Navy awards $5.82B contract for detail design and construction of T-AO 205, a significant shipbuilding investment

Contract Overview

Contract Amount: $5,822,949,521 ($5.8B)

Contractor: National Steel and Shipbuilding Company

Awarding Agency: Department of Defense

Start Date: 2016-06-30

End Date: 2028-03-22

Contract Duration: 4,283 days

Daily Burn Rate: $1.4M/day

Competition Type: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Number of Offers Received: 2

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: DETAIL DESIGN AND CONSTRUCTION (DD&C) FOR T-AO 205

Place of Performance

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

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $5.82 billion to NATIONAL STEEL AND SHIPBUILDING COMPANY for work described as: DETAIL DESIGN AND CONSTRUCTION (DD&C) FOR T-AO 205 Key points: 1. The contract value represents a substantial commitment to naval shipbuilding capabilities. 2. Competition was conducted after exclusion of sources, suggesting specific technical requirements or prior involvement. 3. The fixed-price incentive contract type aims to balance cost control with contractor performance incentives. 4. The duration of the contract, over 4000 days, indicates a long-term, complex project. 5. The award to National Steel and Shipbuilding Company highlights a key player in the U.S. shipbuilding sector.

Value Assessment

Rating: good

The total contract value of $5.82 billion for the detail design and construction of a single vessel is substantial. Benchmarking this against similar complex naval shipbuilding projects is challenging due to unique specifications and long lead times. However, the fixed-price incentive structure suggests an effort to manage costs while incentivizing performance, which is a positive sign for value. Further analysis would require comparing the cost per displacement ton or per functional capability against historical data for similar vessel classes.

Cost Per Unit: N/A

Competition Analysis

Competition Level: limited

This contract was awarded under 'FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES.' This indicates that while the competition was intended to be open, certain sources were excluded, likely due to specialized capabilities, existing knowledge of the program, or specific security requirements. The exclusion of sources can sometimes limit the breadth of competition, potentially impacting price discovery compared to a truly unrestricted full and open competition. The fact that there were two bidders suggests a degree of competition within the qualified pool.

Taxpayer Impact: While not a fully unrestricted competition, the exclusion of sources implies a targeted approach to ensure specialized expertise. Taxpayers benefit from having at least two qualified bidders vying for the contract, which should still exert some downward pressure on pricing compared to a sole-source award.

Public Impact

The primary beneficiaries are the U.S. Navy and national defense, through the acquisition of a new, modern replenishment oiler. The contract will deliver the detail design and construction services for the T-AO 205 vessel. The geographic impact is concentrated in California, where National Steel and Shipbuilding Company is located, supporting the regional industrial base. The contract is expected to support a significant number of jobs in the shipbuilding and related industries, particularly in skilled trades and engineering.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Long contract duration (over 4000 days) increases the risk of cost overruns due to potential changes in material costs, labor rates, and evolving technological requirements.
The 'after exclusion of sources' competition method, while potentially necessary for specialized projects, can limit competitive pressure and potentially lead to higher costs than a broader competition.
Fixed-price incentive contracts can become costly if the target cost is not well-defined or if incentives are structured in a way that encourages cost escalation.
Dependence on a single contractor for such a large and complex project introduces significant risk if the contractor faces financial difficulties or performance issues.

Positive Signals

The award to a known, established shipyard like National Steel and Shipbuilding Company suggests a level of confidence in their capability to execute complex naval construction.
The fixed-price incentive contract structure, if managed effectively, can align contractor and government interests towards achieving performance goals within budget.
The contract's focus on detail design and construction ensures a comprehensive approach to building a critical naval asset.
The competition, even with exclusions, involved two bidders, indicating a viable market for this type of specialized shipbuilding.

Sector Analysis

The shipbuilding and repair industry is a critical component of the U.S. industrial base, particularly for national defense. This contract falls within the broader manufacturing and heavy industry sector, specifically focused on naval vessel construction. The market is characterized by high barriers to entry, significant capital investment, and a strong reliance on government contracts. Comparable spending benchmarks would typically involve the cost of other large naval vessels, such as destroyers, aircraft carriers, or other auxiliary ships, adjusted for size, complexity, and technological features.

Small Business Impact

This contract does not appear to have a specific small business set-aside component, as indicated by 'sb': false. The prime contractor, National Steel and Shipbuilding Company, is a large entity. However, large shipbuilding contracts often involve extensive subcontracting opportunities. It is probable that a portion of the work will be subcontracted to various suppliers and service providers, some of which may be small businesses. The extent of small business participation will depend on the prime contractor's subcontracting plan and the availability of qualified small business vendors for specific components or services.

Oversight & Accountability

Oversight for this contract will likely be managed by the Department of the Navy's acquisition and program management offices. Given the contract's value and duration, robust oversight mechanisms are expected, including regular progress reviews, technical inspections, and financial audits. The contract type (Fixed Price Incentive) necessitates close monitoring of costs and performance against established targets and incentives. Inspector General jurisdiction would apply to investigate any allegations of fraud, waste, or abuse related to the contract.

Related Government Programs

T-AO Fleet Replenishment Oilers
Naval Shipbuilding Programs
Defense Contract Awards
Shipbuilding and Repair Contracts

Risk Flags

Long contract duration
Competition after exclusion of sources
Fixed-price incentive contract type
High contract value

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $5.82 billion to NATIONAL STEEL AND SHIPBUILDING COMPANY. DETAIL DESIGN AND CONSTRUCTION (DD&C) FOR T-AO 205

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 $5.82 billion.

What is the period of performance?

Start: 2016-06-30. End: 2028-03-22.

What is the historical spending pattern for T-AO class vessels?

The T-AO 205 is part of the John Lewis-class replenishment oilers program, intended to replace older oilers. The Navy has awarded multiple contracts for this class. For instance, the lead ship, T-AO 205, was awarded to General Dynamics NASSCO (National Steel and Shipbuilding Company) in 2016 for $5.82 billion. Subsequent ships in the class have also been awarded, often with different contract values reflecting design finalization, inflation, and potential learning curve efficiencies or challenges. Analyzing the total obligated amounts and contract modifications across the T-AO program reveals a significant, sustained investment in this critical capability, with individual vessel costs typically ranging in the hundreds of millions to over a billion dollars depending on the stage of the program and specific contract terms.

How does the awarded price compare to similar naval shipbuilding contracts?

The $5.82 billion award for the detail design and construction of a single T-AO 205 vessel is substantial, reflecting the complexity and scale of modern naval shipbuilding. To compare effectively, one would look at the cost per displacement ton or per key capability metric against other large naval vessels like destroyers (e.g., Arleigh Burke-class), amphibious assault ships, or even commercial large tankers, adjusted for military specifications. While direct comparisons are difficult due to unique design requirements, technological advancements, and varying market conditions over time, this price point is generally in line with the high costs associated with building large, specialized military vessels in the United States. The fixed-price incentive nature of the contract suggests an effort to control costs relative to performance targets.

What are the primary risks associated with this contract?

The primary risks for this contract include schedule delays, cost overruns, and performance issues. The long duration (over 4000 days) increases exposure to fluctuations in material costs (like steel), labor rates, and potential design changes. The 'after exclusion of sources' competition method, while potentially necessary, could limit competitive pressure, impacting price. Fixed-price incentive contracts carry the risk that if the target cost is not well-defined or if incentives are poorly structured, costs could escalate. Furthermore, the reliance on a single shipyard for the design and construction of a critical asset like T-AO 205 concentrates risk; any significant operational or financial issues at the contractor could jeopardize the program's success.

What is the contractor's track record with similar naval shipbuilding projects?

National Steel and Shipbuilding Company (NASSCO), part of General Dynamics, has a long and established track record in naval shipbuilding. They have previously built various types of naval vessels, including tankers, auxiliary ships, and amphibious assault ships. NASSCO was also the shipyard awarded the contract for the lead ship of the T-AO 205 class, indicating familiarity with the design and program requirements. Their history includes delivering complex vessels under challenging conditions, though like many large shipbuilding programs, they have also faced scrutiny regarding cost and schedule performance on specific projects. The Navy's decision to award this significant contract suggests confidence in NASSCO's capabilities and past performance in delivering large naval platforms.

How does the competition level impact value for taxpayers?

The competition level for this contract was 'FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES,' with two bidders ultimately participating. While not a completely unrestricted competition, having two qualified bidders generally provides a better opportunity for price discovery and competitive pricing than a sole-source award. The exclusion of sources suggests that only a limited number of shipyards possessed the necessary specialized capabilities or security clearances. Therefore, while taxpayers benefit from having multiple bidders, the potential pool of competitors was constrained. The effectiveness of this competition in securing optimal value depends on the specific criteria used for exclusion and the robustness of the bidding process among the qualified entities.

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 AFTER EXCLUSION OF SOURCES

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: N0002415R2200

Offers Received: 2

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

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: $5,990,138,075

Exercised Options: $5,990,138,075

Current Obligation: $5,822,949,521

Actual Outlays: $276,536,692

Subaward Activity

Number of Subawards: 6572

Total Subaward Amount: $4,087,313,776

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline