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New Space and Public Procurement: Contract Models, Risk Allocation, and Strategic Perspectives

In Summary / Key Takeaways:

• Key shifts. New Space sees public entities moving from “project authorities” to partners or customers, with greater costs, risks, and responsibilities allocated to private actors.
• Instruments. This transition is supported by the adoption of innovative procurement and contractual models to support research, innovation, and competition, such as Pre-Commercial Procurement (PCP), Public Procurement of Innovative Solutions (PPI), and Public-Private Partnerships (PPP).
• EU/ESA Opportunities. The EU vision of July 2025 and the ESA Strategy 2040 aim to promote New Space approaches and establish public-private partnerships, including cross-sectoral and financial ones.
• Critical issues. Collaborations between the public and private sectors, however, require proper structuring, considering success (or failure) factors such as risk allocation and management, and intellectual property.

For an in-depth analysis, continue reading below or download the PDF version.

Recently, New Space shifted public-private relations. The traditional model (Old Space) had government agencies as “project authority”, with programs funded only by public investment. Now, private entities take on more costs and risks, while public entities evolve toward the roles of partner, anchor customer strategic customer), or simply consumer.

1. The new models: general overview

Depending on market maturity and demand, the public entity today assumes various key roles, as illustrated in the following diagram.

• Consumer. The opposite extreme of Old Space. The public entity is a mere purchaser of commercial (“off-the-shelf”) products and services at a fixed price. Costs, technical risks, and liabilities remain with the private entity.
• Anchor Customer (Strategic Customer). The public entity supports demand by guaranteeing the purchase of specified quantities of products or services from the private partner, thereby enabling technology development and attracting investments.
• Partner. Public and private sectors co-finance and jointly develop projects through (see also OCSE report "Evolving public-private relations in the space sector", 2021):
  • Co-financing of R&D (for example, pre-commercial procurement), for the development of highly innovative products or raising the technological capabilities of private partners.
  • Public-private partnership (PPP), through long-term agreements and services.
  • Infrastructure sharing or leveraging of excess capacity, for example, hosted payloads, public payloads on commercial satellites, or condominium satellites, co-ownership of satellites.

2. The European Landscape and Models

In Europe, institutions remain the main funders and customers, with differentiated approaches:

• European Union (EU): the 2021-2027 programs (Space Reg. 2021/696 and IRIS² Reg. 2023/588) are managed by EUSPA in relation to the aspects of the development and promotion of markets for space services.
  • Rules: competition rules are applied, and procurement models are defined in the Space Reg. and IRIS² Reg.
  • IP: typically, IP rights belong to the EU (especially for the governmental infrastructure of IRIS²). For works realized with grants or co-financing, IP may remain with the funding beneficiaries (see Space Reg.).
  • Start-ups and SMEs: involvement is provided for through minimum subcontracting obligations (Space Reg.) and participation in PPPs (see in particular IRIS² Reg.), as well as initiatives dedicated to supporting growth and access to risk capital (such as the Cassini initiative).
• ESA (European Space Agency): manages its own programs and EU ones (Galileo and Copernicus) regarding design and development.
  • Rules: except for EU programs, ESA applies the principle of geo-return (geographical return) and its own procurement rules (see ESA Contracting Regulations and related Implementing Instructions, General Clauses and Conditions for ESA Contracts, and Best Practices for the Selection of Subcontractors by Prime Contractors in the Frame of ESA’s Major Procurements).
  • IP: unlike the EU, IP generally remains with the private contractor, with ESA retaining the right of access and use.
  • Start-ups and SMEs: ESA also provides for direct involvement or subcontracting mechanisms for major programs. An example of the new approach (service purchase) is the awarding to a consortium led by ClearSpace SA (a Swiss start-up) of a strategic mission for orbital safety (removal of space debris).
• Member States: use procurement systems harmonized at the EU level, with national specificities or intergovernmental agreements.

Innovative Procurement Instruments. Beyond traditional tenders, more flexible instruments are spreading, such as:

• ESA Contests for innovative solutions: awarding prizes and, at ESA's discretion, execution of a contract or a cooperation agreement.
• Pre-Commercial Procurement (PCP): exempted from rigid public procurement rules, PCP covers R&D activities up to the prototype (but not commercial development and/or purchase of final products) and provides for co-financing and sharing of risks and benefits (IP rights cannot be for the exclusive use of the public entity).
• Public Procurement of Innovative Solutions (PPI): the public entity acts as a first buyer of solutions not yet on the market, with a phased process (milestones) and co-financing. The applicable IP rights regime is defined by the contracting authority.
• Public-Private Partnerships (PPP): long-term agreements for the supply of goods and services in technologically and commercially mature segments, which provide for co-financing, a significant decision-making role for the private entity, and risk transfer also to the private party (there are various models, e.g., "build-own-maintain", "design-build-operate", etc.).

3. Proper Structuring: Feasibility Analysis

Structuring a collaboration between public and private sectors is a critical aspect (as demonstrated also by cases of failure). Before launching a partnership, proper and careful preparation, evaluation, and structuring are necessary, taking into consideration:

• project risks and their allocation.
• industry characteristics and possible competition level.
• incentives for private actor participation and capital attraction (allocation of IP rights is also particularly critical).

The following chart summarizes the partnership preparation process.

For proper project governance, it is also essential to evaluate the model’s ex ante applicability using a “decision matrix”.

Table: decision matrix for PPP usage

4. Conclusions and future perspectives

New Space has introduced models that increasingly involve private entities as key players. This direction is also confirmed by the recent EU vision and ESA strategy, the content of which steers towards the following.

However, as highlighted in the concluding key findings, success is not guaranteed. Careful evaluation of the specifics of the sector, market, and structural requirements is required.

Note: This document is for informational purposes only and does not constitute legal advice, nor does it create an attorney-client relationship.