Thursday, December 30, 2010

Navy Issues LCS Contracts

Here are the official announcements:

Lockheed Martin Corp., Baltimore, Md., is being awarded a fixed-price-incentive contract for the fiscal 2010-2015 block buy of Flight 0+ Littoral Combat Ships (LCS). The fiscal 2010 LCS Flight 0+ ship award amount is $436,852,639. There are additional line items totaling $54,742,639 for technical data package, core class services, provisioned items orders, ordering, a not-to-exceed line item for non-recurring engineering, and data items. The total amount of the contract is $491,595,278. The contract includes line items for nine additional ships and options for post delivery support, additional crew and shore support, special studies, class services, class standard equipment support, economic order quantity equipment, selected ship systems equipment for a second source and selected ship system integration and test for a second source which, if authorized/exercised, would bring the cumulative value of this contract to $4,570,604,367. The cumulative value excluding any option items related to the second source is $4,069,913,166. Work will be performed in Marinette, Wis. (56 percent); Walpole, Mass. (14 percent); Washington, D.C. (12 percent); Oldsmar, Fla. (4 percent); Beloit, Wis. (3 percent); Moorestown, N.J. (2 percent); Minneapolis, Minn. (2 percent); and various locations of less than one percent, each totaling seven percent. Work is expected to be complete by August 2015. Contract funds will not expire at the end of the current fiscal year, except for fiscal 2010 RDT&E. This contract was competitively procured via the Federal Business Opportunities website with two offers received. The Naval Sea Systems Command, Washington, D.C., is the contracting activity (N00024-11-C-2300).

Austal USA, LLC, Mobile, Ala., is being awarded a fixed-price-incentive contract for the fiscal 2010-2015 block buy of Flight 0+ Littoral Combat Ships (LCS). The fiscal 2010 LCS Flight 0+ ship award amount is $432,069,883. There are additional line items totaling $33,398,998 for technical data package, core class services, provisioned items orders, ordering, a not-to-exceed line item for non-recurring engineering, and data items. The total amount of the contract is $465,468,881. The contract includes line items for nine additional ships and options for post delivery support, additional crew and shore support, special studies, class services, class standard equipment support, economic order quantity equipment, selected ship systems equipment for a second source and selected ship system integration and test for a second source which, if authorized/exercised, would bring the cumulative value of this contract to $4,386,301,775. The cumulative value excluding any option items related to the second source is $3,785,807,006. Work will be performed in Mobile, Ala. (50 percent); Pittsfield, Mass. (17 percent); Cincinnati, Ohio (3 percent); Baltimore, Md. (2 percent); Burlington, Vt. (2 percent); New Orleans, La. (2 percent); and various locations of less than two percent each totaling 24 percent. Work is expected to be complete by June 2015. Contract funds will not expire at the end of the current fiscal year, except fiscal 2010 RDT&E. This contract was competitively procured via the Federal Business Opportunities website with two offers received. The Naval Sea Systems Command, Washington, D.C., is the contracting activity (N00024-11-C-2301).
The Navy also has a very well done write up here, which includes these specific additional details.
Both contracts also include line items for nine additional ships, subject to Congressional appropriation of each year's Littoral Combat Ship (LCS) Program requirements. When all 10 ships of each block buy are awarded, the value of the ship construction portion of the two contracts would be $3,620,625,192 for Lockheed Martin Corp., and $3,518,156,851 for Austal USA. The average cost of both variants including government-furnished equipment and margin for potential cost growth across the five year period is $440 million per ship. The pricing for these ships falls well below the escalated average Congressional cost cap of $538 million.
My new years resolution on the blog will be to treat everything Sean Stackley says on naval affairs in 2011 with the highest degree of credibility. He truly deserves tremendous credit for making these contracts happen. Did anyone believe the Navy would get fixed-price-incentive contracts for the Littoral Combat Ship at around $440 million per hull? I was expecting somewhere in the neighborhood of $500 million as the lowest bid after government furnished equipment, and I thought even that was wishful thinking.

I'll be watching for comments by Tim Colton - who I hope decides to write a full essay on the topic - because I'm thinking there are reasons for the low price from the small yards that the rest of us completely didn't understand, and only someone like Tim will be able to explain it.

Going Forward

The Littoral Combat Ship program is one of the most criticized programs in the DoD today. A lot of that criticism comes from cost, but the cost criticism is a direct result of unreasonably low budget expectations for building a ~3000 ton ship - and is solely the Navy's fault. $220 million was never realistic, and the budget cost cap of $480 million per ship in FY08 dollars was considered much more reasonable. Note, the US Navy has ultimately achieved $440 million per ship in FY10 dollars (or is it FY11, unclear?) - a lower price than anyone expected.

Something else worth thinking about, because I'd bet a steak dinner Bob Work will be citing figures in the near future that say as much - at $440 million per hull, the next 20 Littoral Combat Ships are under fixed-cost-incentive contracts that are less expensive per 1000 tons than the Avenger MCMs, the Osprey MCHs, and the Perry FFGs. Said another way, the LCS is less expensive per 1000 tons than every other small surface combatant class built over the last 3 decades - and that includes the cost of the mission modules based on the 2010 SAR report (with a lot of cost growth to spare on mission modules, which may actually be needed!).

Did anyone believe that would end up true?

In many ways I think the cost criticism only exists in the context of what the LCS capability provides. Within that context, compelling arguments by critics can be made because payload questions with mission modules, not to mention the numerous and increasing number of logistics issues, still have not been addressed with the LCS program.

There is one counter-argument that also has not been made however, but is important if the Navy is to mean what it says. If the Littoral Combat Ship is indeed a warship, but potentially incapable of fighting in high end modern warfare environments, then we must accept that the LCS represents a warship designed for environments other than full scale war. If the mission statement in the Cooperative Strategy for 21st Century Seapower is preventing wars is as important as winning wars, and that in turn represents a range of capabilities needed for both warfighting and peacemaking, then a reasonable assessment would be to suggest the Littoral Combat Ship represents the largest single SCN budget investment in peacemaking by the US Navy since when... before the Great White Fleet?

It is not trivial by any standard to throw $8,172,108,781 of scarce SCN budget funding over the next 5 years towards a set of capabilities most likely to be disruptive in peacetime - capabilities like sea mines (1987-1988 Iran), swarming boats (Somali Piracy), or littoral submarines (Cheonan sinking). All three of those threats represent threats that US Navy forces have had to address in what are politically described as peacetime security events. While folks don't like it, primarily because the LCS isn't designed to blow shit up like traditional naval vessels, the LCS represents one of the most visible DoD investments in exercising military power during peacetime in the 21st century. That is a significantly positive political statement that the Navy would be wise to insure the American people, and in particular Congress, are informed regarding.

Considering the Austal version of the LCS looks like a super fast waterborne Star Destroyer, with visual assistance like that it seems to me that only epic leadership failure can screw up the messaging on this program.

Looking to the Future

Lets ask some questions. The Navy is probably going to SLEP the MCMs and will allow the FFGs to retire. The question to be asked now is whether the 24 Littoral Combat Ships are replacing the MHCs and MCMs, or are they replacing the FFGs? This question doesn't need an immediate answer, but as the Navy examines the evolving global maritime threat matrix it is a question worth debating.

Does the US Navy still need a frigate? The LCS is conceptually very smart (dedicated motherships are smart), but LCS is not and should never be described as a frigate. This question also doesn't need an immediate answer, but Navy leadership cannot make the mistake of attempting to sell Congress on the idea that the LCS is a frigate - because doing so would seriously undermine the ability of future Naval leadership to be adaptive when explaining emerging threats that might require a future frigate force to hedge with. Besides, what does a US armed version of LCS hulls look like anyway, and how much would that cost?

Does the Navy need LCS tenders or LCS specific logistics vessels? Logistics, maintenance, and even modularity suggests tenders would be a good idea. I think the Navy would be smart to discuss the possibility with Congress, because that discussion would reach the American people. With this program under a 5 year contract and still facing a great deal of uncertainty beyond those five years, it would be a wise choice for the Navy to float ideas and concepts as part of the LCS discussion just for the purposes of headlines and conversation. Just saying...

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