Raytheon Company awarded $1.34B contract for Navy missile spares, raising questions on competition and value

Contract Overview

Contract Amount: $1,338,242,251 ($1.3B)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2018-09-13

End Date: 2026-02-28

Contract Duration: 2,725 days

Daily Burn Rate: $491.1K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: USN LOT 18 SPARES

Place of Performance

Location: TUCSON, PIMA County, ARIZONA, 85756

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $1.34 billion to RAYTHEON COMPANY for work described as: USN LOT 18 SPARES Key points: 1. Contract awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. Significant contract value suggests a critical need for these missile spares. 3. Long performance period (2018-2026) indicates a sustained requirement. 4. Fixed Price Incentive (FPI) contract type aims to balance cost control with performance incentives. 5. Lack of competition is a key risk indicator for potential overspending. 6. Contractor's extensive experience in defense manufacturing likely influenced sole-source award.

Value Assessment

Rating: questionable

Benchmarking the value of this $1.34 billion contract for spares is challenging due to the sole-source nature and lack of publicly available comparable contract data. The Fixed Price Incentive (FPI) structure suggests an attempt to manage costs, but without competitive bids, it's difficult to ascertain if the pricing reflects fair market value. The sheer scale of the award implies a substantial need, but the absence of competition prevents a robust assessment of cost-effectiveness against alternative suppliers or solutions.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning the Department of the Navy did not conduct a competitive bidding process. This typically occurs when only one responsible source can provide the required supplies or services. The lack of competition means there were no other bidders to compare against, limiting the government's ability to negotiate the best possible price and terms.

Taxpayer Impact: Taxpayers may be paying a premium for these spares due to the absence of competitive pressure to drive down costs. The government's negotiating position is inherently weaker without alternative offers.

Public Impact

The U.S. Navy benefits from the supply of critical missile spares, ensuring operational readiness. This contract supports the maintenance and sustainment of guided missile systems. The geographic impact is primarily within Arizona, where Raytheon Company is located. Workforce implications include employment at Raytheon facilities involved in manufacturing and logistics.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing and potentially increases costs for taxpayers.
Lack of transparency in the procurement process due to no-bid award.
Long contract duration could lead to cost overruns if not managed effectively.
Potential for vendor lock-in given the specialized nature of missile components.

Positive Signals

Award to an established defense contractor with proven capabilities in missile manufacturing.
FPI contract type includes incentives to encourage contractor performance and cost control.
Contract supports critical national defense requirements for the U.S. Navy.

Sector Analysis

This contract falls within the Guided Missile and Space Vehicle Manufacturing sector, a specialized segment of the aerospace and defense industry. This sector is characterized by high barriers to entry, significant R&D investment, and long production cycles. Spending in this area is driven by national security requirements and technological advancements. Comparable spending benchmarks are difficult to establish due to the proprietary nature of many defense contracts and the unique specifications of missile systems.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb: false'. There is no explicit information regarding subcontracting plans for small businesses. Without a set-aside or clear subcontracting goals, the direct impact on the small business ecosystem for this specific contract is likely minimal, though the prime contractor may engage small businesses in its broader supply chain.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. Accountability measures are embedded within the FPI contract terms, which link contractor profit to performance and cost targets. Transparency is limited due to the sole-source nature of the award. The Inspector General for the Department of Defense may conduct audits or investigations if specific concerns arise regarding waste, fraud, or abuse.

Related Government Programs

Navy Guided Missile Programs
Defense Industrial Base
Aerospace Manufacturing
Weapon Systems Sustainment

Risk Flags

Sole-source procurement
Lack of competition
High contract value
Long contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.34 billion to RAYTHEON COMPANY. USN LOT 18 SPARES

Who is the contractor on this award?

The obligated recipient is RAYTHEON COMPANY.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $1.34 billion.

What is the period of performance?

Start: 2018-09-13. End: 2026-02-28.

What is Raytheon Company's track record with the Department of Defense for similar missile component contracts?

Raytheon Company, now part of RTX Corporation, has a long and extensive history of contracting with the Department of Defense, particularly the Department of the Navy, for a wide array of defense systems, including guided missiles and related components. They are a primary contractor for numerous advanced weapon systems. Their track record includes delivering complex systems under various contract types, often involving significant dollar values and long performance periods. While specific data on past spares contracts of this exact magnitude and type might be proprietary, Raytheon's overall performance history with the DoD is generally characterized by significant program execution capabilities, though like many large defense contractors, they have faced scrutiny over cost, schedule, and performance on specific programs over the years. Their deep integration into the defense supply chain makes them a frequent, and often sole-source, awardee for specialized components.

How does the $1.34 billion value compare to typical spending on missile spares?

The $1.34 billion value for spares for a specific missile lot (USN LOT 18 SPARES) is substantial and indicates a significant quantity or high-value components are being procured. Typical spending on spares can vary dramatically based on the weapon system's complexity, age, operational tempo, and the number of units in the fleet. For major strategic missile systems or widely deployed tactical missiles, annual spares budgets can easily run into hundreds of millions or even billions of dollars collectively. However, a single contract award of this magnitude for a specific lot of spares suggests either a large, one-time replenishment effort, a long-term sustainment contract covering a significant period, or procurement of highly advanced and costly components. Without knowing the specific missile system and its operational context, direct comparison is difficult, but it signifies a major investment in maintaining naval air power capabilities.

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

The primary risks associated with a sole-source award of $1.34 billion are significant. Firstly, the lack of competition means the government likely did not achieve the lowest possible price, potentially leading to cost overruns and inefficient use of taxpayer funds. Secondly, it reduces transparency in the procurement process, making it harder to scrutinize the justification for the price and the necessity of the award. Thirdly, it can foster vendor lock-in, where the government becomes overly reliant on a single supplier, potentially limiting future flexibility and negotiation power. Lastly, without competitive pressure, there's a reduced incentive for the contractor to innovate or aggressively manage costs, although the FPI contract type attempts to mitigate this through performance incentives.

How effective is the Fixed Price Incentive (FPI) contract type in managing costs for such a large sole-source award?

The Fixed Price Incentive (FPI) contract type is designed to provide a middle ground between fixed-price and cost-reimbursement contracts, aiming to control costs while allowing for flexibility. In this sole-source scenario, the FPI contract establishes a target cost, a target profit, and a price ceiling. If the final cost is lower than the target, both the government and contractor share in the savings (under-run). If the final cost exceeds the target, the government's share of the over-run is limited by the price ceiling. While FPI encourages the contractor to control costs to achieve a higher profit, its effectiveness in a sole-source situation is diminished compared to a competitive environment. The government still relies heavily on the contractor's cost estimating and reporting accuracy, and the price ceiling, while providing a cap, doesn't guarantee the initial target cost was competitive.

What are the historical spending patterns for missile spares procured by the Department of the Navy?

Historical spending patterns for missile spares by the Department of the Navy are substantial and represent a consistent, significant portion of the Navy's overall procurement and sustainment budget. The Navy operates a vast array of missile systems, from tactical air-to-air and surface-to-air missiles to strategic ballistic missiles, each requiring a continuous supply of spare parts for maintenance, repair, and operational readiness. Spending fluctuates based on fleet size, operational tempo, modernization programs, and the lifecycle of different weapon systems. Historically, the Navy has awarded numerous large contracts, often sole-source or limited competition, to prime contractors like Raytheon, Lockheed Martin, and others for these critical spares. Aggregate spending across all missile types can reach billions of dollars annually, reflecting the high cost of advanced defense technology and the imperative to maintain a ready fighting force.

What is the significance of the contract being awarded in Arizona (AZ)?

The contract being awarded to Raytheon Company, with operations in Arizona (AZ), signifies the state's role as a significant hub for the aerospace and defense industry. Arizona hosts numerous defense contractors and manufacturing facilities, contributing to the state's economy through high-tech jobs and related supply chains. For this specific contract, the location indicates that the manufacturing, assembly, or logistical support for these missile spares will likely occur at Raytheon facilities within Arizona. This has direct implications for local employment and economic activity in the region where the work is performed. It also highlights the concentration of specialized defense manufacturing capabilities within certain geographic areas of the United States.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Guided Missile and Space Vehicle Manufacturing

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0001917R0059

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Parent Company: Rockwell Collins Australia PTY Limited

Address: 1151 E HERMANS RD, TUCSON, AZ, 85756

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: $1,428,066,471

Exercised Options: $1,338,242,251

Current Obligation: $1,338,242,251

Actual Outlays: $49,348,836

Subaward Activity

Number of Subawards: 1392

Total Subaward Amount: $2,896,877,147

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline