rep. Aderholt supported the bill.

NASA associate administrator Robert Lightfoot, speaking a little later at the COMSTAC meeting, said that NASA’s decision to withhold funds for those programs for termination liability was based on legal and procurement guidance it received, but appeared to welcome the legislation. “We’ll see if we get relief on that,” he said.

However, even if the bill passed the House, its future in the Senate is unclear. Moreover, the administration seems unlikely to support legislation that would restrict the ability of an agency to cancel a program. “In my view, we should not be debating whether or not we should have the ability to terminate a program that is not working in a cost-plus environment,” said former NASA deputy administrator Lori Garver at the COMSTAC meeting. “That should not be debated. That’s something that we recognize is the way, when your government is funding a program, you have to protect against slips in development.”

Export control reform enters the home stretch

Almost exactly one year ago, the space industry in the US won a major victory with the passage of the fiscal year 2013 defense authorization bill. That legislation included language that repealed a provision in the 1999 version of the bill that moved satellites and related components onto the US Munitions List (USML), and thus under the jurisdiction of the International Traffic in Arms Regulations (ITAR), a far more restrictive system (see “Key space issues for 2013”, The Space Review, December 31, 2013.) The 1999 bill set off more than a decade of work by the space industry to undo that move because of its adverse business consequences, culminating in the 2013 bill.

The 2013 bill did not itself remove satellites and related items off the USML, but instead restored to the administration the ability to make that determination, something it already had for all other items on the list. The administration then moved to take action to review what is known as Category XV of the USML as part of a broader review of the overall list to determine what should remain on and what can be moved to the less-restrictive Commerce Control List (CCL).

In May, the State Department published a draft of a revised Category XV of the USML, which includes satellites and related components, beginning the process of public comment. That publication stated a 45-day public comment period that ended in July. Since then, an interagency group has been reviewing those comments, which run to nearly 400 pages and include feedback from companies, trade organizations, and members of the general public.

That review of the public comments, and resulting changes to the new USML Category XV rule and related changes to the CCL, have been completed. In a statement provided to a meeting of COMSTAC’s International Space Policy Working Group in Washington on Tuesday, Dennis Krepp of the Commerce Department’s Bureau of Industry and Security said that the review of the public comments was done. “The Commerce Department hopes to enter the formal process to get approval from the Office of Management and Budget within the next week or so,” Krepp’s statement, as read by working group chairperson Patricia Cooper, said. (Krepp was scheduled to attend the meeting in person but was unable to do so when federal government offices in Washington closed for the day because of inclement weather.) After approved by the OMB, the final rules would then be reviewed by Congress; Krepp’s statement indicated the Commerce Department expected formal publication of the final rules in late March or April in 2014, which would take effect 180 days later.

Krepp’s statement gave no indication of what changes had been made to the draft rule published in May, but noted that “you will see some changes were made between the proposed rule and the final rule based on the public comments.” One area that will be closely watched will be changes to the section of the draft Category XV rule that kept “man-rated sub-orbital, orbital, lunar, interplanetary or habitat” spacecraft on the USML. That would, for example, make it much more difficult for suborbital vehicle developers like Virgin Galactic and XCOR Aerospace to operate out of the US, something that is a key part of both companies’ business plans.

During the public comment period, that provision of the proposed Category XV rule generated more feedback than any other section. Of the more than 100 separate submissions included in the public comment file published by the State Department, nearly half addressed that issue, with virtually all of those comments calling for such spacecraft to be taken off the USML. Those comments came from companies like Virgin and XCOR (as well as Lockheed Martin and Boeing), the Commercial Spaceflight Federation, and even members of the general public with no obvious connections to relevant companies or organizations. While some submissions stretched for pages, others were remarkably brief: “Please move suborbital manned vehicles to the Commerce Control List,” read the entirety of one comment.

One veteran of export control reform remains concerned about the final rule for Category XV. “This is far from over, and I personally have some dire concerns relative to, for example, human-rating being used as a metric for export control,” Bigelow Aerospace’s Mike Gold, chairman of COMSTAC, said at the full COMSTAC meeting on Wednesday. “I think you might as well use color of the spacecraft” to determine if something should fall under the USML, he said.

While the retention of human-rated spacecraft on the USML attracted the most attention, other comments addressed other issues. Some spoke out against the inclusion of satellite servicing technology, which could hinder the efforts of several companies looking to develop some systems. Others disagreed with the decision to include on the USML hosted payloads funded by the Defense Department, regardless of the technology those payloads—designed to be incorporated onto commercial or other non-DoD satellites—contained.

Neither Krepp’s statement to COMSTAC, nor other comments by officials familiar with the export control review process, offered details regarding what changes have been made to the Category XV rule, other than the fact that some changes had been made in response to the comments made. One person at the Eilene M. Galloway Symposium on Critical Issues in Space Law in Washington earlier this month (held under the Chatham House Rule that restricts attribution) hinted at such changes. “It probably isn’t going to satisfy everybody, but it’s a foot in the door” for more changes down the road, that person said.

And, in the world of space policy, it’s unlikely any change, either big or small, is ever going to satisfy everybody.

Jeff Foust (jeff@thespacereview.com) is the editor and publisher of The Space Review. He also operates the Spacetoday.net web site and the Space Politics and NewSpace Journal weblogs. Views and opinions expressed in this article are those of the author alone, and do not represent the official positions of any organization or company, including the Futron Corporation, the author’s employer.

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