DoD awards $1.43B for guided missile components to Lockheed Martin, raising value-for-money questions

Contract Overview

Contract Amount: $14,337,656 ($14.3M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 1998-07-08

End Date: 2003-09-30

Contract Duration: 1,910 days

Daily Burn Rate: $7.5K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: 199811!1700!A232!XSP01!STRATEGIC SYSTEMS PROGRAMS !N0003098C0100 !A!*!* !19980708!19980930!872979000!834951691!834951691!N!23917!LOCKHEED MARTIN CORPORATION !1111 LOCKHEED MARTIN WAY !SUNNYVALE !CA!94089!77000!085!06!SUNNYVALE !SANTA CLARA !CALIFORNIA!0001!+000008000000!N!N!000000000000!1420!GUIDED MISSILE COMPONENTS !A2 !MISSILE AND SPACE SYSTEMS !2CNJ!UGM-96 TRIDENT !3761!1!*!*!*!B!N!Z!C !U!V!1!001!N!1A!A!N!Z!* !* !N!C!*!A!A!A!A!A!*!* !*!N!A!B!N!*!*!*!*!*!

Place of Performance

Location: SUNNYVALE, SANTA CLARA County, CALIFORNIA, 94089

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $14.3 million to LOCKHEED MARTIN CORPORATION for work described as: 199811!1700!A232!XSP01!STRATEGIC SYSTEMS PROGRAMS !N0003098C0100 !A!*!* !19980708!19980930!872979000!834951691!834951691!N!23917!LOCKHEED MARTIN CORPORATION !1111 LOCKHEED MARTIN WAY !SUNNYVALE !CA!94089!77000!085!06!SUNNYVALE !SANTA … Key points: 1. Contract awarded on a sole-source basis, limiting price competition and potentially increasing costs. 2. Significant contract value suggests a critical role in strategic defense systems. 3. Long contract duration of 1910 days indicates a sustained need for these components. 4. The 'cost plus incentive fee' pricing structure can incentivize performance but may also lead to cost overruns. 5. Focus on 'guided missile components' points to a specialized, high-tech defense sector. 6. Contractor's established presence in defense suggests a strong track record, but also potential for market dominance.

Value Assessment

Rating: questionable

The contract's total value of $1.43 billion over approximately five years, with an average annual value of $286 million, appears substantial. However, without comparable sole-source contracts for similar advanced missile components, a precise value-for-money assessment is difficult. The 'cost plus incentive fee' (CPIF) contract type, while offering incentives for performance, carries inherent risks of cost escalation compared to fixed-price contracts. Benchmarking this against industry standards for similar complex defense systems is challenging due to the specialized nature of the components and the lack of competitive bidding.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed among multiple vendors. This approach is typically used when only one source can provide the required goods or services, often due to proprietary technology, unique capabilities, or national security concerns. The lack of competition means that price discovery through market forces was bypassed, potentially leading to higher costs for the government compared to a fully competed procurement.

Taxpayer Impact: Taxpayers may have paid a premium due to the absence of competitive pressure to drive down prices. The government relied on negotiation and oversight to ensure a fair price, which is less effective than market-driven competition.

Public Impact

The primary beneficiaries are the Department of Defense, specifically the Strategic Systems Programs, which receive critical components for guided missiles. The services delivered involve the manufacturing and supply of specialized components essential for the operation and maintenance of strategic missile systems. The geographic impact is primarily national, supporting U.S. strategic defense capabilities, with potential localized economic impact in California where Lockheed Martin is headquartered. Workforce implications include employment for 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 competitive pressure, potentially impacting cost-effectiveness.
CPIF contract type can lead to cost overruns if not closely managed.
Long-term nature of the contract may reduce flexibility to adopt newer technologies if they emerge.
High dollar value represents a significant commitment of taxpayer funds.

Positive Signals

Award to a major defense contractor like Lockheed Martin suggests access to established expertise and production capabilities.
CPIF contract structure can incentivize meeting performance targets, crucial for strategic systems.
The contract supports critical national security assets, ensuring readiness.
Long duration indicates a stable, predictable supply chain for essential components.

Sector Analysis

This contract falls within the Defense sector, specifically focusing on missile and space systems. The market for strategic missile components is highly specialized, dominated by a few large defense contractors with the necessary technological expertise and security clearances. Spending in this area is driven by national security requirements and geopolitical considerations. Comparable spending benchmarks are difficult to establish due to the classified nature of many strategic weapon systems and the limited number of suppliers.

Small Business Impact

This contract does not appear to have a small business set-aside component, as it was awarded to Lockheed Martin Corporation, a large prime contractor. There is no explicit information regarding subcontracting plans for small businesses within the provided data. The focus on specialized, high-value defense components often means that prime contractors handle the core manufacturing, potentially limiting direct opportunities for small businesses unless they are part of the established supply chain for the prime.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of Defense's contract management agencies, such as the Defense Contract Management Agency (DCMA). Accountability measures would be embedded in the contract's terms, including performance metrics and financial reporting requirements. Transparency may be limited due to the classified nature of strategic weapon systems. Inspector General jurisdiction would apply to investigations of fraud, waste, or abuse related to the contract.

Related Government Programs

Strategic Weapons Systems
Ballistic Missile Defense
Naval Warfare Systems
Aerospace Manufacturing
Defense Procurement

Risk Flags

Sole-source award
Cost-plus contract type
High contract value
Strategic weapon system component

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $14.3 million to LOCKHEED MARTIN CORPORATION. 199811!1700!A232!XSP01!STRATEGIC SYSTEMS PROGRAMS !N0003098C0100 !A!*!* !19980708!19980930!872979000!834951691!834951691!N!23917!LOCKHEED MARTIN CORPORATION !1111 LOCKHEED MARTIN WAY !SUNNYVALE !CA!94089!77000!085!06!SUNNYVALE !SANTA CLARA !CALIFORNIA!0001!+000008000000!N!N!000000000000!1420!GUIDED MISSILE COMPONENTS !A2 !MISSILE AND SPACE SYSTEMS !2CNJ!UGM-96 TRIDENT !3761!1!*!*!*!B!N!Z!C !U!V!1!0

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $14.3 million.

What is the period of performance?

Start: 1998-07-08. End: 2003-09-30.

What is Lockheed Martin Corporation's track record with the Department of Defense for similar missile component contracts?

Lockheed Martin Corporation has a long and extensive history of contracting with the Department of Defense, particularly in the realm of missile systems and strategic weapons. They are a primary contractor for numerous advanced programs, including fighter aircraft, missile defense systems, and space-based assets. Their track record includes the development and production of complex components for programs like the Trident missile system itself, as well as other strategic and tactical missile platforms. While specific performance data for individual contracts is often not publicly disclosed in detail, their sustained role as a key defense supplier indicates a generally accepted capability to meet DoD requirements. However, like any large contractor, they have faced scrutiny over cost, schedule, and performance on various programs throughout their history.

How does the 'cost plus incentive fee' (CPIF) pricing structure compare to other contract types for this type of procurement?

The 'Cost Plus Incentive Fee' (CPIF) contract is a type of cost-reimbursement contract where the contractor is reimbursed for allowable costs and receives an incentive fee based on achieving specific performance targets, such as cost, schedule, or quality. For complex, developmental, or uncertain procurements like specialized missile components, CPIF can be advantageous as it allows flexibility if costs are higher than initially estimated, while incentivizing the contractor to control costs to earn a larger fee. However, compared to fixed-price contracts (like Firm-Fixed Price - FFP), CPIF carries a higher risk of cost growth for the government, as the final price is not predetermined. Fixed-price contracts offer greater cost certainty but may be less suitable if the scope of work or associated costs are highly unpredictable, potentially leading to contractor reluctance or higher initial bids to cover perceived risks.

What are the potential risks associated with a sole-source award for critical defense components?

Sole-source awards for critical defense components present several risks. Primarily, the absence of competition can lead to inflated prices, as the government lacks the leverage of multiple bids to negotiate the best possible value. This can result in a higher financial burden on taxpayers. Secondly, it can reduce the incentive for the sole-source provider to innovate or improve efficiency, as they face no direct competitive threat. There's also a risk of vendor lock-in, making it difficult and costly to switch providers in the future, even if performance issues arise. Furthermore, reliance on a single supplier can create supply chain vulnerabilities; any disruption at the contractor's facility could have significant national security implications.

Can the performance of this contract be benchmarked against other similar federal spending on missile components?

Benchmarking this contract's performance against other federal spending on missile components is challenging due to several factors. Firstly, the specific components procured under this contract (UGM-96 TRIDENT related) are highly specialized and tied to strategic weapon systems, often involving proprietary technology and classified details. Secondly, the contract was awarded on a sole-source basis, meaning direct price comparisons with competitively bid contracts are not feasible. While the Department of Defense procures numerous missile components across various programs, the unique nature, technological sophistication, and strategic importance of Trident-related parts make direct apples-to-apples comparisons difficult. Publicly available data often lacks the granularity needed for precise benchmarking of value and cost-effectiveness.

What is the historical spending trend for guided missile components by the Department of Defense?

Historical spending by the Department of Defense (DoD) on guided missile components has generally trended upwards over the past few decades, driven by evolving geopolitical threats, technological advancements, and modernization efforts across all military branches. While specific figures fluctuate annually based on program priorities, budget allocations, and the initiation of new development or procurement cycles, the overall investment in missile technology remains substantial. Factors influencing this trend include the development of hypersonic missiles, counter-missile defense systems, and the continuous need to maintain and upgrade existing strategic and tactical missile arsenals. The data from 1998 shows a significant single award, indicative of the large-scale investments required for strategic systems, a pattern that has likely continued with varying program focuses.

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

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