DoD's $30M BAE Systems contract for MK45 gun system overhaul shows limited competition

Contract Overview

Contract Amount: $29,984,113 ($30.0M)

Contractor: BAE Systems Land & Armaments L.P.

Awarding Agency: Department of Defense

Start Date: 2011-08-12

End Date: 2017-02-27

Contract Duration: 2,026 days

Daily Burn Rate: $14.8K/day

Competition Type: NOT COMPETED

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: OVERHAUL OF MK45 5"/54 ALL MODS

Place of Performance

Location: LOUISVILLE, JEFFERSON County, KENTUCKY, 40214

State: Kentucky Government Spending

Plain-Language Summary

Department of Defense obligated $30.0 million to BAE SYSTEMS LAND & ARMAMENTS L.P. for work described as: OVERHAUL OF MK45 5"/54 ALL MODS Key points: 1. Contract awarded via a sole-source justification, raising concerns about price discovery and potential overpayment. 2. The fixed-fee structure on a cost-plus basis may incentivize cost overruns. 3. Limited competition suggests potential risks of contractor lock-in and reduced innovation. 4. The contract duration extends significantly, indicating a long-term reliance on this specific vendor. 5. Performance context is limited due to the sole-source nature, making direct value-for-money assessment challenging. 6. Sector positioning within defense manufacturing highlights the critical nature of naval gun systems.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is difficult due to its sole-source nature and the specific technical requirements for the MK45 gun system overhaul. Without competitive bids, it's challenging to assess if the pricing reflects fair market value or if there's an opportunity for cost savings. The cost-plus-fixed-fee structure, while common for complex engineering services, can sometimes lead to higher overall costs if not meticulously managed. Further analysis of the contractor's historical performance on similar contracts and the specific cost components would be needed for a more definitive value assessment.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning BAE SYSTEMS LAND & ARMAMENTS L.P. was the only vendor considered. The justification for this approach is not detailed in the provided data, but it typically implies that only one source could fulfill the requirement, perhaps due to proprietary technology, unique capabilities, or urgent needs. The lack of competition means there was no opportunity for other qualified companies to bid, which can limit price negotiation and potentially lead to higher costs for the government.

Taxpayer Impact: The absence of a competitive bidding process for this significant contract means taxpayers may not be benefiting from the most cost-effective solution. Without competing offers, the government has less leverage to negotiate favorable pricing, potentially resulting in funds being spent at a higher rate than if multiple vendors had vied for the work.

Public Impact

The primary beneficiaries are the U.S. Navy, ensuring the operational readiness of its MK45 5"/54 caliber naval gun systems. Services delivered include the overhaul and modernization of critical weapon systems, enhancing their reliability and effectiveness. The geographic impact is primarily on naval bases and shipyards where these systems are maintained and upgraded. Workforce implications include specialized engineering and technical roles within BAE Systems and potentially supporting subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition and potential for cost savings.
Cost-plus-fixed-fee contract type can incentivize higher costs if not managed closely.
Long contract duration may indicate a lack of readily available alternative solutions.
Lack of transparency in the sole-source justification hinders full value assessment.

Positive Signals

Award to an established contractor with presumed expertise in the MK45 system.
Focus on maintaining critical naval defense capabilities.
Contract aims to ensure operational readiness of essential weapon systems.

Sector Analysis

This contract falls within the defense industrial base, specifically focusing on naval armament systems. The market for overhaul and modernization of such specialized military hardware is often concentrated among a few key contractors with the necessary technical expertise and security clearances. BAE Systems is a major player in this sector. Comparable spending benchmarks would involve looking at other major overhaul contracts for naval platforms or weapon systems, though direct comparisons are difficult due to the unique nature of each system and service requirement.

Small Business Impact

The data indicates that this contract was not set aside for small businesses, nor does it appear to have specific subcontracting requirements for small businesses explicitly stated. Given the specialized nature of overhauling complex military hardware like the MK45 gun system, it is likely that the prime contractor, BAE Systems, possesses the core capabilities. However, there may be opportunities for small businesses to participate as subcontractors for specific components or services, though this is not guaranteed by the contract terms provided.

Oversight & Accountability

Oversight for this contract would typically be managed by the Defense Contract Management Agency (DCMA), which is responsible for ensuring contractors meet performance, cost, and schedule requirements. The cost-plus-fixed-fee structure necessitates rigorous financial oversight to monitor expenditures and ensure the fixed fee is earned appropriately. Transparency is limited by the sole-source nature, but contract performance reviews and audits would be key accountability measures. Inspector General jurisdiction would apply to investigations of fraud, waste, or abuse.

