By Geoff Fein
The Navy yesterday acknowledged that it will request raising the
congressional cost cap on the fifth and sixth Littoral Combat Ships
(LCS), raising the end cost of the vessels to $460 million each,
according to a Navy official.
"Due to program cost growth, the Navy sought a change in the
cost cap to appropriately reflect the restructured program and
projected ship end cost," Delores Etter, the Navy's acquisition chief,
told Defense Daily.
In the FY '06 National Defense Authorization Act, lawmakers had
placed a $220 million cost cap on the fifth and sixth LCS for each
seaframe.
"The Navy is requesting a $460 million per ship end cost (in FY
'08 dollars). This represents a 55 percent increase in seaframe cost.
The $460 million would now include other program costs typically
considered in end cost," she added.
The new end cost figure does not include the cost of the mission
modules. Adding the mission modules into the cost would push LCS-5 and
-6 above $500 million. According to the Navy, the average price for the
three mission modules--mine warfare, anti-submarine warfare and surface
warfare--is about $63 million (Defense Daily, March 20, 2006).
End cost is composed of basic construction cost, plans, change
orders, electronics/government furnished equipment, and other (program
management, technical support, certification and test) costs, Etter
said.
"This adjustment would reflect updated cost estimates for ship
end cost that include: incorporation of lessons learned from lead ship
contract execution; a more refined cost estimate of the required
changes to the designs; and a higher allowance for program management
costs to provide for the additional government oversight that was
recommended as a result of the Navy's root cause analysis of the LCS-1
cost growth," she added.
The current cost cap limits the fifth and sixth ships of the LCS
class to $220 million (in FY '05 dollars) for each seaframe, adjusted
for specific factors such as inflation, outfitting post-delivery costs,
legal adjustments and the insertion of certain types of new technology,
Etter said.
"This target was considered by the Navy as the basic
construction cost of the seaframe and did not include other program
costs typically considered in end cost," she added.
Typically, the Navy uses end cost when discussing the price of
ships, such as DDG-1000, CVN-21 and CG(X), Allison Stiller, deputy
assistant secretary of the Navy, ships, told Defense Daily in a
separate interview.
"They are all end cost, so we want to be consistent," she said.
Stiller said using just the construction cost when discussing
LCS made it confusing.
But why didn't the Navy stick to using the end cost as it does
with other ships? Etter said it was because the target cost of the
seaframe did not include other program costs.
"At the commencement of the program, the Navy established a cost
benchmark of $220 million (in FY '05 dollars) per ship for basic
construction cost. The Navy aggressively applied this target to make
cost-as-independent-variable trade-offs to develop a program that could
produce two seaframe variants to meet [affordability] requirements.
This target was considered by the Navy as the basic construction cost
(BCC) of the seaframe and did not include other program costs typically
considered in end cost," Etter said. "The Navy recently updated the
total program cost estimates based on an independent cost estimate,
available return cost data, and a more detailed assessment of program
costs."
Lockheed Martin [LMT] is leading a team made up of Marinette
Marine [MTW] and Bollinger Shipyard. The team's first ship, USS Freedom
(LCS-1), is being built in Wisconsin. It is about 80 percent complete,
Stiller said.
Lockheed Martin is building a semi-plaining mono hull design. In
January, the Navy announced that Freedom was registering considerable
cost overruns. In response to concerns with the program, the Navy
issued a 90-day stop work order on Jan. 12 to enable it and Lockheed
Martin to conduct investigations into the cost growth.
In March the Navy detailed a new acquisition plan for LCS that
included reprogramming $519 million for two ships in FY '07. Those
funds would be used to offset some of the cost growth on the first four
LCS.
The Navy also sought to change the contract terms with Lockheed
Martin, moving from a cost-plus contract to a fixed price incentive
(FPI) contract.
Additionally, Navy Secretary Donald Winter said the Navy would
cut its procurement numbers for fiscal years 2008 and 2009 and hold a
full and open competition for the remainder of the LCS-class buy in FY
'10. The Navy wants 55 LCS (Defense Daily, March 16).
The Navy has since trimmed its FY '08 procurement from three to
two and its FY '09 procurement from six to three.
In March, Winter told reporters that Lockheed Martin would have
until April 12 to agree to the new contract terms. If the company
failed to agree, the Navy would terminate Lockheed Martin's second LCS
effort, LCS-3.
On April 12, 90 days after the stop work order was issued, the
Navy cancelled LCS-3 (Defense Daily, April 13). Lockheed Martin and the
Navy are now negotiating the terms of the termination order, which
includes how much material was purchased in advance for construction of
LCS-3 (Defense Daily, April 25).
The two sides are negotiating over the disposition of
approximately 22 long-lead time material items worth in excess of $70
million, according to a Navy official (Defense Daily, April 25).
"We have to be totally settled and wrapped up a year from when
we announced the termination," Stiller said Tuesday. "It's a pretty
disciplined process."
General Dynamics [GD] is also leading an effort to build a LCS
based on a trimaran hull. The company is partnered with Austal USA and
is building the USS Independence (LCS-2) at Austal's Mobile, Ala.,
facility. General Dynamics was awarded a contract for LCS-4 in late
2006, and will also build that ship in Alabama.
According to the Navy, General Dynamics said its first ship is
56 percent complete as of this week.
The Navy says it is closely watching General Dynamics' effort
and should its ship experience comparable cost overruns, the service
would seek to get General Dynamics to sign a new FPI contract, Winter
said (Defense Daily, March 16).
General Dynamics still has some ways to go before it reaches the
point where Lockheed Martin's cost overruns first surfaced, Stiller
said.
"Lockheed Martin's cost increases first cropped up [when] they
were right around 70 percent [complete]," she said.
Lockheed Martin is building the lead ship of the class. The Navy
and the company have been on schedule for delivery of Freedom in FY
'08. However, a recent fire onboard the ship could delay the delivery
date.
Stiller said the delivery schedule remains on track at the
moment, but that could change.
"With the fire, I am sure there will be some schedule
implications, but we just haven't sorted that out yet," she said. "I
don't want to speculate because we don't know impact of the fire."
