Raytheon Company awarded $275.6M for SM-2 BLK IIIC Engineering Manufacturing and Development, a sole-source contract

Contract Overview

Contract Amount: $275,590,625 ($275.6M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2018-12-14

End Date: 2024-03-31

Contract Duration: 1,934 days

Daily Burn Rate: $142.5K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: SM-2 BLK IIIC ENGINEERING MANUFACTURING AND DEVELOPMENT

Place of Performance

Location: TUCSON, PIMA County, ARIZONA, 85756

State: Arizona Government Spending

Plain-Language Summary

Department of Defense obligated $275.6 million to RAYTHEON COMPANY for work described as: SM-2 BLK IIIC ENGINEERING MANUFACTURING AND DEVELOPMENT Key points: 1. Contract awarded to Raytheon Company for critical missile defense system development. 2. Significant investment in advanced missile technology, indicating a focus on national security. 3. Long contract duration (1934 days) suggests a complex and multi-phased development process. 4. Cost Plus Incentive Fee contract type implies shared risk and reward between government and contractor. 5. Sole-source award raises questions about potential cost efficiencies and market competition. 6. Contract performance period extends into 2024, indicating ongoing development and testing. 7. The contract is managed by the Defense Contract Management Agency, ensuring oversight.

Value Assessment

Rating: fair

The contract's value of $275.6 million for engineering, manufacturing, and development of the SM-2 BLK IIIC missile system is substantial. Without direct comparable sole-source contracts for this specific system's development phase, benchmarking is challenging. However, the Cost Plus Incentive Fee (CPIF) structure suggests an effort to control costs by incentivizing performance. The total obligated amount of $142.5 million indicates a significant portion of the contract value has been spent, but a full assessment of value for money requires detailed analysis of milestones achieved and cost performance against targets.

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 a specific contractor possesses unique capabilities or intellectual property essential for the project. While it ensures access to specialized expertise, it limits the potential for price competition, which could lead to higher costs for the government compared to a fully competed procurement. The absence of a competitive bidding process means that taxpayers do not benefit from the cost-saving pressures that typically arise from market dynamics.

Taxpayer Impact: The sole-source nature of this award means taxpayers may not be receiving the most cost-effective solution available. Without competition, there is less pressure on the contractor to minimize costs, potentially leading to higher overall expenditure for this critical defense capability.

Public Impact

The primary beneficiaries are the U.S. Navy and allied nations requiring advanced missile defense capabilities. The contract delivers crucial engineering, manufacturing, and development services for the SM-2 BLK IIIC missile system. The geographic impact is primarily within Arizona, where Raytheon Company is located, potentially supporting local jobs and the defense industrial base. Workforce implications include highly skilled engineers, technicians, and manufacturing personnel involved in advanced weapons systems development.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially impacting cost-effectiveness for taxpayers.
Cost Plus Incentive Fee contracts can sometimes lead to cost overruns if not managed rigorously.
Long contract duration increases the risk of scope creep or evolving requirements impacting final cost.
Lack of publicly available performance metrics makes it difficult to assess contractor efficiency.
Dependence on a single contractor for critical defense technology development poses a strategic risk.

Positive Signals

Award to a known prime contractor with extensive experience in missile systems development.
Cost Plus Incentive Fee structure aims to align contractor performance with government objectives.
Contract addresses a critical national security need for advanced missile defense.
The contract is managed by the Defense Contract Management Agency, providing oversight.
Development of the SM-2 BLK IIIC is essential for maintaining air and missile defense capabilities.

Sector Analysis

The SM-2 BLK IIIC Engineering Manufacturing and Development contract falls within the Guided Missile and Space Vehicle Manufacturing sector, a specialized segment of the aerospace and defense industry. This sector is characterized by high R&D investment, stringent quality control, and long product development cycles. The total addressable market for such advanced defense systems is significant, driven by global security needs and technological advancements. Comparable spending benchmarks are difficult to establish due to the unique nature of missile system development, but this contract represents a substantial investment in a key defense capability.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. Furthermore, the 'ss': false flag suggests it's not a small business prime award. While the prime contract is with a large entity, there may be subcontracting opportunities for small businesses within Raytheon's supply chain. However, the direct impact on the small business ecosystem through this specific prime award is likely minimal, with the primary focus on large-scale defense manufacturing.

Oversight & Accountability

Oversight for this contract is provided by the Defense Contract Management Agency (DCMA), which is responsible for ensuring contractor performance and compliance. The Cost Plus Incentive Fee (CPIF) contract type includes mechanisms for performance incentives, aligning contractor efforts with government goals. Transparency regarding specific performance metrics and cost breakdowns is limited in the public domain, but the contract is subject to standard government auditing and oversight procedures. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Standard Missile Program
Missile Defense Systems
Naval Warfare Systems
Advanced Weapons Development
Department of Defense Procurement

Risk Flags

Sole-source award
Cost Plus Incentive Fee contract type
Long contract duration
Lack of publicly available performance data

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $275.6 million to RAYTHEON COMPANY. SM-2 BLK IIIC ENGINEERING MANUFACTURING AND DEVELOPMENT

Who is the contractor on this award?

The obligated recipient is RAYTHEON COMPANY.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $275.6 million.

What is the period of performance?

Start: 2018-12-14. End: 2024-03-31.

What is the track record of Raytheon Company in delivering similar missile defense systems?

Raytheon Company, now part of RTX Corporation, has a long and extensive track record in developing and manufacturing advanced missile systems for the U.S. military and international allies. They are a primary contractor for numerous programs, including the Patriot missile system, Tomahawk cruise missile, and various other air defense and offensive missile platforms. Their experience with the Standard Missile (SM) family, including previous iterations of the SM-2, provides a strong foundation for the BLK IIIC development. This history suggests a deep understanding of the technical requirements, manufacturing processes, and performance expectations associated with complex missile defense technologies. However, like any large defense contractor, they have faced scrutiny and challenges on specific programs regarding cost, schedule, and performance, necessitating robust government oversight.

How does the value of this contract compare to other missile development contracts?

The $275.6 million awarded for the SM-2 BLK IIIC Engineering Manufacturing and Development (EMD) phase is a significant but not unprecedented figure for advanced missile system development. EMD phases are typically substantial investments, involving extensive design, prototyping, testing, and manufacturing process development. Comparing this value requires looking at similar sole-source or competed EMD contracts for complex weapon systems. For instance, development contracts for fighter jets, submarines, or other major defense platforms can easily run into billions of dollars. However, for a specific missile system's EMD, $275.6 million represents a considerable commitment, reflecting the complexity and strategic importance of the SM-2 BLK IIIC.

What are the primary risks associated with this sole-source contract?

The primary risks associated with this sole-source contract stem from the lack of competition. This can lead to reduced price pressure, potentially resulting in higher costs for the government than if the contract were competed. There's also a risk of contractor complacency or reduced incentive to innovate aggressively if they are guaranteed the business regardless of competitive alternatives. Furthermore, sole-source awards can create vendor lock-in, making it difficult and costly to switch providers or technologies in the future. Dependence on a single supplier for a critical defense capability also poses a strategic risk if that supplier faces financial difficulties, operational disruptions, or geopolitical challenges.

How effective is the Cost Plus Incentive Fee (CPIF) contract type in managing development costs?

The Cost Plus Incentive Fee (CPIF) contract type is designed to encourage contractor efficiency and cost control by sharing the risks and rewards of performance. Under a CPIF contract, the final profit is adjusted based on the contractor's performance against pre-determined targets, such as cost, schedule, or technical objectives. If the contractor performs better than target (e.g., comes in under budget), both the government and the contractor share in the savings. Conversely, if performance is worse than target, the contractor's fee is reduced. This structure incentivizes the contractor to manage costs effectively and meet performance goals, making it a potentially effective tool for complex development projects where exact costs are uncertain. However, its effectiveness hinges on the realism of the targets set and the rigor of government oversight.

What are the historical spending patterns for the Standard Missile program?

Historical spending patterns for the Standard Missile (SM) program, including its various iterations like the SM-2, SM-3, and SM-6, show a consistent and substantial investment by the Department of Defense over several decades. These programs are critical components of U.S. naval air and missile defense capabilities, deployed on cruisers, destroyers, and Aegis Ashore systems. Annual spending can fluctuate based on production rates, modernization efforts, research and development cycles, and foreign military sales. Total program costs over the life cycle of these missiles amount to tens of billions of dollars, reflecting their complexity, advanced technology, and widespread deployment. The EMD phase for new variants, such as the SM-2 BLK IIIC, represents a significant upfront investment within this broader spending trend.

What are the implications of the contract duration (1934 days) for program management?

A contract duration of 1934 days (approximately 5.3 years) for an Engineering, Manufacturing, and Development (EMD) phase indicates a long-term commitment to a complex project. This extended timeline allows for thorough research, design, prototyping, rigorous testing, and iterative refinement of the missile system. It suggests that the development process is intricate and requires significant time to mature the technology and manufacturing processes. From a program management perspective, this duration necessitates robust planning, continuous monitoring of progress against milestones, effective risk management to address potential delays or cost overruns, and adaptability to evolving technological landscapes or threat assessments. It also implies a sustained need for specialized workforce and resources dedicated to the program over several years.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Guided Missile and Space Vehicle Manufacturing

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002418R5412

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: RTX Corp

Address: 1151 E HERMANS RD, TUCSON, AZ, 85756

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: $287,757,877

Exercised Options: $276,590,625

Current Obligation: $275,590,625

Actual Outlays: $31,834,461

Subaward Activity

Number of Subawards: 462

Total Subaward Amount: $207,107,607

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline