Naval shipbuilding contract for aircraft carriers awarded to Huntington Ingalls Inc. for over $300 million

Contract Overview

Contract Amount: $3,003,693,920 ($3.0B)

Contractor: Huntington Ingalls Inc

Awarding Agency: Department of Defense

Start Date: 1998-02-06

End Date: 2005-03-25

Contract Duration: 2,604 days

Daily Burn Rate: $1.2M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Official Description: 199806!1700!2211!BZ002!NAVAL SEA SYSTEMS COMMAND !N0002498C2107 !A!*!* !19980206!20030930!001307495!149899957!149899957!N!43689!NEWPORT NEWS SHIPBUILDING AND !4101 WASHINGTON AVE !NEWPORT NEWS !VA!23607!56000!700!51!NEWPORT NEWS !NEWPORT NEWS (CITY) !VIRGINIA !0001!+000017697599!N!N!000000000000!1901!AIRCRAFT CARRIERS !A3 !SHIPS !2SBP!CARRIER ACFT NUCLEAR-CVAN !3731!3!*!*!*!B!A!*!D !N!U!1!001!N!1A!A!Y!Z!* !* !N!C!*!B!B!A!A!A!*!* !*!N!A!C!N!*!*!*!*!*!

Place of Performance

Location: NEWPORT NEWS, NEWPORT NEWS CITY County, VIRGINIA, 23607

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $3.00 billion to HUNTINGTON INGALLS INC for work described as: 199806!1700!2211!BZ002!NAVAL SEA SYSTEMS COMMAND !N0002498C2107 !A!*!* !19980206!20030930!001307495!149899957!149899957!N!43689!NEWPORT NEWS SHIPBUILDING AND !4101 WASHINGTON AVE !NEWPORT NEWS !VA!23607!56000!700!51!NEWPORT NEWS !NEWPOR… Key points: 1. Contract awarded for a significant sum, indicating a major investment in naval capabilities. 2. The sole-source nature of the award warrants scrutiny regarding potential cost efficiencies. 3. Long contract duration suggests a sustained need for carrier construction or maintenance. 4. The specific product service code points to a specialized area within shipbuilding. 5. The contractor's established presence in naval shipbuilding suggests relevant expertise.

Value Assessment

Rating: fair

The contract value of over $300 million is substantial for a single award. Without comparable sole-source contracts for similar aircraft carrier construction or major overhauls, a precise value-for-money assessment is challenging. However, the 'cost plus fixed fee' pricing structure can sometimes lead to higher overall costs compared to fixed-price contracts if cost overruns occur. Benchmarking against historical spending on similar naval platforms would be necessary for a more definitive value assessment.

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 potential bidders. This typically occurs when a specific contractor possesses unique capabilities, proprietary technology, or is the only source capable of meeting the requirement. The lack of competition means that the government did not benefit from a bidding process that could drive down prices through market forces.

Taxpayer Impact: Sole-source awards can potentially lead to higher costs for taxpayers as there is less pressure on the contractor to offer the most competitive pricing.

Public Impact

The primary beneficiaries are the U.S. Navy, which receives critical naval assets, and Huntington Ingalls Inc., the contractor, which secures significant revenue and maintains its workforce. The services delivered are related to the construction or major overhaul of nuclear-powered aircraft carriers (CVAN). The geographic impact is concentrated in Newport News, Virginia, where the shipyard is located, supporting local employment and the regional economy. This contract has significant workforce implications, requiring a highly skilled labor force in shipbuilding, engineering, and specialized trades.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits competitive pressure, potentially impacting cost-effectiveness.
Cost-plus-fixed-fee contract type may incentivize cost increases if not closely managed.
Long contract duration could expose the government to evolving cost structures over time.

Positive Signals

Award to a known, established contractor in naval shipbuilding suggests a high likelihood of technical capability.
The contract addresses a critical national defense requirement for aircraft carriers.
The specific product service code indicates a focus on a specialized and vital defense asset.

Sector Analysis

The shipbuilding and repair industry is a capital-intensive sector with high barriers to entry, particularly for large naval vessels. The U.S. Navy is a primary customer for large shipbuilding contracts, with significant government investment in maintaining its fleet. This contract fits within the broader defense industrial base, specifically focusing on the construction and maintenance of capital ships. Comparable spending benchmarks would likely be found within other major naval vessel construction contracts.

Small Business Impact

This contract does not appear to have a small business set-aside. Given the specialized nature and scale of aircraft carrier construction, it is unlikely that small businesses would be primary contractors for the entire scope of work. However, the prime contractor, Huntington Ingalls Inc., may engage small businesses as subcontractors for specific components or services, contributing to the broader small business ecosystem.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of the Navy's contracting and program management offices. Accountability measures would include performance reviews, milestone tracking, and financial audits. Transparency is generally maintained through contract awards databases, though specific details of cost performance might be less public. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Naval shipbuilding programs
Aircraft carrier construction and maintenance
Department of Defense major weapon systems procurement
Defense industrial base support

Risk Flags

Sole-source award
Cost-plus contract type

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $3.00 billion to HUNTINGTON INGALLS INC. 199806!1700!2211!BZ002!NAVAL SEA SYSTEMS COMMAND !N0002498C2107 !A!*!* !19980206!20030930!001307495!149899957!149899957!N!43689!NEWPORT NEWS SHIPBUILDING AND !4101 WASHINGTON AVE !NEWPORT NEWS !VA!23607!56000!700!51!NEWPORT NEWS !NEWPORT NEWS (CITY) !VIRGINIA !0001!+000017697599!N!N!000000000000!1901!AIRCRAFT CARRIERS !A3 !SHIPS !2SBP!CARRIER ACFT NUCLEAR-CVAN !3731!3!*!*!*!B!A!*!D !N!U!1!0

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 $3.00 billion.

What is the period of performance?

Start: 1998-02-06. End: 2005-03-25.

What is the historical spending pattern for aircraft carrier construction and major overhauls by the Department of the Navy?

Historical spending on aircraft carrier construction and major overhauls by the Department of the Navy represents a significant portion of the defense budget. These programs are characterized by long lead times, complex engineering, and substantial costs, often running into billions of dollars per vessel. The Navy typically procures carriers in batches or through multi-year contracts to achieve economies of scale and ensure a steady production capability. Spending patterns are influenced by geopolitical factors, fleet modernization requirements, and congressional appropriations. For instance, the Ford-class carriers have seen significant investment, reflecting advancements in technology and design. Analyzing past contracts for Nimitz-class and Ford-class carriers would reveal trends in cost per ship, contract types utilized (e.g., fixed-price incentive, cost-plus), and the duration of these massive undertakings. This historical context is crucial for evaluating the value and necessity of current and future carrier programs.

How does the 'cost plus fixed fee' contract type typically perform in terms of cost control for large defense projects?

The 'cost plus fixed fee' (CPFF) contract type is often used in defense projects when the scope of work is not precisely defined at the outset or involves significant research and development. In a CPFF contract, the contractor is reimbursed for all allowable costs incurred, plus a predetermined fixed fee representing profit. While this structure allows for flexibility and encourages innovation, it can pose risks to cost control. If the contractor's costs exceed initial estimates, the government bears the burden of these overruns, as the fee remains fixed. Effective oversight, stringent cost accounting standards, and clear performance metrics are essential to mitigate the risk of cost escalation. Without robust management, CPFF contracts can sometimes result in higher final costs compared to fixed-price arrangements, although they may be necessary for highly complex or uncertain projects.

What are the key performance indicators (KPIs) typically used to assess the success of naval shipbuilding contracts?

Key performance indicators (KPIs) for naval shipbuilding contracts typically focus on schedule adherence, cost performance, quality of construction, and technical compliance. Schedule adherence is measured by the contractor's ability to meet key milestones and delivery dates. Cost performance is tracked against the contract budget, often using metrics like Cost Performance Index (CPI) and Schedule Performance Index (SPI) from Earned Value Management (EVM). Quality is assessed through inspections, testing, and the absence of defects, ensuring the vessel meets stringent naval standards. Technical compliance ensures the ship's systems and capabilities align with the contract specifications and the Navy's requirements. Additionally, KPIs may include safety records, workforce productivity, and the successful integration of new technologies. Regular reviews and reporting against these KPIs are crucial for program oversight and ensuring the government receives the intended value.

What is the typical profit margin for major defense contractors in the shipbuilding sector?

Profit margins for major defense contractors in the shipbuilding sector can vary significantly based on contract type, risk, competition, and the specific services provided. For cost-plus contracts, the 'fee' is fixed, often ranging from 7% to 15% of the estimated cost, depending on the level of risk and complexity. Fixed-price contracts, which carry more risk for the contractor, may allow for higher potential profit margins if costs are managed effectively, but also carry the risk of losses if costs escalate. The shipbuilding industry, particularly for large naval vessels, is characterized by high overhead, specialized labor, and long program durations, which can influence profit expectations. Government regulations and negotiation strategies also play a role in determining acceptable profit levels. Benchmarking against industry averages and specific contract terms is necessary for a precise understanding of profit margins.

How does the size and complexity of aircraft carriers influence the procurement process and contract structure?

Aircraft carriers are among the most complex and expensive military assets ever built, significantly influencing their procurement process and contract structure. Their sheer size, advanced technological integration (including nuclear propulsion and sophisticated combat systems), and long service life necessitate highly specialized expertise and extensive infrastructure, limiting the number of potential contractors. Procurement typically involves multi-year, multi-billion dollar contracts, often awarded sole-source due to the unique capabilities required. Contract structures are usually cost-plus variants (like CPFF or Cost Plus Incentive Fee) to accommodate the inherent uncertainties and R&D involved in cutting-edge naval technology. The long duration of construction and the need for continuous upgrades throughout a carrier's lifespan also lead to complex, phased contract awards and sustainment agreements, requiring robust government oversight and long-term strategic planning.

Industry Classification

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

Product/Service Code: MAINT, REPAIR, REBUILD EQUIPMENT › MAINT, REPAIR, REBUILD OF EQUIPMENT

Competition & Pricing

Extent Competed: NOT COMPETED

Solicitation Procedures: ONLY ONE SOURCE

Offers Received: 1

Pricing Type: COST PLUS FIXED FEE (U)

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

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline