DoD's $176M Lockheed Martin contract for missile compartment support lacked competition, raising value concerns

Contract Overview

Contract Amount: $176,164,877 ($176.2M)

Contractor: Lockheed Martin Corp

Awarding Agency: Department of Defense

Start Date: 2014-11-25

End Date: 2021-06-06

Contract Duration: 2,385 days

Daily Burn Rate: $73.9K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: COMMON MISSILE COMPARTMENT (CMC) / OHIO REPLACEMENT (ORP) SUPPORT AND SERVICES, STRATEGIC WEAPONS SYSTEMS ASHORE (SWSA) SYSTEMS INTEGRATION, MISSILE SERVICE UNIT (MSU) PRODUCTION, XPOD REFRESH

Place of Performance

Location: SUNNYVALE, SANTA CLARA County, CALIFORNIA, 94089

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $176.2 million to LOCKHEED MARTIN CORP for work described as: COMMON MISSILE COMPARTMENT (CMC) / OHIO REPLACEMENT (ORP) SUPPORT AND SERVICES, STRATEGIC WEAPONS SYSTEMS ASHORE (SWSA) SYSTEMS INTEGRATION, MISSILE SERVICE UNIT (MSU) PRODUCTION, XPOD REFRESH Key points: 1. The contract's value for money is questionable due to the absence of a competitive bidding process. 2. Sole-source procurement limits price discovery and potentially inflates costs for critical defense systems. 3. The long duration and cost-plus fixed-fee structure may incentivize cost overruns. 4. Performance context is limited as this was not competed, making direct comparisons difficult. 5. This contract positions Lockheed Martin as a key provider for strategic weapons systems ashore. 6. The lack of competition is a significant risk indicator for future contract awards in this area.

Value Assessment

Rating: questionable

This $176 million contract awarded to Lockheed Martin for support and services related to the Ohio Replacement Program's Strategic Weapons Systems Ashore (SWSA) and Missile Service Unit (MSU) production was not competed. Without a competitive process, it is difficult to benchmark the pricing or assess the value for money. The cost-plus fixed-fee (CPFF) contract type, while common for complex R&D, can lead to higher costs if not managed rigorously, as the contractor is reimbursed for all allowable costs plus a fixed fee. This structure may not incentivize cost efficiency as effectively as other contract types.

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. The data indicates it was a 'NOT COMPETED' award. This approach is typically justified when only one source is capable of meeting the requirement, often due to proprietary technology, unique expertise, or national security considerations. However, the lack of multiple bidders means that the government did not benefit from a range of proposals and pricing strategies, potentially leading to a higher overall cost than if the contract had been competed.

Taxpayer Impact: Taxpayers may have paid a premium for these services due to the absence of competitive pressure. Without competing bids, the government has less leverage to negotiate the lowest possible price for these critical defense components.

Public Impact

The primary beneficiaries are the Department of the Navy and Lockheed Martin, ensuring continued support for strategic weapons systems. Services delivered include support and services for the Common Missile Compartment (CMC) / Ohio Replacement (ORP) Support and Services, SWSA Systems Integration, MSU Production, and XPOD Refresh. The geographic impact is primarily within California, where the contract was administered. Workforce implications include sustained employment for engineers and technical staff at Lockheed Martin involved in these specialized defense programs.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price discovery and potentially increases costs.
Cost-plus fixed-fee contract type may incentivize cost growth without strong oversight.
Long contract duration (2385 days) increases exposure to potential cost escalations.
Lack of competition makes it difficult to assess true market value.
Reliance on a single contractor for critical strategic weapons systems creates dependency.

Positive Signals

Contract supports critical national security infrastructure (strategic weapons systems).
Awardee is a major defense contractor with extensive experience in this domain.
Contract addresses essential modernization and sustainment needs for naval capabilities.
Fixed fee component provides some level of cost predictability for the fee portion.

Sector Analysis

This contract falls within the Engineering Services sector, specifically supporting defense-related R&D and production. The market for specialized defense systems integration and component manufacturing is highly concentrated, often dominated by a few large prime contractors like Lockheed Martin. Spending in this area is driven by national security requirements and long-term modernization programs for military assets. Comparable benchmarks are difficult to establish precisely due to the unique nature of strategic weapons systems, but overall defense engineering services spending is substantial.

Small Business Impact

This contract was not set aside for small businesses, nor does it appear to have significant subcontracting implications for small businesses based on the provided data. The nature of the work, involving highly specialized strategic weapons systems, typically requires the expertise of large, established defense contractors. This limits opportunities for small businesses to participate directly in this specific contract, although they may be involved further down the supply chain.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of the Navy and potentially the Department of Defense's Inspector General. Given the sole-source nature and CPFF structure, rigorous oversight of cost allowability, performance, and adherence to contract terms would be crucial. Transparency is limited due to the non-competitive award, making public scrutiny of the value proposition challenging. Accountability rests on the contracting officer's representatives (CORs) and program managers to ensure the contractor meets deliverables and manages costs effectively.

Related Government Programs

Ohio Replacement Program (ORP)
Columbia-class Submarine Program
Strategic Weapons Systems Ashore (SWSA)
Missile Service Unit (MSU) Production
Naval Nuclear Propulsion Program

Risk Flags

Sole-source award
Cost-plus contract type
Long contract duration
Lack of competition
Critical defense system support

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $176.2 million to LOCKHEED MARTIN CORP. COMMON MISSILE COMPARTMENT (CMC) / OHIO REPLACEMENT (ORP) SUPPORT AND SERVICES, STRATEGIC WEAPONS SYSTEMS ASHORE (SWSA) SYSTEMS INTEGRATION, MISSILE SERVICE UNIT (MSU) PRODUCTION, XPOD REFRESH

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 $176.2 million.

What is the period of performance?

Start: 2014-11-25. End: 2021-06-06.

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

Lockheed Martin, as a primary defense contractor, has a long history of executing large, complex sole-source and cost-plus contracts for strategic defense systems. These often involve research, development, production, and sustainment of critical platforms like submarines, missiles, and associated support systems. While their experience is extensive, the nature of sole-source, cost-plus contracts inherently carries risks of cost escalation and reduced efficiency compared to competitively bid, fixed-price arrangements. Oversight and robust program management by the government are paramount in such cases to ensure value and control expenditures. Specific performance metrics and cost outcomes for past similar contracts are often classified or not publicly available, making a detailed comparison challenging.

How does the $176 million total award compare to the annual spending on similar engineering services for naval strategic systems?

Directly comparing this $176 million contract to annual spending on similar engineering services is difficult due to the specialized and often classified nature of strategic naval systems. However, the Department of the Navy's overall budget for research, development, test, and evaluation (RDT&E) and procurement runs into tens of billions of dollars annually. Contracts for major platform development, like the Ohio Replacement Program (which this contract supports), represent significant portions of this budget. While $176 million over approximately 7 years (based on the duration) is substantial, it should be viewed within the context of the immense cost and complexity of maintaining and modernizing a strategic nuclear deterrent. Without specific breakdowns of 'similar' engineering services spending, a precise benchmark is elusive, but this figure is consistent with the scale of major defense acquisition programs.

What are the primary risks associated with a sole-source, cost-plus fixed-fee contract for critical defense components?

The primary risks associated with a sole-source, cost-plus fixed-fee (CPFF) contract for critical defense components are multifaceted. Firstly, the lack of competition means the government may not achieve the lowest possible price, as there's no market pressure to drive down costs. Secondly, the CPFF structure reimburses the contractor for allowable costs plus a fixed fee, which can incentivize higher spending if oversight is lax, as the contractor's profit (the fee) is fixed regardless of the total cost. This can lead to cost overruns. Thirdly, sole-source awards create a dependency on a single contractor, potentially limiting flexibility and future negotiation leverage. Finally, for critical components, any performance issues or delays by the sole provider can have significant national security implications.

What is the historical spending pattern for the Common Missile Compartment (CMC) / Ohio Replacement (ORP) support and services?

Historical spending data for the Common Missile Compartment (CMC) / Ohio Replacement (ORP) support and services, particularly for specific components like this $176 million contract, is not readily available in the public domain. Major defense programs like the ORP involve multi-year, multi-billion dollar investments across numerous contracts. This particular contract, awarded in late 2014 and ending in mid-2021, represents a segment of the overall lifecycle support and integration services required for these strategic assets. Annual or cumulative spending figures for specific support services within such large programs are typically detailed in classified budget documents or internal Navy reports, making historical trend analysis difficult from public sources.

How does the contract's duration (2385 days) impact the assessment of its value and risk?

The contract's duration of 2385 days (approximately 6.5 years) significantly impacts the assessment of its value and risk. A longer duration increases the potential for cost escalation, especially under a cost-plus contract type, as more time allows for unforeseen issues, scope creep, or inflation to affect the total expenditure. It also means the government is committed to a single provider for an extended period, potentially missing opportunities to leverage new technologies or more competitive pricing that might emerge over time. From a risk perspective, a longer contract duration heightens the exposure to contractor performance issues, changes in strategic requirements, or technological obsolescence. Effective program management and continuous oversight are critical to mitigate these risks over such an extended period.

Industry Classification

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

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0003015Q0005

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, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $187,380,585

Exercised Options: $187,356,379

Current Obligation: $176,164,877

Actual Outlays: $9,596,957

Subaward Activity

Number of Subawards: 243

Total Subaward Amount: $210,560,727

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline