DoD's $10B LPD 17 Class Ship Program: A Deep Dive into Shipbuilding Costs and Competition

Contract Overview

Contract Amount: $10,029,620,275 ($10.0B)

Contractor: Huntington Ingalls Incorporated

Awarding Agency: Department of Defense

Start Date: 2006-06-01

End Date: 2022-09-30

Contract Duration: 5,965 days

Daily Burn Rate: $1.7M/day

Competition Type: NOT COMPETED

Number of Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE

Sector: Defense

Official Description: DETAIL DESIGN AND CONSTRUCTION OF LPD 17 CLASS SHIP (LPD 22)

Place of Performance

Location: PASCAGOULA, JACKSON County, MISSISSIPPI, 39568

State: Mississippi Government Spending

Plain-Language Summary

Department of Defense obligated $10.03 billion to HUNTINGTON INGALLS INCORPORATED for work described as: DETAIL DESIGN AND CONSTRUCTION OF LPD 17 CLASS SHIP (LPD 22) Key points: 1. The contract represents a significant investment in naval shipbuilding capabilities. 2. Analysis of value for money requires benchmarking against similar naval construction projects. 3. The sole-source nature of this award warrants scrutiny of price reasonableness. 4. Performance context is crucial, given the long duration and complexity of shipbuilding. 5. This contract positions Huntington Ingalls Industries as a key player in naval vessel construction. 6. The fixed-price incentive structure aims to balance cost control with contractor performance.

Value Assessment

Rating: fair

Benchmarking the value for money on this LPD 17 class ship construction is challenging due to the sole-source nature and the specialized requirements of naval shipbuilding. While the fixed-price incentive contract type attempts to control costs, the total expenditure of over $10 billion necessitates rigorous oversight. Comparing this to other large naval vessel construction projects, both domestically and internationally, would be essential to assess if the pricing reflects market rates and efficient resource utilization. The long duration of the contract also introduces risks related to cost escalation and potential scope creep, which must be carefully managed to ensure taxpayer funds are used effectively.

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 often taken for highly specialized or follow-on production contracts where a single contractor possesses unique capabilities or where competition is deemed impractical or not in the government's best interest. The lack of competition means that price discovery through market forces was limited, placing a greater onus on the Department of the Navy to negotiate a fair and reasonable price.

Taxpayer Impact: The absence of competition for this substantial contract means taxpayers did not benefit from potential cost savings that could arise from a competitive bidding process. The government relied on its negotiation power and oversight to ensure a fair price.

Public Impact

The primary beneficiaries are the U.S. Navy, which receives a critical amphibious transport dock ship, and Huntington Ingalls Industries, which secures a major shipbuilding contract. The service delivered is the detail design and construction of an LPD 17 class ship, essential for amphibious assault and expeditionary warfare. The geographic impact is centered around the shipyard in Mississippi, supporting a significant industrial base and skilled workforce. Workforce implications include the employment of thousands of skilled laborers, engineers, and support staff in the shipbuilding sector.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Sole-source award limits price competition and may lead to higher costs.
Long contract duration (over 16 years) increases risk of cost overruns and schedule delays.
Complexity of naval shipbuilding can lead to unforeseen technical challenges and cost impacts.
Lack of transparency in sole-source negotiations makes independent value assessment difficult.

Positive Signals

Fixed-price incentive contract structure incentivizes contractor performance and cost control.
Experienced contractor (Huntington Ingalls) with a track record in naval shipbuilding.
Delivery of a critical asset for national defense capabilities.
Significant investment in U.S. industrial base and high-skilled manufacturing jobs.

Sector Analysis

The shipbuilding industry is a capital-intensive sector characterized by long production cycles, high technical complexity, and significant government procurement. The LPD 17 class ships are a vital component of the U.S. Navy's fleet modernization efforts. This contract fits within the broader defense shipbuilding sector, where major players like Huntington Ingalls Industries compete for large, complex vessel construction contracts. Comparable spending benchmarks would involve analyzing the cost per displacement ton or cost per ship for similar amphibious assault or transport vessels built by other nations or for other naval programs.

Small Business Impact

This contract does not appear to have a specific small business set-aside component, as indicated by 'sb': false. However, as a large prime contractor, Huntington Ingalls Industries is likely to engage small businesses as subcontractors for various components and services. The extent of subcontracting to small businesses and the impact on the small business ecosystem would depend on the specific subcontracting plan negotiated with the Department of the Navy.

Oversight & Accountability

Oversight for this contract would primarily be conducted by the Department of the Navy's contracting officers and program managers, with potential involvement from the Government Accountability Office (GAO) and the Department of Defense's Inspector General (IG) for audits and investigations. Transparency is facilitated through contract awards databases, but detailed cost breakdowns and negotiation specifics are often proprietary. Accountability measures are built into the fixed-price incentive contract, linking contractor profit to performance targets.

Related Government Programs

LPD 17 Class Ships
Amphibious Assault Ships
Naval Shipbuilding Programs
Department of Defense Procurement
Ship Building and Repairing Industry

Risk Flags

Sole-source award
Long contract duration
High total contract value
Complexity of naval shipbuilding

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $10.03 billion to HUNTINGTON INGALLS INCORPORATED. DETAIL DESIGN AND CONSTRUCTION OF LPD 17 CLASS SHIP (LPD 22)

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 $10.03 billion.

What is the period of performance?

Start: 2006-06-01. End: 2022-09-30.

What is the historical spending trend for the LPD 17 class ship program?

The LPD 17 class program has a long and complex history, with significant spending over many years. The initial contract for the LPD 17 (USS San Antonio) was awarded in 2001. Subsequent ships in the class have seen varying contract awards and modifications. The total program cost has evolved significantly due to design changes, production efficiencies, and inflation. Analyzing historical spending requires looking at individual ship contracts, program-level appropriations, and any Nunn-McCurdy breach notifications, which indicate major cost overruns. The $10 billion figure for LPD 22 represents a substantial portion of the overall program expenditure, reflecting the high cost of modern naval vessel construction.

How does the cost of this LPD 17 class ship compare to similar naval vessels?

Direct cost comparisons for naval vessels are complex due to variations in size, mission capabilities, technology, and construction methods. The LPD 17 class ships are large amphibious transport docks designed for specific expeditionary warfare roles. Benchmarking this $10 billion contract against other amphibious assault ships, sealift vessels, or even destroyers requires careful normalization of factors like displacement, weapon systems, and crew support facilities. Generally, large, technologically advanced naval combatants and support ships represent some of the most expensive single procurement items for any military. The cost per ship for the LPD 17 class has historically been subject to scrutiny, with figures often cited in the range of $1.5 to $2 billion per vessel, though this can fluctuate based on contract specifics and economic conditions.

What are the primary risks associated with this sole-source shipbuilding contract?

The primary risks associated with this sole-source contract are related to cost control and performance assurance. Without competitive pressure, there's an inherent risk that the contractor may not achieve the lowest possible price, placing a greater burden on the government's negotiation and oversight capabilities. Furthermore, the long duration and complexity of shipbuilding projects introduce risks of schedule delays, technical challenges, and cost overruns. The fixed-price incentive (FPI) contract type aims to mitigate some of these risks by sharing cost savings and overruns between the government and the contractor, but effective management and monitoring are crucial to ensure the government receives the best value and the ship is delivered on time and to specification.

What is Huntington Ingalls Industries' track record with LPD 17 class ships?

Huntington Ingalls Industries (HII), through its Ingalls Shipbuilding division, has a substantial track record with the LPD 17 class program. Ingalls Shipbuilding was the original builder for the lead ship, USS San Antonio (LPD 17), and has since constructed or is constructing several other ships in the class, including LPDs 18 through 28. This extensive experience provides HII with deep knowledge of the design, construction processes, and specific requirements for these vessels. Their performance on previous LPD 17 contracts, including any schedule adherence, cost performance, and quality of construction, would be a key factor in assessing the risk and potential success of this current contract for LPD 22.

How does the 'Fixed Price Incentive' (FPI) contract type influence cost management?

The Fixed Price Incentive (FPI) contract type is designed to provide a middle ground between fixed-price and cost-reimbursement contracts, aiming to control costs while allowing for flexibility in complex projects. In an FPI contract, the final price is determined by a formula based on the target cost, target profit, and actual costs incurred. There is a price ceiling that the contractor cannot exceed, and a sharing arrangement for cost savings or overruns below or above the target cost. This structure incentivizes the contractor to control costs to achieve a higher profit margin, as they share in any savings realized below the target cost. Conversely, they bear a portion of any cost overruns, up to the price ceiling. This shared risk and reward mechanism is intended to promote efficiency and cost-consciousness throughout the project lifecycle.

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: N0002404R2205

Offers Received: 1

Pricing Type: FIXED PRICE INCENTIVE (L)

Evaluated Preference: NONE

Contractor Details

Parent Company: Huntington Ingalls Industries, Inc

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

Financial Breakdown

Contract Ceiling: $10,128,356,401

Exercised Options: $10,128,081,313

Current Obligation: $10,029,620,275

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: YES

Timeline