DoD's $26M explosives manufacturing contract awarded to BAE Systems shows limited competition and fair value

Contract Overview

Contract Amount: $26,082,872 ($26.1M)

Contractor: BAE Systems Ordnance Systems Inc.

Awarding Agency: Department of Defense

Start Date: 2009-07-29

End Date: 2012-01-31

Contract Duration: 916 days

Daily Burn Rate: $28.5K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: CXM-AF-5

Place of Performance

Location: KINGSPORT, SULLIVAN County, TENNESSEE, 37660

State: Tennessee Government Spending

Plain-Language Summary

Department of Defense obligated $26.1 million to BAE SYSTEMS ORDNANCE SYSTEMS INC. for work described as: CXM-AF-5 Key points: 1. Contract awarded via a sole-source justification, raising concerns about price discovery and potential overpayment. 2. The fixed-price contract type offers some cost control but relies heavily on the initial negotiation. 3. Performance period of over two years suggests a need for sustained supply chain management. 4. Geographic concentration in Tennessee for explosives manufacturing highlights potential supply chain vulnerabilities. 5. Lack of small business participation noted, with no set-aside or subcontracting requirements specified.

Value Assessment

Rating: fair

The contract's value of $26 million over approximately two years for explosives manufacturing appears within a reasonable range for specialized defense goods. However, the absence of competitive bidding makes a definitive value-for-money assessment challenging. Benchmarking against similar sole-source contracts for explosives would be necessary to confirm if the pricing is truly competitive. The firm fixed-price structure provides some predictability, but the initial negotiation's fairness is paramount.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded using a sole-source justification, meaning only one vendor, BAE SYSTEMS ORDNANCE SYSTEMS INC., was solicited. This approach bypasses the standard competitive bidding process, which typically involves multiple bidders vying for the contract. While sole-source awards can be justified for unique capabilities or urgent needs, they limit price discovery and may result in higher costs for the government compared to a fully competed contract.

Taxpayer Impact: The lack of competition means taxpayers did not benefit from the potential cost savings that could arise from a bidding war among multiple suppliers. This could translate to a higher overall expenditure for the required explosives.

Public Impact

The primary beneficiaries are the Department of the Army, ensuring a supply of essential explosives for its operations. This contract supports the manufacturing of explosives, a critical component for military readiness and national defense. The contract's impact is geographically concentrated in Tennessee, where BAE Systems operates its ordnance facility. It sustains jobs within the defense manufacturing sector, specifically in explosives production at the awarded facility.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially leading to less favorable pricing for the government.
Lack of transparency in the procurement process due to sole-source justification.
Concentration of critical explosives manufacturing in a single location (Tennessee) poses supply chain risk.
No indication of small business involvement, potentially missing opportunities to support smaller enterprises.

Positive Signals

Firm fixed-price contract provides cost certainty once awarded.
BAE Systems is a known entity in defense contracting, suggesting established manufacturing capabilities.
Contract duration of over two years indicates a stable supply chain for a critical defense need.

Sector Analysis

The defense manufacturing sector, particularly explosives production, is highly specialized and often characterized by limited suppliers due to stringent safety, security, and regulatory requirements. This contract falls within the broader industrial base supporting national defense, where large, established contractors like BAE Systems often play a significant role. Spending in this niche area is driven by military requirements and geopolitical factors, with contracts typically being long-term and high-value.

Small Business Impact

This contract does not appear to have included any small business set-aside provisions, nor is there information suggesting subcontracting goals for small businesses. The sole-source nature of the award further limits opportunities for small businesses to participate. This suggests that the primary focus was on securing the required explosives from a specific, large prime contractor, potentially overlooking avenues to engage and support the small business defense industrial base.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Army's contracting and program management offices. The firm fixed-price nature provides some financial oversight by limiting cost overruns. However, the sole-source justification means that the initial justification and negotiation process are critical points for oversight. Transparency is limited due to the lack of competition, and any Inspector General investigations would likely focus on the necessity of the sole-source award and the fairness of the negotiated price.

Related Government Programs

Department of Defense Ammunition Procurement
Explosives and Chemical Manufacturing Contracts
BAE Systems Defense Contracts
Army Ordnance and Munitions Supply

Risk Flags

Sole-source award
Lack of competition
Potential for price inflation
Supply chain concentration risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $26.1 million to BAE SYSTEMS ORDNANCE SYSTEMS INC.. CXM-AF-5

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 $26.1 million.

What is the period of performance?

Start: 2009-07-29. End: 2012-01-31.

What specific justification was provided for awarding this contract on a sole-source basis?

The provided data indicates the contract was 'NOT COMPETED,' which is synonymous with a sole-source award. Typically, sole-source justifications are required when only one responsible source is available or capable of meeting the government's needs. Common reasons include unique technical capabilities, proprietary technology, urgent and compelling requirements where competition is not feasible, or when a previous contract was awarded competitively and the follow-on is justified due to specific circumstances like contractor investment or system compatibility. Without the specific justification document, it's impossible to determine the exact rationale, but it implies the Army determined BAE SYSTEMS ORDNANCE SYSTEMS INC. was the only viable option at the time of award.

How does the contract's value compare to similar explosives manufacturing contracts awarded by the DoD?

Direct comparison is difficult without access to a database of similar sole-source explosives manufacturing contracts. However, the $26 million value over approximately two years (916 days) suggests an average annual value of around $13 million. This figure needs to be contextualized by the specific type and quantity of explosives, as well as the complexity of the manufacturing process. Given the specialized nature of explosives production and the limited number of qualified manufacturers, prices can be significantly higher than for more common goods. A fair assessment would require benchmarking against contracts for comparable explosive materials awarded under similar conditions (e.g., sole-source, firm fixed-price) to determine if BAE Systems' pricing was competitive within that niche market.

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

Sole-source awards for critical defense supplies like explosives carry several risks. Primarily, the lack of competition can lead to inflated prices, as the government does not benefit from market forces driving down costs. This can result in less efficient use of taxpayer funds. Secondly, it reduces transparency in the procurement process, making it harder to verify that the government is receiving the best possible value. Thirdly, over-reliance on a single supplier can create supply chain vulnerabilities. If the sole-source contractor experiences production issues, quality control problems, or financial instability, the military's access to essential explosives could be jeopardized, impacting readiness. Finally, it can stifle innovation and discourage potential new entrants into the market.

What is the historical spending pattern for explosives manufacturing by the Department of the Army?

Historical spending data for explosives manufacturing by the Department of the Army is extensive and fluctuates based on global security needs, operational tempo, and specific program requirements. The Army procures a wide range of explosives, from small arms ammunition components to large-scale ordnance. Contracts can range from R&D efforts to large-scale production runs, often awarded to a mix of sole-source and competitively bid vehicles. Over the past decade, spending has been influenced by conflicts and modernization efforts. Analyzing specific spending trends requires looking at aggregated data for relevant Product Service Codes (PSCs) and contract types, which would reveal periods of increased or decreased investment in explosives manufacturing capabilities.

What is BAE Systems' track record with similar defense manufacturing contracts?

BAE Systems is a major global defense contractor with a substantial track record in manufacturing a wide array of defense products, including ordnance and munitions. They have held numerous contracts with the Department of Defense and other allied nations for various weapon systems, armored vehicles, and related components. Their experience in explosives manufacturing is well-established, particularly through entities like BAE Systems Ordnance Systems Inc. While specific performance metrics for individual contracts are not detailed here, BAE Systems is generally considered a capable and experienced supplier within the defense industrial base. However, like any large contractor, they may have faced performance challenges or contract disputes on specific projects over their extensive history.

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

Offers Received: 1

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: $26,082,872

Exercised Options: $26,082,872

Current Obligation: $26,082,872

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: W52P1J09D0003

IDV Type: IDC

Timeline