DoD's $294M shipbuilding contract with Huntington Ingalls Inc. awarded without competition

Contract Overview

Contract Amount: $294,179,628 ($294.2M)

Contractor: Huntington Ingalls Inc

Awarding Agency: Department of Defense

Start Date: 2003-12-02

End Date: 2007-06-30

Contract Duration: 1,306 days

Daily Burn Rate: $225.3K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Place of Performance

Location: NEWPORT NEWS, NEWPORT NEWS CITY County, VIRGINIA, 23607

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $294.2 million to HUNTINGTON INGALLS INC for work described as: Key points: 1. Contract awarded on a cost-plus-fixed-fee basis, potentially leading to cost overruns. 2. Sole-source award raises concerns about price discovery and potential lack of competitive pressure. 3. Long contract duration of 1306 days suggests a significant, long-term commitment. 4. The contract falls under the 'Ship Building and Repairing' NAICS code, a critical defense sector. 5. Awarded by the Department of the Navy, indicating a focus on naval fleet readiness. 6. No indication of small business participation or set-asides. 7. The contract's value is substantial, representing a significant investment in naval assets.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its sole-source nature and the specialized 'Ship Building and Repairing' sector. However, the Cost Plus Fixed Fee (CPFF) pricing structure inherently carries higher risk for the government compared to fixed-price contracts, as it allows for reimbursement of costs plus a predetermined fee. Without competitive bids, it's difficult to ascertain if the fixed fee accurately reflects the effort and risk involved or if it represents a fair market price. The absence of comparable contract data for similar sole-source shipbuilding efforts makes a precise value-for-money assessment difficult, but the CPFF structure warrants scrutiny.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one contractor, Huntington Ingalls Inc., was solicited. This approach bypasses the standard competitive bidding process. While sole-source awards can be justified in specific circumstances, such as when only one source possesses the required capabilities or when urgency dictates, the lack of competition here means there was no opportunity for multiple bidders to offer proposals. This limits the government's ability to leverage market forces to achieve the best possible price and terms.

Taxpayer Impact: The absence of competition means taxpayers may not have benefited from the cost savings that typically arise from a competitive bidding process. The government could not compare offers to ensure it was receiving the most economical solution available in the market.

Public Impact

The primary beneficiaries are the Department of Defense and the U.S. Navy, receiving critical shipbuilding and repair services. The contract supports the maintenance and expansion of the U.S. naval fleet, crucial for national security. Geographic impact is likely concentrated around Huntington Ingalls' shipbuilding facilities, primarily in Virginia. Significant workforce implications for skilled labor in the shipbuilding and repair industry, supporting jobs in specialized trades.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost-plus-fixed-fee structure increases risk of cost overruns for the government.
Sole-source award limits price discovery and competitive pressure.
Long contract duration may not adapt well to evolving technological needs or market conditions.
Lack of transparency in the sole-source justification process.
Potential for contractor lock-in due to specialized nature of shipbuilding.

Positive Signals

Award to a known, established contractor with presumed expertise in shipbuilding.
Addresses critical defense needs for naval vessel construction and maintenance.
Contract duration suggests a stable, long-term commitment to a vital defense capability.
The fixed fee component, while part of a CPFF structure, provides some level of cost predictability for the fee itself.

Sector Analysis

The shipbuilding and repair sector is a critical component of the defense industrial base, characterized by high capital investment, specialized labor, and long production cycles. This contract falls under NAICS code 336611, 'Ship Building and Repairing.' The market is dominated by a few large, established players due to the immense barriers to entry. Government contracts, particularly from the Department of Defense, represent a significant portion of the demand in this sector. Comparable spending benchmarks are difficult to establish precisely due to the unique nature of each vessel and the sole-source award, but the overall defense shipbuilding budget runs into billions annually.

Small Business Impact

There is no indication that this contract included any small business set-asides or subcontracting requirements. The nature of large-scale shipbuilding typically involves prime contractors of significant size, and while they may utilize small businesses for specific components or services, this contract's structure does not explicitly promote small business participation. The absence of set-asides means that opportunities for small businesses to directly compete for this prime contract were not available.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. Given the Cost Plus Fixed Fee structure, rigorous oversight of incurred costs and the contractor's performance would be essential to ensure value for money and prevent potential cost creep. Transparency regarding the justification for the sole-source award and the negotiation of the fixed fee would be key accountability measures. The Inspector General for the Department of Defense would likely have jurisdiction for audits and investigations related to potential fraud, waste, or abuse.

Related Government Programs

Naval Ship Building Programs
Defense Procurement
Ship Repair and Maintenance Contracts
Cost-Plus Contracts
Sole-Source Defense Contracts

Risk Flags

Sole-source award
Cost-plus contract type
Lack of competition
Potential for cost overruns
Long contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $294.2 million to HUNTINGTON INGALLS INC. See the official description on USAspending.

Who is the contractor on this award?

The obligated recipient is HUNTINGTON INGALLS 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 $294.2 million.

What is the period of performance?

Start: 2003-12-02. End: 2007-06-30.

What is the track record of Huntington Ingalls Inc. in fulfilling similar large-scale shipbuilding contracts for the Department of Defense?

Huntington Ingalls Industries (HII) is a major U.S. defense contractor and the sole designer, builder, and refueler of nuclear-powered aircraft carriers and one of two providers of destroyers for the U.S. Navy. They have a long and extensive history of delivering complex naval vessels, including aircraft carriers, amphibious assault ships, destroyers, and submarines. Their track record includes numerous large, multi-year contracts with the Department of Defense. While generally recognized for their capability to build these complex platforms, like any large defense contractor, they have faced scrutiny regarding cost performance and schedule adherence on specific programs. The sheer scale and complexity of their projects mean that cost and schedule variances are not uncommon, but their ability to deliver the final product is generally considered reliable within the industry.

How does the Cost Plus Fixed Fee (CPFF) pricing structure compare to other contract types in terms of value for money for the government?

The Cost Plus Fixed Fee (CPFF) contract type is often used when the scope of work is not precisely defined or when there is significant uncertainty in the costs. It allows the contractor to recover all allowable costs incurred, plus a fixed fee representing profit. Compared to fixed-price contracts (like Firm-Fixed-Price or Fixed-Price Incentive), CPFF generally offers less value for money to the government because the contractor has less incentive to control costs, as all legitimate expenses are reimbursed. The government bears the majority of the cost risk. Fixed-price contracts, conversely, shift more risk to the contractor and incentivize cost efficiency. However, CPFF can be appropriate for research and development or complex, uncertain projects where defining a fixed price upfront would be impractical or lead to excessively high bids to cover contractor risk.

What are the primary risks associated with awarding a contract of this magnitude on a sole-source basis?

The primary risks of a sole-source award for a contract of this magnitude include a lack of competitive pricing, potentially leading to higher costs for the government and taxpayers. Without competing bids, there's no market validation of the proposed price, and the contractor may have less incentive to be efficient or innovative. It can also reduce transparency in the procurement process and may signal a lack of strategic sourcing or planning if competition was feasible. Furthermore, it can create contractor dependency and limit future sourcing options. In specialized industries like shipbuilding, sole-source awards might be justified by unique capabilities, but the risk of paying a premium and missing out on potential cost savings remains significant.

What is the typical duration for shipbuilding contracts of this nature, and how does this contract's duration compare?

Shipbuilding contracts, especially for large naval vessels, are inherently long-term due to the complexity of design, construction, and testing. Durations can range from a few years for smaller vessels or major overhauls to over a decade for the construction of capital ships like aircraft carriers or submarines. A duration of 1306 days (approximately 3.5 years) for a 'definitive contract' under 'Ship Building and Repairing' is substantial but not unusually long for a significant shipbuilding or repair project. It suggests a project involving considerable work, potentially encompassing construction, outfitting, and testing phases. Compared to shorter-term service contracts, it represents a deep commitment of resources and time.

Are there any specific performance metrics or milestones typically associated with shipbuilding contracts that would be relevant for assessing this contract's effectiveness?

Yes, shipbuilding contracts typically include detailed performance metrics and milestones. These often encompass design reviews, hull construction completion, keel laying, launch dates, sea trials (evaluating speed, maneuverability, systems functionality), final acceptance trials, and delivery. Specific metrics might relate to structural integrity, system performance (e.g., propulsion, weapons systems, electronics), adherence to specifications, and survivability standards. For a Cost Plus Fixed Fee contract, the achievement of these milestones is crucial for the government to monitor progress and ensure the contractor is meeting its obligations before the fixed fee is fully earned. The effectiveness of the contract is measured by the timely and successful completion of these critical stages and the final delivery of a vessel that meets all specified requirements.

Industry Classification

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

Product/Service Code: MAINT, REPAIR, REBUILD EQUIPMENT › MAINT, REPAIR, REBUILD OF EQUIPMENT

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

Evaluated Preference: NONE

Contractor Details

Parent Company: Huntington Ingalls Industries, Inc

Address: 4101 WASHINGTON AVE, NEWPORT NEWS, VA, 23607

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline