The Contract

The US Department of Defense Press Desk released today that Huntington Ingalls [NYSE: HII] has been awarded a contract to the sum of $2,800,000,000 for the Refueling Complex Overhaul of USS George Washington.

 

Source Excerpt

Department of the Navy Contract:

“Huntington Ingalls Inc. (HII-INC), Newport News, Virginia, is being awarded a $2,800,000,000 cost-plus-incentive fee contract for USS George Washington (CVN 73) Refueling Complex Overhaul.  Work will be performed in Newport News, Virginia, and is expected to be completed by August 2021.  Fiscal 2017 and 2016 shipbuilding and conversion (Navy) funds in the amount of $1,449,741,444 and $56,868,846 respectively will be obligated at contract award and will not expire at the end of the current fiscal year.  This contract was not competitively procured under the authority of 10 U.S. Code 2304(c)(1).  HII-INC is the original building yard contractor for all ships of the CVN-68 class, the reactor planning yard, the lead design refueling yard, and the only private shipyard capable of refueling and overhauling nuclear powered aircraft carriers.  Therefore, it is the only source with the knowledge, experience, and facilities required to accomplish this effort in support of the refueling and overhaul of CVN-73 without an unacceptable disruption of Navy-wide overhaul and repair schedule.  The Naval Sea Systems Command, Washington Navy Yard, Washington, District of Columbia, is the contracting activity (N00024-17-C-2105).”

Source

 

Contract Interpretation

  • Cost-Plus-Incentive-Fee: A contract that provides for the initially negotiated amount to be adjusted later by a formula based on the relationship of total allowable costs to total target costs. The amount can be increased when allowable costs come in at less than target costs, or fees can be decreased when allowable costs exceed target costs. As such, this kind of contract creates an incentive for the contractor to come in at or under target costs. More

 

Refueling and Complex Overhaul

Essentially, a Refueling and Complex Overhaul is the action taken when a nuclear-powered aircraft carrier is determined to be in need of a massive overhaul. Such carriers should last for upwards of 50 years, but to get there, every inch of the ship is needed to be cleaned and updated. Many more complications arise when the nuclear reactors need to be refueled, catapult systems are replaced, and the hull needs repainted. As stated in the contract, Huntington Ingalls Industries is the only company capable of performing this overhaul. From HII’s website:

Newport News Shipbuilding is the only shipyard to perform refueling and complex overhaul work on Nimitz-class aircraft carriers. This massive undertaking was described in a 2002 Rand Study as one of the most challenging engineering and industrial tasks undertaken anywhere by an organization.

The nearly four-year project is performed only once during a carrier’s 50-year life and includes refueling of the ship’s two nuclear reactors, as well as significant repair, upgrade and modernization work. We have completed the refueling and complex overhaul of the first four ships of the Nimitz-class (USS Nimitz, USS Dwight D. Eisenhower, USS Carl Vinson and USS Theodore Roosevelt). Today, we are performing this work on the fifth ship in the class, the USS Abraham Lincoln, while also planning for the sixth ship in the class, USS George Washington.

Source

 


Disclaimer

As of this moment, I do not own shares of Huntington Ingalls Industries. In previous posts I disclosed that I did, but I closed my position within the previous month. My opinions are entirely my own and may or may not reflect the opinions of my peers on TickHounds. I am not being compensated for sharing my due diligence in any way other than what tips may be accrued.

Most information for this post was retrieved from various sources listed throughout the post. For other sources, see below:

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