DoD awards $69.5M logistics contract for THAAD missile system to Lockheed Martin, raising competition concerns

Contract Overview

Contract Amount: $69,515,743 ($69.5M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2024-05-22

End Date: 2027-12-31

Contract Duration: 1,318 days

Daily Burn Rate: $52.7K/day

Competition Type: NOT COMPETED

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: THIS TASK ORDER IS FOR LOGISTICS, MAINTENANCE, AND SUSTAINMENT OF THE THAAD MISSILE SYSTEM.

Place of Performance

Location: GRAND PRAIRIE, DALLAS County, TEXAS, 75051

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $69.5 million to LOCKHEED MARTIN CORPORATION for work described as: THIS TASK ORDER IS FOR LOGISTICS, MAINTENANCE, AND SUSTAINMENT OF THE THAAD MISSILE SYSTEM. Key points: 1. Contract focuses on essential logistics, maintenance, and sustainment for a critical defense asset. 2. Sole-source award to incumbent contractor may limit opportunities for competitive pricing and innovation. 3. Long-term sustainment contract highlights the ongoing need for specialized support for advanced weapon systems. 4. Performance-based contract type suggests a focus on achieving specific outcomes rather than just inputs. 5. Geographic concentration in Texas for sustainment operations. 6. Missile Defense Agency relies on this contract for operational readiness of the THAAD system.

Value Assessment

Rating: fair

The contract value of $69.5 million over approximately 3.5 years for logistics, maintenance, and sustainment of the THAAD missile system appears reasonable given the specialized nature of the equipment. However, without a competitive bidding process, it is difficult to benchmark the pricing against market alternatives or assess if the government is receiving the best possible value. The cost-plus incentive fee structure allows for shared savings if costs are below target, which can incentivize efficiency, but the baseline for these targets is set without competitive pressure.

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. Lockheed Martin Corporation is the sole provider of logistics, maintenance, and sustainment for the THAAD missile system. This approach is often taken for highly specialized systems where only the original equipment manufacturer or a single entity possesses the necessary technical expertise and proprietary knowledge. While this ensures continuity of support, it bypasses the potential benefits of a competitive process, such as lower prices and innovative solutions from multiple bidders.

Taxpayer Impact: A sole-source award means taxpayers do not benefit from the price reductions and service improvements that can arise from a competitive bidding environment. The government may be paying a premium due to the lack of competition.

Public Impact

The primary beneficiaries are the U.S. Army and Missile Defense Agency, ensuring the operational readiness of the Terminal High Altitude Area Defense (THAAD) missile system. Services delivered include critical logistics, maintenance, and sustainment activities necessary for the system's effectiveness. Geographic impact is concentrated in Texas, where the sustainment operations will be based. Workforce implications include the need for specialized technical personnel in logistics and missile system maintenance.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition may lead to higher costs for taxpayers.
Sole-source nature limits opportunities for new entrants and innovation in the support sector.
Dependence on a single contractor for critical system sustainment poses a long-term risk.

Positive Signals

Contract ensures continued operational readiness of a vital national defense asset.
Cost-plus incentive fee structure provides some mechanism for cost control and efficiency.
Incumbent contractor likely possesses deep institutional knowledge of the THAAD system.

Sector Analysis

The defense logistics and sustainment sector is characterized by long-term contracts for complex weapon systems. Companies like Lockheed Martin play a crucial role in maintaining the readiness of advanced military hardware. Spending in this area is driven by the need for specialized technical support, spare parts, and maintenance to ensure the operational effectiveness of platforms such as the THAAD missile system. Benchmarking is challenging due to the unique nature of such systems and the limited number of qualified providers.

Small Business Impact

This contract does not appear to have a small business set-aside component, nor is there explicit information regarding subcontracting opportunities for small businesses. Given the specialized nature of THAAD system sustainment and the sole-source award to a large prime contractor, the direct impact on the small business ecosystem may be limited unless Lockheed Martin proactively engages small businesses for specific support roles.

Oversight & Accountability

Oversight for this contract will likely be managed by the Missile Defense Agency, with contract performance monitored through regular reporting, site visits, and adherence to the terms of the Cost Plus Incentive Fee (CPIF) structure. Accountability measures are built into the CPIF, which incentivizes the contractor to meet cost targets. Transparency may be limited due to the sole-source nature, but contract modifications and performance reviews are typically documented.

Related Government Programs

Missile Defense Systems Sustainment
Logistics and Maintenance Services
THAAD Weapon System Support
Department of Defense Contract Management

Risk Flags

Sole-source award
Lack of competitive pricing
Potential for cost overruns without competition

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $69.5 million to LOCKHEED MARTIN CORPORATION. THIS TASK ORDER IS FOR LOGISTICS, MAINTENANCE, AND SUSTAINMENT OF THE THAAD MISSILE SYSTEM.

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 $69.5 million.

What is the period of performance?

Start: 2024-05-22. End: 2027-12-31.

What is the historical spending pattern for THAAD missile system logistics and sustainment with Lockheed Martin?

Historical spending data for THAAD logistics and sustainment with Lockheed Martin would typically show a consistent investment over the system's lifecycle. As a complex, high-value defense system, THAAD requires ongoing support for maintenance, upgrades, spare parts, and operational readiness. Prior contracts would likely reflect similar cost structures, potentially with variations based on system deployment, modernization efforts, and evolving threat landscapes. Analyzing past contract values, task orders, and contract types (e.g., fixed-price, cost-plus) would provide context for the current $69.5 million award, highlighting trends in cost escalation or efficiency gains over time. Without specific historical data, it's assumed that sustainment costs are a significant portion of the total program cost for such advanced missile defense systems.

How does the Cost Plus Incentive Fee (CPIF) structure typically function in defense contracts like this one?

A Cost Plus Incentive Fee (CPIF) contract is a type of cost-reimbursement contract where the contractor is reimbursed for allowable costs and receives a target fee, plus a share of any savings if the final costs are below the target cost. Conversely, if costs exceed the target, the fee is reduced. The 'incentive' lies in the sharing formula, which motivates the contractor to control costs. For this THAAD logistics contract, Lockheed Martin would have a target cost and a target fee. If they complete the work for less than the target cost, they share in the savings with the government. If they exceed the target cost, their fee is reduced according to a predetermined formula. This structure aims to balance the government's need for flexibility with the contractor's motivation for efficiency, especially in complex projects where exact costs are hard to predict.

What are the potential risks associated with a sole-source award for critical defense system sustainment?

Sole-source awards for critical defense system sustainment, like the THAAD missile system, carry several risks. Primarily, the lack of competition can lead to higher prices than might be achieved through a competitive bidding process, resulting in less value for taxpayer money. It can also stifle innovation, as the incumbent contractor may have less incentive to develop more efficient or cost-effective support methods without competitive pressure. Furthermore, it creates a dependency on a single provider, which can be problematic if the contractor experiences financial difficulties, undergoes mergers, or faces operational challenges. This dependency also reduces the government's leverage in future negotiations. Finally, without competitive benchmarking, it's harder to objectively assess the contractor's performance and efficiency.

What is the strategic importance of the THAAD missile system and its sustainment to national security?

The Terminal High Altitude Area Defense (THAAD) missile system is a crucial component of the United States' ballistic missile defense strategy. Its primary role is to intercept and destroy short, medium, and intermediate-range ballistic missiles during their terminal phase of flight. This capability is vital for protecting U.S. forces, allies, and critical infrastructure from ballistic missile threats, particularly from rogue states or emerging adversaries. The strategic importance of THAAD necessitates its constant readiness and operational effectiveness. Therefore, robust and reliable logistics, maintenance, and sustainment services, as provided under this contract, are paramount to ensuring the system can perform its defensive mission when called upon, directly contributing to national security and regional stability.

Can the Missile Defense Agency (MDA) effectively benchmark Lockheed Martin's performance and costs without competition?

Benchmarking performance and costs for a sole-source contract like this one presents significant challenges for the Missile Defense Agency (MDA). Without competing offers, there is no direct market comparison to establish a baseline for pricing or service levels. The MDA must rely on internal benchmarks, historical data from previous contracts with the same or similar systems, and industry cost models. They may also compare performance metrics against other MDA programs or similar defense systems managed by different agencies, though direct comparability can be limited. The Cost Plus Incentive Fee (CPIF) structure provides some internal control by setting target costs and sharing deviations, but the initial target cost itself is negotiated without competitive pressure, making objective validation of value for money more difficult.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Management, Scientific, and Technical Consulting Services › Process, Physical Distribution, and Logistics Consulting Services

Product/Service Code: MAINT, REPAIR, REBUILD EQUIPMENT › MAINT, REPAIR, REBUILD OF EQUIPMENT

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: HQ085320R0028

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: Lockheed Martin Corp

Address: 1701 W MARSHALL DR, GRAND PRAIRIE, TX, 75051

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: $87,813,385

Exercised Options: $79,694,914

Current Obligation: $69,515,743

Actual Outlays: $5,424,092

Subaward Activity

Number of Subawards: 22

Total Subaward Amount: $5,436,044

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: HQ085320D0001

IDV Type: IDC

Timeline