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New LCS prices to be revealed

Oct. 7, 2009 - 05:20AM   |   Last Updated: Oct. 7, 2009 - 05:20AM  |  
The Freedom (LCS 1), bottom, was commissioned by the Navy in Nov. 2008, while the Independence (LCS 2), top, is aiming to be delivered to the Navy by the end of this year.
The Freedom (LCS 1), bottom, was commissioned by the Navy in Nov. 2008, while the Independence (LCS 2), top, is aiming to be delivered to the Navy by the end of this year. (Navy)
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Contract prices for the Navy's two most recent Littoral Combat Ships (LCS) will be made public soon — perhaps before the end of October. "That's my goal," a key admiral told reporters Tuesday.

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Contract prices for the Navy's two most recent Littoral Combat Ships (LCS) will be made public soon — perhaps before the end of October. "That's my goal," a key admiral told reporters Tuesday.

Rear Adm. Bill Landay, the Navy's Program Executive Officer for Ships, said figuring the prices for the ships is a "convoluted process" because some of the materials used for the ships were purchased under earlier ship contracts that were then canceled.

Price has become a major factor in the LCS program, which aims to buy a total of 55 small, fast and modular warships. Two companies, Lockheed Martin and General Dynamics, are offering competing designs, and in 2010 the Navy plans to choose one of the designs as the basis for the class.

Each company has produced one ship so far. The first Lockheed ship, the Freedom (LCS 1), was commissioned in November. Landay said he hopes GD's first ship, the Independence (LCS 2), is delivered before the end of this year.

Last spring, each company received an order to build a second ship — the Fort Worth (LCS 3) from Lockheed, and the Coronado (LCS 4) from GD. But the prices for those ships were kept secret — a restriction, Navy officials said, laid on by Pentagon rules governing the acquisition of ships from competing sources.

But on Sept. 17 the Navy dropped its plan to put both designs into production and announced it would choose only one design. That, Landay acknowledged, means the prices for ships 3 and 4 no longer need be kept secret.

A cheap price was one of the major attributes of the LCS program when the first construction contracts were awarded in 2004. Then, each ship was to cost $220 million, a relatively low cost for a U.S. Navy surface warship. But each of the first two ships suffered severe cost growth due to a variety of factors. Documents submitted with the 2010 Navy budget request put the current price tag for the Freedom at $637 million, while the still-incomplete Independence is listed at $704 million.

The Navy has repeatedly stressed to its shipbuilders the need to keep a lid on costs. In 2007, after the service admitted costs had jumped on LCS 1, the Navy canceled the first LCS 3 and LCS 4 from each shipbuilder due to excessive cost growth. Congress imposed a cost cap of $460 million per ship beginning in 2010, and the Navy, while not divulging quotes received this summer from each shipbuilder for further ships, indicated neither company could meet that goal.

Landay, meeting with reporters at Naval Sea Systems Command's (NAVSEA) headquarters in the Washington Navy Yard, stressed the Navy's continuing efforts to keep the lid on cost growth in its ship construction programs. Nearly all the ships now under contract, he said, are being built under fixed-price contracts rather than cost-plus arrangements.

Soon, Landay said, the high-tech DDG 1000 destroyers will be the only new ships under cost-plus contracts. If a ship design is considered high risk, contains more technical challenges, or is the first of a new class, cost-plus agreements will continue to be used, but fixed-price, he said, will be the preferred scheme.

"It's not nirvana," Landay said, "but it shows we are making good progress."

Landay also noted that over the past year, NAVSEA has added 67 new employees to the PEO Ships staff, "making sure the offices are adequately manned." Improvements in "waterfront presence" have been made to on-site supervision in the shipyards, carried out by Supervisor of Shipbuilding (SupShips) offices.

Another key improvement, Landay said, was a revolving "gate process," where different Navy officials and offices continually review programs under construction. The process "has been extraordinarily useful to us," Landay said, allowing NAVSEA "an avenue to go back to Navy leadership and say we should rethink this" before proceeding any further.

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