Tuesday, March 3, 2009
Contract of the Day: Freedom Class
From the DoD contract announcements for Monday, March 2nd.
Lockheed Martin Corp. – Maritime Systems & Sensors, Baltimore, Md. is being awarded a modification to previously awarded contract (N00024-03-C-2311) for LCS program continuation efforts necessary to preserve production capability at its industry team shipyard facility...First it should be noted that previous news reports had suggested that Marinette Marine, which had already laid off 170 workers last year, was going to lay off an additional 100 this year.
The details of this contract are somewhat confusing, but essentially the Navy is trying to contract out the 2 ships from FY09 and what is expected to be 3 ships in FY10 as part of a competitive fixed price contract to both contractors for 5 total ships instead of different contracts for the ships purchased in each fiscal year. One bid will be for two ships, while the other would be for 3 ships. These are not supposed to be cost-plus contracts, but with the details hidden we don't really know do we. Essentially the Navy is getting money out to the yard as a placeholder and to allow the yard to go ahead and begin construction on the FY09 ship it is sure to win. The final contract price will depend on whether the yard wins the 3 ship deal or 2 ship deal once the FY10 budget passes. I'm thinking there is good reason right now to suspect Lockheed Martin wins the three ship deal.
It is accurate to call this creative contracting.
There is a question I think the Navy should hire Tim Colton to find the answer to. How much of the cost increase of both LCS platforms was due to these ships being built at a 2nd tier shipyard? I want to know how much more the US Navy is paying for the LCS to be built in these second tier yards as opposed to the top tier yards that usually handle military contracts. I understand that there is a conventional wisdom that second tier yards should decrease costs because they should be more efficient, but should is completely unproven and I think the details matter. I also think the results of an investigation by someone as capable as Tim Colton will find there were problems no one counted on, and perhaps the second tier yards were not up to the task. That isn't to say they can't be brought up to the task of building these ships, but it might explain the high costs of the first in class ships, and may give some insight into what the hell is going on at Austal.
The Navy appears to be seriously struggling with enough money to keep the primarily Navy shipyards working, so I think it would be a big mistake to build the LCS at 2nd tier yards if it is in fact costing more money to do so when they could be built at primary Navy shipyards that need the work. I'm not thinking of the Lockheed Martin version per se with these comments, rather the General Dynamics ship, but that doesn't mean Marinette shouldn't be looked into also.
This announcement only makes it all the more obvious that we are hearing absolutely nothing from Austal regarding the General Dynamics design, and history shows that in the LCS program, when we see prolonged periods of silence, that has historically meant cost increases. Anyone care to guess how much the cost of Independence has grown over the last many months since the last cost increase? If the cost of Independence grows too much, I think the Navy is going to find themselves under pressure from Congress to pick a single hull, and that is going to mean serious problems for Austal USA if costs have indeed risen like I suspect they have.
I think before Congress and the Navy opt for a single hull for the LCS, it should be determined if the cost problems is the ship or if the problem is these 2nd tier yards. If General Dynamics can build the ship at another Navy yard for cheaper, then lets go with that before consolidating to a single hull. After all, we know they can handle the extra work in both Mississippi and Maine, and a few small ships a year is better than no small ships a year.