DoD's $150M explosives contract with BAE Systems shows limited competition and potential value concerns

Contract Overview

Contract Amount: $150,185,137 ($150.2M)

Contractor: BAE Systems Ordnance Systems Inc.

Awarding Agency: Department of Defense

Start Date: 2013-09-11

End Date: 2021-09-30

Contract Duration: 2,941 days

Daily Burn Rate: $51.1K/day

Competition Type: NOT COMPETED

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: FUNDS PROVIDED FOR THE PRODUCTION OF 435,466 POUNDS OF CXM-AF-7 IAW THE REQUIREMENTS OF MIL-DTL-20065102 (AF).

Place of Performance

Location: KINGSPORT, SULLIVAN County, TENNESSEE, 37660

State: Tennessee Government Spending

Plain-Language Summary

Department of Defense obligated $150.2 million to BAE SYSTEMS ORDNANCE SYSTEMS INC. for work described as: FUNDS PROVIDED FOR THE PRODUCTION OF 435,466 POUNDS OF CXM-AF-7 IAW THE REQUIREMENTS OF MIL-DTL-20065102 (AF). Key points: 1. Contract awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. Significant duration of the contract (nearly 8 years) suggests a long-term need for these specialized explosives. 3. The contract's value is substantial, indicating a critical role in defense supply chains. 4. Lack of competition raises questions about whether the government secured the best possible price. 5. Performance context is limited without specific delivery or quality metrics, but the duration implies consistent fulfillment. 6. Sector positioning within Explosives Manufacturing is specialized, with few potential competitors for such specific military-grade materials.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its specialized nature and sole-source award. The price per pound of CXM-AF-7 is approximately $345. Without competitive bids or data on similar contracts for this specific munition, it's difficult to definitively assess if this represents excellent value. However, the lack of competition inherently introduces a risk of overpayment compared to a fully competed scenario. The firm-fixed-price structure offers some cost certainty to the government.

Cost Per Unit: $345 per pound (CXM-AF-7)

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed. This typically occurs when only one responsible source can provide the required goods or services. The lack of competition means there were no other bidders to drive down prices through a bidding process. This limits the government's ability to explore alternative pricing or solutions from other potential suppliers.

Taxpayer Impact: The absence of competition means taxpayers may not have received the most cost-effective price for these explosives, as there was no market pressure to ensure competitive pricing.

Public Impact

The primary beneficiary is the Department of the Army, ensuring a supply of critical explosives for its operations. The contract delivers essential CXM-AF-7 explosives, vital for various military applications. The geographic impact is primarily centered in Tennessee, where BAE Systems Ordnance Systems Inc. is located. Workforce implications include the continued employment of skilled labor in specialized explosives manufacturing within the defense industrial base.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition and potentially leads to higher costs for taxpayers.
Long contract duration (nearly 8 years) could mask inefficiencies or price increases over time without regular re-competition.
Lack of transparency regarding the justification for sole-source award makes independent value assessment difficult.
Specialized nature of the munition means limited market visibility for alternative suppliers or technologies.

Positive Signals

Firm-fixed-price contract provides cost certainty for the government.
Long-term award suggests a stable and reliable supply chain for a critical defense component.
Award to an established defense contractor like BAE Systems indicates a known entity with existing production capabilities.

Sector Analysis

The defense explosives manufacturing sector is highly specialized, often characterized by a limited number of qualified suppliers capable of meeting stringent military specifications. Contracts in this area are typically awarded to established firms with proven track records and secure facilities. The market size for specific military-grade explosives like CXM-AF-7 is driven by defense budgets and operational requirements, making it a niche but critical segment of the broader industrial base. Comparable spending benchmarks are difficult to establish due to the proprietary nature of many munition formulations and the infrequent competitive bidding for such specialized items.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. Furthermore, the 'br' (bids received) value of 51066 is not directly indicative of small business participation in this sole-source award. Given the specialized nature of explosives manufacturing and the sole-source award to a large prime contractor, the direct impact on small businesses is likely minimal unless they are subcontractors to BAE Systems. There is no explicit information provided regarding subcontracting plans to small businesses.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Army's contracting and program management offices. As a sole-source award, the justification and negotiation process would be subject to review. Transparency is limited due to the non-competitive nature. Inspector General (IG) jurisdiction would apply if any fraud, waste, or abuse were suspected or reported. The firm-fixed-price contract type provides some level of cost control, but ongoing performance monitoring is crucial.

Related Government Programs

Department of Defense Munitions Procurement
Explosives and Chemical Manufacturing
Military Ordnance Production
Army Ammunition Supply Chain

Risk Flags

Sole-source award
Lack of competition
Potential for overpricing
Long contract duration
Specialized material

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $150.2 million to BAE SYSTEMS ORDNANCE SYSTEMS INC.. FUNDS PROVIDED FOR THE PRODUCTION OF 435,466 POUNDS OF CXM-AF-7 IAW THE REQUIREMENTS OF MIL-DTL-20065102 (AF).

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 $150.2 million.

What is the period of performance?

Start: 2013-09-11. End: 2021-09-30.

What is the specific military application and importance of CXM-AF-7 explosives?

CXM-AF-7 is a specific type of explosive material used by the U.S. military. While detailed specifications are often classified, its designation suggests it is a high-performance explosive formulation tailored for particular military applications. These could range from propellant charges in artillery and missile systems to demolition charges or components in other ordnance. The requirement for MIL-DTL-20065102 (AF) indicates it must meet stringent Department of the Air Force (and by extension, Department of Defense) material standards for reliability, safety, and performance under diverse environmental conditions. The substantial quantity (over 435,000 pounds) procured underscores its critical role in ongoing military operations or strategic readiness.

What is the justification for awarding this contract on a sole-source basis?

The provided data indicates the contract was 'NOT COMPETED' and awarded on a 'sole-source' basis. Typically, sole-source awards are justified when only one responsible source is capable of meeting the government's requirements. This could be due to unique technical capabilities, proprietary technology, existing infrastructure, or urgent needs where competition is not feasible. For specialized munitions like CXM-AF-7, it's possible that BAE Systems Ordnance Systems Inc. is the only entity possessing the specific manufacturing processes, intellectual property, or necessary security clearances and facilities to produce this particular explosive formulation to the required military specifications (MIL-DTL-20065102 AF). A formal justification document would normally detail these specific reasons.

How does the price per pound of CXM-AF-7 compare to other military explosives?

Comparing the price per pound of CXM-AF-7 ($345) to other military explosives is challenging without access to specific contract data for comparable munitions. The cost of explosives is highly dependent on the raw materials, complexity of the manufacturing process, required purity, safety protocols, and the scale of production. Specialized explosives with unique performance characteristics or those requiring extensive R&D and specialized facilities tend to be more expensive. Given that this is a sole-source award for a specific military-grade explosive, it is difficult to establish a direct market benchmark. However, the price should ideally be evaluated against historical pricing for this specific item or against the cost of developing a competitive solicitation if feasible.

What are the risks associated with a sole-source contract of this magnitude and duration?

Sole-source contracts, especially those valued at $150 million and spanning nearly eight years, carry inherent risks. The primary risk is the lack of price competition, which can lead to the government paying a premium compared to what might be achieved through a competitive bidding process. This can result in inefficient use of taxpayer funds. Another risk is potential complacency from the contractor, as there is no direct competitive pressure to innovate or optimize production processes. Furthermore, the long duration might obscure potential cost increases over time if not managed diligently. Dependence on a single supplier also creates supply chain vulnerability; any disruption at BAE Systems could significantly impact military readiness.

What is BAE Systems Ordnance Systems Inc.'s track record in fulfilling defense contracts for explosives?

BAE Systems Ordnance Systems Inc. is a significant defense contractor with a substantial history in producing ordnance and explosives for the U.S. military. They operate the Holston Army Ammunition Plant in Tennessee, a key facility for energetic materials production. Their track record generally involves fulfilling large-scale contracts for various types of propellants and explosives. While specific performance metrics for individual contracts are not detailed here, their continued role as a primary supplier suggests a history of meeting production requirements and quality standards. However, like any large contractor, they may have faced scrutiny or performance issues on specific contracts over their long history, which would require deeper investigation into contract performance reports and audits.

What are the implications of this contract for the broader defense industrial base and supply chain resilience?

This contract highlights the critical role of specialized domestic manufacturers like BAE Systems in maintaining the defense industrial base for essential munitions. The sole-source nature, however, raises questions about the depth and resilience of the supply chain for CXM-AF-7. If BAE Systems is the only producer, any disruption (e.g., facility issues, raw material shortages, geopolitical events) could severely impact the availability of these explosives. This underscores the importance of strategic sourcing and potentially investing in diversifying the supplier base or ensuring robust contingency plans for critical defense materials, even if it involves higher initial costs or longer lead times for developing alternative capabilities.

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

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Parent Company: BAE Systems PLC (UEI: 217304393)

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: $150,185,137

Exercised Options: $150,185,137

Current Obligation: $150,185,137

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: W52P1J12D0037

IDV Type: IDC

Timeline