DoD awards Northrop Grumman $4.4B for guided missile manufacturing, with 2 bids received

Contract Overview

Contract Amount: $4,395,003,229 ($4.4B)

Contractor: Northrop Grumman Systems Corporation

Awarding Agency: Department of Defense

Start Date: 2002-08-23

End Date: 2018-09-30

Contract Duration: 5,882 days

Daily Burn Rate: $747.2K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: COST PLUS AWARD FEE

Sector: Defense

Place of Performance

Location: REDONDO BEACH, LOS ANGELES County, CALIFORNIA, 90278

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $4.40 billion to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: Key points: 1. Contract value of $4.4B over 16 years suggests significant long-term investment in critical defense capabilities. 2. The award was made under full and open competition, indicating a broad market search. 3. With only two bids, the level of competition may have limited price discovery and potentially increased costs. 4. The contract type (Cost Plus Award Fee) incentivizes performance but requires robust oversight to manage costs. 5. Northrop Grumman's extensive experience in aerospace and defense likely positions them favorably for this complex work. 6. The long duration of the contract (over 16 years) presents potential risks related to technological obsolescence and changing requirements.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its long duration and specialized nature within guided missile manufacturing. The Cost Plus Award Fee structure means the final cost could vary significantly based on performance. Without more detailed cost breakdowns or comparisons to similar long-term, high-value defense manufacturing contracts, it's difficult to definitively assess value for money. However, the presence of only two bidders suggests potential for higher pricing than a more competitive environment might yield.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, meaning all responsible sources were permitted to submit bids. However, only two bids were received. While the process aimed for broad competition, the limited number of bidders could indicate high barriers to entry, specialized capabilities required, or a concentrated market. This level of competition may not have driven the most aggressive pricing.

Taxpayer Impact: With only two bidders, taxpayers may have received less competitive pricing than if more companies had participated. This could translate to higher overall program costs.

Public Impact

The primary beneficiaries are the Department of Defense and national security, ensuring the availability of guided missiles. This contract supports the manufacturing and sustainment of critical defense assets. The geographic impact is likely concentrated around Northrop Grumman's manufacturing facilities, potentially in California. It implies sustained employment for a specialized workforce in aerospace engineering, manufacturing, and related technical fields.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Limited competition (2 bidders) may lead to higher costs for taxpayers.
Cost Plus Award Fee contracts require diligent oversight to prevent cost overruns.
Long contract duration (16+ years) increases risk of technological obsolescence and requirement changes.
Lack of specific small business set-aside information raises questions about broader economic impact.

Positive Signals

Awarded under full and open competition, allowing for broad market participation initially.
Northrop Grumman is a major defense contractor with proven capabilities in this domain.
The contract aims to ensure a critical defense capability is maintained and produced.

Sector Analysis

This contract falls within the Guided Missile and Space Vehicle Manufacturing sector, a highly specialized and critical segment of the aerospace and defense industry. This sector is characterized by high R&D investment, stringent quality control, and significant government reliance. Market size is difficult to quantify precisely but represents a substantial portion of defense procurement budgets, driven by national security needs. Comparable spending benchmarks would typically involve other major defense platforms and weapon systems procurement.

Small Business Impact

The provided data indicates that small business participation (sb) was false and there was no specific small business set-aside (ss) for this contract. This suggests that the primary award was made to a large prime contractor, Northrop Grumman. Subcontracting opportunities for small businesses may exist within the execution of this contract, but they are not explicitly detailed in the award information. The lack of a set-aside means the direct impact on the small business ecosystem for this specific contract is likely minimal, relying on the prime contractor's subcontracting strategy.

Oversight & Accountability

Oversight for this Cost Plus Award Fee contract would typically be managed by the Defense Contract Management Agency (DCMA) and the relevant program executive office within the Department of Defense. Accountability measures are built into the award fee structure, incentivizing performance against defined metrics. Transparency is generally limited for specific defense contracts due to national security considerations, but contract actions and basic award information are publicly available through systems like FPDS. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Missile Defense Systems
Strategic Weapons Programs
Aerospace Manufacturing Contracts
Defense Procurement
Advanced Weapons Systems

Risk Flags

Limited Competition
Long Contract Duration
Cost Plus Award Fee Structure
Potential for Cost Overruns
Risk of Technological Obsolescence

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $4.40 billion to NORTHROP GRUMMAN SYSTEMS CORPORATION. See the official description on USAspending.

Who is the contractor on this award?

The obligated recipient is NORTHROP GRUMMAN SYSTEMS CORPORATION.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $4.40 billion.

What is the period of performance?

Start: 2002-08-23. End: 2018-09-30.

What is Northrop Grumman's track record with similar large-scale defense manufacturing contracts?

Northrop Grumman has a long and extensive track record in large-scale defense manufacturing, particularly in aerospace and missile systems. They are a prime contractor on numerous complex programs for the Department of Defense and other government agencies. Historically, they have been involved in the development and production of various aircraft, spacecraft, and missile platforms. Their performance on previous contracts, while generally strong, has sometimes faced scrutiny regarding cost and schedule adherence, as is common with programs of this complexity and scale. The company's deep expertise and established infrastructure in these areas make them a logical choice for significant defense awards like this one.

How does the $4.4 billion value compare to other guided missile manufacturing contracts?

A $4.4 billion contract value over a 16-year period is substantial, even within the defense sector. It indicates a significant, long-term commitment to acquiring or sustaining guided missile capabilities. To provide a precise comparison, one would need access to detailed historical data on similar long-duration, high-value missile system production contracts. However, contracts of this magnitude are typically reserved for major strategic systems or platforms requiring extensive manufacturing, research, and development over many years. It suggests this contract is for a critical or high-volume missile program, placing it among the larger awards in this specific manufacturing niche.

What are the primary risks associated with a Cost Plus Award Fee (CPAF) contract of this duration?

The primary risks with a CPAF contract of this duration (over 16 years) revolve around cost control and performance management. While CPAF incentivizes meeting or exceeding performance targets through award fees, the 'cost plus' component means the government pays the contractor's allowable costs plus a fee. Without rigorous oversight, costs can escalate. For a long-duration contract, risks include: 1) Difficulty in accurately forecasting costs over such an extended period due to inflation, material price fluctuations, and evolving labor rates. 2) Potential for scope creep or changes in requirements that are not adequately controlled. 3) Ensuring the award fee criteria remain relevant and challenging throughout the contract's life. 4) Contractor focus shifting towards maximizing the award fee rather than absolute cost efficiency if oversight is lax.

What does the limited competition (2 bidders) imply for program effectiveness?

Limited competition, such as the two bids received for this contract, can have mixed implications for program effectiveness. On one hand, it might mean that only a few companies possess the highly specialized technology, manufacturing capabilities, or security clearances required, suggesting the chosen contractor is uniquely qualified. This could lead to effective execution if the contractor is highly competent. On the other hand, reduced competition often leads to less pressure on pricing and potentially less innovation driven by competitive necessity. If the two bidders were not strongly differentiated in capability, the government might not have secured the absolute best value or the most cutting-edge solution available in a broader market.

How has federal spending in the 'Guided Missile and Space Vehicle Manufacturing' NAICS code trended historically?

Historical federal spending data for NAICS code 336414 (Guided Missile and Space Vehicle Manufacturing) generally shows significant and often increasing investment, particularly driven by defense budgets. This sector is highly sensitive to geopolitical events and national security priorities. While specific year-over-year trends fluctuate based on program lifecycles and budget allocations, the overall demand for these capabilities remains robust. Major defense contractors like Northrop Grumman are consistent recipients of substantial funding within this category. Analyzing trends requires looking at multi-year budget appropriations and specific program funding profiles, which often span many fiscal years.

What are the potential implications of the contract's long duration (5882 days) on technological relevance?

A contract duration of nearly 16 years (5882 days) for guided missile manufacturing presents a significant risk of technological obsolescence. Missile technology, while often evolutionary rather than revolutionary, can advance rapidly. Systems designed and produced early in the contract period may become outdated or less effective by its end, especially with advancements in countermeasures, guidance systems, or propulsion. This necessitates proactive technology insertion strategies, robust research and development efforts by the contractor, and potentially contract modifications to incorporate newer technologies. The government must carefully manage requirements and performance metrics to ensure the delivered systems remain relevant throughout their lifecycle and into potential future operational use.

Industry Classification

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

Product/Service Code: RESEARCH AND DEVELOPMENT › Space R&D Services

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 2

Pricing Type: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation

Address: 1 SPACE PARK BLVD, REDONDO BEACH, CA, 90278

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $3,666,200,340

Exercised Options: $3,603,299,251

Current Obligation: $4,395,003,229

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline