DoD awards $489M to Lockheed Martin for Battery 2 long-lead items and engineering, with a 5-year performance period

Contract Overview

Contract Amount: $488,807,891 ($488.8M)

Contractor: Lockheed Martin Corporation

Awarding Agency: Department of Defense

Start Date: 2023-02-28

End Date: 2028-02-28

Contract Duration: 1,826 days

Daily Burn Rate: $267.7K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: THIS UCA IS FOR A PARTIAL STATEMENT OF WORK (SOW) SCOPE LIMITED TO PROCURING LONG LEAD ITEMS (LLI), PROGRAM MANAGEMENT, AND SYSTEMS ENGINEERING ASSOCIATED WITH BATTERY 2 FOR A SIX-MONTH PERIOD OF PERFORMANCE.

Place of Performance

Location: HUNTSVILLE, MADISON County, ALABAMA, 35806

State: Alabama Government Spending

Plain-Language Summary

Department of Defense obligated $488.8 million to LOCKHEED MARTIN CORPORATION for work described as: THIS UCA IS FOR A PARTIAL STATEMENT OF WORK (SOW) SCOPE LIMITED TO PROCURING LONG LEAD ITEMS (LLI), PROGRAM MANAGEMENT, AND SYSTEMS ENGINEERING ASSOCIATED WITH BATTERY 2 FOR A SIX-MONTH PERIOD OF PERFORMANCE. Key points: 1. Contract focuses on critical long-lead items and program management, essential for future production. 2. Sole-source award raises questions about price competition and potential for cost overruns. 3. Significant investment in engineering services suggests complex technical requirements and development. 4. The 5-year duration indicates a long-term commitment to this phase of the program. 5. Awarded to a single, established defense contractor, potentially limiting broader industry participation. 6. The cost-plus-fixed-fee structure may incentivize cost escalation if not closely monitored.

Value Assessment

Rating: questionable

The contract's value of approximately $489 million for long-lead items and engineering over five years requires careful benchmarking against similar defense procurements. Without competitive bidding, it is difficult to assess if the pricing reflects fair market value. The cost-plus-fixed-fee (CPFF) contract type, while common for R&D and complex systems, can lead to higher costs if the fixed fee is substantial or if cost controls are weak. Further analysis of the fixed fee percentage and the contractor's historical performance on similar CPFF contracts is needed to determine true value for money.

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 typically occurs when a specific contractor possesses unique capabilities, proprietary technology, or is the only source capable of meeting urgent requirements. The lack of competition means that taxpayers did not benefit from the price discovery mechanisms inherent in a competitive bidding process, potentially leading to higher costs than might be achieved in an open market.

Taxpayer Impact: The absence of competition for this significant award means taxpayers may be paying a premium. Without competing offers, the government has less leverage to negotiate the lowest possible price, and the contractor faces less pressure to optimize costs.

Public Impact

The primary beneficiaries are the Department of Defense and potentially future end-users of the Battery 2 system. Services delivered include procurement of long-lead items crucial for production and essential systems engineering. The geographic impact is primarily within Alabama, where Lockheed Martin's facility is located, and potentially broader defense supply chains. Workforce implications include continued employment for engineers and technical staff at Lockheed Martin and its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially increasing costs for taxpayers.
Cost-plus-fixed-fee contract type can incentivize cost growth if not rigorously managed.
Lack of transparency in the justification for sole-source award.
Long performance period (5 years) increases exposure to potential cost overruns or scope creep.
Dependency on a single contractor for critical long-lead items.

Positive Signals

Focus on long-lead items ensures program continuity and timely progression.
Inclusion of systems engineering addresses critical technical development needs.
Award to an established defense contractor like Lockheed Martin suggests access to proven expertise.
Clear definition of scope for this phase of the program.

Sector Analysis

This contract falls within the Engineering Services sector (NAICS 541330), a critical component of the defense industrial base. The market for defense engineering and systems integration is dominated by a few large prime contractors. Spending in this area is driven by the need for advanced technological solutions and complex system development. Benchmarks for similar engineering services contracts within the DoD can vary widely based on complexity, duration, and specific technical requirements, but significant awards like this underscore the substantial investment in maintaining technological superiority.

Small Business Impact

The contract indicates that small business participation is not a primary focus, as it is not a small business set-aside and was awarded to a large prime contractor. Subcontracting opportunities for small businesses may arise through Lockheed Martin's supply chain for specific components or services, but the overall structure does not prioritize direct small business engagement. The impact on the small business ecosystem is likely indirect, depending on the extent to which the prime contractor utilizes small business suppliers.

Oversight & Accountability

Oversight will likely be conducted by the Department of the Army's contracting and program management offices. Accountability measures are embedded within the cost-plus-fixed-fee structure, requiring detailed reporting and justification of costs. Transparency may be limited due to the sole-source nature of the award, though contract details and performance reports are typically available through official channels. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Department of Defense Research, Development, Test, and Evaluation (RDT&E)
Major Defense Acquisition Programs
Aerospace Engineering Services
Long Lead Time Material Procurement
Systems Engineering and Technical Assistance (SETA)

Risk Flags

Sole-source award
Cost-plus-fixed-fee contract type
Potential for cost overruns
Lack of competitive pricing

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $488.8 million to LOCKHEED MARTIN CORPORATION. THIS UCA IS FOR A PARTIAL STATEMENT OF WORK (SOW) SCOPE LIMITED TO PROCURING LONG LEAD ITEMS (LLI), PROGRAM MANAGEMENT, AND SYSTEMS ENGINEERING ASSOCIATED WITH BATTERY 2 FOR A SIX-MONTH PERIOD OF PERFORMANCE.

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 $488.8 million.

What is the period of performance?

Start: 2023-02-28. End: 2028-02-28.

What is the specific justification provided by the Department of the Army for awarding this contract on a sole-source basis to Lockheed Martin Corporation?

The provided data indicates the contract was 'NOT COMPETED'. While the specific justification is not detailed in the provided snippet, sole-source awards in defense procurement typically stem from reasons such as the existence of only one responsible source capable of providing the required supplies or services, urgency of the need, or when the contract is a follow-on to a previous contract where competition is not feasible. For a large program like Battery 2, it's plausible that Lockheed Martin possesses unique intellectual property, specialized manufacturing capabilities, or is the sole provider of critical long-lead components essential for the program's continuity. A full justification would typically be documented in a Justification and Approval (J&A) document, outlining the specific circumstances and rationale for foregoing full and open competition.

How does the 'Cost Plus Fixed Fee' (CPFF) contract type typically influence cost control and potential for overruns in defense projects of this scale?

The Cost Plus Fixed Fee (CPFF) contract type is common for research and development or complex system design efforts where the scope of work is not fully defined at the outset, or where innovation is paramount. Under CPFF, the contractor is reimbursed for all allowable costs incurred, plus a predetermined fixed fee representing profit. While the fixed fee provides some incentive for the contractor to control costs (as it doesn't increase with higher costs), the primary cost control mechanism relies on the government's oversight of allowable costs and the contractor's internal controls. Potential for overruns exists if the initial cost estimates are inaccurate, if the scope of work expands significantly (requiring contract modifications), or if the fixed fee itself is set at a high percentage of projected costs. Robust government oversight, detailed cost reporting, and clear performance metrics are crucial to mitigating overrun risks in CPFF contracts.

What are the potential risks associated with procuring 'long lead items' under a sole-source, multi-year contract?

Procuring long-lead items (LLI) under a sole-source, multi-year contract presents several risks. Firstly, the lack of competition means the government may not achieve the best possible price for these critical components, potentially leading to higher overall program costs. Secondly, the multi-year commitment (5 years in this case) ties the government to a single supplier, reducing flexibility if alternative suppliers or technologies emerge. This dependency can also create leverage for the contractor, potentially influencing future negotiations. Furthermore, if the LLI are highly specialized and unique to the contractor, any production issues or quality control problems encountered by the sole source can significantly delay the entire program without readily available alternatives. Finally, the extended period increases the risk of cost escalation due to inflation or unforeseen manufacturing challenges, which the government must bear under the contract terms.

Can the $488.8 million award be benchmarked against similar engineering services contracts for major defense systems?

Benchmarking this $488.8 million award requires comparing it to similar contracts for engineering services, program management, and long-lead item procurement within the defense sector, specifically for major weapon systems. Factors such as the specific technology involved (e.g., advanced batteries), the complexity of the systems engineering required, the duration of the performance period (5 years), and the contract type (CPFF) are crucial for a meaningful comparison. While the provided data doesn't include specific benchmarks, contracts of this magnitude typically support critical phases of major defense programs. Similar awards might involve systems integration, advanced materials development, or specialized testing for aircraft, naval vessels, or ground combat systems. The sole-source nature and CPFF structure suggest a high degree of technical complexity and potential R&D elements, which generally command higher price points than standard services.

What is Lockheed Martin Corporation's track record with large, sole-source, cost-plus-fixed-fee defense contracts?

Lockheed Martin Corporation is a major defense contractor with extensive experience in large, sole-source, and cost-plus-fixed-fee (CPFF) contracts across various defense platforms, including aircraft, missiles, and space systems. Historically, CPFF contracts have been utilized by the DoD with Lockheed Martin and other large primes for complex, high-risk development programs where precise cost and scope definition are challenging. While these contracts enable critical technological advancements, they also carry inherent risks of cost growth if not managed diligently by both the contractor and the government. Lockheed Martin's track record includes both successful program completions and instances where cost overruns or schedule delays have occurred, often subject to scrutiny by government oversight bodies. Analyzing specific past performance metrics, cost variance reports, and audit findings for comparable Lockheed Martin CPFF contracts would provide a more detailed assessment of their performance in managing such agreements.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Architectural, Engineering, and Related Services › Engineering Services

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

Address: 4800 BRADFORD DR NW, HUNTSVILLE, AL, 35805

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: $519,456,891

Exercised Options: $519,456,891

Current Obligation: $488,807,891

Subaward Activity

Number of Subawards: 262

Total Subaward Amount: $133,247,793

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline