Navigating supply chain security in the space industrial base

A report from the U.S. Space Force, Defense Innovation Unit, and Air Force Research Laboratory highlights two seemingly conflicting goals within U.S. government's space policy: rapidly develop commercial solutions, while increasing supply chain trust and resiliency.

Introduction

The space industrial base has traditionally been dominated by major government aerospace contractors who provided hardware and services tailored specifically to the needs of their government customers. However, recent trends have shifted towards making the space industrial base more adaptable. This shift, highlighted in the "State of the Space Industrial Base 2023" Report, emphasizes a greater focus on commercial solutions. See Olson, Butow, Williams, Metcalf, "State of the Space Industrial Base 2023: Building Enduring Advantages in Space for Economic Prosperity and Collective Security," (Dec. 2023). The report recommends actions such as leveraging commercial speed, scope, scale, and production capacity, incentivizing private investment in the space economy, and sustaining programs that leverage commercial solutions. In the same breath, the report emphasizes the need for "supply chain trust and resiliency" and identifies "the tangled web of classification, the Authority to Operate process, cybersecurity and Controlled Unclassified Information (CUI) requirements" as an ongoing challenge for industry. 

These inherent tensions between innovation and security can leave new space industry entrants in the crosshairs. This article explores some of these supply chain security requirements tied to federal funding and discusses how the evolving space industrial base can strategically position itself for success.

Untangling supply chain restrictions for space companies

Supply chain security is crucial for all government contracts, but it holds particular significance in the space industry due to intense competition with China, resulting in heightened emphasis on the use of the U.S. defense industrial base. Ensuring supply chain security is vital not only from a compliance standpoint but also from a performance perspective. For instance, using counterfeit parts can severely impact the performance and reliability of space systems. Consequently, companies are driven by compliance requirements as well as agency-specific quality mandates. While the full spectrum of supply chain security obligations is beyond the scope of this article, these are a few of the key requirements that a new market entrant should keep in mind.

· Domestic sourcing requirements. The Buy American Act and Trade Agreements Act create a complex regime that governs when government agencies must provide a preference for U.S.-made products. While these requirements are often referred to collectively as "Buy American" requirements, the regulations permit many exceptions to the general rule, including (for some procurements) expanding the pool of eligible products to those manufactured by U.S. trading partners.

· Section 889 of the National Defense Authorization Act (NDAA). This rule prohibits the federal government and its contractors from using telecommunications equipment and services from certain Chinese companies due to security concerns. The rule is far-reaching and includes a prohibition on any prime contractor "use" of such equipment, even if such use is unrelated to a government contract.

· Counterfeit Parts. The risk of counterfeit parts in the supply chain poses significant threats to the reliability and safety of space systems. Federal regulations mandate stringent measures to detect and prevent the use of counterfeit parts in government contracts. Additionally, applicable regulations require contractors to notify their contracting officers when they become aware that actual or suspected counterfeit parts were delivered to the government.

· Federal Acquisition Supply Chain Security Act. FASCSA and its implementing regulations require contractors to make a "reasonable inquiry" into their supply chains to ensure they are not providing or using as part of contract performance any covered article, product, or service subject to a FASCA order. Contractors must periodically review the public list of FASCA orders to determine if any orders impact the contractor's supply chain.

· Cybersecurity and Software Supply Chain Security. Federal regulations, both those that apply to all government acquisitions as well as regulations that are agency-specific, require varying levels of security controls depending on the contract type and sensitivity of the access information. These regulations often include rapid reporting requirements, as well as obligations to monitor lower-tier subcontractors to ensure the security of systems that house government information.

How Space Companies Can Position Themselves for Success

To navigate these complex supply chain security requirements, space companies must adopt a multi-faceted approach:

· Understanding the Rules. It is imperative for companies to have a thorough understanding of all relevant regulations and compliance requirements. The supply chain security landscape is constantly evolving, and practices that were compliant 6 months ago might not pass muster today. Keeping abreast of changes and updates in laws is crucial.

· Building Strong Compliance Programs. Developing robust compliance programs that can monitor and enforce adherence to regulations is essential. This includes implementing internal audits, risk assessments, and verification processes to ensure compliance.

· Culture and Training. Fostering a culture of compliance within the organization is vital. Training employees on the importance of supply chain security and how to recognize and report potential issues is a key component of this strategy.

· Working with Suppliers. The federal government expects prime contractors to properly flow down supply chain security requirements to lower-tier subcontractors. Collaborating closely with suppliers to ensure they meet compliance requirements - and flow them down the supply chain - is critical. This involves conducting thorough due diligence on suppliers, establishing clear compliance expectations, and maintaining open lines of communication to address any concerns promptly.

Conclusion

The evolving space industrial base must navigate a complex landscape of supply chain security requirements to secure federal contracts and maintain competitive advantage. By understanding the regulations, building strong compliance programs, fostering a culture of compliance, and working closely with suppliers, space companies can position themselves for long-term success.