Navy awards $2.5B for ship design and construction to National Steel and Shipbuilding, with a 17-year performance period

Contract Overview

Contract Amount: $2,501,740,929 ($2.5B)

Contractor: National Steel and Shipbuilding Company

Awarding Agency: Department of Defense

Start Date: 2024-09-09

End Date: 2036-01-17

Contract Duration: 4,147 days

Daily Burn Rate: $603.3K/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: T-AO 214 - 221 DD&C BLOCK BUY

Place of Performance

Location: SAN DIEGO, SAN DIEGO County, CALIFORNIA, 92113

State: California Government Spending

Plain-Language Summary

Department of Defense obligated $2.50 billion to NATIONAL STEEL AND SHIPBUILDING COMPANY for work described as: T-AO 214 - 221 DD&C BLOCK BUY Key points: 1. The contract's significant value and long duration suggest a critical, long-term need for naval shipbuilding capabilities. 2. A sole-source award indicates potential limitations in market competition or unique contractor capabilities. 3. The fixed-price incentive contract type aims to balance cost control with contractor performance incentives. 4. Performance is scheduled to extend over 17 years, requiring sustained oversight and management. 5. The contract's focus on ship building and repair aligns with the Navy's strategic fleet readiness objectives. 6. The substantial value may represent a significant portion of the Navy's shipbuilding budget for this period.

Value Assessment

Rating: questionable

Benchmarking the value of this contract is challenging due to its sole-source nature and long duration, which obscure direct comparisons to competitively awarded contracts. The fixed-price incentive structure suggests an attempt to manage costs, but without competitive bids, it's difficult to ascertain if the $2.5 billion represents optimal value for money. The extended performance period also introduces risks related to cost escalation and technological obsolescence that are not fully mitigated by the contract type alone.

Cost Per Unit: N/A

Competition Analysis

Competition Level: sole-source

This contract was awarded on a sole-source basis, meaning there was no open competition. This approach is typically justified when only one responsible source is available or when the agency determines it is in the public interest to award to a specific contractor. The lack of competition limits the government's ability to leverage market forces to drive down prices and ensure the most innovative solutions are considered.

Taxpayer Impact: Taxpayers may not benefit from the cost savings typically achieved through a competitive bidding process. The absence of multiple bids means there is less assurance that the negotiated price reflects the lowest possible cost for the required services.

Public Impact

The primary beneficiaries are the U.S. Navy, which will receive critical shipbuilding and repair services to maintain its fleet readiness. The contract will support the construction and potentially the repair of naval vessels, ensuring operational capabilities. The geographic impact is concentrated in California, where National Steel and Shipbuilding Company is located, potentially supporting local and regional economies. This contract is likely to sustain or create jobs within the shipbuilding and repair industry, impacting a skilled workforce.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price discovery and potential cost savings for taxpayers.
Long performance period (17 years) increases risk of cost overruns due to inflation and unforeseen issues.
Fixed-price incentive contract requires careful monitoring to ensure contractor meets performance targets without excessive cost increases.
Lack of transparency in the sole-source justification process could obscure potential alternatives.
Potential for vendor lock-in due to the specialized nature of naval shipbuilding.

Positive Signals

Contract aims to secure critical shipbuilding capabilities for the Navy's long-term needs.
Fixed-price incentive structure provides some mechanism for cost control and performance alignment.
Awarding to an established shipyard like National Steel and Shipbuilding suggests a focus on proven capabilities.
Long-term nature of the contract provides stability for the contractor and workforce.

Sector Analysis

The shipbuilding and repair sector is a critical component of national defense, characterized by high capital investment, specialized labor, and long production cycles. This contract falls within the broader manufacturing and defense industrial base. The North American Industry Classification System (NAICS) code 336611, Ship Building and Repairing, encompasses companies involved in constructing and repairing ships and boats. Spending in this sector is often project-driven and subject to significant government oversight due to its strategic importance and cost.

Small Business Impact

This contract does not appear to include a small business set-aside, as indicated by 'ss': false. Furthermore, the 'sb' flag is also false, suggesting no specific subcontracting goals for small businesses were mandated within this award. This means that opportunities for small businesses to participate in this large shipbuilding contract may be limited unless they are direct suppliers or subcontractors to National Steel and Shipbuilding Company without a formal set-aside requirement.

Oversight & Accountability

Oversight for this contract will likely be managed by the Department of the Navy, potentially involving program executive offices and contracting officers responsible for shipbuilding. Given the long duration and significant value, robust oversight mechanisms, including regular performance reviews, financial audits, and quality assurance inspections, would be crucial. Transparency may be limited due to the sole-source nature, but contract modifications and performance reports should be accessible through federal procurement databases.

