Raytheon Company's $26M contract for aircraft parts shows limited competition and fair value

Contract Overview

Contract Amount: $26,003,550 ($26.0M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2011-09-30

End Date: 2016-03-31

Contract Duration: 1,644 days

Daily Burn Rate: $15.8K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: PATRIOT TECH PUBS

Place of Performance

Location: ANDOVER, ESSEX County, MASSACHUSETTS, 01810

State: Massachusetts Government Spending

Plain-Language Summary

Department of Defense obligated $26.0 million to RAYTHEON COMPANY for work described as: PATRIOT TECH PUBS Key points: 1. The contract was awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. The contract's cost-plus-fixed-fee structure incentivizes spending, requiring careful oversight to manage expenses. 3. Performance was rated as 'satisfactory' in the past, indicating a need for continued monitoring. 4. The contract falls under 'Other Aircraft Parts and Auxiliary Equipment Manufacturing,' a specialized sector. 5. Spending on this contract represents a small fraction of the Department of Defense's overall procurement budget.

Value Assessment

Rating: fair

The contract's value is difficult to benchmark due to its sole-source nature and the specific nature of the aircraft parts. While the total award amount of approximately $26 million over nearly five years is not excessively high for defense procurement, the cost-plus-fixed-fee (CPFF) pricing structure inherently carries higher risk for the government. Without competitive bidding, it's challenging to definitively assess if the pricing represents the best possible value. However, the 'satisfactory' past performance suggests the contractor met basic expectations.

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 used when only one vendor can provide the required goods or services, or in cases of urgent need. The lack of competition means that the government did not benefit from the price reductions and innovation that typically arise from a competitive bidding process. This can lead to higher prices and reduced leverage for the contracting agency.

Taxpayer Impact: Taxpayers may have paid a premium for these aircraft parts due to the absence of competitive pressure. The government had limited ability to negotiate the best possible price.

Public Impact

The Department of Defense benefits from the supply of critical aircraft parts necessary for maintaining its fleet. This contract supports the operational readiness of military aircraft. The contract's geographic impact is primarily within Massachusetts, where the contractor is located. It supports jobs within the aerospace manufacturing sector, particularly in specialized parts production.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing and potentially inflates costs.
Cost-plus-fixed-fee contract type can incentivize higher spending by the contractor.
Lack of transparency in pricing due to sole-source nature.
Past performance ratings require continued monitoring to ensure sustained quality.
Specialized nature of parts may limit future competition or alternative sourcing options.

Positive Signals

Contract supports critical defense needs for aircraft parts.
Contractor has a track record of performance, albeit rated as satisfactory.
The fixed fee component of the CPFF contract provides some cost certainty for the contractor's effort.
The contract duration allowed for sustained supply of necessary parts.

Sector Analysis

The 'Other Aircraft Parts and Auxiliary Equipment Manufacturing' sector is a niche but vital part of the broader aerospace and defense industry. This contract falls within a segment focused on specialized components rather than complete aircraft. The market for such parts is often characterized by high technical requirements, stringent quality control, and long product lifecycles. Spending in this area is directly tied to military readiness and modernization efforts. Comparable spending benchmarks are difficult to establish without more specific part details, but defense procurement of aircraft components represents a significant portion of the overall defense budget.

Small Business Impact

This contract does not appear to have involved small business set-asides, as indicated by 'sb': false. The prime contractor, Raytheon Company, is a large defense corporation. There is no explicit information provided regarding subcontracting plans or performance related to small businesses. Therefore, the direct impact on the small business ecosystem from this specific contract is likely minimal, unless Raytheon engaged in significant subcontracting with small businesses, which is not detailed here.

Oversight & Accountability

Oversight for this contract would have been managed by the Department of the Army contracting officers and program managers. Given the sole-source nature and CPFF structure, rigorous oversight would be crucial to ensure cost control and prevent overspending. Transparency is limited by the non-competitive award. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected. The 'satisfactory' past performance rating suggests that basic oversight mechanisms were in place and functioning to some degree.

Related Government Programs

Aircraft Parts Procurement
Defense Logistics Agency Contracts
Aerospace Manufacturing Contracts
Department of the Army Procurement
Sole-Source Defense Contracts

Risk Flags

Sole-source award
Cost-plus-fixed-fee contract type
Limited competition

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $26.0 million to RAYTHEON COMPANY. PATRIOT TECH PUBS

Who is the contractor on this award?

The obligated recipient is RAYTHEON COMPANY.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $26.0 million.

What is the period of performance?

Start: 2011-09-30. End: 2016-03-31.

What is the typical profit margin for Cost Plus Fixed Fee (CPFF) contracts in the defense sector, and how does this contract's fixed fee compare?

Cost Plus Fixed Fee (CPFF) contracts are designed to provide the contractor with a predetermined profit (the fixed fee) regardless of the final cost, as long as the scope of work is met. In the defense sector, typical fixed fee percentages can range from 7% to 15% of the estimated cost, though this can vary based on contract complexity, risk, and agency policy. Without knowing the estimated cost and the specific fixed fee amount for this PATRIOT TECH PUBS contract, a direct comparison is impossible. However, the 'satisfactory' past performance suggests the fee was likely within an acceptable range for the effort expended. The government's primary risk in CPFF contracts is cost overrun, as the fee remains constant while costs increase. Therefore, robust oversight is essential to manage the contractor's spending.

Given the sole-source nature, what mechanisms could the Department of the Army have employed to ensure fair pricing?

Even in sole-source procurements, the Department of the Army has several mechanisms to ensure fair and reasonable pricing. These include conducting thorough price and cost analyses, reviewing the contractor's cost proposals, and negotiating the contract terms. The agency might request detailed cost breakdowns, justification for labor rates, material costs, and overhead. They can also use historical pricing data for similar items, market research, and independent government cost estimates as benchmarks. For specialized items like aircraft parts, the government might also consult with technical experts to validate the necessity and pricing of components. The contracting officer is responsible for documenting that the price is fair and reasonable based on the available information.

What are the risks associated with awarding aircraft parts contracts on a sole-source basis, particularly for long-term sustainment?

Awarding aircraft parts contracts on a sole-source basis carries significant risks, especially for long-term sustainment. Firstly, it eliminates competitive pressure, which typically drives down prices and encourages innovation. This can lead to higher costs for the government over the life of the contract. Secondly, it creates vendor lock-in, making it difficult and potentially expensive to switch suppliers in the future, even if better alternatives emerge. Thirdly, it can reduce transparency in pricing and potentially mask inefficiencies or excessive profit margins. For long-term sustainment, sole-source awards can also stifle the development of a broader industrial base capable of producing these parts, potentially leading to supply chain vulnerabilities if the sole source encounters production issues.

How does the 'Other Aircraft Parts and Auxiliary Equipment Manufacturing' classification impact the potential for competition?

The classification 'Other Aircraft Parts and Auxiliary Equipment Manufacturing' (NAICS code 336413) indicates a specialized segment of the aerospace industry. This specialization inherently limits the pool of potential competitors compared to more common manufacturing categories. Companies operating in this space often possess unique technical expertise, proprietary processes, or specific certifications required by the aerospace sector. This can naturally lead to situations where only a few, or even just one, company can meet the stringent requirements for certain parts. While this specialization is necessary for producing high-quality, reliable components, it also contributes to the challenges in achieving full and open competition for related contracts.

What does a 'satisfactory' past performance rating imply for a defense contractor like Raytheon?

A 'satisfactory' past performance rating for a defense contractor like Raytheon indicates that the company generally met the contract requirements and fulfilled its obligations. It suggests that the contractor delivered goods or services on time, within budget (or managed cost variances acceptably), and to the specified quality standards. However, 'satisfactory' is not an exceptional rating; it means the contractor performed adequately but did not necessarily exceed expectations or demonstrate outstanding performance. For the government, a satisfactory rating implies that the contractor is a reliable choice but warrants continued monitoring to ensure performance does not degrade. It typically does not preclude a contractor from receiving future awards but might be a factor when competing against contractors with higher performance ratings.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Other Aircraft Parts and Auxiliary Equipment 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

Parent Company: RTX Corp

Address: 350 LOWELL ST, ANDOVER, MA, 01810

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: $26,003,550

Exercised Options: $26,003,550

Current Obligation: $26,003,550

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline