DoD's $420M Shipbuilding Contract with NASSCO Faces Scrutiny Over Cost-Plus Award Fee Structure

Contract Overview

Contract Amount: $420,515,952 ($420.5M)

Contractor: National Steel and Shipbuilding Company

Awarding Agency: Department of Defense

Start Date: 2015-04-21

End Date: 2019-01-24

Contract Duration: 1,374 days

Daily Burn Rate: $306.1K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: COST PLUS AWARD FEE

Sector: Defense

Official Description: IGF::CT::IGF

Place of Performance

Location: SAN DIEGO, SAN DIEGO County, CALIFORNIA, 92113

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $420.5 million to NATIONAL STEEL AND SHIPBUILDING COMPANY for work described as: IGF::CT::IGF Key points: 1. The contract awarded to NATIONAL STEEL AND SHIPBUILDING COMPANY (NASSCO) for shipbuilding and repair totals over $420 million. 2. Awarded under full and open competition, the contract utilized a Cost Plus Award Fee (CPAF) structure. 3. The CPAF structure can incentivize contractor performance but also carries risks of cost overruns if not managed tightly. 4. The sector is critical for national defense, with shipbuilding and repair being a specialized and high-cost area.

Value Assessment

Rating: questionable

The Cost Plus Award Fee (CPAF) structure, while offering performance incentives, can lead to higher costs compared to fixed-price contracts. Without detailed performance metrics and rigorous oversight, the potential for inflated costs is significant.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, suggesting a competitive bidding process. However, the CPAF structure's impact on price discovery is less direct than fixed-price contracts, as it allows for cost reimbursement plus potential award fees.

Taxpayer Impact: The CPAF structure necessitates careful oversight to ensure taxpayer funds are used efficiently and that award fees are genuinely earned through superior performance, not just cost accumulation.

Public Impact

Significant taxpayer investment in naval shipbuilding and repair capabilities. Potential for cost overruns in complex, long-term defense contracts. Importance of robust oversight for CPAF contracts to ensure value for money. Impact on the defense industrial base and associated workforce.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost Plus Award Fee structure can lead to higher costs.
Long contract duration (1374 days) increases risk of cost escalation.
Lack of specific performance metrics for award fee determination is a concern.
Potential for contractor to prioritize fee maximization over cost efficiency.

Positive Signals

Awarded under full and open competition.
Contractor is a major player in shipbuilding.
Contract supports critical national defense capabilities.

Sector Analysis

The shipbuilding and repair sector is characterized by high capital investment, specialized labor, and long production cycles. Defense contracts in this area often involve complex technologies and stringent quality requirements, making cost management challenging.

Small Business Impact

This contract was awarded to a large prime contractor, NATIONAL STEEL AND SHIPBUILDING COMPANY. There is no indication of subcontracting opportunities for small businesses within the provided data, which is common for large prime defense contracts.

Oversight & Accountability

The use of a Cost Plus Award Fee contract requires diligent oversight from the Department of the Navy to ensure that award fees are tied to verifiable performance improvements and that costs are reasonable and allocable. Regular audits and performance reviews are crucial.

Related Government Programs

Ship Building and Repairing
Department of Defense Contracting
Department of the Navy Programs

Risk Flags

Cost Plus Award Fee structure.
Long contract duration.
Potential for undefined award fee criteria.
Lack of transparency on small business subcontracting.
High dollar value contract.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $420.5 million to NATIONAL STEEL AND SHIPBUILDING COMPANY. IGF::CT::IGF

Who is the contractor on this award?

The obligated recipient is NATIONAL STEEL AND SHIPBUILDING COMPANY.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $420.5 million.

What is the period of performance?

Start: 2015-04-21. End: 2019-01-24.

What specific performance metrics were used to determine award fees, and how were they objectively measured to ensure fair compensation and prevent cost inflation?

The provided data does not specify the performance metrics used for award fees. In CPAF contracts, these metrics typically relate to schedule adherence, technical performance, and cost control. Without transparency into these metrics and their objective measurement, it's difficult to assess if the award fees truly reflect exceptional performance or simply cover costs plus a bonus, potentially leading to taxpayer overpayment.

Given the contract's duration and CPAF structure, what mechanisms were in place to mitigate the risk of cost overruns and ensure the government received the best possible value?

Mitigation strategies for CPAF contracts often include robust government oversight, detailed cost accounting standards, independent cost estimates, and clearly defined performance targets. The effectiveness of these mechanisms depends on the diligence of the contracting officer and the transparency of the contractor's cost reporting. The long duration increases the inherent risk, making continuous monitoring essential.

How does the cost of this contract compare to similar shipbuilding and repair contracts awarded under different fee structures (e.g., fixed-price) to assess overall cost-effectiveness?

Benchmarking this CPAF contract against similar fixed-price contracts is challenging without detailed cost breakdowns and performance data for both. Fixed-price contracts generally offer greater cost certainty for the government, while CPAF aims to balance cost control with incentivizing performance. A direct comparison would require analyzing the scope, complexity, and achieved outcomes of comparable contracts.

Industry Classification

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

Product/Service Code: SHIPS, SMALL CRAFT, PONTOON, DOCKS

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: N0002413R4305

Offers Received: 2

Pricing Type: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Parent Company: General Dynamics Corp

Address: 2798 HARBOR DR, SAN DIEGO, CA, 92113

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: $492,857,669

Exercised Options: $443,846,934

Current Obligation: $420,515,952

Actual Outlays: $1,946,868

Subaward Activity

Number of Subawards: 887

Total Subaward Amount: $88,581,940

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline