DHS awards $1.65B for National Security Cutter production and delivery, with a fixed-price incentive contract structure

Contract Overview

Contract Amount: $1,654,352,379 ($1.7B)

Contractor: Huntington Ingalls Incorporated

Awarding Agency: Department of Homeland Security

Start Date: 2013-04-30

End Date: 2024-11-22

Contract Duration: 4,224 days

Daily Burn Rate: $391.7K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: PRODUCTION&DELIVERY OF NATIONAL SECURITY CUTTER (NSC) 6.

Place of Performance

Location: PASCAGOULA, JACKSON County, MISSISSIPPI, 39567

State: Mississippi Government Spending

Plain-Language Summary

Department of Homeland Security obligated $1.65 billion to HUNTINGTON INGALLS INCORPORATED for work described as: PRODUCTION&DELIVERY OF NATIONAL SECURITY CUTTER (NSC) 6. Key points: 1. The contract's fixed-price incentive structure aims to balance cost control with performance incentives for the contractor. 2. The long duration of the contract (over 10 years) suggests a complex, multi-year project with significant resource commitment. 3. The absence of competition raises questions about potential cost efficiencies and the government's leverage in price negotiation. 4. This award represents a substantial investment in the U.S. Coast Guard's maritime security capabilities. 5. The shipbuilding and repair sector is characterized by high barriers to entry and significant capital requirements.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its specific nature and the limited public data on comparable National Security Cutter builds. The fixed-price incentive (FPI) contract type suggests an effort to control costs while allowing for adjustments based on performance. However, without detailed cost breakdowns or comparisons to similar vessel construction projects, a definitive assessment of value for money is difficult. The total award amount of $1.65 billion indicates a significant investment, and its justification would rely on the strategic importance and operational requirements of the NSCs.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed among multiple potential bidders. This approach is typically used when a specific contractor possesses unique capabilities, intellectual property, or when there are urgent needs that preclude a competitive process. The lack of competition means the government did not benefit from the price discovery and potential cost reductions that can arise from a bidding process.

Taxpayer Impact: The absence of competition for this significant contract may result in higher costs for taxpayers compared to a scenario where multiple shipbuilders vied for the award.

Public Impact

The U.S. Coast Guard benefits from the enhanced capabilities and operational readiness provided by the new National Security Cutters. These cutters are crucial for maritime law enforcement, homeland security, search and rescue, and national defense missions. The contract supports jobs within the shipbuilding and defense industrial base, particularly in Mississippi where Huntington Ingalls Incorporated is located. The delivery of these vessels bolsters national security by extending the Coast Guard's reach and operational capacity in critical maritime areas.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially impacting cost-effectiveness.
Long contract duration increases exposure to potential cost overruns or scope creep if not managed tightly.
Fixed-price incentive contracts can still lead to cost increases if performance targets are met but exceed initial estimates.
Dependence on a single contractor for critical national security assets poses a supply chain risk.

Positive Signals

Fixed-price incentive contract structure provides some cost control while incentivizing performance.
The contractor, Huntington Ingalls Incorporated, is a major defense contractor with established experience in shipbuilding.
The contract supports a critical national security program for the U.S. Coast Guard.
The long-term nature of the contract provides stability for a key segment of the defense industrial base.

Sector Analysis

The shipbuilding and repair industry is a capital-intensive sector characterized by large, complex projects and long production cycles. Contracts for naval vessels and coast guard cutters represent a significant portion of this market, often dominated by a few large, specialized firms. This contract for National Security Cutters fits within the broader defense shipbuilding sector, where government demand is a primary driver. Comparable spending benchmarks are difficult to establish precisely due to the unique specifications of each vessel class, but multi-billion dollar awards for major naval platforms are not uncommon.

Small Business Impact

This contract does not appear to include specific small business set-aside provisions, as indicated by 'sb': false. Given the nature of large-scale naval shipbuilding, prime contracts are typically awarded to large, established companies. However, the prime contractor, Huntington Ingalls Incorporated, would likely engage numerous small and medium-sized businesses as subcontractors for specialized components, materials, and services, contributing to the broader small business ecosystem within the defense supply chain.

Oversight & Accountability

Oversight for this contract would primarily fall under the U.S. Coast Guard and the Department of Homeland Security's contracting and program management offices. Given the significant value and duration, regular program reviews, performance monitoring, and financial audits are expected. The contract's fixed-price incentive structure necessitates close monitoring of performance metrics and cost expenditures to ensure compliance and value. Inspector General oversight from DHS may also be involved in investigating any potential fraud, waste, or abuse.

Related Government Programs

National Security Cutter Program
U.S. Coast Guard Acquisition Programs
Naval Shipbuilding Contracts
Department of Homeland Security Major Contracts

Risk Flags

Sole-source award
Long contract duration
Potential for cost overruns in fixed-price incentive contracts

Frequently Asked Questions

What is this federal contract paying for?

Department of Homeland Security awarded $1.65 billion to HUNTINGTON INGALLS INCORPORATED. PRODUCTION&DELIVERY OF NATIONAL SECURITY CUTTER (NSC) 6.

Who is the contractor on this award?

The obligated recipient is HUNTINGTON INGALLS INCORPORATED.

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 $1.65 billion.

What is the period of performance?

Start: 2013-04-30. End: 2024-11-22.

What is the historical spending trend for the National Security Cutter program?

The National Security Cutter (NSC) program has seen significant investment over the years. While specific annual spending figures for the entire program are not detailed in the provided data, the award of a definitive contract valued at $1.65 billion for production and delivery of NSC 6 indicates a sustained commitment to this platform. Prior contracts for earlier NSCs would have contributed to the overall program expenditure. The program's history involves multiple contract awards for the construction of these vessels, reflecting the long-term nature of naval shipbuilding. Analyzing historical spending would require examining individual contract awards for each cutter, including modifications and sustainment contracts, to understand the full lifecycle cost and budget allocation for the NSC fleet.

How does the fixed-price incentive (FPI) contract structure typically perform in large shipbuilding projects?

Fixed-price incentive (FPI) contracts are designed to share the risks and rewards between the government and the contractor. In large shipbuilding projects, an FPI contract sets a target cost and a target profit. If the final cost is below the target, both parties share in the savings according to a pre-negotiated formula. Conversely, if the final cost exceeds the target, both share in the overrun, up to a ceiling price. This structure incentivizes the contractor to control costs while ensuring the government benefits from cost savings. However, the effectiveness of an FPI contract heavily relies on accurate initial cost estimations and robust government oversight to prevent cost overruns and ensure the contractor is held accountable for performance targets.

What are the key performance metrics for the National Security Cutter program?

Key performance metrics for the National Security Cutter (NSC) program typically revolve around the vessel's operational capabilities, reliability, and timely delivery. These include factors such as speed, range, endurance, habitability, and the effectiveness of its command, control, communications, computers, intelligence, surveillance, and reconnaissance (C4ISR) systems. For NSC 6, specific metrics would be detailed within the contract, likely focusing on meeting design specifications, achieving certain levels of system integration, and successful completion of sea trials and acceptance testing. Reliability and maintainability are also critical, ensuring the cutters can perform their demanding missions with minimal downtime. The fixed-price incentive structure suggests that meeting or exceeding certain performance targets could influence the final contract price.

What is the strategic importance of the National Security Cutter program for the U.S. Coast Guard?

The National Security Cutter (NSC) program is of paramount strategic importance to the U.S. Coast Guard, representing its most capable and technologically advanced surface asset. These cutters are designed for extended offshore operations, enabling the Coast Guard to conduct a wide range of missions, including maritime homeland security, drug interdiction, migrant interdiction, search and rescue, and fisheries enforcement in remote areas. Their advanced capabilities, including robust C4ISR systems and flight decks for helicopters and unmanned aerial systems, significantly enhance the Coast Guard's ability to project presence and respond to threats in the nation's Exclusive Economic Zone and beyond. The NSCs are crucial for maintaining maritime domain awareness and ensuring national security in increasingly complex maritime environments.

What are the potential risks associated with a sole-source award for a major defense asset like the National Security Cutter?

A sole-source award for a major defense asset like the National Security Cutter (NSC) carries several potential risks. Primarily, the lack of competition can lead to higher costs for the government, as there is less pressure on the contractor to offer the most competitive pricing. This can result in a less favorable value for taxpayer money. Additionally, sole-source contracts can reduce the government's leverage in negotiating terms and conditions. There's also a risk of complacency from the contractor, potentially impacting innovation or efficiency over the long term. Furthermore, reliance on a single source for critical assets can create vulnerabilities in the supply chain and reduce flexibility if the contractor faces production issues or business challenges.

Industry Classification

NAICS: Manufacturing › Ship and Boat Building › Ship Building and Repairing

Product/Service Code: SHIPS, SMALL CRAFT, PONTOON, DOCKS

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Parent Company: Huntington Ingalls Industries, Inc

Address: 1000 ACCESS RD, PASCAGOULA, MS, 39567

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $1,662,733,687

Exercised Options: $1,662,733,687

Current Obligation: $1,654,352,379

Subaward Activity

Number of Subawards: 711

Total Subaward Amount: $366,124,619

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline