Navy awards LCS contracts to Austal and Lockheed Martin

After a pre-Christmas Congressional cliff hanger, the Navy has awarded Lockheed Martin Corp. and Austal USA each a fixed-price incentive contract for the design and construction of a 10 ship block-buy, for a total of 20 littoral combat ships from fiscal 2010 through fiscal 2015.

The first of the Lockheed Martin team Littoral Combat Ships (LCS), which are built at Fincantieri’s Marinette Marine shipyard, will be acquired in FY 2010, at a contract value of $437 million, and the rest via options through 2015. If all options are exercised, the total value of of the ship construction portion of the contract will reach approximately $3.6 billion.

The first Austal LCS will be acquired under a contract valued at $432.1 million with the nine additional ships bringing potential total value of up to $3.52 billion.

These numbers are way, way below Congressional Budget Office estimates of between $583 million and $591 million per ship.

As explained in a Navy press release, the amount awarded to Lockheed Martin Corp. for the FY 2010 LCS is $436,852,639. The amount awarded to Austal USA for the FY 2010 LCS is $432,069,883.

Both contracts also include line items for nine additional ships, subject to Congressional appropriation of each year’s Littoral Combat Ship (LCS) Program requirements. When all 10 ships of each block buy are awarded, the value of the ship construction portion of the two contracts would be $3,620,625,192 for Lockheed Martin Corp., and $3,518,156,851 for Austal USA. The average cost of both variants including government-furnished equipment and margin for potential cost growth across the five year period is $440 million per ship. The pricing for these ships falls well below the escalated average Congressional cost cap of $538 million.

“The awards represent a unique and valuable opportunity to lock in the benefits of competition and provide needed ships to our fleet in a timely and extraordinarily cost effective manner,” said Secretary of the Navy Ray Mabus.

The Navy says that each contractor’s 10-ship bids reflect mature designs, investments made to improve performance, stable production, and continuous labor learning at their respective shipyards. The award was based on limited competition between teams led by Lockheed Martin and Austal USA. Under these contracts, both shipbuilders will also deliver a technical data package as part of the dual award, allowing the government a wide range of viable alternatives for effective future competition.

The Navy says that this approach, which is self-financed within the program by adding a year to the procurement and utilizing a portion of the greater than $2 billion total savings (throughout the Future Years Defense Program), enables the Navy to efficiently produce these ships at an increased rate and meet operational requirements sooner.

Chief of Naval Operations Adm. Gary Roughead praised the Navy’s plan to add both ship designs to the fleet: “The LCS is uniquely designed to win against 21st century threats in coastal waters posed by increasingly capable submarines, mines and swarming small craft. Both designs provide the capabilities our Navy needs, and each offers unique features that will provide fleet commanders with a high level of flexibility in employing these ships.”

“The rigor and diligence of the source selection process has resulted in the acquisition of quality, capable ships at fair prices,” said Assistant Secretary of the Navy for Research, Development and Acquisition Sean Stackley, adding that “both teams have shown cost control on their second ships, and we look forward to the delivery of these capable fleet assets in the future.”

January 1, 2011