Raytheon awarded $289M for Patriot missile modernization, a sole-source contract for critical defense systems

Contract Overview

Contract Amount: $289,351,736 ($289.4M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2014-06-30

End Date: 2019-12-31

Contract Duration: 2,010 days

Daily Burn Rate: $144.0K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: LETTER CONTRACT FOR PATRIOT MODERNIZATION KITS AND SPARES

Place of Performance

Location: ANDOVER, ESSEX County, MASSACHUSETTS, 01810

State: Massachusetts Government Spending

Plain-Language Summary

Department of Defense obligated $289.4 million to RAYTHEON COMPANY for work described as: LETTER CONTRACT FOR PATRIOT MODERNIZATION KITS AND SPARES Key points: 1. This contract represents a significant investment in maintaining and upgrading a key component of national air defense. 2. The firm-fixed-price structure aims to control costs, but the sole-source nature limits competitive pressure. 3. Performance is tied to the delivery of modernization kits and spare parts, crucial for operational readiness. 4. The contract duration spans over five years, indicating a long-term commitment to the Patriot system's lifecycle. 5. Spending is concentrated within the Guided Missile and Space Vehicle Manufacturing sector, highlighting specialized defense capabilities.

Value Assessment

Rating: fair

The contract value of $289.4 million for Patriot modernization kits and spares is substantial. Without direct comparable sole-source contracts for similar modernization efforts, a precise value-for-money assessment is challenging. However, given the critical nature of the Patriot system and the specialized manufacturing required, the pricing is likely influenced by high R&D costs and limited production runs. Benchmarking against other sole-source defense contracts for complex weapon systems would be necessary for 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 Raytheon Company was the only vendor considered. This approach is typically used when a specific technology or capability is unique to a single provider, or for urgent national security needs where competition is not feasible. The lack of competition means that taxpayers do not benefit from potential cost savings that could arise from a bidding process.

Taxpayer Impact: The absence of competition for this critical defense system means taxpayers may not be receiving the lowest possible price. The government relies on negotiation and oversight to ensure fair pricing in sole-source situations.

Public Impact

The U.S. Army benefits directly through the modernization and sustainment of its Patriot air defense missile systems. This contract ensures the continued operational readiness and effectiveness of a vital component of national security. The geographic impact is primarily within the United States, supporting domestic defense manufacturing and supply chains. Workforce implications include employment for highly skilled engineers, technicians, and manufacturing personnel within Raytheon and its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially leading to higher costs for taxpayers.
Long contract duration could mask inefficiencies if not closely monitored.
Reliance on a single contractor for critical modernization components poses supply chain risks.

Positive Signals

Firm-fixed-price contract type provides cost certainty for the government.
Focus on modernization and spares ensures continued operational capability of a key defense asset.
Contract awarded to a known, experienced provider of the Patriot system.

Sector Analysis

The defense sector, specifically the guided missile and space vehicle manufacturing sub-sector, is characterized by high technological complexity, significant R&D investment, and long product lifecycles. Contracts are often awarded through competitive bidding, but sole-source procurements are common for specialized systems like the Patriot missile defense system due to unique capabilities and national security requirements. Spending in this area is driven by geopolitical threats and the need for advanced air and missile defense capabilities.

Small Business Impact

This contract does not appear to have a specific small business set-aside component. As a sole-source award to a large prime contractor, the primary impact on small businesses would be through subcontracting opportunities. Raytheon Company would be responsible for managing its supply chain, which may include engaging small businesses for specialized parts or services, but this is not explicitly mandated by the contract structure itself.

Oversight & Accountability

Oversight for this contract would fall under the Department of the Army's contracting and program management offices. Accountability measures are typically embedded within the contract's performance work statement, delivery schedules, and quality assurance provisions. Transparency is generally limited for sole-source defense contracts due to national security considerations, though contract awards and basic details are publicly reported.

Related Government Programs

Patriot Missile System Sustainment
Air and Missile Defense Programs
Guided Missile Manufacturing
Defense Procurement Contracts
Department of the Army Contracts

Risk Flags

Sole-source procurement
Potential for cost overruns without competition
Long-term contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $289.4 million to RAYTHEON COMPANY. LETTER CONTRACT FOR PATRIOT MODERNIZATION KITS AND SPARES

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 $289.4 million.

What is the period of performance?

Start: 2014-06-30. End: 2019-12-31.

What is Raytheon Company's track record with the Patriot missile system and similar defense contracts?

Raytheon Company has a long and established history as the prime contractor for the Patriot missile defense system, dating back decades. They are responsible for the system's development, production, modernization, and sustainment. Their track record includes numerous upgrades and modifications to the Patriot system to counter evolving threats. The company also holds numerous other large defense contracts across various platforms and weapon systems, demonstrating extensive experience in complex defense manufacturing and program management. This specific contract leverages their deep expertise and proprietary knowledge of the Patriot system, which is a key factor in sole-source awards.

How does the $289.4 million contract value compare to historical spending on Patriot modernization?

The $289.4 million contract value represents a significant, but not unprecedented, investment in the Patriot system's modernization. Historical spending on the Patriot program, encompassing research, development, procurement of missiles, launchers, and associated support equipment, has run into billions of dollars over its lifecycle. This particular award focuses on modernization kits and spares, suggesting it's part of ongoing efforts to keep the system technologically relevant. Without access to detailed historical breakdowns of modernization kit procurements specifically, a direct year-over-year comparison is difficult. However, the amount is consistent with the substantial investments required for maintaining and upgrading advanced, long-lifecycle defense systems.

What are the primary risks associated with this sole-source contract for modernization kits and spares?

The primary risk associated with this sole-source contract is the potential for inflated pricing due to the lack of competitive bidding. Taxpayers may not be getting the best possible value. Another risk is contractor dependency; the Army's reliance on Raytheon for critical Patriot components could create vulnerabilities if Raytheon faces production issues, supply chain disruptions, or significant price increases. Furthermore, the long-term nature of the contract, while ensuring availability, could reduce incentives for Raytheon to innovate or become more efficient if not rigorously overseen. Ensuring robust contract management and performance monitoring is crucial to mitigate these risks.

How effective is the Patriot system, and how does this contract contribute to its overall program effectiveness?

The Patriot system is widely regarded as a highly effective, medium-to-high-altitude, all-weather air and missile defense system. It is designed to counter tactical ballistic missiles, cruise missiles, and advanced aircraft. This contract directly contributes to the system's effectiveness by providing essential modernization kits and spare parts. These components are crucial for upgrading the system's capabilities to meet new and evolving threats, ensuring its continued relevance and reliability on the battlefield. By maintaining and enhancing the Patriot's technological edge, this contract supports the overall program's objective of providing robust air and missile defense for U.S. forces and allies.

What are the implications of the firm-fixed-price (FFP) contract type for cost control and risk allocation?

The firm-fixed-price (FFP) contract type is generally favored by the government for cost control and risk allocation. Under an FFP contract, the contractor (Raytheon) assumes the majority of the financial risk. They are obligated to complete the work for a predetermined price, regardless of their actual costs. This incentivizes the contractor to manage their expenses efficiently and avoid cost overruns. For the government, it provides budget certainty, as the total cost is known upfront. However, for complex, sole-source procurements like this, the initial fixed price is heavily negotiated, and the government still needs robust oversight to ensure the price reflects fair market value and that the contractor is meeting all performance requirements.

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

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

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: $289,351,736

Exercised Options: $289,351,736

Current Obligation: $289,351,736

Subaward Activity

Number of Subawards: 48

Total Subaward Amount: $18,061,863

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline