DoD's $37.6M Lockheed Martin contract for Norwegian AEGIS support shows limited competition and potential value concerns

Contract Overview

Contract Amount: $37,641,297 ($37.6M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2011-12-09

End Date: 2016-12-31

Contract Duration: 1,849 days

Daily Burn Rate: $20.4K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: AEGIS BASELINE DEVELOPMENT AND LIFETIME SUPPORT SERVICES FOR NORWAY FMS REQUIREMENTS

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $37.6 million to LOCKHEED MARTIN CORPORATION for work described as: AEGIS BASELINE DEVELOPMENT AND LIFETIME SUPPORT SERVICES FOR NORWAY FMS REQUIREMENTS Key points: 1. Contract awarded to a single, large defense contractor, indicating limited market competition. 2. The contract type (Cost Plus Incentive Fee) can lead to cost overruns if not managed tightly. 3. Performance period of nearly five years suggests a long-term commitment to specific solutions. 4. Geographic focus on New Jersey for contract performance. 5. The contract supports Foreign Military Sales (FMS) requirements, indicating international defense cooperation. 6. Lack of small business participation noted, with no set-aside or subcontracting requirements specified.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its specific nature supporting a Foreign Military Sales (FMS) requirement for Norway. The Cost Plus Incentive Fee (CPIF) contract type, while allowing for flexibility, carries inherent risks of cost escalation if performance incentives are not carefully structured and monitored. Without comparable FMS contracts or detailed cost breakdowns, assessing the precise value-for-money is difficult. However, the absence of competition inherently limits the government's ability to secure the most competitive pricing.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was not competed, indicating a sole-source award. This typically occurs when a specific contractor possesses unique capabilities, intellectual property, or is the only viable source for a particular requirement, often seen in specialized defense systems like AEGIS. The lack of competition means that pricing and terms were likely negotiated directly with Lockheed Martin, potentially foregoing the benefits of a competitive bidding process that could drive down costs.

Taxpayer Impact: The absence of competition for this contract means taxpayers may not have benefited from the cost savings typically achieved through a competitive bidding process. The government's negotiating position is inherently weaker without alternative offers.

Public Impact

The primary beneficiaries are the Royal Norwegian Navy, receiving critical support for their AEGIS system. Services delivered include lifetime support, maintenance, and potential upgrades for the AEGIS baseline. Geographic impact is primarily within New Jersey, where the contractor is located and performance likely occurs. Workforce implications include specialized technical roles within Lockheed Martin and potentially its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price discovery and potential savings.
CPIF contract type carries risk of cost overruns if incentives are not well-aligned with government objectives.
Lack of transparency in the negotiation process due to sole-source nature.
Potential for vendor lock-in with specialized defense systems.
Limited visibility into the specific performance metrics and their impact on cost.

Positive Signals

Contract supports a critical FMS requirement, strengthening international alliances.
AEGIS system is a highly specialized and advanced defense capability.
Long-term support contract ensures system availability and operational readiness for Norway.
Lockheed Martin is a recognized leader in defense systems integration and support.

Sector Analysis

The AEGIS Combat System is a highly sophisticated and integrated naval defense platform. Contracts related to its development, maintenance, and support fall within the broader defense electronics and systems integration sector. This sector is characterized by high barriers to entry, significant R&D investment, and a concentration of large, established defense contractors. Spending in this area is often driven by national security priorities and international partnerships, with contracts frequently being long-term and complex due to the technology involved.

Small Business Impact

This contract does not appear to have involved small business set-asides, as indicated by the 'sb' field being false. Furthermore, the 'ss' field is also false, suggesting no specific small business subcontracting goals were mandated. This implies that the prime contractor, Lockheed Martin, likely handled the entire scope of work internally or through its established large-business supply chain, potentially limiting opportunities for small businesses within this specific contract's execution.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. As a sole-source award, the negotiation and administration phases would be critical for ensuring fair pricing and adequate performance. Inspector General (IG) oversight is a standard component of DoD contracts, providing an independent review of waste, fraud, and abuse. Transparency is often limited in sole-source defense contracts, but reporting requirements for CPIF contracts would typically ensure some level of financial and performance visibility.

Related Government Programs

AEGIS Combat System
Foreign Military Sales (FMS)
Naval Surface Warfare
Defense Systems Integration
Cost Plus Incentive Fee Contracts

Risk Flags

Sole-source award
Cost Plus Incentive Fee contract type
Lack of competition
Potential for cost overruns
Long-term commitment without competitive re-evaluation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $37.6 million to LOCKHEED MARTIN CORPORATION. AEGIS BASELINE DEVELOPMENT AND LIFETIME SUPPORT SERVICES FOR NORWAY FMS REQUIREMENTS

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 $37.6 million.

What is the period of performance?

Start: 2011-12-09. End: 2016-12-31.

What is the track record of Lockheed Martin Corporation in delivering AEGIS support services, particularly for international clients?

Lockheed Martin Corporation is a primary contractor for the AEGIS Combat System, responsible for its development, integration, and sustainment for the U.S. Navy and several international partners. Their track record includes extensive experience with various AEGIS baselines and upgrades. For international clients, Lockheed Martin has a history of supporting Foreign Military Sales (FMS) requirements, ensuring that allied nations receive the necessary technical expertise and support for their AEGIS-equipped vessels. This includes providing lifecycle support, training, and system modernization. While generally considered a reliable provider of complex defense systems, specific performance metrics and any past issues related to cost, schedule, or quality for similar FMS contracts would require deeper investigation into contract performance reports and historical data.

How does the Cost Plus Incentive Fee (CPIF) structure of this contract compare to other AEGIS support contracts, and what are the typical risks associated with it?

The Cost Plus Incentive Fee (CPIF) contract structure is common in defense procurements where the final costs are uncertain, and the government wants to incentivize the contractor to control expenses while achieving specific performance targets. In a CPIF contract, the final fee is adjusted based on the contractor's performance against pre-defined cost and performance objectives. Compared to fixed-price contracts, CPIF offers more flexibility but carries a higher risk of cost overruns if the incentive targets are not well-defined or if the contractor's actual costs significantly exceed estimates. For AEGIS support, this means that while the incentive is to perform well and efficiently, the government bears the risk if costs escalate beyond projections, even with incentives in place. Effective oversight and clear performance metrics are crucial to mitigate these risks and ensure value for money.

Given this was a sole-source award, what mechanisms were in place to ensure fair and reasonable pricing for the Norwegian government and U.S. taxpayers?

For sole-source awards, particularly those involving Foreign Military Sales (FMS), ensuring fair and reasonable pricing involves rigorous negotiation and cost analysis by the procuring agency (in this case, the Department of the Navy). The government typically conducts a thorough review of the contractor's proposed costs, including direct costs, indirect costs, and profit. This often involves detailed audits and negotiations based on historical pricing data, should-cost models, and market research where applicable. For FMS cases, the U.S. government acts as an intermediary, negotiating terms and prices with the contractor on behalf of the foreign purchaser. While the absence of competition limits direct price comparison, the government's established procurement regulations and oversight processes aim to establish a fair price, though the potential for savings through competition is inherently lost.

What is the estimated total value of this contract and how does it compare to other AEGIS support contracts or similar FMS procurements?

The provided data indicates a total obligated amount of $37,641,296.54 for this contract. Comparing this figure directly to other AEGIS support contracts or FMS procurements requires access to a broader dataset of similar contracts, including their scope, duration, and specific services rendered. AEGIS support contracts can vary significantly in value based on the specific baseline being supported, the number of vessels involved, the duration of the support period, and the inclusion of upgrades or modernization efforts. Without a direct comparison set, it's difficult to definitively state whether $37.6 million represents a high, low, or average value. However, for a multi-year support contract for a complex defense system, this amount suggests a significant but potentially standard investment for a specific FMS requirement.

What are the potential risks associated with a long-term contract (nearly 5 years) for specialized defense system support, especially when awarded sole-source?

Long-term, sole-source contracts for specialized defense systems like AEGIS present several potential risks. Firstly, vendor lock-in is a significant concern; the government becomes heavily reliant on a single provider, making it difficult and costly to switch suppliers or adopt alternative technologies in the future. Secondly, without competitive pressure, there's a reduced incentive for the contractor to innovate or offer cost efficiencies beyond what is contractually mandated. Thirdly, the CPIF structure, while offering flexibility, can lead to cost escalation over the contract's duration if not meticulously managed and overseen. Finally, changes in technology, geopolitical landscapes, or the operational needs of the end-user (Norway, in this case) might not be adequately addressed if the contract is too rigid or if the contractor lacks the incentive to adapt proactively.

Industry Classification

NAICS: Manufacturing › Navigational, Measuring, Electromedical, and Control Instruments Manufacturing › Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing

Product/Service Code: RESEARCH AND DEVELOPMENT › C – National Defense R&D Services

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002411R5105

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

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: $37,862,271

Exercised Options: $37,862,271

Current Obligation: $37,641,297

Subaward Activity

Number of Subawards: 12

Total Subaward Amount: $2,058,950

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline