US Navy Sinks LCS-4 Construction
“Cost Growth Puts the Brakes on the USA’s Littoral Combat Ship Program” described major program changes and accompanying issues for a ship set that was originally intended to be the numerical backbone of the USA’s future navy.
Since then, the headlines tell the story. “Cost Growth Leads to Stop-Work on Team Lockheed LCS-3 Construction.” “Littoral combat ship could slip behind schedule as price tag nears $500 million.” And more. The Navy was negotiating with the General Dynamics/ Austal team to turn the LCS 4 contract into a fixed-price contract where the contractor would assume all risk for price inflation above a set figure. That’s not a problem in principle, as long as (1) the price target is seen as achievable, based on the specifications; and (2) the Navy has a finished design that it will not interfere with once the contract is signed. If either stipulation fails, the fixed-price contract become either dangerous to the contractor, or meaningless as compensated changes drive costs higher.
The current news is not good news for the contractor – or for the Navy…
“The Navy had not yet authorized construction on LCS 4, following a series of cost overruns on LCS 2. The Navy intended to begin construction of LCS 4 if the Navy and General Dynamics could agree on the terms for a fixed-price incentive agreement. The Navy worked closely with General Dynamics to try to restructure the agreement for LCS 4 to more equitably balance cost and risk, but could not come to terms and conditions that were acceptable to both parties.”
“They were above the numbers we were willing to accept,” Navy Adm. Charles Goddard, told reporters at a Pentagon briefing”
Meanwhile, the reception in Congress is less than friendly. Senate appropriators slashed funding for LCS 4 in their version of the FY 2008 defense spending bill, and proposed delivering just the first 2 ships before a final decision was made. The House version of the bill was milder, but still cut $571 million, reducing FY 2008 program funding to $339.5 million to build a single LCS. If, indeed, lead materials plus this funding could deliver a ship.
At present, however, this scenario is the LCS program’s best outcome for FY 2008.
DID Op/Ed/ Thoughts:
The Navy has succeeded in demonstrating “tough love” to the contractors involved – but what of its own role? Navlog has some valid points to make about the whole process:
“This is, of course, not the entire fault of the Navy. Government procurement rules require such a long-range schedule from concept to design to building to delivery to the fleet that as much as thirteen years passes before the first hull hits the fleet. During that period, of course, threats may change radically as may funding. On the contractor end, builders complain that the Navy keeps making so many design changes while the ships are being built that they have little chance of delivering on spec on budget on time. There is truth to both these points of view.”
Those truths, and others besides, have now come home to roost for the LCS program. The result for the contractors are obvious: 2 lost ship contracts.
The result for the Navy isn’t much better. Instead of producing between 4 Flight 0 ships, testing their capabilities in real-world scenarios, making changes in Flight 1, and then going forward with a winner that combines the best of evaluation and experience, the Navy will now have two ships, with slightly less than the required amount for a 3rd ship in the best case FY 2008 budget scenario based on House and Senate proposals. All of which will cost more than double the program’s original cost target. The Navy’s revised plan commits the service to a final down-select by 2010, by which time only the initial 2 ships are likely to be ready. In effect, the LCS has become a 2-ship runoff down-select.
Meanwhile, unanswered questions remain concerning the Navy’s ability to match its requirements with its cost target, the real-world importance of the speed requirement that drove both designs, and with the needs of a future force low-end platform that may have to perform tasks like fleet air defense and combat against other ships.
The contract cancellation is all well and good, and may provide a period of reflection for all parties involved. It is a means, however, not an end.
The end is a viable program to create the US Navy’s future low-end surface combatants, within a larger shipbuilding program that can avoid the death-squeeze scenario of too few high-end ships that have been priced out of the water, coupled with a low-end that cannot assume basic fleet roles like air defense or anti-ship combat.
Right now, both of these requirements for the USA’s future as a naval power are in question.
- DID FOCUS Article – The USA’s New Littoral Combat Ships (updated). Provides full coverage of the LCS program, ships, controversies, and contracts throughout the program’s evolution, as well as related research and readings.
- DID (Oct 23/07) – An LCS For Israel? Very possibly – but if so, it will have a number of important differences from the proposed US designs.