Northrop Grumman awarded $250M contract for electronic components, raising questions about competition and value

Contract Overview

Contract Amount: $249,760,867 ($249.8M)

Contractor: Northrop Grumman Systems Corporation

Awarding Agency: Department of Defense

Start Date: 2010-09-29

End Date: 2016-12-31

Contract Duration: 2,285 days

Daily Burn Rate: $109.3K/day

Competition Type: NOT COMPETED

Pricing Type: TIME AND MATERIALS

Sector: Defense

Official Description: CY10 3RD ANNUAL BUY (180 GLTAS)

Place of Performance

Location: ROLLING MEADOWS, COOK County, ILLINOIS, 60008

State: Illinois Government Spending

Plain-Language Summary

Department of Defense obligated $249.8 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: CY10 3RD ANNUAL BUY (180 GLTAS) Key points: 1. Contract awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. Significant contract duration of over 6 years suggests a long-term need for these components. 3. The 'Other Electronic Component Manufacturing' NAICS code indicates a broad category, making direct benchmarking difficult. 4. Awarded as a Delivery Order, suggesting it's part of a larger indefinite-delivery/indefinite-quantity (IDIQ) contract. 5. The contract type is Time and Materials, which can lead to cost overruns if not closely managed. 6. No small business set-aside was applied, indicating potential missed opportunities for smaller firms.

Value Assessment

Rating: questionable

The contract's value of approximately $250 million over six years for electronic components warrants scrutiny. Without a competitive bidding process, it's challenging to benchmark the pricing against market rates or similar contracts. The Time and Materials (T&M) contract type, while flexible, carries inherent risks of cost escalation if not meticulously monitored. Further analysis would be needed to determine if the pricing reflects fair and reasonable rates for the components and services provided, especially given the lack of competition.

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 Systems Corporation, was solicited. This approach bypasses the standard competitive bidding process, which typically involves multiple vendors submitting proposals. While sole-source awards can be justified for unique capabilities or urgent needs, they limit the government's ability to leverage market competition to secure the best possible pricing and terms.

Taxpayer Impact: The lack of competition means taxpayers may not be receiving the most cost-effective solution. Without competing bids, there's a reduced incentive for the contractor to offer the lowest possible price.

Public Impact

The primary beneficiary is the Department of Defense, which receives critical electronic components for its operations. The contract supports the manufacturing and supply of electronic components essential for defense systems. The geographic impact is primarily linked to Northrop Grumman's operational facilities, likely within Illinois based on the ST/SN codes. Workforce implications include employment opportunities within Northrop Grumman's manufacturing and engineering divisions.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition.
Time and Materials contract type poses risk of cost overruns.
Broad NAICS code makes direct value comparison difficult.
Lack of small business participation.

Positive Signals

Award to a large, established defense contractor suggests potential for reliable delivery.
Long contract duration indicates a sustained need and potential for stable supply chain.

Sector Analysis

This contract falls within the 'Other Electronic Component Manufacturing' sector, a broad category encompassing a wide range of electronic parts. The defense industry relies heavily on specialized electronic components for advanced weaponry, communication systems, and surveillance technology. Spending in this sector is significant, driven by continuous technological advancements and the need for high-reliability components in demanding environments. Comparable spending benchmarks are difficult to establish without more specific details on the type of components procured.

Small Business Impact

This contract was not awarded as a small business set-aside, nor does it appear to have specific subcontracting requirements for small businesses indicated in the provided data. This suggests that opportunities for small businesses to participate in this specific procurement were limited. The absence of set-asides means that larger prime contractors are not mandated to engage small businesses for a portion of the work, potentially impacting the broader small business ecosystem within the defense supply chain.

Oversight & Accountability

Oversight for this contract would typically fall under the Defense Contract Management Agency (DCMA), which is responsible for ensuring contractor performance and compliance. The specific oversight mechanisms for a sole-source, Time and Materials contract would likely involve detailed monitoring of labor hours, material costs, and delivery schedules. Transparency is enhanced through contract reporting requirements, but the sole-source nature inherently reduces public visibility compared to competitively awarded contracts.

Related Government Programs

Defense Procurement
Electronic Component Manufacturing
Northrop Grumman Contracts
Sole-Source Awards
Time and Materials Contracts

Risk Flags

Sole-source award
Time and Materials contract type
Lack of small business participation
Broad NAICS code hindering benchmarking

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $249.8 million to NORTHROP GRUMMAN SYSTEMS CORPORATION. CY10 3RD ANNUAL BUY (180 GLTAS)

Who is the contractor on this award?

The obligated recipient is NORTHROP GRUMMAN SYSTEMS CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $249.8 million.

What is the period of performance?

Start: 2010-09-29. End: 2016-12-31.

What is Northrop Grumman's track record with similar sole-source defense contracts?

Northrop Grumman Systems Corporation, as a major defense contractor, has a long history of receiving both competitive and sole-source awards from the Department of Defense and other government agencies. Analyzing their past performance on sole-source contracts for electronic components or related systems would be crucial. This would involve reviewing contract histories for on-time delivery, adherence to budget, quality of products, and any instances of disputes or contract modifications. A review of their performance metrics on similar, non-competed awards would help assess their reliability and the reasonableness of the pricing structure, even in the absence of direct competition for this specific contract.

How does the pricing of this contract compare to market rates for similar electronic components?

Benchmarking the pricing of this $250 million contract against market rates is challenging due to the 'Other Electronic Component Manufacturing' NAICS code being very broad and the contract being sole-source. To perform a robust comparison, one would need to identify the specific types of electronic components being procured and their technical specifications. Then, market research could be conducted to find prices for comparable commercial off-the-shelf (COTS) or custom-manufactured components from other suppliers. Additionally, comparing the labor rates and overhead applied by Northrop Grumman to industry averages for similar defense manufacturing work would be necessary. Without this granular detail, a definitive value-for-money assessment is difficult.

What are the primary risks associated with a sole-source Time and Materials contract for electronic components?

The primary risks associated with this sole-source Time and Materials (T&M) contract are twofold. Firstly, the sole-source nature eliminates competitive pressure, potentially leading to inflated prices and reduced incentive for cost efficiency. The government cannot be assured it is receiving the best possible value without comparing multiple offers. Secondly, the T&M contract type means the contractor is reimbursed for actual labor hours and material costs, plus a fixed fee or profit. This structure can incentivize longer project durations and higher costs if not rigorously monitored, as the contractor's profit is tied to the amount spent rather than a fixed outcome. Effective oversight by the DCMA is critical to mitigate these risks.

What is the historical spending pattern for 'Other Electronic Component Manufacturing' by the Department of Defense?

Historical spending by the Department of Defense (DoD) on 'Other Electronic Component Manufacturing' (NAICS 334419) is substantial, reflecting the critical role of advanced electronics in modern military capabilities. Over the past decade, the DoD has consistently invested billions annually in this sector, driven by the need for sophisticated components in areas such as radar, communications, guidance systems, and cyber warfare. Spending patterns can fluctuate based on geopolitical events, technological advancements, and specific program requirements. Analyzing historical data would reveal trends in contract types, major awardees, and the proportion of spending allocated to sole-source versus competitive procurements within this broad category.

What are the implications of the contract duration (2285 days) on long-term component availability and obsolescence?

A contract duration of 2285 days (approximately 6.25 years) for electronic components has significant implications for long-term availability and obsolescence management. For the government, it ensures a stable supply chain for critical components over an extended period, which is vital for maintaining operational readiness of defense systems. However, it also presents challenges. Electronic components have relatively short life cycles, and technology evolves rapidly. There's a risk that components procured under this contract could become obsolete before the contract ends or shortly thereafter, requiring costly replacements or upgrades. Proactive obsolescence management strategies, including forecasting and potential last-time buys, would be essential throughout the contract's life.

Industry Classification

NAICS: Manufacturing › Semiconductor and Other Electronic Component Manufacturing › Other Electronic Component Manufacturing

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

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Pricing Type: TIME AND MATERIALS (Y)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation (UEI: 967356127)

Address: 600 HICKS RD, ROLLING MEADOW, IL, 60008

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $249,764,074

Exercised Options: $249,764,074

Current Obligation: $249,760,867

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: FA862506D6453

IDV Type: IDC

Timeline