Department of the Army awards $69.4M for explosives manufacturing, raising questions about competition and value

Contract Overview

Contract Amount: $69,433,796 ($69.4M)

Contractor: BAE Systems Ordnance Systems Inc.

Awarding Agency: Department of Defense

Start Date: 2009-09-01

End Date: 2014-04-30

Contract Duration: 1,702 days

Daily Burn Rate: $40.8K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: CXM-AF-7 EXPLOSIVES, 500,480 LBS

Place of Performance

Location: KINGSPORT, SULLIVAN County, TENNESSEE, 37660

State: Tennessee Government Spending

Plain-Language Summary

Department of Defense obligated $69.4 million to BAE SYSTEMS ORDNANCE SYSTEMS INC. for work described as: CXM-AF-7 EXPLOSIVES, 500,480 LBS Key points: 1. Contract awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. Significant duration of the contract (over 1700 days) suggests a long-term need for these explosives. 3. The contract's fixed-price nature provides some cost certainty, but the lack of competition is a concern. 4. Performance context is limited due to the sole-source nature, making direct comparisons difficult. 5. The contract falls within the Defense sector, specifically focused on ordnance manufacturing. 6. No indication of small business participation or set-asides, suggesting a focus on large prime contractors.

Value Assessment

Rating: questionable

The contract value of $69.4 million for 500,480 lbs of explosives is difficult to benchmark due to the sole-source award. Without competitive bids, it's challenging to ascertain if the pricing represents fair market value. The fixed-price structure offers some predictability, but the absence of competition means taxpayers may not be receiving the best possible price. Further analysis would require comparing this to similar sole-source contracts for comparable explosive materials, which are often less transparent.

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. This approach is typically used when only one vendor can provide the required goods or services, or in cases of urgent need. The lack of competition means there were no other bidders to compare against, which can lead to higher prices and reduced innovation. The government did not leverage the benefits of a competitive bidding process to drive down costs or ensure the most advantageous terms.

Taxpayer Impact: The sole-source nature of this award means taxpayers likely paid a premium. Without competitive pressure, the contractor had less incentive to offer the lowest possible price, and the government had fewer options to negotiate favorable terms.

Public Impact

The primary beneficiaries are the Department of Defense and its operational units requiring explosives. The services delivered include the manufacturing and supply of explosives, critical for military readiness. The geographic impact is primarily within Tennessee, where BAE Systems Ordnance Systems Inc. is located. Workforce implications include employment at the contractor's facility in Tennessee, supporting specialized manufacturing jobs.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition raises concerns about potential overpayment and reduced value for taxpayer dollars.
Sole-source awards can limit opportunities for other qualified vendors, potentially stifling market competition in the long run.
The extended contract duration without competitive re-evaluation could mask inefficiencies or price creep over time.
Limited public information on the specific type and quality of explosives makes independent value assessment difficult.

Positive Signals

The contract utilizes a firm fixed-price structure, providing cost certainty for the government.
The award is to a known entity, BAE Systems Ordnance Systems Inc., suggesting a potentially established relationship and understanding of requirements.
The contract duration indicates a sustained and critical need for these explosive materials by the Department of the Army.

Sector Analysis

The defense sector, particularly the segment focused on munitions and explosives manufacturing, is characterized by high barriers to entry due to specialized knowledge, stringent safety regulations, and significant capital investment. This contract for explosives manufacturing fits within this niche, where a limited number of large, established defense contractors often hold significant market share. Comparable spending benchmarks are difficult to establish publicly due to the sensitive nature of the products and the prevalence of sole-source or limited competition awards in this specialized area.

Small Business Impact

There is no indication that this contract included small business set-asides, nor is there information suggesting subcontracting opportunities for small businesses. The nature of explosives manufacturing often involves large-scale operations and specialized facilities typically managed by prime defense contractors. This suggests that small businesses may have had limited direct involvement in fulfilling this specific contract, potentially missing out on subcontracting roles.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Army's contracting and program management offices. Accountability measures are inherent in the firm fixed-price contract type, which shifts some cost risk to the contractor. 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

Department of Defense Ammunition Procurement
Ordnance Manufacturing Contracts
Explosives Supply Chain
Military Munitions Production

Risk Flags

Sole-source award lacks competition
Potential for inflated pricing due to lack of competition
Extended contract duration without competitive review
Limited transparency on specific material and value benchmarks

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $69.4 million to BAE SYSTEMS ORDNANCE SYSTEMS INC.. CXM-AF-7 EXPLOSIVES, 500,480 LBS

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 $69.4 million.

What is the period of performance?

Start: 2009-09-01. End: 2014-04-30.

What is the specific type of explosive material being procured under this contract, and what are its intended military applications?

The data provided indicates the procurement of 'CXM-AF-7 EXPLOSIVES, 500,480 LBS'. While the specific chemical composition of CXM-AF-7 is not detailed in the provided data, it is identified under the NAICS code 325920, which covers 'Explosives Manufacturing'. This suggests it is a type of explosive material intended for military use, likely for munitions, demolition, or training purposes. The Department of the Army's specific operational needs would dictate the precise application, ranging from artillery shells and bombs to breaching charges. Without further classification details, its exact role remains generalized within the broader category of military explosives.

How does the per-pound cost of these explosives compare to similar materials procured competitively by the Department of Defense?

The total contract value is $69,433,795.51 for 500,480 lbs of explosives, resulting in a per-pound cost of approximately $138.79. Direct comparison to competitively procured explosives is challenging without knowing the exact specifications of the CXM-AF-7 material and its intended use. However, this price point can be considered high when compared to bulk commodity explosives or even some standard military-grade propellants procured under competitive contracts, which can range from $10 to $100 per pound depending on formulation, quantity, and application. The sole-source nature of this award prevents a definitive value-for-money assessment against market alternatives.

What is the track record of BAE Systems Ordnance Systems Inc. in fulfilling similar sole-source contracts for explosives?

BAE Systems Ordnance Systems Inc. is a significant defense contractor with a long history in ordnance manufacturing. As a sole-source provider for certain specialized explosives, their track record would likely involve fulfilling critical national defense requirements where competition is limited or non-existent. Publicly available data often focuses on contract awards rather than detailed performance reviews for sole-source agreements. However, BAE Systems' overall reputation in the defense industry suggests a capacity to meet stringent military specifications. Assessing their specific performance on similar sole-source contracts would require deeper dives into contract performance reports and historical data, which are not readily accessible in this dataset.

What are the potential risks associated with relying on a single supplier for critical explosive materials over an extended period?

Relying on a single supplier for critical explosive materials over an extended period carries several risks. Firstly, it creates a potential single point of failure; any disruption at the supplier's facility (e.g., due to accidents, labor disputes, or natural disasters) could halt production and impact military readiness. Secondly, the lack of competition can lead to price escalation over time, as the supplier faces no market pressure to reduce costs. Thirdly, it can stifle innovation, as the supplier may have less incentive to invest in new technologies or more efficient production methods. Finally, it reduces the government's leverage in negotiations, potentially leading to less favorable contract terms and conditions.

How has historical spending on explosives manufacturing by the Department of the Army trended, and does this contract represent a significant deviation?

Historical spending on explosives manufacturing by the Department of the Army is substantial and fluctuates based on global security environments, modernization efforts, and specific operational demands. While this specific contract of $69.4 million is significant, it represents a portion of the Army's overall munitions budget. Without access to historical spending data specifically for CXM-AF-7 or comparable sole-source explosives, it's difficult to determine if this award is a deviation. However, the trend in defense spending often involves a mix of competitive procurements for standard items and sole-source awards for specialized or proprietary materials. This contract aligns with the latter category, suggesting a continued reliance on specialized suppliers for critical components.

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: $69,433,796

Exercised Options: $69,433,796

Current Obligation: $69,433,796

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: W52P1J09D0003

IDV Type: IDC

Timeline