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Pentagon Opens Investigation Into Space Launch Contracts

The United Launch Alliance Atlas V rocket with NASA's Magnetospheric Multiscale (MMS) spacecraft onboard launches from the Air Force Station Space Launch Complex 41 on March 12, 2015 in Cape Canaveral, Fla.The United Launch Alliance Atlas V rocket with NASA's Magnetospheric Multiscale (MMS) spacecraft onboard launches from the Air Force Station Space Launch Complex 41 on March 12, 2015 in Cape Canaveral, Fla.
The United Launch Alliance Atlas V rocket with NASA's Magnetospheric Multiscale (MMS) spacecraft onboard launches from the Air Force Station Space Launch Complex 41 on March 12, 2015 in Cape Canaveral, Fla.Photograph by NASA/Getty Images

The Pentagon’s inspector general has opened an investigation into comments made by a United Launch Alliance executive last week that suggested federal officials improperly weighted competitions for space launch services to favor the company.

The inquiry will look at whether contracts to ULA, a joint venture between Boeing (BA) and Lockheed Martin (LMT), “were awarded in accordance with DoD and Federal regulations.”

It follows recent comments by former United Launch Alliance (ULA) vice president of engineering Brett Tobey at the University of Colorado about a competition held late last year for a contract to launch a U.S. Air Force satellite sometime in 2018. That competition was to be the first in which Elon Musk’s SpaceX was certified to compete with ULA for a national security-related launch.

But ultimately, ULA declined to bid on the contract, saying that it was unable to meet the criteria the government set out. The decision undermined the competitive nature of the bidding, which SpaceX will now likely win by default.

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“The government was not happy with us not bidding that contract, because they had felt that they’d bent over backwards to lean the field in our advantage,” Tobey told the audience. The notion that the Pentagon could be improperly designing its launch contracts to favor ULA over SpaceX triggered the inspector general’s investigation.

ULA CEO Tory Bruno immediately disavowed both the comments and Tobey, who resigned the following day. But an investigation into how the Pentagon awards its space launch contracts heaps yet another headache onto a growing pile of troubles for ULA as the company struggles to adjust to a new competitive marketplace and the loss of a critical engine supplier.

Prior to SpaceX’s certification as a U.S. military launch provider last year, ULA enjoyed a monopoly on national security-related satellite launches, charging hundreds of millions of dollars apiece to loft payloads into orbit for the U.S. Air Force. That market dominance is now challenged by SpaceX, which can offer the Air Force launch services for something closer to $60 million to $80 million. Tobey admitted in his remarks that ULA simply can’t compete with SpaceX on cost, and that was the reason ULA didn’t submit a competitive bid in the GPS III satellite competition—a narrative drastically different from the official one provided by ULA at the time.

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But ULA’s problems run deeper than price competition. In response to Russia’s annexation of Crimea in 2014, Congress has restricted the use of Russian RD-180 engines for national security-related launches. The RD-180 powers ULA’s workhorse Atlas V rocket, and while the company is working with both Aerojet Rocketdyne (AJRD) and Jeff Bezos’ Blue Origin to develop a new American-made replacement, that engine likely won’t be ready at least until 2018. As such, SpaceX is in a plum position to replace ULA—at least temporarily—as the Air Force’s sole provider of launch services.

It’s unclear exactly how it might impact ULA if the inspector general does find that the Pentagon improperly skewed the contracts in its interest. What is clear is that ULA leadership needs neither another headache nor a distraction right now as it tries to right the ship, and an inspector general’s probe will likely offer both.