Why Raytheon Views MUOS Loss As Step Forward

In America, we are taught the importance of finishing first. Winning teams are celebrated, their head coaches are venerated and their top players typically are rewarded generously. Losers, no matter how valiant or indefatigable, often become an afterthought as the victor is left to revel triumphantly in his or her success.

The recent mobile user objective system (MUOS) bidding process offers a rare opportunity for the losing team to talk optimistically about the future and for using its near miss of a multi-billion-dollar contract as a launching point for gaining future contracts with the U.S. Department of Defense. Waltham, Mass.-based Raytheon [RTN], a giant aerospace company, was attempting to achieve a breakthrough for the organization when it tried to beat well-established Lockheed Martin [LMT] of Bethesda, Md., and a formidable group of others to take the MUOS prize. The next-generation narrowband service will be deployed in 2010, replacing the capacity- constrained UHF Follow-On (UFO) communications network now used by the DoD and its troops.

A sign that that the bidding was close occurred earlier this year when the U.S. Navy, the military branch handling the MUOS procurement, opened up the process unexpectedly to seek additional information from the companies. The bids officially were submitted in February; oral communications occurred in March with Navy procurement officers; and follow-up questions were asked in June, at which time final, revised proposals were re-submitted by the bidders.

The last stage of the evaluation process gave the nod to Lockheed. However, all indications I have received are that Raytheon barely missed becoming a surprise winner. Both companies closely guarded information about how many satellites each would deploy but each ultimately proposed to launch five of them, while using one as an in-orbit spare. Each side’s engineers independently agreed on the ideal size of the constellation.

Frank Van Rensselaer, Raytheon’s MUOS program manager who also heads operations at its St. Petersburg, Fla., manufacturing facility, said he would use information gleaned from a de-briefing by the DoD about why Lockheed and its partners won the contract when bidding for future work.

A win by Raytheon would have been a coup, in light of its relative lack of experience in handling huge contracts for military communications systems compared to Lockheed. However, the Raytheon-led group was a formidable competitor that survived two cuts to become one of just two finalists.

“The government’s objective was to get two fully qualified space primes,” said Van Rensselaer, using the lingo of government procurement. “This was a stretch for us.”

Raytheon’s team members included Space Systems/Loral (SS/L).

“This would have been Loral’s entry into the government market,” Van Rensselaer added. “They were a great teammate. They have heritage from past government programs.”

SS/L would have provided the satellite bus. Raytheon would have built the payload, then sent it to SS/L for integration with the bus, which provides the propulsion, control and electrical system. The bus is more of a commodity, Van Rensselaer told us, and it can be expanded and contracted with more power or less power.

“Although we didn’t get the big prize, we will look at other opportunities,” Van Rensselaer confirmed. “We are looking forward to moving onto other work. It was our first opportunity to pursue a space contract as a prime contractor.”

“Lockheed is tough competition,” Van Rensselaer said. “The company has a strong heritage. I am very pleased we did as well as we did. We will try to determine why Lockheed’s proposal was better from either a technical or a cost standpoint.”

What’s Next?

Raytheon will be looking to opportunities to bid on future satellite-related contracts in both the DoD and civil government agencies. The company is focused on serving the government market and has no interest in trying to penetrate the highly competitive commercial business that already appears overcrowded with manufacturers.

Government customers are more interested in new technology and advancing the state of the art. For example, the U.S. Army Space and Terrestrial Communications Directorate earlier this year chose Raytheon for an 18-month study phase of the High Capacity Communications Capability (HC3) program. Final award selection will follow completion of the study phase.

Raytheon is gaining work by focusing on government satellites. Raytheon also now is recognized by the DoD as a prime contractor capable of coordinating the ground system, in- orbit satellites and the whole end-to-end network of a communications system.

Losses are disappointing but progress can be achieved in the process. Raytheon will be more difficult to beat in its next bid. For that reason, the company should be an attractive prospective business partner in future competitions.