Related Government Programs

Naval Gun Systems Modernization
Defense Weapon System Maintenance
Military Hardware Overhaul Contracts
BAE Systems Defense Contracts
Department of Defense Procurement

Risk Flags

Sole-source award
Cost-plus contract type
Lack of competitive bidding
Extended contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $30.0 million to BAE SYSTEMS LAND & ARMAMENTS L.P.. OVERHAUL OF MK45 5"/54 ALL MODS

Who is the contractor on this award?

The obligated recipient is BAE SYSTEMS LAND & ARMAMENTS L.P..

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $30.0 million.

What is the period of performance?

Start: 2011-08-12. End: 2017-02-27.

What is the specific technical scope of the 'OVERHAUL OF MK45 5"/54 ALL MODS' and why was it deemed necessary?

The 'OVERHAUL OF MK45 5"/54 ALL MODS' refers to comprehensive maintenance, repair, and potential upgrades for the BAE Systems-manufactured MK45 5-inch/54 caliber naval gun system. This system is a primary weapon for many U.S. Navy cruisers and destroyers. An overhaul is typically necessary to address wear and tear, extend the service life of the weapon, incorporate reliability improvements, or adapt it to new ammunition types or fire control systems. The specific modifications ('ALL MODS') suggest a thorough refurbishment rather than routine maintenance, aiming to ensure the system's continued operational effectiveness and safety in a demanding maritime environment.

How does the Cost Plus Fixed Fee (CPFF) contract type influence the financial risk and potential cost overruns for this overhaul?

The Cost Plus Fixed Fee (CPFF) contract type means the contractor (BAE Systems) is reimbursed for all allowable costs incurred during the overhaul, plus a predetermined fixed fee representing profit. This structure shifts much of the financial risk to the government, as the total cost is not capped upfront. While the fixed fee provides some cost certainty for the contractor's profit, it can incentivize cost overruns if not managed diligently, as the contractor is guaranteed their fee regardless of the final cost. The government's oversight is crucial to scrutinize allowable costs and ensure the project stays within reasonable budgetary expectations, making robust auditing and progress monitoring essential to mitigate potential cost escalation.

What are the implications of awarding this contract on a sole-source basis for future competition and pricing of MK45 system support?

Awarding this contract on a sole-source basis has significant implications. It means that BAE Systems was the only company considered capable of performing the required overhaul, potentially due to proprietary knowledge, unique tooling, or specific certifications. This lack of competition prevents the government from leveraging market forces to achieve lower prices through bidding. Consequently, for future support or similar overhauls of the MK45 system, the government may continue to face limited options, potentially leading to sustained higher pricing and reduced negotiation leverage. It also discourages other potential competitors from investing in the capabilities needed to service this specific system.

What is the historical spending pattern for the MK45 gun system overhaul or similar services provided by BAE Systems to the Department of Defense?

Analyzing historical spending patterns for the MK45 gun system overhaul requires access to detailed contract databases beyond the provided snippet. However, BAE Systems is a major defense contractor with extensive experience in naval systems. It is probable that they have received numerous contracts for the maintenance, repair, and upgrade of MK45 systems over the years, given its widespread deployment. The total amount obligated ($29,984,113) for this specific delivery order suggests a substantial investment in maintaining these critical assets. Understanding past spending would involve examining the frequency, value, and contract types (e.g., sole-source vs. competitive) of previous MK45-related awards to BAE Systems or other potential providers to identify trends in cost and procurement strategies.

How does the duration of this contract (delivery order ending Feb 2017, but program duration 2026) impact the assessment of its overall value and risk?

The provided dates present a potential ambiguity: the delivery order end date is February 27, 2017, while the program duration is listed as 2026. Assuming the 2026 date reflects the overall program lifecycle or potential for future task orders under a broader contract vehicle, it indicates a long-term commitment to maintaining and potentially upgrading the MK45 systems. A longer duration can offer stability and predictability for both the government and the contractor. However, it also increases the risk associated with cost escalation over time, technological obsolescence, and the potential for the contractor to become entrenched, reducing future competitive flexibility. The value assessment must consider the benefits derived over this extended period against the total lifecycle costs and the risks inherent in such long-term sole-source arrangements.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Architectural, Engineering, and Related Services › Engineering Services

Product/Service Code: WEAPONS

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Parent Company: BAE Systems PLC (UEI: 217304393)

Address: 163 ROCHESTER DR STE 1, LOUISVILLE, KY, 40214

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Foreign Owned, Not Designated a Small Business, Special Designations

Financial Breakdown

Contract Ceiling: $29,984,113

Exercised Options: $29,984,113

Current Obligation: $29,984,113

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: N0002407G5438

IDV Type: IDC

Timeline