Littoral Combat Ship (LCS) Construction
On 27 May 2004, the Department of Defense announced that Lockheed Martin Corporation - Maritime Systems & Sensors, Moorestown, N.J. ($46,501,821) and General Dynamics - Bath Iron Works, Bath, Maine ($78,798,188) were each awarded contract options for final system design with options for detail design and construction of up to two Flight 0 Littoral Combat Ships (LCS).
On 27 May 2004, the Department of Defense announced that the Department of Navy had awarded Lockheed Martin Corp., Maritime Systems & Sensors, Moorestown, N.J., a $188.2 million contract option for detail design and construction of the first Flight 0 Littoral Combat Ship (LCS). Lockheed Martin's teammates include Gibbs & Cox, Arlington, Va.; Marinette Marine, Marinette, Wis.; and Bollinger Shipyards, Lockport, La. Marinette Marine was expected to begin construction early the following year after a production readiness review with the Navy.
Following a comprehensive review of the LCS program, SECNAV announced 15 March 2007 that he was prepared to lift a stop work order previously issued to Lockheed Martin for construction of LCS 3. Lifting the stop work order was contingent upon the Navy and Lockheed Martin reaching agreement on a fixed-price incentive contract. At that time, the Navy intended to continue construction of LCS 1 and 3 (Lockheed Martin) and LCS 2 and 4 (General Dynamics), and was monitoring contractor performance to ensure program costs remain under control.
The US Navy decided in April 2007 to forego funding the procurement of the planned Littoral Combat Ships (LCS) for fiscal year 2007. The service had planned to provide funding to build two LCS ships. Instead, money from those planned FY '07 LCS builds will go to cover higher costs for the two initial ships. Subject to the approval of Congress, the Navy would forgo LCS procurements currently budgeted in FY07 and use the FY07 funding to cover LCS 1-4 cost overruns. The Navy would present Congress a complete LCS plan to control costs and maximize value to the Navy across the program as well as express the urgent requirement for LCS in the fleet. The plan also included procurement of Flight 0 Sea Frames in FY 08 and FY 09.
On April 12, 2007, Secretary of the Navy Donald C. Winter announced that the Department of the Navy was terminating construction of the third Littoral Combat Ship (LCS 3) for convenience under the Termination clause of the contract because the Navy and Lockheed Martin could not reach agreement on the terms of a modified contract.
On October 03, 2007 the Senate Defense Authorization Bill acted to halt further cost growth in the Littoral Combat Ship program, costs and government liability under future contracts under the Littoral Combat Ship program. The total amount obligated or expended for the procurement costs of the fifth and sixth vessels in the Littoral Combat Ship (LCS) class of vessels could not exceed $460,000,000 per vessel. These procurement costs include all costs for plans, basic construction, change orders, electronics, ordnance, contractor support, and other costs associated with completion of production drawings, ship construction, test, and delivery, including work performed post-delivery that is required to meet original contract requirements. The Senate required the to employ a fixed-price type contract for construction of the fifth and following ships of the Littoral Combat Ship class of vessels. The Navy was barred from entering into a contract, or modifying a contract, for construction of the fifth or sixth vessel of the Littoral Combat Ship class of vessels if the limitation of the Government's cost liability, when added to the sum of other budgeted procurement costs, would exceed $460,000,000 per vessel.
On 01 November 2007 Secretary of the Navy Donald C. Winter and Chief of Naval Operations Adm. Gary Roughead announced that the Department of the Navy was terminating construction of the fourth littoral combat ship (LCS 4) for convenience under the termination clause of the contract because the Navy and General Dynamics could not reach agreement on the terms of a modified contract. The Navy had not yet authorized construction on LCS 4, following a series of cost overruns on LCS 2. The Navy intended to begin construction of LCS 4 if the Navy and General Dynamics could agree on the terms for a fixed-price incentive agreement. The Navy worked closely with General Dynamics to try to restructure the agreement for LCS 4 to more equitably balance cost and risk, but could not come to terms and conditions that were acceptable to both parties. The Navy wanted a fixed price incentive contract.
The inability of the Navy to control requirements and costs on the two lead ships of the Littoral Combat Ship program raised serious concerns regarding the capacity of the Navy to affordably build a 313-ship fleet. According to information provided to Congress by the Navy, the cost growth in the Littoral Combat Ship program was attributable to several factors, most notably that:
- the strategy adopted for the Littoral Combat Ship program, a so-called "concurrent design-build" strategy, was a high-risk strategy that did not account for that risk in the cost and schedule for the lead ships in the program;
- inadequate emphasis was placed on "bid realism" in the evaluation of contract proposals under the program;
- late incorporation of Naval Vessel Rules into the program caused significant design delays and cost growth;
- the Earned Value Management System of the contractor under the program did not adequately measure shipyard performance, and the Navy program organizations did not independently assess cost performance;
- the Littoral Combat Ship program organization was understaffed and lacking in the experience and qualifications required for a major defense acquisition program;
- the Littoral Combat Ship program organization was aware of the increasing costs of the Littoral Combat Ship program, but did not communicate those cost increases directly to the Assistant Secretary of the Navy in a time manner; and
- the relationship between the Naval Sea Systems Command and the program executive offices for the program was dysfunctional.
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