The Next Frontier: Key Lessons from the US Government’s New Commercial Space Strategies | Sheppard Mullin Richter & Hampton LLP

The U.S. government continues to increase its federal investments in space – not for exploration, but rather as a defense strategy – and these continued investments provide significant opportunities for commercial entities to collaborate with the federal government on space projects. On April 2, 2024, the Department of Defense (“DoD”) released its first-ever Commercial Space Integration Strategy (the “DoD Strategy”) and just a few days later, on April 8, 2024, the US Space Force released its Commercial Space Integration Strategy (the “Space Force Strategy”) (collectively, the “Strategies”). The strategies are complementary and formalize the U.S. government’s commitment to “making commercial solutions integral – and not merely supplementary – to the architecture of the national security space.” The strategies include a number of key points for both commercial space and satellite companies and traditional government contractors engaged in space-related activities. Here are the highlights:

Out with outdated solutions, in with commercial solutions

The Strategies state that the government will move away from “legacy practices,” including procurement for customized, DoD-specific capabilities, and instead rely more heavily on the procurement of commercial solutions. The resulting contracts (and ‘other agreements’, which probably means other transaction agreements) should be less onerous (i.e, contain fewer requirements) than traditional, non-commercial government contracts. But commercial companies should remember that, despite the streamlining rhetoric, the government is not a commercial consumer. There will be significant associated with this purchase of commercial solutions, including (among other things) “the cyber, data, and supply chain security requirements that commercial entities must meet in order to work with the Department.” Commercial companies must carefully consider each specific opportunity before signing on the dotted line.

Commercial customers may be required to take a back seat

Unless you are really paying attention, the DoD strategy contains a single sentence that contains crucial content and is easily overlooked: “Where appropriate, contracts will allow for the prioritization of departmental requirements and capability needs over other commercial customers.” Commercial entities unfamiliar with sales to the federal government should take note: This sentence provides forewarning that resulting DoD contracts and orders may be “reviewed” under the Defense Production Act (DPA). When invoked, the DPA requires the commercial entity executing the order to give priority to that order over all others, whether commercial or federal. In other words, the US government gets to be at the front of the line whether your commercial customers like it or not. The regulations implementing the DPA are somewhat complex and require immediate attention (depending on the use of the rating, orders require a response within 10 to 15 days). Under certain circumstances, failure to comply with these regulations is a federal crime. Commercial entities seeking contracts in this area (pun intended) should be aware of these requirements.

The government plans to provide protection for commercial space solutions.

This one is interesting. The Administration plans to use a range of approaches to reduce risks to commercial space operators where necessary to support national security space operations. This includes (1) providing best practices and standards for behavior in space, (2) sharing threat intelligence, (3) providing financial protection (including commercial insurance, commercial war risk insurance, U.S. government-provided insurance and indemnification), and (4) “(i)n appropriate circumstances, the use of military force to protect and defend commercial assets.” So while there may be more strings attached to doing business with the government, it can bring certain benefits that are not common with commercial contracts – including strong protection of commercial assets in space. It will be important for commercial entities to ensure that these government benefits are explicitly provided under the terms of any contract.

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We expect to see an increasing number of contract opportunities as the federal government increasingly turns its attention to space. The recently released Strategies are a subtle recognition of the space industry’s efforts to tackle the government’s often frustratingly opaque procurement processes and demonstrate the government’s enthusiasm to leverage the speed and innovation that commercial solutions deliver. In the ongoing “build versus buy” debate, the strategies signal the government’s willingness to devote more resources to purchasing commercial services in a variety of space sectors.

That said, satellite and space companies considering these opportunities must assess the risks.