Raytheon awarded $67.5M contract for next-gen integrated circuit design by Air Force

Contract Overview

Contract Amount: $67,483,433 ($67.5M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2019-06-28

End Date: 2021-09-30

Contract Duration: 825 days

Daily Burn Rate: $81.8K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: NEXT GENERATION APPLICATION SPECIFIC INTEGRATED CIRCUIT PRELIMINARY DESIGN

Place of Performance

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

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $67.5 million to RAYTHEON COMPANY for work described as: NEXT GENERATION APPLICATION SPECIFIC INTEGRATED CIRCUIT PRELIMINARY DESIGN Key points: 1. Contract awarded on a cost-plus incentive fee basis, suggesting potential for cost overruns if not managed closely. 2. The sole-source nature of this award limits competitive pressure, potentially impacting overall value for money. 3. The preliminary design phase indicates early-stage development, carrying inherent technical and schedule risks. 4. This contract falls under the 'Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing' NAICS code. 5. The contract duration of 825 days allows for significant development time, but also extends exposure to market shifts.

Value Assessment

Rating: fair

Benchmarking the value of this preliminary design contract is challenging due to its specialized nature and sole-source award. The cost-plus incentive fee structure means actual costs could exceed the preliminary estimate, with incentives driving performance. Without comparable sole-source contracts for similar preliminary design phases, a definitive value-for-money assessment is difficult. However, the significant award amount suggests a complex and critical development effort.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning there was no open competition. This approach is typically used when a specific contractor possesses unique capabilities or intellectual property essential for the requirement. The lack of competition means that price discovery through market forces was not utilized, and the government relied on negotiation to establish terms.

Taxpayer Impact: Taxpayers may not have received the benefit of the lowest possible price that could have been achieved through a competitive bidding process.

Public Impact

The Department of the Air Force is the primary beneficiary, seeking advanced integrated circuit technology. This contract supports the development of next-generation application-specific integrated circuits. The geographic impact is primarily centered in California, where Raytheon Company is located. The contract will likely involve highly skilled engineers and technicians in the semiconductor and aerospace industries.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing benefits.
Cost-plus incentive fee structure can lead to higher final costs if not managed effectively.
Preliminary design phase carries inherent technical and schedule risks.

Positive Signals

Award to a known entity (Raytheon Company) suggests a degree of confidence in their capabilities.
Focus on 'next generation' technology indicates investment in future defense capabilities.
Incentive fee structure aims to align contractor performance with program goals.

Sector Analysis

This contract falls within the broader aerospace and defense electronics sector, specifically focusing on the design of specialized integrated circuits. This is a high-technology area characterized by significant R&D investment and long product development cycles. The market for such custom-designed chips is often niche, driven by specific defense or high-performance computing needs. Comparable spending benchmarks would likely be found within other advanced electronics development contracts for defense applications.

Small Business Impact

This contract does not appear to have a small business set-aside component, nor is there information indicating subcontracting opportunities for small businesses. The focus is on a large, established defense contractor, suggesting that the primary awardee is not a small business. Further analysis would be needed to determine if any subcontracting plans specifically target small businesses.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of the Air Force's contracting and program management offices. Accountability measures are embedded within the cost-plus incentive fee structure, which links contractor payment to performance metrics. Transparency regarding the specific details of the preliminary design and cost breakdowns may be limited due to the sole-source nature and the proprietary information involved.

Related Government Programs

Advanced Avionics Systems
Semiconductor Manufacturing
Defense Electronics Research and Development
Next-Generation Military Hardware

Risk Flags

Sole-source award
Cost-plus contract type
Preliminary design phase

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $67.5 million to RAYTHEON COMPANY. NEXT GENERATION APPLICATION SPECIFIC INTEGRATED CIRCUIT PRELIMINARY DESIGN

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 $67.5 million.

What is the period of performance?

Start: 2019-06-28. End: 2021-09-30.

What is Raytheon Company's track record with similar sole-source, preliminary design contracts for integrated circuits?

Raytheon Company, now part of RTX, has a long history of developing advanced electronic systems for the Department of Defense. While specific data on prior sole-source preliminary design contracts for application-specific integrated circuits (ASICs) is not publicly detailed in this context, the company routinely engages in complex R&D efforts. Their extensive experience in aerospace and defense suggests a capacity to handle such specialized design work. However, the sole-source nature of this particular award means that direct comparisons to competitive bids for similar preliminary designs are not available, making it difficult to assess Raytheon's pricing competitiveness in this instance. Past performance reviews and contract awards databases would offer more granular insights into their execution on similar, though not necessarily identical, projects.

How does the 'cost-plus incentive fee' structure typically impact final costs compared to other contract types for R&D?

A Cost-Plus Incentive Fee (CPIF) contract is designed to encourage contractor efficiency and cost control. The government agrees to pay the contractor's allowable costs plus a fee that is adjusted based on whether the final cost is below, at, or above a target cost. If the final cost is below the target, both the contractor and the government share in the savings. If it's above the target, the contractor's fee is reduced. For R&D, CPIF can be advantageous over a firm-fixed-price contract when the scope of work is uncertain or subject to change, as it allows for flexibility. However, compared to Cost-Plus-Fixed-Fee (CPFF), the incentive component aims to drive costs lower than they might otherwise be. The ultimate impact on final costs depends heavily on the realism of the target cost, the effectiveness of the incentive formula, and the government's oversight in managing the contractor's expenditures.

What are the primary risks associated with a sole-source award for a preliminary design contract?

The primary risks associated with a sole-source award for a preliminary design contract are related to cost and competition. Without competitive bidding, there is a reduced incentive for the contractor to offer the lowest possible price, potentially leading to higher costs for the government. Price discovery through market forces is absent. Furthermore, the government may not have access to the full range of innovative solutions that might have emerged from a competitive process. There's also a risk of complacency from the awarded contractor, as they face no immediate threat from competitors for this specific contract. Ensuring fair and reasonable pricing requires robust negotiation and justification for the sole-source determination.

What is the expected performance context and success criteria for this preliminary design contract?

The performance context for this preliminary design contract involves the development of specifications, architectural designs, and potentially prototypes for a next-generation application-specific integrated circuit (ASIC). Success criteria would likely revolve around meeting defined technical requirements, adhering to a target cost and schedule, and delivering a design that is feasible for subsequent manufacturing phases. Key performance indicators might include the successful completion of design reviews, the validation of critical design parameters, and the demonstration of the ASIC's intended functionality within simulated environments. The 'incentive fee' component suggests that specific performance targets, such as achieving certain power efficiency, speed, or size metrics, will be tied to the contractor's fee, driving them to optimize the design beyond basic requirements.

How does this contract fit into the broader spending patterns for advanced integrated circuits within the Department of Defense?

This contract represents a specific investment in the foundational design phase for advanced integrated circuits, which are critical components in modern defense systems. Spending in this area is typically characterized by high R&D costs, long development timelines, and a reliance on specialized contractors due to the complexity and proprietary nature of the technology. The Department of Defense (DoD) consistently invests in next-generation technologies to maintain a technological edge. Contracts like this, even if for preliminary design, are precursors to larger production contracts. Analyzing historical spending on similar ASIC development programs, particularly those classified as sole-source or for critical defense applications, would provide context on the scale and frequency of such investments within the DoD's overall R&D and procurement budgets.

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: RESEARCH AND DEVELOPMENT › C – National Defense R&D Services

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: FA880719R0002

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: $69,115,340

Exercised Options: $69,115,340

Current Obligation: $67,483,433

Actual Outlays: $10,699,602

Subaward Activity

Number of Subawards: 23

Total Subaward Amount: $13,692,256

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline