DoD's $56.5M contract for communications equipment manufacturing awarded to Northrop Grumman without competition

Contract Overview

Contract Amount: $56,549,861 ($56.5M)

Contractor: Northrop Grumman Space & Mission Systems Corp.

Awarding Agency: Department of Defense

Start Date: 2016-03-18

End Date: 2021-09-30

Contract Duration: 2,022 days

Daily Burn Rate: $28.0K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Other

Official Description: INCREMENT 2- BUILD A UCA

Place of Performance

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

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $56.5 million to NORTHROP GRUMMAN SPACE & MISSION SYSTEMS CORP. for work described as: INCREMENT 2- BUILD A UCA Key points: 1. The contract's value of $56.5 million represents a significant investment in specialized communications equipment. 2. Awarded on a cost-plus incentive fee basis, the pricing structure allows for potential cost overruns but incentivizes efficiency. 3. The lack of competition raises concerns about potential overpayment and limited market exploration. 4. This contract falls under the 'Other Communications Equipment Manufacturing' NAICS code, indicating a focus on non-standardized or highly specialized hardware. 5. The extended performance period of over five years suggests a long-term need for the delivered equipment. 6. The contract was awarded to a single, large defense contractor, potentially limiting opportunities for smaller, innovative firms.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its specific nature and lack of competitive bidding. The cost-plus incentive fee (CPIF) structure means the final cost is not fixed and can fluctuate based on performance and cost targets. Without comparable sole-source contracts or a competitive process to establish a market price, it's difficult to definitively assess if the $56.5 million represents fair value. Further analysis would require access to detailed cost breakdowns and performance metrics.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning the Department of Defense did not solicit bids from multiple potential suppliers. This typically occurs when a specific contractor possesses unique capabilities, proprietary technology, or when urgent needs cannot be met through competition. The absence of a competitive process limits the government's ability to leverage market forces to secure the best possible price and terms.

Taxpayer Impact: Taxpayers may have paid a premium due to the lack of competition, as the government did not benefit from price discovery through multiple bids. This also means less transparency into the justification for selecting a single provider.

Public Impact

The primary beneficiaries are the Department of Defense, specifically the Air Force, which receives specialized communications equipment. The contract supports the development and delivery of critical communication systems essential for military operations. The geographic impact is primarily centered around the contractor's facilities in California, where the work is performed. This contract likely supports a specialized workforce within Northrop Grumman, including engineers, technicians, and manufacturing personnel.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition may lead to higher costs for taxpayers.
Sole-source awards can reduce transparency and accountability.
CPIF contracts can incentivize cost overruns if not carefully managed.
The specific nature of the equipment makes independent value assessment difficult.

Positive Signals

Awarded to a large, established defense contractor with a known track record.
The CPIF structure can incentivize meeting performance targets.
The extended duration suggests a critical, long-term need for the equipment.

Sector Analysis

This contract falls within the 'Other Communications Equipment Manufacturing' sector, a niche within the broader aerospace and defense industry. This sector is characterized by high barriers to entry, significant R&D investment, and often involves highly specialized, proprietary technologies. Spending in this area is driven by national security requirements and technological advancements. Comparable spending benchmarks are difficult to establish due to the specialized nature of the equipment, but large sole-source awards are not uncommon for critical defense systems.

Small Business Impact

This contract was not set aside for small businesses, nor does it appear to have specific subcontracting requirements for small businesses mentioned in the provided data. The award to a large prime contractor like Northrop Grumman suggests that the primary focus is on leveraging established capabilities. This may limit direct opportunities for small businesses to participate in this specific contract, although they might be involved further down the supply chain.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Defense's contracting and program management offices, with potential involvement from the Air Force's Inspector General. The CPIF structure necessitates close monitoring of costs and performance against established targets. Transparency is limited by the sole-source nature, but contract modifications, performance reports, and financial audits are standard oversight mechanisms.

Related Government Programs

Defense Communications Systems
Aerospace and Defense Manufacturing
Specialized Electronic Equipment
Northrop Grumman Contracts

Risk Flags

Sole-source award
Cost-plus incentive fee pricing
Lack of competitive bidding
Potential for cost overruns
Difficulty in benchmarking value

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $56.5 million to NORTHROP GRUMMAN SPACE & MISSION SYSTEMS CORP.. INCREMENT 2- BUILD A UCA

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 (Department of the Air Force).

What is the total obligated amount?

The obligated amount is $56.5 million.

What is the period of performance?

Start: 2016-03-18. End: 2021-09-30.

What is Northrop Grumman's track record with similar sole-source, cost-plus incentive fee contracts for the Department of Defense?

Northrop Grumman has a long history of performing large, complex sole-source contracts with the Department of Defense, often involving advanced technologies and systems integration. Their experience with cost-plus incentive fee (CPIF) contracts is extensive, as this pricing structure is common for programs where costs are difficult to estimate precisely upfront and where performance incentives are desired. While CPIF contracts offer flexibility and can drive performance, they also require robust government oversight to manage costs effectively and prevent potential overruns. Analyzing Northrop Grumman's specific performance on past CPIF contracts, including their ability to meet cost targets and delivery schedules, would provide further insight into the potential risks and benefits associated with this award.

How does the $56.5 million contract value compare to similar sole-source awards for specialized communications equipment?

Directly comparing the $56.5 million value is challenging without knowing the exact specifications and scope of the 'INCREMENT 2- BUILD A UCA' project. Sole-source awards for specialized defense equipment can vary significantly in price based on technological complexity, research and development components, and the scale of production. However, for major defense contractors like Northrop Grumman, a $56.5 million contract for a specific system increment is within a typical range for specialized hardware development and production. The lack of competition means there isn't a direct market benchmark, but the value should be assessed against the criticality of the capability being delivered and the contractor's unique ability to provide it.

What are the primary risks associated with a sole-source, cost-plus incentive fee contract for communications equipment?

The primary risks associated with this contract type are twofold. Firstly, the sole-source nature means the government did not benefit from competitive bidding, potentially leading to a higher price than if multiple vendors had competed. There's a risk of paying a premium without a clear market comparison. Secondly, the Cost-Plus Incentive Fee (CPIF) structure, while incentivizing performance, carries the risk of cost overruns if the contractor's cost estimates are inaccurate or if unforeseen technical challenges arise. Effective government oversight is crucial to manage these risks, ensuring that costs are reasonable and that the contractor is adequately incentivized to control expenses while meeting performance objectives.

What does the 'Other Communications Equipment Manufacturing' NAICS code imply about the nature of this contract?

The North American Industry Classification System (NAICS) code 334290, 'Other Communications Equipment Manufacturing,' indicates that this contract is for the production of communication equipment that does not fit into more specific categories like telephone apparatus manufacturing or radio and television broadcasting and wireless communications equipment manufacturing. This suggests the equipment is likely specialized, possibly custom-designed, or serves a niche communication function within the Department of Defense. Such equipment might include advanced signal processing devices, specialized network components, or unique transmission systems tailored for military applications, often involving proprietary technology or complex integration.

What is the historical spending pattern for similar communications equipment contracts awarded by the Department of the Air Force?

Historical spending patterns for the Department of the Air Force (DAF) on communications equipment are substantial, reflecting the critical role of robust communication networks in modern air and space operations. While specific data for 'Other Communications Equipment Manufacturing' under sole-source awards is not provided, the DAF consistently invests billions annually in C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) systems. These investments often involve a mix of competitive procurements for standardized items and sole-source awards for highly specialized or technologically advanced systems, similar to this Northrop Grumman contract. Analyzing broader DAF spending trends in C4ISR and related manufacturing sectors would show a consistent demand for advanced communication capabilities.

What are the implications of the contract's duration (ending in 2021, awarded in 2016) for its overall value and performance?

The contract's duration, spanning from March 18, 2016, to September 30, 2021 (over five years), suggests a long-term requirement for the delivered communications equipment. This extended period allows for phased development, testing, and deployment, which can be beneficial for complex systems. For a Cost-Plus Incentive Fee (CPIF) contract, a longer duration provides more opportunities for the contractor to achieve performance targets and for the government to monitor progress and adjust oversight as needed. However, it also means that costs could accumulate over a longer period, underscoring the importance of continuous oversight to ensure value for money throughout the contract's life cycle.

Industry Classification

NAICS: Manufacturing › Communications Equipment Manufacturing › Other Communications Equipment Manufacturing

Product/Service Code: COMM/DETECT/COHERENT RADIATION

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation

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

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

Financial Breakdown

Contract Ceiling: $56,549,861

Exercised Options: $56,549,861

Current Obligation: $56,549,861

Subaward Activity

Number of Subawards: 669

Total Subaward Amount: $259,472,428

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Parent Contract

Parent Award PIID: FA862013G3015

IDV Type: BOA

Timeline