DoD's $1B Raytheon Satellite Contract: Cost Plus Award Fee Raises Value Concerns
Contract Overview
Contract Amount: $1,003,264,786 ($1.0B)
Contractor: Raytheon Company
Awarding Agency: Department of Defense
Start Date: 2003-10-29
End Date: 2018-09-07
Contract Duration: 5,427 days
Daily Burn Rate: $184.9K/day
Competition Type: FULL AND OPEN COMPETITION
Number of Offers Received: 2
Pricing Type: COST PLUS AWARD FEE
Sector: IT
Place of Performance
Location: MARLBOROUGH, MIDDLESEX County, MASSACHUSETTS, 01752
Plain-Language Summary
Department of Defense obligated $1.00 billion to RAYTHEON COMPANY for work described as: Key points: 1. Significant contract value of over $1 billion awarded to Raytheon. 2. Full and open competition was utilized, suggesting a competitive bidding process. 3. The Cost Plus Award Fee (CPAF) structure introduces potential for cost overruns and reduced price discipline. 4. The contract spans nearly 15 years, indicating a long-term commitment for satellite telecommunications.
Value Assessment
Rating: questionable
The Cost Plus Award Fee (CPAF) structure can lead to higher costs compared to fixed-price contracts. Without detailed performance metrics and award fee criteria, it's difficult to assess if the final price reflects optimal value for the taxpayer.
Cost Per Unit: N/A
Competition Analysis
Competition Level: full-and-open
The contract was awarded under full and open competition, which is generally positive for price discovery. However, the CPAF structure may still allow costs to escalate beyond initial competitive estimates.
Taxpayer Impact: The long duration and CPAF structure present a risk of taxpayer funds being used inefficiently if not closely monitored.
Public Impact
Ensures critical satellite telecommunications capabilities for the Department of Defense. Long-term contract provides stability for Raytheon and ensures continued service. Potential for cost overruns under CPAF could impact other defense spending priorities.
Waste & Efficiency Indicators
Waste Risk Score: 50 / 10
Warning Flags
- Cost Plus Award Fee structure
- Long contract duration (nearly 15 years)
- Lack of specific performance benchmarks for award fee
Positive Signals
- Full and open competition utilized
- Awarded to a major defense contractor with established capabilities
Sector Analysis
This contract falls within the Information Technology sector, specifically satellite telecommunications. Spending in this area is crucial for modern defense operations, but CPAF contracts require rigorous oversight to ensure cost-effectiveness.
Small Business Impact
The data indicates this contract was awarded to Raytheon Company, a large business. There is no indication of small business participation in this specific award.
Oversight & Accountability
The Department of Defense, through the Defense Contract Management Agency, is responsible for oversight. The effectiveness of this oversight is critical given the CPAF structure and long duration to ensure taxpayer value.
Related Government Programs
- Satellite Telecommunications
- Department of Defense Contracting
- Defense Contract Management Agency Programs
Risk Flags
- Potential for cost overruns due to CPAF structure.
- Long contract duration increases risk exposure.
- Lack of transparency on award fee criteria and application.
- Limited insight into specific performance metrics achieved.
- No indication of small business subcontracting goals.
Tags
satellite-telecommunications, department-of-defense, ma, definitive-contract, billion-dollar
Frequently Asked Questions
What is this federal contract paying for?
Department of Defense awarded $1.00 billion to RAYTHEON COMPANY. See the official description on USAspending.
Who is the contractor on this award?
The obligated recipient is RAYTHEON COMPANY.
Which agency awarded this contract?
Awarding agency: Department of Defense (Defense Contract Management Agency).
What is the total obligated amount?
The obligated amount is $1.00 billion.
What is the period of performance?
Start: 2003-10-29. End: 2018-09-07.
What were the specific award fee criteria and how were they applied to ensure Raytheon met performance expectations and justified the costs incurred?
The effectiveness of the award fee mechanism is paramount in CPAF contracts. Detailed insight into the specific metrics used to determine award fees, the scoring achieved by Raytheon, and the justification for those scores would be necessary to assess if the fee structure truly incentivized performance and cost control, or simply rewarded meeting baseline requirements.
How does the total cost of this contract compare to similar satellite telecommunications contracts awarded under different fee structures?
Benchmarking this contract's total cost against similar satellite telecommunications procurements, particularly those using fixed-price incentive or firm-fixed-price structures, is essential. A higher total cost for this CPAF contract, even with competition, could indicate potential inefficiencies or a less favorable pricing arrangement for the government.
What measures were in place to mitigate the inherent risks of cost escalation associated with a Cost Plus Award Fee contract over its nearly 15-year duration?
Given the extended period of performance, robust oversight mechanisms and clear contract clauses are vital to manage cost escalation risks in CPAF contracts. Understanding the specific controls, reporting requirements, and potential for contract modifications or termination for convenience would reveal the government's strategy for safeguarding taxpayer funds.
Industry Classification
NAICS: Information › Satellite Telecommunications › Satellite Telecommunications
Product/Service Code: COMM/DETECT/COHERENT RADIATION
Competition & Pricing
Extent Competed: FULL AND OPEN COMPETITION
Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE
Offers Received: 2
Pricing Type: COST PLUS AWARD FEE (R)
Evaluated Preference: NONE
Contractor Details
Parent Company: RTX Corp
Address: 1001 BOSTON POST RD E, MARLBOROUGH, MA, 01752
Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business
Financial Breakdown
Contract Ceiling: $1,007,071,707
Exercised Options: $1,007,071,707
Current Obligation: $1,003,264,786
Actual Outlays: $30,340
Contract Characteristics
Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED
Cost or Pricing Data: NO
Timeline
Start Date: 2003-10-29
Current End Date: 2018-09-07
Potential End Date: 2018-09-07 00:00:00
Last Modified: 2022-07-20
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