Acquisition Reform and Budget Machinations Begin to Affect Programs

by: Matthew Potter
August 26, 2010

Category: Austal, Business Line, Companies, Congress, Contract Awards, Department of Defense, development program, Events, Federal Budget Process, Lockheed Martin, Military Aviation, Northrop Grumman Corp., production program, Proposal, Restructuring, Services, U.S. Air Force, U.S. Army, U.S. Marine Corps, U.S. Navy | RSS 2.0

Updated to change competitor to Austal USA and General Dynamics vice Northrop Grumman in the first contest.

The U.S. Defense Department has been warning that flat or smaller budgets may be on the horizon. At the same time led by Secretary of Defense Robert Gates the Department is working to promote efficiencies in contracting and acquisition. These two factors seem to have start affecting some program decisions.

The U.S. Navy just announced that they are delaying the decision on who has won the new contract to build Littoral Combat Ships (LCS). Two bids were submitted for ten ships by Lockheed Martin (LM) and Austal USA, part of Austal (ASB:AU) of Australia. A decision was supposed to be announced this month but that has been delayed three-to-six months now. The whole LCS acquisition strategy was changed last year when a plan to have General Dynamics (GD) and Lockheed each build large numbers of two completely different designs for the LCS mission was ended after four ships were built. Now there will be this competition and then a further one in 2012 for up to 55 ships. The delay has reportedly been caused by a need for the Navy to have further discussions with the bidders. Then final proposals will be submitted. Some theories about the delay are a need by the Navy to try and make the award protest proof or costs need to be refined to meet reduced future spending. Either way a delay in the award will in the short term affect both bidders as it delays potential revenue and planning for the contract.

The Army announced yesterday that they have put on hold the ongoing competition for a new ground vehicle capable of transporting infantry across battlefields. This program had just received bids from three industry teams. The new GCV program was started due to the cancellation of the Future Combat System (FCS) by the Army in 2009. The Service stated that it may need to change the terms of the proposal after conducting a full review this Spring. That may mean requirements are being changed or cost again is driving a need to change quantities and schedule. It looks like the bidders may have to submit whole new proposals. If this is required the program would be set back several months as it would take time to redo the proposals and the source selection would be extended.

Another program facing scrutiny by Gates and his staff is the U.S. Marines new Expeditionary Fighting Vehicle (EFV). This is a armored vehicle designed to carry troops quickly from Navy amphibious ships to the beach and beyond. It will replace the venerable LVTP-7 system that has been in use since the 1970’s. Over the last decade the EFV has survived other reviews despite is cost and difficult requirements. In terms of big ticket items that are attractive to the budget hawks the EFV is certainly attractive. It has had a long development profile and the total cost of the system is high. The Marines though have a need to replace the large, slow LVTP for several years and the if the EFV was canceled a new program would have to be restarted to meet this mission. It may be that the Pentagon ends up seeing this one through.

There have been many concerns expressed over the last two years that the U.S. budget situation will adversely affect the Department of Defense. Unlike in past budget cycles Gates has remained committed to investing in some modernization programs. His recent plan to free up $100 billion over ten years from efficiencies and service contracts is not to cut the budget but to plow back into these programs. The problem he and the U.S. military face may be that there is only so much money available so only select programs get funded. The F-35 Joint Strike Fighter and KC-X aerial tanker for example will eat up a large amount of these funds. These program decisions may be a reflection of that situation.

Photo from avhell flickr photostream.

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