Palantir DCGS-A update

Looks like good news for Palantir trying to break into the defense industry.

Silicon Valley-based Palantir, who sued the U.S. Army several years ago over the service’s procurement strategy of an intelligence analysis system, has won an Army contract to provide just that.

 

The contract to provide a new system — a “capability drop 1” version — is worth $876 million over 10 years. But the first delivery order is just for $20 million, according to an industry source.

The previous largest program for Palantir was ~$200 million with Special Operations Command, which tends not to receive the same oversight as traditional programs of record. Now that Palantir is the prime contractor on a DCGS-A, they will encounter a new set of problems. Raytheon underwent all the usual regulations and reporting associated with major defense programs.

It will be seen whether Palantir’s division will have to undergo pricing rate negotiations with DCMA, DCAA audits, receive on-site plant reps, submit cost and software data reports to OSD CAPE, develop business systems in accordance with the EVMS guidelines and provide monthly reports, undergo integrated baseline reviews, and so forth.

These regulations in part depend on the contract type. If Palantir can indeed provide a superior product at a lower cost, then it should be trying to negotiate price under a fixed-price contract (or IDIQ with fixed-price orders) rather than negotiate a cost-plus. The latter would invite all sorts of cost accounting issues that I’m sure Palantir would want to stay away from. But that bridge must be crossed at some point to scale up in the DOD.

Ultimately, it will be an avalanche of data and reports that provides Palantir and its programs protection from nay-sayers, as well as speeds up any process to win new programs. I provide some considerations for companies looking to enter the defense industry here.