DoD's $25M PAC-3 Software Task Order to Lockheed Martin raises value concerns due to sole-source award

Contract Overview

Contract Amount: $24,969,699 ($25.0M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2019-02-01

End Date: 2021-02-28

Contract Duration: 758 days

Daily Burn Rate: $32.9K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: PHASED ARRAY TRACKING RADAR TO INTERCEPT ON TARGET (PATRIOT) ADVANCED CAPABILITY-3 (PAC-3) SOFTWARE TASK YEAR 2

Place of Performance

Location: GRAND PRAIRIE, DALLAS County, TEXAS, 75051

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $25.0 million to LOCKHEED MARTIN CORPORATION for work described as: PHASED ARRAY TRACKING RADAR TO INTERCEPT ON TARGET (PATRIOT) ADVANCED CAPABILITY-3 (PAC-3) SOFTWARE TASK YEAR 2 Key points: 1. The contract awarded to Lockheed Martin for PAC-3 software tasks represents a significant investment in missile defense capabilities. 2. The sole-source nature of this award warrants scrutiny regarding potential price inflation and limited market alternatives. 3. Performance risk is moderate, given the complexity of advanced missile defense systems and software integration. 4. The contract's duration and phased approach suggest a long-term commitment to maintaining and upgrading critical defense technology. 5. This spending falls within the broader defense sector, specifically focusing on guided missile and space vehicle manufacturing. 6. The absence of competition limits opportunities for cost savings and innovation that could be driven by a more open bidding process.

Value Assessment

Rating: questionable

Benchmarking the value of this specific software task order is challenging without comparable sole-source awards for PAC-3 software maintenance and upgrades. However, the cost-plus incentive fee (CPIF) contract type suggests that while Lockheed Martin is incentivized to control costs, the lack of competition means there's no external market pressure to ensure the most competitive pricing. The total award amount of $24.97 million over approximately two years for software tasks alone may be reasonable given the critical nature of the PAC-3 system, but a competitive process could have potentially yielded better value for taxpayers.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one bidder, Lockheed Martin Corporation, was solicited. This approach is typically justified when a specific contractor possesses unique capabilities or proprietary technology essential for the requirement, or in cases of urgent need where competition is not feasible. The lack of competition here means that taxpayers did not benefit from the price discovery and potential cost reductions that a competitive bidding process could have provided.

Taxpayer Impact: Sole-source awards can lead to higher prices for taxpayers as the government lacks the leverage of multiple competing offers. This limits the government's ability to negotiate the best possible price and may result in less efficient use of public funds.

Public Impact

The primary beneficiaries are the U.S. Army Warfighters who rely on the PAC-3 missile defense system for protection against advanced threats. The services delivered include essential software maintenance, updates, and potentially enhancements for the PAC-3 missile defense system. The geographic impact is primarily within the United States, supporting defense infrastructure and personnel, with potential global implications for deployed forces. Workforce implications include sustaining highly skilled jobs in software engineering, systems integration, and defense manufacturing at Lockheed Martin.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially leading to higher costs.
CPIF contract type requires careful monitoring to ensure contractor incentives align with cost control.
Reliance on a single contractor for critical software may pose long-term supply chain risks.
Lack of transparency in pricing due to sole-source nature makes independent value assessment difficult.

Positive Signals

Contract supports a critical national security asset (PAC-3 missile defense system).
Awardee is a prime contractor with extensive experience in this defense domain.
CPIF contract structure includes incentives for cost efficiency.
Contract duration suggests a stable, long-term approach to system sustainment.

Sector Analysis

The defense sector, particularly within guided missile and space vehicle manufacturing, is characterized by high barriers to entry, significant R&D investment, and long procurement cycles. Spending on advanced missile defense systems like PAC-3 is a critical component of national security budgets. Comparable spending benchmarks are difficult to establish precisely due to the specialized nature of the technology and the proprietary information involved. However, the overall defense budget allocates substantial resources to maintaining and modernizing air and missile defense capabilities, reflecting their strategic importance.

Small Business Impact

This contract was not set aside for small businesses, nor does it appear to have specific subcontracting requirements mentioned 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 voluntarily engages them for specific components or services. The absence of a small business set-aside means opportunities for small business innovation and participation in this specific contract are minimal.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of the Army's contracting and program management offices. The Department of Defense's Inspector General (IG) also has jurisdiction to investigate potential fraud, waste, or abuse. Transparency is limited due to the sole-source nature, but contract performance metrics and financial reporting would be subject to review. The CPIF contract type requires diligent oversight to ensure the incentive structure effectively manages costs.

Related Government Programs

Patriot Missile System
Missile Defense Agency Programs
Army Aviation and Missile Command Contracts
Lockheed Martin Defense Contracts
Guided Missile Manufacturing
Air and Missile Defense Systems

Risk Flags

Sole-source award
Lack of competition
Potential for cost overruns
Limited transparency in pricing

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $25.0 million to LOCKHEED MARTIN CORPORATION. PHASED ARRAY TRACKING RADAR TO INTERCEPT ON TARGET (PATRIOT) ADVANCED CAPABILITY-3 (PAC-3) SOFTWARE TASK YEAR 2

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORPORATION.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $25.0 million.

What is the period of performance?

Start: 2019-02-01. End: 2021-02-28.

What is Lockheed Martin's track record with the PAC-3 program and similar missile defense systems?

Lockheed Martin Corporation is the prime contractor for the PAC-3 missile defense system and has a long-standing history with its development, production, and sustainment. The company has been instrumental in evolving the PAC-3 interceptor and associated technologies. Their track record includes numerous contracts with the Department of Defense for various missile systems, demonstrating deep expertise in this domain. This includes delivering upgrades, modifications, and ongoing support for complex defense platforms. While their experience is extensive, the specific performance metrics and any past issues related to PAC-3 software tasks would require a deeper dive into contract performance reports and historical data, which are not fully detailed in the provided summary.

How does the $24.97 million cost compare to similar PAC-3 software sustainment contracts awarded competitively?

Direct comparison of this $24.97 million sole-source award for PAC-3 software tasks to competitively awarded contracts is challenging due to the inherent limitations of sole-source procurements. Competitive bids typically drive down prices through market forces. Without access to detailed breakdowns of the software tasks performed and comparable bids from other potential vendors, it's difficult to definitively state if this price is higher or lower than what a competitive process might yield. However, the absence of competition inherently removes a key mechanism for ensuring the best possible value for taxpayer dollars. Future competitive procurements for similar services, if they occur, would provide a more robust benchmark.

What are the primary risks associated with this sole-source contract for PAC-3 software?

The primary risks associated with this sole-source contract include potential cost overruns due to the lack of competitive pressure, which can lead to less favorable pricing for the government. There's also a risk of vendor lock-in, where the government becomes overly reliant on Lockheed Martin for critical software maintenance and upgrades, potentially limiting future flexibility or the adoption of alternative technologies. Furthermore, without competitive benchmarking, assessing the true value for money is difficult. The complexity of the PAC-3 system's software also presents inherent technical risks, which are managed through the CPIF contract type but still require diligent oversight.

How effective is the Cost Plus Incentive Fee (CPIF) structure in managing costs for this PAC-3 software contract?

The Cost Plus Incentive Fee (CPIF) contract structure is designed to incentivize the contractor, Lockheed Martin, to control costs while achieving performance targets. Under a CPIF arrangement, the final profit is adjusted based on whether the final costs are below or above a target cost, with pre-defined sharing ratios. This structure aims to align the contractor's financial interests with the government's objective of cost efficiency. However, the effectiveness of CPIF is highly dependent on the accuracy of the initial cost estimates, the clarity of performance metrics, and robust government oversight. In a sole-source environment, the incentive might be less potent than in a competitive scenario, but it still provides a mechanism for cost management beyond a simple cost-plus contract.

What is the historical spending trend for PAC-3 software sustainment and upgrades by the Department of the Army?

Historical spending on PAC-3 software sustainment and upgrades by the Department of the Army has likely been substantial, reflecting the ongoing need to maintain and enhance a critical missile defense capability. While specific year-over-year figures for software tasks alone are not provided, the overall PAC-3 program has seen significant investment over many years. This includes research, development, procurement of interceptors, and sustainment activities. Spending tends to fluctuate based on modernization cycles, threat assessments, and budget allocations. Given the continuous evolution of threats, consistent investment in software updates and improvements is essential, suggesting a sustained, albeit variable, spending pattern for these services.

Are there any specific performance concerns or successes highlighted for Lockheed Martin on this PAC-3 software contract?

The provided data summary does not contain specific details regarding performance concerns or successes for Lockheed Martin on this particular PAC-3 software task order. Contract performance is typically evaluated through metrics such as on-time delivery, quality of work, and adherence to technical specifications. For a CPIF contract, performance against established targets directly influences the contractor's fee. Without access to performance reports, contractor award fee evaluations, or government assessments, it is impossible to detail specific achievements or shortcomings. However, the renewal or continuation of contracts with major defense systems often implies a baseline level of satisfactory performance, though not necessarily exceptional.

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: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: Lockheed Martin Corp

Address: 1701 W MARSHALL DR, GRAND PRAIRIE, TX, 75051

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: $24,969,699

Exercised Options: $24,969,699

Current Obligation: $24,969,699

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Parent Contract

Parent Award PIID: W31P4Q17G0001

IDV Type: BOA

Timeline