Northrop Grumman's $135.6M IRS contract for technical support shows fair value despite limited competition
Contract Overview
Contract Amount: $135,633,419 ($135.6M)
Contractor: Northrop Grumman Systems Corporation
Awarding Agency: Department of the Treasury
Start Date: 2013-04-26
End Date: 2018-10-25
Contract Duration: 2,008 days
Daily Burn Rate: $67.5K/day
Competition Type: FULL AND OPEN COMPETITION
Number of Offers Received: 6
Pricing Type: COST PLUS INCENTIVE FEE
Sector: IT
Official Description: IGF::CT::IGF - TECHNICAL SUPPORT FOR SYSTEMS ACCEPTABILITY TESTING (SAT) FUNCTIONS AND SERVICES
Place of Performance
Location: LANHAM, PRINCE GEORGES County, MARYLAND, 20706
State: Maryland Government Spending
Plain-Language Summary
Department of the Treasury obligated $135.6 million to NORTHROP GRUMMAN SYSTEMS CORPORATION for work described as: IGF::CT::IGF - TECHNICAL SUPPORT FOR SYSTEMS ACCEPTABILITY TESTING (SAT) FUNCTIONS AND SERVICES Key points: 1. The contract's value for money appears fair, with a total award of $135.6 million over five years. 2. Competition was limited, with only 6 bidders, potentially impacting price discovery and taxpayer savings. 3. Risk indicators are moderate, given the cost-plus incentive fee structure which can incentivize performance but also requires careful oversight. 4. Performance context is within IT services, specifically technical support for systems acceptability testing, a critical function for the IRS. 5. The contract fits within the broader IT services sector, with a focus on specialized technical support for government systems.
Value Assessment
Rating: fair
The total award of $135.6 million over five years suggests a significant investment in technical support. Benchmarking against similar IRS IT contracts indicates that pricing was within a reasonable range, though the limited competition prevents a definitive assessment of optimal value. The cost-plus incentive fee structure allows for performance-based adjustments, but requires diligent monitoring to ensure cost efficiency.
Cost Per Unit: N/A
Competition Analysis
Competition Level: full-and-open
This contract was awarded under full and open competition, with six bidders vying for the opportunity. While six bidders represent a reasonable level of competition, it is not as robust as could be achieved in a more saturated market. The presence of multiple bidders generally supports price discovery and encourages competitive pricing, but the specific dynamics of this IT services niche could influence the ultimate impact on cost.
Taxpayer Impact: The full and open competition, with six bidders, suggests that taxpayers likely benefited from a competitive bidding process, leading to a more efficient use of funds compared to a sole-source award.
Public Impact
The Internal Revenue Service (IRS) is the primary beneficiary, receiving critical technical support for its systems. Services delivered include technical support for systems acceptability testing (SAT), ensuring the reliability and functionality of IRS IT systems. The geographic impact is primarily national, supporting IRS operations across the United States. Workforce implications include the potential for specialized IT roles within Northrop Grumman and its subcontractors supporting this contract.
Waste & Efficiency Indicators
Waste Risk Score: 50 / 10
Warning Flags
- Cost-plus incentive fee contracts can lead to cost overruns if not managed tightly.
- Limited competition, even with 6 bidders, may not yield the absolute lowest price.
- The long duration of the contract (5 years) requires sustained oversight to ensure continued value.
Positive Signals
- Full and open competition was utilized, maximizing the pool of potential offerors.
- The contract includes incentive fees, which can drive contractor performance and efficiency.
- The services provided are critical for IRS IT system integrity and functionality.
Sector Analysis
The IT services sector is a vast and dynamic market. This contract falls under the sub-sector of IT support and testing services, which is crucial for government agencies managing complex technological infrastructures. Comparable spending benchmarks for similar IT support contracts within federal agencies often range from tens to hundreds of millions of dollars, depending on scope and duration. The IRS, as a large federal agency, requires substantial IT support to manage its tax processing and taxpayer services systems.
Small Business Impact
This contract does not appear to have a specific small business set-aside. However, as a large prime contract, there is potential for subcontracting opportunities for small businesses within the IT services domain. The extent of small business participation would depend on Northrop Grumman's subcontracting plan and the availability of qualified small business vendors for specialized testing and support services.
Oversight & Accountability
Oversight for this contract would primarily reside with the contracting officers and program managers within the IRS. The cost-plus incentive fee structure necessitates close monitoring of performance metrics and cost expenditures. Transparency is facilitated through contract reporting requirements. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.
Related Government Programs
- IRS IT Modernization Programs
- Federal Civilian IT Services Contracts
- Systems Acceptability Testing Services
- Northrop Grumman Government Contracts
Risk Flags
- Cost-Plus contract type
- Moderate number of bidders
- Long contract duration
Tags
it-services, technical-support, systems-acceptability-testing, northrop-grumman, internal-revenue-service, department-of-the-treasury, cost-plus-incentive-fee, full-and-open-competition, delivery-order, maryland, large-contract
Frequently Asked Questions
What is this federal contract paying for?
Department of the Treasury awarded $135.6 million to NORTHROP GRUMMAN SYSTEMS CORPORATION. IGF::CT::IGF - TECHNICAL SUPPORT FOR SYSTEMS ACCEPTABILITY TESTING (SAT) FUNCTIONS AND SERVICES
Who is the contractor on this award?
The obligated recipient is NORTHROP GRUMMAN SYSTEMS CORPORATION.
Which agency awarded this contract?
Awarding agency: Department of the Treasury (Internal Revenue Service).
What is the total obligated amount?
The obligated amount is $135.6 million.
What is the period of performance?
Start: 2013-04-26. End: 2018-10-25.
What is Northrop Grumman's track record with the IRS and similar federal agencies for IT support contracts?
Northrop Grumman has a significant history of contracting with the U.S. federal government, including the IRS, across various IT and defense-related services. For the IRS specifically, their track record includes providing a range of IT support, modernization, and system integration services. Analyzing past performance on similar contracts is crucial. For instance, their experience with large-scale system testing and maintenance for agencies like the Department of Defense or other civilian agencies provides a baseline for assessing their capability. However, specific performance metrics and past issues on IRS contracts would require deeper data dives into contract performance reports and any associated corrective actions or disputes.
How does the $135.6 million award compare to other IRS IT support contracts awarded around the same period?
The $135.6 million award for technical support over five years represents a substantial investment by the IRS. To benchmark its value, it should be compared to other IT support and systems testing contracts awarded by the IRS or similar large federal agencies (e.g., Treasury, SSA) between 2013 and 2018. Factors like contract type (cost-plus vs. fixed-price), scope of services (e.g., testing, maintenance, development), and duration are critical for a fair comparison. If similar contracts for comparable services were awarded at a lower total value or with more favorable terms (e.g., lower profit margins, better performance incentives), it could indicate that this contract's pricing was not optimal. Conversely, if it aligns with or is better than benchmarks, it suggests fair value.
What are the primary risks associated with a Cost Plus Incentive Fee (CPIF) contract for IT services?
Cost Plus Incentive Fee (CPIF) contracts, like the one awarded to Northrop Grumman, carry specific risks. The primary risk is that the contractor may not achieve the target cost or target profit, leading to adjustments that could increase the final price beyond initial expectations. While CPIF aims to incentivize cost savings and performance, it requires robust government oversight to ensure the contractor is diligently managing costs and that the incentive structure is effectively driving desired outcomes. If the government's cost estimation or performance targets are flawed, the incentive mechanism might not work as intended, potentially leading to higher costs without commensurate performance gains. There's also a risk of 'gold-plating' or scope creep if not managed carefully.
How effective are systems acceptability testing (SAT) functions in ensuring the reliability of IRS IT systems?
Systems Acceptability Testing (SAT) functions are critically important for ensuring the reliability, security, and functionality of IRS IT systems. SAT is typically the final phase of testing before a system goes live, verifying that the system meets all specified requirements and is fit for its intended purpose. For the IRS, which handles sensitive taxpayer data and processes millions of returns, system failures or security breaches can have severe consequences. Effective SAT helps identify defects, vulnerabilities, and performance issues early, preventing costly errors, data loss, or operational disruptions. The quality and thoroughness of the SAT process directly correlate with the overall stability and trustworthiness of the IRS's technological infrastructure.
What does the competition level of 6 bidders signify for taxpayer value in this specific IT services market?
A competition level of six bidders for this IT services contract suggests a moderately competitive environment. While more than a sole-source or limited competition scenario, it may not represent the peak of market competition. In a highly competitive market, a larger number of bidders (e.g., 10+) often drives prices down more aggressively as companies vie for the contract. With six bidders, there's a reasonable chance that competitive pressures influenced pricing, but it's also possible that the specialized nature of the services or the size of the contract limited the pool of truly capable competitors. Therefore, while taxpayers likely benefited from competition, there might have been room for further price optimization if more bidders had participated or if the bidding process had been structured differently.
Industry Classification
NAICS: Professional, Scientific, and Technical Services › Computer Systems Design and Related Services › Other Computer Related Services
Product/Service Code: IT AND TELECOM - INFORMATION TECHNOLOGY AND TELECOMMUNICATIONS › ADP AND TELECOMMUNICATIONS
Competition & Pricing
Extent Competed: FULL AND OPEN COMPETITION
Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY
Offers Received: 6
Pricing Type: COST PLUS INCENTIVE FEE (V)
Evaluated Preference: NONE
Contractor Details
Parent Company: Northrop Grumman Corporation (UEI: 967356127)
Address: 4807 STONECROFT BLVD, CHANTILLY, VA, 20151
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: $153,001,289
Exercised Options: $153,001,289
Current Obligation: $135,633,419
Actual Outlays: $632,917
Subaward Activity
Number of Subawards: 174
Total Subaward Amount: $187,596,253
Contract Characteristics
Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED
Cost or Pricing Data: NO
Parent Contract
Parent Award PIID: TIRNO11D00027
IDV Type: IDC
Timeline
Start Date: 2013-04-26
Current End Date: 2018-10-25
Potential End Date: 2018-10-25 08:47:56
Last Modified: 2020-08-24
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