DoD awards Raytheon $1.86B for SM-3 missile production, with a 10-year contract duration

Contract Overview

Contract Amount: $1,861,040,363 ($1.9B)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2015-04-30

End Date: 2025-12-31

Contract Duration: 3,898 days

Daily Burn Rate: $477.4K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST NO FEE

Sector: Defense

Official Description: FY15 SM-3 BLK IB ALL UP ROUNDS (AUR)

Place of Performance

Location: TUCSON, PIMA County, ARIZONA, 85756

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $1.86 billion to RAYTHEON COMPANY for work described as: FY15 SM-3 BLK IB ALL UP ROUNDS (AUR) Key points: 1. Contract awarded for missile production, indicating a critical defense capability. 2. Long contract duration suggests sustained demand and potential for long-term contractor relationship. 3. Sole-source award raises questions about price competition and potential for cost overruns. 4. High dollar value signifies significant investment in national missile defense. 5. Geographic location in Arizona may imply specific manufacturing or testing infrastructure. 6. Contract type 'COST NO FEE' requires careful monitoring of contractor expenses.

Value Assessment

Rating: questionable

The contract's value of $1.86 billion over its 10-year term is substantial. Without comparable sole-source contracts for similar missile systems, it is difficult to benchmark the value for money. The 'COST NO FEE' contract type, while common in R&D or unique situations, places the financial risk on the government, necessitating robust oversight to ensure costs are reasonable and necessary. The absence of competition inherently limits the government's ability to negotiate the best possible price.

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 only one source can provide the required goods or services, often due to proprietary technology, unique capabilities, or national security considerations. The lack of competition means that the government did not benefit from a bidding process that could drive down prices through market forces.

Taxpayer Impact: Taxpayers may be paying a premium due to the absence of competitive bidding. Without alternative offers, there is less pressure on the contractor to optimize costs, potentially leading to higher overall expenditures for the government.

Public Impact

The primary beneficiaries are the U.S. Department of Defense and its missile defense capabilities. The contract ensures the production of SM-3 Block IB All Up Rounds (AUR), a key component of missile defense. Geographic impact is concentrated in Arizona, where Raytheon's facility is located, potentially supporting local jobs and the regional economy. Workforce implications include employment for engineers, technicians, and manufacturing personnel involved in advanced missile production.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially increasing costs for taxpayers.
Cost-plus contract type shifts financial risk to the government, requiring stringent cost oversight.
Long contract duration (over 10 years) increases exposure to potential cost escalations and performance issues over time.
Lack of transparency in pricing due to sole-source nature makes independent value assessment challenging.

Positive Signals

Ensures continued production of a critical missile defense system vital for national security.
Long-term contract provides stability for production and potential for future upgrades.
Award to a known contractor (Raytheon) suggests reliance on established expertise and capabilities.
Contract supports advanced manufacturing and technological development within the defense sector.

Sector Analysis

The defense industry, particularly the segment focused on missile manufacturing, is characterized by high barriers to entry, significant R&D investment, and long production cycles. Contracts like this are crucial for maintaining national security capabilities. The SM-3 missile system is a key component of the U.S. Ballistic Missile Defense System. Spending in this sub-sector is driven by geopolitical threats and the need for advanced defensive technologies. Comparable spending benchmarks are difficult to establish for sole-source, highly specialized defense systems.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb: false'. Raytheon, as a large prime contractor, may engage small businesses as subcontractors. However, the specifics of subcontracting plans and their impact on the small business ecosystem are not detailed in the provided data. Without a set-aside, direct opportunities for small businesses to compete for the prime contract are non-existent.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense and the Defense Contract Management Agency (DCMA). Given the 'COST NO FEE' contract type, rigorous financial oversight is essential to scrutinize contractor expenditures and ensure they are reasonable and allocable to the contract. Transparency is limited due to the sole-source nature. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Ballistic Missile Defense System
Aegis Combat System
Missile Defense Agency Programs
Guided Missile Manufacturing
Raytheon Defense Contracts

Risk Flags

Sole Source Award
Cost-Plus Contract Type
Long Contract Duration
High Contract Value

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.86 billion to RAYTHEON COMPANY. FY15 SM-3 BLK IB ALL UP ROUNDS (AUR)

Who is the contractor on this award?

The obligated recipient is RAYTHEON COMPANY.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $1.86 billion.

What is the period of performance?

Start: 2015-04-30. End: 2025-12-31.

What is Raytheon's track record with similar sole-source missile production contracts?

Raytheon has a long history of producing complex defense systems, including various missile platforms, for the U.S. military and international allies. Their track record with sole-source contracts for large-scale missile production is extensive, often involving multi-year agreements for systems like the SM-3, Patriot, and Tomahawk. While these contracts ensure the availability of critical defense assets and leverage Raytheon's specialized expertise, they also present challenges in terms of cost control and price justification due to the inherent lack of competition. Historical performance data, including delivery schedules, quality metrics, and cost performance on previous sole-source awards, would be crucial for a comprehensive assessment of their reliability and value proposition in this specific instance.

How does the 'COST NO FEE' contract type compare to other contract types for missile production?

The 'COST NO FEE' (CNF) contract type is relatively uncommon for production runs and is typically used when the contractor assumes all risk for cost overruns, meaning they receive no profit if costs exceed the agreed-upon amount. This is different from 'Cost Plus Fixed Fee' (CPFF) or 'Cost Plus Incentive Fee' (CPIF) contracts, where the contractor receives a fee (profit) regardless of cost overruns, often with incentives for performance or cost savings. For missile production, 'Fixed Price' contracts are generally preferred by the government to incentivize cost efficiency. The CNF structure here suggests a unique situation, possibly related to research, development, or a specific risk profile where the government wants to limit its exposure to cost increases while ensuring the contractor remains highly motivated to control expenses. However, it also means the government bears the full risk of cost overruns without the potential for contractor profit as a motivator for efficiency.

What are the primary risks associated with a sole-source, long-duration contract for missile production?

The primary risks associated with this sole-source, long-duration contract include potential cost escalation over the 10-year period, reduced incentive for innovation and efficiency due to lack of competition, and vulnerability to supply chain disruptions or technological obsolescence. Without competitive pressure, Raytheon may have less incentive to find cost-saving measures or adopt cutting-edge manufacturing techniques. Furthermore, the government is locked into a single provider, limiting its flexibility if performance issues arise or if market conditions change. The long duration increases the government's exposure to potential price increases due to inflation, material cost fluctuations, or unforeseen program challenges. Robust contract management and oversight are critical to mitigate these risks.

What is the historical spending pattern for SM-3 missile production, and how does this contract fit?

Historical spending on SM-3 missile production has been significant, reflecting its critical role in U.S. missile defense strategy. The Missile Defense Agency (MDA) and the Department of the Navy are the primary purchasers. Spending typically occurs through multi-year procurement contracts, often awarded competitively in earlier phases but potentially transitioning to sole-source for specific blocks or upgrades due to evolving technology and specialized manufacturing requirements. This $1.86 billion contract for Block IB AURs represents a substantial, ongoing investment in maintaining and replenishing the SM-3 inventory. It aligns with historical patterns of sustained, high-value procurement for advanced missile systems, ensuring the U.S. maintains its defensive capabilities against evolving threats.

What are the implications of the contract being awarded in Arizona for the local economy and defense industrial base?

Awarding this significant contract to Raytheon in Arizona has several implications. It likely supports a substantial number of high-skilled jobs in engineering, manufacturing, and program management within the state, contributing to the local economy. Arizona has a notable presence in the aerospace and defense sector, and this contract reinforces that position. It also signifies the importance of the existing infrastructure and workforce in the region for producing advanced defense systems. For the broader defense industrial base, it highlights the concentration of critical manufacturing capabilities within specific geographic areas and underscores the reliance on established prime contractors for national security programs.

Industry Classification

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

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: HQ027614R0006

Offers Received: 1

Pricing Type: COST NO FEE (S)

Evaluated Preference: NONE

Contractor Details

Parent Company: RTX Corp

Address: 1151 E HERMANS RD, TUCSON, AZ, 85756

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: $2,441,996,591

Exercised Options: $1,897,118,505

Current Obligation: $1,861,040,363

Actual Outlays: $114,887,794

Subaward Activity

Number of Subawards: 54

Total Subaward Amount: $138,862,456

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline