DoD awards $800M+ contract for THAAD missile defense sustainment to Lockheed Martin, raising value-for-money questions

Contract Overview

Contract Amount: $800,102,983 ($800.1M)

Contractor: Lockheed Martin Corp

Awarding Agency: Department of Defense

Start Date: 2018-10-31

End Date: 2028-10-30

Contract Duration: 3,652 days

Daily Burn Rate: $219.1K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: THE UNITED STATES GOVERNMENT'S (USG) TERMINAL HIGH ALTITUDE AREA DEFENSE (THAAD) PROJECT OFFICE HAS THE REQUIREMENT TO PROVIDE MAINTENANCE AND SUSTAINMENT FOR THE TWO THAAD BATTERIES WEAPON SYSTEMS IN SUPPORT OF A FOREIGN MILITARY SALES (FMS) CASE ESTABLISHED WITH THE GOVERNMENT OF THE UNITED ARAB EMIRATES (UAE). THE PURPOSE OF ACTION IS TO AWARD THE MAINTENANCE AND SUSTAINMENT CONTRACT.

Place of Performance

Location: SUNNYVALE, SANTA CLARA County, CALIFORNIA, 94089

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $800.1 million to LOCKHEED MARTIN CORP for work described as: THE UNITED STATES GOVERNMENT'S (USG) TERMINAL HIGH ALTITUDE AREA DEFENSE (THAAD) PROJECT OFFICE HAS THE REQUIREMENT TO PROVIDE MAINTENANCE AND SUSTAINMENT FOR THE TWO THAAD BATTERIES WEAPON SYSTEMS IN SUPPORT OF A FOREIGN MILITARY SALES (FMS) CASE ESTABLISHED WITH THE GOVERNMENT … Key points: 1. Contract awarded to a single, incumbent provider suggests limited price negotiation. 2. Long-term sustainment contract indicates a critical, ongoing need for the defense system. 3. High contract value warrants scrutiny of cost efficiency and performance metrics. 4. Focus on foreign military sales highlights international defense cooperation and U.S. export reliance. 5. Missile Defense Agency's role points to strategic importance in regional security architecture. 6. Lack of competition may limit opportunities for innovative solutions or cost-saving alternatives.

Value Assessment

Rating: questionable

The contract's substantial value of over $800 million for sustainment of THAAD batteries raises concerns about value for money, especially given the lack of competition. Benchmarking against similar complex defense system sustainment contracts would be necessary to assess if the pricing is competitive. Without competitive bidding, it is difficult to ascertain if the government is receiving the best possible price for these critical services. The cost-plus incentive fee structure, while common in complex defense procurements, can lead to cost overruns if not rigorously managed.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was not competed, indicating a sole-source award to Lockheed Martin Corporation. This approach is often taken for specialized systems where only the original equipment manufacturer possesses the necessary technical expertise and proprietary knowledge for maintenance and sustainment. However, the absence of a competitive bidding process limits the government's ability to explore alternative solutions or negotiate more favorable pricing, potentially impacting cost efficiency.

Taxpayer Impact: Taxpayers may be paying a premium due to the lack of competitive pressure. Without competing the requirement, there is less incentive for the contractor to offer the most cost-effective solution.

Public Impact

The United Arab Emirates benefits from the continued operational readiness of its THAAD missile defense system. The contract ensures the sustainment of advanced missile defense technology, contributing to regional security. U.S. defense industry, specifically Lockheed Martin, benefits through continued revenue and sustainment work. The contract supports specialized technical jobs within the defense sector related to advanced weapon systems.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing and potential cost savings for taxpayers.
Long-term nature of the contract (10 years) requires continuous oversight to manage costs and performance.
Reliance on a single contractor for critical defense system sustainment poses a potential risk if performance issues arise.

Positive Signals

Award to an incumbent contractor likely ensures continuity of essential services for a critical defense system.
The contract addresses a clear and stated requirement for foreign military sales, supporting allied defense capabilities.
Cost-plus incentive fee structure, if managed effectively, can incentivize contractor performance and cost control.

Sector Analysis

The Terminal High Altitude Area Defense (THAAD) system is a key component of missile defense architecture, operating within the broader aerospace and defense sector. This contract for sustainment falls under the specialized area of defense electronics and weapon system maintenance. The global market for missile defense systems is significant, driven by geopolitical tensions and the proliferation of ballistic missile technology. Comparable spending benchmarks for sustainment of complex, high-value defense platforms are typically in the hundreds of millions to billions of dollars over the life of the system.

Small Business Impact

This contract does not appear to have a small business set-aside component, nor is there explicit information regarding subcontracting opportunities for small businesses. Given the specialized nature of THAAD system sustainment, it is likely that prime subcontracting opportunities would be limited to highly specialized defense firms. Further analysis would be needed to determine if any aspects of the sustainment effort could be effectively subcontracted to small businesses.

Oversight & Accountability

Oversight for this contract will primarily reside with the Department of Defense, specifically the Missile Defense Agency, and potentially the Defense Contract Management Agency (DCMA). The cost-plus incentive fee (CPIF) contract type necessitates robust financial oversight to ensure costs are reasonable and allowable, and that performance incentives are met. Transparency may be limited due to the classified nature of some aspects of missile defense systems and foreign military sales agreements. Inspector General jurisdiction would apply to investigations of fraud, waste, and abuse.

Related Government Programs

Patriot Missile System
Ground-based Midcourse Defense (GMD)
Aegis Ballistic Missile Defense System
Foreign Military Sales (FMS) Program
Missile Defense Agency (MDA) Contracts

Risk Flags

Sole-source award
High contract value
Long-term sustainment

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $800.1 million to LOCKHEED MARTIN CORP. THE UNITED STATES GOVERNMENT'S (USG) TERMINAL HIGH ALTITUDE AREA DEFENSE (THAAD) PROJECT OFFICE HAS THE REQUIREMENT TO PROVIDE MAINTENANCE AND SUSTAINMENT FOR THE TWO THAAD BATTERIES WEAPON SYSTEMS IN SUPPORT OF A FOREIGN MILITARY SALES (FMS) CASE ESTABLISHED WITH THE GOVERNMENT OF THE UNITED ARAB EMIRATES (UAE). THE PURPOSE OF ACTION IS TO AWARD THE MAINTENANCE AND SUSTAINMENT CONTRACT.

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORP.

Which agency awarded this contract?

Awarding agency: Department of Defense (Missile Defense Agency).

What is the total obligated amount?

The obligated amount is $800.1 million.

What is the period of performance?

Start: 2018-10-31. End: 2028-10-30.

What is Lockheed Martin's track record with the THAAD system and similar complex defense sustainment contracts?

Lockheed Martin Corporation is the prime contractor for the THAAD weapon system, meaning they designed and manufactured it. Consequently, they possess unique knowledge and expertise regarding its maintenance, sustainment, and upgrades. Their track record with THAAD itself is directly tied to the system's development and deployment phases. For similar complex defense sustainment contracts, Lockheed Martin has a long history of managing large, intricate programs across various defense platforms. However, the scale and criticality of sustainment for a system like THAAD require continuous performance monitoring to ensure reliability and cost-effectiveness over the contract's duration. Assessing their performance on past sustainment contracts, particularly those involving foreign military sales, would provide further context on their capabilities and potential risks.

How does the pricing of this THAAD sustainment contract compare to similar complex defense system sustainment contracts, particularly those awarded competitively?

Direct comparison of pricing for this THAAD sustainment contract is challenging due to its sole-source nature and the specific, highly specialized requirements of the system. Competitively procured sustainment contracts for complex defense platforms often yield lower prices due to market forces and bidder innovation. However, the unique technological requirements and limited number of qualified providers for THAAD may justify a higher cost. To benchmark effectively, one would need to identify contracts for sustainment of comparable advanced missile defense systems (e.g., Aegis BMD, GMD) awarded competitively, considering factors like system complexity, duration, and scope of services. Without such comparative data, it's difficult to definitively assess if the $800M+ price tag represents optimal value for taxpayers.

What are the primary risks associated with a sole-source, long-term sustainment contract for a critical defense system like THAAD?

The primary risks associated with a sole-source, long-term sustainment contract for a critical defense system like THAAD include potential for cost escalation without competitive pressure, reduced incentive for contractor innovation, and a lack of flexibility if system requirements or technological landscapes change significantly. Taxpayers may bear higher costs over the contract's life. Furthermore, dependence on a single provider creates a vulnerability; any performance issues, financial instability, or strategic shifts by the contractor could directly impact the operational readiness of a vital national security asset. Robust contract management, performance metrics, and clear exit strategies are crucial to mitigate these risks.

What is the expected program effectiveness and operational impact of this sustainment contract for the UAE's THAAD batteries?

The expected program effectiveness of this sustainment contract is to ensure the continuous operational readiness and reliability of the two THAAD batteries operated by the United Arab Emirates. This directly supports the UAE's national defense strategy and contributes to regional stability by providing a robust capability against ballistic missile threats. The contract's focus on maintenance, repair, and logistical support aims to minimize downtime and ensure the system performs as intended during critical operational periods. The effectiveness is measured by the system's availability rates, response times to threats, and overall contribution to the integrated air and missile defense architecture of the UAE and its allies.

How has federal spending on THAAD sustainment evolved over time, and what does this contract represent in that historical context?

Historical federal spending data specifically isolating THAAD sustainment contracts prior to this award would require detailed analysis of past Department of Defense and Missile Defense Agency procurement actions. However, the THAAD program itself has seen significant investment since its inception, reflecting its strategic importance. This $800M+ contract, spanning a decade, represents a substantial, long-term commitment to maintaining the operational capability of deployed THAAD systems, particularly in support of foreign military sales. It signifies a shift from initial procurement and deployment towards the crucial, ongoing phase of sustainment, which often represents a significant portion of a major defense system's total lifecycle cost. This contract is indicative of the sustained investment required for advanced defense technologies.

Industry Classification

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

Product/Service Code: MAINT, REPAIR, REBUILD EQUIPMENT › MAINT, REPAIR, REBUILD OF EQUIPMENT

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: HQ014718R0008

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Address: 1111 LOCKHEED MARTIN WAY, 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: $1,097,280,946

Exercised Options: $1,062,788,499

Current Obligation: $800,102,983

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline