DoD awards $19.8M contract for PAC-3 missile support to Lockheed Martin, a sole-source procurement

Contract Overview

Contract Amount: $19,825,286 ($19.8M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2021-05-27

End Date: 2024-10-31

Contract Duration: 1,253 days

Daily Burn Rate: $15.8K/day

Competition Type: NOT COMPETED

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: THIS CONTRACT IS FOR PATRIOT ADVANCED CAPABILITY-3 (PAC-3) MISSILE SUPPORT CENTER (P3MSC) FOR THE US AND FOREIGN MILITARY SALES (FMS) CUSTOMERS.

Place of Performance

Location: GRAND PRAIRIE, DALLAS County, TEXAS, 75051

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $19.8 million to LOCKHEED MARTIN CORPORATION for work described as: THIS CONTRACT IS FOR PATRIOT ADVANCED CAPABILITY-3 (PAC-3) MISSILE SUPPORT CENTER (P3MSC) FOR THE US AND FOREIGN MILITARY SALES (FMS) CUSTOMERS. Key points: 1. This contract represents a significant investment in critical missile defense capabilities. 2. The sole-source nature of this award warrants scrutiny regarding price justification and potential for cost overruns. 3. Performance risk appears moderate given the specialized nature of missile support and the contractor's established role. 4. The contract duration of over three years suggests a long-term need for these services. 5. This spending falls within the broader defense sector's focus on advanced weaponry and sustainment.

Value Assessment

Rating: fair

Benchmarking the value of this sole-source contract is challenging without competitive bids. The $19.8 million award for PAC-3 missile support, while substantial, lacks a clear comparison point to assess if it represents a fair price. The Cost Plus Incentive Fee (CPIF) structure suggests that cost savings can be shared, but the initial pricing and profit margins are not publicly detailed. Further analysis would require access to the contractor's cost breakdown and profit objectives.

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 systems where only one contractor possesses the necessary expertise, intellectual property, or manufacturing capabilities. The lack of competition means that price discovery through market forces was bypassed, potentially leading to higher costs for the government compared to a competitive scenario.

Taxpayer Impact: Taxpayers may be paying a premium due to the absence of competitive bidding. Without multiple offers, there is less pressure on the contractor to offer the lowest possible price, and the government relies heavily on its negotiation and oversight capabilities to ensure reasonable costs.

Public Impact

The U.S. Army benefits from sustained readiness and operational capability of the PAC-3 missile defense system. Foreign Military Sales (FMS) customers also receive critical support, enhancing their own defense capabilities and interoperability with U.S. forces. The contract ensures the availability of specialized technical support and logistics for a key strategic asset. This contract supports a highly skilled workforce within Lockheed Martin, contributing to the defense industrial base.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source procurement limits price competition, potentially increasing costs for taxpayers.
The CPIF contract type requires careful monitoring to ensure contractor efficiency and prevent cost overruns.
Reliance on a single contractor for critical missile support could pose supply chain risks if not managed proactively.

Positive Signals

The contract supports a vital national security asset, the PAC-3 missile defense system.
Lockheed Martin is a well-established prime contractor with extensive experience in this domain.
The contract duration provides stability for essential support services.

Sector Analysis

This contract falls within the Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing sector, a specialized segment of the broader aerospace and defense industry. This sector is characterized by high barriers to entry, significant R&D investment, and long product lifecycles. Spending in this area is driven by national security priorities and technological advancements in defense systems. Comparable spending benchmarks would typically involve sustainment and support contracts for other major weapon systems.

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 PAC-3 missile support and the sole-source award to a large prime contractor, subcontracting opportunities for small businesses may be limited or directed towards specific niche capabilities. Further investigation into Lockheed Martin's subcontracting plan would be necessary to assess the full impact on the small business ecosystem.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of the Army, likely through its contracting officers and program management offices. The Cost Plus Incentive Fee (CPIF) structure necessitates robust financial oversight to track costs and ensure performance incentives are met. Transparency is limited due to the sole-source nature and the proprietary information typically involved in defense contracts. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

PAC-3 Missile Production
Missile Defense Agency Programs
Foreign Military Sales (FMS) Support
Ammunition, Missiles, and Rockets Manufacturing

Risk Flags

Sole-source procurement
Lack of competitive bidding
Cost-plus contract type requires close oversight

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $19.8 million to LOCKHEED MARTIN CORPORATION. THIS CONTRACT IS FOR PATRIOT ADVANCED CAPABILITY-3 (PAC-3) MISSILE SUPPORT CENTER (P3MSC) FOR THE US AND FOREIGN MILITARY SALES (FMS) CUSTOMERS.

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 $19.8 million.

What is the period of performance?

Start: 2021-05-27. End: 2024-10-31.

What is the historical spending trend for PAC-3 missile support contracts with Lockheed Martin?

Analyzing historical spending for PAC-3 missile support requires accessing contract data over multiple years. While this specific award is for $19.8 million, previous contracts for similar support services would provide context on the scale and evolution of this spending. Trends might indicate increasing costs due to inflation, technological upgrades, or changes in demand. Without a comprehensive historical dataset for this specific support function, it's difficult to establish a precise trend. However, the sustained need for advanced missile defense systems suggests a consistent, if not growing, investment in their sustainment and support over time. The sole-source nature of this award also implies a long-standing relationship and potentially increasing reliance on Lockheed Martin for these specialized services.

How does the Cost Plus Incentive Fee (CPIF) structure typically function in defense contracts, and what are its implications for this PAC-3 support contract?

A Cost Plus Incentive Fee (CPIF) contract is a type of cost-reimbursement contract where the contractor is reimbursed for allowable costs and receives a fee that is adjusted based on performance against a target. In this PAC-3 support contract, Lockheed Martin will be reimbursed for its incurred costs, and its final profit (fee) will be determined by how well it meets pre-defined performance targets, such as delivery schedules, quality standards, or cost-saving initiatives. The government sets a target cost and a target fee, with a ceiling on the total cost and a minimum fee. If the contractor performs better than target, both the contractor and the government share in the savings. Conversely, if costs exceed the target, the contractor's fee is reduced. This structure aims to incentivize efficiency and cost control by aligning the contractor's financial interests with those of the government, while still providing flexibility for specialized or uncertain work.

What are the specific risks associated with relying on a sole-source contractor for critical missile defense system support?

Relying on a sole-source contractor like Lockheed Martin for PAC-3 missile support introduces several risks. Firstly, the absence of competition can lead to higher prices, as the government lacks the leverage of multiple bids to drive down costs. Secondly, there's a risk of contractor complacency or reduced innovation, as the contractor may feel less pressure to improve processes or offer cost-saving solutions when there are no competitors. Thirdly, dependency on a single supplier can create vulnerabilities in the supply chain and increase the risk of disruptions if the contractor faces financial difficulties, labor disputes, or production issues. Finally, the government may have less flexibility in adapting the support services to evolving needs if the sole-source contractor is unwilling or unable to accommodate changes without significant cost increases.

What is the strategic importance of the PAC-3 missile defense system, and how does this contract contribute to it?

The Patriot Advanced Capability-3 (PAC-3) missile defense system is a crucial component of U.S. and allied air and missile defense capabilities. Its primary role is to intercept and destroy tactical ballistic missiles, cruise missiles, and advanced aircraft. The system is designed to provide protection for critical assets, forces, and populations against a range of aerial threats. This contract for PAC-3 missile support is strategically vital because it ensures the continued operational readiness, maintenance, and sustainment of these complex systems. Without ongoing support, the effectiveness of the PAC-3 batteries would degrade, compromising national security and the ability to respond to missile threats. By providing essential services like logistics, technical assistance, and potentially upgrades, this contract directly contributes to maintaining the warfighting capability of the U.S. Army and allied nations utilizing the PAC-3 system.

What is the typical profit margin for defense contractors on sole-source sustainment contracts, and how might it apply here?

Profit margins for defense contractors on sole-source sustainment contracts can vary significantly based on contract type, complexity, risk, and the specific services provided. While exact figures are often proprietary, cost-reimbursement contracts like this CPIF award typically aim for a reasonable profit that reflects the contractor's investment, risk, and performance. For sustainment and support services, profit margins might range from 7% to 15% of the total contract value, though this can be influenced by incentive clauses. In a sole-source scenario, the government relies heavily on negotiation and cost realism analyses to ensure the profit is fair. Without specific data on Lockheed Martin's target fee and incentive structure for this PAC-3 support contract, it's difficult to pinpoint the exact profit margin. However, the CPIF structure suggests an intent to reward efficient performance, potentially allowing for a higher fee if targets are exceeded.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing

Product/Service Code: MAINT, REPAIR, REBUILD EQUIPMENT › MAINT, REPAIR, REBUILD OF EQUIPMENT

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

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: $19,928,078

Exercised Options: $19,825,286

Current Obligation: $19,825,286

Subaward Activity

Number of Subawards: 11

Total Subaward Amount: $1,177,127

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: W31P4Q17D0026

IDV Type: IDC

Timeline