Navy awards $2.6B contract for shipbuilding and repair to Huntington Ingalls Inc., spanning over 20 years

Contract Overview

Contract Amount: $2,626,745,869 ($2.6B)

Contractor: Huntington Ingalls Inc

Awarding Agency: Department of Defense

Start Date: 2004-05-21

End Date: 2024-05-07

Contract Duration: 7,291 days

Daily Burn Rate: $360.3K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS AWARD 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 $2.63 billion to HUNTINGTON INGALLS INC for work described as: Key points: 1. Contract awarded via sole-source justification, raising questions about price discovery and potential for cost overruns. 2. Long-term nature of the contract suggests a strategic, ongoing need for shipbuilding and repair services. 3. The contract's duration and value indicate a significant investment in naval capabilities. 4. Performance-based elements in the contract type (Cost Plus Award Fee) aim to incentivize efficiency. 5. Lack of competition may limit opportunities for smaller, innovative firms to enter the market. 6. The award to a single large contractor could concentrate risk and reduce market flexibility.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its long duration and specialized nature. The Cost Plus Award Fee structure allows for cost reimbursement plus a fee based on performance, which can lead to costs exceeding initial estimates if not managed tightly. Without competitive bids, it's difficult to ascertain if the pricing reflects market value or if there's an opportunity for better value through competition. The sheer scale and longevity suggest a critical national security need, but the lack of a competitive process warrants scrutiny regarding cost-effectiveness.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded using a sole-source justification, meaning it was not openly competed. This approach is typically used when only one responsible source is available or authorized by statute. The lack of competition means that potential cost savings and innovation that could arise from a bidding process are foregone. It also limits the government's ability to explore alternative solutions or pricing structures offered by other qualified contractors.

Taxpayer Impact: For taxpayers, a sole-source award means the absence of competitive pressure to drive down costs. This can potentially lead to higher prices than might be achieved in a competitive environment, as the contractor faces less incentive to offer the most economical solution.

Public Impact

The primary beneficiaries are the U.S. Navy, which receives critical shipbuilding and repair services to maintain its fleet readiness. This contract supports the continued operation and maintenance of naval vessels, ensuring national security. The contract has significant implications for the shipbuilding and repair workforce, likely supporting thousands of jobs. Geographically, the impact will be concentrated around Huntington Ingalls' facilities, contributing to local economies. The contract ensures the availability of specialized skills and infrastructure necessary for advanced naval construction and maintenance.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially leading to higher costs for taxpayers.
Long contract duration increases the risk of cost escalation over time without regular re-evaluation.
Cost Plus Award Fee structure can incentivize cost growth if performance metrics are not rigorously defined and monitored.
Dependence on a single contractor for critical naval assets concentrates risk.
Lack of transparency in the sole-source justification process can obscure potential alternatives.

Positive Signals

Contract awarded to a known, experienced contractor with a track record in naval shipbuilding.
Cost Plus Award Fee structure aims to reward efficient performance, potentially leading to better outcomes.
Long-term nature of the contract provides stability and predictability for critical naval asset maintenance.
The contract addresses a clear and ongoing need for shipbuilding and repair services for the U.S. Navy.
The award supports a significant industrial base and skilled workforce essential for national defense.

Sector Analysis

The shipbuilding and repair sector is a critical component of the defense industrial base, characterized by high capital intensity, specialized labor, and long production cycles. This contract falls within the broader defense sector, specifically supporting naval fleet readiness. Comparable spending benchmarks are difficult to establish due to the unique nature of naval vessel construction and maintenance, but this award represents a substantial portion of annual federal spending in this niche. The market is dominated by a few large, experienced contractors capable of handling such complex projects.

Small Business Impact

This contract does not appear to include a small business set-aside. Given the sole-source nature and the specialized requirements of naval shipbuilding and repair, it is unlikely that significant subcontracting opportunities for small businesses will be mandated or readily available, beyond standard supply chain needs. The focus is on a large, prime contractor, potentially limiting the direct impact on the broader small business ecosystem within this specific award.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. The Cost Plus Award Fee structure necessitates robust performance monitoring to ensure the contractor meets defined objectives and earns its fee. Inspector General (IG) oversight is likely, particularly concerning financial accountability and adherence to contract terms. Transparency may be limited due to the sole-source nature, but reporting requirements within the contract should provide some level of visibility into progress and expenditures.

Related Government Programs

Naval Ship Production
Ship Maintenance and Repair
Defense Procurement
Major Weapon Systems Acquisition
Fleet Readiness Programs

Risk Flags

Sole-source justification requires rigorous review to ensure no viable alternatives exist.
Long-term contract duration increases exposure to economic fluctuations and technological obsolescence.
Cost Plus Award Fee contracts necessitate strong government oversight to manage costs and performance.
Potential for contractor consolidation and reduced market competition in the long run.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $2.63 billion 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 $2.63 billion.

What is the period of performance?

Start: 2004-05-21. End: 2024-05-07.

What is the historical spending pattern for shipbuilding and repair services by the Department of the Navy with Huntington Ingalls Inc. over the past decade?

Analyzing historical spending requires access to detailed contract databases. However, it is generally known that Huntington Ingalls Inc. (and its predecessor companies) has been a primary contractor for the U.S. Navy's aircraft carrier and submarine construction programs for decades. Their spending has consistently been in the billions annually, reflecting the high cost and long lead times associated with these complex platforms. The $2.6 billion figure for this specific contract, spread over approximately 20 years, aligns with the substantial, long-term investments the Navy makes in its capital shipbuilding programs. Without specific historical data for this exact contract vehicle or similar service contracts, it's difficult to provide precise year-over-year figures, but the trend indicates sustained, high-value engagements.

How does the Cost Plus Award Fee (CPAFF) structure typically impact contractor performance and costs in large shipbuilding contracts?

The Cost Plus Award Fee (CPAFF) structure is designed to incentivize contractor performance by reimbursing allowable costs and adding a base fee, plus an award fee earned based on meeting or exceeding specific performance objectives. In large shipbuilding contracts, this can encourage efficiency, quality, and timely delivery, as the contractor has a direct financial incentive to perform well. However, it also requires robust government oversight to define clear, measurable performance criteria and to objectively assess performance to determine the award fee. If not managed carefully, the 'cost plus' element can still lead to cost growth, and the award fee determination process can be subjective, potentially leading to disputes or perceived inequities. The government aims to balance cost control with achieving high performance standards through this structure.

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

The primary risks associated with a sole-source award for a contract of this magnitude and duration include a lack of price competition, which can lead to higher costs for the government and taxpayers. There's also a reduced incentive for the contractor to innovate or become more efficient over time, as they face no direct competitive pressure. Furthermore, dependence on a single source can create vulnerabilities in the supply chain or production capacity if the contractor experiences financial difficulties, labor strikes, or other operational disruptions. The government may also miss out on potentially better solutions or technologies that could have been offered by other qualified firms if the contract had been competed.

What are the implications of this contract for the U.S. shipbuilding industrial base and workforce?

This contract has significant positive implications for the U.S. shipbuilding industrial base and its associated workforce. By awarding a substantial, long-term contract to Huntington Ingalls Inc., the government ensures the continued operation and viability of a critical segment of the defense industrial base. This provides job security and opportunities for thousands of skilled workers, including engineers, designers, welders, electricians, and project managers. It also supports the ecosystem of suppliers and subcontractors that rely on major shipbuilding programs. The sustained workload helps maintain essential manufacturing capabilities and expertise within the United States, which is crucial for national security and economic resilience.

How does the 'Ship Building and Repairing' NAICS code (336611) relate to the overall defense spending landscape?

The 'Ship Building and Repairing' NAICS code (336611) represents a highly specialized and capital-intensive segment within the broader defense spending landscape. While defense spending encompasses a vast array of goods and services (aircraft, electronics, R&D, services, etc.), shipbuilding and repair constitute a distinct, high-value category focused on naval assets. This sector is critical for maintaining the U.S. Navy's operational capabilities and projecting power globally. Spending within this NAICS code is often characterized by large, multi-year contracts, significant government oversight, and a limited number of prime contractors due to the complexity and scale of the work. It is a cornerstone of the defense industrial base, directly supporting national security objectives.

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: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Parent Company: Huntington Ingalls Industries, Inc

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

Business Categories: Category Business, Not Designated a Small Business

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline