Navy awards $5B for DDG 51 Ship Construction, with Bath Iron Works as sole contractor

Contract Overview

Contract Amount: $5,027,326,144 ($5.0B)

Contractor: Bath Iron Works Corporation

Awarding Agency: Department of Defense

Start Date: 2023-08-01

End Date: 2034-02-28

Contract Duration: 3,864 days

Daily Burn Rate: $1.3M/day

Competition Type: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Number of Offers Received: 2

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: CONSTRUCTION OF DDG 51 SHIPS FY23-27

Place of Performance

Location: BATH, SAGADAHOC County, MAINE, 04530

State: Maine Government Spending

Plain-Language Summary

Department of Defense obligated $5.03 billion to BATH IRON WORKS CORPORATION for work described as: CONSTRUCTION OF DDG 51 SHIPS FY23-27 Key points: 1. The contract value represents a significant investment in naval shipbuilding capabilities. 2. Limited competition dynamics may influence pricing and innovation over the contract's lifespan. 3. Long-term duration and fixed-price incentive structure introduce performance and cost risks. 4. This award is a key component of the Navy's fleet modernization strategy. 5. The shipbuilding sector is characterized by high barriers to entry and specialized expertise.

Value Assessment

Rating: fair

Benchmarking the value for this contract is challenging due to the specialized nature of naval shipbuilding and the limited number of qualified contractors. The fixed-price incentive (FPI) contract type aims to balance cost control with contractor performance, but the final cost can vary based on achieving certain targets. Without detailed cost breakdowns and comparisons to similar recent awards for DDG 51 class ships, a precise value-for-money assessment is difficult. However, the substantial dollar amount suggests a significant commitment to acquiring these critical assets.

Cost Per Unit: N/A

Competition Analysis

Competition Level: limited

The contract was awarded under 'Full and Open Competition After Exclusion of Sources,' which implies that while competition was sought, only specific, pre-qualified sources were eligible. This suggests a limited competitive landscape, likely due to the highly specialized requirements for building DDG 51 class destroyers. The presence of only one awardee, Bath Iron Works Corporation, further indicates a concentrated market for this specific type of vessel. The limited competition may reduce the downward pressure on pricing that broader competition could provide.

Taxpayer Impact: Taxpayers may face higher costs due to the limited number of bidders and the specialized nature of the shipbuilding requirement. The lack of robust competition can reduce the government's leverage in negotiating the best possible price.

Public Impact

The primary beneficiaries are the U.S. Navy and national security, through the acquisition of advanced guided-missile destroyers. This contract will support the construction and delivery of DDG 51 class ships, enhancing naval combat capabilities. The geographic impact is concentrated in Maine, where Bath Iron Works is located, supporting local and regional economies. Significant workforce implications are expected, requiring skilled labor in shipbuilding, engineering, and related trades.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for cost overruns under the FPI contract if performance targets are not met efficiently.
Dependence on a single contractor for a critical defense asset raises concerns about supply chain resilience and future competition.
Long contract duration (over 10 years) increases exposure to economic fluctuations and evolving technological requirements.
The 'exclusion of sources' clause warrants scrutiny to ensure fair opportunity was genuinely explored within the eligible pool.

Positive Signals

Award to an established shipyard with a proven track record in constructing DDG 51 class vessels.
The FPI contract structure incentivizes the contractor to manage costs effectively while meeting performance specifications.
Long-term planning allows for stable workforce development and investment in specialized shipbuilding infrastructure.
The contract supports the Navy's strategic shipbuilding goals and maintains critical industrial base capabilities.

Sector Analysis

The naval shipbuilding sector is a highly specialized and capital-intensive industry, dominated by a few large, experienced contractors capable of meeting stringent military specifications. Barriers to entry are extremely high due to the complexity of design, manufacturing processes, regulatory requirements, and the need for extensive infrastructure. This contract represents a significant portion of the Navy's shipbuilding budget and is crucial for maintaining the operational readiness and technological superiority of the fleet. Comparable spending benchmarks are difficult to establish due to the unique nature of each ship class and the limited number of competitive procurements.

Small Business Impact

This contract does not appear to include specific small business set-asides, as indicated by 'sb': false. However, the prime contractor, Bath Iron Works Corporation, will likely engage small businesses as subcontractors for various components, materials, and services. The subcontracting plan, if required, will be crucial for assessing the impact on the small business ecosystem. The large scale of this contract could provide significant opportunities for specialized small businesses within the defense industrial base.

Oversight & Accountability

Oversight for this contract will primarily be managed by the Department of the Navy's contracting and program management offices. Accountability measures are embedded within the Fixed Price Incentive (FPI) contract terms, linking contractor profit to performance and cost targets. Transparency may be limited due to the defense-related nature of the procurement, but contract awards and basic details are typically reported. The Inspector General for the Department of Defense would have jurisdiction to investigate potential fraud, waste, or abuse.

Related Government Programs

DDG 51 Class Destroyer Program
Naval Surface Combatant Procurement
Shipbuilding and Repair Contracts
Department of Defense Major Weapon Systems Acquisition

Risk Flags

Limited competition
Long contract duration
Fixed Price Incentive (FPI) contract risks
Potential for cost overruns
Dependence on single source

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $5.03 billion to BATH IRON WORKS CORPORATION. CONSTRUCTION OF DDG 51 SHIPS FY23-27

Who is the contractor on this award?

The obligated recipient is BATH IRON WORKS 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 $5.03 billion.

What is the period of performance?

Start: 2023-08-01. End: 2034-02-28.

What is Bath Iron Works Corporation's track record with DDG 51 class ships?

Bath Iron Works Corporation (BIW) has a long and established history with the DDG 51 Arleigh Burke-class destroyer program. BIW has been a primary builder of these vessels since the program's inception. They have delivered numerous ships within the class and are currently contracted for several more. Their experience includes managing the complex construction processes, integrating advanced combat systems, and meeting the Navy's rigorous quality and performance standards. This extensive experience is a key factor in their continued selection for these critical shipbuilding contracts, demonstrating a deep understanding of the design, manufacturing, and testing requirements specific to the DDG 51 class.

How does the $5.03 billion award compare to previous DDG 51 construction contracts?

The $5.03 billion award for FY23-27 DDG 51 ship construction represents a significant investment. Comparing this figure directly to previous contracts requires careful consideration of the number of ships included, the specific configuration (e.g., Flight III upgrades), inflation, and the contract type. For instance, earlier contracts for Flight I or II ships would naturally be lower in nominal dollars. However, even accounting for inflation, the cost per ship in modern contracts tends to be higher due to technological advancements and increased complexity. Without a precise 'per ship' cost breakdown for this specific award and direct comparisons to similarly configured ships procured in prior years, it's difficult to definitively state if this represents a cost increase or decrease relative to historical trends on an adjusted basis. However, the overall dollar amount is substantial and reflects the ongoing high cost of advanced naval shipbuilding.

What are the primary risks associated with a Fixed Price Incentive (FPI) contract for shipbuilding?

The primary risks with a Fixed Price Incentive (FPI) contract for shipbuilding, like the one awarded to Bath Iron Works, revolve around the balance between cost control and performance. The government sets a target cost and a target profit, but also establishes a ceiling price and a minimum profit. If the contractor completes the work below the target cost, both the government and contractor share in the savings (cost underrun). Conversely, if costs exceed the target, the contractor's profit is reduced, and if costs exceed the ceiling price, the contractor absorbs the loss. Key risks include the contractor potentially cutting corners on quality to meet cost targets, or conversely, significant cost overruns that erode the contractor's profit and potentially lead to disputes or requests for additional funding. The long duration of shipbuilding also means risks associated with material price volatility and labor cost increases must be managed.

What is the expected program effectiveness and impact of these new DDG 51 ships?

The expected program effectiveness of the newly constructed DDG 51 class ships is high, as they represent the backbone of the U.S. Navy's surface combatant fleet. These vessels are designed for multi-mission capability, including air defense, anti-submarine warfare, surface warfare, and land attack. The Arleigh Burke class, particularly the newer Flight III variants, incorporates advanced radar systems (like the AN/SPY-6) and combat systems, significantly enhancing the Navy's ability to operate in contested environments and counter emerging threats. The addition of these ships directly contributes to the Navy's force structure goals, providing forward presence, deterrence, and the capability to conduct a wide range of naval operations globally. Their effectiveness is crucial for maintaining maritime security and projecting U.S. power.

Additional Analysis

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Industry Classification

NAICS: Manufacturing › Ship and Boat Building › Ship Building and Repairing

Product/Service Code: SHIPS, SMALL CRAFT, PONTOON, DOCKS

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: N0002422R2302

Offers Received: 2

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Parent Company: Wico Limited

Address: 700 WASHINGTON ST, BATH, ME, 04530

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

Financial Breakdown

Contract Ceiling: $13,790,799,132

Exercised Options: $6,604,196,970

Current Obligation: $5,027,326,144

Contract Characteristics

Multi-Year Contract: Yes

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline