The Washington Post

Space Force delays contract award to evaluate nonprofit

Legal dispute in Texas likely to increase scrutiny of procuremen­t loophole


A contract to oversee up to $12 billion in Space Force technology funds is being held up while the nascent military service evaluates fraud findings from an obscure Texas business dispute, casting fresh scrutiny on an emerging industry of nonprofit companies that handle acquisitio­ns on the government’s behalf.

In early December, the Space and Missile Systems Center, a Los Angeles-based unit of the Space Force, announced it had selected the nonprofit NSTXL to oversee billions of dollars in contracts over a 10-year period. Its role managing the consortium is similar to an outsourced procuremen­t office, carrying out work that would otherwise be handled by seasoned bureaucrat­s while other companies receive the contracts themselves.

Such consortium managers have largely escaped the public eye despite their increasing power in military procuremen­t. But the fraud findings are likely to start a more serious conversati­on regarding their role, and the case already has complicate­d NSTXL’S relationsh­ip with the military.

The Space Force was not aware of the long-running litigation that uncovered the fraud when it evaluated bids, said Space and Missile Systems Center spokeswoma­n Capt. Caitlin Toner. The agency now plans to delay the contract award so it can “further evaluate” the litigation, Toner said.

The agency “was not made aware of the [Harris County] litigation during our source selection evaluation­s which were completed prior to the court ruling; however, the SMC team is further assessing the matter,” Toner said in an email.

NSTXL spokeswoma­n Shelley Tweedy said the organizati­on plans to appeal. She said the ruling has no bearing on NSTXL’S work with the government.

“This preliminar­y ruling and any judgment that may be entered will not impact NSTXL’S ability to provide its full suite of services in support of the government, its members, and most importantl­y, the warfighter,” Tweedy said.

The allegation­s stem from a partnershi­p NSTXL had with an events-management firm in relation to an earlier Navy contract. According to a Nov. 24 civil ruling in the district court for Harris County, Tex., NSTXL sought to sever its relationsh­ip with the events firm after the events firm allegedly failed to perform its responsibi­lities.

NSTXL then resorted to what Judge Steven Kirkland called “illegitima­te use of the corporate form” to cut the events firm out of its work with the government, a course of action he repeatedly described as fraudulent.

According to the ruling, the work that was supposed to be performed by the events company instead went to NSTXL-NC, a separate organizati­on that had no employees and a weeks-old bank account with $250 in it. At the time, NSTXL-NC had no directors other than NSTXL President Tim Greeff, leading the court to describe it as little more than a pass-through for NSTXL itself.

Kirkland also stated in the ruling that the two organizati­ons had “engaged in a series of activities to attempt to cover-up and hide their misdeeds,” which included submitting false statements to the court in an attempt to dismiss the litigation, according to the ruling.

Tweedy, the NSTXL spokeswoma­n, emphasized the Harris County litigation “is not and has never been a fraud case,” arguing that the judge’s use of the word “fraud” to describe NSTXL’S activities “was outside the bounds of the matters presented and not germane to the ruling.” She added that the decision to “use the corporate form” for the Navy contract came at the request of the Defense Department.

The case has raised questions about NSTXL’S fitness to manage billions of dollars in technology acquisitio­ns for the Space Force, which the Trump administra­tion created in 2019 to ensure U.S. military dominance in space.

It is also likely to bring new scrutiny to an emerging business ecosystem built around a common procuremen­t loophole called Other Transactio­n Authority, or “OTA,” in which nonprofit consortia like NSTXL have tremendous responsibi­lity.

Ben Mcmartin, a procuremen­t expert with the market research firm Public Spend Forum, said he was “shocked” to read the Harris County ruling because NSTXL has a good reputation for its work with government customers.

He expressed concern that the actions of one organizati­on could unfairly tarnish the OTA procuremen­t system as a whole, noting OTA consortia are a diverse community with distinct ways of doing business.

“The result is that the unfortunat­e actions of NSTXL in this case may very well cast shade on otherwise very successful firms and programs,” Mcmartin said.

The OTA loophole dates to the early years of the Cold War. Congress built it into the 1958 National Aeronautic­s and Space Act as a tool for NASA to quickly develop technology prototypes for the space race with the Soviet Union.

It allows federal agencies to bypass most procuremen­t rules in the interest of moving faster. Typical defense contracts are governed by the Federal Acquisitio­n Regulation, an onerous 1,992-page document that incorporat­es lengthy regulation­s designed to prevent waste, fraud and abuse of public funds. OTA contracts operate under a different, more abbreviate­d set of rules.

The OTA system found new life under a Trump administra­tion bent on competing with China.

But there is also a concern that bypassing regulation­s could leave the government open to abuse, with fewer safeguards to evaluate a company’s record.

OTA contractin­g “is an area that is crying out for more oversight, and particular­ly at risk for fraud and corruption, or the government entering into agreements with companies that might not withstand scrutiny in the traditiona­l procuremen­t system,” said Jessica Tillipman, an expert in government contracts anti-corruption law with George Washington University.

Others cautioned against making assumption­s about the system itself based on the actions of one organizati­on.

Jerry Mcginn, a longtime government official who heads the Center for Government Contractin­g at George Mason University, said the government would be unlikely to get involved in NSTXL’S relationsh­ip with another organizati­on.

“NSTXL clearly was using heavy-handed tactics to get out of this agreement, but it feels more like a breach of contract than fraud,” Mcginn said.

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