Boeing awarded $37.1M for SEPM and NRE services, with limited competition and potential for cost overruns

Contract Overview

Contract Amount: $37,171,559 ($37.2M)

Contractor: THE Boeing Company

Awarding Agency: Department of Defense

Start Date: 2021-12-16

End Date: 2024-12-31

Contract Duration: 1,111 days

Daily Burn Rate: $33.5K/day

Competition Type: NOT COMPETED

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: OP22 SEPM AND NRE

Place of Performance

Location: SAINT LOUIS, SAINT LOUIS County, MISSOURI, 63134

State: Missouri Government Spending

Plain-Language Summary

Department of Defense obligated $37.2 million to THE BOEING COMPANY for work described as: OP22 SEPM AND NRE Key points: 1. The contract's cost-plus incentive fee structure may incentivize higher spending. 2. Limited competition raises concerns about price discovery and potential for inflated costs. 3. The duration of the contract (1111 days) suggests a long-term need for these services. 4. The specific nature of SEPM and NRE services requires specialized expertise. 5. The contract is a delivery order, indicating it's part of a larger program or framework. 6. The absence of small business set-asides suggests a focus on large prime contractors.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging without more detailed cost breakdowns for SEPM and NRE. The cost-plus incentive fee (CPIF) pricing structure, while common for complex projects, carries inherent risks of cost escalation if not closely managed. Compared to similar sole-source or limited-competition contracts for specialized aerospace services, the pricing will need rigorous oversight to ensure it remains reasonable and reflects true value for money. The base award amount of $37.1M is a significant investment, and the incentive fee component could increase this further.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one vendor, The Boeing Company, was solicited. This approach is typically justified when a specific contractor possesses unique capabilities, proprietary technology, or is the only source capable of meeting the requirement. However, the lack of competition limits the government's ability to explore alternative solutions or negotiate more favorable pricing through a competitive bidding process.

Taxpayer Impact: Sole-source awards mean taxpayers do not benefit from the price reductions typically achieved through competitive bidding, potentially leading to higher overall costs for the government.

Public Impact

The Department of the Navy benefits from specialized aircraft manufacturing support and non-recurring engineering services. This contract supports the sustainment and potential upgrades of existing naval aircraft platforms. The geographic impact is primarily centered in Missouri, where Boeing's relevant facilities are located. The contract likely supports a specialized workforce within The Boeing Company, including engineers and technical staff.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost-plus incentive fee structure can lead to cost overruns if not managed effectively.
Sole-source award limits price negotiation and potential for better value.
Lack of transparency in specific NRE costs could obscure true value.
Long contract duration increases exposure to potential scope creep or changing requirements.
Reliance on a single contractor for critical support may pose supply chain risks.

Positive Signals

Award to a major defense contractor with established expertise in aircraft manufacturing.
Incentive fee structure aims to align contractor performance with government objectives.
Delivery order mechanism allows for phased funding and execution of work.
Specific focus on SEPM and NRE addresses critical sustainment and development needs.

Sector Analysis

The aerospace and defense sector is characterized by high barriers to entry, significant R&D investment, and long product lifecycles. Contracts for aircraft manufacturing, sustainment, and engineering services represent a substantial portion of defense spending. The market is dominated by a few large prime contractors, including Boeing. This contract fits within the broader category of aircraft sustainment and modernization, a critical area for maintaining military readiness. Comparable spending benchmarks are difficult to establish without more specific details on the SEPM and NRE tasks.

Small Business Impact

This contract does not appear to include a small business set-aside. The award to The Boeing Company, a large prime contractor, suggests that the work is either not conducive to small business participation or that subcontracting opportunities will be managed by the prime. There is no explicit indication of subcontracting goals for small businesses within the provided data, which could limit the direct economic benefit to the small business ecosystem.

Oversight & Accountability

Oversight for this contract will primarily reside with the Department of the Navy contracting officers and program managers. The cost-plus incentive fee structure necessitates close monitoring of costs and performance against established targets. Transparency regarding the specific breakdown of SEPM and NRE costs will be crucial for effective oversight. While no specific Inspector General (IG) jurisdiction is mentioned, the Department of Defense IG typically has broad authority over defense contracts.

Related Government Programs

Aircraft Manufacturing
Aircraft Component Parts
Aircraft Modification
Research and Development
Defense Logistics

Risk Flags

Sole-source award
Cost-plus contract type
Potential for cost overruns
Lack of competitive benchmarking

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $37.2 million to THE BOEING COMPANY. OP22 SEPM AND NRE

Who is the contractor on this award?

The obligated recipient is THE BOEING 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 $37.2 million.

What is the period of performance?

Start: 2021-12-16. End: 2024-12-31.

What is the specific breakdown of costs between SEPM (Sustainment, Engineering, Program Management) and NRE (Non-Recurring Engineering) within this contract?

The provided data does not specify the cost allocation between SEPM and NRE. SEPM typically encompasses ongoing support, maintenance, and program management activities essential for keeping aircraft operational. NRE, on the other hand, refers to the one-time costs associated with developing new processes, tooling, or designs. Understanding this breakdown is critical for assessing whether the funds are primarily directed towards maintaining existing capabilities or investing in future enhancements. Without this detail, it's difficult to precisely evaluate the value proposition of the NRE component and its long-term strategic benefit.

How does the pricing structure of this Cost Plus Incentive Fee (CPIF) contract compare to similar sole-source contracts for aircraft sustainment and engineering services?

CPIF contracts are designed to share cost risks and rewards between the government and the contractor. The government pays the costs, and the contractor receives a fee that is adjusted based on performance against targets (e.g., cost, schedule, performance). For sole-source contracts, benchmarking is challenging as there's no direct competitive pricing. However, the target cost, incentive fee structure, and ceiling price are key elements to scrutinize. If the target cost is set too high or the incentive targets are too easily achievable, the government may end up paying more than necessary. A comparison would involve analyzing the profit margins and cost efficiencies achieved on similar sole-source CPIF contracts awarded by the DoD or other agencies for comparable services, looking for deviations that might indicate unfavorable terms.

What are the specific performance metrics and targets associated with the incentive fee in this contract?

The provided data indicates the contract type is 'COST PLUS INCENTIVE FEE' (CPIF), but it does not detail the specific performance metrics or targets that trigger the incentive fee. Typically, these metrics could include factors such as meeting delivery schedules, achieving specific performance or reliability standards for the aircraft or components, controlling costs below a certain threshold, or successful completion of engineering development milestones. The effectiveness of the incentive fee in driving desired outcomes hinges on the clarity, measurability, and attainability of these targets. Without this information, it's impossible to assess how well the incentive structure aligns contractor efforts with the government's strategic objectives for this contract.

What is The Boeing Company's historical performance and track record on similar sole-source or limited-competition contracts with the Department of Defense?

The Boeing Company is a major defense contractor with extensive experience across numerous platforms and service types. Historical performance data, often available through contract databases and government performance assessment systems (like CPARS - Contractor Performance Assessment Reporting System), would provide insights into their reliability, quality of work, and adherence to schedule and budget on past contracts. For sole-source or limited-competition awards, a strong historical track record becomes even more critical, as the government relies heavily on the contractor's established capabilities and past performance to mitigate risks associated with the lack of competition. Reviewing past performance reports would reveal any recurring issues or consistent excellence in areas relevant to SEPM and NRE.

What is the projected total spending on this contract, considering the base award and the potential for incentive fee payouts?

The initial award amount is $37,171,559.35. As a Cost Plus Incentive Fee (CPIF) contract, the final cost will depend on the contractor's performance relative to the established targets. The 'incentive' aspect means the final fee paid to Boeing can be adjusted upwards or downwards based on achieving specific cost, schedule, or performance goals. The contract has a ceiling price (though not explicitly stated in the provided data snippet), which represents the maximum amount the government is obligated to pay. Without knowing the target cost, the incentive fee structure (e.g., the sharing ratio between government and contractor), and the performance targets, it's impossible to project the final spending precisely. However, the final cost could be higher or lower than the initial award, depending on performance outcomes.

Are there any identified risks or concerns related to the sustainment and engineering services provided by Boeing under this contract?

Potential risks include those inherent in sole-source procurements, such as a lack of competitive pressure leading to potentially higher costs or less innovation. The CPIF structure, while incentivizing, also requires diligent government oversight to ensure costs are controlled and targets are meaningful. If the SEPM or NRE tasks involve critical or unique technologies, there could be risks associated with contractor dependency or obsolescence management. Furthermore, long-term sustainment contracts can be vulnerable to scope creep if requirements are not clearly defined and managed. The specific nature of 'OP22 SEPM AND NRE' would need further definition to identify more granular technical or programmatic risks.

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

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Address: 6200 JS MCDONNELL BLVD, SAINT LOUIS, MO, 63134

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: $37,171,559

Exercised Options: $37,171,559

Current Obligation: $37,171,559

Subaward Activity

Number of Subawards: 13

Total Subaward Amount: $13,558,763

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: N0001918D0001

IDV Type: IDC

Timeline