DoD awards $62.5M contract for next-gen integrated circuit design to BAE Systems, raising competition concerns

Contract Overview

Contract Amount: $62,534,181 ($62.5M)

Contractor: BAE Systems Information and Electronic Systems Integration Inc.

Awarding Agency: Department of Defense

Start Date: 2019-05-01

End Date: 2022-01-01

Contract Duration: 976 days

Daily Burn Rate: $64.1K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: NEXT GENERATION APPLICATION SPECIFIC INTEGRATED CIRCUIT PRELIMINARY DESIGN

Place of Performance

Location: CEDAR RAPIDS, LINN County, IOWA, 52498

State: Iowa Government Spending

Plain-Language Summary

Department of Defense obligated $62.5 million to BAE SYSTEMS INFORMATION AND ELECTRONIC SYSTEMS INTEGRATION INC. for work described as: NEXT GENERATION APPLICATION SPECIFIC INTEGRATED CIRCUIT PRELIMINARY DESIGN Key points: 1. Contract awarded on a sole-source basis, limiting price discovery and potentially increasing costs. 2. The contract type (Cost Plus Incentive Fee) can incentivize cost overruns if not closely managed. 3. BAE Systems is a large, established defense contractor with a significant presence in the sector. 4. The contract duration of nearly three years suggests a substantial and ongoing need for these services. 5. The specific application of the integrated circuit is not detailed, making direct performance benchmarking difficult. 6. The lack of competition raises questions about whether the government secured the best possible value. 7. The contract is for preliminary design, indicating early-stage development with potential for future, larger awards.

Value Assessment

Rating: questionable

Benchmarking the value of this preliminary design contract is challenging due to its specialized nature and sole-source award. The Cost Plus Incentive Fee (CPIF) contract type, while offering flexibility, can lead to higher costs if cost controls are not rigorously enforced. Without competitive bids, it's difficult to ascertain if the negotiated price reflects fair market value for the preliminary design services. The total award amount of $62.5 million over approximately three years suggests a significant investment in this technology.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed among multiple vendors. This approach is typically used when only one vendor possesses the necessary capabilities or when urgency dictates. The lack of competition means that the government did not benefit from the price reductions and innovation that can arise from a competitive bidding process. This limits the government's ability to explore alternative solutions or secure the most cost-effective option.

Taxpayer Impact: Taxpayers may have paid a premium due to the absence of competitive pressure. The government's negotiating position is weakened without alternative offers, potentially leading to less favorable pricing than if the contract had been open to multiple bidders.

Public Impact

The Department of Defense benefits from the development of advanced integrated circuits crucial for next-generation systems. This contract supports the advancement of specialized electronic warfare and navigation technologies. The geographic impact is primarily within the contractor's facilities, likely in areas with established defense industry presence. The contract supports highly skilled engineering and technical jobs within BAE Systems. The development of these circuits could enhance the capabilities of U.S. military platforms.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pricing and potential for innovation.
CPIF contract type carries inherent risk of cost overruns if not managed strictly.
Lack of transparency in the specific technical requirements makes independent value assessment difficult.
Potential for vendor lock-in if this technology becomes proprietary and essential.

Positive Signals

Award to an established contractor with a track record in defense electronics.
Focus on developing critical, next-generation technology for national security.
Contract duration allows for focused development and potential for follow-on work.
Potential for technological advancements that could provide a strategic advantage.

Sector Analysis

This contract falls within the broader Defense Industrial Base sector, specifically focusing on the manufacturing of search, detection, navigation, guidance, aeronautical, and nautical systems and instruments. The market for specialized integrated circuits (ICs) for defense applications is highly concentrated, with a few large prime contractors dominating. Spending in this area is driven by the need for advanced capabilities in electronic warfare, communications, and sensor technology. Comparable spending benchmarks are difficult to establish due to the proprietary nature of many defense IC designs.

Small Business Impact

This contract was not set aside for small businesses, nor does it appear to have specific subcontracting requirements for small businesses mentioned in the provided data. The award to a large prime contractor like BAE Systems suggests that the primary work will be performed internally or with other large subcontractors. This limits opportunities for small businesses to participate directly in this specific contract, although they may be involved in the broader supply chain for BAE Systems.

Oversight & Accountability

Oversight for this contract would typically be managed by the Defense Contract Management Agency (DCMA), which is responsible for ensuring contractor performance and compliance. The Cost Plus Incentive Fee structure requires diligent monitoring of costs and performance against targets to ensure value for money. Transparency is limited by the sole-source nature and the proprietary aspects of the technology, but contract milestones and financial reporting would be subject to government review.

Related Government Programs

Department of Defense Research and Development
Advanced Electronic Warfare Systems
Navigation and Guidance Systems
Military Aircraft and Ship Systems
Semiconductor Manufacturing for Defense

Risk Flags

Sole-source award
Cost Plus Incentive Fee contract type
Lack of publicly available performance metrics for comparison
Specialized technology with limited market alternatives

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $62.5 million to BAE SYSTEMS INFORMATION AND ELECTRONIC SYSTEMS INTEGRATION INC.. NEXT GENERATION APPLICATION SPECIFIC INTEGRATED CIRCUIT PRELIMINARY DESIGN

Who is the contractor on this award?

The obligated recipient is BAE SYSTEMS INFORMATION AND ELECTRONIC SYSTEMS INTEGRATION INC..

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $62.5 million.

What is the period of performance?

Start: 2019-05-01. End: 2022-01-01.

What is BAE Systems' track record with similar sole-source, cost-plus contracts for preliminary design in the defense sector?

BAE Systems has a long history of performing complex defense contracts, including those involving advanced electronics and integrated circuits. While specific data on their track record with sole-source, cost-plus preliminary design contracts is not publicly detailed, their extensive experience suggests familiarity with such arrangements. However, the effectiveness and value derived from such contracts are highly dependent on the specific program, the rigor of government oversight, and the contractor's performance. Past performance reviews and contract close-out data, if available through government databases like the Federal Procurement Data System (FPDS), would offer more granular insights into their success rates and cost management on similar engagements.

How does the $62.5 million award compare to similar preliminary design contracts for advanced integrated circuits?

Direct comparison of this $62.5 million award for preliminary design is challenging due to the highly specialized and often proprietary nature of advanced integrated circuits for defense applications. Preliminary design phases can vary significantly in scope, complexity, and duration. Factors such as the number of integrated circuits, the technological sophistication required, and the specific performance parameters sought all influence cost. Without access to detailed statements of work for comparable contracts, it's difficult to benchmark this award definitively. However, given the critical nature of next-generation defense technology, investments in the tens of millions for preliminary design are not uncommon for complex systems.

What are the primary risks associated with a sole-source, Cost Plus Incentive Fee (CPIF) contract for preliminary design?

The primary risks associated with a sole-source CPIF contract for preliminary design are twofold. Firstly, the sole-source nature eliminates competitive pressure, potentially leading to higher costs and less favorable terms than could be achieved through open competition. The government lacks the leverage of alternative bidders. Secondly, the CPIF structure, while designed to incentivize cost efficiency, can still lead to cost overruns if the incentive targets are not well-defined or if the government's oversight is insufficient. Contractors may prioritize achieving incentive fees over strict cost control, especially in early design phases where uncertainties are high. This necessitates robust government monitoring of costs, performance, and adherence to the incentive structure.

What is the expected impact of this contract on the development of future defense capabilities?

This contract is expected to have a significant positive impact on the development of future defense capabilities by laying the groundwork for advanced integrated circuits. These circuits are foundational components for next-generation systems in areas such as electronic warfare, command and control, communications, and intelligence, surveillance, and reconnaissance (ISR). Successful preliminary design could enable the development of more powerful, efficient, and resilient military platforms. It also signals the Department of Defense's commitment to investing in cutting-edge technology, potentially driving innovation within the defense industrial base and ensuring U.S. technological superiority in critical domains.

How does this contract fit into the broader historical spending patterns for defense electronics and integrated circuits?

This contract aligns with historical spending patterns where the Department of Defense invests heavily in advanced electronics and integrated circuits to maintain technological superiority. Spending in this area is often characterized by long development cycles, high research and development costs, and a reliance on specialized, often sole-source, suppliers due to the unique requirements and security considerations. While specific dollar amounts fluctuate based on program priorities and technological advancements, the consistent need for sophisticated electronic components in defense systems means that contracts like this represent a recurring and significant portion of the defense budget. The trend is towards increasingly complex and integrated solutions, driving demand for advanced IC design.

What are the potential long-term implications of awarding such a critical technology design to a single vendor?

Awarding the preliminary design of critical technology to a single vendor, as in this sole-source contract, carries potential long-term implications. It can lead to vendor lock-in, where the government becomes heavily reliant on that specific contractor and their proprietary technology for future development and sustainment. This reliance can reduce future competition and potentially increase long-term costs. Furthermore, it concentrates the knowledge base for this technology within one company, which could pose risks if that company faces financial instability or strategic shifts. While it ensures focused development initially, it necessitates careful planning for technology transition and potential future competition or alternative sourcing strategies.

Industry Classification

NAICS: Manufacturing › Navigational, Measuring, Electromedical, and Control Instruments Manufacturing › Search, Detection, Navigation, Guidance, Aeronautical, and Nautical System and Instrument Manufacturing

Product/Service Code: RESEARCH AND DEVELOPMENT › C – National Defense R&D Services

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: FA880719R0003

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: BAE Systems PLC

Address: 7825 6TH ST SW, CEDAR RAPIDS, IA, 52404

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: $62,534,181

Exercised Options: $62,534,181

Current Obligation: $62,534,181

Subaward Activity

Number of Subawards: 10

Total Subaward Amount: $1,177,265

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline