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SpaceX Lands a Military Contract

http://money.cnn.com/2016/04/28/news/spacex-military-contract-elon-musk/index.html

 

This article describes a new contract that SpaceX was awarded from the US Air Force. SpaceX was awarded $82.7 million dollars to launch and put into orbit a gps satellite. This new contract is significant for both SpaceX and the US military, as previously there was a military launch monopoly held by Boeing and Lockheed Martin. The change was in part due to deteriorating US relations with Russia, which is where Boeing and Lockheed source its booster sections. The new contract is a big step for SpaceX, which secured a large new contract and is likely the first of many contracts with the US military, and also a big step for the military which can source booster sections from a place other than Russia.

 

The process of landing this military contract is related to the concept of auctions that we learned in class. Many different parties are vying for one prize, which is the contract that the US military is selling. However, there are some interesting differences. For one, “buyers” such as SpaceX, Boeing, and Lockheed are actually the people who will be getting paid if they win the auction, and they provide a service to the seller. The auction is a competition to see who can provide the service. As a result, instead of providing a price to the “seller”, each buyer proposes an engineering plan along with other details about the contract, and the “seller” selects which company to grant the contract to based on price, likelihood of success, and other factors. In this example, SpaceX provided an incentive for the “seller” to choose them to grant the contract to, perhaps having the lowest cost or highest likelihood of success based on the fact that they don’t need to rely on Russian motors. As a result SpaceX edged out all the competition and won the auction.

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