Navy awards $57.8M contract for obsolete AIS systems, raising concerns about value and competition

Contract Overview

Contract Amount: $57,860,340 ($57.9M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2024-06-19

End Date: 2029-06-30

Contract Duration: 1,837 days

Daily Burn Rate: $31.5K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: AIS OBSOLESCENCE, PRE-CDR NRE

Place of Performance

Location: STRATFORD, FAIRFIELD County, CONNECTICUT, 06614

State: Connecticut Government Spending

Plain-Language Summary

Department of Defense obligated $57.9 million to LOCKHEED MARTIN CORPORATION for work described as: AIS OBSOLESCENCE, PRE-CDR NRE Key points: 1. Contract awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. The contract type (Cost Plus Fixed Fee) may incentivize cost overruns. 3. Long duration of over 5 years suggests a need for robust oversight. 4. Focus on replacing obsolete systems indicates a critical operational need. 5. Lack of competition raises questions about whether the government secured the best possible value. 6. The award to a single large contractor may limit opportunities for smaller, innovative firms.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its sole-source nature and the specific technical requirements for replacing obsolete systems. Without competitive bids, it's difficult to ascertain if the $57.8 million price reflects fair market value. The Cost Plus Fixed Fee structure, while common for complex R&D or situations with uncertain costs, carries inherent risks of cost escalation. A thorough review of the contractor's proposed costs against historical data for similar system upgrades and the estimated labor hours would be necessary to provide a more definitive value assessment.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one contractor, Lockheed Martin Corporation, was solicited. This approach is typically used when only one source is capable of meeting the requirement, often due to proprietary technology, unique capabilities, or urgent needs where competition is not feasible. The lack of competition means that the Navy did not benefit from the price reductions and innovation that typically arise from a competitive bidding process.

Taxpayer Impact: The absence of competition means taxpayers may not have received the most cost-effective solution. Without bids from multiple vendors, there is a higher risk that the awarded price is not the lowest possible, and that the government could have achieved better terms through a competitive solicitation.

Public Impact

The primary beneficiaries are the Department of the Navy, which will receive upgraded and functional Air Intercept Systems (AIS). The contract will deliver essential components and services to replace outdated technology, ensuring operational readiness. The geographic impact is primarily within the Navy's operational theaters, supporting naval aviation. Workforce implications may include specialized engineering, manufacturing, and technical support roles within Lockheed Martin and its supply chain.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition and potential for cost savings.
Cost Plus Fixed Fee contract type can incentivize higher spending if not tightly managed.
Long contract duration (over 5 years) increases exposure to potential cost overruns and scope creep.
Reliance on a single large contractor may not foster innovation from smaller businesses.
Specific details on the 'obsolescence' of the current AIS are not provided, making it hard to gauge the urgency and necessity of this specific solution.

Positive Signals

Addresses critical need to replace obsolete systems, ensuring operational capability.
Award to a major defense contractor like Lockheed Martin suggests access to established expertise and infrastructure.
The contract is for a specific, defined need (AIS obsolescence), implying a focused objective.
Delivery Order structure suggests it might be part of a larger, pre-existing framework agreement, potentially with some level of prior vetting.

Sector Analysis

The aerospace manufacturing sector, particularly for defense applications, is characterized by high barriers to entry, significant R&D investment, and long product lifecycles. Contracts for aircraft parts and auxiliary equipment, like this one for Air Intercept Systems (AIS), are crucial for maintaining the operational readiness of military fleets. The market is dominated by a few large prime contractors who possess specialized knowledge and security clearances. Spending in this sub-sector is driven by modernization programs, sustainment of existing platforms, and the replacement of aging or obsolete equipment. Comparable spending benchmarks would typically involve analyzing other sole-source or competitively awarded contracts for similar aircraft system upgrades within the DoD.

Small Business Impact

This contract was awarded to Lockheed Martin Corporation, a large prime contractor, and there is no indication of a small business set-aside. Given the sole-source nature and the likely complexity of replacing obsolete aircraft systems, it is probable that the prime contractor will perform the majority of the work. However, there may be opportunities for small businesses to participate as subcontractors, depending on Lockheed Martin's subcontracting plan and the specific technical requirements. Without a competitive solicitation, the specific inclusion of small business participation goals is less likely to be a driving factor in the initial award.

Oversight & Accountability

Oversight for this contract will primarily fall under the Department of the Navy's contracting and program management offices. Given the Cost Plus Fixed Fee structure and the long duration, rigorous oversight will be essential to monitor costs, schedule, and performance. The contract may be subject to audits by the Defense Contract Audit Agency (DCAA) and reviews by the Department of Defense's Inspector General (IG) to ensure compliance and prevent fraud, waste, and abuse. Transparency regarding the justification for the sole-source award and the detailed cost breakdown would enhance accountability.

Related Government Programs

Department of Defense Aircraft Procurement
Naval Aviation Sustainment Programs
Aerospace Systems Modernization
Defense Contractor Logistics Support
Airborne Electronics Systems

Risk Flags

Sole-source award
Cost Plus Fixed Fee contract type
Potential for cost overruns
Lack of competitive benchmarking
Long contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $57.9 million to LOCKHEED MARTIN CORPORATION. AIS OBSOLESCENCE, PRE-CDR NRE

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 $57.9 million.

What is the period of performance?

Start: 2024-06-19. End: 2029-06-30.

What is the specific nature of the 'obsolete AIS' being replaced, and what are the technical risks associated with this upgrade?

The provided data does not specify the exact nature of the 'obsolete AIS' (Air Intercept Systems). However, 'obsolescence' in defense systems typically refers to components or technologies that are no longer manufactured, supported by the original vendor, or are surpassed by newer, more capable alternatives. Technical risks associated with such upgrades can include integration challenges with existing platforms, unforeseen compatibility issues, performance shortfalls compared to design specifications, and the potential for new vulnerabilities. The 'PRE-CDR NRE' (Pre-Critical Design Review Non-Recurring Engineering) designation suggests that significant design and development work is still required, indicating a higher level of technical uncertainty and risk inherent in this early stage of the project.

How does the $57.8 million cost compare to similar sole-source contracts for aircraft system upgrades?

Direct comparison of this $57.8 million sole-source contract to similar sole-source awards is difficult without more specific details on the scope of work, the specific aircraft platform, and the complexity of the AIS upgrade. Sole-source contracts inherently lack the price discovery mechanism of competition, making them prone to higher costs. To assess value, one would need to benchmark against: 1) historical sole-source awards for comparable system upgrades by the Navy or other services, adjusting for inflation and scope; 2) the estimated cost if the system were competed; and 3) the projected lifecycle costs of maintaining the obsolete system versus the new one. The 'PRE-CDR NRE' aspect suggests a significant portion of the cost is for initial design and development, which can be highly variable and difficult to benchmark precisely.

What are the potential cost implications of the Cost Plus Fixed Fee (CPFF) contract type over its 5+ year duration?

The Cost Plus Fixed Fee (CPFF) contract type means the contractor is reimbursed for all allowable costs incurred, plus a predetermined fixed fee representing profit. While the fee is fixed, the total cost to the government is not. This structure is often used when cost estimates are uncertain, such as in research and development or system upgrades with unknown challenges. The primary risk for the government is that the contractor has less incentive to control costs, as their profit margin (the fixed fee) remains constant regardless of the final project cost. Over a 5+ year duration, this can lead to significant cost overruns if not managed with extremely diligent oversight, robust cost controls, and clear performance metrics to ensure the contractor is actively seeking efficiencies.

What is Lockheed Martin Corporation's track record with similar sole-source contracts for the Department of the Navy?

Lockheed Martin Corporation is a major defense contractor with extensive experience delivering complex systems to the Department of the Navy. They have a long history of sole-source and competitively awarded contracts across various platforms, including aircraft, ships, and missile systems. Their track record typically involves large-scale, technologically advanced projects. For sole-source awards, the Navy often relies on Lockheed Martin's unique capabilities, proprietary technologies, or existing platform knowledge. While specific performance metrics for past sole-source contracts are not detailed here, the Navy's continued reliance on Lockheed Martin suggests a generally satisfactory performance history, though scrutiny regarding cost and schedule adherence is always warranted, particularly in sole-source situations.

Are there any specific performance metrics or milestones tied to the $57.8M award that indicate expected program effectiveness?

The provided data does not include specific performance metrics or milestones for this contract. However, the designation 'PRE-CDR NRE' indicates that the contract is in the early stages, focusing on Non-Recurring Engineering leading up to the Critical Design Review. Expected program effectiveness would likely be measured by the successful completion of design phases, adherence to technical specifications, timely delivery of prototypes or test articles, and ultimately, the successful integration and operational testing of the upgraded AIS. The contract's duration (ending June 2029) suggests a phased approach. Robust program effectiveness will depend on the Navy's ability to define clear, measurable technical and operational requirements and hold the contractor accountable for meeting them throughout the development lifecycle.

How does this $57.8M award fit into the broader historical spending patterns for aircraft parts and auxiliary equipment by the Department of the Navy?

The Department of the Navy consistently spends billions of dollars annually on aircraft procurement, sustainment, and modernization, which includes significant outlays for parts and auxiliary equipment. A $57.8 million contract for a specific system upgrade, even if sole-source, represents a relatively small fraction of the Navy's overall aviation budget. However, its significance lies in addressing obsolescence, a common challenge across military branches. Historical spending patterns show a continuous need for such upgrades to maintain technological superiority and operational readiness. This contract aligns with a broader trend of investing in upgrading aging platforms rather than solely relying on new acquisitions, especially when specific components become unsupported or technologically inferior.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Other Aircraft Parts and Auxiliary Equipment Manufacturing

Product/Service Code: AEROSPACE CRAFT AND STRUCTURAL COMPONENTS

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0001922R0089

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 1801 STATE RT 17 C, OWEGO, NY, 13827

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Manufacturer of Goods, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $57,860,340

Exercised Options: $57,860,340

Current Obligation: $57,860,340

Subaward Activity

Number of Subawards: 1

Total Subaward Amount: $22,207,801

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: N0001923G0002

IDV Type: BOA

Timeline