DESTINATION MOON: A History of the Lunar Orbiter Program
The Status of the Boeing Contract
[210] While Boeing and NASA Lunar Orbiter management took steps to improve the delivery schedules at the subcontractor level, Scherer's office was becoming more anxious about the total effect which the various hardware, management, and funding problems could have upon the incentive provisions of the Boeing Lunar Orbiter contract. In the original contract, signed May 7, 1964, the target cost for the entire program had been $75,779,911. The target fee had been $4,736,244. The contract stated explicitly that "in no event shall the sum of the fee, adjusted pursuant to paragraphs (b) and (c) below, be more than fifteen percent (15%) of target cost nor less than zero percent (0%) of target cost."60 Paragraph (b) further stipulated how the actual cost was to be established and how the target fee was to be revised. Explicitly the contract read: "(A) If the cost is equal to the target cost, the fee to be paid shall be the target fee. [211] (B) If the cost is less than the target cost, the fee to be paid shall be increased by ten percent (10%) of the amount by which the cost is less than the target cost. (C) If the cost is greater than the target cost, the fee to be paid shall be decreased by ten percent (10%) of the amount by which the cost is greater than the target cost."61
The crucial part of the Lunar Orbiter incentive-fee contract hinged upon the provisions defining the incentives. Two specific items determined the incentives: delivery and performance. An Evaluation Board composed of the Associate Administrator of the Office of Space Science and Applications, the Director of the Langley Research Center (or their nearest and equivalents) and a chairman appointed by the Associate Administrator of NASA, would be responsible for evaluating the contractor's performance and delivery of the spacecraft in accordance with predetermined schedules. The contract stated that NASA would penalize the contractor to a maximum of $16,000 for each individual delivery date, for each calendar day, including Saturdays, Sundays, and holidays, by which actual accomplishment of delivery and acceptance shall have been later than the target date as set forth below. Spacecraft deliveries to the National Aeronautics and Space Administration will be effected in a sequential manner as follows:

[212] Flight Spacecraft No.

Delivery Date


May 7, 1966


May 7, 1966


July 21, 1966


October 21, 1966


December 18, 1966."62

These provisions were tempered by two other stipulations that held the reduction in fee for any individual delivery to a maximum of $300,000, the equivalent of a delivery thirty days late. Moreover, the total penalty for all delays or late deliveries resulting from "causes beyond the control and without the fault or negligence of the Contractor as defined in Clause 12, Excusable Delays (September 1962), of the General Provisions attached hereto," was the responsibility of NASA.63
The history of the Lunar Orbiter Program until the last quarter of 1965 showed several constraints which possibly threatened delivery and over which Boeing had little or no control. The funding situation has previously been discussed as one of these constraints. Another one was the failure of NASA to couple delivery of ground spacecraft with flight spacecraft in the incentive provision of the contract. This failure created an awkward situation by October, which Scherer outlined in a memorandum to Clifford H. Nelson and Sherwood L. Butler at Langley. As certain hardware difficulties, the V/H sensor and the 610-mm-focal-length camera [213] lens shutter for example, caused delays stretching into weeks, the testing programs for the ground spacecraft suffered. However, these delays did not hold up fabrications testing, and delivery of flight spacecraft because, as defined by the contract, the flight spacecraft could be delivered to NASA without the contractor having performed adequate prototype testing.
Thus, the delivery schedule incentive was in danger of losing its meaning. In fact, this condition in the contract's structure-allowing flight spacecraft deliveries without their being contingent on the development and testing of ground spacecraft-constituted a major loophole for Boeing, and Scherer urged that Langley Research Center compensate for it immediately.64
Scherer pointed out that when the time came for the three-man Evaluation Board to perform its tasks, the contractor would naturally be prepared to offer "the strongest possible justification of schedule delays based on government actions, such as late government furnished equipment or facilities and conflicts that will likely develop between Orbiter and other programs in the DSN."65 It was absolutely necessary for the Lunar Orbiter Program to substantiate the [214] arguments of the Evaluation Board with verified documentary evidence pertaining to all aspects of the incentive provisions in the contract.