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NAVY
August 2007
Littoral combat ship could slip behind schedule as price
tag
nears
$500 million
By Grace Jean
 In the midst of a contentious debate about the Navy’s embattled littoral combat ship program, the service’s coveted warship has come under fire by its own supporters on Capitol Hill.
A combination of escalating costs and uncertain procurement plans have raised questions about the Navy’s ability to keep the LCS afloat, analysts warn.
“It’s clear that Congress is really worried about this program,” says Robert Work, senior naval analyst for the Center for Strategic and Budgetary Assessments.
As Congress battles over the Defense Department’s budget, lawmakers have signaled their displeasure at LCS cost overruns and delays. The number of littoral combat ships that policymakers allow the sea service to buy in 2008 could portend whether the program uprights itself in the next few years, say analysts.
“I think this is going to be a big, big deal, whether they get one or two, and whether Lockheed Martin’s given a ship. This will tell us what the Navy — and the Congress — is thinking,” says Work.
The littoral combat ship is the Navy’s new surface combatant for operations in shallow, coastal waters. There are two designs under construction, one by Lockheed Martin Corp. and the other by General Dynamics.
Touted as an inexpensive warship, the LCS originally had been advertised at $220 million per hull. The Navy intends to buy 55 of them in an effort to build its fleet to 313 ships from 277. But in recent months the price tag has more than doubled, setting off alarms among lawmakers.
Navy officials requested $910 million for three ships in the 2008 defense budget. But after significant cost overruns materialized in January on the first-of-class ship, Secretary of the Navy Donald Winter amended the request, asking for two ships instead of three.
Congressional leaders have voiced their concern over the price increases in their defense spending deliberations.
In the House, lawmakers passed a bill that gives the Navy $710.5 million for two LCSs. The Senate’s committee on armed services took a more drastic measure, cutting the Navy’s budget request by almost half in its recommendation of $480 million for one LCS.
“Before awarding contracts for additional ships in the LCS program, we need to maintain focus on delivering the most capability possible for the $1.6 billion invested thus far for six ships,” wrote the committee.
Congress funded the first two LCS prototypes through the Defense Department’s research and development budget. In 2006, it provided money for the Navy’s third LCS and allocated additional funds for two more ships. In the 2007 budget, Congress approved funding for LCS 5 and 6. However, it appears poised to rebuke the Navy in the 2008 budget for recent program troubles.
“The Senate is really worried about whether the program is stable and is on track, and that’s why they made the bigger cut than the House,” says Work.
Both chambers will fight it out to determine whether the Navy gets one or two ships.
“My guess is, if they want to keep Lockheed in the game, that they would vote for two ships,” adds Work.
Winter canceled Lockheed Martin’s second ship, the LCS 3, in April following significant cost overruns on its first ship, LCS 1. The latter ship, the USS Freedom, is 80 percent complete and is scheduled for delivery in 2008, says Diana Massing, spokeswoman for the company.
Both the House and Senate committees slashed funds for the LCS mission modules, which would enable the ship’s crews to hunt for submarines and mines and deter swarming boats of terrorists. In its report, the Senate committee wrote that it “sees no particular reason to acquire mission modules at the pace planned by the Navy, since there have been significant delays in the ship program.”
“LCS is having a bad time, so that makes it an obvious target for a money raid,” says Winslow Wheeler, director of the Straus military reform project at the Center for Defense Information.
The Navy lacks a warship that can operate effectively in coastal waters. To fill the gap, the LCS was conceived in a few short years to fight in the near-shore environment in anti-submarine, anti-mine and anti-terrorism warfare.
In an effort to expedite the ship to the fleet, the Navy set the LCS on an aggressive construction schedule that has contributed to the cost overrun problems on both lead ships.
The Navy has since proposed to restructure the LCS program to keep the ship on track and within budget. But analysts say it could be difficult to veer the ship back on course because the program is already three ships behind.
“We started this year with six ships either authorized in the program or in the budget,” says Work. But now there are only three ships, after Winter canceled the LCS 3 contract, and then canceled the fifth and sixth ships to compensate for the cost overruns on the first four ships.
The Navy’s shipbuilding plan indicated that it expected to procure two LCSs in 2007, three in 2008, and then ramp up to building six ships per year — split between the two shipyards — beginning in 2009 through 2012, for a total of 32 LCSs in the next five years.
But the Navy will fall further behind in the next two years. Amended procurement plans show the service purchasing two ships in 2008 and three in 2009, instead of three ships and six ships, respectively. Depending on how Congress votes, the Navy could end up with even fewer ships.
The Navy’s shipbuilding plan “is really messed up,” says Work and it raises concerns that LCS won’t get into the fleet in as many numbers nor as quickly as the Navy had wanted. The first LCS ship was due for delivery to the fleet this summer, but that date has been moved back to next year.
Already, the program delay is having a negative impact upon the Navy’s shipbuilding goal of 313 ships by 2013.
“Changes to the previous profile of the LCS program will result in reaching the 313 objective approximately three years later than previously planned,” says Lt. Lara Bollinger, spokesperson for the Navy.
Even if Congress awards the Navy two ships in 2008, it’s unclear which contractor the service will tap to construct them, says Work.
