DoD awards $271.7M for small arms ammunition, highlighting fixed-price contracts with economic adjustments

Contract Overview

Contract Amount: $271,723,892 ($271.7M)

Contractor: Alliant Techsystems Operations LLC

Awarding Agency: Department of Defense

Start Date: 2013-09-19

End Date: 2016-03-31

Contract Duration: 924 days

Daily Burn Rate: $294.1K/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Defense

Official Description: ESTABLISH DELIVERY ORDER 0002 AND AWARD 5.56MM AND CALIBER .50.

Place of Performance

Location: INDEPENDENCE, JACKSON County, MISSOURI, 64056

State: Missouri Government Spending

Plain-Language Summary

Department of Defense obligated $271.7 million to ALLIANT TECHSYSTEMS OPERATIONS LLC for work described as: ESTABLISH DELIVERY ORDER 0002 AND AWARD 5.56MM AND CALIBER .50. Key points: 1. Contract awarded to Alliant Techsystems Operations LLC for small arms ammunition. 2. Fixed-price contract with economic price adjustment allows for cost fluctuations. 3. Delivery order represents a portion of a larger indefinite-delivery contract. 4. The contract duration is 924 days, spanning from September 2013 to March 2016. 5. This award falls under the Small Arms Ammunition Manufacturing industry. 6. The Department of the Army is the primary procuring agency. 7. The contract was awarded under full and open competition.

Value Assessment

Rating: good

The contract's fixed-price with economic price adjustment (FPEPA) structure aims to balance cost certainty for the government with protection for the contractor against material cost volatility. While FPEPA can sometimes lead to higher initial prices than firm-fixed-price contracts, it is often deemed appropriate for long-lead-time items or those with volatile raw material costs, such as ammunition components. Benchmarking this specific award against similar ammunition procurements would require access to detailed cost breakdowns and market intelligence on raw material prices during the contract period. However, the competitive nature of the award suggests a reasonable price was achieved.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit bids. The specific number of bidders is not provided in the data, but the designation suggests a robust competitive process. Full and open competition is generally expected to drive down prices and encourage innovation by allowing the government to select the best value offer. The absence of specific bidder numbers limits a deeper analysis of the competitive intensity.

Taxpayer Impact: Full and open competition is the most advantageous for taxpayers as it maximizes the potential for cost savings through a wide range of offers and the selection of the most cost-effective solution.

Public Impact

The primary beneficiaries are the U.S. Army personnel who receive essential ammunition for training and operational readiness. The contract ensures the supply of 5.56mm and .50 caliber ammunition. The geographic impact is primarily within the United States, supporting military installations and logistics. The contract supports jobs within the defense manufacturing sector, specifically in ammunition production.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases due to economic price adjustment clause if raw material costs escalate significantly.
Reliance on a single contractor for a critical supply item, though awarded competitively.
The duration of the contract (924 days) may not fully align with long-term strategic ammunition needs.

Positive Signals

Awarded through full and open competition, suggesting a competitive pricing environment.
Fixed-price component provides a baseline cost control for the government.
The contractor, Alliant Techsystems Operations LLC, is a known entity in defense manufacturing.

Sector Analysis

The defense sector, particularly the manufacturing of munitions, is a critical component of national security. This contract for small arms ammunition falls within the broader defense industrial base, which relies on specialized manufacturing capabilities. The market for ammunition is characterized by long production lead times, significant capital investment, and stringent quality control requirements. Spending benchmarks for ammunition can vary widely based on caliber, quantity, and specific technological requirements. This award represents a specific procurement action within a larger, ongoing defense spending framework for munitions.

Small Business Impact

The provided data indicates that this contract was not specifically set aside for small businesses (ss: false, sb: false). Therefore, small businesses are unlikely to be direct prime contractors on this award. However, the prime contractor, Alliant Techsystems Operations LLC, may engage small businesses as subcontractors for components or services, contributing to the broader small business ecosystem within the defense supply chain. Further analysis would be needed to determine the extent of small business subcontracting.

Oversight & Accountability

Oversight for this contract would typically be managed by the Department of the Army's contracting and program management offices. Accountability measures are embedded in the contract terms, including delivery schedules and quality specifications. Transparency is facilitated through contract award databases like FPDS. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse related to the contract.

Related Government Programs

Department of Defense Ammunition Procurement
Army Combat Ammunition Systems
Small Arms Ammunition Production Contracts
Defense Industrial Base Contracts

Risk Flags

Potential for price volatility due to economic price adjustment clause.
Contract duration may not align with long-term strategic needs.
Reliance on a single prime contractor for specific ammunition types.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $271.7 million to ALLIANT TECHSYSTEMS OPERATIONS LLC. ESTABLISH DELIVERY ORDER 0002 AND AWARD 5.56MM AND CALIBER .50.

Who is the contractor on this award?

The obligated recipient is ALLIANT TECHSYSTEMS OPERATIONS LLC.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $271.7 million.

What is the period of performance?

Start: 2013-09-19. End: 2016-03-31.

What is the historical spending trend for small arms ammunition by the Department of the Army?

Analyzing historical spending trends for small arms ammunition by the Department of the Army requires accessing comprehensive procurement data over multiple fiscal years. Typically, such spending fluctuates based on operational tempo, training requirements, inventory levels, and strategic modernization efforts. Contracts like the one awarded to Alliant Techsystems Operations LLC for $271.7 million represent individual delivery orders or awards within a broader, often multi-year, procurement strategy. To establish a trend, one would need to aggregate data on similar contracts, considering factors such as caliber, quantity, and contract type. For instance, periods of increased deployment or significant inventory replenishment often correlate with higher spending. Conversely, shifts towards new weapon systems or changes in doctrine could lead to adjustments in ammunition procurement volumes and types. Without access to a longitudinal dataset, specific trend analysis is speculative, but it's reasonable to assume consistent, substantial investment in small arms ammunition to maintain force readiness.

How does the fixed-price with economic price adjustment (FPEPA) clause impact the overall cost-effectiveness compared to a firm-fixed-price (FFP) contract for ammunition?

The Fixed-Price with Economic Price Adjustment (FPEPA) clause in ammunition contracts offers a balance between cost certainty and contractor risk. In an FPEPA contract, the price is fixed at the outset, but it can be adjusted upward or downward based on specified economic factors, typically related to the cost of labor, materials, or other inputs. For ammunition, which often relies on raw materials like metals and propellants whose prices can be volatile, FPEPA can protect the contractor from unforeseen cost increases, thereby ensuring supply continuity. Compared to a Firm-Fixed-Price (FFP) contract, FPEPA might result in a slightly higher initial bid price because the government assumes some risk of cost escalation. However, an FFP contract could lead to higher bids as contractors factor in a larger contingency for potential cost increases, or it could result in contractor default or requests for equitable adjustment if costs rise unexpectedly. The cost-effectiveness of FPEPA versus FFP depends on the predictability of input costs during the contract period. If material costs are highly volatile, FPEPA can be more cost-effective by preventing supply disruptions and ensuring competitive bids, even if the initial price is higher than a hypothetical FFP.

What are the typical performance risks associated with large-scale ammunition manufacturing contracts?

Large-scale ammunition manufacturing contracts carry several performance risks that can impact delivery schedules, quality, and cost. A primary risk is related to the supply chain for raw materials; disruptions in the availability or significant price increases for metals, propellants, and primers can delay production and increase costs. Quality control is another critical risk area; ammunition must meet exacting standards for safety, reliability, and performance. Defects can lead to mission failures, safety hazards for personnel, and costly recalls or rework. Production capacity and lead times also pose risks; scaling up production to meet surge demands or maintaining consistent output over long periods requires significant infrastructure and skilled labor. Furthermore, technological obsolescence is a consideration, as new weapon systems may require different types of ammunition, potentially rendering existing contracts less relevant. Finally, labor availability and industrial base stability are underlying risks; a shortage of skilled workers or the consolidation of manufacturing capabilities can create vulnerabilities.

How does the competition level (full and open) influence the contractor's incentive to innovate or improve processes for ammunition production?

A full and open competition environment generally incentivizes contractors to innovate and improve processes for ammunition production, primarily through the pursuit of competitive advantage and future contract awards. When multiple capable companies vie for a contract, the winning bidder is often the one that offers the best combination of price, quality, and performance. To achieve this, contractors are motivated to optimize their manufacturing processes, reduce waste, enhance efficiency, and potentially develop more advanced or cost-effective ammunition designs. The prospect of securing future contracts, especially if performance on the current one is exemplary, further drives innovation. Contractors may invest in new technologies or process improvements to lower their production costs, thereby enabling them to submit more competitive bids in subsequent competitions. While the primary goal in a competitive bid is often meeting specifications at the lowest evaluated cost, sustained success in this market necessitates continuous improvement and a willingness to adopt innovative solutions to maintain a leading edge.

What is the significance of the 'Delivery Order' designation for this contract?

The designation 'Delivery Order' signifies that this specific award is a task order issued under a previously established indefinite-delivery/indefinite-quantity (IDIQ) contract or a similar type of contract vehicle. In this case, it implies that Alliant Techsystems Operations LLC likely held a broader contract with the Department of the Army that allowed for the issuance of multiple delivery orders over a specified period. The IDIQ contract establishes the terms and conditions, including pricing structures and performance requirements, under which specific quantities of goods or services can be ordered. The delivery order then specifies the exact quantity, delivery schedule, and sometimes specific details for a particular shipment or period of supply. This approach provides flexibility for the government to procure needed items as requirements arise, without needing to conduct a full, separate procurement for each individual order. It streamlines the acquisition process for recurring needs, such as ammunition.

Industry Classification

NAICS: Manufacturing › Other Fabricated Metal Product Manufacturing › Small Arms Ammunition Manufacturing

Product/Service Code: AMMUNITION AND EXPLOSIVES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT (K)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation

Address: HWY 7 & 78 LAKE CITY ARMY AMUNITION PLANT, INDEPENDENCE, MO, 64056

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: $8,671,723,892

Exercised Options: $271,723,892

Current Obligation: $271,723,892

Subaward Activity

Number of Subawards: 2

Total Subaward Amount: $82,932

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: W52P1J12D0078

IDV Type: IDC

Timeline