Navy News, opinions, editorials, news from Iraq, photos, reports - Navy Times

Stop-work ordered for 3rd LCS

Scrambling to regain control of Littoral Combat Ship program costs and forestall a congressional firestorm, Navy leaders have called for a temporary halt on construction on the third LCS while examining why cost growth on the first one has jumped as much as 86 percent.

A recent cost review of the USS Freedom showed that the estimated price had jumped from a planned $220 million to between $331 million and $410 million, according to a Navy official. That ship is under construction by Lockheed Martin and scheduled to be delivered to the Navy this summer.

The third ship is in fabrication, an early stage of construction.

As a result of the findings, Navy Secretary Donald Winter decided on Jan. 12 to put out a 90-day stop-work order on Lockheed’s second ship until the causes of the cost growth are found and a way ahead is determined.

The Navy, a service official said Jan. 12, needs to “fully understand whether the cost problems are unique to the lead ship or an indicator of increased follow-on ship costs” before building more Lockheed ships.

Service leaders have been aware of cost growth in the LCS program, but until recently were not aware of the extent.

“It appears that we’re having considerable cost overruns on it,” Delores Etter, the Navy’s top acquisition officer, told reporters Jan. 11. “We don’t know the numbers.”

Etter spoke a week after deciding to reassign the program executive officer for ships, Rear Adm. Charles Hamilton, to a position outside the Naval Sea Systems Command. Sources said the reassignment was not due solely to problems with the Littoral Combat Ship.

The Navy is examining cost estimates prepared by several groups, including the Navy’s LCS program manager, NAVSEA, Lockheed Martin and the Pentagon’s Cost Analysis Improvement Group.

Navy officials would not reveal specific cost estimates by each group, although the estimates range from 50 percent to 86 percent above the hoped-for $220 million price tag.

On Jan. 10, Etter briefed Winter and Adm. Mike Mullen, chief of naval operations, on the situation. She said the Navy has also “shared this with Congress.”

Service leaders met again Jan. 12 to decide how to proceed.

Navy officials stressed that the cost figures applied only to the Freedom, the first LCS, and not to a competing LCS design being built by General Dynamics.

But the price of GD’s first ship also is rising, although one source claimed the price for the first GD ship remains well under $300 million, and that “the estimate for the second GD ship will be around $240 million to $250 million.”

As a result of the cost analysis on the Freedom, a Navy official said, a similar cost review will be performed on the General Dynamics ship.

The 55-ship Littoral Combat Ship program is a centerpiece of Mullen’s 313-ship fleet plan.

But Congress has been less than pleased with the cost estimates.

A year ago, the Navy increased the projected per-ship cost to about $300 million. Senate appropriators were dissatisfied enough with the Navy’s explanations to recommend turning down the 2007 request for two ships and rescinding funds for the third of three authorized in 2006 until the service could get a handle on LCS costs. Although those threats died in conference, Congress said its concerns remained and told the Navy to do a better job at cost estimation or risk greater oversight.

The service clearly is worried about cost growth.

“They’ll take a lot of heat from the Hill from this,” said one congressional naval analyst familiar with the program. “There are a lot of people on the appropriations and armed services committees who have not been happy with the relatively modest cost increases that have occurred in the program.

“Now if we’re talking about greater cost increases they’re going to be extraordinarily unhappy, and the Navy should expect much greater oversight into how it’s managing the program, especially as [in a Democrat-controlled Congress] this is seen as very much a Bush and Rumsfeld program.”

Construction of the Freedom began in February 2005 at Marinette Marine in Marinette, Wis. The ship was launched in September and is expected to be delivered to the Navy this summer. A second Lockheed ship — upon which the Jan. 12 stop-work order was aimed — is being built at Bollinger Shipyards in Lockport, La. Lockheed plans to alternate construction of its LCS ships between the two builder yards.

General Dynamics is building its ships at Austal USA in Mobile, Ala. Construction of the first GD ship, the Independence, began in November 2005, with delivery scheduled for 2008. GD plans to build all its ships at the Mobile shipyard.

One reason the cumulative cost growth is so apparent on Lockheed’s ship, Navy and industry officials pointed out, is that progress on the Freedom is further along than on other ships. Freedom is about 73 percent complete, Lockheed said, while the Independence is about 50 percent.

A cost analysis like that done on the Freedom hasn’t yet been performed for the Independence.

“It is premature to draw any conclusions about the General Dynamics ship,” GD spokesman Kendell Pease said Jan. 11.

But that doesn’t mean GD’s ship isn’t affected by cost concerns.

“If we find that the GD ship is experiencing the same type of cost growth,” the congressional naval analyst said, “then Congress is left with a choice — they can either act to dramatically scale-back the program, or cancel it. Or they could take a wait-and-see approach to see if maybe these are lead ship problems and maybe the Navy can bring the cost back down.

“If, however, the GD ship does not have the same type of cost growth,” the Congressional naval analyst added, “there is going to be very intense pressure from Capitol Hill for the Navy to down select to one design rather than the Navy’s current plan to buy a total of 15 before making a decision.”

Another factor in gauging Congressional response to the program’s cost growth, the Congressional naval analyst pointed out, is that the ships are being built at three small shipyards that have not done a lot of Navy work.

“People from the big yards” — the six major shipyards owned by Northrop Grumman and General Dynamics — “have always regarded LCS as a threat,” the analyst said. “This doesn’t help that.”

The pace of acquisition is key to the Navy’s desire to rapidly get the ships in service to perform close-to-shore combat missions.

Championed by previous CNO Adm. Vern Clark, the LCS is aimed at filling a gap where the Navy’s blue-water warships are less effective or too expensive to be risked.

The program has been on an exceptionally fast track from its inception in 2002, and rather than building larger and more costly ships loaded with weapons and sensors, the Navy has developed a modular plan to shift equipment on and off ships depending on a particular mission.

The service is anxious to begin getting actual sea experience with the ships to flesh out their concepts of operations. Any change in the acquisition plan could ripple through the service’s wish to develop operations and send the ships overseas to areas they’re needed.

A factor in the rapid development of the program is the large number of new-to-the-U.S. Navy components in the ships due to their relatively small size. About 20 percent of the equipment is foreign-supplied or designed, and a number of companies offered their products at near- or below-cost to enter the potentially lucrative U.S. Navy market.

Although Navy officials declined to cite specific factors leading to price hikes on the Freedom, Lockheed spokesman Craig Quigley cited a number of reasons.

-- The first ship in a new class historically experiences cost increases as shipbuilders learn the best ways to build the ships. Quigley noted that numerous representatives from the Bollinger shipyard have been in Marinette “to learn those lessons so we don’t learn them again.”

-- Vendor issues. Quigley noted that mistakes by General Electric in manufacturing the ship’s reduction gears slowed the schedule. It was also tough to get the right kind of steel, which was also being ordered by the Army to up-armoring vehicles in Iraq.

--The Navy’s new Naval Vessel Rules, changed in 2004 to to standardize and strengthen ship construction requirements. Quigley said, “The tightened NVRs will make a tougher ship. But there is an impact on cost. It is particularly relevant when you’re adapting a commercial design to a naval warship.” Lockheed’s hull form is based on a large, commercial, Italian-designed yacht.

--A fast-track acquisition program that puts ships into production while design work still is going on. “The Navy and Lockheed Martin always knew this was going to be an element of moving a ship along this fast,” Quigley said.