“There’s uncertainty about whether Lockheed Martin will remain in the game. It will depend on whether they get a second ship, because otherwise they won’t have enough work to keep the line running,” he says. Lockheed Martin built the first LCS at a shipyard in Marietta, Wis., and the LCS 3 was to have been constructed at Bollinger Shipyards Inc. in Louisiana.
Secretary of the Navy Winter has come down hard on the shipbuilding industry and his actions in dealing with the LCS debacle reveals a “zero-tolerance” policy for going over budget and falling behind schedule.
“By canceling LCS 5 and 6, he penalized both of the builders,” says Work. But he wonders whether there’s more motivation behind the actions than is apparent.
“If the message was, ‘hey I want to get your costs under control,’ he could easily have done that in the ’09, ’10 ships, when they were competing for it.”
Further complicating matters is that the Navy plans to pare down the two designs to one and build that model exclusively beginning in 2010. It also will conduct a full and open competition for the selected design for subsequent procurement, says Lt. Bashon Mann, spokesman for the Navy.
That was an unexpected move by the Navy and it leaves many wondering about the ship’s future, says Work.
“You’ve got this program, which the Navy has said is their number one program, it’s the absolute heart of the fleet, and you have an awful lot of uncertainty in it now,” he says.
In his updated Congressional Research Service report on LCS, Ronald O’Rourke writes, “among other things, the Navy’s proposed plan raises the possibility that firms that designed the winning LCS design might not be among those selected to build it.”
In selecting dual hulls for LCS, the Navy’s intention had been to deliver ships quickly to the fleet through two shipyards, with the option to downselect to one design at a later point in time. But now it appears that companies that were edged out in the original competition might have another shot at LCS.
“Boy are we going to be in for interesting times, because you can say you’re going to have a full and open competition, but when you’re competing against a lead shipbuilder — someone who has built two or three or four of these — you are at a huge disadvantage,” says Joe Carnevale, senior defense advisor for the Shipbuilder’s Council of America.
The Navy also plans to consolidate the ships’ current combat systems into a single open architecture system, which will reduce life cycle costs of the program and will support a variety of acquisition strategies, says Mann. Much of the ship’s functionality hinges upon the interchangeability of the mission modules.
The lead LCS ships are supposed to arrive in the hands of the fleet in 2008 for testing, and the feedback from operators will help officials select the winner in 2009. But analysts worry that may not allow enough time to complete all the necessary evaluations, especially if the delivery dates are pushed back.
“You really do need to make a selection in fiscal year ‘09 if your fiscal year ‘10 ships are all going to be the same,” says Carnevale. “That could be pretty challenging.”
The LCS’s rising price tag remains a contentious issue, and the latest round of increases is no exception.
The Navy in May requested that the cost cap on the LCS be raised to $460 million, from $220 million. The increase, says Mann, reflects an adjustment to include end costs for the ship — basic construction cost, plans, change orders, electronics or government-furnished equipment, and other costs, including program management, technical support, certification and test costs.
The $460 million cost cap is based on a two-ship procurement in 2008, says Mann. “If only one ship is appropriated, it is likely the ship end cost will exceed the cap due to higher average unit costs. These costs include some level of effort engineering support that is not quantity sensitive, resulting in higher unit costs as quantities are reduced.”
Work says the cost cap increase came as a surprise because the estimated cost for the canceled LCS 3 was far less than $460 million.
“It’s possible that the $460 million cost cap might be a little on the high side of what these ships wind up costing,” says O’Rourke. The amended cost cap might be intended to give the Navy a little breathing room, given everything that has transpired on the program this year, he says. It would be particularly embarrassing for the Navy to make the same mistake twice with its cost estimates.
But even if the ships wind up costing less than $460 million, and perhaps something closer to $400 million, that would still represent significant growth over the average figure of $223 million per ship for the follow-on ships in the 2006 fiscal budget, and an average of $298 million per ship for ships in the 2007 fiscal budget, he says.
Paradoxically, the increase in the estimated cost of the LCS sea frame could actually strengthen, rather than weaken, the Navy’s sense of need for the program, says O’Rourke. As the cost of the LCS goes up, it puts more pressure on the shipbuilding budget and the affordability of the Navy shipbuilding program. But the higher the pressure, the more the Navy will believe it needs to have, within the mix of ships it’s procuring, a relatively inexpensive ship, and the LCS is that ship, he explains.
“You don’t solve a problem in shipbuilding affordability by getting rid of the one relatively inexpensive ship in the program. With other ships, a cost increase could weaken the Navy’s sense of need for the ship. With the LCS, for the paradoxical reason just outlined, a cost increase could make the ship, in the Navy’s eyes, seem even more necessary,” says O’Rourke.
Despite all the brouhaha and the latest rise in price, the Navy is still aiming for a fleet of 55 LCS and it remains adamant about the ship’s importance in future operations.
“If the cost of the LCS keeps going up, you could eventually reach a figure where Navy support for continuing with the program would collapse, but so far at least, that figure appears to be something higher than $460 million,” says O’Rourke.
Please email your comments to GJean@ndia.org
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