2 Contractors Compromise on Building Destroyers (original) (raw)

Contractors Agree on Deal to Build Stealth Destroyer

April 8, 2009

Two military contractors, General Dynamics and Northrop Grumman, agreed on Wednesday to a Pentagon deal that will clear the way for all three of the Navy’s multibillion-dollar stealth destroyers to be built at General Dynamics’ shipyard in Maine, Pentagon and industry officials said.

Northrop Grumman, which had expected to build one of the DDG-1000 destroyers at its shipyard in Mississippi, will contribute major components for each of the vessels. It will also receive contracts for two other destroyers as the Navy restarts production of an earlier model.

Stock analysts said the deal, pushed by Defense Secretary Robert M. Gates, appeared to be a winning proposition for both contractors.

“Mr. Gates delivered a gift to the shipbuilders,” said Loren B. Thompson, a military consultant and the chief operating officer of the Lexington Institute, a research group.

Military officials said the precise financial arrangements still needed to be worked out.

Pentagon officials had estimated that the first of the new destroyers, also known as the Zumwalt class, would cost 3.3billion,withadditionalshipscostingatleast3.3 billion, with additional ships costing at least 3.3billion,withadditionalshipscostingatleast2.5 billion each if the Navy had built the 10 that were originally planned.

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A depiction of the Navy’s new Zumwalt-class destroyer, which will cost $3.3 billion and have stealth technology. Both General Dynamics and Northrop Grumman wanted to build the vessel.Credit...Bath Iron Works

But given Mr. Gates’s decision to limit the program to three ships, independent analysts said, various economies of scale would be lost, and the average cost could rise to $5 billion or more.

Still, in proposing a range of cuts in arms programs on Monday, Mr. Gates said he would build only one of the destroyers if General Dynamics and Northrop Grumman would not agree to have all three built at Bath Iron Works in Maine.

Mr. Gates said it would have been far too costly and inefficient to have both shipyards gear up to be the lead contractor.

Representative Gene Taylor, a Democrat from Mississippi and the chairman of a House armed services subcommittee, said the deal was good for Northrop Grumman because it ensured that the company was “aligned with where the Navy sees its future.”

Under the plan, Northrop Grumman will restart production of the DDG-51, also known as the Arleigh Burke-class destroyer, at its Ingalls shipyard in Pascagoula, Miss., and build the first two ships. General Dynamics will build the third once it completes work on the DDG-1000s at the Bath Iron Works. Officials said it was likely that the companies would split any subsequent orders through some type of competitive bidding.

Military analysts have estimated that the DDG-51s could cost an average of 1.5billionto1.5 billion to 1.5billionto2 billion each, depending on how many are eventually built.

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Defense Secretary Robert M. Gates, left, negotiated the deal. Also pictured is Gen. James E. Cartwright of the Marine Corps.Credit...Chip Somodevilla/Getty Images

Navy officials had originally embraced the shift to the DDG-1000, in part because it would have new types of radars, designed by Raytheon, that allowed it to make precise scans in relatively cluttered areas near coastlines. That ability was designed to fit the Navy’s increasing emphasis on operating in shallower, coastal waters.

But as the cost estimates rose last year, Navy officials began backing away, saying they could no longer afford the ship.

Still, the DDG-1000 had substantial political support from Senator Edward M. Kennedy, the Democrat from Massachusetts, where Raytheon is based, and other legislators from New England who were concerned about losing jobs at the Maine shipyard, which employs 5,600. The yard, which began building the first ship in February, expects to deliver it in 2013.

Analysts said that the Navy generally fared better than the Air Force and the Army in the Pentagon’s proposals.

Mr. Gates said the Navy would gradually slow the production of aircraft carriers, with the total dropping to 10, from 11, after 2040. Northrop Grumman, which builds the carriers, said in a note to employees that it believed that proposal “requires a closer look.”

Mr. Gates also said he would delay development of a new cruiser and amphibious ships.

But he endorsed the Navy’s goal of buying 55 Littoral Combat Ships, a high-speed coastal combat vessel that has experienced huge cost overruns. His proposals included money for expanding construction of the Virginia-class submarines to two each year, starting in fiscal 2011, from one now. And he said the Navy could start planning a new generation of ballistic missile submarines.

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