DoD's $225M contract with Lockheed Martin for small arms shows potential value concerns and limited competition

Contract Overview

Contract Amount: $225,364,711 ($225.4M)

Contractor: Lockheed Martin Aculight Corporation

Awarding Agency: Department of Defense

Start Date: 2018-01-26

End Date: 2027-07-23

Contract Duration: 3,465 days

Daily Burn Rate: $65.0K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 4

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: HELIOS DEVELOPMENT AND DELIVERY OF TWO TEST UNITS, AND FIXED-PRICE-INCENTIVE (FPI) STEPLADDER OPTIONS FOR UP TO FOURTEEN (14) PRODUCTION UNITS. THE CONTRACT ALSO INCLUDES COST-PLUS-FIXED-FEE (CPFF) LEVEL OF EFFORT (LOE) LINE ITEMS FOR SUSTAINMENT, TECHNICAL AND FIELD ENGINEERING SERVICES, COST ONLY LINE ITEM FOR TRAVEL, AND A FIRM-FIXED-PRICE (FFP) LINE ITEM FOR PROVISIONED ITEMS ORDERS.

Place of Performance

Location: BOTHELL, SNOHOMISH County, WASHINGTON, 98021

State: Washington Government Spending

Plain-Language Summary

Department of Defense obligated $225.4 million to LOCKHEED MARTIN ACULIGHT CORPORATION for work described as: HELIOS DEVELOPMENT AND DELIVERY OF TWO TEST UNITS, AND FIXED-PRICE-INCENTIVE (FPI) STEPLADDER OPTIONS FOR UP TO FOURTEEN (14) PRODUCTION UNITS. THE CONTRACT ALSO INCLUDES COST-PLUS-FIXED-FEE (CPFF) LEVEL OF EFFORT (LOE) LINE ITEMS FOR SUSTAINMENT, TECHNICAL AND FIELD ENGINEERING … Key points: 1. The contract's structure includes a mix of fixed-price and cost-plus elements, which can introduce cost uncertainty. 2. With only four bids received, the level of competition may not have driven the most favorable pricing. 3. The contract duration of over 9 years suggests a long-term commitment with potential for cost escalation. 4. The 'WA' (Washington) state designation indicates a significant portion of work may be performed domestically. 5. The absence of small business set-asides raises questions about opportunities for smaller firms in this sector.

Value Assessment

Rating: fair

The total contract value of $225.4 million over a potential 9-year period warrants careful scrutiny. While the initial delivery of test units is fixed-price, the inclusion of cost-plus elements for sustainment and engineering services introduces risk. Benchmarking against similar contracts for ordnance manufacturing is challenging without more specific details on the units being produced. However, the long duration and the nature of the services suggest that value for money will depend heavily on effective cost control and performance management by the contractor.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, which is a positive indicator. However, only four bids were received, suggesting that the market for this specific type of ordnance and associated services may be limited or that the barriers to entry are high. A lower number of bidders can sometimes lead to less competitive pricing, as the government has fewer options to choose from. Further analysis would be needed to understand if the solicitation effectively reached all potential qualified bidders.

Taxpayer Impact: While full and open competition was utilized, the limited number of bidders may have resulted in higher prices than if a more robust competition had occurred. Taxpayers may have paid a premium due to the reduced number of viable alternatives.

Public Impact

The Department of the Navy benefits from the acquisition of advanced small arms and ordnance systems. This contract supports the sustainment, technical, and field engineering services for these critical defense assets. The work is likely to have implications for the defense industrial base, particularly in Washington state. The contract supports specialized roles within the defense manufacturing and engineering sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for cost overruns due to the inclusion of Cost-Plus-Fixed-Fee (CPFF) line items for sustainment and engineering services.
The long contract duration (over 9 years) increases the risk of price increases and potential scope creep.
Limited competition (4 bidders) may have resulted in suboptimal pricing for the government.
Lack of specific details on the 'test units' and 'production units' makes it difficult to assess true value for money.
The contract does not appear to include specific small business set-asides, potentially limiting opportunities for smaller enterprises.

Positive Signals

Awarded under 'Full and Open Competition', indicating an effort to solicit from a broad range of potential contractors.
The contract includes fixed-price elements for the initial delivery of test units, providing some cost certainty.
The inclusion of sustainment and engineering services suggests a comprehensive approach to lifecycle support.
The contract specifies definitive contract type, implying a clear scope and terms.
The contractor, Lockheed Martin, is a major defense contractor with extensive experience in this domain.

Sector Analysis

This contract falls within the 'Small Arms, Ordnance, and Ordnance Accessories Manufacturing' sector, a critical component of the defense industrial base. The market for such specialized manufacturing is often concentrated among a few large, experienced defense contractors. Spending in this area is driven by military readiness requirements and technological advancements in weaponry. Comparable spending benchmarks are difficult to establish without knowing the exact specifications of the ordnance, but significant government investment is typical for advanced military hardware.

Small Business Impact

This contract does not appear to have specific small business set-asides, as indicated by 'sb': false. While Lockheed Martin is a large prime contractor, there may be opportunities for small businesses to participate as subcontractors. However, the absence of a formal set-aside strategy at the prime contract level suggests that small business participation may not be a primary focus of this specific award, potentially limiting direct opportunities for smaller firms within the prime contract structure.

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 terms, including performance metrics, delivery schedules, and payment milestones. Transparency is facilitated through contract databases like FPDS, which provide basic award information. The Inspector General for the Department of Defense would have jurisdiction to investigate any allegations of fraud, waste, or abuse related to this contract.

Related Government Programs

Department of Defense Ordnance Procurement
Small Arms Manufacturing Contracts
Defense Logistics Agency (DLA) Support Contracts
Naval Sea Systems Command (NAVSEA) Contracts
Fixed-Price Incentive Contracts
Cost-Plus-Fixed-Fee Contracts

Risk Flags

Potential for cost overruns due to CPFF elements.
Limited competition may impact price.
Long contract duration increases risk.
Lack of specific performance metrics in summary data.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $225.4 million to LOCKHEED MARTIN ACULIGHT CORPORATION. HELIOS DEVELOPMENT AND DELIVERY OF TWO TEST UNITS, AND FIXED-PRICE-INCENTIVE (FPI) STEPLADDER OPTIONS FOR UP TO FOURTEEN (14) PRODUCTION UNITS. THE CONTRACT ALSO INCLUDES COST-PLUS-FIXED-FEE (CPFF) LEVEL OF EFFORT (LOE) LINE ITEMS FOR SUSTAINMENT, TECHNICAL AND FIELD ENGINEERING SERVICES, COST ONLY LINE ITEM FOR TRAVEL, AND A FIRM-FIXED-PRICE (FFP) LINE ITEM FOR PROVISIONED ITEMS ORDERS.

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN ACULIGHT 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 $225.4 million.

What is the period of performance?

Start: 2018-01-26. End: 2027-07-23.

What is the specific type of ordnance or small arm being procured under this contract, and how does its technical sophistication compare to existing systems?

The provided data identifies the contract's North American Industry Classification System (NAICS) code as 332994, which covers 'Small Arms, Ordnance, and Ordnance Accessories Manufacturing.' However, the specific type of ordnance or small arm is not detailed in the provided data. Without this information, it is impossible to assess its technical sophistication or compare it to existing systems. This level of detail is typically found in the contract's statement of work (SOW) or technical specifications, which are not included here. Understanding the specific item is crucial for evaluating its necessity, technological advancement, and potential obsolescence risks.

How does the per-unit cost of the delivered test units compare to industry benchmarks or previous procurements of similar items?

The contract value is $225,364,711.29, covering the delivery of two test units and options for up to fourteen production units, along with sustainment and engineering services. The data does not break down the cost specifically for the test units or provide a per-unit cost. To compare this to industry benchmarks or previous procurements, we would need the exact cost allocated to the initial two test units and their specifications. Without this granular cost data, a direct per-unit cost comparison is not feasible. The fixed-price nature of the initial units offers some cost control, but the overall value proposition remains unclear without knowing the unit price.

What are the key performance indicators (KPIs) and milestones associated with the sustainment and engineering services, and how are they monitored?

The contract includes Cost-Plus-Fixed-Fee (CPFF) Level of Effort (LOE) line items for sustainment, technical, and field engineering services. While the contract structure indicates these services are included, the specific Key Performance Indicators (KPIs) and milestones are not detailed in the provided summary data. Typically, such contracts would outline metrics related to response times for technical support, availability of engineering resources, successful completion of maintenance tasks, and adherence to service level agreements (SLAs). Monitoring would likely involve regular progress reports from the contractor, joint reviews between the government and Lockheed Martin, and potentially independent government cost-estimating efforts to ensure efficiency and effectiveness of the services provided.

What is Lockheed Martin's historical performance track record with the Department of the Navy on similar ordnance or weapon system contracts?

Lockheed Martin is a major defense contractor with a long history of supplying weapon systems and ordnance to the Department of the Navy and other military branches. While specific performance metrics for this exact contract are not available in the provided data, the company generally has a substantial track record. Past performance is a critical factor in federal contracting, and agencies typically review a contractor's history of meeting schedule, cost, and quality requirements. Any significant past performance issues or outstanding disputes could be flagged during the award process. A deeper dive into past performance evaluations and contract administration records for Lockheed Martin with the Navy would be necessary for a comprehensive assessment.

Given the long contract duration and cost-plus elements, what mechanisms are in place to mitigate the risk of cost overruns and ensure continued value for taxpayers?

The contract incorporates several elements that aim to mitigate cost risks, although the long duration and CPFF components inherently carry some level of uncertainty. The initial delivery of test units is under a Fixed-Price-Incentive (FPI) structure, which includes target costs and price ceilings, incentivizing the contractor to control costs. For the sustainment and engineering services, the CPFF LOE structure requires the contractor to operate within defined effort levels and fixed fees, with government oversight on allowable costs. Mechanisms to mitigate overruns include rigorous cost monitoring, audits, regular performance reviews, and potentially the use of incentive clauses tied to cost savings or efficiency improvements. The government's contracting officers and program managers play a crucial role in actively managing these contracts to ensure value.

Industry Classification

NAICS: Manufacturing › Other Fabricated Metal Product Manufacturing › Small Arms, Ordnance, and Ordnance Accessories Manufacturing

Product/Service Code: WEAPONS

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: N0002417R5392

Offers Received: 4

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Address: 22121 20TH AVE SE, BOTHELL, WA, 98021

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: $1,128,393,788

Exercised Options: $233,547,991

Current Obligation: $225,364,711

Actual Outlays: $43,529

Subaward Activity

Number of Subawards: 331

Total Subaward Amount: $683,233,032

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline