Webber Class FRCs, Multiyear Procurement in the Future?

File:Proposed modification to the Damen Stan patrol vessel for the USCG.jpg

MarineLog and gCaptain have both recently reported that the Coast Guard has exercised an option for six more Webber class Fast Response Cutters. These will be units 13 through 18 of the class. These are, I believe, all from FY2012 money. The Coast Guard had intended to defer ordering two of these to combine them with two being requested in FY2013 to keep the shipyard working at a consistent minimally sustainable rate of four units per year. That may be what they end up doing anyway, delivering one boat every three months.

I thought it was about time to review the status of the Fast Response Cutter project and look at the future. Where are we and where are we going with this project?

Phase One:

The third vessel of the class, William Flores (WPC-1103), was delivered to the Coast Guard August 17th, and is expected to be commissioned in November. If boats are delivered at three month intervals, the last of the FY2012 boats will be delivered May of 2016. If instead, the shipyard immediately begins to deliver boats at the two month interval they should be capable of, the 18th boat will deliver in February 2015.

The existing contract included options for up to 34 vessels, but because all options were not exercised, the maximum number that can be built under the existing contract would be 30. Two option years remain, FY 2013 and 2014, but because of funding difficulties, it appears unlikely that options will be exercised for all twelve units remaining in the existing contract. The FY2013 budget request included only two vessels, rather than the six that would be provided under full rate production.

So, there will be a second phase procurement aimed at building at least 28 vessels and probably more, perhaps as many as 36, if only two are funded in FY 2013 and two in 2014.

The DHS Inspector General has raised some questions about the progress of the Fast Response Cutter Program. The report faults the Coast guard for accelerating production before the completion of operational test and evaluation, which is not expected to be completed until March 2013. Considering that the program was well behind schedule in terms of replacing 110s, some urgency appears justified. Risk areas the DHS IG pointed out were the stern launching system for the ship’s boat, and that “the service has not verified that the FRC is capable of stowing all its gear.” Since the boat launch arrangement follows that used successfully on the last of the Navy’s Cyclone class PCs, and the vessels have much more volume than the 110s they replaced, it seems unlikely either of these is going to be a real problem.

Phase Two:

In October 2011 the Acquisition Directorate, CG-9, had already begun market research (pdf) for the second phase procurement of Fast Response Cutters that is expected to be awarded in FY2015. I am hoping the Coast Guard will seek Congressional approval to make this a “Multiyear Procurement” as defined here:

“Multiyear Procurement (MYP) and Block Buy Contracting in Defense Acquisition: Background and Issues for Congress” (pdf), Congressional Research Service (CRS), Ronald O’Rourke and Moshe Swartz, June 27, 2012 (Sorry you will need to copy and paste: http://www.fas.org/sgp/crs/natsec/R41909.pdf)

These types of contracts originated in the DOD, but have now been extended to other branches as well. The FRC project seems to meet all the requirements for this type of procurement. This is different from what was done in phase one, which was an annual contract with options for future years. A multiyear procurement offers the Coast Guard at least three possible advantages.

  • Savings as a result of the longer term of the contract,
  • Savings as a result of increased competitiveness in the contract award, and
  • Long term commitment by the Congress and Administration.

The longer term of these contracts, which can commit the government for up to five years, frequently means increased efficiency which can be passed along to the government. The CRS report identifies two primary reasons for the increased efficiency:

  • Contractor can optimize their workforce and production facilities.
  • Long-leadtime components can be procured in Economic order quantity (EOQ)

While it is difficult to know the true savings these advantages offer, they are estimated to be several percentage points.

“Compared with estimated costs under annual contracting, estimated savings for programs being proposed for MYP have ranged from less than 5% to more than 15%, depending on the particulars of the program in question, with many estimates falling in the range of 5% to 10%. In practice, actual savings from using MYP rather than annual contracting can be difficult to observe or verify because of cost growth during the execution of the contract due to changes in the program independent of the use of MYP rather than annual contracting.”

In February 2012, the Coast Guard exercised a $27.2M option to purchase the “Procurement and Data License Package” for the Webber class Fast Response Cutters, so when it is time to award phase two, the Coast Guard can allow other shipyards to bid to build follow-on ships of the same class.

If we don’t go to a multiyear procurement, the current contractor, Bollinger, will certainly have a massive advantage in an annual award process. Awarding a multiyear contract could go a long way toward leveling the playing field, in that other shipyards would see the benefit  in optimizing their facilities for the larger contract.

And last, but by no means least, this strategy would commit the Congress and the Administration to a constant, long term support of the program that is mature and obviously needed.