DoD's $470M R&D contract with Northrop Grumman for missile defense systems shows fair value, but limited competition raises concerns
Contract Overview
Contract Amount: $470,545,831 ($470.5M)
Contractor: Northrop Grumman Systems Corporation
Awarding Agency: Department of Defense
Start Date: 2019-09-20
End Date: 2027-09-19
Contract Duration: 2,921 days
Daily Burn Rate: $161.1K/day
Competition Type: FULL AND OPEN COMPETITION
Number of Offers Received: 2
Pricing Type: FIXED PRICE INCENTIVE
Sector: R&D
Official Description: TYPE 4 SUBSCALE TARGETS
Place of Performance
Location: CHANDLER, MARICOPA County, ARIZONA, 85286
State: Arizona Government Spending
Plain-Language Summary
Department of Defense obligated $470.5 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: TYPE 4 SUBSCALE TARGETS Key points: 1. The contract's fixed-price incentive structure aims to balance cost control with performance incentives. 2. While Northrop Grumman is a key player, the limited number of bidders suggests potential market concentration. 3. Performance risk is managed through incentive clauses, but long-term sustainment costs are not fully detailed. 4. This contract supports critical national security objectives within the missile defense sector. 5. Spending on R&D for advanced defense systems is a significant portion of the DoD budget. 6. The contract's duration and value place it among major defense procurements.
Value Assessment
Rating: fair
The contract's total award value of $470.5 million over its period of performance appears reasonable given the complexity and critical nature of missile defense research and development. Benchmarking against similar R&D contracts in advanced defense systems is challenging due to the specialized nature of the work. However, the fixed-price incentive (FPI) contract type suggests an effort to control costs while incentivizing contractor performance, which is a positive sign for value.
Cost Per Unit: N/A
Competition Analysis
Competition Level: full-and-open
This contract was awarded under full and open competition, indicating that multiple qualified bidders had the opportunity to submit proposals. However, the data indicates only two bids were received. While full and open competition is the preferred method, a low number of bids can sometimes suggest barriers to entry for smaller or less established firms, or a highly specialized market where only a few companies possess the necessary capabilities.
Taxpayer Impact: A low number of bids, even under full and open competition, can limit price discovery and potentially lead to higher costs for taxpayers if competition is not robust.
Public Impact
The primary beneficiaries are the Department of Defense and national security, through the advancement of missile defense capabilities. The contract will deliver research and development services for advanced missile defense systems. The geographic impact is primarily within Arizona, where Northrop Grumman's operations are located. This contract supports a highly skilled workforce in specialized engineering and scientific fields.
Waste & Efficiency Indicators
Waste Risk Score: 50 / 10
Warning Flags
- Limited number of bidders (2) despite full and open competition may indicate high barriers to entry or market concentration.
- The long duration (approx. 8 years) increases the risk of cost overruns or scope creep if not managed diligently.
- Fixed-price incentive contracts can lead to cost overruns if initial estimates are inaccurate or performance targets are difficult to achieve.
Positive Signals
- The use of a Fixed Price Incentive (FPI) contract type aligns costs with performance, potentially rewarding efficiency.
- Northrop Grumman is a well-established defense contractor with significant experience in missile defense systems.
- The contract supports critical national security objectives, indicating a high level of strategic importance and potential for innovation.
Sector Analysis
This contract falls within the Research and Development (R&D) sector, specifically focusing on advanced physical sciences and engineering for missile defense. The defense R&D market is characterized by high technical complexity, long development cycles, and significant government investment. Comparable spending benchmarks are difficult to establish precisely due to the unique nature of missile defense technologies, but overall DoD R&D spending is in the tens of billions annually.
Small Business Impact
The contract data indicates that small business participation was not a specific set-aside requirement (ss: false, sb: false). Given the specialized nature of advanced missile defense R&D, it is unlikely that small businesses would be primary contractors. However, opportunities may exist for small businesses to participate as subcontractors to Northrop Grumman, depending on their specific capabilities and the subcontracting plan developed by the prime contractor.
Oversight & Accountability
Oversight for this contract will likely be managed by the Missile Defense Agency (MDA) within the Department of Defense. Accountability measures are typically embedded within the FPI contract structure, linking contractor payment to performance milestones and cost targets. Transparency is generally limited for classified or sensitive defense R&D projects, but contract awards and basic details are publicly available through federal procurement databases. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.
Related Government Programs
- Missile Defense Systems
- Advanced Research and Development
- Department of Defense Procurement
- Northrop Grumman Contracts
- Fixed Price Incentive Contracts
Risk Flags
- Limited Competition
- Long Contract Duration
- Potential for Cost Overruns in FPI Contracts
Tags
defense, missile-defense, research-and-development, northrop-grumman, department-of-defense, missile-defense-agency, arizona, definitive-contract, fixed-price-incentive, full-and-open-competition, large-contract
Frequently Asked Questions
What is this federal contract paying for?
Department of Defense awarded $470.5 million to NORTHROP GRUMMAN SYSTEMS CORPORATION. TYPE 4 SUBSCALE TARGETS
Who is the contractor on this award?
The obligated recipient is NORTHROP GRUMMAN SYSTEMS CORPORATION.
Which agency awarded this contract?
Awarding agency: Department of Defense (Missile Defense Agency).
What is the total obligated amount?
The obligated amount is $470.5 million.
What is the period of performance?
Start: 2019-09-20. End: 2027-09-19.
What is Northrop Grumman's track record with similar missile defense R&D contracts?
Northrop Grumman has a long and extensive history of developing and producing complex defense systems, including significant contributions to missile defense programs. They have been a prime contractor or major subcontractor on various missile defense initiatives, such as the Ground-based Midcourse Defense (GMD) system, Aegis Ballistic Missile Defense System, and various sensor and interceptor technologies. Their experience spans research, design, integration, and testing of sophisticated weapon systems. While specific contract performance data is often proprietary, their sustained role as a major defense contractor suggests a generally positive track record in delivering complex, high-stakes projects, though like any large contractor, they have faced scrutiny and challenges on specific programs over the years.
How does the $470.5 million award compare to other missile defense R&D contracts?
The $470.5 million award for this specific R&D effort is a substantial but not unprecedented figure within the context of major missile defense programs. The Missile Defense Agency (MDA) frequently awards contracts in the hundreds of millions, and sometimes billions, of dollars for research, development, testing, and procurement of advanced missile defense capabilities. Contracts for developing new interceptors, sensors, command and control systems, or advanced simulation and modeling tools can all reach these levels. This particular contract's value is consistent with significant R&D investments required for cutting-edge technologies in a field where innovation and technological superiority are paramount for national security.
What are the primary risks associated with this contract, and how are they being mitigated?
The primary risks include technological challenges in developing novel missile defense capabilities, potential cost overruns due to the complexity and long duration of the R&D effort, and schedule delays. Mitigation strategies are embedded in the contract type: the Fixed Price Incentive (FPI) structure incentivizes the contractor to meet performance targets within cost constraints. The government's oversight by the Missile Defense Agency, including technical reviews and milestone tracking, is crucial. Furthermore, the limited competition, while a concern for price discovery, also means the selected contractor (Northrop Grumman) possesses specialized expertise, potentially reducing technical risk compared to a less experienced firm.
How effective is the Fixed Price Incentive (FPI) contract type in managing costs for this type of R&D?
The FPI contract type is designed to provide a middle ground between fixed-price and cost-plus contracts, making it suitable for R&D where costs can be uncertain but performance targets are definable. It establishes a target cost, a target profit, and a price ceiling. If the final cost is below the target, both buyer and seller share in the savings (under certain limits). If the cost exceeds the target, the seller bears a larger portion of the overrun up to the ceiling. This incentivizes the contractor to control costs while pursuing the defined performance objectives. For complex R&D, FPI can be effective if the target cost and performance metrics are well-defined and achievable, but it carries risks if these initial estimates are inaccurate, potentially leading to disputes or the ceiling being reached.
What are the historical spending patterns for missile defense R&D by the Department of Defense?
The Department of Defense, particularly through the Missile Defense Agency (MDA), has consistently allocated significant funding towards missile defense research and development over the past several decades. Spending has fluctuated based on perceived threats, technological advancements, and strategic priorities. Historically, billions of dollars annually have been invested in developing layered missile defense architectures, including ground-based interceptors, sea-based systems, airborne sensors, and directed energy technologies. Major programs like GMD, Aegis BMD, and THAAD have seen substantial R&D investment. This contract represents a continuation of that long-term commitment to maintaining and advancing U.S. missile defense capabilities.
Industry Classification
NAICS: Professional, Scientific, and Technical Services › Scientific Research and Development Services › Research and Development in the Physical, Engineering, and Life Sciences (except Nanotechnology and Biotechnology)
Product/Service Code: GUIDED MISSLES
Competition & Pricing
Extent Competed: FULL AND OPEN COMPETITION
Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE
Solicitation ID: HQ014717R0015
Offers Received: 2
Pricing Type: FIXED PRICE INCENTIVE (L)
Evaluated Preference: NONE
Contractor Details
Parent Company: Northrop Grumman Corporation
Address: 1575 SOUTH PRICE RD, CHANDLER, AZ, 85286
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: $1,241,505,983
Exercised Options: $517,825,319
Current Obligation: $470,545,831
Actual Outlays: $12,128,223
Subaward Activity
Number of Subawards: 1174
Total Subaward Amount: $7,463,961,151
Contract Characteristics
Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED
Cost or Pricing Data: NO
Timeline
Start Date: 2019-09-20
Current End Date: 2027-09-19
Potential End Date: 2027-09-19 00:00:00
Last Modified: 2026-01-05
More Contracts from Northrop Grumman Systems Corporation
- 200506!000026!5700!fa8214!oo-Alc/Pkme/Lmke !F4261098C0001 !A!N! !Y! !p01502!20041213!20050701!001563738!004179453!016435559!n!northrop Grumman Space & Missi!888 S 2000 E !clearfield !ut!84015!13850!011!49!clearfield !davis !utah !-000001960000!n!n!000000000000!l014!tech REP Svcs/Guided Missiles !A2 !missile and Space Systems !302 !minuteman III GRP !541330!E! !3! ! !C! ! !20200930!B! ! !A! !a!n!l!2!002!b! !Z!Y!Z! ! !N!C!N! ! ! !a!a!a!a!000!a!c!n! ! ! ! ! ! !0001! ! — $10.0B (Department of Defense)
- E-2D Advanced Hawkeye Aircraft (FRP-7) — $8.5B (Department of Defense)
- E-2D Advanced Hawkeye Aircraft (FRP-2) — $5.4B (Department of Defense)
- First DDT and E, Ares I-X, and Flight Tests. First Stage Will BE a Five Segment, Solid Rocket Booster Derived From the Space Shuttle Program (SSP) Solid Rocket Booster (srb)/Reusable Solid Rocket Motor (rsrm). the Contractor Shall Furnish the Necessary Management, Engineering, Labor, Facilities, Tools, Equipment, and Materials Required for First Stage Development, Qualification, Certification and Acceptance Program. Activities Include: Redesign and Testing of the Motor to Incorporate the Fifth Segment and Production of Five Full Scale Ground Static Test Motors: TWO Development Motors (dms)-And Three Qualification Motors (QMS); Structural Test Article (STA), Ground Vibration Test Motors (gvtms) and Other Development Testing; Redesign of the Avionics, Deceleration, Separation, and Flight Termination System (FTS) Subsystems; Ares I-X: Simulated Ares I Outer Mold Line/Mass Properties Using Modified Srb/Rsrm; and Three Flight Test Vehicles. TAS::80 0124::TAS — $4.4B (National Aeronautics and Space Administration)
- Federal Contract — $4.4B (Department of Defense)
View all Northrop Grumman Systems Corporation federal contracts →
Other Department of Defense Contracts
- Federal Contract — $51.3B (Humana Government Business Inc)
- Lrip LOT 12 Advance Acquisition Contract — $35.1B (Lockheed Martin Corporation)
- SSN 802 and 803 Long Lead Time Material — $34.7B (Electric Boat Corporation)
- 200204!008532!1700!AF600 !naval AIR Systems Command !N0001902C3002 !A!N! !N! !20011026!20120430!008016958!008016958!834951691!n!lockheed Martin Corporation !lockheed Blvd !fort Worth !tx!76108!27000!439!48!fort Worth !tarrant !texas !+000026000000!n!n!018981928201!ac15!rdte/Aircraft-Eng/Manuf Develop !a1a!airframes and Spares !2ama!jast/Jsf !336411!E! !3! ! ! ! ! !99990909!B! ! !A! !a!n!r!2!002!n!1a!a!n!z! ! !N!C!N! ! ! !a!a!a!a!000!a!c!n! ! ! !Y! !N00019!0001! — $34.2B (Lockheed Martin Corporation)
- KC-X Modernization Program — $32.0B (THE Boeing Company)