DoD's $67.8M ASIP Processor Upgrade contract awarded to Northrop Grumman, lacking competition

Contract Overview

Contract Amount: $67,851,142 ($67.9M)

Contractor: Northrop Grumman Space & Mission Systems Corp.

Awarding Agency: Department of Defense

Start Date: 2012-08-31

End Date: 2014-08-31

Contract Duration: 730 days

Daily Burn Rate: $92.9K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: ASIP PROCESSOR UPGRADE

Place of Performance

Location: SAN JOSE, SANTA CLARA County, CALIFORNIA, 95119, UNITED STATES OF AMERICA

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $67.9 million to NORTHROP GRUMMAN SPACE & MISSION SYSTEMS CORP. for work described as: ASIP PROCESSOR UPGRADE Key points: 1. The contract's value of $67.8 million for an ASIP Processor Upgrade represents a significant investment in communication equipment. 2. Awarded on a sole-source basis, the lack of competition raises questions about potential overpricing and limited value for money. 3. The contract duration of 730 days suggests a substantial project timeline for the processor upgrade. 4. The 'Other Communications Equipment Manufacturing' NAICS code indicates a specialized area within the defense industrial base. 5. The absence of small business set-aside flags suggests this contract was not specifically targeted to support small enterprises. 6. The 'COST PLUS INCENTIVE FEE' contract type introduces performance-based incentives but also carries inherent cost escalation risks.

Value Assessment

Rating: questionable

Benchmarking the value of this $67.8 million contract is challenging due to its sole-source nature and the specific ASIP processor upgrade. Without competitive bids, it's difficult to ascertain if the pricing reflects fair market value or if alternative solutions could have been procured at a lower cost. The 'COST PLUS INCENTIVE FEE' structure, while aiming for efficiency, can lead to costs exceeding initial estimates if not rigorously managed. The awarded amount of $67.8 million, with a reported break-even point of $92,947, suggests a substantial profit margin for the contractor, further warranting scrutiny.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one vendor, Northrop Grumman Space & Mission Systems Corp., was considered. This lack of competition prevents a robust price discovery process and limits the government's ability to negotiate the best possible terms. Without multiple bids, there is no market pressure to drive down costs or encourage innovative solutions. The decision to sole-source suggests potential reliance on a specific technology or contractor capability deemed essential by the Department of the Air Force.

Taxpayer Impact: Taxpayers may have paid a premium for this upgrade due to the absence of competitive bidding. The lack of competition limits the government's leverage to secure the most cost-effective solution, potentially leading to higher overall program expenditures.

Public Impact

The primary beneficiaries are the Department of the Air Force, which receives an upgraded ASIP processor essential for its operations. The contract delivers critical communication equipment upgrades, enhancing the reliability and performance of Air Force systems. The geographic impact is primarily within California, where Northrop Grumman Space & Mission Systems Corp. is located, though the operational impact is Air Force-wide. Workforce implications include specialized engineering and manufacturing roles at Northrop Grumman, contributing to the defense technology sector.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially inflating costs.
Cost-plus contract type carries inherent risk of cost overruns.
Lack of transparency in the sole-source justification process.
Limited opportunity for small businesses to participate in this specific award.
Break-even point significantly lower than total award value, indicating high potential profit.

Positive Signals

Award to an established contractor with presumed expertise in the required technology.
Contract aims to upgrade critical communication systems for national security.
Incentive fee structure may drive contractor performance towards desired outcomes.

Sector Analysis

The 'Other Communications Equipment Manufacturing' sector is a niche but vital part of the broader defense industrial base. This contract falls within the defense electronics sub-sector, focusing on specialized communication processors. The market for such components is often characterized by high barriers to entry due to technological complexity and stringent security requirements. Comparable spending in this area can vary widely depending on the specific technology and scale, but significant government contracts are common for maintaining and upgrading advanced communication networks.

Small Business Impact

This contract was not set aside for small businesses, nor does it appear to have specific subcontracting requirements mentioned in the provided data. The sole-source nature of the award further limits opportunities for small businesses to participate directly. This means the primary contractor, Northrop Grumman, will likely perform the majority of the work, potentially missing opportunities to leverage the innovation and agility of the small business ecosystem in this specialized area.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of the Air Force's contracting and program management offices. Given the sole-source nature, enhanced scrutiny from the agency's Inspector General might be warranted to ensure fair pricing and proper justification. Transparency regarding the sole-source decision and performance metrics would be key accountability measures, though detailed public reporting on such specific upgrades can be limited.

Related Government Programs

Air Force Command and Control Systems
Defense Communication Networks
Electronic Warfare Systems
ASIP Program Upgrades
Northrop Grumman Defense Contracts

Risk Flags

Sole-source award
Cost-plus contract type
Lack of competition
Potentially high profit margin indicated by break-even cost

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $67.9 million to NORTHROP GRUMMAN SPACE & MISSION SYSTEMS CORP.. ASIP PROCESSOR UPGRADE

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 $67.9 million.

What is the period of performance?

Start: 2012-08-31. End: 2014-08-31.

What specific ASIP processor capabilities are being upgraded, and what is the expected improvement in performance?

The provided data does not specify the exact capabilities of the ASIP (Advanced Strategic Avionics Integration Program) processor being upgraded or the anticipated performance improvements. Typically, such upgrades aim to enhance processing power, improve data throughput, increase reliability, or incorporate new functionalities required by evolving mission needs. For instance, an upgrade might enable faster data analysis, support for new communication protocols, or improved resistance to electronic interference. Without further details from the contract documentation or public statements from the Department of the Air Force, the precise nature and impact of the upgrade remain unspecified.

What was the justification for awarding this contract on a sole-source basis instead of through full and open competition?

The justification for a sole-source award typically stems from situations where only one responsible source is capable of meeting the government's requirements. This could be due to unique technical capabilities, proprietary technology, urgent and compelling needs where competition is not feasible, or if the item is a follow-on to a previously competed contract where the original contractor possesses unique knowledge. For this ASIP Processor Upgrade, the Department of the Air Force likely determined that Northrop Grumman possessed the specific expertise, intellectual property, or existing infrastructure necessary to perform the upgrade effectively and efficiently, making competition impractical or detrimental to the program's objectives. A formal Justification and Approval (J&A) document would detail these specific reasons.

How does the 'COST PLUS INCENTIVE FEE' (CPIF) contract type influence cost control and contractor performance for this upgrade?

A Cost Plus Incentive Fee (CPIF) contract is designed to share cost risks and rewards between the government and the contractor. The contractor is reimbursed for allowable costs and receives a target fee, but the final fee is adjusted based on performance against pre-defined targets, such as cost, schedule, or technical performance. For this ASIP Processor Upgrade, the CPIF structure incentivizes Northrop Grumman to meet or exceed specific performance objectives while managing costs. If the contractor performs better than target (e.g., lower cost, faster delivery), their fee increases; if they perform worse, their fee decreases, up to a ceiling. This encourages efficiency and alignment with government goals, but also requires careful monitoring by the Air Force to ensure targets are appropriate and achievable, and that costs remain reasonable.

What is the significance of the reported 'break-even' cost of $92,947 in relation to the total contract award of $67.8 million?

The reported 'break-even' cost of $92,947 appears exceptionally low when compared to the total contract award of $67,851,142.08. In the context of cost-plus contracts, a break-even point often relates to the contractor's minimum cost to achieve a certain outcome or the point at which profit begins. However, this figure seems incongruous with the scale of the contract. It's possible this represents a specific component cost, a misunderstanding of the metric, or an error in the data. If interpreted as the contractor's cost to deliver a minimal viable product or a specific milestone, it suggests a very high potential profit margin for Northrop Grumman, as the total award is vastly larger than this 'break-even' figure. This discrepancy warrants further investigation into the data's source and definition.

Are there any historical spending patterns or previous contracts with Northrop Grumman for ASIP processor upgrades that provide context for this award?

Without access to a comprehensive contract database or specific program history, it is difficult to detail historical spending patterns for ASIP processor upgrades with Northrop Grumman. However, it is common for defense agencies to award follow-on contracts to incumbent contractors who have developed specialized knowledge and capabilities for specific systems like ASIP. If Northrop Grumman has been involved in previous iterations or related components of the ASIP program, this $67.8 million contract could represent a continuation or expansion of that relationship. Analyzing past contract values, durations, and performance for similar upgrades would provide valuable context for assessing the reasonableness of this current award.

Industry Classification

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

Product/Service Code: RESEARCH AND DEVELOPMENT › C – National Defense R&D Services

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 (UEI: 967356127)

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

Financial Breakdown

Contract Ceiling: $92,941,908

Exercised Options: $82,757,478

Current Obligation: $67,851,142

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: FA862008G3007

IDV Type: IDC

Timeline