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DoD and DNI Battle Over Billions

Very quietly and out of sight of almost everyone but the actual players, the Director of National Intelligence's office and the Pentagon's head of acquisition are battling for the soul of the next-generation of reconnaissance satellites. A decision on this is likely this week, we understand. A draft "Statement of Guidance" is circulating, but it is classified so we cannot tell you what is in it.

The outcome of this struggle may well reshape the relationships between the military and the intelligence community, since the power to determine requirements largely determines what will be bought and how much it will cost - not to mention which company will most benefit.

In addition to the high intensity-low visibility battle between the intelligence community and the military, the future of two companies may depend on the decision: DigitalGlobe and GeoEye.

GeoEye plans an August launch of its high resolution reconnaissance satellite, GeoEye 1, which will be able to provide commercial customers and the national security establishment with better than half-meter resolution in full color. DigitalGlobe plans a launch of its WorldView2 satellite in late 2009.

Both companies need customers for the imagery. If they don't lock in the federal government as a major customer they may find it difficult to convince investors that they should stick with them. And both are spending substantial amounts of money to build these new satellites. And they haven't launched or deployed yet.

Lockheed Martin wants to build what has been termed the "exquisite" solution to this requirement and is reportedly pushing this. However, we understand from a senior intelligence source that Lockheed is unlikely to get this business in the next two to three years. Let's look at where the major government players in this drama stand. The DNI's director of acquisition, Al Munson, reportedly wants GeoEye to get a contract for providing imagery. But he is being challenged and countered by Don Kerr, principal deputy director of National Intelligence. Kerr, whose last job was running the National Reconnaissance Office, wants to buy -- not lease -- the satellites to do this kind of work.

And this argument is apparently gaining considerable support in the Pentagon, where the Boeing tanker lease deal still leaves a bad taste in everyone's mouth. Plus, there is what one industry source described as the old argument about leasing or buying your car. You may pay more upfront for a car you buy, but it's yours. That has powerful resonance with secretive intelligence types who like to control their toys.

The second part of that argument is that the commercial market just isn't robust enough to produce low enough prices to make a service level agreement (SLA) feasible. The industry source argued that if you combine the commercial market here with the foreign market you get a substantial number of sales that would drive down the cost per pixel.

Kerr's last workplace supports the buy-it approach, arguing that there must be a mix of commercial and government sources. But the country needs better capability than the commercial side can provide, Kerr and others are reportedly arguing, and money for SLAs would compete with the commitment to build a new government bird.But the senior intelligence source told me earlier this week that no one has ruled out going with SLAs.

There is already government money at stake. The numbers are classified but I understand the NRO has a substantial sack of cash from last year's budget and an even bigger sack in the 2009 budget for BASIC. Congressional aides want a decision because the 2008 money must be spent soon or be reallocated. After all, it is the third quarter already and no decision has been made on the shape of the program.

The NRO's solution has few friends in the Pentagon, because of the number of its program failures over the last five years, including the Future Imagery Architecture and the recent radar and electro-optical satellite that had to be shot down after it failed to activate after launch.

The NRO has had its milestone decision authority stripped from it for two programs recently. The first program it lost was BASIC, back in March. John Young, undersecretary of Defense for acquisition, technology and logistics, pushed that through when the NRO proposed a solution he thought was unwise. This week's decision should mark the final decision on a key national capability.

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