DoD's $1.31B GPS III contract to Lockheed Martin shows limited competition and potential value concerns

Contract Overview

Contract Amount: $131,345,297 ($131.3M)

Contractor: Lockheed Martin Corp

Awarding Agency: Department of Defense

Start Date: 2013-02-08

End Date: 2018-10-01

Contract Duration: 2,061 days

Daily Burn Rate: $63.7K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: GPSIII SV05-12 FPIF CONVERSION

Place of Performance

Location: LITTLETON, DOUGLAS County, COLORADO, 80125

State: Colorado Government Spending

Plain-Language Summary

Department of Defense obligated $131.3 million to LOCKHEED MARTIN CORP for work described as: GPSIII SV05-12 FPIF CONVERSION Key points: 1. The contract's fixed-price incentive structure aims to balance cost control with performance, but requires careful monitoring. 2. Sole-source award suggests a lack of competitive pressure, potentially impacting price efficiency. 3. The extended duration and significant value indicate a critical, long-term program for national security. 4. Performance context is crucial, as delays or cost overruns could have cascading effects on GPS capabilities. 5. Sector positioning highlights the strategic importance of satellite manufacturing within the defense industrial base.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its specialized nature and sole-source award. The fixed-price incentive (FPI) structure, while designed to share risk, can lead to higher initial costs compared to fixed-price-firm contracts if targets are not well-defined. Without competitive bids, it's difficult to ascertain if the negotiated price represents optimal value for the government. The total obligated amount of $1.31 billion over its period of performance warrants close scrutiny of cost performance metrics and any subsequent modifications.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one bidder, Lockheed Martin Corporation, was considered. This approach is typically justified when a unique capability or proprietary technology is required, or when prior investments make competition impractical. However, the absence of multiple bidders limits the government's ability to leverage market forces to drive down costs and ensure the most advantageous terms. The justification for sole-source procurement needs to be robust to ensure taxpayer funds are used efficiently.

Taxpayer Impact: Sole-source awards can result in higher prices for taxpayers as there is no competitive pressure to incentivize cost reductions. This necessitates strong government oversight to ensure fair pricing and prevent potential overspending.

Public Impact

The primary beneficiaries are the Department of Defense and its various branches, ensuring access to advanced GPS capabilities for military operations. The contract delivers essential components and services for the GPS III satellite program, crucial for navigation, timing, and positioning. Geographic impact is national, supporting global military and civilian applications reliant on the GPS constellation. Workforce implications include employment opportunities within Lockheed Martin and its supply chain, particularly in specialized aerospace and engineering fields.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price discovery and potential cost savings.
Fixed-price incentive contracts require diligent oversight to manage cost overruns and ensure performance targets are met.
The long duration of the contract increases the risk of scope creep or evolving requirements that could impact cost and schedule.
Dependence on a single contractor for critical space-based assets poses a strategic risk.

Positive Signals

Lockheed Martin is a well-established defense contractor with extensive experience in space systems.
The FPI contract structure incentivizes contractor performance towards defined objectives.
The GPS program is a critical national asset, implying a high level of government commitment to its success.
The contract supports the modernization of a vital defense capability.

Sector Analysis

The satellite manufacturing sector is a high-technology, capital-intensive industry critical to national security and economic competitiveness. This contract falls within the guided missile and space vehicle manufacturing subsector. The market is characterized by a few large, established prime contractors and a complex supply chain. Spending in this area is driven by government requirements for advanced space-based capabilities, including communication, navigation, and intelligence, surveillance, and reconnaissance (ISR) platforms. Comparable spending benchmarks are difficult to establish precisely due to the unique nature of satellite programs, but multi-billion dollar investments are common for constellation development.

Small Business Impact

This contract does not appear to have a specific small business set-aside component, as indicated by 'sb': false. Furthermore, the 'st': 'CO' (Colorado) designation and the prime contractor being Lockheed Martin suggest that subcontracting opportunities may exist within the broader aerospace and defense ecosystem. However, the primary focus of this sole-source award is on the prime contractor's capabilities. The impact on the small business ecosystem would largely depend on Lockheed Martin's subcontracting strategy and whether small businesses are integrated into the supply chain for specialized components or services.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of the Air Force, likely through program management offices and contracting officers. Given the significant value and strategic importance, Inspector General (IG) oversight is probable, focusing on financial accountability, contract compliance, and potential fraud, waste, or abuse. Transparency is facilitated through contract awards databases, but detailed performance metrics and cost breakdowns may be subject to proprietary or national security restrictions. The fixed-price incentive structure necessitates robust performance monitoring to ensure contractor adherence to agreed-upon targets.

Related Government Programs

GPS III Space Segment
Space-Based PNT (Positioning, Navigation, and Timing)
Military Satellite Communications
National Security Space Launch

Risk Flags

Sole-source award
Potential for cost overruns in FPI contracts
Long contract duration
Dependence on single contractor

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $131.3 million to LOCKHEED MARTIN CORP. GPSIII SV05-12 FPIF CONVERSION

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORP.

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 $131.3 million.

What is the period of performance?

Start: 2013-02-08. End: 2018-10-01.

What is Lockheed Martin's track record with previous GPS satellite programs?

Lockheed Martin has been a long-standing prime contractor for the GPS program, having built previous generations of GPS satellites, including GPS IIR, IIR-M, and IIF. Their experience spans decades and encompasses the design, manufacturing, testing, and launch support of these critical space assets. This historical involvement provides a foundation of expertise and institutional knowledge relevant to the GPS III program. However, past performance on earlier generations does not automatically guarantee success or optimal value on the current, more advanced GPS III program, which involves new technologies and higher performance requirements. A detailed review of their performance on prior GPS contracts, including any schedule delays, cost overruns, or technical challenges, would be necessary for a comprehensive assessment.

How does the pricing structure of this Fixed Price Incentive (FPI) contract compare to other large satellite development contracts?

Fixed Price Incentive (FPI) contracts are common in complex, high-risk programs like satellite development, aiming to share cost risks between the government and contractor. Compared to Fixed Price Firm (FPF) contracts, FPI contracts typically have higher target costs but include a ceiling price and a sharing formula for cost variances. This structure incentivizes the contractor to control costs to earn a larger share of savings if actual costs are below the target, or to limit losses if costs exceed the target. However, FPI contracts can be more complex to administer and may result in higher initial negotiated prices than FPF contracts if the government's risk tolerance is high. Benchmarking against other FPI satellite contracts would require access to detailed cost and performance data, which is often not publicly available. The $1.31 billion value suggests a significant investment, and the effectiveness of the FPI structure hinges on the realism of the target cost and the fairness of the cost-sharing ratio.

What are the primary risks associated with the sole-source nature of this contract?

The primary risk associated with a sole-source contract is the potential for reduced price competition, which can lead to higher costs for the government compared to a competitively awarded contract. Without multiple bidders vying for the contract, there is less incentive for the contractor to offer the lowest possible price. This can also extend to innovation, as the contractor may face less pressure to develop novel or more cost-effective solutions. Furthermore, sole-source awards can create a dependency on a single supplier, increasing vulnerability if that supplier experiences financial difficulties, production issues, or strategic shifts. Robust negotiation and stringent oversight are critical to mitigate these risks and ensure fair value is obtained.

What are the key performance indicators (KPIs) being tracked for this contract?

While specific Key Performance Indicators (KPIs) for this contract are not publicly detailed, typical KPIs for satellite development and manufacturing programs include: schedule adherence (meeting key milestones for design, production, testing, and delivery), cost performance (tracking actual costs against target costs and the ceiling price), technical performance (meeting specified requirements for satellite functionality, payload performance, lifespan, and reliability), and quality assurance (adherence to manufacturing standards and defect rates). For a Fixed Price Incentive (FPI) contract, the primary KPIs would revolve around achieving the target cost and performance specifications within the established ceiling price. The success of the GPS III program hinges on the reliable delivery of satellites that meet stringent operational requirements for accuracy, availability, and resilience.

How does this contract contribute to the overall modernization of the U.S. GPS capabilities?

This contract is central to the modernization of the U.S. GPS capabilities by funding the production of GPS III satellites. GPS III satellites are designed to be more powerful, precise, and resilient than previous generations. Key enhancements include a stronger signal (three times stronger than previous satellites), improved accuracy, a longer lifespan, and increased resistance to jamming and spoofing. They also carry a new civilian navigation signal (L1C) that will be interoperable with international satellite navigation systems. The $1.31 billion funding supports the manufacturing of multiple satellites, ensuring the U.S. maintains its global leadership in positioning, navigation, and timing (PNT) services for both military and civilian users, and provides a more robust and secure PNT infrastructure for the future.

What is the historical spending trend for GPS satellite development and manufacturing?

Historical spending on GPS satellite development and manufacturing has been substantial, reflecting the complexity and criticality of these programs. The U.S. Air Force (now Space Force) has consistently invested billions of dollars over decades to maintain and upgrade the GPS constellation. For instance, the GPS IIF program, which preceded GPS III, involved multiple satellites procured over several years with significant associated costs. The GPS III program itself represents a major investment, with the total program cost, including development, manufacturing, launch, and sustainment, running into tens of billions of dollars. The $1.31 billion figure for this specific contract is a significant portion of the overall GPS III acquisition effort, indicating the scale of investment required for next-generation space-based PNT capabilities. Spending trends show a continuous need for modernization to counter evolving threats and enhance performance.

Industry Classification

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

Product/Service Code: SPACE VEHICLES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Address: 12257 S WADSWORTH BLVD, LITTLETON, CO, 80125

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $192,701,399

Exercised Options: $192,701,399

Current Obligation: $131,345,297

Actual Outlays: $14,924,407

Subaward Activity

Number of Subawards: 46

Total Subaward Amount: $1,258,074,543

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline