Navy awards $854M for aircraft carrier overhaul, with limited competition and long-term execution

Contract Overview

Contract Amount: $853,909,180 ($853.9M)

Contractor: Huntington Ingalls Inc

Awarding Agency: Department of Defense

Start Date: 2018-07-16

End Date: 2026-09-30

Contract Duration: 2,998 days

Daily Burn Rate: $284.8K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: PLANNING YEAR 1 OF CVN 74 RCOH ADVANCE PLANNING AND CVN 74 RCOH MATERIAL

Place of Performance

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

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $853.9 million to HUNTINGTON INGALLS INC for work described as: PLANNING YEAR 1 OF CVN 74 RCOH ADVANCE PLANNING AND CVN 74 RCOH MATERIAL Key points: 1. Significant investment in critical naval infrastructure, focusing on extending the service life of a key asset. 2. Contract awarded via a sole-source justification, raising questions about potential cost efficiencies and market alternatives. 3. Long performance period suggests a complex, multi-year project with inherent execution risks. 4. The chosen contract type (Cost Plus Fixed Fee) may incentivize cost overruns if not closely managed. 5. This award represents a substantial portion of the Navy's shipbuilding and repair budget for the period. 6. Focus on a single, high-value platform highlights the specialized nature of naval sustainment.

Value Assessment

Rating: fair

Benchmarking the value of this specific contract is challenging due to its unique nature as an advance planning and execution phase for a major aircraft carrier Refueling and Complex Overhaul (RCOH). The 'advance planning' aspect suggests initial costs may be higher than standard maintenance. However, the Cost Plus Fixed Fee structure, while common for complex RCOH work, carries inherent risks of cost escalation if not meticulously overseen. Without comparable RCOH contracts for similar vessels, a precise value-for-money assessment is difficult, but the scale of the award indicates a significant commitment of resources.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, citing the need for specialized capabilities and the unique nature of the CVN 74 RCOH. This approach limits the opportunity for competitive bidding, potentially impacting price discovery. While justified by the complexity and specific requirements of the overhaul, it means the Navy did not explore alternative providers or potentially more cost-effective solutions that competition might have yielded.

Taxpayer Impact: A sole-source award means taxpayers do not benefit from the price reductions typically driven by competitive bidding. The government relies on negotiation and oversight to ensure a fair price, which can be less efficient than market-driven pricing.

Public Impact

The primary beneficiary is the U.S. Navy, ensuring the continued operational readiness of the USS John C. Stennis (CVN 74). The contract will support the complex overhaul and modernization of a Nimitz-class aircraft carrier. The geographic impact is centered around the contractor's facilities, likely in a major shipbuilding hub. This award will sustain highly skilled jobs in shipbuilding, repair, and specialized technical fields.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Cost Plus Fixed Fee contract type can lead to cost overruns without stringent oversight.
Long contract duration increases the risk of unforeseen technical challenges and cost increases.
The specialized nature of aircraft carrier overhauls means limited contractor options.

Positive Signals

Award to a known, experienced shipyard (Huntington Ingalls Inc.) reduces technical risk.
Focus on a critical asset ensures long-term naval capability.
Advance planning phase aims to mitigate risks during the main overhaul execution.

Sector Analysis

The shipbuilding and repair sector is characterized by high barriers to entry, significant capital investment, and specialized labor requirements. Major naval vessel overhauls, particularly RCOHs, represent a niche within this sector, often dominated by a few large, experienced contractors capable of handling such complex projects. This contract fits within the broader defense industrial base, specifically supporting naval fleet readiness and modernization. Comparable spending benchmarks are difficult to establish precisely due to the unique scope of RCOH, but these projects represent multi-billion dollar investments over their lifecycle.

Small Business Impact

This contract does not appear to include specific small business set-asides. Given the sole-source nature and the highly specialized requirements for aircraft carrier overhauls, the prime contractor, Huntington Ingalls Inc., is likely to perform the majority of the work in-house. Subcontracting opportunities for small businesses may exist for specific components or services, but they are not explicitly mandated by the contract award details provided. The overall impact on the small business ecosystem for this specific award is likely minimal.

Oversight & Accountability

Oversight for this contract will be managed by the Department of the Navy, likely through the Naval Sea Systems Command (NAVSEA). The Cost Plus Fixed Fee structure necessitates rigorous financial and performance oversight to control costs and ensure adherence to the scope of work. Accountability measures will involve regular progress reviews, audits of incurred costs, and performance metrics related to schedule and quality. Transparency may be limited due to the sole-source nature and defense classification, but contract performance data should be available through federal procurement databases.

Related Government Programs

Aircraft Carrier Maintenance and Modernization Programs
Naval Shipyard Operations
Defense Contract Management Agency (DCMA) Oversight
Shipbuilding and Repair Contracts
Fleet Readiness Expenditures

Risk Flags

Sole Source Justification
Cost Plus Fixed Fee Contract Type
Long Contract Duration
Critical Infrastructure Project

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $853.9 million to HUNTINGTON INGALLS INC. PLANNING YEAR 1 OF CVN 74 RCOH ADVANCE PLANNING AND CVN 74 RCOH MATERIAL

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 $853.9 million.

What is the period of performance?

Start: 2018-07-16. End: 2026-09-30.

What is the historical spending pattern for CVN RCOH projects, and how does this award compare?

Refueling and Complex Overhauls (RCOH) for U.S. Navy aircraft carriers are infrequent, large-scale events, typically occurring once in a carrier's 50-year service life. Each RCOH is unique, involving extensive planning and execution over several years. For example, the RCOH for the USS Theodore Roosevelt (CVN 71) was awarded in phases, with significant contract values in the hundreds of millions to over a billion dollars for the full execution. The current award of approximately $854 million for the advance planning and initial material for CVN 74 (USS John C. Stennis) aligns with the expected magnitude of such projects. Historical data indicates that the total cost for a full RCOH can range from $3 billion to over $5 billion, depending on the specific work scope, shipyard, and economic conditions at the time of execution. This $854 million represents the initial phase, setting the stage for the larger overhaul execution contract.

What are the primary risks associated with a Cost Plus Fixed Fee (CPFF) contract for a project of this magnitude?

The primary risk with a Cost Plus Fixed Fee (CPFF) contract, especially for a complex, long-duration project like an aircraft carrier RCOH, is the potential for cost escalation. While the 'fixed fee' component provides the contractor with a defined profit margin, the 'cost plus' element means the government reimburses the contractor for all allowable costs incurred. If the project scope expands, unforeseen technical issues arise, or inefficiencies occur, the total cost to the government can increase significantly beyond initial estimates. The contractor has less incentive to control costs compared to fixed-price contracts, as their fee is fixed regardless of the final cost. Effective government oversight, stringent cost accounting standards, and robust change management processes are crucial to mitigate these risks and ensure the government receives good value.

How does the sole-source nature of this award impact potential competition and pricing?

A sole-source award, by definition, bypasses the competitive bidding process. This means the Navy did not solicit proposals from multiple qualified contractors. While justifications for sole-source awards often cite unique capabilities, proprietary technology, or urgent needs, they inherently limit price discovery. Without competition, there is no market pressure to drive down prices. The government must rely heavily on negotiation, historical pricing data, and independent cost estimates to ensure a fair and reasonable price. This can lead to higher costs for taxpayers compared to what might be achieved through a competitive procurement, where multiple bidders vie for the contract, often leading to more aggressive pricing strategies.

What is Huntington Ingalls Inc.'s track record with aircraft carrier overhauls?

Huntington Ingalls Industries (HII), through its Newport News Shipbuilding division, is the sole builder of U.S. Navy aircraft carriers and has a long, established track record of performing complex overhauls and refueling complex overhauls (RCOH). They have successfully completed RCOHs for multiple Nimitz-class carriers, including the USS Enterprise (CVN 65), USS Theodore Roosevelt (CVN 71), and USS Abraham Lincoln (CVN 72). Their extensive experience, specialized facilities, and skilled workforce are critical for undertaking these massive, technically demanding projects. This deep expertise is a primary reason why such contracts are often awarded sole-source, as few other entities possess the necessary infrastructure and know-how.

What are the potential performance risks and mitigation strategies for this long-term contract?

The primary performance risks for a contract spanning from 2018 to 2026, involving advance planning and execution of an RCOH, include schedule delays, technical challenges during the overhaul, labor shortages, and supply chain disruptions. Aircraft carrier RCOHs are incredibly complex, involving the dismantling and rebuilding of the ship's nuclear reactor compartments, extensive modernization of systems, and hull repairs. Mitigation strategies typically involve detailed project management, phased execution with clear milestones, robust quality assurance programs, proactive risk management, maintaining strong relationships with suppliers, and ensuring adequate staffing levels with skilled tradespeople. The advance planning phase itself is a key mitigation strategy, aiming to identify and resolve potential issues before the main overhaul begins.

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: N0002417R2106

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

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: $867,480,955

Exercised Options: $867,480,955

Current Obligation: $853,909,180

Subaward Activity

Number of Subawards: 39868

Total Subaward Amount: $3,547,469,416

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline