DoD awards $11.9B for CVN 80 engineering, with Huntington Ingalls Inc. as sole contractor

Contract Overview

Contract Amount: $11,891,378,287 ($11.9B)

Contractor: Huntington Ingalls Inc

Awarding Agency: Department of Defense

Start Date: 2016-05-23

End Date: 2036-06-02

Contract Duration: 7,315 days

Daily Burn Rate: $1.6M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: CVN 80 ENGINEERING EFFORTS AND STEEL

Place of Performance

Location: NEWPORT NEWS, NEWPORT NEWS CITY County, VIRGINIA, 23607

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $11.89 billion to HUNTINGTON INGALLS INC for work described as: CVN 80 ENGINEERING EFFORTS AND STEEL Key points: 1. Significant investment in a critical naval asset, the CVN 80 aircraft carrier. 2. Long-term contract duration suggests a sustained need for these specialized services. 3. Sole-source award raises questions about potential cost efficiencies and market competition. 4. The fixed-price incentive contract type aims to balance cost control with performance. 5. This contract represents a substantial portion of shipbuilding and repair sector activity. 6. Focus on engineering efforts and steel procurement indicates foundational work for the carrier.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its unique nature as a sole-source award for a major capital asset. The fixed-price incentive structure suggests an attempt to manage costs, but without competitive bids, it's difficult to ascertain if the pricing reflects true market value. The sheer scale of the award necessitates rigorous oversight to ensure taxpayer funds are used efficiently. Comparisons to similar sole-source, long-term shipbuilding contracts would be necessary for a more precise value assessment.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning only one contractor, Huntington Ingalls Inc., was solicited. This approach is typically used when a unique capability or asset is involved, or in cases of urgent need. The lack of competition means there was no opportunity for price discovery through bidding, potentially leading to higher costs for the government compared to a competed contract. The rationale for sole-sourcing this significant shipbuilding effort warrants further examination.

Taxpayer Impact: The absence of competition for this multi-billion dollar contract means taxpayers may not be benefiting from the cost savings that typically arise from a competitive bidding process. This could result in a higher overall expenditure for the CVN 80 program.

Public Impact

The primary beneficiary is the U.S. Navy, which will receive the engineering and construction services for the CVN 80 aircraft carrier. This contract supports the delivery of a key strategic asset for national defense. The geographic impact is concentrated around Huntington Ingalls' shipbuilding facilities. Significant workforce implications are expected, supporting skilled labor in the shipbuilding industry. The contract contributes to the readiness and modernization of the U.S. fleet.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially impacting cost-effectiveness.
Long contract duration (over 10 years) increases exposure to cost overruns and scope creep.
Complexity of aircraft carrier construction presents inherent technical and schedule risks.
Reliance on a single contractor for critical engineering and steel procurement.

Positive Signals

Fixed-price incentive contract aims to align contractor and government interests on cost and performance.
Experienced contractor (Huntington Ingalls) with a track record in naval shipbuilding.
Contract supports a high-priority national defense asset (CVN 80).
Long-term commitment provides stability for planning and resource allocation.

Sector Analysis

The shipbuilding and repair sector (NAICS 336611) is characterized by large, complex projects, high capital investment, and significant government procurement, particularly from the Department of Defense. This contract for the CVN 80 represents a major undertaking within this sector. Comparable spending benchmarks would involve other large naval vessel construction contracts, which are typically few in number and often awarded sole-source due to specialized capabilities. The market is dominated by a few large players capable of handling such immense projects.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'ss': false and 'sb': false. Given the nature of aircraft carrier construction, it is likely that Huntington Ingalls Inc. will engage numerous subcontractors. The extent to which small businesses will participate as subcontractors is not detailed in the provided data but is crucial for assessing the broader economic impact and ensuring opportunities within the small business ecosystem.

Oversight & Accountability

Oversight for this contract will likely fall under the Department of the Navy's contracting and program management offices, with potential involvement from the Government Accountability Office (GAO) and the Department of Defense Inspector General (DoDIG). The fixed-price incentive structure requires careful monitoring of performance metrics and cost thresholds to ensure accountability. Transparency will depend on the level of detail released regarding program progress and expenditures, especially given the sole-source nature.

Related Government Programs

CVN 78 (Gerald R. Ford-class) construction and outfitting
Naval shipbuilding and repair contracts
Defense procurement for major capital assets
Aircraft carrier program management
Department of Defense R&D for naval platforms

Risk Flags

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

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $11.89 billion to HUNTINGTON INGALLS INC. CVN 80 ENGINEERING EFFORTS AND STEEL

Who is the contractor on this award?

The obligated recipient is HUNTINGTON INGALLS 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 $11.89 billion.

What is the period of performance?

Start: 2016-05-23. End: 2036-06-02.

What is the historical spending pattern for Huntington Ingalls Inc. on aircraft carrier construction?

Huntington Ingalls Industries (HII) has a long and established history as the sole builder of U.S. Navy aircraft carriers. Their predecessor companies have been involved in carrier construction since World War II. HII is currently responsible for the construction of the Gerald R. Ford-class carriers, including the lead ship, USS Gerald R. Ford (CVN 78), USS John F. Kennedy (CVN 79), and USS Enterprise (CVN 80). Spending on these programs has been substantial, often in the billions of dollars per ship, reflecting the immense complexity and scale of these projects. For instance, the construction contracts for the Ford-class carriers have consistently been among the largest single contract awards within the Department of Defense. Analyzing HII's historical spending on these specific programs reveals a consistent, high-volume expenditure pattern directly tied to the Navy's carrier modernization and construction pipeline.

How does the fixed-price incentive (FPI) contract type typically perform in large shipbuilding projects?

Fixed-Price Incentive (FPI) contracts are designed to share the risks and rewards between the government and the contractor. In FPI contracts, there's a target cost, a target profit, and a price ceiling. If the final cost is below the target, both parties share in the savings according to a pre-negotiated formula. If the final cost exceeds the target but stays below the ceiling, the contractor's profit is reduced, and the government pays the higher cost. If the cost exceeds the ceiling, the contractor absorbs the excess. In large shipbuilding projects, FPI contracts aim to incentivize the contractor to control costs while ensuring the government isn't exposed to unlimited overruns. However, their effectiveness hinges on accurate initial cost estimations and robust oversight to prevent the contractor from manipulating costs to maximize profit within the FPI structure. The long duration of carrier construction can make initial estimates particularly challenging, potentially leading to significant adjustments or disputes.

What are the primary risks associated with a sole-source award for a major defense asset like the CVN 80?

The primary risk associated with a sole-source award for a major defense asset like the CVN 80 is the lack of competitive pressure, which can lead to inflated costs and reduced innovation. Without competing bids, the government loses the opportunity to secure the best possible price and terms. This can result in taxpayers paying more than necessary for the asset. Furthermore, sole-sourcing can create a dependency on a single contractor, potentially reducing leverage in future negotiations and making it difficult to switch providers if performance issues arise. There's also a risk that the contractor may become complacent due to the guaranteed business, potentially impacting efficiency and quality over the long contract term. Ensuring robust oversight and performance metrics becomes even more critical in sole-source situations to mitigate these inherent risks.

What is the significance of the 'Ship Building and Repairing' (NAICS 336611) sector for the U.S. economy and defense?

The Ship Building and Repairing sector (NAICS 336611) is of immense strategic and economic importance to the United States. Economically, it supports a highly skilled workforce, including engineers, welders, electricians, and project managers, contributing significantly to regional economies where shipyards are located. It also drives demand for a vast supply chain of raw materials, components, and specialized services. Strategically, this sector is the backbone of the U.S. Navy's operational capability, enabling the construction and maintenance of the fleet necessary for national defense, power projection, and maritime security. The ability to domestically produce and repair advanced naval vessels ensures national security independence and reduces reliance on foreign capabilities. The sector's health is directly linked to defense spending and geopolitical stability.

How does the contract duration of over 20 years (2016-2036) impact the overall cost and risk profile?

A contract duration spanning over two decades, such as the 2016-2036 period for the CVN 80 engineering efforts, significantly impacts both cost and risk. For costs, such a long timeframe allows for amortization of initial engineering and setup expenses over a longer period, potentially reducing the per-year burden. However, it also exposes the contract to long-term economic fluctuations, inflation, and potential changes in material costs, which can drive up the total expenditure. Risk-wise, the extended duration increases the likelihood of unforeseen technological advancements, changes in military requirements, and potential contractor performance degradation or financial instability. Managing such a long-term contract requires continuous oversight, adaptive management strategies, and robust mechanisms for contract modifications to address evolving circumstances, all of which add complexity and potential for cost increases.

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: N0002415R2116

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Parent Company: Huntington Ingalls Industries, Inc

Address: 4101 WASHINGTON AVE, NEWPORT NEWS, VA, 23607

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

Financial Breakdown

Contract Ceiling: $18,137,661,813

Exercised Options: $18,137,661,813

Current Obligation: $11,891,378,287

Actual Outlays: $25,985,218

Subaward Activity

Number of Subawards: 137382

Total Subaward Amount: $9,586,167,771

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline