oversight

Space Station: Status of Efforts to Determine Commercial Potential

Published by the Government Accountability Office on 1999-06-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States

GAO   General Accounting
      Washington,
                           Office
                    D.C. 20548

      National Security and
      International Affairs Division

      B-282682

      June 30,1999

      The Honorable F. James Sensenbrenner, Jr.
      Chairman
      The Honorable George E. Brown, Jr.
      Ranking Minority Member
      Committee on Science
      House of Representatives

      Subject: Snace Station: Status of Efforts to Determine Commercial Potential

      In 1998, Congress declared that a priority goal of constructing the International Space Station
      was the economic development of Earths orbital space and directed the National
      Aeronautics and Space Administration (NASA) to assess the station’s commercial potential.’
      NASA is doing so as part of its commercial development plan for the space station2

      As requested, we are providing information on whether space-station-related commercial
      activities could generate revenue capable of reducing the station’s annual cost of operations,
      which NASA estimates will average $1.3 billion, or $13 billion over a lo-year mission life after
      the space station is fully assembled in 2004.3

      We are also providing information on funding issues associated with the proposed x-ray
      crystallography facility for the space station because it may have some potential commercial
      use. One intended purpose of this facility would be to support the design of new drugs,
      which may be of possible interest to pharmaceutical companies. Uncertainty over funding of
      the facility brings to the forefront the issue of who should pay to develop station-based
      commercial facilities.

      RESULTS IN BRIEF

      On the basis of available information such as commercialization proposals and opinion
      surveys, we concluded that many businesses are skeptical of the station’s commercial
      usefulness. However, commercial interest in the station may increase as the station’s
      assembly nears completion and its capabilities grow. NASA is developing an independently
      conducted market study of potential commercial interest in the station, as required by the
      Commercial Space Act, and is implementing a commercial development plan for the station.
      When NASA completes these tasks, it should be in a better position to understand how


      ’ Commercial Space Act of 1998 (PL 105303 sec. 101,Oct. Z&1998).
      ’ Commercial DeveloDment Plan for the International &ace Station, NASA (Nov. 16,1998).

      aWe will provide the Committee with an evaluation of this estimate in a separate report.




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businesses perceive the station’s commercial potential. Until then, NASA will be unable to
estimate whether commercial activity would eventually reduce the space station’s cost of
operations.

NASA has not yet decided whether to pay to develop an x-ray crystallography facility
primarily intended for commercial use aboard the space station. Drug design companies
have not agreed to pay for this facility, although some firms said they could use it if its on-
orbit capabilities were su.lTiciently well demonstrated. Other firms remained skeptical of the
facility’s commercial usefulness compared with the usefulness of competing ground-based
facilities.

BACKGROUND

NASA and its partners -Canada, the European Space Agency, Japan, and Russia-are
building the space station as a permanently orbiting laboratory to conduct materials and life
sciences research, Earth observation, commercial operations, and related activities under
nearly weightless conditions. Each partner is providing hardware and crew members and is
expected to share operating costs and use of the station. The Boeing Company, the prime
contractor, is responsible for development, integration, and on-orbit performance.

The Commercial Space Act declared that the use of free market principles in operating,
servicing, allocating the use of, and adding capabilities to the station would create demand
for commercial providers and users and would thereby reduce the station’s cost of operations
(See encl. I for P.L. 105303 sec. 101, Commercialization of Space Station). NASA’s
commercial development plan endorsed a similar view (see encl. II). The plan’s short-term
objective is to begin the transition from public to private investment to offset the space
shuttle’s and station’s operating costs through commercial enterprise and open markets.

The x-ray crystallography facility aboard the space station would be a comprehensive protein
crystallography laboratory. NASA began to sponsor space-based protein crystal growth
through its commercial space center for macromolecular crystallography in 1985. Since then,
research has shown that in the absence of gravity, protein crystals are sometimes larger
and/or have better-ordered internal structure than their Earth-grown counterparts. When
returned to Earth, some of these crystals yield better data compared with Earth-grown
crystals when exposed to x-ray radiation, but reentry through the atmosphere, which involves
acceleration and vibration, can damage the crystals.

 Knowledge of a crystal’s structure could be helpful in creating drugs that can stop the spread
 of a virus from cell to cell.” Aboard the space station, protein crystals would be grown,
 harvested, mounted, frozen, and bombarded with x-rays in order to create a diffraction
 pattern that would be transmitted to ground-based researchers to determine a proteins
 structure.5 NASA believes that a major justification for the x-ray facility includes the ability to


 ’ W. Graeme Laver, et. al., “Disarming Flu Viruses,” Scientific American (Jan. 1999).

 ’ Generally, as x-ray radiation passes through protein crystals, it interacts with or bounces off atoms, changing direction and
 energy. These interactions are recorded by a special detector attached to a computer. Software interprets the data so it can be
 analyzed.




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characterize crystals being grown so that new experiments can be immediately designed in an
attempt to optimize the crystallization conditions. If it decides to build this facility, NASA
currently plans to put the x-ray facility on the station in September 2003.

INITIAL ESTIMATE OF STATIONS
COMMERCIAL POTENTIAL IS NOT YET POSSIBLE

An initial estimate of the station’s commercial potential could be made after NASA
implements its commercial development plan, submits all the reports required by the
Commercial Space Act, and assembles more parts of the station. However, currently
available information suggests that businesses are skeptical of the station’s commercial
usefulness.

Imolementation of the Commercial Develoument Plan

NASA’s commercial development plan defines NASA’s role in commercializing the space
station. The plan describes generic types of possible commercial activities, or “pathfinders,” 6
and the types of barriers that might prevent commercialization (for example, policies that
might make some forms of advertising unacceptable). ’ The plan, adopted in November 1998,
also includes a model of a nongovernmental organization that would manage the station and
a proposed procedure to more efficiently review proposals and offers from industry to use
the station for commercial purposes.* According to a NASA official, industry is responsible
for demonstrating commercial interest in the station. Accordingly, NASA plans to assess
potential barriers in the context of specific proposals.

Specifically, NASA’s strategy to define its commercialization role and thereby determine
whether the station’s cost of operations could be reduced by commercialization calls for

.    contracting an independent market study, required by the Commercial Space Act, to
     clarify current business attitudes about the space station’s potential for
     commercialization;
0    selecting specific commercial pathfinder offers that could help NASA identify barriers to,
     and define acceptable types of, commercial activities aboard the space station, especially
     for nontraditional activities such as advertising, sponsorship, and entertainment;
l    establishing a pricing options policy for commercial development of the space station that
     would make it possible for NASA to evaluate the effects of moving from a cost-based to a
     value-based pricing policy;
l    developing a single point of entry in NASA to streamline and discipline its review of
     commercial proposals and offers; and


’ These include communications, brand names in public sewice sponsorship, consumer goods, payload accommodation
auctions, imagery, and in-space educational experiments. These examples do not represent specific proposals.

’ The potential types of barriers identified are NASA policy, culture, and process; regulations; statutes; and international
agreements. The plan did not identify specific statutes, regulations, and agreements.
’ NASA distinguishes between “unsolicited proposals” for the purpose of obtaining a contract and “entrepreneurial offers” for the
purpose of creating value-added products or services for sale in private markets.




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.      implementing a variation of a proposed model of a nongovernmental organization to
       manage the U.S. part of the space station’s scientific, technological, and commercial
       research and development programs.

NASA has started to implement this strategy. According to a NASA official, the market
survey required by the Commercial Space Act and pricing options study should be finished by
July 1999. He also said that, as of May 17,1999, NASA had received seven offers that could be
used as commercial pathfinders. Two of the offers potentially involve investments of over
$100 million. Other offers are smaller, including one that could be applied to writing pens
and would involve flying a few ounces of gold. NASA has not yet established a clearinghouse
for commercial proposals and offers.

The Commercial Space Act requires the NASA Administrator to identify and report on
opportunities for commercial providers to play a role in station activities, including
operation, use, servicing, and augmentation. He is also required to report the potential cost
savings to be derived from having commercial providers play a role in each of these activities.
The Administrator submitted his report on May 14,1999, and stated that it is not possible to
identify potential cost savings, revenues, or reimbursements without specific formal
commercial offers in hand with which to perform a credible life-cycle cost analysis. He also
stated that NASA will prepare “comparative lifecycle cost statements” in conjunction with
offers but will seek to avoid imposing burdensome analysis requirements that could serve as
a disincentive or barrier to commercial development.

Nongovernmental Organization

The idea of creating a nongovernmental organization to manage the space station grew out of
a 1995 NASA proposal to establish an orbital research institute for the station. At that time,
the Space Telescope Science Institute, which was responsible for the science-related
operations of the Hubble Space Telescope, was discussed as a possible model for an orbital
research institute.’ However, unlike with the Hubble Space Telescope, the space station’s
partners will support a wide range of unrelated scientific investigations1o as well as
engineering development and commercial activities. If a stationwide nongovernmental
organization is established, one of its main challenges will be to manage diverse uses of the
station. To review management options for the station, NASA contracted with the National
 Research Council to evaluate options by October 1999. According to a NASA official, the
intent of a nongovernmental organization would be to replace government bureaucracy, not
 add to it. But, he also said, a nongovernmental organization initially would be publicly
 funded, and its board of directors therefore would likely be government officials. He further
 noted that the government would not turn the space station over to a nongovernmental
 organization without providing strategic direction and oversight.




    ‘The Association of Universities for Research in Astronomy manages the institute under a contract with NASA. The Lockheed
    Missiles and Space Company operates the satellite under contract with NASA at its Goddard Space Flight Center.

    ” These include, biotechnology, combustion science, fluid physics, fundamental physics, gravitational biology and ecology, and
    materials science.




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Available Data Indicates Businesses Are
Skeptical of Station’s Commercial Potential

Currently, industry generally does not see the space station as a place to do business.
Although the market study required by the Commercial Space Act and proposals for
commercial pathfinders may reveal a different outlook, the limited data currently available
indicates that industry is skeptical of the space station’s commercial potential.

In May 1998, a major aerospace company told NASA that most respondents to its market
study showed (1) a lack of understanding of the space station’s capabilities, (2) an
indifference to microgravit$’ as a condition for research, and (3) an inability to transfer
space-based research to spaced-based manufacturing. Respondents also expressed concerns
about the cost of accessing space, the lack of predictable launch schedules, and the absence
of a regulatory framework, including rules to protect intellectual property.” According to
respondents, the lack of a regulatory framework means that businesses cannot readily
determine the cost of doing business on the space station. Of particular relevance, in view of
NASA’s long-term support of protein crystal growth in microgravity, was the fact that 7 out of
 10 respondents from the pharmaceutical industry stated they were not interested in doing
research in microgravity. According to the survey, the most promising areas for generating
revenue in the short term are advertising, sponsorship, and entertainment.

The results of the survey were consistent with a 1998 survey of pharmaceutical company
attitudes conducted for NASA’s commercial space center for macromolecular
crystallography.‘3 The 1998 survey asked questions about the proposed x-ray crystallography
facility for the space station. According to the contractor that conducted the survey, most
respondents did not see the utility of a station-based x-ray capability and believed that power
constraints and the absence of a trained crystallographer aboard the space station would
limit its usefulness. On the other hand, many respondents were reportedly “intensely”
interested in the x-ray facility’s robotic crystal preparation and handling capability because it
could be used by their laboratories on the ground. Funding issues associated with this
facility are discussed later in this report.

The Commercial Space Act requires NASA to report the number of proposals it received in
1997 and 1998 regarding commercial operation, servicing, utilization, or augmentation of the
space station and the number of agreements NASA made in response to these proposals.
NASA reported its findings on May 14,1999. According to the report, the agency received
four unsolicited proposals in 1997 and one in 1998. Of these, one resulted in an agreement to
establish a commercial space center for engineering at Texas A&M University,‘” and one
resulted in an agreement with a company to provide a cargo carrier for a space shuttle flight.


” Microgravity is a condition of free-fall within a gravitational field in which the weight of an object is signiticantly reduced
compared to its weight at rest on Earth.

” Respondents were from the pharmaceutical, electronics, remote sensing, materials processing, and advertising industries.
Seventy-three companies were contacted, and about 60 percent responded.

I3The center’s contractor contacted 41 firms, 30 of which responded. Nine respondents were affiliated with the center in 1997.

I’ The center’s mission is to advance engineering research on and foster commercial use of the space station.




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Additionally, the space station’s prime contractor, Boeing, has signed agreements with two
unidentified potential customers for the station. A company official told us that one
customer, comprising a university and a multimedia company, submitted an offer to NASA on
April 14,1999. Depending on NASA’s reaction to this offer, a second offer, involving
advertising and sponsorship aboard the station, could follow.

X-RAY CRYSTALLOGRAPHY FACILITY HIGHLIGHTS
ISSUE OF WHO SHOULD PAY TO DEVELOP
STATION-BASED COMMERCIAL FACILITIES

Although an x-ray crystallography facility aboard the space station would be intended
primarily for drug designers, companies in the field have not agreed to fund the development
of such facility. However, according to NASA, some companies have said they would use the
x-ray facility for difficult proteins if real results were possible. Funding issues surrounding
the x-ray facility highlight the problem of deciding whether NASA should fund the
development of a station-based commercial facility if industry abstains from doing so.

Space-Based Protein Crvstal Growth Program
Is Well Established but Controversial

Protein crystal growth/x-ray crystallography researchers are sharply divided over the space-
based crystal growth program’s usefulness to drug design. In 1995, the National Research
Council concluded that “protein crystal growth experiments conducted aboard the shuttle
have provided persuasive evidence that improvements can, in fact, be realized for a variety of
protein samples” and that such crystal growth “can be crucial to success in protein structure
determination.” But the Council also noted that such experiments have not shown that
protein crystals uniformly display improved properties when grown in microgravity.
Nevertheless, it also concluded that “an expanded program of protein crystal growth
experiments deserves ~upport.“‘~

On the other hand, in July 1998 a “blue ribbon” committee of the American Society for Cell
Biology described the space station as the “most expensive and inflexible research laboratory
ever built.” The committee specifically criticized NASA’s space-based crystallography
program and concluded: “No serious contributions to knowledge of protein structure or to
drug discovery or design have yet been made in space.“” The committee recommended that
no further funds be spent on crystallization of proteins in space.

 Develoument of the X-rav Crvstallogranhv Facilitv

 In April 1995, NASA funded the Center for Macromolecular Crystallography to study the
 feasibility of an x-ray crystallography facility aboard the space station. On the basis of the
 positive results of the study, in September 1996 NASA authorized the center to build a
 ground-based prototype of the x-ray facility to validate and verify key technologies. To be

 I5Microgravitv Research Oonortunities for the l%Os, National Research Council (1995).

 ” The committee’s report did not state the basis of its conclusion but, according to a committee member, it was primarily based
 on a review of six scientific journal articles.




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  B-282682


  useful aboard the station, such a facility would have to be relatively lightweight and use low
  power. To date, the center has demonstrated a 25-watt, 50-pound x-ray generator with a
  beam intensity comparable to a 5,000-watt, 2-ton ground-based x-ray system. In June 1998,
  NASA approved additional funding of $1.5 million for prototype development and required
. surveys of commercial and research interest in the facility. The surveys were completed in
  September 1998 and a tabletop version of the proposed x-ray facility was successfully
  demonstrated in February 1999. NASA’s decision on whether to proceed with fir&scale
  development of the x-ray facility for the station could take place by the end of fiscal year
  1999. This decision will be based on a revised cost estimate and successful integration of the
  x-ray facility in a space-station-type rack. The x-ray facility would cost about $50 million to
  complete, according to NASA.

  Industrv Skeptical of X-Rav Crvstallogranhv Facilitv’s Commercial Potential

  The contractor who performed the survey for NASA’s commercial space center for
  macromolecular crystallography summariz ed the pharmaceutical companies’ comments as
  follows:

   l   Costs for current ground-based crystallography research vary substantialIy depending on
       the protein being studied, but a higher-power source of x-rays such as synchrotrons
       allows the use of smaller, lower-quality crystals, and the widespread use and availability
       of synchrotrons is lowering the cost of x-ray analysis.
   l   Proteins that are easily crystallized on the ground are not candidates for microgravity-
       related research.
   l   As a result, growing crystals in microgravity is limited only to relatively high-priority
       proteins whose structure is difficult to determine and for which ground-based methods
       are still inadequate. Such instances are considered rare.

  Aside from commercial use, NASA believes that the x-ray facility could be used for research
  not associated with drug design. A decision on whether to fund the x-ray facility would have
  to take this into account. To help make this decision, NASA’s Marshall Space Flight Center in
  Huntsville, Alabama, surveyed principal investigators in its microgravity science program.”
  None of the researchers in the survey said that x-ray analysis aboard the space station was
  mandatory for macromolecular crystal growth generally or for experiments they planned to
  propose. Seventy-nine percent thought space-station-based x-ray analysis was highly
  desirable or desirable, and 21 percent said it was not required. With respect to their planned
  experiments, 58 percent of the researchers said space-based x-ray analysis was desirable, and
  42 percent said it was not required.

  NASA’s commercial space center for macromolecular crystaUography is discussing
  investment options in the x-ray facility with at least two companies. According to a NASA
  official, initial commercial investment interest centers on the facility’s crystal preparation and


  ” Thirty researchers were contacted, and 24 replied. Also, The University of Alabama (Ekningham) and the commercial space
  center for macromolecular crystallography surveyed 39 domestic and international investigators not covered by other surveys.
  According to NASA, researchers who responded indicated an interest in a station-based x-ray diffraction facility if its on-orbit
  capabilities were successfully demonstrated.




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handling unit, which could be used with x-ray diffraction systems on the ground. A NASA
official told us that NASA’s Marshall and Johnson field centers are expected to make a
recommendation on a funding option for the x-ray facility by October 1999 as part of the
fiscal year 2001 budget cycle. For now, the question remains unanswered as to whether the
agency would pay to develop all or part of a facility that commercial users are so far unwilling
to support financially and for which they have indicated only a limited need.

CONCLUSIONS

There is insufficient information at this time to estimate whether commercial activity would
eventually reduce the space station’s cost of operations. On the basis of available evidence,
we found that industry is uncertain about the station’s commercial potential. While the
reasons for this uncertainty vary, the business community overall is unclear about the
station’s capabilities and concerned about the lack of a regulatory framework and pricing
policy. Even if these concerns are alleviated, it is uncertain whether the current low level of
interest in commercializing the station will increase enough to allow future commercial
activity to make a significant difference in operating costs. In any case, NASA’s reporting
under the Commercial Space Act and its implementation of the commercial development plan
could help clarify industry’s perception of the station’s commercial potential in the near term.

One public policy issue raised by the station-based x-ray crystallography facility concerns
whether NASA should pay the full-scale development costs of the station’s commercial
facilities if industry remains uncertain about the facilities’ commercial value. This is an issue
that NASA could face repeatedly as it considers various commercial efforts aboard the space
station. Accordingly, NASA’s decision on the x-ray facility may assume an importance that is
larger than the issue of whether to spend $50 million for this one specific facility.

AGENCY COMMENTS AND OUR EVALUATION

In written comments on a draft of our report, NASA stated that industry’s initial skepticism
concerning the x-ray facility is understandable in light of the new technology involved and of
the fact that the facility has not yet been demonstrated on orbit. According to NASA, once
this demonstration takes place and the facility is working, the x-ray facility’s advantages will
be obvious and its commercial use will pay for its operations costs.

NASA also provided technical comments which we incorporated where appropriate. NASA’s
comments are reprinted in enclosure RI.

 SCOPE AND METHODOLOGY

To accomplish our objectives, we obtained documents from and interviewed officials at
NASA headquarters in Washington, D.C.; NASA’s Marshall Space Flight Center, Huntsville,
Alabama; and Johnson Space Center, Houston, Texas.

 To evaluate whether commercial activities could generate revenue capable of reducing the
 space station’s cost of operations, we interviewed officials about the development of NASA’s
 commercial development plan and its reporting under the Commercial Space Act. We also
 attended meetings of NASA’s Commercial Advisory Subcommittee and Space Station
 Utilization Advisory Subcommittee. We reviewed the results of station-related market


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surveys conducted by an aerospace company and for one of NASA’s commercial space
centers.

To evaluate funding issues associated with the proposed x-ray crystallography facility, we
reviewed the basis of a report on NASA’s protein crystal growth program by the American
Society of Cell Biology and interviewed officials of a NASA-sponsored commercial space
center, the Center for Macromolecular Crystallography, Birmingham, Alabama.
We performed our work between July 1998 and May 1999 in accordance with generally
accepted government auditing standards.
                                         -----

Unless you publicly announce its contents earlier, we plan no further distribution of this
report until 14 days from its issue date. At that time, we will send copies to the Honorable
Daniel S. Goldin, Administrator, NASA and the Honorable Jacob J. Lew, Director, Office of
Management and Budget. We will also make copies available to others upon request.


Lf you or your staff have any questions, please contact me at (202) 512-4841 or Mr. Jerry
Herley, Assistant Director, at (202) 512-7609 or Mr. Tom Mills, Evaluator-in-Charge, at (202)
5124339.




Allen Li
Associate Director,
Defense Acquisitions Issues

Enclosures - 3




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ENCLOSURE 1                                                                    ENCLOSURE I


COMMERCIAL SPACEACT OF 1998
SECTION 101


               PUBLIC    LAW 105-303-OCT.         28,1998            112 STAT. 2845

    TITLE      I-PROMOTION    OF COMMERCIAL
                 SPACE OPPORTUNITIES
   SEC. 101. COMMERCIALIZATION   OF SPACE STATION.                        42usc14711.
         (a) POLICY.-The Congress declares that a priority goal of con-
   structing the International Space Station is the economic develop-
   ment of Earth orbital space. The Congress further declares that
   free and competitive markets create the most efficient conditions
   for promoting economic development, and should therefore govern
   the economic development of Earth orbital space. The Congress
   further declares that the use of free market principles in operating,
   servicing, allocating the use of, and adding capabilities to the Space
   Station, and the resulting fullest possible engagement of commercial
   providers and participation of commercial users, will reduce Space
   Station operational costs for all partners and the Federal Govem-
   ment’s share of the United States burden to fund operations.
          (bl REPORTS.-W The Administrator              shall deliver to the
    Committee on Science of the House of Representatives and the
   Committee on Commerce, Science, and Transportation of the Sen-
 . ate, within 90 days after the date of the enactment of this Act,
    a study that identifies and examines-
                (A) the opportunities for commercial providers to play a
          role in International Space Station activities, including oper- .
          ation, use, servicing, and augmentation;
                (3) the potential cost savings to be derived from commercial
          providers playing a role in each of these activities;
                (C) which of the opportunities described in subparagraph
          (A) the Administrator plans to make available to commercial
          providers in fiscal years 1999 and 2000;
                (D) the specific policies and initiatives the Administrator
          is advancing to encourage and facilitate these commercial
           opportunities; and
                (E) the revenues and cost reimbursements to the Federal
           Government from commercial users of the Space Station.
           (2) The Administrator shall deliver to the Committee on Science
    of the House of Representatives and the Committee on Commerce,
    Science, and Transportation of the Senate, within 180 days after
    the date of the enactment of this Act, an mdependently conducted
    market study that examines and evaluates potential industry
    interest in providing commercial goods and services for the oper-
    ation, servicing, and augmentation of the International Space Sta-
    tion, and in the commercial use of the International Space Station.
    This study shall also include updates to the cost savings and reve-
    nue e&mates made in the study described in paragraph (11 based
    on the external market assessment.
           (3) The Administrator shall deliver to the Congress, no later
    than the submission of the President’s annual budget request for
    fiscal year 2000, a report detailing how many proposals (whether
     solicited or not) the National Aeronautics and Space Administration
     received during calendar years 1997 and 1998 regarding .commercial
     operation, servicing, utilization,      or augmentation of the Inter-
     national Space Station, broken down by each of these four cat-
     egories, .and specifying how many agreements the National Aero-
     nautics and Space Administration          has entered into in response
     to these proposals, also broken down by these four categories.
                                                                      _ _                           -   ..

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ENCLOSURE 1                                                                ENCLOSURE I


COMMERCIAL SPACE ACT OF 1998
SECTION 101




  112 STAT. 2846           PUBLIC    LAW 105-303-OCT.          28,1998

                    (4) Each of the studies and reports required by paragraphs
               (11, (21, and (3) shall include consideration of the potential role
               of State governments as brokers in promoting commercial participa-
               tion in the Intematiod    Space Station program.




 Page 11                                   GAOLNSIAD-99-153R     Space Stat&n   Commercialization
ENCLOSURE II                                                                                                                 ENCLOSURE’11


COMMERCIALDEVELOPMENTPLAN
FORTHESPACESTATION




                                                                  Commercial Development Plan
                                                                               for the
                                                                   International Space Station

               Objective            .

                   *        Long Term: To establish the foundation for a marketplace and stimulate ri national economy fbr
                            space products and services in low-Barth orbit, where both demand and supply are dominated by
                            the private sector.
                   .        Short Term: To begin the transition to private investment and offset a share of the public cost f&
                            operating the space shuttle fleet and space station through commercial enterprise in open markets.

               Stratqy

                   l        In partnership with the private sector, initiate a set of pathfinder business opportunities which can
                            achieve profitable operations over the long run without public subsidies. Employ these businesses’
                            to break down market barriers in the near term and open the path for economic expansion.

                   l        lnitialixe the process through the internal NASA study of pathfinder candidates, as a point-of-
                            departure, with emphasis on pushing the envelope in terms of both public and private sector
                            policies, procedures and cultural predispositions [stuc$ resulti provided in arzochment J].
                                                                     I .
               Tactics

                       1.   RelePre    Baseline     Pathfinder       Study    with       h’ASA   Assessment      of Goods      and       Services    with
                                                                                     .
                            Commercial       PotentiaL

                                .        Identify nine pilot business areas for private sector validation [completd.
                                .        lnitiate business development in partnership with industry.
     .                 2.   Commission           an Independent      Market    Assessment        to Initiate    the   Most   Effective      Pathfiders
                            (Horizon:         6 Month)

                            .           Task a nationally prominent business school with recognized high technology acumen,
                                        through a new cooperative agreement, to evaluate the prospect of the space station becoming a
                                        fee-for-service commercial technology development testbed.
                            .           Task SpaceVest, through existing cooperative agreement, to evaluate ‘the private investment
                                        potential in emerging markets for space products and services which could be enabled through
                                        access to space shuttle, shuttle replacements and space station accommodations~
                            .           Task the United Space Alliance, through existing contmzt, to evaluate the prospect of space
                                        shuttles and space station as platforms for commercially provided products and services.
                            .           Task the Boeing Aerospace Corporation, through existing contract, to evaluate the prospect d
                                        the space station as a customer for commercially provided growth elements, distriiuted
                                        systems, and utility services.

                             .          Task the Commercial Space Centers, through existing cooperative agreements, to query their
                                        existing 135 industrial affiliates and evalyte the prospect of the space station becoming a fire-
                                        for-service product development laboratory or production cemcr.
          -




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 ENCLOSURE II                                                                                               ENCLOSURE II


                                                                                                                            I
 COMMERCIALDEVELOPMENTPLAN
 FOR THE SPACE STATION



                         l    Task the KPMG Peat Marwick Space and High Technology Practice, through existing
                              contract, to convene a panel composed of representatives from each of the previously identified
                              areas, and others as needed, to review the range of market assessments and to synthesize a
                              report on: (a) the market potential; (b) perceived barriers to market entry, and; (c) the most
                              effeajve pathfmder enterprises.


                3.       Choroczerize    Barriers   IO Market   Entry   and   ident@ Corrective   Acrions
                         (Horizon:    6 Months)

                     Access ro Space

                         .    Direct a cross-program team to audit current practices for assigning.space shuttle middeck
                              accommodations and establish a minimum set-aside for flight opportunities on every mission
                              [underway].
                         .   Appoint a dedicated Senior Assistant for Access to Space, charged to continuously scan for,
                             and secure, alternative flight opportunities on both reusable and expendable launch vehicles
                             [undemq].
                               .
                     l       Benchmark the NASA cost to sortie one dedicated space shuttle missibn per year, Commerce
                             Lab, until the space station achieves full payload.readmess. Identify as an augmentation in the
                             N 2001 NASA submit to the Office of Management and Birdget


                     Adminirtrative Process

                     0        Establish a clearing house function at NASA headquarters for the log8ing and dispositioning
                              of commercial proposals. Implement through an agency-wide Organizational Work lnsnuction
                              in compliance with lSO-9001 [drofiprovided in arzochment 21.


                     PO&
                     .        Acquire an experienced professional economist to update the 1985 Congressional Budget
                              Office report on “Pricing Options for the Space Shuttles” and th& 1994 National Academy d
                              Public Administration report on “A Review of Space Shuttle Costs, Reductions Goals and
                              Procedures”. Benchmark historic marginal and average costs of space shuttle flights, and
                              project costs for space station accommodations.

                     l        Task the KPMG Peat Marwick Space and High Tecimology Practice to evaluate the eff&s d
                              transitionin from a cost-based to value-based pricing policy with provisions for govemment
                              cost offsets, and define objective methods for establishing value.

                     l       Task the NASA O&z of Policy and Plans and office of Public AK& lo: (1) acquire the
                             services of a recognized firm in the practice of name brand management to evaluate the vaiue of
                             space program associations in advertising and custom& relations, and; (2) initiate a review d
                             NASA practices related to commercial enterprises involving public service sponsorships,.
                             expressed or implied endorsements, or other siruarions which &&I public perception of the
                             nation’sspace program.

                     l       lmplement the pathfinder strategy as a forcing function to advance policies which will enable
                             the commercial development of space shuttle and space station.

                     JnnrellectualProperty’

                     l       Task   the NASA Of&e of General Counsel to complete a reface guide discussing the
                             statutory, regulatory and.. programmatic strictures on the deployment, utilization and
                             ownership of intellectual property within the space station program.




Page 13                                                     GAOLWAD-99-153R               Space Station      Commercialization
ENCLOSURE II                                                                                                    ENCLOSURE II


COMMERCIAL DEVELOPMENT PLAN
FOR THE SPACE STATION




                       l   Building on General Accounting O&e audit #707379 of technology control pians for the
                           space station, task the NASA Office of General Counsel to review agency policy related to the
                           handling and treatment of proprietary data. If necessary, issue a NASA Policy Directive to
                           correct any deficiencies.


                       Esroblish  a Non-Government        Orgoniznrion   for   Space    Station   Utilisotion     Development   and
                       Managemenr    (Horizon:   I+   Yeor)

                            Develop a reference model to communicate vision, goals, purposes and working principles frr
                            a non-government organimtion (NGO) to manage US utiliition of the space station and to
                            reduce cost/schedule impediments at the user-operator interface brovi&d in anochment 31.

                            Conduct a comprehensive vetting of stakeholders in the gov&ent,      academic and industrial
                            sectors, with the objective of elucidating advantages and disadvantages associated with 8x-
                            profit, non-profit, and ,hybrid consortium approaches implemented under contractual or
                            cooperative agreements.

                            Deveiop an organizational and telecommunications architecture that wiil be most effective f&
                            evolution to. an international scope of operations consistent with the national objectives and
                            existing infrasUucture of all partners in the space station program .                       .‘.
                            Issue a Request for Proposals and select a NGG in parallel with deployment of the US
                            Laboratory in calendar year 2ooo.



               This plan we have set forth, in concert with the 1998 Commercial Space Act, represenm an unprecedented
               initiative to stimulate business growth in the space sector. With the ongoing support of Congress and the
               Executive Branch, we look forward with great excitement to the opening of the 21st century and the role cf
               NASA in continuing to push the frontiers of science, te&ology,and economic development.




                                                                                 %auld        E. Nicogossi

                                                                                       Microgravity Sciences and Applications




 Page 14                                                     GAO/NSIAD-99-153R Space Station Commercialization
ENCLOSURE II1                                         ENCLOSURE III


COMMENTS FROM THE NATIONAL AERONAUTICS
AND SPACEADMMISTRATlON




            National Aeronautics and
            Space Administration
            Office of the Administrator
            Washington, DC 205464001




                                                                                    JJN 2 3 I9gg
                Mr. Allen Li
                Associate Director
                Defense Acquisitions issues
                National Security and International
                 Affairs Division
                General Accounting Office
                Washington, DC 20548.


                Dear Mr. Li:           .                                                             ‘.

                       Thank you for the opportunity to review and comment on the recent draft
                report entitled, “Space Station - Status of Efforts to Determine Commercial Potential
                (GAO code 707419).” This letter is to clarify and update a number of points made in
                the report so that this information can be included in the final report.

                       Enclosed you will find general and specific, observation comments for your
                consideration. There were approximately 36 staff hours expended on this response:
                Please contact Robert Soltess at 358-l 895;if further assistance is required.

                                                                 Sincerely,




                Enclosure




  Page 15                                        GAO/NSlAD-99-153R      Space Station   Commercialization
    ENCLOSURE    II1                                                ENCLOSURE     III



    COMMENTS  FROM THE NATIONAL                 AERONAUTICS
    AND SPACE ADMINISTRATION




                                             Comments on GAO Draft Report:
                               SPACE STATION-Status   of Efforts to Determine Commercial
                                    Potential (GAO Code 707419) dated June 1,1999


                       We have completed our review of the draft GAO report entitled “Space Station -
                       Status of Effort to Determine Commercial Potential,” and would like to make the
                       following general observations and specific suggestions.

                       General Comments:

                       Industry’s initial skepticism concerning the X-Ray Crystallography Facility is
                       understandable in light of the new technology involved and the fact that it has not
See comment 1.         yet been demonstrated on-orbit. In fact, some of the technology was developed ._
                       specifically to negate concerns about the amount of power and crew time             ’
                       required.on orbit. Once the facility is checked out and working on-orbit the        L
                       advantages will be obvious. As summarized in one of the survey reports
                       “Assuming positive results, demand for the facility can be expected to become
                       very heavy, as all respondents indicted they tiould use the facilii for diiicult
                       proteins if real results are possible’. Moreover “difficult proteins” are not rare;
                       typically, even the very best laboratories aroupd the world succeed in getting
                       high quality crystalsfor less than 40% of their projects. We have little doubt that
                       commercial use of the XCF will pay for its operations costs on&it is proven on
                       Otil.

                       Srjecific Suooestions:

                       Page 3, paragraph 1: To more fully explain the reasons for the XCF, the report
                       should add the following statements: “The major justifications     for the XCF
                       include: 1) the ability to cryopreserve crystals. (A major percentage of
                       protein crystals typically begin to degrade afler six weeks, so the ability to
                       cryopieserve the crystals will allow present traffic models on the Station to
                       be acceptable for this area of research.); 2) the ability to characterize
                       crystals being grown so that new experiments can be immediately
                       designed in an attempt to optimize the crystallization     conditions: and, 3)
                       the XCF can be used to perform topographical studies which will indicate
                       crystal perfection without damage from resntry g’s or vibration, and
                       extended growth once crystal samples are returned to a 1-g environment.”

                       In the paragraph at the top of page 7, add: “A majority of the respondents did
                       indicate that they would be interested in paying to use the XCF if protein
                       crystallization success rates could be improved and the utility of the XCF
                       was properly demonstrated.”




     Page 16                                                  GAO/NSIAD-99-153R         Space Station   Commercialization
     ENCLOSURE 111                                          ENCLOSURE III


      COMMENTS FROM THE NATIONAL AERONAUTICS
      AND SPACEADMINISTRATION




                                                                                                 2



                  On page 8, 1’ paragraph: A more appropriate characterization of the American
Seecomment 4.     Society for Cell Biology group is “a small team”, rather than a “review
                  committee”.

                  On page 9, line 2: Change “10 pound x-ray generator”, to “24 watt, 30 pound
See comment 7.    x-ray generator”.

                  On page 9, third bullet: The use of the word “rare” is not really correct although it
                  may have been used in one of the contracted survey reports. Typically, even the
See comment. 5.   very best !aboratories around the world succeed in getting high quality crystals
                  for less than 40% of their projects.

See comment 6.    Page 9, Footnote #,JS: Add: The total number of journal articles on space
                  protein crystal growth is well cker 100. The ASCB team conducted no
                  interviews with NASA experts or crystallographers   wtio have flown space.
                  experiments.

                  The correct wording for page 10, top paragraph, rather than “79% thought the
See comment 2.    Space Station based x-ray analysis was desirable”, is: “79% of the Space Station
                  based x-ray analysis was “highly desirable or desirable” for their work.

                  Page 10, first full paragraph, second sentence should be revised along the
‘See comment 2.   following lines: “..., initial commercial investment interest centers on the
                  facility’s crystal preservation and handling unit.”




     Page 17                                       GAO/NSI.AD-99-153R      Space   Station Commercialization
ENCLOSURE III                                               ENCLOSURE III


GAO COMMENTS

The following are GAO’s commentson NASA’s letter datedJune 23, 1999.

1. We recognized NASA’s commentin our summary of agencycomments.
2. We modified the text of the report to reflect NASA’s comments.
3. The focus of our discussion was on the question of who should pay to develop the x-ray facility and
   not on the question of who should pay to use it after the facility is on board the spacestation.
   Furthermore, NASA did not provide additional information to help us confirm the agency’s statement.
4. The American Society for Cell Biology called its group “a blue ribbon committee.” The report now
   reflects the Society’s characterization.
5. The reference to ‘kare” in the contractor’s summary of the survey results refers to the need for a
   microgravity environment and not to the percentageof di&action-quality crystals that are grown on
   the ground.
6. The information in the footnote refers to the number of articles that a committeemember told us were
   usedfor the report.
7. NASA later modified this information. According to NASA, tbe x-ray sourcehas a variable power
   systemand is planned to be operatedat about 25 watts. The total weight, including the power supply,
   is about 50 pounds.




(707419)




Page 18                                             GAO/W&D-99-153R         Space Station   Commercialization
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