DoD awards $167.7M contract to Lockheed Martin for encryption support, raising value-for-money questions

Contract Overview

Contract Amount: $167,733,816 ($167.7M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2022-04-29

End Date: 2027-04-30

Contract Duration: 1,827 days

Daily Burn Rate: $91.8K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: IT

Official Description: CDS SUSTAINMENT - BASE YEAR AND 5-YEAR SUPPORT FOR ACURL AND NIRL SURROGATE ENCRYPTIONS

Place of Performance

Location: EGLIN AFB, OKALOOSA County, FLORIDA, 32542

State: Florida Government Spending

Plain-Language Summary

Department of Defense obligated $167.7 million to LOCKHEED MARTIN CORPORATION for work described as: CDS SUSTAINMENT - BASE YEAR AND 5-YEAR SUPPORT FOR ACURL AND NIRL SURROGATE ENCRYPTIONS Key points: 1. Contract awarded on a sole-source basis, limiting price competition and potentially increasing costs. 2. The contract's cost-plus-fixed-fee structure may incentivize higher spending by the contractor. 3. Lack of competition raises concerns about achieving optimal value for taxpayer funds. 4. The duration of the contract (over 5 years) suggests a long-term need for these services. 5. The specific nature of encryption support indicates a critical national security function. 6. The contractor, Lockheed Martin, is a major defense industry player with extensive experience.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its sole-source nature and the specialized technical services provided. The cost-plus-fixed-fee (CPFF) pricing structure, while common for complex R&D or services where costs are uncertain, can lead to higher overall expenditures compared to fixed-price contracts. Without competitive bids, it's difficult to ascertain if the fixed fee and estimated costs represent a fair market price for the encryption sustainment services. Further analysis would require access to detailed cost breakdowns and comparisons with similar, competitively awarded contracts for comparable encryption technologies.

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 solicit bids from multiple potential contractors. This approach is typically used when only one source is capable of meeting the requirement, often due to proprietary technology, unique expertise, or urgent needs. The absence of competition means that price discovery through market forces was bypassed, potentially leading to less favorable pricing for the government.

Taxpayer Impact: Sole-source awards limit the government's ability to leverage competition to drive down prices, meaning taxpayers may be paying a premium for these critical encryption sustainment services.

Public Impact

The primary beneficiaries are the Department of Defense and its operational units relying on secure communications. The contract ensures the sustainment and support of ACURL and NIRL surrogate encryption systems. Geographic impact is likely national, supporting DoD operations globally. Workforce implications include the potential for highly skilled technical jobs at Lockheed Martin and potentially at DoD facilities managing the systems.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Cost-plus-fixed-fee structure may not incentivize cost efficiency.
Lack of transparency in cost build-up due to sole-source nature.
Long contract duration could lock in potentially suboptimal pricing.
Dependence on a single contractor for critical security systems.

Positive Signals

Lockheed Martin is a reputable contractor with deep experience in defense systems.
Encryption sustainment is a critical function for national security.
The contract addresses specific, likely complex, technical requirements.
The fixed fee component provides some level of cost predictability.

Sector Analysis

The defense sector, particularly within IT and cybersecurity, is characterized by high R&D investment and specialized technical requirements. Contracts for advanced encryption and secure communication systems are crucial for maintaining technological superiority and operational security. The market for these services is often dominated by large, established defense contractors like Lockheed Martin, due to the complexity, security clearances, and scale required. Spending in this sub-sector is significant, driven by evolving threats and the need for robust cyber defenses.

Small Business Impact

This contract does not appear to involve a small business set-aside. Given the sole-source nature and the prime contractor being Lockheed Martin, a large defense corporation, the direct impact on small businesses is likely minimal unless they are involved as subcontractors. There is no explicit indication of subcontracting plans for small businesses within the provided data.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. As a sole-source award, the justification for this procurement method would be subject to review. The cost-plus-fixed-fee structure necessitates close monitoring of incurred costs and the contractor's performance against the fixed fee. Inspector General oversight may be involved if specific concerns regarding fraud, waste, or abuse arise.

Related Government Programs

DoD Cybersecurity Programs
Naval Information Warfare Systems Command
Cryptographic Systems Sustainment
Secure Communications Contracts
Lockheed Martin Defense Contracts

Risk Flags

Sole-source award
Cost-plus-fixed-fee pricing
Lack of competitive bidding
Potential for cost overruns
Long-term contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $167.7 million to LOCKHEED MARTIN CORPORATION. CDS SUSTAINMENT - BASE YEAR AND 5-YEAR SUPPORT FOR ACURL AND NIRL SURROGATE ENCRYPTIONS

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN 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 $167.7 million.

What is the period of performance?

Start: 2022-04-29. End: 2027-04-30.

What is the specific justification for awarding this contract on a sole-source basis?

The provided data indicates the contract was 'NOT COMPETED,' implying a sole-source award. The specific justification for this sole-source determination is not detailed in the data. Typically, sole-source procurements are justified under circumstances such as the existence of only one responsible source capable of providing the required supplies or services, urgent and compelling needs that preclude full and open competition, or when the contract is a follow-on to a competitively awarded contract where only the original contractor can provide the necessary services. A thorough review of the contract file and associated justifications (e.g., Justification and Approval - J&A) would be necessary to understand the precise rationale.

How does the cost-plus-fixed-fee (CPFF) structure compare to other contract types for similar services?

Cost-plus-fixed-fee (CPFF) contracts are often used when the scope of work is not well-defined, or when significant research and development is involved, making it difficult to estimate costs accurately upfront. In such cases, the government agrees to pay the contractor's actual allowable costs plus a fixed fee representing profit. Compared to fixed-price contracts (like FFP or FP-EPA), CPFF offers less cost certainty for the government and can potentially lead to higher overall costs if not managed diligently. However, for highly specialized and evolving technical services like advanced encryption sustainment, where requirements might change or unforeseen technical challenges arise, CPFF can provide the flexibility needed. Competitively awarded fixed-price contracts generally offer better value for money when requirements are stable and well-defined.

What is Lockheed Martin's track record with similar encryption sustainment contracts for the DoD?

Lockheed Martin Corporation is a major defense contractor with extensive experience in developing, manufacturing, and sustaining complex defense systems, including those involving advanced technologies like encryption and secure communications. While specific details on their track record for 'ACURL and NIRL surrogate encryption sustainment' are not provided in this data snippet, the company routinely handles large-scale, high-security contracts for various branches of the U.S. military. Their history includes work on classified systems, electronic warfare, and cybersecurity solutions. Performance on past contracts, including adherence to schedules, cost control, and technical execution, would be documented within DoD contract performance databases (e.g., CPARS), which are not accessible here but are crucial for assessing contractor reliability.

What are the potential risks associated with a long-term, sole-source contract for critical encryption technology?

A long-term, sole-source contract for critical encryption technology presents several risks. Firstly, the lack of competition can lead to inflated prices and reduced incentive for the contractor to innovate or improve efficiency, as there is no market pressure. Secondly, dependence on a single provider creates a significant vulnerability; if the contractor experiences financial difficulties, operational disruptions, or decides to exit the market, the government could face severe sustainment gaps. Thirdly, without ongoing competitive evaluation, the technology itself might become outdated or less effective compared to alternatives that could emerge in a more open market. Finally, the government has less leverage to negotiate favorable terms or adapt to changing technological landscapes or threat environments.

How does this contract's value compare to overall DoD spending on IT and cybersecurity?

The $167.7 million awarded to Lockheed Martin represents a fraction of the Department of Defense's overall IT and cybersecurity budget, which typically runs into the tens of billions of dollars annually. For instance, the DoD's IT budget alone often exceeds $30 billion per fiscal year, encompassing a vast array of services, hardware, software, and personnel. While $167.7 million is a substantial sum for a single contract, it is relatively modest within the context of the DoD's total technology spending. However, the criticality of encryption sustainment means that even this amount warrants careful scrutiny regarding value for money, especially given the sole-source nature of the award.

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: RESEARCH AND DEVELOPMENT › C – National Defense R&D Services

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0001921RXXXX

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

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: $267,301,403

Exercised Options: $220,311,178

Current Obligation: $167,733,816

Subaward Activity

Number of Subawards: 64

Total Subaward Amount: $31,652,022

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline