DoD's $1.66B contract to Northrop Grumman for navigation systems shows limited competition and potential value concerns

Contract Overview

Contract Amount: $165,879,495 ($165.9M)

Contractor: Northrop Grumman Systems Corporation

Awarding Agency: Department of Defense

Start Date: 2020-09-28

End Date: 2026-09-30

Contract Duration: 2,193 days

Daily Burn Rate: $75.6K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: TRAVEL

Place of Performance

Location: ROLLING MEADOWS, COOK County, ILLINOIS, 60008

State: Illinois Government Spending

Plain-Language Summary

Department of Defense obligated $165.9 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: TRAVEL Key points: 1. The contract's value of $1.66 billion over six years raises questions about cost-effectiveness given the lack of competitive bidding. 2. Sole-source procurement limits price discovery and may lead to inflated costs for taxpayers. 3. The 'cost plus fixed fee' pricing structure can incentivize cost overruns, increasing financial risk. 4. Performance context is limited due to the absence of comparative contract data. 5. This contract positions Northrop Grumman as a key supplier for critical navigation systems within the Department of Defense. 6. The duration of 2193 days suggests a long-term need for these specialized systems.

Value Assessment

Rating: questionable

Benchmarking the value of this $1.66 billion contract is challenging due to its sole-source nature and the 'cost plus fixed fee' structure. Without competitive bids, it's difficult to ascertain if the pricing reflects fair market value. The fixed fee component, while providing some cost control, doesn't inherently guarantee optimal value for the government, especially when combined with cost reimbursement. Comparisons to similar sole-source contracts for advanced navigation systems would be necessary for a more robust assessment, but such data is often proprietary or not publicly available.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one bidder, Northrop Grumman Systems Corporation, was considered. This approach bypasses the standard competitive bidding process, which typically involves multiple companies vying for the contract. While sole-source awards can be justified for unique capabilities or national security reasons, they significantly reduce price competition and may limit the government's ability to secure the most cost-effective solution.

Taxpayer Impact: Sole-source awards mean taxpayers do not benefit from the price reductions typically achieved through competitive bidding. This can result in higher overall spending for essential defense systems.

Public Impact

The Department of Defense benefits from the continued supply of critical search, detection, navigation, guidance, aeronautical, and nautical systems. This contract supports national security by ensuring the operational readiness of naval assets. The primary beneficiaries are the U.S. Navy, which relies on these systems for its fleet. The contract's impact on the workforce is likely concentrated within Northrop Grumman's specialized engineering and manufacturing divisions, primarily in Illinois.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition raises concerns about potential overpricing and reduced value for taxpayer money.
The 'cost plus fixed fee' contract type can incentivize higher spending as the contractor is reimbursed for costs incurred.
Sole-source awards limit transparency and make it difficult to benchmark against market rates.
The long contract duration (over 6 years) increases the exposure to potential cost escalations over time.

Positive Signals

Northrop Grumman is a well-established defense contractor with a track record in complex systems.
The contract addresses a critical need for advanced navigation and guidance systems essential for naval operations.
The fixed fee component provides some level of cost predictability for the government.

Sector Analysis

The contract falls within the aerospace and defense sector, specifically focusing on the manufacturing of advanced navigation and guidance systems. This is a highly specialized and capital-intensive industry dominated by a few large, established players like Northrop Grumman. The market for such systems is driven by government defense spending, where technological sophistication and reliability are paramount. Comparable spending benchmarks are difficult to establish due to the proprietary nature of defense technology and the unique requirements of military applications.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. Furthermore, the prime contractor, Northrop Grumman, is a large corporation. While large prime contractors are often required to subcontract a portion of their work to small businesses, the specifics of such arrangements are not detailed here. The absence of a direct set-aside means small businesses are unlikely to be the primary recipients of this contract's funding, though they may participate as subcontractors.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contracting and program management offices. The 'cost plus fixed fee' structure necessitates close monitoring of incurred costs to ensure they align with the contract's objectives and budget. The Defense Contract Audit Agency (DCAA) and potentially the Department of Defense Inspector General (IG) would have oversight responsibilities, particularly concerning cost allowability and contractor performance. Transparency is limited due to the sole-source nature and the classified aspects often associated with defense systems.

Related Government Programs

Defense Navigation Systems
Naval Aviation Support Systems
Aerospace Manufacturing Contracts
Department of Defense Procurement
Cost Plus Fixed Fee Contracts

Risk Flags

Sole-source award
Cost-plus contract type
Lack of competitive bidding
High contract value

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $165.9 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 $165.9 million.

What is the period of performance?

Start: 2020-09-28. End: 2026-09-30.

What is Northrop Grumman's track record with similar sole-source navigation system contracts for the Department of Defense?

Northrop Grumman has a long history of developing and supplying complex systems, including navigation and guidance technologies, to the Department of Defense. They are a major defense contractor with extensive experience in sole-source procurements, often due to the specialized nature of the technology and their established role as a prime supplier. While specific details on past sole-source navigation system contracts are often not publicly disclosed due to security and proprietary reasons, their consistent presence in large defense contracts suggests a pattern of securing such awards. Evaluating their past performance would require access to internal DoD performance reviews and historical contract data, which are typically not available to the public. However, their continued selection for critical programs indicates a perceived capability and reliability by the government.

How does the 'cost plus fixed fee' structure compare to other contract types in terms of value for money for the government?

The 'cost plus fixed fee' (CPFF) contract type is designed to provide the contractor with reimbursement for all allowable costs incurred, plus a predetermined fixed fee representing profit. This structure is often used when the scope of work is not precisely defined or when there is significant uncertainty in the costs. While the fixed fee provides some cost certainty regarding profit, the reimbursement of all costs can incentivize the contractor to incur higher expenses, potentially leading to less value for money compared to fixed-price contracts where the contractor bears more risk for cost overruns. However, for highly complex or R&D-intensive projects where cost estimation is difficult, CPFF can be advantageous by ensuring contractor engagement without prohibitive upfront risk. The government's ability to achieve value for money with CPFF heavily relies on robust oversight and cost auditing to ensure all incurred costs are reasonable and allocable.

What are the primary risks associated with sole-source procurement in the defense sector?

Sole-source procurement in the defense sector carries several significant risks. Foremost is the lack of price competition, which can lead to inflated costs for taxpayers as there is no market pressure to drive down prices. This can result in reduced value for money. Secondly, it can stifle innovation, as contractors may have less incentive to develop more cost-effective solutions when they are guaranteed the contract. Thirdly, it can create vendor lock-in, making it difficult and expensive to switch to alternative suppliers in the future. Finally, sole-source awards can raise concerns about fairness and transparency in the procurement process, potentially leading to perceptions of favoritism or inefficiency, even when justified by unique capabilities.

What is the typical duration for contracts related to the manufacturing of advanced navigation systems?

Contracts for the manufacturing of advanced navigation systems, particularly those for military applications, often have long durations, frequently spanning multiple years. This is due to the complexity of the systems, the extensive research and development required, rigorous testing and certification processes, and the need for long-term sustainment and upgrades. Durations can range from 3 to 10 years, or even longer if they include options for sustainment, maintenance, and future enhancements. The 2193-day duration (approximately 6 years) for this Northrop Grumman contract is consistent with the typical lifecycle for such sophisticated defense hardware, reflecting the time needed for production, integration, and initial operational support.

How does the geographic location of contract performance (Illinois) impact the overall cost and oversight?

The geographic location of contract performance, in this case, Illinois, can have several implications for cost and oversight. For costs, it influences labor rates, facility overhead, and local supply chain expenses. If Illinois has higher labor costs compared to other regions, this could contribute to a higher overall contract price. For oversight, having performance concentrated in one state can simplify logistical aspects for government auditors and contracting officers, allowing for more focused site visits and inspections. However, it also means that a significant portion of the contract's economic impact is localized. The Department of Defense has contracting offices and audit agencies (like DCAA) with presence across the country, so while Illinois is the performance location, oversight can be managed by relevant DoD entities regardless of their primary location, though on-site presence is often preferred.

Industry Classification

NAICS: Manufacturing › Navigational, Measuring, Electromedical, and Control Instruments Manufacturing › Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing

Product/Service Code: COMM/DETECT/COHERENT RADIATION

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0001919R0004

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation

Address: 600 HICKS RD, ROLLING MEADOWS, IL, 60008

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: $168,919,687

Exercised Options: $165,879,495

Current Obligation: $165,879,495

Actual Outlays: $312,905

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline