Questions about US Navy attack sub program linger as contract negotiations drag

By: David B. Larter

WASHINGTON — The U.S. Navy is months behind schedule getting its latest batch of Virginia-class attack subs under contract, and no resolution appears imminent — leading to mounting concerns that delays on the Virginia will affect the Navy's top acquisition priority, the Columbia-class submarine.

The contract for the 10-ship Block V Virginia-class attack submarine was supposed to be signed in April, but Navy and industry sources say that there has been a lot of talk and little agreement between the service and the two shipbuilders, General Dynamics Electric Boat and Huntington Ingalls Newport News.

Intended to integrate acoustic upgrades and an 84-foot section for additional strike missile tubes, the delayed contract for the Block V Virginias have instead turned into just the latest warning sign that all is not well in Virginia-land, as schedules have slipped and at least one of the builders is now bleeding profits. Furthermore, it's unclear what the Navy's buying profile for Block V will be, which is subject to both contract negotiations and Congressional action on the fiscal year 2020 budget.

The anxiety over Virginia delays, however, are less about Virginia, which is still a strong performing program — especially when compared with other programs such as the Ford-class carrier — but are more driven by the potential for compounding issues bleeding over into the Columbia-class. Both submarines will be drawing on the same workforce and supplier base, which is already showing signs of strain.

The Navy says the delays are part of ongoing negotiations and that the schedule should not be affected further since the Navy has already contracted for long-lead time materials, but with the first Columbia expected to be ordered in 2021, the service is facing the reality that it lacks a clear idea of the future of the Virginia program when it is preparing to launch Columbia.

The delays center on the integration of the Virginia payload module and just how many the Navy intends to buy. Until this year, the public plan was for Virginia Block V to be a 10-ship class, where the first boat would integrate the acoustic upgrades but the follow-on boats would all integrate the VPM, which is designed to triple the Virginia's Tomahawk payload capacity to 40 per hull. When the Pentagon's 2020 budget request dropped in March, the plan changed, with the total buy expanded to 11 hulls with eight VPM boats.

But according to sources who spoke to Defense News, the builder was laying the groundwork for the original plan, which the Navy had already purchased long-lead material toward. The confusion over just how many VPMs the Navy intends to buy has been a major sticking point in the negotiations, with sources telling Defense News that the number of VPMs could still end up as either eight or seven, or potentially even fewer.

Complicating matters further is that Congress has yet to weigh in on the fate of the 11th Block V boat, which would mean buying three Virginia's in one year, and some on Capitol Hill have voiced skepticism that the industrial base can support that

The Navy's top acquisition official, Assistant Secretary of the Navy for Research, Acquisition and Development James Geurts, is working toward a solution that will balance the needs of the Navy and the needs of the builders, his spokesman said.

Geurts "continues to work closely with the program team and industry on negotiating a Block V Multi-Year procurement contract that will be affordable, executable and supports the industrial base,” said Capt. Danny Hernandez. “He wants to ensure we are maximizing the use of taxpayer dollars while at the same time striving for an acceptable level of design and program risk.

“Additionally, during this period, the Navy is continuing to fund the shipbuilder for long lead time materials and pre-construction efforts to ensure submarine work continues at the shipyards and with the supplier base.”

‘Worst of Both Worlds'

With uncertainty looming about the future of the Virginia class, questions remain about whether that will bleed into Columbia, creating schedule risk that Navy leaders have said for years was untenable.

Congress has sought to ease the strain on the supplier base by offering money to help smaller vendors expand to meet demand. And in March, Geurts announced that he was standing up a new program executive officer for Columbia, citing the need to be proactive with any problems that might arise from the competing demands on the industrial base.

“These yards are integrated,” defense analyst Dan Goure, a former Bush Administration official who now works for The Lexington Institute, said in an April interview. “When you start messing with the other program on a short-notice basis, you risk the yards being able to deliver on time and at cost for multiple programs.

“In a sense you risk the worst of both worlds: You risk further perturbations in the Virginia class, and at the same time risk not being able to get Columbia out on time.”

Both General Dynamics and Huntington Ingalls said in earnings calls they expect the Block V contract to be signed by the end of the year.

Delays

The setbacks seem to be compounding for the Virginia program. Welding issues on missile tubes destined for the Virginia Payload Module and the Columbia-class ballistic missile submarine program have eaten into the schedule margin for both programs. And issues with the supplier base as well as the labor force have caused schedule delays.

Industry sources who spoke to Defense News said growing the Virginia-class program from one submarine per year to two submarines per year, which started with the budget in FY11, has put increasing strain on a diminished submarine supplier base, which has put pressure on schedules as the shipyards wait for parts.

Huntington Ingalls has dropped 23 percent of its profit margin on the Virginia-class program, according to a second-quarter earnings report analyzed by defense business analyst Jim McAleese. In an earnings call, Huntington Ingalls executives seemed to blame the drop on the schedule delays.

Two sources familiar with the issue said profit loss stemmed from labor force issues that resulted from a year-long delay in the Navy contracting for the carrier George Washington's mid-life refueling and overhaul. The delay caused Ingalls to lay off about 1,200 employees, which drew off workforce from the Virginia program because of labor union rules that say that the most recent hires must be laid off first.

Those rules forced Huntington Ingalls Industries to lay off workers who were working on the Virginia program, who in turn were then snapped up by other yards; Huntington Ingalls Industries then had to train new employees for the Virginia work.

Defense News reported in March that class-wide, Virginia is looking at four-to-seven month delays for delivery, which drives up labor costs.

Huntington Ingalls Industries chief financial officer Chris Kastner said on the call that getting the Virginia program back on schedule is a top priority.

“Especially when you're a in a serial production line like we are with the Virginia-class,” Kastner said. “If you start to have issues with schedule it does start to affect the synchronization of the line.

“We've been working pretty hard to reset that this year, given kind of where we started last year fourth quarter and we made great progress on that."

https://www.defensenews.com/naval/2019/08/16/questions-about-us-navy-attack-sub-program-linger-as-contract-negotiations-drag/