DoD's $405.8M R&D contract with Northrop Grumman shows limited competition and fair value

Contract Overview

Contract Amount: $405,851,095 ($405.9M)

Contractor: Northrop Grumman Systems Corporation

Awarding Agency: Department of Defense

Start Date: 2012-04-23

End Date: 2021-05-31

Contract Duration: 3,325 days

Daily Burn Rate: $122.1K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: R&D

Official Description: TRAVEL

Place of Performance

Location: SAN DIEGO, SAN DIEGO County, CALIFORNIA, 92150

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $405.9 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: TRAVEL Key points: 1. Contract awarded via sole-source negotiation, raising concerns about price discovery. 2. Performance period spanned nearly a decade, indicating long-term R&D engagement. 3. Fixed-price contract type suggests cost risk was largely borne by the contractor. 4. Significant contract value points to a major research and development initiative. 5. Geographic concentration in California may reflect specialized industry clusters. 6. Lack of small business involvement noted, potentially limiting broader economic impact.

Value Assessment

Rating: fair

Benchmarking the value of this $405.8 million contract is challenging due to its sole-source nature and long duration. While the firm fixed-price structure is generally favorable for the government by capping costs, the absence of competitive bidding prevents a direct comparison to market rates or similar contracts. The total award value over its extended period suggests a substantial investment in R&D, but without competitive data, assessing whether this represents optimal value for money is difficult. The relatively low number of contract actions (1) might indicate a single, large project or a phased approach managed under one award.

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 among multiple potential vendors. This approach is typically used when a specific contractor possesses unique capabilities, proprietary technology, or when circumstances preclude full and open competition. The lack of competition means that the government did not benefit from the price reductions and innovation that can arise from a competitive bidding process. This raises questions about whether the government secured the best possible pricing and terms.

Taxpayer Impact: Sole-source awards can lead to higher costs for taxpayers as the government may not achieve the most competitive pricing. It also limits opportunities for other businesses to compete for and win federal contracts.

Public Impact

The primary beneficiary is the Department of Defense, which received advanced research and development services. The contract likely supported advancements in physical, engineering, or life sciences, contributing to national security capabilities. Services were delivered primarily in California, potentially leveraging the state's robust aerospace and defense industry ecosystem. The contract's focus on R&D may have spurred innovation and technological development within the contractor's workforce.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing and taxpayer value.
Long performance period without clear competitive milestones makes ongoing value assessment difficult.
Lack of small business participation may limit broader economic benefits and innovation.

Positive Signals

Firm fixed-price contract type shifts cost risk to the contractor.
Significant investment in R&D suggests commitment to technological advancement.
Contractor's long-term engagement implies successful delivery of complex research services.

Sector Analysis

This contract falls within the Research and Development in the Physical, Engineering, and Life Sciences sector, excluding biotechnology. This is a critical area for defense modernization and technological superiority. The market is often characterized by high barriers to entry, specialized expertise, and significant government investment. Comparable spending in this sector often involves large, multi-year contracts with major defense contractors, reflecting the complexity and strategic importance of the research undertaken.

Small Business Impact

This contract did not include small business set-asides, nor is there an indication of significant subcontracting to small businesses. The sole-source nature of the award inherently limits opportunities for small businesses to participate. This suggests that the primary benefits of this contract accrued to the large prime contractor, potentially missing opportunities to foster innovation and economic growth within the small business defense industrial base.

Oversight & Accountability

Oversight for this contract would have been managed by the Department of the Navy, a component of the Department of Defense. As a definitive contract, it would be subject to standard federal procurement regulations and oversight mechanisms. Transparency is generally limited for sole-source awards, but contract performance, milestones, and financial expenditures would typically be monitored. Inspector General jurisdiction would apply for investigations into fraud, waste, or abuse.

Related Government Programs

Department of Defense Research and Development Contracts
Northrop Grumman Federal Contracts
Sole-Source Defense Procurements
Research and Development Services
Aerospace and Defense Industry Contracts

Risk Flags

Sole-source award
Long contract duration
Lack of competition
No small business participation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $405.9 million to NORTHROP GRUMMAN SYSTEMS CORPORATION. TRAVEL

Who is the contractor on this award?

The obligated recipient is NORTHROP GRUMMAN SYSTEMS CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Navy).

What is the total obligated amount?

The obligated amount is $405.9 million.

What is the period of performance?

Start: 2012-04-23. End: 2021-05-31.

What specific research and development activities were undertaken under this contract?

The contract, NAICS code 541712, specifies 'Research and Development in the Physical, Engineering, and Life Sciences (except Biotechnology)'. While the exact nature of the R&D is not detailed in the provided data, it likely pertains to advanced technologies, materials, systems, or scientific principles relevant to national defense. Given the contractor, Northrop Grumman, and the awarding agency, the Department of the Navy, the research could encompass areas such as aerospace engineering, naval warfare systems, advanced materials science, sensor technology, or electronic warfare. The long duration and substantial value suggest a significant, potentially foundational, research effort rather than incremental improvements.

How does the $405.8 million award value compare to similar R&D contracts in the defense sector?

The $405.8 million total award value over a period of approximately 9 years (April 2012 - May 2021) represents a substantial investment. For large-scale R&D initiatives within the Department of Defense, particularly those involving major defense contractors like Northrop Grumman, such figures are not uncommon. However, direct comparisons are difficult without knowing the specific technological domain and the scope of work. Many large defense R&D programs can range from tens of millions to billions of dollars. The key factor here is the sole-source nature; if this had been competed, the value might have been lower or the scope different, reflecting competitive pressures.

What are the primary risks associated with a sole-source award of this magnitude?

The primary risks associated with a sole-source award of this magnitude include potential overpayment due to lack of price competition, reduced incentive for the contractor to innovate or control costs aggressively, and limited opportunities for other capable firms to participate and develop their expertise. Taxpayers may not be receiving the best possible value for their investment. Furthermore, reliance on a single source can create strategic risks if that source encounters performance issues or if market conditions change, making it difficult to transition to alternative solutions.

What does the firm fixed-price contract type imply about cost control and risk allocation?

A firm fixed-price (FFP) contract type generally places the majority of the cost risk on the contractor. This means that the contractor is obligated to complete the work for the agreed-upon price, regardless of their actual costs. This structure incentivizes the contractor to manage costs efficiently and control performance to ensure profitability. For the government, FFP contracts offer budget certainty and protection against cost overruns, assuming the initial price negotiated was fair and reasonable. In the context of R&D, FFP can be challenging if the scope is highly uncertain, potentially leading to a higher initial price to account for contractor risk.

What is the historical spending pattern for R&D contracts under NAICS code 541712 awarded by the Department of the Navy?

Historical spending patterns for R&D contracts under NAICS 541712 by the Department of the Navy typically involve significant investments in areas supporting naval capabilities, such as advanced materials, propulsion systems, sensor technology, and C4ISR (Command, Control, Communications, Computers, and Intelligence, Surveillance, and Reconnaissance). Large defense contractors are frequent recipients. Spending can fluctuate based on strategic priorities, technological advancements, and budget allocations. This specific $405.8 million contract represents a substantial portion of the Navy's R&D expenditure in this category over its performance period, highlighting its importance.

What is Northrop Grumman Systems Corporation's track record with large federal R&D contracts?

Northrop Grumman Systems Corporation is a major defense contractor with extensive experience in large-scale federal R&D contracts across various domains, including aerospace, defense systems, and information technology. They have a long history of securing significant contracts from agencies like the Department of Defense, NASA, and others. Their track record typically involves complex, high-technology projects requiring specialized expertise and substantial resources. While specific performance details for every contract are not publicly available, their continued success in winning large, competitive bids suggests a generally strong capability in delivering on R&D requirements.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Scientific Research and Development Services › Research and Development in the Physical, Engineering, and Life Sciences (except 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: N0001912R0010

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation

Address: 17066 GOLDENTOP RD, SAN DIEGO, CA, 92127

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $407,468,822

Exercised Options: $407,468,822

Current Obligation: $405,851,095

Actual Outlays: $448,251

Subaward Activity

Number of Subawards: 368

Total Subaward Amount: $374,403,044

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline