Virginia-class decision has far-reaching implications

Sea Power, Sep 2003 by Keeter, Hunter C

Tucked between the lines of Navy Assistant Secretary John J. Young, Jr.'s announcement in August regarding a block-buy for Virginia-class submarines are clear indications the Navy's procurement of ships and aircraft is in store for major change across-the-board.

Young, assistant Navy secretary for research, development, and acquisition, said up to six Virginia-class nuclear-powered fast attack submarines would be purchased under an $8.7 billion contract. In a key element of the Virginia-class agreement that could be used elsewhere in Navy business, the service has cordoned off $45 million of industry's profit on each submarine produced as incentive fees tied to "discrete events" on the production schedule.

"I would like to do this across the board in shipbuilding, and we are working to do this in new contracts we might have on [aircraft] carrier-related work, The LPD team is working to do this in their contracts. We have discussed doing this on [the amphibious assault ship program] LHA(Replacement). So across shipbuilding we are going to implement as many of these [contract management] tools as make sense and are reasonable," Young said during an Aug. 14 Pentagon press conference. "That process of some back-end loading; some tying of incentives to discrete, deterministic events philosophically I am trying to apply this across the Department of the Navy. We have taken steps to do this in the H-1 [helicopter] program to upgrade the Hueys and the Cobras. I have taken steps in the Joint Strike Fighter (JSF) program ... In every place we are trying to do this because I think it is the last space where you give the program manager and the program executive officer some tools too work with industry to manage our way through a problem, not buy our way through a problem."

While the current contract does not achieve the Navy's goal of a proposed "multiyear" contract-which commits to buying several submarines over a set period, contrasted with the current contract which is characterized as a "block buy" of one submarine at a time, over an expectation of a number of boats-it has caused debate on Capitol Hill, with Congress resistant to the advance commitment of billions of dollars. The Navy has worked to convince Congress that a multiyear contract would promote savings, in the long-term, of possibly $155 million per submarine bought.

According to the program executive officer for submarines, Rear Adm. J.D. Butler, Virginia-class submarines cost on average $2.2 billion to produce, including shipbuilding costs as well as so-called "government furnished equipment" such as the ship's propulsor, the nuclear reactor, and non-propulsion electronics systems, all of which are contracted separately from the ship itself. The $2.2 billion figure is based on current block-buy procurement, with two shipyards producing in total only one submarine annually. Young estimated total savings in the Virgina-class program of $1 billion if Congress approves the multiyear contract, which would help the service to achieve a production rate of two ships annually.

Under the terms of the contract signed in August with General Dynamics' Electric Boat Corporation and Northrop Grumman's Newport News Shipbuilding, the Navy has committed to buying a fifth submarine of the Virginia-class in fiscal year 2003, and has the expectation of buying additional submarines through FY 2007. Subject to congressional approval and funding, the Navy could convert the present agreement to a multiyear contract, committing to buy seven submarines through 2008. HCK