DoD's $28.7M Northrop Grumman contract for navigation systems lacked competition, raising value concerns

Contract Overview

Contract Amount: $28,712,518 ($28.7M)

Contractor: Northrop Grumman Space & Mission Systems Corp.

Awarding Agency: Department of Defense

Start Date: 2012-10-01

End Date: 2016-12-31

Contract Duration: 1,552 days

Daily Burn Rate: $18.5K/day

Competition Type: NOT COMPETED

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: SUSTAINMENT

Place of Performance

Location: SAN JOSE, SANTA CLARA County, CALIFORNIA, 95119

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $28.7 million to NORTHROP GRUMMAN SPACE & MISSION SYSTEMS CORP. for work described as: SUSTAINMENT Key points: 1. The contract was awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. Performance risk appears moderate given the established contractor and the nature of sustainment services. 3. The contract's duration of over four years suggests a long-term need for these critical navigation systems. 4. Sector positioning is within defense electronics manufacturing, a highly specialized and often consolidated market. 5. The lack of competition is a significant indicator for potential value-for-money concerns.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its sole-source nature and the specific sustainment services provided. Without competitive bids, it's difficult to ascertain if the Cost Plus Fixed Fee (CPFF) pricing structure resulted in optimal value for the Department of Defense. The absence of comparable contract data for similar sustainment efforts further complicates a direct value assessment. However, CPFF contracts can sometimes lead to higher costs if not closely managed, as the contractor is reimbursed for all allowable costs plus a fixed fee, incentivizing cost increases.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one bidder, Northrop Grumman Space & Mission Systems Corp., was solicited. This approach bypasses the standard competitive bidding process, which typically involves multiple companies vying for the contract. The lack of competition means there was no direct price comparison or incentive for multiple vendors to offer their best pricing and technical solutions. This can be justified under specific circumstances, such as when only one source possesses the necessary expertise or technology, but it inherently reduces the potential for cost savings.

Taxpayer Impact: For taxpayers, a sole-source award means there is a reduced likelihood of achieving the lowest possible price. Without competitive pressure, the government may pay a premium for the goods or services, as the contractor faces less incentive to be cost-efficient.

Public Impact

The primary beneficiaries are the Department of Defense, ensuring the continued operation and maintenance of critical navigation systems for its aircraft and vessels. Services delivered include sustainment, which encompasses maintenance, repair, and potentially upgrades to existing navigation systems. The geographic impact is likely widespread, supporting DoD operations globally where these navigation systems are deployed. Workforce implications include the continued employment of specialized engineers and technicians at Northrop Grumman and potentially its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially leading to higher costs for taxpayers.
Cost Plus Fixed Fee contract type can incentivize cost overruns if not rigorously managed.
Lack of transparency in the procurement process due to sole-source award.

Positive Signals

Contract awarded to an established defense contractor with presumed expertise in navigation systems.
Sustainment contract ensures continued operational readiness of critical military assets.
Fixed fee component provides some cost predictability for the government.

Sector Analysis

This contract falls within the defense electronics manufacturing sector, specifically focusing on navigation, guidance, and control systems. This is a highly specialized area within the broader aerospace and defense industry, characterized by significant R&D investment, long product lifecycles, and a limited number of prime contractors capable of delivering such complex systems. The market size for such specialized components is substantial within the defense budget, but often dominated by a few key players due to high barriers to entry and proprietary technology.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb: false'. Furthermore, the prime contractor, Northrop Grumman, is a large aerospace and defense company. While large prime contractors are often required to subcontract a portion of their work to small businesses, the specific subcontracting plan and its impact on the small business ecosystem are not detailed in the provided data. Without a set-aside, small businesses are less likely to be the direct recipients of this contract funding.

Oversight & Accountability

Oversight for this contract would typically be managed by the Defense Contract Management Agency (DCMA), which is responsible for ensuring contractor performance and compliance. The Cost Plus Fixed Fee (CPFF) structure requires diligent oversight to monitor allowable costs and ensure the fixed fee remains appropriate. Transparency is limited due to the sole-source nature of the award. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

DoD Navigation Systems Procurement
Aerospace and Defense Electronics Sustainment
Northrop Grumman Defense Contracts
Sole-Source Defense Contracts
Cost Plus Fixed Fee Contracts

Risk Flags

Sole-source award
Lack of competition
Cost Plus Fixed Fee contract type

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $28.7 million to NORTHROP GRUMMAN SPACE & MISSION SYSTEMS CORP.. SUSTAINMENT

Who is the contractor on this award?

The obligated recipient is NORTHROP GRUMMAN SPACE & MISSION SYSTEMS CORP..

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $28.7 million.

What is the period of performance?

Start: 2012-10-01. End: 2016-12-31.

What is Northrop Grumman's track record with similar sole-source sustainment contracts for DoD navigation systems?

Northrop Grumman has a long history of providing complex systems and sustainment services to the Department of Defense, including navigation and guidance systems. Their track record with sole-source contracts in this domain is extensive, often stemming from their role as the original equipment manufacturer or a key supplier of proprietary technology. While this provides a level of assurance regarding their capability and understanding of the systems, it also highlights a recurring pattern where competitive opportunities may be limited for sustainment phases of major defense programs. Analyzing past sole-source awards to Northrop Grumman for similar services could reveal trends in pricing, performance, and the justification for non-competitive procurement, offering insights into the potential value and risks associated with this specific contract.

How does the Cost Plus Fixed Fee (CPFF) pricing structure compare to other contract types for sustainment services in terms of value for money?

The Cost Plus Fixed Fee (CPFF) contract type reimburses the contractor for all allowable costs incurred, plus a predetermined fixed fee representing profit. For sustainment services, CPFF can be advantageous when the scope of work is not precisely defined or is expected to evolve, as it allows for flexibility. However, it presents a potential risk to value for money because the contractor has less incentive to control costs, as all allowable expenses are covered. Unlike fixed-price contracts, where the contractor bears the risk of cost overruns, CPFF shifts much of that risk to the government. Compared to other cost-reimbursement types like Cost Plus Incentive Fee (CPIF), CPFF offers less direct incentive for cost reduction. Therefore, rigorous oversight and robust cost accounting standards are crucial to ensure that the 'fixed fee' does not become disproportionately high relative to the effort and that costs remain reasonable.

What are the primary risks associated with a sole-source award for critical defense sustainment, and how are they mitigated?

The primary risk associated with a sole-source award for critical defense sustainment is the potential for inflated pricing due to the lack of competition, leading to reduced value for taxpayer money. Another risk is vendor lock-in, where the government becomes overly reliant on a single provider, potentially limiting future flexibility and innovation. Furthermore, without competitive pressure, there might be less incentive for the contractor to maintain the highest levels of efficiency or service quality. Mitigation strategies often involve extensive negotiation of terms and pricing, stringent performance monitoring, and clear contract clauses that allow for termination or renegotiation if performance or pricing becomes unacceptable. The government may also conduct market research to ensure that a sole-source justification remains valid over the contract's life and explore options for future competition if feasible.

What is the historical spending pattern for sustainment of DoD navigation systems, and how does this contract fit within that trend?

Historical spending on sustainment for Department of Defense navigation systems represents a significant and ongoing portion of the defense budget. These systems, often complex and mission-critical, require continuous maintenance, repair, and upgrades throughout their lifecycle. Spending patterns are typically characterized by long-term contracts, often awarded to the original system developers or integrators, reflecting the specialized knowledge and proprietary nature of the technology. This $28.7 million contract for sustainment services fits within this trend by addressing the ongoing need to maintain operational readiness. The duration of the contract (over four years) and its sole-source nature are also consistent with historical practices for such specialized defense sustainment, where competition can be limited due to technical requirements and contractor expertise.

What are the implications of awarding this contract to Northrop Grumman, a large defense contractor, versus a smaller, specialized firm?

Awarding this sustainment contract to Northrop Grumman, a large, established defense contractor, implies several implications. On the positive side, it leverages the company's extensive experience, existing infrastructure, and deep knowledge of the specific navigation systems, potentially ensuring high-quality sustainment and operational continuity. Large contractors often have robust quality control and management systems in place. However, the implications also include the potential for higher overhead costs compared to a smaller firm, and as noted, the lack of competition often associated with sole-source awards to major players. A smaller, specialized firm might offer more competitive pricing or innovative solutions, but could also present higher risks related to capacity, financial stability, or security clearances. The government's decision to award to Northrop Grumman suggests that, in this instance, the perceived benefits of their established capabilities and system familiarity outweighed the potential advantages of seeking a smaller, more competitive bidder.

Industry Classification

NAICS: Manufacturing › Navigational, Measuring, Electromedical, and Control Instruments Manufacturing › Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › PROFESSIONAL SERVICES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation (UEI: 967356127)

Address: 6377 SAN IGNACIO AVE, SAN JOSE, CA, 95119

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $29,217,710

Exercised Options: $29,217,710

Current Obligation: $28,712,518

Subaward Activity

Number of Subawards: 784

Total Subaward Amount: $133,408,198

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: FA852812D0013

IDV Type: IDC

Timeline