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Navy Awards 1 Littoral Combat Ship to Austal; Still Negotiating With Lockheed Martin

USS Tulsa (LCS-16) launched on March 15, 2017. Austal USA photo.

The Navy awarded Austal USA up to $584.2 million for one Littoral Combat Ship, while the service is still negotiating with Lockheed Martin for the second ship and weighs its options for the third ship, USNI News understands.

This contract award comes amid a confusing spring for the program. After learning in early May that Congress wanted the service to buy three ships in 2017, the Navy testified in later that week that it needed to continue that three-a-year rate into 2018 to support the industrial base, but then included just one ship in its 2018 budget request later in the month. Then, the next day, the Trump Administration announced it was “supportive” of buying two ships in 2018 instead of one.

At the height of LCS procurement, the Navy was awarding two ships a year to both LCS builders, Austal USA and Lockheed Martin, and contracts with both yards were announced at the same time. Friday’s contract award to Austal was not accompanied by one for Lockheed Martin. USNI News understands negotiations for this year’s ships has been tougher than in past years.

The Navy could not comment on the ongoing competition, and Lockheed Martin spokesman John Torrisi could only say that “we continue to work with the U.S. Navy to reach an agreement on a contract for Fiscal Year 2017 ships.”

U.S. Navy spokesman Alan Baribeau confirmed that Lockheed Martin would get at least one ship in 2017, in accordance with the approved LCS acquisition strategy and solicitation, and that that solicitation allows for awards to the shipyards to be made at different times.

The contract covers hull LCS-28, and the Lockheed Martin ship that must be awarded in 2017 would be LCS-27, putting the two builders even with each other in terms of workload in the ship class. The third ship in 2017 presents some options for the Navy in terms of how the service will decide who to award it to.

Current acquisition plans have the Navy buying just one ship in 2018 and one in 2018, though the Trump Administration voiced support for a second LCS in 2018. USNI News understands that, while the administration hasn’t released its plans for how to pay for that second ship, the Office of Management and Budget should have that decision signed off on by June 30. Baribeau told USNI News that the Navy is in the process of amending its plans to include buying two ships in 2018 and one in 2019. The House Appropriations Committee, though, is set to mark up a bill today that includes funding for three ships in 2018.

If lawmakers ultimately decide the Navy will buy either one or three LCSs in 2018, the third ship from 2017 could be lumped in with the 2018 ships to keep even procurement rates for both shipbuilders. If the service ends up with two ships in 2018, the third 2017 ship could be awarded based on a straight price competition or other factors. The third 2017 ship would be the last one covered by a previous block buy agreement, and the 2018 and 2019 ships would be covered by a separately negotiated contract, but the Navy’s use of contract options – Austal’s contract award has an option for future ships, and Lockheed Martin’s eventual contract likely would too – creates some flexibility in determining who would build the last 2017 ship.

The contract announced on Friday covers the first of three ships appropriated in 2017 under a spending plan passed by Congress in May, and ensures the cost of the ship stays below the congressionally mandated cost caps, though it does not specify an exact contract value.

“The Navy expects to release a competitive solicitation(s) for additional LCS class ships in future years, and therefore the specific contract award amount for these ships is considered source selection sensitive information … and will not be made public at this time,” according to a Defense Department contracts announcement posted online Friday, explaining why the cost is described only as being under the congressional cost caps.

Austal USA released a statement Monday on the award of the first ship, calling it “a clear sign of confidence in Austal USA’s Littoral Combat Ship program” by the Navy.

“We’re very proud to be awarded this contract in such a highly competitive environment,” Austal USA President Craig Perciavalle said in the statement.
“This demonstrates the Navy’s confidence in Austal being a key component in building their 355-ship fleet, which is a testament to the hard work and dedication of our incredible employees.”

USNI News understands there is no timeline yet for when the Navy would award a 2017 ship to Lockheed Martin or make a decision about how to award the third 2017 ship and to whom.