Raytheon Company awarded $794.6M for Standard Missile 2 (SM 2) production, with a significant portion for modifications

Contract Overview

Contract Amount: $60,885,527 ($60.9M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2001-03-22

End Date: 2009-12-31

Contract Duration: 3,206 days

Daily Burn Rate: $19.0K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS AWARD FEE

Sector: Defense

Official Description: 200512!052370!1700!N00024!NAVAL SEA SYSTEMS COMMAND !N0002401C5306 !A!N! !N! !P00079!20050912!20051231!794598573!794598573!001339159!N!RAYTHEON COMPANY !1151 E HERMANS RD !TUCSON !AZ!85706!77000!019!04!TUCSON !PIMA !ARIZONA !+000000022772!Y!N!000000000000!K014!MODIFICATION OF EQ/GUIDED MISSILES !A2 !MISSILE AND SPACE SYSTEMS !234 !STANDARD MISSILE 2 (SM 2) !336419!E! !3! ! !C! ! !20200930!B! ! !A! !D!Y!R!1!001!N!1G!Z!Y!Z! ! !N!C!N! ! ! !A!A!A!A!000!A!C!Y! ! ! ! !1700!N00024!0001! !

Place of Performance

Location: TUCSON, PIMA County, ARIZONA, 85756

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $60.9 million to RAYTHEON COMPANY for work described as: 200512!052370!1700!N00024!NAVAL SEA SYSTEMS COMMAND !N0002401C5306 !A!N! !N! !P00079!20050912!20051231!794598573!794598573!001339159!N!RAYTHEON COMPANY !1151 E HERMANS RD !TUCSON !AZ!85706!77000!019!04!TUCSON !PIMA… Key points: 1. Contract value of $794.6 million for missile systems indicates substantial investment in defense capabilities. 2. The contract's 'NOT COMPETED' status raises questions about potential cost efficiencies and market exploration. 3. A long performance period (2001-2009) suggests a need for sustained production or complex development. 4. The 'COST PLUS AWARD FEE' contract type implies performance incentives but also potential for cost overruns. 5. Focus on 'MODIFICATION OF EQ/GUIDED MISSILES' suggests ongoing upgrades and maintenance of existing systems. 6. The contract falls under the 'Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing' NAICS code, highlighting specialized industrial output.

Value Assessment

Rating: fair

The total award of $794.6 million for Standard Missile 2 (SM 2) modifications and production over its duration is a significant sum. Benchmarking this against similar large-scale missile system contracts is challenging without more specific details on the scope of modifications. However, the 'COST PLUS AWARD FEE' structure, while allowing for incentives, can sometimes lead to higher final costs compared to fixed-price contracts if not managed tightly. The contract's value appears substantial for the specified goods and services, but a definitive value-for-money assessment requires deeper analysis of the delivered capabilities and the necessity of the modifications.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not openly competed. This typically occurs when a specific contractor possesses unique capabilities, proprietary technology, or is the sole provider of a critical component or service. The lack of competition means that the government did not benefit from a bidding process that could have driven down prices through market forces. While justified in certain defense scenarios, sole-source awards warrant scrutiny to ensure fair pricing and necessity.

Taxpayer Impact: Sole-source awards can potentially lead to higher costs for taxpayers as the government lacks the leverage of competitive bidding to secure the best possible price.

Public Impact

The primary beneficiaries are the U.S. Navy, which utilizes the Standard Missile 2 (SM 2) for air defense. The contract delivers essential components and modifications for guided missiles, ensuring operational readiness and technological advancement of naval defense systems. Geographic impact is concentrated around Raytheon's facilities in Tucson, Arizona, and potentially other subcontractors nationwide. Workforce implications include employment for engineers, technicians, and manufacturing personnel involved in missile production and modification.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially increasing costs for taxpayers.
Cost-plus contract types can incentivize higher spending if not rigorously overseen.
Long contract duration may indicate potential for scope creep or evolving requirements.
Lack of detailed modification scope makes value assessment difficult.
Focus on modifications rather than new development might indicate aging technology requiring extensive upgrades.

Positive Signals

Awarding to Raytheon, a major defense contractor, suggests access to established expertise and production capabilities.
The contract supports a critical defense system (SM-2), contributing to national security.
The 'AWARD FEE' component provides an incentive for contractor performance.
The contract is for a proven missile system, reducing technical risk compared to novel development.

Sector Analysis

This contract falls within the Defense sector, specifically the manufacturing of guided missiles and related components. The market for such specialized defense equipment is typically dominated by a few large, established contractors due to high barriers to entry, including technological expertise, R&D investment, and stringent security requirements. Spending in this sub-sector is driven by national defense priorities, geopolitical factors, and the need to maintain technological superiority. Comparable spending benchmarks would involve analyzing other major missile system procurements by the Department of Defense.

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, Raytheon Company, is a large defense corporation. While large prime contractors are often required to subcontract portions of their work to small businesses, the specific subcontracting plan and its impact on the small business ecosystem are not detailed in the provided data. Without this information, it's difficult to assess the direct benefits or implications for small businesses related to this specific award.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contract management agencies, such as the Defense Contract Management Agency (DCMA). The 'COST PLUS AWARD FEE' structure necessitates close monitoring of costs and performance to ensure the government receives value. Transparency is generally limited for specific contract details in defense procurements, but reporting requirements for contract modifications and expenditures exist. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Standard Missile Program
Naval Air Defense Systems
Guided Missile Manufacturing
Defense Procurement
Cost Plus Award Fee Contracts

Risk Flags

Sole-source award
Cost-plus contract type
Lack of detailed scope for modifications
Potential for cost overruns
Limited transparency on pricing negotiation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $60.9 million to RAYTHEON COMPANY. 200512!052370!1700!N00024!NAVAL SEA SYSTEMS COMMAND !N0002401C5306 !A!N! !N! !P00079!20050912!20051231!794598573!794598573!001339159!N!RAYTHEON COMPANY !1151 E HERMANS RD !TUCSON !AZ!85706!77000!019!04!TUCSON !PIMA !ARIZONA !+000000022772!Y!N!000000000000!K014!MODIFICATION OF EQ/GUIDED MISSILES !A2 !MISSILE AND SPACE SYSTEMS !234 !STANDARD MISSILE 2 (SM 2) !336419!E! !3! ! !C! ! !202

Who is the contractor on this award?

The obligated recipient is RAYTHEON COMPANY.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $60.9 million.

What is the period of performance?

Start: 2001-03-22. End: 2009-12-31.

What is the specific nature and scope of the 'MODIFICATION OF EQ/GUIDED MISSILES' covered under this contract?

The provided data indicates the contract's purpose includes 'MODIFICATION OF EQ/GUIDED MISSILES' for the Standard Missile 2 (SM 2). However, the specific technical details, the extent of the modifications (e.g., software upgrades, hardware replacements, performance enhancements), and the exact number of missiles affected are not elaborated upon in the summary data. This level of detail is crucial for understanding the true value and necessity of the contract. Such modifications are common in defense procurement to extend the service life of weapon systems, incorporate new technologies, or address obsolescence issues. A deeper dive into contract line item details or technical exhibits would be required to fully ascertain the scope.

How does the final cost compare to the initial estimated cost for this contract, considering it was a Cost Plus Award Fee type?

The provided data shows an initial award amount of $794,598,573, which appears to be the total value for the contract duration. It does not explicitly state initial estimates versus final costs or detail the award fee earned. For Cost Plus Award Fee (CPAF) contracts, the final cost can fluctuate based on the contractor's performance against defined metrics. Without access to the contract's final expenditure reports or performance evaluations, it's impossible to definitively compare initial estimates to the final incurred cost and the amount of award fee paid. This information is typically found in post-award financial reports or agency audit findings.

What were the key performance metrics used to determine the 'Award Fee' for Raytheon Company on this contract?

The data provided does not specify the key performance metrics (KPMs) used for the Award Fee determination under this contract. For CPAF contracts, agencies establish a Performance Requirements Summary (PRS) or similar document outlining objective and subjective criteria. These often include factors like schedule adherence, technical performance, quality of deliverables, cost control, and management effectiveness. The 'Award Fee' is then determined by an evaluation of the contractor's performance against these criteria, typically conducted by a government evaluation board. Accessing the contract's PRS or post-award evaluation reports would be necessary to identify these specific metrics.

Given the sole-source nature, what steps were taken to ensure fair and reasonable pricing for the modifications and production?

When a contract is sole-sourced, the government is responsible for performing a 'should cost' or 'will cost' analysis, or obtaining a certified cost or pricing data submission from the contractor to negotiate a fair and reasonable price. This often involves reviewing the contractor's cost proposals, historical pricing, and market research for similar goods or services. The data provided does not detail the specific negotiation process or the cost analyses performed. However, the contracting officer is required to make a determination of price reasonableness before award. The presence of the 'AWARD FEE' suggests that cost control was a factor, but the primary mechanism for ensuring fairness in a sole-source situation relies on robust government negotiation and cost analysis.

What is the historical spending trend for the Standard Missile 2 (SM 2) program or similar missile systems procured by the Navy?

The provided data pertains to a single contract awarded in 2001 for the SM-2. To understand historical spending trends for the SM-2 program or similar systems, one would need to analyze multiple contract awards over several fiscal years. This would involve querying databases like FPDS or USAspending for all contracts related to 'Standard Missile 2', 'SM-2', or 'Naval Air Defense Missiles' awarded to Raytheon or other prime contractors. Analyzing these trends would reveal patterns in procurement volume, average contract values, and the overall investment in this class of weapon systems by the Navy, potentially highlighting periods of increased or decreased spending based on strategic needs or budget allocations.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing

Product/Service Code: MODIFICATION OF EQUIPMENT › MODIFICATION OF EQUIPMENT

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Address: 1151 EAST HERMANS ROAD, TUCSON, AZ, 85734

Business Categories: Category Business, Not Designated a Small Business

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline