DoD's $546M Ship Repair Contract with BAE Systems Hawaii Shipyards Faces Scrutiny Over Value and Competition

Contract Overview

Contract Amount: $545,911,922 ($545.9M)

Contractor: BAE Systems Hawaii Shipyards Inc.

Awarding Agency: Department of Defense

Start Date: 2006-09-13

End Date: 2013-09-12

Contract Duration: 2,556 days

Daily Burn Rate: $213.6K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 1

Pricing Type: COST PLUS AWARD FEE

Sector: Other

Official Description: SHIP REPAIR REQUIREMENT FOR THE MULTI-SHIP MULTI-OPTION (MSMO) CONTRACT.

Place of Performance

Location: PEARL HARBOR, HONOLULU County, HAWAII, 96860

State: Hawaii Government Spending

Plain-Language Summary

Department of Defense obligated $545.9 million to BAE SYSTEMS HAWAII SHIPYARDS INC. for work described as: SHIP REPAIR REQUIREMENT FOR THE MULTI-SHIP MULTI-OPTION (MSMO) CONTRACT. Key points: 1. The contract's significant value raises questions about cost-effectiveness and potential for overspending. 2. While awarded under full and open competition, the long duration and specific nature of ship repair may limit future competitive opportunities. 3. The Cost Plus Award Fee (CPA) structure introduces performance incentives but can also lead to increased costs if not managed tightly. 4. The IT sector is not directly involved, but efficient ship maintenance is crucial for naval operations.

Value Assessment

Rating: questionable

The contract's total value of $545.9 million over 7 years is substantial. Without detailed cost breakdowns and performance metrics, it's difficult to benchmark against similar ship repair contracts. The Cost Plus Award Fee structure can sometimes lead to higher final costs than fixed-price contracts.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, which is a positive sign for price discovery. However, the multi-ship, multi-option nature and the long duration (7 years) might have influenced the bidding landscape and the final negotiated price.

Taxpayer Impact: The substantial investment in ship repair suggests a commitment to maintaining naval readiness, but the long-term cost-effectiveness and potential for price creep warrant careful monitoring to ensure taxpayer funds are used efficiently.

Public Impact

Naval readiness and operational capability are directly impacted by the quality and timeliness of ship repairs. The contract supports skilled labor in Hawaii's shipbuilding and repair sector. Long-term contracts can provide stability for contractors but may reduce flexibility for the government to adapt to changing needs or market conditions.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Long contract duration
Cost Plus Award Fee structure
Potential for cost overruns

Positive Signals

Awarded under full and open competition
Supports critical naval infrastructure

Sector Analysis

This contract falls under the shipbuilding and repair sector, which is vital for national defense. Spending benchmarks in this area are highly variable, depending on ship type, complexity of repairs, and market conditions. The $546 million total obligation over seven years represents a significant investment in maintaining a fleet.

Small Business Impact

The data indicates that BAE Systems Hawaii Shipyards Inc. was the awardee. There is no explicit information provided regarding small business participation or subcontracting goals within this contract, which warrants further investigation.

Oversight & Accountability

The multi-ship, multi-option (MSMO) contract structure implies a need for ongoing oversight to manage task orders, performance, and costs effectively. The Department of the Navy's contracting activity suggests established oversight mechanisms, but the long duration necessitates continuous monitoring.

Related Government Programs

Ship Building and Repairing
Department of Defense Contracting
Department of the Navy Programs

Risk Flags

Potential for cost overruns due to CPA structure
Long contract duration may limit future flexibility
Lack of explicit small business participation data
Difficulty in benchmarking without detailed cost data

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $545.9 million to BAE SYSTEMS HAWAII SHIPYARDS INC.. SHIP REPAIR REQUIREMENT FOR THE MULTI-SHIP MULTI-OPTION (MSMO) CONTRACT.

Who is the contractor on this award?

The obligated recipient is BAE SYSTEMS HAWAII SHIPYARDS 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 $545.9 million.

What is the period of performance?

Start: 2006-09-13. End: 2013-09-12.

What specific metrics are used to determine the 'award fee' in this Cost Plus Award Fee contract, and how do they ensure optimal value for the taxpayer?

The award fee is typically determined by evaluating the contractor's performance against pre-defined criteria related to cost control, schedule adherence, quality of work, and technical execution. For this contract, the Navy would establish specific metrics and targets. Effective oversight ensures these metrics genuinely reflect value and incentivize cost savings and high-quality repairs, rather than simply rewarding effort, thereby maximizing taxpayer return.

Given the 7-year duration, what mechanisms are in place to mitigate the risk of cost escalation and ensure the contract remains competitive throughout its term?

Mitigation strategies for long-term contracts include regular price reviews, incorporating economic price adjustment clauses carefully, and potentially exercising options only if performance and pricing remain favorable. The initial 'full and open competition' sets a baseline, but the Navy should continuously monitor market rates for labor and materials and assess if future options should be re-competed or renegotiated to prevent undue cost escalation and maintain competitive pressure.

How does the performance of this contract contribute to the overall readiness and operational effectiveness of the Navy's fleet?

The timely and high-quality execution of ship repairs under this contract is critical for maintaining the operational readiness of the Navy's fleet. It ensures vessels are seaworthy, equipped with necessary upgrades, and capable of fulfilling their mission requirements. Effective repair work directly translates to reduced downtime, enhanced combat capability, and the overall ability of the Navy to project power and respond to global demands.

Industry Classification

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

Product/Service Code: MAINT, REPAIR, REBUILD EQUIPMENT › NON-NUCLEAR SHIP REPAIR

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: N0002406R4408

Offers Received: 1

Pricing Type: COST PLUS AWARD FEE (R)

Evaluated Preference: NONE

Contractor Details

Parent Company: BAE Systems PLC (UEI: 217304393)

Address: 3049 UALENA ST STE 915, HONOLULU, HI, 96819

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $548,965,191

Exercised Options: $546,507,651

Current Obligation: $545,911,922

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline