DoD's $1.4B R&D contract for missile defense development awarded to Lockheed Martin raises value questions

Contract Overview

Contract Amount: $1,403,841,192 ($1.4B)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2020-10-02

End Date: 2029-12-31

Contract Duration: 3,377 days

Daily Burn Rate: $415.7K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: R&D

Official Description: BASELINE J7.B DEVELOPMENT LOE

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $1.40 billion to LOCKHEED MARTIN CORPORATION for work described as: BASELINE J7.B DEVELOPMENT LOE Key points: 1. Contract awarded on a sole-source basis, limiting price competition. 2. Significant investment in research and development for a critical defense capability. 3. Long contract duration suggests a sustained need for missile defense technology. 4. Potential for cost overruns given the Cost Plus Fixed Fee pricing structure. 5. Contractor's extensive experience in defense systems may mitigate some performance risks. 6. Geographic concentration of performance in New Jersey warrants attention.

Value Assessment

Rating: questionable

Benchmarking the value of this Cost Plus Fixed Fee contract is challenging due to its specialized nature and sole-source award. The $1.4 billion ceiling over its duration represents a substantial investment. Without competitive bids, it's difficult to ascertain if the pricing reflects optimal value for money. The fixed fee component provides some cost control, but the underlying cost reimbursement structure can lead to higher expenditures compared to fixed-price contracts, especially in R&D where costs can be unpredictable. Further analysis of historical cost trends for similar missile defense R&D efforts would be beneficial.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded using a sole-source justification, meaning it was not competed among multiple potential offerors. This approach is typically employed when only one responsible source is available or capable of meeting the government's needs. The lack of competition means that the government did not benefit from the price discovery and innovation that typically arises from a competitive bidding process. This can potentially lead to higher costs for the taxpayer.

Taxpayer Impact: The absence of competition means taxpayers may not be receiving the best possible price for this critical missile defense technology. The government's negotiating position is inherently weaker without alternative offers.

Public Impact

The primary beneficiary is the Department of Defense, specifically the Missile Defense Agency, which will receive advanced missile defense capabilities. The contract supports the development of cutting-edge technologies crucial for national security. Performance is concentrated in New Jersey, potentially creating or sustaining high-skilled jobs in the region. The development of effective missile defense systems benefits the broader public by enhancing national security and deterring potential adversaries.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Cost Plus Fixed Fee structure can incentivize higher spending if not closely managed.
Long contract duration increases exposure to potential cost escalations over time.
R&D inherently carries cost uncertainty, increasing risk of budget overruns.

Positive Signals

Awarded to a contractor with significant experience in defense systems and missile technology.
Fixed fee component provides a degree of cost predictability for the contractor's profit.
Missile Defense Agency's oversight is expected to manage performance and costs.
Contract addresses a critical national security requirement.

Sector Analysis

This contract falls within the Research and Development sector, specifically focusing on advanced physical sciences related to missile defense. The market for such specialized defense technologies is highly concentrated, often dominated by a few large aerospace and defense contractors. The Missile Defense Agency is a key player in this niche, investing heavily in maintaining and advancing U.S. missile defense capabilities. Spending in this area is driven by evolving threats and the need for technological superiority, making it a critical but costly segment of the defense budget.

Small Business Impact

This contract does not appear to have a small business set-aside component, nor is there explicit information regarding subcontracting plans for small businesses. Given the specialized nature of missile defense R&D and the prime contractor's size, the direct impact on the small business ecosystem may be limited unless significant subcontracting opportunities arise. Further investigation into subcontracting goals would be necessary to fully assess the impact on small businesses.

Oversight & Accountability

Oversight for this contract will primarily reside with the Missile Defense Agency, a component of the Department of Defense. Standard DoD procurement regulations and contract management processes are expected to be applied. Transparency may be limited due to the classified or sensitive nature of missile defense technology. The Inspector General of the Department of Defense would have jurisdiction for audits and investigations related to fraud, waste, or abuse.

Related Government Programs

Missile Defense Systems
Advanced Research and Development Contracts
Department of Defense Procurement
Aerospace and Defense Industry Contracts
National Security Programs

Risk Flags

Sole-source award
Cost-reimbursable contract type
Long contract duration
Research and Development focus

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.40 billion to LOCKHEED MARTIN CORPORATION. BASELINE J7.B DEVELOPMENT LOE

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORPORATION.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $1.40 billion.

What is the period of performance?

Start: 2020-10-02. End: 2029-12-31.

What is Lockheed Martin Corporation's track record with similar sole-source R&D contracts for the Missile Defense Agency?

Lockheed Martin Corporation has a long-standing and extensive track record of performing complex research and development contracts for the Department of Defense, including numerous programs related to missile defense. While specific data on sole-source R&D contracts of this exact magnitude and nature may be proprietary or difficult to isolate, the company is a primary contractor for several key missile defense systems. Their history suggests a capability to execute such programs, but it also highlights a pattern of significant sole-source awards in areas where they possess unique expertise or are deemed the sole viable provider. Analyzing past performance metrics, cost variances, and schedule adherence on comparable, albeit potentially competed, programs would provide a more nuanced view of their reliability and efficiency in delivering advanced defense technologies.

How does the Cost Plus Fixed Fee (CPFF) pricing structure compare to other contract types for missile defense R&D in terms of cost efficiency?

The Cost Plus Fixed Fee (CPFF) pricing structure is common for research and development efforts where the scope of work and final costs are inherently uncertain. In CPFF contracts, the contractor is reimbursed for allowable costs plus a fixed fee representing their profit. While this structure incentivizes the contractor to control costs to maximize their fee relative to effort, it can be less cost-efficient for the government compared to fixed-price contracts (like FFP or FP-EPA) when the scope is well-defined. For R&D, however, fixed-price contracts can be risky if cost overruns are substantial, potentially leading to contract disputes or termination. CPFF offers flexibility but requires robust government oversight to ensure costs remain reasonable and the fixed fee provides adequate profit without being excessive. Benchmarking against other CPFF contracts for similar R&D in defense can indicate if the fixed fee here is within industry norms.

What are the primary risks associated with the long duration (over 9 years) of this contract?

The primary risks associated with a contract duration exceeding nine years, such as this one, include potential cost escalation due to inflation and evolving market conditions, technological obsolescence if advancements outpace development, and shifts in strategic priorities or threat assessments that could render the developed technology less relevant. Longer durations also increase the complexity of contract management and oversight for the government. Furthermore, there's a risk of contractor performance degradation over extended periods if motivation wanes or key personnel depart. For taxpayers, the extended timeline means a prolonged commitment of significant financial resources, with the ultimate value and effectiveness of the delivered capability only realized years down the line, increasing the uncertainty of return on investment.

What is the Missile Defense Agency's typical spending pattern for research and development in this specific NAICS code (541715)?

The Missile Defense Agency (MDA) consistently allocates substantial funding towards research and development under NAICS code 541715 (Research and Development in the Physical, Engineering, and Life Sciences). This specific code encompasses a broad range of scientific endeavors, but for the MDA, it primarily relates to advanced physics, engineering, and systems development for missile defense technologies. Historical spending data indicates a significant and often increasing investment trend in this area, driven by national security imperatives and the evolving threat landscape. While specific annual figures fluctuate based on program priorities and budget allocations, R&D spending within this category represents a core component of the MDA's mission. This $1.4 billion contract, awarded over several years, aligns with the agency's strategic focus on maintaining technological superiority in missile defense.

Are there any specific performance metrics or milestones tied to the $1.4 billion contract ceiling that can be used to assess program effectiveness?

While the provided data indicates a contract ceiling of $1.4 billion and a Cost Plus Fixed Fee (CPFF) structure, specific performance metrics, milestones, or deliverables tied directly to this ceiling are not detailed. In CPFF contracts, especially for R&D, performance is typically assessed against a Statement of Work (SOW) that outlines technical objectives, research tasks, and potentially phased milestones. The 'fixed fee' is earned upon satisfactory completion of these defined efforts. Assessing program effectiveness would require access to the SOW, technical progress reports, and independent government assessments of the technology developed. Without these details, it's challenging to quantitatively measure the effectiveness of the R&D investment against the total contract value beyond the contractor's adherence to the agreed-upon research plan and the successful achievement of defined technical goals.

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: RESEARCH AND DEVELOPMENT › C – National Defense R&D Services

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: HQ027619R0002

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 199 BORTON LANDING RD, MOORESTOWN, NJ, 08057

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: $1,604,487,193

Exercised Options: $1,604,487,193

Current Obligation: $1,403,841,192

Subaward Activity

Number of Subawards: 94

Total Subaward Amount: $48,152,916

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline