Navy awards $383.6M contract for functional design of ships, with Austal USA as sole source

Contract Overview

Contract Amount: $383,552,271 ($383.6M)

Contractor: Austal USA, LLC

Awarding Agency: Department of Defense

Start Date: 2021-06-03

End Date: 2029-05-02

Contract Duration: 2,890 days

Daily Burn Rate: $132.7K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: FUNCTIONAL DESIGN

Place of Performance

Location: MOBILE, MOBILE County, ALABAMA, 36602

State: Alabama Government Spending

Plain-Language Summary

Department of Defense obligated $383.6 million to AUSTAL USA, LLC for work described as: FUNCTIONAL DESIGN 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 of 2890 days indicates a significant, long-term requirement. 4. The contract's value is substantial, reflecting complex shipbuilding and repair needs. 5. Geographic concentration in Alabama may have local economic implications. 6. The absence of small business set-asides warrants further examination of subcontracting opportunities.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging due to its sole-source nature and specific functional design focus. The total obligated amount of $383.6 million over nearly 8 years suggests a significant investment. Without comparable sole-source contracts for similar complex shipbuilding design services, a precise value-for-money assessment is difficult. The fixed-price incentive structure aims to control costs, but the ultimate price will depend on performance and negotiated targets.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning it was not competed among multiple vendors. This approach is typically used when only one vendor possesses the unique capabilities or intellectual property required for the service. The lack of competition means that price discovery through market forces was not a factor in this award, potentially leading to higher costs than if multiple bids had been solicited.

Taxpayer Impact: Taxpayers may not have received the benefit of competitive pricing, as the government did not have multiple offers to choose from. This could result in a higher overall expenditure for the required functional design services.

Public Impact

The primary beneficiary is the Department of the Navy, which will receive essential functional design services for its shipbuilding programs. This contract supports the development and modernization of naval assets, contributing to national security. The contract's performance is geographically tied to Alabama, potentially benefiting the local economy and workforce in shipbuilding and design sectors. It will likely sustain specialized engineering and design jobs within the awarded contractor's organization.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure on pricing.
Long-term nature of the contract could lead to cost overruns if not managed effectively.
Fixed Price Incentive contract requires careful monitoring of performance targets to ensure value.
Lack of explicit small business set-aside raises questions about broader economic impact.

Positive Signals

Austal USA is an established shipbuilder with existing infrastructure and expertise.
The contract specifies a fixed-price incentive structure, which aligns contractor and government interests in cost control.
Long duration allows for sustained focus and development of complex design elements.
The contract supports critical defense capabilities for the U.S. Navy.

Sector Analysis

The shipbuilding and repair industry is a critical sector for national defense, characterized by high barriers to entry, complex engineering requirements, and significant capital investment. This contract for functional design falls within the broader shipbuilding and repair market, which is heavily influenced by government procurement. Comparable spending benchmarks are difficult to establish for specific functional design contracts, but the overall shipbuilding sector sees substantial federal investment, particularly from the Department of Defense. This award represents a specific, but vital, component of the Navy's overall shipbuilding strategy.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. While the prime contractor, Austal USA, is a large business, the absence of a set-aside means that opportunities for small businesses would primarily be through subcontracting. The government's expectation for subcontracting to small businesses should be detailed within the contract terms, but without a specific set-aside, the level of participation is not guaranteed and depends on the prime contractor's procurement strategy.

Oversight & Accountability

Oversight for this contract will primarily reside with the Department of the Navy's contracting and program management offices. As a definitive contract, it is subject to standard federal procurement regulations and oversight mechanisms. Transparency regarding performance and expenditures may be limited due to the sole-source nature and the proprietary aspects of functional design. The Inspector General for the Department of Defense would have jurisdiction to investigate any allegations of fraud, waste, or abuse related to this contract.

Related Government Programs

Naval Ship Production
Shipbuilding and Repair Services
Defense Procurement
Naval Vessel Design
Military Sealift Command Contracts

Risk Flags

Sole-source award lacks competitive pricing.
Potential for cost growth under Fixed Price Incentive contract.
Complexity of functional design may lead to scope creep.
Long contract duration increases risk exposure over time.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $383.6 million to AUSTAL USA, LLC. FUNCTIONAL DESIGN

Who is the contractor on this award?

The obligated recipient is AUSTAL USA, LLC.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $383.6 million.

What is the period of performance?

Start: 2021-06-03. End: 2029-05-02.

What is Austal USA's track record with similar functional design contracts for the Navy?

Austal USA has a significant track record with the U.S. Navy, primarily as a builder of various naval vessels, including the Littoral Combat Ship (LCS) and Expeditionary Fast Transport (EPF) ships. While their primary expertise lies in construction and manufacturing, they also engage in design and engineering activities related to these vessels. Specific details on their past performance solely on 'functional design' contracts, especially as a sole-source provider, would require a deeper dive into contract databases and performance reviews. However, their history as a key naval shipbuilder suggests a foundational capability in understanding and executing complex design requirements for Navy programs.

How does the $383.6 million value compare to other functional design contracts for naval vessels?

Direct comparisons for 'functional design' contracts are challenging because this specific phase of shipbuilding can be bundled with other services or vary significantly in scope. However, $383.6 million over nearly eight years is a substantial sum, reflecting the complexity and long-term nature of designing naval vessels. Larger shipbuilding programs often involve hundreds of millions, or even billions, in total contract value, encompassing design, construction, and lifecycle support. This particular award focuses on a critical early-stage element. Without more specific contract data points for comparable functional design efforts, it's difficult to definitively benchmark this value against the broader market, but it indicates a significant investment in the foundational design phase.

What are the primary risks associated with this sole-source, fixed-price incentive contract?

The primary risk with a sole-source award is the lack of competitive pressure, which can potentially lead to less favorable pricing for the government. For a Fixed Price Incentive (FPI) contract, risks include the contractor not meeting performance targets, leading to cost overruns that are shared, or the government not adequately defining the incentive targets, which could result in suboptimal outcomes. There's also the risk that the sole-source justification might be weak, or that alternative solutions were not fully explored. Effective government oversight is crucial to mitigate these risks, ensuring that the contractor is incentivized correctly and that the final cost reflects fair value.

How effective is the fixed-price incentive structure in ensuring program effectiveness for functional design?

The Fixed Price Incentive (FPI) structure aims to ensure program effectiveness by aligning the contractor's profit with achieving specific performance targets, often related to cost, schedule, or technical objectives. For functional design, this could mean incentivizing the delivery of designs that are not only technically sound but also cost-efficient to build and maintain. However, the effectiveness hinges on the clarity and measurability of the incentive targets. If targets are poorly defined or easily manipulated, the FPI structure may not drive the desired outcomes. Careful negotiation and monitoring by the government are essential to ensure the FPI contract effectively promotes the program's goals.

What are historical spending patterns for functional design services within the Navy's shipbuilding budget?

Historical spending on functional design services within the Navy's shipbuilding budget is typically integrated into larger platform acquisition programs. It's often not a standalone budget line item but rather a component of research, development, test, and evaluation (RDT&E) or procurement appropriations for specific ship classes. The Navy consistently invests heavily in the design phase of new vessels and upgrades to existing ones. Spending fluctuates based on the shipbuilding plan, the introduction of new technologies, and the lifecycle of current fleets. Analyzing historical patterns would involve examining the design components of major shipbuilding contracts over several fiscal years to understand the proportion allocated to initial design phases.

What oversight mechanisms are in place for a sole-source contract of this magnitude?

Oversight for a sole-source contract of this magnitude involves multiple layers. The contracting officer at the Department of the Navy is the primary point of contact and is responsible for ensuring compliance with contract terms and federal acquisition regulations. Program managers oversee the technical execution and progress. Contract audit agencies may review financial aspects. Furthermore, the Government Accountability Office (GAO) can review sole-source justifications and contract awards if protests are filed. The Department of Defense's Inspector General also provides oversight to detect and prevent fraud, waste, and abuse, ensuring accountability throughout the contract lifecycle.

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: N0002421R2209

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Parent Company: Austal Limited

Address: 100 ADDSCO RD, MOBILE, AL, 36602

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Foreign Owned, Foreign-Owned and U.S.-Incorporated Business, Manufacturer of Goods, Not Designated a Small Business, Special Designations

Financial Breakdown

Contract Ceiling: $520,594,659

Exercised Options: $394,094,659

Current Obligation: $383,552,271

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Timeline