DoD's $25.7M R&D contract for MQ-8 ESS&ILS SUSTAINMENT shows limited competition and potential value concerns

Contract Overview

Contract Amount: $25,695,834 ($25.7M)

Contractor: Northrop Grumman Systems Corporation

Awarding Agency: Department of Defense

Start Date: 2015-02-23

End Date: 2016-11-06

Contract Duration: 622 days

Daily Burn Rate: $41.3K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: R&D

Official Description: FY15 MQ-8 ESS&ILS SUSTAINMENT PMT#-N00019-14-P1-PMA-266-0109

Place of Performance

Location: SAN DIEGO, SAN DIEGO County, CALIFORNIA, 92127

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $25.7 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: FY15 MQ-8 ESS&ILS SUSTAINMENT PMT#-N00019-14-P1-PMA-266-0109 Key points: 1. The contract was awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. The research and development nature of the contract, focused on physical and engineering sciences, suggests a high degree of technical complexity. 3. The contract duration of 622 days indicates a significant period for service delivery and potential for cost overruns. 4. The award to a single contractor, NORTHROP GRUMMAN SYSTEMS CORPORATION, raises questions about market competition and alternative solutions. 5. The cost-plus-fixed-fee contract type can incentivize contractors to incur costs, requiring robust oversight to manage expenses. 6. The absence of small business set-aside flags suggests this contract was not specifically targeted to promote small business participation.

Value Assessment

Rating: questionable

Benchmarking the value of this specific R&D contract is challenging due to its specialized nature and sole-source award. However, the cost-plus-fixed-fee structure, while common for R&D, necessitates careful monitoring to ensure costs remain reasonable and do not escalate beyond initial projections. Without competitive bids, it's difficult to definitively assess if the pricing reflects fair market value. The total award amount of approximately $25.7 million over its duration suggests a substantial investment, making cost control a critical factor in determining overall value for money.

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 bidders. This approach is typically used when only one contractor possesses the necessary unique capabilities, technology, or intellectual property required for the specific research and development task. The lack of competition means that the government did not benefit from the price reductions and innovation that typically arise from a competitive bidding process.

Taxpayer Impact: The sole-source nature of this award means taxpayers may have paid a premium compared to what might have been achieved in a competitive environment. Without multiple bids, there is less pressure on the contractor to offer the most cost-effective solution.

Public Impact

The primary beneficiaries are the Department of Defense, specifically units utilizing the MQ-8 ESS&ILS system, through advancements in sustainment and related research. The contract aims to deliver research and development services to enhance the capabilities and longevity of the MQ-8 unmanned aerial vehicle system. The geographic impact is primarily within the United States, where the contractor's research facilities are located and where the MQ-8 system is deployed. Workforce implications include employment for specialized researchers, engineers, and technical staff within NORTHROP GRUMMAN SYSTEMS CORPORATION.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially leading to higher costs for taxpayers.
Cost-plus-fixed-fee contract type can incentivize cost incurrence, requiring stringent oversight to prevent overspending.
Lack of transparency in the justification for sole-source award could obscure potential alternatives.
The specific R&D focus makes it difficult to benchmark performance and value against similar, publicly available contracts.

Positive Signals

Award to a major defense contractor like NORTHROP GRUMMAN SYSTEMS CORPORATION suggests access to specialized expertise and technology.
The contract addresses sustainment for a critical defense asset (MQ-8 ESS&ILS), indicating a focus on maintaining operational readiness.
The research and development nature implies potential for innovation and future capability enhancements for the DoD.

Sector Analysis

This contract falls within the Research and Development sector, specifically focusing on physical, engineering, and life sciences (NAICS 541712). This sector is characterized by high innovation, significant investment, and often long development cycles. The market for defense-related R&D is substantial, with major aerospace and defense contractors like Northrop Grumman playing a significant role. Comparable spending benchmarks are difficult to establish precisely due to the unique nature of R&D contracts and the proprietary information involved, but the overall defense R&D budget represents billions of dollars annually.

Small Business Impact

This contract does not appear to have a small business set-aside (ss: false, sb: false). The award to a large prime contractor, NORTHROP GRUMMAN SYSTEMS CORPORATION, suggests that subcontracting opportunities may exist for small businesses. However, the extent and nature of these subcontracting opportunities are not detailed in the provided data. Without specific subcontracting plans or goals mandated within the contract, the direct impact on the small business ecosystem is uncertain and dependent on the prime contractor's procurement practices.

Oversight & Accountability

Oversight for this contract would typically be managed by the Defense Contract Management Agency (DCMA), as indicated by the 'sa' field. DCMA is responsible for ensuring contractors meet contractual requirements, including cost, schedule, and performance. The cost-plus-fixed-fee nature of the award necessitates close monitoring of incurred costs to ensure they align with the fixed fee and the overall project scope. Transparency regarding the justification for the sole-source award and ongoing performance reports would be key accountability measures. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

MQ-8 Fire Scout Program
Unmanned Aerial Vehicle (UAV) Sustainment Contracts
Department of Defense Research and Development Funding
Aerospace Engineering Services Contracts

Risk Flags

Sole Source Justification
Cost-Plus Contract Type
Limited Competition

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $25.7 million to NORTHROP GRUMMAN SYSTEMS CORPORATION. FY15 MQ-8 ESS&ILS SUSTAINMENT PMT#-N00019-14-P1-PMA-266-0109

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 (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $25.7 million.

What is the period of performance?

Start: 2015-02-23. End: 2016-11-06.

What is the specific nature of the 'ESS&ILS SUSTAINMENT' for the MQ-8 system, and why was it deemed necessary for sole-source R&D?

ESS&ILS likely stands for 'Engineering Support, Services, and Integrated Logistics Support' for the MQ-8 unmanned aerial vehicle system. Sustainment in this context refers to the ongoing support required to keep the system operational, including maintenance, repair, upgrades, and technical assistance. The decision for a sole-source R&D award suggests that Northrop Grumman, as the likely original developer or integrator of the MQ-8 system or its specific components, possesses unique knowledge, proprietary data, or specialized facilities essential for this particular sustainment R&D. This could involve complex software updates, hardware modifications, or integration challenges that only they can address effectively, thereby justifying the lack of open competition.

How does the Cost Plus Fixed Fee (CPFF) contract type typically impact cost control and contractor performance in R&D settings?

A Cost Plus Fixed Fee (CPFF) contract reimburses the contractor for all allowable costs incurred, plus a predetermined fixed fee representing profit. In R&D, this structure is often used because the scope and final costs can be uncertain at the outset. While it allows flexibility to explore technical challenges, it can incentivize contractors to incur costs, as their profit (the fixed fee) is not directly tied to cost savings. Effective cost control relies heavily on robust government oversight, detailed cost accounting, and clear definition of contract milestones and deliverables. Contractor performance is driven by the need to meet technical objectives to earn the fixed fee, but the lack of direct financial reward for cost efficiency requires careful management by the contracting agency.

What are the potential risks associated with a sole-source award for a sustainment-related R&D contract?

The primary risk of a sole-source award is the absence of competitive pressure, which can lead to inflated pricing and reduced incentive for the contractor to innovate or optimize costs. Taxpayers may end up paying more than they would in a competitive scenario. Another risk is vendor lock-in, where the government becomes overly reliant on a single provider, limiting future options and potentially hindering the adoption of alternative or more advanced technologies. Furthermore, without the scrutiny of multiple bidders, there's a potential for less rigorous technical proposals or less emphasis on efficient execution, although this is mitigated by the oversight of the contracting agency.

Can the $25.7 million award amount be benchmarked against other MQ-8 sustainment or R&D contracts?

Benchmarking this specific $25.7 million award is difficult without access to detailed, comparable contract data. Sustainment and R&D costs for complex systems like the MQ-8 can vary significantly based on the specific scope of work, technological advancements required, duration, and the level of contractor involvement. Sole-source contracts, by their nature, lack direct competitive benchmarks. To perform a robust comparison, one would need to analyze contracts for similar unmanned aerial vehicle sustainment or R&D efforts, ideally those that were competitively procured, and adjust for differences in system complexity, contract duration, and inflation. The provided data does not offer sufficient detail for such a precise comparison.

What is the historical spending trend for MQ-8 sustainment and related R&D within the Department of Defense?

Historical spending data for the MQ-8 program's sustainment and R&D would require a comprehensive review of DoD procurement databases and budget allocations over several fiscal years. Generally, as complex defense systems like the MQ-8 mature, sustainment costs tend to increase as components age and require more maintenance, while R&D spending might fluctuate based on upgrade cycles or new capability development. Without specific historical figures for the MQ-8, it's challenging to identify trends. However, the overall trend in defense spending often sees consistent investment in maintaining and upgrading key assets, with R&D focused on incorporating new technologies or addressing evolving threats.

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: N0001914R4003

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation (UEI: 967356127)

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: $26,487,754

Exercised Options: $26,487,754

Current Obligation: $25,695,834

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline