DoD's F-35 sustainment contract awarded to Lockheed Martin exceeds $7.9B, raising value-for-money questions

Contract Overview

Contract Amount: $7,953,264,131 ($8.0B)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2020-12-31

End Date: 2027-12-30

Contract Duration: 2,555 days

Daily Burn Rate: $3.1M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: FY21-23 GLOBAL F-35 AIR SYSTEM SUSTAINMENT

Place of Performance

Location: FORT WORTH, TARRANT County, TEXAS, 76108

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $7.95 billion to LOCKHEED MARTIN CORPORATION for work described as: FY21-23 GLOBAL F-35 AIR SYSTEM SUSTAINMENT Key points: 1. Significant contract value for sustainment services highlights long-term commitment to the F-35 program. 2. Sole-source award to Lockheed Martin limits competitive pressure on pricing and service innovation. 3. Cost-plus incentive fee contract structure may incentivize cost overruns if not closely monitored. 4. Long contract duration suggests a stable, albeit potentially less adaptable, support ecosystem. 5. The sustainment of a major defense asset like the F-35 is critical for national security readiness. 6. Focus on performance metrics will be key to ensuring value despite limited competition.

Value Assessment

Rating: questionable

The $7.9 billion contract value for F-35 air system sustainment over its duration is substantial. Benchmarking this against similar complex aircraft sustainment contracts is challenging due to the F-35's unique global footprint and advanced technology. The cost-plus incentive fee (CPIF) structure, while designed to share risk and reward performance, can lead to higher costs if not rigorously managed. Without competitive bidding, it's difficult to ascertain if this price represents optimal value for the taxpayer.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis to Lockheed Martin Corporation. As the prime contractor for the F-35 program, Lockheed Martin is the only entity capable of providing the necessary sustainment services due to proprietary knowledge, existing infrastructure, and program integration requirements. The lack of competition means that pricing and service terms were negotiated directly, without the benefit of market-driven price discovery.

Taxpayer Impact: The sole-source nature of this award means taxpayers do not benefit from competitive bidding, potentially leading to higher costs than if multiple vendors had vied for the contract.

Public Impact

The U.S. Air Force, Navy, and Marine Corps are the primary beneficiaries, ensuring the operational readiness of their F-35 fleets. Services include logistics, maintenance, repair, and upgrades for the F-35 aircraft, ensuring its continued functionality. The geographic impact is global, supporting F-35 operations and deployments worldwide. This contract supports a significant workforce within Lockheed Martin and its supply chain, contributing to high-tech manufacturing and aerospace jobs.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price negotiation leverage.
Cost-plus incentive fee contracts can lead to cost escalation if not tightly controlled.
Long-term sustainment contracts may reduce flexibility to adopt newer, more cost-effective technologies.
Dependence on a single contractor for critical sustainment creates program risk.

Positive Signals

Award to incumbent contractor ensures continuity of essential F-35 operations.
CPIF structure incentivizes contractor performance and efficiency.
Long-term contract provides stability for program planning and resource allocation.
Sustainment of a key strategic asset enhances national security.

Sector Analysis

The aerospace and defense sector is characterized by high R&D costs, long product lifecycles, and significant government procurement. Sustainment contracts like this represent a substantial portion of the total lifecycle cost for major defense platforms. The F-35 program is one of the largest and most complex defense acquisition programs globally, with international partners contributing to its development and sustainment. Spending on sustainment is crucial for maintaining the operational readiness of advanced military aircraft, often exceeding initial acquisition costs over the program's life.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. While Lockheed Martin is the prime contractor, the scale and nature of F-35 sustainment likely involve extensive subcontracting opportunities. The extent to which small businesses will participate in the supply chain for maintenance, repair, and specialized components will be critical for assessing the broader impact on the small business ecosystem within the aerospace and defense industry.

Oversight & Accountability

Oversight for this contract is likely managed by the Defense Contract Management Agency (DCMA) and the F-35 Joint Program Office (JPO). These entities are responsible for monitoring contractor performance, ensuring compliance with contract terms, and auditing costs. Transparency is facilitated through regular reporting requirements and program reviews. Inspector General investigations may be initiated if specific concerns regarding fraud, waste, or abuse arise.

Related Government Programs

F-35 Lightning II Program
Aircraft Maintenance and Repair Services
Defense Logistics Support
Aerospace Manufacturing
Military Aircraft Sustainment

Risk Flags

Sole-source award
Cost-plus contract type
High contract value
Long contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $7.95 billion to LOCKHEED MARTIN CORPORATION. FY21-23 GLOBAL F-35 AIR SYSTEM SUSTAINMENT

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN 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 $7.95 billion.

What is the period of performance?

Start: 2020-12-31. End: 2027-12-30.

What is Lockheed Martin's track record with the F-35 program and similar sustainment contracts?

Lockheed Martin Corporation is the prime contractor for the F-35 program, responsible for its development, production, and sustainment. Their track record with the F-35 is extensive, encompassing years of managing complex logistics, maintenance, and upgrade requirements for this advanced fighter jet. They also have a long history of managing sustainment for other major defense platforms. However, the F-35 program has faced scrutiny regarding cost overruns and schedule delays in the past. The company's ability to deliver sustainment services efficiently and cost-effectively under this large, long-term contract will be a key performance indicator. Their experience is undeniable, but the scale and complexity of F-35 sustainment present ongoing challenges that require diligent oversight.

How does the cost of this F-35 sustainment contract compare to similar aircraft sustainment programs?

Directly comparing the cost of this $7.9 billion F-35 sustainment contract to 'similar' programs is challenging due to the F-35's unique status as a 5th-generation, multi-role fighter jet with a global presence and complex technological requirements. However, sustainment costs for advanced military aircraft typically represent a significant portion, often exceeding the initial acquisition cost, over the platform's lifecycle. For instance, sustainment for legacy aircraft like the F-16 or F/A-18, while less technologically advanced, also involves substantial long-term investment. The F-35 program aims for lower sustainment costs per flight hour compared to some legacy platforms, but the sheer number of aircraft and the advanced systems necessitate a large overall budget. Benchmarking requires detailed analysis of scope, services provided, and operational tempo, which is difficult without proprietary data.

What are the primary risks associated with this sole-source sustainment contract?

The primary risks associated with this sole-source sustainment contract are centered around cost control and contractor performance. Without competition, there is less inherent pressure on Lockheed Martin to minimize costs or maximize efficiency, potentially leading to higher prices for taxpayers. The cost-plus incentive fee (CPIF) structure, while intended to align incentives, can still result in cost growth if performance targets are not met or if the baseline cost estimates are inaccurate. Furthermore, the long-term dependence on a single provider for critical sustainment creates a risk of vendor lock-in and reduces the government's flexibility to adapt to technological advancements or changing operational needs. Programmatic risks also include potential supply chain disruptions or unforeseen technical issues with the F-35 system itself, which could impact sustainment delivery.

How effective is the cost-plus incentive fee (CPIF) structure in managing costs for this contract?

The cost-plus incentive fee (CPIF) structure is designed to encourage contractor efficiency and cost control by sharing cost savings or overruns between the government and the contractor, based on achieving specific performance targets. For this F-35 sustainment contract, it aims to incentivize Lockheed Martin to perform sustainment services effectively while managing costs. The effectiveness hinges on the clarity and attainability of the performance metrics and the fairness of the cost-sharing formula. If the targets are well-defined and achievable, and if oversight is robust, CPIF can lead to better value. However, if targets are poorly set or if the contractor prioritizes meeting targets over genuine cost reduction, it can still result in higher-than-expected expenditures. Rigorous monitoring by the Defense Contract Management Agency (DCMA) and the F-35 Joint Program Office (JPO) is crucial to ensure the CPIF structure delivers the intended benefits.

What are the historical spending patterns for F-35 sustainment, and how does this contract fit?

Historical spending on F-35 sustainment has been a significant and growing component of the overall program budget, reflecting the increasing number of operational aircraft and the complexity of maintaining a 5th-generation fighter. Early years focused more on development and initial fielding, with sustainment costs rising as the fleet matured. The total program cost, including sustainment over its projected lifespan, is estimated to be in the trillions of dollars. This $7.9 billion contract represents a substantial portion of the sustainment budget for the FY21-23 period and beyond, covering essential logistics, maintenance, and support services. It aligns with the trend of increasing sustainment expenditures as the F-35 fleet expands globally and ages, underscoring the long-term financial commitment required for this advanced platform.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Aircraft Manufacturing

Product/Service Code: AEROSPACE CRAFT AND STRUCTURAL COMPONENTS

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0001919R0057

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: Lockheed Martin Corp

Address: 1 LOCKHEED BLVD BLDG 10, FORT WORTH, TX, 76108

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: $8,130,462,916

Exercised Options: $8,063,382,310

Current Obligation: $7,953,264,131

Subaward Activity

Number of Subawards: 7881

Total Subaward Amount: $2,192,998,878

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline