Thursday, September 17, 2009

The LCS is Still a Mess

If you have scouted the quick release news articles from The Hill, the Alabama Press-Register, the Associated Press, and Reuters and find yourself a bit confused about the LCS press conference thrown together Wednesday afternoon, you are not alone. It wasn't pretty, although I hear RADM made a good impression about 30 minutes in when he realized the press was completely confused. I don't know if anyone else saw this coming, but I certainly didn't.

Where to begin? How about 5 year ago. The following program historical data is from Ronald O'Rourke's CRS LCS paper.

FY2005
In FY2005, Congress approved the Navy’s plan to fund the construction of the first two LCS sea frames using research and development funds rather than shipbuilding funds, funded the first construction cost of the first LCS (LCS-1), required the second LCS (LCS-2) to be built (when funded in FY2006) to a different design from the first, prohibited the Navy from requesting funds in FY2006 to build a third LCS, and required all LCSs built after the lead ships of each design to be funded in the SCN account rather than the Navy’s research and development account.

FY2006
In FY2006, Congress funded the procurement of LCSs 2, 3, and 4. (The Navy requested one LCS for FY2006, consistent with Congress’s FY2005 action. Congress funded that ship and provided funding for two additional ships.) Congress in FY2006 also established a unit procurement cost limit on the fifth and sixth LCS sea frames of $220 million per ship, plus adjustments for inflation and other factors (Section 124 of the FY2006 defense authorization bill [H.R. 1815/P.L. 109-163] of January 6, 2006), required an annual report on LCS mission packages, and made procurement of more than four LCSs contingent on the Navy certifying that there exists a stable design for the LCS.

FY2007
In FY2007, Congress funded the procurement of LCSs 5 and 6. (The Navy canceled these two ships in 2007 before they were placed under contract for construction.)

FY2008
In FY2008, Congress accepted the Navy’s cancellation of LCSs 3 through 6; funded the procurement one additional LCS in FY2008 (which the Navy called LCS-5);26 significantly reduced the Navy’s FY2008 funding request for the LCS program; amended the LCS sea frame unit procurement cost cap to $460 million per ship for LCSs procured in FY2008 and subsequent years (Section 125 of the conference report [H.Rept. 110-477 of December 6, 2007] on H.R. 1585, the FY2008 defense authorization bill, which was enacted as H.R. 4986/P.L. 110-181 of January 28, 2008); and required the Navy to use fixed-price-type contracts for the construction of LCSs procured in FY2008 and subsequent years.

The Navy in 2007 requested that Congress amend the existing unit procurement cost cap for the fifth and sixth ships to $460 million, plus adjustments for inflation and other factors. Congress amended the cost cap to $460 million, but applied it not only to the fifth and sixth LCSs, but to all LCSs procured in FY2008 and subsequent years. The use of fixed-price contracts for future LCSs was something that the Navy had stated an intention to do as part of its plan for restructuring the LCS program.

FY2009
In FY2009, Congress delayed the implementation of the LCS sea frame unit procurement cost cap by two years, to ships procured in FY2010 and subsequent years (Section 122 of the FY2009 defense authorization bill [S. 3001/P.L. 110-417 of October 14, 2008]); rescinded $337 million in FY2008 shipbuilding funds for the LCS program, effectively canceling the funding for the LCS procured in FY2008 (Section 8042 of the FY2009 defense appropriations bill [Division C of H.R. 2638/P.L. 110-329 of September 30, 2008]); and funded the procurement of two LCSs at a cost of $1,020 million.
The pattern of the last 5 years of the LCS program is one of inconsistency to maintain a program plan and an emphasis on speeding the program to sea. In the classic pattern of the Littoral Combat Ship program, the Navy has completely adjusted the acquisition strategy and moved up decision to down select to a single hull. This is a major change in the LCS program to hurry it up once again in an effort to cut costs, and it ultimately makes almost no sense whatsoever.

The first question to be asked is: Why in the world did the Navy build 2 ship designs for the Littoral Combat Ship program then turn around and make the design of the ship completely irrelevant to the program strategy announced today? Why would the Navy even build LCS-3 and LCS-4 under this strategy?

Lets look at the DoD's own press release and break down what is happening here.
The Navy cancelled the solicitation to procure up to three LCS Flight 0+ ships in fiscal 2010 due to affordability. Based on proposals received this summer, it was not possible to execute the LCS program under the current acquisition strategy and given the expectation of constrained budgets. The new LCS acquisition strategy improves affordability by competitively awarding a larger number of ships across several years to one source. The Navy will accomplish this goal by issuing a new fixed price incentive solicitation for a down select to one of the two designs beginning in fiscal 2010.

Both industry teams will have the opportunity to submit proposals for the fiscal 2010 ships under the new solicitation. The selected industry team will deliver a quality technical data package, allowing the Navy to open competition for a second source for the selected design beginning in fiscal 2012. The winner of the down select will be awarded a contract for up to 10 ships from fiscal 2010 through fiscal 2014, and also provide combat systems for up to five additional ships provided by a second source. Delivery of LCS 2, along with construction of LCS 3 and LCS 4 will not be affected by the decision. This plan ensures the best value for the Navy, continues to fill critical warfighting gaps, reduces program ownership costs, and meets the spirit and intent of the Weapons System Acquisition Reform Act of 2009
Think about the plan a second. The Navy is going to down select to a single ship design not based on any actual evaluation and comparison of the hulls already funded and built (LCS-1 has spent most of 2009 in the yard, while LCS-2 hasn't even made it out of the yard), but based on which design is more likely to meet the objective of a contract negotiation for 10 ships between FY 2010 - FY 2014. And oh btw, it looks like the hull that gets selected becomes the combat system selected, meaning that whole competition was a waste of time.

To insure the absence of competition, the Navy will exclude the industry team that wins the 10 ship build from bidding the 5 ship build from FY 2012 - FY 2015, but the first industry team will provide the combat system for the winner of the second bid. This is the same as saying the Navy wants a second shipyard to build the LCS, but I have no idea how a second shipyard that won't have to compete against the first shipyard (presumably the most efficient builder of the selected design) for the second bid is going to somehow reduce costs. It reads to me like the Navy is basically saying: We want a shipyard that comes in with the lowest bid for a build of 10 LCS ships for FY 2010 - FY 2014, and we want the lowest bid available by a second shipyard for a bid of 5. Then they point to two shipyards and call it competition. Did I miss something?

At the leadership breakfast sponsored by Government Executive on Tuesday, Admiral Roughead had this short exchange when it came to the DDG-1000.
MS. PETERS: The Navy took a lot of heat for the way it handled the DDG-1000 program truncation. Can you explain that to us? Was it a capabilities issue, a budget issue, a combination?

ADM. ROUGHEAD: Capabilities,

MS. PETERS: It was capabilities?

ADM. ROUGHEAD: Capabilities
So let me get this straight. The Navy truncated the multi-billion dollar DDG-1000 from 7 ships to 3 ships, not because of cost, but because of capabilities. Then after building two different LCS hull designs, the Navy announces a new acquisition plan for the multi-million dollar LCS will begin well before any meaningful evaluation can be done of the two hulls already funded and built, because of cost concerns? By moving up the down select and creating a new acquisition plan, the Navy makes it clear that ship design is completely irrelevant in the decision to be made to down select, the only consideration that matters for LCS is cost.

What is going on? This is the first Navy shipbuilding information so far in 2009 that actually looks beyond FY 2010. This is the first shipbuilding action for the new administration.

This is the press release from Congressman Todd Akin (R-MO):
“Several months ago, the Navy received bids for two versions of the Littoral Combat Ship (LCS). The bids turned out to be unaffordable. In response, the Navy has made a dramatic change of course. Today they announced plans to immediately down select and purchase ten ships over the next five years from one of the two builders, and an additional five ships of the same design from a second shipyard.”

“The Navy believes they have identified cost drivers inherent in the LCS acquisition strategy and think this new strategy will move us closer to an affordable ship. This is a bold decision, but it is probably the right one. However, I am concerned that the Navy is forgoing an opportunity to put both ships into a robust sea trial and use operational data to inform their decision.”
He should be concerned, the LCS couldn't meet the $220 million cost cap, nor the $460 million cost cap even in a bid of 3 ships! I'd be concerned too when a program as troubled as LCS is unaffordable and still being rushed around the hill in the never ending search for a shipbuilding plan that may work. After 5 straight years of Congressional oversight, insuring quality diligence and program competition in both hull design and combat system Congress just agreed to toss all previous efforts (as listed by Ronald O'Rourkes report above) down the drain for what exactly? The two lowest bids for fifteen more 3000 ton speedboat chasers with the endurance of a Swedish corvette, the weapon payload of a German logistics ship, and the cargo hold of a small North Korean arms smuggler? I guess that does make it a bold decision for the Navy.

Can someone explain how this is supposed to create competition and reduce the cost of the LCS? Looks to me that the cost savings is almost entirely based on quantity savings. I don't see how the second shipyard creates competition in the program when the second shipyard doesn't have to compete with the first shipyard for the second bid of 5. Why even build LCS-3 and LCS-4? One of those ships is going to be commissioned a white elephant.

I was expecting the first shipbuilding announcement Ray Mabus made to be a well prepared statement about the alignment of maritime strategy and the Navy's shipbuilding budget. Well, I guess the Navy sort of did... because they basically just told the industry and Congress that the most important feature of the Littoral Combat Ship program is the lowest bid. When the entire Navy community has high expectations that major changes in Navy shipbuilding are coming, a new program plan that blatantly emphasizes the cheapest option while completely dismissing evaluation of capability considerations isn't exactly the best message to send first.

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