DoD awards Raytheon $263M for SM-6 missile production, a sole-source contract with fixed-price incentive terms

Contract Overview

Contract Amount: $263,377,876 ($263.4M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2012-05-10

End Date: 2017-04-30

Contract Duration: 1,816 days

Daily Burn Rate: $145.0K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: FY12 SM-6 BLOCK I ALL UP ROUNDS FOR CONTINUATION OF LOW RATE INITIAL PRODUCTION

Place of Performance

Location: TUCSON, PIMA County, ARIZONA, 85756

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $263.4 million to RAYTHEON COMPANY for work described as: FY12 SM-6 BLOCK I ALL UP ROUNDS FOR CONTINUATION OF LOW RATE INITIAL PRODUCTION Key points: 1. Significant investment in critical missile defense technology. 2. Sole-source award raises questions about price discovery and competition. 3. Long contract duration (over 5 years) may impact cost control. 4. Fixed-price incentive contract aims to balance cost and performance.

Value Assessment

Rating: fair

The contract value of $263M over 5 years for missile production appears substantial. Benchmarking against similar sole-source missile contracts is difficult without more data, but the fixed-price incentive structure suggests an attempt to manage costs.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was not competed, indicating a sole-source award. This limits price discovery and potentially leads to higher costs compared to a competitive environment. The rationale for sole-sourcing should be clearly documented.

Taxpayer Impact: Taxpayer funds are committed to a sole-source procurement, highlighting the importance of robust oversight to ensure fair pricing and value for money.

Public Impact

Ensures continued availability of a key strategic missile defense system. Supports Raytheon's manufacturing capabilities and associated workforce. Potential for cost overruns due to lack of competition. Long-term commitment to a specific technology platform.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award
Long contract duration
Lack of competition
Fixed-price incentive can incentivize overruns if not managed

Positive Signals

Procurement of critical defense asset
Potential for performance improvements via incentive structure

Sector Analysis

This contract falls within the Defense sector, specifically guided missile manufacturing. Spending in this area is driven by national security needs and technological advancements. Benchmarks are difficult without specific program details, but large sole-source awards are common for specialized defense systems.

Small Business Impact

The contract was awarded to Raytheon Company, a large defense contractor. There is no indication of small business participation in this specific award, which is common for prime contracts of this nature.

Oversight & Accountability

The contract's long duration and sole-source nature necessitate strong oversight from the Defense Contract Management Agency (DCMA) to ensure cost control, adherence to specifications, and fair pricing throughout the performance period.

Related Government Programs

Guided Missile and Space Vehicle Manufacturing
Department of Defense Contracting
Defense Contract Management Agency Programs

Risk Flags

Sole-source award limits competition.
Long contract duration increases risk of cost escalation.
Potential for contractor to exploit lack of competition.
Fixed-price incentive can still lead to overruns if poorly managed.
Lack of transparency on specific cost drivers.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $263.4 million to RAYTHEON COMPANY. FY12 SM-6 BLOCK I ALL UP ROUNDS FOR CONTINUATION OF LOW RATE INITIAL PRODUCTION

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 $263.4 million.

What is the period of performance?

Start: 2012-05-10. End: 2017-04-30.

What was the justification for awarding this contract on a sole-source basis, and what steps were taken to ensure fair and reasonable pricing?

The justification for a sole-source award typically involves unique capabilities, proprietary technology, or lack of viable alternatives. To ensure fair and reasonable pricing, the agency likely conducted a should-cost analysis, reviewed historical pricing, and potentially negotiated incentive targets carefully. However, without competition, the inherent price discovery mechanism is absent, making robust government cost analysis critical.

How does the fixed-price incentive (FPI) structure mitigate risks associated with cost overruns in this long-term missile production contract?

The FPI structure aims to share cost risks and rewards between the government and contractor. It establishes a target cost, target profit, and a price ceiling. If costs exceed the target, the contractor assumes a larger share of the overrun beyond a certain point, incentivizing cost control. Conversely, savings below the target are shared. Effective implementation requires clear performance metrics and diligent government oversight of contractor cost reporting.

What is the long-term strategic value of continuing low-rate initial production (LRIP) for the SM-6 Block I missile, and are there plans for future competitive procurements?

Continuing LRIP for the SM-6 Block I ensures the sustained readiness of a crucial missile defense capability, vital for national security. It allows for production ramp-up and refinement before full-rate production. Future competitive procurements depend on market dynamics, technological evolution, and strategic assessments. If alternative systems emerge or if the current system's technology matures, competition could be introduced in subsequent phases or for next-generation systems.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Guided Missile and Space Vehicle Manufacturing

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002412R5401

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Parent Company: Rockwell Collins Australia PTY Limited

Address: 1151 E HERMANS RD, TUCSON, AZ, 85756

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: $270,442,965

Exercised Options: $264,598,167

Current Obligation: $263,377,876

Subaward Activity

Number of Subawards: 400

Total Subaward Amount: $739,732,950

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline