Categories  Contracts Naval Systems Policy

Inside Look at the New Littoral Combat Ship Plan

Littoral Combat Ship plan has changed once again.

On September 16, 2009, the Navy announced a proposed new LCS acquisition strategy. Under the strategy, the Navy would hold a competition to pick a single design to which all LCSs procured in FY2010 and subsequent years would be built. (The process of selecting the single design for all future production is called a down select.) The winner of the down select would be awarded a contract to build 10 LCSs over the five-year period FY2010-FY2014, at a rate of two ships per year. The Navy would then hold a second competition—open to all bidders other than the shipyard building the 10 LCSs in FY2010-FY2014—to select a second shipyard to build up to five additional LCSs to the same design in FY2012-FY2014 (one ship in FY2012, and two ships per year in FY2013-FY2014). These two shipyards would then compete for contracts to build LCSs procured in FY2015 and subsequent years.
The Plan(s) Under the old plan, acquisition of the FY2015 ships didn’t exist even though it was listed on the Navy five-year shipbuilding plan. (see table below for old acquisition plan)
Downselect  FY2010  FY2011  FY2012  FY2013  FY2014  FY2015  Total
Winner                        2                 2               2                2                2
Second Source        0                 0               1                2                2                4
Total                            2                 2                3               4                4                4
19

The new plan to build 10 of each hull type is said to come as an opportunity. Apparently the competition has produced favorable contract prices from both contractors, and as such it is either cost neutral, or potentially cost saving, to buy 20 ships under these two contracts over the entire Five-Year plan instead of 19 under the old plan.
Dual Award  FY2010  FY2011  FY2012  FY2013  FY2014  FY2015  Total
Marinette                    1                1                2                2                2                2
Austal                           1                1                2                2                2                2
Total                              2               2                4                4                4                4
20

There are a few hurdles to the new plan though. In order to go with the new plan, the Navy needs Senate and Congressional approval to change the acquisition strategy. There are already statements up on both Alabama Senator websites, Senator Shelby and Senator Sessions. As a senior member of the Senate Armed Services Committee, Senator Sessions appears to have spoken to Ray Mabus about this plan on Wednesday morning and filled in on the details, because the statement implies he has thrown his full support into the plan. Senator Shelby has yet to learn the details, and finishes his statement by having concerns he hopes to work out with the Navy as he learns more details. Neither Senator Kohl nor Senator-elect Johnson has posted a statement on this news. Both shipyards would have to agree to the new plan, and it appears pretty obvious both would do it happily. On just the details as reported in the press, Austal shares soared up 20% and trading had to be halted. Fox11 in Wisconsin quoted Richard McCreary, the President and CEO of Marinette Marine, the deal “would be a very positive event.” I also thought is was noteworthy that Tim Colton, a highly respected shipbuilding consultant well known for his very clever commentary on Navy shipbuilding responded tonight by saying “Amazing, and somewhat hard to believe!” I agree with Tim Colton that this is very hard to believe, particularly when I started looking at the details of the plan. This plan clearly comes from somewhere, and I believe it comes from way up the civilian chain of command – and by that I mean it almost certainly comes directly from the White House. There is way too much industrial and political consideration in this acquisition strategy for it not to be politically driven, which suggests to me this approach represents the Obama administrations shipbuilding jobs program. Only by accepting it as an Obama administration jobs program can you explain the enormous and obvious flaw in the plan.

The Big Flaw
“My primary problem with the new acquisition strategy is how the plan to build both ships does not address the problem of each ship class having a unique combat system. Prior to the Milestone B review, the Navy told Inside the Navy
The Navy will draw up total life-cycle cost estimates for both the Lockheed Martin and General Dynamics versions of the Littoral Combat Ship before the program goes before the Defense Acquisition Board this year for its Milestone B. review. The service included the announcement in a response to a Government Accountability Office report that criticized LCS life-cycle estimates.
In the September 16, 2009 statement that announced the downselect acquisition strategy, the Navy stated the plan “reduces program ownership costs, and meets the spirit and intent of the Weapons System Acquisition Reform Act of 2009.” With each class having unique combat systems, this statement is no longer accurate. By building both designs but not choosing a single combat system, the Littoral Combat Ship program builds a dozen orphan ships rather than just two for some future CNO, SECDEF, etc… to retire, sell, or sink early as a cost savings measure. The qualification standard for a “hybrid sailor” is higher on the Littoral Combat Ship than on other vessels in the Navy, and the qualifications necessary for one combat system has nothing in common with the other combat system – meaning if the Navy buys both – “hybrid sailors” are not interchangeable among the two classes of Littoral Combat Ship without undertaking a new set of extensive (and expensive) qualifications. Building both hulls with different combat systems will cost the Navy a lot more in the long run than choosing a single combat system in a competition, and spending a little bit of money up front to standardize the combat system on both ships. The Navy can afford to do this, because there is a dirty secret here that must be addressed anyway. You know that 30mm gun for the surface warfare mission module? Word in the CIC is that it does not work for either combat system right now on either ship, in fact it may not work well with the combat system on the LPDs either, as we discussed the other day. In order to integrate new weapon systems into the Littoral Combat Ship, for each new system extensive work will be required to insure the new system works with both of the combat systems. It will not take long before the Navy spends more 23
money maintaining and integrating new technologies into both combat systems among 2 fleets of 12 ships than it would cost if the Navy just bit the bullet now and selected a single combat system for both ships. Selecting a single combat system would still allow the Navy to proceed under the plan to build 10 copies of both versions of the ship, although the Navy would probably be forced to get out bids for a new contract to one of the shipbuilders. If the Navy was to select, for example, the AIS combat system from General Dynamics for both hulls, the Navy could then proceed by building the 2 ships in FY2010 and 2 ships in FY2011 as Austal versions while the combat system on the Lockheed Martin version of the ship was converted to the AIS system. With an Austal build rate of 2/2/2/2/1/1 over the next 5 years, the Navy would begin funding the Lockheed Martin version of the ship with Marinette in FY 2012 under a 2/2/3/3 acquisition plan. Such a plan would allow the Navy to build at the same rate 2/2/4/4/4/4 between FY10 – FY15 as under the new plan, but would standardize the combat system. Failure to standardize the combat system will result in early retirements of one class of Littoral Combat Ships, because it will cost too much before the end of one of the ships hull life to maintain both classes, and some future DoD/Navy leader absolutely will retire ships early to save costs – that’s a fact. How do we know? Because the expense of maintaining unique, uncommon systems on ships is the same criteria ADM Roughead and other Navy leaders have used to retire ships over the last decade! The Big Risk While I support the Navy in this new effort to build both versions of the Littoral Combat Ships, Senator Shelby is right to have concerns. The competition between the two industry teams was clearly very intense if the combination of both bids supports the idea to build 10 of both hulls at neutral cost. Such low bids raise serious concerns whether one, or both contractors bid unrealistically low prices for the contract to build the 10 ships in an effort to win the competition. Yes, these are fixed cost contracts, but that doesn’t mean much if the ships go over cost, and if the shipyards go out of business and disrupts the Littoral Combat Ship program – then what? Most likely, the Navy either pays more or loses big. That comment by ADM Mullen to Bloomberg had to have originated from somewhere, and I do wonder if it originated as a result of the figures provided by the contractors in the fixed cost bids. Navy shipbuilding in general is not well known for being estimated on target for costs, and the Littoral Combat Ship program itself has a dismal cost estimate history. Without knowing the final figures, it is a safe bet that the contractor bid prices and the estimates by Eric Labs are very different. With the Navy apparently pushing very hard for the best possible prices, we must assume that accepting both contracts adds a much higher degree of risk and cost uncertainty, even with fixed cost contracts, than the Navy would have by picking only one bid presumably with the most reasonable cost estimates. Obama’s Gunboat Navy Oh yes, that Jeffersonian era ‘War of 1812 debacle’ analogy must be applied to this plan as offered. The timing of the decision to announce the day after the election is worth discussion, but there are valid reasons. First, the Secretary of Defense apparently made it clear after the JFCOM announcement that no one was going to make any major announcements until after the election. We know this because after JFCOM, there were no major announcements until after the election. The second consideration was perhaps Gene Taylor, who was a serious advocate of the “second source” approach because it would allow Ingalls in Pascagoula, his home district, to bid and build Littoral Combat Ships. The election seems to have removed any serious political opposition Gene Taylor might offer to this new plan. That still doesn’t explain why the announcement came the day after the election, instead of say next week. It sure is a coincidence the Navy will talk about this new plan on the very same day the President leaves on a 10 day trip to Asia, because if there is any question whether the White House is involved in the decision (and I think it is blatantly obvious this is White House driven unless ADM Roughead and ADM Harvey have both suddenly decided to reject all previous initiatives and support towards commonality to lower costs), unfortunately the President is unavailable for comment. In the end I think it is a actually a really good idea to build both ships, but the idea comes with an enormous, unmistakable flaw that offers a clue as to why it is even on the table – the Littoral Combat Ship program is now a political jobs problem instead of a US Navy program. That is not a bad thing, in fact it probably insulates the program to unexpected cost increases and certainly provides the program political cover for criticism of the program itself. To buy both ships and accept the extra costs that come from distinct HM&E of two hulls is a moderate cost worth assuming, as there is some commonality among some components where savings can be obtained from both ships when organized geographically together with other vessels that have similar components. But… to also accept both combat systems? Wow, to me that is a sure sign that someone not in uniform is ramming this plan down the Navy’s throat because such an approach represents a blatant rejection of the cost saving commonality initiatives the Navy is making across the fleet to cut future operational costs. The final product of such an approach would be to trade 2 orphan LCS hulls for 12 orphan LCS hulls, because it is a solid, unmistakable fact that one of these classes would be retired early long before their hull life expires to save costs. Unless the combat system is standardized, this plan trades 21 common LCS hulls with a good shot of lasting their full hull life and 2 orphan hulls for 12 common LCS hulls with a good shot of lasting their full hull life, and 12 common LCS hulls guaranteed to be retired early. This is why I finished my post about this new plan the other day by saying this build both plan
Makes a lot of sense to me, so much sense in fact that while I give it the best odds – I think someone will find a way to mess it up. Now you know what I meant by ‘mess it up.’

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