Creating successful public-private partnerships

Pentagon, captured by WorldView-2, August 2014Last week, DigitalGlobe’s Founder and CTO Dr. Walter Scott was invited to testify before two U.S. House of Representatives subcommittees interested in exploring commercial opportunities to maximize the U.S. Government’s investments in remote sensing earth science. The hearing covered a lot of ground, from satellite technology, to regulatory issues, to business models. We’ve been told we are the gold standard of public-private partnerships — the National Geospatial-Intelligence Agency (NGA)’s EnhancedView program. DigitalGlobe has a unique perspective on what it takes to make these arrangements successful.

 

What Constitutes a Public-Private Partnership?

Since the dawn of the space age, the U.S. Government has relied on commercial firms to provide all sorts of products and services for space missions. These days, entire government satellite constellations are built, launched, and operated by commercial firms, with funding and oversight provided by federal agencies. But that model doesn’t fit the true definition of a public-private partnership, because it doesn’t deliver the cost efficiencies that are gained when the government uses a product or service that’s also used by a wider customer base. It also doesn’t fit since it puts all of the burden of risk on the government.

The public-private partnership created by DigitalGlobe and the U.S. Government dates back more than a decade, most recently codified in 2010 under the EnhancedView program. NGA is the nation’s primary source of unclassified geospatial intelligence for the Department of Defense and U.S. Intelligence Community, and DigitalGlobe provides NGA with over 90% of its foundational earth imagery requirements, supporting operational mission planning, disaster response and recovery, and situational awareness. EnhancedView is a 10-year (one base year plus nine option years), firm fixed-price contract. It is a Service Level Agreement (SLA), meaning that the government only pays for the products and services it receives — not the infrastructure, overhead, and workforce costs that accompany traditional government acquisition programs. Because DigitalGlobe is able to spread these costs over hundreds of customers around the world that account for a large proportion of the company’s revenue, NGA realizes dramatic cost savings relative to building and operating a similar capability.

Rationale and Benefits of Public-Private Partnerships

U.S. National Space Policy of 2010 is extremely prescriptive in its position on the U.S. Government’s acquisition and use of commercial space services. Specifically, U.S. departments and agencies were directed to:

  • Purchase and use commercial space capabilities and services to the maximum practical extent when such capabilities and services are available in the marketplace and meet United States Government requirements;
  • Actively explore the use of inventive, nontraditional arrangements for acquiring commercial space goods and services to meet United States Government requirements, including measures such as public-private partnerships, hosting government capabilities on commercial spacecraft, and purchasing scientific or operational data products from commercial satellite operators in support of government missions; and
  • Develop governmental space systems only when it is in the national interest and there is no suitable, cost-effective U.S. commercial or, as appropriate, foreign commercial service or system that is or will be available.

The numerous U.S. agencies that rely on space-based capabilities have been pursuing innovative commercial partnerships in recent years as a result of this Policy. NASA itself is, of course, very familiar with these types of arrangements, having implemented them to resupply the International Space Station, and, eventually, send U.S. astronauts there. The U.S. Air Force has pursued a number of opportunities to host U.S. Government payloads on commercial spacecraft, and it plans to outsource the operation of its Wideband Global Satcom (WGS) communications satellites to a commercial firm next year. If successful, this program could serve as a pathfinder for commercial operation of other government constellations such as the Global Positioning System, service officials have said. And, of course, NGA’s EnhancedView program.

To that end, DigitalGlobe believes these kinds of innovative public-private partnerships can and do provide specific, considerable advantages to the U.S. government:

  • Cost savings. An SLA allows the government to know exactly what it will be paying to fulfill its needs, as it encompasses everything required to build, launch, and operate a system under a firm fixed-price contract. DigitalGlobe has invested billions of dollars not only building its fleet, but also the secure operations, a global network of a dozen ground stations, and a communications and processing infrastructure that supports operations. Additionally, we provide a greater value to the government because costs are spread across both USG and commercial customers. In all actuality, it’s not only far cheaper than acquiring a similar government-owned capability, but it’s also a fraction of market price.
  • Mutual interest in delivering performance and value. As a commercial company, DigitalGlobe succeeds only when we provide value to our customers. If we do not provide the value demanded by our customers, including NGA, then we will not succeed as a commercial company. It’s the difference between building a house for someone else, and building the house that you live in yourself. This is why we have delivered such a high level of performance to NGA; despite the very high—and increasing—level of performance they demand, we have exceeded this performance for the past 40 consecutive months without fail.
  • Innovation. As a commercial company in a highly competitive industry, we must constantly innovate to meet the needs of our customers, which operate on much faster product cycles than the government. This has a reciprocal benefit for the U.S. government, our largest customer, as it leverages investments we make to serve our commercial customer base, driving greater efficiencies in the products and services we deliver. We are pleased to see that NGA, our largest customer, is leaning forward in leveraging this trend of commercial innovation.
Keys to a Successful Public-Private Partnership

While there are many significant advantages to public-private partnerships, there have also been some tough lessons learned in the past decade. A few important considerations are key to ensuring a successful public-private partnership:

  • Balance the needs of the U.S. government with the commercial partner. As a business, DigitalGlobe has a responsibility to deliver a return to its shareholders. Given the capital-intensive nature of our business, we must invest significant resources and capital to build the required network and satellites to be a mission-critical partner for an agency like NGA. Much like computer software companies, we make our money by building—or collecting—once, then licensing that imagery multiple times to different customers. As such, if a customer is allowed to widely or freely disseminate our products, then their commercial value is diminished or outright destroyed. The Government would need to make the tradeoff between completely open data availability at much higher cost to the Government versus, for example, a lower cost for open availability for research but not for open dissemination.
  • Promote a predictable regulatory regime designed to enable innovation. Our industry is regulated by statute to ensure compliance with U.S. law, foreign policy, and national security objectives. The current regulations were written in a time where there were very few players outside the government capable of remote sensing. Since that time, the world has changed drastically, and technology is moving at a pace like never before. This necessitates regulatory reform that will encourage innovation and allow U.S. companies to stay ahead of their international competitors, instead of burdening them with outdated, unnecessary administration. Regulatory overreach or improperly applied regulation stifles progress and creates an uneven playing field for U.S. commercial companies competing with foreign subsidized competitors. The United States has played a critical role as an international leader in the space industry, and to maintain and extend our leadership, we need a regulatory framework that ensures that leadership, staying well ahead of—not simply achieve parity with—foreign competition. The U.S. government must tailor policy and regulations to reflect the fact that remote sensing is no longer a U.S. only, exclusively government based effort, but instead a global technology that contributes to national security, commerce, disaster relief, and so much more. After all, when the original legislation was passed in 1992, the Internet had only been available to the public for a little over a year; today, billions of people use the Internet on their desktops and smart phones to access satellite imagery. Few had cell phones, none with built-in cameras. It’s a vastly different world today; shouldn’t the regulatory framework be updated to reflect that?
  • Promote transparency and stability in the budgetary process. The budget climate in Washington presents risks for any industry that works with the federal government. The near-constant commentary about potential cuts to defense and civil government spending has led to annual speculation—no matter how unfounded—about whether the NGA can renew DigitalGlobe’s SLA, which accounts for a significant portion of our revenue base. The perceived uncertainty often impacts our ability to make long-term planning decisions and investments that would ultimately benefit our U.S. Government customer.