DoD's $33.6M Lockheed Martin contract for engineering services shows limited competition and a high potential for cost overruns

Contract Overview

Contract Amount: $33,648,499 ($33.6M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2017-12-29

End Date: 2020-06-30

Contract Duration: 914 days

Daily Burn Rate: $36.8K/day

Competition Type: NOT AVAILABLE FOR COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: IGF::OT::IGF KOREA PEACE KRYPTON UNDEFINITIZED CONTRACT ACTION

Place of Performance

Location: COLORADO SPRINGS, EL PASO County, COLORADO, 80921

State: Colorado Government Spending

Plain-Language Summary

Department of Defense obligated $33.6 million to LOCKHEED MARTIN CORPORATION for work described as: IGF::OT::IGF KOREA PEACE KRYPTON UNDEFINITIZED CONTRACT ACTION Key points: 1. The contract was awarded on a non-competitive basis, raising concerns about price discovery and value for money. 2. The cost-plus-fixed-fee (CPFF) pricing structure, combined with a lack of competition, increases the risk of contractor inefficiency and cost escalation. 3. The duration of the contract (914 days) and its undefinitized nature suggest potential for scope creep and extended oversight needs. 4. Lockheed Martin's extensive experience in defense contracting may offer some assurance of technical capability, but does not mitigate the risks associated with the procurement method. 5. The absence of small business participation is noted, with no indication of set-aside or subcontracting goals. 6. The contract's focus on engineering services aligns with broader DoD needs for technical support in complex weapon system development.

Value Assessment

Rating: questionable

Benchmarking the value of this undefinitized contract is challenging due to its sole-source nature and cost-plus-fixed-fee structure. The lack of competitive bidding means there's no market-driven price comparison available. While Lockheed Martin is a major defense contractor, the CPFF arrangement inherently carries a higher risk of cost overruns compared to fixed-price contracts, especially when competition is absent. The initial award amount of $33.6 million, with a duration of over two years, suggests a significant investment where competitive pricing would typically yield better value for taxpayers.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a 'NOT AVAILABLE FOR COMPETITION' basis, indicating that the government did not solicit bids from multiple sources. This typically occurs when only one source is capable of meeting the requirement, or in urgent situations. The lack of competition means that price discovery through market forces was bypassed, potentially leading to higher costs than if multiple bidders had vied for the contract. The government's justification for this sole-source award would be critical to understanding the necessity of this procurement approach.

Taxpayer Impact: Sole-source awards limit the government's ability to secure the best possible pricing through competitive negotiation, potentially resulting in higher expenditures for taxpayers. Without competitive pressure, there is less incentive for the contractor to offer the most cost-effective solution.

Public Impact

The primary beneficiary is Lockheed Martin Corporation, which receives a significant contract for engineering services. The Department of Defense benefits from specialized engineering expertise, likely related to complex defense systems. The geographic impact is centered in Colorado, where the contractor is located, potentially supporting local jobs and the regional economy. The contract supports a highly skilled technical workforce within Lockheed Martin, contributing to national defense capabilities.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

The undefinitized nature of the contract (UNDEFINTIZED CONTRACT ACTION) suggests that the full scope and cost may not have been finalized at the time of award, increasing the risk of cost growth.
The cost-plus-fixed-fee (CPFF) contract type can incentivize cost overruns if not managed diligently, as the contractor is reimbursed for costs plus a fixed fee.
The sole-source award limits transparency and competitive pressure, potentially leading to suboptimal pricing.
The long contract duration (914 days) increases the exposure to potential scope changes and cost escalations over time.
The absence of small business participation raises questions about opportunities for smaller firms in the defense supply chain.

Positive Signals

Lockheed Martin is a well-established defense contractor with a proven track record in delivering complex systems, suggesting a high likelihood of technical execution.
The contract is for engineering services, which are critical for the development and sustainment of advanced defense technologies.
The Department of Defense is the awarding agency, indicating the strategic importance of the services procured.
The contract is a definitive contract, implying a formal agreement is in place, albeit potentially with initial undefinitized elements.

Sector Analysis

The defense engineering services sector is a critical component of the aerospace and defense industry, characterized by high barriers to entry, significant R&D investment, and long product lifecycles. This contract falls within the broader engineering services category (NAICS 541330), which encompasses firms providing specialized engineering expertise for various industries, particularly defense. The market is dominated by large, established players like Lockheed Martin due to the complexity and security requirements. Spending in this sector is driven by national security priorities and the need for technological advancement in military capabilities. Comparable spending benchmarks are difficult to establish precisely without knowing the specific engineering discipline, but large-scale engineering support contracts for major defense platforms often run into tens or hundreds of millions of dollars.

Small Business Impact

This contract does not appear to have any small business set-aside provisions, as indicated by 'sb': false. Furthermore, the 'st': 'CO' (Colorado) and 'ss': false (Small Business) flags do not suggest any specific small business considerations. Given the sole-source nature and the prime contractor being Lockheed Martin, a large defense conglomerate, the likelihood of significant subcontracting opportunities for small businesses is uncertain without further details on the contract's statement of work and subcontracting plans. The absence of explicit small business goals could mean missed opportunities for the small business defense industrial base.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Air Force, a component of the Department of Defense. As a cost-plus-fixed-fee contract, rigorous financial oversight and auditing by the agency and potentially the Defense Contract Audit Agency (DCAA) would be crucial to monitor expenditures and ensure compliance with contract terms. The undefinitized nature of the contract action necessitates close monitoring of modifications and definitization efforts. Transparency regarding the justification for the sole-source award and the progress towards definitization would be key accountability measures. Inspector General (IG) jurisdiction would apply if any fraud, waste, or abuse is suspected.

Related Government Programs

Department of Defense Research, Development, Test, and Evaluation (RDT&E)
Aerospace Engineering Services Contracts
Major Defense Acquisition Programs
Lockheed Martin Corporation Contracts
Cost-Plus-Fixed-Fee Contracts

Risk Flags

Sole-source award
Undefinitized contract action
Cost-plus-fixed-fee pricing
Potential for cost overruns
Lack of small business participation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $33.6 million to LOCKHEED MARTIN CORPORATION. IGF::OT::IGF KOREA PEACE KRYPTON UNDEFINITIZED CONTRACT ACTION

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORPORATION.

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 $33.6 million.

What is the period of performance?

Start: 2017-12-29. End: 2020-06-30.

What specific engineering services are being provided under this contract, and how do they align with current Air Force priorities?

The contract is classified under NAICS code 541330, which denotes Engineering Services. While the specific nature of the engineering services is not detailed in the provided data, it is reasonable to infer that they are critical to the development, sustainment, or modification of complex defense systems managed by the Department of the Air Force. Given Lockheed Martin's portfolio, these services could range from systems engineering, software engineering, aeronautical engineering, to integration and testing support for aircraft, missile systems, or space assets. Alignment with Air Force priorities would depend on the specific program this contract supports, but generally, such services are crucial for maintaining technological superiority, enhancing operational readiness, and developing next-generation capabilities in areas like advanced avionics, electronic warfare, or strategic deterrence.

What is the justification for awarding this contract on a sole-source basis, and what steps were taken to ensure fair and reasonable pricing?

The justification for a sole-source award typically falls under specific exceptions to full and open competition, such as when only one responsible source is available or when urgent and compelling needs exist. For this contract, the 'NOT AVAILABLE FOR COMPETITION' designation implies such a justification was made. Without access to the Justification and Approval (J&A) document, the precise reason remains unknown. To ensure fair and reasonable pricing in sole-source procurements, the government relies on techniques like price analysis, cost analysis, and comparison to historical data or commercial price lists, where applicable. However, the absence of competition inherently limits the government's leverage in price negotiations, making robust cost analysis and negotiation expertise paramount.

How does the cost-plus-fixed-fee (CPFF) structure increase risk compared to other contract types for this type of service?

The Cost-Plus-Fixed-Fee (CPFF) contract type reimburses the contractor for all allowable costs incurred, plus a predetermined fixed fee representing profit. This structure shifts a significant portion of the cost risk to the government. Unlike fixed-price contracts, where the contractor bears the risk of cost overruns to maintain their profit margin, CPFF incentivizes the contractor to incur costs, as their fee remains constant regardless of the total cost. This can lead to less stringent cost control by the contractor and potential cost escalation, especially if the contract scope is not well-defined or if oversight is insufficient. For engineering services, where scope can be fluid, CPFF requires diligent government oversight to manage costs effectively and prevent inefficiencies.

What is the historical spending pattern for similar engineering services contracts awarded by the Department of the Air Force to Lockheed Martin?

Analyzing historical spending patterns for similar contracts requires access to a comprehensive database of federal procurement data. However, it is widely known that the Department of the Air Force, and the Department of Defense broadly, awards substantial contracts to major defense contractors like Lockheed Martin for engineering services. These contracts often support major weapon systems (e.g., F-35, C-130 variants, missile defense systems) and can span many years and hundreds of millions, if not billions, of dollars in total value. The specific amount of $33.6 million for this particular contract suggests it might be for a specific project phase, a specialized support function, or a component of a larger program. Without more granular data on the specific services and programs, a precise historical comparison is difficult, but Lockheed Martin is consistently among the top recipients of DoD contract dollars.

What are the implications of the contract being 'undefinitized' for its duration and potential cost growth?

An 'undefinitized contract action' (UCA) means that the contract is awarded with an initial agreement on basic terms but without a fully negotiated and finalized scope, schedule, and price. The contractor is authorized to begin work, but the final terms must be negotiated and 'definitized' within a specified period. This process inherently introduces risk. The duration of the contract (914 days) is substantial, and the undefinitized status means that the final cost could significantly exceed the initial $33.6 million award amount once negotiations are complete. It also implies that the government may not have had complete clarity on the requirement at the time of award, or that urgent needs necessitated starting work before full definition. This increases the potential for scope creep and cost growth, requiring robust government oversight during the definitization process.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Architectural, Engineering, and Related Services › Engineering Services

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

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

Parent Company: Lockheed Martin Corp (UEI: 834951691)

Address: 9970 FEDERAL DR, COLORADO SPRINGS, CO, 80921

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

Financial Breakdown

Contract Ceiling: $33,666,407

Exercised Options: $33,666,407

Current Obligation: $33,648,499

Subaward Activity

Number of Subawards: 28

Total Subaward Amount: $3,255,760

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline