Defense Acquisitions:

Realizing Savings under Different Littoral Combat Ship Acquisition Strategies Depends on Successful Management of Risks

GAO-11-277T: Published: Dec 14, 2010. Publicly Released: Dec 14, 2010.

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This testimony discusses the Department of the Navy's proposed dual ship acquisition strategy for the Littoral Combat Ship (LCS) program. 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. The Navy's strategy for procuring LCS has evolved over the years. 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 August 2010, we issued a report evaluating LCS planning and implementation efforts that identified technical, design, and construction challenges that could impact the Navy's ability to deliver promised LCS capabilities. This statement highlights findings from that report and a subsequent report issued on December 8, 2010, which assessed risks that could affect the Navy's ability to execute the LCS program.

As detailed in our most recent report, we found that regardless of the strategy selected, the Navy continues to face design and construction risks in executing the LCS program, given its stage of maturity and its unique mission, design, and operational concept. These risks threaten the Navy's ability to achieve the cost savings it estimates under either of its acquisition strategies. 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. 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.

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