By Emelie Rutherford
Amid concerns from a key senator about the Navy’s proposal to buy littoral ships from both competitors, a new Congressional Budget Office (CBO) analysis shows potential savings in construction costs yet increases in operations and maintenance bills under the dual-buy approach over the next five years.
Still, the CBO director, in a Dec. 10 letter to Senate Armed Services Committee Ranking Member John McCain (R-Ariz.), cautioned that his office’s analysis of the cost of buying Littoral Combat Ships (LCSs) from two companies compared to buying one design is imprecise; that’s because it did not have the actual LCS bids shipbuilders Lockheed Martin [LMT]-Marinette Marine and Austal USA submitted to the Navy.
“With the Navy in possession of contract bids, it is not clear that CBO’s cost-estimating model is a better predictor of LCS costs through 2015 than the Navy’s estimates,” CBO Director Douglas Elmendorf said in a 7-page letter.
The Navy asked for Congress’ approval last month to change its LCS acquisition strategy so it can buy the shore-hugging vessels from both companies competing to build them, instead of selecting just one design and having a second company build that same ship in the future.
The Navy had planned to buy 19 littoral ships from fiscal year 2010 to FY ’15, with 10 vessels coming from one chosen shipbuilder, five of the same ships built by a second company, and four from an unspecified builder. Now, under the new dual-buy proposal, the Navy hopes to purchase 20 LCSs from FY ’10 to FY ’15, made up of 10 of Austal USA’s aluminum trimaran ship and 10 of the Lockheed Martin-Marinette Marine’s semiplaning steel monohull LCS. The service said because the bids for the LCS were lower than expected, it could buy the 20 LCSs during this timeframe for less than it thought it would pay for 19 ships. The Navy plans to ultimately buy 55 littoral ships.
The House approved the new dual-procurement LCS setup last week in a continuing resolution, legislation that would fund the federal government through the end of fiscal year 2011 largely at FY ’10 levels. The Senate, though, may not take up that specific legislation; Senate Appropriations Committee Chairman Daniel Inouye (D-Hawaii) wants to pass an omnibus FY ’11 spending bill for all federal agencies.
McCain has had questions about the Navy’s change in plans for the LCS. He told reporters last month he would have to be convinced there is a “very strong reason for overriding” Congress’ approval of the existing acquisition strategy. He requested the CBO analyze the cost implications of the existing and proposed approach.
Elmendorf said that his office estimates the Navy’s downselect approach and dual-buy plan would both cost more than the Navy said, though the CBO does not have the bid data Lockheed Martin-Marinette Marine and Austal USA submitted to the Navy.
The CBO said it projects the downselect would cost the Navy approximately $583 million per ship, compared to an estimated $591 million per-ship cost with a dual procurement.
“Given the uncertainties that surround such estimates, that difference, of less than 2 percent, is not significant,” the letter said. The CBO attributes the difference in price to the loss of efficiency resulting from having two shipyards build one ship per year in 2010 and 2011, instead of one yard producing two ships per year.
Still, the CBO said adopting “the dual-award plan might yield savings in construction costs, both from avoiding the need for a new contractor to develop the infrastructure and expertise to build a new kind of ship and from the possibility that bids now are lower than they would be in a subsequent competition, when the economic environment would probably be different.”
However, the budget office also reported to McCain that operating and maintaining two types of ships likely would be more expensive.
“The Navy has stated that the differences in costs are small (and more than offset by procurement savings), but there is considerable uncertainty about how to estimate those differences because the Navy does not yet have much experience in operating such ships,” Elmendorf wrote. “In addition, if the Navy later decided to use a common combat system for all LCSs (rather than the different ones that would initially be installed on the two different types of vessels), the costs for developing, procuring, and installing that system could be significant.”
The CBO also did not evaluate some potential benefits of the dual-buy approach identified by the Navy, including “stabilizing the LCS program and the industrial base with award of 20 ships; increasing ship procurement rate to support operational requirements; sustaining competition through the program; and enhancing Foreign Military Sales opportunities,” the letter said.
The Navy estimates it would cost $10.4 billion to downselect to one LCS design and buy 19 ships, versus $9.8 billion to buy 20 ships under a dual procurement.