Navy awards $3.47B for long-lead time materials to Electric Boat Corp., extending to 2036

Contract Overview

Contract Amount: $34,659,730,903 ($34.7B)

Contractor: Electric Boat Corporation

Awarding Agency: Department of Defense

Start Date: 2017-02-14

End Date: 2036-06-02

Contract Duration: 7,048 days

Daily Burn Rate: $4.9M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: SSN 802 AND 803 LONG LEAD TIME MATERIAL

Place of Performance

Location: GROTON, NEW LONDON County, CONNECTICUT, 06340

State: Connecticut Government Spending

Plain-Language Summary

Department of Defense obligated $34.66 billion to ELECTRIC BOAT CORPORATION for work described as: SSN 802 AND 803 LONG LEAD TIME MATERIAL Key points: 1. Contract awarded on a sole-source basis, limiting price competition. 2. Fixed-price incentive contract type suggests shared risk between government and contractor. 3. Long contract duration (over 19 years) may indicate strategic importance and potential for cost escalation. 4. Focus on long-lead time materials suggests critical components for future shipbuilding programs. 5. Significant award value points to a major defense procurement effort. 6. Contractor's sole-source award raises questions about market dynamics and alternative sourcing.

Value Assessment

Rating: questionable

The contract's value of $3.47 billion for long-lead time materials is substantial. Without comparable sole-source awards for similar materials, a direct value-for-money assessment is difficult. The fixed-price incentive structure aims to control costs, but the extended duration and lack of competition introduce risks of overpayment. Benchmarking against industry standards for similar components would be necessary for a more definitive value assessment.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning Electric Boat Corporation was the only bidder. This approach is typically used when only one responsible source can provide the required supplies or services. The lack of competition means there was no opportunity for price discovery through a bidding process, potentially leading to higher costs for the government.

Taxpayer Impact: Taxpayers may face higher costs due to the absence of competitive bidding. The government has limited leverage to negotiate prices when only one supplier is available.

Public Impact

The primary beneficiaries are the U.S. Navy's shipbuilding programs, ensuring the availability of critical components. Services delivered include the procurement of long-lead time materials essential for submarine construction. The geographic impact is concentrated in Connecticut, where Electric Boat Corporation is located. Workforce implications include sustained employment at Electric Boat and its supply chain partners.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Extended contract duration increases exposure to potential cost overruns.
Lack of transparency in sole-source justification could mask inefficiencies.
Dependence on a single supplier creates supply chain vulnerability.
Fixed-price incentive contracts can still lead to cost increases if not managed carefully.

Positive Signals

Ensures availability of critical long-lead time materials for strategic shipbuilding.
Fixed-price incentive contract aims to align contractor and government interests on cost.
Long-term award provides stability for contractor's production planning and workforce.
Potential for economies of scale in procuring materials over the contract's life.

Sector Analysis

This contract falls within the shipbuilding and repair sector, a critical component of the defense industrial base. The market for specialized submarine components is highly concentrated, often dominated by a few key players due to high barriers to entry, proprietary technology, and significant capital investment. The award to Electric Boat, a major U.S. submarine manufacturer, aligns with the government's strategy to maintain domestic shipbuilding capabilities. Comparable spending benchmarks are difficult to establish due to the unique nature of long-lead time materials for advanced naval platforms.

Small Business Impact

This contract does not appear to include a small business set-aside. Given the sole-source nature and the specialized requirements for long-lead time materials in shipbuilding, it is unlikely that small businesses would be primary contractors. However, Electric Boat Corporation may engage small businesses as subcontractors, contributing to the broader defense industrial ecosystem. The extent of small business subcontracting would need further investigation.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. Accountability measures would be embedded within the fixed-price incentive contract terms, requiring the contractor to meet specific cost, schedule, and performance targets. Transparency may be limited due to the sole-source nature, but contract modifications and performance reports would likely be subject to review. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

Navy Ship Building Programs
Submarine Procurement
Defense Industrial Base Sustainment
Long Lead Time Material Acquisition
Strategic Weapons Systems Components

Risk Flags

Sole-source award
Long contract duration
Lack of competition
Potential for cost escalation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $34.66 billion to ELECTRIC BOAT CORPORATION. SSN 802 AND 803 LONG LEAD TIME MATERIAL

Who is the contractor on this award?

The obligated recipient is ELECTRIC BOAT CORPORATION.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $34.66 billion.

What is the period of performance?

Start: 2017-02-14. End: 2036-06-02.

What is the specific justification for awarding this contract on a sole-source basis?

The provided data indicates the contract was 'NOT COMPETED' and awarded to 'ELECTRIC BOAT CORPORATION'. Typically, sole-source awards are justified under specific circumstances outlined in federal acquisition regulations, such as when only one responsible source can provide the required supplies or services, or in cases of urgent and compelling need. For long-lead time materials critical to complex platforms like submarines, the justification often centers on the unique capabilities, specialized facilities, or proprietary knowledge held by a single entity, like Electric Boat, which is a primary builder of U.S. Navy submarines. A detailed review of the Justification and Approval (J&A) document would provide the specific rationale used by the Department of the Navy.

How does the fixed-price incentive (FPI) contract type aim to manage costs for this long-duration award?

A Fixed-Price Incentive (FPI) contract shares the risk and reward between the government and the contractor. It establishes an initial target cost, target profit, and a price ceiling. If the final incurred cost is below the target cost, both parties share in the savings according to a pre-negotiated formula. Conversely, if the final cost exceeds the target cost but remains below the ceiling, the contractor's profit is reduced, and the government's share of the cost increases. If the final cost exceeds the ceiling, the contractor is responsible for the amount over the ceiling. For this long-lead time material contract, the FPI structure incentivizes Electric Boat to control costs while providing some flexibility to accommodate unforeseen challenges inherent in long-term production, aiming to achieve a balance between cost certainty and risk mitigation.

What are the potential risks associated with the extended contract duration of over 19 years?

The extended duration, from February 14, 2017, to June 2, 2036 (approximately 7048 days or over 19 years), presents several risks. Firstly, it increases the government's exposure to inflation and potential economic fluctuations over a prolonged period, which could erode the value of the funds allocated. Secondly, the longer the contract term, the higher the likelihood of unforeseen technological advancements or changes in strategic requirements that could render the procured materials less relevant or obsolete. Thirdly, managing and overseeing such a long-term contract requires sustained commitment and resources from the contracting agency. Finally, there's an increased risk of contractor performance degradation or shifts in business priorities over such an extended timeframe, potentially impacting delivery schedules and quality.

Can the $3.47 billion award be benchmarked against similar long-lead time material procurements?

Benchmarking this $3.47 billion award for long-lead time materials is challenging due to the highly specialized nature of submarine components and the sole-source award. Publicly available data on comparable procurements for similar advanced naval platforms is scarce. The value is driven by the complexity, technological sophistication, and strategic importance of the materials required for submarine construction. Without access to detailed cost breakdowns, specific material types, and market intelligence on similar sole-source procurements within the defense sector, a precise benchmark is difficult to establish. The award's value should be considered in the context of the overall cost of modern naval shipbuilding programs.

What is Electric Boat Corporation's track record with the Department of Defense, particularly in shipbuilding?

Electric Boat Corporation (EB) has a long and established track record as a prime contractor for the U.S. Navy, primarily focused on the design, construction, and maintenance of submarines. As a subsidiary of General Dynamics, EB is one of only two companies in the U.S. capable of building nuclear-powered submarines. They have been instrumental in delivering various classes of submarines, including ballistic missile submarines (SSBNs) and attack submarines (SSNs). Their history with the Navy involves numerous large, complex, and long-term contracts, often involving sole-source awards due to the specialized nature of their work. While specific performance metrics for all past contracts are not publicly detailed, EB is generally recognized as a critical asset to national defense, though like any major defense contractor, they have faced scrutiny regarding cost, schedule, and performance on specific programs over the years.

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: N0002417R2100

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Address: 75 EASTERN POINT RD, GROTON, CT, 06340

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

Financial Breakdown

Contract Ceiling: $40,778,472,681

Exercised Options: $35,868,211,996

Current Obligation: $34,659,730,903

Actual Outlays: $52,471

Subaward Activity

Number of Subawards: 5681

Total Subaward Amount: $4,175,801,225

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline