Raytheon Company awarded $307.9M contract for guided missile parts, raising questions about competition and value

Contract Overview

Contract Amount: $307,886,207 ($307.9M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2002-07-31

End Date: 2006-04-30

Contract Duration: 1,369 days

Daily Burn Rate: $224.9K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Place of Performance

Location: TUCSON, PIMA County, ARIZONA, 85756

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $307.9 million to RAYTHEON COMPANY for work described as: Key points: 1. Contract awarded via sole-source justification, limiting price discovery and potentially increasing costs. 2. Long contract duration of 1369 days suggests a need for sustained supply, but also risks price escalation. 3. Firm Fixed Price contract type offers cost certainty but may not fully incentivize efficiency if competition is absent. 4. The contract falls under 'Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing,' a specialized sector. 5. Awarded by the Department of Defense, indicating a focus on national security and defense readiness. 6. The absence of small business set-aside suggests a focus on large prime contractors for this specific requirement.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to the lack of publicly available comparable sole-source awards for similar specialized missile parts. The firm fixed-price nature provides some cost predictability, but without competitive bidding, it's difficult to ascertain if the $307.9 million represents a fair market price. The long duration could also lead to cost overruns if not managed effectively, especially given the absence of competitive pressure to drive down unit costs over time. Further analysis would require access to detailed cost breakdowns and historical pricing data for similar components.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded using a sole-source justification, meaning it was not competed. This approach is typically employed when only one responsible source is available or authorized by statute. The lack of competition means that Raytheon Company was the only bidder, which can lead to higher prices and reduced innovation as there is no market pressure to offer better terms. The justification for this sole-source award would need to be thoroughly reviewed to ensure it was appropriate and that alternatives were adequately considered.

Taxpayer Impact: Taxpayers may have paid a premium for this contract due to the absence of competitive bidding. Sole-source awards limit the government's ability to negotiate the best possible price, potentially leading to less efficient use of public funds.

Public Impact

The primary beneficiaries are the Department of Defense, ensuring the supply of critical components for guided missile systems. This contract supports the production and maintenance of advanced defense capabilities essential for national security. The geographic impact is primarily centered around Raytheon's manufacturing facilities, likely in Arizona given the state code (ST: AZ). Workforce implications include the employment of skilled labor in specialized manufacturing roles within the defense industry.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition may lead to inflated prices and reduced value for taxpayer money.
Sole-source awards can create vendor lock-in, making it difficult to switch suppliers or negotiate better terms in the future.
The long contract duration increases the risk of cost escalation and potential for inefficiencies to go unnoticed without competitive benchmarks.
Limited transparency into the sole-source justification process can obscure potential conflicts of interest or missed opportunities for competition.

Positive Signals

Firm Fixed Price contract provides cost certainty for the government, assuming the price was negotiated reasonably.
Award to a known contractor like Raytheon suggests a reliance on established expertise and proven capabilities in a critical defense sector.
The contract ensures the continuous supply of essential components, vital for maintaining operational readiness of defense systems.

Sector Analysis

The 'Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing' sector is a highly specialized niche within the broader aerospace and defense industry. This sector is characterized by high barriers to entry, significant R&D investment, and stringent quality control requirements. Companies operating in this space often have long-standing relationships with government agencies, particularly the Department of Defense. Comparable spending benchmarks are difficult to establish due to the proprietary nature of many components and the limited number of qualified manufacturers. The market is dominated by a few large defense contractors.

Small Business Impact

The absence of a small business set-aside on this contract indicates that the requirement was not specifically targeted for small business participation. This is common for large, complex defense contracts that require specialized manufacturing capabilities and extensive experience, often possessed by larger prime contractors. While this specific contract may not directly benefit small businesses through set-asides, Raytheon may engage small businesses as subcontractors. However, without specific subcontracting plans or data, the direct impact on the small business ecosystem remains unclear.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contract management and inspection agencies, such as the Defense Contract Management Agency (DCMA). Accountability measures are embedded in the contract terms, including performance requirements and payment schedules tied to delivery. Transparency is limited due to the sole-source nature and the classified or sensitive aspects of defense procurement. Inspector General (IG) jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

Guided Missile Systems
Defense Procurement
Aerospace Manufacturing
Sole-Source Contracts
Department of Defense Contracts

Risk Flags

Sole-source award
Lack of competition
Potential for cost overruns
Limited transparency

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $307.9 million to RAYTHEON COMPANY. See the official description on USAspending.

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 $307.9 million.

What is the period of performance?

Start: 2002-07-31. End: 2006-04-30.

What is Raytheon Company's track record with the Department of Defense for similar contracts?

Raytheon Company, now part of RTX Corporation, has a long and extensive history of contracting with the Department of Defense, particularly in areas related to missiles, defense systems, and aerospace components. They are a major defense contractor with numerous awards across various platforms and services. Their track record includes delivering complex systems and components, often under high-stakes conditions. However, like many large defense contractors, they have also faced scrutiny regarding contract costs, performance issues, and sole-source awards. A detailed review of their past performance on similar sole-source contracts for guided missile parts would be necessary to fully assess their reliability and cost-effectiveness in this specific instance.

How does the $307.9 million contract value compare to market rates for similar guided missile parts?

Directly comparing the $307.9 million contract value to market rates for 'Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing' is challenging due to the specialized nature of these components and the prevalence of sole-source or limited-competition awards in this sector. Without competitive bidding, it's difficult to establish a true market rate. Publicly available data on unit costs for specific missile components is often classified or proprietary. To assess value, one would need to compare this contract's pricing to historical data for similar sole-source awards to Raytheon or other qualified manufacturers, analyze the cost breakdown provided by the contractor, and consider the technological complexity and rarity of the parts being procured.

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

The primary risks associated with this sole-source contract include potential cost overruns due to a lack of competitive pressure, reduced incentive for the contractor to innovate or improve efficiency, and a lack of transparency in the pricing and negotiation process. Taxpayers may be paying a premium compared to what could have been achieved through a competitive bidding process. There's also a risk of vendor lock-in, making it difficult to switch suppliers or negotiate better terms in the future. Furthermore, the long duration of the contract (1369 days) increases the exposure to risks associated with price fluctuations in raw materials, labor costs, and potential changes in technology or requirements over time.

How effective is the Department of Defense in ensuring value for money on sole-source defense contracts?

The Department of Defense employs various mechanisms to ensure value for money on sole-source contracts, though effectiveness can vary. These include rigorous cost analysis, negotiation with the sole provider, and reliance on contract clauses that incentivize performance and cost control. However, the inherent lack of competition remains a significant challenge. The Defense Contract Audit Agency (DCAA) and the Defense Contract Management Agency (DCMA) play crucial roles in auditing costs and overseeing contract performance. Despite these measures, sole-source awards are often criticized for potentially leading to higher costs than competitively sourced contracts. The effectiveness hinges on the thoroughness of the government's negotiation and oversight processes.

What is the historical spending pattern for 'Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing' by the Department of Defense?

Historical spending patterns for 'Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing' by the Department of Defense are substantial, reflecting the ongoing need for advanced missile systems and related components. This category represents a significant portion of the defense budget allocated to weapons systems procurement and sustainment. Spending in this area is often characterized by large, multi-year contracts awarded to a limited number of prime defense contractors. Fluctuations in spending can be influenced by geopolitical events, modernization programs, and the development of new missile technologies. Analyzing historical data would reveal trends in contract values, types of components procured, and the primary contractors receiving these awards.

What are the implications of the 'DEFINITIVE CONTRACT' award type for this procurement?

The award of a 'DEFINITIVE CONTRACT' signifies a legally binding agreement between the government and the contractor that outlines the specific terms, conditions, and obligations for the entire duration of the contract. Unlike basic agreements or letter contracts, a definitive contract is a firm commitment. For this procurement, it means that Raytheon Company is committed to delivering the specified guided missile parts under the agreed-upon terms, including the firm fixed price, and the Department of Defense is committed to payment upon satisfactory performance. This type of contract provides the highest level of certainty for both parties regarding their responsibilities and the overall scope of the agreement.

Industry Classification

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

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: NOT COMPETED

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

Contractor Details

Address: 1151 E HERMANS RD, TUCSON, AZ, 85706

Business Categories: Category Business, Not Designated a Small Business

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline