DoD's $936M Lockheed Martin contract for engineering services shows long-term commitment with a cost-plus structure

Contract Overview

Contract Amount: $936,386,057 ($936.4M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2005-07-15

End Date: 2013-07-31

Contract Duration: 2,938 days

Daily Burn Rate: $318.7K/day

Competition Type: FOLLOW ON TO COMPETED ACTION

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Place of Performance

Location: SUNNYVALE, SANTA CLARA County, CALIFORNIA, 94088

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $936.4 million to LOCKHEED MARTIN CORPORATION for work described as: Key points: 1. The contract's cost-plus incentive fee structure aims to balance contractor profit with government cost savings. 2. A follow-on action suggests a history of successful performance or a lack of viable alternatives. 3. The extended duration of nearly 8 years indicates a significant, ongoing need for these engineering services. 4. The sole awardee raises questions about the breadth of competition and potential for price optimization. 5. The significant dollar value points to a critical program requiring specialized engineering expertise. 6. Performance context is crucial to understand if the incentive fee structure effectively controlled costs over time.

Value Assessment

Rating: fair

Benchmarking this $936 million contract over nearly 8 years is challenging without specific performance metrics and detailed cost breakdowns. The cost-plus incentive fee (CPIF) structure is common for complex, high-risk projects where costs are difficult to predict, but it relies heavily on effective oversight to ensure value. Comparing it to similar large-scale engineering services contracts within the Department of Defense would be necessary to assess if the pricing was competitive and if the incentive mechanisms yielded expected savings.

Cost Per Unit: N/A

Competition Analysis

Competition Level: unknown

The contract is described as a 'FOLLOW ON TO COMPETED ACTION,' which implies that the initial award was competed. However, the details of that original competition, including the number of bidders and the specific nature of the follow-on action, are not provided. If the follow-on was also competed, it suggests ongoing market interest. If it was a sole-source follow-on, it could indicate specialized capabilities or a lack of competitive alternatives, potentially impacting price discovery.

Taxpayer Impact: The level of competition directly impacts taxpayer value. Robust competition typically drives down prices and encourages innovation. If this follow-on action was not competitively re-awarded, taxpayers may be exposed to higher costs than if alternative providers had been considered.

Public Impact

The Department of Defense benefits from specialized engineering services essential for its operations and technological advancements. This contract supports the development, maintenance, and enhancement of complex defense systems. The geographic impact is primarily centered in California, where Lockheed Martin's operations are located. It likely supports a significant workforce of engineers, technicians, and support staff within Lockheed Martin and its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of clarity on the competition for the follow-on action could lead to suboptimal pricing.
The cost-plus incentive fee structure requires diligent oversight to ensure cost control and prevent potential overruns.
The long duration of the contract might mask inefficiencies if not regularly reviewed for continued necessity and value.

Positive Signals

The 'FOLLOW ON TO COMPETED ACTION' designation suggests a foundation of competition, potentially leading to better initial pricing.
The use of an incentive fee structure indicates an effort to align contractor performance with government objectives.
Lockheed Martin's established presence in defense contracting suggests a high level of technical capability and experience.

Sector Analysis

This contract falls within the Engineering Services sector, a critical component of the broader aerospace and defense industry. This sector is characterized by high barriers to entry due to specialized knowledge, security clearances, and long development cycles. Spending in this area is often driven by government R&D and procurement needs for complex systems. Comparable spending benchmarks would involve analyzing other large, long-term engineering support contracts awarded by the DoD to major defense contractors.

Small Business Impact

The provided data does not indicate any small business set-aside provisions (ss: false, sb: false). This suggests the contract was not specifically targeted towards small businesses. However, large prime contractors like Lockheed Martin often engage small businesses as subcontractors. The extent of subcontracting to small businesses would be a key factor in assessing the overall impact on the small business ecosystem for this contract.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of the Navy and potentially the Department of Defense's Inspector General. Mechanisms would include contract performance reviews, audits, and monitoring of expenditures against the cost-plus incentive fee structure. Transparency is typically managed through contract reporting requirements, though detailed public access to performance data may be limited due to national security considerations.

Related Government Programs

Department of Defense Engineering Services
Aerospace and Defense Contracting
Lockheed Martin Contracts
Cost-Plus Incentive Fee Contracts
Naval Systems Engineering Support

Risk Flags

Potential for reduced competition in follow-on action.
Cost control effectiveness of CPIF structure requires ongoing scrutiny.
Long contract duration may mask inefficiencies if not actively managed.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $936.4 million to LOCKHEED MARTIN CORPORATION. See the official description on USAspending.

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 $936.4 million.

What is the period of performance?

Start: 2005-07-15. End: 2013-07-31.

What was the specific nature of the competition that led to the initial award, and how many bids were received?

The data indicates this is a 'FOLLOW ON TO COMPETED ACTION,' suggesting the original award was subject to competition. However, the specific details regarding the number of bidders and the scope of the original competition are not provided. To fully assess the value, understanding the competitive landscape at the outset is crucial. A robust initial competition would typically lead to more favorable pricing and terms for the government. If the follow-on action itself was also competed, it would further strengthen the case for competitive pricing. Without this information, it's difficult to definitively state the impact of competition on the initial award's value.

How did the contractor's performance and cost management compare to the incentive fee targets over the contract's duration?

The contract utilized a Cost Plus Incentive Fee (CPIF) structure, designed to incentivize Lockheed Martin to control costs while achieving performance objectives. Assessing the effectiveness of this structure requires detailed analysis of performance reports and financial data submitted throughout the contract's nearly 8-year lifespan. Key metrics would include whether the final costs were within target ranges, if incentive fees were earned, and if the government realized cost savings as intended. Without access to these specific performance and cost data, it's impossible to definitively evaluate how well the incentive mechanisms worked in practice to ensure value for money.

What specific engineering services were provided under this contract, and how critical are they to current naval operations?

The contract is broadly categorized under 'Engineering Services' (NAICS 541330). Given the awardee (Lockheed Martin) and the agency (Department of the Navy), these services likely encompass a wide range of highly specialized technical support. This could include systems engineering, design, integration, testing, and lifecycle support for naval platforms, weapons systems, or associated technologies. The long duration and significant value suggest these services are critical and ongoing, potentially related to major naval programs such as shipbuilding, aircraft development, or advanced combat systems. Understanding the precise nature of these services is key to appreciating their strategic importance and the necessity of the contract.

What is the historical spending trend for similar engineering services contracts awarded by the Department of the Navy to Lockheed Martin?

Analyzing historical spending trends for similar contracts provides context for the $936 million awarded here. While specific historical data isn't provided, Lockheed Martin is a major defense contractor with a long-standing relationship with the Navy. It's probable that the Navy has awarded numerous engineering services contracts to Lockheed Martin over the years, potentially ranging in value and duration. Understanding if this $936 million represents an increase, decrease, or steady level of spending compared to previous periods would offer insights into the Navy's evolving needs and its reliance on Lockheed Martin for these specialized services. Benchmarking against other large defense contractors for similar services would also be informative.

What are the potential risks associated with a long-term, sole-source or limited-competition follow-on contract of this magnitude?

A significant risk with long-term, potentially limited-competition follow-on contracts is the erosion of competitive pressure, which can lead to inflated costs and reduced innovation over time. If the follow-on action was not fully competed, the government might not be benefiting from the best possible pricing or the most innovative solutions available in the market. Furthermore, long durations can sometimes mask inefficiencies or a lack of adaptation to changing technological landscapes if not rigorously managed and reviewed. Ensuring robust oversight, regular performance evaluations, and clear exit strategies or re-competition triggers are crucial to mitigate these risks and ensure continued value for the taxpayer.

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

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: Lockheed Martin Corp (UEI: 834951691)

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