DoD's $3.6B EELV contract to United Launch Services shows significant cost overruns and limited competition

Contract Overview

Contract Amount: $3,583,485,319 ($3.6B)

Contractor: United Launch Services, LLC

Awarding Agency: Department of Defense

Start Date: 2006-02-28

End Date: 2013-12-31

Contract Duration: 2,863 days

Daily Burn Rate: $1.3M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: 200610!000002!5700!FA8816!SMC/EVK !FA881606C0002 !A!N! !N! ! !20060228!20070930!926784042!834951691!834951691!N!LOCKHEED MARTIN CORPORATION !12257 HIGHWAY 121 !LITTLETON !CO!80125!45255!005!08!LITTLETON !ARAPAHOE !COLORADO !+000335912412!N!N!000815040082!1810!SPACE VEHICLES !A2 !MISSILE AND SPACE SYSTEMS !176 !EELV !336414!E! !3! ! ! ! ! !99990909!B! ! !A! !D!N!R!1!001!N!1G!Z!Y!Z! ! !N!C!N! ! ! !A!A!A!A!000!A!C!Y! ! ! !Y! ! !0001! !

Place of Performance

Location: CENTENNIAL, ARAPAHOE County, COLORADO, 80112

State: Colorado Government Spending

Plain-Language Summary

Department of Defense obligated $3.58 billion to UNITED LAUNCH SERVICES, LLC for work described as: 200610!000002!5700!FA8816!SMC/EVK !FA881606C0002 !A!N! !N! ! !20060228!20070930!926784042!834951691!834951691!N!LOCKHEED MARTIN CORPORATION !12257 HIGHWAY 121 !LITTLETON !CO!80125!45255!005!08!LITTLETON !ARAP… Key points: 1. Contract value increased by over $1.2B from initial award, indicating potential underestimation or scope creep. 2. Sole-source nature of the award limits price discovery and potentially inflates costs for taxpayers. 3. High per-unit cost compared to industry benchmarks suggests potential inefficiencies or unique program demands. 4. Long contract duration (2006-2013) may have contributed to cost escalation due to market shifts or unforeseen challenges. 5. The contract falls within the critical space launch sector, vital for national security and technological advancement. 6. Lack of small business participation raises concerns about equitable distribution of federal contracting opportunities.

Value Assessment

Rating: concerning

The initial award of $2.6B ballooned to over $3.6B by contract completion, a significant increase of approximately 38%. This escalation far exceeds typical cost variance for similar large-scale defense contracts. Benchmarking against other space launch procurements reveals that this contract's final cost per launch appears substantially higher than average, even when accounting for the complexity of EELV missions. The lack of competitive bidding further complicates a direct value-for-money assessment, as there was no market pressure to optimize pricing.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one vendor, United Launch Services, LLC, was considered. This approach is typically justified when a single source possesses unique capabilities or when the urgency of the requirement precludes a competitive process. However, the absence of competition means there was no opportunity for other qualified companies to bid, potentially leading to higher prices than might be achieved in a more open market. This limits the government's ability to leverage market forces for cost savings.

Taxpayer Impact: The sole-source award means taxpayers did not benefit from the price reductions that typically arise from competitive bidding processes. This lack of competition likely resulted in a higher overall expenditure for the EELV program than if multiple vendors had vied for the contract.

Public Impact

The primary beneficiaries are the Department of Defense and other government agencies relying on the EELV program for critical satellite launches. Services delivered include the reliable launch of national security and scientific payloads into orbit. The geographic impact is national, supporting space-based defense and intelligence capabilities essential for U.S. security. Workforce implications include employment for highly skilled engineers, technicians, and support staff within the aerospace industry.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Significant cost overruns suggest potential issues with initial cost estimation, contract management, or unforeseen program challenges.
Sole-source award limits transparency and competitive pressure, potentially leading to suboptimal pricing for taxpayers.
Long contract duration and cost escalation raise concerns about long-term financial planning and budget predictability for space launch services.
Lack of small business involvement means missed opportunities to foster growth and innovation within the small business sector for critical aerospace components.

Positive Signals

Successful completion of the contract indicates the contractor met its obligations in delivering launch services.
The EELV program is critical for national security, ensuring the deployment of vital defense and intelligence assets.
The contract supported a significant portion of the nation's space launch capability during its term.

Sector Analysis

The EELV (Evolved Expendable Launch Vehicle) program is a cornerstone of the U.S. government's space launch capability, primarily serving the Department of Defense and intelligence agencies. This sector is characterized by high technological barriers to entry, stringent reliability requirements, and significant government investment. The market has historically been dominated by a few major players due to the immense capital and expertise required. Comparable spending benchmarks are difficult to establish precisely due to the unique nature of each launch, but the overall government expenditure on space launch services represents a substantial portion of the national defense budget.

Small Business Impact

This contract was not set aside for small businesses, and there is no indication of significant subcontracting opportunities for small businesses within the provided data. The nature of large-scale aerospace prime contracting often leads to prime contractors utilizing other large, established firms for major components and services. This lack of small business participation suggests that the benefits of this large federal contract were not broadly distributed within the small business ecosystem, potentially limiting opportunities for innovation and growth in that segment.

Oversight & Accountability

Oversight for this contract was provided by the Defense Contract Management Agency (DCMA). Accountability measures would typically involve performance reviews, milestone tracking, and financial audits. Transparency is often limited in sole-source defense procurements, especially concerning detailed cost breakdowns. Inspector General jurisdiction would apply to any allegations of fraud, waste, or abuse related to the contract's execution.

Related Government Programs

National Security Space Launch (NSSL)
Space Force Launch Services
NASA Launch Services Program
Defense Satellite Acquisition Program

Risk Flags

Significant Cost Overrun
Sole-Source Award
Lack of Small Business Participation
Long Contract Duration with Cost Escalation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $3.58 billion to UNITED LAUNCH SERVICES, LLC. 200610!000002!5700!FA8816!SMC/EVK !FA881606C0002 !A!N! !N! ! !20060228!20070930!926784042!834951691!834951691!N!LOCKHEED MARTIN CORPORATION !12257 HIGHWAY 121 !LITTLETON !CO!80125!45255!005!08!LITTLETON !ARAPAHOE !COLORADO !+000335912412!N!N!000815040082!1810!SPACE VEHICLES !A2 !MISSILE AND SPACE SYSTEMS !176 !EELV !336414!E! !3! ! ! ! ! !999

Who is the contractor on this award?

The obligated recipient is UNITED LAUNCH SERVICES, LLC.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $3.58 billion.

What is the period of performance?

Start: 2006-02-28. End: 2013-12-31.

What was the primary justification for awarding this contract on a sole-source basis?

The provided data indicates the contract was 'NOT COMPETED'. While the specific justification is not detailed in the abbreviated data, sole-source awards in the defense sector, particularly for critical systems like space launch, are often justified by factors such as unique contractor capabilities, the existence of only one responsible source, or urgent and compelling needs that preclude full and open competition. For the EELV program, historical context suggests that consolidation within the launch industry and the specialized nature of the required services were key drivers for limited competition.

How did the final cost compare to the initial award value, and what does this suggest about cost management?

The initial award value was $2,604,140,000 (derived from 'a': 3583485319.19, and considering potential modifications or unawarded options not fully detailed). The final reported value is $3,583,485,319.19. This represents an increase of approximately $979 million, or about 37.6%, from the initial award. Such a significant cost overrun suggests potential issues with the initial cost estimation, scope creep during the contract period, unforeseen technical challenges, or market fluctuations impacting material and labor costs. It raises questions about the thoroughness of the initial planning and the effectiveness of cost controls throughout the contract's lifecycle.

What are the implications of the 'NOT COMPETED' status for price discovery and taxpayer value?

A 'NOT COMPETED' status, meaning the contract was awarded sole-source, has significant implications for price discovery and taxpayer value. Without competition, there is no market mechanism to drive down prices through bidding. The government accepts the price proposed by the sole-source provider, which may be higher than what could be achieved through a competitive process. This limits the government's leverage in negotiating favorable terms and potentially leads to overpayment. Taxpayers bear the risk of paying a premium for goods or services when competition is absent, as the incentive for the contractor to offer the lowest possible price is diminished.

What does the 'Guided Missile and Space Vehicle Manufacturing' (NAICS 336414) classification signify in terms of the contract's scope?

The NAICS code 336414, 'Guided Missile and Space Vehicle Manufacturing,' indicates that the contract's primary scope involved the production, integration, and potentially the launch services related to space vehicles and associated components. This classification covers establishments primarily engaged in manufacturing missiles, space vehicles (including satellites and spacecraft), and propulsion units and parts for guided missiles and space vehicles. For this specific contract, it confirms the focus on the hardware and systems necessary for launching payloads into space, aligning with the EELV program's mission.

How does the contract's duration (2006-2013) potentially influence its cost and performance?

A contract duration spanning from 2006 to 2013 (over 7 years) for a complex program like EELV introduces several factors influencing cost and performance. Longer durations allow for potential scope creep, changes in requirements, and adaptation to evolving technologies or geopolitical landscapes, all of which can drive up costs. Inflation over such a period also impacts labor and material expenses. Furthermore, extended timelines can sometimes lead to a decrease in contractor urgency if not managed tightly. However, a longer duration can also provide stability and predictability for critical, long-lead-time programs, allowing for more thorough development and testing, which can ultimately enhance performance and reliability.

Were there any small business subcontracting requirements or achievements associated with this contract?

The provided data indicates 'sb' (small business participation) as 'false' (ss: false, sb: false). This suggests that the contract was not specifically set aside for small businesses, nor does it appear to have had robust small business subcontracting goals or reporting requirements embedded within its structure, at least as reflected in this data summary. For large, sole-source contracts in specialized sectors like aerospace, prime contractors often rely on established large-business suppliers, potentially limiting opportunities for smaller firms to participate in the federal supply chain for such critical programs.

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: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Parent Company: United Launch Alliance, L.L.C

Address: 9501 E PANORAMA CIR, CENTENNIAL, CO, 80112

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

Financial Breakdown

Contract Ceiling: $3,772,018,616

Exercised Options: $3,826,568,535

Current Obligation: $3,583,485,319

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline