Raytheon Company awarded $1.9B for Standard Missile 3, a significant investment in advanced defense technology

Contract Overview

Contract Amount: $1,904,305,418 ($1.9B)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2007-05-14

End Date: 2018-09-30

Contract Duration: 4,157 days

Daily Burn Rate: $458.1K/day

Competition Type: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: STANDARD MISSILE 3

Place of Performance

Location: TUCSON, PIMA County, ARIZONA, 85756

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $1.90 billion to RAYTHEON COMPANY for work described as: STANDARD MISSILE 3 Key points: 1. Contract value represents a substantial commitment to missile defense capabilities. 2. The award to a single, established contractor suggests a focus on specialized expertise. 3. Long contract duration indicates a complex, multi-year development and production effort. 4. The cost-plus incentive fee structure aims to balance contractor performance with cost control. 5. This contract likely supports critical national security objectives in missile defense. 6. Geographic location of performance in Arizona may indicate specialized manufacturing facilities.

Value Assessment

Rating: good

The contract value of $1.9 billion for the Standard Missile 3 program is substantial, reflecting the complexity and strategic importance of advanced missile defense systems. Benchmarking against similar large-scale defense development contracts, this figure appears within a reasonable range for programs of this nature. The cost-plus incentive fee (CPIF) pricing structure suggests an effort to incentivize performance and cost efficiency, which is a positive sign for value. However, without detailed cost breakdowns and performance metrics, a definitive value-for-money assessment is challenging.

Cost Per Unit: N/A

Competition Analysis

Competition Level: limited

The contract was awarded under 'FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES,' indicating that while competition was considered, certain sources were excluded, potentially due to specialized capabilities or prior involvement. This suggests a limited competition scenario rather than a broad solicitation. The number of bidders is not explicitly stated but the nature of the award implies a select group of highly qualified contractors were considered. This limited competition might lead to less aggressive pricing compared to full and open competition.

Taxpayer Impact: Limited competition can sometimes result in higher costs for taxpayers as the pool of potential bidders is restricted, potentially reducing price pressure.

Public Impact

The primary beneficiaries are the U.S. military and its allies, receiving enhanced missile defense capabilities. The contract delivers advanced interceptor technology crucial for national security. Performance is concentrated in Arizona, potentially boosting the local defense industrial base and workforce. This program supports high-skilled jobs in engineering, manufacturing, and program management within the defense sector.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for cost overruns inherent in CPIF contracts if not rigorously managed.
Dependence on a single contractor for a critical defense system raises supply chain risk.
The 'exclusion of sources' aspect of competition warrants scrutiny to ensure fairness and optimal pricing.

Positive Signals

Award to a prime contractor with a proven track record in missile systems development.
The CPIF structure incentivizes meeting performance targets, suggesting a focus on effectiveness.
Long-term contract duration provides stability for program development and production.

Sector Analysis

The Standard Missile 3 (SM-3) program falls within the broader defense sector, specifically focusing on missile defense systems. This is a highly specialized and technologically advanced segment of the aerospace and defense industry, characterized by significant R&D investment and long product development cycles. The market is dominated by a few large, experienced defense contractors. Spending in this area is driven by national security priorities and geopolitical threats, often involving substantial government funding.

Small Business Impact

This contract does not appear to have a small business set-aside component (ss=false, sb=false). Given the specialized nature and large scale of the Standard Missile 3 program, it is likely that any subcontracting opportunities would be pursued by the prime contractor, Raytheon Company, to leverage specific technological expertise or manufacturing capabilities. The impact on the broader small business ecosystem would depend on Raytheon's subcontracting strategy, potentially offering opportunities to specialized small businesses within the defense supply chain.

Oversight & Accountability

Oversight for this contract would typically be managed by the Department of Defense's contracting and program management offices, potentially involving the Defense Contract Management Agency (DCMA) for contract administration and performance monitoring. The CPIF structure necessitates close financial oversight to ensure costs are reasonable and that incentives are appropriately applied. Transparency is generally maintained through contract reporting requirements, though specific program details may be classified. Inspector General jurisdiction would apply to investigations of fraud, waste, or abuse.

Related Government Programs

Missile Defense Systems
Ballistic Missile Defense
Naval Warfare Systems
Advanced Weapon Systems
Department of Defense Research and Development

Risk Flags

Limited Competition Justification
Cost Control in CPIF Contracts
Long-Term Program Stability
Advanced Technology Development Risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.90 billion to RAYTHEON COMPANY. STANDARD MISSILE 3

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 $1.90 billion.

What is the period of performance?

Start: 2007-05-14. End: 2018-09-30.

What is Raytheon Company's track record with developing and delivering complex missile systems?

Raytheon Company, now part of RTX Corporation, has a long and extensive history in developing and producing advanced missile systems for the U.S. military and international partners. They are a prime contractor for numerous programs, including the Patriot air defense system, Tomahawk cruise missile, and various other air-to-air, air-to-ground, and defensive interceptor missiles. Their experience spans decades, encompassing research, development, testing, and large-scale production. The company possesses significant expertise in areas such as guidance, control, propulsion, and warhead technology, making them a logical choice for complex programs like the Standard Missile 3. Their track record includes both successful program deliveries and challenges common to large, technologically intensive defense projects, such as cost adjustments and schedule modifications.

How does the $1.9 billion contract value compare to historical spending on the Standard Missile 3 program?

The $1.9 billion awarded value represents a significant, but not unprecedented, investment in the Standard Missile 3 (SM-3) program. The SM-3 is a key component of the U.S. missile defense architecture, and its development and procurement have spanned many years and multiple contract awards. Historical spending on SM-3, including R&D and procurement, has cumulatively reached many billions of dollars over its lifecycle. This specific award, covering a defined period (2007-2018), reflects a substantial portion of the program's total investment. To provide a precise comparison, one would need to aggregate all prior and subsequent contract actions for the SM-3 program, considering inflation and scope changes over time. However, this figure aligns with the expected cost of developing and producing advanced, large-scale defense systems.

What are the primary risks associated with this Cost Plus Incentive Fee (CPIF) contract?

The primary risks associated with a Cost Plus Incentive Fee (CPIF) contract, like the one awarded for the Standard Missile 3, revolve around cost control and contractor performance management. While CPIF aims to incentivize efficiency by sharing cost savings or overruns between the government and contractor based on performance targets, it still carries inherent risks. A key risk is that the contractor might pursue higher costs if the incentive fee structure is not sufficiently aggressive or if oversight is lax, as the government bears the majority of the costs. Conversely, overly aggressive targets could lead to the contractor cutting corners on quality or performance to meet cost goals. Effective management requires robust government oversight to validate costs, monitor progress against targets, and ensure that the incentive fee truly drives desired outcomes without compromising the system's effectiveness or reliability.

How effective is the Standard Missile 3 program in achieving its stated mission objectives?

The Standard Missile 3 (SM-3) program is widely considered a cornerstone of U.S. and allied missile defense capabilities, designed to intercept short- and medium-range ballistic missiles in their midcourse phase. Independent assessments and test results generally indicate a high degree of effectiveness for the SM-3 in its intended role. The system has demonstrated successful intercepts in numerous live-fire tests, validating its technological capabilities. Its deployment on Aegis-equipped warships provides a mobile and flexible defense layer, capable of protecting deployed forces and allies. While no missile defense system is 100% effective, the SM-3 represents one of the most advanced and proven interceptor technologies available, significantly enhancing strategic defense posture against ballistic missile threats.

What are the implications of awarding this contract after 'Exclusion of Sources' for competition?

Awarding a contract after 'Exclusion of Sources' implies that the government identified a need but determined that only specific, pre-qualified sources could meet the requirement, or that competition among all potential sources was not feasible or practical. This approach can stem from factors like proprietary technology, unique capabilities held by a limited number of firms, or urgent needs where existing relationships and proven performance are paramount. For taxpayers, this can mean potentially higher prices compared to full and open competition, as the bidding pool is restricted. However, it can also ensure that the contract is awarded to a contractor with the highest likelihood of success for a complex, critical system, potentially mitigating risks of failure or significant delays. The justification for excluding sources must be well-documented and defensible to ensure responsible use of public funds.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Scientific Research and Development Services › Research and Development in the Physical, Engineering, and Life Sciences

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: N0002407R6119

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: RTX Corp

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

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $1,979,246,972

Exercised Options: $1,978,083,098

Current Obligation: $1,904,305,418

Actual Outlays: $252,177

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline