DoD's $172M Northrop Grumman contract for capital equipment maintenance raises value and competition questions

Contract Overview

Contract Amount: $17,245,171 ($17.2M)

Contractor: Northrop Grumman Systems Corporation

Awarding Agency: Department of Defense

Start Date: 2024-05-08

End Date: 2028-04-02

Contract Duration: 1,425 days

Daily Burn Rate: $12.1K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: FY24 NIROP CAPITAL MAINTENANCE (NCM)

Place of Performance

Location: MAGNA, SALT LAKE County, UTAH, 84044

State: Utah Government Spending

Plain-Language Summary

Department of Defense obligated $17.2 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: FY24 NIROP CAPITAL MAINTENANCE (NCM) Key points: 1. The contract's cost-plus-fixed-fee structure warrants scrutiny for potential cost overruns. 2. Lack of competition suggests potential for inflated pricing and reduced value for taxpayer dollars. 3. The long duration of the contract (over 3 years) increases exposure to market fluctuations. 4. Performance context is limited, making it difficult to assess the contractor's efficiency. 5. This contract falls within the broader category of industrial equipment maintenance services. 6. The absence of small business set-asides is noted. 7. Oversight will be critical to ensure cost control and effective service delivery.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to the lack of publicly available comparable data for similar large-scale, sole-source capital equipment maintenance agreements within the Department of the Navy. The cost-plus-fixed-fee (CPFF) pricing structure, while common for complex services, inherently carries a risk of cost escalation if not rigorously managed. Without competitive bids, it's difficult to ascertain if the fixed fee adequately reflects the effort required or if it includes a premium due to the lack of market pressure. Further analysis of historical spending on similar maintenance activities and the specific scope of work would be needed to provide a more definitive value assessment.

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. This approach is typically justified when only one responsible source is available or when the agency determines it is in the government's best interest to award to a specific contractor without competition. The lack of multiple bidders significantly limits price discovery and may result in higher costs for the government compared to a competitively awarded contract. The specific justification for this sole-source award is not detailed in the provided data.

Taxpayer Impact: Sole-source awards mean taxpayers do not benefit from the cost savings typically achieved through competitive bidding. This can lead to higher overall expenditure for the same goods or services.

Public Impact

The Department of the Navy benefits from the maintenance of critical capital equipment, ensuring operational readiness. Services delivered include repair and maintenance for commercial and industrial machinery and equipment. The geographic impact is primarily within Utah, where the contract is managed. The contract supports specialized technical roles within Northrop Grumman, potentially impacting the aerospace and defense workforce.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition may lead to higher costs for taxpayers.
Cost-plus-fixed-fee structure requires stringent oversight to prevent cost overruns.
Sole-source award limits transparency in pricing and value assessment.
Long contract duration increases exposure to potential inefficiencies over time.

Positive Signals

Contract awarded to a known entity (Northrop Grumman) with established capabilities.
Definitive contract type provides a framework for ongoing service delivery.
Fixed fee component provides some level of cost predictability.

Sector Analysis

This contract falls within the broader industrial machinery and equipment repair and maintenance sector. This sector is crucial for supporting various government operations, particularly in defense and infrastructure. The market size for such specialized maintenance services is substantial, driven by the need to preserve the longevity and operational effectiveness of high-value assets. Comparable spending benchmarks are difficult to establish without more specific details on the equipment being maintained, but large-scale maintenance contracts for defense assets often run into tens or hundreds of millions of dollars.

Small Business Impact

This contract does not appear to include a small business set-aside, as indicated by 'sb': false. Furthermore, the data does not specify any subcontracting plans for small businesses. This suggests that the primary contractor, Northrop Grumman, will likely perform the majority of the work, with limited direct opportunities for small businesses within this specific award. The impact on the small business ecosystem is therefore minimal for this particular contract.

Oversight & Accountability

Oversight for this contract will likely be managed by the Department of the Navy's contracting and program management offices. Accountability measures would typically involve performance reviews, milestone tracking, and financial audits, especially given the CPFF structure. Transparency is limited by the sole-source nature of the award and the proprietary information often associated with defense contracts. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

Defense Industrial Base Maintenance
Naval Aviation Equipment Support
Capital Equipment Lifecycle Management
Aerospace and Defense Contractor Services

Risk Flags

Sole-source award lacks competitive pricing pressure.
Cost-plus-fixed-fee structure carries inherent risk of cost escalation.
Limited public data on specific equipment and maintenance scope hinders value assessment.
Long contract duration increases exposure to changing requirements and market conditions.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $17.2 million to NORTHROP GRUMMAN SYSTEMS CORPORATION. FY24 NIROP CAPITAL MAINTENANCE (NCM)

Who is the contractor on this award?

The obligated recipient is NORTHROP GRUMMAN SYSTEMS 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 $17.2 million.

What is the period of performance?

Start: 2024-05-08. End: 2028-04-02.

What is the specific justification for awarding this contract on a sole-source basis to Northrop Grumman?

The provided data indicates the contract was awarded as 'NOT COMPETED' and is a 'SOLE SOURCE' type. While the specific justification is not detailed, common reasons for sole-source awards in defense contracting include the unique capabilities of a particular contractor, the need for compatibility with existing systems, urgent requirements where competition is not feasible, or when only one responsible source is available. For a large, complex entity like Northrop Grumman, it's plausible that the nature of the capital equipment maintenance requires specialized knowledge, proprietary tooling, or integration with systems only they can provide. A formal Justification for Other Than Full and Open Competition (JOFOC) would typically be required and documented by the agency.

How does the Cost Plus Fixed Fee (CPFF) pricing structure compare to other contract types for similar services, and what are the associated risks?

The Cost Plus Fixed Fee (CPFF) structure is common for research and development or complex services where the scope of work is not precisely defined at the outset, making fixed-price contracts difficult. It allows the contractor to recover all allowable costs plus a predetermined fixed fee, representing profit. Compared to Firm Fixed Price (FFP) contracts, CPFF offers less cost certainty for the government, as costs can fluctuate. However, it can be advantageous when innovation or flexibility is paramount. The primary risk for the government is cost overrun, as the contractor is incentivized to incur costs to cover their base, though the fixed fee aims to limit profit escalation. Rigorous oversight and detailed cost accounting are essential to mitigate these risks.

What is the historical spending pattern for capital equipment maintenance within the Department of the Navy, and how does this contract compare?

Without access to historical spending databases for the Department of the Navy's capital equipment maintenance, a direct comparison is not possible. However, the $172.4 million award for FY24 suggests a significant investment in maintaining critical assets. Large defense organizations typically allocate substantial budgets to equipment upkeep to ensure operational readiness. This contract's value should be assessed against the total budget for maintenance and repair within the Navy's relevant branches and the number and type of capital assets requiring service. Trends in spending on similar contracts over previous fiscal years would provide context on whether this represents an increase, decrease, or stable level of investment.

What are the potential performance risks associated with this contract, given its sole-source nature and CPFF structure?

Performance risks for this sole-source CPFF contract are multifaceted. Firstly, the lack of competition can reduce the contractor's incentive to perform efficiently or innovate, potentially leading to slower service delivery or suboptimal maintenance practices. Secondly, the CPFF structure, while providing cost recovery, can create a moral hazard where the contractor may not be as diligent in controlling costs as they would be under a fixed-price arrangement. Thirdly, the long duration (ending April 2028) increases the risk of scope creep, changes in technology, or shifts in operational needs that may not be adequately addressed within the current contract terms. Effective contract management, clear performance metrics, and proactive risk mitigation strategies by the Navy are crucial.

What is the estimated value or market rate for similar commercial and industrial machinery repair and maintenance services?

Estimating a precise market rate for 'Commercial and Industrial Machinery and Equipment Repair and Maintenance' (NAICS 811310) is complex due to the vast range of equipment and services covered. For general industrial maintenance, hourly rates can vary widely based on technician skill, location, and urgency, often ranging from $75 to $250+ per hour. However, this contract is for specialized capital equipment maintenance within the defense sector, likely involving highly skilled personnel, proprietary technology, and stringent security protocols. Therefore, direct commercial market rates may not be fully comparable. The $172.4 million total value over approximately 3.8 years suggests an average annual spend of around $45 million, which, for specialized defense equipment, might be within a reasonable range if the scope is extensive, but the lack of competition prevents definitive benchmarking.

Industry Classification

NAICS: Other Services (except Public Administration) › Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance › Commercial and Industrial Machinery and Equipment (except Automotive and Electronic) Repair and Maintenance

Product/Service Code: MAINT, REPAIR, ALTER REAL PROPERTY › MAINT, ALTER, REPAIR NONBUILDINGS

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0003024R2038

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Address: 5000 S 8400 W, MAGNA, UT, 84044

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Manufacturer of Goods, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $17,360,438

Exercised Options: $17,245,171

Current Obligation: $17,245,171

Subaward Activity

Number of Subawards: 5

Total Subaward Amount: $277,421

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline