DoD's $540M AEGIS FMS LTS contract to Lockheed Martin shows limited competition and high cost

Contract Overview

Contract Amount: $540,380,879 ($540.4M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2016-06-24

End Date: 2024-08-02

Contract Duration: 2,961 days

Daily Burn Rate: $182.5K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: AEGIS FOREIGN MILITARY SALES (FMS) LIFETIME SUPPORT (LTS)

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $540.4 million to LOCKHEED MARTIN CORPORATION for work described as: AEGIS FOREIGN MILITARY SALES (FMS) LIFETIME SUPPORT (LTS) Key points: 1. This contract represents a significant long-term investment in foreign military sales support. 2. The sole-source nature raises concerns about potential overpricing and lack of innovation. 3. Performance duration of over 8 years indicates a critical, ongoing need for these services. 4. The contract's value places it among major defense support agreements. 5. Focus on AEGIS systems highlights a specialized area within naval defense. 6. The absence of small business involvement warrants further investigation.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its specialized nature and foreign military sales component. However, the Cost Plus Fixed Fee (CPFF) pricing structure, combined with a sole-source award, suggests a higher risk of cost overruns compared to competitively bid contracts. Without comparable sole-source contracts for similar FMS LTS, it's difficult to definitively assess value for money, but the lack of competition is a red flag for efficient pricing.

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 approach is typically justified when only one responsible source can provide the required supplies or services. For a critical system like AEGIS FMS LTS, this may be due to proprietary technology or unique expertise held by Lockheed Martin. However, the lack of competition limits price discovery and potentially leads to higher costs for the government and allied nations.

Taxpayer Impact: Taxpayers may bear higher costs due to the absence of competitive pressure, which typically drives down prices and encourages efficiency. The government has less leverage to negotiate favorable terms when a sole-source provider is the only option.

Public Impact

Foreign military allies utilizing the AEGIS combat system will receive essential support, enhancing their naval defense capabilities. The contract ensures the continued operational readiness of AEGIS-equipped vessels for partner nations. This spending supports specialized technical expertise and sustainment services for advanced naval technology. The primary beneficiaries are allied nations operating under Foreign Military Sales agreements, bolstering regional security.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing and potential for cost savings.
CPFF contract type can incentivize cost increases if not closely monitored.
Long duration of the contract increases exposure to potential cost escalations over time.
Lack of small business participation means limited opportunities for smaller firms in this high-value contract.

Positive Signals

Ensures critical sustainment for advanced naval defense systems for allied nations.
Provides long-term, stable support for a key defense technology.
Lockheed Martin possesses unique expertise essential for AEGIS LTS.

Sector Analysis

The AEGIS Combat System is a highly sophisticated naval defense platform. Contracts supporting its Foreign Military Sales (FMS) Lifetime Support (LTS) are crucial for maintaining the operational readiness of allied navies. The market for such specialized, high-end defense systems support is typically concentrated among a few prime contractors with deep technical knowledge and established relationships. Spending in this niche is driven by geopolitical alliances and the need for interoperable defense capabilities among partners.

Small Business Impact

This contract does not appear to have any specific small business set-aside provisions, nor is there an indication of significant subcontracting opportunities for small businesses. The nature of AEGIS system support likely requires highly specialized skills and components often provided by large, established defense contractors. This limits the direct economic benefit to the small business ecosystem for this particular award.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. Given it's a sole-source award for FMS, oversight also involves coordination with the Defense Security Cooperation Agency (DSCA) and the allied nations involved. Transparency may be limited due to the sole-source nature and FMS classification, but performance metrics and financial reporting are standard oversight mechanisms.

Related Government Programs

AEGIS Combat System
Foreign Military Sales (FMS)
Naval Sea Systems Command (NAVSEA) Contracts
Defense Logistics Agency (DLA) Support Contracts

Risk Flags

Sole-source award
Cost Plus Fixed Fee contract type
Long contract duration
Foreign Military Sales (FMS) complexity

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $540.4 million to LOCKHEED MARTIN CORPORATION. AEGIS FOREIGN MILITARY SALES (FMS) LIFETIME SUPPORT (LTS)

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 $540.4 million.

What is the period of performance?

Start: 2016-06-24. End: 2024-08-02.

What is the historical spending trend for AEGIS FMS LTS contracts awarded to Lockheed Martin?

Historical spending data for AEGIS FMS LTS contracts awarded to Lockheed Martin indicates a consistent and significant investment over many years. While the specific $540 million figure represents the current contract's ceiling, previous awards and modifications for AEGIS support have cumulatively amounted to billions of dollars. This trend reflects the long lifecycle of naval platforms and the ongoing need for sustainment, upgrades, and training for allied nations operating the AEGIS system. The sustained high spending underscores the critical role of AEGIS in international defense partnerships and Lockheed Martin's dominant position as the sole provider of such specialized support.

How does the Cost Plus Fixed Fee (CPFF) pricing structure compare to other contract types for similar defense sustainment services?

The Cost Plus Fixed Fee (CPFF) contract type, used here, reimburses the contractor for allowable costs plus a fixed fee representing profit. This structure is common for complex R&D or services where cost estimation is difficult. However, it carries a higher risk of cost overruns compared to fixed-price contracts, as the government bears the cost risk. For defense sustainment, competitively bid fixed-price incentive fee (FPIF) or firm-fixed-price (FFP) contracts often offer better value for money by incentivizing contractor efficiency and cost control. The CPFF structure here, especially in a sole-source context, suggests a greater emphasis on ensuring service availability over strict cost containment.

What are the key performance indicators (KPIs) used to measure the success of this AEGIS FMS LTS contract?

Key Performance Indicators (KPIs) for this AEGIS FMS LTS contract likely focus on ensuring the operational readiness and availability of the AEGIS systems for allied nations. These could include metrics such as system uptime, response times for technical support, delivery timelines for spare parts and repairs, and successful completion of scheduled maintenance. Additionally, KPIs might track the effectiveness of training programs provided to foreign crews and adherence to safety and security protocols. The contract's success is ultimately measured by the sustained combat effectiveness of the partner nations' AEGIS-equipped fleets, contributing to shared security objectives.

What is Lockheed Martin's track record in providing support for complex defense systems like AEGIS?

Lockheed Martin has an extensive and well-established track record in providing support for complex defense systems, including the AEGIS Combat System. As the prime contractor for AEGIS development and integration, the company possesses deep institutional knowledge and technical expertise. Their support services typically encompass lifecycle sustainment, including maintenance, repair, upgrades, training, and logistics. While specific performance details for individual contracts are often sensitive, Lockheed Martin is generally regarded as a capable provider of such critical support, evidenced by their long-standing role in the AEGIS program and numerous other major defense platforms globally.

Are there any known risks associated with the long-term sustainment of the AEGIS system?

Yes, there are several known risks associated with the long-term sustainment of complex defense systems like AEGIS. These include technological obsolescence, where components or software may become outdated, requiring costly upgrades or replacements. Supply chain disruptions, particularly for specialized parts, can impact availability and lead times. Furthermore, the aging workforce within both the government and contractor sides poses a risk of knowledge loss. For FMS contracts specifically, geopolitical shifts, changes in allied funding priorities, or differing national requirements can introduce complexities and risks to sustainment planning and execution.

How does this contract contribute to the overall U.S. defense industrial base and national security?

This contract significantly contributes to the U.S. defense industrial base by sustaining high-skilled jobs at Lockheed Martin and its subcontractors, particularly in specialized areas of naval systems engineering and support. It reinforces the U.S.'s role as a key security partner to allied nations by ensuring the operational readiness of their advanced naval capabilities, which often interoperate with U.S. forces. Maintaining the AEGIS FMS LTS program strengthens U.S. technological leadership in naval warfare and supports the broader U.S. foreign policy objectives of promoting regional stability and collective security through military cooperation.

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 COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002414R5115

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: $570,134,497

Exercised Options: $570,134,497

Current Obligation: $540,380,879

Actual Outlays: $1,994,775

Subaward Activity

Number of Subawards: 420

Total Subaward Amount: $468,167,267

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline