Austal Launches USNS Fall River (JHSV 4)

January 15, 2014 by · Comment
Filed under: Austal, Australia, Syndicated Industry News, U.S. Navy 

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Navy Awards Contracts for New Ship Components

The building of a modern warship requires not only the initial large contract with the builder but numerous other ones to buy components and support for the actual ships. Other systems are purchased with separate contracts and then items are provided to the builder for installation on the ships as they are assembled. The U.S. Navy is currently building new aircraft carriers, missile destroyers, Littoral Combats Ships (LCS), amphibious warfare ships as well as support vessels.

The LCS is being built by 2 different yards under 2 separate contracts. The LCS-1 design are made in Wisconsin by Marinette Marine and Lockheed Martin (LMT). The LCS-2 in Mobile, AL by Austal America and General Dynamics (GD). While they have dissimilar hull designs the basic weapon fit remains the same and both will carry mission modules. Up to 20 LCS are on contract to be built with the Navy periodically issuing contracts for 2 from each builder.

2 related contracts were recently awarded to support U.S. Navy ship construction. First General Dynamics (GD) received one for 8 MK 46 Naval Weapon Systems. The MK 46 is a 30mm cannon mounted in a stabilized turret. These will be installed on LPD-12 amphibious assault ships and the LCS. The contract is worth $26 million and is a follow on to previous contracts under which 30 systems have been delivered.

Then ATK (ATK), the ammunition and explosive manufacturer, received a contract for 30mm ammo. This $12 million contract is for incendiary rounds for the MK 46. It is a 5 year Indefinite Delivery / Indefinite Quantity (ID/IQ) contract with 1 base and 4 option years. As an ID/IQ the Navy will order off of the contract what is required to outfit ships with the Mk 46 weapon.

With Sequestration and the budget reductions recently passed by Congress and agreed to by the Obama Administration FY13 will probably not see many more major contracts awarded. There may be many though like these to support bigger programs already underway.

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Austal Gets Their 2 Littoral Combat Ships As Well

Following up on this mornings post about Lockheed Martin (LMT) getting a contract for two more Littoral Combat Ships (LCS) is an announcement that Austal USA, Austal’s American subsidiary, received a contract for two of their design as well.

The option for LCS-10 and LCS-12 was announced today. This is the third and fourth ship under the 10 ship contract the company received a little over a year ago. The ships will be built at Austal USA’s Mobile, AL yard.

LCS-10 will be named for Representative Gabrielle Giffords (D-AZ) who is recovering from an attempted assassination attempt.

Photo from Official U.S. Navy Imagery flickr photostream.

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Two More Littoral Combat Ships for Lockheed and Marinette Marine

The U.S. Navy in late 2010 awarded contracts to the two teams building the new Littoral Combat Ships (LCS) for ten platforms each. These were Lockheed Martin (LMT) whose mono-hull design will be built at the Marinette Marine yard in Wisconsin and Austal America in Mobile, AL. Austal America is the U.S. subsidy of Austal (ASB) the Australian manufacturer of fast ferries. The Austal design utilizes a catamaran hull.

Prior to these contracts each team was building two of the small warships. They have received orders under the new contract for two more and last week the Navy issued Lockheed a contract worth about $700 million for two more. This brings the total of LCS under order from Lockheed to six.

The Navy ultimately plans to operate 30 or more of the ships. They are designed to be equipped with different mission packages depending on the requirements. This includes anti-air, anti-ship and mind warfare among others. Like their name implies they are optimized for in-shore activities such as anti-piracy operations in the Indian Ocean and special warfare.

Even though the defense budget is being cut the Navy remains committed to building substantial numbers of the ship. The fact that it is built in smaller yards allows such construction.

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U.S. Navy Orders 2 of Last 3 JHSV from Austal

Yesterday the U.S. Navy announced that it had executed a contract option for 2 more Joint High Speed Vessels (JHSV) from Australian ferry builder Austal. This brings the total number of these ships ordered to 9.

Austal is close to finishing the first and has two more in production. The contract yesterday will allow the builder to begin buying long lead items and components for the two ships.

The JHSV is a fast transport based on Austal’s ferry designs that was originally planned to be used by the Navy and Army for rapid transport of troops and supplies to needed areas. It was decided that the Navy would manage the whole program and the ships were transferred to them.

Originally it was thought that up to 23 of the ships would be procured but in their FY13 budget proposal the Obama Administration reduced the planned number to 10. This means that 9 of them are now on order with the chance that only one more will be purchased.

Austal is building the ships in their Mobile, AL yard where they also make the Littoral Combat Ship (LCS). They have a contract for up to 10 of these. Interest

Photo from HerrKrueger’s flickr photostream.

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New Royal Navy Tankers to be Built in South Korea

and the value of the contract is close to $1 billion.

Interestingly the ships will be built by Daewoo Shipbuilding and Marine Engineering (DSME) in South Korea rather then in a British yard. It is uncommon for a country like Britain to do this but price is becoming a major factor in such contracts and presumably the Daewoo bid was much lower then any competing ones. British companies will get support contracts such as those for design as well as test support.

DSME is one of the largest shipbuilders in South Korea and was recently awarded a contract for submarines to be delivered to Indonesia. It has great experience building cargo vessels, oil platforms and support ships. The RFA tankers will be similar to many commercial ships and other then unique Royal Navy communications equipment and defensive systems will have little or no military specific hardware.

The U.S. Navy has started buying Littoral Combat Ships (LCS) from Australian shipbuilder Austal but it is through their U.S. subsidiary and the ships are built in Mobile, AL. The Royal Navy could have pursued this course as well but it seems for auxiliaries the desire to make them at home is overshadowed by the need to keep costs down. This may portend more contracts like this for not only Great Britain but other Western countries as they look to spend their shrinking supply of defense dollars.

Photo from Official U.S. Navy Imagery’s flickr Photostream.

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GD to Begin Design of Mine Warfare System for Littoral Combat Ships (LCS)

The Navy’s new Littoral Combat Ships (LCS) are small combatants that are optimized for missions in-shore. They are being designed to operate different modules depending on the missions that will add to and expand the capabilities of their standard gun and helicopter armament. One primary mission for them will be reconnaissance and clearing of minefields.

Currently there are over 20 LCS on order from two different builders who are offering two different designs. Lockheed Martin (LMT) and Willamette Marine are building a more traditional hull design while Austal USA, part of the Australian shipbuilder Austal, is offering a trimaran hull based on fast ferries they have previously built. Lockheed’s ships are being built in Wisconsin and Austal in Alabama. The decision to use two suppliers means that the LCS will be built and in service rather quickly.

Even though the two designs are very dissimilar they will operate the same weapons and combat modules. These will include ones that provide capabilities for the anti-air mission, to attack ships and mine warfare. The modules will be designed to plug into the ships.

Now General Dynamics (GD) has been awarded a contract to begin developing one of the mine warfare systems for the LCS. This is the Surface Mine Countermeasure Unmanned Underwater Vehicle (SMCUUV) which is an autonomous system that will be used to search and classify mines. It will also collect environmental data to support operations. The contract has an initial value of $87 million.

More details about the SMCUUV may be found at the U.S. Navy’s website here.

The key to the LCS will be the ability to develop these modules and make sure that they work efficiently with the two different designs of ships.

Photo of the Austal design from Surfaces Forces’ Flickr Photostream.

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Navy Goes International for LCS Radar

Update at 1700 CDT – The post has been updated to make clear that the SAAB radar has been selected only for the Austal USA version of the LCS.

The U.S. Navy’s new Littoral Combat Ship (LCS) is a small combatant designed to fight close in to shore. It will carry out a series of different missions including anti-piracy operations, Anti-Submarine Warfare (ASW), surveillance and reconnaissance and sanction enforcement. It is unique to the U.S. Navy at this time in that two very different designs with the same basic capability are being built from two contractors This is to allow rapid production.

LCS construction is being carried out by Lockheed Martin (LMT) teamed with Marinette Marine Corp. of Wisconsin as well as Austal USA, a subsidiary of Australian company Austal. The Navy has ordered 9 of the ships so far split between the two teams.

The Navy announced this week that it has decided to install the Sea Giraffe AMB radar onto the Austal USA version of the LCS. This system is manufactured by SAAB’s (SAABB) American subsidiary. The “Agile Multi-Beam” radar provides air and surface surveillance capabilities and is used to generate a three dimensional picture of the area to support operations. It has already been installed on a variety of combatants in use with countries like Sweden, Canada and Australia.

No value for the contract was given.

The first two, LCS 1, USS Freedom, and LCS 2, USS Independence, have already been completed.

The Navy had gone back and forth on the acquisition strategy for the ship due to concerns about price and schedule after the first two were put on contract. The original plan to use the two sources was ended and there was discussion of ordering batches of ten to a single producer at a time. After the proposals were received for the first contract from Lockheed and Austal the prices were so good the Navy went back to ordering from two suppliers.

Late last year the Navy gave contracts for ten ships each to the two companies.

The LCS remain controversial due to their size, weapon suite and capabilities. The Navy seems committed to the program and has begun large scale production. The decision to use the Sea Giraffe also highlights their commitment. It is uncommon for a non-American system to be ordered like this. The standard U.S. Navy radar and combat system, the AEGIS Weapon System, is much too large for the LCS and buying an existing system like this should save time and schedule.

As with all new classes of ships once they have been in service for a few years, worked out their kinks and demonstrated their capabilities they will be accepted and should be a valuable addition.

Due to the concerns about future shipbuilding budgets and capabilities the LCS if it really is built in the numbers proposed will make up a decent portion of the U.S. surface fleet by mid-Century. Ships last a long time and can receive incremental upgrades as technology progresses and that is what will happen with this class.

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Navy Continues LCS Production with Orders for Both Teams

Earlier this year the U.S. Navy had gone ahead and awarded contracts to the two builders of the Littoral Combat Ships (LCS) for up to ten ships of their designs. The LCS is a new small warship that will be the a largest class of ships built over the next few decades for the Navy.

Two teams one lead by Lockheed Martin (LMT) and the other by Austal America (ASB:AUS) are building the ships. Lockheed uses the Wisconsin based Marinette Marine as their shipbuilder and Austal utilizes their yard in Mobile, AL. Each team had orders for two but the new contracts increased that to up to 12.

Now the Navy is allocating funding for the ships under these contracts with Lockheed and Marinette receiving a contract for the second ship of their order of ten, LCS 7, which will be named the U.S.S. Detroit. The ships are expected to cost upwards of $400 million when completed but the contract is for about $375 million. The Navy had previously ordered LCS 5, the U.S.S. Milwaukee.

Austal has completed U.S.S. Independence (LCS 2) and is building the U.S.S. Coronado (LCS 4). They received an order for a further LCS at the same time Lockheed did which is worth about $368 million. This should be for LCS 8 but no name or number was given.

The subsidiary of the Australian maker of high speed ferries and other ships had earlier received a contract for engineering support worth about $20 million while Lockheed received one as well worth a little more.

The Navy had originally planned to use multiple sources for the LCS due to the need for the rapid construction of so many ships. This acquisition strategy went through some changes with at one point the Service planning a single source for the second batch after the delivery of the first four ships. Due to the competitive bids received from Lockheed and Austal the Navy asked Congress for permission to use two sources which was approved late last year. This led to the similar contracts for ten ships each.

The Navy has had plans to build upwards of fifty of the ships which while they have dissimilar hull designs carry the same basic payload of weapons and sensors. The ships will conduct a variety of missions including patrol, anti-submarine warfare and mine warfare.

Photo from uscgantareapa flickr photostream.

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Northrop Grumman Goes Ahead with Plan to Exit Shipbuilding

Last year Northrop Grumman (NOC) one of the last two major companies building ships and submarines for the U.S. Navy announced that it would explore separating that part of their corporation. Based on their analysis of future Navy plans for building ships they decided that it would not make sense for them to stay in that business. Management had said that they might sell the whole unit to another company and some other bidders did emerge.

It was felt by some analysts that if Northrop did divide their corporation this way it would set the remaining core company on a path of potential merger with another large contractor such as Boeing (BA). This began to spark concerns that another major round of consolidation was about to happen leading to further shrinkage of the U.S. industrial base. This in turn led to the Department of Defense to state that they would prefer this kind of move not to happen and that the big defense contractors who provide most of the hardware to the U.S. military remain.

Northrop has decided in a way to partly to mollify these concerns to spin off their shipyards into a new company owned by its shareholders. The establishment of Huntington Ingalls Industries would mean that twenty percent or so of Northrop would now reside in the new company. This follows the letting go of TASC two years ago due to Conflict of Interest concerns which had represented another $1.8 billion of business for Northrop and had been a growth area for the company.

The decision to set up the new company rather then sell it to a rival was coordinated with the Navy and is considered by them one way of maintaining both competition and the industrial base in their supporting builders.

Right now the Navy is limited in what they are buying with the largest program in number of ships being the Littoral Combat Ship (LCS) program which is built in smaller yards managed by Mariette Marine and Austal America. The new Huntington will compete for destroyers, submarines and aircraft carriers the number of which ordered will be very small for the foreseeable future.

If the U.S. defense spending does decline in the next few years there will be some consolidation in the defense industry. There has already been a great deal of smaller companies involved in M&A and it would not surprise anyone if one of the larger ones did combine with another. There are only so many programs out there and competition will be fierce for them. The budgetary pressures that the U.S. faces with the current deficits means some sort of cuts will be made especially once the troops return from Afghanistan and Iraq.

Photo from Kevin Burkett’s flickr photostream.

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LCS Spin Off Contracts Begin to be Awarded

At the end of last year the U.S. Navy announced that it would go ahead and use two sources for the new Littoral Combat Ship (LCS). This was a reversion to the original plan for the small warship designed to fight inshore. Contracts were quickly awarded to Lockheed Martin (LMT) and Austal America (ASB:AUS) for ten ships each.

Now a variety of support and sub-contracts are beginning to be announced by suppliers for components to help assemble the new ships. While the two designs have very different hull forms the basic combat systems and weapons will be the same.

BAE Systems (BAE:LSE) has announced that they will fabricate 57-millimeter cannons for the Lockheed ships. These guns will be made at their plant in Minnesota. This is part of Lockheed’s almost $4 billion order for ships.

General Dynamics (GD) received a contract from Austal to build their ship’s combat and seaframe control systems. This is an open architecture system that supports the Navy’s plan to have different combat modules that are interchangeable on the ships.

One of the companies that may stand to gain the most from the contracts is Alcoa (AA). They not only provide engineering support to the Navy for the use of aluminum and other metals in ship construction including the LCS but also make the metal that Austal will use to assemble their LCS in Mobile, AL. If the Navy builds upwards of thirty or forty ships the amount of aluminum required will be quite substantial.

Lockheed also has awarded Rolls-Royce (RR:LSE) a contract for the power plants and propulsion systems. The Lockheed ships will be built at Marinette Marine’s yard in Wisconsin. Rolls-Royce makes the MT30 gas turbine which then uses water jets to propel the LCS.

As the two LCS programs continue more-and-more of these large sub-contracts will be announced as the money and work flows to different parts of the United States and many different companies. This continues to illustrate the economic effects of large defense procurement programs.

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Navy Wastes No Time and Gives New LCS Contracts to Lockheed, Austal

With the split buy acquisition strategy approved by Congress the U.S. Navy wasted no time and ordered up to twenty more of the Littoral Combat Ships (LCS) from its two suppliers.

This week both the teams led by Lockheed Martin (LMT) and Austal America (ASB:AUS) received contracts for one ship plus up to nine more options. As Congress allowed the Navy went out and bought up to twenty ships. Each contract is worth between $460 and $500 million for the first ships. If all twenty are built the two teams will received close to $5 billion each.

While each team is building a dissimilar hull shape the two designs carry similar weapon loads. Lockheed is partnered with Marinette Marine’s yard in Wisconsin. Austal America is building their ships at their facility in Mobile, AL. The ships are designed to be built at smaller yards allowing more rapid construction.

So far the Navy has received three LCS ships. USS Freedom (LCS 1) and USS Fort Worth (LCS 3) were built by Lockheed Martin and USS Independence (LCS 2) by Austal America. The USS Coronado (LCS 4) is under construction in Mobile and is expected to be commissioned in 2012.

If all twenty ships are ordered and delivered under these contracts the LCS class will quickly become one of the largest in the current Navy. Ultimately up to fifty or more of the LCS could be acquired.

The decision to allow the split contracts in line with the original acquisition strategy for the ship rather then just using one source as the Navy had proposed when it restructured the program in 2009 is a boon to Austal and Marinette. Both companies had been planning layoffs and restructuring if they had not one the contract. Now they both will have to ramp up their capabilities to support the Navy’s program.

Photo from avhell’s flickr photostream.

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Latest CRA Allows Navy to Use Multiple Sources for LCS

In the on again off again tale of the Navy’s new small combatant Congress approved the revised acquisition strategy of using multiple sources for the next twenty ships. In the latest Continuing Resolution Authority (CRA) passed by Congress Tuesday and signed by President Obama the Navy is given permission to buy ten Littoral Combat Ships (LCS) from Lockheed Martin (LMT) and Austal America (ASB:AU).

Lockheed will team with Marinette Marine Corp. of Michigan while Austal originally worked with General Dynamics (GD) for the first four LCS but for this round of bidding submitted their own. General Dynamics had decided that for future contracts they might bid by themselves.

Ten days ago the Navy had asked the two bidders to extend their prices while asking Congress for this change in strategy from the plan to buy the next batch of LCS from a sole source. The prices offered were so good that the Navy had decided to try and return to the original LCS acquisition strategy of multiple sources.

Because the plan is to buy fifty or more of the ships the idea of having two or more builders of the small ship would maximize the number being delivered. While the two hull designs are very dissimilar the overall combat load out is the same. The LCS will be optimized for fighting close to shore and be able to carry different equipment so that it may carry out missions such as mine sweeping, anti-piracy as well as fighting other ships and submarines.

The decision is a boon to the U.S. ship building industry as it guarantees work at least for the next few years to two yards rather then one.

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U.S. Navy Extends LCS Bids While Waiting on Congress

The U.S. Navy asked the two bidding teams for the new Littoral Combat Ship (LCS) contract to extend their prices until December 30 while they wait for Congress’ decision on whether two different contracts may be awarded. The original prices on the bids from Lockheed Martin (LMT) and Austal America (ASB:AU) were set to expire today but the Navy asked Congress to consider a change in the acquisition strategy from one to two sources.

As it is in their best interest to allow the Navy more time for this the two contractors agreed. The House of Representatives has already approved the move but the Senate must also.

The Navy recently decided after reviewing the proposals from the two bidders that it was in their best interest to return to the original acquisition strategy of using two sources for the new light warship. The prices offered were so good especially compared to the original four ships that it was felt that the rapid acquisition of the ships justified using two different builders.

At the start of the program the Navy intended to use ships from Lockheed and General Dynamics (GD) teamed with Austal to rapidly build dozens of the ships. In 2009 it was decided that the next contract would go to one contractor and then have follow on batches separately competed. Each of the original teams built two ships but cost increases and schedule delays led to rethinking that strategy.

The advantage gained by having more ships built quicker while keeping the U.S. industrial base busy in case of future demands may be worth the extra money the dual providers may require.

Since both designs carry almost identical weapon and sensor suites their capabilities are broadly similar the difference is in their hull designs. Lockheed is using a conventional shaped hull while Austal designed a trimaran based on their high speed ferries.

The Navy’s request for the price extension indicates that they support the two source program. If Congress does fail to act though there will be a return to the plan to order the next ships from one of the two bidders.

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Navy Changes LCS Aquisition Strategy Again Orders for GD and Lockheed

The Littoral Combat Ship (LCS) will be the next mass produced small warship for the U.S. Navy. As it names implies it is designed to operate close to a coast conducting patrol and combat missions. The Navy originally planned when the program began to buy fifty-five of the ships. In order to meet the production goals a novel acquisition strategy for the program was chosen with two different ships built to the same requirements being designed and ordered.

General Dynamics (GD) and Lockheed Martin (LMT) teamed with small shipyards were both given contracts for two ships. The two designs were not much alike with GD and Austal USA using a ship based on Austal’s fast multi-hull ferry designs built in Mobile, AL to deliver USS Independence (LCS-2). Lockheed and Marinette Marine of Wisconsin built a more traditional looking ship the USS Freedom (LCS-1).

Due to schedule delays and the delivery being more complicated then originally planned both teams faced cost growth. Due to this the Navy in late 2009 changed plans and decided to cancel the program and start over with a new competition. Because money had already been spent on LCS-3, the USS Fort Worth, Lockheed was allowed to complete the ship. It was decided to have one contest with a winner being announced this Fall and allow them to build ten ships. In 2015 another contest would be held to choose a builder for the next batch.

This week though the Navy said that the prices submitted by both teams for the competition were so good that they want to change acquisition strategy yet again to buy from both bidders. Obviously this is good news for Austal USA and Marinette and their bigger partners as they may each now get ten ships apiece to build.

This plan makes much more sense and is consistent with the original plan and will allow the LCS to enter service much more quickly in large numbers. It is based though on the bidders meeting their price quotes and this is where Congress may have second thoughts about it. They will be committing to buying a large number of ships at prices that based on the experience of the first three might be too low. This would mean that more money would have to be provided later on or quantities reduced.

There is every reason to think that the two teams can deliver on the prices they bid. They have had experience building ships and their supply chains are established giving good insight into costs. Congress might protest as their will be desire by the respective delegations to give as much work as possible to the shipbuilder in their state.

An interesting turn in the LCS program that will be the future of Navy surface warships for the next few decades as well as affecting revenue and earnings for the companies involved.

Photo from uscglantareapa flickr photostream.

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Austal USA Continues Work on JHSV

The U.S. Department of Defense awarded Austal USA (ASB:AU), the U.S. subsidiary of Australia’s Austal, a contract for two more Joint High Speed Vessels (JHSV). These represent the fourth and fifth ships of the class being built for the U.S. Navy and Army. The JHSV will be used to move supplies and equipment to an area where they are needed. As there name implies they are much faster then traditional merchant shipping.

This order follows one for the advanced procurement items issued four months ago worth $100 million. This contract has a value of about twice that. Austal is building as many as ten under the contract but ultimately the U.S. would like to buy over fifty. Austal would be one of the sources considered for the follow on contracts.

Austal is known for making high speed ferries but their U.S. subsidiary based in Mobile, AL has branched out into military projects. They have teamed with General Dynamics (GD) to build one of the designs accepted for the original Littoral Combat Ship (LCS) program. The Navy was going to have this team along with Lockheed Martin (LMT) build the ships but has now changed their minds after the first three were started to have a competition for the remaining ships. Austal will most likely be one of the bidders for that contract.

The first JHSV will be delivered at the end of next year. The first of many ships that the company will build for the U.S. Navy Austal hopes.

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U.S. Shipbuilding Industry the First to Consilidate Due to Defense Spending Realities

Northrop Grumman (NOC) has announced that they will close one of their yards in Avondale, LA with the first layoffs planned for early October as well as look at selling their shipbuilding business. This decision is based on the fact that the Navy is not buying enough ships and has led to rumors of a Boeing (BA) and Northrop merger.

With the pressures on the defense budget caused by the fighting in Iraq and Afghanistan for the last nine years as well as the high cost of new ships the number of orders each year has been reduced. On top of that the Obama Administration canceled or restructured planned programs by ending the DDG-1000 and substituting current DDG-51 class ships as well as ending a plan to have two designs produced for the new Littoral Combat Ship (LCS) and have a competition. Northrop says that the Avondale facility will close when it completes the two LPD-17 class amphibious warfare ships being built there.

The Navy is trying to aid the company and keep its industrial base larger by accelerating a new tanker program three years. This will allow Northrop to bid on them and perhaps be able to build them in Avondale. The moving up of the construction will also free up dollars in the out years for the new SSBN program which is expected to eat up most of the ship building dollars.

Even with this announcement there is no guarantee that Northrop will win the work since the ships are based on an existing hull already made by General Dynamics for underway replenishment ships. Northrop is just reacting to the writing on the wall.

The Secretary of Defense, Robert Gates, has just announced a whole set of initiatives to make defense spending more efficient. Spreading work across multiple ship yards just to keep them working is not the way to gain efficiency. It might make sense from an industrial base concern but is not the best way to save the taxpayers money. The Pentagon either has to balance these two demands or accept that their industrial base will begin to wither if their is not enough work to keep it going.

The same may happen to the aviation industry as F-22 and C-17 production is ending leaving just the JSF and the new KC-X tanker as major programs. This might not be enough to support Lockheed Martin (LMT) and Boeing’s capabilities for military aircraft production. Boeing will close their Long Beach, CA plant once the last C-17 rolls off the line and without winning the KC-X won’t have a military aircraft in production. This might make them tempted to merge with another contractor to keep some capability.

The cost of modern weapons may lead to a round of consolidation such as happened in the Nineties as the industry adjusted to the reduced defense dollars after the end of the Cold War. Unfortunately this is capability that will be hard to re-grow if needed putting the U.S. in an interesting position in the future if there is a need for another ramp up in defense spending.

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Acquisition Reform and Budget Machinations Begin to Affect Programs

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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Littoral Combat Ships (LCS) See Growth In Prices

The Littoral Combat Ship (LCS) is a new class of light warships for the U.S. Navy designed to fight close inshore and have the ability to mix-and-match its systems to the mission requirements. The Navy currently has ordered four of the controversial ships two each from Northrop Grumman and General Dynamics. The plan is to buy three more in 2010 from one or both of the contractors.

Due to cost growth in the first two ships the Navy had at one point had canceled the contracts for ships 3 and 4. Congressional pressure made them order these next two ships. The initial estimate was that the ships would cost $220 million on average but the price tags have slowly escalated over time. Now LCS 1 is estimated to cost $637 million and hull 2 $704 million. Congress has placed a cap of only $460 million for the average cost. The Navy originally intended to build over fifty of the vessels.

With the continued cost growth of the existing program it is hard to see how the Navy can continue it. There will have to be a restructuring of the costs and number of ships planned. If not the program will like the bigger DDG-1000 class look like a good candidate to end with the Navy having to accept a new design or continue constructing existing ships.

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Australian company Austal awarded Navy contract for ship design

According to this press release, Austal was awarded a $3.3 M Australian contract to do design and development for the US military under the Joint High Speed Vessel (JHSV) program. There may also be work related to the Littoral Combat Ship (LCS) as well.

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