Navy awards $3.37B ship repair contract to Huntington Ingalls Inc. for Virginia-class submarines

Contract Overview

Contract Amount: $3,368,736,972 ($3.4B)

Contractor: Huntington Ingalls Inc

Awarding Agency: Department of Defense

Start Date: 2021-02-19

End Date: 2026-10-06

Contract Duration: 2,055 days

Daily Burn Rate: $1.6M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS INCENTIVE FEE

Sector: Defense

Official Description: FY21 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 $3.37 billion to HUNTINGTON INGALLS INC for work described as: FY21 RCOH ACCOMPLISHMENT Key points: 1. Contract awarded on a sole-source basis, raising questions about price discovery and potential for overpayment. 2. Long-term contract duration (2021-2026) suggests a critical, ongoing need for specialized submarine maintenance. 3. Cost-plus incentive fee structure aims to balance contractor profit with government cost control objectives. 4. Significant investment in a key defense asset, highlighting the strategic importance of submarine readiness. 5. Limited competition may impact the government's ability to secure the most favorable terms. 6. Contract value represents a substantial portion of the Navy's shipbuilding and repair budget for this period.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its sole-source nature and specialized scope. The Cost Plus Incentive Fee (CPIF) pricing structure suggests an expectation of cost overruns, with incentives tied to performance and cost savings. Without comparable sole-source contracts for similar complex submarine repair work, a definitive value-for-money assessment is difficult. However, the long duration and critical nature of the work imply a necessary, albeit potentially expensive, investment.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning the Department of the Navy did not conduct a competitive bidding process. This typically occurs when a single contractor possesses unique capabilities or when urgency dictates a rapid award. The lack of competition limits the government's ability to leverage market forces to drive down prices and may result in less favorable terms compared to a competed procurement.

Taxpayer Impact: Taxpayers may face higher costs due to the absence of competitive pressure. The government's negotiating position is weakened, potentially leading to less efficient use of public funds.

Public Impact

The primary beneficiaries are the U.S. Navy and national security, ensuring the operational readiness of Virginia-class submarines. Services delivered include essential maintenance, repair, and modernization of highly complex naval vessels. Geographic impact is primarily centered around the contractor's facilities in Virginia, a key hub for naval operations and maintenance. Workforce implications include sustained employment for highly skilled technicians, engineers, and support staff at Huntington Ingalls Inc.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially leading to higher costs for taxpayers.
Long-term nature of the contract could lock in pricing that becomes unfavorable over time.
Cost-plus contracts inherently carry a risk of cost overruns if not managed diligently.

Positive Signals

Award to a known, experienced contractor with a track record in naval shipbuilding and repair.
Incentive fee structure provides some mechanism for cost control and performance improvement.
Contract supports critical national defense assets, ensuring readiness and capability.

Sector Analysis

This contract falls within the Defense Industrial Base sector, specifically focusing on shipbuilding and repair. The market for specialized naval vessel maintenance is highly concentrated, with a limited number of firms possessing the necessary expertise and facilities. Spending in this area is driven by defense appropriations and strategic naval modernization plans. Comparable spending benchmarks would involve other major naval repair and construction contracts, which are typically large-scale and long-term.

Small Business Impact

This contract was not set aside for small businesses, nor does it appear to have specific subcontracting requirements for small businesses mentioned in the provided data. The nature of large-scale naval shipbuilding and repair typically involves prime contractors with extensive capabilities, potentially limiting direct opportunities for small businesses unless they are part of the prime's supply chain. Further analysis of subcontracting plans would be needed to assess the full impact on the small business ecosystem.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. Accountability measures are embedded within the Cost Plus Incentive Fee structure, linking contractor performance and cost control to financial incentives. Transparency may be limited due to the sole-source nature of the award. The Inspector General for the Department of Defense would have jurisdiction for audits and investigations related to potential fraud, waste, or abuse.

Related Government Programs

Virginia-class Submarine Program
Naval Ship Maintenance and Repair Contracts
Defense Shipbuilding and Repair Industry
Department of the Navy Procurement

Risk Flags

Sole-source award
Potential for cost overruns
Lack of competitive benchmarking

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $3.37 billion to HUNTINGTON INGALLS INC. FY21 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 $3.37 billion.

What is the period of performance?

Start: 2021-02-19. End: 2026-10-06.

What is Huntington Ingalls Inc.'s track record with similar sole-source naval repair contracts?

Huntington Ingalls Industries (HII), the parent company of Huntington Ingalls Inc., is a major U.S. defense contractor with extensive experience in shipbuilding and repair, particularly for naval vessels. HII has a long-standing relationship with the U.S. Navy and has been involved in the construction and maintenance of various classes of submarines and aircraft carriers. While specific data on their past sole-source repair contracts for Virginia-class submarines is not detailed here, their overall history suggests a capacity to handle complex, high-value projects. However, the absence of competition in sole-source awards means that performance metrics and pricing from prior similar contracts are less readily available for direct comparison, making it harder to assess if this specific award represents optimal value.

How does the Cost Plus Incentive Fee (CPIF) structure typically perform in large naval repair contracts?

The Cost Plus Incentive Fee (CPIF) structure is designed to incentivize the contractor to control costs while meeting performance specifications. In large naval repair contracts, the government sets target costs and target profits. If the contractor completes the work below the target cost, both the government and the contractor share in the savings. Conversely, if costs exceed the target, the contractor's profit is reduced, and in some cases, they may share in the overrun. This structure aims to balance the government's need for cost containment with the contractor's need for a reasonable profit, especially in complex projects where exact costs are difficult to predict upfront. However, effective oversight is crucial to ensure the contractor's efforts to reduce costs are genuine and not at the expense of quality or safety.

What are the risks associated with a sole-source award for critical naval infrastructure maintenance?

The primary risk of a sole-source award for critical naval infrastructure maintenance is the lack of competitive pressure, which can lead to inflated pricing and reduced efficiency. Without competing bids, the government may not secure the best possible value for its investment. Furthermore, sole-source awards can create a dependency on a single contractor, potentially limiting future flexibility and innovation. There's also a risk that the contractor may not feel the same urgency to innovate or optimize processes as they would in a competitive environment. Ensuring robust contract management, clear performance metrics, and fair pricing negotiations becomes paramount to mitigate these risks.

What is the historical spending pattern for Virginia-class submarine maintenance and repair?

Historical spending on Virginia-class submarine maintenance and repair has been substantial, reflecting the complexity and advanced technology of these vessels. The U.S. Navy invests billions annually in maintaining its submarine fleet, which is critical for national security. Spending patterns are influenced by the lifecycle of the submarines, with major overhauls and modernization efforts occurring at specific intervals. Contracts for this work are often long-term and awarded to specialized shipyards. While the specific annual spend for Virginia-class maintenance fluctuates based on deployment schedules and maintenance cycles, it represents a significant and consistent component of the Navy's shipbuilding and repair budget. This particular $3.37 billion contract for 2021-2026 is indicative of the large-scale, multi-year investments required.

How does this contract compare to other major naval shipbuilding and repair procurements?

This $3.37 billion contract for Virginia-class submarine repair is a significant procurement, consistent with the scale of major naval shipbuilding and repair efforts. Comparable contracts often involve the construction of new vessels (like destroyers or aircraft carriers) or extensive modernization programs for existing fleets. For instance, the construction of a new Virginia-class submarine itself can cost upwards of $2 billion. Major fleet-wide maintenance availabilities or overhaul contracts for other submarine classes or surface combatants also represent multi-hundred-million to billion-dollar investments. The key differentiator here is the sole-source nature for repair work, whereas new construction often involves more competitive processes, though still with limited bidders due to specialized capabilities.

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: N0002420R2106

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: $3,535,621,455

Exercised Options: $3,535,621,455

Current Obligation: $3,368,736,972

Actual Outlays: $2,237,690

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline