DoD's $110M Combat System Services contract to BAE Systems shows fair value, but limited competition raises concerns

Contract Overview

Contract Amount: $109,671,720 ($109.7M)

Contractor: BAE Systems Technology Solutions & Services Inc.

Awarding Agency: Department of Defense

Start Date: 2016-08-01

End Date: 2023-01-07

Contract Duration: 2,350 days

Daily Burn Rate: $46.7K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: IGF::OT::IGF COMBAT SYSTEM SERVICES SUPPORT FOR THE COMBAT SURFACE SYSTEMS CENTER (SCSC), WALLOPS ISLAND.

Place of Performance

Location: WALLOPS ISLAND, ACCOMACK County, VIRGINIA, 23337

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $109.7 million to BAE SYSTEMS TECHNOLOGY SOLUTIONS & SERVICES INC. for work described as: IGF::OT::IGF COMBAT SYSTEM SERVICES SUPPORT FOR THE COMBAT SURFACE SYSTEMS CENTER (SCSC), WALLOPS ISLAND. Key points: 1. The contract's value appears reasonable when benchmarked against similar engineering services, though specific cost drivers are not fully transparent. 2. Competition was limited to two bidders, suggesting potential for higher prices than a more robustly competed contract might yield. 3. The Cost Plus Incentive Fee (CPIF) structure introduces performance incentives but also carries inherent cost-reimbursement risks. 4. This contract supports critical combat surface systems, indicating a high level of technical complexity and strategic importance. 5. The long duration of the contract (over 6 years) suggests a sustained need for these specialized engineering services. 6. The absence of small business set-asides means direct opportunities for smaller firms are limited, though subcontracting is possible.

Value Assessment

Rating: fair

The total award amount of approximately $110 million over nearly seven years suggests a significant investment in specialized engineering support. Benchmarking against similar large-scale engineering services contracts within the Department of Defense indicates that the overall price point is within a reasonable range, particularly given the critical nature of combat system support. However, the Cost Plus Incentive Fee (CPIF) pricing structure, while incentivizing performance, can lead to cost overruns if not meticulously managed. Without detailed breakdowns of labor rates, overhead, and material costs, a precise value-for-money assessment is challenging, but the price appears to be in line with market expectations for this type of complex, long-term support.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, which is a positive indicator for achieving competitive pricing. However, the data indicates only two bids were received. While two bidders represent some level of competition, it is on the lower end for a contract of this magnitude and complexity. A higher number of bidders typically leads to more robust price discovery and potentially lower costs for the government. The limited number of bidders may suggest a specialized market or high barriers to entry for potential competitors.

Taxpayer Impact: While full and open competition was utilized, the low number of bidders means taxpayers may not have benefited from the most aggressive pricing possible. This could translate to slightly higher costs compared to a scenario with more competitive offers.

Public Impact

The primary beneficiaries are the Department of the Navy and the personnel operating and maintaining combat surface systems. Services delivered include crucial engineering support for combat systems, ensuring operational readiness and effectiveness. The contract's geographic impact is centered around Wallops Island, Virginia, a key naval facility. Workforce implications include the employment of highly skilled engineers and technical specialists, likely concentrated in the Virginia area.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Limited competition (2 bidders) may have suppressed price discovery.
CPIF contract type carries inherent risk of cost overruns if not closely monitored.
Long contract duration could lead to vendor lock-in if not managed proactively.
Lack of specific performance metrics in the provided data makes it hard to assess efficiency gains.

Positive Signals

Awarded under full and open competition, adhering to procurement best practices.
CPIF structure incentivizes contractor performance and efficiency.
Contract supports critical national defense capabilities.
Long-term nature of the contract provides stability for essential services.

Sector Analysis

This contract falls within the Engineering Services sector (NAICS 541330), a critical component of the defense industrial base. The market for specialized combat system support is highly concentrated, with a few large defense contractors dominating. The total addressable market for defense engineering services is substantial, measured in billions of dollars annually. This specific contract represents a significant portion of spending dedicated to maintaining and upgrading naval combat systems, fitting within the broader trend of sustained investment in defense modernization and readiness.

Small Business Impact

The contract data indicates that this was not set aside for small businesses (SB: false). Given the specialized nature of combat system engineering, it is unlikely that small businesses would be the primary awardees for the prime contract. However, BAE Systems, as a large prime contractor, may engage small businesses for subcontracting opportunities, particularly for specific components or support services. The extent of small business subcontracting is not detailed here but is a key area for ensuring broader economic impact.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. The Inspector General (IG) for the Department of Defense would have jurisdiction for audits and investigations into potential fraud, waste, or abuse. Transparency is facilitated through contract award databases like FPDS, but detailed performance reports and cost breakdowns are typically internal or classified. Accountability is driven by the CPIF structure and contractual performance clauses.

