DoD's $69M Northrop Grumman sustainment contract awarded without competition, raising value-for-money questions

Contract Overview

Contract Amount: $69,251,681 ($69.3M)

Contractor: Northrop Grumman Systems Corporation

Awarding Agency: Department of Defense

Start Date: 2019-12-23

End Date: 2022-12-22

Contract Duration: 1,095 days

Daily Burn Rate: $63.2K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: CY20-CY22 SUSTAINMENT CONTRACT

Place of Performance

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

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $69.3 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: CY20-CY22 SUSTAINMENT CONTRACT Key points: 1. Contract awarded on a cost-plus-fixed-fee basis, potentially leading to cost overruns. 2. Lack of competition limits price discovery and may result in suboptimal value. 3. Contractor's sole-source award warrants scrutiny for potential price inflation. 4. Performance period of three years provides limited long-term insight into sustained value. 5. Engineering services sector sees significant government spending, making benchmarks crucial. 6. Oversight of cost-plus contracts is critical to ensure fiscal responsibility.

Value Assessment

Rating: questionable

The contract's cost-plus-fixed-fee structure, combined with a lack of competition, raises concerns about value for money. Without competitive bidding, it is difficult to benchmark the pricing against market rates or similar contracts. The total award of approximately $69 million over three years necessitates close monitoring of costs to ensure they remain reasonable and justified. Further analysis of the fixed fee component and the contractor's cost-saving initiatives would be beneficial.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning there was no open competition. This significantly limits the government's ability to solicit bids from multiple vendors and leverage market competition to achieve the best possible pricing and terms. The absence of competition means that price discovery is not driven by market forces, potentially leading to higher costs for the government.

Taxpayer Impact: Taxpayers may be paying a premium due to the lack of competitive pressure to reduce costs. The government missed an opportunity to explore potentially more cost-effective solutions from a wider range of providers.

Public Impact

The Department of Defense benefits from sustainment services for critical systems. Engineering services are delivered to support ongoing military operations. The contract's geographic impact is primarily within California, where Northrop Grumman operates. Workforce implications include employment for engineers and technical staff at Northrop Grumman.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing, potentially increasing costs.
Cost-plus-fixed-fee structure can incentivize higher spending if not tightly managed.
Lack of transparency in cost build-up due to sole-source nature.
Limited opportunity for small businesses to participate as prime contractors.

Positive Signals

Northrop Grumman is an established defense contractor with significant experience.
Sustainment contracts are crucial for maintaining operational readiness of defense systems.
Fixed fee component provides some level of cost predictability for the government.

Sector Analysis

The engineering services sector is a vital component of the defense industrial base, providing specialized expertise for complex systems. Government spending in this area is substantial, supporting research, development, sustainment, and modernization efforts. This contract fits within the broader category of defense sustainment, which often involves long-term support agreements for major weapon systems. Benchmarking against other sustainment contracts for similar platforms or services is essential for assessing value.

Small Business Impact

This contract does not appear to have a small business set-aside. As a sole-source award to a large prime contractor, there are limited direct opportunities for small businesses to participate as prime. Subcontracting opportunities may exist, but their extent and nature are not detailed in the provided data. The impact on the small business ecosystem is likely minimal unless significant subcontracting plans are implemented.

Oversight & Accountability

Oversight mechanisms for this contract would typically involve contract administration by the Department of the Navy, including monitoring of costs, performance, and compliance. Given the sole-source nature and cost-plus-fixed-fee structure, rigorous oversight is essential to ensure the government receives fair value and that costs are reasonable and allocable. Inspector General jurisdiction would apply to investigations of fraud, waste, or abuse.

Related Government Programs

Defense Logistics Agency Sustainment Contracts
Naval Air Systems Command Engineering Services
Department of Defense Maintenance and Repair Contracts
Aerospace Engineering and Technical Services

Risk Flags

Sole-source award
Cost-plus contract type
Lack of competitive bidding
Potential for cost overruns
Limited transparency in pricing

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $69.3 million to NORTHROP GRUMMAN SYSTEMS CORPORATION. CY20-CY22 SUSTAINMENT CONTRACT

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 $69.3 million.

What is the period of performance?

Start: 2019-12-23. End: 2022-12-22.

What is Northrop Grumman's track record with similar sustainment contracts for the Department of Defense?

Northrop Grumman Systems Corporation is a major defense contractor with extensive experience in providing sustainment and support services for various military platforms. Their track record includes managing complex logistics, maintenance, and engineering support for aircraft, spacecraft, and other defense systems. While specific performance metrics for this particular contract are not detailed, the company generally has a long history of fulfilling large-scale government contracts. However, the nature of sustainment contracts, especially those awarded sole-source, requires continuous monitoring of performance against established metrics and adherence to contract terms to ensure ongoing value and operational effectiveness for the Department of Defense.

How does the pricing structure (Cost Plus Fixed Fee) compare to other sustainment contracts in the defense sector?

Cost Plus Fixed Fee (CPFF) is a common contract type in the defense sector, particularly for services where the scope of work may evolve or is difficult to define precisely upfront, such as sustainment. It allows the contractor to recover all allowable costs plus a predetermined fixed fee representing profit. Compared to fixed-price contracts, CPFF can offer more flexibility but carries a higher risk of cost growth if not managed diligently. Benchmarking this contract's fixed fee percentage against similar CPFF sustainment contracts awarded competitively would provide insight into whether the fee is reasonable. However, the sole-source nature of this award complicates direct pricing comparisons, as competitive pressures that typically drive down fees are absent.

What are the primary risks associated with a sole-source, cost-plus-fixed-fee sustainment contract?

The primary risks associated with this contract type are twofold. Firstly, the sole-source award eliminates competitive pressure, which can lead to inflated pricing and reduced incentive for the contractor to seek cost efficiencies. The government may end up paying more than it would in a competitive environment. Secondly, the Cost Plus Fixed Fee (CPFF) structure, while offering flexibility, can incentivize cost overruns. The contractor is reimbursed for all allowable costs, and the fixed fee is earned regardless of the final cost. This necessitates robust government oversight to scrutinize costs, ensure they are reasonable and allocable, and prevent scope creep that could unnecessarily increase expenditures. Without strong oversight, the potential for cost growth and suboptimal value is significant.

What is the historical spending pattern for engineering services (NAICS 541330) by the Department of the Navy?

The Department of the Navy, like other branches of the Department of Defense, consistently spends significant amounts on engineering services, categorized under NAICS code 541330. Historical data indicates a substantial and often increasing trend in this spending over the years, driven by the need for design, development, testing, and sustainment of complex military systems and platforms. This spending supports a wide range of activities, from initial concept development to long-term operational support and upgrades. The Navy's reliance on specialized engineering expertise underscores the importance of these contracts for maintaining technological superiority and operational readiness. Analyzing historical spending patterns can reveal trends in contract types, major service providers, and the overall investment in engineering capabilities.

How does the duration of this contract (1095 days) impact the assessment of its value and performance?

A duration of 1095 days, equivalent to three years, is a standard term for many sustainment and service contracts. For assessing value, this duration allows for a reasonable period to evaluate the contractor's performance and the effectiveness of the services provided. It's long enough to move beyond initial startup challenges and observe consistent delivery. However, for long-term sustainment needs, a three-year term might necessitate follow-on contracts, potentially leading to recurring sole-source awards if not managed strategically. From a performance perspective, this timeframe provides sufficient opportunity to identify trends, measure key performance indicators, and determine if the contractor is meeting its obligations. It also allows the government to gather data that can inform future competitive solicitations or contract negotiations.

Industry Classification

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

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › PROFESSIONAL SERVICES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0001919R0076

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

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, Manufacturer of Goods, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $78,613,799

Exercised Options: $72,514,711

Current Obligation: $69,251,681

Actual Outlays: $7,102,425

Subaward Activity

Number of Subawards: 126

Total Subaward Amount: $22,446,083

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline