DoD awards $89.8M for aircraft parts, with KATO ENGINEERING INC. as the sole provider

Contract Overview

Contract Amount: $89,825,364 ($89.8M)

Contractor: Kato Engineering Inc.

Awarding Agency: Department of Defense

Start Date: 2023-09-07

End Date: 2027-12-15

Contract Duration: 1,560 days

Daily Burn Rate: $57.6K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Defense

Official Description: CVN 81 EMALS ESS FULL PRODUCTION

Place of Performance

Location: NORTH MANKATO, NICOLLET County, MINNESOTA, 56003

State: Minnesota Government Spending

Plain-Language Summary

Department of Defense obligated $89.8 million to KATO ENGINEERING INC. for work described as: CVN 81 EMALS ESS FULL PRODUCTION Key points: 1. Contract awarded at a fixed price, indicating clear cost expectations. 2. Sole-source award suggests limited market options or specific contractor capabilities. 3. Long contract duration of 1560 days may imply complex or ongoing needs. 4. The contract is for production, indicating a need for established manufacturing processes. 5. No small business set-aside was applied, potentially limiting opportunities for smaller firms. 6. The award is for a definitive contract, suggesting a clear scope of work.

Value Assessment

Rating: questionable

The contract value of $89.8 million for aircraft parts is substantial. Without comparable contract data or detailed cost breakdowns, it is difficult to definitively assess value for money. The sole-source nature of the award raises concerns about potential overpricing compared to a competitive environment. Benchmarking against similar sole-source awards for specialized aircraft components would be necessary for a more robust evaluation.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning KATO ENGINEERING INC. was the only bidder considered. This typically occurs when a specific technology, proprietary component, or unique capability is required that only one contractor can provide. The lack of competition means there was no price negotiation driven by multiple offers, potentially leading to a higher price than if the contract had been competed.

Taxpayer Impact: Taxpayers may be paying a premium due to the absence of competitive bidding. The government did not leverage market forces to secure the best possible price for these essential aircraft parts.

Public Impact

The primary beneficiaries are likely the Department of the Navy and its aviation programs, which will receive essential aircraft parts. The services delivered include the full production of specified aircraft parts, crucial for maintaining and operating naval aircraft. The geographic impact is primarily within Minnesota, where KATO ENGINEERING INC. is located, potentially supporting local jobs and the regional economy. Workforce implications include the potential for job creation or retention at KATO ENGINEERING INC. and its supply chain.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price discovery and potentially increases costs for taxpayers.
Lack of competition raises questions about whether the government secured the best value.
The long contract duration could lock the government into a specific supplier, reducing flexibility.
Absence of small business participation may limit opportunities for smaller, innovative firms in this sector.

Positive Signals

The award is for a definitive contract, suggesting a well-defined scope and clear deliverables.
Fixed-price contract provides cost certainty for the government once awarded.
The contractor, KATO ENGINEERING INC., is likely providing a specialized or critical component for naval aviation.

Sector Analysis

This contract falls within the aerospace manufacturing sector, specifically focusing on aircraft parts. The North American Industry Classification System (NAICS) code 336413, 'Other Aircraft Parts and Auxiliary Equipment Manufacturing,' indicates a specialized segment of the broader aerospace industry. The market for such components is often characterized by high barriers to entry due to stringent quality requirements, technological expertise, and established relationships with defense agencies. Comparable spending benchmarks would typically involve analyzing other sole-source or limited-competition awards for similar specialized aircraft components within the Department of Defense.

Small Business Impact

This contract was not awarded as a small business set-aside, nor does it appear to have specific subcontracting requirements for small businesses mentioned in the provided data. The absence of these provisions means that opportunities for small businesses to participate in this $89.8 million contract are limited to potential indirect involvement through KATO ENGINEERING INC.'s supply chain, if any. This could represent a missed opportunity to foster small business growth within the defense aerospace supply chain.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. Accountability measures are inherent in the firm-fixed-price structure, which obligates the contractor to deliver specified goods at an agreed-upon price. Transparency is limited due to the sole-source nature of the award, as detailed justifications and competitive analyses are typically not publicly disseminated. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Naval Aviation Maintenance Programs
Defense Production Act Investments
Aerospace Component Manufacturing Contracts
Sole-Source Defense Procurements

Risk Flags

Sole-source award
Lack of competition
Potential for higher cost
Supply chain dependency

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $89.8 million to KATO ENGINEERING INC.. CVN 81 EMALS ESS FULL PRODUCTION

Who is the contractor on this award?

The obligated recipient is KATO ENGINEERING INC..

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $89.8 million.

What is the period of performance?

Start: 2023-09-07. End: 2027-12-15.

What is KATO ENGINEERING INC.'s track record with the Department of Defense, particularly for sole-source contracts?

Assessing KATO ENGINEERING INC.'s track record requires a deep dive into historical contract data. Specifically, one would look for previous awards to this company from the Department of Defense (DoD) and other federal agencies. A key area of focus would be the frequency and nature of any prior sole-source awards. If KATO ENGINEERING INC. has a history of receiving sole-source contracts, it's important to understand the justification provided in those instances. Examining past performance reviews, any contract disputes, or modifications could also shed light on their reliability and adherence to contract terms. Without this specific historical data, it's difficult to gauge their established relationship and performance within the DoD's procurement ecosystem, especially concerning non-competitive awards.

How does the $89.8 million contract value compare to similar sole-source awards for aircraft parts?

Comparing the $89.8 million contract value requires access to a database of similar sole-source awards for aircraft parts. The analysis would involve identifying contracts with comparable scope, complexity, and type of aircraft components, awarded on a sole-source basis by the Department of Defense or other agencies. Key metrics for comparison would include the total contract value, duration, and the specific components being procured. If similar contracts were significantly lower in value, it could indicate that this award might be priced higher than the market would bear in a competitive scenario. Conversely, if other sole-source awards for comparable items are in a similar range, it might suggest that the pricing is in line with established non-competitive procurement norms for specialized defense articles. However, the absence of readily available, directly comparable data makes definitive value assessment challenging.

What are the primary risks associated with a sole-source award of this magnitude?

The primary risks associated with a sole-source award of this magnitude ($89.8 million) are centered around cost and competition. Firstly, the lack of competition means the government foregoes the opportunity to leverage market forces to achieve the lowest possible price, potentially leading to overpayment. Secondly, there's a risk of contractor complacency; without competitive pressure, the incentive to innovate or improve efficiency might be reduced. Thirdly, dependence on a single supplier creates supply chain vulnerability. If KATO ENGINEERING INC. faces production issues, delays, or financial instability, it could significantly disrupt the supply of critical aircraft parts, impacting naval readiness. Finally, the justification for sole-source procurement itself can be scrutinized for adequacy, raising concerns about whether competition was truly impossible or simply not pursued.

What is the expected program effectiveness or outcome for the CVN 81 EMALS ESS FULL PRODUCTION contract?

The expected program effectiveness for the 'CVN 81 EMALS ESS FULL PRODUCTION' contract hinges on the successful delivery of the specified aircraft parts according to the contract's technical specifications and schedule. EMALS (Electromagnetic Aircraft Launch System) and ESS (Electronic Support Systems) are critical components for modern naval aviation, particularly for aircraft carriers like the CVN 81. Therefore, the effectiveness of this contract is directly tied to ensuring these systems are operational and reliable. Successful outcomes would mean that the delivered parts meet stringent quality standards, integrate seamlessly into the EMALS and ESS, and contribute to the overall readiness and capability of the CVN 81. Any failures or delays in delivering these components could jeopardize the testing, commissioning, and operational deployment of the aircraft carrier, thus impacting naval power projection capabilities.

How has federal spending on 'Other Aircraft Parts and Auxiliary Equipment Manufacturing' (NAICS 336413) trended historically?

Analyzing historical federal spending trends for NAICS code 336413, 'Other Aircraft Parts and Auxiliary Equipment Manufacturing,' requires access to historical procurement data, such as from the Federal Procurement Data System (FPDS). Generally, spending in this sector is closely tied to overall defense budgets and military aircraft modernization or sustainment programs. Periods of increased military investment, new aircraft development, or heightened operational tempo tend to drive higher spending. Conversely, budget cuts or shifts in defense priorities might lead to decreased spending. It's also important to note that a significant portion of this spending might be awarded through sole-source or limited-competition contracts due to the specialized nature of the components. Examining year-over-year data, identifying major contract awards, and correlating spending patterns with broader geopolitical events or defense strategies would provide a comprehensive view of historical trends.

Industry Classification

NAICS: Manufacturing › Aerospace Product and Parts Manufacturing › Other Aircraft Parts and Auxiliary Equipment Manufacturing

Product/Service Code: AEROSPACE CRAFT LAUNCHING, LANDING, GROUND HANDLING AND SERVICING EQUIPMENT

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Solicitation ID: N0001922R0041

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Parent Company: Nidec Corporation

Address: 2075 HOWARD DR W, NORTH MANKATO, MN, 56003

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Foreign Owned, Foreign-Owned and U.S.-Incorporated Business, Manufacturer of Goods, Not Designated a Small Business, Special Designations

Financial Breakdown

Contract Ceiling: $89,825,364

Exercised Options: $89,825,364

Current Obligation: $89,825,364

Subaward Activity

Number of Subawards: 25

Total Subaward Amount: $3,495,512

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline