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October 9, 2009

Conferees agree FY 2010 Navy shipbuilding authorization

The House and Senate Armed Services Committees have reached agreement on the conference report to H.R. 2647, the Fiscal Year 2010 National Defense Authorization Act.

Highlights of the agreed Navy shipbuilding authorization are:

LPD-17 -- Completes funding for the tenth LPD-17

Virginia-Class Submarine -- Authorizes full funding for one VA-class submarine and provides advance procurement for an additional two to be built in FY2011 and each subsequent year;

T-AKE Class -- Authorizes full funding for two T-AKE class ships;

Surface Combatants -- Completes funding for the third and final DDG-1000;

Joint High Speed Vessel (JHSV) -- Authorizes one JHSV;

Littoral Combat Ship (LCS) -- Authorizes the Secretary of the Navy to down-select to one variant of the Littoral Combat Ship and enter into a block-buy procurement contract for 10 ships over the next 5 years. This down-select is directed to be the result of a "winner-take all" competition between the two shipbuilding teams. Additionally, the Secretary is directed to require each of the two teams to provide the Navy with the technical data package for their ships, allowing the Navy to compete the winning design to a secondary shipyard.

Research and Development -- Authorizes $2.2 billion in research and development for submarines, destroyers, surface warfare vessels, Littoral Combat Ships, and amphibious warfare ships.

Temporary Reduction in Minimum Number of Operational Aircraft Carriers--Authorizes the inactivation of the USS Enterprise (CVN 65) after 51 years in commissioned service to the nation. This inactivation will decrease the number of active aircraft carriers in the Navy battle force from 11 ships to 10 ships during the period between the inactivation of the USS Enterprise in FY13 and the commissioning of the USS Ford (CVN 78) in FY15.

Managers' Report

The following is taken from the Managers' Report on the conference and gives some insights into how the conferees reconciled the House and Senate versions of the shipbuilding program:

Littoral Combat Ship program (sec. 121) The House bill contained a provision (sec. 121) that would restructure the cost cap for the Littoral Combat Ship (LCS) program, subject to certain prerequisites and certifications. The bill would also authorize the Secretary to obligate funds to compile a technical data package necessary for future competition.

The Senate amendment contained no similar provision.

The Senate recedes with an amendment that would provide authority to the Secretary of the Navy to implement a new acquisition strategy, as requested by the Secretary, that would utilize a block-buy approach for the procurement of LCS vessels during the period of fiscal year 2010 through 2014, and would include authority to obligate funds for economic order quantity buys and cost reduction initiatives, should such measures improve overall program affordability. The conferees note that, unlike a multiyear procurement, a block-buy is useful here in that it conveys a long-term commitment by the Government to execute the program in a way that allows the Government to extract economic advantages from its purchases. However, a block-buy does not bind the government to performance under a multiyear contract, thereby subjecting the government to liability for cancellation or termination costs in the event of non-performance under the contract. In addition, the amendment would apply a revised cost cap to the fiscal 2011 ships, which could be waived under certain circumstances. The amendment would also require the Navy to obtain a technical data package from the winning LCS contractor.

The conferees support the revised acquisition strategy for the program, which is based upon many of the principles long advocated by the conferees, including enhancing competition, assuring more program stability, achieving more efficient construction rates, incentivizing industry investment, and increasing commonality.

The conferees recognize that the existing cost cap for the LCS program has been effective, prohibiting the Navy from awarding an unaffordable contract in fiscal year 2010. Consequently, the conferees agree to retain a cost cap, while giving the Secretary of the Navy significant discretion in the award of the fiscal year 2010 through 2014 ships. The conferees intend the cost cap described in subsection (c)(l) to apply to the fiscal year 2011 ships and any additional ship constructed through 2014 at the shipyard that is a member of the contractor team selected in response to the solicitation for the fiscal year 2010 ships.

The conferees expect that, if contractors and suppliers respond to this solicitation with aggressive pricing proposals that result in a more affordable program, the government will guarantee long-term stability in the procurement plan. The conferees believe that, with aggressive construction yard investment and "design for affordability" changes, costs for vessels should continue to decline (in constant dollars) over the period of the block-buy.

The amendment would also require that the Navy report yearly on specific costs incurred in the construction of LCS vessels and adjustments to the cost caps. The conferees intend that this annual report would assist in providing strong oversight on the costs of this program. If the Navy and contractors are unable to achieve significant cost savings under this new acquisition strategy, the conferees1 support for this program will not be assured.

Treatment of Littoral Combat Ship program as a major defense acquisition program (sec. 122)

The Senate amendment contained a provision (sec. 111) that would require the Littoral Combat Ship program be designated as a major defense acquisition program.

The House bill contained no similar provision.

The House recedes.

The conferees note that the Weapon Systems Acquisition Reform Act of 2009 (Public Law 111-23), if interpreted properly, would require this program already to be so designated. Report on strategic plan for homeporting t h e L i t t o r a l Combat Ship (sec. 123) The Senate amendment contained a provision (sec. 112) that would require the Secretary of the Navy to submit a strategic plan for homeporting vessels in the Littoral Combat Ship program.

The House bill contained no similar provision.

The House recedes with technical amendments.

Advance procurement funding (sec. 124)

The House bill contained a provision (sec. 123) that would authorize the Secretary of the Navy to use advance procurement funds to enter into contracts for production planning and other related support services that reduce overall procurement lead time of the vessel. Additionally, this section would authorize the Secretary to enter into contracts for advance construction efforts for the aircraft carrier designated CVN-79, if the Secretary determines that cost savings, construction efficiencies, or workforce stability would be achieved through the use of such contracts.

The Senate amendment contained no similar provision.

The Senate recedes.

Procurement programs for future nava l surfac e combatants (sec.

125)

The Senate amendment contained a provision (sec. 113) that would prevent the Navy from obligating any funds for building surface combatants after 2011 until the Navy conducts particular analyses, and completes certain tasks that should be required at the beginning of major defense acquisition programs. The committee report (S. Rept. 111-35) also would direct that the Secretary of the Navy obligate no more than 50 percent of the funds authorized for fiscal year 2010 in PE 24201N, CG(X), until the Navy submits a plan for implementing the requirements of this section to the congressional defense committees.

The House bill contained no similar provision.

The House recedes with technical amendments. The conferees agree to direct that the Secretary submit the plan for implementing the requirements of this section to the congressional defense committees at the same time as the President submits the budget request for fiscal year 2011.

Ford-class aircraft carrier report (see. 126)

The House bill contained a provision (sec. 122) that would require the Secretary of the Navy to make an assessment of the cost of shifting to 5-year intervals for the construction of aircraft carriers, including the effect of such shifting of that interval on other programs. The House bill would have placed a limitation on the use of any funds for the aircraft carrier, designated CVN-79, for shifting to a 5-year interval.

The Senate amendment contained no similar provision.

The Senate recedes with an amendment that would remove the limitation on the use of funds for CVN-79.

The conferees note that a 5-year interval for aircraft carrier construction, as proposed by the Secretary of Defense, may be the appropriate course of action for the Department of the Navy. However, the conferees are concerned that this decision may not have been made following a rigorous costbenefit analysis. Therefore, the conferees expect that the Secretary of the Navy will take no further action to preclude the ability of the Secretary to award a construction contract for CVN-79 in fiscal year 2012 or the aircraft carrier designated CVN-80 in fiscal year 2016, consistent with the Annual Long-Range Plan for Construction of Naval Vessels for Fiscal Year 2009, until he completes the required assessment and fully informs the congressional defense committees of any such a decision.


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