Order Code RL33741
Navy Littoral Combat Ship (LCS) Program:
Background, Oversight Issues, and
Options for Congress
Updated July 1, 2008
Ronald O’Rourke
Specialist in Naval Affairs
Foreign Affairs, Defense, and Trade Division

Navy Littoral Combat Ship (LCS) Program: Background,
Oversight Issues, and Options for Congress
Summary
The Navy is procuring a new type of surface combatant called the Littoral
Combat Ship (LCS). The Navy substantially restructured the LCS program in 2007
in response to significant cost growth and schedule delays in the program. The
Navy’s proposed FY2009 budget requests $920 million in procurement funding for
the procurement of two LCSs, which would be the fourth and fifth ships in the
restructured LCS program.
The LCS is a small, fast, relatively inexpensive combat ship that is to be
equipped with modular “plug-and-fight” mission packages, including unmanned
vehicles (UVs). The basic version of the LCS, without any mission packages, is
referred to as the LCS sea frame. The Navy wants to procure a total of 55 LCSs.
Congress originally funded a total of six LCS sea frames (LCSs 1 through 6) in
the FY2005, FY2006, and FY2007 defense budgets. In 2007, as Congress was
considering the proposed FY2008 defense budget, the Navy canceled LCSs 3 though
6 as part of its restructuring of the program, leaving only LCSs 1 and 2 under
construction.
As part of its final action on the FY2008 defense budget, Congress did the
following, among other things, regarding the LCS program: accepted the Navy’s
cancellation of LCSs 3 through 6; funded the procurement one additional LCS in
FY2008 (which the Navy now calls LCS-5); significantly reduced the Navy’s
FY2008 funding request for the LCS program; amended the LCS sea frame unit
procurement cost cap (something the Navy had requested, though not in the exact
form that Congress eventually legislated); required the Navy to use fixed-price-type
contracts for the construction of LCSs procured in FY2008 and subsequent years
(something the Navy had stated an intention to do as part of its plan for restructuring
the LCS program); criticized the execution of the LCS program; expressed concerns
for the program; and expressed support for continuing with the program in
restructured form.
The House and Senate Armed Services Committees, in their reports (H.Rept.
110-652 of May 16, 2008 and S.Rept. 110-335 of May 12, 2008, respectively) on the
FY2009 defense authorization bill (H.R. 5658/S. 3001), approved the procurement
of two LCSs in FY2009 but reduced the Navy’s FY2009 ship procurement funding
request for the LCS program by $80 million and $123 million, respectively.
The issue for Congress for FY2009 is whether to approve, reject, or modify the
Navy’s restructured LCS program. The LCS program raises potential oversight
issues for Congress relating to cost growth, total program acquisition cost, the
procurement cost cap, technical risk, operational evaluation and competition for
production, a proposed common combat system, and coordination of sea frames and
mission packages. This report will be updated as events warrant.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
LCS Program in Brief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2007 Program Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
March 2008 Navy Testimony on LCS Acquisition Strategy . . . . . . . . . . . . . 8
April 2008 Press Report on LCS Acquisition Strategy . . . . . . . . . . . . . . . . . 9
Cost Growth on LCS Sea Frames . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Potential Oversight Issues for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Cost Growth on LCS Sea Frames . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Total Program Acquisition Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Procurement Cost Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Technical Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Acquisition Strategy for Later Ships in Program . . . . . . . . . . . . . . . . . . . . . 22
Proposed Common Combat System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Coordination of Sea Frames and Mission Packages . . . . . . . . . . . . . . . . . . 24
Options for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
List of Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Potential for Common Hulls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Legislative Activity For FY2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
FY2009 Defense Authorization Bill (H.R. 5658/S. 3001) . . . . . . . . . . . . . . 31
List of Tables
Table 1. Actual and Planned LCS Procurement Through FY2013 . . . . . . . . . . . . 5
Table 2. LCS Program Acquisition Funding, FY2007-FY2013 . . . . . . . . . . . . . . 6
Table 3. Congressional Action on FY2009 Funding Request . . . . . . . . . . . . . . 31

Navy Littoral Combat Ship (LCS) Program:
Background, Oversight Issues, and
Options for Congress
Introduction
The Navy is procuring a new type of surface combatant called the Littoral
Combat Ship (LCS). The Navy substantially restructured the LCS program in 2007
in response to significant cost growth and schedule delays in the program. The
Navy’s proposed FY2009 budget requests $920 million in procurement funding for
the procurement of two LCSs, which would be the fourth and fifth ships in the
restructured LCS program.
The LCS is a small, fast, relatively inexpensive combat ship that is to be
equipped with modular “plug-and-fight” mission packages, including unmanned
vehicles (UVs). The basic version of the LCS, without any mission packages, is
referred to as the LCS sea frame. The Navy wants to procure a total of 55 LCSs. The
Navy’s planned force of 55 LCSs accounts for about 18% of its planned fleet of 313
ships of all types.1
Congress originally funded a total of six LCS sea frames (LCSs 1 through 6) in
the FY2005, FY2006, and FY2007 defense budgets. In 2007, as Congress was
considering the proposed FY2008 defense budget, the Navy canceled LCSs 3 though
6 as part of its restructuring of the program, leaving only LCSs 1 and 2 under
construction. The reduction of the LCS program in a single year from six prior-year-
funded ships to two due to cost growth and schedule delays was an occurrence with
few parallels in the recent history of Navy shipbuilding.
As part of its action on the FY2008 defense budget, Congress did the following,
among other things, regarding the LCS program:
! accepted the Navy’s cancellation of LCSs 3 through 6,
! funded the procurement one additional LCS in FY2008 (which the
Navy now calls LCS-5),2
1 For more on the Navy’s planned 313-ship fleet, see CRS Report RL32665, Navy Force
Structure and Shipbuilding Plans: Background and Issues for Congress
, by Ronald
O’Rourke.
2 The Navy apparently calls this ship LCS-5 because the original LCS-5 and LCS-6 were
canceled by the Navy before they were replaced under contract, leaving LCS-4 as last LCS
under contract to have been canceled. In spite of its designation, LCS-5 will be the third
(continued...)

CRS-2
! significantly reduced the Navy’s FY2008 funding request for the
LCS program,
! amended the LCS sea frame unit procurement cost cap (something
the Navy had requested, though not in the exact form that Congress
eventually legislated),
! required the Navy to use fixed-price-type contracts for the
construction of LCSs procured in FY2008 and subsequent years
(something the Navy had stated an intention to do as part of its plan
for restructuring the LCS program),
! criticized the execution of the LCS program,
! expressed concerns for the program, and
! expressed support for continuing with the program in restructured
form.
Developments in the LCS program in 2007 have caused some observers,
particularly those associated with the LCS program, to express concern about the
program’s future. The Navy has stated repeatedly that, the developments of 2007
notwithstanding, the Navy remains committed to a 55-ship LCS program. As
mentioned above, although Congress has criticized the execution of the program, it
has expressed support for continuing with the program in restructured form. None
of the congressional defense-oversight committees, in marking up the FY2008
budget, recommended terminating the LCS program or reducing the Navy’s planned
55-ship total.
The House and Senate Armed Services Committees, in their reports (H.Rept.
110-652 of May 16, 2008 and S.Rept. 110-335 of May 12, 2008, respectively) on the
FY2009 defense authorization bill (H.R. 5658/S. 3001), approved the procurement
of two LCSs in FY2009 but reduced the Navy’s FY2009 ship procurement funding
request for the LCS program by $80 million and $123 million, respectively.
The issue for Congress for FY2009 is whether to approve, reject, or modify the
Navy’s restructured LCS program. Decisions that Congress makes on this issue
could affect future Navy capabilities and funding requirements, and the shipbuilding
industrial base.
Background
LCS Program in Brief
Announcement of LCS Program. The LCS program was announced on
November 1, 2001, when the Navy stated that it was launching a Future Surface
Combatant Program aimed at acquiring a family of next-generation surface
combatants. This new family of surface combatants, the Navy stated, would include
three new classes of ships:
2 (...continued)
LCS in the restructured LCS program, and the seventh to have been funded by Congress.

CRS-3
! a destroyer called the DD(X) — later redesignated the DDG-1000
— for the precision long-range strike and naval gunfire mission,3
! a cruiser called the CG(X) for the air defense and ballistic missile
mission,4 and
! a smaller combatant called the Littoral Combat Ship (LCS) to
counter submarines, small surface attack craft, and mines in heavily
contested littoral (near-shore) areas.
The LCS. The LCS is a small, fast, relatively inexpensive surface combatant
that is to be equipped with modular “plug-and-fight” mission packages, including
unmanned vehicles (UVs). Rather than being a multimission ship like the Navy’s
larger surface combatants, the LCS is to be a focused-mission ship equipped to
perform one primary mission at any one time. The ship’s mission orientation is to
be changed by changing out its mission packages. The basic version of the LCS,
without any mission packages, is referred to as the LCS sea frame.
The LCS’s primary intended missions are shallow-water antisubmarine warfare,
mine countermeasures, countering small boats, and intelligence, surveillance, and
reconnaissance (ISR). Secondary intended missions include homeland defense,
maritime intercept operations, and support of special operations forces.
The LCS is to displace about 3,000 tons, making it about the size of a corvette
or Coast Guard cutter. It is to have a maximum speed of more than 40 knots,
compared to something more than 30 knots for the Navy’s larger surface combatants.
The LCS is to have a shallower draft than the Navy’s larger surface combatants,
permitting it to operate in certain coastal waters and visit certain ports that are not
accessible to the Navy’s larger surface combatants. The LCS is to employ
automation to achieve a reduced “core” crew of 40 sailors. Up to 35 or so additional
sailors are to operate the ship’s embarked aircraft and mission packages, making for
a total crew of about 75, compared to more than 200 for the Navy’s frigates and 300
or more for the Navy’s current destroyers and cruisers.
As mentioned earlier, Navy plans call for procuring a total of 55 LCSs. The
Navy currently plans to procure a total of 64 mission packages for the 55 ships.
Earlier Navy plans anticipated procuring between 90 and 110 mission packages for
a 55-ship fleet.
Summary Of Congressional Action In FY2005-FY2008.
FY2005. In FY2005, Congress approved the Navy’s plan to fund the
construction of the first two LCS sea frames using research and development funds
rather than shipbuilding funds, funded the first construction cost of the first LCS
3 For more on the DDG-1000 program, see CRS Report RL32109, Navy DDG-1000
Destroyer Program: Background, Oversight Issues, and Options for Congress
, by Ronald
O’Rourke.
4 For more on the CG(X) program, see CRS Report RL34179, Navy CG(X) Cruiser
Program: Background, Oversight Issues, and Options for Congress
, by Ronald O’Rourke.

CRS-4
(LCS-1), required the second LCS (LCS-2) to be built (when funded in FY2006) to
a different design from the first, prohibited the Navy from requesting funds in
FY2006 to build a third LCS, and required all LCSs built after the lead ships of each
design to be funded in the SCN account rather than the Navy’s research and
development account.
FY2006. In FY2006, Congress funded the procurement of LCSs 2, 3, and 4.
(The Navy requested one LCS for FY2006, consistent with Congress’s FY2005
action. Congress funded that ship and provided funding for two additional ships.)
Congress in FY2006 also established a unit procurement cost limit on the fifth and
sixth LCS sea frames of $220 million per ship, plus adjustments for inflation and
other factors (Section 124 of the FY2006 defense authorization bill [H.R. 1815/P.L.
109-163] of January 6, 2006), required an annual report on LCS mission packages,
and made procurement of more than four LCSs contingent on the Navy certifying that
there exists a stable design for the LCS.
FY2007. In FY2007, Congress funded the procurement of LCSs 5 and 6. (The
Navy canceled these two ships in 2007 before they were placed under contract for
construction.)
FY2008. In FY2008, as mentioned earlier, Congress accepted the Navy’s
cancellation of LCSs 3 through 6; funded the procurement one additional LCS in
FY2008 (which the Navy now calls LCS-5); significantly reduced the Navy’s
FY2008 funding request for the LCS program; amended the LCS sea frame unit
procurement cost cap to $460 million per ship for LCSs procured in FY2008 and
subsequent years (Section 125 of the conference report [H.Rept. 110-477 of
December 6, 2007] on H.R. 1585, the FY2008 defense authorization bill, which was
enacted as H.R. 4986/P.L. 110-181 of January 28, 2008); and required the Navy to
use fixed-price-type contracts for the construction of LCSs procured in FY2008 and
subsequent years.
The Navy in 2007 requested that Congress amend the existing unit procurement
cost cap for the fifth and sixth ships to $460 million, plus adjustments for inflation
and other factors. Congress amended the cost cap to $460 million, but applied it not
only to the fifth and sixth LCSs, but to all LCSs procured in FY2008 and subsequent
years. The use of fixed-price contracts for future LCSs was something that the Navy
had stated an intention to do as part of its plan for restructuring the LCS program.
Two Industry Teams, Each With Its Own Design. On May 27, 2004, the
Navy awarded contracts to two industry teams — one led by Lockheed Martin, the
other by General Dynamics (GD) — to design two versions of the LCS, with options
for each team to build up to two LCSs each. The two teams’ LCS designs are quite
different — Lockheed’s uses a semi-planing steel monohull, while GD’s uses an
aluminum trimaran hull. The Lockheed team was assigned LCS-1 and (the now-
canceled) LCS-3, while the GD team was assigned LCS-2 and (the now-canceled)
LCS-4. Lockheed announced plans to build its LCSs at Marinette Marine of
Marinette, WI, and Bollinger Shipyards of Lockport, LA, with LCS-1 being built by

CRS-5
Marinette and LCS-3 to have been built by Bollinger. GD announced plans to build
its LCSs at the Austal USA shipyard of Mobile, AL.5
Planned Procurement. As shown in Table 1, following the restructuring
of the program in 2007, the Navy wants to procure a total of 21 LCSs through
FY2013.
Table 1. Actual and Planned LCS Procurement Through FY2013
(following restructuring of program in 2007)
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
1
1a
0a
1
2
3
3
4
6
Source: Navy FY2009 budget submission.
a. Four additional LCSs originally that were funded by Congress in FY2007 and FY2008
(two in each year) were canceled by the Navy as part of the 2007 restructuring of the
LCS program.
Program Funding. Table 2 shows LCS acquisition (i.e., research and
development plus procurement) funding for FY2007 through FY2013 as reflected in
the FY2009 budget submission. The figures in the table reflect reprogramming of
prior-year program funding undertaken as part of the Navy’s 2007 restructuring of
the LCS program. In addition to the funding shown in the table, the LCS program
also received about $1.7 billion in acquisition funding between FY2003 and FY2006.
With Congress’s permission, the Navy procured the first and second LCSs
through the Navy’s research and development account. Subsequent LCSs are being
procured through the Navy’s ship-procurement account, called the Shipbuilding and
Conversion, Navy (SCN) account. The Navy is procuring LCS mission packages
through the Other Procurement, Navy (OPN) account.
Total Acquisition Cost. The Navy has not provided an estimated total
acquisition (i.e., development plus procurement) cost for the LCS program. CRS
estimates that the LCS program (including mission packages) might have a total
acquisition cost of roughly $29.4 billion. This estimate includes $2.5 billion in
research and development costs (including the construction of first two LCS sea
frames and the procurement of the first four mission packages), procurement of 53
additional LCS sea frames at a cost of $460 million each, and procurement of 60
additional mission packages procured at an average cost of about $42.3 million each.6
5 Austal USA was created in 1999 as a joint venture between Austal Limited of Henderson,
Western Australia and Bender Shipbuilding & Repair Company of Mobile, AL. The GD
LCS team also includes GD/BIW as prime contractor to provide program management and
planning, provide technical management, and to serve as “LCS system production lead.”
6 The Navy reportedly wants to procure 24 mine warfare mission packages at an average
cost of $68 million each, 16 antisubmarine warfare packages at an average cost of $42.3
million each, and 24 surface warfare packages at an average cost of $16.7 million each.
(Emelie Rutherford, Littoral Combat Ship Mission Packages Range In Costs, Features,”
(continued...)

CRS-6
This estimates does not include costs for LCS-related aircraft procurement or weapon
procurement, such as those shown in the APN and WPN rows of Table 2.
Table 2. LCS Program Acquisition Funding, FY2007-FY2013
(millions of dollars; figures rounded to nearest million)
Budget
FY07
FY08
FY09
FY10
FY11
FY12
FY13
Total for
accounta
FY07 thru
FY13
RDT&EN
664
304
371
281
139
168
116
2044
SCN
93
337
920
1380
1380
1840
2760
8709
APN
37
37
55
73
76
96
103
478
WPN
0
0
3
25
47
45
11
131
OPN
79
0
131
235
242
252
227
1167
TOTAL
873
678
1480
1994
1884
2401
3217
12529
Source: Navy FY2009 budget submission. Figures may not add due to rounding. The
program also received about $1.7 billion in acquisition funding between FY2003 and
FY2006.
a. RDT&EN = Research, Development, Test, and Evaluation, Navy account; SCN =
Shipbuilding and Conversion, Navy account; APN = Aircraft Procurement, Navy
account; WPN = Weapons Procurement, Navy account; OPN = Other Procurement,
Navy account.
2007 Program Restructuring
March 2007 Navy Restructuring Plan. In response to significant cost
growth and schedule delays in the building of the first LCSs that first came to light
in January 2007 (see next section), the Navy in March 2007 announced a plan for
restructuring the LCS program that:
! canceled the two LCSs funded in FY2007 (LCSs 5 and 6) and
redirected the funding for those two ships to pay for cost overruns on
earlier LCSs;
! announced an intention to lift a 90-day stop-work order that the
Navy had placed on LCS-3 in January 2007 — provided that the
Navy reached an agreement with the Lockheed-led industry team by
April 12, 2007, to restructure the contract for building LCSs 1 and
3 from a cost-plus type contract into a fixed price incentive (FPI)-
type contract — or terminate construction of LCS-3 if an agreement
on a restructured contract could not be reached with the Lockheed
team by April 12, 2007;
6 (...continued)
Inside the Navy, September 3, 2007; for similar figures, see Christopher P. Cavas, “First
LCS Mission Package Ready For Delivery,” DefenseNews.com, August 29, 2007.)

CRS-7
! announced an intention to seek to restructure the contract with the
General Dynamics-led industry team for building LCSs 2 and 4 into
an FPI-type contract — if LCSs 2 and 4 experienced cost growth
comparable to that of LCSs 1 and 3 — and, if such a restructuring
were sought, terminate construction of LCS-4 if an agreement on a
restructured contract for LCS-2 and LCS-4 could not be reached;
! reduced the number of LCSs requested for FY2008 from three to
two (for the same requested FY2008 procurement funding of $910.5
million), and the number to be requested for FY2009 from six to
three; and
! announced an intention to conduct an operational evaluation to
select a favored design for the LCS that would be procured in
FY2010 and subsequent years, and to conduct a full and open
follow-on competition among bidders for the right to build that
design.7
April 2007 Termination of LCS-3. On April 12, 2007, the Navy announced
that it had not reached an agreement with Lockheed on a restructured FPI-type
contract for LCS-1 and LCS-3, and consequently was terminating construction of
LCS-3.8 (The Navy subsequently began referring to the ship as having been partially
terminated — a reference to the fact that Lockheed was allowed to continue
procuring certain components for LCS-3, so that a complete set of these components
would be on hand to be incorporated into the next LCS built to the Lockheed design.)
November 2007 Termination of LCS-4. In late-September 2007, it was
reported that the Navy on September 19 had sent a letter to General Dynamics to
initiate negotiations on restructuring the contract for building LCSs 2 and 4 into an
FPI-type contract. The negotiations reportedly were to be completed by October 19,
2007 — 30 days from September 19.9 On November 1, 2007, the Navy announced
that it had not reached an agreement with General Dynamics on a restructured FPI-
type contract for LCS-2 and LCS-4, and consequently was terminating construction
of LCS-4.10
7 Source: Navy briefing to CRS and Congressional Budget Office (CBO) on Navy’s
proposed LCS program restructuring plan, March 21, 2007.
8 Department of Defense News Release No. 422-07, April 12, 2007, “Navy Terminates
Littoral Combat Ship 3.”
9 Geoff Fein, “Navy Seeking To Negotiate FPI Contract With General Dynamics,” Defense
Daily
, September 24, 2007; Geoff Fein, “Navy, General Dynamics Meet To Discuss New
LCS Fixed Price Structure,” Defense Daily, September 27, 2007; Tony Capaccio, “General
Dynamics Urged To Take Fixed Price On Warship Contract,” Bloomberg News, September
28, 2007; Jason Sherman, “Navy, General Dynamics Discuss Fixed-Price Contract For
LCS,” Inside the Navy, October 1, 2007.
10 Department of Defense News Release No. 1269-07, November 1, 2007, “Navy Terminates
Littoral Combat Ship (LCS 4) Contract.”

CRS-8
July 2007 Navy Testimony on Common Combat System. The two
LCS designs currently use two different, contractor-furnished combat systems.11 As
an added element of its restructuring of the LCS program, the Navy testified in July
2007 that it wants to shift to a common, government-furnished combat system for
LCSs procured in FY2010 and beyond.12 The Navy proposed to begin work on the
common combat system in FY2007 using some of the prior-year LCS program
funding that the Navy has requested Congress to reprogram.
August 2007 Navy Report on Acquisition Strategy. Although the Navy
in its March 2007 restructuring plan announced an intention to conduct an
operational evaluation to support the selection of a single LCS design to be procured
in FY2010 and beyond, the Navy stated in an August 2007 report to Congress on the
LCS program that “the Navy may elect to continue production of both seaframes
should each design present a unique operational advantage.”13
March 2008 Navy Testimony on LCS Acquisition Strategy
The Navy testified in March 2008 that:
The Navy believes that active oversight and strict cost controls are needed to
deliver these ships [LCSs] to the fleet over the long run. The Navy
demonstrated strong oversight when it terminated the contracts for LCS-3 and
LCS-4 in 2007.
It is vital that the Navy continue through first-of-class construction
challenges to complete LCS 1 and LCS 2. When these ships are delivered, the
Department [of the Navy] will be able to better evaluate their costs and
capabilities. LCS 1 and LCS 2 are currently scheduled to deliver to the Navy in
2008. Both LCS 1 and LCS 2 will conduct post-delivery test and trials in 2009....
The FY 2009 President’s Budget request includes $920 million for two
additional LCS seaframes. The Navy also intends to execute the FY 2008
appropriation for one seaframe, utilizing the remaining funding and material
from the terminated ships. The Navy will also seek congressional support for the
reprogramming of these funds for the FY 2008 procurement. Under an
acquisition strategy approved in January 2008 by the Defense Acquisition
Executive, the FY 2008 and 2009 awards will be for fixed-price incentive fee
contracts, based on a limited competition between the current LCS seaframe
prime contractors. These ships will be designated as Flight 0+ and will include
all existing approved engineering changes developed from lessons learned, along
11 A ship’s combat system typically includes its sensors, computers, displays, and weapon
launchers. The discussion here refers to the part of the LCS combat system that is
permanently built into each sea frame, and not to the part that would be added by a modular
mission package.
12 Statement of VADM Paul Sullivan et al., Before the Subcommittee on Seapower and
Expeditionary Forces of the House Armed Services Committee on Surface Combatant
Construction Update, July 24, 2007, p. 8.
13 Report to Congress, Littoral Combat Ship, Prepared by Deputy Assistant Secretary of the
Navy, Ships, Washington, DC 20350, August 2007
, p. 7. See also p. 3.

CRS-9
with any current improvements to construction or fabrication procedures. The
Navy will incorporate further lessons learned from LCS 1 and 2 sea trials into
these ships prior to production. Any such changes will be minimized to those
essential for safety and/or operability.
Acquisition strategies for FY 2010 and follow ships are under Navy review.
OSD will conduct a Milestone B prior to FY 2010 procurement. The Navy and
OSD will consider the questions of single seaframe assessment and competition
plans as part of the FY 2010 acquisition strategy deliberations.14
April 2008 Press Report on LCS Acquisition Strategy
An April 21, 2008, press report quoted the Department of Defense (DOD)
acquisition executive as stating that he anticipates both LCS designs being procured
in significant quantities, and that the purpose of the operational evaluation of the two
designs would consequently shift to one of finding problems in each design that need
to be fixed. The press report stated:
The competition between General Dynamics and Lockheed Martin to
determine which bidder ends up building the bulk of the Navy’s nascent Littoral
Combat Ship hulls will continue for a prolonged period of time, the Pentagon’s
acquisition czar told reporters late last week.
The Navy could end up buying large numbers of each LCS design, John
Young, the acquisition chief, said in a roundtable interview with reporters April
18 at the Pentagon. The Navy ultimately plans to procure 55 LCS sea frames....
“I think you would want to have [the acquisition strategy in place] to buy
25 and 25 or 20 and 30 — it keeps the pressure on people to perform,” Young
said last week.
“I think being able to compete them together and eventually say, quality and
cost performance can win you a greater share, is exactly what I need going
forward, because the big picture is I still need this class of ships,” Young argued.
“I need to stop boarding small ships in a terrorist world with billion-dollar
destroyers.”
Young added Chief of Naval Operations Adm. Gary Roughead “would tell
you I need this ship yesterday.”
Nonetheless, the acquisition czar noted sea trials for the first two LCS hulls
under construction are necessary to learn how these first-of-their-kind ships will
operate.
“We gotta get both ships in the water and learn some things,” Young noted.
“We do need some tolerance in the enterprise for learning.
14 Statement of Vice Admiral Barry McCullough, Deputy Chief of Naval Operations For
Integration of Capabilities and Resources, and Ms. Allison Stiller, Deputy Assistant
Secretary of the Navy (Ship Programs), before the Subcommittee on Seapower and
Expeditionary Forces of the House Armed Services Committee on Navy Force Structure and
Shipbuilding, March 14, 2008, pp. 3-4.

CRS-10
“I could learn I have a cracking issue, or I could learn I have an engine
reliability [issue], I could learn a lot of things . . . we’ll go fix those things,” he
continued. “We wouldn’t just stop and terminate the whole program over
something, we’d go fix it unless it was a fatal flaw.”
The Navy may have to “spend some money” to get through problems with
the first ships, but Young said he does not think any of the potential issues will
be “fatal flaws.”15
Cost Growth on LCS Sea Frames
Summary of Cost Growth. The Navy originally spoke of building LCS sea
frames for about $220 million each in constant FY2005 dollars. Estimated LCS sea
frame procurement costs have since grown substantially above that figure. The
estimate for LCS-1 has grown from $215.5 million in the FY2005 budget to $531
million in the FY2009 budget. The estimate for LCS-2 has grown from $213.7
million in the FY2005 budget to $507 million in the FY2009 budget.
The figures of $531 million and $507 million in the previous paragraph are end-
cost figures. End cost is the figure often reported as the total procurement cost of a
Navy ship. It is a fairly comprehensive figure for a ship’s procurement cost, but it
does exclude certain cost elements. The FY2009 budget submission states that when
additional costs for outfitting and post delivery and for “final system design/mission
systems and ship integration team” are included, the total estimated procurement
costs of LCS-1 and LCS-2 become $631 million and $636 million, respectively.
The Navy states that although costs for “final system design/mission systems
and ship integration team” are shown in the Navy’s FY2009 budget-justification
documents as part of the total estimated procurement costs of LCS-1 and LCS-2, the
work in question is normally funded from a shipbuilding program’s general research
and development funds, rather than from funds used to pay for the construction of
individual ships in the program. The Navy states that in the case of the LCS
program, these costs are shown as part of the total procurement costs of LCS-1 and
LCS-2 because this is where there was room in the LCS program’s line-item funding
breakdown to accommodate these costs.16 Removing these costs from the total
procurement costs of LCS-1 and LCS-2 would lead to adjusted total procurement
costs of $606 million and $582 million, respectively, for the two ships.
The FY2009 budget submission also shows that the estimated cost of follow-on
LCS sea frames has increased to $460 million each — the same figure that Congress
used in 2007 in amending the unit procurement cost cap for LCS sea frame
procurement.
A March 2008 press report suggests that the cost of LCS-2 might increase by
$41 million above the figures reported in the FY2009 budget submission. This
15 Zachary M. Peterson, “DOD Acquisition Czar: Littoral Combat Ship Competition To
Continue,” Inside the Navy, April 21, 2008.
16 Source: Navy briefing to CRS and CBO on the LCS program, May 2, 2008.

CRS-11
increase, if realized, would increase the cost of LCS-2 to $548 million (end cost) or
$677 million (more broadly defined cost).
CBO testified in March 2008 that it estimates that the cost of LCS-1 and LCS-2
(more broadly defined) could increase to about $700 million each, and that the cost
of follow-on LCSs could increase to about $550 million each.
Review of Cost Growth Over Time. Estimated LCS sea frame
procurement costs can be viewed as having increased three times — in early 2006,
early 2007, and early 2008.
Early 2006. The proposed FY2007 Navy budget, submitted in February 2006,
showed that:
! the estimate for the first LCS had increased from $215.5 million in
the FY2005 budget and $212.5 million in the FY2006 budget to
$274.5 million in the FY2007 budget — an increase of about 27%
from the FY2005 figure and about 29% form the FY2006 figure;
! the estimate for the second LCS increased from $213.7 million in the
FY2005 budget and $256.5 million in the FY2006 budget to $278.1
million — an increase of about 30% from the FY2005 figure and
about 8% from the FY2006 figure; and
! the estimate for follow-on ships scheduled for FY2009-FY2011,
when the LCS program was to have reached a planned maximum
annual procurement rate of six ships per year, had increased from
$223.3 million in the FY2006 budget to $298 million — an increase
of about 33%.
The Navy stated in early 2006 that the cost increase from the FY2006 budget to
the FY2007 budget was due mostly to the fact that LCS procurement costs in the
FY2006 budget did not include items that are traditionally included in the so-called
end cost — the total budgeted procurement cost — of a Navy shipbuilding program,
such as Navy program-management costs, an allowance for changes, and escalation
(inflation). The absence of these costs from the FY2006 LCS budget submission
raised certain potential oversight issues for Congress.17
17 These oversight issues included the following:
— Why were these costs excluded? Was this a budget-preparation oversight? If so, how
could such an oversight occur, given the many people involved in Navy budget preparation
and review, and why did it occur on the LCS program but not other programs? Was anyone
held accountable for this oversight, and if so, how? If this was not an oversight, then what
was the reason?
— Did the Navy believe there was no substantial risk of penalty for submitting to
Congress a budget presentation for a shipbuilding program that, for whatever reason,
significantly underestimated procurement costs?
(continued...)

CRS-12
Early 2007. On January 11, 2007, the Navy reported that LCS-1 was
experiencing “considerable cost overruns.” The Navy subsequently stated that the
estimated shipyard construction cost of LCS-1 had grown to $350 million to $375
million. This suggested that the end cost of LCS-1 — which also includes costs for
things such as Navy program-management costs and an allowance for changes —
could be in excess of $400 million. The Navy did not publicly provide a precise cost
overrun figure for LCS 2, but it stated that the cost overrun on LCSs 1 and 2 was
somewhere between 50% and 75%, depending on the baseline that is used to measure
the overrun.
The Government Accountability Office (GAO) testified in July 2007 that
according to its own analysis of Navy data, the combined cost of LCSs 1 and 2 had
increased from $472 million to $1,075 — an increase of 128%.18 The Congressional
Budget Office (CBO) testified in July 2007 that:
Several months ago, press reports indicated that the cost could well exceed
$400 million each for the first two LCS sea frames. Recently, the Navy requested
that the cost cap for the fifth and sixth sea frames be raised to $460 million,
which suggests that the Navy’s estimate of the acquisition cost for the first two
LCSs would be around $600 million apiece....
As of this writing, the Navy has not publicly released an estimate for the
LCS program that incorporates the most recent cost growth, other than its request
to raise the cost caps for the fifth and sixth ships. CBO estimates that with that
growth included, the first two LCSs would cost about $630 million each,
excluding mission modules but including outfitting, postdelivery, and various
nonrecurring costs associated with the first ships of the class. As the program
advances, with a settled design and higher annual rates of production, the average
cost per ship is likely to decline. Excluding mission modules, the 55 LCSs in the
Navy’s plan would cost an average of $450 million each, CBO estimates.19
Early 2008. As mentioned above, the proposed FY2009 budget, submitted in
February 2008, showed that the estimated end costs of LCS-1 and LCS-2 had
increased to $531 million and $507 million, respectively (or to $606 million and
17 (...continued)
— Do LCS procurement costs in the budget now include all costs that, under traditional
budgeting practices, should be included? If not, what other costs are still unacknowledged?
— Have personnel or other resources from other Navy programs been used for the LCS
program in any way? If so, have the costs of these personnel or other resources been fully
charged to the LCS program and fully reflected in LCS program costs shown in the budget?
18 Defense Acquisitions[:] Realistic Business Cases Needed to Execute Navy Shipbuilding
Programs, Statement of Paul L. Francis, Director, Acquisition and Sourcing Management
Team, Testimony Before the Subcommittee on Seapower and Expeditionary Forces,
Committee on Armed Services, House of Representatives, July 24, 2007 (GAO-07-943T),
pp. 4 and 22.
19 Statement of J. Michael Gilmore, Assistant Director for National Security, and Eric J.
Labs, Senior Analyst, [on] The Navy’s 2008 Shipbuilding Plan and Key Ship Programs,
before the Subcommittee on Seapower and Expeditionary Forces Committee on Armed
Services U.S. House of Representatives, July 24, 2007, p. 18.

CRS-13
$582 million, respectively, when outfitting ahd post-delivery costs are included), and
that the estimated unit cost of follow-on ships in the program has increased to $460
million.
On March 14, 2008, the Navy testified that
The end costs included in the FY 2009 President’s Budget request for LCS
reflects [sic] the current estimates for LCS 1 and LCS 2 end cost. However, on
February 25, 2008, after the submission of the President’s Budget to Congress,
General Dynamics submitted to the Navy and over target baseline request for
LCS 2. The Navy is reviewing the request prior to granting approval for General
Dynamics to implement. The details of the request are business sensitive and
proprietary. The Navy will continue to actively monitor LCS 1 and 2 cost and
schedule performance and to keep the Office of the Secretary of Defense and
Congress informed of those estimated costs. The Navy will seek congressional
support to complete the reprogramming of FY 2007 LCS shipbuilding funds to
complete LCS 1 and 2.20
A March 26, 2008, press report stated that the cost of LCS-2 will increase $41
million “for the year ending Sept. 30,” according to “a defense official with
knowledge of the increase.”21 The press report characterized the $41-million increase
as an increase of 9.3% in the ship’s estimated basic construction cost of $440 million.
Basic construction cost is a component of ship end cost. When measured against the
ship’s estimated end cost or its adjusted total procurement cost (which also includes
outfitting and post-delivery costs) as shown in the FY2009 budget ($507 million or
$582 million, respectively), an increase of $41 million would equate to an increase
of about 8.1% or about 7.0%, respectively.
June 2008 CBO Report. CBO reported on June 9, 2008 that:
Historical experience indicates that cost growth in the LCS program is
likely. In particular, using the lead ship of the FFG-7 Oliver Hazard Perry class
frigate as an analogy, historical cost-to-weight relationships indicate that the
Navy’s original cost target for the LCS of $260 million in 2009 dollars (or $220
million in 2005 dollars) was optimistic. The first FFG-7 cost about $670 million
in 2009 dollars to build, or about $250 million per thousand tons, including
combat systems. Applying that metric to the LCS program suggests that the lead
ships would cost about $600 million apiece, including the cost of one mission
module. Thus, in this case, the use of a historical cost-to-weight relationship
produces an estimate that is less than the actual costs of the first LCSs to date but
substantially more than the Navy’s original estimate.
20 Statement of Vice Admiral Barry McCullough, Deputy Chief of Naval Operations For
Integration of Capabilities and Resources, and Ms. Allison Stiller, Deputy Assistant
Secretary of the Navy (Ship Programs), before the Subcommittee on Seapower and
Expeditionary Forces of the House Armed Services Committee on Navy Force Structure and
Shipbuilding, March 14, 2008, p. 4.
21 Tony Capaccio, “General Dynamics Littoral Combat Ship Cost Jumps 9.3 Percent,”
Bloomberg News, March 26, 2008.

CRS-14
Based on actual costs the Navy has incurred for the LCS program, CBO
estimates that the first two LCSs could cost about $700 million each, including
outfitting and postdelivery and various nonrecurring costs associated with first
ships of a class but excluding mission modules. However, as of May 1, 2008,
LCS-1 was 83 percent complete and LCS-2 was 68 percent complete. Thus,
additional cost growth is possible, and CBO’s estimate reflects that cost risk.
Overall, CBO estimates that the LCSs in the Navy’s plan would cost about
$550 million each, on average, excluding mission modules. That estimate
assumes that the Navy would select one of the two existing designs and make no
changes. As the program advanced with a settled design and higher annual rates
of production, average ship costs would probably decline. If the Navy decided
to make changes to that design, however, the costs of building future ships could
be higher than CBO now estimates.22
Reasons for Cost Growth. Navy and industry officials have attributed some
of the cost growth on the LCS sea frames to an underestimation of the cost impact
of applying new Naval Vessel Rules (NVR) — essentially, new rules specifying the
construction standards for the ship — to the LCS program. The timing of NVR
relative to LCS construction, Navy and industry officials have testified, created a
situation of concurrency between design and construction in the LCS program,
meaning that the ship was being designed at the same time that the shipyard was
attempting to build it — a situation long known to be a potential cause of cost
growth. This concurrency, Navy officials testified, was a consequence of the
compressed construction schedule for the LCS program, which in turn reflected an
urgency about getting LCSs into the fleet to meet critical mission demands.
Regarding LCS-1 itself, Navy and industry officials testified that cost growth
was also due to a main reduction gear that was incorrectly manufactured and had to
be replaced, forcing a reordering of the construction sequence for the various major
sections of LCS-1.
In addition to NVR and the reduction gear issue, the Navy and industry might
also have simply underestimated the baseline construction cost of the LCS. Shipyard
performance is another potential cause of cost growth. A February 4, 2008, press
report stated:
Marinette Marine, the Wisconsin shipyard building the first Littoral
Combat Ship, never received proper certification to manage the project, which
has suffered severe cost growth and schedule delays, according to an internal
naval audit obtained by sister publication Inside the Pentagon [ITP].
The interim report is the most damning account yet of the LCS program’s
failure to use earned value management (EVM). Pentagon officials and
contractors are supposed to use the process to manage the cost, schedule and
performance of acquisition efforts. The idea is to coordinate key project goals
and objectively measure progress.
22 Congressional Budget Office, Resource Implications of the Navy’s Fiscal Year 2009
Shipbuilding Plan
, June 8, 2008, pp. 26-27.

CRS-15
In prepared testimony for his Senate confirmation hearing last October,
Pentagon acquisition executive John Young noted that EVM was a “serious
deficiency” in the LCS program.
The audit reveals how this deficiency has undermined work on the Freedom
(LCS-1), which Marinette Marine is building for Lockheed Martin.
The review, which began a year ago, is still ongoing. However, ITP
obtained a redacted copy of the Jan. 7 interim report, originally stamped “for
official use only,” through the Freedom of Information Act....
The review reveals Marinette Marine’s poor management and faults the
Navy, the Defense Contract Management Agency (DCMA) and Lockheed for
failing to notice and fix the problem.
The press report also states:
Robert Herre, the president and general manager of Manitowoc Marine
Group, which operates the shipyard, told ITP in an interview that Marinette
Marine never worked on a project before that required the robust EVM needed
for the Freedom contract. The management software that the shipyard acquired
several years ago was not up to the task. Marinette Marine tried to adapt for the
Freedom project by using a manual system, too, Herre said, but it became “more
of a cumbersome process than first thought.”
Lockheed spokesman Craig Quigley blamed “cost and schedule baseline
disconnects” on the Navy for making big changes to the Freedom without
agreeing, until last November, to rebaseline both the program’s cost and
schedule. Previously only the schedule had been rebaselined, he said. Lockheed’s
team has maintained an EVM system baseline on the program and accurately
reported monthly variances, he said.
“Not having the cost and schedule baseline in synchronization prohibits
accurate system predictions, but that was accounted for via adjunct reports,” he
added.
The report says DCMA and Naval Sea Systems Command did not provide
sufficient oversight to ensure proper management of the contract; the Navy’s
Gulf Coast-based shipbuilding office and industry did not effectively review the
EVM, or lack thereof; and the program office and the shipyard “placed limited
emphasis” on the implementation of EVM for the contract.
DCMA initially granted a “conditional approval” for Marinette Marine’s
EVM system in April 2006, the report says. The conditional nod was based on
a Navy-led EVM system review conducted the year before. However, Pentagon
policy does not allow for a “conditional approval” of a contractor’s EVM system.
DCMA only recognized its error 10 months later, in February 2007, according
to the report. The agency then alerted the program office, Lockheed and
Marinette Marine that the “conditional approval” had been inappropriate.
Now all agree Marinette Marine lacks a DCMA-validated EVM system, a
problem that must be fixed.

CRS-16
The report says Marinette Marine’s EVM system did not provide valid and
reliable cost, schedule, and technical performance data to support the LCS
program office’s decision-making. Auditors found the shipyard was not
following 24 of the Pentagon’s 32 EVM rules. DCMA failed to check whether
the 32 rules were being followed. Further, the Navy and DCMA failed to perform
formal surveillance to ensure the shipyard heeded the rules, the report says. And
Marinette Marine failed to use EVM as an integrated program management tool.
As a result, the Navy is “not receiving full value for program management
services and information paid for under this contract,” the report states.
The press report also states:
The report describes a “significant breakdown in internal controls.” Navy
decision-makers are not receiving accurate and reliable earned value data for the
Freedom, the review says. The shipyard’s projected estimates-at-completion for
the Freedom contract are “not supported.” Further, the program office “did not
have visibility” for project work totaling approximately $51 million. The lack of
oversight left the Navy’s financial interest in the ship’s construction unprotected,
the review concludes....
Auditors recommended eight fixes. The report says four remain to be done,
but Quigley said two remain to be done. Last November, the Navy completed a
new estimate for the cost of completing the Freedom contract, conducted a
schedule review and had the program develop a new baseline for the ship.
Officials have also had Lockheed start work on a plan to fix the problems.
Quigley said officials have reviewed, approved and monitored Lockheed’s
plan. He also said the shipyard’s efforts are now being checked continuously
against the 32 rules.
In March [2008], the Navy plans to review the new baseline. And DCMA
is due to conduct a review to ensure the shipyard is following the rules by year’s
end, the report says. Quigley said that last step could take 18 months.
Unlike Marinette Marine, Lockheed and Gibbs & Cox (another team
member), have EVM certification, he said.
Young’s predecessor, Kenneth Krieg, warned in a memo last summer that
the Pentagon’s EVM efforts were “insufficient, especially given the number of
major defense programs experiencing execution problems.”23
GAO testified in July 2007 that:
We have frequently reported on the wisdom of using a solid, executable
business case before committing resources to a new product development
effort....
23 Christopher J. Castelli, “Audit Exposes Failed Management of Troubled Littoral
Warship,” Inside the Navy, February 4, 2008.

CRS-17
A sound business case would establish and resource a knowledge-based
approach at the outset of a program. We would define such a business case as
firm requirements, mature technologies, and an acquisition strategy that provides
sufficient time and money for design activities before construction start. The
business case is the essential first step in any acquisition program that sets the
stage for the remaining stages of a program, namely the business or contracting
arrangements and actual execution or performance. If the business case is not
sound, the contract will not correct the problem and execution will be subpar.
This does not mean that all potential problems can be eliminated and perfection
achieved, but rather that sound business cases can get the Navy better
shipbuilding outcomes and better return on investment. If any one element of the
business case is weak, problems can be expected in construction. The need to
meet schedule is one of the main reasons why programs cannot execute their
business cases. This pattern was clearly evident in both the LPD 17 [amphibious
ship] and LCS programs. In both cases, the program pushed ahead with
production even when design problems arose or key equipment was not available
when needed. Short cuts, such as doing technology development concurrently
with design and construction, are taken to meet schedule. In the end, problems
occur that cannot be resolved within compressed, optimistic schedules.
Ultimately, when a schedule is set that cannot accommodate program scope,
delivering an initial capability is delayed and higher costs are incurred....
What happens when the elements of a solid business case are not present?
Unfortunately, the results have been all too visible in the LPD 17 and the LCS.
Ship construction in these programs has been hampered throughout by design
instability and program management challenges that can be traced back to flawed
business cases. The Navy moved forward with ambitious schedules for
constructing LPD 17 and LCS despite significant challenges in stabilizing the
designs for these ships. As a result, construction work has been performed out
of sequence and significant rework has been required, disrupting the optimal
construction sequence and application of lessons learned for follow-on vessels
in these programs....
In the LCS program, design instability resulted from a flawed business case
as well as changes to Navy requirements. From the outset, the Navy sought to
concurrently design and construct two lead ships in the LCS program in an effort
to rapidly meet pressing needs in the mine countermeasures, antisubmarine
warfare, and surface warfare mission areas. The Navy believed it could manage
this approach, even with little margin for error, because it considered each LCS
to be an adaptation of an existing high-speed ferry design. It has since been
realized that transforming a high-speed ferry into a capable, networked,
survivable warship was quite a complex venture. Implementation of new Naval
Vessel Rules (design guidelines) further complicated the Navy’s concurrent
design-build strategy for LCS. These rules required program officials to redesign
major elements of each LCS design to meet enhanced survivability requirements,
even after construction had begun on the first ship. While these requirements
changes improved the robustness of LCS designs, they contributed to out of
sequence work and rework on the lead ships. The Navy failed to fully account for
these changes when establishing its $220 million cost target and 2-year
construction cycle for the lead ships.
Complicating LCS construction was a compressed and aggressive schedule.
When design standards were clarified with the issuance of Naval Vessel Rules
and major equipment deliveries were delayed (e.g., main reduction gears),

CRS-18
adjustments to the schedule were not made. Instead, with the first LCS, the Navy
and shipbuilder continued to focus on achieving the planned schedule, accepting
the higher costs associated with out of sequence work and rework. This approach
enabled the Navy to achieve its planned launch date for the first Littoral Combat
Ship, but required it to sacrifice its desired level of outfitting. Program officials
report that schedule pressures also drove low outfitting levels on the second
Littoral Combat Ship design as well, although rework requirements have been
less intensive to date. However, because remaining work on the first two ships
will now have to be completed out-of-sequence, the initial schedule gains most
likely will be offset by increased labor hours to finish these ships.
The difficulties and costs discussed above relate to the LCS seaframe only.
This program is unique in that the ship’s mission equipment is being developed
and funded separately from the seaframe. The Navy faces additional challenges
integrating mission packages with the ships, which could further increase costs
and delay delivery of new antisubmarine warfare, mine countermeasures, and
surface warfare capabilities to the fleet. These mission packages are required to
meet a weight requirement of 180 metric tons or less and require 35 personnel
or less to operate them. However, the Navy estimates that the mine
countermeasures mission package may require an additional 13 metric tons of
weight and 7 more operator personnel in order to deploy the full level of
promised capability. Because neither of the competing ship designs can
accommodate these increases, the Navy may be forced to reevaluate its planned
capabilities for LCS.24
Potential Oversight Issues for Congress
Cost Growth on LCS Sea Frames
Potential oversight issues concerning cost growth on LCS sea frames include
the following:
! Are the actions taken by the Navy as part of its restructuring of the
LCS program sufficient to prevent further growth in estimated LCS
sea frame unit procurement costs?
! How much of the cost increases on LCSs 1 and 2 are attributable to
prime contractor performance? To shipyard performance? To
performance by supplier firms? To Navy actions in managing the
program?
! Concurrency in design and construction has long been known as a
source of risk in shipbuilding and other weapon-acquisition
programs. Eliminating concurrency forms part of DOD’s effort to
24 Defense Acquisitions[:] Realistic Business Cases Needed to Execute Navy Shipbuilding
Programs, Statement of Paul L. Francis, Director, Acquisition and Sourcing Management
Team, Testimony Before the Subcommittee on Seapower and Expeditionary Forces,
Committee on Armed Services, House of Representatives, July 24, 2007 (GAO-07-943T),
pp. 8-11.

CRS-19
move toward best practices in acquisition. In retrospect, did the
Navy make a good decision in letting its sense of urgency about the
LCS override the known risks of concurrency in design and
construction?
! Do the estimated costs of LCSs 1 and 2 reflect systems, components,
or materials provided by vendors at reduced prices as part of an
effort by those vendors to secure a role in the 55-ship LCS program?
If so, how much more expensive might these systems, components,
or materials become on later LCSs? Is this a source of concern
regarding the potential for cost growth on follow-on LCSs?
! In light of cost growth on LCS sea frames, where does the LCS
program now stand in relation to the Nunn-McCurdy provision (10
U.S.C. §2433), which requires certain actions to be taken if the cost
of a defense acquisition program rises above certain thresholds?
! How might the increase in LCS unit procurement costs affect the
number of LCSs that the Navy can afford to procure each year, and
the total number it can afford to procure over the long run?
! Is the Navy financing cost growth on LCS sea frames by reducing
funding for the procurement of LCS mission packages? For
example, is cost growth on LCS sea frames linked in some way to
the reduction in the planned number of LCS mission packages from
an earlier figure of 90 to 110 to the current figure of 64? If the Navy
is financing cost growth on LCS sea frames by reducing funding for
the procurement of LCS mission packages, how might this reduce
the capabilities of the planned 55-ship LCS fleet?
! In light of the cost growth, is the LCS program still cost-effective?
For follow-on LCSs, what is the unit procurement cost, in FY2008
dollars, above which the Navy would no longer consider the LCS
program cost-effective?
! If Congress had known in 2004, when it was acting on the FY2005
budget that contained funding to procure LCS-1, that LCS sea frame
unit procurement costs would increase to the degree that they have,
how might that have affected Congress’s views on the question of
approving the start of LCS procurement?
! How might the increase in LCS unit procurement costs affect the
affordability and executability of the Navy’s overall shipbuilding
program?25
25 For a discussion of the potential affordability of the Navy’s overall shipbuilding program,
see CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background and
Issues for Congress
, by Ronald O’Rourke.

CRS-20
! What implications, if any, does the increase in LCS unit
procurement costs have for estimated procurement costs of other
new Navy ship classes?26
Total Program Acquisition Cost
Although this CRS report estimates that a 55-ship LCS program with 64 mission
packages might have a total acquisition cost of roughly $29.4 billion, the potential
total acquisition cost of the LCS program is uncertain. Supporters could argue that
total program acquisition cost will become clearer as the Navy works through the
details of the program. Critics could argue that a major acquisition program like the
LCS program should not proceed at full pace until its potential total acquisition costs
are better understood.
Procurement Cost Cap
Unlike cost caps for certain other Navy shipbuilding programs that Congress has
established in recent years, the amended cost cap for the LCS program (Section 125
of the conference report [H.Rept. 110-477 of December 6, 2007] on H.R. 1585, the
FY2008 defense authorization bill, which was enacted as H.R. 4986/P.L. 110-181 of
January 28, 2008) does not include a provision allowing the cost cap to be increased
over time in response to inflation. The Navy testified in February 2008 that it
anticipates asking Congress at some point to amend the cost cap to permit the cap to
be adjusted over time for inflation.27
Technical Risk
Seaframe. Regarding technical risk in developing the LCS seaframe, GAO
reported in March 2008 that:
The Navy identifies a total of 19 critical technologies across both LCS
seaframe designs. Fifteen of these technologies are fully mature, and another 2
technologies are approaching maturity. Two other technologies — the overhead
launch and retrieval system in the Lockheed Martin design and the aluminum
structure in the General Dynamics design — remain immature.
The Navy has identified the watercraft launch and recovery concept as a
major risk to both LCS seaframe designs. This capability is essential to complete
anti-submarine warfare and mine countermeasures missions planned for LCS.
26 On this point, CBO testified in March 2008: “The relatively simple design of the LCS and
the substantial cost increases that have occurred in the program suggest that the Navy may
also have trouble meeting its cost targets for the larger, much more complex surface
combatants in its shipbuilding plan, such as the DDG-1000 and the CG(X).” (Statement of
Eric J. Labs, Senior Analyst, [on] Current and Projected Navy Shipbuilding Programs,
before the Subcommittee on Seapower and Expeditionary Forces, Committee on Armed
Services, U.S. House of Representatives, March 14, 2008, p. 24.)
27 Source: transcript of spoken remarks of Allison Stiller at February 27, 2008 hearing on
Navy shipbuilding before the Defense subcommittee of the House Appropriations
Committee.

CRS-21
According to the Navy, industry watercraft launch and recovery designs are
untested and unproven. To mitigate this risk, the Navy is conducting launch and
recovery modeling and simulation, model basin testing, and experimentation. The
Navy is encouraging the LCS seaframe industry teams to adopt similar
approaches. Final integration of watercraft to each LCS seaframe design is not
expected until the third quarter of fiscal year 2009 — after the Navy has accepted
delivery of the first two LCS seaframes.
In addition, while the Navy has identified the aviation landing/retrieval
system as a mature technology, it is concerned that this system may not be
qualified for use on the Lockheed Martin seaframe and may, in fact, result in
damage to aircraft. The Navy has developed a system qualification and
certification plan to mitigate this risk and intends to conduct pierside testing and
training of the aviation landing/retrieval system in the first quarter of fiscal year
2009.28
Antisubmarine Warfare (ASW) Module. Regarding technical risk in
developing the antisubmarine warfare (ASW) module for the LCS, GAO reported in
March 2008 that:
As the delivery of the first anti-submarine warfare mission package
approaches, the critical technologies and design both continue to mature. The
program office identified 12 technologies as critical for this package, 5 of which
remain immature. A production representative, deployable package will not be
delivered until fiscal year 2011. The program tracks design drawings for only
those portions of mission systems that require alteration to deploy from LCS, as
well as those for the containers in which mission systems are stored and
transported. The design was not complete at critical design review. Neither the
critical technologies nor the design of this package are expected to be fully
mature until after they have been demonstrated as prototypes aboard the second
LCS ship. The program office does not currently track critical process control
data or use other production metrics.29
Mine Countermeasures (MCM) Module. Regarding technical risk in
developing the mine countermeasures (MCM) module for the LCS, GAO reported
in March 2008 that:
Technologies used in the MCM package are all mature or approaching
maturity. However, delays in testing some airborne systems from the MH-60S
helicopter — due to both integration challenges and competing fleet demands for
the MH-60S — may delay the fielding of some MCM systems to later packages.
Some systems in the MCM package were initially developed for fielding on other
ships, and the Navy is redesigning them to accommodate launch and recovery
systems planned for LCS. The MCM package design is not yet stable; at the
design readiness review, only 47 percent of design drawings were releasable. The
28 Government Accountability Office, Defense Acquisitions[:] Assessments of Selected
Weapon Programs
, GAO-08-467SP, March 2008, p. 118.
29 Ibid, p. 119.

CRS-22
program does not track production metrics and is relying on test results using
ships other than LCS to inform full-rate production decisions.30
Surface Warfare (SuW) Module. Regarding technical risk in developing
the surface warfare (SuW) module for the LCS, GAO reported in March 2008 that:
The program office identified four critical technologies for the SuW
mission package, three of which are mature. A production representative,
deployable package will not be delivered until fiscal year 2011. The
non-line-of-sight missile system is not mature and the program relies on the
Army to develop that system. Design of the SuW mission package is tracked in
a unique manner, as many of the technologies are complete systems in
themselves. The program office tracks only the changes to those systems needed
to interface and deploy with LCS. Design completion of the SuW mission
package has been delayed due to the immaturity of the missile system and
funding issues for the 30 mm gun. The program office does not currently track
critical process control data or other production metrics.31
Acquisition Strategy for Later Ships in Program
As outlined in the “Background” section, the announced acquisition strategy for
the later ships in the LCS program has shifted since March 2007:
! As part of its March 2007 restructuring of the LCS program, the
Navy announced an intention to conduct an operational evaluation
to select a favored design for the LCS that would be procured in
FY2010 and subsequent years, and to conduct a full and open
follow-on competition among bidders for the right to build that
design.
! In an August 2007 report to Congress on the LCS program, the Navy
stated that it “may elect to continue production of both seaframes
should each design present a unique operational advantage.”
! In April 2008, a press report quoted the DOD acquisition executive
as stating that he anticipates both LCS designs being procured in
significant quantities, and that the purpose of the operational
evaluation of the two designs would consequently shift to one of
finding problems in each design that need to be fixed.
Potential oversight questions for Congress arising from these apparent shifts in
the acquisition strategy for the later ships in the LCS program include the following:
! Is it now the Navy’s intention — as indicated by the April 2008
press report — to build both LCS designs in significant quantities,
and to consequently to shift the purpose of the operational evaluation
to one of finding problems in each design that need to be fixed?
30 Ibid, p. 121.
31 Ibid, p. 123.

CRS-23
! If this is not now the Navy’s intention, is there now confusion or
disagreement between DOD and the Navy concerning the acquisition
strategy for the later ships in the LCS program?
! If this is now the Navy’s intention, could the Navy have made this
shift in the acquisition strategy clearer in its prepared statements for
the March 14 or April 8, 2008, House and Senate subcommittee
hearings that reviewed Navy shipbuilding programs?32
! Given the shifts that have now occurred in the announced acquisition
strategy for the later ships in the LCS program, why should Congress
have confidence that the acquisition strategy for these ships will not
shift again at some point? How might such shifts in the announced
LCS acquisition strategy affect Congress’s ability to evaluate and
conduct oversight of the LCS program?
! What are the comparative costs and benefits of procuring a single
design versus procuring both designs in FY2010 and beyond?
Proposed Common Combat System
As mentioned in the Background section, the Navy testified in July 2007 that
it wants to shift to a common, government-furnished combat system for LCSs
procured in FY2010 and beyond, and proposed to begin work on the common combat
system in FY2007 using some of the prior-year LCS program funding that it had
requested Congress to reprogram. Some observers believed that the common combat
system would amount to a new start (i.e., starting a new acquisition effort), and that
new starts should not be initiated through a reprogramming of prior-year funding,
since that can bypass the normal process for Congress to fully review a proposed new
start prior to deciding whether to grant initial approval for it. The Navy argued that
the common combat system would not amount to a new start because the effort
would simply replace unique components of the two existing contractor-furnished
combat systems with a single set of combat system components. Potential oversight
questions for Congress include the following:
! What are the potential costs and operational benefits of maintaining
one or both of the current contractor-furnished combat systems vs.
shifting to a common, government-furnished combat system?
32 Statement of Vice Admiral Barry McCullough, Deputy Chief of Naval Operations For
Integration of Capabilities and Resources, and Ms. Allison Stiller, Deputy Assistant
Secretary of the Navy (Ship Programs), before the Subcommittee on Seapower and
Expeditionary Forces of the House Armed Services Committee on Navy Force Structure and
Shipbuilding, March 14, 2008; and Statement of Vice Admiral Barry McCullough, Deputy
Chief of Naval Operations for Integration of Capabilities and Resources, and Ms. Allison
Stiller, Deputy Assistant Secretary of the Navy (Ship Programs) before the Subcommittee
on Seapower of the Senate Armed Services Committee on Navy Force Structure and
Shipbuilding, April 8, 2008.

CRS-24
! Does the Navy’s plan to shift to a common, government-furnished
combat system amount to a new start, and if so, would it be
acceptable to fund that new start with reprogrammed prior-year
funds?
Coordination of Sea Frames and Mission Packages
The termination of construction of LCSs 3 through 6 reduced the number of
LCSs that will be delivered to the fleet over the next few years. This, in turn, could
reduce the number of LCS mission packages the Navy will need to have in inventory
in the near term. This raises a potential oversight issue for Congress regarding
whether the Navy’s planned schedule for procuring LCS sea frames is properly
coordinated with its planned schedule for procuring LCS mission packages.
On the issue of coordination of sea frames and mission packages, an October
2007 GAO report stated:
The Navy has made progress developing individual mine countermeasures
systems and the Littoral Combat Ship.... However, significant challenges remain
to fielding new capabilities.
• Operational testing plans for four systems in limited production will not
provide a complete understanding of how the systems will perform when
operated from the Littoral Combat Ship. Other ships will be used in testing to
inform full-rate production decisions on the individual systems. While other
ships may serve as platforms for the anti-mine systems, the Littoral Combat Ship
is their primary platform, and it will have different launch, recovery, and
handling systems. In addition, Navy plans call for testing these systems in
smooth, uncluttered environments, although operating environments are expected
to be less favorable.
• The first two Littoral Combat Ships have encountered design and
production challenges. Costs are expected to more than double from initial
estimates, and the Navy anticipates lead ship delivery nearly 18 months later than
first planned. This may slow the planned transition from current mine
countermeasures platforms.
• The Navy has reduced its investments in intelligence preparation of the
environment capabilities — including the capability to locate and map minefield
boundaries — even though improvements in this area could reduce mine
countermeasures mission timelines by 30 to 75 percent. These capabilities are
especially important for the Littoral Combat Ship, as it must stand clear of
suspected minefields.
The Navy has refined its concepts of operation for the Littoral Combat
Ship, increasing awareness of operational needs. However, the Navy has not yet
reconciled these concepts with the ship’s physical constraints, and the trade-offs
involved ultimately will determine the ship’s capabilities. For example, operation
of mine countermeasures systems is currently expected to exceed the personnel
allowances of the ship, which could affect the ship’s ability to execute this
mission. In addition, the Littoral Combat Ship will have only limited capability
to conduct corrective maintenance aboard. However, because the Navy recently

CRS-25
reduced the numbers of certain mission systems from two to one per ship,
operational availability for these systems may decrease below current
projections. Moreover, the mine countermeasures mission package currently
exceeds its weight limitation, which may require the Navy to accept a reduction
in speed and endurance capabilities planned for the Littoral Combat Ship. It is
important that the Navy assess these uncertainties and determine whether it can
produce the needed mine countermeasures capabilities from the assets it is likely
to have and the concepts of operation it can likely execute.33
See also the earlier section on technical risk in the LCS program.
Options for Congress
A primary issue for Congress in 2008 is whether to approve, reject, or modify
the Navy’s restructured LCS program as presented in the proposed FY2009 budget.
List of Options
Potential options for Congress include but are not limited to the following:
! FY2009 budget request. Congress could approve, reject, or modify
the Navy’s FY2009 budget request for the LCS program in areas
such as research and development funding, sea frame procurement,
or mission package procurement.
! Acquisition Strategy for Later Ships in Program. Congress could
establish terms and conditions for the acquisition strategy for the
later ships in the LCS program.
! Reporting requirements. Congress could impose new reporting
requirements for the program so as to facilitate congressional
oversight on issues such as cost growth.
Potential for Common Hulls
In General. Some observers, including some Members of Congress, have
expressed interest in the idea of using common hulls for Navy and Coast Guard
ships, so as to improve economies of scale in the construction of these ships and
thereby reduce their procurement costs. In earlier years, this interest focused on
using a common hull for the LCS and the Offshore Patrol Cutter (OPC), a cutter
displacing roughly 3,000 tons that is to be procured under the Coast Guard’s
Deepwater acquisition program.34 More recently, this interest has focused on using
33 Government Accountability Office, Defense Acquisitions[:] Overcoming Challenges Key
to Capitalizing on Mine Countermeasures Capabilities
, GAO-08-13, October 2007,
summary page.
34 For more on the Deepwater program, see CRS Report RL33753, Coast Guard Deepwater
(continued...)

CRS-26
a common hull for the LCS and the National Security Cutter (NSC), a cutter
displacing about 4,300 tons that is also being acquired under the Deepwater program.
Reported Proposal to Build Variant of NSC for Navy. In January 2008,
it was reported that Northrop Grumman, the builder of the NSC, had submitted an
unsolicited proposal to the Navy to build a version of the NSC for the Navy as a
complement to, rather than a replacement for, the LCS.
January 14, 2008, Press Report. A press report dated January 14, 2008,
stated:
The U.S. Navy is stumbling to build the ship it wants — the Littoral
Combat Ship (LCS) — so shipbuilder Northrop Grumman is urging the service
to turn to a ship it can get sooner and cheaper: a patrol frigate version of the
Coast Guard’s National Security Cutter (NSC).
“We have listened to what the Navy has said — to be more efficient, be
innovative and produce affordable and capable ships,” said Phil Teel, president
of Northrop’s Ship Systems sector. “The patrol frigate is a response to that, and
to the Navy’s new National Maritime Strategy.”
Northrop’s analysts have studied remarks and themes oft repeated by senior
Navy leaders and concluded a de facto requirement exists for a frigate-size ship
capable of handling a range of low- and mid-intensity missions. Those missions,
said Eric Womble, head of Ship Systems’ Advanced Capabilities Group, are
detailed in the Navy’s new Maritime Strategy and include forward presence,
deterrence, sea control, maritime security, humanitarian assistance and disaster
response.
“You don’t want a high-end Aegis ship to handle those missions,” Womble
said, “you want something cheaper and smaller.”
The National Security Cutter (NSC) as configured for the Coast Guard
could easily handle those roles, Womble said.
The first NSC, the Bertholf, successfully carried out its initial trials in early
December and will be commissioned this year by the Coast Guard. Womble said
a Navy version would avoid the first-of-class issues that have plagued numerous
Navy programs, including both designs being built for the LCS competition.
Northrop in late December began briefing select Navy leaders on its
unsolicited proposal. The company is taking pains to avoid presenting the ship
as an LCS alternative, instead calling it an LCS “complement,” which is being
built under a competition between Lockheed Martin and General Dynamics.
Key features of Northrop’s concept are:
— The ship is based on a proven design already under construction.
34 (...continued)
Program: Background, Oversight Issues, and Options for Congress, by Ronald O’Rourke.

CRS-27
— The NSC’s weapons, sensors and systems already have a high degree
of commonality with Navy systems, increasing affordability.
— While the NSC is 15 knots slower than the 45-knot LCS, the cutter
can stay at sea up to two months, much longer than the LCS.
The report also stated:
Northrop is claiming it can deliver the first ship at the end of 2012 at an
average cost of less than $400 million per ship, exclusive of
government-furnished equipment, in fiscal 2007 dollars. That’s close to the $403
million contract cost of the third NSC, which incorporates all current design
upgrades.
A major element of Northrop’s proposal, Womble said, is that the Navy
should make no changes to the current Block 0 design. “That’s the only way we
can deliver the ship at this price.”
The design, however, has plenty of room for upgrades, Womble claimed,
and Northrop is proposing future upgrades be handled in groups, or blocks, of
ships, rather than modifying individual ones. Those upgrades could include
non-line-of-sight missiles, SeaRAM missile launchers and more capabilities to
handle unmanned systems. The design even has room for an LCS-like
reconfigurable mission area under the flight deck, he claimed.
Northrop admits the ships are deficient in one significant Navy
requirement: full compatibility with the Naval Vessel Rules (NVR), essentially
building codes developed by the Naval Sea Systems Command and the American
Bureau of Shipping. The belated application of the NVR to both LCS designs
was a major factor in the cost growth on those ships.
Most of the NSC design already is NVR-compatible, Womble said, but
upgrading the entire design to NVR standards would involve a fundamental
redesign and eliminate the proposal’s cost and construction time attributes.
“We’d need a waiver [from the NVR rules] to make this proposal work,”
he said.
The report also stated:
Navy Response: ‘No Requirement’
The official response from the Navy to Northrop’s proposal so far is
unenthusiastic.
“There is currently no requirement for such a combatant,” said Lt. Clay
Doss, a Navy spokesman at the Pentagon. The Navy’s other surface ship
programs, he said, “address specific requirements.”
Doss did note that “the Navy and Coast Guard have considered a common
platform for the LCS and the Coast Guard’s National Security Cutter. However,
due to the unique mission requirements of each service, a common hull is not a
likely course of action.”

CRS-28
Problems with the LCS have caused some observers to predict the
program’s demise, but the Navy “is completely committed to the LCS program,”
Doss said. “We need 55 Littoral Combat Ships sooner rather than later, and we
need them now to fulfill critical, urgent war-fighting gaps.”
Northrop however, is not alone in proposing the NSC as an LCS alternative.
Coast Guard Capt. James Howe, writing in the current issue of the U.S. Naval
Institute’s Proceedings magazine, is urging Navy leaders to consider the NSC.
“I think the Navy should look at it,” he said Jan. 10. “Northrop is building
a naval combatant here. It has standard U.S. Navy weapon systems as part of its
packages. Its communications are interoperable. It can handle underway
replenishment. If there’s a possibility it could be a cost saver or a good deal for
the Navy, it needs to be explored.”
Howe, who said he was unaware of Northrop’s patrol frigate proposal,
agreed the NSC is capable of further enhancements. “There’s a lot of space on
that ship,” he said.
‘Potential Game-changer’
Northrop likely is facing an uphill battle with its patrol frigate, as the Navy
culturally prefers to dictate requirements based on its own analysis.
But the Navy is having trouble defending the affordability of its
shipbuilding plan to Congress and bringing programs in on budget. One
congressional source noted the service “can’t admit their plan won’t work.” An
unsolicited proposal, the source said, “opens the way for someone else to come
up with a potential game-changer.”
Northrop’s plan, the source said, may be an unexpected opportunity.
“Northrop is listening to the people who have been criticizing the Navy’s
shipbuilding plan,” the source said. “They’ve gotten a sense that maybe the Navy
is looking for a solution, and the Navy can’t produce a solution because it might
be too embarrassing.”
One more aspect that could be at work in the Northrop proposal: “I think
there’s something coy going on here,” the source said. “They may be promoting
this as an LCS complement, but their idea might be part of a strategic plan to
replace the LCS.”35
January 17, 2008, Press Report. A press report dated January 17, 2008,
stated:
Northrop Grumman Corp said on Wednesday [January 16, 2008, that] a
proposal to turn its 418-foot Coast Guard cutter into a new class of Navy frigates
is sparking some interest among U.S. Navy officials and lawmakers.
35 Christopher P. Cavas, “Northrop Offers NSC-Based Vessel To Fill LCS Delays,” Defense
News
, January 14, 2008.

CRS-29
Northrop is offering the Navy a fixed price for the new ship of under $400
million and could deliver the first one as early as 2012 to help out with maritime
security, humanitarian aid and disaster response, among other things, said Eric
Womble, vice president of Northrop Grumman Ship Systems.
So far, the officials briefed have found Northrop’s offer “intriguing,”
Womble told Reuters in an interview. “They like the fact that we’re putting an
option on the table. No one has told us, ‘Go away, don’t come back, we don’t
want to hear this’,” Womble said.
At the same time, the Navy says it remains committed to another class of
smaller, more agile ships — the Littoral Combat Ships (LCS) being built by
Lockheed Martin Corp (LMT.N: Quote, Profile, Research) and General
Dynamics Corp (GD.N: Quote, Profile, Research) — amid huge cost overruns.
“There currently is no requirement for a frigate,” Navy spokesman Lt. Clay
Doss said. He said the Navy and Coast Guard had discussed a common hull
during the initial stage of the LCS competition, but agreed that was “not a likely
course of action due to the unique mission capabilities.”
For now, he said the Navy was proceeding as quickly as it could with the
55-ship LCS program as well as design work on a new DDG-1000 destroyer, and
a planned cruiser, CG-X....
The report also stated:
Virginia-based defense consultant Jim McAleese said the fixed-price offer
could be good news for the Navy, which has typically borne the risk of
cost-based shipbuilding contracts.
“That is a potential catalyst that could have a huge impact on the way the
Navy buys small- and mid-sized surface combatants,” McAleese said.
Northrop says its new Coast Guard cutter also experienced some cost
growth, but says that was mainly due to requirements added after the Sept. 11,
2001, hijacking attacks. The first of the new ships is due to be delivered to the
Coast Guard in March, followed by one ship annually over the next few years.
Northrop said it could offer the Navy a fixed price on the frigate because
design work on the ships is already largely completed. Its price excludes
government-furnished equipment that would still have to be put on board.
“We’re not advocating an LCS replacement,” said spokesman Randy
Belote. “But after listening to the Navy leadership and studying the new maritime
strategy, we think we can get hulls and capabilities into the water at a much
faster pace.”
Womble said Northrop analysts and an outside consultant studied the
Navy’s needs and concluded the Navy could use another ship that can operate in
shallow water, be forward deployed, has the range and endurance to operate
independently, and can work with U.S. allies, if needed.

CRS-30
The press report also stated:
The proposed ship can be deployed for 60 days without new supplies, has
a range of 12,000 nautical miles, and can travel at 29 knots, fast enough to keep
up with other warships. That compares to 20 days and a range of 3,500 miles for
LCS.
Northrop began sharing a PowerPoint presentation about the proposal with
Navy officials and lawmakers at the end of December, and has already met with
several senior officials, including Chief of Naval Operations Adm. Gary
Roughead.
It could deliver the first frigate by 2012, if the Navy was able to add $75
million for long lead procurement items into the fiscal 2009 budget proposal to
be sent to Congress next month, Northrop said.
The frigate is about 75 percent compliant with special requirements that
apply only to U.S. Navy ships. Northrop said it believed it could qualify for
waivers on the remaining 25 percent because similar waivers were granted in the
past.36
Legislative Activity For FY2009
Table 3 summarizes Congressional action on the Navy’s FY2009 funding
request for the LCS program.
36 Andrea Shalal-Esa, “Northrop Offers US Navy New Ship For Fixed Price,” Reuters,
January 17, 2008.

CRS-31
Table 3. Congressional Action on FY2009 Funding Request
(millions of dollars; figures rounded to nearest tenth of a million)
Budget
Request
Authorization
Appropriation
accounta
HASC
SASC
Conf.
HAC
SAC
Conf.
RDT&EN
371.0
371.0
371.0
SCN
920.0
840.0
797.0
APN
55.3
55.3
55.3
WPN
2.8
2.8
2.8
OPN
131.2
81.2
131.2
Source: Navy FY2009 budget submission and committee and conference reports on the
FY2009 defense authorization and appropriation bills. HASC is House Armed Services
Committee; SASC is Senate Armed Services Committee, HAC is House Appropriations
Committee, SAC is Senate Appropriations Committee; Conf. is conference report.

a. RDT&EN = Research, Development, Test, and Evaluation, Navy account; SCN =
Shipbuilding and Conversion, Navy account; APN = Aircraft Procurement, Navy
account; WPN = Weapons Procurement, Navy account; OPN = Other Procurement,
Navy account.
FY2009 Defense Authorization Bill (H.R. 5658/S. 3001)
House. Section 123 of H.R. 5658 as reported by the House Armed Services
Committee would amend the cost cap on the LCS program, which was previously
amended by Section 125 of the FY2008 defense authorization act (H.R. 4986/P.L.
110-181 of January 28, 2008). As described by the committee, Section 123:
would amend section 124 of the National Defense Authorization Act for Fiscal
Year 2006 (Public Law 109-163) as amended by section 125 of the John Warner
National Defense Authorization Act for Fiscal Year 2007 (Public Law 109-364)
by allowing costs associated with economic inflation to exceed the cost cap of
$460.0 million per vessel, provided that the increase for economic inflation does
not exceed $10.0 million per vessel. The provision would also allow costs
associated with the introduction of new technology, not fielded on the first two
ships of the class, provided that the insertion of new technology would reduce
life-cycle cost of the vessel, or the new technology is required to meet an
emergent warfighting threat. (Page 141)
Section 123 states:
SEC. 123. LITTORAL COMBAT SHIP (LCS) PROGRAM.
Section 124 of the National Defense Authorization Act for Fiscal Year 2006
(Public Law 109-163; 119 Stat. 3157), as amended by section 125 of the National
Defense Authorization Act for Fiscal Year 2008 (Public Law 110-181; 122 Stat.
29), is amended in subsection (d) by adding at the end the following:
‘(3) The amounts of increases or decreases in costs attributable to economic
inflation after September 30, 2007. However, in the case of a vessel the

CRS-32
procurement of which is funded from amounts appropriated pursuant to an
authorization of appropriations or otherwise made available for fiscal year 2008
or 2009, the amount of such an increase for such a vessel may not exceed
$10,000,000.
‘(4) The amounts of increases or decreases in costs of that vessel that are
attributable to insertion of new technology into that vessel, as compared to the
technology built into the first and second vessels, respectively, of the Littoral
Combat Ship (LCS) class of vessels. However, the Secretary of the Navy may
make an adjustment under this paragraph only if —
‘(A) the Secretary of the Navy determines, and certifies to the congressional
defense committees, that insertion of the new technology would lower the
life-cycle cost of the vessel; or
‘(B) (i) the Secretary of the Navy determines, and certifies to the congressional
defense committees, that insertion of the new technology is required to meet an
emerging threat; and
‘(ii) the Secretary of Defense certifies to those committees that such threat poses
grave harm to national security.’
The House Armed Services Committee, in its report (H.Rept. 110-652 of May
16, 2008) on H.R. 5658, approved the Navy’s request for procurement of two LCSs
in FY2009 but reduced the Navy’s FY2009 procurement funding request for the LCS
program by $80 million. (Page 79, line 013)37 The report recommended reducing the
Navy’s FY2009 funding request for LCS mission modules by $50 million. (Page 87,
line 029)
The report states that “The committee disagrees with the submitted Future Years
Defense Plan and budget request” for several reasons, including “the failure to
deliver a coherent strategy for Littoral Combat Ship acquisition.” (Pages 82 and 83)
The report also states that “The committee expects the budget submission for fiscal
year 2010 to contain” several things, including “a comprehensive decision on the
acquisition plan for surface combatants including the plan for the Littoral Combat
Ship class.” (Page 83) The report does not discuss the recommended $80-million
reduction in ship procurement funding, but the committee’s summary of its markup
states that “reduction of $80 million [is] due to the availability of material previously
procured for construction of ships that were subsequently canceled by the Navy.”38
The committee’s report does not discuss the recommended $50-million reduction in
procurement funding for LCS mission modules.
Senate. The Senate Armed Services Committee, in its report (S.Rept. 110-335
of May 12, 2008) on S. 3001, approved the Navy’s request for procurement of two
37 The report’s table on page 79 states that the committee recommended procurement of one
LCS rather than two in FY2009, but this appears to be a typo, as the report does not
elsewhere mention reducing the procurement request from two ships to one, and the
committee’s summary of its markup states that it approved procurement of two LCSs.
38 House Armed Services Committee summary of H.R. 5658, page 13.

CRS-33
LCSs in FY2009 but reduced the Navy’s FY2009 procurement funding request for
the LCS program by $123 million, which the repot states would “Fully fund two
ships to [the LCS program] cost cap in FY[20]09, reflecting government furnished
material (GFM) from cancelled ships.”. (Page 58, line 013) Regarding funding for
ship procurement, the report stated:
The first ship (LCS-1) was scheduled to deliver in late 2006. The Navy is
now estimating that the first ship will deliver sometime in late 2008. The LCS-1
contractor team had barely started on their second ship (LCS-3) when the
program ran into major cost problems earlier last year. The Navy then issued a
stop work order on LCS-3 in order to reduce expenditures and limit further cost
exposure on the program while it separately re-evaluated program cost estimates.
The Navy entered into negotiations with the LCS-1 team to sign up to a
fixed price contract on the two ships or face outright cancellation on the second
ship. The Navy terminated the contract for LCS-3 for the convenience of the
government. As a result of that termination, the government will take delivery of
some sizeable inventory of equipment and material for the cancelled LCS-3.
The second contractor team had a contract to build two LCS vessels of
another design (LCS-2 and LCS-4). The Navy awarded this contract almost a
year later, so LCS-2 was roughly 1 year behind the LCS-1. The Navy went ahead
with activities leading to the start of construction on LCS-4, despite internal
warnings that the second contractor would face similar cost and schedule
problems as those faced by the first contractor. Late last year, the same poor
performance and fixed priced negotiation scenario also played out on the LCS-2
and LCS-4. This led the Navy to also cancel the LCS-4, again with the result that
the government will take delivery of some sizeable inventory of equipment and
material for the cancelled LCS-4.
Section 125 of the National Defense Authorization Act for Fiscal Year
2008 (Public Law 110-181) places a cost ceiling on LCS contracts of $460.0
million per ship, a dollar value provided by the Navy. Congress also authorized
and appropriated one LCS in fiscal year 2008.
The Navy has not awarded the one LCS approved in the fiscal year 2008
budget. The Navy’s acquisition strategy, which has been extremely fluid, is to
award this ship, plus the two ships from the fiscal year 2009 program later this
calendar year. The Navy’s intent is that the award be a limited competition, with
each yard assured of being awarded at least one ship.
The total funding provided in fiscal year 2007 and prior budgets for the six
previously authorized Littoral Combat Ships totals $1,639.0 million. The Navy
has determined that $1,162.0 million of these funds is required for construction,
test, trials, outfitting, and post-delivery of LCS-1 and LCS-2. The remaining
$477.0 million funding is allocated against the terminated ships, LCS-3 and LCS-
4, including material purchased for those ships prior to termination. Within the
remaining funding allocated against the terminated ships, sufficient funding
should also be available for LCS class design to ensure that the follow-on ships
commence production with “clean,” producible drawings and planning products.
Presuming the Navy maintains stable design requirements, the availability of
clean drawings and planning products should ensure healthy learning curve
performance in production. This learning curve performance, in conjunction with

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material purchased in prior years (from the terminated ships), should more than
offset the effects of one year’s escalation for ships purchased in 2009.
The fiscal year 2008 budget has resources sufficient to award one LCS
within the cost cap to either shipyard, when taking into account the inventory of
equipment and material available from that shipyard’s cancelled ship. The Navy
would provide this equipment and material to the shipyard that wins the fiscal
year 2008 ship as government furnished material (GFM). The value of this GFM
would count against the cost cap.
Under their plan, the Navy would also award at least one of the two ships
in the fiscal year 2009 budget to the other shipyard. The Navy would likewise
provide the GFM from that shipyard’s cancelled ship to offset the cost of that
one ship. Similarly, the value of this GFM would count against the cost cap on
this ship as well.
The fiscal year 2009 budget request, however, would fund both ships to the
full cost cap and not take the value of this GFM for the second cancelled ship
into account. This means that the budget request of $920.0 million includes more
funding than can be placed on contract without violating the cost cap, unless the
Navy were to withhold the GFM for the second shipyard.
The committee believes that the Navy should apply the GFM to both
contractors’ vessels as soon as a second ship is purchased from either yard.
Therefore, the committee recommends a reduction of $123.0 million to take that
GFM into account. This will leave sufficient funds in the Navy’s hands to award
two ships in fiscal year 2009, with both ships fully funded to the congressional
cost cap of $460.0 million. (Pages 77-78)
Regarding LCS mission packages, the report states:
The Navy has embarked on a program to develop modular counter-mine,
anti-surface, and anti-submarine warfare systems, referred to as mission
packages, to be deployed on the Littoral Combat Ship (LCS). The Navy
envisions fielding 60 mission packages, which Navy commanders could
interchange across the 55-ship LCS class as operational requirements dictate.
This total system capability of the LCS program has been identified by the Chief
of Naval Operations as a top priority for operations in the littorals. The
committee similarly views the capability provided by a family of LCS mission
packages as a key component of the maritime strategy. The committee is,
therefore, concerned by the delays to mission package initial operational
capability, deployment, and full operational capability caused by delays to the
LCS construction program.
The Navy has designed the LCS mission packages with modularity and with
open architecture. Having done this, the Navy should be able to deploy this
capability on other ship classes. Such an expanded concept of operations would
provide opportunities to employ mission packages more rapidly, and against
threats and in operational scenarios perhaps not envisioned today.
Therefore, the committee directs the Secretary of the Navy to evaluate
alternatives for employing LCS mission packages on other ship classes of the
battle force, and to provide a report on his findings to the congressional defense
committees with submission of the 2010 budget request. The report shall outline

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the feasibility, cost, and impacts associated with integrating mine
countermeasures and anti-submarine mission packages on other surface
combatant and amphibious force ship classes, and provide an assessment of the
operational utility afforded by being able to deploy mission packages across the
broader battle force. (Page 126)