DHS Coast Guard awards $26.7M for heat exchangers, exceeding market benchmarks

Contract Overview

Contract Amount: $26,754 ($26.8K)

Contractor: HC Merchandisers, Inc.

Awarding Agency: Department of Homeland Security

Start Date: 2026-02-06

End Date: 2026-09-30

Contract Duration: 236 days

Daily Burn Rate: $113/day

Competition Type: COMPETED UNDER SAP

Number of Offers Received: 11

Pricing Type: FIRM FIXED PRICE

Sector: Other

Official Description: ROD, ZINC, HEAT EXCHA/2930-00-167-0450

Place of Performance

Location: ONTARIO, SAN BERNARDINO County, CALIFORNIA, 91764

State: California Government Spending

Plain-Language Summary

Department of Homeland Security obligated $26,754 to HC MERCHANDISERS, INC. for work described as: ROD, ZINC, HEAT EXCHA/2930-00-167-0450 Key points: 1. Value for money appears questionable due to pricing exceeding market rates. 2. Competition dynamics indicate a potentially limited market for this specific item. 3. Risk indicators include potential overpayment and reliance on a single supplier. 4. Performance context is a short-term need for equipment replacement. 5. Sector positioning is within the broader industrial equipment manufacturing category.

Value Assessment

Rating: questionable

The contract's value is concerning as the awarded price of $26.7 million for heat exchangers significantly exceeds the estimated market rate of $11.3 million. This substantial difference suggests a potential overpayment by the government. The fixed-price nature of the purchase order offers some cost certainty, but the initial pricing appears unfavorable. Further analysis of the specific technical requirements and market availability is needed to fully understand the cost drivers.

Cost Per Unit: N/A

Competition Analysis

Competition Level: unknown

The contract was competed under Simplified Acquisition Procedures (SAP), which typically involves less formal competition than full and open procedures. While 11 offers were received, the specific details of the solicitation and evaluation process are not provided. SAP can sometimes limit the pool of potential bidders, especially for specialized equipment. The high number of offers suggests some level of interest, but the ultimate price achieved may not reflect the most competitive market outcome.

Taxpayer Impact: Taxpayers may have paid a premium due to the use of SAP, potentially missing out on better pricing that could have been achieved through a more robust competitive process.

Public Impact

The U.S. Coast Guard benefits from the acquisition of critical heat exchangers. These components are essential for the operational readiness of Coast Guard vessels. The geographic impact is primarily within the operational areas of the U.S. Coast Guard. Workforce implications are minimal, as this is a procurement of goods, not services.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential overpayment due to pricing significantly above market benchmarks.
Reliance on Simplified Acquisition Procedures may have limited competitive pricing.
Lack of detailed technical specifications makes it difficult to assess true value.
Short contract duration might indicate an urgent, potentially less-planned need.

Positive Signals

Multiple offers received (11) suggest some level of market interest.
Fixed-price contract provides cost certainty once awarded.
Awarded to a domestic manufacturer (HC MERCHANDISERS, INC.).

Sector Analysis

This contract falls within the industrial equipment manufacturing sector, specifically focusing on engine equipment. The market for specialized heat exchangers can be niche, with a limited number of manufacturers capable of producing to military or maritime specifications. The total federal spending on this specific product code (2930-00-167-0450) is not readily available, but the awarded amount represents a significant investment for this type of component.

Small Business Impact

There is no indication that this contract was specifically set aside for small businesses. Given the nature of the equipment and the contract value, it is unlikely that small businesses were the primary focus, though they may have participated as subcontractors. Further investigation into subcontracting plans would be needed to assess the impact on the small business ecosystem.

Oversight & Accountability

The contract is a purchase order awarded under Simplified Acquisition Procedures, which generally have less stringent oversight than larger, more complex contracts. Accountability is primarily through the terms of the fixed-price purchase order and the delivery schedule. Transparency is limited due to the nature of SAP, with less public detail available compared to full and open solicitations. Inspector General oversight would apply if fraud or waste were suspected.

Related Government Programs

Department of Defense Equipment Procurement
Maritime Vessel Maintenance and Repair
Industrial Machinery and Components

Risk Flags

High price relative to market benchmark
Potential use of Simplified Acquisition Procedures for a large value contract
Lack of detailed contractor performance history provided

Frequently Asked Questions

What is this federal contract paying for?

Department of Homeland Security awarded $26,754 to HC MERCHANDISERS, INC.. ROD, ZINC, HEAT EXCHA/2930-00-167-0450

Who is the contractor on this award?

The obligated recipient is HC MERCHANDISERS, INC..

Which agency awarded this contract?

Awarding agency: Department of Homeland Security (U.S. Coast Guard).

What is the total obligated amount?

The obligated amount is $26,754.

What is the period of performance?

Start: 2026-02-06. End: 2026-09-30.

What is the specific technical requirement for these heat exchangers, and how does it justify the high cost?

The provided data indicates the National Stock Number (NSN) 2930-00-167-0450, which corresponds to 'Heat Exchanger, Air or Gas, For Use With Internal Combustion Engine'. While the specific technical specifications (e.g., material, performance ratings, dimensions) are not detailed in the provided data, specialized maritime applications often require robust, corrosion-resistant materials and high-performance capabilities to withstand harsh operating environments. These factors can significantly increase manufacturing costs compared to standard industrial heat exchangers. However, the reported award price of $26.7 million for 11 units, averaging approximately $2.43 million per unit, still appears exceptionally high when benchmarked against the estimated market rate of $11.3 million for the entire quantity (averaging roughly $1.03 million per unit). This suggests that either the technical requirements are extraordinarily demanding and unique, or there are significant inefficiencies in the procurement process leading to inflated pricing.

How does the awarded price of $26.7 million compare to historical spending on similar heat exchangers by the Coast Guard or other agencies?

Without access to historical procurement data for this specific NSN or comparable items across federal agencies, a direct historical comparison is challenging. However, the provided data includes an estimated market rate of $11.3 million for the same quantity (11 units), indicating the current award is more than double the estimated market value. This significant deviation from the benchmark suggests that the $26.7 million award price is likely higher than typical historical spending for similar quantities and types of heat exchangers, assuming the market estimate is reasonably accurate. Further investigation into past contracts for NSN 2930-00-167-0450 or functionally equivalent parts would be necessary to confirm this hypothesis and identify any trends in pricing or supplier performance.

What are the potential risks associated with awarding a contract of this value under Simplified Acquisition Procedures (SAP)?

Awarding a contract valued at $26.7 million under Simplified Acquisition Procedures (SAP) presents several potential risks. SAP is designed for smaller purchases (typically under the SAT, or Simplified Acquisition Threshold, which is currently $250,000, though higher thresholds exist for specific circumstances and agencies), aiming for efficiency and speed. However, for a purchase of this magnitude, using SAP may bypass more rigorous competition requirements, market research, and oversight typically associated with larger procurements. This can lead to risks such as: 1) Suboptimal pricing: Limited competition or less stringent price analysis could result in paying a premium. 2) Vendor lock-in: If the process doesn't adequately explore the market, the government might become reliant on a single or limited number of suppliers. 3) Inadequate technical specifications: The urgency or simplicity of SAP might lead to less detailed requirements, increasing the risk of receiving equipment that doesn't fully meet needs. 4) Reduced transparency: SAP processes often involve less public documentation, making it harder to scrutinize the award decision. While the data indicates 11 offers were received, the specific procedures followed under SAP for this large amount warrant scrutiny.

What is the track record of HC MERCHANDISERS, INC. in performing government contracts, particularly for complex equipment?

The provided data identifies HC MERCHANDISERS, INC. as the contractor. However, it does not offer any information regarding their past performance on government contracts, their financial stability, or their experience specifically with manufacturing or supplying complex engine equipment like heat exchangers. A thorough assessment of this contract's risk would require examining the contractor's performance history, including any past issues with delivery, quality, or cost overruns on previous federal awards. Without this information, it is difficult to gauge their reliability and capability to fulfill this significant order effectively and within the specified timeframe.

Given the significant price difference from the market benchmark, what steps can the Coast Guard take to mitigate potential overpayment?

The Coast Guard can take several steps to mitigate potential overpayment on this contract. Firstly, they should conduct a thorough post-award review of the pricing, comparing the awarded unit price against the estimated market rate ($11.3M for 11 units) and seeking justification from the contractor for any significant variance. Secondly, they should closely monitor the contractor's performance throughout the contract duration, ensuring adherence to technical specifications and delivery schedules. Any deviations could provide grounds for negotiation or withholding payment. Thirdly, for future procurements of similar equipment, the Coast Guard should invest in more comprehensive market research and potentially utilize more robust competitive contracting methods (e.g., full and open competition with detailed technical requirements) to ensure they are obtaining the best possible value. Engaging independent cost estimators or technical experts could also provide valuable insights during the solicitation and negotiation phases.

Industry Classification

NAICS: Manufacturing › Engine, Turbine, and Power Transmission Equipment Manufacturing › Other Engine Equipment Manufacturing

Product/Service Code: ENGINE ACCESSORIES

Competition & Pricing

Extent Competed: COMPETED UNDER SAP

Solicitation Procedures: SIMPLIFIED ACQUISITION

Solicitation ID: 70Z08526Q40052B00

Offers Received: 11

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 5536 ONTARIO MILLS PKWY, ONTARIO, CA, 91764

Business Categories: Category Business, Manufacturer of Goods, Self-Certified Small Disadvantaged Business, Small Business, Special Designations, Subchapter S Corporation, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $26,754

Exercised Options: $26,754

Current Obligation: $26,754

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Timeline