The Navy on Thursday awarded Huntington Ingalls Industries’ [HII] Newport News Shipbuilding (NNS) a $15 billion contract to buy two Gerald R. Ford-class aircraft carriers at once.
The contract covers detail design and construction (DD&C) efforts for the future USS Enterprise (CVN-80) and the unnamed CVN-81, which will be the third and fourth Ford-class ships.
The Navy previously said it expected this kind of purchase to save the government $4 billion compared to buying the ships separately.
The award is being conducted under several contract actions: $15 billion fixed-price-incentive-firm target modification for DD&C efforts for CVN-80 and CVN-81; $263 million modification for associated research and development efforts; and a $31 million modification for additional level-of-effort in support of maintenance of the Ford-class specification, design efforts, feasibility and tradeoff studies, and scoping and estimating.
The work is being awarded as modifications to previous awards that started advance procurement and advance fabrication of the Enterprise starting in May 2016.
“Today marks a great team effort to drive out cost and maximize efficiency in government procurement,” Secretary of the Navy Richard Spencer said in a statement.
“The team was able to achieve significant savings as compared to individual procurement contracts. One contract for construction of the two ships will enable the shipbuilder flexibility to best employ its skilled workforce to design once and build twice for unprecedented labor reductions while providing stability and opportunities for further efficiencies within the nuclear industrial base,” Spencer added.
The majority of the work will occur in HII NNS’s facility in Newport News, Va., and is expected to be finished by February 2032.
FY 2018 and 2019 funds of $890 million were obligated at award time and will not expire at the end of this fiscal year.
A Navy statement said besides savings on the basic ships, the contract includes ship integration costs of modifications for emerging threats including F-35C integration, MK 38 gun system, and MQ-25 Stingray unmanned tanker aircraft. These modifications alone are worth $100 million in savings beyond the $4 billion because they were not included in the original single CVN service estimate.
“These new savings associated with new capabilities increases to $200 million if installed in the ship before delivery, in comparison to installing after ship delivery,” the Navy added.
Jennifer Boykin, president of NNS, highlighted this contract will help stabilize the NNS carrier workforce through 2032 and their over 2000-member industrial base suppliers over 46 states.
She told reporters tonight that the partnership “really is a win-win” for all parties involved and “is absolutely a very significant step” for more affordable ships.
The company started building CVN-80 in 2017 and plans to deliver CVN-80 in 2028 and CVN-81 in 2032. This deal will reduce carrier centers from the current five years between deliveries to four years.
Boykin told reporters this kind of contract will generate savings in several ways, through quantity orders to the supplier base, minimizing design builds, and workforce stability.
While the manufacturing base will produce parts for the carriers over multiple years “we’re able to place those orders early and get some [price] escalation savings.”
“It is like going to Costco. We’re going into the supply base and we’re buying quantity two. We’re buying two ship sets of the material we’re buying, rather than one.
She said the award will allow for one design build and one engineering package each applicable to two hulls, saving time and money on planning.
“The stability of the workforce allows us to maximize learning and efficiencies. In bringing the CVN-81 in a year closer to CVN-80, it really provides a steady workforce so that the carrier build team goes from CVN-80 to CVN-81,” Boykin added.
This means crews can more smoothly move from CVN-80 to CVN-81 work without having to be reassigned somewhere else in the meantime or potentially being laid off. The shipyard can arrange the work efficiently, getting workers who work on CVN-80 bring lessons learned on to CVN-81.
Boykin put CVN-80 and 81 on a spectrum of advanced in the newest Ford-class carriers. While CVN-78 was a new ship designed differently with “substantial new technologies”, CVN-79 was about building the ship differently by leveraging technologies like digital models to make “significant man-hour savings”, and CVN-80 and 81 is about buying differently with the opportunity to further reduce costs.
Boykin compared this order to a similar effort in the 1980s, when it built the Nimitz-class carriers USS Abraham Lincoln (CVN-72) and USS George Washington (CVN-73) as well as the USS John C. Stennis (CVN-74), USS Harry S. Truman (CVN-75) as two separate two-ship contracts.
She said they saw about a 10 percent reduction in carrier cost when HII could go to the industrial base to buy two ship sets instead of one “so clearly there is material economic room on just the ordering quantity.”
Rep. Rob Wittman (R-Va.), ranking member of the House Armed Services Seapower Subcommittee, preempted the Navy’s daily contract announcement by several hours.
“Today the Navy finally secured a two-carrier block buy for CVN 80 and 81, further advancing U.S. Navy efforts to build to a fleet of 12 aircraft carriers and 355 ships,” he said in a statement.
“This dual buy means even larger savings than projected for taxpayers – $4 billion – and the certainty that our industrial base needs to retain and hire the employees who create the highest quality products for our sailors,” he continued.
Rep. Joe Courtney (D-Conn.), the new chairman of the House Armed Services Seapower Subcommittee also welcomed the deal.
“I’m glad to see the Navy finalize its use of the two-carrier authorization provided by the Seapower subcommittee in last year’s NDAA. As this announcement clearly states, this approach will generate at least $4 billion in savings, which is exactly the intent of our subcommittee in pursing this authority.”
Courtney said this kind of acquisition is needed “if we’re going to grow the Navy in an efficient and economical fashion.”
However, he warned there is still more work in “overcoming the well-known challenges of our carrier program and to fully realize the savings promised in this contract.”
Assistant Secretary of the Navy for Research, Development and Acquisition (ASN-RDA) James Geurts previously told congressional panels that the Navy expects to save upward of $2.5 billion in government furnished equipment (GFE) (Defense Daily, Nov. 27).
Last April Jennifer Boykin, president of HII’s Newport News Shipbuilding, told reporters the company expects up to $1.6 billion in savings in commercial furnished equipment alone.
Recently, Rep. Joe Courtney (D-Conn.), the new chairman of the House Armed Services Seapower Subcommittee, confirmed the agreement was expected to save $4 billion.
On Dec. 31 the Navy sent Congress a certification of the deal to procure two carriers at once, in line with provisions in the FY 2018 National Defense Authorization Act (NDAA).
The law allows the Navy to procure CVN-81 as an addition to the contract covering CVN-80 only 30 days after the Department sends the congressional defense committees a certification that the deal results in “significant savings: compared to expected annual costs (Defense Daily, July 24).
The 30-day clock after sending the certification means the earliest the contract for CVN-81 could be awarded was Thursday.
Since HII is already building CVN-80, Geurts warned Congress in November savings could erode if the deal was not approved by around the new year (Defense Daily, Nov. 27).