DoD's $384M contract for shipbuilding services awarded to Huntington Ingalls Inc. shows long-term commitment

Contract Overview

Contract Amount: $384,572,199 ($384.6M)

Contractor: Huntington Ingalls Inc

Awarding Agency: Department of Defense

Start Date: 1988-12-15

End Date: 1997-02-07

Contract Duration: 2,976 days

Daily Burn Rate: $129.2K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Place of Performance

Location: NEWPORT NEWS, NEWPORT NEWS (CITY) County, VIRGINIA, 23607, UNITED STATES OF AMERICA

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $384.6 million to HUNTINGTON INGALLS INC for work described as: Key points: 1. Contract awarded for shipbuilding services, indicating a need for sustained industrial capacity. 2. Long duration suggests a strategic investment rather than a short-term procurement. 3. Fixed Price Incentive contract type aims to balance cost control with performance incentives. 4. Awarded by the Department of the Navy, aligning with maritime defense priorities. 5. The contract's value represents a significant portion of shipbuilding expenditure. 6. Competition level is 'Full and Open', suggesting a broad market engagement.

Value Assessment

Rating: fair

The contract value of $384 million over its duration is substantial for shipbuilding services. Benchmarking this against similar long-term naval shipbuilding contracts is challenging without more specific service details. However, the fixed-price incentive structure suggests an attempt to manage costs while encouraging efficient performance. The extended period of performance implies a need for specialized capabilities that may limit direct price comparisons to shorter-term, less complex contracts.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple bidders had the opportunity to submit proposals. The presence of two bids suggests a competitive environment, though the exact number of interested parties and the rigor of the evaluation process are not detailed. Full and open competition generally promotes price discovery and can lead to more favorable pricing for the government.

Taxpayer Impact: A full and open competition process is beneficial for taxpayers as it encourages a wider range of suppliers to compete, potentially driving down costs and improving the quality of services received.

Public Impact

The primary beneficiaries are the Department of the Navy and the U.S. maritime defense capabilities. Services delivered likely include shipbuilding, repair, maintenance, or modernization of naval vessels. The geographic impact is concentrated in areas with significant shipbuilding infrastructure, likely coastal regions. Workforce implications include job creation and sustainment within the shipbuilding and related industries.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Long contract duration could lead to vendor lock-in if not managed carefully.
Fixed Price Incentive contracts can sometimes lead to cost overruns if incentives are not well-structured.
Dependence on a single large contractor for critical shipbuilding services poses strategic risk.

Positive Signals

Full and open competition suggests a healthy market and potential for competitive pricing.
The substantial value indicates a significant commitment to critical defense infrastructure.
Long-term award provides stability for the contractor and ensures sustained capability for the Navy.

Sector Analysis

This contract falls within the Defense Industrial Base sector, specifically focusing on shipbuilding and repair. The U.S. naval shipbuilding market is characterized by high barriers to entry, significant capital investment, and a limited number of prime contractors capable of undertaking large-scale projects. This contract with Huntington Ingalls Inc., a major player in this sector, reflects the government's reliance on established, specialized firms to maintain its fleet and strategic capabilities. Comparable spending benchmarks would involve analyzing other large naval vessel construction or modernization contracts.

Small Business Impact

The data indicates this contract was not set aside for small businesses (sb: false). While the prime contract is with a large entity, there may be opportunities for small businesses to participate as subcontractors. The extent of small business subcontracting would depend on Huntington Ingalls Inc.'s own subcontracting plans and the specific requirements of the shipbuilding work.

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 Fixed Price Incentive contract terms, requiring the contractor to meet performance standards while managing costs. Transparency is generally maintained through contract awards databases, though detailed performance metrics and financial reporting may be subject to specific disclosure limitations.

Related Government Programs

Naval Ship Production
Ship Maintenance and Repair
Defense Procurement
Naval Vessel Construction
Shipbuilding Industrial Base

Risk Flags

Long contract duration may increase risk of scope creep or changing requirements.
Fixed Price Incentive contracts require careful monitoring of cost performance and incentive alignment.
Dependence on a few large shipbuilding firms can create strategic supply chain risks.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $384.6 million to HUNTINGTON INGALLS INC. See the official description on USAspending.

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 $384.6 million.

What is the period of performance?

Start: 1988-12-15. End: 1997-02-07.

What is the historical spending pattern for shipbuilding services with Huntington Ingalls Inc. by the Department of the Navy?

Analyzing historical spending with Huntington Ingalls Inc. by the Department of the Navy requires access to detailed contract databases beyond this single award. However, given Huntington Ingalls' position as a primary naval shipbuilding contractor, it is highly probable that the Navy has awarded numerous contracts to this entity over decades, encompassing new construction, modernization, and repair of various vessel classes. The $384 million value of this specific contract, awarded in 1988, represents a significant investment for its time. To understand the full pattern, one would need to aggregate data on all contracts awarded to Huntington Ingalls by the Navy, looking at trends in contract values, types, and durations to assess the sustained relationship and the evolution of spending priorities within naval shipbuilding.

How does the Fixed Price Incentive (FPI) contract type typically perform in large shipbuilding projects compared to other contract types?

Fixed Price Incentive (FPI) contracts are often used in complex, long-term projects like shipbuilding where cost estimation is challenging but some level of cost control is desired. In FPI contracts, the final price is determined by a formula based on the target cost, target profit, and actual cost. If the actual cost is lower than the target cost, both the government and contractor share in the savings (cost underrun). If the actual cost exceeds the target cost, the contractor's profit is reduced, and the government's share of the cost increases up to a ceiling price. Compared to Firm Fixed Price (FFP), FPI offers more flexibility for the contractor to manage unforeseen costs while still incentivizing efficiency. However, compared to Cost Plus Incentive Fee (CPIF), FPI places more cost risk on the contractor. In shipbuilding, FPI aims to balance the government's need for cost certainty with the contractor's need to manage inherent project risks and technological uncertainties, potentially leading to better value than FFP if risks are high, but requiring careful negotiation of targets and sharing formulas.

What are the key performance indicators (KPIs) typically associated with shipbuilding contracts of this magnitude?

Key performance indicators (KPIs) for large shipbuilding contracts like this $384 million award typically revolve around schedule adherence, cost control, quality of workmanship, and technical performance. Schedule adherence is critical, as delays in naval vessel delivery can have significant strategic implications. Cost control is monitored through tracking actual costs against the target cost and incentive structures. Quality of workmanship is assessed through inspections, testing, and defect rates, ensuring vessels meet stringent naval standards. Technical performance relates to the vessel's capabilities, systems integration, and compliance with design specifications. For an FPI contract, KPIs would also be directly tied to the incentive clauses, measuring performance against agreed-upon targets for cost, schedule, or specific technical milestones. Meeting these KPIs is crucial for the contractor to achieve maximum profit and for the government to receive a fully capable asset on time and within budget.

What is the typical profit margin for shipbuilding contractors on large government contracts?

Profit margins for large government shipbuilding contracts can vary significantly based on contract type, risk, competition, and the specific services provided. For Fixed Price Incentive (FPI) contracts, the profit is tied to performance against targets. Historically, profit margins on defense contracts, including shipbuilding, have ranged from around 7-15%, but this is a broad generalization. FPI contracts aim for a target profit, with potential for adjustments based on cost savings or overruns. Factors such as the complexity of the vessel, the level of technological innovation required, the duration of the contract, and the contractor's efficiency all influence the final realized profit. Without specific details on the target profit, ceiling price, and final cost for this particular contract, it's difficult to pinpoint the exact profit margin achieved. However, the structure of an FPI contract suggests an expectation of a reasonable profit contingent on successful project execution.

What are the potential risks associated with a sole-source or limited competition award in the shipbuilding sector?

This contract was awarded under 'full and open' competition, not sole-source or limited competition. However, if it *had* been sole-source or limited, potential risks would include higher costs due to lack of competitive pressure, reduced innovation as the contractor may face less incentive to improve processes or offer novel solutions, and potential for complacency. Sole-source awards, in particular, can lead to a lack of transparency in pricing and may result in the government paying a premium. Limited competition, while better than sole-source, still restricts the pool of potential suppliers, potentially excluding highly capable firms. In the specialized shipbuilding sector, where capabilities are concentrated among a few large firms, even 'full and open' competition might result in only a few bids. Therefore, careful market research and justification are crucial when competition is less than ideal to ensure the government secures the best possible value.

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: ALTERNATIVE SOURCES

Offers Received: 2

Pricing Type: FIXED PRICE INCENTIVE (L)

Contractor Details

Parent Company: Huntington Ingalls Industries, Inc (UEI: 967362331)

Address: 4101 WASHINGTON AVE, NEWPORT NEWS

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

Timeline