DoD's $358M AEGIS SHIP INTEGRATION contract to Lockheed Martin raises value and competition concerns

Contract Overview

Contract Amount: $357,951,916 ($358.0M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2014-08-20

End Date: 2025-11-30

Contract Duration: 4,120 days

Daily Burn Rate: $86.9K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: AEGIS SHIP INTEGRATION AND TEST

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $358.0 million to LOCKHEED MARTIN CORPORATION for work described as: AEGIS SHIP INTEGRATION AND TEST Key points: 1. The contract's significant value warrants scrutiny for cost-effectiveness and potential for better pricing through competition. 2. A sole-source award limits market forces, potentially leading to higher costs for taxpayers. 3. The long duration and fixed-price incentive structure require careful monitoring to ensure performance and cost control. 4. This contract represents a substantial investment in naval defense systems, highlighting the importance of efficient procurement. 5. The lack of competition suggests a potential reliance on a single supplier, which can pose long-term risks.

Value Assessment

Rating: questionable

Benchmarking the value of this $358 million contract is challenging without comparable sole-source awards for AEGIS system integration. However, the absence of competition inherently limits the government's ability to secure the best possible pricing. Fixed-price incentive contracts can be effective when well-managed, but the overall value proposition is weakened when market forces are not leveraged. Further analysis of the contractor's historical performance and cost structures would be needed to definitively assess value for money.

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 among multiple vendors. This approach is typically used when only one vendor possesses the necessary capabilities or when urgency dictates a direct award. The lack of competition means that the government did not benefit from a bidding process that could have driven down prices and spurred innovation. The justification for this sole-source award would need to be thoroughly reviewed to understand why full and open competition was not feasible.

Taxpayer Impact: Sole-source awards can result in higher costs for taxpayers as there is no competitive pressure to ensure the most economical price. This limits the government's leverage in price negotiations.

Public Impact

The primary beneficiaries are the U.S. Navy and its fleet readiness, ensuring advanced combat systems are integrated into naval vessels. This contract supports the development, integration, and testing of critical AEGIS combat system components. The geographic impact is primarily centered in New Jersey, where Lockheed Martin's operations are located. It sustains high-skilled jobs in the defense sector, particularly in engineering, systems integration, and testing roles.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition may lead to inflated costs over the contract's life.
Sole-source awards can create vendor lock-in, reducing future flexibility.
Long contract duration increases the risk of cost overruns if not managed diligently.
Reliance on a single contractor could impact supply chain resilience.

Positive Signals

Lockheed Martin is a well-established defense contractor with extensive experience in complex systems integration.
The AEGIS system is a critical component of U.S. naval defense, ensuring high levels of operational capability.
Fixed-price incentive contracts, when managed effectively, can align contractor and government interests towards performance goals.

Sector Analysis

The defense sector, particularly naval systems, is characterized by high technological complexity and significant government investment. The AEGIS Combat System is a cornerstone of U.S. naval power, and its integration and testing are vital for maintaining fleet effectiveness. Spending in this area is often concentrated among a few large prime contractors due to specialized expertise and security requirements. Comparable spending benchmarks are difficult to establish for sole-source awards, but the overall defense shipbuilding and systems integration market is valued in the tens of billions annually.

Small Business Impact

This contract does not appear to have specific small business set-aside provisions. Given the sole-source nature and the specialized requirements of AEGIS system integration, it is unlikely that significant subcontracting opportunities for small businesses would be mandated or readily available, unless directly flowed down by the prime contractor for specific components or services. The impact on the small business ecosystem is likely minimal for this specific award.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. Accountability measures would be embedded within the contract's performance metrics and reporting requirements. Transparency may be limited due to the sole-source nature, but contract modifications and performance reviews should be documented. The Inspector General for the Department of Defense would have jurisdiction for audits and investigations if any irregularities were suspected.

Related Government Programs

AEGIS Combat System
Naval Surface Warfare
Shipbuilding and Repair
Defense Systems Integration
Military Electronics Manufacturing

Risk Flags

Sole-source award
Long contract duration
Lack of competitive pricing pressure

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $358.0 million to LOCKHEED MARTIN CORPORATION. AEGIS SHIP INTEGRATION AND TEST

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 $358.0 million.

What is the period of performance?

Start: 2014-08-20. End: 2025-11-30.

What is Lockheed Martin's track record with similar sole-source defense contracts?

Lockheed Martin Corporation is a major defense contractor with a long history of securing large, complex sole-source contracts across various defense platforms. Their track record includes significant work on naval systems, including the AEGIS program itself, as well as other major weapon systems. While their experience is extensive, the nature of sole-source awards means that direct comparisons of value-for-money against competitive bids are inherently absent. Performance on these contracts is typically evaluated based on meeting technical specifications, schedule adherence, and cost targets as defined in the contract. Government accountability reports and contract performance assessments (e.g., CPARS) would provide more granular insights into their specific performance on past sole-source engagements, though such data may not always be publicly accessible in detail.

How does the pricing structure of this fixed-price incentive contract compare to market rates for similar integration services?

Determining precise market rates for specialized defense system integration like AEGIS is challenging due to the proprietary nature of the technology and the limited number of qualified contractors. Fixed-price incentive (FPI) contracts aim to share cost risks and rewards between the government and the contractor. The target cost, ceiling price, and incentive sharing ratio are critical elements that dictate the final price. Without access to the detailed pricing breakdown, negotiation records, and cost audits for this specific contract, a direct comparison to 'market rates' is speculative. However, the absence of competition in a sole-source award inherently removes a key mechanism for ensuring prices are aligned with competitive market pressures. The government relies heavily on its negotiation team and cost analysis expertise to establish a fair target price.

What are the primary risks associated with a sole-source award for a critical defense system like AEGIS?

The primary risks associated with a sole-source award for a critical defense system like AEGIS include potential for higher costs due to lack of competition, reduced incentive for contractor efficiency, and vendor lock-in. Without competitive pressure, the contractor may have less motivation to innovate or reduce costs aggressively. Furthermore, the government becomes heavily reliant on a single supplier, which can create vulnerabilities in the supply chain, limit flexibility in adapting to new technologies, and make future contract negotiations more difficult. There's also a risk that the contractor's strategic priorities could diverge from the government's long-term needs. Robust oversight and strong contract management are essential to mitigate these risks.

What is the historical spending pattern for AEGIS ship integration and test contracts awarded by the Department of Defense?

Historical spending on AEGIS ship integration and test contracts by the Department of Defense has been substantial, reflecting the system's critical role in naval defense. Over the years, significant portions of the Navy's shipbuilding and modernization budgets have been allocated to the AEGIS program. This includes funding for new ship construction, upgrades to existing vessels, and ongoing sustainment and integration efforts. While specific figures for 'integration and test' as a distinct category can fluctuate annually based on program milestones and fleet deployment schedules, the overall investment in the AEGIS ecosystem runs into billions of dollars cumulatively. The trend generally shows consistent, high-level spending to maintain and enhance this advanced capability, often awarded through a mix of competitive and sole-source contracts to key defense primes like Lockheed Martin.

How does the duration of this contract (over 11 years) impact its overall value and risk profile?

The extended duration of this contract, spanning from August 2014 to November 2025 (over 11 years), significantly impacts its value and risk profile. From a value perspective, a longer contract can provide stability and predictability for both the government and the contractor, potentially allowing for more efficient long-term planning and resource allocation. It can also facilitate deeper integration and specialization. However, it also increases the risk of cost escalation due to inflation, unforeseen technological changes, or shifts in program requirements that may not have been anticipated at the outset. Managing such a long-term contract requires continuous oversight, regular performance reviews, and mechanisms for adapting to evolving needs and market conditions to ensure continued value and mitigate risks of obsolescence or inefficiency.

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: FIRE CONTROL EQPT.

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002412R5104

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

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: $976,476,605

Exercised Options: $398,263,043

Current Obligation: $357,951,916

Actual Outlays: $2,539,300

Subaward Activity

Number of Subawards: 90

Total Subaward Amount: $30,813,351

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline