DoD's $46M Raytheon contract for infrared hardware and support lacks competition, raising value concerns

Contract Overview

Contract Amount: $46,033,099 ($46.0M)

Contractor: Raytheon Company

Awarding Agency: Department of Defense

Start Date: 2014-01-10

End Date: 2017-12-31

Contract Duration: 1,451 days

Daily Burn Rate: $31.7K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: THIS LETTER CONTRACT IS FOR PROCUREMENT OF HORIZONTAL TECHNOLOGY INTEGRATION (HTI) SECOND GENERATION FORWARD LOOKING INFRARED (2GF) HARDWARE AND SUPPORT SERVICES, TO PROTECT AND PRESERVE THE CRITICAL INDUSTRIAL BASE FOR SECOND GENERATION FORWARD LOOKING INFRARED SENSORS.

Place of Performance

Location: MCKINNEY, COLLIN County, TEXAS, 75071

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $46.0 million to RAYTHEON COMPANY for work described as: THIS LETTER CONTRACT IS FOR PROCUREMENT OF HORIZONTAL TECHNOLOGY INTEGRATION (HTI) SECOND GENERATION FORWARD LOOKING INFRARED (2GF) HARDWARE AND SUPPORT SERVICES, TO PROTECT AND PRESERVE THE CRITICAL INDUSTRIAL BASE FOR SECOND GENERATION FORWARD LOOKING INFRARED SENSORS. Key points: 1. Contract awarded without competition, potentially limiting price discovery and value for taxpayer dollars. 2. Significant duration of over four years suggests a long-term need for these specialized infrared systems. 3. The contract focuses on preserving a critical industrial base, indicating strategic importance beyond immediate operational needs. 4. Awarded to a single, established defense contractor, Raytheon, suggesting a reliance on existing capabilities. 5. The cost-plus-fixed-fee structure may incentivize cost increases, requiring close oversight. 6. The contract's value, while substantial, needs benchmarking against similar sole-source procurements for a true value assessment.

Value Assessment

Rating: questionable

This contract's value is difficult to assess without competitive benchmarks. As a sole-source award for specialized hardware and support, the pricing is not subject to market pressures that typically drive down costs. The cost-plus-fixed-fee (CPFF) contract type, while common for R&D or uncertain scope, can lead to higher overall costs compared to fixed-price contracts if not managed diligently. Without comparable sole-source procurements or detailed cost breakdowns, it's challenging to definitively state if this represents good value for money, but the lack of competition inherently raises concerns.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed among multiple vendors. This approach is typically used when only one responsible source can provide the required supplies or services, or in cases of urgent and compelling need. The lack of competition means that the Department of Defense did not benefit from the price reductions and innovation that can arise from a competitive bidding process. This limits the ability to ascertain the most cost-effective solution available in the market.

Taxpayer Impact: Taxpayers may have paid a premium due to the absence of competitive pressure. Without a bidding process, there's less assurance that the price reflects the lowest possible cost for the required technology and support.

Public Impact

The primary beneficiaries are the Department of Defense, which receives critical infrared hardware and support. The contract ensures the continued availability of Second Generation Forward Looking Infrared (2GF) sensors, vital for various defense applications. This contract supports the preservation of a critical industrial base within the United States, safeguarding specialized manufacturing capabilities. It indirectly supports the workforce employed by Raytheon and its subcontractors involved in the production and support of these systems.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition and potentially increases costs for taxpayers.
Cost-plus-fixed-fee contract type can incentivize cost overruns if not closely monitored.
Long contract duration (over 4 years) increases exposure to potential cost escalations and scope creep.
Lack of transparency in pricing due to sole-source nature makes value assessment difficult.

Positive Signals

Focus on preserving a critical industrial base ensures long-term strategic capability for national defense.
Award to a known entity (Raytheon) suggests a reliance on established expertise and proven technology.
Contract addresses a specific, critical need for advanced infrared sensor technology.

Sector Analysis

The defense industrial base for advanced sensor technology, such as infrared systems, is highly specialized and concentrated among a few major contractors. This contract falls within the 'Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing' sector, characterized by high R&D investment and stringent performance requirements. Spending in this area is critical for maintaining technological superiority in defense. Comparable spending often involves sole-source or limited competition awards due to the unique nature of the technology and the limited number of qualified suppliers.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. Furthermore, the prime contractor, Raytheon, is a large defense corporation. While large prime contractors are often required to subcontract a portion of their work to small businesses, the specific subcontracting plan and its effectiveness are not detailed here. The absence of a direct set-aside means small businesses are less likely to be the primary recipients of this contract funding, though they may benefit indirectly through subcontracting opportunities.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contract management agencies, such as the Defense Contract Management Agency (DCMA), given its role in contract administration. The cost-plus-fixed-fee structure necessitates rigorous oversight of incurred costs and contractor performance to ensure compliance with contract terms and prevent unnecessary expenditures. Transparency is limited due to the sole-source nature, but contract modifications, performance reports, and financial audits would be key accountability measures. Inspector General involvement would be triggered by specific allegations of fraud, waste, or abuse.

Related Government Programs

Defense Advanced Research Projects Agency (DARPA) programs
Night Vision and Electronic Sensors Directorate (NVESD) initiatives
Tactical Technology programs
Advanced Sensor Development Programs

Risk Flags

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

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $46.0 million to RAYTHEON COMPANY. THIS LETTER CONTRACT IS FOR PROCUREMENT OF HORIZONTAL TECHNOLOGY INTEGRATION (HTI) SECOND GENERATION FORWARD LOOKING INFRARED (2GF) HARDWARE AND SUPPORT SERVICES, TO PROTECT AND PRESERVE THE CRITICAL INDUSTRIAL BASE FOR SECOND GENERATION FORWARD LOOKING INFRARED SENSORS.

Who is the contractor on this award?

The obligated recipient is RAYTHEON COMPANY.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Contract Management Agency).

What is the total obligated amount?

The obligated amount is $46.0 million.

What is the period of performance?

Start: 2014-01-10. End: 2017-12-31.

What is the track record of Raytheon Company in delivering similar horizontal technology integration (HTI) hardware and support services?

Raytheon Company, now part of RTX, has a long and extensive history of developing and producing advanced sensor systems, including infrared technology, for military applications. They are a major defense contractor with significant experience in areas like forward-looking infrared (FLIR) systems, targeting pods, and other electro-optical/infrared (EO/IR) solutions. Their track record includes numerous contracts with the Department of Defense and other government agencies for similar technologies. While specific performance metrics for this particular HTI contract are not detailed in the provided data, Raytheon's general reputation is that of a capable, albeit expensive, provider of complex defense systems. Their involvement in preserving the industrial base for 2GF sensors suggests a deep understanding of the technology and manufacturing processes required.

How does the pricing of this contract compare to similar sole-source procurements for advanced sensor technology?

Directly comparing the pricing of this $46 million, four-year contract to similar sole-source procurements is challenging without access to proprietary cost data and specific contract details of other awards. Sole-source contracts inherently lack the price discovery mechanism of competition, meaning the negotiated price is less likely to reflect the lowest possible market rate. The cost-plus-fixed-fee (CPFF) structure, used here, allows the contractor to recover allowable costs plus a predetermined fee. This structure can lead to higher total costs than fixed-price contracts if costs are not tightly controlled. Benchmarking would require identifying contracts with comparable technological complexity, scope of work (hardware and support), and duration awarded on a sole-source basis to major defense primes.

What are the primary risks associated with a sole-source, cost-plus-fixed-fee contract for critical defense hardware?

The primary risks associated with this type of contract are multifaceted. Firstly, the sole-source nature eliminates competitive pressure, potentially leading to inflated prices and reduced incentive for the contractor to innovate or optimize costs. Secondly, the cost-plus-fixed-fee structure, while providing flexibility for evolving requirements, carries the risk of cost overruns. The contractor is incentivized to incur costs to achieve the fixed fee, and without robust oversight, this can lead to inefficient spending. Thirdly, there's a risk of contractor 'gold plating' or scope creep, where the contractor may expand the scope of work beyond the original intent to increase billable costs. Finally, reliance on a single source can create supply chain vulnerabilities and reduce overall program agility.

What is the strategic importance of preserving the industrial base for Second Generation Forward Looking Infrared (2GF) sensors?

Preserving the industrial base for critical technologies like 2GF sensors is strategically vital for national defense. These sensors are essential components in a wide array of military platforms, including aircraft, ground vehicles, and surveillance systems, providing crucial situational awareness, targeting, and navigation capabilities, especially in low-light or adverse weather conditions. A robust domestic industrial base ensures a reliable and secure supply chain, reducing dependence on foreign sources and mitigating risks associated with geopolitical instability or trade disruptions. It also maintains the specialized expertise and manufacturing capabilities necessary for future upgrades, sustainment, and the development of next-generation sensor technologies, thereby safeguarding technological superiority.

How does the contract's duration (1451 days) impact its overall value and risk profile?

The contract's duration of approximately four years (1451 days) significantly impacts its value and risk profile. A longer duration allows for the development, production, and integration of complex hardware and sustained support services, which is often necessary for advanced defense systems. This extended period can provide stability for the contractor and ensure continuity of critical capabilities for the DoD. However, it also increases the overall financial exposure and the potential for cost escalation over time, especially with a CPFF contract type. The longer timeframe necessitates more rigorous and sustained oversight to manage risks related to performance, cost control, and potential changes in technological requirements or threat landscapes.

Industry Classification

NAICS: Manufacturing › Navigational, Measuring, Electromedical, and Control Instruments Manufacturing › Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing

Product/Service Code: COMM/DETECT/COHERENT RADIATION

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: 2501 W UNIVERSITY DR, MCKINNEY, TX, 75071

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: $46,033,099

Exercised Options: $46,033,099

Current Obligation: $46,033,099

Subaward Activity

Number of Subawards: 61

Total Subaward Amount: $90,918,055

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline