DoD's $4.6B McDonnell Douglas contract, awarded in 1982, highlights long-term defense procurement and fixed-price incentive structures

Contract Overview

Contract Amount: $4,638,812,374 ($4.6B)

Contractor: Mcdonnell Douglas Corp

Awarding Agency: Department of Defense

Start Date: 1982-07-15

End Date: 2015-12-31

Contract Duration: 12,222 days

Daily Burn Rate: $379.5K/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Place of Performance

Location: LONG BEACH, LOS ANGELES County, CALIFORNIA, 90846

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $4.64 billion to MCDONNELL DOUGLAS CORP for work described as: Key points: 1. This contract represents a significant, long-term investment in defense capabilities, underscoring the extended lifecycles of major defense systems. 2. The fixed-price incentive structure suggests an attempt to balance cost control with contractor performance, though actual outcomes require detailed analysis. 3. Awarded in 1982 and ending in 2015, the contract's duration points to the enduring nature of strategic defense assets. 4. The substantial value indicates a critical program for the Department of Defense, likely involving complex aircraft or weapons systems. 5. The absence of small business set-asides suggests this procurement was focused on large-scale, specialized defense manufacturing capabilities.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its age and the specific nature of defense procurement in the early 1980s. The $4.6 billion total award value over a 33-year period averages approximately $140 million annually. Without knowing the specific system procured, direct comparisons to similar contracts are difficult. However, the fixed-price incentive (FPI) pricing structure was intended to provide cost savings if targets were met, but also allowed for increased costs if certain performance metrics were achieved, making a straightforward value assessment complex.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders were likely considered. This approach is generally favored for ensuring the government receives the best value through a competitive process. The specific number of bidders and the details of the competition are not provided, but the 'full and open' designation suggests a robust process was intended.

Taxpayer Impact: Full and open competition typically leads to more competitive pricing for taxpayers by encouraging multiple companies to bid, driving down costs through market forces.

Public Impact

The primary beneficiaries are the Department of Defense and national security, through the acquisition of critical defense systems. The contract likely supported the production and sustainment of advanced military aircraft or related defense technologies. The geographic impact is primarily centered around McDonnell Douglas's manufacturing facilities, likely in California given the 'CA' state code, and potentially other key defense industrial base locations. Significant workforce implications are expected, supporting highly skilled jobs in aerospace engineering, manufacturing, and program management.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Long contract duration (1982-2015) can lead to cost overruns and potential for outdated technology by completion.
Fixed-price incentive contracts can sometimes lead to higher final costs if performance targets are aggressively pursued or if initial estimates were inaccurate.
Lack of small business participation may limit innovation and broader economic benefits associated with subcontracting opportunities.

Positive Signals

Awarded via full and open competition, suggesting a competitive process aimed at achieving best value.
The fixed-price incentive structure, if managed effectively, can incentivize contractor performance and cost control.
The substantial value indicates a high-priority program for national defense, likely involving advanced and critical capabilities.

Sector Analysis

This contract falls within the Defense Industrial Base sector, specifically focusing on aerospace and major weapons systems manufacturing. The aerospace and defense market is characterized by high barriers to entry, significant R&D investment, and long procurement cycles. Contracts of this magnitude are typical for major platforms like fighter jets, bombers, or strategic missile systems. Spending in this sector is heavily influenced by geopolitical factors and government defense budgets, with large prime contractors often dominating specific platform categories.

Small Business Impact

The 'sb' field is false, indicating no specific small business set-aside was applied to this contract. This suggests the procurement was likely focused on large-scale, specialized capabilities typically held by major defense contractors. While there's no direct set-aside, large prime contractors like McDonnell Douglas often engage small businesses as subcontractors, potentially creating indirect opportunities within the small business ecosystem. However, the primary awardee was a large corporation.

Oversight & Accountability

Oversight for this contract would have been managed by the Department of Defense, likely through the Defense Contract Management Agency (DCMA), as indicated by the 'sa' field. DCMA is responsible for ensuring contract compliance, quality assurance, and timely delivery. The fixed-price incentive structure implies performance monitoring against defined targets. Transparency would be subject to federal procurement regulations and classification requirements, with potential oversight from Congress and the Government Accountability Office (GAO) for significant issues.

Related Government Programs

Fighter Aircraft Procurement
Weapons Systems Development
Aerospace Manufacturing Contracts
Long-Term Defense Contracts
Fixed-Price Incentive Contracts

Risk Flags

Long Contract Duration
Potential for Cost Overruns (FPI)
Lack of Small Business Focus
Aging Technology Risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $4.64 billion to MCDONNELL DOUGLAS CORP. See the official description on USAspending.

Who is the contractor on this award?

The obligated recipient is MCDONNELL DOUGLAS CORP.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $4.64 billion.

What is the period of performance?

Start: 1982-07-15. End: 2015-12-31.

What specific defense system or platform was procured under this $4.6 billion contract?

The provided data does not specify the exact defense system or platform procured under this contract. However, given the contractor (McDonnell Douglas, known for aircraft like the F-15 and F/A-18) and the contract's substantial value and duration, it likely pertains to a major aircraft program, such as a fighter jet, bomber, or advanced reconnaissance aircraft, or potentially a significant component of such a system. Further investigation into McDonnell Douglas's contract history with the DoD during the 1980s would be necessary to identify the specific platform.

How did the fixed-price incentive (FPI) structure impact the final cost compared to initial estimates?

The fixed-price incentive (FPI) contract structure aims to share cost savings or overruns between the government and the contractor based on achieving target cost and target profit goals. If the final cost was below the target cost, the government and contractor would share the savings. Conversely, if the final cost exceeded the target cost, both would share the overrun, up to a ceiling price. Without access to the specific target costs, final costs, and negotiated sharing ratios for this $4.6 billion contract, it's impossible to definitively state how the FPI structure impacted the final cost relative to initial estimates. However, FPI contracts are designed to provide greater cost certainty than cost-plus contracts while still allowing for performance incentives.

What was the average annual spending under this contract over its 33-year duration?

The total award value for this contract was $4,638,812,374, and it spanned from July 15, 1982, to December 31, 2015. This duration is approximately 33.5 years. To calculate the average annual spending, we divide the total award value by the number of years: $4,638,812,374 / 33.5 years ≈ $138,471,996 per year. This figure represents the average rate at which funds were awarded or obligated over the life of the contract, not necessarily the actual expenditure rate in any given year.

What does the 'CA' state code signify in the context of this contract?

The 'CA' state code, appearing in the 'st' field, most likely indicates that the primary performance location or the contractor's facility associated with this contract was in California. McDonnell Douglas, the contractor, had significant operations in California, particularly in the aerospace sector. This suggests that a substantial portion of the work, such as manufacturing, engineering, or program management, was conducted within the state, contributing to the regional economy and defense industrial base in California.

Were there any significant performance issues or contract disputes associated with this long-term agreement?

The provided data does not contain information regarding specific performance issues, disputes, or contract modifications beyond the initial award details. Long-term contracts, especially those spanning over three decades, often undergo numerous modifications due to changes in requirements, technology, or economic conditions. Assessing performance issues would require access to contract performance reports, modification histories, and any dispute resolution records maintained by the Department of Defense or the Defense Contract Management Agency (DCMA) for this specific agreement.

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE INCENTIVE (L)

Contractor Details

Address: 3855 LAKEWOOD BLVD, LONG BEACH

Business Categories: Category Business, Hispanic American Owned Business, Minority Owned Business, Not Designated a Small Business

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Timeline