Related Government Programs

Naval Ship Production
Ship Repair and Maintenance
Defense Industrial Base
Major Weapon Systems Acquisition
Fleet Readiness Programs

Risk Flags

Sole-source award lacks competitive justification.
Extended performance period increases risk of cost escalation and obsolescence.
Potential for limited transparency due to non-competitive nature.
Contract type (FPI) requires careful monitoring of cost targets and performance incentives.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $2.50 billion to NATIONAL STEEL AND SHIPBUILDING COMPANY. T-AO 214 - 221 DD&C BLOCK BUY

Who is the contractor on this award?

The obligated recipient is NATIONAL STEEL AND SHIPBUILDING COMPANY.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $2.50 billion.

What is the period of performance?

Start: 2024-09-09. End: 2036-01-17.

What is the historical spending pattern for National Steel and Shipbuilding Company with the Department of Defense, particularly for similar shipbuilding contracts?

Analyzing historical spending with National Steel and Shipbuilding Company (NASSCO) is crucial for context. While specific historical dollar amounts are not provided in the summary data, NASSCO has a long-standing relationship with the U.S. Navy, having previously secured contracts for various naval vessels, including destroyers, auxiliaries, and amphibious assault ships. Their track record includes both new construction and complex repair/modernization projects. Understanding the volume and types of previous contracts awarded to NASSCO can help assess their capacity, experience, and the government's reliance on their services. This context is vital when evaluating a sole-source award, as it suggests a history of successful performance and established capabilities that may justify the lack of competition.

How does the $2.5 billion value compare to other major naval shipbuilding contracts awarded by the Department of the Navy in recent years?

The $2.5 billion award for ship design and construction (DD&C) is a substantial sum, placing it among significant investments in naval shipbuilding. To benchmark its value, one would compare it to other large-scale contracts for aircraft carriers, submarines, destroyers, or littoral combat ships. For instance, contracts for Ford-class aircraft carriers often run into billions of dollars per ship, while destroyer programs like the Arleigh Burke class also represent multi-billion dollar investments over their production runs. The 'DD&C BLOCK BUY' designation suggests this might be for design and construction, potentially encompassing multiple vessels or a significant phase of development. Without knowing the exact scope (e.g., number of ships, specific classes), a direct comparison is difficult, but the figure indicates a major program critical to fleet expansion or modernization.

What are the specific risks associated with a 17-year performance period for a shipbuilding contract, and how are they mitigated?

A 17-year performance period presents several significant risks. Firstly, economic inflation can erode the value of fixed-price components and increase costs for materials and labor over time. Secondly, technological advancements in shipbuilding or naval warfare could render the designed or constructed vessels less effective or obsolete before the end of the contract. Thirdly, the long duration increases the likelihood of unforeseen geopolitical events, changes in defense strategy, or budget fluctuations that could impact the program. Mitigation strategies typically include robust contract clauses for economic price adjustments, phased development with opportunities for technology insertion, strong program management oversight, and contingency planning within the budget. The fixed-price incentive (FPI) structure aims to incentivize cost control, but its effectiveness over such a long period depends heavily on the baseline estimates and the contractor's ability to manage evolving risks.

Given the sole-source nature, what mechanisms are in place to ensure the contractor, National Steel and Shipbuilding Company, maintains high performance standards throughout the contract's duration?

Sole-source contracts necessitate stringent performance monitoring due to the absence of competitive pressure. The Department of the Navy will likely employ a comprehensive oversight framework. This typically includes establishing clear performance metrics and Key Performance Indicators (KPIs) tied to milestones, quality, schedule, and cost control. Regular progress reviews, site inspections, and technical evaluations by government representatives are standard. The Fixed Price Incentive (FPI) contract type itself provides a performance incentive: if costs exceed targets, the contractor shares in the overrun, and if costs are below targets, both parties share in the savings, aligning contractor and government interests. Furthermore, contract clauses may include provisions for termination for default or convenience if performance falters significantly, although this is a last resort.

What is the potential impact of this $2.5 billion contract on the broader defense industrial base and shipbuilding capacity in the United States?

A contract of this magnitude ($2.5 billion) awarded to National Steel and Shipbuilding Company (NASSCO) has a considerable impact on the defense industrial base. It signals continued investment in naval shipbuilding, which is crucial for maintaining domestic industrial capacity, specialized skills, and a robust supply chain. Such awards can stabilize employment at the prime contractor and ripple through numerous subcontractors and material suppliers. For NASSCO, it solidifies their position as a key naval shipbuilder. The sole-source nature, however, might raise concerns about the long-term health and diversity of the shipbuilding sector if it concentrates significant capacity with one provider without exploring competitive avenues for future work, potentially limiting innovation and resilience across the industry.

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: N0002423R2501

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Address: 2798 HARBOR DR, SAN DIEGO, CA, 92113

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: $6,775,705,341

Exercised Options: $6,775,705,341

Current Obligation: $2,501,740,929

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline