DoD awards Raytheon $366.5M for Small Diameter Bomb production, raising value-for-money questions due to sole-source nature

Contract Overview

Contract Amount: $366,510,523 ($366.5M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2024-12-19

End Date: 2029-03-19

Contract Duration: 1,551 days

Daily Burn Rate: $236.3K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: SMALL DIAMETER BOMB INCREMENT II PRODUCTION LOT 11

Place of Performance

Location: TUCSON, PIMA County, ARIZONA, 85756

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $366.5 million to RAYTHEON COMPANY for work described as: SMALL DIAMETER BOMB INCREMENT II PRODUCTION LOT 11 Key points: 1. The contract's value is substantial, reflecting the critical nature of munitions for defense operations. 2. Sole-source procurement limits competitive pressure, potentially impacting price efficiency. 3. The fixed-price incentive contract type aims to balance cost control with performance incentives. 4. Long contract duration (over 4 years) suggests a sustained need for these munitions. 5. The award is concentrated with a single, established defense contractor. 6. Performance risk is managed through incentive structures, but market competition is absent.

Value Assessment

Rating: questionable

Benchmarking the value-for-money for this sole-source award is challenging without competitive bids. The $366.5 million award for 1,551 days of performance suggests a significant per-day cost. While the fixed-price incentive (FPI) structure aims to control costs by incentivizing the contractor to stay below target costs, the lack of competition means there's no external market validation of Raytheon's pricing. Without comparable sole-source awards for similar munitions, assessing if this represents a fair price is difficult, though the absence of competition inherently introduces risk of overpayment.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one bidder, Raytheon Company, was solicited. This approach is typically used when only one responsible source is available or when urgent and compelling circumstances exist. The lack of competition means that the government did not benefit from a bidding process that could have driven down prices through market forces. This limits the government's ability to explore alternative solutions or achieve the best possible price.

Taxpayer Impact: Taxpayers may face higher costs due to the absence of competitive bidding. Without competing offers, the government lacks leverage to negotiate the lowest possible price, potentially leading to less efficient use of public funds.

Public Impact

This contract directly supports the U.S. Air Force's munition capabilities, enhancing combat readiness. The Small Diameter Bomb (SDB) provides precision strike capabilities against a variety of targets. Production will occur in Arizona, supporting the defense industrial base and associated workforce in that region. The munitions delivered will be utilized by military personnel in operational theaters.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price discovery and potential cost savings.
Long-term contract duration may lock in pricing without market adjustments.
Reliance on a single supplier for critical munitions could pose supply chain risks.

Positive Signals

Fixed-price incentive contract type aligns contractor and government interests on cost and performance.
Raytheon is an established defense contractor with proven experience in munition production.
The award supports the sustainment of essential defense capabilities.

Sector Analysis

The defense sector, particularly munition manufacturing, is characterized by high barriers to entry, significant R&D investment, and long procurement cycles. This contract falls within the 'Ammunition (except Small Arms) Manufacturing' sub-sector. The market is dominated by a few large, specialized contractors like Raytheon. Spending on precision-guided munitions is a critical component of defense budgets, reflecting ongoing global security challenges and the need for advanced weaponry. Comparable spending benchmarks are difficult to establish precisely due to the proprietary nature of defense contracts and the specific capabilities of munitions like the SDB.

Small Business Impact

This contract does not appear to include a small business set-aside. Raytheon Company is a large defense contractor. There is no explicit information provided regarding subcontracting plans for small businesses within this award. Without specific set-aside goals or subcontracting requirements detailed in the award notice, the direct impact on the small business defense ecosystem is likely minimal, though large prime contractors often engage small businesses for component manufacturing or specialized services.

Oversight & Accountability

Oversight for this contract will primarily fall under the Department of the Air Force and the Department of Defense. The contract type (Fixed Price Incentive) includes performance targets and cost ceilings, which are subject to review and audit. Transparency is limited due to the sole-source nature and the classification of defense procurement details. Inspector General (IG) offices within the DoD may conduct audits or investigations into contract performance, cost, and compliance as part of their oversight responsibilities.

Related Government Programs

Joint Direct Attack Munition (JDAM) Production
Advanced Medium-Range Air-to-Air Missile (AMRAAM) Production
Tactical Missiles Production
Guided Missile and Missile Components Manufacturing
Small Arms Ammunition Manufacturing

Risk Flags

Sole-source procurement
Lack of competitive bidding
High contract value

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $366.5 million to RAYTHEON COMPANY. SMALL DIAMETER BOMB INCREMENT II PRODUCTION LOT 11

Who is the contractor on this award?

The obligated recipient is RAYTHEON COMPANY.

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 $366.5 million.

What is the period of performance?

Start: 2024-12-19. End: 2029-03-19.

What is Raytheon Company's track record with the Department of Defense, particularly concerning munition production?

Raytheon Company, now part of RTX Corporation, has a long and extensive history as a prime contractor for the Department of Defense, particularly in missile and munition systems. They are a major producer of various ordnance, including air-to-ground munitions, air-to-air missiles, and defensive systems. Their track record includes numerous large-scale production contracts, research and development efforts, and sustainment services for a wide array of defense platforms. While generally considered a reliable supplier, like any large defense contractor, they have faced scrutiny over contract costs, performance issues, and delivery schedules on specific programs. However, their consistent role in supplying critical munitions underscores their established position and capabilities within the defense industrial base.

How does the pricing structure of a Fixed Price Incentive (FPI) contract typically compare to other contract types in terms of value for money?

A Fixed Price Incentive (FPI) contract aims to provide a middle ground between fixed-price and cost-reimbursement contracts. It establishes a target cost, target profit, and a price ceiling. The government pays the final negotiated price, which cannot exceed the ceiling. If the final cost is below the target cost, both the government and contractor share in the savings according to a pre-defined formula. If the final cost exceeds the target cost but remains below the ceiling, the contractor's profit is reduced. This structure incentivizes the contractor to control costs while ensuring the government is protected by the price ceiling. Compared to Firm Fixed Price (FFP), FPI offers more flexibility and potential savings if costs are managed well. Compared to Cost Plus Incentive Fee (CPIF), FPI places more cost risk on the contractor. In terms of value for money, FPI can be effective when performance targets are clear and achievable, and when there's a reasonable expectation of cost variances, but it relies heavily on accurate target setting and effective oversight.

What are the primary risks associated with sole-source defense procurement, and how are they typically mitigated?

The primary risks associated with sole-source defense procurement include inflated pricing due to lack of competition, limited innovation, potential for contractor complacency, and reduced government leverage in negotiations. Without competing bids, the government cannot easily benchmark prices or explore alternative solutions, potentially leading to overpayment. Mitigation strategies often involve rigorous cost analysis by the government, including should-cost reviews and should-cost-to-complete analyses, to ensure the proposed price is fair and reasonable. Strong contract management, performance metrics, and clear deliverables are crucial. Additionally, the government may seek to foster competition in future contract actions or explore alternative technologies to reduce long-term reliance on a single source. Sometimes, sole-source awards are justified by unique capabilities or urgent needs, but these justifications require careful vetting.

What is the strategic importance of the Small Diameter Bomb (SDB) program within the Air Force's operational capabilities?

The Small Diameter Bomb (SDB) program is strategically important as it provides the U.S. Air Force and other services with a low-cost, highly accurate, precision-guided munition capable of defeating a wide range of targets in various weather conditions. Its small size allows aircraft to carry more munitions per sortie, increasing combat effectiveness and reducing the number of aircraft required for a given mission. The SDB's precision minimizes collateral damage, making it suitable for operations in complex environments. It fills a critical capability gap for engaging moving targets, hardened targets, and targets in close proximity to friendly forces or civilians. Its integration onto multiple aircraft platforms further enhances its strategic value and operational flexibility.

How has federal spending on ammunition manufacturing, specifically for guided munitions, trended over the past five fiscal years?

Federal spending on ammunition manufacturing, particularly for guided munitions, has generally seen robust levels over the past five fiscal years, driven by ongoing military operations, modernization efforts, and strategic competition. While specific figures fluctuate based on program priorities, production lot sizes, and geopolitical events, the overall trend indicates sustained investment. Agencies like the Department of Defense consistently allocate significant portions of their budgets to procuring advanced munitions to maintain readiness and technological superiority. Factors such as the war in Ukraine and increased global tensions have likely further bolstered demand and spending in this category. Detailed historical spending data, often available through sources like USAspending.gov or agency budget reports, would reveal precise year-over-year trends and specific program investments.

Industry Classification

NAICS: Manufacturing › Other Fabricated Metal Product Manufacturing › Ammunition (except Small Arms) Manufacturing

Product/Service Code: AMMUNITION AND EXPLOSIVES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Parent Company: Rockwell Collins Australia PTY Limited

Address: 1151 E HERMANS RD, TUCSON, AZ, 85756

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

Financial Breakdown

Contract Ceiling: $367,760,521

Exercised Options: $366,510,523

Current Obligation: $366,510,523

Subaward Activity

Number of Subawards: 6

Total Subaward Amount: $8,118,260

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline