NASA plans to award $2 million to a team that can design, build and fly a mission that simulates a lunar takeoff and landing, the U.S. space agency announced on Friday.

The recent announcement stated that NASA has forged a partnership with the X Prize Foundation, an organization that promotes space exploration, to hold the Lunar Lander Analog Challenge. The contest, for development of a vehicle to simulate a landing on the moon, carries $2.5 million in prizes, including NASA's purse.

Patterned after the successful $10 million Ansari X Prize, which was awarded in 2004 for the first private manned spaceflight, NASA is underwriting the Lunar Lander Analog Challenge. The challenge-sponsoring space agency, offering the competition's largest cash prize yet for developing a versatile space vehicle that one day may support exploration of the moon, has hopes that the new challenge will spur new ideas and low-cost technologies to support its moon exploration initiative.

Said NASA's associate administrator Shana Dale:

We're confident the competition will stimulate the development of the kinds of rockets and landing systems that NASA needs to return to the moon, while also accelerating the development of the private suborbital space flight industry.

NASA intends to return astronauts to the moon by 2020 and prepare for future human expeditions to Mars, Discovery News reports this week. Between 1969 and 1972, the agency landed six crews on the moon as part of the Apollo program.

Private-industry space flight is a hot area of development. As we mentioned in March:

Worldwide government spending on space is reaching $50 billion a year, a one-quarter-percent jump over 2000. NASA represents only $16 billion of that total, but during the next 20 years, the U.S. space agency is likely to sign contracts totaling as much as $400 billion to launch a human mission to Mars. Further, in 1998, private-sector spending on space applications began to exceed government spending, and that gap is widening. A critical mass of entrepreneurs have been backing space-related companies for years.

In fact, many tech visionaries (such as Microsoft co-founder Paul Allen) have engineered their own spacecraft to compete in the Ansari X Prize, a $10 million challenge to promote commercial space tourism. Plus there's the Rocket Racing League, a New York-based venture designed to turn rocket racing into a commercial sport.

Although the demonstrations will take place very close to terra firma, they are intended to simulate a launch from the moon's surface into a low-lunar orbit.

There are two parts to the Lunar Lander competition. The first requires a vehicle to launch from a designated area, rocket up to 150 ft. (50 meters) in altitude, and then hover for 90 seconds. The vehicle then must land precisely on a pad 100 meters away. Prizes for level 1 are $350,000 for first place and $150,000 for second place.

The second course requires a vehicle to launch from an area, rocket up to the same altitude (150 ft., or 50 meters), and then hover for 180 seconds before landing precisely on a simulated, rocky, lunar surface 100 meters away. Level-2 prizes are $1.25 million to the winner, $500,000 for second place and $250,000 for third. If there is no winner, the funds will be held over for next year's competition.

Previous purses were limited to $250,000.

The $2 million prize money is a small price to pay for the promise of technical innovation from private industry or untapped genius, says a ZDNet article on the new competition. "The contest does not grant NASA intellectual property rights to winners' inventions, but the space agency asks contestants to be willing to negotiate licensing rights in good faith if it shows interest in a particular technology or design," the news site said.

The competition will be staged in October at an annual exhibition of commercial suborbital spaceflight, which this year also will feature the debut of rocket-powered aircraft racers. The X PRIZE Foundation is administering and executing the competitions at no cost to NASA, providing the venue for the competition and encouraging involvement by a diverse field of competitors. The California-based nonprofit is signing a corporate sponsor to underwrite expenses for the competition. According to X Prize Foundation spokesman Ian Murphy, the sponsor will be unveiled next month.

The lunar flight simulation is the first in NASA's newly expanded Centennial Challenge program.