DoD awards $10.5B for PAC-3 missile production, with Lockheed Martin as sole provider

Contract Overview

Contract Amount: $10,478,694,386 ($10.5B)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2020-04-30

End Date: 2033-09-30

Contract Duration: 4,901 days

Daily Burn Rate: $2.1M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: THE CONTRACT AWARD IS FOR THE FY21/FY22/FY23 BASE AND OPTION PRICING FOR PHASE ARRAY TRACKING RADAR TO INTERCEPT ON TARGET (PATRIOT) ADVANCED CAPABILITY-3 (PAC-3) PRODUCTION REQUIREMENTS FOR THE UNITED STATES (US) AND FOREIGN MILITARY SALES (FMS)

Place of Performance

Location: GRAND PRAIRIE, DALLAS County, TEXAS, 75051

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $10.48 billion to LOCKHEED MARTIN CORPORATION for work described as: THE CONTRACT AWARD IS FOR THE FY21/FY22/FY23 BASE AND OPTION PRICING FOR PHASE ARRAY TRACKING RADAR TO INTERCEPT ON TARGET (PATRIOT) ADVANCED CAPABILITY-3 (PAC-3) PRODUCTION REQUIREMENTS FOR THE UNITED STATES (US) AND FOREIGN MILITARY SALES (FMS) Key points: 1. This contract represents a significant investment in national defense capabilities. 2. The sole-source nature raises questions about potential price escalation and limited market alternatives. 3. Long-term contract duration suggests sustained demand for this critical defense system. 4. The award is for both U.S. and Foreign Military Sales, indicating international reliance on this technology. 5. Performance risk is likely mitigated by the contractor's established expertise in missile manufacturing.

Value Assessment

Rating: fair

The contract value of over $10 billion over approximately 13 years is substantial. Without specific cost breakdowns or comparisons to similar missile system procurements, it is difficult to definitively assess value for money. The sole-source nature inherently limits opportunities for competitive pricing, potentially leading to higher costs than a competed contract. Benchmarking against other advanced missile defense systems would be necessary for a more robust value assessment.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was not competed, indicating a sole-source award to Lockheed Martin Corporation. This approach is often taken for highly specialized defense systems where only one contractor possesses the necessary technology, manufacturing capabilities, and security clearances. The lack of competition means that pricing is determined through negotiation rather than market forces, which can reduce the government's leverage in securing the lowest possible price.

Taxpayer Impact: Taxpayers may be paying a premium due to the absence of competitive bidding. The government relies on negotiation and oversight to ensure fair pricing, but the lack of alternatives limits the ability to drive down costs through market mechanisms.

Public Impact

Enhances U.S. and allied air and missile defense capabilities. Supports the production of critical interceptor missiles for national security. Provides advanced defense technology to partner nations through Foreign Military Sales. Sustains jobs within the defense manufacturing sector, particularly in Texas where the contractor has a significant presence.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially increasing costs for taxpayers.
Long contract duration could lead to price increases over time if not managed effectively.
Reliance on a single supplier creates a strategic vulnerability if production is disrupted.

Positive Signals

Contractor has extensive experience and a proven track record in producing advanced missile systems.
The PAC-3 system is a critical component of U.S. and allied air defense architecture.
Award includes provisions for both U.S. and FMS, demonstrating international confidence in the system and contractor.

Sector Analysis

The Guided Missile and Space Vehicle Manufacturing sector is a highly specialized and capital-intensive segment of the aerospace and defense industry. This contract falls within the domain of advanced air and missile defense systems, a critical area for national security. The market is characterized by high barriers to entry due to technological complexity, intellectual property, and stringent regulatory requirements. Spending in this sector is often driven by geopolitical threats and the need for continuous technological advancement.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. Given the specialized nature of advanced missile production, it is likely that the prime contractor, Lockheed Martin, will be responsible for the majority of the manufacturing. However, there may be opportunities for small businesses to participate as subcontractors, particularly in areas such as component manufacturing, specialized materials, or support services. The extent of small business subcontracting would need to be assessed through the contract's subcontracting plan.

Oversight & Accountability

Oversight for this contract will likely be managed by the Department of the Army, with potential involvement from the Defense Contract Management Agency (DCMA) for quality assurance and performance monitoring. The contract's long duration and significant value necessitate robust oversight to ensure compliance with terms, manage performance, and control costs. Transparency may be limited due to the sole-source nature and the sensitive defense-related aspects of the procurement. Inspector General jurisdiction would apply to investigations of fraud, waste, or abuse.

Related Government Programs

Patriot Missile System
Missile Defense Systems
Foreign Military Sales (FMS)
Guided Missile Manufacturing
Department of the Army Procurement

Risk Flags

Sole-source award
Long-term contract duration
High dollar value

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $10.48 billion to LOCKHEED MARTIN CORPORATION. THE CONTRACT AWARD IS FOR THE FY21/FY22/FY23 BASE AND OPTION PRICING FOR PHASE ARRAY TRACKING RADAR TO INTERCEPT ON TARGET (PATRIOT) ADVANCED CAPABILITY-3 (PAC-3) PRODUCTION REQUIREMENTS FOR THE UNITED STATES (US) AND FOREIGN MILITARY SALES (FMS)

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 $10.48 billion.

What is the period of performance?

Start: 2020-04-30. End: 2033-09-30.

What is Lockheed Martin's historical performance record with the Department of Defense, particularly on missile system contracts?

Lockheed Martin Corporation is a major defense contractor with a long and extensive history of supplying complex weapon systems to the U.S. Department of Defense and allied nations. Their track record on missile system contracts, including various iterations of the Patriot system, is generally characterized by significant technological expertise and production capacity. However, like many large defense programs, specific contracts may have faced challenges related to cost overruns, schedule delays, or performance issues that are often detailed in program executive office reports and Government Accountability Office (GAO) reviews. A comprehensive assessment would require examining specific contract performance metrics, delivery timelines, and any documented disputes or corrective actions taken over the years for similar programs.

How does the per-unit cost of the PAC-3 missile under this contract compare to previous awards or similar missile systems?

Determining the precise per-unit cost for the PAC-3 missile under this $10.5 billion contract is challenging without access to detailed pricing breakdowns and the specific quantities of missiles procured over the contract's lifespan. As a sole-source award, direct comparison to competitively bid contracts is not feasible. However, historical data and industry analyses suggest that advanced interceptor missiles like the PAC-3 are inherently expensive due to their sophisticated technology, extensive research and development, and specialized manufacturing processes. Benchmarking would ideally involve comparing the negotiated price per unit against previous PAC-3 production lots, or against comparable air defense interceptor missiles from other manufacturers, adjusted for technological differences and inflation. The absence of competitive pressure in this sole-source award suggests that the per-unit cost may be higher than what could be achieved in a fully competitive environment.

What are the primary risks associated with a sole-source award for critical defense systems like the PAC-3?

The primary risks associated with a sole-source award for critical defense systems like the PAC-3 missile are centered around cost and strategic dependency. Without competition, the government has less leverage to negotiate favorable pricing, potentially leading to higher costs for taxpayers. The contractor may face less pressure to innovate or improve efficiency. Furthermore, reliance on a single supplier creates a strategic vulnerability; any disruption in the contractor's production capabilities, supply chain issues, or geopolitical events affecting the sole provider could significantly impact the availability of these essential defense assets. This also limits the government's options if the contractor's performance or business viability declines.

What is the projected impact of this contract on the overall U.S. missile defense strategy and readiness?

This contract is crucial for maintaining and enhancing the U.S. missile defense strategy and readiness by ensuring a sustained supply of PAC-3 interceptor missiles. The PAC-3 is a key component of layered air and missile defense systems designed to counter a range of ballistic and cruise missile threats. By funding continued production, the Department of Defense is investing in the modernization and replenishment of its missile defense arsenal, which is vital for protecting U.S. forces, critical infrastructure, and allies. The award supports the operational readiness of U.S. Army air defense units and contributes to the security commitments made to partner nations through Foreign Military Sales, thereby bolstering regional stability and deterrence.

How has federal spending on the PAC-3 missile system evolved over the past five fiscal years?

Analyzing the exact historical spending on the PAC-3 missile system requires accessing detailed procurement data for each fiscal year, which is not directly provided in the summary data. However, given the ongoing nature of air defense threats and the system's critical role, it is reasonable to infer that federal spending on PAC-3 production has been substantial and likely consistent over the past five fiscal years. Major defense systems like the PAC-3 typically involve multi-year procurement strategies to achieve economies of scale and ensure production continuity. Spending trends would likely reflect annual appropriations for production lots, upgrades, and associated support services. Fluctuations might occur based on evolving threat assessments, congressional budget allocations, and the specific phases of production or modernization programs.

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

Solicitation ID: W31P4Q19R0017

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

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: $14,111,800,071

Exercised Options: $10,478,694,386

Current Obligation: $10,478,694,386

Subaward Activity

Number of Subawards: 4186

Total Subaward Amount: $5,133,641,043

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline