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SecNav rips shipbuilders over LPD 17

Northrop Grumman has received a scathing rebuke from the secretary of the Navy for its performance on the LPD 17 amphibious ship program. The company was criticized for poor construction standards and an inability to meet cost and schedule targets — factors that are causing the Navy concerns about future ship construction at Northrop’s shipyards along the Gulf of Mexico.

“I am deeply concerned about Northrop Grumman Ship Systems’ (NGSS) ability to recover in the aftermath of Hurricane Katrina, particularly in regard to construction of LPD 17 Class vessels,” Navy Secretary Donald Winter wrote in a June 22 letter to Northrop Chairman Ron Sugar, a copy of which was obtained by Defense News. “I am equally concerned about NGSS’ ability to construct and deliver ships that conform to the quality standards maintained by the Navy and that adhere to the cost and schedule commitments agreed upon at the outset by both NGSS and the Navy.”

Ship Systems’ three shipyards, at Pascagoula and Gulfport, Miss., and New Orleans, have been struggling to recover from damage inflicted in August 2005 by Hurricane Katrina. But Winter called the shipbuilder’s performance prior to Katrina “marginal,” forcing the Navy to take delivery of the USS San Antonio (LPD 17) “with numerous outstanding deficiencies.”

Two of nine planned LPD 17s have been delivered to the Navy, but both ships were incomplete when they were accepted. The San Antonio, delivered in July 2005, is now undergoing an overhaul at a Norfolk, Va., shipyard that is intended to make the ship ready to deploy sometime late next year. The USS New Orleans was delivered in December 2006.

“NGSS’ inefficiency and mismanagement of LPD 17 put the Navy in an untenable position,” wrote Winter, a former Northrop executive. “By taking delivery of ships with serious quality problems, the Fleet has suffered unacceptable delays in obtaining deployable assets. Twenty-three months after commissioning of LPD 17, the Navy still does not have a mission-capable ship.”

Winter wrote that Northrop’s “persistent shortcomings” give him “grave concern” about other ships the company is scheduled to build, including the LHA 6 assault ship and the DDG 1000 destroyer.

“The Navy does not wish to find itself in the same situation it faces with LPD 17 and 18,” he wrote. “It is imperative that NGSS deliver future ships devoid of significant quality problems and that it meet its cost and schedule obligations.”

“Continued, focused management” is necessary to successfully deliver the remainder of the class, according to Winter.

To ensure that, Winter informed Sugar that Delores Etter, the Navy’s chief acquisition official, “is planning quarterly reviews of the shipyard and all of the ships under contract at NGSS.”

The Navy declined to comment publicly on the letter, which it said is an internal communication.

Winter’s spokeswoman, Capt. Beci Brenton, provided a statement in which she said, “Secretary Winter has been engaged in an ongoing dialogue with industry for the past year and a half to improve the quality, timeliness and cost of the department’s acquisitions. He has publicly spoken about the need for the department to reclaim the lead in determining the fleet’s needs and requirements, while at the same time calling on industry to control cost and improve quality and timeliness through increased investment in their people, processes and facilities.

“Ensuring the force of the future has the capabilities necessary to face a broad range of challenges is one of Secretary Winter’s top priorities.”

In a June 29 response to Winter’s letter, Sugar wrote, “I share your concern regarding the need to fully recover and improve our shipyards, and produce completed LPD 17 class vessels of the highest quality with increasing efficiency. ... Irrespective of Hurricane Katrina, Northrop has much work to do to meet the needs of the U.S. Navy.”

Northrop Grumman spokesman Randy Belote said, “We’re not going to deliver LPD 19 or any subsequent ships incomplete.”

Belote said the company continues to improve its processes in building the ships.

“We’re making very good progress,” he said.

A key shipbuilder

The Ship Systems yards build most of the Navy’s surface fleet — about two of every three warships. In addition to the LPDs, the Gulf Coast yards build Arleigh Burke DDG 51-class destroyers, the LHD 8 and LHA 6 amphibious assault ships, and the Coast Guard’s Bertholf-class National Security Cutters.

The Ingalls yard at Pascagoula, which builds the destroyers and assault ships and is building the USS Mesa Verde (LPD 19), was severely damaged by flooding throughout the facility. About $850 million worth of damage included the loss of most of the vehicles in the yard, damage to nearly every building, and the need to replace virtually the entire electrical system. About 1,500 of the yard’s 13,000 employees never returned after the hurricane. Finding and keeping skilled labor in the region remains a challenge, with housing shortages still rampant and many workers lured by higher wages in the building industry.

Avondale, the other major Ship Systems shipyard where most of the LPD 17s are built, suffered much less physical damage, but its work force remains depleted as the New Orleans area continues to lack enough housing and basic services to support the former population. Avondale employed about 7,000 workers before the storm but today has a little more than 5,000.

Katrina only added to a series of long-standing problems with the LPD 17 program, which encountered troubles almost immediately after the first contract was awarded in late 1996 to Avondale Shipyards.

Although Avondale was purchased by Ingalls, which in turn was bought by Northrop, the problems persisted. The program has been beset by industrial problems, continuing design changes, quality control, severe delays and huge cost overruns. Costs for later ships in the class were estimated to run about $750 million each in the late 1990s, but the Navy now estimates the last ship will be about $1.8 billion.

In addition to the long-standing problems with the LPD 17s, Northrop’s relations with the Navy were strained when the Navy opposed $140 million in federal aid granted by Congress last year to help rebuild shipyard infrastructure. The company also has had a tough time with the U.S. Coast Guard’s Deepwater program, where the National Security Cutter has been criticized for having potential structural weak points and a proposed composite-structure small cutter has yet to get approval.

A question of intent

Some viewed Winter’s letter as part of a series of criticisms he has leveled at shipbuilders over the past year.

“The letter can be viewed as a continuation of Secretary Winter’s ‘tough love’ policy toward the shipbuilding industrial base,” said Ron O’Rourke, a naval analyst with the Congressional Research Service. “Winter understands that the Navy needs to execute its shipbuilding programs efficiently if it is to have a fighting chance of being able to implement its shipbuilding plan.

“In addition, if Winter didn’t do something in reaction to both the LPD situation and the revelations of cost growth in the Littoral Combat Ship program, he would be at some risk of being viewed by others as a secretary who passively presided over messed-up shipbuilding programs. Stern speeches and letters like this one can help buttress his legacy as an effective manager during the 18 months or so he has left in office.”

O’Rourke noted that Winter did not threaten Northrop with any specific sanctions, should they not meet expectations.

“Some observers might see the letter as a reflection of the paucity of effective levers that the Navy has at its disposal in this situation,” the analyst said.

The quarterly reviews of Northrop’s performance that Etter now is set to perform also caught O’Rourke’s attention.

“I was actually rather surprised to learn that this wasn’t already happening with all the Navy’s shipyards and all its shipbuilding programs. I would have thought that such reviews had been instituted … long ago,” he said, given “the amounts of money in question, the high degree of program visibility, and the repeated concerns that have been expressed over cost growth.”

One industry analyst sees in the letter a political agenda, as well.

“It’s clearly intended as a pre-emptive measure to deal with increasingly hostile perceptions from a Democratic Congress on how the Navy is managing quality and schedule issues on its shipbuilding programs,” said Jim McAleese, of McAleese and Associates in McLean, Va.

The absence in Winter’s letter of a mention of financial incentives or penalties struck McAleese as a positive note.

“There seems to be a strong suggestion — by its silence on the issue — that the Navy is willing to provide financial incentives,” McAleese said. “It is widely recognized by Navy leadership that NGSS is limited in its ability to grow its work force because of the regional construction boom. This means the Navy will need to provide some flexibility and incentives to allow the shipyard to prioritize its work force to those ships with the most critical schedules.”