In follow-up to: Remember the JHSV Contract Awarded Overbudget? and JHSV Contract Awarded Well Over Budget and Aluminium and Steel Price History.
Here is a current financial report on one of the largest aluminium producers, Alcoa. (Australian video report.) These troubles should have resulted in the DoD's budgeted aluminium costs for JHSV coming down as much as 50%. Instead, what was awarded for one vessel was an effective increase in costs. How does that happen?
Aloha, Brad
Showing posts with label Obama transition. Show all posts
Showing posts with label Obama transition. Show all posts
Monday, January 12, 2009
Tuesday, November 18, 2008
JHSV Contract Awarded Well Over Budget
On Nov. 13th, the JHSV contract was awarded by the DoD Naval Sea Systems Command to, "Austal USA, Mobile Ala., is being awarded a $185,433,564 modification to previously awarded contract (N00024-08-C-2217) for the firm quantity of one Joint High Speed Vessel (JHSV)..."
Recently, in September 2008, Congress passed the "DUNCAN HUNTER NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2009." That was the budget agreed to and passed by both houses of Congress and signed by Bush. Since then, the U.S. dollar has actually appreciated in value, and applicable commodity prices are less than at that time. In that Defense Authorization Act for FY2009, one JHSV is budgeted at Line Item #161, see page 425 (p. 453 of the .pdf). Bush requested $168,846,000 for the JHSV, and the House and Senate both authorized that exact same amount in law.
Back on April 26, 2007, The U.S. Navy PEO Ships made a presentation to industry on JHSV in which it was stated, "Cost is a critical consideration," and the "Cost Goal remains $150M for the lead ship, $130M for follow ships (FY08 dollars)." Relatively speaking dollars are actually worth more now than they were then and commodity prices are now lower.
But, when the actual JHSV Solicitation RFP N00024-07-R-2219 came out it became clear from it's wording that "cost would not be critical," that in fact low-bidders could be arbitrarily disqualified, and that there would be many exceptions to price/cost allowed.
It is interesting to compare that the total cost of each of the two similar designs recently completed by Austal, hulls A615 and A616 under MARAD were:
"XVII. Determined, in accordance with Recommendations XIV and XVI and pursuant to Sections 1101(f) and 1104A(e)(5) of the Act, that the total estimated Actual Cost of the Vessels subject to adjustments as determined by the Associate Administrator for Shipbuilding, is as indicated below:
------------------------------------------Vessel 1---------Vessel 2------------Total
Estimated Actual Cost (AC)----$88,446,592----$89,556,473----$178,003,065"
So, the recently awarded contract for 1 JHSV is almost $17 million more than Bush requested and both Houses of Congress authorized. But beyond that, it is $35 million over what PEOS indicated a little more than a year ago when dollars were relatively no more valuable and commodity material prices were higher. And this non-combatant JHSV would be more than TWICE the price of what it cost to build comparably designed civilian vessels built at the same location by the same workforce expected to build this JHSV.
It would be interesting to see what the cost proposals were from the other two competitors for the JHSV. A good guess is they were both less than $185,000,000.
This proposed JHSV is not quite as over budget as the LCS, but it is over budget by at least 10% (by Congressional authorization) to 20% (by prior DoD statements) and probably more when compared to the cost and easily altered efficacy of Austal hull A616.
$185,433,564 for one JHSV is pure and simple well over budget "gold-plating"
Aloha, Brad
Recently, in September 2008, Congress passed the "DUNCAN HUNTER NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2009." That was the budget agreed to and passed by both houses of Congress and signed by Bush. Since then, the U.S. dollar has actually appreciated in value, and applicable commodity prices are less than at that time. In that Defense Authorization Act for FY2009, one JHSV is budgeted at Line Item #161, see page 425 (p. 453 of the .pdf). Bush requested $168,846,000 for the JHSV, and the House and Senate both authorized that exact same amount in law.
Back on April 26, 2007, The U.S. Navy PEO Ships made a presentation to industry on JHSV in which it was stated, "Cost is a critical consideration," and the "Cost Goal remains $150M for the lead ship, $130M for follow ships (FY08 dollars)." Relatively speaking dollars are actually worth more now than they were then and commodity prices are now lower.
But, when the actual JHSV Solicitation RFP N00024-07-R-2219 came out it became clear from it's wording that "cost would not be critical," that in fact low-bidders could be arbitrarily disqualified, and that there would be many exceptions to price/cost allowed.
It is interesting to compare that the total cost of each of the two similar designs recently completed by Austal, hulls A615 and A616 under MARAD were:
"XVII. Determined, in accordance with Recommendations XIV and XVI and pursuant to Sections 1101(f) and 1104A(e)(5) of the Act, that the total estimated Actual Cost of the Vessels subject to adjustments as determined by the Associate Administrator for Shipbuilding, is as indicated below:
------------------------------------------Vessel 1---------Vessel 2------------Total
Estimated Actual Cost (AC)----$88,446,592----$89,556,473----$178,003,065"
So, the recently awarded contract for 1 JHSV is almost $17 million more than Bush requested and both Houses of Congress authorized. But beyond that, it is $35 million over what PEOS indicated a little more than a year ago when dollars were relatively no more valuable and commodity material prices were higher. And this non-combatant JHSV would be more than TWICE the price of what it cost to build comparably designed civilian vessels built at the same location by the same workforce expected to build this JHSV.
It would be interesting to see what the cost proposals were from the other two competitors for the JHSV. A good guess is they were both less than $185,000,000.
This proposed JHSV is not quite as over budget as the LCS, but it is over budget by at least 10% (by Congressional authorization) to 20% (by prior DoD statements) and probably more when compared to the cost and easily altered efficacy of Austal hull A616.
$185,433,564 for one JHSV is pure and simple well over budget "gold-plating"
Aloha, Brad
Thursday, November 13, 2008
Here is the Contract...for 1 ship with NAVY Option for 9 more
Credit: http://www.marinelog.com/ That looks familiar. Oh, that's pricey, $185,433,564, more than twice what HSV's have gone for in the past and presumably will go for in the future. Notice the NAVY has the option of 9 more, or NOT.
Here is the 'scoop,' the first accurate media report:
From: http://www.bloomberg.com/apps/news?pid=20601081&sid=aq1LfQ6bI2Tg&refer=australia
"Austal Wins $185.4 Million Navy Award for High-Speed Vessel"
By Gopal Ratnam November 13, 2008 17:53 EST
Nov. 13 (Bloomberg) -- "Austal Ltd., the Perth, Australia- based shipbuilder, won a $185.4 million contract from the U.S. Navy to build a high-speed vessel that will transport troops and supplies, the Defense Department said.
The work will be performed by Austal's U.S. unit in Mobile, Alabama, the Pentagon said today on its Web site. The contract includes options to build as many as nine more ships..."
Here is the actual DoD press release:
From: http://www.defenselink.mil/CONTRACTS/CONTRACT.ASPX?CONTRACTID=3903
U.S. Department of Defense
Office of the Assistant Secretary of Defense (Public Affairs)
Contract On the Web: http://www.defenselink.mil/contracts/contract.aspx?contractid=3903
Public contact: http://www.defenselink.mil/faq/comment.html
FOR RELEASE AT 5 p.m. ET
November 13, 2008
CONTRACTS
NAVY
"Austal USA, Mobile Ala., is being awarded a $185,433,564 modification to previously awarded contract (N00024-08-C-2217) for the firm quantity of one Joint High Speed Vessel (JHSV) with options for up to nine additional ships and associated shore-based spares for the Phase II downselect of the JHSV Program. The JHSV Program will provide high speed, shallow draft transportation capability to support the intra-theater maneuver of personnel, supplies and equipment for the U. S. Navy, Marine Corps, and Army. Work will be performed in Mobile, Ala., and is expected to be completed by November 2010. Contract funds will not expire at the end of the current fiscal year. The Naval Sea Systems Command, Washington Navy Yard, D.C., is the contracting activity."
"Mid-Atlantic Marine Services*, Dumfries, Va., is being awarded a $59,930,293 multiple award, indefinite delivery, indefinite quantity cost plus fixed fee contract for engineering and technical shipboard alteration services for maintaining the fleet operational and material readiness of hull, mechanical and electrical systems and equipment on U.S. naval vessels..."
Oh, that's pricey, $185,433,564, more than twice what HSV's have gone for in the past and presumably will go for in the future. Notice the NAVY has the option of 9 more, or NOT.
Aloha, Brad
Wow, this story is getting really good
Dick Mayer called my attention to the following article appearing in the Boston Globe and the British International Herald Tribune a couple of days ago. My webbots did not catch it:
From: http://www.iht.com/articles/2008/11/11/america/pentagon.php?WT.mc_id=glob_mrktg_lnk3&WT.mc_ev=click
"Obama urged to scrap some Pentagon programs"
By Bryan Bender The Boston Globe November 11, 2008
WASHINGTON: "A senior Pentagon advisory group, in a series of bluntly worded briefings, is warning President-elect Barack Obama that the Defense Department's current budget is 'not sustainable' and that he must scale back or eliminate some of the military's most prized weapons programs.
The briefings were prepared by the Defense Business Board, a [DoD] internal management oversight body. It contends that the nation's recent financial crisis makes it imperative that the Pentagon and Congress slash some of the nation's most costly and troubled weapons to ensure they can finance the military's most pressing priorities.
Those include rebuilding ground forces battered by multiple tours to Iraq and Afghanistan and expanding the ranks to wage the war on terrorism.
"Business as usual is no longer an option," according to one of the internal briefings prepared in late October for the presidential transition, copies of which were provided to The Boston Globe. "The current and future fiscal environments facing the department demand bold action."
The briefings do not specify which programs should be cut, but defense analysts say that prime targets would probably include the new F-35 fighter jet, a series of navy ship programs, and a massive army project to build a new generation of ground combat vehicles, all of which have been skyrocketing in cost and suffering long development delays...
But a series of forces are now at play that make such large expenditures untenable, according to the Defense Business Board, the Pentagon oversight group that includes about 20 private-sector executives appointed by the secretary of defense.
The board, which meets at least four times a year, has a full-time staff and is an official government body. Because the board's report has not been made public, a Pentagon spokesman would not comment on it...
A recent analysis by the Government Accountability Office, the investigative arm of Congress, assessed the Pentagon's 95 largest weapons programs and found that as of March 2008 they had collectively increased in cost by nearly $300 billion over initial estimates.
"None had proceeded through development while meeting the best-practice standards for mature technologies, stable design and mature production processes - all prerequisites for achieving planned cost and schedule outcomes," the GAO said in documents published last week to help guide the presidential transition.
It added: Over the next five years, the Defense Department "expects to invest more than $357 billion on major defense acquisition programs. Much of this investment will be used to address cost overruns rooted in poor planning, execution, and oversight."
...The navy, meanwhile, has continued to bust its budget for shipbuilding. The service's six most recent ship designs have experienced cumulative cost growth of $2.4 billion over original estimates, according to the GAO. Their delivery has also been delayed, on average, by 97 months..."
One day after the above article appeared, Senator Shelby (R-Alabama) preemptively issued the following press release. So far neither the Navy nor the contract bidders have verified this decision:
From: http://shelby.senate.gov/public/index.cfm?FuseAction=PressRoom.NewsReleases&ContentRecord_id=928036e7-802a-23ad-4aab-5a22a694d69b
Press Room News Releases
"Shelby Applauds Joint High Speed Vessel Award to Austal"
November 12, 2008
Washington, D.C. -
"U.S. Senator Richard Shelby (R-Ala.), a member of the Senate Appropriations Subcommittee on Defense, today applauded the Navy’s decision to award the Joint High Speed Vessel (JHSV) contract to Austal USA, located in Mobile, Alabama. This award will sustain Austal’s current workforce in south Alabama.
“I am pleased that the Navy continues to recognize Austal’s tremendous shipbuilding capabilities,” said Shelby. “This $1.6 billion award for ten vessels is a testament to Alabama’s stellar workforce. This award enhances south Alabama’s defense community and complements our state’s service to our armed forces.”
The JHSV is a joint Navy-Army program for a high-speed, shallow draft vessel intended for rapid intra-theater transport of cargo. It reaches speeds up to 45 knots and allows for the rapid transit and deployment of troops as well as equipment and supplies. The JHSV will include a flight deck for helicopter operations and an off-load ramp that will allow vehicles to quickly drive off the ship. It will transport Army and Marine Corps company-sized units with their vehicles, or be a troop transport for an infantry battalion.
The Navy’s current acquisition plan calls for building ten vessels between fiscal year 2010 and fiscal year 2015."
Lastly, another blogger on the Big Island noticed something that I did not immediately piece together:
From: http://damontucker.wordpress.com/2008/11/13/superferry-builder-austal-receives-16-billion-contract-to-build-10-more-superferrys/
"Superferry Builder Austal Receives $1.6 Billion Navy Contract to Build Ten More Ships Like the Superferry"
"...Austal USA has won a $1.6 billion contract to build up to 10 high-speed transport ships for the U.S. military, U.S. Sen. Richard Shelby, R-Tuscaloosa, announced Wednesday.
Neither Austal nor the U.S. Navy would confirm Wednesday’s announcement…
I’m not real good at math… but if my numbers are correct, this would make each one of those ships worth about $160 Million dollars each.
If...the two Superferries...[were sold]...to the military for say $150 Million each, then that $300 Million could be put to the losses...already incurred as well as pay off any debt...toward the Superferr[ies to] this point...
I’m amazed the Unofficial Hisuperferry Blog hasn’t picked up on this."
Well, Shannon/Damon it's like trying to drink out of a firehose sometimes. The information is coming so fast that I can't respond to it all instantly.
Very interesting point, Shannon. Assuming this Shelby (R-Alabama) press release is accurate, the $1.6 Billion seems significantly more than the PEOS projections for the JHSV program. In the early years, this program is expected to build 1 ship per year; maybe they are figuring on a lot of inflation on the US Dollar to eventually get it up to more than $160 million for each ship later in the program. But you are correct, Shannon, right now, $160 million is close to twice what each of the first two similar finished HSV ships cost to build. If some of the difference could be realized between the 'reported' JHSV contract price and what the first two ships cost to build, then that could cover all debts and losses, and this whole thing would start to make a lot more sense for the investors, if not the State. Except that at $1.6 Billion for only 10 ships, the Federal Government would effectively be paying significantly more for these ships than they have been budgeted and built for in the past.
I think it is no coincidence of the non-binding Shelby (R) announcement one day after the article came out on the DoD Defense Business Board's recommendations to President-elect Obama (D).
Aloha, Brad
From: http://www.iht.com/articles/2008/11/11/america/pentagon.php?WT.mc_id=glob_mrktg_lnk3&WT.mc_ev=click
"Obama urged to scrap some Pentagon programs"
By Bryan Bender The Boston Globe November 11, 2008
WASHINGTON: "A senior Pentagon advisory group, in a series of bluntly worded briefings, is warning President-elect Barack Obama that the Defense Department's current budget is 'not sustainable' and that he must scale back or eliminate some of the military's most prized weapons programs.
The briefings were prepared by the Defense Business Board, a [DoD] internal management oversight body. It contends that the nation's recent financial crisis makes it imperative that the Pentagon and Congress slash some of the nation's most costly and troubled weapons to ensure they can finance the military's most pressing priorities.
Those include rebuilding ground forces battered by multiple tours to Iraq and Afghanistan and expanding the ranks to wage the war on terrorism.
"Business as usual is no longer an option," according to one of the internal briefings prepared in late October for the presidential transition, copies of which were provided to The Boston Globe. "The current and future fiscal environments facing the department demand bold action."
The briefings do not specify which programs should be cut, but defense analysts say that prime targets would probably include the new F-35 fighter jet, a series of navy ship programs, and a massive army project to build a new generation of ground combat vehicles, all of which have been skyrocketing in cost and suffering long development delays...
But a series of forces are now at play that make such large expenditures untenable, according to the Defense Business Board, the Pentagon oversight group that includes about 20 private-sector executives appointed by the secretary of defense.
The board, which meets at least four times a year, has a full-time staff and is an official government body. Because the board's report has not been made public, a Pentagon spokesman would not comment on it...
A recent analysis by the Government Accountability Office, the investigative arm of Congress, assessed the Pentagon's 95 largest weapons programs and found that as of March 2008 they had collectively increased in cost by nearly $300 billion over initial estimates.
"None had proceeded through development while meeting the best-practice standards for mature technologies, stable design and mature production processes - all prerequisites for achieving planned cost and schedule outcomes," the GAO said in documents published last week to help guide the presidential transition.
It added: Over the next five years, the Defense Department "expects to invest more than $357 billion on major defense acquisition programs. Much of this investment will be used to address cost overruns rooted in poor planning, execution, and oversight."
...The navy, meanwhile, has continued to bust its budget for shipbuilding. The service's six most recent ship designs have experienced cumulative cost growth of $2.4 billion over original estimates, according to the GAO. Their delivery has also been delayed, on average, by 97 months..."
One day after the above article appeared, Senator Shelby (R-Alabama) preemptively issued the following press release. So far neither the Navy nor the contract bidders have verified this decision:
From: http://shelby.senate.gov/public/index.cfm?FuseAction=PressRoom.NewsReleases&ContentRecord_id=928036e7-802a-23ad-4aab-5a22a694d69b
Press Room News Releases
"Shelby Applauds Joint High Speed Vessel Award to Austal"
November 12, 2008
Washington, D.C. -
"U.S. Senator Richard Shelby (R-Ala.), a member of the Senate Appropriations Subcommittee on Defense, today applauded the Navy’s decision to award the Joint High Speed Vessel (JHSV) contract to Austal USA, located in Mobile, Alabama. This award will sustain Austal’s current workforce in south Alabama.
“I am pleased that the Navy continues to recognize Austal’s tremendous shipbuilding capabilities,” said Shelby. “This $1.6 billion award for ten vessels is a testament to Alabama’s stellar workforce. This award enhances south Alabama’s defense community and complements our state’s service to our armed forces.”
The JHSV is a joint Navy-Army program for a high-speed, shallow draft vessel intended for rapid intra-theater transport of cargo. It reaches speeds up to 45 knots and allows for the rapid transit and deployment of troops as well as equipment and supplies. The JHSV will include a flight deck for helicopter operations and an off-load ramp that will allow vehicles to quickly drive off the ship. It will transport Army and Marine Corps company-sized units with their vehicles, or be a troop transport for an infantry battalion.
The Navy’s current acquisition plan calls for building ten vessels between fiscal year 2010 and fiscal year 2015."
Lastly, another blogger on the Big Island noticed something that I did not immediately piece together:
From: http://damontucker.wordpress.com/2008/11/13/superferry-builder-austal-receives-16-billion-contract-to-build-10-more-superferrys/
"Superferry Builder Austal Receives $1.6 Billion Navy Contract to Build Ten More Ships Like the Superferry"
"...Austal USA has won a $1.6 billion contract to build up to 10 high-speed transport ships for the U.S. military, U.S. Sen. Richard Shelby, R-Tuscaloosa, announced Wednesday.
Neither Austal nor the U.S. Navy would confirm Wednesday’s announcement…
I’m not real good at math… but if my numbers are correct, this would make each one of those ships worth about $160 Million dollars each.
If...the two Superferries...[were sold]...to the military for say $150 Million each, then that $300 Million could be put to the losses...already incurred as well as pay off any debt...toward the Superferr[ies to] this point...
I’m amazed the Unofficial Hisuperferry Blog hasn’t picked up on this."
Well, Shannon/Damon it's like trying to drink out of a firehose sometimes. The information is coming so fast that I can't respond to it all instantly.
Very interesting point, Shannon. Assuming this Shelby (R-Alabama) press release is accurate, the $1.6 Billion seems significantly more than the PEOS projections for the JHSV program. In the early years, this program is expected to build 1 ship per year; maybe they are figuring on a lot of inflation on the US Dollar to eventually get it up to more than $160 million for each ship later in the program. But you are correct, Shannon, right now, $160 million is close to twice what each of the first two similar finished HSV ships cost to build. If some of the difference could be realized between the 'reported' JHSV contract price and what the first two ships cost to build, then that could cover all debts and losses, and this whole thing would start to make a lot more sense for the investors, if not the State. Except that at $1.6 Billion for only 10 ships, the Federal Government would effectively be paying significantly more for these ships than they have been budgeted and built for in the past.
I think it is no coincidence of the non-binding Shelby (R) announcement one day after the article came out on the DoD Defense Business Board's recommendations to President-elect Obama (D).
Aloha, Brad
Thursday, November 6, 2008
"News" from Alabama on LCS and JHSV
From: http://www.al.com/business/press-register/index.ssf?/base/business/1225898169323180.xml&coll=3
"Austal in line to build more combat ships"
Wednesday, November 05, 2008
By KAIJA WILKINSON Business Reporter
"...Late Monday, the Navy asked that each submit bids on five LCS with the intention of giving three to the winning contractor and two to the rival team. The Navy plans to award one contract to each team by January, according to Navy spokesman Lt. Clay Doss. The remaining vessels will be awarded in 2010, he said...
Austal has avoided job cuts thus far, but natural attrition has reduced employment at the Mobile River shipyard to about 900 people, according to Austal. That compares to a peak of about 1,200 last year, when Austal was building both its LCS prototype and a large passenger-vehicle ferry.
Austal also expects to learn within days whether it emerges the winner among three teams vying to build up to 10 military transport vessels known as Joint High Speed Vessels, or JHSV..."
It is interesting that the Bush DoD is clearly trying to lock in the LCS program and make it more appealing. These "contracts" don't mean anything unless they are funded by the new Congress and the next Administration. Same goes for JHSV. There are only 2 more LCS funded by Congress and only 1 more JHSV funded by Congress for the foreseeable future. These Rumsfeld inspired "contracts" are now just an effort to obligate the next Administration and Congress. At a minimum, economic events in the next couple of years will overtake that, even if the Obama Transition may not be paying attention to all of this.
Aloha, Brad
"Austal in line to build more combat ships"
Wednesday, November 05, 2008
By KAIJA WILKINSON Business Reporter
"...Late Monday, the Navy asked that each submit bids on five LCS with the intention of giving three to the winning contractor and two to the rival team. The Navy plans to award one contract to each team by January, according to Navy spokesman Lt. Clay Doss. The remaining vessels will be awarded in 2010, he said...
Austal has avoided job cuts thus far, but natural attrition has reduced employment at the Mobile River shipyard to about 900 people, according to Austal. That compares to a peak of about 1,200 last year, when Austal was building both its LCS prototype and a large passenger-vehicle ferry.
Austal also expects to learn within days whether it emerges the winner among three teams vying to build up to 10 military transport vessels known as Joint High Speed Vessels, or JHSV..."
It is interesting that the Bush DoD is clearly trying to lock in the LCS program and make it more appealing. These "contracts" don't mean anything unless they are funded by the new Congress and the next Administration. Same goes for JHSV. There are only 2 more LCS funded by Congress and only 1 more JHSV funded by Congress for the foreseeable future. These Rumsfeld inspired "contracts" are now just an effort to obligate the next Administration and Congress. At a minimum, economic events in the next couple of years will overtake that, even if the Obama Transition may not be paying attention to all of this.
Aloha, Brad
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