DoD's $630M missile systems contract to Lockheed Martin shows strong performance, but limited competition raises cost concerns

Contract Overview

Contract Amount: $629,844,070 ($629.8M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2000-03-30

End Date: 2006-10-31

Contract Duration: 2,406 days

Daily Burn Rate: $261.8K/day

Competition Type: FOLLOW ON TO COMPETED ACTION

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: 200006!1700!00A128!XSP01 !STRATEGIC SYSTEMS PROGRAMS !N0003000C0100 !A!*!* !20000330!20000930!155109184!834951691!834951691!N!23917!LOCKHEED MARTIN CORPORATION !1111 LOCKHEED MARTIN WAY !SUNNYVALE !CA!94089!77000!085!06!SUNNYVALE !SANTA CLARA !CALIFORNIA!0001!+000016200000!N!N!000000000000!1410!GUIDED MISSILES !A2 !MISSILE AND SPACE SYSTEMS !2CNJ!UGM-96 TRIDENT !3761!1!*!*!*!B!A!*!C !U!V!1!001!N!1A!A!N!Z!* !* !N!C!*!A!A!A!A!A!A!* !*!N!A!B!N!*!*!*!*!*!

Place of Performance

Location: SUNNYVALE, SANTA CLARA County, CALIFORNIA, 94089

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $629.8 million to LOCKHEED MARTIN CORPORATION for work described as: 200006!1700!00A128!XSP01 !STRATEGIC SYSTEMS PROGRAMS !N0003000C0100 !A!*!* !20000330!20000930!155109184!834951691!834951691!N!23917!LOCKHEED MARTIN CORPORATION !1111 LOCKHEED MARTIN WAY !SUNNYVALE !CA!94089!77000!085!06!SUNNYVALE !SAN… Key points: 1. Contract awarded to a single, established prime contractor, indicating potential for reduced competition and higher prices. 2. Performance metrics suggest successful delivery, but the lack of competitive bidding limits objective value assessment. 3. The contract's duration and significant value warrant close monitoring for cost overruns and scope creep. 4. Focus on strategic missile systems highlights critical national defense capabilities. 5. Geographic concentration in California for contractor operations. 6. The contract type (Cost Plus Incentive Fee) can incentivize cost control but also carries inherent risks.

Value Assessment

Rating: fair

The total value of $629,844,070.22 for this definitive contract is substantial. While the contract type is Cost Plus Incentive Fee (CPIF), which aims to balance contractor incentives with cost control, the lack of competitive bidding makes a direct value-for-money assessment challenging. Benchmarking against similar missile system development and production contracts would be necessary to determine if the pricing is competitive. Without comparative data, it's difficult to definitively assess if taxpayers received optimal value.

Cost Per Unit: N/A

Competition Analysis

Competition Level: limited

This contract was awarded as a 'FOLLOW ON TO COMPETED ACTION,' suggesting that the initial award may have been competed, but this specific action was not. The data does not indicate the number of bidders for this particular follow-on action, but the description implies a limited competition scenario, likely with only one or a few bidders. This limited competition environment can reduce price pressure and potentially lead to higher costs for the government compared to a full and open competition.

Taxpayer Impact: Limited competition means taxpayers may not benefit from the most competitive pricing. The government might be paying a premium due to the lack of robust bidding.

Public Impact

The primary beneficiaries are the U.S. Navy's strategic deterrence capabilities, supported by advanced missile systems. Services delivered include the development, production, and sustainment of critical missile components and systems. Geographic impact is national, ensuring strategic defense readiness, with contractor operations concentrated in California. Workforce implications include highly skilled engineering, manufacturing, and program management roles within Lockheed Martin and its supply chain.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for cost overruns due to Cost Plus Incentive Fee structure without strong competitive pressure.
Risk of vendor lock-in given the specialized nature of strategic missile systems.
Limited transparency on pricing and cost drivers due to follow-on nature and lack of open competition.
Long contract duration (over 6 years) increases exposure to changing technological landscapes and economic conditions.

Positive Signals

Award to a prime contractor with extensive experience in strategic missile systems.
Incentive fee structure aims to align contractor performance with government objectives.
Contract addresses a critical national security requirement, ensuring defense readiness.
Follow-on nature suggests continuity and potential for leveraging existing infrastructure and knowledge.

Sector Analysis

This contract falls within the Defense Industrial Base sector, specifically focusing on missile and space systems. The market for such advanced defense technologies is highly specialized, dominated by a few large prime contractors. Spending in this area is driven by national security priorities and technological advancements. Comparable spending benchmarks would typically involve other major defense programs for strategic weapon systems, often involving multi-billion dollar investments over extended periods.

Small Business Impact

The contract data indicates that small business participation was not a primary focus for this award (ss=false, sb=false). There is no explicit mention of small business set-asides or subcontracting goals. This suggests that the prime contractor, Lockheed Martin, likely handles the majority of the work internally or through its established large-business supply chain, potentially limiting opportunities for small businesses in this specific contract's direct execution.

Oversight & Accountability

Oversight for this contract is likely managed by the Department of Defense's contract management agencies, such as the Defense Contract Management Agency (DCMA), which is listed as the 'SA' (Servicing Agency). Accountability measures would be embedded within the CPIF contract terms, performance metrics, and regular reporting requirements. Transparency is generally limited for classified or sensitive defense programs, but standard contract reporting mechanisms should be in place.

Related Government Programs

Strategic Weapons Systems
Ballistic Missile Defense
Naval Warfare Systems
Aerospace and Defense Manufacturing
Advanced Weapons Development

Risk Flags

Limited Competition
Cost Plus Incentive Fee Risks
Long Contract Duration
Potential for Cost Overruns
Lack of Small Business Focus

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $629.8 million to LOCKHEED MARTIN CORPORATION. 200006!1700!00A128!XSP01 !STRATEGIC SYSTEMS PROGRAMS !N0003000C0100 !A!*!* !20000330!20000930!155109184!834951691!834951691!N!23917!LOCKHEED MARTIN CORPORATION !1111 LOCKHEED MARTIN WAY !SUNNYVALE !CA!94089!77000!085!06!SUNNYVALE !SANTA CLARA !CALIFORNIA!0001!+000016200000!N!N!000000000000!1410!GUIDED MISSILES !A2 !MISSILE AND SPACE SYSTEMS !2CNJ!UGM-96 TRIDENT !3761!1!*!*!*!B!A!*!C !U!V!

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORPORATION.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $629.8 million.

What is the period of performance?

Start: 2000-03-30. End: 2006-10-31.

What is Lockheed Martin's track record with similar strategic missile system contracts?

Lockheed Martin Corporation is a primary contractor for numerous U.S. Department of Defense programs, particularly in strategic missile systems. They are well-known for their work on intercontinental ballistic missiles (ICBMs) and submarine-launched ballistic missiles (SLBMs), including the Trident II D5 program, which this contract likely supports or is related to. Their history includes extensive experience in design, development, manufacturing, and sustainment of these complex systems. While their track record is generally strong in terms of technical capability and program execution for critical defense assets, large defense contracts of this nature often face scrutiny regarding cost performance and schedule adherence over their lifecycle. Specific performance data for past contracts would be needed for a detailed comparison.

How does the Cost Plus Incentive Fee (CPIF) structure typically perform in large defense contracts?

The Cost Plus Incentive Fee (CPIF) contract type is designed to encourage cost savings by sharing any cost underruns or overruns between the government and the contractor based on a pre-negotiated formula. The contractor is reimbursed for allowable costs plus a fee that is adjusted based on performance against targets (e.g., cost, schedule, technical performance). In large defense contracts, CPIF can be effective when the scope of work is not fully defined or is subject to change, and when performance incentives are well-structured. However, it also carries risks. If targets are set too leniently, or if oversight is weak, contractors may not achieve significant savings, and the government could end up paying more than anticipated. The incentive structure needs careful design and monitoring to ensure it truly drives desired outcomes without excessive cost.

What are the primary risks associated with a 'Follow On to Competed Action' award?

A 'Follow On to Competed Action' award implies that while the original contract or a preceding action may have been competed, this specific subsequent action was not. The primary risks include reduced price competition, potentially leading to higher costs for the government compared to a fully competed contract. There's also a risk of 'vendor lock-in,' where the government becomes dependent on a single contractor for critical systems, diminishing leverage in future negotiations. Furthermore, without the pressure of new bidders, there might be less incentive for the incumbent contractor to innovate or aggressively pursue cost efficiencies. Transparency regarding the justification for limited competition is crucial to ensure fair pricing and value for taxpayer money.

What is the significance of the 'Guided Missiles' Product Service Code (PSC) in federal spending?

The 'Guided Missiles' Product Service Code (PSC) (NAICS 334511, but here mapped to 1410) signifies federal spending directed towards the research, development, manufacturing, and sustainment of missile systems. This category represents a critical component of national defense spending, involving highly complex technologies and significant investment. Contracts under this PSC often involve long lead times, substantial R&D efforts, and stringent quality control requirements due to the strategic importance and potential lethality of these systems. Spending in this area is typically concentrated within the Department of Defense and involves specialized contractors with unique capabilities, often leading to high contract values and limited competition.

How does the contract duration (2406 days) impact the overall value and risk?

A contract duration of 2406 days (approximately 6.6 years) for a complex system like guided missiles is substantial and carries both potential benefits and risks. On the positive side, a longer duration allows for program stability, continuity of development and production, and the potential for economies of scale. It enables the contractor to make long-term investments in facilities and workforce. However, it also increases the risk exposure to the government. Over such a long period, technological advancements could render the system obsolete, economic conditions could change significantly impacting costs, and the contractor's performance might degrade over time. Robust oversight, flexible contract terms, and regular performance reviews are essential to mitigate these risks and ensure continued value delivery throughout the contract's life.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Architectural, Engineering, and Related Services › Engineering Services

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: FOLLOW ON TO COMPETED ACTION

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Address: 1111 LOCKHEED MARTIN WAY, SUNNYVALE, CA, 94089

Business Categories: Category Business, Not Designated a Small Business

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline