DoD awards $1.27B engineering services contract to Lockheed Martin, a sole-source procurement

Contract Overview

Contract Amount: $1,272,446,612 ($1.3B)

Contractor: Lockheed Martin Corp

Awarding Agency: Department of Defense

Start Date: 2007-05-31

End Date: 2014-09-30

Contract Duration: 2,679 days

Daily Burn Rate: $475.0K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: ENGINEERING SERVICES

Place of Performance

Location: SUNNYVALE, SANTA CLARA County, CALIFORNIA, 94089

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $1.27 billion to LOCKHEED MARTIN CORP for work described as: ENGINEERING SERVICES Key points: 1. Contract awarded on a sole-source basis, raising questions about price discovery and potential for overpayment. 2. Significant duration of the contract (over 6 years) suggests a long-term need for these specialized engineering services. 3. The 'Cost Plus Incentive Fee' pricing structure can incentivize cost control but also carries inherent risks if not managed effectively. 4. The North American Industry Classification System (NAICS) code 336419 indicates a focus on specialized aerospace and defense manufacturing support. 5. Contractor, Lockheed Martin, is a major defense contractor, implying established capabilities but also potential market concentration. 6. The contract's value is substantial, representing a significant investment by the Department of Defense in engineering support.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its sole-source nature and specialized engineering services. Without competitive bids, it's difficult to ascertain if the pricing reflects fair market value. The Cost Plus Incentive Fee (CPIF) structure, while designed to control costs, can lead to higher final prices if cost targets are not met or if the incentive structure is overly generous. Further analysis would require access to detailed cost breakdowns and performance metrics to compare against industry standards for similar engineering support in the aerospace and defense sector.

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 potential bidders. This typically occurs when only one contractor possesses the necessary unique capabilities, technology, or security clearances required for the service. The lack of competition limits the government's ability to leverage market forces to achieve the best possible price and terms. While justified in certain specialized scenarios, sole-source awards warrant close scrutiny to ensure the public interest is served and that the pricing is reasonable.

Taxpayer Impact: Taxpayers may not be receiving the best value due to the absence of competitive bidding. The government's negotiating position is weakened, potentially leading to higher costs than if multiple firms had vied for the contract.

Public Impact

The primary beneficiaries are likely the Department of Defense, which receives critical engineering services for its programs. The contract supports the development, modification, or sustainment of guided missile and space vehicle systems. Geographic impact is concentrated around the contractor's facilities in California, where the services are likely performed. Workforce implications include employment for highly skilled engineers and technical personnel at Lockheed Martin.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially impacting cost-effectiveness.
Cost Plus Incentive Fee structure requires diligent oversight to ensure cost control and prevent overruns.
Long contract duration (over 6 years) increases exposure to potential scope creep or evolving requirements.
Reliance on a single large contractor may limit flexibility and innovation in service delivery.

Positive Signals

Lockheed Martin is a proven, large defense contractor with extensive experience in aerospace engineering.
The contract addresses a specific, likely critical, engineering need within the Department of Defense.
The CPIF structure, if managed well, can align contractor incentives with government objectives.
The contract is associated with a specific NAICS code, indicating a defined scope of specialized services.

Sector Analysis

This contract falls within the aerospace and defense manufacturing sector, specifically supporting guided missile and space vehicle components. This is a highly specialized and capital-intensive industry dominated by a few large prime contractors. Spending in this area is driven by national security requirements and technological advancements. Comparable spending benchmarks would typically involve analyzing other large, sole-source engineering support contracts awarded to major defense primes for similar complex systems.

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 prime contractor being Lockheed Martin, a large corporation, the likelihood of significant subcontracting opportunities for small businesses is uncertain without further details. Large prime contractors are often required to meet small business subcontracting goals, but the extent to which this contract contributes to those goals is not evident from the provided data.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of Defense's contract management agencies, such as the Defense Contract Management Agency (DCMA). The 'Cost Plus Incentive Fee' (CPIF) structure necessitates robust oversight to monitor costs, performance against targets, and adherence to contract terms. Transparency is generally limited for sole-source contracts, but reporting requirements would be stipulated within the contract itself. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

Guided Missile and Space Vehicle Manufacturing
Aerospace Engineering Services
Department of Defense Major Weapon Systems Procurement
Cost Plus Incentive Fee Contracts
Sole-Source Defense Contracts

Risk Flags

Sole-source award
Cost-plus contract type
Long contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.27 billion to LOCKHEED MARTIN CORP. ENGINEERING SERVICES

Who is the contractor on this award?

The obligated recipient is LOCKHEED MARTIN CORP.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $1.27 billion.

What is the period of performance?

Start: 2007-05-31. End: 2014-09-30.

What is Lockheed Martin's track record with similar sole-source engineering contracts awarded by the Department of Defense?

Lockheed Martin, as one of the largest defense contractors globally, has a long history of receiving sole-source and competitively awarded contracts from the Department of Defense (DoD) for complex engineering, development, and manufacturing services. Their track record typically involves large-scale programs related to aircraft, missiles, satellites, and defense systems. While specific details on past sole-source engineering contracts would require in-depth analysis of historical contract awards, it is generally understood that they possess the specialized capabilities and infrastructure required for such procurements. Performance can vary across contracts, with successes often highlighted in program milestones and technological advancements, while challenges might include cost overruns or schedule delays, which are common in highly complex defense projects. Scrutiny of their sole-source awards often focuses on the justification for non-competition and the reasonableness of pricing.

How does the 'Cost Plus Incentive Fee' (CPIF) structure compare to other contract types in terms of value for money for the government?

The Cost Plus Incentive Fee (CPIF) contract type is designed to share the risks and rewards between the government and the contractor. It allows the contractor to incur costs up to a certain point, with the final fee determined by meeting or exceeding certain performance targets (e.g., cost, schedule, technical performance). Compared to a firm-fixed-price contract, CPIF offers more flexibility for the government when requirements are uncertain or likely to change, and it incentivizes the contractor to control costs and meet objectives. However, it carries more risk for the government than fixed-price contracts because the final cost is not predetermined. Compared to a Cost Plus Fixed Fee (CPFF) contract, CPIF provides a stronger incentive for the contractor to perform efficiently, as their fee is directly tied to achieving specific goals. Ultimately, the value for money depends heavily on the realism of the target costs and the effectiveness of the incentive structure, as well as the government's ability to provide robust oversight.

What are the primary risks associated with a sole-source award of this magnitude for engineering services?

The primary risks associated with a sole-source award of this magnitude ($1.27 billion) for engineering services are significant. Firstly, the lack of competition means the government may not be achieving the best possible price, potentially leading to higher costs for taxpayers. Price discovery is limited, and the government's negotiating leverage is reduced. Secondly, there's a risk of complacency from the contractor, as they face no immediate threat of losing future business to competitors for this specific requirement. This could potentially impact innovation and efficiency over the contract's duration. Thirdly, sole-source awards can create a perception of favoritism or lack of transparency, even if justified. Finally, if the contractor's capabilities are not as robust as assumed, or if unforeseen technical challenges arise, the government has limited recourse to switch providers without incurring substantial disruption and cost.

How does the contract's duration (over 6 years) impact the assessment of its overall value and risk?

The contract's duration of over 6 years (2679 days) significantly impacts the assessment of its value and risk. On the positive side, a long duration suggests a stable, long-term need for the specialized engineering services, providing continuity for critical programs and allowing the contractor to build deep expertise. This stability can be valuable for complex, multi-year defense projects. However, a long duration also amplifies risks. It increases the potential for cost growth due to inflation, evolving technologies, or scope creep if requirements are not tightly managed. The government's exposure to potential contractor underperformance or shifts in strategic priorities is extended. Furthermore, market conditions and technological landscapes can change dramatically over six years, potentially making the initial pricing or service offerings less optimal over time. Robust contract management and potential for periodic reviews or re-negotiations become crucial.

What are the implications of the NAICS code 336419 ('Other Guided Missile and Space Vehicle Parts and Auxiliary Equipment Manufacturing') for the type of engineering services procured?

The North American Industry Classification System (NAICS) code 336419 indicates that the engineering services procured are highly specialized and directly related to the manufacturing of parts and auxiliary equipment for guided missiles and space vehicles. This implies that the services likely involve complex design, analysis, testing, integration, and potentially production support for components that are critical to the performance and safety of advanced aerospace and defense systems. The engineering expertise required would be specific to areas such as propulsion, guidance systems, structural integrity, avionics, and materials science within the context of missile and space applications. This specialization often necessitates unique technical knowledge, proprietary processes, or access to sensitive technologies, which can contribute to the justification for sole-source awards and the high value associated with such contracts.

Industry Classification

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

Product/Service Code: GUIDED MISSLES

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Address: 1111 LOCKHEED MARTIN WAY BLDG 157, SUNNYVALE, CA, 94089

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $2,012,894,284

Exercised Options: $1,957,803,379

Current Obligation: $1,272,446,612

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline