THE PENTAGON – The Navy awarded Huntington Ingalls Industries’ Newport News Shipbuilding a contract for two aircraft carriers, the first of its kind since the 1980s.
Thursday’s contract modification is worth $14.9 billion to cover remaining ship design and construction costs of CVNs 80 and 81. Once government-furnished equipment is added in – including systems such as the Electromagnetic Aircraft Launch System and the Advanced Arresting Gear – the Navy will spend about $24 billion on the two aircraft carriers, compared to a predicted cost of $28 billion if the sea service had purchased them separately.
The Navy originally thought the combined purchase would save them about $2.5 billion across the two ships, but estimates have since risen to about $4 billion by combining the two ships into a single purchase, allowing for better sequencing at the shipyard and avoiding duplication in planning.
“Today marks a great team effort to drive out cost and maximize efficiency in government procurement,” Secretary of the Navy Richard V. Spencer said in a statement this evening.
“Focusing on optimizing construction activities and material procurement, the team was able to achieve significant savings as compared to individual procurement contracts. One contract for construction of the two ships will enable the shipbuilder flexibility to best employ its skilled workforce to design once and build twice for unprecedented labor reductions while providing stability and opportunities for further efficiencies within the nuclear industrial base.”
Navy acquisition chief James Geurts told reporters at the Pentagon that “I’d like to applaud the team for doing that on a timeline that is both rapid and meets the secretary of defense’s and the secretary of the Navy’s call for urgency and ensuring we do everything with the urgency that’s required to meet the National Defense Strategy.”
Geurts said the Navy had already seen a 16-percent cost reduction going from first-in-class USS Gerald R. Ford (CVN-78) to John F. Kennedy (CVN-79); the contract is expected to achieve an additional 18-percent savings from 79 to 81.
Newport News Shipbuilding President Jennifer Boykin told reporters Thursday evening that “we’re very happy with the Navy’s willingness to partner with us – and it was a partnership throughout – to find the best acquisition approach and to make sure that we can provide the nation with these much-needed aircraft carriers more affordably, more efficiently, and in fact with this two-ship buy more rapidly.”
She said that Ford represented a new ship with new systems; Kennedy represented a new way of building a carrier, incorporating digital tools that have allowed the shipyard to better sequence work and dramatically cut down on man hours; and CVNs 80 and 81 represent a new way to buy the carriers.
A key driver in the savings is “the ability to buy material in quantity.”
“It is like going to Costco; we’re going to the supply base and we’re buying quantity two, we’re buying two ship sets of the material we’re buying, rather than one,” she said. Additionally, the move gives her yard and the 2,000 suppliers across 46 states some workload stability through 2032, when the yet-unnamed CVN-81 would deliver. She added that, when the Navy executed two-carrier contracts in the 1980s for the Nimitz class, the service saw about 10-percent cost savings on the material purchases alone.
The two-ship buy also allows for smarter sequencing of the work, allowing crews to move seamlessly from the future Enterprise (CVN-80) into CVN-81 without having to wait, find another job to do at the yard, or potentially get laid off if the work gap is too long. The yard can sequence the work as it sees fit now, ensuring that workers trained to do a job on 80 will retain their skills and bring lessons learned directly into the second ship for reduced time and cost.
The shipyard expects to deliver Enterprise in 2028 and CVN-81 in 2032, marking just a four-year gap between carriers compared to the current five-year centers the ships are on, which also contributes to the workforce efficiencies Boykin described.
Newport News Shipbuilding will also be able to craft one design build and one engineering package that will be applicable to two hulls, saving time and money on planning, Boykin said. And the yard will be able to purchase material earlier, cutting down on price escalation that naturally occurs over the years.
The Navy in the 1980s awarded two-carrier contracts for CVNs 72 and 73 and then again for 74 and 75.
Naval Sea Systems Command commander Vice Adm. Tom Moore previously said that, “The facts are pretty clear: when we’ve had a chance to do two-ship buys on the carrier side, with CVN-72 and 73 and then again with 74 and 75, in terms of the total cost performance of the ships and the number of man-hours it took to build those ships, within the Nimitz-class those four ships were built for the fewest man-hours and the lowest cost. So you’re clearly getting benefit out of that, but you have to balance it against the other competing needs of the budget.”
While most Navy ships are purchased in block-buy or multi-year contracts, aircraft carriers and amphibious assault ships are among the only ones to be purchased solo, due to the great cost of each capital ship. Some Navy leaders have discussed the idea of purchasing the next two big-deck amphibs in a two-ship buy akin to Thursday’s carrier contract.
While Geurts said he could not comment specifically on the LHA program, he told USNI News that “the Navy is always looking for the most effective and efficient way to procure ships as we’re building the Navy the Nation Needs. Two-ship buys have been used in the past in the Nimitz-class very effectively. … We do multiyears and block buys; all of those are very effective tools to shore up the industrial base, gain efficiencies, and then allow us to deliver more cost-effectively for the taxpayer. I think you’ll see, generically, you’ll see the Navy continue to look at all those tools in the future.”
Rep. Rob Wittman (R-Va.), the ranking member on the House Armed Services Committee who also represents the Hampton Roads area near the Newport News Shipbuilding yard, announced the contract award this afternoon.
“Today the Navy finally secured a two-carrier block buy for CVN 80 and 81, further advancing US Navy efforts to build to a fleet of 12 aircraft carriers and 355 ships. Leading this provision through my subcommittee, through the NDAA as a conferee, and finally fighting on the House floor for its an inclusion in the FY19 Defense Appropriations bill has been an honor. This dual buy means even larger savings than projected for taxpayers – $4 billion – and the certainty that our industrial base needs to retain and hire the employees who create the highest quality products for our sailors,” Wittman said in a statement.
“For Virginia, it means thousands of reliable jobs and community development for the next decade and beyond. As one of the largest Navy shipbuilding contracts ever, I am proud to have led this effort and look forward to its success.”
The following is the Navy’s contract Jan. 31, 2019 award announcement:
Huntington Ingalls Industries – Newport News Shipbuilding, Newport News, Virginia, is awarded the detail design and construction (DD&C) efforts for nuclear-powered aircraft carriers Enterprise (CVN 80) and unnamed CVN 81 under the following contract actions: (1) A $14,917,738,145 fixed-price-incentive-firm target modification to previously awarded contract N00024-16-C-2116 for DD&C efforts for the future USS Enterprise (CVN 80) and unnamed CVN 81. The current contract for advance procurement funded efforts has been in place since 2016. (2) A $263,096,868 cost-plus-fixed-fee modification to previously awarded contract N00024-16-C-2116 for associated research and development efforts. (3) A $31,097,671 cost-plus-fixed-fee modification for additional level-of-effort in support of maintenance of the CVN 78 class specification, design efforts, feasibility and tradeoff studies, and scoping and estimating. Work under this contract will be performed in Newport News, Virginia (62 percent); Sunnyvale, California (5 percent); Coatesville, Pennsylvania (3 percent); Wellsville, New York (1 percent); Cincinnati, Ohio (1 percent); Milwaukee, Wisconsin (1 percent); and various locations below one percent (27 percent), and is expected to be completed by February 2032. Fiscal 2018 and 2019 shipbuilding and conversion (Navy) funding; and fiscal 2019 research, development, test and evaluation (Navy) funding in the amount of $889,830,279 will be obligated at time of award and will not expire at the end of the current fiscal year. This contract was not competitively procured, in accordance with Federal Acquisition Regulation 6.302-1(a)(2)(iii) – only one responsible source and no other supplies or services will satisfy agency requirements. The Naval Sea Systems Command, Washington, District of Columbia, is the contracting activity.
The following is the complete written statement by Assistant Secretary of the Navy for Research, Development and Acquisition James Geurts:
You have all heard me talk about delivering lethal capacity, driving affordability and increasing our agility as we deliver on the National Defense Strategy and build the Navy the Nation Needs. Today I am proud to say the Navy did just that in awarding a contract for the construction of CVN 80 and CVN 81 to Huntington Ingalls Industries – Newport News Shipbuilding. Taking advantage of different contracting methods and innovative thinking, the team at PEO Carrier, NAVSEA and industry did awesome work enabling this deal. Leveraging all their combined talents they worked together to drive out significant cost, saving the government and taxpayers up to four billion dollars.
Navy has structured the contract to limit Navy liability and incentivize shipbuilder performance. As the Secretary of the Navy said “One contract for construction of the two ships will enable the shipbuilder flexibility to best employ its skilled workforce to design once and build twice for unprecedented labor reductions while providing stability and opportunities for further efficiencies within the nuclear industrial base.”
Authorizing and appropriating incremental funding for both ships in a single year enables the Navy and our shipbuilding partners to maximize opportunities for material procurement savings through quantity discounts for material; level loading of industrial base capabilities and resources; identifying means to best capture learning and labor efficiencies between ships; minimizing the effects of inflation/escalation; and taking advantage of stable design through multiple builds (plan once, build twice).
The CVN 80 and CVN 81 two-CVN buy expands and improves upon the affordability initiatives identified for single ship buys. In addition, contractual authority for two ships allows the shipbuilder and our partner Government Furnished Equipment (GFE) providers to maximize economic order quantity material procurements.
Work under this contract will be performed in Newport News, Virginia, and expected delivery will be completed by February 2032.
Overall, it’s a win win – drives speed of aircraft carrier delivery and reduces procurement costs, to build the Naval Force our Nation Needs to meet the National Defense Strategy.
The following is the complete Navy statement on the two-carrier contract:
The Navy has awarded a contract for the construction of CVN 80 and CVN 81 to Huntington Ingalls Industries-Newport News Shipbuilding (HII-NNS). This contract award delivers significant savings to the government – exceeding $4 billion when compared to the Navy’s original cost estimates to procure these CVNs separately.
“Today marks a great team effort to drive out cost and maximize efficiency in government procurement,” said Secretary of the Navy Richard V. Spencer. “Focusing on optimizing construction activities and material procurement, the team was able to achieve significant savings as compared to individual procurement contracts. One contract for construction of the two ships will enable the shipbuilder flexibility to best employ its skilled workforce to design once and build twice for unprecedented labor reductions while providing stability and opportunities for further efficiencies within the nuclear industrial base.”
In addition to these savings, the contract includes ship integration costs of several modifications required to meet emerging threats including the F-35C Lightning II, MK 38 gun system and MQ-25 Stingray Unmanned Aircraft System. These modifications increase the lethality of the FORD Class, and represent an additional $100 million in savings that is in addition to the $4 billion, since these new capabilities were not included in the original single-CVN Navy estimate. Plus, these new savings associated with new capabilities increases to $200 million if installed in the ship before delivery, in comparison to installing after ship delivery.
This Fixed Price Incentive (Firm Target) (FPIF) contract limits the Navy’s liability and incentivizes the shipyard’s best performance. The contract guarantees a single technical baseline for both ships, which allows the shipyard to re-use engineering rollover products, minimize changes between the two ships and leverage economic order quantities for equipment and material procurement.
ENTERPRISE (CVN 80) is the third ship of the FORD-Class and the numerical replacement for USS EISENHOWER (CVN 69). CVN 81, not yet named, will be the fourth ship of the class and will be the numerical replacement for USS CARL VINSON (CVN 70). CVN 80 began advanced planning and initial long lead time material procurement in May 2016.