DoD awards $816.5M contract for semiconductor manufacturing, transferred from NSA to DMEA

Contract Overview

Contract Amount: $816,516,428 ($816.5M)

Contractor: Globalfoundries U.S. 2 LLC

Awarding Agency: Department of Defense

Start Date: 2016-04-01

End Date: 2023-08-14

Contract Duration: 2,691 days

Daily Burn Rate: $303.4K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: TRUSTED FOUNDRY ACCESS 2 - AWARD OF BASE TRANSITION CONTRACT WITH DMEA. CONTRACT TRANSFERRED FROM NSA.

Place of Performance

Location: HOPEWELL JUNCTION, DUTCHESS County, NEW YORK, 12533

State: New York Government Spending

Plain-Language Summary

Department of Defense obligated $816.5 million to GLOBALFOUNDRIES U.S. 2 LLC for work described as: TRUSTED FOUNDRY ACCESS 2 - AWARD OF BASE TRANSITION CONTRACT WITH DMEA. CONTRACT TRANSFERRED FROM NSA. Key points: 1. Contract value represents significant investment in domestic semiconductor capabilities. 2. Sole-source award raises questions about price discovery and potential for cost savings. 3. Long contract duration (7+ years) suggests a strategic, long-term need. 4. Focus on microelectronics is critical for national security and technological advancement. 5. Geographic concentration in New York may have regional economic implications.

Value Assessment

Rating: fair

The contract value of over $816 million for semiconductor manufacturing services is substantial. Benchmarking this against similar sole-source awards for specialized microelectronics is challenging due to the unique nature of the services and the transfer from NSA. Without competitive bidding, it is difficult to definitively assess if the pricing represents optimal value for money. However, the long duration and the critical nature of the technology suggest a strategic investment where cost may be secondary to assured access.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, indicating that only one vendor, GLOBALFOUNDRIES U.S. 2 LLC, was considered capable of meeting the requirement. The transfer of the contract from NSA to DMEA suggests a strategic realignment or consolidation of microelectronics support. The lack of competition means there was no opportunity for price negotiation through a bidding process, potentially leading to higher costs than if multiple vendors had competed.

Taxpayer Impact: Taxpayers may have paid a premium due to the absence of competitive pressure. The sole-source nature limits the government's ability to leverage market forces to secure the best possible price for these critical semiconductor services.

Public Impact

The Department of Defense (DoD) benefits through assured access to critical semiconductor manufacturing capabilities. This contract supports the production of specialized microelectronic devices essential for national security applications. The primary geographic impact is in New York, where the contractor's facilities are located. Workforce implications include the continued employment and potential growth of skilled labor in the semiconductor manufacturing sector within New York.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially increasing costs for taxpayers.
Lack of transparency in the sole-source justification could obscure potential alternatives.
Long-term nature of the contract may reduce flexibility to adapt to evolving technologies or market conditions.
Dependence on a single provider for critical components poses a supply chain risk.

Positive Signals

Ensures access to specialized semiconductor manufacturing capabilities vital for national security.
Provides stability and predictability for a critical defense supply chain.
Leverages existing infrastructure and expertise of a known provider (GLOBALFOUNDRIES).
Supports domestic manufacturing capacity for advanced microelectronics.

Sector Analysis

This contract falls within the Semiconductor and Related Device Manufacturing sector (NAICS 334413). This sector is crucial for national defense, advanced computing, and telecommunications. The global semiconductor market is highly competitive and capital-intensive, with significant geopolitical implications. The U.S. government's investment in domestic manufacturing, particularly through entities like DMEA, aims to reduce reliance on foreign sources for critical microelectronics and bolster national technological sovereignty.

Small Business Impact

The data indicates that this contract was not set aside for small businesses (ss: false) and there is no explicit mention of small business subcontracting goals (sb: false). Therefore, this large-value award is unlikely to directly benefit small businesses through set-asides. The primary contractor, GLOBALFOUNDRIES U.S. 2 LLC, is a major industry player, suggesting that any subcontracting opportunities would likely flow through established supply chains rather than being driven by specific small business initiatives within this contract.

Oversight & Accountability

Oversight for this contract would primarily fall under the Defense Microelectronics Activity (DMEA) and potentially the Department of Defense's Inspector General. As a definitive contract, it is subject to standard federal procurement regulations and oversight. Transparency is limited due to the sole-source nature, but performance metrics and financial reporting would be key areas for accountability. The Inspector General can investigate allegations of fraud, waste, or abuse.

Related Government Programs

Defense Production Act Investments
National Security Technology Investment Program
Microelectronics Research and Development Programs
DoD Advanced Manufacturing Initiatives

Risk Flags

Sole-source award lacks competitive pricing pressure.
Long contract duration may limit adaptability to technological advancements.
Concentration of critical manufacturing with a single provider increases supply chain risk.
Potential for cost overruns without competitive oversight.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $816.5 million to GLOBALFOUNDRIES U.S. 2 LLC. TRUSTED FOUNDRY ACCESS 2 - AWARD OF BASE TRANSITION CONTRACT WITH DMEA. CONTRACT TRANSFERRED FROM NSA.

Who is the contractor on this award?

The obligated recipient is GLOBALFOUNDRIES U.S. 2 LLC.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Microelectronics Activity).

What is the total obligated amount?

The obligated amount is $816.5 million.

What is the period of performance?

Start: 2016-04-01. End: 2023-08-14.

What is the specific justification for awarding this contract on a sole-source basis, especially given its significant value?

The provided data indicates the contract was a 'NOT COMPETED' award, transferred from the NSA to DMEA. Sole-source justifications typically arise when only one responsible source can provide the required supplies or services, often due to unique capabilities, proprietary technology, or urgent needs that preclude competitive procedures. For specialized microelectronics, this could involve specific manufacturing processes, existing intellectual property, or the need to maintain continuity with a previously established supplier critical for national security systems. A detailed justification would normally be documented by the agency, outlining why competition was not feasible or practicable.

How does the pricing of this contract compare to industry benchmarks for similar semiconductor manufacturing services?

Directly comparing the pricing of this $816.5 million contract to industry benchmarks is difficult without specific details on the services rendered, the types of semiconductors produced, and the scale of production. Semiconductor manufacturing is highly specialized, with costs varying significantly based on technology node, complexity, volume, and required certifications (e.g., defense-grade). Given this is a sole-source award, external benchmarking against competitive bids is not possible. The value likely reflects the specialized nature of the work, the long-term commitment, and potentially the costs associated with maintaining secure, domestic manufacturing capabilities for defense applications, rather than standard commercial rates.

What are the key performance indicators (KPIs) used to measure the success and value of this contract?

The provided data does not specify the Key Performance Indicators (KPIs) for this contract. However, for a contract of this nature supporting defense microelectronics, typical KPIs would likely include: on-time delivery rates for manufactured components, adherence to stringent quality and reliability standards (e.g., MIL-SPEC), yield rates in the manufacturing process, successful production of specified microelectronic designs, and potentially metrics related to supply chain security and resilience. The Defense Microelectronics Activity (DMEA) would be responsible for monitoring these KPIs to ensure the contractor is meeting the contract's objectives and delivering value.

What is the historical spending pattern for semiconductor manufacturing services by the Department of Defense or its predecessor agencies?

Historical spending on semiconductor manufacturing by the DoD is substantial and has been increasing, driven by national security concerns regarding reliance on foreign supply chains. Prior to this $816.5 million award, the DoD has engaged in various initiatives and contracts aimed at securing domestic access to microelectronics. This includes funding research and development, supporting domestic foundries, and awarding contracts for specialized defense-grade chips. The transfer of this specific contract from NSA to DMEA suggests a strategic consolidation or refocusing of these efforts within the DoD's microelectronics ecosystem. Tracking specific historical dollar amounts would require analyzing numerous individual contracts and programs over time.

What are the potential risks associated with a long-term, sole-source contract for critical technology like semiconductors?

A long-term, sole-source contract for critical technology like semiconductors presents several risks. Firstly, the lack of competition can lead to higher costs over the contract's lifespan as the contractor faces no market pressure to reduce prices. Secondly, technological obsolescence is a risk; the contractor might be slower to adopt newer, more efficient manufacturing techniques if not incentivized by competition. Thirdly, there's a dependency risk: if the sole provider faces production issues, financial instability, or geopolitical challenges, the government's access to critical components could be severely disrupted. Finally, without regular competitive re-evaluation, ensuring the contractor remains the most capable and cost-effective option becomes challenging.

Industry Classification

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

Product/Service Code: ELECTRICAL/ELECTRONIC EQPT COMPNTS

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 1000 RIVER ST, ESSEX JUNCTION, VT, 05452

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Foreign Owned, Foreign-Owned and U.S.-Incorporated Business, Manufacturer of Goods, Not Designated a Small Business, Special Designations

Financial Breakdown

Contract Ceiling: $1,050,485,741

Exercised Options: $1,050,485,741

Current Obligation: $816,516,428

Actual Outlays: $27,875,632

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Timeline