When I read a NavyTimes article earlier this week titled "Admiral confident of LCS despite setbacks" I thought maybe the Senate was going to fully fund the LCS project for FY08. The House has already passed its bill, and it reduced the presidents request for the LCS from $910.5 million to $710.5 million, which is below the presidents request enough that it became very unlikely the Navy was going to build anywhere near the 3 ships they were hoping this year.
The Senate, not to be outdone by the House, has taken the entire matter a step further. The emphasis in bold is mine.
Littoral Combat Ship
The budget request included $910.5 million in Shipbuilding and Conversion, Navy (SCN, line 15) for the construction of three Littoral Combat Ships (LCS). The Navy intends this to be a relatively smaller, more affordable vessel that carries modular payloads. The Navy concept is that, on one day, an LCS might be configured to operate as an anti-submarine vessel. However, as a mission needs to change, it could rapidly change the whole mission payload, within a day or so, and operate in an anti-surface warfare or mine warfare mode.
Each of the two prime contractor teams had contracts to build two ships. The prime contractors have teamed with smaller shipyards in both cases in order to keep LCS costs lower than would be possible in one of the major yards that normally build Navy ships.
The first ship (LCS-1) was scheduled to deliver in late 2006. The Navy is now estimating that the first ship will deliver sometime in the middle of 2008. The LCS-1 contractor team had barely started on their second ship (LCS-3) when the program ran into major cost problems earlier this year. The Navy then issued a stop work order on LCS-3 in order to reduce expenditures and limit further cost exposure on the program while it separately re-evaluated program cost estimates.
The Navy entered into negotiations with the LCS-1 team to sign up to a fixed price contract on the two ships or face outright cancellation on the second ship. These negotiations occurred during this past spring. When the stop work order was nearly ready to expire, the Navy announced that it and the LCS-1 contractor team were unable to reach an agreement and that the Navy was terminating the contract for LCS-3 for the convenience of the Government. It is too early to precisely estimate the termination costs, but the Navy has reported that significant funds for LCS-3 are on hold pending completion of the termination negotiations.
The second contractor team has a contract to build two LCS vessels of another design (LCS-2 and LCS-4). The Navy awarded this contract later, so LCS-2 is roughly 1 year behind the LCS-1. Unfortunately, it appears that this team is experiencing similar cost problems. The Navy has not issued the same ultimatum to this contractor team, but has claimed that the Navy will do so if the cost of LCS-2 continues to grow toward the Navy's estimate. Meanwhile, the Navy is proceeding with the start of construction on LCS-4, although it is not clear that the root causes for early cost growth on LCS-2 have been addressed.
The committee is disappointed that the cost of the lead ship has more than doubled and the delivery schedule has slipped several times.
The committee commends the Secretary of the Navy for exercising oversight and for trying to bring cost and schedule discipline to this troubled program. The committee is also interested in supporting the Secretary's efforts to improve the Navy's acquisition process. Reviewing this LCS situation will undoubtedly result in a new set of `lessons learned' that the acquisition community will dutifully try to implement. However, the committee has previously expressed concerns about the LCS concept and the LCS acquisition strategy. The LCS situation may be more a case of `lessons lost.' Long ago, we knew that we should not rush to sign a construction contract before we have solidified requirements. We also knew that the contractors will respond to incentives, and that if the incentives are focused on maintaining schedules and not on controlling cost, cost growth on a cost-plus contract should surprise no one. After the fact, everyone appears ready to agree that the original ship construction schedule for the lead ship was overly aggressive.
The Navy has said that the capability that this vessel will bring to the fleet is of the utmost urgency for responding to asymmetric threats. The committee believes that if the Navy really believed that the threat were that urgent, it might have taken more near-term steps to address it. For example, the Navy might not have cancelled the remote minehunting system (RMS) capability on a number of the DDG-51 class destroyers, ships that will be available to the combatant commanders much sooner than LCS. The Navy might also have taken this modular capability slated for the LCS and packaged those modules to deploy sooner on ships of opportunity. Rather, the Navy is waiting on a shipbuilding program to deliver that capability (in a useful quantity) at some future date.
The Navy now proposes to use the funds requested in fiscal year 2008 to award contracts for two LCS vessels, rather than the three originally envisioned. Given the uncertainty about what is happening with the earlier ships in the program and uncertainties about the options for an acquisition strategy that will remain available to the Navy next year, the Navy does not intend to award these two contracts until late in fiscal year 2008.
The Senate Bill text is as follows:
- a high degree of cost uncertainty will continue to overshadow the LCS program until the two lead ships execute test and trials, starting late in 2007.
- the Navy's current estimate is that the approximately $1.6 billion appropriated for the first six ships will be required to complete the three ships currently under contract, with significant additional funding being held for termination of a fourth ship.
- if the Navy's estimates are correct, or low, then the Navy will be engaging in fixed price negotiations with the second prime contractor for LCS-2 and LCS-4 late in 2007, with the distinct possibility that LCS-4 would be terminated.
- if the Navy's estimates are high, then sufficient funding from within previous appropriations should be available for a newly procured LCS.
- the Navy has yet to formulate its acquisition strategy for the LCS program, however, the challenges inherent to fair competition between two dissimilar ship designs have become significantly more complex in light of the recent termination of LCS-3 (or potential termination of LCS-4).
- the Navy has announced a delay for conducting a program downselect decision until 2010, at which time it also plans to revise the LCS combat system, which raises concerns regarding the infrastructure and life cycle support costs for the three or four ships of the LCS variant not selected for `full rate production.'
- program delays have pushed the next notional contract award until late in fiscal year 2008.
- termination negotiations for LCS-3 will likely be proceeding at the same time the prime contractor is being solicited for a proposal to build another LCS ship, in which case the material procured for LCS-3 would likely revert back to the contractor for this new procurement. The net effect is that the current LCS-3 obligations that are fenced for termination costs would sufficiently cover the contractor's fiscal year 2008 obligations for a newly procured LCS.
The committee recommends $480.0 million for LCS in fiscal year 2008, a decrease of $430.5 million. We cannot relive the early days of the LCS program and remember `lessons learned,' but we have the opportunity to take positive steps now to right the program. Before awarding contracts for additional ships in the LCS program, we need to maintain focus on delivering the most capability possible for the $1.6 billion invested thus far for six ships. This would require that we impose accountability for the quality of program estimates; halt further changes to program requirements; and ensure that the contracts provide effective incentives for cost performance.
The Secretary of the Navy has advised the committee that the Navy's estimates appear to be quite conservative based on contractor performance over the past quarter, as measured against recently revised baselines. Although further risk is acknowledged, the Navy has expressed confidence that the program will be able to improve on the Navy's worst case estimates and avoid further termination action. If the Navy and industry are successful in managing costs going forward, this should allow four ships to be delivered within previously appropriated funds.
The committee notes that the LCS-1 contractor was awarded a lead ship contract that targeted a significantly lower price and a significantly more aggressive schedule for starting construction. The risks inherent in this aggressive schedule were exacerbated by changes to Navy requirements. These factors may have contributed to the decision to terminate LCS-3--an outcome referred to as `winner-loses.' The resultant imbalance between the two competing shipbuilders jeopardizes the Navy's ultimate goal for a competitive downselect in 2010, followed by full and open competition for the winning LCS variant.
Therefore, the committee directs that funds authorized for a fiscal year 2008 LCS ship may only be used when combined with LCS SCN funds appropriated in prior years, to solicit, on a competitive basis, bids for two fixed price LCS ship construction contracts, one for each of the two competing LCS variants. The Secretary of the Navy may waive this requirement only if: he determines that there is only one acceptable LCS variant, based on completion of acceptance trials on the two LCS variants; and he notifies the congressional defense committees 30 days before releasing a solicitation based on that waiver determination.
The committee believes that the history of the LCS acquisition strategy has been one of documenting decisions, rather than guiding and informing decisions. Therefore, the Secretary of Defense is directed to submit a report on the approved acquisition strategy for the LCS program at least 90 days prior to issuing any solicitation or requests for proposal, but no later than December 1, 2008.
The Senate goes on to address the Mission Modules:
LCS modules
The budget request included $80.3 million for assembling and outfitting Littoral Combat Ships (LCS) mission modules. The Navy intends the LCS to be a relatively smaller vessel that carries modular payloads. The Navy concept is that, using these mission modules, an LCS might be configured to operate as an anti-submarine vessel on one day. On the next day, the Navy might change the whole mission payload and operate the LCS in an anti-surface warfare mode.
As described elsewhere in this report, the LCS program has run into serious problems. The committee sees no particular reason to acquire mission modules at the pace planned by the Navy, since there have been significant delays in the ship program. The committee recommends a decrease of $65.0 million for LCS modules.
For background on LCS problems, you can check this out for the Navy statements after the stop order on LCS 3, and here for the Industry statements for the cost problems of LCS 3. Both statements hit home on several points, from the problem obtaining HSLA-80 steel (a topic for another time, but an important topic nonetheless), but more importantly it highlights the LCS priority of the Future Years Defense Plan (FYDP) (FY2008-FY2013). Specifically:
32 LCS hills
16 SUW modules
11 MIW modules
6 ASW modules
In other words, small boat warfare is the focus of the LCS program. The ASW module purchase for the first 32 LCS ships is only 6 modules, less than 20% of the total number of modules purchased. Next time someone says the Littoral Combat Ships is about ASW, tell them that according to the numbers, the Navy respectfully disagrees.
Its ok though, thanks to earmarks, Duncan Hunter wants the Navy to operate a Littoral Combat Ship, specifically Sea Fighter (FSF 1) that the Navy wants nothing to do with. Maybe the Senate version will push it through, and the Navy will end up with 4 LCS hulls after all. I'm not a fan of earmarks, but at the end of the day Sea Fighter (FSF 1) can do more to fight small boats today than the LCS will be able to anytime soon.
The House Bill and Senate Bill still have to be worked out in committee, but no matter what it would not appear the LCS is going to survive FY08 without a bloody nose, or if some of that Senate language makes the bill, a swift kick in the nuts.
Finally, the 313-ship Fleet is dead on arrival. The Navy needs a new plan, so far they have lost 1 LCS in FY 06, 2 LCS in FY07, and at least 2 so far in FY08, and the only gain to offset this is the Sea Fighter (FSF 1) which the Navy doesn't want. Hopefully the next 12 months produces results, because according to the 313-ship plan, next year the Navy buys 12 ships, 6 of which are supposed to be Littoral Combat Ships.
In other words, it not only can get worse for the Navy, things most likely will.
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