Home » Budget Industry » Federal Agents Comb Through Austal USA Shipyard as Part of Apparent Financial Investigation

Federal Agents Comb Through Austal USA Shipyard as Part of Apparent Financial Investigation

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

This post has been updated to include additional information on Austal USA’s financial history with the Littoral Combat Ship program.

Federal agents visited Littoral Combat Ship manufacturer Austal USA in its Mobile, Ala., shipyard as part of an unspecified investigation involving the U.S. Navy, according to local media.

“Department of Defense, NCIS and [the Defense Criminal Investigative Service] have been seen on site,” according to NBC 15 in Mobile, Ala.
“Investigators are expected to be on site for several hours.”

In a brief Thursday statement, Austal said the company was cooperating with authorities but gave no additional details as to the nature of the inquiry.

“Austal USA is working with the U.S. Navy on an open investigation,” reads the statement. “We are unable to provide additional details due to the nature of the investigation. We are continuing business as usual, executing our existing and recently awarded contracts.”

An Austal USA spokesman did not provide additional information when contacted by USNI News. U.S. Navy officials referred USNI News to the Department of Justice when called for comment.

The Mobile shipyard employs 4,000 workers and builds the Spearhead-class Expeditionary Fast Transport and Independence-class Littoral Combat Ship for the Navy. Austal USA is the American branch of Australian aluminum shipbuilder Austal. Earlier Thursday, Australian media reported Austal was under investigation by the Australian Securities and Investments Commission over market updates related to losses around the Independence-class LCS.

The Australian authorities are said to be focusing on statements issued by Austal regarding the blow out, or sudden increase in costs, associated with finishing USS Jackson (LCS-6)

On December 10, 2015, Austal announced it was experiencing “schedule and margin pressure on Littoral Combat Ship (LCS) 6.”

Jackson was a challenging ship in two respects. First, it was the first ship Austal USA had built as the prime contractor, whereas USS Independence (LCS-2) and USS Coronado (LCS-4) were built at the Austal yard with General Dynamics serving as the prime contractor on the project. Second, Jackson was the first LCS to be built under a block buy contract from the Navy. Austal implemented a new manufacturing process for the block buy ships meant to reduce cost and schedule down the line through serial production, but Jackson being the first serial production ship still meant there were lessons to be learned and procedural kinks to be worked out.

Austal officials conceded in the Dec. 2015 statement that their ability to boost LCS earnings through these new production processes did not live up to expectations. Savings on the LCS-8 and LCS-10 production were also more limited than anticipated, Austal officials said in the Dec. 2015 statement.

“Austal’s ability to apply lessons learnt and productivity enhancements from LCS 6 to vessels in advanced construction, namely LCS 8 and LCS 10, has been more limited than anticipated,” the statement said.

“The LCS program is maturing more slowly than we had expected, however we are working hard to manage the risks and expect an improvement across the program after delivery of LCS 10,” Andrew Bellamy, who then served as Austal’s chief executive, said in the December 2015 release.
“Austal has a strong balance sheet and is generating good cash flow, which is enabling further investment in the business during the 2016 financial year to best position the Company to win additional contracts and service work to build our order book, revenue, and earnings into the future.”

However, according to Austal’s Fiscal Year 2016 annual report, the company reported a loss of A$84.2 million, compared to a profit of A$53.2 million in 2015.

A significant portion of the company’s loss for the year was the US $115 million charge Austal recorded to account for the increased cost in LCS construction. The sudden increase in cost was related to work required to make the ships meet the Navy’s military shock testing, according to a July 4, 2016, release from Austal. Jackson conducted full ship shock trials in June and July 2016, which required the shipyard to prepare for the trials and then conduct maintenance afterwards to repair anything that broke during the underwater blast.

  • johnbull

    Well, somebody’s having a bad day… I am curious about what it is though.

    • Ser Arthur Dayne

      I agree 101%.

    • NavySubNuke

      It will be curious to see if this is merely a stock issue or if there is some sort of malfeasance associated with the way they run (or bill) the LCS construction.

  • Ed L

    Bribery, fraud, misappropriation of government funds involved? Or is someone just being a wanker

    • Secundius

      In May 2017, the US Justice Department fined “Huntington-Ingalls Shipyards” ~$9.2-Million USD for Overcharging the US Government ~$250-Million USD for work that was never performed. And yet “HII” still receives US Navy contracts to construct New Ships…

      • old guy

        Peanuts. When RADM Manganero was NAVSEA01, he hit Ingalls and Newport News for a total of just under 2 BILLION dollars of mischarges for self-originated chamges, delay charges for company initiaited delays, and just plain double billing. I was SEA03R at the time and helped hm with “developmental, technical and patent charges, Believe it or not the companies were charging the government for using patents developed under our contracts. How is that for chutzpah?

    • NavySubNuke

      ** Sorry to keep reposting this but diane keeps flagging it out of shame and embarrassment **
      “Likely all of the above —- the bribery would certainly explain the crime against the Navy that is LCS

  • omegatalon

    One has to wonder how this will effect Austral’s FFG(X) proposal.

  • Tortuga

    The biggest cause for this was the last minute trim of the cost proposal for the block buy. Austal way underbid in hopes to win and then to make up for it with growth work. Austal blaming the Navy for cost over runs is downright ludicrous as the Navy pays for changes and those changes get negotiated. Austal put out that drivel to assuage stockholders.

    • Duane

      If you had bothered to read the post you are commenting on, Austal did NOT blame the Navy for anything.

      Also, Austal did not “bid” against LM for their negotiated block-buy purchase contracts (initially 10 ships each, and since have been modified to add more ships to each contract with adjustments for inflation) … they are two very different designs, while the Indy variant is much more expensive than the Freedom variant.


      • Tortuga

        You are right…..they did not come right out and say it …….but read the last paragraph again…..Austal is acting as if all this work that was done for shock was accomplished without reimbursement from the Navy which is not true. All of that post delivery/shock trial work was performed under a cost plus contract…..which means you should not loose money…..Austal cannot claim that over runs are due to post delivery shock trial costs which were negotiated and fully funded by the Navy on a NTE basis.

        • vpiona

          Austal’s contracts are not cost plus. They are fixed price with savings below agreed cap split 50/50 with the Navy.

          • Duane

            Yup – that is how both of the block buy contracts for LCS with Austal and LM work. Fixed prices.

  • Michael Hoskins, Privileged

    Investigation could be at the request of Australian authorities looking into bogus financial/ tax reports at parent company in Oz. We need to be careful till facts are known.

    • Hugh

      I doubt bogus. However companies can legally minimise tax by creating middlemen in overseas tax havens. Such complex arrangements get additional tax audits, till whatever loopholes can be closed. (Huge companies are paying almost no taxes in Australia as such.)

  • Duane

    Well, one thing we can glean from this report: Federal officials merely “visited” the Austal facility as part of an investigation. If the Feds had any compelling evidence of criminal activity by Austal, they would have seized computers and records and locked down the place … you know, like the FBI did with Trump’s personal attorney just before the DOJ indicted him for numerous crimes he pled guilty of performing at the direction of his client identified in the charging documents as “individual no. 1”.

    • Chesapeakeguy

      Here we go. The most prominent Hillary supporter on here just can’t resist trying to deflect in making this about Trump instead of the possible malfeasance the article suggests involving the LCS program. You know, the one that he calls the greatest military entity ever conceived? Yeah, that one..

      • joe

        what i want to know how is what kind of a man supports a woman who is known for lying, misleading the American public, committing crimes— felonies, and implementing policies that benefit illegal immigrants and foreign states…

        as opposed to a man who stopped everything he was doing and put his life on hold to work for the American people for FREE.

        i just don’t understand. democrats and hillary lovers are all about “come 1, come ALL we will take care of you!!” transgender bathrooms, transgender military with medical perks, welfare, taxing the life out of small businesses, super fast trains, underfunding our military and financing climate change policies. not to mention bending over backwards to accommodate hostile states and turning a blind eye to terrorist militants. obama & hillary single-handedly clipped the nut sack off of USA

        • Chesapeakeguy

          That’s the way they are. Loyalty to governments like those of Mexico, instead of putting the American citizenry and taxpayers at the top of their food chain. Their favorite sport continues to be burning the American flag!

          • joe

            hillary did not a single thing for the good of America or its citizens. everything on her agenda had to do with the accommodation & benefit of immigrants and hostiles. always with the dedication to minorities, her club. and with all of her BS there is no hiding the fact that she continuously put herself & own interests before the country. she is the last person who should be President of USA: everything about her screams socialist dictator. i would take a (hypothetical) russian colluding Trump over an even (hypothetical) moderate Hillary. whatever had to be done to end her political career, SO BE IT!

            it’s nice to have a guy in there dedicated to the majority for once. it’s about time that somebody paid attention to the educated, Christian citizens for once instead of everybody BUT. the left keeps going further left and radical and it’s pissing off the the working population of people which America was built upon and who continue to keep this country funded.

            for a while American domestic policy was completely dedicated to the various minorities and illegal aliens who contribute very little to the treasury in the big scheme of things. take what is spent on those populations and call it a wash, they contribute nothing, fiscally. that’s democrats for you.

            i mean if people want to get political, i can go there.

          • Chesapeakeguy

            I hear ‘ya!

    • joe

      We are living in a two tiered justice system. One if you are a Clinton, a whole other one if you are a Conservative. And like virtually all the investigators on Mueller’s team — well, they seem above the law.

      But if you are associated with President Trump, you get your door kicked down in the middle of the night hauled away in handcuffs, all while CNN films it all.
      You are tarred. You’re feathered in the public square. Your innocence is stripped before ever facing trial. Your rights are trampled on by a politically motivated army of Clinton donors.
      Do you know what? This bears all the markings of Mueller’s so-called pit bull Andrew Weissmann. And like all of Mueller’s previous targets, Roger Stone was not charged with anything Russia involved, no collusion, no Russia, no conspiracy to steal Clinton’s emails or commit campaign fraud, because he didn’t commit any of those crimes and isn’t charged with that.
      That’s why he is charged with seven bogus process crimes again. Five counts of lying to Congress and not once lying about emails, oh, and text messages. All of these crimes occurring after the start of the Mueller investigation.
      Now, this is nothing more than a political persecution. Now, let’s not forget James Comey he lied to Congress. John Brennan lied to Congress. James Clapper lied to Congress on multiple occasions. Are they going to be charged? When will they get the predawn raid treatment?
      What about former FBI Director Andrew McCabe fired for lying to the FBI? When is he going to get the predawn raid? Comey’s general counsel James Baker, well, he leaked sensitive information. When is his predawn raid? James Comey leaked bureau memos to the press via a close professor friend, is he going to get charged with that?
      Now, the biggest of all, we have Hillary Clinton. She mishandled top secret classified material on an unsecured private server and then, you want to talk about obstruction of justice — not handing over emails, not handing over text messages. Oh, that’s what they just charged Roger Stone with. But Hillary destroyed subpoenaed emails, 33,000 of them. Oh, and then she washed her computer hard drive with Bleach Bit and then they busted up the devices. Where is Hillary Clinton’s predawn raid?
      James Comey, Andrew McCabe, Sally Yates, Rod Rosenstein, they all lied to a FISA court. They never checked the veracity of the charges in the Clinton bought and paid for phony Russian dossier. Are they going to be charged for those blatant crimes? This is sad and this is now going to be the end of real justice in America because this is a two tiered system of justice.

      • muzzleloader

        And Duane is cheering it on.
        Well stated my friend.
        You hit every nail on the head.

    • muzzleloader

      Dude, you truly have Trump living in your head 24/7, lol.

  • RobM1981

    As we saw in the Falklands, aluminum is the perfect material to build a warship out of…

    • Graeme Rymill

      The Royal Navy had two destroyers and two frigates lost in action in the Falklands. The destroyers were both Type 42s and both were all steel construction. The frigates were Type 21s with steel hulls and aluminium superstructure. Even with this aluminium superstructure there is no credible suggestion that these two frigates would have survived if built totally of steel. The design problems mostly lay elsewhere: with the vulnerability of Royal Navy ship to fire and toxic smoke due to lack of redundancy in water mains; extensive electrical cabling that gave off toxic smoke; and inadequate firefighting equipment such as portable pumps and breathing equipment. Inadequate air defences also played a huge part of course.

    • Lazarus

      There was no problem with aluminum during the Falklands war. HMS Sheffield did not have an aluminum superstructure and in the case of other combatant losses (Antelope, Ardent and Coventry,) Aluminum fires did not occur. USS Belknap is perhaps the best example of melting aluminum on a warship, but that only occurred thanks to millions of gallons of jet fuel pouring down her stacks; an event unlikely to occur in a combat situation. USS Stark did not experience appreciable damage from aluminum fire/melting when hit by Exocets in 1987.
      The “aluminum in warships bad” is another urban myth that sadly continues.

      • Sam Helm

        While you can talk about the aluminum/steel thing in the Falklands, and be correct, what about the Swift in October of 2017? One hit and the ship was a constructive loss. Also, the first of the Spearheads to reach Bahrain was sidelined for months for hull cracking. I know these are just anecdotal remarks, but that does not invalidate them. Aluminum is a great material, but it might just not be the best material to make the hull of a multi-thousand ton warship from, at this stage of the technology.

        • Secundius

          SWIFT was towed to a Greek Shipyard for Repairs…

        • wilkinak

          Before you go on about the aluminum hull, do some research on the firemain system on that ship.

          • Sam Helm

            What does the firemain have to do with hull cracking? Also, the lack of crew (24 assigned at the time of the attack – I don’t think reducing crews to the point that they can’t fight casualties is a valid approach) for fire fighting just might have something to do with the overall effects of the missile. What I was pointing to was the devastation caused put the ship out of service for a LONG time. It may be salvageable, but might it be more cost effective to just build new? Also, I apologize – it was 2016, not 2017.

          • wilkinak

            I was thinking of the resulting fire, not the hull cracks.

      • systems_adict

        Hmmm… So the repairs & additional structure added to the bow section of LCS 1, due to fatigue in the aluminium, from initial sea trails/testing, are just baloney & such facts don’t help perpetuate the ‘Aluminium in warships is bad’ myth ?

        • Secundius

          “LCS-1” has a “STEELHull”! So what “Aluminum Bow” are you referring too…

      • RobM1981

        The first Type 21 to burn was HMS Amazon, prior to the Falklands. The results are well documented.

        In the Falklands, the 21’s struggled with the other issues of aluminum, such as how it expands and contracts differently than steel – particularly when the weather gets cold. Funny thing about the ocean, parts of it are very cold. This is essentially what doomed Titanic, the almost intentional ignorance of how metals deal with extreme temperatures.

        The 23’s, I seem to recall, do not use Aluminum. The new 26’s are essentially all steel, too, if memory serves.

        Funny, that.

        Once aluminum ignites, it is pretty much impossible for a human to even approach it, never mind extinguish it. It goes soft much earlier than steel does, making it structurally unsound. HMS Amazon had issues with fire ladders being useless in the heat, but there are other concerns, such as collapsing bulkheads. Think of the WTC if you want a graphic example of what happens when metals go weak under heat – and aluminum goes weak much, much sooner than steel does.

        Aluminum doesn’t play nice with salt water, and requires extreme vigilance to maintain. Modern coatings help on this regard quite a bit, but even so.

        Aluminum is a great material in a lot of ways. A miracle metal, indeed.

        Just not in the hulls or superstructure of a warship, IMHO.

        • Secundius

          I use to Weld Aluminum, in my Profession before being Drafted into the US Army in the early ’70’s. Best way is to deprive it (Aluminum) of Air. But as a Welder, bottles of Argon gas came in handy in smothering out aluminum fires. Worked well on Magnesium too…

  • DaSaint

    Interesting, but nothing to see here as yet.

    Great picture of those two Indy class ships alongside the Austal USA shipyard, which is arguably the most advanced covered shipyards in the US (with the possible exception of the submarine yards.)

  • The_Usual_Suspect61

    I think the entire LCS program is a fraud.

  • the_artist_formerly_known_as_m

    “The LCS program is maturing more slowly than we had expected…”

    Understatement of the year.

    • Secundius

      “Stepping Stones”! Whe LCS-1 “Freedom” was launched, firepower consisted of 1xMk.110, 4xM2 BMG’s, 2xMk.44’s and 1x RAM. When LCS-3 “Fort Worth” was launched, weaponry was increased to include 2xMk.50 Torpedo Launchers. When LCS-17 “Indianapolis” was launched, weaponry grew to include 24xHellfires…

      • the_artist_formerly_known_as_m

        No. None of the LCS have torpedo launchers. The only way for LCS to launch a torpedo is via helicopter.

  • the_artist_formerly_known_as_m

    Sounds like the LCS shock trials were not the resounding success that we were led to believe.

    • wilkinak

      I don’t think it’s so much the trial itself as Austal underestimated the cost of prep work. There’s a lot of temporary instrumentation & wiring, in addition to modifications because much of the ship was not required to be shock hardened.

  • old guy

    I wonder if it has been considered that the trimarran form of LCS is useless in the arctic due to small ice floats jamming between the hulls.

  • des111168

    Quit buying the damned things. Give the ones already built to the Coast Guard. The LCS’s are glorified cutters anyway, at near-destroyer prices.

    • Secundius

      Both the “Freedom” class and “Independence” class, as well as the “Gerald R. Ford” class were approved by Super Majority Votes. By Both the US House on 8 July 2003 (399 to 19 Vote) and the US Senate on 17 July 2003 (95 to 0 Vote). It would take and Act of Congress and Two Super Majority Votes to Override and Cancel the LCS classes. The likelihood of that happening in 2019 is between Nil and Zero…