DoD's $24M BAE Systems contract for MK45 gun system overhaul lacked competition, raising value concerns

Contract Overview

Contract Amount: $24,081,795 ($24.1M)

Contractor: BAE Systems Land & Armaments L.P.

Awarding Agency: Department of Defense

Start Date: 2007-09-28

End Date: 2009-09-30

Contract Duration: 733 days

Daily Burn Rate: $32.9K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: OVERHAUL OF MK45 5"/54 ALL MODS

Place of Performance

Location: LOUISVILLE, JEFFERSON County, KENTUCKY, 40214, UNITED STATES OF AMERICA

State: Kentucky Government Spending

Plain-Language Summary

Department of Defense obligated $24.1 million to BAE SYSTEMS LAND & ARMAMENTS L.P. for work described as: OVERHAUL OF MK45 5"/54 ALL MODS Key points: 1. The contract was awarded on a non-competitive basis, limiting price discovery and potentially increasing costs. 2. The fixed-fee structure on a cost-plus award type may incentivize cost overruns. 3. The duration of the contract (733 days) suggests a significant scope of work for the overhaul. 4. The specific modifications to the MK45 5"/54 gun system are critical for naval defense capabilities. 5. The absence of a small business set-aside indicates the prime contractor is a large entity. 6. The contract's value of $24 million warrants scrutiny for cost-effectiveness given the limited competition.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its sole-source nature. Without competitive bids, it's difficult to ascertain if the $24 million price reflects a fair market value for the overhaul of the MK45 gun systems. The cost-plus fixed-fee structure, while common for complex engineering services, can sometimes lead to higher final costs than fixed-price contracts if not managed tightly. Further analysis would require comparing the scope of work and pricing to similar naval gun system maintenance contracts, which are not readily available in the public domain.

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 vendors. This approach is typically used when only one vendor possesses the necessary capabilities, proprietary knowledge, or when urgency dictates a direct award. The lack of competition means that taxpayers did not benefit from the price reductions and innovations that typically arise from a competitive bidding process. This can lead to higher prices and potentially less favorable contract terms.

Taxpayer Impact: The absence of competition means taxpayers may have paid a premium for these services. Without bids from other qualified contractors, there's no market pressure to ensure the most cost-effective solution was secured.

Public Impact

The U.S. Navy benefits from the modernization and maintenance of its critical MK45 5"/54 gun systems, ensuring operational readiness. This contract supports the sustainment of naval firepower, a key component of national defense. The services delivered are specialized engineering and overhaul, requiring specific technical expertise. The geographic impact is likely concentrated around naval bases or shipyards where the work is performed, though the ultimate benefit is fleet-wide readiness.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition may lead to higher costs for taxpayers.
Cost-plus fixed-fee contract type can incentivize cost escalation if not closely monitored.
Sole-source award limits opportunities for small businesses to participate as prime contractors.
The specific nature of the modifications could be subject to proprietary restrictions, further limiting competition.

Positive Signals

Ensures the continued operational readiness of a critical naval weapon system.
BAE Systems is a known entity with established expertise in naval armament systems.
The contract addresses specific modifications essential for the MK45 gun system's effectiveness.

Sector Analysis

The defense industrial base, particularly the segment focused on naval armament and engineering services, is characterized by high barriers to entry due to specialized knowledge, security requirements, and long-standing relationships. Contracts for major platform overhauls and modifications, like the MK45 gun system, are often awarded to a limited number of prime contractors with proven track records. The market size for such specialized services is substantial, driven by the U.S. Navy's extensive fleet and modernization programs. This contract fits within the broader category of defense sustainment and upgrade services, where spending can fluctuate based on fleet readiness needs and technological advancements.

Small Business Impact

This contract was not awarded as a small business set-aside, and the prime contractor, BAE Systems Land & Armaments L.P., is a large defense corporation. There is no explicit indication of subcontracting plans for small businesses within the provided data. The sole-source nature of the award further limits the direct opportunity for small businesses to compete for the prime contract, though they might be involved as subcontractors if BAE Systems chooses to engage them.

Oversight & Accountability

Oversight for this contract would typically fall under the purview of the Defense Contract Management Agency (DCMA), which is responsible for ensuring contractors meet performance, cost, and schedule requirements. The specific terms of the Cost Plus Fixed Fee (CPFF) contract would dictate the level of financial transparency and reporting required from BAE Systems. However, without a competitive process, the inherent oversight is reduced as there is no benchmark against which to measure performance or cost efficiency. Inspector General involvement would likely be triggered by specific allegations of fraud, waste, or abuse.

Related Government Programs

Naval Gun Systems Modernization
Defense Engineering Services
Weapon System Overhaul and Maintenance
Department of Defense Procurement

Risk Flags

Lack of Competition
Cost-Plus Contract Risk
Sole-Source Award

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $24.1 million to BAE SYSTEMS LAND & ARMAMENTS L.P.. OVERHAUL OF MK45 5"/54 ALL MODS

Who is the contractor on this award?

The obligated recipient is BAE SYSTEMS LAND & ARMAMENTS L.P..

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $24.1 million.

What is the period of performance?

Start: 2007-09-28. End: 2009-09-30.

What is the track record of BAE Systems Land & Armaments L.P. with the MK45 gun system?

BAE Systems Land & Armaments L.P. has a long-standing relationship with the MK45 gun system, being a primary contractor for its development, production, and sustainment. They are known for their expertise in naval armament and have been involved in various upgrades and maintenance programs for this system. Their extensive experience suggests a deep understanding of the system's complexities and requirements. However, the specific performance metrics and historical cost data related to their previous work on the MK45, particularly under similar contract structures, would be necessary for a comprehensive assessment of their track record on this particular overhaul.

How does the $24 million cost compare to similar naval gun system overhaul contracts?

Direct comparison of the $24 million cost for this MK45 gun system overhaul is difficult without access to detailed data on similar contracts. Sole-source awards, like this one, lack the competitive benchmarking that would typically inform such a comparison. Factors such as the specific modifications required, the number of systems involved, the age and condition of the systems, and the contract type (Cost Plus Fixed Fee) significantly influence pricing. To provide a meaningful comparison, one would need to identify contracts with comparable scope, complexity, and duration awarded competitively, or analyze historical data for BAE Systems' work on the MK45 under different circumstances.

What are the primary risks associated with a sole-source contract for defense systems?

The primary risks associated with a sole-source contract for defense systems include inflated costs due to a lack of competition, reduced incentive for the contractor to innovate or improve efficiency, and potential for vendor lock-in. Without competitive pressure, the government may not secure the best possible price or terms. Furthermore, reliance on a single source can create vulnerabilities if that source experiences financial difficulties, production issues, or changes its business strategy. For taxpayers, the risk is a less efficient use of public funds and potentially receiving a lower value for the investment made in critical defense capabilities.

How effective is the Cost Plus Fixed Fee (CPFF) contract type for complex engineering services like this overhaul?

The Cost Plus Fixed Fee (CPFF) contract type is often used for complex engineering and development projects where the scope of work is not fully defined at the outset, or where significant uncertainties exist. It aims to provide the contractor with cost certainty (the fixed fee) while allowing for flexibility in managing project costs. The government bears the risk of cost overruns, but the fixed fee incentivizes the contractor to control costs to maximize their profit margin. However, CPFF contracts can sometimes lead to higher overall costs compared to fixed-price contracts if not managed diligently, as the government absorbs cost increases beyond the estimated amount. Effective oversight is crucial to ensure value for money.

What is the historical spending trend for MK45 gun system maintenance and upgrades?

Historical spending on the MK45 gun system maintenance and upgrades is likely substantial, given its long service life and critical role in the U.S. Navy's fleet. While specific aggregate spending figures are not provided, it's understood that naval platforms require continuous investment in sustainment, modernization, and component overhauls to maintain operational readiness. Spending trends would typically correlate with fleet modernization cycles, geopolitical demands, and the aging of existing systems. Contracts for such major overhauls, especially when sole-sourced, represent significant individual expenditures within the broader defense budget allocated to naval systems sustainment.

What are the implications of the contract's start and end dates (2007-2009) on its current relevance?

The contract's execution period from September 28, 2007, to September 30, 2009, means that the work was completed over a decade ago. While this historical data provides insight into past procurement practices and spending, it has limited direct relevance for assessing current needs or future spending. The technology, operational requirements, and threat landscape may have evolved significantly since then. However, the data can still be valuable for understanding long-term sustainment costs, contractor performance over time, and the historical approach to competition for such systems. It serves as a data point for analyzing trends rather than a direct indicator of present-day value.

Industry Classification

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

Product/Service Code: TECHNICAL REPRESENTATIVE SVCS. › TECHNICAL REPRESENTATIVE SERVICES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Parent Company: BAE Systems PLC (UEI: 217304393)

Address: 163 ROCHESTER DR STE 1, LOUISVILLE, KY, 40214

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Foreign Owned, Not Designated a Small Business, Special Designations

Financial Breakdown

Contract Ceiling: $24,081,795

Exercised Options: $24,081,795

Current Obligation: $24,081,795

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: N0002407G5438

IDV Type: IDC

Timeline