Raytheon Company awarded $460M contract for SM-3 Block IB missile production by the Department of Defense

Contract Overview

Contract Amount: $460,490,448 ($460.5M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2018-06-27

End Date: 2021-11-30

Contract Duration: 1,252 days

Daily Burn Rate: $367.8K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: FY18 - SM-3 BLOCK IB ALL UP ROUND

Place of Performance

Location: TUCSON, PIMA County, ARIZONA, 85756

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $460.5 million to RAYTHEON COMPANY for work described as: FY18 - SM-3 BLOCK IB ALL UP ROUND Key points: 1. Contract awarded on a sole-source basis, raising questions about price discovery and potential for cost savings. 2. Long contract duration of 1252 days suggests a significant, multi-year commitment to missile production. 3. Fixed Price Incentive (FPI) contract type aims to balance cost control with performance incentives for the contractor. 4. Production is located in Arizona, potentially impacting the regional defense industrial base and workforce. 5. The contract falls under Guided Missile and Space Vehicle Manufacturing, a critical defense sector. 6. No small business set-aside was included, indicating a focus on large prime contractors for this specific award.

Value Assessment

Rating: fair

The total award amount of $460.5 million for the SM-3 Block IB missile production is substantial. Without specific cost breakdowns or comparisons to similar missile production contracts, it is difficult to definitively assess value for money. The Fixed Price Incentive (FPI) contract type suggests an attempt to manage costs by incentivizing the contractor to stay within target costs, but the effectiveness of this mechanism depends heavily on the negotiation of those targets and the oversight applied. Benchmarking this against other large-scale missile production efforts would be necessary for a more robust value assessment.

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 often used when a specific contractor possesses unique capabilities, proprietary technology, or when there is an urgent need that cannot be met through a competitive process. The lack of competition means that taxpayers did not benefit from the potential price reductions and innovation that can arise from a bidding process. The government relied on negotiation to establish terms and pricing.

Taxpayer Impact: Sole-source awards can lead to higher costs for taxpayers as the absence of competition limits the government's leverage in price negotiations. It also reduces transparency in pricing and may not reflect the most cost-effective solution available in the market.

Public Impact

The primary beneficiaries are the Department of Defense and U.S. national security, through the acquisition of advanced missile defense capabilities. The contract delivers critical components and assembled SM-3 Block IB missiles, essential for ballistic missile defense. Production activities are concentrated in Arizona, supporting the local defense industry and associated employment. The contract supports specialized manufacturing jobs within the guided missile and space vehicle sector.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially impacting cost-effectiveness.
Long contract duration requires sustained oversight to ensure performance and manage risks.
Fixed Price Incentive contract requires careful monitoring of cost targets and performance metrics.
Reliance on a single contractor for critical missile production poses supply chain risk.

Positive Signals

Contract addresses a critical national security need for missile defense.
Fixed Price Incentive contract structure provides incentives for contractor performance.
Production in Arizona supports a key defense industrial base region.
Long-term award provides stability for production and supply chain.

Sector Analysis

The Guided Missile and Space Vehicle Manufacturing sector is a highly specialized and critical segment of the defense industrial base. Companies in this sector are involved in the research, development, and production of advanced weapon systems, including ballistic missile defense interceptors like the SM-3. Spending in this area is driven by national security priorities and geopolitical threats. The market is characterized by high barriers to entry due to technological complexity, stringent quality requirements, and significant capital investment. This contract represents a substantial investment within this niche but vital sector.

Small Business Impact

This contract was not set aside for small businesses, nor does it appear to have specific subcontracting requirements for small businesses mentioned in the provided data. This suggests that the primary awardee, Raytheon Company, is expected to fulfill the majority of the contract requirements directly. While large prime contractors often engage small businesses as subcontractors, the absence of explicit set-aside provisions means that opportunities for small businesses may be less structured and dependent on the prime contractor's procurement strategy. This could limit direct opportunities for small businesses to participate in this specific large-scale missile production effort.

Oversight & Accountability

Oversight for this contract would typically be managed by the Defense Contract Management Agency (DCMA), which is responsible for ensuring contractor performance, quality, and compliance with contract terms. The Fixed Price Incentive (FPI) contract type necessitates close monitoring of cost performance against established targets and incentives. Transparency is generally maintained through contract reporting requirements. Inspector General (IG) jurisdiction would apply in cases of suspected fraud, waste, or abuse related to the contract.

Related Government Programs

Ballistic Missile Defense System
Aegis Combat System
Standard Missile Family
Missile Defense Agency Programs

Risk Flags

Sole-source award may limit price competition.
Long contract duration requires sustained oversight.
Potential for supply chain disruptions in specialized manufacturing.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $460.5 million to RAYTHEON COMPANY. FY18 - SM-3 BLOCK IB ALL UP ROUND

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 $460.5 million.

What is the period of performance?

Start: 2018-06-27. End: 2021-11-30.

What is the historical spending trend for the SM-3 Block IB missile program?

Analyzing historical spending for the SM-3 Block IB program requires access to detailed budget data over multiple fiscal years. Typically, such programs involve significant R&D investment followed by multi-year production contracts. The initial award of $460.5 million in FY18 for production indicates a transition from development to sustainment and fielding phases. To understand the trend, one would need to examine prior year appropriations for SM-3 development and procurement, as well as subsequent awards for continued production, upgrades, and sustainment. Factors influencing spending trends include evolving threat assessments, technological advancements, congressional appropriations, and international partnerships (e.g., Japan, NATO allies who also procure SM-3 variants). A comprehensive analysis would involve tracking total obligated amounts, contract modifications, and delivery schedules over the program's lifecycle.

How does the pricing of this SM-3 Block IB contract compare to similar missile defense systems?

Benchmarking the pricing of this $460.5 million contract for SM-3 Block IB missiles against similar systems is challenging without access to proprietary cost data and specific contract details for comparable systems. Missile defense systems vary significantly in complexity, technological sophistication, and production volume, which directly impacts unit costs. The SM-3 is a highly advanced interceptor designed for specific threats. Comparisons would ideally be made with other high-end interceptors like the THAAD (Terminal High Altitude Area Defense) or Patriot Advanced Capability (PAC-3) missiles. However, direct cost-per-unit comparisons are often misleading due to differences in contract types (e.g., fixed-price vs. cost-plus), quantities procured, and the specific capabilities being acquired. A thorough analysis would require examining publicly available contract awards for similar systems, considering factors like development maturity, production rates, and the specific threat environment each system is designed to counter.

What are the key performance metrics and risks associated with this Raytheon contract?

The key performance metrics for this contract are likely tied to the successful production and delivery of SM-3 Block IB missiles that meet stringent quality and performance specifications. As a Fixed Price Incentive (FPI) contract, performance is measured against target cost and schedule, with incentives for achieving or exceeding these targets, and penalties or shared costs if targets are missed. Key risks include potential production delays, manufacturing defects, supply chain disruptions for critical components, cost overruns if targets are poorly negotiated, and the inherent risk associated with sole-source awards where competitive pressure is absent. Ensuring the reliability and effectiveness of the missiles in operational scenarios is the ultimate performance measure, though this extends beyond the production contract itself. Robust quality assurance and program management are crucial to mitigate these risks.

What is the track record of Raytheon Company in producing similar advanced missile systems?

Raytheon Company (now RTX) has a long and extensive track record in the development and production of advanced missile systems, including numerous variants of the Standard Missile family. They are a primary contractor for the SM-3 program, having been involved since its inception. Their experience spans a wide range of missile technologies, including air-to-air, surface-to-air, and land-attack missiles. Raytheon has consistently been a major defense contractor, delivering complex systems to the U.S. military and international allies. While specific performance details on individual contracts are often proprietary, the company's continued success in securing large, complex defense contracts, including sole-source awards for critical systems like the SM-3, suggests a strong capability and established relationship with the Department of Defense. Their track record includes both successes and challenges common to large-scale defense production.

What are the implications of this contract being sole-sourced for future competition or program evolution?

A sole-source award for the SM-3 Block IB production implies that, for this specific contract period and scope, the Department of Defense determined Raytheon to be the only viable source. This can stem from proprietary technology, unique manufacturing capabilities, or program maturity where competition is deemed impractical or detrimental to program goals. The implication for future competition is uncertain; it depends on whether the technology remains proprietary, if other potential sources emerge or are developed, or if the program strategy shifts towards broader competition for future blocks or related systems. For program evolution, a sole-source award can streamline decision-making and execution but may also reduce pressure on the contractor to innovate or reduce costs aggressively. It could also set a precedent for future sole-source awards if not actively managed to encourage eventual competition or alternative sourcing strategies.

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

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

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: $460,490,448

Exercised Options: $460,490,448

Current Obligation: $460,490,448

Actual Outlays: $106,837,861

Subaward Activity

Number of Subawards: 483

Total Subaward Amount: $1,794,666,477

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline