Navy awards $1.62B for Virginia-class submarine construction to Electric Boat Corporation

Contract Overview

Contract Amount: $16,238,775,949 ($16.2B)

Contractor: Electric Boat Corporation

Awarding Agency: Department of Defense

Start Date: 2008-12-22

End Date: 2023-08-31

Contract Duration: 5,365 days

Daily Burn Rate: $3.0M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: CONSTRUCTION OF VIRGINIA CLASS BLOCK III SUBMARINES.

Place of Performance

Location: GROTON, NEW LONDON County, CONNECTICUT, 06340

State: Connecticut Government Spending

Plain-Language Summary

Department of Defense obligated $16.24 billion to ELECTRIC BOAT CORPORATION for work described as: CONSTRUCTION OF VIRGINIA CLASS BLOCK III SUBMARINES. Key points: 1. Contract awarded on a sole-source basis, limiting price competition. 2. Long-term contract duration suggests significant program commitment. 3. Fixed-price incentive contract type aims to balance cost control with performance. 4. Focus on submarine construction indicates critical defense sector investment. 5. Potential for cost overruns exists given the incentive structure and long timeline. 6. High value of the contract underscores the strategic importance of naval capabilities.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its specialized nature and sole-source award. The fixed-price incentive structure suggests an attempt to control costs while incentivizing performance, but the long duration and complexity of submarine construction inherently carry risks of cost escalation. Without comparable sole-source contracts for similar submarine classes, a precise value-for-money assessment is difficult. However, the significant investment reflects the high cost associated with advanced naval platforms.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning Electric Boat Corporation was the only bidder. This approach is often used for highly specialized or unique requirements where only one contractor possesses the necessary capabilities or intellectual property. The lack of competition means that price discovery through market forces was not a factor in this award, potentially leading to higher costs than if multiple bids were solicited.

Taxpayer Impact: The absence of competition means taxpayers did not benefit from potential cost savings that could arise from a competitive bidding process. The government relied on negotiation to establish terms, rather than market-driven pricing.

Public Impact

Benefits the U.S. Navy by providing critical submarine assets for national defense. Delivers advanced Virginia-class submarines, enhancing strategic deterrence and power projection capabilities. Primarily impacts the shipbuilding sector and associated supply chains. Supports a highly skilled workforce in shipbuilding and related technical fields. Geographic impact is concentrated in areas where Electric Boat Corporation operates, notably Connecticut.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Long contract duration increases exposure to economic fluctuations and potential cost growth.
Complexity of submarine construction presents inherent technical and schedule risks.
Fixed-price incentive contracts can lead to cost overruns if targets are not met or incentives are structured unfavorably.

Positive Signals

Contract aims to ensure the continued production of vital defense assets.
Fixed-price incentive structure provides some cost control and performance motivation.
Electric Boat Corporation has a long history and specialized expertise in submarine construction.
Long-term award provides stability for the contractor and its supply chain.

Sector Analysis

The shipbuilding and repair industry is a critical component of the defense sector, characterized by high barriers to entry, significant capital investment, and long production cycles. This contract falls within the naval shipbuilding segment, which is dominated by a few major players due to the specialized nature of the work. The U.S. Navy's fleet modernization and expansion efforts drive spending in this area, with submarine construction representing a substantial portion of the budget due to technological complexity and strategic importance. Comparable spending benchmarks are difficult to establish due to the unique nature of submarine classes and sole-source awards.

Small Business Impact

This contract does not appear to have a small business set-aside component, as it was awarded sole-source to a large prime contractor. However, Electric Boat Corporation, as a major defense contractor, is likely to engage small businesses as subcontractors within its extensive supply chain. The subcontracting opportunities generated by this large award could provide significant business for qualified small businesses in specialized manufacturing and support services.

Oversight & Accountability

Oversight for this contract would typically be managed by the Department of the Navy's acquisition and program management offices. Accountability measures are embedded within the contract's performance metrics and incentive clauses. Transparency may be limited due to the sole-source nature and the classified aspects of submarine technology. The Inspector General for the Department of Defense would have jurisdiction to investigate potential fraud, waste, or abuse.

Related Government Programs

Virginia-class Submarine Program
Naval Shipbuilding Contracts
Defense Procurement
Submarine Force Modernization

Risk Flags

Sole-source award
Long contract duration
Potential for cost overruns
High dollar value

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $16.24 billion to ELECTRIC BOAT CORPORATION. CONSTRUCTION OF VIRGINIA CLASS BLOCK III SUBMARINES.

Who is the contractor on this award?

The obligated recipient is ELECTRIC BOAT CORPORATION.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $16.24 billion.

What is the period of performance?

Start: 2008-12-22. End: 2023-08-31.

What is the historical performance of Electric Boat Corporation on similar submarine construction contracts?

Electric Boat Corporation has a long and established history of constructing submarines for the U.S. Navy, including previous classes like the Los Angeles and Ohio submarines, as well as the ongoing Virginia-class program. While specific performance metrics for past contracts are often not publicly detailed, the company is generally recognized for its expertise and capability in delivering complex submarine platforms. However, like many large, long-term defense programs, submarine construction has historically faced challenges related to schedule delays and cost overruns. The Navy's continued reliance on Electric Boat for these critical assets suggests a level of satisfaction with their overall performance, despite potential program-specific issues that may arise and are addressed through contract modifications and oversight.

How does the pricing structure of this fixed-price incentive contract compare to other submarine construction contracts?

Fixed-price incentive (FPI) contracts are designed to share cost risks and rewards between the government and the contractor. In an FPI contract, a target cost, target profit, and a price ceiling are established. If the final cost is below the target, both parties share in the savings. If the cost exceeds the target but remains below the ceiling, the contractor's profit is reduced, and the government pays the final price. If the cost exceeds the ceiling, the contractor is responsible for the overage. Compared to other submarine contracts, the specific parameters (target cost, incentive sharing ratios, price ceiling) of this FPI contract would determine its relative competitiveness. Without access to these specific details and comparable contract data, a direct comparison is difficult. However, the use of FPI indicates an effort to balance the government's need for cost control with the contractor's need for profit potential on a complex, long-term project.

What are the primary risks associated with the long duration and sole-source nature of this contract?

The primary risks associated with the long duration (over 14 years) and sole-source nature of this contract are significant. The sole-source award eliminates competitive pressure, potentially leading to less favorable pricing for the government and reduced incentive for the contractor to innovate or optimize costs aggressively. The long duration exposes the contract to a multitude of risks, including potential changes in technology, evolving geopolitical threats requiring different capabilities, economic inflation impacting material and labor costs, and political shifts affecting defense budgets. Furthermore, extended timelines increase the likelihood of unforeseen technical challenges, design changes, and supply chain disruptions, all of which can lead to schedule delays and cost overruns. The government's reliance on a single source for such a critical capability also creates a dependency that could be exploited.

What is the expected impact of this contract on the U.S. Navy's submarine fleet capabilities?

This contract is crucial for the modernization and expansion of the U.S. Navy's submarine fleet. The Virginia-class submarines represent the latest generation of attack submarines, incorporating advanced technologies for stealth, sensor capabilities, and combat systems. Awarding this contract ensures the continued production of these vital platforms, which are essential for maintaining undersea dominance, intelligence gathering, special operations support, and strategic deterrence. The timely delivery of these submarines underpins the Navy's ability to meet its operational requirements and counter potential adversaries in the undersea domain. The contract directly contributes to replacing aging submarine classes and maintaining the required fleet size and technological edge.

How has federal spending on Virginia-class submarines evolved over time, and what does this contract represent in that trend?

Federal spending on the Virginia-class submarine program has been substantial and consistent since its inception in the late 1990s. The program is a high-priority, multi-year procurement effort involving significant annual outlays. This specific contract, valued at over $1.6 billion, represents a significant tranche of funding within the broader, ongoing Virginia-class construction effort. It reflects the sustained commitment by the Department of Defense and Congress to this critical shipbuilding initiative. Over time, the total program cost has been subject to adjustments based on production efficiencies, technological upgrades, and evolving requirements. This award continues the trend of substantial investment required to field and maintain this advanced submarine class, underscoring its strategic importance and the long-term nature of naval shipbuilding.

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: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Address: 75 EASTERN POINT RD, GROTON, CT, 06340

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

Financial Breakdown

Contract Ceiling: $21,956,410,227

Exercised Options: $21,956,410,227

Current Obligation: $16,238,775,949

Actual Outlays: $56,747,688

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline