Navy acquisition officials this week said the latest multiyear contracts to procure at least nine more destroyers include options for up to 15 total ships if the White House or Congress decide to add more.
The deal announced on Aug. 1, awards
General Dynamics’ Bath Iron Works (BIW) [GD] three destroyers for one each in fiscal years 2023, 2024 and 2026. HII [HII] won six DDGs, one in 2023, one in 2024, two in 2025 and one in 2027 (Defense Daily, Aug. 2).
While the original contract said it included options for both shipbuilders to construct more DDGs, acting Assistant Secretary of the Navy for Research, Development and Acquisition (ASN RDA) Jay Stefany told reporters Wednesday this means there is an option for a second ship in 2027, then options for third ships in every year of the contracts, 2023 – 2027.
Stefany said the service does not intend to release the contract costs due to it being “still an open competition” for the option ships.
“The contract allows the Navy to go back and ask the two industry teams to update their pricing at the same or a lower level before we exercise the option. So, until we go through and debrief the companies and lay out those details, it is still source selection sensitive as we go forward, because those options are still in play to be repriced and then evaluated, and the decision made on who gets each of those options as we go forward,” Stefany said.
He added that the companies, if given an option ship to compete on, can choose to either give the same price as in 2023 or an updated lower price.
“They will have to make that call of how important that ship is to them,” Stefany said.
However, he noted the contract includes a clause allowing the service acquisition executive to make an industrial base decision for each of those ships in each of those years, should that be necessary.
“So there is a path that would say for industrial base reasons we the Navy have determined this is how we’re awarding it. But first it would be you update your price. How badly do you want it, industry? And then we get their pricing and make that final call,” Stefany said.
Stefany argued they did the same thing with options and not disclosing the contract value in the original announcement with the last multiyear destroyer contract award from 2018.
However, at that time, the Navy disclosed BIW was awarded about a $3.9 billion contract for four DDGs while HII won a $5.1 billion contract for six destroyers. The Navy ultimately awarded two option ships in the 2018 multiyear contract.
Stefany admitted the Navy “may ultimately do that” kind of disclosure in the future for these awards.
Officials also confirmed shipyard capacity played a role in how the ships were awarded.
“As we developed the strategy and we had review sessions with the two industry teams, we did look at where the industry teams were at with regards to their workload and their throughput and their capacity and our estimates going forward. That played a role in determining the quantities that we used for the floor and the phasing for what we asked for in pricing,” Program Executive Officer for Ships Rear Adm. Tom Anderson told reporters.
Anderson said the exact split between the companies was largely an assessment ahead of the “anticipated performance on the workload that they currently have, and what workload they would need to be successful from sustaining the workforce going forward. And then it played out in the bids.”
Stefany argued these contracts will help the companies and their supply bases to continue to recover from the COVID-19 pandemic as well as the 2020 strike at BIW.
This contract lets them bid what they think they can accomplish “to get back to maybe what they were before COVID and have that solid base to then, whether more ships get appropriated or authorized or not, they can then go forward from there…[it] does allow both companies the best path forward to be a really strong company going forward and be able to surge or flex as, as things go forward,” he continued.
Stefany was not willing to say how many Flight III DDG-51 destroyers the plans to buy before eventually transitioning to the next-generation DDG(X) guided-missile destroyer, and whether the next step is another multiyear procurement of DDG-51s or the first award for DDG(X).
He only said this award helps put the shipbuilders in a better position going forward.
“This contract will provide both of our major large surface combatant providers a stable industrial workload and an industrial base for their workforce and for their investments going forward to whether it’s another DDG multi-year contract afterwards or DDG(X), it gets sets the environment for a for a healthy competitive effort going forward on the DDG(X).”