DoD's $106M AEGIS Weapon System support contract awarded to Lockheed Martin raises value and competition concerns

Contract Overview

Contract Amount: $106,442,295 ($106.4M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2012-05-18

End Date: 2018-06-17

Contract Duration: 2,221 days

Daily Burn Rate: $47.9K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS AWARD FEE

Sector: Defense

Official Description: INTEGRATED, LOGISTICAL AND LIFETIME SUPPORT SERVICES FOR THE AEGIS WEAPON SYSTEM

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $106.4 million to LOCKHEED MARTIN CORPORATION for work described as: INTEGRATED, LOGISTICAL AND LIFETIME SUPPORT SERVICES FOR THE AEGIS WEAPON SYSTEM Key points: 1. Contract awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. Cost-plus award fee structure can incentivize spending rather than cost control. 3. Long contract duration (2221 days) may indicate a lack of agile procurement or evolving needs. 4. Lack of competition suggests potential for contractor lock-in and reduced market pressure. 5. Engineering services sector (NAICS 541330) often involves complex, specialized work, making direct comparisons challenging. 6. The contract's value, while substantial, needs benchmarking against similar long-term system support contracts.

Value Assessment

Rating: questionable

The $106.4 million contract for AEGIS Weapon System support was awarded on a sole-source basis, making direct value-for-money assessment difficult without competitive benchmarks. The cost-plus award fee (CPAF) pricing structure, while common for complex R&D and support, can lead to higher overall costs if not managed rigorously, as contractor profit is tied to meeting cost and performance targets. Without competitive bids, it's challenging to ascertain if the pricing reflects fair market value for engineering services. The long duration of the contract (over 6 years) also raises questions about whether the pricing remained optimal throughout its term.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed. This approach is typically used when only one responsible source can provide the required services, often due to proprietary technology, unique capabilities, or urgent needs. The lack of competition means there were no other bidders to compare against, which limits the government's ability to negotiate the best possible price and terms. This can lead to higher costs for taxpayers and potentially less innovation.

Taxpayer Impact: Sole-source awards mean taxpayers do not benefit from the price reductions and improved terms that typically arise from a competitive bidding process. This can result in higher overall spending for the same level of service.

Public Impact

The primary beneficiaries are the U.S. Navy personnel operating and maintaining the AEGIS Weapon System. Services delivered include integrated, logistical, and lifetime support, crucial for the operational readiness of a key naval defense system. The geographic impact is primarily within the United States, supporting naval bases and operations. Workforce implications include the employment of specialized engineers and technical personnel by Lockheed Martin and its potential subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition.
Cost-plus award fee structure may incentivize higher spending.
Long contract duration could lead to suboptimal pricing over time.
Lack of transparency in pricing due to non-competitive nature.

Positive Signals

Contract supports a critical national defense system (AEGIS).
Lockheed Martin is a well-established defense contractor with extensive experience.
The contract aims for comprehensive lifetime support, ensuring system longevity.

Sector Analysis

The AEGIS Weapon System is a cornerstone of modern naval defense, and its support falls within the highly specialized engineering services sector (NAICS 541330). This sector is characterized by high barriers to entry, significant R&D investment, and long product lifecycles. The market for such specialized defense systems is often dominated by a few large, experienced contractors like Lockheed Martin. Benchmarking this contract's value is difficult without access to proprietary cost data or comparable sole-source support contracts for similar complex weapon systems.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. Furthermore, the 'ss' (small business subcontracting) flag is also false. This suggests that small businesses were not specifically targeted for set-aside portions of the work or for subcontracting opportunities under this specific award. Consequently, the direct impact on the small business ecosystem for this particular contract is likely minimal, though Lockheed Martin may engage small businesses indirectly.

Oversight & Accountability

Oversight for this contract would typically fall under the Defense Contract Management Agency (DCMA), which is responsible for ensuring contractor performance and compliance. As a cost-plus award fee contract, rigorous financial oversight is crucial to monitor expenditures and ensure that award fees are justified based on performance and cost control. Transparency is limited due to the sole-source nature, but contract modifications, performance reports, and financial audits would be key accountability measures. Inspector General involvement would be triggered by specific allegations of fraud, waste, or abuse.

Related Government Programs

AEGIS Combat System
Naval Surface Warfare
Defense Engineering Services
Weapon System Sustainment
Lockheed Martin Defense Contracts

Risk Flags

Sole-source award
Cost-plus award fee structure
Long contract duration
Lack of competitive bidding

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $106.4 million to LOCKHEED MARTIN CORPORATION. INTEGRATED, LOGISTICAL AND LIFETIME SUPPORT SERVICES FOR THE AEGIS WEAPON SYSTEM

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 $106.4 million.

What is the period of performance?

Start: 2012-05-18. End: 2018-06-17.

What is Lockheed Martin's track record with AEGIS Weapon System support contracts?

Lockheed Martin Corporation has a long-standing and extensive history with the AEGIS Weapon System, serving as a prime contractor for its development, integration, and sustainment. Their track record includes numerous contracts for various AEGIS variants and upgrades across different naval platforms. While this indicates deep expertise and a strong incumbent position, it also highlights the potential for contractor lock-in. Evaluating specific past performance metrics, such as on-time delivery, cost overruns, and technical issue resolution on previous AEGIS support contracts, would provide a more nuanced understanding of their reliability and efficiency in fulfilling such complex requirements.

How does the $106.4 million value compare to similar AEGIS support contracts?

Direct comparison of the $106.4 million value is challenging due to the sole-source nature of this award and the proprietary details typically associated with defense contracts. However, the AEGIS Weapon System is a highly complex and critical component of naval power, requiring continuous, long-term support. Annual sustainment costs for major weapon systems can range from 5% to 15% of the system's procurement cost. Given the system's complexity and the contract's duration (over 6 years), the total value suggests a significant investment in ensuring operational readiness and technological relevance. Without access to competitive bids or data from similar sole-source contracts for comparable systems, it's difficult to definitively benchmark this specific value against market rates.

What are the primary risks associated with this sole-source, cost-plus award fee contract?

The primary risks associated with this contract stem from its sole-source and cost-plus award fee (CPAF) structure. The sole-source award eliminates competitive pressure, potentially leading to inflated prices and reduced incentives for the contractor to optimize costs. The CPAF structure, while intended to incentivize performance, can also encourage higher spending if cost targets are not rigorously managed, as the contractor's profit is linked to achieving both cost and performance goals. Furthermore, the long duration (2221 days) increases the risk of cost escalation due to inflation, changing requirements, or unforeseen technical challenges that were not adequately priced into the initial award. Ensuring robust government oversight and clear performance metrics is critical to mitigate these risks.

How effective is the AEGIS Weapon System, and how does this contract contribute to its effectiveness?

The AEGIS Weapon System is widely regarded as one of the most capable naval combat systems in the world, providing advanced air and missile defense, surface warfare, and command and control capabilities. Its effectiveness is crucial for maintaining naval superiority and protecting U.S. and allied forces. This contract, providing integrated, logistical, and lifetime support services, directly contributes to the system's effectiveness by ensuring its operational readiness, maintainability, and technological currency. By addressing logistical needs and providing ongoing technical support, the contract helps to minimize downtime, resolve technical issues promptly, and potentially incorporate necessary upgrades, thereby sustaining the system's high level of performance.

What are the historical spending patterns for AEGIS Weapon System support?

Historical spending on AEGIS Weapon System support has been substantial, reflecting the system's critical role and complexity. The U.S. Navy consistently allocates significant portions of its budget to sustain and modernize the AEGIS fleet. This includes funding for spare parts, depot maintenance, software updates, engineering services, and upgrades. While specific historical spending figures for lifetime support contracts like this one are often embedded within broader budget categories, the overall trend indicates a sustained, multi-billion dollar investment over decades. The $106.4 million awarded here represents a portion of that ongoing commitment, focused on specific support services over a defined period.

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 COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002411R4306

Offers Received: 1

Pricing Type: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Parent Company: Lockheed Martin Corp

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: $207,659,803

Exercised Options: $194,777,164

Current Obligation: $106,442,295

Subaward Activity

Number of Subawards: 55

Total Subaward Amount: $11,682,597

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline