DoD's $205M hardware buy for Northrop Grumman raises questions on competition and value

Contract Overview

Contract Amount: $205,255,938 ($205.3M)

Contractor: Northrop Grumman Systems Corporation

Awarding Agency: Department of Defense

Start Date: 2020-04-25

End Date: 2026-02-27

Contract Duration: 2,134 days

Daily Burn Rate: $96.2K/day

Competition Type: NOT COMPETED

Pricing Type: FIRM FIXED PRICE

Sector: Other

Official Description: CY 19 ANNUAL HARDWARE BUY

Place of Performance

Location: ROLLING MEADOWS, COOK County, ILLINOIS, 60008

State: Illinois Government Spending

Plain-Language Summary

Department of Defense obligated $205.3 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: CY 19 ANNUAL HARDWARE BUY Key points: 1. Significant contract awarded to a single large defense contractor. 2. Lack of competition suggests potential for overpayment and reduced innovation. 3. Long contract duration (2020-2026) warrants close performance monitoring. 4. Contract type (Firm Fixed Price) shifts risk to the contractor. 5. Geographic concentration in Illinois for this major hardware acquisition. 6. Focus on electronic components manufacturing indicates a critical supply chain element.

Value Assessment

Rating: questionable

Benchmarking the value of this $205 million hardware acquisition is challenging without detailed cost breakdowns and comparisons to similar sole-source contracts. The lack of competition inherently limits the government's ability to secure the best possible pricing. While the firm fixed-price structure aims to control costs, the absence of competitive pressure could lead to inflated prices compared to what might be achieved in a more open market. Further analysis of the specific hardware components and their market value is needed to definitively assess value for money.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was not competed, indicating a sole-source award. The data does not specify the reasons for this determination, such as a lack of available sources or a national security imperative. Without a competitive bidding process, it is impossible to know how many potential bidders were excluded or what pricing strategies might have emerged from a more open solicitation. This approach bypasses the price discovery benefits typically associated with competitive procurements.

Taxpayer Impact: Taxpayers may have paid a premium due to the absence of competitive pressure. The government missed an opportunity to leverage market forces to drive down costs and potentially secure more favorable terms.

Public Impact

The Department of Defense benefits from the acquisition of critical hardware components. Northrop Grumman Systems Corporation, as the primary contractor, receives substantial revenue. The contract supports manufacturing and related jobs, primarily in Illinois. The specific hardware procured likely supports advanced defense systems and operations.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Lack of competition may lead to higher costs for taxpayers.
Sole-source award raises concerns about potential vendor lock-in.
Limited transparency into the justification for sole-source procurement.
Long contract duration could mask inefficiencies if not closely monitored.

Positive Signals

Firm Fixed Price contract shifts cost overrun risk to the contractor.
Award to a major defense contractor suggests alignment with strategic defense needs.
Contract supports a specific, potentially critical, manufacturing capability.

Sector Analysis

This contract falls within the Other Electronic Component Manufacturing sector (NAICS 334419), a critical segment of the broader electronics and defense industrial base. The market for specialized electronic components is often characterized by high barriers to entry, proprietary technology, and a limited number of qualified suppliers, which can sometimes necessitate sole-source awards for specific defense applications. The annual hardware buy of over $205 million represents a significant investment within this niche, underscoring its importance to national security capabilities.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. Given the sole-source nature and the award to a large prime contractor like Northrop Grumman, the likelihood of significant subcontracting opportunities flowing down to small businesses is uncertain without further details. The absence of a set-aside suggests that small businesses were not specifically targeted for this particular procurement, potentially limiting their direct participation in this large-dollar award.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Air Force's contracting and program management offices. As a sole-source award, scrutiny on the justification and pricing is crucial. Transparency regarding the specific hardware procured and the rationale for the non-competitive award would enhance accountability. The duration of the contract (2020-2026) necessitates ongoing performance monitoring and potential audits by the Inspector General to ensure compliance and value.

Related Government Programs

Department of Defense Major Weapon Systems
Defense Electronics Procurement
Northrop Grumman Defense Contracts
Electronic Component Manufacturing Contracts

Risk Flags

Sole-source award lacks competitive justification.
High contract value without competition raises cost concerns.
Long contract duration requires diligent oversight.
Limited public information on specific components procured.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $205.3 million to NORTHROP GRUMMAN SYSTEMS CORPORATION. CY 19 ANNUAL HARDWARE BUY

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 (Department of the Air Force).

What is the total obligated amount?

The obligated amount is $205.3 million.

What is the period of performance?

Start: 2020-04-25. End: 2026-02-27.

What specific electronic components are being procured under this contract, and what is their criticality to defense systems?

The provided data identifies the contract under NAICS code 334419 (Other Electronic Component Manufacturing) but does not specify the exact electronic components. These could range from integrated circuits, sensors, power supplies, or other specialized parts crucial for various defense platforms such as aircraft, communication systems, or missile guidance. The criticality would depend on the specific application within the Department of the Air Force's inventory. Without more granular detail, it's difficult to assess the precise impact on defense readiness, but the substantial value suggests these are not commodity items and likely support key operational capabilities.

What was the justification for awarding this contract on a sole-source basis instead of through full and open competition?

The data indicates the contract was 'NOT COMPETED' and is a 'sole-source' award. Typically, sole-source justifications stem from reasons such as unique capabilities, proprietary technology, urgent and compelling needs where only one source can fulfill the requirement, or when a limited number of sources exist and are deemed inadequate for competition. For a contract valued at over $205 million, the Department of the Air Force would have had to formally document and approve a justification and approval (J&A) document outlining the specific rationale. This document, often publicly available through contract databases, would detail why competition was not feasible or not in the government's best interest.

How does the $205 million annual hardware buy compare to historical spending patterns for similar components or contracts with Northrop Grumman?

The provided data represents a single annual hardware buy of $205,255,938.48 for CY 19. To compare this to historical patterns, one would need to examine prior years' spending on similar hardware categories (NAICS 334419) and specifically with Northrop Grumman Systems Corporation. Analyzing trends would involve looking at the total value of contracts awarded to this vendor for electronic components over several fiscal years, noting any significant increases or decreases. A substantial deviation from historical norms, especially in a sole-source context, might warrant further investigation into the drivers of such changes, such as evolving technological requirements or shifts in procurement strategy.

What are the potential risks associated with a long-term (2020-2026) sole-source contract for electronic components?

A long-term sole-source contract for electronic components carries several risks. Firstly, the lack of competition over an extended period can lead to sustained higher prices than might be achieved through periodic re-competition, as the contractor faces less pressure to innovate or reduce costs. Secondly, there's a risk of vendor lock-in, where the government becomes heavily reliant on a single supplier, making it difficult and costly to switch providers even if performance or pricing becomes unsatisfactory. Thirdly, technological obsolescence is a concern; if the components are critical, the contractor might have less incentive to upgrade or offer newer technologies if not contractually obligated. Finally, without ongoing competitive evaluation, ensuring the contractor maintains optimal performance and efficiency requires robust government oversight and performance management.

What is the significance of the contract being awarded under 'Other Electronic Component Manufacturing' (NAICS 334419)?

The classification under NAICS 334419, 'Other Electronic Component Manufacturing,' indicates that the contract involves the production or supply of electronic parts not specifically covered by more specialized categories. This broad classification suggests the components could be diverse, potentially including semiconductors, passive components, connectors, or other specialized electronic assemblies. For the Department of Defense, such components are fundamental building blocks for complex systems. The 'other' designation might imply unique or custom-manufactured items tailored to specific military requirements, which often have higher costs and fewer suppliers compared to standardized commercial components.

Industry Classification

NAICS: Manufacturing › Semiconductor and Other Electronic Component Manufacturing › Other Electronic Component Manufacturing

Product/Service Code: COMM/DETECT/COHERENT RADIATION

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Parent Company: Northrop Grumman Corporation

Address: 600 HICKS RD, ROLLING MEADOWS, IL, 60008

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: $205,255,938

Exercised Options: $205,255,938

Current Obligation: $205,255,938

Actual Outlays: $25,599,489

Subaward Activity

Number of Subawards: 33

Total Subaward Amount: $6,822,759

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Parent Contract

Parent Award PIID: FA863819D0001

IDV Type: IDC

Timeline