DoD's $420M Combat Systems Engineering Contract Awarded to Lockheed Martin Raises Value Concerns

Contract Overview

Contract Amount: $42,013,033 ($42.0M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2011-01-05

End Date: 2014-12-31

Contract Duration: 1,456 days

Daily Burn Rate: $28.9K/day

Competition Type: NOT AVAILABLE FOR COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: COMBAT SYSTEMS ENGINEERING

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $42.0 million to LOCKHEED MARTIN CORPORATION for work described as: COMBAT SYSTEMS ENGINEERING Key points: 1. The contract's cost-plus-fixed-fee structure may incentivize higher spending. 2. Limited competition for this significant engineering services award warrants scrutiny. 3. The absence of a specific Product Service Code (PSC) hinders precise benchmarking. 4. A long contract duration of over 1400 days suggests potential for cost overruns. 5. The contract's focus on engineering services indicates a need for specialized expertise. 6. The award to a single large contractor may limit opportunities for smaller firms.

Value Assessment

Rating: questionable

Benchmarking the value of this $420 million contract is challenging due to the lack of a specific Product Service Code (PSC) and the 'not available for competition' designation. The cost-plus-fixed-fee (CPFF) pricing structure, while common for complex R&D, can lead to higher final costs if not meticulously managed. Without comparable contracts for similar combat systems engineering services, it's difficult to definitively assess if the pricing is competitive or if the government is receiving optimal value for its investment. The fixed fee component provides some cost control, but the overall cost is variable.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded under a 'not available for competition' basis, indicating that the Department of the Navy did not conduct a competitive bidding process. This typically occurs when a specific capability or technology is only available from a single source, or in situations deemed urgent. The lack of competition means there was no opportunity for multiple vendors to propose solutions, potentially leading to a higher price than if a competitive environment had been established. This approach limits price discovery and may not yield the most cost-effective outcome for the government.

Taxpayer Impact: Sole-source awards mean taxpayers do not benefit from the cost savings typically achieved through competitive bidding, potentially resulting in a higher overall expenditure for the services rendered.

Public Impact

The primary beneficiary is the Department of the Navy, which receives critical engineering services for its combat systems. This contract supports the development, integration, and sustainment of advanced naval combat capabilities. The geographic impact is concentrated in New Jersey, where Lockheed Martin's operations are located. The contract likely supports a specialized workforce of engineers and technical professionals within Lockheed Martin.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost-plus-fixed-fee structure can lead to cost escalation if not tightly managed.
Sole-source award limits competitive pressure on pricing and innovation.
Long contract duration increases risk of scope creep and unforeseen cost increases.
Lack of specific PSC makes detailed performance and cost benchmarking difficult.

Positive Signals

Award to a major defense contractor like Lockheed Martin suggests access to significant technical expertise.
Fixed fee component provides a baseline incentive for contractor performance.
Focus on combat systems engineering is critical for national defense capabilities.

Sector Analysis

This contract falls within the broader defense engineering services sector, a critical component of the aerospace and defense industry. This sector is characterized by high barriers to entry, significant R&D investment, and long-term government partnerships. Spending in defense engineering services is substantial, driven by the need for continuous modernization of military platforms and systems. Comparable spending benchmarks are difficult to establish without more specific service details, but large-scale engineering contracts for major defense platforms often run into hundreds of millions or billions of dollars.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. The award to a large prime contractor like Lockheed Martin suggests that subcontracting opportunities may exist for small businesses. However, the extent and nature of these subcontracting opportunities are not detailed in the provided data. Without specific subcontracting plans or goals, it's difficult to assess the direct impact on the small business ecosystem beyond potential indirect benefits.

Oversight & Accountability

Oversight for this contract would typically be managed by the Department of the Navy's contracting and program management offices. Accountability measures would be tied to the terms of the Cost Plus Fixed Fee contract, including performance milestones and the fixed fee earned. Transparency is limited by the sole-source nature of the award and the lack of publicly available detailed performance data. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Naval Combat Systems Development
Defense Engineering Services
Lockheed Martin Defense Contracts
Department of the Navy Procurement

Risk Flags

Sole-source award
Cost-plus-fixed-fee contract type
Lack of specific Product Service Code
Long contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $42.0 million to LOCKHEED MARTIN CORPORATION. COMBAT SYSTEMS ENGINEERING

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 $42.0 million.

What is the period of performance?

Start: 2011-01-05. End: 2014-12-31.

What is Lockheed Martin's track record with similar Cost Plus Fixed Fee (CPFF) contracts within the Department of Defense?

Lockheed Martin has a long history of executing large, complex contracts with the Department of Defense, many of which utilize CPFF structures due to the inherent uncertainties in research, development, and advanced engineering projects. While CPFF contracts offer flexibility, they also carry a higher risk of cost overruns if not managed rigorously. Analyzing Lockheed Martin's historical performance on similar CPFF contracts would involve reviewing past performance evaluations, audit reports, and any documented instances of cost overruns or schedule delays. Without access to this specific data, it's presumed that their extensive experience provides a degree of confidence, but diligent oversight remains crucial to ensure value and control costs.

How does the $420 million total value compare to other combat systems engineering contracts awarded by the Navy or DoD?

The $420 million total value for this combat systems engineering contract is substantial, placing it among significant investments in defense capabilities. However, without a more precise definition of 'combat systems engineering' and the specific services rendered (e.g., R&D, integration, sustainment), direct comparison is difficult. Major defense programs, especially those involving new platform development or significant upgrades, often involve contracts in the hundreds of millions to billions of dollars. For instance, contracts for developing new naval vessels, aircraft, or integrated combat management systems frequently exceed this amount. This contract's value is significant but likely falls within the expected range for complex, long-term engineering efforts supporting critical defense infrastructure.

What are the primary risks associated with a sole-source award for critical engineering services like combat systems?

The primary risks associated with a sole-source award for critical engineering services are reduced price competition, potential for complacency from the contractor, and limited opportunities for innovation spurred by market alternatives. Without competing bids, the government may pay a premium for the services. The sole contractor, knowing they are the only option, might have less incentive to aggressively control costs or push technological boundaries. Furthermore, reliance on a single source can create vulnerabilities if that contractor faces financial difficulties, operational issues, or if their technology becomes obsolete. This necessitates robust government oversight to mitigate these risks.

How effective are CPFF contracts in ensuring program effectiveness for complex engineering projects?

Cost Plus Fixed Fee (CPFF) contracts can be effective for complex engineering projects where the scope of work is not fully defined at the outset, or where significant research and development are involved. The 'cost-plus' element allows the contractor to cover incurred costs, while the 'fixed fee' provides a predetermined profit margin, incentivizing the contractor to complete the work efficiently to maximize their return on the fixed fee. Effectiveness hinges on clear performance metrics, robust government oversight to monitor costs and progress, and strong communication. When managed well, CPFF contracts can facilitate innovation and adaptation. However, they require vigilant management to prevent cost overruns and ensure the project stays aligned with strategic objectives.

What are the historical spending patterns for combat systems engineering within the Department of the Navy?

Historical spending patterns for combat systems engineering within the Department of the Navy typically show consistent, significant investment driven by the need to maintain technological superiority and modernize naval fleets. This spending fluctuates based on geopolitical conditions, defense budgets, and the lifecycle of naval platforms. Major shipbuilding programs, upgrades to existing systems (like Aegis), and the development of new weapon technologies are key drivers. Over the past decade, spending in this area has remained robust, often in the billions annually across the Navy, reflecting the complexity and criticality of naval warfare capabilities. Contracts like this one represent a portion of that larger, ongoing investment.

What oversight mechanisms are in place to manage the risks of this specific sole-source CPFF contract?

Specific oversight mechanisms for this sole-source CPFF contract would typically include a dedicated Contracting Officer's Representative (COR) responsible for monitoring contractor performance, technical progress, and adherence to contract terms. Regular progress meetings, detailed reporting requirements (e.g., cost performance reports, technical progress reports), and milestone reviews are standard. Audits by the Defense Contract Audit Agency (DCAA) may be conducted to verify costs. Given the sole-source nature and CPFF structure, the government's Program Management Office would likely employ stringent financial tracking and require justification for any cost changes or scope adjustments to ensure accountability and control.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Architectural, Engineering, and Related Services › Engineering Services

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › PROFESSIONAL SERVICES

Competition & Pricing

Extent Competed: NOT AVAILABLE FOR COMPETITION

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Parent Company: Lockheed Martin Corp (UEI: 834951691)

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

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

Financial Breakdown

Contract Ceiling: $42,034,783

Exercised Options: $42,034,783

Current Obligation: $42,013,033

Subaward Activity

Number of Subawards: 4

Total Subaward Amount: $2,124,192

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline