Cost Estimates Rise for US Navy’s First Littoral Combat Ships – LCS2 Over $700 Million
The estimated cost of the first of the U.S. Navy’s Littoral Combat Ships (LCS) rose a modest $6 million over the past year, but the price tag to complete the second LCS jumped $68 million, putting the ship over the $700 million mark, Pentagon budget documents show.
The price to build, outfit and deliver the USS Freedom (LCS 1) now is $637 million, up from last year’s estimate of $631 million. The ship was delivered to the Navy last September and commissioned in November, but the service and shipbuilder Lockheed Martin will continue to complete the warship well into 2009, as intended.
The price tag for the USS Independence (LCS 2), however, is pegged by the Navy at $704 million, up from last year’s mark of $636 million. The ship is still under construction at Austal USA in Mobile, Alabama, under subcontract from General Dynamics. Initial sea trials are expected to take place this summer, with delivery scheduled for later this year.
Most of the cost growth on the LCS 2 came under Basic Construction Costs, according to Navy budget justification documents that accompanied the 2010 defense budget request sent to Congress May 7. Basic costs are one of several subcategories used in computing the ships’ total price tags. Others include Change Orders, Government-Furnished Equipment and Other. Together, the categories make up a Total End Cost. To come up with that figure, the Navy adds outfitting and post-delivery costs and, on first-of-class ships such as the LCS 1 and LCS 2, final system design and mission module integration costs. The mission modules are expected to average around $100 million each. The modules — including weapons, sensors and manned and unmanned vehicles — are tailored for specific roles such as mine, anti-surface or anti-submarine warfare. The makeup and cost of the modules will vary according to the mission and the technology that is available.
Since 2004, soaring cost growth has severely disrupted the program, which once envisioned the purchase of a series of relatively inexpensive, $220 million warships that would take about two years to build - a relatively low figure in a Navy whose destroyers cost well over $1 billion. The low cost is a cornerstone of the Navy’s plan to buy a total of 55 LCS ships, or about one-sixth of the planned 313-ship Navy. The program envisioned a competition to build two very different types of LCS – a steel and aluminum monohull design from Lockheed Martin, and an all-aluminum tri-hull ship from General Dynamics – and at an unspecified point selecting one design.
But the fast-track program quickly ran afoul of increased builder regulations, design changes and contractor inexperience. The Navy revealed in early 2007 that cost had ballooned on each of the competing ship designs. Prior to accounting for those cost growths, the service at that time reckoned the cost for LCS 1 at $293 million and for LCS 2 at $297 million – figures that more than doubled a year later.
Scrambling to control cost escalation, the Navy tried to renegotiate construction contracts with each of the prime contractors from a cost-plus structure to a fixed-price deal, but both shipbuilders balked at the Navy’s demands to assume so much risk on an untried design. Negotiations failed, and the Navy in 2007 cancelled contracts to build a second ship from each contractor. Further ships were deferred to pay for cost overruns on the first two.
The Navy recently has tried to get the program back on track, and in March a contract for LCS 3 was awarded to Lockheed Martin, followed in May with an order for LCS 4 awarded to General Dynamics.
Unusually, the service did not reveal the price for those new LCS contracts, citing a “competition” for three more ships requested in the 2010 defense budget. Proposals from the two contractors to build those ships, the service said, will include price data from the 2009 ships, and federal acquisition regulations forbid publicizing competitive data.
But the nature of the competition, according to senior Navy officials, has changed. The service now plans to buy both designs, which have complementary features – the LCS 1 is nimble and has a tough steel hull, while the LCS 2 has much more internal volume and a larger flight deck.
“The Navy is not planning on down-selecting,” Sean Stackley, the Navy’s top weapon buyer, told reporters May 15. “We’ve got a competition going on right now for three ships in 2010. We’re using all the tools we have in our tool kit to figure out how far we can bring these costs down.” But Stackley refused to say what the Navy’s cost goals are on LCS, other than to cite a congressionally mandated cost cap of $460 million per ship. He said the Navy was taking “pretty aggressive actions to drive cost out” of the program but gave no specifics. “We know there are many challenges ahead as we ramp up construction, tackle affordability and learn how to best operate and support this new class,” he added.
Stackley also said acquisition reform was a top priority for the Navy given growing constraints on the military budget. “We have a plan to strengthen the acquisition workforce,” Stackley said, adding that the Navy was moving to increase its professional staff by 5,000. But he added: “It is not enough to merely increase the number of government workers. Rather, we must restore the core competencies inherent to the government.”
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