Navy restructures ship program in effort to reduce costs

Unable to cut costs on its Littoral Combat Ship program, the Navy has decided to take a winner-take-all approach to the next 10 shallow-water vessels in the hope that heightened competition for the lucrative contract will drive down the ship's price tag.

Senior Navy officials announced Wednesday that they plan to launch a competition this fall between General Dynamics Corp. and Lockheed Martin Corp., which have had separate shipbuilding teams splitting work on the program. The goal is to select one contractor -- working with one shipyard -- around March or April.

The two defense firms had been expected to continue ship construction through at least fiscal 2011. Each has been building ships based on different designs at different shipyards, with Lockheed Martin using a yard in Marinette, Wis., and General Dynamics doing the work in Mobile, Ala.

But Navy officials hope competition for the exclusive contract will push the teams to significantly reduce their costs, which have more than doubled since the program's inception less than a decade ago. Higher costs and production woes forced the Navy in 2007 to cancel both companies' second ships.

"This change to increase competition is required so we can build the LCS at an affordable price," Navy Secretary Ray Mabus said in a statement.

Officials emphasized they still plan to build 55 LCSs. But instead of buying three ships next year as planned, the Navy intends to buy two -- and build them in one shipyard.

While the cost of each ship is yet to be determined, officials hope the stability of building them in one yard will help cut costs, said Sean Stackley, the Navy's acquisition chief.

Congress originally capped each LCS at $220 million, but the program's costs ballooned and lawmakers agreed to increase it to $460 million in the fiscal 2008 defense authorization bill. But Navy officials, who have been in continuing conversations with Capitol Hill about the $460 million cap, have signaled they would have difficulty staying within the cost ceiling.

Under the Navy's new strategy, the winning prime contractor and shipyard will build two ships a year between fiscal 2010 and fiscal 2014.

In fiscal 2012, the Navy will choose a second shipbuilder to build five more ships by fiscal 2014. After the first 15 ships, the shipbuilders will continue to compete for ships throughout the life of the program.

Under the new strategy, the Navy will own much of the technical data rights to the ship.

Several lawmakers, including House Armed Services Seapower Subcommittee Chairman Gene Taylor, D-Miss., had been concerned that the prime contractors unnecessarily maintained rights to their blueprints under the old LCS plan.