Navy awards $127M contract for ship design services, raising questions about competition and value

Contract Overview

Contract Amount: $127,090,061 ($127.1M)

Contractor: Huntington Ingalls Incorporated

Awarding Agency: Department of Defense

Start Date: 2007-05-23

End Date: 2014-09-30

Contract Duration: 2,687 days

Daily Burn Rate: $47.3K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS AWARD FEE

Sector: Defense

Official Description: DESIGN AGENT FOR FOLLOW SHIPBUILDER

Place of Performance

Location: PASCAGOULA, JACKSON County, MISSISSIPPI, 39568

State: Mississippi Government Spending

Plain-Language Summary

Department of Defense obligated $127.1 million to HUNTINGTON INGALLS INCORPORATED for work described as: DESIGN AGENT FOR FOLLOW SHIPBUILDER Key points: 1. Contract awarded on a sole-source basis, limiting potential for competitive pricing. 2. Significant duration of the contract (over 7 years) suggests a long-term need. 3. Cost-plus award fee structure can incentivize cost overruns if not carefully managed. 4. The contract falls under the shipbuilding and repair sector, a critical area for national defense. 5. Lack of competition may lead to higher costs for taxpayers. 6. The contractor has a substantial history with the Department of Defense.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its sole-source nature and the specialized services provided. The cost-plus award fee (CPAF) structure, while common for complex R&D or design services, carries inherent risks of cost escalation if performance metrics and fee structures are not rigorously defined and monitored. Without competitive bids, it's difficult to ascertain if the $127 million represents a fair market price for the design agent services rendered over the contract's lifespan.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning the Department of the Navy did not solicit bids from multiple potential contractors. This approach is typically justified when only one contractor possesses the unique capabilities, intellectual property, or existing knowledge base required for the service. However, the absence of competition limits the government's ability to leverage market forces to achieve the best possible price and terms.

Taxpayer Impact: Sole-source awards mean taxpayers do not benefit from the price reductions typically achieved through competitive bidding, potentially leading to higher overall expenditure for the government.

Public Impact

The primary beneficiary is the Department of the Navy, which receives essential design services for shipbuilding. This contract supports the development and maintenance of naval assets, contributing to national security. The contract's geographic impact is centered around the contractor's operations in Mississippi. It likely supports a specialized workforce in naval architecture and engineering.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition.
Cost-plus award fee structure can incentivize higher costs.
Long contract duration increases exposure to potential cost overruns.
Lack of transparency in the justification for sole-sourcing.

Positive Signals

Contractor is a major player in shipbuilding and defense.
Services are critical for naval asset development.
Potential for strong performance given the award fee structure.

Sector Analysis

The shipbuilding and repair industry is a cornerstone of the defense industrial base, characterized by high barriers to entry, significant capital investment, and long production cycles. This contract for design agent services fits within the specialized segment of naval architecture and engineering, supporting the complex process of developing and modifying military vessels. Comparable spending in this sector often involves large, multi-year contracts for new builds, maintenance, and modernization programs.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'ss': false and 'sb': false. The prime contractor, Huntington Ingalls Incorporated, is a large defense industrial firm. While large prime contractors are often required to subcontract portions of their work to small businesses, the specific subcontracting plan and its impact on the small business ecosystem are not detailed in the provided data. Without set-asides, direct opportunities for small businesses to compete for this specific prime contract are non-existent.

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 (CPAF) structure necessitates robust performance monitoring to ensure the contractor meets defined objectives and to justify the award fee. Transparency regarding the justification for the sole-source award and the specific performance metrics tied to the fee structure would be key areas for public and congressional oversight. Inspector General involvement would typically be triggered by allegations of fraud, waste, or abuse.

Related Government Programs

Naval Ship Design Services
Shipbuilding and Repair Contracts
Defense Department Major Contracts
Cost-Plus Award Fee Contracts

Risk Flags

Sole-source award
Cost-plus award fee structure
Lack of competitive bidding
Long contract duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $127.1 million to HUNTINGTON INGALLS INCORPORATED. DESIGN AGENT FOR FOLLOW SHIPBUILDER

Who is the contractor on this award?

The obligated recipient is HUNTINGTON INGALLS INCORPORATED.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $127.1 million.

What is the period of performance?

Start: 2007-05-23. End: 2014-09-30.

What is the track record of Huntington Ingalls Incorporated with the Department of Defense, particularly on similar design or shipbuilding contracts?

Huntington Ingalls Incorporated (HII) is a major defense contractor with a long and extensive history of working with the Department of Defense, particularly the Navy. They are one of the largest shipbuilders in the United States, responsible for constructing a wide range of naval vessels, including aircraft carriers, submarines, and destroyers. HII has a significant portfolio of contracts for shipbuilding, repair, overhaul, and modernization. Their track record generally reflects a capacity to handle large, complex defense programs. However, like many large defense contractors, they have also been subject to scrutiny regarding contract performance, cost overruns, and schedule delays on specific programs. A detailed review of their past performance on Cost Plus Award Fee contracts and sole-source awards would be necessary for a comprehensive assessment.

How does the $127 million contract value compare to similar design agent contracts for naval vessels?

Direct comparison of the $127 million contract value for design agent services is difficult without more specific details on the scope of work, the complexity of the vessels involved, and the duration of the services. Design agent contracts can vary significantly based on whether they cover conceptual design, detailed engineering, combat systems integration, or lifecycle support. Given that this was a sole-source award spanning over seven years (from 2007 to 2014), the total value suggests a substantial and ongoing requirement. Benchmarking would ideally involve comparing it to other sole-source or competitively awarded design contracts for similar classes of naval ships, considering factors like vessel size, mission profile, and technological sophistication. The absence of competitive bids makes a definitive value-for-money assessment challenging.

What are the primary risks associated with a sole-source Cost Plus Award Fee (CPAF) contract of this magnitude and duration?

The primary risks associated with a sole-source CPAF contract of this magnitude and duration are multifaceted. Firstly, the sole-source nature eliminates competitive pressure, potentially leading to inflated costs and reduced incentive for the contractor to innovate or optimize efficiency. Secondly, the CPAF structure, while intended to incentivize performance, can lead to cost overruns if the base fee and award fee criteria are not meticulously defined and rigorously monitored. Contractors may prioritize achieving award fee targets, which could indirectly encourage higher spending. The long duration (over 7 years) amplifies these risks, increasing the potential for cost growth due to unforeseen technical challenges, changes in requirements, or market fluctuations. Effective oversight and stringent performance management are crucial to mitigate these risks.

What is the historical spending pattern for ship design services by the Department of the Navy, and how does this contract fit within that trend?

The Department of the Navy historically allocates substantial funding towards ship design, engineering, and acquisition, reflecting its role as a primary naval power. Spending in this area fluctuates based on shipbuilding programs, modernization efforts, and research and development initiatives. Contracts for design services are a critical component of the overall shipbuilding budget. This $127 million contract, awarded over a seven-year period, represents a significant, albeit specific, investment in design capabilities. It fits within the broader trend of the Navy investing in maintaining and advancing its fleet's design and technological edge. Analyzing the Navy's total shipbuilding and conversion obligations over the contract's period would provide context for its relative size and importance within the overall spending landscape.

What are the implications of the 'Ship Building and Repairing' NAICS code (336611) for this contract and the broader industry?

The North American Industry Classification System (NAICS) code 336611, 'Ship Building and Repairing,' signifies that this contract falls within a highly specialized and capital-intensive sector of the economy. Companies operating under this code are typically involved in the construction, conversion, repair, and alteration of ships and other marine vessels. This industry is crucial for national defense, maritime commerce, and offshore energy exploration. Contracts within this sector often involve large dollar values, long lead times, and complex technological requirements. The code suggests that the contractor possesses the necessary infrastructure, expertise, and certifications to operate within this demanding field. It also implies a significant impact on the industrial base, requiring a skilled workforce and specialized supply chains.

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

Solicitation ID: N0002407R2302

Offers Received: 1

Pricing Type: COST PLUS AWARD FEE (R)

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, Manufacturer of Goods, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $130,158,322

Exercised Options: $130,158,322

Current Obligation: $127,090,061

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline