General Dynamics Electric Boat [GD] on May 23 won a $1.1 billion contract modification to procure long-lead time material for two Virginia-class attack submarines after a delay due to an insurance disagreement with the government.
This undefinitized contract action will pay for the material for the future Block V submarines SSN-812 and SSN-813, while the administration seeks full procurement funding for them in the FY ‘2024 budget request.
The work will occur in various locations throughout the U.S. and is expected to be finished by September 2033.
The Block V vessels will include the Virginia Payload Module (VPM), a new section in the middle of the hull that will allow the submarines to hold more Tomahawks.
The Navy also plans to start fielding the Conventional Prompt Strike hypersonic weapons on submarines equipped with the VPM starting around fiscal year 2029.
Funding obligated at the time of award is split between $352 million or 33 percent from the fiscal year 2022 shipbuilding account and $724 million or 67 percent from the FY ‘23 shipbuilding account.
Virginia-class submarines are built by both prime contractor GD Electric Boat and HII’s Newport News Shipbuilding (NNS). Each company builds certain parts of each boat and they take turns building reactor compartments and performing final assembly.
A press release by Rep. Joe Courtney’s (D-Conn.) office noted these two submarines will be built as options on the Block V multi-year procurement contract completed in December 2019, helping maintain a two vessel per year build rate, which will maintain industrial base capability.
“Another $1 billion in federal funding is on its way to Electric Boat and its suppliers to sustain the two-a-year build rate for new Virginia-class submarines. By delivering this funding, the Navy is sending a strong signal to the industrial base to increase capacity while also ensuring we make good on the AUKUS security agreement and sustain our required force structure,” Courtney said in a statement.
Courtney’s district includes the GD EB shipyard in Groton, Conn.
The contract award comes in the wake of the Navy agreeing on an insurance indemnification solution with the two shipbuilders that had delayed ordering these two vessels, according to media reports cited in a recent Congressional Research Service report.
The issue was focused on who should pay and what portion if a Tomahawk land attack cruise missile accidentally exploded during construction. Previously, until 2018, the Navy indemnified the shipyards and essentially financially insured them in case of an explosive accident during new vessel construction. That changed as the Navy Secretary considered the new weapon’s higher energy propellant.
The Navy previously asked the shipyard to find and use private insurance, but they declined. According to a report by USNI News, GD argued it was unable to find adequate insurance given such an accident could cost billions of dollars and be an existential risk for the company.
During a media roundtable at the Surface Navy Association symposium in January, Secretary of the Navy Carlos Del Toro argued American taxpayers should not be solely responsible in the case of a major accident. He said the Navy had signed agreements with Northrop Grumman [NOC] and Lockheed Martin [LMT] on indemnification of the CPS planned to be deployed on future submarines.
“The American taxpayers have the right that when a company does something that is willful and wrong, willful intent, and it results in a catastrophic event, that they not be the ones to be held accountable, that industry be held accountable for that. That’s my responsibility to the American taxpayer, as a U.S. government official,” Del Toro said in January.
“So I’m going to hold the ground and I’m willing to compromise on some things. I’m not willing to compromise on everything. So they’re going to have to come to the table with reasonable language that the American taxpayer can accommodate on that ground,” he added.
Then, earlier this month, DefenseOne reported the Navy settled the issue with GD and HII, but no parties have disclosed the details of the agreement.
According to FY 2024 budget documents, the Navy plans for the main production contract for SSN-812 to be awarded in May 2024, with delivery planned for June 2033. Likewise, SSN-813 is expected to be awarded in May 2025 with a delivery date of September 2033.
Notably, the documents said FY ‘24 funds two submarines in different configurations: both will field the VPM and ultimately CPS, but one will be a modified Virginia-class submarine outfitted for subsea and seabed warfare.
“This contract modification sends a crucial demand signal to the submarine industrial base, enabling our suppliers to invest in the capacity and materials needed to increase production volume,” president of General Dynamics Electric Boat Kevin Graney said in a statement following the DoD contract announcement.
Relatedly, on May 24 HII announced it received a $305 million modification from GD Electric Boat to procure long-lead-time material for the two Block V Virginia-class submarines. This increases HII’s overall contract value for this kind of work to $10.2 billion.
“These funds are critically important to stabilizing and providing predictability to the thousands of suppliers across the country who support the Virginia-class program,” Jason Ward, NNS vice president of Virginia-class submarine construction, said in a statement.
“The submarine industrial base is crucial to our shipbuilding success and we look forward to continuing to build these vital national security assets that will deliver to the U.S. Navy with the latest technology,” he added.