Navy awards $848.6M contract for LHD 3 shipbuilding and repair to BAE Systems

Contract Overview

Contract Amount: $848,562,244 ($848.6M)

Contractor: BAE Systems Maritime Solutions Norfolk Inc.

Awarding Agency: Department of Defense

Start Date: 2011-05-06

End Date: 2018-03-13

Contract Duration: 2,503 days

Daily Burn Rate: $339.0K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: COST PLUS AWARD FEE

Sector: Defense

Official Description: EXECUTION PLANNING LHD 3 FY11 PMA

Place of Performance

Location: NORFOLK, NORFOLK CITY County, VIRGINIA, 23523

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $848.6 million to BAE SYSTEMS MARITIME SOLUTIONS NORFOLK INC. for work described as: EXECUTION PLANNING LHD 3 FY11 PMA Key points: 1. Contract awarded for a critical amphibious assault ship, highlighting long-term defense investments. 2. Significant value suggests a complex, high-stakes project with substantial resource allocation. 3. Sole contractor indicates potential for specialized expertise but limits competitive pricing pressure. 4. Long performance period implies ongoing maintenance and upgrade requirements beyond initial construction. 5. Contract type suggests performance incentives, but cost-plus nature warrants close cost oversight. 6. Shipbuilding sector is capital-intensive and subject to geopolitical and technological shifts.

Value Assessment

Rating: fair

The $848.6 million award for the LHD 3 shipbuilding and repair is a substantial investment. Benchmarking this against similar large-scale naval vessel construction is challenging due to the unique specifications and long lead times involved. The cost-plus award fee structure allows for flexibility but necessitates rigorous oversight to ensure costs remain reasonable and that the award fee is justified by performance. Without detailed cost breakdowns and comparisons to industry standards for similar ship classes, a definitive value-for-money assessment is difficult.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders were likely considered. However, the specific number of bidders and the details of the competitive process are not provided. For complex, high-value defense contracts like shipbuilding, full and open competition is crucial for achieving fair market prices and ensuring the government receives the best value. The presence of multiple bidders, even if only one ultimately wins, drives innovation and cost consciousness.

Taxpayer Impact: Full and open competition is intended to ensure taxpayer funds are used efficiently by fostering a competitive environment that drives down costs and improves quality for essential defense assets.

Public Impact

The U.S. Navy benefits from the acquisition of a critical amphibious assault ship, enhancing its power projection and operational capabilities. The contract supports the shipbuilding and repair industry, potentially creating or sustaining jobs in the maritime sector. The geographic impact is concentrated in areas with significant naval shipbuilding infrastructure, likely Virginia. The delivery of this vessel contributes to national security and readiness for global operations.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost-plus award fee contracts can lead to cost overruns if not managed diligently.
Long contract durations increase the risk of scope creep and evolving requirements.
Dependence on a single contractor for a major vessel could create supply chain vulnerabilities.

Positive Signals

Awarded under full and open competition, suggesting a robust bidding process.
The contract addresses a critical defense need for amphibious assault capabilities.
BAE Systems is a major defense contractor with established experience in shipbuilding.

Sector Analysis

The shipbuilding and repair sector is a vital component of the defense industrial base, characterized by high capital investment, specialized labor, and long production cycles. This contract falls within the broader defense procurement landscape, where major platforms like amphibious assault ships represent significant portions of the defense budget. Comparable spending benchmarks would typically involve other large naval vessel construction projects, such as aircraft carriers or destroyers, which share similar complexity and cost profiles.

Small Business Impact

While this contract is a large prime award to a major defense contractor, it's important to assess subcontracting opportunities for small businesses. Large shipbuilding projects often involve extensive supply chains, providing potential avenues for small businesses to participate in providing components, materials, or specialized services. The government's focus on small business participation goals may necessitate specific subcontracting plans from BAE Systems to ensure a portion of the work benefits the small business ecosystem.

Oversight & Accountability

Oversight for this contract would likely involve the Department of the Navy's contracting officers, program managers, and potentially the Defense Contract Management Agency (DCMA). The cost-plus award fee structure requires detailed monitoring of costs and performance against established criteria to determine award fees. Transparency is typically managed through contract reporting requirements and program reviews. Inspector General jurisdiction would apply to investigations of fraud, waste, or abuse related to the contract.

Related Government Programs

Amphibious Assault Ships (LHA/LHD Program)
Naval Shipbuilding and Conversion
Defense Procurement
Ship Repair and Maintenance Contracts

Risk Flags

Cost Overruns Risk
Schedule Delays Risk
Performance Measurement Complexity
Supply Chain Dependency

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $848.6 million to BAE SYSTEMS MARITIME SOLUTIONS NORFOLK INC.. EXECUTION PLANNING LHD 3 FY11 PMA

Who is the contractor on this award?

The obligated recipient is BAE SYSTEMS MARITIME SOLUTIONS NORFOLK 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 $848.6 million.

What is the period of performance?

Start: 2011-05-06. End: 2018-03-13.

What is BAE Systems' track record with similar large naval shipbuilding contracts?

BAE Systems has a significant track record in naval shipbuilding, including the construction and modernization of various classes of warships for the U.S. Navy and international navies. They have been involved in programs such as the Arleigh Burke-class destroyers, littoral combat ships, and amphibious assault ships. Their experience encompasses complex integration of combat systems, propulsion, and habitability features. However, like many large defense contractors, they have faced scrutiny over cost performance and schedule adherence on specific programs. A detailed review of their past performance on contracts of similar size and complexity, particularly for amphibious assault vessels, would be necessary to fully assess their capability and reliability for this specific LHD 3 contract.

How does the $848.6 million cost compare to the construction of similar amphibious assault ships?

The $848.6 million figure represents the total value of the contract, which includes shipbuilding and potentially repair or modernization aspects over its duration. Benchmarking this against the construction cost of similar amphibious assault ships requires careful consideration of the specific class (e.g., Wasp-class or America-class), the year of construction, and the scope of work included. Historically, the construction costs for large naval vessels can vary significantly. For instance, earlier Wasp-class ships had construction costs that, when adjusted for inflation, might fall within a comparable range, while newer, more technologically advanced classes like the America-class can exceed this figure substantially. Without knowing the exact class and specific requirements for LHD 3, a precise comparison is difficult, but the figure appears substantial for a major naval platform.

What are the primary risks associated with a cost-plus award fee (CPAF) contract for shipbuilding?

The primary risks associated with a Cost-Plus Award Fee (CPAF) contract for shipbuilding revolve around cost control and performance measurement. For the government, the risk is that the contractor may have less incentive to control costs aggressively compared to fixed-price contracts, as costs are reimbursed plus a fee. The 'award' portion of the fee is contingent on meeting or exceeding certain performance objectives, which requires well-defined metrics and robust oversight to ensure the fee is earned appropriately. Contractor risks include managing costs within the expected range to maximize their fee and ensuring they meet all performance criteria. Effective administration, clear performance standards, and diligent oversight are critical to mitigating these risks and ensuring value for taxpayer money.

What is the historical spending pattern for shipbuilding and repair within the Department of the Navy?

The Department of the Navy consistently represents one of the largest components of the U.S. defense budget, with shipbuilding and repair being a significant and often fluctuating element. Historical spending patterns show substantial investments in naval platforms, driven by strategic needs, fleet modernization goals, and geopolitical considerations. Annual appropriations for shipbuilding and conversion, Navy (SCN) have historically ranged from tens of billions to over $100 billion in some fiscal years, depending on the number and type of vessels being procured or modernized. Repair and maintenance budgets are also substantial, supporting the readiness of the existing fleet. This $848.6 million contract for LHD 3 fits within this broader context of sustained, high-value investment in naval assets.

How does the 'full and open competition' designation impact the potential for cost savings for taxpayers?

The 'full and open competition' designation is a cornerstone of federal procurement policy designed to maximize competition and, consequently, achieve better prices and value for taxpayers. By allowing all responsible sources to submit bids, the government broadens the potential pool of contractors, fostering a more competitive environment. This competition typically drives down prices as contractors vie for the contract award. It also encourages innovation and efficiency as companies seek to offer the most attractive proposals. While the ultimate cost savings depend on the number and quality of bids received and the specific contract type, full and open competition is generally considered the most effective method for ensuring taxpayer dollars are used wisely and that the government obtains goods and services at fair market prices.

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: N0002409R4403

Offers Received: 2

Pricing Type: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Parent Company: BAE Systems PLC

Address: 750 W BERKLEY AVE, NORFOLK, VA, 23523

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

Financial Breakdown

Contract Ceiling: $929,990,495

Exercised Options: $848,562,244

Current Obligation: $848,562,244

Subaward Activity

Number of Subawards: 1557

Total Subaward Amount: $1,813,670,726

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline