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House Armed Services Committee
Subcommittee Chairman Gene Taylor's opening statement --February 08, 2007

"On January 12th of this year, the Secretary of the Navy issued a stop-work order for construction of the third vessel of the Navy's Littoral Combat Ships, or the LCS. At that time, the Secretary's explanation to the committee cited escalating costs in the LCS program. He indicated he needed to verify that the correct oversight systems were in place and that the reason behind the price escalation for the first ship were completely understood in order to control the costs in future ships.

"The Secretary acknowledged that the stop-work order would further escalate costs associated with the LCS program, specifically in long-lead items and planning. However, he was convinced that he needed to fully comprehend the faults within the program execution before continuing.

"As many of you are aware, the Navy currently uses large combatants to accomplish missions much more suitable to a fleet of smaller and faster ships. It is a waste of resources to have a modern Aegis class destroyer conducting board and search operations.

"In order to remedy this misallocation of assets, the Navy advocated for a smaller, faster, and cheaper ship with re-configurable warfighting capability and the ability to operate in a littoral environment. In a world of asymmetric threats, this new ship would be capable of both protecting the main naval force with anti-submarine and anti-mine capability and taking the fight to the enemy with a wide-array of installed weapons systems options.

"This Committee supported that vision, which is now known as the Littoral Combat Ship, or LCS.

"One of the key selling points for the development, design, and construction of the LCS was affordability. The Navy has routinely advised this committee that costs were being closely watched and that original estimates for affordability would be realized.

"In the FY 2006 National Defense Authorization Act, this subcommittee, led by Representative Roscoe Bartlett, directed the Secretary of the Navy to meet the cost target of $220 million dollars by the fifth ship of the class. This committee was told that the cost target was achievable.

"Now, it appears that this is not the case.

"I have been informed that Lockheed's first ship, the Freedom, is 50 percent above a baseline of about $270 million. We are looking at a ship that is going to cost the American taxpayers almost $400 million.

"I wish that I could say that cost overruns on defense programs are an exception. Unfortunately, in recent years, cost over-runs seem to be the rule.

"Congress has an inherent responsibility to the American taxpayer. We are expected and entrusted to account for how tax dollars are spent. I have never taken this responsibility lightly, and I'm going to make sure that this committee does due-diligence on behalf of our citizens.

"If this Nation is to maintain undisputed dominance on the oceans of the world, we need to come to terms with the out-of-control cost growth of these major ship programs.

"Congress will not continue to throw money at programs that exceed cost projections. On behalf of the American taxpayers, this committee will demand accountability and transparency - not only in the case of LCS, but also across a range of acquisition programs.

"The bottom line is this: The Navy needs to start budgeting within its cost margins to deliver ships at the price they promised the American people. Industry needs to understand that a government contract does not equal a blank check from Uncle Sam. If industry can't execute a contract at the agreed-upon cost, then there will be repercussions.

"To that end, this committee will endeavor to determine the root causes of the staggering cost increases in the LCS program.

"Let me acknowledge that this committee is fully aware that first ships of a class have learning curves in construction. The cost differential for first ships over follow-on ships is well-documented.

"In the specific case of LCS, the committee is aware that changes to the design requirements of the vessel were implemented a week before the contract was awarded. However, Lockheed Martin began construction of the Freedom nine months after they were awarded the contract.

"The committee is also aware of the construction delays caused by the late delivery of a key piece of propulsion machinery. While Lockheed Martin fined its subcontractor for late delivery, the cost of this delay is being paid out of the pockets of the American taxpayers.

"Today's hearing will focus on the LCS contract award method, the accelerated procurement plan, and the rationale behind using a system integrator as the prime contractor.

"At the absolute minimum, the committee expects the two panels of witnesses today to address the following issues:

• What were the actual effects of the design change and late arrival of the reduction gears?
• Were these effects accurately understood by both the contractor and the Navy program office? Why or why not?
• How did the schedule of the program affect the decision making process of both the Navy and the contractor? Was there an unneeded "rush to complete" that is now costing the taxpayers significantly higher costs?
• Have lessons learned been captured and is there a mitigation plan to ensure these problems will not occur on follow-on ships?
• Does the current Navy oversight structure need to be modified? Does the Navy have the correct personnel in place as program managers and supervisors of shipbuilding with the skills necessary to identify potential problems with construction?

"The first panel we will hear from today is composed of representatives from the Department of the Navy. Testifying for the Navy we have:

• Dr. Delores Etter, Assistant Secretary of the Navy for Reasearch, Development and Acquisition. Dr. Etter is the senior acquisition official in the Navy.
• VADM Paul Sullivan; the Commander of the Naval Sea Systems Command, which is the technical authority on building naval ships and supervises their construction.
• RADM Charles Hamilton, the Program Executive Officer for ship construction, who is charged with oversight for all surface ship construction programs.
• RADM Barry McCullough, the Director of Surface Warfare Requirements for the Chief of Naval Operations.

"The second panel includes the following representatives from the prime contractor and major subcontractors:

• Mr. Fred Moosally, President of Marine Systems for Lockheed Martin, the prime contractor and system integrator for the LCS.
• Mr. Richard McCrery, Vice President and General Manager of Marinette Marine Shipyard, the construction yard for the first LCS ship.
• Mr. Mike Ellis, Vice President and Chief Operating Officer for Bollinger shipyards, slated to build LCS 3.
• Mr. Kevin Moak, Chairman, Gibbs and Cox, Inc. The naval architecture firm that designed the LCS ship built by the Lockheed Martin team."