Lockheed Martin's $4.5B GPS IIIA contract shows cost-plus structure and long-term performance

Contract Overview

Contract Amount: $4,538,050,445 ($4.5B)

Contractor: Lockheed Martin Corp

Awarding Agency: Department of Defense

Start Date: 2008-05-15

End Date: 2027-07-23

Contract Duration: 7,008 days

Daily Burn Rate: $647.6K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: GLOBAL POSITIONING SYSTEM (GPS) IIIA

Place of Performance

Location: NEWTOWN, BUCKS County, PENNSYLVANIA, 18940

State: Pennsylvania Government Spending

Plain-Language Summary

Department of Defense obligated $4.54 billion to LOCKHEED MARTIN CORP for work described as: GLOBAL POSITIONING SYSTEM (GPS) IIIA Key points: 1. Contract awarded to Lockheed Martin for critical GPS III satellite program. 2. Long contract duration suggests a need for sustained, specialized services. 3. Cost-plus fixed fee structure may incentivize cost overruns if not managed closely. 4. The contract's value places it among significant investments in defense space technology. 5. Performance context is crucial given the strategic importance of GPS. 6. Sector positioning within guided missile and space vehicle manufacturing is highly specialized.

Value Assessment

Rating: fair

The total contract value of $4.5 billion over its extended period suggests a substantial investment. Benchmarking this against similar complex satellite development programs is challenging due to unique specifications and long lead times. The cost-plus fixed fee (CPFF) pricing structure, while allowing for flexibility in evolving technological requirements, carries inherent risks of cost escalation if not rigorously managed. Without detailed cost breakdowns and performance metrics, a definitive value-for-money assessment is difficult, but the extended duration and complexity point to a potentially fair, albeit high, price for critical national security assets.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders had the opportunity to submit proposals. The fact that Lockheed Martin was selected suggests their proposal best met the government's technical, cost, and performance requirements. The presence of competition at the outset is a positive sign for price discovery, though the long-term nature of such programs can sometimes lead to fewer bidders for subsequent phases or modifications.

Taxpayer Impact: Full and open competition generally benefits taxpayers by fostering a competitive environment that can lead to more favorable pricing and innovative solutions. It ensures that the government explores a range of options before committing significant funds.

Public Impact

The primary beneficiaries are the Department of Defense and other government agencies relying on the Global Positioning System for navigation, timing, and synchronization. The contract delivers advanced GPS satellites, enhancing the capabilities and reliability of the GPS constellation. Geographic impact is global, as the GPS system supports operations and civilian activities worldwide. Workforce implications include highly skilled jobs in aerospace engineering, manufacturing, and program management within Lockheed Martin and its supply chain.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost-plus fixed fee contracts can lead to higher final costs if cost controls are not stringent.
Long contract durations increase the risk of scope creep and evolving requirements impacting budget.
The strategic nature of GPS means any delays or performance issues have significant national security implications.

Positive Signals

Awarded through full and open competition, suggesting a competitive process for initial selection.
The contract supports a critical national infrastructure program (GPS), indicating high strategic value.
Long-term contract provides stability for a vital defense capability and associated workforce.

Sector Analysis

The Global Positioning System (GPS) IIIA program falls within the highly specialized aerospace and defense sector, specifically focusing on satellite manufacturing and guided missile/space vehicle production. This sector is characterized by long development cycles, high R&D investment, and stringent government oversight due to national security implications. Comparable spending benchmarks would involve other major satellite constellation development programs, which often run into billions of dollars over many years.

Small Business Impact

This contract does not appear to have a small business set-aside component (ss: false, sb: false). While the prime contractor is Lockheed Martin, a large aerospace company, there are typically subcontracting opportunities within such large defense programs. The extent to which small businesses benefit would depend on Lockheed Martin's subcontracting plan and adherence to small business subcontracting goals, which are not detailed in the provided data.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Air Force, likely involving program management offices, contracting officers, and potentially the Defense Contract Management Agency (DCMA). Transparency is generally maintained through contract awards databases and program reviews, though specific cost and performance details may be sensitive. Inspector General jurisdiction would apply to investigations of fraud, waste, or abuse related to the contract.

Related Government Programs

Global Positioning System (GPS) Program
Space-Based PNT (Positioning, Navigation, and Timing) Systems
Defense Satellite Programs
Guided Missile and Space Vehicle Manufacturing

Risk Flags

Cost-plus contract type carries inherent risk of cost escalation.
Long contract duration increases exposure to changing requirements and economic factors.
Strategic importance of GPS means performance issues have high national security impact.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $4.54 billion to LOCKHEED MARTIN CORP. GLOBAL POSITIONING SYSTEM (GPS) IIIA

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN 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 $4.54 billion.

What is the period of performance?

Start: 2008-05-15. End: 2027-07-23.

What is Lockheed Martin's track record with the GPS program?

Lockheed Martin has a long-standing history with the GPS program, having been the prime contractor for previous generations of GPS satellites, including the GPS IIR and IIR-M satellites. They were also selected as the prime contractor for the GPS III program, which includes the GPS IIIA satellites covered by this contract. This extensive experience suggests a deep understanding of the program's requirements, technical challenges, and operational needs. Their past performance on GPS programs has been critical to maintaining the global positioning infrastructure, though like any large, complex program, it has likely faced its own set of challenges and milestones that have been managed over time.

How does the cost-plus fixed fee (CPFF) structure impact value for money compared to other contract types?

The Cost-Plus Fixed Fee (CPFF) contract type is often used when the scope of work is not precisely defined or is expected to evolve, as is common in advanced technology development like satellite manufacturing. It allows the contractor to recover all allowable costs plus a predetermined fixed fee representing profit. While this provides flexibility and incentivizes the contractor to perform the work, it can lead to higher overall costs for the government compared to fixed-price contracts if costs escalate significantly. The 'value for money' is therefore heavily dependent on the government's ability to effectively monitor and control costs throughout the contract's lifecycle and ensure the fixed fee remains reasonable for the effort involved.

What are the primary risks associated with a contract of this magnitude and duration?

Contracts of this magnitude ($4.5 billion) and duration (spanning over 19 years from award to estimated completion) carry significant risks. Key risks include cost overruns due to unforeseen technical challenges, changes in requirements, or inflation over the long term. Schedule delays are also a major concern, potentially impacting the operational readiness of the GPS constellation. Technological obsolescence is another risk; by the time the satellites are fully deployed, newer technologies may be emerging. Furthermore, geopolitical factors or shifts in defense priorities could necessitate program adjustments. Finally, contractor performance and management of the complex supply chain present ongoing risks that require diligent oversight.

How does this contract contribute to the overall effectiveness and modernization of the GPS system?

This contract is central to the modernization of the Global Positioning System. The GPS IIIA satellites represent a significant upgrade over previous generations, incorporating new capabilities such as a more powerful military signal (M-code), increased accuracy, enhanced resistance to jamming and spoofing, and a longer design life. By procuring these advanced satellites, the contract ensures the continued reliability, security, and improved performance of the GPS constellation, which is critical for both military operations and a wide range of civilian applications globally. It directly supports the transition to a more robust and resilient PNT (Positioning, Navigation, and Timing) infrastructure.

What are historical spending patterns for the GPS program, and how does this contract fit in?

The GPS program has historically represented a substantial and sustained investment by the U.S. government, spanning decades and multiple satellite generations (GPS I, II, IIA, IIR, IIR-M, IIF, and now III). Total spending across all phases has amounted to tens of billions of dollars. This $4.5 billion contract for GPS IIIA satellites is a significant component of the ongoing GPS modernization effort, reflecting the high cost associated with developing and deploying cutting-edge space-based assets. It aligns with historical patterns of large, long-term investments required to maintain and upgrade this critical national infrastructure.

What are the implications of the 'Guided Missile and Space Vehicle Manufacturing' NAICS code for this contract?

The North American Industry Classification System (NAICS) code 336414, 'Guided Missile and Space Vehicle Manufacturing,' signifies that this contract falls under a highly specialized and technologically advanced segment of the defense industrial base. Companies operating under this code are involved in the design, development, and production of complex aerospace systems, including satellites and related components. This classification implies stringent quality control, advanced manufacturing processes, significant research and development investment, and a highly skilled workforce. It also suggests that the primary contractor, Lockheed Martin, possesses the specialized expertise and facilities required for such critical national security hardware.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Guided Missile and Space Vehicle Manufacturing

Product/Service Code: SPACE VEHICLES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 2

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 12257 S WADSWORTH BLVD, LITTLETON, CO, 80125

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

Financial Breakdown

Contract Ceiling: $5,646,765,367

Exercised Options: $4,615,482,608

Current Obligation: $4,538,050,445

Actual Outlays: $49,192,019

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline