H.R. 6494

The text of H.R. 6494, the LCS dual-purchase bill is here, and may change before a final vote.

To amend the National Defense Authorization Act for Fiscal Year 2010 to improve the Littoral Combat Ship program of the Navy.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. LITTORAL COMBAT SHIP PROGRAM.

(a) Contract Authority- Subsection (a) of section 121 of the National Defense Authorization Act for Fiscal Year 2010 (Public Law 111-84; 123 Stat. 2190) is amended--

(1) in paragraph (1)--

(A) by striking `ten Littoral Combat Ships and 15 Littoral Combat Ship ship control and weapon systems' and inserting `20 Littoral Combat Ships, including any ship control and weapon systems the Secretary determines necessary for such ships,'; and

(B) by striking `a contract' and inserting `one or more contracts'; and

(2) in paragraph (2), by striking `liability to' and inserting `liability of'.

(b) Technical Data Package- Subsection (b)(2)(A) of such section is amended by striking `a second shipyard, as soon as practicable' and inserting `another shipyard to be built to a design specification for that Littoral Combat Ship'.

(c) Limitation of Costs- Subsection (c)(1) of such section is amended by striking `awarded to a contractor selected as part of a procurement' and inserting `under a contract'.

The most complete review of the choice facing Congress this week can be found in Ronald O'Rourkes Congressional Research Service report Navy Littoral Combat Ship (LCS) Program: Background, Issues, and Options for Congress dated December 3, 2024 (this past Friday) - pages 6-9:

Proposed Alternative Acquisition Strategy Announced in November 2010

On November 3, 2010, the Navy notified congressional offices that it was prepared to implement an alternative LCS acquisition strategy that would involve awarding 10-ship contracts to both LCS bidders. The Navy believes that it needs additional legislative authority from Congress to implement this dual-award strategy. The Navy states that if the additional legislative authority is not granted by mid-December (i.e., by about December 14), the Navy will proceed to announce its down select decision under the acquisition strategy announced on September 16, 2009. The Navy’s proposal of November 3, 2010, poses a near-term issue for Congress of whether the dual award strategy would be preferable to the down select strategy, and whether Congress should grant the Navy, by about December 14, the additional legislative authority the Navy says it would need to implement the dual-award strategy.

A November 4, 2010, Navy point paper on the alternative acquisition strategy stated the following (this is the full text of the point paper):

Littoral Combat Ship Proposed Revised Acquisition
Dual Ten Ship Awards

• In summer 2009 Navy received bids for three FY10 ships from Lockheed Martin/Marinette Marine/Bollinger and General Dynamics Bath Iron Works/Austal USA industry teams. These bids did not reflect competitive pricing and well exceeded the Congressional Cost Cap. In order to reverse cost trends on the program, the acquisition strategy was revised to the current down select strategy.
• The Navy’s Littoral Combat Ship acquisition strategy to down select to a single design has resulted in a highly effective competition between the industry bidders. Navy is on the path to down select in accordance with the terms of the current solicitation.
• The industry response to the competitive acquisition strategy has resulted in has resulted in reduction in cost for the LCS ships relative to the previous bids. These competitive bids, coupled with Navy’s desires to increase ship procurement rates to support operational requirements, has created an opportunity to award each bidder a fixed price ten-ship block buy - a total of 20 ships from Fiscal Year 2010 to Fiscal Year 2015. A comparison between the two strategies of which ships are included in a down select/second source versus dual 10 ship block buy appears in the table below.
• The current NDAA [national defense authorization act] language permits the Navy to procure up to 10 ships in a block buy. In order to execute a dual ten ship award, Navy believes Congressional authorization is required.
• If Congressional support for this approach is granted, Navy will work with industry to revise the ship procurement schedules within current proposal pricing (FY10 - FY15 vice FY10 - FY14).
• Navy is continuing on the path to down select and absent authorization, we will proceed to down select by mid-December 2010.
• There are numerous benefits to this approach including stabilizing the LCS program and the industrial base with award of 20 ships; increasing ship procurement rate to support operational requirements; sustaining competition through the program; and enhancing Foreign Military Sales opportunities.
• The Navy intends to procure the Technical Data Package for both designs and if necessary a second source for either or both designs could be brought into the program.
• Either approach will ensure the Navy procures affordably priced ships.
  

Downselect	FY2010	FY2011	FY2012	FY2013	FY2014	FY2015	Total
Winner	2	2	2	2	2	4	19
Second Source	0	0	1	2	2
Total	2	2	3	4	4	4

Dual Award	FY2010	FY2011	FY2012	FY2013	FY2014	FY2015	Total
Marinette	1	1	2	2	2	2	20
Austal	1	1	2	2	2	2
Total	2	2	4	4	4	4

FY2011 Funding Request
The Navy’s proposed FY2011 budget requests $1,231.0 million in procurement funding for the two LCSs that the Navy wants to procure in FY2011, and $278.4 million in FY2011 advance procurement funding for the 11 LCSs that the Navy wants to procure in FY2012-FY2014. The Navy’s proposed FY2011 budget estimates the procurement costs of LCS sea frames to be procured in FY2011-FY2015 at roughly $600 million each in then-year dollars. The Navy’s proposed FY2011 budget also requests $9.8 million in procurement funding to procure LCS module weapons, $83.0 million in procurement funding for procurement of LCS mission packages, and $226.3 million in research and development funding for the LCS program.

Issues for Congress
Acquisition Strategy Announced in November 2010
The proposed dual-award LCS acquisition strategy that the Navy revealed to congressional offices on November 3, 2010, poses a near-term issue for Congress of whether this strategy would be preferable to the down select strategy announced by the Navy on September 16, 2009, and whether Congress should grant the Navy, by about December 14, the additional legislative authority the Navy says it would need to implement the dual-award strategy.

The Navy’s proposed dual-award strategy is broadly similar to a notional dual-award approach that has been presented in this CRS report as an option for Congress (see “Potential Alternatives to Navy’s September 2009 Strategy”) since September 27, 2009, when the report was updated to incorporate the Navy’s September 16, 2009, announcement of its proposed down select strategy.

Observations that can be made on the Navy’s proposed dual-award strategy include but are not limited to the following:

• The dual-award strategy would avoid, at least for now, the possibility of a contract protest being filed against a Navy down select decision.
• The dual-award strategy would require each LCS contractor to build 10 ships over a period of six years (FY2010-FY2015) rather than five years (FY2010-FY2014), but at the same price that was bid for the five-year schedule. This could, at the margin, alter the profitability for each contractor of building its respective group of 10 ships.
• Although the dual-award strategy includes the possibility of the Navy at some point bringing a second source into the program for either or both LCS designs, the dual-award strategy does not include the guaranteed opportunity present in the down select strategy for shipyards not currently involved in building LCSs to compete for the right to become the second LCS builder.
• The Navy’s November 4, 2010, point paper on the dual-award strategy does not outline the Navy’s intentions regarding the currently different combat systems (i.e., built-in combat system equipment) on the two LCS designs.

Potential oversight questions for Congress in assessing whether the proposed dual-award strategy would be preferable to the down select strategy announced by the Navy on September 16, 2009, and whether to grant the Navy, by about December 14, the additional legislative authority the Navy says it would need to implement the dual-award strategy, include but are not limited to the following:

• Does the timing of the Navy’s proposal provide Congress with enough time to adequately assess the relative merits of the down select strategy and the dualaward strategy? Given that the contractors submitted their bids by about September 15, could the Navy have notified Congress of the proposed dualaward strategy sooner than November 3, giving Congress more time to seek information on and evaluate the proposal? Should the Navy ask the contractors to extend their bid prices for another, say, 30 or 60 or 90 days beyond December 14, so as to provide more time for congressional review of the Navy’s proposal?
• Does the Navy believe the dual-award strategy is superior to the down select strategy, and if so, why?
• What are the potential relative costs of the down select and dual-award acquisition strategies, including development costs, procurement costs (for the LCS program specifically, and more generally for all Navy shipbuilding), and life-cycle operation and support (O&S) costs? Has the Navy fully and accurately estimated these costs?
• What are the potential relative risks of the down select and dual-award acquisition strategies, including development risks, production cost risks, production schedule risks, and life-cycle O&S risks? Has the Navy fully and accurately estimated these risks?
• What are the Navy’s intentions, under the proposed dual-award acquisition strategy, regarding the currently different combat systems on the two LCS designs? Does the Navy intend to leave them unchanged, adopt one of the combat systems as the common system for both designs, or develop a new combat system for both designs? If the Navy intends to pursue the second or third of these paths, what is the Navy’s plan (including schedule) for doing so? If the Navy does not have a definite plan regarding the combat systems for the ships, how well can the potential development and life-cycle O&S costs and risks of the dual-award strategy be estimated?
• What are the potential industrial-base impacts of the dual-award strategy, including impacts on the two LCS contractors, on shipyards that could, under the down select strategy, bid for the right to become the second LCS builder, and on manufacturers of combat system equipment?
• What impact, if any, might the Navy’s proposal to shift from its down select strategy to the dual-award strategy have on the ability of the Department of Defense (DOD) to implement down select strategies for other acquisition programs? For example, will the Navy’s proposal to shift to the dual-award strategy cause contractors bidding for other acquisition programs to treat with increased skepticism stated DOD intentions to carry out down selects? If so, could that reduce the benefits of competition that DOD might hope to achieve through the use of down select strategies?

Regarding the fifth item above—the Navy’s intentions regarding the currently different combat systems on the two LCS designs—a November 29, 2010, press report states that “the Navy intends to keep separate the combat systems of the Lockheed and Austal USA versions of the Littoral Combat Ships for its dual buy strategy, but will ‘procure the tech data package to allow for consideration of [a] common combat system in the future,’ according to Navy spokeswoman Capt. Cate Mueller.” The report also quoted an industry official as saying that the Navy is likely “still strategizing as to how they’re going to single up on a combat system.”

The statement by Sean Stackley reported in the media that suggests the dual-purchase will save the Navy $2.9 billion, a statement that is both confusing and almost certainly misleading absent some apples to oranges confusing of the issues, was made on Saturday after the CRS report was released.

As I have stated previously, I support this plan even though I think Sean Stackley is saying something misleading at best regarding the costs. I have always and remain in support of 24-26 Littoral Combat Ships, and the dual-purchase would give the Navy 12 of each class for a total of 24. These are not perfect ships, and it is unclear how useful they will be in operations where the threat environment includes opponents fielding major naval weapon systems, but since the Navy has a broad range of low threat level environments it is currently being asked to task ships - this plan does fill the gaps while the nation conducts a reassessment in POM12 regarding the role of seapower after major combat operations end in SE Asia.

As I have said, buying both or neither is a better approach towards developing future capabilities in both the Littorals and for manned/unmanned mothership operations than buying one or the other would be - and I do not move from that position.

One final thought, and something people may not have noticed because shipbuilding is so damn ugly to watch from any seat in the stadium. This move with LCS represents the second time Admiral Roughead has made a major planning change to surface combatant programs on his watch, and both times the number of surface combatants in the 5 year plan was increased.

If the LCS contract is approved, on his watch Admiral Roughead will oversee the construction of Destroyers, Littoral Combat Ships, and Amphibious Ships in numbers greater than the plan just 2 years ago - and he will have done it while the Navy increased the number of SSNs purchased per year from 1 annually to 2.