LCS costs fall from 1st order, still top target - Navy News | News from Afghanistan & Iraq - Navy Times

LCS costs fall from 1st order, still top target

New cost figures just revealed by the Navy show that contract prices for the second pair of Littoral Combat Ships are far higher than a congressional target, but lower than the first pair of ships. And while the new figures provide more insight into a program where the first pair of ships tripled its initial budget, the convoluted nature of how the second pair is being accounted for may reduce the significance of the contract price.

The contracts for the second pair, LCS 3 and LCS 4, were awarded last spring to Lockheed Martin and General Dynamics, respectively. The prices were kept hidden, the Navy said, because of Pentagon acquisition rules governing the service’s plan to acquire an unspecified number of each of the competing designs. But the strictures were lifted in September when Navy acquisition chief Sean Stackley changed the plan to a winner-take-all strategy.

The contract for LCS 3, awarded March 23 to Lockheed Martin, is for $470,854,144, according to a Naval Sea Systems press release issued Dec. 3. The ship reuses certain materials from an earlier LCS 3 canceled in April 2007. Those materials, valued at $78 million, bring the contract value to $548,854,144.

For LCS 4, awarded May 1 to General Dynamics, the contract price is $433,686,769. Taken together with $114 million of materials from an earlier LCS 4 canceled in November 2007, the contract value is $547,686,769.

Those numbers contrast with the original $220 million-per ship cost forecast by the Navy in 2004, and a congressionally imposed cost cap of $480 million per ship to take effect with the fiscal 2011 budget.

The new figures are less than the current estimated price of the first pair of ships. In budget documents submitted in May with the 2010 budget, the Navy said the total cost for Lockheed’s LCS 1 — commissioned in November 2008 — is $637 million. The price for GD’s LCS 2 — set to be delivered to the Navy in mid-December and commissioned in January — is $704 million.

The Navy canceled the first LCS 3 and LCS 4 in 2007 when, in an effort to rein in rising costs, it tried and failed to renegotiate the cost-plus contracts for those ships — paid for in 2006 money — and institute new fixed-price agreements. When the service ordered new ships this year with the same hull numbers but using 2009 money, it created a confusing situation where, in effect, the shipbuilding accounts were double-numbered.

“What you have here are numbers that would have to be manipulated quite a lot to understand what the construction costs of the ships are,” said one congressional source. “This is interesting, but there are so many variables here. It would be hard to use these numbers to get a clear understanding of what these ships cost to build.”

The true cost of the new ships is actually closer to $600 million each, said one professional analyst.

“If you add to the contract price about $20 million for change orders, government-furnished equipment and other categories, you get costs of $560 million to $570 million,” the professional analyst said. “Then throw in outfitting and post delivery, and they’re about $600 million each.”

Those figures are far higher than the $460 million cost cap and help explain why the Navy changed its acquisition plan to winner-take-all, the professional analyst noted.

An industry source also noted the LCS 3 and 4 costs are for single ships only, and don’t have the advantages of the 10-ship buy the Navy is expected to award next year.

“There was a long time between each builder’s first and second ships, and you’ve got to consider the costs of relearning,” said the industry source. “There are no new techniques to introduce, no best practices being figured and no economical buys because there are no cost savings from ships after these.”

There also continue to be disagreements as to the proper way to account for the ships. In early October, the Navy’s Program Executive Officer of Ships, Rear Adm. Bill Landay, said he expected to release the new figures by the end of that month, but the Navy had to work through its internal calculations of what costs to include and then satisfy Congress. Objections from the Hill, primarily from professional staff members on the Senate Appropriations Committee, further held up release of the contract prices.

With four ships under contract, the Navy plans to build another 51 LCS ships.