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Shipyard: Contract certainty reduces Navy sub costs

Jul. 6, 2014 - 06:00AM   |  
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NEWPORT NEWS, VA. — At an expansive industrial shipyard on the banks of the James River, the nation’s most advanced nuclear-powered submarines are being produced ahead of schedule and on budget.

That performance by Newport News Shipbuilding and its Groton, Connecticut-based partner General Dynamics Electric Boat helped the companies land the largest single contract in Navy history this spring.

The $17.6 billion contract calls for the construction of 10 Virginia-class submarines to begin over the next five years.

While the companies are the only ones to build the submarines, shipyard officials say having a contract for all ten submarines awarded at once provides them with a business operating certainty that allows them to drive the cost per submarine down.

“The Navy got 10 ships for the price of nine,” said Matt Needy, director of the Virginia class program director for Newport News Shipbuilding.

Material for the submarines makes up about 30 to 40 percent of the submarine construction’s cost. Company officials say much of the savings in the latest order comes from being able to place multiple orders at once, which provides the company’s suppliers with the economic certainty that they need and allows them to get their materials at a discount.

Under the unique partnership that’s been in place since 1997, each company builds certain compartments of the submarine and they alternate who does the final assembly on it before it is delivered to the Navy. Under their contract with the Navy, the companies have an incentive to reduce costs by splitting the savings with the Navy. Much of the expense comes in the form of labor, so every ship that is delivered ahead of schedule results in increased profitability for the companies and cost savings for the Navy. Last September, the USS Minnesota was delivered 11 months ahead of schedule.

Needy said the company’s 4,000 employees who work on the Virginia class program are fully aware of the Defense Department’s budget pressures and take pride in reducing costs.

“They know that the reason we’re still at 10 submarines is because of how we’re performing,” he said. “So there’s not only pride, but that job security. It goes not only at our level, but all the way down to the guys who are turning the wrenches.”

Construction on the first of the ten ships in the newest order began in Newport News in May. The Navy said the tenth ship will be delivered to it in 2023.

In addition to being less expensive to build, the Navy said the newest block of submarine orders will incorporate modifications that allow it to reduce the ship’s costs over its lifetime by decreasing the number of major shipyard availabilities from four to three. Doing so will allow one additional full-length deployment per submarine, up to 15. The submarines are expected to last more than 30 years.

“With the decrease in cost and the increase in capability, we are essentially getting more for less,” Rear Adm. David Johnson, program executive officer for submarines, said in a statement.

Virginia-class attack submarines were designed for the post-Cold War era. Among other things, the submarines have special features to support special operation forces, including a reconfigurable torpedo room to accommodate a large numbers of special operation forces and their equipment for prolonged deployments. They carry Mark 48 advanced capability torpedoes, Tomahawk land-attack missiles and unmanned underwater vehicles.

Electric Boat and Newport News Shipbuilding already have delivered 10 of these submarines to the Navy, and eight additional submarines were already under construction at the time the contract was awarded in April. The future USS North Dakota is expected to be delivered to the Navy this summer.

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