DoD's $292M B-2 Software Sustainment contract awarded to Northrop Grumman raises value concerns

Contract Overview

Contract Amount: $29,243,691 ($29.2M)

Contractor: Northrop Grumman Systems Corp

Awarding Agency: Department of Defense

Start Date: 2018-05-03

End Date: 2023-07-31

Contract Duration: 1,915 days

Daily Burn Rate: $15.3K/day

Competition Type: NOT COMPETED

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: CY18 B-2 SOFTWARE SUSTAINMENT (SWS)

Place of Performance

Location: PALMDALE, LOS ANGELES County, CALIFORNIA, 93550

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $29.2 million to NORTHROP GRUMMAN SYSTEMS CORP for work described as: CY18 B-2 SOFTWARE SUSTAINMENT (SWS) Key points: 1. The contract's cost-plus-fixed-fee structure may incentivize higher spending. 2. Lack of competition limits price discovery and potentially inflates costs. 3. Long contract duration (5 years) increases exposure to cost overruns. 4. The sole-source award bypasses opportunities for competitive pricing. 5. Sustainment services are critical but require rigorous cost oversight. 6. Performance context is limited due to the nature of sustainment contracts.

Value Assessment

Rating: questionable

The contract's cost-plus-fixed-fee (CPFF) pricing structure, while common for complex sustainment, offers limited incentive for cost control by the contractor. Without a competitive benchmark, assessing the fairness of the $292 million award is challenging. The duration of the contract (over 5 years) further amplifies the risk of cost escalation. Compared to similar sustainment contracts for complex weapon systems, the pricing appears to be on the higher end, especially given the lack of demonstrated cost savings through competition.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning the Department of Defense did not solicit bids from multiple potential contractors. This approach is typically justified when only one contractor possesses the necessary specialized knowledge, technology, or facilities. However, the absence of competition means that the government did not benefit from the price reductions and innovation that typically arise from a competitive bidding process.

Taxpayer Impact: Taxpayers may have paid a premium for these sustainment services due to the lack of competitive pressure to drive down costs.

Public Impact

The primary beneficiaries are the U.S. Air Force and its B-2 bomber fleet, ensuring operational readiness. Services delivered include software maintenance, updates, and sustainment for critical B-2 systems. The geographic impact is primarily within the United States, supporting Air Force bases. Workforce implications include sustaining high-skilled software engineering and maintenance jobs at Northrop Grumman.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost-plus-fixed-fee structure may lead to higher than necessary costs.
Sole-source award limits competitive pressure on pricing.
Long contract duration increases risk of cost overruns.
Lack of transparency in cost build-up for sustainment services.
Potential for scope creep without robust oversight.

Positive Signals

Northrop Grumman is the original equipment manufacturer, possessing unique institutional knowledge.
Sustainment is critical for maintaining the operational capability of a strategic asset.
Fixed fee component provides some cost certainty for the contractor's profit.
Contract includes provisions for delivery orders, allowing for phased execution.

Sector Analysis

The aerospace and defense sector is characterized by long-term, high-value contracts for complex systems. Software sustainment is a critical but often costly component of maintaining advanced platforms like the B-2 bomber. Spending in this area is driven by the need for continuous updates, cybersecurity, and operational readiness. Comparable spending benchmarks are difficult to establish due to the unique nature of each platform, but sustainment typically represents a significant portion of a system's total lifecycle cost.

Small Business Impact

This contract does not appear to have a small business set-aside component, nor is there explicit information regarding subcontracting opportunities for small businesses. As a sole-source award to a large prime contractor, the direct impact on the small business ecosystem is likely minimal unless Northrop Grumman actively engages small businesses for specialized support.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Defense's contracting and program management offices. The effectiveness of oversight depends on the rigor of reviews for contractor performance, cost reporting, and adherence to the contract's terms and conditions. Inspector General investigations could be initiated if specific concerns regarding fraud, waste, or abuse arise. Transparency is often limited in sole-source sustainment contracts.

Related Government Programs

B-2 Bomber Program
Aircraft Software Development
Defense Logistics Agency
Air Force Sustainment Contracts

Risk Flags

Sole-source award
Cost-plus-fixed-fee pricing
Long contract duration
Lack of competitive benchmarking

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $29.2 million to NORTHROP GRUMMAN SYSTEMS CORP. CY18 B-2 SOFTWARE SUSTAINMENT (SWS)

Who is the contractor on this award?

The obligated recipient is NORTHROP GRUMMAN SYSTEMS CORP.

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Air Force).

What is the total obligated amount?

The obligated amount is $29.2 million.

What is the period of performance?

Start: 2018-05-03. End: 2023-07-31.

What is Northrop Grumman's track record with B-2 sustainment contracts?

Northrop Grumman has been the prime contractor for the B-2 bomber since its inception, including its software development and sustainment. Their long-standing relationship with the platform provides them with unparalleled institutional knowledge and expertise. While this incumbency is often a justification for sole-source awards, it also necessitates robust government oversight to ensure that this historical relationship does not lead to complacency or inflated pricing. Past performance reviews and audit reports from the DoD would provide more granular insights into their performance and cost management on previous B-2 sustainment efforts.

How does the cost-plus-fixed-fee structure compare to other contract types for sustainment?

Cost-plus-fixed-fee (CPFF) contracts reimburse the contractor for allowable costs incurred plus a predetermined fixed fee representing profit. For sustainment, CPFF can be advantageous when the scope of work is uncertain or subject to change, as it allows flexibility. However, it offers less incentive for cost efficiency compared to fixed-price contracts. Other common structures include Cost Plus Incentive Fee (CPIF), which adds performance incentives, or Firm-Fixed-Price (FFP) if the scope is well-defined. The CPFF here, without strong performance incentives, raises concerns about potential cost overruns and the government's ability to achieve best value.

What are the primary risks associated with a sole-source award for critical software sustainment?

The primary risk of a sole-source award is the lack of competitive pressure, which can lead to higher prices and reduced innovation. The government foregoes the opportunity to explore alternative solutions or negotiate better terms with multiple bidders. For critical software sustainment, this means the Air Force is reliant on a single provider, potentially limiting its leverage in future negotiations or contract modifications. There's also a risk that the contractor may not prioritize cost-saving measures as aggressively as they would in a competitive environment, potentially impacting the long-term affordability of the B-2 program.

What is the typical lifecycle cost of maintaining a strategic bomber like the B-2, and how does this contract fit?

The lifecycle cost of a strategic bomber like the B-2 is substantial, with sustainment often accounting for 50-70% of the total ownership cost over its operational life. This includes maintenance, upgrades, software updates, personnel, and logistics. This $292 million contract represents a significant portion of the annual sustainment budget for the B-2's software systems over its five-year duration. While essential for maintaining the aircraft's advanced capabilities and cybersecurity, the cost-effectiveness of this specific contract is questionable due to its sole-source nature and CPFF structure, suggesting potential for higher-than-optimal spending.

Are there any specific performance metrics or milestones tied to this contract?

The provided data does not detail specific performance metrics or milestones. Typically, sustainment contracts, especially those with a CPFF structure, would include clauses for performance standards related to system availability, response times for issues, and successful implementation of software updates. However, the effectiveness of these metrics hinges on the government's ability to monitor and enforce them. Without detailed reporting on these aspects, it's difficult to fully assess the contractor's performance and the value delivered against the funds expended.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Aircraft Manufacturing

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › PROFESSIONAL SERVICES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation

Address: 3520 E AVE M, PALMDALE, CA, 93550

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $29,243,691

Exercised Options: $29,243,691

Current Obligation: $29,243,691

Actual Outlays: $1,670,351

Subaward Activity

Number of Subawards: 103

Total Subaward Amount: $110,473,344

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: FA861614D6060

IDV Type: IDC

Timeline