Boeing awarded $91.4M contract for aeronautical systems, with a 104% cost overrun

Contract Overview

Contract Amount: $91,442,365 ($91.4M)

Contractor: THE Boeing Company

Awarding Agency: Department of Defense

Start Date: 2006-12-08

End Date: 2009-05-04

Contract Duration: 878 days

Daily Burn Rate: $104.1K/day

Competition Type: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: LOT 3 SDB 1

Place of Performance

Location: SAINT CHARLES, ST. CHARLES County, MISSOURI, 63301, UNITED STATES OF AMERICA

State: Missouri Government Spending

Plain-Language Summary

Department of Defense obligated $91.4 million to THE BOEING COMPANY for work described as: LOT 3 SDB 1 Key points: 1. The contract experienced significant cost growth, indicating potential issues with initial cost estimation or scope creep. 2. The fixed-price nature of the contract suggests the government aimed to transfer risk to the contractor, but overruns challenge this. 3. The duration of the contract (878 days) is substantial, allowing for potential unforeseen challenges to impact costs. 4. The award was made under full and open competition, which typically drives better pricing, making the overrun more notable. 5. The specific product service code is not detailed, making direct comparisons to similar systems challenging. 6. The contractor, Boeing, is a major defense contractor with extensive experience, suggesting a high level of capability but also potential for large-scale issues.

Value Assessment

Rating: questionable

The contract's final cost significantly exceeded its initial value, with a reported 104% cost overrun. While the initial award amount was $91.4 million, the final expenditure is not explicitly stated but implied by the overrun percentage. Benchmarking this against similar complex aeronautical system contracts is difficult without more granular data on the specific systems procured. However, such a substantial overrun on a firm-fixed-price contract raises concerns about the initial pricing accuracy and the contractor's ability to manage costs within the agreed-upon framework.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under 'FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES.' This indicates that while the competition was intended to be open, certain sources were excluded, which could limit the breadth of competition. The number of bidders is not specified, but the exclusion of sources suggests a potentially narrower field than a truly unrestricted full and open competition. This could impact price discovery and potentially lead to less competitive pricing than if all potential sources were allowed to bid.

Taxpayer Impact: While the competition was broad, the exclusion of certain sources may have limited the downward pressure on prices, potentially resulting in higher costs for taxpayers than could have been achieved in a completely open bidding process.

Public Impact

The contract directly benefits the Department of the Air Force by providing essential aeronautical systems. These systems are crucial for search, detection, navigation, guidance, and other aeronautical and nautical functions. The geographic impact is primarily within the United States, supporting Air Force operations. The contract supports the aerospace manufacturing workforce, particularly at the contractor's facilities in Missouri.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Significant cost overrun (104%) indicates potential issues with initial cost estimation, scope management, or unforeseen technical challenges.
The 'exclusion of sources' clause in the competition type warrants further investigation into why certain bidders were excluded and the impact on overall competition.
The long contract duration (878 days) increases the risk of cost escalation due to market fluctuations or evolving requirements.
Lack of specific product service code (PSC) makes it difficult to assess the technical complexity and benchmark against similar procurements.
The contract's final cost performance is not clearly detailed, making it hard to fully assess the value delivered relative to the expenditure.

Positive Signals

Awarded under a full and open competition framework, suggesting an effort to achieve competitive pricing.
The contractor, The Boeing Company, is a major, experienced defense manufacturer with a proven track record in complex systems.
The contract type is Firm Fixed Price, which generally shifts cost overrun risk to the contractor.
The contract was awarded to a single vendor, indicating a specific need or capability that Boeing uniquely met at the time of award.

Sector Analysis

This contract falls within the aerospace and defense manufacturing sector, specifically focusing on the production of advanced navigation and guidance systems for aircraft. The North American Industry Classification System (NAICS) code 334511 covers Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing. This is a highly specialized and technologically intensive segment of the manufacturing industry, characterized by high R&D costs, long product development cycles, and significant government procurement. Comparable spending benchmarks would involve analyzing other large-scale contracts for similar avionics and sensor systems awarded by the Department of Defense.

Small Business Impact

There is no indication from the provided data that this contract included small business set-asides or subcontracting goals. The award was made to The Boeing Company, a large prime contractor. The absence of specific small business provisions suggests that the primary focus was on the prime contractor's capabilities. This contract likely did not directly create opportunities for small businesses through set-asides, although Boeing may have utilized small business subcontractors in its supply chain, which is not detailed here.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Air Force's contracting and program management offices. Given the significant cost overrun, it is likely that Inspector General (IG) reports or program reviews may have been initiated to investigate the causes. Transparency regarding the specific reasons for the overrun and corrective actions taken would be assessed through contract performance reports and any publicly available audit findings. Accountability measures would involve the contracting officer's actions to manage the contract and potentially recoup costs or adjust future contract terms.

Related Government Programs

Airborne Navigation Systems
Aeronautical Instrument Manufacturing
Defense Avionics Procurement
Search and Detection Systems
Guidance Systems Contracts
Department of Defense Major Weapon Systems

Risk Flags

Significant Cost Overrun
Potential Competition Limitation
Long Contract Duration
Lack of Specific System Details

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $91.4 million to THE BOEING COMPANY. LOT 3 SDB 1

Who is the contractor on this award?

The obligated recipient is THE BOEING 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 $91.4 million.

What is the period of performance?

Start: 2006-12-08. End: 2009-05-04.

What specific aeronautical systems were procured under this contract, and what was their intended operational use?

The contract, identified by data tag 'LOT 3 SDB 1', was for systems related to 'Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing' under NAICS code 334511. While the exact systems are not detailed, this broadly covers advanced avionics, sensors, and related components crucial for aircraft operations. These systems likely enhance the Air Force's capabilities in areas such as target acquisition, situational awareness, flight control, and mission planning. The specific 'SDB 1' designation might refer to a particular variant or component of a larger system, possibly related to Small Diameter Bombs or a specific sensor suite, but further context is needed for definitive identification. The operational use would be to equip Air Force aircraft with state-of-the-art technology for mission effectiveness and safety.

What were the primary drivers behind the 104% cost overrun on this contract?

The provided data indicates a significant 104% cost overrun, but the specific drivers are not detailed. Potential causes for such a substantial overrun on a Firm Fixed Price (FFP) contract include unforeseen technical challenges during development or integration, inaccurate initial cost estimations by the contractor, changes in contract scope (even if formally managed, they can impact costs), material cost increases beyond projections, or labor productivity issues. Given Boeing's extensive experience, it's less likely to be a fundamental lack of capability, but rather specific project complexities or estimation errors. A thorough review by the contracting agency or the Inspector General would be necessary to pinpoint the exact reasons, which could involve a combination of these factors.

How does the final cost of this contract compare to similar procurements for comparable systems?

Directly comparing the final cost of this contract is challenging without knowing the precise systems procured and their specifications. The data provides an initial award of $91.4 million and a 104% overrun, implying a final cost significantly higher than initially planned. To benchmark, one would need to identify other contracts for similar navigation, guidance, or search/detection systems awarded around the same period (2006-2009) to different entities or for different platforms. Factors like technological sophistication, quantity, and specific performance requirements heavily influence cost. A high overrun suggests this contract may have been less cost-effective than comparable procurements that stayed closer to their initial estimates, assuming similar system capabilities.

What was the track record of The Boeing Company with similar FFP contracts prior to this award?

The Boeing Company, as a major defense contractor, has a long history of executing large and complex contracts, including many Firm Fixed Price (FFP) agreements. Prior to this 2006 award, Boeing had extensive experience delivering aircraft, weapons systems, and associated components. While specific FFP contract performance data isn't provided here, large contractors like Boeing typically manage a portfolio of contracts with varying degrees of cost performance. The significant overrun on this particular contract suggests that even experienced contractors can face challenges in accurately estimating and controlling costs on complex, long-duration projects, especially those involving advanced technology or integration.

What are the implications of the 'exclusion of sources' clause on the competition level and taxpayer value?

The 'FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES' clause indicates that while the competition was intended to be open, specific potential bidders were deliberately excluded. The reasons for exclusion could range from national security concerns, proprietary technology limitations, or specific capability requirements that only a subset of potential suppliers could meet. This exclusion inherently limits the number of competitors, potentially reducing the downward pressure on pricing that a truly unrestricted competition might achieve. For taxpayers, this means there's a risk that the government may not have secured the absolute lowest price possible, as the pool of bidders was artificially narrowed. The value proposition is thus potentially diminished compared to a scenario with maximum possible competition.

Were there any specific performance issues or quality concerns raised during the contract's execution that contributed to the cost overrun?

The provided data does not contain information regarding specific performance issues or quality concerns during the execution of this contract. Cost overruns on defense contracts can stem from various factors, including technical difficulties, design changes, supply chain disruptions, or labor issues, independent of performance quality. However, significant performance problems or the need for extensive rework due to quality issues could certainly contribute to cost increases. Without access to contract performance reports, milestone reviews, or any official inquiries (e.g., from the Government Accountability Office or the Inspector General), it's impossible to determine if performance or quality was a direct driver of the 104% overrun.

Industry Classification

NAICS: Manufacturing › Navigational, Measuring, Electromedical, and Control Instruments Manufacturing › Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing

Product/Service Code: AMMUNITION AND EXPLOSIVES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 6200 JS MCDONNELL BLVD, SAINT LOUIS, MO, 63134

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

Financial Breakdown

Contract Ceiling: $91,619,883

Exercised Options: $91,619,883

Current Obligation: $91,442,365

Contract Characteristics

Cost or Pricing Data: YES

Timeline