Losing out to its only competitor for contracts to build Navy destroyers is dredging up concerns about Bath Iron Works’ ability to remain competitive as it tries to diversify its workload.
The Navy announced Thursday that an order of 10 Arleigh Burke-class DDG 51 guided-missile destroyers would be split unevenly between BIW and its sole rival for the work, Huntington Ingalls. Four of the ships will be built in Bath over the next four years for $3.9 billion. Huntington Ingalls will build six for $5.1 billion at its Pascagoula, Mississippi, shipyard.
Both contracts have options to build more ships in the future, which might have a competitive selection process.
The Maine shipyard is building four DDG 51 destroyers and has two more in backlog. It is also working on a third Zumwalt-class destroyer, the last in a line of advanced warships built solely by BIW that the Pentagon canceled in 2010.
“Bath is a smaller yard than Ingalls is, and consequently, has less flexibility to build a diverse range of ships,” said Loren Thompson, a defense analyst and CEO of the Lexington Institute, a Washington, D.C., consulting company.
Only two shipyards in the country construct the Arleigh Burke, and the Navy wants to keep both active, Thompson said. The Trump administration last year launched a 30-year plan to add 47 new Navy ships, to bring the force to 355 vessels, including new guided-missile destroyers outfitted with advanced radar systems. The plan is subject to congressional budget approval.
“The Navy tries to load work into both BIW and Ingalls so they can operate at an efficient level and maintain their core skills, that is probably the main driver in the split in the contract,” Thompson said. “I expect BIW will be making some version of the Arleigh Burke destroyer 20 years from now.”
But price matters too. Based on the contract cost, BIW will charge the Navy $975 million per ship, while Huntington Ingalls’ cost is $850 million per vessel. The Bath shipyard is owned by General Dynamics and Ingalls Shipbuilding is a subsidiary of Huntington Ingalls Industries.
In a news release Thursday, BIW President Dirk Lesko said the company was pleased to continue in the destroyer program and thanked the state’s congressional delegation for supporting the shipyard.
The company would not comment further on the contract, spokesman David Hench said Friday.
Each company was guaranteed at least four ships, and the total 10-ship order could have been split evenly, said Colleen E. O’Rourke, a spokeswoman for Naval Sea System Command.
The number of ships awarded to each “was based on the pricing scenario that provided the lowest total evaluated ceiling price to the government,” she added.
This is the second time the Pentagon has ordered fewer ships from BIW than from Huntington Ingalls.
Five years ago, the Navy ordered four ships from BIW for $2.8 billion, about $710.7 million apiece, and five from Huntington Ingalls for $3.3 billion, about $666.2 million apiece. Last year, BIW won a contract extension to build another two destroyers for an undisclosed price.
Since construction of Arleigh Burke-class ships started in the late 1980s, one of the two companies would get more work than the other during multi-year contract awards, said Jay Korman, a Navy analyst with The Avacent Group, a defense and security consulting firm. If one company lost out in a round, it had an incentive to make a more attractive offer next time. Since Huntington Ingalls has won more work for two contract rounds in a row, that dynamic seems to have changed.
“Cost is foremost in the Navy’s thinking,” Korman said. “All it tells me simply is that Ingalls submitted a more attractive offer to the Navy.”
Huntington Ingalls has advantages that include a larger shipyard and bigger workforce pool that give it an advantage over BIW, said Bryan Clark, a senior fellow with the Center for Strategic and Budgetary Assessments, a think tank in Washington, D.C.
The Bath shipyard has been challenged to build two types of ships at the same time, which may be why so much more work was given to Huntington Ingalls this round, Clark said.
The disparity in the contract was “more significant than in the past and more than I expected,” Clark said. “It is partly because there was concern that they could build the ships in the time frame,” at the same time the shipyard is finishing the last Zumwalt. That concern could be a problem as BIW competes to design and build an advanced frigate for the Navy, Clark said.
“I’d be concerned that the yard might not be able to accommodate two distinct shipbuilding programs and do that efficiently at scale.”
Two years ago, BIW lost a $2.4 billion bid to build Coast Guard cutters to a commercial shipbuilder in Florida. The shipyard aimed to diversify its work, and losing the contract, which could have been worth $10.5 billion for 25 Coast Guard ships, sent jitters through the shipyard’s workforce. A memo from then-president Fred Harris said the company’s bid was too pricey, despite outsourcing some work and concessions in a 2015 contract with Machinists Union Local S6, the shipyard’s largest labor union, to make the shipyard more competitive. Bath Iron Works employs about 5,500 people and is one of the state’s largest employers.
Machinists Union President Mike Keenan did not return interview requests Friday.
In an interview with the Bangor Daily News, Keenan said he wasn’t concerned about the shipyard’s immediate viability, but it was a signal that BIW needed to change the way it does business.
“We’ve got to change the trajectory … it’s a competitive market, and we’ve got the best shipbuilders in the world. But to change things, we’ve got to first look at what’s going wrong,” he said.
Lesko, in an interview with the Maine Sunday Telegram last year, said the loss of the Coast Guard contract was a blow, but changes made in an attempt to get the work would put it in better position to win future work. The shipyard is currently competing with four other firms to design and build an advanced Navy frigate. An order for 20 ships could be released in 2020.
Peter McGuire can be contacted at 791-6325 or at:
pmcguire@pressherald.com
Twitter: @PeteL_McGuire
Correction: This story was updated at 11:20 a.m. Monday, Oct. 1, 2018, to correct the name and parent company of BIW’s competitor.
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