The Cost Crisis of 1962-1964

In technical terms, NASA’s organization and procedures proved successful on Mercury and Gemini. Both programs boasted enviable flight records, com­pleting their objectives and successfully returning their astronauts on every flight. On the other hand, both programs featured large cost increases. Mc­Donnell’s Mercury capsule contract grew at an astounding rate, from an initial contract of $19,450,000 in 1959 to a total of $143,413,000 by the program’s end in 1963. Within months of its start, Gemini was headed for large cost increases as well. NASA funded the increases, although Congress began to ask questions in the fall of 1962.52

OMSF’s Holmes, overseeing the three manned space flight programs, saw the escalating cost trends as well as anyone. A hard-nosed project manager from Radio Corporation of America’s (RCA’s) Ballistic Missile Early Warn­ing System, Holmes realized that something had to be done if Apollo was to meet Kennedy’s 1969 deadline to land a man on the Moon. Holmes also rec­ognized that Kennedy had staked his reputation on the manned program and would go to great lengths to ensure its success. Based on this, he felt no par­ticular need to control costs and instead requested more funds from NASA Administrator Webb.53

Holmes first asked Webb to go back to Congress for a supplemental appro­priation. Despite Kennedy’s support, Webb recognized that Congress was be­coming uneasy about NASA’s burgeoning costs, and he refused. Holmes next demanded that Webb strip other NASA programs to support the manned pro­gram. When Webb again refused, Holmes went over his head, appealing di­rectly to President Kennedy. This infuriated Webb, now placed in the uncom­fortable position of justifying why he should not strip other NASA projects to fund Kennedy’s priority program. Although Kennedy was not sure that he ‘‘saw eye-to-eye’’ with Webb on this issue, he backed his chosen administrator. Webb replaced his insubordinate OMSF director with STL executive George Mueller (pronounced “Miller’’).54

Under the circumstances, further cost pressures were unwelcome. In March 1963, Gemini project manager James Chamberlin admitted that the project required another huge infusion of money. The unwelcome news led to his replacement by Charles Mathews. Mathews immediately set up a commit­tee to improve cost estimation at NASA and McDonnell. After another year of strained budgets and organizational crises — invariably related to novel portions of the project — Gemini’s budget stabilized, leading to an enviable record of flight success. However, cost estimates had risen from $531,000,000 to $1,354,000,000 between 1962 and 1964.55

With Congress increasingly concerned with costs, Webb instigated an in­ternal investigation of NASA projects in early 1964.56 Deputy Associate Ad­ministrator Earl Hilburn chaired the investigation to study NASA’s project scheduling and cost estimating methods. In confidential reports submitted in September and December of 1964, Hilburn described NASA’s abysmal record on cost and schedule control. Engine development showed by far the largest schedule slips, at 4.75 times the original estimate. Hilburn found significant slips in launch vehicles requiring new engines (3.09), manned spacecraft (2.86), ‘‘simple’’ scientific satellites (2.85), and astronomical observatories (2.83). Classified by field center, he found that the Jet Propulsion Laboratory (JPL) had the smallest schedule slips (1.6) and MSC the largest (3.06). The newest centers, MSC and Goddard, showed the largest slips, and the older centers (JPL, Langley) showed the smallest. Costs varied similarly.57

Hilburn noted that the DOD experience was also ‘‘one of over-runs and schedule slippages in the majority of cases.’’ He concluded that these results were behind recent changes in DOD procurement, ‘‘including program defi­nition, and incentive contracting.’’ Based on DOD precedents, NASA had al­ready begun converting contracts from cost-plus-fixed-fee contracts to incen­tive contracts that awarded firms a higher fee when they performed well and a lower fee when they did not. The Hilburn Report lent support to contract con­version at NASA, which NASA implemented from 1964 through 1966.58 NASA also adopted the DOD practice of phased planning, requiring contractors to better predict costs and schedules during a definition phase of development. The directive had little initial impact because of disagreements about imple­mentation, and more importantly, because few new projects started in 1966 and 1967.59

NASA’s manned space programs were among the worst offenders as NASA’s budget exploded between 1962 and 1964. Having grown accustomed to gener­ous, even extravagant budget increases without justification or congressional concern, NASA’s continued cost excesses were understandable, if not justifi­able. As in other organizations, the time came when its initial growth surge and justification had to slow and managers had to predict and hold to fund­ing profiles. At the highest levels, NASA could replace recalcitrant executives and implement new standards and processes, but to truly predict and control costs, NASA would have to implement rigorous procedures on its research and development (R&D) programs.