The Navy wasted little time in taking advantage of congressional support for the service’s dual-block-buy plan for its Littoral Combat Ship (LCS), awarding fixed-price-incentive contracts tonight to both Lockheed Martin and Austal USA for the design and construction of a 10 ship block-buy each.
The total deal could reach 20 LCS for about $7 billion from Fiscal 2010 - which ended Sept. 30, technically - through Fiscal 2015. The value of the ship-construction portion of the two contracts — when all 10 ships of each block buy are awarded – is expected to be $3.6 billion for Lockheed and $3.5 billion for Austal.
The Lockheed contract is initially worth about $436.9 million and Austal’s deal is about $432 million, according to the Navy. Both contracts include line items for nine additional ships per contractor, subject to congressional appropriations toward the Pentagon’s annual LCS requests in coming years.
More interestingly, the average cost of both variants, including government-furnished equipment and an unidentified margin for potential cost growth across the five-year period, is $440 million per ship, the Navy estimates.
Congress had capped the average LCS per-hull cost at $538 million. Mission modules, which include the computers, weapons and platforms, are priced and provided separately.
The Navy initially wanted the two variants but said it would instead select only one version because of significant cost growth. But the service switched course again late this fall when, the Navy said, the contractors submitted bidding packages that showed the dual-block-buy would not only be affordable, but also save the Defense Department money over the long haul.
Still, government analysts said recently they still lacked sufficient information to determine whether it would be better to buy one or both versions. Some analysts suggested one of the main reasons for the change is the Navy’s desire to avoid a contract protest by the losing bidder if the service picked only one team’s variant. Indeed, a grueling duel between aerospace providers has held up the USAF KC-X tanker replacement effort.
Lawmakers earlier this month also questioned the Navy’s need for two variants – as well as a rush to get congressional approval before year’s end without being able to provide more information. But, based on Navy’s officials’ testimony that the deal was best for the service and needed to be secured now to get all the financial benefits, lawmakers authorized the plan before the Christmas holiday.
“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 Pentagon statement distributed after U.S. stock markets had closed regular trading. Moreover, the awards are a “unique opportunity to maximize the buying power” on the LCS program by leveraging the highly effective competition between the bidders. The statement asserted that the dual-buy approach followed 2010 guidance by Pentagon leadership to maximize competition in acquisition.
Moreover, under these contracts, both shipbuilders also will deliver a technical data package to the Navy, allowing the government a “wide range of viable alternatives” for effective future competition. Government officials have long sought more ownership over data for cost and reliability reasons, a move traditionally opposed by an industry that favors proprietary solutions.
“This approach, which is self-financed within the program by adding a year to the procurement and utilizing a portion of the greater than $2 billion total savings (throughout the Future Years Defense Program),” the statement said, “enables the Navy to efficiently produce these ships at an increased rate and meet operational requirements sooner.”
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