National Defense:

Navy's Proposed Dual Award Acquisition Strategy for the Littoral Combat Ship Program

GAO-11-249R: Published: Dec 8, 2010. Publicly Released: Dec 8, 2010.

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The Navy's Littoral Combat Ship (LCS) is envisioned as a vessel able to be reconfigured to meet three different mission areas: mine countermeasures, surface warfare, and antisubmarine warfare. Its design concept consists of two distinct parts--the ship itself (seaframe) and the mission package it carries and deploys. The Navy is procuring the first four ships in two different designs from shipbuilding teams led by Lockheed Martin and General Dynamics, which currently build their designs at Marinette Marine and Austal USA shipyards, respectively. Prior to September 2009, the Navy planned to continue building the class using both ship designs. This strategy changed following unsuccessful contract negotiations that same year for fiscal year 2010 funded seaframes--an outcome attributable to industry proposals priced significantly above Navy expectations. In September 2009, the Navy announced that in an effort to improve affordability, it was revising the LCS program's acquisition strategy and would select one seaframe design before awarding contracts for any additional ships. Following approval of this strategy in January 2010, the Navy issued a new solicitation--intended to lead to a downselect--for fiscal year 2010 seaframes. In support of this strategy, Congress authorized the Navy to procure up to 10 seaframes and 15 LCS ship control and weapon systems. The Navy planned to have a second competition in 2012 and provide five of the ship control and weapon systems to the winning contractor, who would construct up to 5 ships of the same design and install the systems. However, in November 2010, following receipt of new industry proposals for the fiscal year 2010 seaframes, the Navy proposed to change its acquisition strategy back to awarding new construction contracts to both industry teams. In response to broad congressional interest arising from the Navy's proposed LCS acquisition strategy change, our objective was to assess any risks that could affect the Navy's ability to execute the program, using the authority of the Comptroller General to initiate our work.

Successful business cases for shipbuilding programs require balance between the concept selected to satisfy warfighter needs and the resources--technologies, design knowledge, funding, time, and management capacity--needed to transform that concept into a product. Without a sound business case, program execution will be hampered, regardless of the contracting strategy. The LCS, given its stage of maturity and its unique mission, design, and operational concept, still faces design and construction risks. As with the Navy's estimate of savings, most of these risks appear to be inherent to the program, regardless of which acquisition strategy is followed. Navy officials believe that experience to date on the program, coupled with fixed price contracts and a sufficient budget for ship changes, mitigates this risk. However, much work and demonstration remains for LCS, and other shipbuilding programs have had difficulty at this stage. On the other hand, a second ship design and source provided under the dual award strategy could provide the Navy an additional hedge against risk, should one design prove problematic. Mission equipment packages are common to both ships and would pose the same execution risks, apart from integration. Under both the existing downselect strategy and the proposed dual award strategy, the Navy plans to award fixed-price incentive contracts for new seaframes. This type of contract provides for adjusting profit and establishing the final contract price by application of a formula based on the relationship of total final negotiated cost to total target cost. The final price is subject to a price ceiling, negotiated at the outset. Navy officials expressed confidence that their cost estimate supporting the dual award provides details on the costs to operate and support both designs. However, since little actual LCS operating and support data are available to date, the Navy's estimates for these costs are currently based on data from other ships and could change as actual cost data become more available. These estimates are also based on new operational concepts for personnel, training, and maintenance that have not been fully developed, tested, and implemented. For example, the Navy has not yet implemented a comprehensive training plan, and it is possible that the plan could cost more or less than the training costs currently accounted for by the Navy. The Navy's request to double its current 10-ship authorization to 20 ships--at a time when the mine countermeasures, surface warfare, and antisubmarine warfare mission packages continue to face significant developmental challenges--highlights the Navy's risk of investing in a fleet of ships that has not yet demonstrated its promised capability. Absent significant capability within its mission packages, seaframe functionality is largely constrained to self-defense as opposed to mission-related tasks.

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