Lockheed Martin and Austal USA received contracts Dec. 29 to build more Littoral Combat Ships (LCS) for the U.S. Navy, all but assuring that each company will build 10 more of the fast, small warships over the next eight years.
The U.S. Navy has awarded construction contracts to both Lockheed Martin and Austal USA for future Littoral Combat Ships. (U.S. Navy)
Both companies succeeded in their bids to build more of the ships because, Navy officials said, they were able to reduce the cost of each new vessel to levels significantly below Congressionally- imposed cost caps.
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As a result, the long-stalled program that over the past six years has only produced four ships now stands to ramp up to produce 20 ships between now and 2015.
"The awards represent a unique and valuable opportunity to lock in the benefits of competition and provide needed ships to our fleet in a timely and extraordinarily cost-effective manner," Navy Secretary Ray Mabus said in a statement.
The new contracts give each shipbuilding team one ship to build now, with another in 2011. Two more per year for each team will follow in 2012, 2013, 2014 and 2015.
The move caps off a whirlwind period that began Nov. 3, when Navy officials revealed they wanted to change the program from a down-select to a single design, to one that would allow them to build both types of LCS. Contract offers from each shipbuilding team, the Navy said, were so attractive that the deal was essentially too good to pass up.
Adding to the sense of urgency was the fact that the contract offers from each team would expire in December, and follow-on offers were likely to be higher.
Special permission from Capitol Hill was needed to give deals to both shipbuilding teams, and the Navy's top officials embarked on a determined lobbying effort to get attention for the LCS - no mean challenge when the lame-duck Congress, having failed to get much done prior to the Nov. 2 elections, came back to Washington needing to find ways to keep the government running and address a host of issues.
Despite Congressional annoyance at the Navy's bad timing and deep concerns about the rushed nature of the request, a measure allowing the Navy to buy the ships was attached to a continuing resolution passed Dec. 21 in the session's last hours.
The contract awards were announced one day before the prices were to expire.
Until now, the Navy would not reveal the contract offers from Lockheed Martin and Austal USA, citing Pentagon acquisition rules that prohibited disclosure of competing offers. The awarding of contracts to both teams removed those rules.
The contract for Lockheed's ship, the yet-to-be-named LCS 5, is for $437 million. The contract for LCS 6, Austal USA's ship, is for $432 million.
The differences in prices reflected each team's contract proposal, Sean Stackley, the Navy's top weapons buyer, told reporters Dec. 29.
"This was not a negotiation, this was a competition," Stackley said. "The final proposals are reflected in the numbers that were awarded."
Noting that these were "fair prices all wrapped within fixed-price incentive contracts," Stackley took pains to note that, looked at in a variety of ways, the LCS program was now well within the Congressional cost cap of $480 million per ship.
The average per-ship target price for Lockheed ships is $362 million, Stackley said, with a goal of $352 million for each Austal ship.
Government-furnished equipment (GFE), such as weapons, add about $25 million to each ship. Another $20 million is figured in for change orders, and a "management reserve" is also included.
All told, Stackley said, the average cost to buy an LCS should be between $430 million and $440 million.
"Under all circumstances, the prices for these ships fall well below the cost cap," he declared.
A total of $2.9 billion in savings will be realized because the Navy was able to act now, Stackley said, adding that the money will be plowed into other shipbuilding programs.
Unusually in a service that strives for commonality in its systems, the ships will come with different combat systems -- different radars and sensors, different computers and software. Several witnesses in a Dec. 14 Senate hearing on the LCS proposals criticized this approach.
Stackley said "options for proposals" have been solicited "to go to a common sensor. We are evaluating but have not made a decision."
The costs of maintaining two separate systems, including logistics and training needs, will result in "about a 1 percent premium," Stackley acknowledged. Over the life of the planed 55-ship LCS fleet, that would mean about "$300 million in net present value," he said.
But Rear Adm. Frank Pandolfe, director of the Navy Staff's Surface Warfare Division, noted that the savings from the overall deal ease the situation.
"It's a very good deal for the taxpayer," Pandolfe said, "and the savings more than cover the additional costs of two combat systems."
The contracts will be a shot in the arm for both shipbuilding teams. Lockheed's ships are built at Marinette Marine in Marinette, Wis., which has been laying off workers due to a lack of work. On Dec. 4, the yard launched its second LCS, Fort Worth (LCS 3).
Austal USA, which builds its ships in Mobile, Ala., is in better shape, with a contract and options to build at least ten Joint High Speed Vessels (JHSVs) for the Navy and Army. Their second LCS, Coronado (LCS 4), is about 45 percent complete and will be launched in 2011.
The switch to building and fielding both types of LCS will mean several issues now will need to addressed, including where to base the ships. The first ships will operate from San Diego, and several Navy officials have said the likely East Coast LCS base will be Mayport, Fla., home to a number of frigates that are to be decommissioned over the next few years.
But no decision has been made on a second base, Pandolfe said, and for now the LCSs will initially call San Diego home.
Other considerations will include how to operate the ships - in mixed groups using both types, for example, or in homogenous formations. There have also been proposals to base the single-hull LCS 1 Lockheed type in the Atlantic, where harbors are generally smaller and shallower, and keep the LCS 2 Austal trimaran type in the Pacific, where harbors tend to be larger.
"No decision has been made to do that," Pandolfe said. "We will look at different options as to how to base these ships."
But, he added, "we're looking forward to operating them to see how they complement each other."
Another decision closer to a resolution could be that of what surface-to-surface missile system to buy, following cancelation of the Non-Line-of-Sight (NLOS) missile.
One option, some insiders have suggested, is the Griffin, a small missile developed by Raytheon for special operations use.
But officials are not yet ready to confirm that choice.
"We have looked at approximately 50 different missiles," Pandolfe said. "We've identified one that is an attractive candidate. We are socializing that right now within the Pentagon. We are not yet ready to make an announcement."
Stackley appeared almost jubilant over the LCS contracts.
"There was nothing but goodness there," he said of the Lockheed and Austal USA proposals.
He would not rule out a future downselect to one design. Among long-range goals for the program, he said, the "simple alternative is to sustain competition between the two industry teams. The alternative is go to a downselect for a single design, either out of need for requirements or affordability, or performance or otherwise."
He also praised Congress for its support.
"Congress strongly supported this award," Stackley said. "Their future continued support will rely on performance of the program going forward."
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