DoD awards $455M Raytheon contract for search and detection systems, with significant cost-plus incentives

Contract Overview

Contract Amount: $455,309,983 ($455.3M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2012-09-28

End Date: 2026-12-31

Contract Duration: 5,207 days

Daily Burn Rate: $87.4K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: MGUE INCREMENT 1 TD RAYTHEON

Place of Performance

Location: EL SEGUNDO, LOS ANGELES County, CALIFORNIA, 90245

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $455.3 million to RAYTHEON COMPANY for work described as: MGUE INCREMENT 1 TD RAYTHEON Key points: 1. Contract utilizes cost-plus incentive fee structure, potentially driving up final costs if not managed effectively. 2. Sole-source award to Raytheon Company raises questions about competition and potential for price optimization. 3. Long contract duration of over 5200 days suggests a critical, long-term need for these systems. 4. The contract is for manufacturing search, detection, navigation, guidance, aeronautical, and nautical systems. 5. Performance is located in California, a hub for aerospace and defense manufacturing. 6. No small business set-aside indicates a focus on large prime contractors for this specialized work.

Value Assessment

Rating: questionable

Benchmarking the value of this $455 million contract is challenging without detailed cost breakdowns and performance metrics. The cost-plus incentive fee (CPIF) structure, while common for complex development, can lead to cost overruns if incentives are not tightly aligned with efficient spending. Comparing it to similar sole-source awards for advanced defense systems would be necessary for a more robust value assessment. The lack of competition inherently limits the ability to assess if the pricing reflects market competitiveness.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis to Raytheon Company, meaning it was not competed among multiple vendors. This approach is typically justified when a specific contractor possesses unique capabilities, intellectual property, or when urgency dictates a rapid award. The absence of a competitive bidding process means that taxpayers do not benefit from the price discovery that typically occurs in a fully competed environment, potentially leading to higher costs.

Taxpayer Impact: The lack of competition means taxpayers may not be receiving the best possible price for these critical defense systems. Without competing bids, there's less pressure on the contractor to minimize costs.

Public Impact

The primary beneficiaries are the Department of Defense, specifically the Air Force, which will receive advanced search and detection systems. These systems are crucial for national security, supporting intelligence gathering, surveillance, and reconnaissance operations. The contract supports high-skilled jobs in the aerospace and defense manufacturing sector, primarily in California. The delivery of these advanced systems enhances the operational capabilities of U.S. military forces.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Cost-plus incentive fee structure can lead to cost escalation if not managed rigorously.
Long contract duration may obscure performance issues over time.
Lack of transparency in cost breakdowns for CPIF contracts.

Positive Signals

Award to a major defense contractor with established expertise.
Contract addresses critical national security needs for advanced systems.
Long-term nature suggests a stable, ongoing requirement for these capabilities.

Sector Analysis

This contract falls within the 'Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing' sector, a specialized segment of the broader aerospace and defense industry. This market is characterized by high barriers to entry, significant R&D investment, and long product development cycles. Spending in this area is heavily influenced by government defense budgets and evolving technological requirements. Comparable spending benchmarks would typically involve other large-scale sole-source or limited-competition awards for advanced military electronics and systems.

Small Business Impact

The contract is not set aside for small businesses, and there is no indication of subcontracting requirements for small businesses in the provided data. This suggests that the primary focus is on Raytheon Company's direct capabilities. The absence of small business participation in this specific award means that opportunities for smaller firms within this particular contract's scope are likely limited, though Raytheon may engage them in other capacities.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contracting and program management offices, with potential involvement from the Air Force's Inspector General. Transparency is often limited in sole-source, cost-plus contracts, making detailed public oversight challenging. Accountability measures would be tied to the incentive fee structure and contractual milestones, but the effectiveness depends on rigorous government oversight and auditing.

Related Government Programs

Defense Procurement
Aerospace Manufacturing
Advanced Electronics
National Security Systems
Sole-Source Contracts
Cost-Plus Contracts

Risk Flags

Sole-source award
Cost-plus incentive fee structure
Long contract duration
Lack of small business participation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $455.3 million to RAYTHEON COMPANY. MGUE INCREMENT 1 TD RAYTHEON

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 $455.3 million.

What is the period of performance?

Start: 2012-09-28. End: 2026-12-31.

What is Raytheon's track record with similar sole-source, cost-plus incentive fee contracts for defense systems?

Raytheon Company has a long history of performing large, complex sole-source contracts with the Department of Defense, often utilizing cost-plus fee structures. These contracts typically involve advanced technologies where specific expertise or proprietary systems are required. While CPIF contracts can incentivize performance and cost control, they also carry inherent risks of cost overruns if not meticulously managed and overseen by the government. Historical data on Raytheon's performance in similar contracts would need to be analyzed to assess their efficiency in managing costs and meeting performance targets under such arrangements. This would involve reviewing past contract closeouts, audit reports, and program performance reviews to identify trends in cost variances and schedule adherence.

How does the $455 million award compare to historical spending on similar search and detection systems?

Direct comparison of this $455 million award to historical spending on similar systems is difficult without specific details on the system's capabilities, technological advancements, and the scope of work. However, given the long duration (over 13 years) and the nature of advanced defense electronics, this figure represents a significant investment. Historical spending trends in defense procurement for sophisticated sensor and navigation systems often show substantial, multi-year commitments. To provide a meaningful comparison, one would need to identify comparable systems procured by the DoD in recent years, analyze their contract values, durations, and the technological sophistication involved. This would help determine if the current award is within the expected range for such specialized, long-term defense procurements.

What are the primary risks associated with a sole-source, cost-plus incentive fee contract of this magnitude?

The primary risks associated with this sole-source, cost-plus incentive fee (CPIF) contract are twofold. Firstly, the sole-source nature eliminates competitive pressure, potentially leading to inflated pricing and reduced incentive for the contractor to seek cost efficiencies. Taxpayers may end up paying more than they would in a competitive scenario. Secondly, the CPIF structure, while designed to align contractor and government interests, carries the risk of cost escalation. If the target costs are set too high, or if the incentive structure is not perfectly aligned with desired outcomes, the contractor may achieve incentives without true efficiency, driving up the final price. Robust government oversight, accurate cost estimation, and well-defined performance metrics are crucial to mitigate these risks.

What are the implications of the long contract duration (over 13 years) for program effectiveness and cost control?

The extensive duration of this contract, spanning over 13 years (5207 days), has significant implications for both program effectiveness and cost control. On the positive side, it suggests a stable, long-term requirement for the systems and allows for sustained development, integration, and potential upgrades, ensuring the technology remains relevant. However, such a long timeframe also increases the risk of cost growth due to inflation, evolving requirements, and potential inefficiencies that may go unnoticed over extended periods. It also makes it harder to benchmark costs against current market rates. Effective program management, regular performance reviews, and mechanisms for adjusting cost targets or incentives over the contract's life are essential to maintain cost control and ensure the program remains effective and delivers value throughout its duration.

How does the 'Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing' classification impact the contract's nature and oversight?

The classification 'Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing' (NAICS 334511) indicates a highly specialized area within the defense industrial base. This sector typically involves complex, high-technology systems requiring significant research, development, and precision manufacturing. Contracts in this domain often involve proprietary technologies and long development cycles, which can justify sole-source awards and the use of cost-plus fee structures. Oversight in this area demands specialized technical expertise from government personnel to evaluate performance, validate costs, and ensure the systems meet stringent military specifications. The complexity also means that cost overruns or schedule delays can be more common and harder to predict than in simpler manufacturing sectors.

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: INSTRUMENTS AND LABORATORY EQPT

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: RTX Corp

Address: 2000 E EL SEGUNDO BLVD, EL SEGUNDO, CA, 90245

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: $506,505,360

Exercised Options: $476,669,006

Current Obligation: $455,309,983

Actual Outlays: $6,686,087

Subaward Activity

Number of Subawards: 9

Total Subaward Amount: $10,225,565

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline