DoD's $498M LCS Recurring Construction contract awarded to Lockheed Martin in 2009 shows significant cost and duration

Contract Overview

Contract Amount: $498,061,225 ($498.1M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2009-03-23

End Date: 2013-03-31

Contract Duration: 1,469 days

Daily Burn Rate: $339.0K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: FY09 LCS RECURRING CONSTRUCTION

Place of Performance

Location: MIDDLE RIVER, BALTIMORE County, MARYLAND, 21220

State: Maryland Government Spending

Plain-Language Summary

Department of Defense obligated $498.1 million to LOCKHEED MARTIN CORPORATION for work described as: FY09 LCS RECURRING CONSTRUCTION Key points: 1. Contract awarded for recurring construction of Littoral Combat Ships (LCS). 2. Significant duration of 1469 days suggests a long-term commitment. 3. Fixed Price Incentive contract type indicates shared risk between government and contractor. 4. Awarded by the Department of Defense, highlighting strategic shipbuilding needs. 5. The contract's value and duration may warrant a review of cost-effectiveness over its lifecycle. 6. Lack of competition raises questions about potential price overruns and value for money.

Value Assessment

Rating: questionable

Benchmarking the value of this specific contract is challenging without comparable LCS construction contracts from the same period. However, the substantial dollar amount and extended duration suggest a significant investment. The fixed-price incentive structure implies that cost overruns beyond a certain point would be shared, but the initial pricing and subsequent adjustments are key to assessing true value. Further analysis would require detailed cost breakdowns and performance metrics.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning there was no open competition. This approach is typically used when only one source is capable of meeting the requirement, or in cases of urgent need. The lack of competition means the government did not benefit from a competitive bidding process, which could potentially lead to higher prices than if multiple vendors had vied for the contract.

Taxpayer Impact: Taxpayers may have paid a premium due to the absence of competitive pressure. Without alternative bids, it's difficult to ascertain if the negotiated price represented the best possible value.

Public Impact

The primary beneficiaries are the U.S. Navy, receiving critical assets for its fleet modernization. This contract supports the construction of Littoral Combat Ships, enhancing naval capabilities. The geographic impact is primarily within the United States, likely at shipbuilding facilities. Significant workforce implications for skilled labor in the shipbuilding and defense manufacturing sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing and potentially increases costs for taxpayers.
Long contract duration (1469 days) increases exposure to cost escalation and schedule delays.
Fixed-price incentive contract type can lead to cost overruns if not managed tightly.
Lack of detailed public information on performance metrics makes value assessment difficult.

Positive Signals

Award to a major defense contractor like Lockheed Martin suggests capability and experience.
Focus on LCS construction addresses a specific, stated need within the Department of Defense.
The contract aims to deliver critical naval assets, contributing to national security.

Sector Analysis

The defense shipbuilding sector is characterized by high barriers to entry, long production cycles, and significant government investment. Contracts like this are crucial for maintaining naval power and supporting a specialized industrial base. The Littoral Combat Ship program itself has faced scrutiny regarding cost, performance, and strategic utility, making individual contracts within the program subject to close examination. Spending in this sector is often driven by geopolitical considerations and long-term strategic planning.

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, Lockheed Martin, is a large 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.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Defense's contract management agencies, such as the Defense Contract Management Agency (DCMA). Accountability measures would be embedded in the contract's terms, including performance standards, delivery schedules, and payment milestones. Transparency is often limited for specific defense contracts due to national security considerations, but Inspector General reports and GAO audits may provide some level of public insight into program effectiveness and potential issues.

Related Government Programs

Littoral Combat Ship Program
Naval Shipbuilding Contracts
Department of Defense Major Procurement

Risk Flags

Sole-source award
Long contract duration
Potential for cost overruns (FPI contract)
Lack of public performance data

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $498.1 million to LOCKHEED MARTIN CORPORATION. FY09 LCS RECURRING CONSTRUCTION

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORPORATION.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $498.1 million.

What is the period of performance?

Start: 2009-03-23. End: 2013-03-31.

What was the specific justification for awarding this LCS construction contract on a sole-source basis?

The provided data indicates the contract was 'NOT COMPETED' and awarded as a 'DEFINITIVE CONTRACT' on a sole-source basis. Specific justifications for sole-source awards typically include situations where only one responsible source can provide the required supplies or services, or when there is a compelling urgency. For major defense platforms like the Littoral Combat Ship, sole-source awards might be justified by the unique capabilities of a specific contractor, the need for rapid development and production to meet urgent operational requirements, or the existence of prior developmental contracts that make a competitive follow-on impractical. Without access to the official justification documentation (e.g., a Justification and Approval document), the precise reasons remain speculative but likely relate to the specialized nature of LCS construction and the established role of Lockheed Martin in the program.

How does the fixed-price incentive (FPI) contract type typically function, and what are its implications for cost control in this context?

A Fixed-Price Incentive (FPI) contract is a type of cost-reimbursement contract where the contractor is reimbursed for allowable costs and paid a fee that is adjusted based on whether the final cost is above or below a negotiated target cost. The contract establishes a target cost, a target profit, and a price ceiling (the maximum price the government will pay). If the final cost is below the target cost, both the government and contractor share in the savings according to a predetermined formula. Conversely, if the final cost exceeds the target cost, the contractor's profit is reduced, and the government's share of the cost increases, up to the price ceiling. For this $498 million LCS construction contract, the FPI structure incentivizes Lockheed Martin to control costs to maximize their profit. However, it also means that cost overruns beyond the target cost are shared, potentially leading to higher final costs for the government than initially projected, up to the ceiling. Effective oversight is crucial to ensure costs remain within reasonable bounds and the incentive structure drives efficiency.

What is the historical spending trend for Littoral Combat Ship (LCS) recurring construction, and how does this contract fit within that trend?

The provided data represents a single contract for FY09 LCS Recurring Construction valued at $498 million, awarded in March 2009 and ending in March 2013. To understand the historical spending trend, one would need to examine spending across multiple fiscal years and potentially multiple contracts related to LCS construction. The LCS program has historically been a significant investment for the Navy, with evolving requirements and associated costs. This $498 million contract appears to be a substantial component of the program's funding during its period of performance. Without a broader dataset encompassing all LCS construction contracts over time, it's difficult to definitively place this single award within a larger trend. However, its significant value suggests it was a key funding element for the program during that fiscal year.

What are the potential risks associated with a long-duration contract (1469 days) for shipbuilding?

Long-duration contracts, such as this 1469-day (approximately 4-year) contract for LCS recurring construction, introduce several potential risks. Firstly, there is an increased risk of cost escalation due to inflation, material price fluctuations, and labor cost increases over the extended period. Secondly, schedule delays are more probable in longer projects, which can lead to increased costs and postponed delivery of critical assets. Technological advancements or changes in strategic requirements during the contract's performance could also render the delivered product less optimal or obsolete by the time of completion. Furthermore, managing a long-term relationship with the contractor requires sustained oversight and can be challenging if key personnel or program priorities shift. The fixed-price incentive nature of this contract attempts to mitigate some cost risks, but the extended timeline inherently amplifies the potential for unforeseen challenges.

What is the typical performance benchmark for shipbuilding contracts of this magnitude and complexity?

Performance benchmarks for shipbuilding contracts of this magnitude ($498 million) and complexity (Littoral Combat Ship construction) are typically measured against key performance indicators (KPIs) such as schedule adherence, cost targets, quality of construction, and achievement of key milestones (e.g., keel laying, launch, sea trials, delivery). For LCS, specific performance metrics would relate to the ship's speed, maneuverability, survivability, and mission system integration. Benchmarking would involve comparing actual performance against the contract's baseline schedule and cost targets, as well as against industry standards for similar naval vessels. Given the 'NOT COMPETED' status and the FPI contract type, the government's ability to enforce strict performance standards and leverage competitive pressure for optimal outcomes is somewhat constrained. Detailed performance data, often found in program management reviews or GAO reports, would be necessary for a precise benchmark assessment.

Industry Classification

NAICS: Manufacturing › Ship and Boat Building › Ship Building and Repairing

Product/Service Code: SHIPS, SMALL CRAFT, PONTOON, DOCKS

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002408R2307

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Parent Company: Lockheed Martin Corp

Address: 2323 EASTERN BLVD, BALTIMORE, MD, 21220

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Manufacturer of Goods, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $513,767,402

Exercised Options: $505,751,736

Current Obligation: $498,061,225

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline