Department of Defense awards $13.2M contract for explosives manufacturing, with a unit price of $9.07 per pound

Contract Overview

Contract Amount: $13,197,666 ($13.2M)

Contractor: BAE Systems Global Combat Systems Munitions Limited

Awarding Agency: Department of Defense

Start Date: 2007-09-26

End Date: 2009-12-18

Contract Duration: 814 days

Daily Burn Rate: $16.2K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: 1. THE PURPOSE OF THIS ACTION IS TO PROVIDE FUNDS IN THE AMOUNT OF $13,197,666.30 UNDER A FIRM FIXED-PRICE (FFP) TYPE CONTRACT ARRANGEMENT FOR THE MANUFACTURE OF 1,455,090 POUNDS OF CXM-AF-7, NSN: 1376-01-M35-0881, IAW MIL-DTL-20065102 (AF). 2. THE UNIT PRICE OF $9.07 PER POUND REFLECTS THE NEGOTIATED AGREEMENT BETWEEN NORMAN BROWN, CONTRACTING OFFICER, AND JERRY HAMMONDS, VICE PRESIDENT OF MANUFACTURING, OSI, REACHED 25 SEPTEMBER 2007. THIS AGREEMENT REFLECTS A BASE PRICE OF $7.70 PER POUND (1,455,090 X $7.70 = $11,204,193) FOR THE MANUFACTURE OF 1,455,090 POUNDS OF CXM-AF-7 AND $1.37 PER POUND (1,455,090 X $1.37 = $1,993,473.30) BEING APPLIED AS A FACILITY OVERHEAD ALLOCATION AGAINST THE NEGOTIATED FACILITY USE CONTRACT. 3. PLACE OF PERFORMANCE IS HOLSTON ARMY AMMUNITION PLANT, KINGSPORT, TN. 4. CONTRACT ADMINISTRATION WILL BE PERFORMED BY THE ON-SITE GOVERNMENT ACO STAFF. 5. AS A RESULT OF THE INCORPORATION OF THE ACTION AS DESCRIBED ABOVE, THE TOTAL CONTRACT AMOUNT FOR DELIVERY ORDER 0018 IS HEREIN ESTABLISHED AT A FIRM FIXED-PRICE (FFP) OF $13,197,666.30 - SEE SECTION G FOR ACCOUNTING INFORMATION. 6. EXCEPT AS PROVIDED HEREIN, THE BALANCE OF THOSE TERMS, CONDITIONS AND REQUIREMENTS AS SPECIFIED UNDER CONTRACT NUMBER DAAA09-03-D- 0007, AS MODIFIED TO DATE, SHALL REMAIN UNCHANGED AND IN FULL FORCE AND EFFECT.

Place of Performance

Location: KINGSPORT, SULLIVAN County, TENNESSEE, 37660

State: Tennessee Government Spending

Plain-Language Summary

Department of Defense obligated $13.2 million to BAE SYSTEMS GLOBAL COMBAT SYSTEMS MUNITIONS LIMITED for work described as: 1. THE PURPOSE OF THIS ACTION IS TO PROVIDE FUNDS IN THE AMOUNT OF $13,197,666.30 UNDER A FIRM FIXED-PRICE (FFP) TYPE CONTRACT ARRANGEMENT FOR THE MANUFACTURE OF 1,455,090 POUNDS OF CXM-AF-7, NSN: 1376-01-M35-0881, IAW MIL-DTL-20065102 (AF). 2. THE UNIT PRICE OF $9.07 PER POUND R… Key points: 1. Contract awarded for the manufacture of 1,455,090 pounds of CXM-AF-7. 2. Unit price of $9.07 per pound includes base price and facility overhead allocation. 3. Contract type is Firm Fixed Price (FFP), indicating price certainty for the government. 4. The contract was not competed, raising questions about potential price discovery. 5. Performance period spans over two years, from September 2007 to December 2009. 6. Place of performance is Holston Army Ammunition Plant in Tennessee.

Value Assessment

Rating: fair

The unit price of $9.07 per pound for CXM-AF-7 appears to be a negotiated rate. Without comparable contract data for this specific munition or similar items, it is difficult to definitively benchmark the value for money. The inclusion of a facility overhead allocation within the unit price suggests a comprehensive cost structure, but the transparency of this allocation is not detailed. Further analysis would require market research on explosives manufacturing costs and historical pricing for similar government procurements.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was not competed, indicating a sole-source or limited competition award. The data explicitly states 'NOT COMPETED'. This approach bypasses the standard competitive bidding process, which typically leads to better price discovery and potentially lower costs for the government. The lack of competition means that the negotiated price is the sole determinant of value, and there is no market-based validation of its reasonableness.

Taxpayer Impact: The absence of competition means taxpayers may not have received the most advantageous pricing possible. Without a competitive bidding process, there's a risk that the negotiated price is higher than it would have been if multiple vendors had vied for the contract.

Public Impact

The primary beneficiary is the Department of Defense, specifically the Army, which requires CXM-AF-7 for its operations. The contract ensures the supply of a critical munition, supporting national defense readiness. The manufacturing will occur at the Holston Army Ammunition Plant in Kingsport, Tennessee, supporting regional industrial capacity. This contract likely supports jobs within the defense manufacturing sector at the specified facility.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition limits price discovery and potentially increases cost to taxpayers.
Negotiated price is not benchmarked against market rates or other bids.
Contract awarded in 2007, with performance extending to 2009; current market conditions and pricing may differ significantly.

Positive Signals

Firm Fixed Price contract provides cost certainty for the government.
Contract specifies detailed technical requirements (MIL-DTL-20065102), ensuring product quality.
Performance at a government-owned facility (Holston Army Ammunition Plant) may indicate established infrastructure and expertise.

Sector Analysis

This contract falls within the Explosives Manufacturing sector, a specialized area of the defense industrial base. The North American Industry Classification System (NAICS) code 325920, 'Explosives and Ammunition Manufacturing,' encompasses companies that produce explosives, ammunition, and related components. The market for such specialized defense materials is often characterized by limited suppliers due to high technical barriers, stringent regulatory requirements, and significant capital investment. Government contracts are a primary driver for this sector, often awarded through non-competitive or limited-competition processes due to national security considerations and the unique nature of the products required.

Small Business Impact

The data indicates that this contract was not set aside for small businesses (ss: false) and does not mention any small business subcontracting requirements (sb: false). Therefore, this specific award does not appear to directly benefit small businesses through set-asides. The prime contractor, BAE Systems Global Combat Systems Munitions Limited, is a large defense manufacturer, suggesting that any subcontracting opportunities would likely be with other large or specialized industrial suppliers rather than small businesses.

Oversight & Accountability

The contract was awarded by the Department of the Army, part of the Department of Defense. Oversight would typically be managed by the contracting officer and program managers within the Army. While specific Inspector General (IG) involvement is not mentioned, the DoD IG has broad jurisdiction over defense spending. Transparency is limited by the non-competitive nature of the award; however, the contract details, including the firm fixed price and performance period, are publicly available through federal procurement databases.

Related Government Programs

Department of Defense Munitions Procurement
Army Ammunition Production
Explosives Manufacturing Contracts
Holston Army Ammunition Plant Operations

Risk Flags

Non-competitive award
Lack of price benchmarking data
Potential for cost overruns due to overhead allocation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $13.2 million to BAE SYSTEMS GLOBAL COMBAT SYSTEMS MUNITIONS LIMITED. 1. THE PURPOSE OF THIS ACTION IS TO PROVIDE FUNDS IN THE AMOUNT OF $13,197,666.30 UNDER A FIRM FIXED-PRICE (FFP) TYPE CONTRACT ARRANGEMENT FOR THE MANUFACTURE OF 1,455,090 POUNDS OF CXM-AF-7, NSN: 1376-01-M35-0881, IAW MIL-DTL-20065102 (AF). 2. THE UNIT PRICE OF $9.07 PER POUND REFLECTS THE NEGOTIATED AGREEMENT BETWEEN NORMAN BROWN, CONTRACTING OFFICER, AND JERRY HAMMONDS, VICE PRESIDENT OF MANUFACTURING, OSI, REACHED 25 SEPTEMBER 2007. THIS AGREEMENT REFLECTS A BASE PRICE OF $7.70 PER POUND (1,

Who is the contractor on this award?

The obligated recipient is BAE SYSTEMS GLOBAL COMBAT SYSTEMS MUNITIONS LIMITED.

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Army).

What is the total obligated amount?

The obligated amount is $13.2 million.

What is the period of performance?

Start: 2007-09-26. End: 2009-12-18.

What is the historical spending trend for CXM-AF-7 or similar explosives by the Department of Defense?

Analyzing historical spending for CXM-AF-7 specifically is challenging without access to detailed procurement databases beyond this single award. However, the Department of Defense consistently allocates significant funds towards munitions and explosives manufacturing. Spending in this category can fluctuate based on geopolitical events, operational tempo, and modernization programs. For instance, periods of increased conflict or strategic shifts often lead to higher demand and, consequently, increased contract awards for explosives. Benchmarking this $13.2 million contract against broader DoD spending on explosives manufacturing would require aggregating data across multiple years and various NSNs (National Stock Numbers) to identify trends and average contract values. Without such aggregated data, it's difficult to determine if this specific award represents a typical, high, or low expenditure.

How does the negotiated unit price of $9.07 per pound compare to industry benchmarks for similar explosives?

Determining an exact industry benchmark for CXM-AF-7 at $9.07 per pound is difficult due to the specialized nature of military-grade explosives and the proprietary information surrounding their production costs. The unit price includes a base manufacturing cost and a facility overhead allocation, making direct comparisons complex. Generally, the cost of explosives is influenced by raw material prices, manufacturing complexity, safety protocols, and scale of production. For commodity explosives used in mining or construction, prices can be significantly lower. However, military-grade explosives like CXM-AF-7, which likely adhere to stringent MIL-SPEC standards (MIL-DTL-20065102), command higher prices due to specialized R&D, rigorous testing, and secure manufacturing processes. Without access to competitor pricing or detailed cost breakdowns, assessing the 'value for money' solely on this unit price is speculative. The non-competitive nature of the award further complicates benchmarking.

What are the risks associated with a sole-source contract for critical munitions manufacturing?

Sole-source contracts for critical munitions manufacturing carry several inherent risks. Firstly, the lack of competition can lead to inflated prices, as the government does not benefit from the cost-saving pressures that arise from multiple bidders. Secondly, it can foster complacency in the contractor, potentially reducing incentives for innovation or efficiency improvements, as there is no immediate threat of losing business to a competitor. Thirdly, it can create a dependency on a single supplier, which poses a significant supply chain risk. If the sole-source contractor experiences production issues, financial instability, or decides to exit the market, the government may face severe shortages of critical munitions. Finally, without competitive validation, it is harder to ensure that the government is consistently receiving the best available technology and pricing.

What is the track record of BAE Systems Global Combat Systems Munitions Limited in fulfilling similar defense contracts?

BAE Systems Global Combat Systems Munitions Limited is a major defense contractor with a substantial history of producing munitions and related systems for various military branches. As a subsidiary of BAE Systems, it operates within a large, established defense conglomerate known for its extensive capabilities in land, sea, and air systems. The company has a documented track record in manufacturing a wide array of ordnance, including artillery shells, missile components, and other explosive materials. While specific performance metrics for every contract are not always publicly detailed, their continued role as a key supplier to governments worldwide, including the U.S. Department of Defense, suggests a general capacity to meet contractual obligations. However, like any large contractor, they may have faced past performance issues or disputes on specific contracts, which would typically be documented in government performance evaluation systems.

What are the implications of the facility overhead allocation on the total contract cost?

The facility overhead allocation represents a portion of the total unit price ($1.37 out of $9.07) dedicated to covering the costs associated with operating and maintaining the manufacturing facility at Holston Army Ammunition Plant. This includes expenses such as utilities, building maintenance, insurance, administrative support, and depreciation of equipment and infrastructure. While including overhead in the unit price provides a more comprehensive cost picture than a base price alone, the specific methodology and justification for the $1.37 per pound allocation are not detailed in the provided data. The effectiveness of this allocation depends on its reasonableness and how it compares to industry standards for similar facilities. Without transparency into how this overhead rate was calculated and negotiated, it's difficult to assess whether it represents fair value or potentially inflates the overall cost of the munitions.

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 (UEI: 217304393)

Address: GLASCOED, USK

Business Categories: Category Business, Corporate Entity Tax Exempt, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $13,197,666

Exercised Options: $13,197,666

Current Obligation: $13,197,666

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: DAAA0903D0007

IDV Type: IDC

Timeline