DoD's $3.4B Lockheed Martin contract for missile manufacturing shows long-term commitment

Contract Overview

Contract Amount: $3,394,759,310 ($3.4B)

Contractor: Lockheed Martin Corp

Awarding Agency: Department of Defense

Start Date: 2008-03-14

End Date: 2022-08-31

Contract Duration: 5,283 days

Daily Burn Rate: $642.6K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: GEO-3 AND HEO-3 LONG LEAD

Place of Performance

Location: SUNNYVALE, SANTA CLARA County, CALIFORNIA, 94089

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $3.39 billion to LOCKHEED MARTIN CORP for work described as: GEO-3 AND HEO-3 LONG LEAD Key points: 1. This contract represents a significant, long-term investment in guided missile and space vehicle manufacturing. 2. The sole-source nature of this award warrants scrutiny regarding potential price inflation and limited market engagement. 3. A substantial duration of over 14 years suggests a critical, ongoing need for these specialized capabilities. 4. The cost-plus-fixed-fee structure may incentivize cost overruns, requiring robust oversight. 5. This award positions Lockheed Martin as a key supplier within the defense sector for advanced missile systems. 6. The absence of small business participation raises questions about broader economic impact and subcontracting opportunities.

Value Assessment

Rating: questionable

Benchmarking the value of this $3.4 billion, 14-year contract is challenging due to its sole-source nature and specialized product. Without competitive bids, it's difficult to ascertain if the pricing reflects fair market value. The cost-plus-fixed-fee (CPFF) contract type, while common for complex R&D, can lead to higher costs compared to fixed-price contracts if not managed diligently. The long duration suggests a sustained need, but the lack of competition limits opportunities for cost savings through alternative providers or innovative solutions.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed among multiple potential suppliers. This approach is typically used when a specific contractor possesses unique capabilities, proprietary technology, or when urgency dictates a direct award. The lack of competition means that the Department of Defense did not benefit from the price discovery and innovation that typically arises from a competitive bidding process. This can potentially lead to higher prices and less incentive for the contractor to optimize costs.

Taxpayer Impact: Taxpayers may be paying a premium due to the absence of competitive pressure. The government has fewer options to negotiate better terms or explore more cost-effective alternatives.

Public Impact

The primary beneficiaries are the Department of Defense, which receives critical missile and space vehicle manufacturing capabilities. This contract supports the production of advanced weaponry essential for national security. The contract's geographic impact is centered in California, where Lockheed Martin has significant operations. It sustains high-skilled jobs within the aerospace and defense manufacturing sector, particularly in specialized engineering and production roles.

Waste & Efficiency Indicators

Waste Risk Score: 20 / 10

Warning Flags

Sole-source award limits price competition and potential taxpayer savings.
Cost-plus-fixed-fee structure may not sufficiently incentivize cost control.
Long contract duration could mask inefficiencies if not actively managed.
Lack of small business involvement limits broader economic participation.

Positive Signals

Ensures continued access to critical, specialized missile manufacturing capabilities.
Long-term commitment provides stability for a key defense contractor.
Awardee is a well-established entity with a proven track record in defense manufacturing.

Sector Analysis

The guided missile and space vehicle manufacturing sector is a highly specialized and capital-intensive segment of the aerospace and defense industry. It is characterized by long development cycles, significant R&D investment, and stringent quality control requirements. Major players like Lockheed Martin dominate this market due to the technical expertise and infrastructure needed. Government contracts, particularly from the Department of Defense, are the primary revenue source for companies in this space. Spending in this sector is often driven by national security priorities and technological advancements.

Small Business Impact

This contract does not appear to have a small business set-aside component, nor is there information indicating significant subcontracting opportunities for small businesses. The nature of guided missile manufacturing often requires specialized facilities and expertise typically held by large corporations. This lack of direct small business involvement means that the economic benefits are concentrated among larger prime contractors, potentially limiting the growth and participation of smaller firms within this specific supply chain.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contracting and program management offices. Given the sole-source and cost-plus-fixed-fee nature, rigorous financial oversight, performance monitoring, and auditing by the Defense Contract Audit Agency (DCAA) and potentially the Inspector General would be crucial to ensure cost reasonableness and performance. Transparency may be limited due to the non-competitive award, but reporting requirements within the contract itself should provide some level of insight into progress and expenditures.

Related Government Programs

Missile Defense Systems
Strategic Weapons Programs
Space Launch Vehicles
Advanced Munitions Manufacturing
Aerospace Component Production

Risk Flags

Sole-source award
Cost-plus contract type
Long contract duration
Lack of small business participation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $3.39 billion to LOCKHEED MARTIN CORP. GEO-3 AND HEO-3 LONG LEAD

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 $3.39 billion.

What is the period of performance?

Start: 2008-03-14. End: 2022-08-31.

What is Lockheed Martin's track record with similar sole-source, long-duration defense contracts?

Lockheed Martin has a long history of securing sole-source and long-duration contracts with the Department of Defense, particularly for complex weapon systems like missiles and aircraft. These contracts often stem from the company's established expertise, proprietary technologies, and critical role in national defense supply chains. While such awards provide essential capabilities, they also necessitate robust government oversight to ensure fair pricing and performance. Historical data from government accountability offices and defense publications often highlight both the successes and the cost challenges associated with these types of sole-source agreements, emphasizing the need for continuous evaluation of program execution and financial management.

How does the Cost Plus Fixed Fee (CPFF) structure typically impact final costs compared to other contract types for missile manufacturing?

The Cost Plus Fixed Fee (CPFF) contract structure, used here, reimburses the contractor for allowable costs incurred plus a predetermined fixed fee representing profit. This structure is often employed for research and development or complex projects where the scope is not fully defined at the outset. While it allows for flexibility and encourages innovation, it carries a higher risk of cost overruns compared to fixed-price contracts, as the contractor is incentivized to incur costs to achieve the project goals, with their profit margin remaining constant. The government bears the risk of cost increases. For missile manufacturing, where precision and advanced technology are paramount, CPFF can be justified, but it requires stringent cost monitoring and controls by the procuring agency to prevent excessive spending and ensure value for taxpayer money.

What are the primary risks associated with a sole-source award for critical defense manufacturing like guided missiles?

The primary risks associated with a sole-source award for critical defense manufacturing, such as guided missiles, include a lack of competitive pricing, potentially leading to higher costs for the government and taxpayers. Without competing bids, there is reduced incentive for the contractor to innovate or optimize efficiency to lower prices. Furthermore, sole-source awards can create vendor lock-in, making it difficult and costly to switch suppliers in the future. There's also a risk that the government may not be aware of or able to access more cost-effective or technologically superior alternatives that might exist in the market. Robust justification and rigorous negotiation are essential to mitigate these risks.

What is the historical spending trend for guided missile and space vehicle manufacturing by the Department of Defense?

Historical spending by the Department of Defense (DoD) on guided missile and space vehicle manufacturing has been substantial and generally increasing, driven by evolving geopolitical threats, technological advancements, and modernization efforts. The DoD consistently allocates significant portions of its budget to procure and develop advanced missile systems, including strategic, tactical, and defensive capabilities. Factors such as the development of hypersonic weapons, missile defense systems, and space-based assets contribute to sustained high levels of investment. While specific annual figures fluctuate based on program cycles and strategic priorities, the overall trend indicates a long-term commitment to maintaining and advancing these critical capabilities, often involving large, multi-year contracts with major defense contractors.

How does the geographic concentration in California impact the broader national defense industrial base for missile manufacturing?

The concentration of guided missile and space vehicle manufacturing in California, as indicated by this contract's awardee location, reflects the state's historical strength in the aerospace and defense sector. This concentration can foster a highly skilled workforce and a robust ecosystem of specialized suppliers and research institutions within the region. However, it also presents risks to the national defense industrial base, such as potential supply chain vulnerabilities if disruptions occur in that specific geographic area (e.g., natural disasters, labor disputes). Over-reliance on a single region can also limit opportunities for other states and regions to develop similar capabilities, potentially impacting national industrial resilience and economic diversification within the defense sector.

Industry Classification

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

Product/Service Code: SPACE VEHICLES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 1111 LOCKHEED MARTIN WAY BLDG 157, SUNNYVALE, CA, 94089

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

Financial Breakdown

Contract Ceiling: $3,640,839,151

Exercised Options: $3,640,839,151

Current Obligation: $3,394,759,310

Actual Outlays: $6,311,993

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline