DoD's $3B shipbuilding contract to Huntington Ingalls Inc. awarded without competition

Contract Overview

Contract Amount: $3,038,709,105 ($3.0B)

Contractor: Huntington Ingalls Inc

Awarding Agency: Department of Defense

Start Date: 2017-09-01

End Date: 2021-08-13

Contract Duration: 1,442 days

Daily Burn Rate: $2.1M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: FY17 RCOH ACCOMPLISHMENT

Place of Performance

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

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $3.04 billion to HUNTINGTON INGALLS INC for work described as: FY17 RCOH ACCOMPLISHMENT Key points: 1. Significant investment in naval shipbuilding capacity. 2. Lack of competition raises concerns about price discovery and potential overspending. 3. Contract duration of over 3 years suggests a long-term commitment. 4. Focus on cost-plus incentive fee structure may incentivize performance but requires careful oversight. 5. This award represents a substantial portion of the Navy's shipbuilding budget. 6. Potential for cost overruns given the incentive fee structure and lack of competitive pressure.

Value Assessment

Rating: questionable

Benchmarking this contract is challenging due to its sole-source nature and specific focus on naval shipbuilding. The 'cost plus incentive fee' (CPIF) structure, while intended to align contractor and government interests, can lead to higher final costs if not managed rigorously. Without competitive bids, it's difficult to ascertain if the pricing reflects true market value or if taxpayers are receiving optimal value for money. The contract's value of over $3 billion indicates a significant investment, making cost control paramount.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning no other companies were solicited or considered. This approach is typically reserved for situations where only one source can fulfill the requirement, such as specialized capabilities or urgent needs. The absence of competition means there was no opportunity for multiple bidders to drive down prices through a competitive bidding process, potentially leading to less favorable pricing for the government.

Taxpayer Impact: The lack of competition means taxpayers did not benefit from the price reductions typically achieved through a bidding war among potential suppliers. This could result in a higher overall cost for the shipbuilding services provided.

Public Impact

The primary beneficiary is the Department of the Navy, which receives critical shipbuilding and repair services to maintain its fleet. This contract supports the construction and maintenance of naval vessels, ensuring operational readiness. The contract's geographic impact is primarily centered around Huntington Ingalls' facilities in Virginia, supporting the local economy. It sustains a significant number of high-skilled jobs in the shipbuilding and repair industry, contributing to the defense industrial base workforce.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition, potentially increasing costs for taxpayers.
Cost-plus incentive fee contracts carry inherent risks of cost overruns if not closely monitored.
Lack of transparency in the sole-source justification could mask underlying issues.
Long contract duration increases exposure to potential scope creep and cost escalation.
Dependence on a single contractor for critical naval assets poses a strategic risk.

Positive Signals

Contract awarded to a known, experienced naval shipbuilding provider.
Incentive fee structure aims to reward performance and efficiency.
Supports critical national defense capabilities and readiness.
Investment in a key sector of the defense industrial base.

Sector Analysis

The naval shipbuilding and repair sector is a highly specialized and capital-intensive industry, dominated by a few large prime contractors. This contract falls within the broader defense industrial base, specifically supporting the maintenance and construction of naval vessels. The market is characterized by long production cycles, high barriers to entry, and significant government investment. Comparable spending benchmarks are difficult to establish precisely due to the unique nature of naval platforms, but multi-billion dollar contracts are common for major shipbuilding efforts.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. Given the nature of large-scale naval shipbuilding, prime contractors like Huntington Ingalls are expected to utilize a supply chain that may include small businesses for components and specialized services. However, the direct award to a large prime without a specific set-aside suggests limited direct subcontracting opportunities mandated by this specific contract, though the prime may engage small businesses as part of its broader operations.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. The 'cost plus incentive fee' structure necessitates rigorous financial oversight to ensure costs are reasonable and allowable, and that incentives are appropriately applied. Transparency is limited due to the sole-source nature, but contract performance reviews and audits by the Defense Contract Audit Agency (DCAA) and potentially the Inspector General would be expected to ensure accountability.

Related Government Programs

Naval Ship Production
Ship Maintenance and Repair
Defense Procurement
Naval Vessel Construction
Cost Plus Contracts

Risk Flags

Sole-source award
Cost-plus contract type
Lack of competitive bidding
High dollar value

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $3.04 billion to HUNTINGTON INGALLS INC. FY17 RCOH ACCOMPLISHMENT

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 $3.04 billion.

What is the period of performance?

Start: 2017-09-01. End: 2021-08-13.

What is the track record of Huntington Ingalls Inc. with similar sole-source, cost-plus incentive fee contracts with the Department of Defense?

Huntington Ingalls Industries (HII) has a long and extensive history as a primary contractor for the U.S. Navy, particularly in shipbuilding and repair. They are the sole builder of nuclear-powered aircraft carriers and a major builder of destroyers and amphibious assault ships. HII has frequently been awarded large, complex contracts, many of which have been sole-source due to the specialized nature of naval shipbuilding. Their experience with Cost Plus Incentive Fee (CPIF) contracts is also substantial. While CPIF contracts are designed to incentivize performance and cost control, they can also be prone to cost overruns if not managed meticulously. Historical data on HII's performance under similar contracts would likely show a mixed record, with successes in delivering complex platforms but also instances where costs exceeded initial projections, necessitating careful review of specific contract terms and oversight mechanisms.

How does the pricing structure of this contract compare to industry benchmarks for similar shipbuilding services, considering it was sole-sourced?

Directly comparing pricing for a sole-sourced, multi-billion dollar naval shipbuilding contract to industry benchmarks is inherently difficult. The 'cost plus incentive fee' (CPIF) structure means the final price is not fixed and depends on actual costs incurred plus an incentive fee based on performance against targets. Without competitive bids, there's no market-driven price discovery. However, analysts would typically look at historical spending on comparable naval platforms (e.g., destroyers, carriers, submarines) built by HII or other major shipbuilders, adjusting for inflation, technological complexity, and contract duration. The absence of competition suggests that the government may not have achieved the most favorable pricing possible. Benchmarking would focus on the efficiency of cost management and the reasonableness of the incentive fee structure relative to the risks and performance goals.

What are the primary risks associated with this sole-source, cost-plus incentive fee contract for the Department of the Navy?

The primary risks for the Department of the Navy (DoN) in this sole-source CPIF contract are threefold. First, the sole-source nature eliminates competitive pressure, potentially leading to higher costs than if multiple bidders were involved. The government relies heavily on the contractor's cost estimation and reporting. Second, the CPIF structure, while incentivizing, carries the risk of cost overruns. If the cost targets are not well-defined or if unforeseen issues arise, the 'incentive' portion could escalate significantly, driving the total cost higher. Third, there's a strategic risk associated with sole-source reliance on a single contractor for critical naval assets. Any disruption at Huntington Ingalls (e.g., labor disputes, supply chain issues, financial distress) could severely impact naval readiness. Robust oversight and clear performance metrics are crucial to mitigate these risks.

What is the expected effectiveness of this contract in meeting the Navy's shipbuilding goals, given the award mechanism?

The effectiveness of this contract in meeting the Navy's shipbuilding goals hinges on several factors, despite the sole-source award. Huntington Ingalls is a critical, experienced provider, so the capability to deliver is likely high. The CPIF structure aims to ensure that the contractor is motivated to meet performance targets (e.g., delivery schedules, quality standards) while managing costs. However, the lack of competition raises questions about whether the *most* effective or *most* cost-efficient solution was secured. Effectiveness will be measured by the timely delivery of quality vessels that meet operational requirements. The Navy's program managers must provide strong oversight to ensure the contractor remains focused on these goals and that the incentive structure truly drives desired outcomes, rather than simply inflating costs.

How does this $3 billion contract compare to historical spending patterns for naval shipbuilding and repair by the Department of the Navy?

A $3 billion contract for shipbuilding and repair is substantial, even within the context of the Department of the Navy's large budget. The Navy's shipbuilding budget typically runs into the tens of billions of dollars annually, funding a mix of new construction, modernization, and repair across various ship classes. Contracts of this magnitude are common for major platforms like destroyers, aircraft carriers, or submarines. This specific award represents a significant allocation within that budget. Historical spending patterns show a consistent, high level of investment in naval platforms, often dominated by a few large prime contractors like Huntington Ingalls. Sole-source awards for specific, complex platforms or major overhauls are not uncommon, reflecting the specialized nature of the industry. This contract aligns with historical spending trends for major naval assets.

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: N0002417R2105

Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE (V)

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: $3,042,923,017

Exercised Options: $3,042,923,017

Current Obligation: $3,038,709,105

Actual Outlays: $1,078,064

Subaward Activity

Number of Subawards: 4045

Total Subaward Amount: $544,284,652

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline