Murphy's Law: Why The Cost Overrun Survives

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March 6, 2007: The U.S. Navy is still trying to figure out how the costs on its "low cost" Littoral Combat Ship (LCS) program suddenly ballooned out of control. The navy halted work on building two LCSs in late January, and fired the officer in charge of the project. Each LCS was supposed to cost about $200 million. But now the manufacturers says it may cost more than twice that. This is a serious situation.

There appear to be three reasons for the sudden, and dramatic, rise in costs. First, there's the Pentagon tradition of "low balling." When competing to get a contract, the firm with the lowest plausible price gets the job. This has been going on for generations. Everyone knows that, once work begins, the manufacturer will deploy his publicists, lobbyists and accountants to explain that unforeseen events have caused the actual price to be much higher. Angry speeches will be made in Congress, embarrassing stories will appear in the media, and the extra money will be found. Everyone swears that it won't happen again. But it always does. And it has again with LCS.

Another problem is that LCS is a new ship design. And new and innovative always costs more. Actually there are two different LCS designs. One is a semi-planning monohull from Lockheed-Martin. The other is a trimaran from General Dynamics. LCS 2 was laid down in late 2005. These are essentially prototypes, and serial procurement will probably not begin before 2008, when initial design flaws will have been worked out. One of the two designs may be selected for the rest of the LCS class, or, perhaps, there will be two sub-types. Ultimately, the Navy hopes to have between 50 and 60 LCSs by the middle of the next decade. Much of the new technology is being taken from the commercial sector. Yes, there is some new ground being broken by adapting this commercial tech to military use, but this has been done before, and the costs were supposed to be under control.

The biggest problem is another old one, and that's the tendency of the navy to keep coming in with "essential changes." These cost money. The navy knows it is at fault here, and has tried to back off in this area. But, like low balling, it's a hard habit to break. For the LCS project, the navy has thrown in a major set of changes. That is the new Naval Vessel Rules. This harmless sounding program consists of "Environmental Protection Systems" that were developed to enable the Navy to, "tailor the level of pollution abatement capability of a new platform to match its mission and planned concept of operation." In other words, the navy wants all new ships built a certain way so that it won't have all those environmental lawsuits when it tries to scrap old warships. The lawsuits and environmental regulations have become so expensive that the navy, literally, cannot afford to scrap ships any more. Instead, it keeps them in reserve longer, and then sinks them in weapons tests, or as barrier reefs offshore (to act as homes for fishes, and tourist attractions.)

The LCS is sort of replacing the Oliver Hazard Perry-class frigates (4,100 ton ships that would cost about $100 million to build today). Well, maybe the Perrys would cost more like $250 million today (what with the Naval Vessel Rules and all that.) The big difference between the frigates and LCS is the greater use of automation in the LCS (reducing crew size to 75, versus 170 in the frigates) and larger engines (giving the LCS a speed of about 90 kilometers an hour, versus 50 for the frigates.) The LCS also has a large cargo hold designed to hold different mission packages of equipment and weapons.

The Littoral Combat Ship is, simultaneously, revolutionary, and a throwback. The final LCS design is to displace about 3,000 tons, with a full load draft of under ten feet, permitting access to very shallow coastal waters, as well as rivers. This is where most naval operations have taken place in the past generation. Max range for the LCS is 2,700 kilometers. Built using commercial "smartship" technologies, which greatly reduce personnel requirements, the LCS is expected to require a crew of about 50 in basic configuration, but will have accommodations for about 75 personnel. The ship is designed for a variety of interchangeable modules, which will allow the ships to be quickly reconfigured for various specialized missions. Crews will also be modularized, so that specialized teams can be swapped in to operate specific modules.

The navy has not been happy with the performance of American ship builders. While costs are rising sharply, quality is down and the admirals can't get satisfactory answers from the manufacturers. But the fact of the matter is that these sharp cost increases are the fault of the navy, the manufacturers and Congress (which goes easy on the ship builders because votes, by the people working in the shipyards, are at stake.) It's another case of, " we have met the enemy, and it is us.

 


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