DoD's $1.81B AEGIS Combat System contract to Lockheed Martin shows strong competition but raises value-for-money questions

Contract Overview

Contract Amount: $1,812,639,590 ($1.8B)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2013-03-04

End Date: 2025-03-31

Contract Duration: 4,410 days

Daily Burn Rate: $411.0K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 3

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: AEGIS COMBAT SYSTEM ENGINEERING AGENT (CSEA) ADVANCED CAPABILITY BUILD 16 (ACB 16), TECHNOLOGY INSERTION 16 (TI 16), FUTURE ACB/TI, BASELINE MAINTENANCE, TRAINING, AND STUDIES

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $1.81 billion to LOCKHEED MARTIN CORPORATION for work described as: AEGIS COMBAT SYSTEM ENGINEERING AGENT (CSEA) ADVANCED CAPABILITY BUILD 16 (ACB 16), TECHNOLOGY INSERTION 16 (TI 16), FUTURE ACB/TI, BASELINE MAINTENANCE, TRAINING, AND STUDIES Key points: 1. The contract leverages a full and open competition, indicating a healthy market for AEGIS system support. 2. While competition is present, the cost-plus incentive fee structure warrants scrutiny for potential cost overruns. 3. The long duration of the contract (over 10 years) necessitates ongoing performance monitoring to ensure sustained value. 4. This contract represents a significant portion of the Navy's investment in advanced combat system sustainment. 5. The contractor, Lockheed Martin, has a substantial track record with complex defense systems. 6. The contract's focus on engineering, maintenance, and training suggests a comprehensive approach to system readiness.

Value Assessment

Rating: fair

Benchmarking the value-for-money for this extensive AEGIS Combat System Engineering Agent contract is challenging without detailed cost breakdowns. The cost-plus incentive fee (CPIF) structure, while incentivizing performance, can lead to higher final costs compared to fixed-price contracts if not managed tightly. Given the contract's duration and scope, continuous oversight is crucial to ensure costs remain reasonable relative to the capabilities delivered and the system's criticality to naval operations. Comparing this to other large-scale, long-term defense system support contracts suggests that while the overall dollar amount is substantial, the per-year expenditure might be within expected ranges for such complex platforms.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, suggesting that multiple capable vendors were able to bid. The presence of three bidders (as indicated by 'no': 3) is a positive sign for price discovery and ensures the government receives proposals from a competitive field. This level of competition generally pressures bidders to offer more favorable terms and pricing to secure the award, benefiting the government.

Taxpayer Impact: The robust competition for this critical defense system contract likely resulted in a more cost-effective outcome for taxpayers compared to a sole-source or limited competition scenario.

Public Impact

The U.S. Navy benefits directly through the sustained readiness and advanced capabilities of its AEGIS-equipped vessels. This contract ensures the continued operation, maintenance, and technological advancement of a core naval defense system. Personnel in specialized engineering, technical, and training roles within Lockheed Martin and its subcontractors are supported by this contract. The geographic impact is primarily centered in New Jersey, where the contractor is located, but the system's operational impact is global for naval deployments.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for cost growth inherent in Cost Plus Incentive Fee contracts requires diligent oversight.
Long contract duration (over 10 years) increases the risk of scope creep or evolving requirements not being optimally managed.
Dependence on a single prime contractor for such a critical system raises concerns about long-term strategic flexibility.

Positive Signals

Awarded via full and open competition, indicating a competitive market and potential for better pricing.
Contract includes incentives, which can drive contractor performance and efficiency.
Focus on engineering, maintenance, and training ensures a holistic approach to system lifecycle management.
Contractor (Lockheed Martin) possesses extensive experience with the AEGIS system and similar complex defense platforms.

Sector Analysis

The AEGIS Combat System is a cornerstone of modern naval warfare, providing integrated air and missile defense. This contract falls within the broader defense electronics and systems manufacturing sector, specifically focusing on command and control systems. The market for such specialized defense engineering and sustainment services is typically dominated by a few large, experienced prime contractors like Lockheed Martin. Spending in this area is critical for maintaining technological superiority and operational readiness for naval forces, with comparable contracts often running into billions of dollars over extended periods.

Small Business Impact

The data indicates this contract was not set aside for small businesses (ss: false, sb: false). While the prime contract is with a large corporation, there is potential for significant subcontracting opportunities for small businesses within the specialized areas of engineering, maintenance, and training required for the AEGIS system. The extent of small business participation would depend on Lockheed Martin's subcontracting plan and the availability of qualified small business vendors in the required technical fields.

Oversight & Accountability

Oversight for this contract is primarily the responsibility of the Department of the Navy, likely through program management offices and contracting officers. The Cost Plus Incentive Fee structure necessitates close monitoring of costs, performance metrics, and adherence to technical specifications. Transparency is generally maintained through contract reporting requirements, though detailed cost data may be sensitive. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

AEGIS Ballistic Missile Defense System
Naval Surface Warfare
Defense Engineering Services
Combat Systems Modernization
US Navy Ship Procurement and Modernization

Risk Flags

Cost Growth Potential
Long-Term Contract Duration
Technology Integration Risk
Dependence on Single Prime Contractor

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.81 billion to LOCKHEED MARTIN CORPORATION. AEGIS COMBAT SYSTEM ENGINEERING AGENT (CSEA) ADVANCED CAPABILITY BUILD 16 (ACB 16), TECHNOLOGY INSERTION 16 (TI 16), FUTURE ACB/TI, BASELINE MAINTENANCE, TRAINING, AND STUDIES

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 $1.81 billion.

What is the period of performance?

Start: 2013-03-04. End: 2025-03-31.

What is Lockheed Martin's historical performance and track record with the AEGIS Combat System and similar defense contracts?

Lockheed Martin Corporation is a primary contractor for the AEGIS Combat System, having been involved in its development, production, and sustainment for decades. Their track record includes delivering complex systems for numerous naval platforms, including cruisers and destroyers. Historically, they have managed large-scale, multi-billion dollar defense contracts, often involving advanced technology integration and long-term support. While generally considered a reliable performer in delivering sophisticated defense capabilities, like many large defense contractors, they have faced scrutiny regarding cost performance and schedule adherence on specific programs. Performance reviews and contract histories within the Department of Defense provide detailed insights, but publicly available information suggests a strong, albeit sometimes costly, capability in managing programs of this magnitude and complexity.

How does the pricing structure (Cost Plus Incentive Fee) compare to other large defense system sustainment contracts, and what are the implications for value?

The Cost Plus Incentive Fee (CPIF) structure is common for complex defense contracts where precise cost estimation is difficult due to evolving requirements or technological uncertainties. Under CPIF, the contractor is reimbursed for allowable costs plus a fee that is adjusted based on performance against targets (e.g., cost, schedule, technical). Compared to fixed-price contracts, CPIF offers more flexibility but carries a higher risk of cost overruns if targets are not met or if the baseline estimates are inaccurate. For value, CPIF can be effective if the incentives are well-aligned with government objectives and if robust oversight ensures costs remain reasonable. However, it often results in higher final prices than fixed-price contracts, making diligent management and negotiation crucial for achieving good value for taxpayers.

What are the key performance indicators (KPIs) used to measure the success of this AEGIS Combat System Engineering Agent contract?

Key performance indicators for this contract likely revolve around the availability and readiness of the AEGIS system, the successful integration of new technologies (ACB/TI insertions), the effectiveness of training programs, and the timely completion of maintenance and studies. Specific metrics could include system uptime, Mean Time Between Failures (MTBF), successful test and evaluation results for new capabilities, trainee performance metrics, and adherence to delivery schedules for engineering support and documentation. The incentive fee structure would be tied to achieving or exceeding predefined targets for these KPIs, ensuring the contractor is motivated to deliver high-quality support and advancements for the AEGIS system.

What is the historical spending trend for AEGIS Combat System engineering and support, and how does this contract fit within that pattern?

Historical spending on the AEGIS Combat System, encompassing development, procurement, and sustainment, has been substantial and consistent over several decades, reflecting its critical role in naval defense. Annual expenditures often run into the hundreds of millions or even billions of dollars when factoring in new builds, upgrades, and ongoing support. This specific contract, valued at approximately $1.81 billion over its duration, represents a significant component of the sustainment and advanced capability development for the AEGIS system. It fits within the established pattern of long-term, high-value investment required to maintain and modernize this complex platform, ensuring its continued effectiveness against evolving threats.

Are there any identified risks associated with the technology insertion or future capability development aspects of this contract?

Risks associated with technology insertion (TI) and future capability builds (ACB/TI) within complex systems like AEGIS are inherent. These include the potential for integration challenges, where new technologies may not interface seamlessly with existing systems, leading to delays and cost increases. There's also the risk of technological obsolescence if development cycles are too long, or conversely, the risk of adopting immature technologies that prove unreliable. Furthermore, ensuring that these advancements align with future operational needs and threat landscapes requires continuous strategic assessment. The CPIF structure may mitigate some financial risk for the government if incentives are tied to successful integration and performance of new capabilities, but technical risks remain a significant consideration.

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: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: N0002411R5120

Offers Received: 3

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: $1,912,908,006

Exercised Options: $1,908,613,564

Current Obligation: $1,812,639,590

Actual Outlays: $140,645,154

Subaward Activity

Number of Subawards: 635

Total Subaward Amount: $654,193,362

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline