DoD's $5B contract for electronic components shows long-term commitment with potential for cost overruns

Contract Overview

Contract Amount: $499,747,985 ($499.7M)

Contractor: Jvys

Awarding Agency: Department of Defense

Start Date: 2002-06-17

End Date: 2031-12-03

Contract Duration: 10,761 days

Daily Burn Rate: $46.4K/day

Competition Type: NOT AVAILABLE FOR COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Other

Place of Performance

Location: HUNTSVILLE, MADISON County, ALABAMA, 35806

State: Alabama Government Spending

Plain-Language Summary

Department of Defense obligated $499.7 million to JVYS for work described as: Key points: 1. The contract's duration suggests a strategic, long-term need for these electronic components. 2. The Cost Plus Fixed Fee (CPFF) structure carries inherent risk of cost escalation. 3. Limited competition raises concerns about optimal pricing and value for taxpayer dollars. 4. The extensive performance period indicates a significant, ongoing requirement. 5. The contract's value places it among substantial procurements within its sector. 6. The lack of small business set-aside may limit opportunities for smaller enterprises.

Value Assessment

Rating: questionable

The total obligated amount of nearly $5 billion over a 10-year period is substantial. However, the CPFF contract type, while allowing flexibility, often leads to higher final costs compared to fixed-price contracts. Benchmarking is difficult without specific details on the components and their market prices, but the extended duration and cost-reimbursement nature warrant scrutiny for potential inefficiencies and cost overruns.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning there was no open competition. This significantly limits the government's ability to solicit bids from multiple vendors and leverage competitive pressures to achieve the best possible pricing. The justification for a sole-source award needs to be robust to ensure it serves the government's best interest.

Taxpayer Impact: Sole-source awards can result in higher prices for taxpayers as the government lacks the leverage of competitive bidding to drive down costs.

Public Impact

The Department of Defense is the primary beneficiary, securing a long-term supply of critical electronic components. This contract supports the manufacturing and supply chain for electronic components essential for defense systems. The geographic impact is primarily within Alabama, where the contractor is located. The contract likely supports a workforce involved in the manufacturing and assembly of these components.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost Plus Fixed Fee contract type increases risk of cost overruns.
Sole-source award limits price discovery and potentially inflates costs.
Long contract duration (over 10 years) increases exposure to market volatility and technological obsolescence.
Lack of specific details on components makes independent value assessment challenging.
No indication of small business subcontracting goals.

Positive Signals

Ensures a stable, long-term supply of critical electronic components for the DoD.
The fixed fee component provides some cost predictability for contractor profit.
The contract is for a definitive contract, suggesting a clear scope of work.
The award is to a single entity, potentially simplifying management and oversight.

Sector Analysis

This contract falls within the 'Other Electronic Component Manufacturing' sector, which is a critical part of the broader electronics industry supporting national defense. The market for specialized electronic components can be niche, with limited suppliers capable of meeting stringent military specifications. The nearly $5 billion value over its lifespan indicates a significant procurement within this specialized segment, likely involving components with high reliability and performance requirements.

Small Business Impact

The data indicates this contract was not set aside for small businesses, nor does it explicitly mention subcontracting goals for small businesses. This means opportunities for small businesses to participate in this large procurement are likely limited unless they are direct suppliers to the prime contractor or are engaged through the prime's own subcontracting efforts, which are not detailed here.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Defense's contracting and financial management oversight structures. Given the CPFF structure and sole-source nature, robust oversight is crucial to monitor costs, ensure performance, and verify the necessity of expenditures. The Inspector General's office within the DoD would likely have jurisdiction for audits and investigations related to potential fraud, waste, or abuse.

Related Government Programs

Defense Production Act Investments
Military Electronics Procurement
Aerospace and Defense Manufacturing
Supply Chain Management for Defense Systems

Risk Flags

Sole-source award
Cost Plus Fixed Fee contract type
Long contract duration
Lack of small business participation noted

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $499.7 million to JVYS. See the official description on USAspending.

Who is the contractor on this award?

The obligated recipient is JVYS.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $499.7 million.

What is the period of performance?

Start: 2002-06-17. End: 2031-12-03.

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

The provided data indicates the contract was awarded 'NOT AVAILABLE FOR COMPETITION,' which is synonymous with a sole-source award. The specific justification for this sole-source determination is not included in the provided data. Typically, sole-source awards are justified under circumstances such as unique capabilities of a single contractor, urgent and compelling needs where competition is not feasible, or when only one responsible source exists. Without the official justification document, it's impossible to ascertain the precise reasons, but it implies that the Department of the Army believed that only this specific contractor could fulfill the requirement effectively and efficiently at the time of award.

How does the Cost Plus Fixed Fee (CPFF) structure compare to other contract types in terms of risk and potential cost?

The Cost Plus Fixed Fee (CPFF) contract type is characterized by the government reimbursing the contractor for all allowable costs incurred, plus a predetermined fixed fee representing profit. This structure is often used when the scope of work is not well-defined or involves significant uncertainty, allowing for flexibility. However, it places a substantial portion of the cost risk on the government, as the final price is not fixed. Compared to fixed-price contracts (like Firm-Fixed Price), CPFF offers less cost certainty for the government and can incentivize contractors to incur higher costs, as their fee remains constant regardless of the total expenditure. This makes it crucial to have strong government oversight to manage costs effectively.

What are the potential risks associated with a contract duration of over 10 years?

A contract duration spanning over 10 years (10,761 days in this case) presents several risks. Firstly, there's the risk of technological obsolescence; the components or systems procured may become outdated before the contract's end, requiring costly modifications or replacements. Secondly, market conditions and material costs can fluctuate significantly over such a long period, potentially leading to unfavorable pricing if not adequately managed through contract clauses. Thirdly, long-term contracts can reduce flexibility for the government to adapt to changing strategic needs or to take advantage of new technologies or more competitive suppliers that emerge over time. Finally, maintaining consistent oversight and performance management over such an extended period can be challenging.

What is the significance of the 'Other Electronic Component Manufacturing' (NAICS 334419) classification for this contract?

The NAICS code 334419, 'Other Electronic Component Manufacturing,' signifies that the contract is for components not specifically covered by other electronic component manufacturing codes. This broad classification suggests the components could be highly specialized, custom-made, or part of a unique manufacturing process essential for defense applications. This sector often involves high barriers to entry due to specialized knowledge, equipment, and quality control requirements. For the Department of Defense, sourcing from this category implies a need for components that meet rigorous performance, reliability, and security standards, often not met by standard commercial off-the-shelf parts.

How does the lack of small business participation impact the overall contract value and innovation?

The absence of explicit small business set-asides or subcontracting requirements in the provided data suggests that this large contract may not be leveraging the innovative capacity and competitive drive often found within the small business sector. Small businesses can bring agility, specialized expertise, and novel solutions. By not actively engaging them, the government might miss out on potentially more cost-effective or technologically advanced options. Furthermore, it limits the economic benefits distributed to smaller enterprises, potentially concentrating the value within larger, established firms. While the prime contractor might engage small businesses independently, formal requirements ensure broader participation and competition.

Industry Classification

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

Product/Service Code: RESEARCH AND DEVELOPMENT › DEFENSE (OTHER) R&D

Competition & Pricing

Extent Competed: NOT AVAILABLE FOR COMPETITION

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 7272 GOVERNERS W, HUNTSVILLE, AL, 35806

Business Categories: 8(a) Program Participant, Category Business, Minority Owned Business, Native American Owned Business, Not Designated a Small Business, Small Business, Small Disadvantaged Business, Special Designations

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline