DoD's $910M Lockheed Martin contract for navigation systems lacks competition, raising value concerns

Contract Overview

Contract Amount: $910,240,863 ($910.2M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2020-07-17

End Date: 2032-01-28

Contract Duration: 4,212 days

Daily Burn Rate: $216.1K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: ENGINEERING DESIGN AND DEVELOPMENT (USN)

Place of Performance

Location: MANASSAS, PRINCE WILLIAM County, VIRGINIA, 20110

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $910.2 million to LOCKHEED MARTIN CORPORATION for work described as: ENGINEERING DESIGN AND DEVELOPMENT (USN) Key points: 1. The contract's significant value raises questions about potential overspending due to a lack of competitive bidding. 2. Sole-source awards can limit innovation and potentially lead to higher prices compared to open competition. 3. The long duration of the contract (over 12 years) warrants close monitoring for performance and cost overruns. 4. This contract is a substantial investment in critical defense navigation technology, impacting fleet readiness. 5. The absence of small business participation is noted, with no specific set-aside or subcontracting requirements evident.

Value Assessment

Rating: questionable

Benchmarking the value of this $910 million contract is challenging due to its sole-source nature and specialized technical requirements. Without competitive bids, it's difficult to ascertain if the pricing reflects fair market value or if efficiencies could have been achieved through a more open process. The Cost Plus Incentive Fee (CPIF) structure aims to control costs, but the ultimate expenditure will depend heavily on contractor performance and negotiated incentives over the contract's long lifespan. Further analysis would require detailed cost breakdowns and comparison to similar, albeit likely scarce, sole-source procurements for advanced navigation systems.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one bidder, Lockheed Martin Corporation, was solicited. This approach is typically justified when a unique capability or proprietary technology is required, or when only one responsible source can meet the government's needs. The lack of competition means the Department of the Navy did not benefit from a range of proposals or price negotiations that typically occur in a fully competed environment. This can limit price discovery and potentially lead to higher costs for the government.

Taxpayer Impact: Taxpayers may be paying a premium for this system due to the absence of competitive pressure to drive down costs. The government's ability to negotiate favorable terms is reduced in a sole-source scenario.

Public Impact

The primary beneficiaries are the U.S. Navy fleet, which will receive advanced navigation and guidance systems essential for operational effectiveness. The contract supports the development and production of critical Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing capabilities. The geographic impact is national, with potential benefits to Lockheed Martin's facilities in Virginia and other locations involved in the supply chain. This contract will likely sustain or create high-skilled jobs in engineering, manufacturing, and program management within the defense sector.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition and potential for cost savings.
Long contract duration increases risk of cost overruns and scope creep.
CPIF contract type requires careful oversight to ensure incentives align with government cost objectives.
Lack of transparency inherent in sole-source procurements makes independent value assessment difficult.

Positive Signals

Contract is with a reputable, experienced defense contractor (Lockheed Martin).
CPIF contract type incentivizes contractor performance and cost control.
Long-term nature provides stability for critical defense system development.
Focus on advanced navigation systems is crucial for naval operational superiority.

Sector Analysis

This contract falls within the aerospace and defense sector, specifically focusing on advanced navigation and guidance systems. The market for such specialized defense technology is often characterized by high barriers to entry, significant R&D investment, and a limited number of qualified suppliers, frequently leading to sole-source or limited competition awards. The total addressable market for defense electronics and systems is substantial, with significant government spending allocated annually to maintain and modernize military capabilities. This contract represents a significant portion of spending within the niche of naval navigation and guidance systems.

Small Business Impact

This contract does not appear to include any specific small business set-aside provisions, nor is there explicit mention of subcontracting goals for small businesses. Given the sole-source nature and the specialized, high-technology requirements, it is less likely that small businesses would be primary contractors. However, opportunities may exist for small businesses to participate as subcontractors to Lockheed Martin, depending on their supply chain strategy and the specific components or services required. Further investigation into subcontracting plans would be necessary to assess the impact on the small business ecosystem.

Oversight & Accountability

Oversight for this contract will primarily reside with the Department of the Navy and the Department of Defense. As a Cost Plus Incentive Fee (CPIF) contract, robust oversight is crucial to monitor costs, performance, and the achievement of incentive targets. The Defense Contract Audit Agency (DCAA) and the Department of Defense's Inspector General (IG) are likely to play roles in auditing costs and investigating any potential fraud, waste, or abuse. Transparency may be limited due to the sole-source nature, but contract performance reviews and milestone tracking should provide some level of accountability.

Related Government Programs

Naval Combat Systems
Defense Navigation and Guidance Systems
Aerospace and Defense Manufacturing
Department of Defense Research and Development
Military Electronics Manufacturing

Risk Flags

Lack of Competition
High Contract Value
Long Contract Duration
Sole-Source Award Justification
Cost Plus Incentive Fee Oversight

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $910.2 million to LOCKHEED MARTIN CORPORATION. ENGINEERING DESIGN AND DEVELOPMENT (USN)

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 $910.2 million.

What is the period of performance?

Start: 2020-07-17. End: 2032-01-28.

What is Lockheed Martin's track record with similar sole-source navigation system contracts for the U.S. Navy?

Lockheed Martin Corporation has a long and extensive history of contracting with the U.S. military, including the Navy, for complex defense systems. While specific data on prior sole-source navigation system contracts of this exact magnitude is not readily available in public databases, the company is a prime contractor for numerous large-scale defense programs. Their track record generally indicates a capacity to deliver sophisticated technological solutions. However, the absence of competition in sole-source awards means that direct comparisons of performance and value against alternative providers are inherently limited. Past performance reviews and contract close-out data, if accessible, would provide more granular insights into their execution on similar sole-source endeavors.

How does the Cost Plus Incentive Fee (CPIF) structure aim to control costs on this contract?

The Cost Plus Incentive Fee (CPIF) contract type is designed to encourage contractor efficiency and cost control by linking a portion of the contractor's profit to the achievement of specific performance targets, including cost. In a CPIF arrangement, the final fee (profit) is adjusted based on whether the final costs are below, at, or above a target cost. If the contractor manages to complete the work for less than the target cost, both the government and the contractor share in the savings. Conversely, if costs exceed the target, the contractor's fee is reduced. This structure incentivizes Lockheed Martin to manage its expenses diligently and to innovate in ways that reduce overall project costs, while the government benefits from potential cost savings if targets are met or exceeded.

What are the primary risks associated with a sole-source award of this magnitude?

The primary risks associated with a sole-source award of this magnitude ($910 million) include a lack of competitive pressure, which can lead to inflated pricing and reduced innovation. Without competing bids, the government may not achieve the best possible value for its investment. There's also a risk of complacency from the sole contractor, as there is no immediate threat of losing future business to competitors. Furthermore, sole-source awards can sometimes indicate a lack of market research or an over-reliance on a single supplier, potentially creating vulnerabilities in the supply chain or technological development. The extended duration of the contract further amplifies these risks over time.

What are the potential implications for technological advancement in navigation systems given this contract's structure?

The implications for technological advancement are mixed. On one hand, a sole-source contract with a large, capable contractor like Lockheed Martin can provide stable, long-term funding for complex research and development, potentially leading to significant advancements in navigation systems. The contractor has a clear incentive to innovate to meet the CPIF targets. On the other hand, the absence of competition might reduce the urgency for breakthrough innovations that could arise from multiple companies vying for the contract. Competitors might be deterred from investing in R&D for similar systems if they know a sole-source award is likely. Therefore, while advancements are probable, the pace and breadth of innovation might be narrower than in a highly competitive environment.

How does this contract's spending compare to historical trends for similar navigation system procurements?

Direct historical comparisons for this specific contract are challenging due to its sole-source nature and the specialized, advanced technology involved. Publicly available data often aggregates spending across broader categories, making it difficult to isolate spending on comparable navigation systems procured under similar conditions (i.e., sole-source, long-term development). However, the $910 million figure over approximately 12 years represents a substantial, long-term investment in a critical defense capability. Historically, major defense platforms and their associated systems often involve multi-billion dollar investments over their lifecycle. This contract appears to be a significant, albeit not unprecedented, allocation within the defense budget for advanced technological development in a key operational area.

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: FIRE CONTROL EQPT.

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0002420R6117

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: Lockheed Martin Corp

Address: 9500 GODWIN DR, MANASSAS, VA, 20110

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: $3,374,760,100

Exercised Options: $1,792,217,609

Current Obligation: $910,240,863

Actual Outlays: $1,635,403

Subaward Activity

Number of Subawards: 584

Total Subaward Amount: $174,203,054

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline