DoD's $1.2B contract for guided missile systems awarded to Lockheed Martin, raising value-for-money questions

Contract Overview

Contract Amount: $11,977,761 ($12.0M)

Contractor: Lockheed Martin Corp

Awarding Agency: Department of Defense

Start Date: 2006-08-18

End Date: 2008-12-31

Contract Duration: 866 days

Daily Burn Rate: $13.8K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: 200611!06A276!1700!N00030!STRATEGIC SYSTEMS PROGRAMS !N0003006C0030 !A!N! !N! !P00001!20060818!20081231!188160782!834951691!834951691!N!LOCKHEED MARTIN CORPORATION !1111 LOCKHEED MARTIN WAY, !SUNNYVALE !CA!94089!77000!085!06!SUNNYVALE !SANTA CLARA !CALIFORNIA!+000001927000!N!N!000000000000!1425!GUIDED MISSILE SYSTEMS, COMPLETE !A2 !MISSILE AND SPACE SYSTEMS !178 !TRIDENT II MISSILE !336414!E! !3! ! !C! ! !99990909!B! ! !A! !D!N!U!1!001!N!1A!A!Y!Z! ! !N!C!N! ! ! !A!A!A!A!000!A!C!Y! ! ! ! !1700!N00030!0001! !

Place of Performance

Location: SUNNYVALE, SANTA CLARA County, CALIFORNIA, 94088

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $12.0 million to LOCKHEED MARTIN CORP for work described as: 200611!06A276!1700!N00030!STRATEGIC SYSTEMS PROGRAMS !N0003006C0030 !A!N! !N! !P00001!20060818!20081231!188160782!834951691!834951691!N!LOCKHEED MARTIN CORPORATION !1111 LOCKHEED MARTIN WAY, !SUNNYVALE !CA!94089!77000!085!06!SUNNYVALE !SANT… Key points: 1. The contract's value of $1.2 billion over two years suggests a high per-unit cost for complex missile systems. 2. Awarded on a sole-source basis, the lack of competition limits price discovery and potentially inflates costs. 3. The 'Cost Plus Fixed Fee' contract type can incentivize contractors to increase costs to maximize profit. 4. Performance context is limited, but the duration and scope indicate a critical, long-term defense need. 5. This contract positions Lockheed Martin as a key supplier for strategic missile systems within the Navy's portfolio. 6. The absence of small business set-asides or subcontracting plans warrants scrutiny for broader economic impact.

Value Assessment

Rating: questionable

The contract's value of $1.2 billion for a two-year period, specifically for guided missile systems, appears substantial. Without comparable contract data or detailed cost breakdowns, it is difficult to definitively benchmark the value. However, the 'Cost Plus Fixed Fee' (CPFF) contract type, while common for R&D or uncertain scope, can lead to higher overall costs compared to fixed-price contracts if not managed rigorously. The lack of competition further complicates value assessment, as it removes the downward pressure on pricing that multiple bidders typically provide. This award warrants closer examination of cost efficiency and whether the fixed fee adequately incentivizes performance.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one contractor, Lockheed Martin Corporation, was solicited. This approach is typically justified when a unique capability or proprietary technology is required, or in cases of urgent need where competition is impractical. However, the lack of competition means there was no opportunity for other qualified firms to bid, potentially leading to higher prices than might be achieved in a competitive environment. The absence of multiple bids limits the government's ability to negotiate the best possible price and terms.

Taxpayer Impact: Taxpayers may have paid a premium for these guided missile systems due to the absence of competitive bidding. Without alternative offers, the government lacked leverage to secure lower pricing, potentially resulting in a less efficient use of public funds.

Public Impact

The primary beneficiaries are the U.S. Navy and the Department of Defense, receiving critical strategic missile systems. The services delivered include the complete manufacturing and support for guided missile systems, specifically the Trident II missile. The geographic impact is national, supporting strategic defense capabilities, with potential localized economic benefits in areas where Lockheed Martin operates. Workforce implications include the employment of highly skilled engineers, technicians, and manufacturing personnel at Lockheed Martin facilities.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially increasing costs for taxpayers.
Cost Plus Fixed Fee contract type can incentivize cost escalation if not closely monitored.
Lack of transparency in cost breakdown makes independent value assessment challenging.
Absence of small business participation noted, potentially limiting broader economic inclusion.

Positive Signals

Award to a prime contractor with a long history in defense systems suggests technical capability.
Contract duration of two years indicates a sustained need for these critical defense assets.
The specific nature of the Trident II missile suggests a focus on high-priority strategic defense.

Sector Analysis

This contract falls within the aerospace and defense sector, specifically focusing on missile and space systems manufacturing. The market for strategic missile systems is highly specialized, dominated by a few large defense contractors. Lockheed Martin is a major player in this segment. Comparable spending benchmarks are difficult to establish publicly due to the classified nature of some defense programs and the unique specifications of such systems. However, the scale of this award ($1.2 billion) places it among significant defense procurements.

Small Business Impact

This contract does not appear to include specific small business set-asides. The prime contractor, Lockheed Martin, is a large corporation. Without explicit subcontracting plans or set-asides, the direct impact on the small business ecosystem is likely minimal. Opportunities for small businesses would typically arise through subcontracting tiers, but the extent of this is not detailed in the provided data. Further investigation into subcontracting goals and achievements would be necessary to fully assess the impact on small businesses.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. Given the strategic nature of missile systems, oversight is likely rigorous, involving program reviews, cost tracking, and performance monitoring. The Defense Contract Audit Agency (DCAA) and the Department of Defense Inspector General (DoDIG) would have jurisdiction to audit costs and investigate potential fraud or mismanagement. Transparency is generally limited for classified or sensitive defense procurements, but internal oversight mechanisms are expected to be robust.

Related Government Programs

Strategic Weapons Systems
Ballistic Missile Defense
Naval Aviation Programs
Defense Industrial Base
Missile Manufacturing
Trident Submarine Program

Risk Flags

Sole-source award
Cost-plus contract type
Lack of competition
Limited transparency on cost breakdown
Potential for cost overruns

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $12.0 million to LOCKHEED MARTIN CORP. 200611!06A276!1700!N00030!STRATEGIC SYSTEMS PROGRAMS !N0003006C0030 !A!N! !N! !P00001!20060818!20081231!188160782!834951691!834951691!N!LOCKHEED MARTIN CORPORATION !1111 LOCKHEED MARTIN WAY, !SUNNYVALE !CA!94089!77000!085!06!SUNNYVALE !SANTA CLARA !CALIFORNIA!+000001927000!N!N!000000000000!1425!GUIDED MISSILE SYSTEMS, COMPLETE !A2 !MISSILE AND SPACE SYSTEMS !178 !TRIDENT II MISSILE !336414!E! !3! ! !C! ! !999

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORP.

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Navy).

What is the total obligated amount?

The obligated amount is $12.0 million.

What is the period of performance?

Start: 2006-08-18. End: 2008-12-31.

What is Lockheed Martin's track record with similar sole-source, cost-plus contracts for strategic missile systems?

Lockheed Martin Corporation has a long and extensive history of contracting with the U.S. Department of Defense, including numerous sole-source and cost-plus contracts for complex defense systems, particularly in the realm of missiles and space. Their experience with programs like the Trident II (D5) missile, which this contract pertains to, spans decades. While this extensive experience suggests a high level of technical capability and program execution proficiency, it also means that the government has often relied on Lockheed Martin as the sole provider for certain critical technologies. Analyzing past performance on similar contracts would involve reviewing historical award data, contract modifications, cost overruns, and any associated performance issues or audits. Without specific data on prior CPFF contracts for this exact system, it's presumed that their track record is generally positive given their continued role as a prime contractor, but the inherent risks of sole-source, cost-plus arrangements remain.

How does the $1.2 billion value compare to historical spending on the Trident II missile program?

The provided data indicates a contract value of $1,197,776,100 (approximately $1.2 billion) awarded on August 18, 2006, with an end date of December 31, 2008. This represents a two-year period of performance. To compare this to historical spending, one would need access to historical contract databases and budget documents for the Trident II missile program over its entire lifecycle. The Trident II (D5) missile program has been ongoing for many years, involving significant research, development, procurement, and sustainment costs. This $1.2 billion award likely represents a specific procurement or sustainment phase within a much larger, multi-year program. Without access to the full historical spending profile of the Trident II program, it's challenging to contextualize this specific award's magnitude relative to the program's overall investment. However, given the complexity and strategic importance of the system, such a value for a two-year period is not unexpected for a major defense procurement.

What are the primary risks associated with a sole-source, Cost Plus Fixed Fee contract for missile systems?

The primary risks associated with a sole-source, Cost Plus Fixed Fee (CPFF) contract for missile systems are twofold. Firstly, the sole-source nature eliminates competitive pressure, which can lead to higher prices than might be achieved through bidding. The government lacks the leverage that multiple bidders provide to negotiate the best possible terms and cost. Secondly, the CPFF structure, while providing flexibility for evolving requirements or uncertain costs, carries inherent risks. The contractor is reimbursed for allowable costs plus a fixed fee, which is their profit. This can create a disincentive for the contractor to control costs aggressively, as higher costs (within allowable limits) do not necessarily reduce their profit margin, and could even increase it if the fixed fee is a percentage of the total cost. Effective government oversight, stringent cost accounting standards, and clear performance metrics are crucial to mitigate these risks.

How effective is the 'Guided Missile Systems, Complete' classification in understanding the scope of work?

The classification 'Guided Missile Systems, Complete' provides a general understanding of the contract's objective: to procure fully functional guided missile systems. However, it lacks specificity regarding the exact nature of the work. This could encompass manufacturing new missiles, overhauling existing ones, providing spare parts, conducting testing and integration, or a combination of these activities. The sub-classification 'Trident II Missile' narrows the focus significantly to a specific strategic weapon system. While 'complete' implies a finished product, the precise scope (e.g., research, development, production, sustainment, modernization) is not detailed. For a comprehensive assessment of program effectiveness, a clearer definition of the deliverables, performance metrics, and the specific phase of the missile lifecycle addressed by the contract would be necessary.

What are the implications of the contract's duration (2 years) for program stability and long-term planning?

A two-year duration for a contract of this magnitude ($1.2 billion) suggests it likely covers a specific production run, modernization effort, or sustainment period rather than the entire lifecycle of the Trident II missile system. This duration implies a degree of program stability for that defined period, allowing for focused execution by Lockheed Martin. However, it also means that future funding and contract awards for subsequent phases or continued sustainment are not guaranteed beyond this period. This necessitates ongoing strategic planning by the Department of the Navy to ensure continuous capability. For taxpayers, shorter-term contracts can sometimes lead to less efficient long-term planning and potentially higher costs if production lines need to be re-established or if long-term supply chain agreements cannot be secured due to uncertainty.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Guided Missile and Space Vehicle Manufacturing

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 1111 LOCKHEED MARTIN WAY BLDG 157, 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: YES

Timeline