10 Jul 2011 By CHRISTOPHER P. CAVAS DefenseNews
General Dynamics and the U.S. Navy are continuing to actively negotiate construction contracts for the second and third DDG 1000 Zumwalt-class destroyers.
Going into discussions that took place last week at the company's Bath Iron Works (BIW) shipyard in Bath, Maine, Navy Secretary Ray Mabus said the parties "remain significantly apart, not only on pricing of the two-ship contract, but also on important contract terms and conditions."
Navy acquisition chief Sean Stackley was at the shipyard last week for a retirement ceremony, but it is not clear if he discussed the negotiations with the company's management.
The Navy and its shipbuilders do not routinely comment on the status of contract negotiations.
Mabus made his remarks in a June 27 letter to Rep. Chellie Pingree, D-Maine, who asked for an update on the DDG 1000 program. A copy of the letter was obtained by Defense News.
Negotiations on the construction contract for DDG 1001, second of the three ships in the class, was delayed for about a year while a series of events needed to play out: the DDG 1000 program was re-certified after a Nunn-McCurdy cost breech, brought on by the Navy's decision to shrink the program from seven to three ships; Navy negotiations with Northrop Grumman and its Huntington-Ingalls spinoff - necessary because the Navy and its shipyards agreed to move all DDG 1000 ship assembly to Bath - were stalled while the company reorganized; and the six-month absence of a 2011 defense bill made the issuance of new contracts impossible.
All of those obstacles now have been cleared.
Construction of the Monsoor (DDG 1001) has been ongoing under a series of advanced procurement contracts and - before the major issues arose - a full construction contract had been expected to be agreed on in early 2010. But the shipbuilders need the full contract to move to the next levels of construction, and the yet-to-be-named DDG 1002 also is now linked to the 1001 talks.
"The current proposal from BIW is significantly above the government's independent estimate," Mabus wrote in his letter to Pingree. "The Navy is reviewing all aspects of the program to identify opportunities to reduce program cost to close the gap.
"Likewise, we have been forthright with BIW where we believe their estimates for performance need to be improved to help close this gap."
In a May 26 letter to Mabus, Pingree also expressed her concern that the recent award of DDG 113 - the latest DDG 51 Arleigh Burke-class destroyer to be ordered - would give Huntington-Ingalls an unfair startup advantage when it comes to bidding on the next ships in the class.
The Navy halted DDG 51 procurement for a period but then announced a restart of the program when it cut the number of DDG 1000s it would buy. BIW and Huntington-Ingalls share in construction of DDG 51 destroyers.
Bath is still working on the last two DDG 51s awarded under prior contracts, but Huntington-Ingalls delivered its last destroyer earlier this year, and has already laid off many employees who worked on the Aegis-equipped ships.
The Navy has announced that DDG 114 will be awarded to Huntington-Ingalls and DDG 115 to Bath. The yard offering the best deal will get DDG 116.
Pingree's concerns were that Huntington-Ingalls got an unfair advantage by having already received a new destroyer contract, while BIW would have to incur more restart costs on 115 that Huntington-Ingalls won't have to factor into its 114 bid.
Mabus wrote that the Navy does not view the restart costs as a factor in the competition. He noted that Bath has built more DDG 51s - 34 - than Huntington-Ingalls' 28, including four of the last five ships, and remains the lead yard for the program.
"For all of these reasons, the Navy believes that BIW is in sound position to compete fairly in the current DDG 51 competition," Mabus wrote to Pingree.
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