DoD's $1.07B AEGIS F&S contract awarded to Lockheed Martin, spanning 7 years

Contract Overview

Contract Amount: $1,067,790,547 ($1.1B)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2023-01-01

End Date: 2029-12-31

Contract Duration: 2,556 days

Daily Burn Rate: $417.8K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: AEGIS F&S CONTRACT AWARD

Place of Performance

Location: MOORESTOWN, BURLINGTON County, NEW JERSEY, 08057

State: New Jersey Government Spending

Plain-Language Summary

Department of Defense obligated $1.07 billion to LOCKHEED MARTIN CORPORATION for work described as: AEGIS F&S CONTRACT AWARD Key points: 1. This contract represents a significant investment in maintaining and upgrading critical naval defense systems. 2. The sole-source nature of this award warrants scrutiny regarding potential price inflation and limited innovation. 3. Long-term contracts can indicate stable performance but also pose risks if requirements evolve or performance falters. 4. The focus on AEGIS systems positions this contract within the high-priority defense electronics and combat systems sector. 5. The substantial value suggests a complex scope of work, likely encompassing sustainment, modernization, and support services.

Value Assessment

Rating: questionable

Benchmarking the value of this sole-source contract is challenging without comparable sole-source awards for AEGIS F&S. However, the Cost Plus Incentive Fee (CPIF) structure suggests that while there are incentives for cost control, the government bears a significant portion of the risk. The total value of over $1 billion over seven years indicates a high per-year expenditure, necessitating close monitoring of cost efficiency and performance metrics to ensure value for money.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning there was no open competition. This approach is typically justified when a single contractor possesses unique capabilities or when urgency precludes a competitive process. The lack of competition raises concerns about whether the government secured the best possible pricing and terms, as market pressures that drive down costs in a competitive environment were absent.

Taxpayer Impact: The absence of competition means taxpayers may not have benefited from the cost savings typically achieved through bidding processes. This could lead to higher overall expenditures for the AEGIS F&S program.

Public Impact

The U.S. Navy benefits from the continued availability and modernization of its AEGIS combat systems, crucial for fleet defense. Services delivered include maintenance, repair, and potentially upgrades for AEGIS systems, ensuring operational readiness. The geographic impact is primarily centered around naval bases and facilities where AEGIS-equipped ships are maintained, with a concentration in New Jersey. Workforce implications include sustained employment for highly skilled engineers, technicians, and support staff within Lockheed Martin and its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially leading to higher costs.
CPIF contract type shifts cost risk to the government, requiring robust oversight.
Long contract duration (7 years) increases exposure to potential performance degradation or changing technological needs.
Lack of transparency in sole-source pricing makes independent value assessment difficult.

Positive Signals

Award to a single, established contractor (Lockheed Martin) suggests continuity and deep expertise in AEGIS systems.
CPIF contract includes incentives, aiming to align contractor and government interests for cost efficiency.
Long-term nature provides stability for critical system sustainment and planning.
Focus on AEGIS F&S indicates alignment with key national defense priorities.

Sector Analysis

The AEGIS Combat System is a cornerstone of modern naval warfare, encompassing radar, computers, and weapon systems. The market for its sustainment and modernization is highly specialized, dominated by a few prime contractors with deep knowledge of these complex platforms. Lockheed Martin, as the incumbent and likely developer, holds a significant position. Spending in this sector is driven by defense budgets and the need to maintain technological superiority for naval fleets. Comparable spending benchmarks are difficult to establish due to the unique nature of AEGIS, but it represents a substantial portion of the Navy's shipbuilding and systems support budget.

Small Business Impact

This contract does not appear to include a specific small business set-aside. Given the sole-source nature and the specialized technical requirements of AEGIS systems, it is likely that Lockheed Martin will subcontract portions of the work. The extent to which small businesses will participate will depend on Lockheed Martin's subcontracting strategy and the availability of small businesses with the necessary expertise. Without explicit set-asides or reporting requirements, the direct impact on the small business ecosystem is uncertain.

Oversight & Accountability

Oversight for this contract will likely be managed by the Department of the Navy's contracting and program management offices. Given the CPIF structure, rigorous performance monitoring and cost auditing will be essential to ensure accountability and value. Transparency may be limited due to the sole-source award, but contract performance reviews and milestone tracking should provide some level of insight. Inspector General involvement would typically occur if specific allegations of fraud, waste, or abuse arise.

Related Government Programs

Naval Sea Systems Command (NAVSEA) Contracts
Department of Defense Major Defense Acquisition Programs
AEGIS Modernization Programs
Naval Ship Maintenance Contracts
Defense Logistics Agency Support Contracts

Risk Flags

Sole-source award
Cost Plus Incentive Fee contract type
Long contract duration
Lack of competitive benchmarking

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.07 billion to LOCKHEED MARTIN CORPORATION. AEGIS F&S CONTRACT AWARD

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 $1.07 billion.

What is the period of performance?

Start: 2023-01-01. End: 2029-12-31.

What is Lockheed Martin's track record with AEGIS systems and similar sole-source contracts?

Lockheed Martin Corporation has a long and established history as the prime contractor for the AEGIS Combat System, dating back to its development. They have consistently been awarded follow-on contracts for production, modernization, and sustainment of AEGIS across various Navy platforms. Their track record with sole-source contracts in this domain is extensive, often stemming from the system's complexity and their proprietary knowledge. While this provides continuity and deep expertise, it also means that the government has relied on their capabilities without the benefit of competitive bidding for extended periods. Performance metrics on previous AEGIS contracts would be the best indicator of their reliability, though specific data on cost overruns or schedule delays on sole-source awards would be crucial for a complete assessment.

How does the $1.07 billion value compare to historical spending on AEGIS F&S?

The $1.07 billion awarded to Lockheed Martin for AEGIS F&S over seven years (approximately $153 million per year) represents a significant, but potentially consistent, level of annual spending for such a critical and complex defense system. Historical spending data for AEGIS sustainment and modernization would be needed for a precise comparison. However, given the system's importance and the ongoing need for upgrades and maintenance, this figure is likely in line with previous annual expenditures, possibly reflecting inflation and evolving technological requirements. Without access to historical contract databases detailing specific AEGIS F&S spending trends, it's difficult to definitively state if this award represents an increase or decrease in real terms, but it underscores the sustained investment in this capability.

What are the primary risks associated with a sole-source, Cost Plus Incentive Fee (CPIF) contract for AEGIS F&S?

The primary risks associated with this sole-source CPIF contract are twofold. Firstly, the sole-source nature eliminates competitive pressure, potentially leading to higher prices than could be achieved through open bidding. The government may not be realizing the best possible value for its investment. Secondly, the CPIF structure, while incentivizing cost control, places a significant portion of the cost risk on the government. If the contractor's costs exceed targets, the government will bear a substantial share, potentially increasing the total expenditure beyond initial estimates. This necessitates robust government oversight to ensure the contractor is diligently managing costs and that the incentive structure is effectively driving desired outcomes without unduly burdening the taxpayer.

How effective is the Cost Plus Incentive Fee (CPIF) structure in ensuring program effectiveness for AEGIS F&S?

The effectiveness of the CPIF structure hinges on the specific incentive targets and sharing arrangements defined within the contract. When well-structured, CPIF can align the contractor's profit motive with the government's objectives for cost control and performance. For AEGIS F&S, this could mean incentivizing efficient maintenance, timely upgrades, and high system availability. However, the effectiveness is also dependent on the government's ability to accurately estimate costs and set challenging yet achievable targets. If targets are too lenient, the incentives may have little impact. Conversely, if they are too stringent, the contractor may be disincentivized or focus on meeting targets at the expense of overall system quality or long-term maintainability. Continuous monitoring and potential contract modifications are key to ensuring CPIF remains effective.

What are the implications of the 7-year duration for technological obsolescence and future needs?

A 7-year contract duration for a technology-intensive system like AEGIS presents a moderate risk of technological obsolescence. While AEGIS is a robust system, the pace of technological advancement, particularly in areas like computing, sensors, and networking, can be rapid. Over seven years, emerging technologies could offer significant improvements in capability or efficiency that are not incorporated into the current contract scope. This could lead to a gap between the fielded system's capabilities and the optimal technological solutions available towards the end of the contract period. The government must actively manage this risk through robust requirements definition, potential contract modifications for upgrades, and forward-looking strategic planning to ensure the AEGIS system remains relevant and effective throughout its lifecycle.

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: N0002422R5116

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: $1,724,120,751

Exercised Options: $1,447,281,290

Current Obligation: $1,067,790,547

Actual Outlays: $8,165,811

Subaward Activity

Number of Subawards: 568

Total Subaward Amount: $147,261,668

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline