DoD's $115M combat system contract to Lockheed Martin raises questions on competition and value

Contract Overview

Contract Amount: $115,346,790 ($115.3M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2020-03-18

End Date: 2027-03-17

Contract Duration: 2,555 days

Daily Burn Rate: $45.1K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: COMBAT SYSTEM DEVELOPMENT&INTEGRATION

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $115.3 million to LOCKHEED MARTIN CORPORATION for work described as: COMBAT SYSTEM DEVELOPMENT&INTEGRATION Key points: 1. The contract's value, exceeding $115 million, warrants scrutiny regarding its alignment with market rates for similar development and integration services. 2. The sole-source nature of this award limits opportunities for competitive bidding, potentially impacting price discovery and overall cost-effectiveness. 3. Performance risk indicators should be closely monitored given the complexity of combat system development and integration. 4. The contract duration of 2555 days suggests a long-term commitment, necessitating ongoing performance evaluation. 5. This contract positions Lockheed Martin as a key provider within the defense sector's advanced combat systems niche. 6. The absence of small business set-asides or subcontracting requirements may limit broader economic participation.

Value Assessment

Rating: questionable

Benchmarking the $115.3 million value of this definitive contract against similar combat system development and integration efforts is challenging without more granular data on scope and deliverables. However, the Cost Plus Incentive Fee (CPIF) pricing structure suggests that while there are incentives for cost control, the government bears a significant portion of the risk. The lack of competition further complicates a direct value-for-money assessment, as a competitive process typically drives down prices. Without comparative bids, it's difficult to ascertain if this price represents optimal value.

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. This approach is typically justified when only one responsible source can provide the required goods or services. The implications for price discovery are significant; without multiple bidders vying for the contract, there is less downward pressure on pricing, and the government may not achieve the most favorable terms. The limited competition raises concerns about whether the government secured the best possible price and innovative solutions.

Taxpayer Impact: For taxpayers, a sole-source award means there's a higher risk of paying a premium compared to a competitively bid contract. The absence of a competitive environment can lead to less efficient use of public funds.

Public Impact

The primary beneficiaries are the Department of the Navy and potentially its operational forces who will utilize the advanced combat systems. The contract delivers critical services related to the development and integration of sophisticated combat systems, enhancing naval capabilities. The geographic impact is primarily centered in New Jersey, where Lockheed Martin's operations are located, potentially supporting local employment and the regional defense industrial base. Workforce implications include the employment of highly skilled engineers, technicians, and program managers within Lockheed Martin and its potential supply chain.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing and innovation.
CPIF contract type shifts cost risk to the government.
Long contract duration (2555 days) increases exposure to potential cost overruns and performance issues.
Lack of small business involvement may miss opportunities for economic inclusion.

Positive Signals

Lockheed Martin is a recognized leader in defense contracting, suggesting technical expertise.
The contract aims to enhance critical combat systems, aligning with national security objectives.
CPIF structure includes incentives for cost efficiency, potentially mitigating some financial risks if managed effectively.

Sector Analysis

The defense sector, particularly the segment focused on combat systems, is characterized by high barriers to entry, significant R&D investment, and long procurement cycles. This contract falls within the 'Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing' industry (NAICS 334511). Spending in this area is driven by evolving geopolitical threats and the need for technological superiority. Comparable spending benchmarks are difficult to establish without specific system details, but major defense contractors like Lockheed Martin are consistently awarded large-value contracts for complex system development and integration.

Small Business Impact

This contract does not appear to include specific small business set-aside provisions, nor is there an indication of mandatory subcontracting goals for small businesses. Given the sole-source nature and the specialized technical requirements of combat system development, it's plausible that the prime contractor, Lockheed Martin, possesses the necessary capabilities in-house. However, the absence of explicit small business participation requirements means potential opportunities for smaller, innovative firms within the defense supply chain may have been overlooked, potentially limiting the broader impact on the small business ecosystem.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. The Cost Plus Incentive Fee (CPIF) structure necessitates robust financial oversight to ensure that incentive targets are met and that costs are reasonable and allocable. Transparency is typically managed through contract reporting mechanisms and program reviews. The Inspector General for the Department of Defense would have jurisdiction to investigate potential fraud, waste, or abuse related to this contract.

Related Government Programs

Naval Combat Systems Development
Defense Research and Development
Advanced Weapon Systems Integration
Department of Defense Procurement
Lockheed Martin Defense Contracts

Risk Flags

Sole-source award
Cost Plus Incentive Fee (CPIF) pricing structure
Lack of small business participation
Long contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $115.3 million to LOCKHEED MARTIN CORPORATION. COMBAT SYSTEM DEVELOPMENT&INTEGRATION

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 $115.3 million.

What is the period of performance?

Start: 2020-03-18. End: 2027-03-17.

What is Lockheed Martin's track record with similar sole-source, cost-plus contracts for combat system development?

Lockheed Martin Corporation has a long history of performing sole-source and competitively awarded contracts for the Department of Defense, including extensive work on combat systems. Their experience with Cost Plus Incentive Fee (CPIF) contracts is also substantial. Analyzing their past performance on similar sole-source CPIF contracts would involve reviewing contract performance reports, any incurred cost overruns or underruns, the achievement of incentive targets, and any documented issues related to schedule or quality. Publicly available data often highlights major contract awards and program milestones, but detailed performance metrics for specific sole-source awards are less common. A deeper dive would require access to government contract databases and performance evaluations, which are often proprietary or redacted.

How does the $115.3 million contract value compare to industry benchmarks for similar combat system development and integration projects?

Directly comparing the $115.3 million contract value to industry benchmarks for 'Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing' is challenging without specific details on the scope, complexity, and deliverables of the combat system being developed and integrated. Combat systems can range from relatively minor upgrades to entirely new platform integrations, each with vastly different cost profiles. However, for major defense contractors like Lockheed Martin, contracts in the tens to hundreds of millions of dollars for system development and integration are not uncommon, especially for advanced naval applications. The sole-source nature of this award, coupled with a CPIF structure, means that a precise value-for-money comparison against competitively bid projects is difficult. The benchmark is less about the absolute dollar amount and more about the cost efficiency achieved relative to the defined objectives and risks.

What are the primary risks associated with this Cost Plus Incentive Fee (CPIF) contract structure for the Department of Defense?

The primary risks associated with a CPIF contract for the Department of Defense revolve around cost control and government oversight. While CPIF aims to incentivize the contractor to control costs by sharing in savings or cost overruns based on pre-defined targets, the government still assumes a significant portion of the financial risk. If the contractor fails to meet cost targets, the government may end up paying more than anticipated. Effective oversight is crucial to ensure that the target costs are realistic, that the incentive structure is appropriately aligned with program goals, and that the contractor's cost accounting practices are sound. Without rigorous monitoring and management, the potential for cost growth remains a significant concern, especially in complex, long-duration development projects.

What is the historical spending pattern for combat system development and integration by the Department of the Navy, and how does this contract fit?

The Department of the Navy consistently allocates substantial funding towards the research, development, and procurement of advanced combat systems to maintain its technological edge. Historical spending patterns show significant investments in areas such as missile defense, electronic warfare, command and control systems, and sensor integration across its fleet. This $115.3 million contract for combat system development and integration fits within this broader strategic investment. It represents a specific allocation towards enhancing or developing capabilities within the 'Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing' domain, likely supporting a particular platform or set of platforms. Analyzing its place requires understanding the Navy's overall shipbuilding and modernization plans and its specific technology roadmaps.

Given the sole-source nature, what mechanisms are in place to ensure accountability and prevent potential contractor overreach or inefficiency?

Accountability in sole-source contracts is typically ensured through robust contract administration, performance monitoring, and defined oversight mechanisms. For this contract, the Department of the Navy's contracting officers and program managers are responsible for overseeing Lockheed Martin's performance against the contract's technical requirements, schedule, and cost objectives. The CPIF structure itself includes accountability through shared financial outcomes. Furthermore, the contract likely includes clauses for termination for default or convenience, and the Defense Contract Management Agency (DCMA) plays a role in ensuring contractor compliance. The Department of Defense's Inspector General also provides an independent layer of oversight to investigate potential fraud, waste, or abuse, ensuring that public funds are used appropriately.

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: MAINT, REPAIR, REBUILD EQUIPMENT › MAINT, REPAIR, REBUILD OF EQUIPMENT

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002418R5225

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Address: 199 BORTON LANDING RD, MOORESTOWN, NJ, 08057

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: $791,582,313

Exercised Options: $486,005,609

Current Obligation: $115,346,790

Actual Outlays: $3,202,966

Subaward Activity

Number of Subawards: 179

Total Subaward Amount: $27,659,444

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline