LCS Purchasing Plan Could Hurt Downselects

While the U.S. Navy’s dual-block-buy plan for its Littoral Combat Ship (LCS) fleet may have been the service’s best move for the program in the near term, the decision could make it difficult for the Pentagon to make downselect purchases, the Congressional Research Service (CRS) says.

Last year, the Navy decided to award the two LCS shipbuilding teams contracts to construct the two different versions of the ship instead of picking only one contract through a downselect, as the service originally had planned to do (Aerospace DAILY, Dec. 15, 2010).

The Navy said recent cost-saving measures and updated bids by the teams — one lead by Lockheed Martin and the other by Austal USA and General Dynamics — showed it would be better to award both teams the work through dual-block-buy deals.

Now, CRS Navy analyst Ron O’Rourke is questioning the long-term ramifications of that decision. “Will the Navy’s proposal to shift to the dual-award strategy cause contractors bidding for other acquisition programs to treat with increased skepticism stated DOD intentions to carry out downselects?” O’Rourke asks in his mid-January report. “If so, could that reduce the benefits of competition that DOD might hope to achieve through the use of downselect strategies?”

In the short term, though, CRS notes Navy savings for the LCS procurement. “It appears that the Navy estimates that, compared to the downselect strategy, the dual-award strategy might save a net total of $615 million (net present value) through Fiscal Year 2016 (or $305 million through FY2015). This figure includes $910 million (net present value) in savings through FY2016 ($600 million through FY2015) in ship procurement costs.”

However, CRS cautions, “This figure does not account for possible changes in the costs of other Navy ships that might occur as a consequence of changes in the spreading of shipyard fixed overhead costs.”

The estimated net savings of $615 million, CRS says, would be reduced by any LCS combat system modification costs. The two ship versions have different combat systems, and Navy analysts have speculated on what extra costs might be incurred if the Navy adopts one system or another (Aerospace DAILY, Dec. 24, 2010).

Navy testimony before Congress in December “suggests that combat system modification costs might range from zero (no modifications) to a few tens of millions of dollars (changing the radar on the ships),” CRS says.