DoD's $89.7M Raytheon contract for Patriot system upgrades shows cost-plus incentive fee structure

Contract Overview

Contract Amount: $89,714,344 ($89.7M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2018-08-06

End Date: 2023-07-31

Contract Duration: 1,820 days

Daily Burn Rate: $49.3K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: ENGINEERING SERVICES, CET 18-826, PATRIOT SYSTEM IMPROVEMENT. THE PURPOSE OF THIS TASK IS TO DESIGN, DEVELOP, INTEGRATE AND TEST IMPROVED PATRIOT CAPABILITIES FOR POST DEPLOYMENT BUILD AND TO SUPPORT THE GOVERNMENT TEST PROGRAM TO ADDRESS EMERGING THREATS COMBINED WITH MAINTAINING AND UPDATING THE FIRMWARE FOR THE SINGLE BOARD COMPUTERS.

Place of Performance

Location: ANDOVER, ESSEX County, MASSACHUSETTS, 01810

State: Massachusetts Government Spending

Plain-Language Summary

Department of Defense obligated $89.7 million to RAYTHEON COMPANY for work described as: ENGINEERING SERVICES, CET 18-826, PATRIOT SYSTEM IMPROVEMENT. THE PURPOSE OF THIS TASK IS TO DESIGN, DEVELOP, INTEGRATE AND TEST IMPROVED PATRIOT CAPABILITIES FOR POST DEPLOYMENT BUILD AND TO SUPPORT THE GOVERNMENT TEST PROGRAM TO ADDRESS EMERGING THREATS COMBINED WITH MAINTAININ… Key points: 1. Contract awarded via full and open competition, suggesting a competitive bidding process. 2. The cost-plus incentive fee (CPIF) structure aims to align contractor and government interests on cost and performance. 3. Focus on designing, developing, and testing improved Patriot capabilities addresses emerging threats. 4. Firmware maintenance for single board computers ensures continued operational effectiveness. 5. Contract duration of 1820 days indicates a significant, long-term investment in system modernization. 6. The contract's value of $89.7M positions it as a substantial investment within defense electronics. 7. The specific North American Industry Classification System (NAICS) code 541330 points to specialized engineering services.

Value Assessment

Rating: fair

The contract's value of $89.7M for engineering services related to the Patriot system is substantial. Benchmarking this against similar complex defense system upgrade contracts is challenging without more specific data on the scope of work and the level of innovation required. The CPIF pricing structure introduces variability, making a direct comparison of value difficult without analyzing the final costs and incentive payouts. However, the duration and complexity suggest a significant investment, and the value appears commensurate with the stated objectives of addressing emerging threats and maintaining critical firmware.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit bids. The number of bidders is not specified, but this approach generally fosters a competitive environment, which can lead to better pricing and innovation. The government likely sought proposals that demonstrated technical capability, cost-effectiveness, and a clear understanding of the complex engineering requirements for upgrading a critical defense system like the Patriot.

Taxpayer Impact: Full and open competition is generally favorable for taxpayers as it increases the likelihood of receiving competitive pricing and innovative solutions, maximizing the value of public funds.

Public Impact

The U.S. Department of Defense benefits from enhanced capabilities for the Patriot missile defense system, improving national security. Raytheon Company, as the contractor, benefits through revenue generation and continued involvement in a key defense program. The services delivered include design, development, integration, and testing of improved system capabilities. The contract supports the government's test program, contributing to the validation of new technologies and threat responses. Workforce implications include employment for engineers, technicians, and support staff involved in complex defense systems development. Geographic impact is primarily within the defense industrial base, with potential for specialized engineering talent in Massachusetts.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost-plus incentive fee contracts can sometimes lead to cost overruns if not managed rigorously.
The complexity of integrating and testing improved capabilities for a major defense system carries inherent technical risks.
Dependence on a single contractor for critical system improvements may raise long-term sustainment concerns.
The long duration of the contract (over 4 years) could lead to scope creep or evolving requirements that impact cost and schedule.
Ensuring adequate government oversight is crucial for CPIF contracts to validate costs and performance metrics.

Positive Signals

Awarded through full and open competition, suggesting a robust selection process.
The CPIF structure incentivizes the contractor to meet or exceed performance targets while managing costs.
Focus on addressing 'emerging threats' indicates proactive modernization of a critical defense asset.
The contract supports ongoing government testing programs, ensuring system validation.
The specific task order for engineering services suggests a well-defined scope within a larger program.

Sector Analysis

This contract falls within the Defense sector, specifically focusing on advanced engineering services for missile defense systems. The market for such specialized defense engineering is dominated by a few large prime contractors, including Raytheon. Spending in this area is driven by national security priorities and the continuous need to upgrade and maintain sophisticated weapon systems against evolving threats. Comparable spending benchmarks would typically involve other major defense platform modernization efforts, often running into hundreds of millions or billions of dollars over their lifecycle.

Small Business Impact

The contract indicates that small business participation was not a primary set-aside consideration, as the awardee is a large corporation and the contract was not specifically designated for small businesses. There is no explicit mention of subcontracting plans for small businesses within the provided data. The impact on the small business ecosystem is likely indirect, potentially through Raytheon's supply chain if they engage small businesses for specific components or services, but this is not detailed.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of Defense, likely through the Defense Microelectronics Activity, which awarded the task order. Accountability measures are embedded within the Cost Plus Incentive Fee (CPIF) structure, which links contractor profit to performance and cost targets. Transparency is generally maintained through contract award databases and reporting requirements, though specific details of performance and cost variances may be sensitive. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

Patriot Missile System
Missile Defense Agency Programs
Department of Defense Research and Development
Advanced Weapons Systems Modernization
Air and Missile Defense Programs

Risk Flags

Cost-Plus Incentive Fee (CPIF) contract type requires careful monitoring.
Long contract duration may increase risk of scope creep or requirement changes.
Focus on 'emerging threats' implies a dynamic and potentially evolving threat landscape.
Dependence on specific firmware for critical components requires robust management.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $89.7 million to RAYTHEON COMPANY. ENGINEERING SERVICES, CET 18-826, PATRIOT SYSTEM IMPROVEMENT. THE PURPOSE OF THIS TASK IS TO DESIGN, DEVELOP, INTEGRATE AND TEST IMPROVED PATRIOT CAPABILITIES FOR POST DEPLOYMENT BUILD AND TO SUPPORT THE GOVERNMENT TEST PROGRAM TO ADDRESS EMERGING THREATS COMBINED WITH MAINTAINING AND UPDATING THE FIRMWARE FOR THE SINGLE BOARD COMPUTERS.

Who is the contractor on this award?

The obligated recipient is RAYTHEON COMPANY.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Microelectronics Activity).

What is the total obligated amount?

The obligated amount is $89.7 million.

What is the period of performance?

Start: 2018-08-06. End: 2023-07-31.

What is Raytheon Company's track record with Department of Defense contracts, particularly for complex weapon systems?

Raytheon Company, now part of RTX Corporation, has a long and extensive history of contracting with the Department of Defense, often serving as a prime contractor for major weapon systems. They are a key player in areas such as missile defense (including the Patriot system), radar technology, and advanced sensors. Their track record includes numerous large-scale development, production, and sustainment contracts. While generally successful, like any large defense contractor, they have faced scrutiny over cost, schedule, and performance on specific programs. Analyzing their performance on similar CPIF contracts for complex systems would provide further insight into their ability to manage costs and meet objectives effectively within this specific contract's framework.

How does the $89.7M value compare to other Patriot system upgrade or sustainment contracts?

The $89.7M value for this specific task order represents a significant investment in engineering services for the Patriot system. However, it is likely a component of a much larger, multi-year sustainment and modernization program for the Patriot. Full Patriot system procurement and sustainment contracts can range from hundreds of millions to billions of dollars over their lifecycle. This particular award focuses on design, development, integration, and testing of improved capabilities and firmware maintenance. Therefore, while substantial for engineering services, it should be viewed within the broader context of the Patriot program's overall lifecycle costs, which are considerably higher.

What are the primary risks associated with a Cost Plus Incentive Fee (CPIF) contract for system upgrades?

CPIF contracts aim to incentivize contractor performance by allowing for adjusted profit based on achieving specific cost and performance targets. Key risks include the potential for cost overruns if targets are not met or if the baseline cost estimate is inaccurate. There's also a risk that the government might pay a higher profit than anticipated if the contractor significantly exceeds performance goals, even if costs are controlled. Effective management and oversight are crucial to ensure that the incentive structure truly drives value for the government and that the contractor remains motivated to control costs while delivering required capabilities. Without robust government oversight, the 'incentive' aspect could be less effective.

How effective is the Patriot system in addressing 'emerging threats' as stated in the contract's purpose?

The effectiveness of the Patriot system in addressing 'emerging threats' is a continuous area of development and assessment by the Department of Defense. The contract's purpose explicitly states the need to design, develop, and test improved capabilities to counter these threats. This implies that the current system requires upgrades to maintain its relevance against evolving adversarial capabilities, such as advanced cruise missiles, ballistic missiles, and potentially hypersonic threats. The success of this contract in enhancing the system's effectiveness will depend on the quality of the engineering services provided by Raytheon and the subsequent testing and validation outcomes.

What has been the historical spending trend for engineering services related to the Patriot system?

Historical spending on engineering services for the Patriot system has likely been substantial and ongoing, reflecting its status as a critical, long-term defense asset. Specific figures for 'engineering services' alone are difficult to isolate without detailed contract history analysis, as such work is often bundled within larger procurement, sustainment, or modernization contracts. However, given the system's continuous evolution to counter new threats and maintain operational readiness over decades, annual spending on related engineering, software development, and technical support has consistently been in the tens to hundreds of millions of dollars. This $89.7M task order fits within that pattern of sustained investment.

What is the significance of the 'single board computers' firmware maintenance mentioned in the contract?

The mention of 'single board computers' (SBCs) and their firmware maintenance highlights the critical role of embedded computing in modern defense systems like the Patriot. SBCs are the core processing units that run the system's software and control its functions. Maintaining and updating their firmware is essential for several reasons: ensuring compatibility with new software upgrades, patching security vulnerabilities, improving processing efficiency, and adapting to new hardware components or operational requirements. Neglecting firmware can lead to system instability, performance degradation, or security breaches, making this a vital, albeit often behind-the-scenes, aspect of system sustainment and modernization.

Industry Classification

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

Product/Service Code: RESEARCH AND DEVELOPMENT › C – National Defense R&D Services

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Solicitation ID: HQ072715R0001

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: Rockwell Collins Australia PTY Limited

Address: 2000 E EL SEGUNDO BLVD, EL SEGUNDO, CA, 90245

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: $89,714,344

Exercised Options: $89,714,344

Current Obligation: $89,714,344

Actual Outlays: $441,687

Subaward Activity

Number of Subawards: 1

Total Subaward Amount: $30,000

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: HQ072716D0006

IDV Type: IDC

Timeline