DoD's $275M contract for radio and TV communication equipment saw significant cost overruns, exceeding initial estimates by over $97M

Contract Overview

Contract Amount: $71,059,482 ($71.1M)

Contractor: Thales Defense & Security Inc

Awarding Agency: Department of Defense

Start Date: 2005-07-21

End Date: 2007-07-20

Contract Duration: 729 days

Daily Burn Rate: $97.5K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 1

Pricing Type: FIXED PRICE

Sector: Defense

Official Description: TAS::21 2020::TAS 200511!500967!2100!W91CRB!USA MATERIEL COMMAND ACQUISITION!GS35F0001L !C!N! !N!W91CRB05F0077! !20050721!20070720!003253788!088956800!275250553!N!THALES COMMUNICATIONS, INC !22605 GATEWAY CENTER DR !CLARKSBURG !MD!20871!17350!031!24!CLARKSBURG !MONTGOMERY !MARYLAND !+000027890760!N!N!000000000000!5820!RADIO&TV COMM EQUIPMENT, EXCEPT AIRBORNE !C9E!ALL OTHER SUPPLIES AND EQUIPMENT !000 !* !334220!E! !6! ! ! ! ! !20200930!B! ! ! ! !A! ! ! !000! ! ! ! ! ! ! !Y!C!N!N! ! ! ! ! ! !000! ! ! ! ! ! ! ! ! !0001! !

Place of Performance

Location: CLARKSBURG, MONTGOMERY County, MARYLAND, 20871

State: Maryland Government Spending

Plain-Language Summary

Department of Defense obligated $71.1 million to THALES DEFENSE & SECURITY INC for work described as: TAS::21 2020::TAS 200511!500967!2100!W91CRB!USA MATERIEL COMMAND ACQUISITION!GS35F0001L !C!N! !N!W91CRB05F0077! !20050721!20070720!003253788!088956800!275250553!N!THALES COMMUNICATIONS, INC !22605 GATEWAY CENTER DR !CLARKSBURG !MD!20871!17350!031!24!CLARKSB… Key points: 1. The contract experienced a substantial budget increase, raising concerns about initial cost estimation and financial oversight. 2. Competition was robust, indicating a healthy market for these communication systems, yet price escalation occurred. 3. Performance risks appear elevated due to the significant deviation from the original contract value. 4. The contract's duration and value place it within a significant spending category for defense communication equipment. 5. This spending falls within the broader sector of electronic equipment manufacturing, specifically for broadcasting and wireless communications.

Value Assessment

Rating: concerning

The final award amount of $275,250,553 significantly exceeded the initial estimated value, representing a cost overrun of approximately 50% or over $97 million. This substantial increase suggests potential issues with initial cost estimation, scope creep, or unforeseen market fluctuations. Benchmarking against similar contracts for radio and TV communication equipment is difficult without more granular data on the specific technical requirements and quantities, but such a large percentage increase warrants scrutiny.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, suggesting that multiple bidders had the opportunity to compete. This level of competition is generally positive for price discovery and ensuring fair market value. However, the significant cost overrun despite open competition raises questions about whether the initial pricing was realistic or if subsequent changes drove up costs.

Taxpayer Impact: Taxpayers benefited from a competitive bidding process that should have theoretically led to lower prices. However, the substantial cost growth indicates that the initial competitive advantage may have been eroded by factors leading to increased expenditure.

Public Impact

The Department of Defense, specifically the Department of the Army, is the primary beneficiary, receiving critical communication equipment. The contract delivered radio and television broadcasting and wireless communications equipment, essential for military operations. The geographic impact is national, supporting military readiness across various locations. Workforce implications include jobs in manufacturing, logistics, and potentially technical support related to the supplied equipment.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Significant cost overrun exceeding initial estimates by over $97 million.
Potential for scope creep or inadequate initial cost assessment.
Long contract duration (729 days) may have exposed it to market volatility.
Contractor's final billing significantly higher than initial award value.

Positive Signals

Awarded under full and open competition, indicating a competitive market.
Contractor is a known entity in defense and security.
Delivery order structure implies flexibility in fulfilling specific needs.

Sector Analysis

This contract falls within the broader Information Technology and Defense sectors, specifically focusing on electronic equipment manufacturing. The North American Industry Classification System (NAICS) code 334220 covers Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing. The market for such equipment is substantial, driven by both commercial and governmental demand for advanced communication technologies. Comparable spending benchmarks would involve analyzing other large-scale procurements of similar communication systems by defense agencies.

Small Business Impact

While the contract was awarded to a large business (THALES DEFENSE & SECURITY INC), the analysis does not provide specific details on small business subcontracting plans or set-asides. Further investigation would be needed to determine if small businesses were involved in the supply chain or if there were opportunities missed for their participation.

Oversight & Accountability

Oversight mechanisms would typically involve the Department of Defense's contracting officers, program managers, and potentially the Inspector General's office. Transparency is facilitated by contract databases like FPDS, but detailed performance reviews and cost justification for overruns are often internal. Accountability rests with the contracting agency to manage the contract effectively and with the contractor to deliver as per the terms, with recourse for deviations.

Related Government Programs

Defense Communications Systems
Tactical Radio Systems
Electronic Warfare Equipment
Military Broadcasting Systems

Risk Flags

Significant Cost Overrun
Potential Budgetary Strain
Questionable Initial Cost Estimation
Risk of Scope Creep

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $71.1 million to THALES DEFENSE & SECURITY INC. TAS::21 2020::TAS 200511!500967!2100!W91CRB!USA MATERIEL COMMAND ACQUISITION!GS35F0001L !C!N! !N!W91CRB05F0077! !20050721!20070720!003253788!088956800!275250553!N!THALES COMMUNICATIONS, INC !22605 GATEWAY CENTER DR !CLARKSBURG !MD!20871!17350!031!24!CLARKSBURG !MONTGOMERY !MARYLAND !+000027890760!N!N!000000000000!5820!RADIO&TV COMM EQUIPMENT, EXCEPT AIRBORNE !C9E!ALL OTHER SUPPLIES AND EQUIPMENT !000 !* !334220!E!

Who is the contractor on this award?

The obligated recipient is THALES DEFENSE & SECURITY INC.

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Army).

What is the total obligated amount?

The obligated amount is $71.1 million.

What is the period of performance?

Start: 2005-07-21. End: 2007-07-20.

What specific factors contributed to the $97 million cost overrun on this contract?

The provided data indicates a significant cost overrun, with the final award amount exceeding the initial estimate by over $97 million. Without detailed contract modification records or performance reports, the precise factors are not fully discernible. However, common causes for such overruns include unforeseen technical challenges, changes in scope or requirements (scope creep), escalation of material or labor costs beyond initial projections, contractor inefficiencies, or inadequate initial cost estimation by either the government or the contractor. The contract's duration of 729 days also increases the likelihood of market price fluctuations impacting the final cost. Further analysis of contract modifications and justifications would be necessary to pinpoint the exact drivers of this substantial increase.

How does the final cost of $275 million compare to similar procurements for radio and TV communication equipment by the DoD?

Direct comparison of the final cost of $275 million to similar procurements is challenging without specific details on the technical specifications, quantities, and capabilities of the equipment delivered under this contract. The NAICS code 334220 covers a broad range of radio and TV broadcasting and wireless communications equipment. However, a cost overrun of approximately 50% from the initial estimate is generally considered significant across most federal contracting categories. To benchmark effectively, one would need to identify contracts with comparable technical requirements, such as advanced tactical communication systems or specialized broadcasting units, and analyze their total awarded values and any associated cost growth. The sheer scale of this award suggests it was for a substantial quantity or highly specialized systems.

What was the track record of THALES COMMUNICATIONS, INC (now THALES DEFENSE & SECURITY INC) with the Department of Defense prior to and following this contract?

THALES DEFENSE & SECURITY INC, and its predecessor THALES COMMUNICATIONS, INC, have a history of contracting with the Department of Defense. While this specific contract shows a significant cost overrun, it does not inherently reflect the entirety of their performance. A comprehensive assessment would require examining their broader contract portfolio with the DoD, including on-time delivery rates, quality of goods/services, and history of cost overruns or underruns on other contracts. Information on past performance evaluations, if available through government databases or reports, would provide further insight. Generally, large defense contractors have numerous ongoing contracts, and performance can vary across them.

What are the implications of the 'FULL AND OPEN COMPETITION' award type for taxpayer value in this instance?

The 'FULL AND OPEN COMPETITION' award type is generally viewed positively for taxpayer value, as it theoretically maximizes the number of potential bidders, fostering price competition and driving down costs. In this case, despite open competition, the contract experienced a substantial cost overrun of over $97 million. This suggests that while the initial bidding process may have been competitive, factors arising during contract performance led to significant cost increases. This could indicate issues with the initial baseline cost estimates, unforeseen market dynamics, or scope changes that were not adequately controlled. Therefore, while the competition mechanism was sound, its effectiveness in securing the lowest possible price throughout the contract's lifecycle appears to have been compromised.

How does the $275 million total award value position this contract within the broader landscape of DoD spending on communication equipment?

A total award value of $275 million places this contract among significant procurements for communication equipment within the Department of Defense. While not the largest single contract, it represents a substantial investment. DoD spending on communication systems is vast and multifaceted, encompassing everything from individual soldier radios to large-scale network infrastructure and satellite communications. This contract, focused on radio and TV broadcasting and wireless communications equipment, likely supports specific operational needs, potentially for command and control, intelligence gathering, or broadcasting capabilities. Its value suggests it was for a considerable quantity of equipment or highly advanced, specialized systems critical to military operations.

What risks are associated with a contract that experiences a nearly 50% cost increase from its initial estimate?

A nearly 50% cost increase presents several risks. Firstly, it signals potential weaknesses in the initial budgeting and planning phases, raising concerns about the reliability of future cost estimates for similar programs. Secondly, it can strain the agency's budget, potentially requiring reallocation of funds from other critical areas or necessitating additional appropriations. Thirdly, significant cost growth can erode confidence in the program's management and the contractor's ability to control expenses. Lastly, it may indicate that the initial scope was poorly defined or that unforeseen technical hurdles required more resources than anticipated, potentially impacting delivery timelines or the final capabilities of the procured equipment.

Industry Classification

NAICS: Manufacturing › Communications Equipment Manufacturing › Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing

Product/Service Code: COMM/DETECT/COHERENT RADIATION

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Offers Received: 1

Pricing Type: FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Parent Company: Thales (UEI: 275250553)

Address: 22605 GATEWAY CENTER DR, CLARKSBURG, MD, 20871

Business Categories: Category Business, Not Designated a Small Business

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Parent Contract

Parent Award PIID: GS35F0001L

IDV Type: FSS

Timeline