Contract NASW-3775

January 20, 1984

SPACE STATION COMMERCIAL USER DEVELOPMENT

National Aeronautics and Space AdministrationSpace Station Task Force

Washington, D.C.

BOOZ ALLEN & HAMILTON INCCRYSTAL SQUARE 2. SUITE 1100 • 1725 JEFFERSON DAVIS HIGHWAY • ARLINGTON, VIRGINIA 22202-4158 • TELEPHONE: (703) 553-3500

https://ntrs.nasa.gov/search.jsp?R=19840019688 2018-07-29T06:53:56+00:00Z

BOOZ-ALLEN & HAMILTON INCCRYSTAL SQUARE 2, SUITE 1100 • 1725 JEFFERSON DAVIS HIGHWAY • ARLINGTON, VIRGINIA 22202-4158 • TELEPHONE: (703) 553-3500

January 20, 1984Job No. 09019-065-001

National Aeronautics and Space AdministrationSpace Station Task Force, Code MFA-13Washington D.C. 20546

Attention: Mr. Richard Anglin

Subject: Report on Space Station Commercial User Development(NASA Contract NASW-3775)

Dear Mr. Anglin:

Booz, Allen and Hamilton is pleased to submit our reporton Space Station Commercial User Development.

We have been pleased with the response we have observedfrom the potential space station users whom we have identifiedthus far. Several of these users are beginning to consider thenature of possible agreements into which they might enter withthe Agency, and others show signs of similar development in thefuture.

We believe that NASA should continue to support thedevelopment of these and other as-yet unidentified users, andthat the initiation of a space station program would be thesingle most significant indication of the government's commit-ment to space commercialization. Such a step would send aclear message to American industry that their interests inspace-based activities would be supported by a sufficient levelof space infrastructure, provided initially by the government.We believe that this would set off a surge of interest, and atthe appropriate time, investment, on the part of the privatesector and lead to the development of a significant number ofadditional commercial space ventures.

As we have indicated in our analysis of the intermediaryfunction in Task 3, we believe that NASA should now giveconsideration to the early establishment of a single inter-mediary for a space station program. This is the most effi-cient means for NASA to conduct its user development activities.In our judgement, implementation of the concept should begin assoon as a program start is approved.

Mr. Richard AnglinJanuary 20, 1984Page Two

We appreciate the opportunity to work with NASA indeveloping the Space Station Program and the provisions forcommercial activities which are to be part of it. We lookforward to continuing this and other work for NASA and theSpace Station Program in the future.

Sincerely yours,

BOOZ, ALLEN & HAMILTON Inc.

Peter M. StarkProgram Manager

Approved :

Peter Wright WoodSenior Vice President

PWW/dkk

T A B L E O F C O N T E N T S

PageNumber

PREFACE vi

I. TASK 1: COMMERCIAL USER DEVELOPMENT PLAN 1

1. Leading User Prospects 12. Lessons Learned 8

II. TASK 2: SPACE STATION COMMERCIAL SCENARIOS 10

1. Space Station Mission Model 102. Langley Data Base Commercial Mission Printouts 11

III. TASK 3: SPACE STATION USER DEVELOPMENT 15

1. Need for an Intermediary 152. Goals and Assumptions 153. Key Questions 164. Intermediary Definition 175. Analysis of Intermediary Characteristics 206. Intermediary Evolution 357. Next Steps 35

IV. ISSUES 37

IV

I N D E X O F E X H I B I T S

PageNumber

1-1. Overall User Development Plan Steps 2

1-2. Summary of Booz, Allen Awareness Program 3Activities

III-l. Source of Funds 22

III-2. Number of Intermediaries 27

III-3. Performance Incentives 29

III-4. Relationship to NASA 32

III-5. Summary: Intermediary Evolution 36

PREFACE

This report describes the Space Station Commercial UserDevelopment Study carried out by Booz, Allen and Hamilton Inc.under NASA Contract NASW-3775 from April, 1983 through January,1984.

The study was divided into three tasks. Task 1 wasentitled Commercial User Development Plan, and required thepreparation and submission (within the first 45 days of thecontract) of a plan for carrying out commercial user develop-ment, that is, the development of interest on the part ofnon-aerospace firms in .identifying and starting to plan con-cepts for commercial applications for the proposed civil mannedspace station. It then required that the plan be carried outfor the remainder of the contract period of performance, andthis has been done, with encouraging results. To date Booz,Allen has contacted approximately 37 potential space stationusers, of which five are presently considered particularly goodprospects and are being given high priority for continueddevelopment; another 11 require further assistance to definetheir interests. Because of the preliminary nature of theconcepts which users are considering, and the proprietaryinformation which is often involved, NASA has permitted Booz,Allen to confine its reporting of company identities to anon-ymous descriptions, such as "Large Chemical Company." Theactual names will only be revealed to selected NASA personnel,when necessary to develop cooperation or agreements with NASA.

Task 2 was entitled Space Station Commercial Scenarios,and required that Booz, Allen translate the requirements of themissions under consideration by the users into the spacestation capabilities which would be necessary to support them.Since NASA had developed a data base of missions from the usermissions identified during the Space Station Needs, Attributes,and Architectural Options (SSNAAO) studies completed in April,1983, that data base was being used as the requirements againstwhich to design the space station. Accordingly, NASA directedBooz, Allen by letter to review and revise the commercialmission portion of that data base under Task 2 to reflect Booz,Allen's work with potential commercial users. The changes andadditions to that data base are presented in the second sectionof this report.

Task 3 was entitled Space Station User Development, andrequired that Booz, Allen analyze the various ways that NASAcould use a commercial firm as an intermediary between NASA andthe private sector in helping to develop commercial users for

VI

the space station. Booz, Allen analyzed this question in termsof the different phases through which the commercial spacemarket will evolve, and developed an approach to using anintermediary which changes to fit the evolving needs of themarket. Under this approach, NASA funding for an intermediarywill be incrementally reduced as the market becomes capable ofproviding or supporting the intermediary's functions. This isconsistent with NASA's desire to assist the private sector inunderstanding and developing commercial uses of space in theearly, immature space market, but yet to reduce the Agency'sfinancial support and rely on the dynamics of the free enter-prise marketplace as the market matures.

Booz, Allen recommends that NASA evaluate this approach toproviding the services of an intermediary for developingcommercial users of the space station and begin to implementthe selected approach as soon as a program start has beenapproved. This is necessary if commercial firms are to beready to make use of the space station when it becomes avail-able, and to ensure that the United States fully exploits theattributes of earth-orbit space, and takes leadership in theworld community of space-faring nations in the development ofthese commercial opportunities.

Booz, Allen & Hamilton is grateful to the Space StationTask Force and to its Commercial Working Group for theircooperation and guidance throughout this effort. The excellenttechnical support provided by McDonnell Douglas Astronauticsunder subcontract to Booz, Allen is also acknowledged.

VII

I. TASK 1: COMMERCIAL USER DEVELOPMENT PLAN

I. TASK 1: COMMERCIAL USER DEVELOPMENT PLAN

This task consisted of preparing, submitting, and carryingout a Commercial User Development Plan. The plan was submittedand approved on June 7, 1983, and is summarized in Exhibit 1.Since then, the plan has been executed in dealing with a numberof potential commercial users. A prioritized list of thesepotential users has been developed and is continuously updatedto reflect new developments related to ongoing user contacts aswell as the emergence of new potential users.

Thus far user development efforts have resulted in thedevelopment of a number of candidate commercial missions whichcould have application to a space station. A total of 29face-to-face meetings with potential users and another 16 withNASA personnel, as well as extensive correspondence and tele-conferencing, have been devoted to the development of the fivehighest priority users. In addition, contact is being main-tained with 11 other firms which have expressed clear interestin space-based work. A total of 37 firms have been contactedas part of this user development effort, and numerous otherfirms have initiated contact themselves to gain informationabout commercial space opportunities and NASA's user developmentactivities.

In addition, Booz, Allen has conducted an active publicawareness program in order to disseminate information aboutNASA's interest in developing commercial activities in space.A summary of these activities is provided in Exhibit 1-2.

1. LEADING USER PROSPECTS

This section summarizes the five leading user prospectsdeveloped under this plan and the key issues associated withdeveloping these users. The following section addresses widerissues related to commercial user development which have beenidentified in the course of this work.

(1) Small Private Company:

A small private company is interested in testing theeffects of microgravity on a proprietary separationprocess. This process could potentially be applied tospace station production of biological and inorganicmaterials. The firm is chiefly interested in KC-135flights at this time but it is also examining the pos-sibility of experiments involving space flight.

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This user is concerned about not divulging too muchinformation about its proprietary process. A key chal-lenge to NASA is to enable flight testing of this processwithout requiring excessive documentation about theprocess itself.

A more basic issue associated with this user isNASA's need to respond quickly to the user's requests andqueries in order to capitalize on the current high levelof interest within the firm. Small entrepreneurial firmsare not well suited to prolonged bureaucratic procedures,and their interest is liable to shift if NASA is unable torespond to the needs of the user at the critical stage ofexperiment definition. Responsiveness should include awillingness on NASA's part to assist with data analysisunder the terms of a cooperative agreement in order tominimize the overall scale of the venture as perceived bythe user. This assistance could be part of a quid pro quowhich would include, on the user's part, a willingness torun NASA samples on its apparatus.

(2) Large Chemical Company

A large chemical company is interested in a propri-etary experiment to test the effects of microgravity on achemical reaction. The STS office has expressed interestin flying the experiment on Shuttle, possibly under theterms of a JEA drafted expressly for research. McDonnellDouglas, under subcontract to Booz, Allen, is developing adesign concept intended to minimize cost, possibly byenabling the experiment to be run on the Shuttle mid-deck.Cost minimization is important to this particularindustrial researcher (as it would be to most others)because the proposed space experiment represents only asmall part of his overall research program.

The key issues for this user relate to confidentialityand the scale of the experiment. The process to be testedis highly proprietary, and confidentiality with respect toboth the process and the identity of the firm must bepreserved. As NASA becomes more involved in the planning,this could present a challenge to the Agency. Secondly,NASA is challenged to enable the research to be done at aminimum cost (dollars and manpower) to the firm. Develop-ing this user represents an excellent test of NASA's plansfor making space easily accessible to researchers in theprivate sector.

(3) Industry Association

An industry association is interested in the potentialapplication of remote sensing technology to monitoring

-5-

ground-based phenomena of concern to the industry. Remotesensing is likely to be a major mission supported by aspace station. Portions of the current concept may not betechnically feasible, but it presents the possibility forNASA-industry cooperation in joint research and should bepursued in earnest.

A meeting held in January between NASA technicalexperts and an industry task force raised the possibilityof using industry needs as a focus for research in remotesensing technology. Both parties agreed to exchangeinformation about industry needs and remote sensingcapabilities. The challenge to NASA is to effectively usethis conduit as a vehicle for expanding relations withthis non-aerospace industry.

(4) Bio/Pharmaceuticals Company

A major bio/pharmaceuticals manufacturer isinterested in testing separations in microgravity usingthe McDonnell Douglas (MDAC) electrophoresis apparatus.The experiments could "eventually lead to additionalspace-based production of Pharmaceuticals beyond thoseplanned by the MDAC/Johnson and Johnson partnership.

The key challenge with this user is to coordinatediscussions with MDAC. If successful, this user could seta precedent for further user agreements with owner/operatorsof space facilities and equipment other than NASA.

(5) Proposed Commercial Laboratory Joint Venture

A number of major private sector companies, includinginvestment banks, venture capital companies, commerciallaboratory operators, and other technically based firmshave expressed interest in participating in a venture toprovide the laboratory module(s) for NASA's proposedspace station and operating it on a commercial basis. Ascurrently conceived, a group of such private companieswould acquire, outfit, and activate the laboratory module(s),and own and operate it on a fee-for-service basis, providinglaboratory services to commercial firms, universities, andgovernment agencies, including NASA. NASA would chargethe laboratory for the services provided by the spacestation, such as power, common supplies, and livingaccommodations for the laboratory crew. The laboratorywould also be charged for the transportation of suppliesand personnel back and forth from the ground via the spaceshuttle.

The objective of this venture would be to provide acommercially operated space research and test facility for

-6-

use by both private and public organizations. It wouldalso enable private sector participation in the constructionof a U.S. space station, and contribute to assuring U.S.leadership in the commercialization of space.

There are a number of major issues involved with aconcept of this type. They include the terms under whichNASA would consider permitting private ownership andoperation of a major space station component, Europeaninterest in providing a similar component of the spacestation and NASA's policies with respect to thispossibility, the basis for charging users for servicesreceived from the space station, and the types of supportthat NASA might be willing to provide to assist privateindustry in carrying out such a venture.

An initial meeting of six of the interested companieswas held in mid-January. Among the major concerns expressedin the meeting was the question of the timing of theinvestment required with respect to when the first returnwould be available. With a projected space stationavailability of 1992 (or later if development were to fallbehind NASA's schedule, which was considered optimistic bysome firms), it would be a long time before anysignificant income would become available from laboratoryoperations. This could make the return on investmentunattractive unless major expenditures are not requiredbefore the late 1980's.

Despite these concerns, the attendees re-affirmedtheir interest in exploring the concept, and identified anumber of necessary next steps. These include acomprehensive market analysis, discussions with NASAconcerning the above issues and others, the formation ofan organization with responsibility for developing theconcept, the identification of other interested partici-pants with relevant functions or expertise, and thedevelopment of a business plan for the venture. Interestwas expressed in identifying ways in which NASA might beable to assist interested parties in taking some of thesenext steps. Booz, Allen will be discussing this with theSpace Station Task Force (SSTF) shortly. Most of those inattendance indicated a willingness to take part in periodicmeetings to develop the concept further, and arrangementsto make this possible are being developed.

Consistent with the nature of the contract with NASA,Booz, Allen's role in this process is that of coordinationand guidance, and not that of a potential participant.Booz, Allen would not become a party to any resultingventure, but would continue to function as an intermediarybetween NASA and any group which may emerge.

-7-

2. LESSONS LEARNED

In the course of these user development activities, theapproach first presented in the Commercial User DevelopmentPlan has been refined. In particular, the following importantlessons have been learned:

Each user is unique. Every company or individualinterested in working in space has a different set ofneeds and concerns, and unless they are identifiedand properly addressed, NASA will fail in its at-tempts to develop them into real users of space

A NASA Headquarters advocate should be assigned toeach prospective user when commitment of interest isobtained. Someone within NASA must be responsiblefor making sure that proposals flow through internalchannels, that questions are answered promptly, thatsources of technical expertise within the Agency areidentified and consulted when necessary, and that thetype of arrangements which NASA is willing to makewith the user are properly communicated and understood

NASA and its intermediary must address the specificneeds and concerns of each potential user. Theseneeds include protecting proprietary data, promptlyproviding answers and taking actions in order tocapitalize on current enthusiasm, helping mid-levelresearchers develop inexpensive means of carrying outresearch in space so as to facilitate company approvalprocesses, and stimulating user interest by focusingon current problems and identifying spacebasedsolutions

An intermediary is useful in both simplifying andcarrying out NASA's user development activities. Itremoves from NASA's limited staff, the burden ofcarrying on the day-to-day interaction with eachindividual user and at the same time brings to bearpersonnel with a better understanding of the industrysegments of interest, the user's technology, and thebusiness aspects of his situation. This permits NASApersonnel to deal only with the portion of the userinterface which needs to involve NASA, and lets theintermediary distill the key problems and issues to apoint where NASA can deal with them quickly and in afocused manner.

These lessons learned have been incorporated into the userdevelopment effort, and Booz, Allen has continuously workedwith members of the SSTF to make their interface with each userand their associated issues as simple and productive as possible,

-9-

II. TASK 2: SPACE STATION COMMERCIAL SCENARIOS '

II. TASK 2; SPACE STATION COMMERCIAL SCENARIOS

As requested in the NASA letter dated September 12, 1983,the September 1, 1983 editions of the Space Station MissionModel and the Langley Data Base Commercial Mission Printoutshave been reviewed. Based on Booz, Allen's work with potentialcommercial users to date, several adjustments should be made tothese documents. These adjustments, along with supportingrationale, are provided in the following sections.

1. SPACE STATION MISSION MODEL

In the Commercial Missions portion of the Integrated TimePhased Mission Set, beginning on page 2-4, the names of somemissions should be changed as follows:

Mission COM 1206* from IEF Production Units toAlternative Separation Production Units. Iso-ElectricFocusing is only one of a number of alternative(to electrophoresis) separation techniques, and sinceothers are under consideration, this mission shouldreflect the possibility that any one of them may comeabout, not just IEF

Missions COM 1208, 1211, and 1213 from DSCG, VCG, andSolution Crystal Growth Production Units to CrystalGrowth #1, #2, and #3 Production Units, respectively.Again, since there are several different types ofcrystal growth processes under consideration, itwould be more appropriate to indicate that some typeof crystal growth units are being provided for ratherthan picking specific ones this far in advance. Moreaccurate descriptions can be substituted as usersprogress in their development of specific processes

Mission COM 1213 from Optical Fiber Production Unitsto Undercooled Liquid Production Units. Opticalfibers are only one type of undercooled liquid, manyof which could conceivably be produced in space.Again, the more generic name is more appropriate atthis time

Mission COM 1229 from Iridium Crucible ProductionUnits to High Purity Metal Production Units. The

* Mission numbers from the Langley Data Base, in which thefirst two digits denote the mission's discipline (12 =materials processing), and the last 2 represent a subjectiveprioritization within the 37 commercial missions.

-10-

user who is considering this particular mission hasreduced his priority on this mission in favor ofseveral others which appear more promising at this .time. While he still believes there is a benefit tobe derived from producing iridium crucibles in space,purification of metals in general (under considerationby this user and another) would be a more accurateway to describe these units at this time.

2. LANGLEY DATA BASE COMMERCIAL MISSION PRINTOUTS

Based on Booz, Allen's current understanding of thesemissions or the category of missions which they represent, anumber of parameters should be filled in or changed as follows:

Mission COM 1201 Materials Processing Lab:

Data/Communications should be Realtime, notOffline, since the lab must offer on siteAnalysis and adjustment to experimenters

Launch Mass of 7050 kg should be questioned,since it seems to be less than Spacelab and itis not clear why

-5 -4Minimum G should be 10 instead of 10 to meetlaboratory needs

Crew size should be 4, with 2 crewmen per 12hour shift for continuous operation

Skill hours per day should be 12 instead of 10,as above

Service manhours of 750 would appear to be anerror if the term refers to the number of hoursper service visit; in that case they might bebetween 10 and 20

- Under Special Considerations, there does notappear to be any reference in the sheets for thefootnote.

Mission COM 1202 EOS Production Units:

- Status should be Planned as opposed to Candidate,given the degree of development of EOS andMDAC's stated interest in using a space station

Importance of Space Station should be 7 or 8,again given MDAC's statements as to the value of

-11-

a space station to their levels of productionand new product development

- Launch Mass of 7500 kg should be questioned,since it shows as being heavier than the labmodule, which itself has been questioned forother reasons*

-5 *Minimum G required should probably be 10

Mission COM 1203 EGG production Units:

Status should probably be Candidate instead ofPlanned, given the degree of development to dateby MRA when compared to that of MDAC

- Minimum G listed as 10 is not thought to befeasible on the space station, at least aspresently understood. 10 would probably bemore accurate and should be acceptable.

Mission COM 1206 IEF Production Units (relabel asAlternative Separation Production Units):

Importance of Space Station should only be - 7 or8, since it may be feasible to conduct some suchproduction on free-flying platforms

Description should exclude continuous flowelectrophoresis, since that is covered by adistinct mission; it should also be noted thatisoelectric focusing probably cannot accommodateliving organisms, and this should be madedistinct from stationary column electrophoresis,which can

Minimum G of 10 should actually be themaximum, and the minimum should be 10

Mission COM 1208 DSCG Production Units (relabel asCrystal Growth #1 Production Units):

Status should probably be considered an Oppor-tunity, since although NASA research indicatesthe process holds promise, there does not appearto be any commercial user currently pursuingthis process

*The SSTF should ultimately check each of these with MDAC

-12-

Minimum G should probably be 10 as a levelfeasible on a space station

- Service interval of 11 days would appear to beinconsistent with the shuttle revisit internalbaselined at 90 days.

Status should be Opportunity, lacking acurrently active commercial user

Importance of Space Station of 10 does not fitwith description of the units sharing a free-flying platform; one or .the other should becorrected

Operating power level of 2000 watts seems low;power requirements will probably be closer to5000 watts

- The EVA every 90 days does not seem to match theuse of two crewmen for 8 hours per day each,since Booz, Allen understands the intent of thecrew hours per day parameter to be aimed atsizing station crew time

Mission COM 1229 Iridium Crucible Production Units(relabel as Ultra Pure Metal Production Units):

Importance of Space Station should be 7 to 8since man tending is almost certainly required

Data/Communications should be both Realtime andOffline, with On-board Data Processing requiredand storage of 5 MBlTs

Minimum G should be 10 , with a maximum of 10permitted for short excursions only

Crew should be 2, one each on a two shift basis,one hour per shift, to support continuousoperations

The 30 day service interval would be nice, butshould reflect whatever is feasible givenstation schedules

Mission COM 1230 Biological Process Production Units:

Importance of Space Station should be 9, due toman tending requirements

-13-

Operating power should be a minimum of 5000watts, 24 hours per day, continuous operation,due to heating requirements for fluid reactor

Data/Communications should include both Realtimeand Offline, with On-board Data processingrequired and storage of 5 MBITs

Launch mass should be more like 7000 kg insteadof 10,000, since mission is fairly dense but nothigh in volume

-5Minimum G should be 10 , as best achievable

Crew size should be 2, working 4 hours per day(2 hours per man per shift) for continuousoperation

Service interval, as above, should reflect whatis achievable with the station, i.e., 90 days ifthat is what the station will be on.

Mission COM 1232 Merged Technology - Catalyst Produc-tion Units:

Importance of Space Station should be 8, due toman tending requirements

Operating power should be 5000 watts for heating

Data/Communications should be Offline, withOn-board Data Processing required and storage of5 MBITs

Minimum and maximum G levels should be 10 and10 , respectively

Crew size should be 2, for 4 hours per day (2hours per man per shift), no EVA required.

-14-

III. TASK 3. SPACE STATION USER DEVELOPMENT

III. TASK 3: SPACE STATION USER DEVELOPMENT

This task directed Booz, Allen to "investigate andprovide recommendations on the feasibility, desirability andlimitations of utilizing a commercial firm(s) as an inter-mediary (ies) in developing the commercial utilization of theSpace Station." This intermediary would act between NASA andindustry to facilitate commercial activities on the spacestation.

The task was begun by presenting Booz, Allen's understand-ing of the need for an intermediary; the functions and servicesassociated with such an intermediary were then specified, aswell as how it would operate. Following this, the optionspossible for each of the major characteristics of an inter-mediary were analyzed. This analysis led to recommendedoptions for each individual characteristic in each phase ofmarket maturity, and these recommendations then led to completeintermediary models for each phase. Finally, the next stepsrequired for establishing a space station intermediary weredeveloped.

1. NEED FOR AN INTERMEDIARY

An intermediary is required to bridge the gap betweennon-aerospace private industry and NASA. This gap results fromNASA's limited experience in dealing with the non-aerospaceprivate sector and the private sector's limited knowledge ofNASA organizations and procedures. It is complicated by theprivate sector perception that NASA and the government areunable to protect proprietary information.

These problems make it difficult for NASA to identify andreach out to potential users who have no knowledge of the spaceenvironment. It confuses interested new users who do not knowhow to approach NASA for information. Also, potential commercialusers may be reluctant to share sensitive information with NASAwhen they are considering a financially risky new venture.

The experience of space station user development thus farhas demonstrated the value of an independent third partyintermediary in stimulating new users. This analysis examinesthe specific characteristics which would be desirable for apermanent intermediary and the conditions under which it shouldoperate.

2. GOALS AND ASSUMPTIONS

In order to properly examine the concept of an inter-mediary and consider how it should operate, it is first neces-sary to establish just what an intermediary should be expected

-15-

to achieve. Considering the undeveloped state of space com-mercialization and the corresponding absence of candidate spacestation users, the intermediary should have the following majorgoals:

Identifying and stimulating potential new spacestation users

Facilitating and assisting in the development ofthese users, including identifying and working withthe appropriate NASA office, and assisting the userin the development of his concept

Encouraging private sector investment in the commercialuse of space and the manned space station, includinginvestments in research, prototype testing in micro-gravity, and possibly space station modules.

NASA has directed that this analysis be based on severalassumptions:

That there will be a manned space station, developedand owned initially by the federal government

That this station will include independent privatesector activity, and

That for the purposes of this analysis there will bea commercial intermediary (i.e. non-NASA, non-government) .

Consistent with this direction, non-commercial alternativessuch as government agencies or government corporations were notexamined.

3. KEY QUESTIONS

In order to fully define an intermediary in accordancewith the preceeding goals and assumptions, some key questionsmust be answered. These questions, which form the basis forBooz, Allen's analysis, concern the services provided by theintermediary, the key characteristics of the intermediary andthe issues associated with various alternatives for eachcharacteristic, and possible approaches to providing theintermediary's services.

The key questions are:

What services would the intermediary provide?

How would the intermediary operate with respect toother NASA user development activities?

-16-

What are the key characteristics of the intermediaryand what functional options exist for each characteristic?

What issues are associated with each characteristicand which options are best over time?

What are the best approaches to providing inter-mediary services over time, given the evaluation ofcharacteristics and options?

The following analysis aims to answer these questions andidentify the optimal approach to achieving the goals of theintermediary.

4. INTERMEDIARY DEFINITION

The intermediary can be defined by its functions, theservices it must provide to successfully perform these func-tions, and how it must operate to best provide these services.

In order to achieve its goals the intermediary mustperform three primary functions:

It must provide a simplified NASA/industry interfacein the early stages of the working relationship, whenthe participants (NASA and the private sector firm(s))are still unfamiliar with each other

It must provide an identifiable and accessible baseof operations where potential users can obtaininformation and guidance about NASA opportunities,but must also have sufficient mobility to reach outto industry in order to stimulate new users

It must generally encourage NASA/industry interactionand promote private sector commitment to commerciali-zation.

Booz, Allen has identified eight key technical, financial, andmanagerial services which should be provided by the intermediaryin order to properly perform these functions. These servicesare:

Identify and attract business interest, and obtaincommitments of interest

Identify and attract sources of investment capital tosupport specific space station activities, and assistin team building

Guide and assist users from initial interest throughcontact and negotiation of agreements with NASA

-17-

Provide access to technical information using anunderstanding of aerospace industries and of NASAorganization and procedures

Protect proprietary information and overcome reluctanceto work with the government by acting as a bufferbetween potential users and NASA. Protection ofproprietary information may require the use ofappropriate secrecy agreements between the inter-mediary and potential commercial users

Provide NASA with an understanding of businesspractices and user attitudes and requirements, inorder to foster and encourage policies, procedures,and programs that are attractive to users and investors

Identify the potential for merging technologies ofmultiple users through an understanding of engineeringand technology

In close cooperation with NASA, conduct an awarenessprogram to broaden the understanding of the applica-tion of the attributes of space to commercial acti-vities in space among industry leaders and thegeneral public.

The space station intermediary may be providing the aboveservices in an environment in which numerous NASA offices areconcerned with commercial user development. The intermediaryshould avoid duplication of effort by coordinating with userdevelopment activities sponsored by the STS Marketing office,the proposed Office of Space Commerce, the Office of IndustryAffairs, and the Office of Space Science and Applications, andNASA Centers where appropriate (e.g., Marshall Space FlightCenter). These user development activities must all be coordi-nated in order to avoid potential users being confused orperhaps even annoyed by repeated solicitations from partiesrepresenting NASA; the space station intermediary must cooper-ate in this coordination effort even though it does not controlit.

In addition to identifying the services which the inter-mediary would provide, NASA asked Booz, Allen to look at thepotential restriction's which might limit NASA's ability to usea third party as an intermediary. We have analyzed a varietyof such limitations, and have found evidence that not onlysupports the use of a private sector intermediary, but arguesagainst the use of government for such activities. For instance,OMB Circular A-76 is predicated on the assumption that theprivate sector can perform functions which are essentiallycommercial in nature more efficiently than the government. Itstipulates that agencies must rely on the private sector for

-18-

such services unless the government can provide them at alower cost; it further defines the methodology to be used forsuch cost comparisons. Based on this, it would appear thatrather than limiting NASA's use of a third party as an inter-mediary, A-76 would appear to provide a congressionally andadministratively sanctioned tool for developing such a function.Also, since A-76 only limits the use of commercial activitiesin the areas of military readiness, certain Veterans Adminis-tration work, and work which can be performed substantiallycheaper in-house, there would not appear to be any categoricalprohibition on the use of a commercial firm as an intermediary.

With respect to the question of how an intermediary mightbe compensated if it were employed by the government, a rulingof the Comptroller General has been identified which deals withthe use of appropriated versus other sources of funds. 45 CompGen 253 (1965) addressed a Small Business Administration (SBA)requirement to pay private brokers or agents for the sale ofcertain instruments by means of a commission from the sale.The SBA Appropriations Act for 1966 limited the funds whichcould be used for administrative expenses, and since the salesrepresented an administrative expense for the SBA, it wasconcluded that the compensation should come from appropriatedfunds and not commissions. No similar restrictions onadministrative expenses have been identified in either the .Space Act or NASA's annual Appropriations Acts which wouldNASA from using non-appropriated funds to support an intermediary.

Within Booz, Allen's current understanding and use of thecontractual instruments between the government and privateindustry, there are no statutory or regulatory restrictionswhich would hinder the handling of confidential information orprotected data by an intermediary. (For example, see thebusiness restrictions in the Freedom of Information Act, or theNASA Procurement Regulations regarding release of confidentialinformation.) In the same regard, potential conflicts ofinterest can be readily dealt with through appropriate contractuallanguage. An example of one potential conflict of interest iscontained in the Performance Incentives section of the analysisof intermediary characteristics which follows. If NASA were toemploy an intermediary which was permitted to take an equity orother form of interest position in one of the ventures it wasrepresenting to NASA, that would constitute a conflict ofinterest since NASA would effectively be paying the intermediaryto improve its own position. That would represent the mostcommon or likely form of a conflict of interest with an inter-mediary which drew any of its funding from NASA, and any NASAcontract should be structured to prohibit such activity on thepart of the intermediary. This should be true regardless ofwhether or not the intermediary is involved in negotiatingan agreement for its venture. Other potential users would

-19-

suspect the motives with respect to their venture of an inter-mediary which was a party to any ventures.

5. ANALYSIS OF INTERMEDIARY CHARACTERISTICS

The following analysis considers intermediary characteris-tics in three different phases of space market maturity. Inthe current phase, or the short term, commercial interest inspace processes is limited and there is no space-based produc-tion. The middle term begins some time after the privatesector perceives there has been a commercial "success" inspace; private sector interest will grow and some space-basedproduction may begin. The long term sees more extensivecommercial production in space and a mature market for com-mercial space activities. The need for an intermediary maydisappear in the long term, since a mature market may no longerrequire active stimulation of new commercial users.

Booz, Allen has selected four key characteristics whichcollectively define an intermediary model. By examining thepossible options for each characteristic and selecting the bestoption for each time phase, an optimal model can be constructedfor each phase.

These four key characteristics are:

Source of funds: Who pays for the intermediary?

Number of intermediaries: How many independent orassociated intermediaries exist at the same time?

Performance incentives: On what is the intermediary'scompensation based and how is it tied to his perfor-mance?

Relationship to NASA: What type of relationship, ifany, does the intermediary have with NASA?

For each of the four key characteristics a number ofoptions are possible. Various combinations of these optionsrepresent alternative intermediary models. These options areidentified in the following paragraphs:

Source of Funds: Funding can come from either NASAor the private sector. NASA funding could come fromeither appropriated funds or reimbursements from theSTS or space station operations. Private fundingcould come from space station users or owner/operators,or from associations representing industries interestedin stimulating space commercialization. These couldbe aerospace or non-aerospace industries

-20-

Number of Intermediaries: There could be one or moreintermediaries operating independently or linkedthrough prime contractor/subcontractor arrangements

Performance Incentives: A variety of incentives arepossible to motivate optimal performance from theintermediary. Contracts could be constructed aseither cost plus fixed fee, or as cost plus some typeof performancebased reward. Alternatively, theintermediary could receive only a performance-basedfee, or could even participate in user ventures.

Relationship to NASA: The intermediary could have acontractual or cooperative relationship to NASA or betotally independent. For the purposes of comparison,we also examine the consequences of having an inter-mediary as a component of NASA (i.e. a NASA office).

The options for each of the four characteristics of the inter-mediary are analyzed in the following sections. In each case,the options are examined in terms of their suitability for eachphase of space market maturity. The options are then comparedand a selection for each phase is made.

(1) Source of Funds

The following paragraphs discuss the possible sources• of funds for the intermediary and evaluate the pros andcons of each option. Exhibit III-l shows these optionsand the associated analysis.

1. NASA — Appropriated Funds

In this option, the intermediary is supported byappropriated NASA funds. Sufficient appropriatedfunds for the intermediary could probably be madeavailable in the short and middle terms, based oncurrent projections of NASA budgets. Any majorchange in NASA budget strategy could jeopardize theavailability of funding for the intermediary.Similarly, in the long term, the availability ofappropriated funds to support the intermediarydepends on NASA's willingness to support theintermediary for a long period, and in a market whichmay not require one. However, a transition from NASAto private sector funding is possible in the late-middle to long term.

2. NASA — Reimbursements

In this option the space station intermediary issupported by reimbursements from space station users

-21-

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or from STS reimbursements. Although space stationreimbursements will not be available for intermediarysupport until the station is closer to operation, STSreimbursements might be applied to the space stationintermediary since space station users will becreating new business for the STS. While STS reim-rbursements are presently somewhat low, they couldsupport the level necessary for an intermediary inthe middle" term, until the market can reasonablysupport it or the need disappears.

3. Industry Association

In this option, the intermediary is one or more,private contractors funded by industry group associa-tions. The manufacturing industry and the aerospaceindustry could conceivably support different inter-mediaries to promote space commercialization amongfirms in their industries. Due to the current lowlevel of commercial space activity, sufficientfunding from any industry association seems unlikelyin the short term. In the middle term, the aerospace,industry may be willing to collectively support anintermediary to serve in a marketing capacity,similar to a trade association. This intermediarycould, however, encounter difficulties if itsactivities conflict.with the marketing activities ofindividual firms in the supporting association. Inthe middle to long term, a manufacturing industryassociation might also be willing to support anintermediary to encourage space manufacture, if sucha course is seen as important for the long termhealth of the industry. In the long term, theintermediary might become a captive of the dominantgroups within the supporting associations, neglectingsmaller sectors such as services. The industryfunding arrangement would, in either case, facilitatethe intermediary's access to the technical resourcesof industry.

4. User Funding

In this option the intermediary is supported byfees for the services it provides to potential usersand owner/operators. Sufficient funding to supportan intermediary is unlikely in the short term, due tothe low interest in the potential-user community. Inthis option the intermediary is clearly biased to hisfee-paying client, but potential users with competinginterests would presumably employ different inter-mediaries.

-24-

5. Owner/Operator Funding

In this option the intermediary is supported byowner/operators of space facilities and services toperform market development. Sufficient funding fromowner/operators is unlikely in the short term sincethere are presently only a handful of owner/operators(e.g. owners and operators of free flying platforms,orbital transfer vehicles, launch services, satelliteservicing and retrieval, and on-orbit laboratoryservices). In the middle or long terms, owner/operatorfunding could sustain an intermediary, and NASA mightrequire contributions to intermediary support as acondition for participation in the space stationprogram. As observed in the case of industry associa-tion funding, an owner/operator funded intermediarymay be biased toward activities which benefit theowner/operator providing the largest share of support.In the long term, the need for an intermediary toperform market development may disappear as owner/operators perform their own marketing functionsinternally.

NASA funding will be necessary in the short term dueto the initially low level of interest in space activitiesin the private sector. Use of space station reimbursementsare unlikely much before the establishment of the spacestation, but STS reimbursements could be used to supportan intermediary in the middle term due to generation ofSTS traffic by future space station users. As an indivi-dual user develops and gains financial support, it shouldstart to support any intermediary services it requires.Criteria for reduction and eventual cutoff of NASA fundingsupport can be developed as case histories are built. Asthe market matures, the funding burden could be shifted tothe private sector case by case, including users, owner/operators, or industry associations. An industry associa-tion-funded intermediary would be analogous to a tradeassociation for marketing.

User-funded intermediaries would be analogous tomanufacturers' technical representatives, with competingusers employing different intermediaries. Owner/operator-funded intermediaries would be analogous to travel agents,although as the market matures, owner/operators might wishto internalize its functions as part of their marketingeffort.

(2) Number of Intermediaries

The following paragraphs present the options for thenumber of intermediaries and evaluate the pros and cons of

-25-

each option. Exhibit III-2 summarizes the issues associatedwith each option.

1. Single Intermediary

A single intermediary offers a number of advant-ages in an undeveloped market. A single representa-tive of NASA avoids confusion among potential usersabout who actually speaks for NASA. It can effectivelyand directly coordinate and conduct a coherentawareness program to increase understanding of NASAprograms. It can also recognize opportunities formerging technologies among potential users. Finallyit simplifies the burden of coordination imposed uponNASA in overseeing intermediary activities.

2. Multiple Intermediaries

Multiple intermediaries offer a number ofadvantages in markets where intermediary functionsare better understood and confusion is less of ahazard. Multiple intermediaries might provide morecomplete coverage than a single intermediary, althougha single intermediary might expand its range ofcoverage through the use of subcontractors withspecial areas of expertise. However, though theremay be some advantages to multiple intermediaries,many disadvantages may arise if they are used, suchas duplication of costs for contract management, andmarketing and market research. Also, multipleintermediaries run the risk of confusing potentialusers about who represents NASA and what the agencymay be offering. They will also find it difficult toconduct a coherent awareness program or recognizeopportunities to merge developing technologies of newusers. Multiple intermediaries will also place alarge burden on the NASA program office to coordinatecontacts which the intermediaries are meant tosimplify.

In the short to middle term a single intermediary, ora prime intermediary employing subcontractors, can mosteffectively organize a coherent and efficient effort tocontact and stimulate new users on behalf of NASA.However, as the market matures, multiple intermediariescould develop with multiple sponsors. As users assume theburden of funding, multiple intermediaries will becomeessential to avoid a conflict of interest for inter-mediaries with competing clients. Subcontractors in thesingle-intermediary period are likely candidates to becomeindependent intermediaries in the late-middle or longterm.

-26-

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(3) Performance Incentives

The following paragraphs show various incentiveswhich could be used to motivate the performance of anintermediary, and evaluate the pros and cons of eachoption. Exhibit III-3 summarizes the issues associatedwith each option.

1. Cost Reimbursement Plus Fixed Fee

A cost plus fixed fee contract offers limitedincentive for a contractor to expand the commerciallevel of activity in space. Since the fee is notrelated to the contractor's performance, the chiefincentives for the contractor are contract renewaland enhancement of reputation.

2. Cost Reimbursement Plus Performance Reward

A performance reward such as a bonus, award fee(subjective evaluations), or incentive fee (objectiveevaluation) offers a direct incentive for the contrac-tor to expand commercial development in space. Suchan incentive structure could be used to encourage asingle contractor to offer complete coverage of thepotential user community.

3. Performance Fee

A performance fee without cost reimbursement isnot likely to be an attractive arrangement to potentialintermediaries in the short or middle terms, due tothe high level of effort required to develop a singlenew user. This arrangement might also bias theintermediary toward prospects offering the greatestpotential payoff at the lowest cost. This bias couldaffect the intermediary's credibility and ability tobuffer proprietary information. In a mature market,however, this option could be the simplest way tosupport multiple intermediaries, due to the nature ofthe market in this stage of its development.

4. Participation in User Ventures

The intermediary(ies) could be allowed to becomea partner in the ventures it arranges. This optionallows the most rapid transition of intermediarysupport to the private sector. However, this arrange-ment may cause the intermediary to be overly aggressivein developing new users, especially where the potentialpayoff is great, with the result that credibility,and confidence in NASA, might suffer. If there are

-28-

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multiple intermediaries, this might encourage directcompetition among them for the right to participatein particular ventures. Furthermore, such participa-tion restricts the intermediary's reliability andcredibility to act as a buffer for proprietaryinformation - potential new users might fear thatthe intermediary will only be responsive to newventures with the greatest probability of a highpayoff, and they may be reluctant to deal with orconfide in them. Also, as noted, it would representa conflict of interest for a wholly or partially NASAfunded intermediary.

A cost plus fixed fee contract offers no directincentive for increased activity to promote commerciali-zation beyond the desire to preserve and enhance thereputation of the contractor. Performance rewards such asaward fees offer direct and effective incentives in theshort term. Performance fees without cost reimbursementoffer greater motivation for success but are inappropriatein the short to middle term when stimulation of userinterest is still a long and difficult process. Finally,in the long term, the intermediary may be motivated byparticipation in user ventures with its own capital atrisk, but in the short or middle terms this would producean intermediary whose stake in proposed ventures is sogreat as to jeopardize its credibility.

(4) Relationship to NASA;

The following paragraphs discuss various relation-ships which could exist between the intermediary and NASAand evaluates the pros and cons of each. Exhibit III-4shows the various issues associated with each option.

1. Component of NASA

Although the Statement of Work directs that onlycommercial intermediaries be examined* it is usefulto include an organic NASA office in this section ofthe analysis for purposes of comparison. A NASAoffice obviously offers the most direct access toNASA personnel and the most direct NASA control ofany approach to providing an intermediary. It alsofacilitates intra-government or regulatory coordina-tion. However, there is a perception in the privatesector that NASA is unable to adequately protectproprietary information thus, "buffered access" couldnot credibly be offered by a NASA office. NASA alsolacks substantial knowledge of business practices andmarket analysis, and may have manpower limits,restrictions on marketing activities, or an improper

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skill mix as a consequence of being a civil serviceoffice.

2. Contract with NASA

A NASA contractor has direct access to NASApersonnel and resources, and this arrangement alsoallows NASA to exercise direct control over theintermediary. The contractor can provide effectiveand credible buffering between NASA and the privatesector and can use NASA to facilitate intra-governmentand regulatory coordination. In addition, it wouldbring a set of personnel and skills tailored to themarkets to be addressed, along with a correspondingunderstanding of and familiarity with private sectorbusiness practices.

3. Cooperative Arrangement with NASA

Cooperation with NASA is important for anyintermediary to operate effectively, since theintermediary's job is to facilitate private sectorinteraction with NASA. Thus, a cooperative arrange-ment. — a private sector intermediary partly funded,licenced, or otherwise sanctioned by NASA — allowsaccess to NASA personnel and resources, and offersNASA influence but no direct control over inter-mediary activities. The ability of the intermediaryto provide buffering services is, if anything,enhanced in this arrangement.

4. Independent Intermediaries

In the case where one or more intermediariesoperate independently of NASA funding or formalcooperation, NASA would have no control over theiractivities. In this scenario, each intermediarywould probably make its own arrangements for technicalexpertise and resources, and there will be no assuranceof intermediary credibility in each case.

A private entity under contract to NASA permitsdirect NASA control and access to NASA personnel andallows NASA to facilitate intra-government coordinationwhile still providing buffered access. As the marketmatures, a contractual relationship could become simplycooperative, with private funding supplementing and thenreplacing NASA funds. NASA cooperation is still importantto assure that the intermediaries remain credible as theyapproach potential new users. In the long term, asmultiple intermediaries become feasible, intermediariesare likely to become more independent, with NASA able to

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exercise little if any control over their activities. Inthe long term, however, the mature market is likely todecide which intermediaries will succeed, or eliminate theneed for them entirely.

7. INTERMEDIARY EVOLUTION

The preceding analysis of intermediary characteristicssuggests a clear evolution of these characteristics as themarket proceeds through its three phases of maturity. Theevolution of these characteristics would be as follows, and issummarized in Exhibit III-5. Funding would come initially fromNASA and gradually be shared and then assumed by the privatesector. There would initially be one intermediary, possiblyinvolving other parties as subcontractors, but eventuallymultiple intermediaries may act independently or may not beneeded at all. The initial contractor incentives are perfor-mance rewards on top of cost reimbursement, but over time theintermediary would no longer require assured cost reimbursementand might participate as a equity partner in user ventures.The intermediary would initially be under contract to NASA, butwould evolve through a cooperative arrangement with NASA to anindependent operation.

This evolution of characteristics implies that the inter-mediary can be represented by a particular model in each of thethree market phases. In the short term, the intermediary wouldbe a single NASA contractor operating on a cost plus award feebasis, possibly employing one or more subcontractors. In themiddle term, the intermediary would be funded cooperatively byNASA and either an industry association or owner/operators,perhaps as a condition of their space station or other NASAinvolvement. There could be more than one intermediary, andthey might operate under a number of different performanceincentives. In the long term, the intermediaries will probablybe funded wholly by users or owner/operators, and mightparticipate in the ventures they organize. As activity continuesin this phase, many users or owner/operators may internalizethe intermediary functions as part of their marketing effort,and the need for intermediaries (as such) might disappear.

8. NEXT STEPS;

The establishment of a space station intermediary willrequire that NASA take the following steps:

Review and approve an intermediary approach

Develop and initiate an implementation plan for theselected approach

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Procure the services of a qualified firm to serve asan intermediary

\ Booz, Allen's analysis indicates that in order to provide theservices defined for the intermediary, a suitably qualifiedfirm should have the following attributes:

Knowledge of NASA's organization arid procedures

Understanding of space attributes and limitations

Understanding of new ventures, business practices,and financial requirements

Understanding of basic science, technology, andmanufacturing

Market analysis capabilities

Experience in conducting awareness programs

Credibility with industry, access to businessleaders, and a reputation for objectivity

Ability to control and protect proprietaryinformation.

NASA's solicitation should require that interested parties meetat least this set of qualifications. Consideration should alsobe given to the degree to which NASA would benefit from havingan intermediary demonstrably capable of operating in theinternational community, with the necessary qualificationsadded to the solicitation.

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IV. ISSUES

IV. ISSUES

Based on its experience to date in commercial userdevelopment, Booz, Allen believes that there are several issueswhich NASA must recognize and begin to address. These issuesinclude:

Program status: The private sector will remainreluctant to invest resources in space and spacestation applications until the government commitsitself to a space station program. Such a governmentcommitment would send a clear signal to Americanindustry that their space applications would besupported by an adequate initial increment of spaceinfrastructure. This would set off a surge ofinterest, and at the appropriate time, investment, onthe part of the private sector, and lead to thedevelopment of a significant number of additionalcommercial space ventures

International participation: There is a need toclarify the role of foreign entities as possibledevelopers, users, and investors in a U.S. spacestation program, and as participants in Joint Endeavorand Technical Exchange Agreements with NASA relatedto such roles. The private sector needs to understandwhat the ground rules will be with respect to foreigncompetitors, and will be reluctant to invest its ownresources if the arrangements do not seem fair

Commercialization support: NASA's present support ofcommercialization is viewed by industry as needingclearer policy direction and better internal coordina-tion. Early evidence of organized support on a broadfront will help change this perception, and theproposed Office of Space Commerce appears to be asignificant step towards bringing this about. Inparticular, the planned coordination of commerciali-zation activities within NASA should make NASA's userdevelopment efforts significantly more productive

Intermediary implementation: An early commitment byNASA to the implementation of an intermediary conceptwill return benefits in terms of continuity andsuccess in user development, and in terms of NASA'sperceived commitment to commercialization

Space station user charge policy: Until some basisis established for estimating the cost of privatesector use of the space station, potential users andinvestors will be unable to perform useful investment/benefit analyses. The designs of both the space

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station and its user charge policy should take intoaccount the need for rates which will make commercialuse of the station attractive to private sectorusers who must consider alternative investments.

When a space station program start is approved, NASA must takeaction which indicates that it has carefully considered theseissues and is committed to making the space station an attrac-tive focus for private sector activity and investment. If NASAcan examine these issues and develop policies which recognizethe needs of industry and the significant contribution whichprivate sector investment can make, it would be a step towardsecuring America's place at the forefront of the development ofspace as the next economic frontier.

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