The Department of Defense started the week off with a bang Monday (if you'll pardon the expression). Across a field of 20 contracts awarded, the Pentagon laid out plans to spend nearly $6.6 billion in total contracts -- and just two contracts accounted for more than 90% of that total. It seems that tight budgets are not going to interfere with the drive to building a bigger Navy.
The contracts in question awarded to major martial shipbuilders Huntington Ingalls (NYSE:HII) and Bath Iron Works (the General Dynamics (NYSE:GD) subsidiary), respectively, are worth a combined $6.2 billion and commission the two defense contractors to build a total of nine Arleigh Burke-class (DDG 51) guided missile destroyers.
Of the two, Huntington won the bigger contract, a $3.3 billion fixed-price incentive, multiyear contract to begin building five destroyers over the course of fiscal 2013 to 2017 -- one per year. Construction work should complete on the five by July 2023.
Bath's contract is also for one ship per year, but it's only beginning building in fiscal years 2013, and 2015-2017 -- skipping 2014. Result: Bath will build four destroyers over the period. Accordingly, its contact dollar value is a bit smaller at "only" $2.8 billion.
The Huntington contract contains an option to install upgrades that could raise its total value to $3.4 billion. The Bath contract contains an even more lucrative option that, if exercised, would commission it to build a fifth destroyer. In that event, Bath's award would surpass Huntington's, rising to $3.5 billion.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics and Huntington Ingalls Industries. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.