DoD's $170.6M explosives contract awarded to BAE Systems raises questions on competition and value

Contract Overview

Contract Amount: $170,578,981 ($170.6M)

Contractor: BAE Systems Ordnance Systems Inc.

Awarding Agency: Department of Defense

Start Date: 2013-03-19

End Date: 2019-11-30

Contract Duration: 2,447 days

Daily Burn Rate: $69.7K/day

Competition Type: NOT COMPETED

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: FUNDS PROVIDED FOR THE MANUFACTURE AND SUPPLY OF 1,629,491 POUNDS OF IMX-101 EXPLOSIVES.

Place of Performance

Location: KINGSPORT, SULLIVAN County, TENNESSEE, 37660

State: Tennessee Government Spending

Plain-Language Summary

Department of Defense obligated $170.6 million to BAE SYSTEMS ORDNANCE SYSTEMS INC. for work described as: FUNDS PROVIDED FOR THE MANUFACTURE AND SUPPLY OF 1,629,491 POUNDS OF IMX-101 EXPLOSIVES. Key points: 1. Contract awarded via a sole-source justification, limiting competitive pricing. 2. Significant quantity of explosives procured, indicating a substantial defense need. 3. Long performance period suggests a sustained requirement for these materials. 4. Fixed-price contract type aims to control costs, but initial pricing needs scrutiny. 5. Geographic concentration in Tennessee for manufacturing. 6. Lack of small business participation noted.

Value Assessment

Rating: fair

The contract's value of $170.6 million for 1.6 million pounds of IMX-101 explosives warrants careful review. Without competitive bidding, it's challenging to benchmark the price against market alternatives or assess if the government secured the best possible value. The firm fixed-price structure provides some cost certainty, but the absence of competition means there's less pressure on the contractor to offer the most economical solution. Further analysis would require comparing the per-pound cost to similar explosive procurements or industry benchmarks.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed among multiple vendors. The justification for this approach is not detailed in the provided data, but sole-source awards typically occur when only one vendor can provide the required goods or services, or in cases of urgent need. The lack of competition limits the government's ability to leverage market forces to drive down prices and ensure the most cost-effective outcome.

Taxpayer Impact: Sole-source awards can potentially lead to higher costs for taxpayers as there is no competitive pressure to ensure the lowest possible price. This limits the government's negotiating power and may result in paying a premium for the goods or services.

Public Impact

The Department of Defense is the primary beneficiary, securing a critical munition. The contract ensures the supply of IMX-101 explosives, vital for military operations. Manufacturing is concentrated in Tennessee, potentially impacting the local workforce and economy. The scale of the procurement suggests a significant role in national defense readiness.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price discovery and potential taxpayer savings.
Long contract duration (2013-2019) may not reflect current market pricing or technological advancements.
Absence of small business involvement limits broader economic participation.

Positive Signals

Firm fixed-price contract type provides cost certainty for the government.
Procurement of a specific, potentially critical munition (IMX-101) addresses a defined defense need.
Award to a known entity (BAE Systems) may indicate established capabilities.

Sector Analysis

The defense sector relies heavily on specialized manufacturing for munitions and explosives. This contract falls within the explosives manufacturing sub-sector, a critical component of the defense industrial base. The market for such specialized materials is often characterized by high barriers to entry due to technical expertise, safety regulations, and capital investment. Spending in this area is directly tied to military readiness requirements and geopolitical factors. Comparable spending benchmarks would likely be found within other large-scale munition procurements by the Department of Defense.

Small Business Impact

The data indicates that this contract was not set aside for small businesses, nor does it appear to involve significant subcontracting opportunities for them based on the provided fields. This suggests that the primary contractor, BAE Systems, is handling the majority of the work. The lack of small business participation in this large-value contract means that the economic benefits are concentrated with the prime contractor, potentially limiting opportunities for smaller firms within the defense supply chain.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contracting and program management offices. Given the long duration and significant value, regular reviews of performance, quality control, and delivery schedules would be expected. Inspector General reports related to defense procurements could also provide oversight. Transparency is limited by the sole-source nature of the award, making public scrutiny of the pricing and justification more challenging.

Related Government Programs

Department of Defense Munitions Procurement
Explosives Manufacturing Contracts
BAE Systems Defense Contracts
Army Ordnance Systems
Firm Fixed Price Defense Contracts

Risk Flags

Sole-source award
Lack of competition
Potential for inflated pricing
Long contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $170.6 million to BAE SYSTEMS ORDNANCE SYSTEMS INC.. FUNDS PROVIDED FOR THE MANUFACTURE AND SUPPLY OF 1,629,491 POUNDS OF IMX-101 EXPLOSIVES.

Who is the contractor on this award?

The obligated recipient is BAE SYSTEMS ORDNANCE SYSTEMS INC..

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Army).

What is the total obligated amount?

The obligated amount is $170.6 million.

What is the period of performance?

Start: 2013-03-19. End: 2019-11-30.

What is the specific justification for awarding this contract on a sole-source basis?

The provided data does not specify the justification for the sole-source award. Typically, sole-source contracts are awarded when only one responsible source is available to meet the government's needs. This could be due to unique capabilities, proprietary technology, or urgent requirements where competition is not feasible. Without further documentation, it is impossible to determine the exact reason. However, sole-source awards often raise concerns about potential lack of competition, which can impact pricing and value for the government. Further investigation into the contract file or agency justifications would be necessary to understand the rationale.

How does the per-pound cost of IMX-101 explosives compare to similar munitions procured by the DoD?

The provided data indicates a total contract value of $170,578,981.17 for 1,629,491 pounds of IMX-101 explosives. This equates to a per-pound cost of approximately $104.68. To assess value, this figure needs to be benchmarked against similar munitions. For instance, if the DoD procures comparable explosive materials through competitive contracts, their per-pound costs would serve as a valuable comparison point. Without access to data on other specific explosive procurements, especially those awarded competitively, it is difficult to definitively state whether this price is high or low. However, given the sole-source nature, it is plausible that the price could be higher than if it had been competitively bid.

What are the risks associated with a sole-source award for a critical defense material like explosives?

Sole-source awards for critical defense materials like explosives carry several risks. Firstly, the lack of competition can lead to inflated prices, meaning taxpayers may be overpaying for the material. Secondly, it reduces the incentive for the sole provider to innovate or improve efficiency, as they face no market pressure. Thirdly, it creates a dependency on a single supplier, which can be a vulnerability if that supplier experiences production issues, financial instability, or geopolitical challenges. Finally, it limits the government's ability to explore alternative materials or suppliers that might offer better performance or cost-effectiveness. This dependency also makes it harder to scale production rapidly if needed.

What is the significance of the firm fixed-price contract type in this context?

A firm fixed-price (FFP) contract type is generally favored by the government as it shifts the risk of cost overruns to the contractor. This means that the price agreed upon at the time of award is the final price, regardless of the contractor's actual costs. For the government, this provides budget certainty and predictability. However, in a sole-source scenario, the 'firm' aspect of the price might be set at a level that already incorporates a higher profit margin for the contractor due to the lack of competition. While FFP protects against cost increases, it doesn't inherently guarantee the best value if the initial price is not competitive.

How has historical spending on IMX-101 explosives or similar materials by the DoD evolved?

The provided data pertains to a single contract awarded in 2013 and ending in 2019. To understand historical spending patterns, one would need to examine procurement data for IMX-101 and comparable explosives over a longer period and across different contracts and agencies. This would involve looking at trends in quantity, price per unit, and the number of bidders on similar contracts. Analyzing this historical data could reveal whether spending has increased or decreased, if prices have fluctuated, and if the reliance on sole-source awards for such materials has been consistent or has changed over time. Without this broader dataset, it's impossible to assess historical spending trends.

Industry Classification

NAICS: Manufacturing › Other Chemical Product and Preparation Manufacturing › Explosives Manufacturing

Product/Service Code: AMMUNITION AND EXPLOSIVES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Parent Company: BAE Systems PLC

Address: 4509 W STONE DR, KINGSPORT, TN, 37660

Business Categories: Category Business, Corporate Entity Not Tax Exempt, DoT Certified Disadvantaged Business Enterprise, Manufacturer of Goods, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $170,578,981

Exercised Options: $170,578,981

Current Obligation: $170,578,981

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: W52P1J12D0037

IDV Type: IDC

Timeline