Fiscal Debate Puts Subs In Jeopardy
As Congress continues to flounder in debates over how to fund the federal government through this fiscal year, U.S. nuclear submarine builders warn that the tendency to rely on so-called continuing resolutions (CRs) extending funding at 2010 levels threatens to sink the Navy’s attack sub-building deals.
The current situation, under a CR that runs out March 18, has led to a major problem with the Navy contract to build its Virginia-class attack submarines because the CR did not provide by Jan. 31, 2011 the full funds and new contracting authority required to build the next ship, as required by a specific contract clause.
General Dynamics’ Electric Boat and Northrop Grumman — currently partners on the Virginia program — put the clause in the contract, says Electric Boat President John Casey, because Congress has to authorize the money each fiscal year to build any subs during that time.
The contractors continue to voice concern that the political stalemate over the fiscal 2011 budget could prevent the full sub-building funding from materializing. Ironically, this comes after a long debate in Congress over forcing the Navy to double Virginia production to two boats a year sooner than it officially intended, while also capping costs on the program (Aerospace DAILY, May 16, 2008).
The sub builders have already extended the contractual deadline for making the funding available to March 21, 2011, Casey said March 9 after a Washington breakfast attended by sub vendors, congressional patrons and others interested in the submarine business.
Electric Boat and Northrop — which is looking to spin off its shipbuilding unit — are now negotiating with the Navy for a contract modification that would further extend the deadline, Casey says.
Continuing delays in meeting the contract could affect a block of six submarines, Casey adds, possibly raising their prices and jeopardizing the teaming agreement that Electric Boat and Northrop forged to build the subs. The Navy and Congress supported that deal to retain the nuclear sub-building workforces in both yards at Groton, Conn., and Newport News, Va.
The two companies have managed to cut the per-sub cost to $2 billion in constant fiscal 2005 dollars from $2.4 billion, and the delays caused by the CRs could upset the cost cuts the contractors have managed so far, Casey says. (The equivalent unit target costs are about $2.6 billion for a boat procured in fiscal 2012, and $2.7 billion for one in 2013.)
If the sub prices increased, he acknowledged, the Navy or Congress could decide again to review the number of ships the nation could afford to buy.
“Any program that shows cost growth is subject to scrutiny,” Casey says.
The builders need to cut steel by midyear on the new submarine that was supposed to be funded by Jan. 31 to keep to contractual costs and deadlines. “By the middle of the year, we’re supposed to start construction of that ship,” Casey says.
The further the slip, the more likely that costs will increase. Casey made it clear, though, that it is in the best interest of the companies, the Navy and Congress to keep the contract provisions and teaming agreement intact.
“We will continue to work with the Navy,” the executive says. But, he adds, the sub builders cannot just hold the contractual work in abeyance for too long. At some point, either work has to be funded or a new contract has to be renegotiated — likely for higher costs.
Photo: US Navy
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