Related Government Programs

Naval Combat Systems
Engineering Services
Defense Logistics Agency
Department of Defense IT Services
Weapon Systems Support

Risk Flags

Limited Competition
Cost Plus Incentive Fee (CPIF) Risk
Potential for Cost Overruns
Specialized Market Dynamics

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $109.7 million to BAE SYSTEMS TECHNOLOGY SOLUTIONS & SERVICES INC.. IGF::OT::IGF COMBAT SYSTEM SERVICES SUPPORT FOR THE COMBAT SURFACE SYSTEMS CENTER (SCSC), WALLOPS ISLAND.

Who is the contractor on this award?

The obligated recipient is BAE SYSTEMS TECHNOLOGY SOLUTIONS & SERVICES INC..

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $109.7 million.

What is the period of performance?

Start: 2016-08-01. End: 2023-01-07.

What is BAE Systems' track record with similar DoD contracts?

BAE Systems is a major defense contractor with a long history of performing complex engineering and support services for the Department of Defense across various branches. They have a significant portfolio of contracts related to naval systems, including combat systems, ship maintenance, and platform integration. While specific performance metrics for past contracts are not detailed here, BAE Systems generally has a substantial presence and experience base in fulfilling large-scale defense requirements. Their track record often involves managing complex supply chains, integrating advanced technologies, and providing long-term sustainment for critical military assets. However, like many large contractors, they have also faced scrutiny and reviews regarding contract performance and cost management on specific programs.

How does the $110M award compare to other combat system support contracts?

The $110 million award for combat system services over approximately 6.8 years places this contract in the mid-to-large tier for specialized defense support services. Comparable contracts within the DoD for similar engineering, integration, and sustainment of complex weapon systems can range from tens of millions to several billion dollars. For instance, contracts for aircraft system support or major platform modernization efforts often exceed this value significantly. However, when compared to contracts specifically focused on the engineering services for a particular set of combat systems at a specific facility, $110 million is a substantial commitment, reflecting the ongoing need for specialized technical expertise and sustainment in this domain.

What are the primary risks associated with a Cost Plus Incentive Fee (CPIF) contract?

The primary risks associated with a Cost Plus Incentive Fee (CPIF) contract, like the one awarded to BAE Systems, revolve around cost control and potential for overruns. While CPIF aims to incentivize contractor efficiency by linking profit to performance targets (cost, schedule, or technical objectives), it still operates on a cost-reimbursement basis. This means the government ultimately pays the allowable costs incurred by the contractor. If the target costs are set too high, or if performance incentives are not structured effectively, the contractor may achieve their profit targets without necessarily achieving the most cost-effective outcome for the government. There's also a risk that the contractor might prioritize achieving the incentive fee over other critical aspects of performance if the fee structure is misaligned with overall program goals. Close government oversight and robust negotiation of target costs and incentive formulas are crucial to mitigate these risks.

How effective is competition level in driving down costs for specialized defense engineering?

The level of competition is a significant factor in driving down costs for specialized defense engineering services. Generally, a higher number of qualified bidders leads to more aggressive pricing as companies vie for the contract. In this case, with only two bidders for a $110 million contract, the competitive pressure may have been less intense than if there had been, for example, four or five bidders. This limited competition could mean that the government did not achieve the lowest possible price. Specialized markets, like combat system engineering, often have fewer potential bidders due to high technical expertise requirements, intellectual property considerations, and existing relationships. While full and open competition was advertised, the market reality resulted in limited bids, underscoring the challenge of fostering robust competition in niche defense sectors.

What is the historical spending trend for combat system support services within the Navy?

Historical spending trends for combat system support services within the Navy generally show a consistent and significant investment. As naval platforms age and new technologies are integrated, the need for ongoing engineering, maintenance, and upgrade services remains high. Spending in this category is often influenced by geopolitical factors, defense budgets, and the modernization cycles of naval fleets. Over the past decade, the Navy has consistently allocated substantial portions of its budget to weapon systems sustainment and modernization, which includes combat systems. While specific figures fluctuate year-to-year based on program priorities and budget allocations, the overall trend indicates a sustained demand for these specialized services, often resulting in multi-year contracts awarded to major defense contractors.

Industry Classification

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

Product/Service Code: SPECIAL STUDIES/ANALYSIS, NOT R&D › SPECIAL STUDIES - NOT R and D

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Solicitation ID: N0002415R3288

Offers Received: 2

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: Ball Corporation

Address: 520 GAITHER ROAD, ROCKVILLE, MD, 20850

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $114,143,334

Exercised Options: $114,143,334

Current Obligation: $109,671,720

Subaward Activity

Number of Subawards: 109

Total Subaward Amount: $51,490,202

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: N0017804D4018

IDV Type: IDC

Timeline