DoD's $1.4B AEGIS contract to Lockheed Martin raises questions on value and competition

Contract Overview

Contract Amount: $1,402,179,729 ($1.4B)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2020-11-01

End Date: 2027-12-31

Contract Duration: 2,616 days

Daily Burn Rate: $536.0K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: R&D

Official Description: AEGIS BASELINE 5.4.1 (BMD 4.2)

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: AEGIS BASELINE 5.4.1 (BMD 4.2) Key points: 1. Contract awarded on a cost-plus-incentive-fee basis, which can incentivize cost overruns. 2. Sole-source award limits opportunities for competitive pricing and innovation. 3. Long contract duration (2020-2027) may not reflect current technological needs or market conditions. 4. High contract value warrants scrutiny for cost-effectiveness and performance. 5. Focus on R&D suggests potential for future technological advancements, but also inherent risks. 6. Geographic concentration in New Jersey for a major defense contract.

Value Assessment

Rating: questionable

Benchmarking this contract's value is challenging due to its sole-source nature and specific R&D focus. The cost-plus-incentive-fee structure, while common in complex R&D, carries inherent risks of cost escalation. Without competitive bids, it's difficult to definitively assess if the pricing reflects fair market value or if taxpayers are receiving optimal value for money. Further analysis of cost performance against targets would be needed for a more precise valuation.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning there was no open competition. This approach is typically justified when a specific contractor possesses unique capabilities or intellectual property essential for the project. However, the absence of competition limits price discovery and may result in higher costs for the government compared to a fully competed scenario.

Taxpayer Impact: Sole-source awards mean taxpayers do not benefit from the cost savings typically achieved through competitive bidding processes, potentially leading to higher overall expenditure for this critical defense system.

Public Impact

The primary beneficiary is the Department of Defense, specifically the Missile Defense Agency, which receives advanced AEGIS Baseline capabilities. Services delivered include research and development for missile defense systems, enhancing national security. Geographic impact is concentrated in New Jersey, where Lockheed Martin's operations are based. Workforce implications include highly skilled engineering and technical jobs within Lockheed Martin and its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Cost-plus-incentive-fee structure can lead to cost overruns if not managed tightly.
Long contract duration may not adapt to rapidly evolving threat landscapes.
Lack of transparency in sole-source justification requires careful review.
Potential for vendor lock-in due to specialized nature of AEGIS system.

Positive Signals

Contract supports critical national security objectives in missile defense.
Lockheed Martin is a proven defense contractor with extensive experience.
Incentive fee structure aims to align contractor performance with government goals.
Focus on R&D can lead to technological advancements.
Long-term nature provides stability for program development and execution.

Sector Analysis

This contract falls within the Research and Development sector, specifically focusing on advanced physical sciences and engineering related to missile defense. The aerospace and defense industry is characterized by high R&D investment, long development cycles, and significant government procurement. Comparable spending benchmarks are difficult to establish precisely due to the unique nature of missile defense systems, but overall DoD R&D spending is in the tens of billions annually.

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 prime contractor is Lockheed Martin, a large aerospace and defense firm, the potential for significant small business subcontracting exists, but this needs to be verified through contract details and performance reports. The absence of a set-aside means direct opportunities for small businesses are limited.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contracting and program management offices, potentially involving the Defense Contract Management Agency (DCMA) and the Missile Defense Agency's internal oversight bodies. Inspector General reports related to DoD procurements may also provide insights. Transparency is moderate, with contract awards generally public, but the specifics of sole-source justifications and cost performance often require deeper investigation.

Related Government Programs

AEGIS Combat System
Ballistic Missile Defense System (BMDS)
Missile Defense Agency (MDA) Contracts
Lockheed Martin Defense Contracts
Department of Defense Research and Development

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 $1.40 billion to LOCKHEED MARTIN CORPORATION. AEGIS BASELINE 5.4.1 (BMD 4.2)

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: 2020-11-01. End: 2027-12-31.

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

Lockheed Martin has a long history of securing large, sole-source contracts with the Department of Defense, particularly in advanced technology and defense systems development. Their track record includes numerous complex R&D programs, often involving specialized capabilities and significant government investment. While generally considered a reliable contractor, past performance reviews and specific program outcomes for similar sole-source R&D efforts would provide a more granular understanding of their efficiency, cost control, and delivery success rates. Analyzing historical data on cost variances, schedule adherence, and technical performance on comparable contracts is crucial for assessing the risk and potential value associated with this AEGIS contract.

How does the cost-plus-incentive-fee (CPIF) structure compare to other contract types for this type of R&D?

The Cost-Plus-Incentive-Fee (CPIF) contract type is frequently used for research and development efforts where the final costs are uncertain and the government wants to incentivize the contractor to control costs and meet performance targets. Unlike fixed-price contracts, CPIF allows the contractor to recover allowable costs plus a fee that is adjusted based on performance against pre-defined metrics. Compared to Cost-Plus-Fixed-Fee (CPFF), CPIF offers a stronger incentive for cost savings. However, it also introduces complexity in defining objective performance metrics and can still lead to higher costs than competitive fixed-price contracts if cost targets are not met or if the incentive structure is not well-designed. For highly complex, long-term R&D like missile defense, CPIF is often seen as a necessary compromise to balance risk and reward.

What are the primary risks associated with a sole-source award for a critical defense system like AEGIS?

The primary risks associated with a sole-source award for a critical defense system like AEGIS include a lack of competitive pressure, which can lead to inflated pricing and reduced innovation. Without competing vendors, the government may not achieve the best possible value for its investment. There's also a risk of vendor lock-in, where the government becomes overly reliant on a single supplier, potentially limiting future flexibility and increasing long-term costs. Furthermore, the justification for a sole-source award needs rigorous scrutiny to ensure it is truly warranted and not simply a matter of convenience, as this can mask inefficiencies or a lack of proactive market research by the agency.

What historical spending patterns exist for the AEGIS program or similar missile defense R&D efforts?

Historical spending on the AEGIS program and related missile defense R&D efforts by the Department of Defense has been substantial, often spanning decades and involving billions of dollars. Programs like the Ballistic Missile Defense System (BMDS), of which AEGIS Baseline is a component, are characterized by continuous upgrades and evolving technological requirements. Spending often fluctuates based on perceived threats, technological breakthroughs, and budget allocations. Analyzing past spending trends for AEGIS, including the total investment in different baselines and upgrades, can provide context for the current $1.4 billion award, highlighting whether it represents a typical investment level, an increase, or a decrease compared to previous periods.

How does the geographic concentration in New Jersey impact the broader defense industrial base?

The concentration of significant defense contracts, such as this AEGIS award, in specific geographic areas like New Jersey can have both positive and negative implications for the broader defense industrial base. Positively, it fosters a cluster of specialized expertise, skilled labor, and supporting industries within that region, potentially leading to efficiencies and innovation. However, it can also lead to geographic over-reliance, making the supply chain vulnerable to regional disruptions (e.g., natural disasters, economic downturns). It may also limit opportunities for businesses in other regions to participate, potentially hindering the development of a more distributed and resilient industrial base across the nation.

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: HQ027618R0008

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

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: $1,575,047,463

Exercised Options: $1,559,003,484

Current Obligation: $1,402,179,729

Actual Outlays: $457,059,411

Subaward Activity

Number of Subawards: 925

Total Subaward Amount: $262,354,938

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline