US Navy vows focus on quality ships, affordability

* Nearly all fixed-price contracts
* Tougher line on requirements
* Aggressive engagement with contractors
By Andrea Shalal-Esa
WASHINGTON, Oct 6 (Reuters) - The Navy, buffeted by years of cost overruns and delays in shipbuilding, on Tuesday said it was implementing a host of measures to address past problems and deliver quality ships at affordable prices going forward.
"Our job is to drive the cost of these ships down as much as possible," Rear Admiral William Landay, the Navy's program executive officer for ships, told reporters.
Navy Secretary Ray Mabus and Chief of Naval Operations Gary Roughead had been "very adamant" about the need to make ships and everything else the Navy does more affordable, he said.
Landay outlined a series of measures aimed at getting a grip on costs, including keeping tighter control of military requirements, and evaluating early on whether moves to scale back requirements slightly could lead to big cost benefits.
Landay is managing construction of 20 major surface ships and more than 190 small boats and other watercraft for U.S. agencies and allied nations, and projects for work on 25 to 30 additional major ships over the next five years.
The bulk of the work is done at a few large shipyards, but about 25 shipyards work with the Navy in total. The biggest Navy partners are General Dynamics Corp (GD.N), Northrop Grumman Corp (NOC.N) and Lockheed Martin Corp (LMT.N).
Landay said the changes had emerged over the past year, and were less the result of one key trigger than the growing realization of many officials that management of Navy shipbuilding programs needed better oversight.
In addition to boosting his staff by 25 percent or 67 people, the Navy was also using more fixed price deals which shifted responsibility for any cost overruns to contractors.
The Navy was also putting more emphasis on reducing technological risk in programs and ensuring that its ship designs were more mature before construction began, he said.
"We have drawn a line in the sand with ourselves and said we are not going to start ship construction until the designs are very mature," Landay told reporters.
The Navy was also getting more active in its management of contractors, focusing more on the efficiency of production, work flows at the shipyards, increased automation, reduced manning, efficient energy usage and other factors.
"In the past, we've often times been too passive. Now we're trying to be far more aggressive," he said, noting that the emphasis was shifting to managing and evaluating the performance of the companies, not their individual programs.
Landay said the Navy revamped its acquisition plans for Littoral Combat Ships built by Lockheed and General Dynamics after realizing that proceeding with two different designs would not allow the Navy to meet a congressional cost cap of $460 million in fiscal 2010, as required.
He said the first Lockheed LCS ship cost about $637 million and the first General Dynamics ship would likely come in around $704 million when it was delivered by the end of the year.
Landay said the Navy expected to release the cost of the third and fourth ships, which are on fixed-rate contracts, within two to three weeks, now that it had switched plans on how to proceed with the next ships in the class.
(Reporting by Andrea Shalal-Esa; Editing Bernard Orr)