Lockheed Martin has been awarded a modified contract by the U.S. Missile Defense Agency that is more than triple its original value for production of the Terminal High Altitude Area Defense, or THAAD, missile defense system.
The contract, announced on Friday by the Pentagon, is worth more than $826.6 million under a modification to a previous contract in order to definitize the former classification of an undefinitized contract action.
Friday's modification increased the overall value of the contract between Lockheed Martin and the Missile Defense Agency by more than $553.1 million from its original value of $273.4 million, the Pentagon said.
The THAAD anti-ballistic missile defense system is part of the Terminal Defense Segment of the Ballistic Missile Defense System. It's primarily used for shooting down multiple range ballistic missiles while in their terminal phase — descent or reentry — by intercepting with a hit-to-kill approach, according to the Defense Advanced Research Projects Agency.
Additionally, the modified contract includes more than $459.2 million option for Lot 10 interceptors and one-shot devices.
A fixed-price-incentive firm target contract identifies a target cost, target profit, and price ceiling that the U.S. government is willing to pay for procurement. These types of contracts, however, do not establish a profit ceiling or floor — these factors are negotiated at the time of contract inception.
An unclassified March 2017 report from the Defense Department for fiscal year 2017 appropriation requests states that in fiscal year 2015, the THAAD Project Office instituted a new strategy for procuring Interceptors.
Through "synergy" lot buying, an award contract now includes an option for the following fiscal year, which the office states will "achieve savings in material costs in multiple fiscal years," resulting in higher Interceptor quantity purchases at a lower average unit price.
Work on the contract will occur in multiple U.S. states, and is expected to be completed in December 2020.
More than $127.5 million from fiscal 2017 procurement funds have already been payed to Lockheed Martin under the previous award contract. The company is expected to receive more than $699 million from fiscal 2017 and 2018 procurement funds at the time of award.
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