DoD's $270M contract for search and navigation systems awarded to Lockheed Martin, raising value-for-money questions

Contract Overview

Contract Amount: $270,649,215 ($270.6M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2013-04-11

End Date: 2021-03-31

Contract Duration: 2,911 days

Daily Burn Rate: $93.0K/day

Competition Type: NOT AVAILABLE FOR COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: SITES EQUIPMENT

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $270.6 million to LOCKHEED MARTIN CORPORATION for work described as: SITES EQUIPMENT Key points: 1. The contract's value-for-money is questionable given the sole-source award and lack of competitive benchmarking. 2. Competition dynamics were absent, as the contract was awarded on a non-competitive basis. 3. Risk indicators include the sole-source nature and the cost-plus-fixed-fee pricing structure, which can incentivize cost overruns. 4. Performance context is limited without specific details on deliverables and outcomes. 5. The contract falls within the Defense sector, specifically focusing on advanced navigation and guidance systems. 6. The large dollar value and sole-source award warrant close scrutiny for potential inefficiencies.

Value Assessment

Rating: questionable

Benchmarking this contract against similar sole-source awards is challenging due to limited public data on competitive pricing for specialized defense systems. The cost-plus-fixed-fee structure, while common in R&D and complex projects, carries inherent risks of cost escalation. Without a competitive process, it's difficult to ascertain if the pricing reflects fair market value or if taxpayers received optimal value. The significant duration of the contract (over 8 years) also adds to the uncertainty regarding long-term cost-effectiveness.

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 typically occurs when a specific contractor possesses unique capabilities or proprietary technology essential for the requirement, or in cases of urgent need where competition is not feasible. The lack of multiple bidders means that price discovery through market forces was bypassed, potentially leading to higher costs than if the contract had been competed.

Taxpayer Impact: Sole-source awards mean taxpayers do not benefit from the cost savings that typically arise from competitive bidding. This can result in higher overall expenditure for the government on necessary defense equipment.

Public Impact

The primary beneficiaries are the Department of Defense, specifically the Department of the Navy, receiving advanced search, detection, navigation, guidance, and related systems. The services delivered are critical for military operations, enhancing situational awareness and operational capabilities. The geographic impact is primarily within New Jersey, where the contractor is located, potentially supporting local employment and economic activity. Workforce implications include the employment of skilled engineers, technicians, and support staff at Lockheed Martin.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Cost-plus-fixed-fee contract type can lead to cost overruns if not managed tightly.
Long contract duration (over 8 years) increases exposure to potential inefficiencies.
Lack of transparency in the justification for sole-source award.
Potential for contractor to leverage unique position for favorable terms.

Positive Signals

Award to a major defense contractor with established capabilities.
Contract addresses critical defense needs for navigation and detection systems.
Fixed fee component provides some level of cost certainty compared to pure cost-reimbursement.
Long-term award may ensure continuity of critical technology development and supply.

Sector Analysis

This contract falls within the Defense Industrial Base sector, specifically focusing on advanced electronics and systems manufacturing. The market for such specialized navigation and detection systems is characterized by high barriers to entry, significant R&D investment, and a limited number of prime contractors capable of meeting stringent military requirements. Comparable spending benchmarks are difficult to establish publicly due to the proprietary nature of defense technologies and the unique specifications of military contracts. However, the overall defense electronics market is substantial, with significant government investment.

Small Business Impact

There is no indication that this contract included small business set-asides. As a sole-source award to a large prime contractor, the direct impact on small businesses is likely minimal unless Lockheed Martin engages in significant subcontracting with small businesses. The absence of set-asides means that opportunities for small businesses to directly compete for this specific contract were not available. Future subcontracting opportunities would depend on Lockheed Martin's procurement practices.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contracting and program management offices. Specific oversight mechanisms would include contract performance reviews, audits, and potentially Inspector General investigations, especially given the sole-source nature and cost-plus-fixed-fee structure. Transparency is limited due to the non-competitive award, but reporting requirements on cost and performance would be mandated by the contract terms.

Related Government Programs

Defense Advanced Research Projects Agency (DARPA) programs
Naval Air Systems Command (NAVAIR) contracts
Intelligence, Surveillance, and Reconnaissance (ISR) systems
Advanced Navigation Technology Development
DoD Research and Development Spending

Risk Flags

Sole-source award
Cost-plus-fixed-fee contract type
Lack of competition
High dollar value contract

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $270.6 million to LOCKHEED MARTIN CORPORATION. SITES EQUIPMENT

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 $270.6 million.

What is the period of performance?

Start: 2013-04-11. End: 2021-03-31.

What specific justification was provided for awarding this contract on a sole-source basis to Lockheed Martin?

The provided data does not include the specific justification for the sole-source award. Typically, sole-source contracts are justified under specific circumstances outlined in federal acquisition regulations, such as the existence of only one responsible source capable of providing the required supplies or services, or when urgency precludes competition. For high-technology defense systems, justifications often cite unique capabilities, proprietary technology, or the need for specialized expertise that only a particular contractor possesses. Without the official justification document, it is impossible to verify the validity of the sole-source determination for this particular contract.

How does the cost-plus-fixed-fee (CPFF) pricing structure compare to other contract types for similar defense systems, and what are its implications for cost control?

The Cost-Plus-Fixed-Fee (CPFF) structure is common for research and development or complex projects where the scope is not fully defined at the outset. It allows the contractor to recover all allowable costs plus a predetermined fixed fee, representing profit. Compared to fixed-price contracts, CPFF offers less cost certainty for the government but provides flexibility for the contractor to adapt to evolving requirements. For cost control, CPFF relies heavily on robust government oversight, detailed cost accounting standards, and negotiation of a reasonable fixed fee. If not managed diligently, the incentive for the contractor can be to increase costs to maximize the fee base, although the fixed fee itself limits profit potential. This contrasts with Firm-Fixed-Price (FFP) contracts, where the contractor bears more risk and has a stronger incentive to control costs to maximize profit.

What is the historical spending pattern for similar search, detection, navigation, and guidance systems within the Department of the Navy?

Historical spending patterns for similar systems within the Department of the Navy are substantial and ongoing, reflecting the critical nature of these technologies for naval operations. While specific figures for 'search, detection, navigation, guidance, aeronautical, and nautical system and instrument manufacturing' are aggregated under NAICS code 334511, the Navy consistently invests billions annually in platforms and systems that rely on such components. This includes investments in radar, sonar, inertial navigation systems, GPS receivers, and associated software. Spending often fluctuates based on modernization programs, new platform acquisitions (like aircraft carriers, submarines, and destroyers), and upgrades to existing fleets. The significant, long-term nature of defense procurement means that contracts for these systems are often multi-year and awarded to a few key industry players.

What are the potential risks associated with a sole-source award of this magnitude and duration?

A sole-source award of this magnitude ($270M) and duration (over 8 years) carries several potential risks. Firstly, the lack of competition means the government may not be achieving the best possible price, as market forces driving cost efficiency are absent. Secondly, the contractor may have reduced incentives to innovate or improve performance once a long-term, non-competitive agreement is in place. Thirdly, there's a risk of vendor lock-in, making it difficult and costly to switch providers in the future. Fourthly, the cost-plus-fixed-fee structure, if not rigorously overseen, can lead to cost overruns as the contractor is reimbursed for expenses. Finally, sole-source awards can sometimes raise concerns about fairness and transparency in the procurement process, potentially leading to public scrutiny.

What is Lockheed Martin's track record with the Department of the Navy for similar systems?

Lockheed Martin has an extensive and long-standing track record with the Department of the Navy, serving as a primary defense contractor across numerous programs. They are a major provider of advanced systems, including radar, sonar, combat systems, aircraft, and various electronic warfare and navigation technologies. For the specific domain of search, detection, and navigation systems, Lockheed Martin is a key player, often involved in developing and integrating complex solutions for naval platforms. Their history with the Navy includes numerous large-scale contracts, often awarded through competitive processes but also including sole-source arrangements for specialized or follow-on work. Their established presence and capabilities in this area likely contributed to their selection for this particular contract.

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: COMM/DETECT/COHERENT RADIATION

Competition & Pricing

Extent Competed: NOT AVAILABLE FOR COMPETITION

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002413R5111

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

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: $271,132,898

Exercised Options: $271,132,898

Current Obligation: $270,649,215

Actual Outlays: $57,365

Subaward Activity

Number of Subawards: 146

Total Subaward Amount: $72,397,006

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline