Navy awards $1.62B for Littoral Combat Ship construction, with Lockheed Martin as prime contractor

Contract Overview

Contract Amount: $1,622,696,558 ($1.6B)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2017-10-06

End Date: 2026-06-30

Contract Duration: 3,189 days

Daily Burn Rate: $508.8K/day

Competition Type: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Number of Offers Received: 2

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: CONSTRUCTION OF LCS FLIGHT 0+ SHIP

Place of Performance

Location: MIDDLE RIVER, BALTIMORE County, MARYLAND, 21220

State: Maryland Government Spending

Plain-Language Summary

Department of Defense obligated $1.62 billion to LOCKHEED MARTIN CORPORATION for work described as: CONSTRUCTION OF LCS FLIGHT 0+ SHIP Key points: 1. Contract value represents a significant investment in naval shipbuilding capabilities. 2. The fixed-price incentive structure aims to balance cost control with performance. 3. Long contract duration suggests a complex, multi-year production and delivery schedule. 4. The contract is part of a broader strategy to modernize the U.S. fleet. 5. Focus on ship building and repair indicates a critical industrial base requirement.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its scale and specialized nature within naval shipbuilding. The fixed-price incentive (FPI) contract type suggests an expectation of cost control, but the total value of $1.62 billion over several years indicates a substantial commitment. Without specific performance metrics or cost breakdowns, a precise value-for-money assessment is difficult. However, the contract's alignment with strategic fleet modernization goals may justify the investment from a national security perspective.

Cost Per Unit: N/A

Competition Analysis

Competition Level: limited

The contract was awarded under 'Full and Open Competition After Exclusion of Sources,' indicating that while competition was sought, certain sources were excluded, potentially due to specialized capabilities or existing relationships. The presence of two bids suggests a degree of competition, but the exclusion of other potential bidders limits the breadth of market engagement. This approach may be necessary for highly specialized defense procurements but could impact price discovery compared to truly open competition.

Taxpayer Impact: The limited competition may result in higher costs for taxpayers compared to a scenario with broader participation from multiple qualified bidders.

Public Impact

The U.S. Navy benefits from the acquisition of advanced Littoral Combat Ships, enhancing its operational capabilities. The contract supports the shipbuilding and repair industry, particularly in Maryland. This award sustains jobs within the defense industrial base, contributing to the skilled workforce in shipbuilding. The delivery of these ships will bolster national security and maritime presence.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for cost overruns inherent in long-term, complex fixed-price incentive contracts.
Dependence on a single prime contractor for a critical shipbuilding program.
Risk associated with the exclusion of potential bidders impacting overall cost-effectiveness.
Schedule delays are a common risk in large-scale shipbuilding projects.

Positive Signals

Fixed-price incentive structure encourages contractor efficiency and cost management.
Long-term award provides stability and predictability for the contractor and supply chain.
The contract is part of a strategic national defense initiative.
The prime contractor, Lockheed Martin, has extensive experience in naval shipbuilding.

Sector Analysis

The shipbuilding and repair sector (NAICS 336611) is a critical component of the U.S. industrial base, heavily influenced by government defense spending. This contract for Littoral Combat Ships falls within this specialized segment. The market is characterized by high barriers to entry, significant capital investment, and a limited number of large prime contractors capable of undertaking such complex projects. Spending in this sector is often driven by naval modernization programs and national security priorities, with contracts typically being large-scale and long-duration.

Small Business Impact

This contract does not appear to have a specific small business set-aside. However, large prime contractors like Lockheed Martin are typically required to meet small business subcontracting goals. The success of these subcontracting plans is crucial for ensuring that small businesses participate in and benefit from the defense industrial base, contributing to innovation and competition within the supply chain.

Oversight & Accountability

Oversight for this contract will likely be managed by the Department of the Navy's contracting and program management offices. The contract's fixed-price incentive structure includes provisions for cost and performance monitoring. Inspector General (IG) jurisdiction would apply to investigations of fraud, waste, or abuse. Transparency is generally maintained through contract awards databases and program reporting, though specific cost details may be sensitive.

Related Government Programs

Littoral Combat Ship Program
Naval Shipbuilding Contracts
Department of Defense Major Contracts
Fixed Price Incentive Contracts

Risk Flags

Long-term contract duration increases exposure to schedule and cost risks.
Fixed-price incentive contracts can lead to cost overruns if not managed tightly.
Limited competition may impact price discovery and potentially increase costs.
Complexity of shipbuilding projects introduces inherent technical and execution risks.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.62 billion to LOCKHEED MARTIN CORPORATION. CONSTRUCTION OF LCS FLIGHT 0+ SHIP

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 $1.62 billion.

What is the period of performance?

Start: 2017-10-06. End: 2026-06-30.

What is the historical spending trend for Littoral Combat Ship construction?

Historical spending on the Littoral Combat Ship (LCS) program has been substantial, reflecting the program's complexity and the strategic importance of these vessels. The program has seen multiple contract awards over several years, with significant funding allocated for design, development, construction, and testing of both variants (Freedom and Independence classes). While specific annual spending figures fluctuate based on production schedules and contract milestones, the overall investment has been in the billions of dollars. This particular contract for $1.62 billion represents a significant portion of the ongoing construction effort, indicating continued commitment to the program's execution and delivery timeline. Analysis of past spending patterns reveals a consistent, albeit high, level of financial commitment necessary to sustain the shipbuilding infrastructure and workforce required for such advanced naval platforms.

How does the pricing structure of this contract compare to similar naval shipbuilding contracts?

This contract utilizes a Fixed Price Incentive (FPI) structure. FPI contracts are common in complex defense procurements where the government and contractor share in cost savings or overruns beyond target levels. Compared to other naval shipbuilding contracts, FPI is often employed when the scope is well-defined but there's a need to incentivize cost efficiency. Pure Fixed Price (FP) contracts offer less flexibility for the contractor regarding cost fluctuations, while Cost Plus (CP) contracts carry higher risk for the government due to potential cost overruns. The FPI here suggests a balance, aiming for cost control while acknowledging the inherent risks and complexities of building advanced warships like the LCS. Benchmarking specific unit prices is difficult without detailed cost breakdowns, but the FPI approach is a standard method for managing risk and cost in this high-value sector.

What are the primary risks associated with the contractor's performance on this contract?

The primary risks associated with Lockheed Martin's performance on this Littoral Combat Ship (LCS) construction contract are multi-faceted. Given the contract's Fixed Price Incentive (FPI) nature and long duration (ending in 2026), schedule delays and cost overruns are significant concerns. Shipbuilding is inherently complex, involving intricate systems integration, extensive labor, and a sophisticated supply chain, all of which are prone to unforeseen issues. Technical risks related to the performance and reliability of the LCS design itself, despite its operational history, could lead to costly modifications or performance shortfalls. Furthermore, the contractor's ability to manage its extensive supply chain effectively is critical; disruptions or quality issues from subcontractors could impact delivery timelines and overall program costs. Finally, ensuring consistent quality and adherence to stringent naval specifications throughout the construction process presents an ongoing performance risk.

What is the track record of Lockheed Martin Corporation in delivering large naval shipbuilding contracts?

Lockheed Martin Corporation has a substantial and long-standing track record in delivering large naval shipbuilding contracts for the U.S. Navy and allied nations. They are a primary builder of the Littoral Combat Ship (LCS) program, having constructed vessels for both the Freedom variant and contributing to the overall program management. Beyond the LCS, Lockheed Martin has been involved in the development and production of other significant naval platforms, including Aegis combat systems, frigates, and various surface combatants. Their experience encompasses complex systems integration, advanced manufacturing techniques, and managing large, multi-year defense procurements. While specific program successes and challenges exist across their portfolio, their consistent role as a major defense contractor indicates a demonstrated capability to undertake and execute large-scale, technologically advanced shipbuilding projects, albeit often with the inherent complexities and scrutiny typical of such endeavors.

How does the competition level for this contract potentially impact its overall value for taxpayers?

The competition level for this contract, described as 'Full and Open Competition After Exclusion of Sources' with two bidders, has a nuanced impact on taxpayer value. While not a sole-source award, the exclusion of certain sources limits the potential for broader price competition. In a scenario with more bidders, the competitive pressure could theoretically drive down prices further. However, the defense shipbuilding sector is highly specialized, and the number of companies capable of undertaking such a large and complex project is inherently limited. The presence of two bidders suggests a level of competition that likely prevented the highest possible price. The Fixed Price Incentive (FPI) structure also plays a role; it aims to share cost risks and rewards, potentially leading to better value if managed effectively, but the initial pricing and negotiation are still influenced by the competitive landscape. Therefore, while not fully open, the competition likely provided a reasonable, though not necessarily the lowest possible, price point for taxpayers.

Industry Classification

NAICS: Manufacturing › Ship and Boat Building › Ship Building and Repairing

Product/Service Code: SHIPS, SMALL CRAFT, PONTOON, DOCKS

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: N0002416R2304

Offers Received: 2

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Address: 2323 EASTERN BLVD, BALTIMORE, MD, 21220

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: $2,192,372,285

Exercised Options: $2,075,413,922

Current Obligation: $1,622,696,558

Actual Outlays: $295,953,340

Subaward Activity

Number of Subawards: 1015

Total Subaward Amount: $13,682,967,749

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline