Lockheed Martin's AEGIS Weapon System contract awarded $259M, spanning 16 years with Cost Plus Incentive Fee structure

Contract Overview

Contract Amount: $258,940,599 ($258.9M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2006-06-30

End Date: 2022-08-01

Contract Duration: 5,876 days

Daily Burn Rate: $44.1K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: AEGIS WEAPON SYSTEM MK 7 MOD () AWD TAS::17 1804::TAS

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $258.9 million to LOCKHEED MARTIN CORPORATION for work described as: AEGIS WEAPON SYSTEM MK 7 MOD () AWD TAS::17 1804::TAS Key points: 1. Contract value of $259M over 16 years suggests significant investment in naval defense capabilities. 2. The Cost Plus Incentive Fee (CPIF) structure incentivizes contractor performance and cost control. 3. A single award indicates a focused procurement, potentially for a specialized or long-term system. 4. The contract's duration implies a critical, ongoing need for the AEGIS system's maintenance and upgrades. 5. The broad NAICS code (334419) suggests a wide range of components and services were procured. 6. The absence of small business set-asides may reflect the specialized nature of the AEGIS system.

Value Assessment

Rating: fair

The total award of $259M over 16 years averages approximately $16.2M annually. Benchmarking this against similar large-scale defense system contracts is challenging without more specific details on the scope of work. The CPIF contract type allows for cost sharing and incentives, which can lead to variable final costs. However, the long duration and complexity of the AEGIS system suggest that cost overruns are a potential risk, making a definitive value-for-money assessment difficult without detailed performance and cost data.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders had the opportunity to submit proposals. While the number of bidders is not specified, this approach generally fosters competitive pricing and encourages innovation. The long-term nature of the contract and the specialized requirements of the AEGIS system may have limited the number of technically capable and willing participants, even within a full and open framework.

Taxpayer Impact: Full and open competition is generally favorable for taxpayers as it aims to secure the best possible price and quality through a wide range of offers.

Public Impact

The U.S. Navy benefits from the continued availability and modernization of the AEGIS Weapon System, a critical component of its fleet's defense capabilities. Services delivered likely include system integration, maintenance, upgrades, and potentially new component manufacturing for the AEGIS system. The geographic impact is primarily centered around naval operations and potentially Lockheed Martin facilities in New Jersey, where the contractor is located. Workforce implications include employment for engineers, technicians, and manufacturing personnel involved in the development, production, and support of advanced naval defense systems.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Long contract duration increases the risk of cost escalation over time, especially with CPIF structures.
Lack of specific details on competition (number of bidders) makes it hard to fully assess price competitiveness.
The broad NAICS code could mask inefficiencies or a lack of focused procurement if not managed carefully.
Potential for scope creep over the 16-year period, leading to increased costs beyond initial projections.

Positive Signals

Full and open competition suggests an effort to achieve best value and competitive pricing.
CPIF contract type incentivizes contractor efficiency and cost management.
The AEGIS system is a proven, critical defense asset, indicating a strong underlying need and potential for effective performance.
Long-term contract provides stability and predictability for both the government and the contractor.

Sector Analysis

The AEGIS Weapon System falls within the broader defense electronics and combat systems sector. This sector is characterized by high R&D investment, long product lifecycles, and significant government procurement. The market is dominated by a few large prime contractors capable of handling complex, integrated systems. Spending in this area is driven by national security requirements and technological advancements in warfare. Comparable spending benchmarks would involve other major naval combat system procurements or upgrades.

Small Business Impact

This contract does not appear to have a small business set-aside (ss=false, sb=false). Given the specialized and complex nature of the AEGIS Weapon System, it is likely that the prime contract is awarded to a large defense contractor like Lockheed Martin. However, there may be opportunities for small businesses to participate as subcontractors, providing components or specialized services. The extent of small business subcontracting would depend on Lockheed Martin's procurement strategy and the specific requirements of the contract.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy and the Department of Defense. Mechanisms likely include regular program reviews, audits, and performance monitoring by contracting officers and program managers. Transparency is typically managed through contract reporting requirements and public contract databases, though detailed operational data may be classified. The Inspector General's office for the Department of Defense would have jurisdiction over investigations of fraud, waste, or abuse.

Related Government Programs

Naval Combat Systems
Missile Defense Systems
Shipbuilding and Repair
Defense Electronics Manufacturing
Weapon System Integration

Risk Flags

Long contract duration increases risk of cost escalation.
CPIF structure requires careful monitoring to ensure cost control.
Broad NAICS code may obscure specific cost drivers.
Potential for technological obsolescence over the contract term.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $258.9 million to LOCKHEED MARTIN CORPORATION. AEGIS WEAPON SYSTEM MK 7 MOD () AWD TAS::17 1804::TAS

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 $258.9 million.

What is the period of performance?

Start: 2006-06-30. End: 2022-08-01.

What is the historical spending trend for the AEGIS Weapon System program over the past decade?

Analyzing historical spending for the AEGIS Weapon System program requires accessing detailed contract award data over multiple years. While this specific contract award of $258.9M covers a significant period, it represents only one component or iteration of the AEGIS program. To understand the trend, one would need to aggregate spending across all AEGIS-related contracts awarded by the Department of the Navy, including those for different ship classes, upgrades, and maintenance. Factors influencing spending trends include fleet modernization efforts, geopolitical threats, technological advancements, and budget allocations. A comprehensive analysis would likely reveal fluctuations tied to major program milestones, such as the introduction of new AEGIS baselines or significant platform integrations.

How does the Cost Plus Incentive Fee (CPIF) structure typically perform in terms of cost control for complex defense systems like AEGIS?

The Cost Plus Incentive Fee (CPIF) structure is designed to incentivize cost savings and performance targets. In a CPIF contract, the contractor is reimbursed for allowable costs plus a fee that is adjusted based on whether the final cost is below or above a target cost. This structure aims to align the contractor's financial interests with those of the government. For complex defense systems like AEGIS, CPIF can be effective if the target cost and incentive criteria are well-defined and achievable. However, the complexity and long duration of such programs can make accurate target setting difficult, potentially leading to disputes or suboptimal outcomes if not managed rigorously. Success hinges on clear performance metrics and robust government oversight to ensure the incentives drive desired results without compromising quality or safety.

What are the key performance indicators (KPIs) typically used to evaluate the success of the AEGIS Weapon System contract?

Key performance indicators (KPIs) for a contract like the AEGIS Weapon System would focus on system reliability, operational readiness, technical performance, and cost control. Specific KPIs might include Mean Time Between Failures (MTBF) for critical components, system availability rates, successful engagement rates against simulated threats, and adherence to delivery schedules for upgrades or new capabilities. Cost-related KPIs would involve tracking actual costs against target costs, variance analysis, and the efficiency of resource utilization. The CPIF structure implies that performance against specific technical or schedule targets would directly impact the final fee earned by Lockheed Martin, making these KPIs crucial for both parties.

What is the potential impact of technological obsolescence on a 16-year contract for a weapon system like AEGIS?

Technological obsolescence poses a significant risk to a 16-year contract for a weapon system like AEGIS. The pace of technological advancement, particularly in areas like computing, sensors, and networking, can render components or even entire system architectures outdated long before the contract's end date. To mitigate this, the contract likely includes provisions for incorporating new technologies and upgrades. The CPIF structure could incentivize the contractor to propose and implement cost-effective upgrades. However, managing obsolescence requires continuous monitoring of technological trends, proactive planning, and potentially renegotiating aspects of the contract to ensure the system remains effective and relevant throughout its lifecycle.

How does the 'Other Electronic Component Manufacturing' NAICS code (334419) relate to the AEGIS Weapon System?

The NAICS code 334419, 'Other Electronic Component Manufacturing,' is quite broad and suggests that the contract likely encompasses the procurement of a wide variety of electronic parts, sub-assemblies, and potentially custom-designed components essential for the AEGIS Weapon System. The AEGIS system is a highly complex integrated combat system that relies on numerous sophisticated electronic elements, including radar components, processors, displays, communication modules, and control systems. This NAICS code indicates that Lockheed Martin, or its subcontractors, are manufacturing or supplying these diverse electronic parts, rather than solely providing integration services or finished end-products. It highlights the extensive supply chain involved in producing such advanced defense technology.

Industry Classification

NAICS: Manufacturing › Semiconductor and Other Electronic Component Manufacturing › Other Electronic Component Manufacturing

Product/Service Code: COMM/DETECT/COHERENT RADIATION

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: Lockheed Martin Corp

Address: 199 BORTON LANDING RD, MOORESTOWN, NJ, 08057

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $262,703,005

Exercised Options: $262,621,695

Current Obligation: $258,940,599

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline