By Emelie Rutherford
The Pentagon policy bill the Senate is expected to debate as soon as next week recommends leaving in place a $460 million cost cap on the Littoral Combat Ship (LCS), instead of following a House move to relax the cost ceiling.
Thus, the final decision on the forthcoming cost cap for the notoriously overbudget Navy shipbuilding program will likely be decided in a future House-Senate conference committee.
The fiscal year 2010 defense authorization bill the House passed June 25 advises keeping in place a $460 million-per-LCS ceiling set to start in FY ’10; however, it calls for rewriting it so that dollar limit is adjusted for inflation and does not factor in non-procurement expenditures–such as government costs for oversight and lifecycle management– not normally included in such cost caps. Such adjustments could account for tens of millions of dollars in costs not being calculated.
The version of the authorization legislation the Senate Armed Services Committee (SASC) also approved on June 25, meanwhile, does not alter the language of the cost cap, according to committee staff.
The Navy and industry are not expected to be able to build three planned FY ’10 littoral ships under the cost cap, which is set to start in FY ’10, the way it is written.
Chief of Naval Operations Adm. Gary Roughead told reporters last week the Navy is “in discussions” regarding the congressional cost cap.
Several observers tracking the LCS program predicted the House’s stance will prevail during conference negotiations, which will convene after the Senate passes its version of the legislation.
The Senate will not take up the defense authorization bill this week, but it may begin debating it next week, Senate Majority Leader Harry Reid’s spokesman said last Thursday.
Tim Stanos, a defense analyst at The Avascent Group in Washington, said the cost cap is an significant issue for the Navy, and he believes the House action was correct.
“I think that it’s important to have the cost cap include some flexibility rather than be a number that’s tied to a specific point in time,” Stanos said in an interview.
Advocates of controlling costs with the LCS program, meanwhile, said the Navy and industry must be forced to heed the cost ceiling as written for the behind-schedule shipbuilding program that was initially projected to cost $220 million per ship.
The SASC’s bill and accompanying report were filed last Thursday afternoon, yet they were not available as of Defense Daily‘s deadline.
Ron O’Rourke, a senior Navy analyst at the Congressional Research Service, said if the LCS cost cap didn’t include outfitting and post-delivery costs–items the House wants to no longer be included–the ship’s calculated cost could be tens of millions of dollars less.
“Navy FY ’10 budget-justification documents show that LCS-1 and LCS-2 each have $75 million in outfitting and post-delivery costs,” O’Rourke said via e-mail. “There may be some nonrecurring work funded there, so later LCSs may have smaller amounts of outfitting and post delivery costs, but those costs might still be on the order of a few (as opposed to several) tens of millions of dollars per ship.”
O’Rourke added: “Since the Navy has not stated publicly in dollar terms how much of a challenge it might be facing in terms of getting the FY ’10 ships under the existing cap, it isn’t clear how much that challenge would be reduced in percent terms by excluding a few tens of millions of dollars in outfitting and post delivery costs. But it would reduce the challenge to some degree.”
Including an inflation rider in the cost cap, as the House proposed, “would make it easier for the Navy to get downstream LCSs under the cap, and would make the LCS cost cap more comparable to cost caps that have been established in the past for other Navy shipbuilding programs,” O’Rourke said.
Rep. Gene Taylor (D-Miss.), chairman of the House Armed Services Air and Land Forces subcommittee, maintains the House-passed defense authorization bill still would keep close tabs on LCS prices.
The House-passed bill states the Navy would have to do several things before the cost cap is modified as proposed. The service first would have to accept delivery of the first two LCSs following successful acceptance trials, analyze the requirements for both LCS variants and determined further changes will not reduce the vessels’ costs or warfighting utility, and ensure the FY ’09 ships are in track regarding cost and schedule and their affordability and efficiency is improving (Defense Daily, June 22).
The House measure notably calls for opening the LCS program to more competition if one or both of the shipbuilders cannot meet the $460 million ceiling.
“There has to be accountability as far as price,” Taylor said in an interview. “There has not been accountability up until now and we’re trying to get some accountability.”
The Navy has issued a request for proposals to LCS shipbuilders General Dynamics [GD] and Lockheed Martin [LMT] for three FY ’10 ships, and the bids are due July 27 (Defense Daily, June 19).
Cost overruns with the initial littoral ship have been blamed largely on the Navy’s changing of requirements and standards.