By Calvin Biesecker and Emelie Rutherford
Increasing commodity and labor costs coupled to a lesser extent with the weak dollar relative to the euro are likely to send construction costs much higher than expected for the fourth National Security Cutter (NSC) the Coast Guard has warned Congress.
President Bush last week signed into law the FY ’09 Homeland Security Act, which includes $353.7 million the Coast Guard wanted for the fourth NSC. The construction bid on the 418-foot vessel is due in January 2009 from Northrop Grumman [NOC] and the Coast Guard has no way of knowing exactly what price will be, Rear Adm. Gary Blore, the service’s acquisition chief, told Defense Daily on Friday.
“But, again, I can see the pressures to raise the cost on that proposal when it comes into the government, which is what we are trying to alert the [Capitol] Hill too,” Blore said.
The construction cost for the third NSC is $330 million and for the second vessel was $324 million. The construction cost for the first cutter was $502 million, but that included non-recurring engineering costs, Blore pointed out.
In approving the funding request for the fourth NSC, congressional appropriators cautioned that “it is questionable whether this amount will be sufficient to purchase the fourth NSC,” according to recent information provided by the Coast Guard. In an explanatory statement accompanying FY ’09 funding, the appropriators require the Coast Guard within 30 days from the time President Bush signs the bill into law to provide “detailed information on all reasons why there may be a nearly 50 percent increase in the cost of this cutter and how it plans to manage this procurement within the dollars provided.”
Blore said that the Coast Guard put in its budget request for the fourth NSC in the summer of 2007 and the White House Office of Management and Budget locked down the final figure in December of that year prior to the February 2008 submission to Congress for the FY ’09 federal budget. At that time, it was difficult to foresee the continued spike in commodity costs such as nickel, copper, aluminum and steel, and also hard to judge the escalating labor rates in the Gulf Coast region, which continues to recover from Hurricane Katrina, he said.
The reason the weak dollar impacts the shipbuilding costs is because about 8 percent of the NSC’s contents are manufactured in Europe, Blore said.
If Northrop Grumman’s proposed construction cost for the fourth NSC comes in higher than the $353.7 million budget, Blore said he would either have to reprogram funds or possibly wait for additional appropriations in FY ’10. This will depend on the size of the proposal, he said.
Northrop Grumman is constructing the NSCs at its shipyard in Pascagoula, Miss. The Coast Guard plans on purchasing eight of the vessels.
The total cost for the first NSC, which was delivered to the Coast Guard in May and is currently going through operational tests, is estimated to be about $640 million, Blore said. That total includes the construction contract cost, long-lead materials, program management, test and evaluation, and more, he said.
The Coast Guard estimates that the total cost for the fourth vessel will be around $740 million, Blore said. The contract award for the fourth vessel will likely be made in late 2009 or early 2010, he said.
The NSC is one of a family of programs, including air, sea and C4ISR assets within the Coast Guard’s Deepwater systems modernization effort. The FY ’09 Homeland Security Act provides just over $1 billion for Deepwater, $43.5 million more than the White House’s $990.4 million request.
The increase is tied to two funding additions, neither of which was requested by the Bush administration: $13.3 million for missionizing three of the service’s six HC-130J aircraft; and $30.3 million for reactivintating the Polar Star icebreaker.
The funding measure requires a detailed Deepwater expenditure plan from the Coast Guard, and says $350 million in FY ’09 funds are not available for obligation until lawmakers approve it.
Last month a key component of the Deepwater effort moved forward with the award of a design and construction contract to Bollinger Shipyards for the first Fast Response Cutter (FRC), which is based on a Dutch design (Defense Daily, Sept. 29). That contract, potentially worth $1.5 billion, is only for between 24 and 34 of the 153-foot Sentinel-class cutters even though the Coast Guard’s requirement is for 58 of the vessels.
That’s because the Coast Guard wants to leave open its options for either reintroducing competition into the program or possibly transitioning to a more advanced technological design at some point, Blore said.
At one time the Coast Guard had planned to have the FRCs made with a composite hull design, which it thought would reduce the life-time maintenance costs for the vessels. But the Coast Guard decided against that route because it feels the technology isn’t mature enough. In fact, when it announced Bollinger’s win, the Coast Guard said the composite technology would likely not be ready in the foreseeable future.
But Blore said the Coast Guard will keep its options open and look at the technology again in a couple of years. Still, he said, in his “professional judgment I don’t see anything happening in composites in the next couple of years that’s going to make a difference.”
One of the reasons why it would be difficult to move forward with a composite hull patrol boat design is the fact the service time required to get the payback for the higher upfront costs is longer and will outstrip the life of the subsystems.
“So basically you have to strip the ship down and rebuild that from the inside out and when you do that it doesn’t have a cost advantage over aluminum or steel construction.”
Blore also said there are few ports around the United States, Canada and the Caribbean with ship composite shops compared to machine shops that work with aluminum and steel to conduct repairs, which could be a problematic.