DoD's $1.74B contract with Huntington Ingalls for shipbuilding and repair shows long-term commitment

Contract Overview

Contract Amount: $1,736,174,889 ($1.7B)

Contractor: Huntington Ingalls Incorporated

Awarding Agency: Department of Defense

Start Date: 2000-08-02

End Date: 2016-06-28

Contract Duration: 5,809 days

Daily Burn Rate: $298.9K/day

Competition Type: NOT COMPETED

Number of Offers Received: 2

Pricing Type: COST PLUS FIXED FEE

Sector: Defense

Place of Performance

Location: PASCAGOULA, JACKSON County, MISSISSIPPI, 39568

State: Mississippi Government Spending

Plain-Language Summary

Department of Defense obligated $1.74 billion to HUNTINGTON INGALLS INCORPORATED for work described as: Key points: 1. The contract's substantial value suggests a significant, long-term need for shipbuilding and repair services. 2. As a sole-source award, the lack of competition may have implications for pricing and innovation. 3. The contract duration and type (Cost Plus Fixed Fee) warrant scrutiny for cost control and efficiency. 4. This award positions Huntington Ingalls as a key player in the naval shipbuilding sector. 5. Performance context is crucial given the complexity and criticality of naval vessel construction and maintenance. 6. The absence of small business set-asides indicates a focus on large-scale industrial capabilities.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging without specific deliverables and comparable projects. The Cost Plus Fixed Fee (CPFF) structure can lead to cost overruns if not managed tightly, potentially impacting value for money. While the dollar amount is significant, its true value depends on the successful delivery of complex naval assets and the efficiency of the contractor's operations over the contract's extended period.

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 used when only one responsible source can fulfill the requirement, often due to specialized capabilities or existing infrastructure. The lack of competition means that price discovery through market forces was bypassed, potentially leading to higher costs than if multiple bidders had vied for the contract.

Taxpayer Impact: Taxpayers may face higher costs due to the absence of competitive bidding, as the government did not benefit from price reductions that typically arise from a competitive procurement process.

Public Impact

The primary beneficiaries are the U.S. Navy and the Department of Defense, receiving critical shipbuilding and repair services. This contract supports the maintenance and modernization of the U.S. naval fleet, ensuring national security. The contract has significant implications for the workforce in Mississippi, supporting skilled labor in shipbuilding and repair. Economic benefits are likely concentrated in the region where Huntington Ingalls operates, including supply chain impacts.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Cost Plus Fixed Fee contracts can incentivize contractors to incur higher costs, requiring robust oversight.
Sole-source awards limit transparency and can lead to less favorable pricing for the government.
The long duration of the contract increases the risk of scope creep and cost escalation.
Lack of competition may stifle innovation and efficiency improvements over time.
The sheer scale of the contract presents significant management and oversight challenges.

Positive Signals

Awarding to a known, experienced entity like Huntington Ingalls can ensure continuity and expertise in critical naval shipbuilding.
The contract's long-term nature provides stability for both the government's shipbuilding needs and the contractor's operations.
The definitive contract structure implies a clear understanding of the scope and requirements.
The contract supports a vital national security mission, ensuring the readiness of the U.S. Navy.

Sector Analysis

The shipbuilding and repair industry is a critical component of the defense industrial base, characterized by high barriers to entry, significant capital investment, and specialized technical expertise. This sector is dominated by a few large, established players capable of undertaking complex, long-term government contracts. Spending in this area is directly tied to national defense priorities and fleet modernization programs. Comparable spending benchmarks are difficult to establish due to the unique nature of naval vessel construction and repair, but this contract represents a substantial investment within the sector.

Small Business Impact

This contract does not appear to include specific small business set-asides, which is common for large-scale, specialized defense industrial base contracts. The nature of shipbuilding and repair often requires extensive facilities and capabilities that are typically held by large prime contractors. While direct subcontracting opportunities for small businesses may exist within the execution of this contract, the primary awardee is a large business, and there is no explicit mechanism within this award to prioritize small business participation.

Oversight & Accountability

Oversight for this contract would primarily fall under the Department of the Navy's contracting and program management offices. Given the Cost Plus Fixed Fee structure and long duration, rigorous financial oversight, performance monitoring, and compliance checks are essential. Accountability measures would involve regular reporting, audits, and performance reviews. Transparency may be limited due to the sole-source nature and the sensitive aspects of defense contracting, but contract modifications and key milestones would likely be subject to standard government reporting requirements.

Related Government Programs

Naval Shipbuilding Programs
Ship Repair and Maintenance Contracts
Defense Industrial Base Contracts
Department of the Navy Procurement
Major Defense Acquisition Programs

Risk Flags

Sole-source award
Cost Plus Fixed Fee contract type
Long contract duration
High dollar value
Lack of small business participation

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $1.74 billion to HUNTINGTON INGALLS INCORPORATED. See the official description on USAspending.

Who is the contractor on this award?

The obligated recipient is HUNTINGTON INGALLS INCORPORATED.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $1.74 billion.

What is the period of performance?

Start: 2000-08-02. End: 2016-06-28.

What is Huntington Ingalls Incorporated's track record with the Department of Defense, particularly in shipbuilding and repair?

Huntington Ingalls Industries (HII), including its predecessor Northrop Grumman Shipbuilding, has a long and extensive track record with the Department of Defense, particularly the Navy, in shipbuilding and repair. They are the sole builder of nuclear-powered aircraft carriers and a major builder of amphibious assault ships, destroyers, and submarines. Their history includes numerous large, complex contracts for new construction, modernization, and maintenance of naval vessels. While generally recognized for their capabilities, like any large defense contractor, they have faced scrutiny over cost performance and schedule adherence on specific programs. Their deep integration into the Navy's shipbuilding strategy makes them a critical, albeit sometimes costly, partner.

How does the Cost Plus Fixed Fee (CPFF) contract type typically perform in terms of cost control compared to other contract types for shipbuilding?

Cost Plus Fixed Fee (CPFF) contracts are often used for complex, high-risk R&D or production efforts where the scope is not fully defined or subject to significant change. In shipbuilding, CPFF can provide flexibility but also carries inherent risks for cost control. The contractor is reimbursed for allowable costs plus a fixed fee, creating less incentive for cost efficiency compared to fixed-price contracts. If not managed with stringent oversight, CPFF contracts can lead to cost overruns as the contractor may not be as motivated to minimize expenses. Benchmarking against other shipbuilding contracts, particularly fixed-price incentive fee or firm-fixed-price contracts, would likely show CPFF as having a higher potential for cost growth if contractor performance and government oversight are not exceptionally robust.

What are the primary risks associated with a sole-source award of this magnitude for naval shipbuilding?

The primary risks associated with a sole-source award of this magnitude for naval shipbuilding include a lack of competitive pressure, which can lead to inflated pricing and reduced incentives for innovation and efficiency. Without competing bids, the government may not achieve the best possible value for its investment. There's also a risk of contractor complacency or reduced responsiveness to evolving requirements if they perceive no threat of losing future business. Furthermore, sole-source awards can raise concerns about fairness and transparency in the procurement process, potentially leading to public or congressional scrutiny. The government must rely heavily on its own cost estimation and negotiation capabilities to mitigate these risks.

What is the historical spending pattern for shipbuilding and repair by the Department of the Navy, and how does this contract fit?

The Department of the Navy consistently represents a significant portion of the Department of Defense's overall budget, with shipbuilding and repair being a major expenditure category. Historical spending patterns show billions of dollars allocated annually to acquire new vessels and maintain the existing fleet. This contract, valued at over $1.7 billion, aligns with the Navy's ongoing need for fleet readiness and modernization. It likely represents a portion of a larger, multi-year shipbuilding plan or a significant maintenance/overhaul effort for specific classes of ships. Its value is substantial but falls within the expected range for major naval contracts, reflecting the high cost of capital-intensive defense assets.

What are the potential implications of this contract on the broader defense industrial base and supply chain?

This contract has significant implications for the broader defense industrial base and its supply chain. As a major award to Huntington Ingalls, it ensures continued demand for their specialized facilities and workforce. It also drives demand for a vast network of subcontractors and suppliers providing materials, components, and specialized services essential for shipbuilding and repair. This includes everything from raw materials like steel to advanced electronics and propulsion systems. The long-term nature of the contract provides stability for these entities, but also concentrates significant economic activity and reliance on a single prime contractor for a critical capability, potentially impacting market dynamics for smaller suppliers.

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

Offers Received: 2

Pricing Type: COST PLUS FIXED FEE (U)

Contractor Details

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

Address: 1000 ACCESS RD, PASCAGOULA, MS, 39567

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

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline