DoD awards $1.2B to Lockheed Martin for guided missile manufacturing, with a 5-year performance period

Contract Overview

Contract Amount: $1,216,428,405 ($1.2B)

Contractor: Lockheed Martin Corp

Awarding Agency: Department of Defense

Start Date: 2017-08-03

End Date: 2022-09-30

Contract Duration: 1,884 days

Daily Burn Rate: $645.7K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: FY18 LONG LEAD MATERIAL

Place of Performance

Location: SUNNYVALE, SANTA CLARA County, CALIFORNIA, 94089

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $1.22 billion to LOCKHEED MARTIN CORP for work described as: FY18 LONG LEAD MATERIAL Key points: 1. Significant investment in critical defense manufacturing capabilities. 2. Long-term contract indicates sustained demand for guided missile systems. 3. Sole-source award raises questions about price competition and potential cost efficiencies. 4. Contract duration suggests a stable, albeit potentially less agile, supply chain. 5. Focus on fixed-price incentive structure aims to balance cost control with performance. 6. Geographic concentration in California for manufacturing operations.

Value Assessment

Rating: fair

The contract value of $1.2 billion over five years represents a substantial commitment to guided missile production. Benchmarking this against similar sole-source awards for specialized defense manufacturing is challenging due to unique technical requirements and limited market alternatives. The fixed-price incentive (FPI) structure suggests an attempt to manage costs, but without competitive bids, it's difficult to definitively assess if the pricing represents optimal value for money. Further analysis would require detailed cost breakdowns and comparisons to historical pricing for comparable systems.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one bidder was solicited. This approach is typically used when a unique capability or proprietary technology is required, or when there is insufficient time to conduct a full and open competition. The lack of competition means that price discovery through market forces was not utilized, potentially leading to higher costs for the government compared to a competitive procurement.

Taxpayer Impact: Sole-source awards limit the government's ability to leverage competition to secure the best possible pricing, potentially resulting in higher expenditures for taxpayers.

Public Impact

The Department of Defense benefits from the continued production of essential guided missile and space vehicle components. This contract supports the manufacturing of advanced weaponry critical for national security. The primary geographic impact is in California, where the manufacturing operations are located, supporting local jobs and the defense industrial base. Workforce implications include sustained employment for skilled labor in specialized manufacturing roles within the aerospace and defense sector.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source nature limits competitive pressure on pricing.
Long contract duration may reduce flexibility to adopt newer technologies or processes.
Concentration of manufacturing in one geographic area could pose supply chain risks.
Fixed-price incentive contracts can sometimes lead to cost overruns if not carefully managed.

Positive Signals

Long-term commitment ensures supply chain stability for critical defense assets.
Fixed-price incentive structure aligns contractor and government interests on cost and performance.
Award to a major defense contractor like Lockheed Martin suggests access to established expertise and infrastructure.
Sustained funding supports specialized manufacturing capabilities vital for national defense.

Sector Analysis

The guided missile and space vehicle manufacturing sector is a highly specialized and critical component of the aerospace and defense industry. This contract falls within the broader category of defense manufacturing, which is characterized by high technological barriers to entry, significant R&D investment, and long production cycles. The market is dominated by a few large, established prime contractors. Spending in this sector is driven by national security requirements and geopolitical factors. Comparable spending benchmarks are difficult to establish due to the proprietary nature of many weapon systems and the unique specifications of each contract.

Small Business Impact

This contract was not set aside for small businesses, nor does it appear to have specific subcontracting requirements for small businesses indicated in the provided data. As a sole-source award to a large prime contractor, the direct impact on small businesses is likely limited unless Lockheed Martin actively engages them as subcontractors. The absence of a small business set-aside means that opportunities for small businesses to directly compete for this work are minimal.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contracting and program management offices. The Defense Contract Management Agency (DCMA) would likely be involved in monitoring performance, quality, and compliance. Given the nature of defense contracts, Inspector General (IG) oversight is also a standard mechanism to investigate fraud, waste, and abuse. Transparency is generally limited for sole-source defense procurements due to national security and proprietary considerations.

Related Government Programs

Guided Missile Manufacturing
Space Vehicle Manufacturing
Department of Defense Procurement
Aerospace and Defense Contracts
Fixed-Price Incentive Contracts

Risk Flags

Sole-source award
Lack of competitive bidding
Long contract duration
Potential for cost overruns
Geographic concentration risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.22 billion to LOCKHEED MARTIN CORP. FY18 LONG LEAD MATERIAL

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 $1.22 billion.

What is the period of performance?

Start: 2017-08-03. End: 2022-09-30.

What is Lockheed Martin's track record with similar sole-source defense contracts?

Lockheed Martin Corporation is a major defense contractor with extensive experience in sole-source procurements, particularly for complex weapon systems like guided missiles and aircraft. Historically, the company has been awarded numerous sole-source contracts by the Department of Defense and other government agencies due to its specialized capabilities and established role in the defense industrial base. While specific performance metrics for all past contracts are not publicly detailed, Lockheed Martin is generally recognized for its ability to deliver on large-scale, technologically advanced defense programs. However, sole-source awards, by their nature, limit public scrutiny of pricing and competition, making direct comparisons of value-for-money challenging across different contracts.

How does the pricing of this contract compare to market rates for similar guided missile components?

Directly comparing the pricing of this $1.2 billion sole-source contract to 'market rates' is inherently difficult. The guided missile sector is highly specialized, with limited competition and significant proprietary technology involved. Market rates are not readily available or transparent. The contract utilizes a Fixed Price Incentive (FPI) structure, which aims to share cost risks and rewards between the government and the contractor. Without access to detailed cost breakdowns, target costs, and incentive fee structures, it is impossible to benchmark the unit costs against external market data. The absence of competition means the government could not leverage bids to establish a competitive market price.

What are the primary risks associated with this sole-source, long-term contract?

The primary risks associated with this sole-source, long-term contract include potential cost inefficiencies due to the lack of competitive bidding, which can lead to higher prices for the government. The long duration (five years) might also pose a risk of technological obsolescence if advancements occur rapidly in missile technology during the contract period. Furthermore, sole-source awards can reduce contractor incentive to innovate aggressively on cost-saving measures, as they face less direct market pressure. Supply chain risks are also present, particularly given the concentration of manufacturing in California; disruptions due to natural disasters, labor issues, or geopolitical events could impact delivery schedules.

How effective is the Fixed Price Incentive (FPI) contract type in managing costs for this type of procurement?

The Fixed Price Incentive (FPI) contract type is designed to provide a middle ground between fixed-price and cost-reimbursement contracts, aiming to control costs while allowing for flexibility. In this context, it establishes a target cost and a target profit. If the final cost is lower than the target, both the government and contractor share in the savings (under-run). If the final cost is higher, they share in the loss (over-run), up to a ceiling price. This structure incentivizes the contractor to control costs to achieve a higher profit. However, the effectiveness of FPI heavily relies on the accuracy of the initial cost estimates and the negotiation of the sharing ratios. For sole-source contracts, where initial estimates might be less rigorously tested by competition, the FPI's cost-control benefits can be somewhat diminished.

What are the historical spending patterns for guided missile and space vehicle manufacturing by the Department of the Navy?

Historical spending patterns for guided missile and space vehicle manufacturing by the Department of the Navy, and the DoD more broadly, show a consistent and significant investment in these capabilities. These expenditures are driven by evolving threats, modernization programs, and strategic defense requirements. Over the past decade, spending in this category has generally remained robust, reflecting the critical role of advanced missile systems in national defense strategy. While specific annual figures fluctuate based on program lifecycles and budget allocations, the overall trend indicates sustained demand and substantial financial commitment. This $1.2 billion award aligns with this historical pattern of significant investment in maintaining and advancing these crucial defense assets.

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

Solicitation ID: N0003017Q0100

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Address: 1111 LOCKHEED MARTIN WAY, 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: $1,689,625,219

Exercised Options: $1,502,965,265

Current Obligation: $1,216,428,405

Actual Outlays: $30,866,060

Subaward Activity

Number of Subawards: 1171

Total Subaward Amount: $2,744,804,870

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline