DoD's $818.6M shipbuilding contract with BAE Systems shows strong competition but raises value concerns

Contract Overview

Contract Amount: $818,631,176 ($818.6M)

Contractor: BAE Systems Maritime Solutions SAN Diego Inc.

Awarding Agency: Department of Defense

Start Date: 2010-11-04

End Date: 2014-08-10

Contract Duration: 1,375 days

Daily Burn Rate: $595.4K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: CG SAN DIEGO MSMO

Place of Performance

Location: SAN DIEGO, SAN DIEGO County, CALIFORNIA, 92136

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $818.6 million to BAE SYSTEMS MARITIME SOLUTIONS SAN DIEGO INC. for work described as: CG SAN DIEGO MSMO Key points: 1. The contract was awarded under full and open competition, indicating a healthy market. 2. BAE Systems, a major defense contractor, secured this significant award. 3. The contract type, Cost Plus Incentive Fee, can lead to cost overruns if not managed carefully. 4. The duration of the contract (1375 days) suggests a long-term, complex project. 5. The relatively low number of bids (2) warrants further investigation into market dynamics. 6. The contract's value is substantial within the shipbuilding and repair sector.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging without specific performance metrics and detailed cost breakdowns. However, the Cost Plus Incentive Fee (CPIF) contract type, while allowing for flexibility, can sometimes lead to higher final costs compared to fixed-price contracts if cost controls are not rigorously enforced. The relatively low number of bidders (2) in a full and open competition might suggest potential inefficiencies in the bidding process or a highly specialized market. Further analysis of the contractor's historical performance on similar CPIF contracts would be beneficial to assess true value for money.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, meaning all responsible sources were permitted to submit bids. Despite this broad solicitation, only two bids were received. This limited number of bidders, even in an open competition, could indicate high barriers to entry, significant specialization required, or potentially a lack of robust competition within this specific niche of shipbuilding and repair. It is important to understand why more potential bidders did not participate.

Taxpayer Impact: While full and open competition is generally positive for taxpayers, the low number of bids suggests that the government may not have achieved the most competitive pricing possible. This could mean taxpayers are paying more than they would in a more robustly contested environment.

Public Impact

The primary beneficiary is the Department of the Navy, receiving critical shipbuilding and repair services. The contract supports the maintenance and modernization of naval assets, ensuring fleet readiness. The geographic impact is concentrated in California, where BAE Systems' maritime solutions are located. This contract likely supports a significant number of jobs within the defense shipbuilding and repair industry, particularly in California.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost Plus Incentive Fee contracts carry inherent risks of cost escalation if not closely monitored.
The limited number of bidders in a full and open competition raises questions about the effectiveness of the solicitation process or market concentration.
Lack of detailed performance data makes it difficult to fully assess the value for money achieved.

Positive Signals

Awarded under full and open competition, maximizing the pool of potential offerors.
BAE Systems is a well-established defense contractor with significant experience in maritime solutions.
The contract aims to fulfill critical naval shipbuilding and repair needs.

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 within the broader North American Industry Classification System (NAICS) code 336611 for Ship Building and Repairing. Spending in this sector is heavily influenced by government defense budgets and geopolitical factors. Comparable spending benchmarks would typically involve analyzing other large naval shipbuilding contracts awarded by the Department of Defense over the past decade.

Small Business Impact

The provided data indicates that small business participation was not a specific set-aside (ss: false) and there is no indication of subcontracting goals (sb: false). This suggests that the primary focus of this large contract was not on direct small business set-asides. While BAE Systems may engage small businesses as subcontractors, the contract structure itself does not prioritize or mandate such involvement, potentially limiting direct opportunities for the small business ecosystem in 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 Incentive Fee structure necessitates close monitoring of costs and performance to ensure the government receives value. Transparency would be enhanced through regular reporting requirements mandated by the contract terms. The Inspector General for the Department of Defense would have jurisdiction to investigate any allegations of fraud, waste, or abuse related to this contract.

Related Government Programs

Naval Ship Production
Ship Repair and Maintenance
Defense Shipbuilding Contracts
Department of the Navy Procurement
Cost Plus Incentive Fee Contracts

Risk Flags

Limited competition despite full and open solicitation.
Cost Plus Incentive Fee contract type carries inherent cost overrun risk.
Long contract duration increases exposure to changing conditions.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $818.6 million to BAE SYSTEMS MARITIME SOLUTIONS SAN DIEGO INC.. CG SAN DIEGO MSMO

Who is the contractor on this award?

The obligated recipient is BAE SYSTEMS MARITIME SOLUTIONS SAN DIEGO 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 $818.6 million.

What is the period of performance?

Start: 2010-11-04. End: 2014-08-10.

What is BAE Systems' track record with Cost Plus Incentive Fee (CPIF) contracts, particularly with the Department of the Navy?

BAE Systems, as a major defense contractor, has extensive experience with various contract types, including CPIF. Analyzing their historical performance on similar CPIF contracts with the Department of the Navy is crucial for assessing risk and value. This would involve reviewing past contract awards to BAE Systems for shipbuilding and repair, examining their cost performance against initial estimates, and evaluating the effectiveness of incentive fee structures in driving desired outcomes. A history of significant cost overruns or missed performance targets on prior CPIF contracts would be a red flag, while a consistent record of meeting or exceeding targets within reasonable cost variances would indicate a lower risk profile.

How does the per-unit cost or cost per displacement of the vessels under this contract compare to similar naval shipbuilding projects?

Determining a precise per-unit cost or cost per displacement requires specific details about the vessels being built or repaired, such as their class, size, capabilities, and the scope of work. Without this granular information, a direct comparison is difficult. However, the total award of over $818 million for a definitive contract suggests a significant undertaking. To benchmark, one would need to identify comparable naval shipbuilding contracts awarded around the same period, focusing on vessels of similar size and complexity. Analyzing the cost per ton of displacement or cost per vessel for those comparable contracts and comparing it to the implied cost structure of this BAE Systems contract would provide insights into whether this award represents a fair market price or potentially an outlier.

What are the primary risk indicators associated with this specific contract, beyond the contract type?

Beyond the inherent risks of a CPIF contract, key risk indicators for this contract include the limited number of bidders (two) in a full and open competition. This suggests potential market concentration or high barriers to entry, which could limit future competition and potentially inflate prices. The long duration of the contract (1375 days) also introduces risks related to technological obsolescence, changes in requirements, and economic fluctuations over the project's lifecycle. Furthermore, the specific nature of shipbuilding and repair involves complex technical challenges, potential supply chain disruptions, and the need for highly skilled labor, all of which represent operational risks that must be managed effectively by the contractor and overseen by the agency.

How effective has the Department of the Navy been in managing CPIF contracts for shipbuilding and repair to ensure program effectiveness?

The effectiveness of the Department of the Navy (DoN) in managing CPIF contracts for shipbuilding and repair can be assessed by examining historical program outcomes. This involves looking at whether major shipbuilding programs awarded under CPIF have met their cost, schedule, and performance objectives. Reports from the Government Accountability Office (GAO) and the DoD Inspector General often highlight challenges and successes in managing complex defense contracts. Factors contributing to effectiveness include robust oversight, clear performance metrics, strong negotiation of incentive clauses, and proactive risk management. Conversely, consistent cost overruns, schedule delays, or failure to achieve desired capabilities on CPIF contracts would indicate areas where the DoN's management practices may need improvement.

What have been the historical spending patterns for shipbuilding and repair contracts awarded by the Department of the Navy over the last 5-10 years?

Historical spending patterns for shipbuilding and repair contracts by the Department of the Navy (DoN) typically show significant and consistent investment, reflecting the ongoing need to maintain and modernize a large fleet. Annual spending often fluctuates based on major platform procurements (e.g., aircraft carriers, submarines, destroyers) and the tempo of maintenance and modernization efforts. Over the last 5-10 years, the DoN has consistently awarded billions of dollars annually in this category. Key trends might include shifts towards specific ship classes, increased focus on sustainment and modernization of existing fleets, and the impact of budget constraints or expansions. Analyzing aggregated spending data from sources like the Federal Procurement Data System (FPDS) would reveal the overall magnitude and distribution of these expenditures.

Industry Classification

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

Product/Service Code: MAINT, REPAIR, REBUILD EQUIPMENT › NON-NUCLEAR SHIP REPAIR

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: N0002410R4400

Offers Received: 2

Pricing Type: COST PLUS INCENTIVE FEE (V)

Evaluated Preference: NONE

Contractor Details

Parent Company: BAE Systems PLC (UEI: 217304393)

Address: 2205 E BELT ST, SAN DIEGO, CA, 92113

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Nonprofit Organization, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $921,045,398

Exercised Options: $819,914,900

Current Obligation: $818,631,176

Actual Outlays: $12,227

Subaward Activity

Number of Subawards: 1826

Total Subaward Amount: $289,111,548

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline