Navy awards $5.9B shipbuilding contract to National Steel and Shipbuilding Company over 15 years

Contract Overview

Contract Amount: $5,922,645,372 ($5.9B)

Contractor: National Steel and Shipbuilding Company

Awarding Agency: Department of Defense

Start Date: 2001-10-18

End Date: 2017-03-31

Contract Duration: 5,643 days

Daily Burn Rate: $1.0M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 3

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Place of Performance

Location: SAN DIEGO, SAN DIEGO County, CALIFORNIA, 92113

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $5.92 billion to NATIONAL STEEL AND SHIPBUILDING COMPANY for work described as: Key points: 1. Contract awarded through full and open competition, suggesting a robust market. 2. Long duration of the contract (over 15 years) implies significant long-term needs. 3. Fixed Price Incentive (FPI) contract type aims to balance cost control with performance. 4. The contract value represents a substantial investment in naval shipbuilding capabilities. 5. Awarded by the Department of the Navy, indicating a focus on defense readiness. 6. The contractor, National Steel and Shipbuilding Company, has a significant role in this sector.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its long duration and specialized nature in shipbuilding. The total award of $5.92 billion over approximately 15 years averages to roughly $395 million annually. Without specific performance metrics or comparable contracts for similar vessel types and complexities, a precise value-for-money assessment is difficult. However, the fixed-price incentive structure suggests an attempt to manage costs while incentivizing contractor performance.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders were likely considered. The presence of three bids suggests a competitive environment, which typically benefits price discovery and can lead to more favorable terms for the government. The specific details of the bidding process and the number of proposals received would provide further insight into the intensity of the competition.

Taxpayer Impact: Full and open competition generally leads to better pricing for taxpayers by fostering a competitive environment among potential contractors.

Public Impact

The primary beneficiaries are the U.S. Navy and national defense, ensuring continued shipbuilding and repair capabilities. Services delivered include the construction and potentially repair of naval vessels, crucial for fleet readiness. The geographic impact is centered in California, where National Steel and Shipbuilding Company is located, supporting regional employment and industry. Workforce implications include job creation and retention in skilled trades within the shipbuilding and maritime sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Long-term nature of the contract could lead to contractor complacency if not managed actively.
Fixed Price Incentive contracts can still result in cost overruns if targets are not met or incentives are poorly structured.
Dependence on a single contractor for such a large portion of shipbuilding needs could pose supply chain risks.
The specialized nature of naval shipbuilding may limit the pool of qualified contractors for future competitions.
Potential for scope creep over the long contract duration if not rigorously managed.

Positive Signals

Award through full and open competition indicates a healthy market and potential for competitive pricing.
The fixed-price incentive structure aims to align contractor and government interests for cost efficiency.
Long-term award provides stability and predictability for both the Navy and the contractor.
The substantial value suggests a significant commitment to maintaining and modernizing naval assets.
Contractor's established presence in shipbuilding indicates experience and capability.

Sector Analysis

The shipbuilding and repair industry is a critical component of the defense industrial base, characterized by high capital investment, specialized labor, and long production cycles. This contract falls within the broader manufacturing sector, specifically naval shipbuilding. The market is often dominated by a few large, experienced firms due to the complexity and scale of projects. Comparable spending benchmarks would involve analyzing other major naval vessel construction contracts awarded by the U.S. military.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'ss: false'. The large scale and specialized nature of naval shipbuilding often make it difficult for small businesses to compete directly. However, the prime contractor, National Steel and Shipbuilding Company, may engage small businesses as subcontractors for specific components or services, contributing to the broader small business ecosystem within the defense 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 embedded within the Fixed Price Incentive contract terms, which link payment to performance and cost targets. Transparency is facilitated through contract award databases and reporting requirements. The Inspector General for the Department of Defense would have jurisdiction to investigate any potential fraud, waste, or abuse related to this contract.

Related Government Programs

Naval Vessel Construction
Shipbuilding and Repair Services
Defense Procurement
Major Weapon Systems Acquisition
Maritime Industry Contracts

Risk Flags

Long contract duration increases risk of economic fluctuations and requirement changes.
Fixed Price Incentive contracts require careful monitoring to ensure cost targets are met.
Potential for contractor performance issues over an extended period.
Dependence on a single large contractor for critical shipbuilding needs.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $5.92 billion to NATIONAL STEEL AND SHIPBUILDING COMPANY. See the official description on USAspending.

Who is the contractor on this award?

The obligated recipient is NATIONAL STEEL AND SHIPBUILDING COMPANY.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $5.92 billion.

What is the period of performance?

Start: 2001-10-18. End: 2017-03-31.

What is the historical performance record of National Steel and Shipbuilding Company on similar large-scale naval contracts?

Assessing the historical performance of National Steel and Shipbuilding Company (NASSCO) on similar contracts requires a deep dive into past Navy procurements. NASSCO has a long history of building and repairing naval vessels, including tankers, auxiliary ships, and amphibious assault ships. Their track record often includes successful deliveries, but like many large defense contractors, they may have faced challenges related to schedule delays or cost overruns on complex, multi-year projects. Specific performance metrics such as on-time delivery rates, cost variance analysis, and quality assurance reports from previous contracts would be crucial for a comprehensive evaluation. Publicly available contract data and reports from the Government Accountability Office (GAO) or the Department of Defense Inspector General could offer insights into their past performance, including any disputes or contract modifications.

How does the average annual cost of this contract compare to similar naval shipbuilding projects?

The average annual cost of this contract, approximately $395 million ($5.92 billion / ~15 years), needs to be benchmarked against comparable naval shipbuilding projects. However, direct comparisons are complex due to variations in vessel type, size, complexity, and technological sophistication. For instance, the construction of a large aircraft carrier or a nuclear submarine would command significantly higher annual costs than a smaller support vessel or a tanker. To provide a meaningful comparison, one would need to identify contracts for vessels of similar class and purpose awarded around the same period. Factors such as the inclusion of research and development, long-lead time components, and specific mission requirements heavily influence project costs. Without such detailed comparative data, this average annual figure serves as a baseline but lacks context for a definitive value assessment.

What are the primary risk indicators associated with a 15-year fixed-price incentive contract for shipbuilding?

A 15-year Fixed Price Incentive (FPI) contract for shipbuilding presents several key risk indicators. Firstly, the extended duration increases the risk of economic price adjustments for labor and materials, potentially impacting the government's cost certainty despite the fixed-price nature. Secondly, FPI contracts carry the risk of cost overruns if the target cost is not accurately estimated or if unforeseen technical challenges arise during the long production cycle. The incentive structure itself can be a risk if not carefully designed; poorly structured incentives might not adequately motivate cost reduction or could lead to quality compromises. Furthermore, the contractor's financial stability over such a long period is a concern, as is the potential for key personnel turnover. Finally, the risk of obsolescence of technology or changing military requirements over 15 years could necessitate costly contract modifications.

How effective is the Fixed Price Incentive (FPI) contract type in managing costs for long-term shipbuilding projects?

The Fixed Price Incentive (FPI) contract type is designed to manage costs in long-term projects like shipbuilding by establishing a target cost, target profit, and a price ceiling, along with a sharing ratio for cost variances. This structure incentivizes the contractor to control costs to achieve a higher profit margin, while the government benefits from a ceiling that limits its maximum liability. For long-term projects, FPI can be effective if the target cost is realistic and the sharing ratio is well-balanced. However, the effectiveness is contingent on accurate initial cost estimation and robust oversight to prevent scope creep. If the project encounters significant unforeseen issues or if the sharing ratio heavily favors the contractor, cost overruns can still occur, albeit shared. The long duration also introduces risks related to economic fluctuations that might not be fully captured in the initial targets.

What is the historical spending trend for shipbuilding and repair by the Department of the Navy over the last decade?

Analyzing the historical spending trend for shipbuilding and repair by the Department of the Navy over the last decade reveals a significant and often fluctuating commitment to fleet modernization and maintenance. While specific figures vary annually based on budget allocations, strategic priorities, and the number of major shipbuilding programs underway, the Navy consistently represents one of the largest components of the Department of Defense's overall shipbuilding budget. Spending typically encompasses new vessel construction (carriers, submarines, destroyers, etc.), major conversions and overhauls, and routine maintenance and repair services. Factors influencing these trends include geopolitical tensions, congressional appropriations, and the lifecycle of existing fleet assets. Generally, there is a sustained, substantial investment, often in the tens of billions of dollars annually, reflecting the critical role of naval power.

What are the implications of awarding a definitive contract versus other contract types for this shipbuilding need?

Awarding a definitive contract, as opposed to an indefinite-delivery/indefinite-quantity (IDIQ) contract or a basic ordering agreement (BOA), for this shipbuilding need signifies a commitment to a specific scope of work, quantity, and price (or target price with incentives) established at the outset. For a project as large and long-term as naval shipbuilding, a definitive contract provides greater certainty for both the government and the contractor regarding the overall commitment and expected deliverables. This contrasts with IDIQs, which offer flexibility but less upfront commitment, or BOAs, which establish terms for future orders but don't obligate funds. The choice of a definitive contract, particularly an FPI type, suggests the Navy had a clear vision of its requirements and sought to establish a firm, albeit incentivized, financial framework for this substantial acquisition.

Industry Classification

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

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

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Offers Received: 3

Pricing Type: FIXED PRICE INCENTIVE (L)

Contractor Details

Parent Company: General Dynamics Corp (UEI: 001381284)

Address: 2798 HARBOR DR, SAN DIEGO, CA, 92113

Business Categories: Category Business, Not Designated a Small Business

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline