July 16, 1985 - Maritime Reporter and Engineering News

U.S. NAVY OVERHAUL MARKET

James R. McCaul President, International M a r i t i m e Associates

This article is an excerpt from IMA's recent quarterly update on the Navy ship maintenance and overhaul market. Information is current as of 1 July, except where noted.

ANALYSIS OF FUTURE CONTRACTING Navy has issued a new ship maintenance planning schedule covering FY 1985-1986. We have analyzed this schedule to see how Navy will manage future contracting with ship repair yards.

Number of Contracts As shown in Exhibit 1, a drastic reduction in the number of regular overhauls will occur next year. Only ten regular overhauls are planned in FY 1986 for commercial yards on the East Coast. This compares with 20 in FY 1985 and 18 in FY 1984. A similar decline is planned on the West Coast. Five regular overhauls are scheduled for West Coast commercial yards in FY 1986. This compares with 11 in FY 1985 and nine in FY 1984.

SRA's and PMA's will continue to increase on the East Coast, reflecting the need for short maintenance periods as Navy extends ship overhaul intervals. In FY 1986 Navy plans 62 SRA or PMA job starts on the East Coast. This compares with 38 SRA/PMA job starts in FY 1985 and 30 in FY 1984.

A similar increase in SRA/PMA job starts will not occur on the West Coast. In fact the number of West Coast SRA/PMA's in FY 1986 will decline to 35 job starts from 44 in FY 1985.

The number of jobs (overhauls, DSRA's, DPMA's) requiring drydocking will increase on the East Coast, fall on the West Coast. In FY 1986,34 drydocking jobs are planned for commercial yards on the East Coast. This compares with 30 drydocking jobs in FY 1985 and 24 in FY 1984. On the West Coast there will be 16 commercial drydocking jobs in FY 1986, compared with 28 in FY 1985 and 17 in FY 1984.

In all, it's bad news for West Coast shipyards and most East Coast yards. The only good news seems limited to a few yards in major East Coast homeport areas— where captive SRA/PMA work is increasing.

Limits On Overhaul Competition Reflecting the diminishing overhaul business and the FY 1985 Appropriation conferees instructions, Navy has dramatically increased the percentage of overhauls earmarked for coastwide competition. Eight of ten East Coast regular overhauls and all five West Coast overhauls will be bid coastwide in FY 1986.

These data are shown in Exhibit 2 and compared to earlier years.

Type Contracts To Be Awarded Exhibit 3 shows the shift toward fixed price contracts for future Navy awards. With the exception of a nuclear carrier overhaul, all regular overhauls in FY 1986 will be fixed price or fixed price incentive awards (the type contract for the carrier overhaul has not yet been decided). Almost all SRA's will be fixed price contracts. Phased maintenance availability contracts will, however, continue to be cost plus award fee awards.

Type Procurement Planned Eight out of 15 regular overhauls in FY 1986 will be contracted using invitation for bids (IFB's). RFP-IP procurement will be used for 43 of 69 SRA contracts next year. All but one FY 1986 PMA contract will involve source selection procurement.

These data are shown in Exhibit 4 and compared to earlier years.

Overhaul Contracting By Ship Type As shown in Exhibit 5, support ships represent six of the 15 overhauls scheduled for FY 1986. All are coastwide bids with a fixed price contract to be awarded. Five of the six involve IFB procurement procedures.

Four cruiser/destroyer contracts are scheduled for next year. All are to be bid coastwide and fixed price incentive contracts are to be awarded. RFP-2P procedures are to be used in three out of four procurements.

All three amphibious ship overhauls scheduled in FY 1986 are to be competed coastwide and fixed price contracts are planned. Two of the three will involve IFB procurement.

No frigate or submarine overhauls are scheduled for commercial yards next year.

RECENT DEVELOPMENTS Among the recent developments are action on the defense authorization bill, changes in homeport policy, issues raised about the Kitty Hawk modernization, and a proposed restriction on Navy ship repair in Japanese shipyards.

Authorization Bills Both House and Senate have passed a FY 1986 defense authorization bill. The Senate version provides defense spending authority of $302.5 billion in FY 1986. The House version holds spending authority to $292.5 billion. House/ Senate conferees will meet this month to reconcile the two bills.

Neither bill dramatically impacts the Navy ship maintenance program.

The Administration requested $25.8 billion for Navy operation and maintenance programs in FY 1986, of which $6.1 billion is for ship maintenance and modernization.

The House bill authorizes $25.1 and the Senate authorizes $25.5 billion. The only direct impact is a provision in the House bill which authorizes an additional $20 million for depot maintenance to reduce ship maintenance backlog.

The legislative process is far from complete. An appropriations measure must be passed and sent to the President for signature. Ship maintenance tends to be of more interest to the appropriators than the authorizes.

Homeport Policy OPNAV Note 4700 issued in late May specifies that all scheduled availabilities (overhauls, SRA's and PMA's) exceeding six months duration are to be competed coastwide.

Under prior policy all SRA's and PMA's were restricted to homeport area competition.

Ten FFG 7 frigates (maybe only eight) scheduled to be retrofitted with the LAMPS III helicopter landing system (RAST) are affected by this instruction. This retrofit work was planned to be performed during an SRA since FFG 7 class frigates are not scheduled for overhaul during their service life. These special SRA's will take ten-twelve months to complete and under previous policy the work would be reserved for local homeport shipyards.

The new policy opens this work to coastwide bidding.

Eight of these frigates are homeported on the East Coast. Two are homeported on the West Coast. The first retrofit is scheduled for the Mclnerney (FFG8) in February 1986.

Norfolk Homeport Extended To Include Baltimore Another development was a memorandum from the Secretary of Navy instructing the CNO to include Baltimore in the Norfolk area homeport radius. As background the memo cited the increasing percentage of SRA's and described how this development has hurt shipyards outside the Norfolk homeport area.

The instruction specifies that beginning 8 May 1985, Baltimore area shipyards are eligible to bid on jobs reserved for the Norfolk homeport area. This policy, however, applies only to fixed price solicitations and requires a relocation cost differential to be added to the Baltimore bid(s). Because only fixed price awards are included, Baltimore yards will be unable to bid for phased maintenance contracts (they are cost plus contracts). This eliminates many amphibious and support ships from the available market.

Depth limitations in Baltimore further restricts the impact of this policy change. The channel depth at the Bethlehem-Sparrows Point shipyard is 26-27 feet, ruling out major combatant ships. As a result it is unclear whether the new policy will open much Navy SRA business to Baltimore shipyards.

No plans to widen other homeport areas are being considered by Navy—at present. But this development opens the door for shipyards in other non-homeport areas to push the same initiative.

Kitty Hawk Service Life Extension (SLEP) Both House and Senate Armed Services Committees have requested Navy to provide further information on the cost effectiveness of performing the Kitty Hawk modernization at the Philadelphia Naval Yard. Underlying the requests is an attempt to assign Kitty Hawk to the Puget Sound Naval Shipyard, rather than the Philadelphia Naval Shipyard. Language in the House version leaves open the possibility of sending the ship to a commercial yard on the West Coast.

The House referred to a Navy internal study and requested an analysis of the cost effectiveness of alternative approaches: A Navy paper, known as the "AIRPAC Study," suggested that dollar savings and increased operational availability may be achieved by accomplishing the extension of the service life through a complex overhaul (COH) and a series of short shipyard periods (that could be performed in West Coast shipyards) rather than during a single long shipyard period (that would be performed in Philadelphia, the site of previous SLEP's). The study also suggested that a single long shipyard period SLEP would involve unnecessary or duplicative work because West Coast based carriers have different (higher) maintenance standards.

The Commander of the Naval Sea Systems Command (NAVSEA) has studied the matter. The NAVSEA study concluded that a single long shipyard period was preferred because it could include necessary major main engine repairs and structural repairs that would have to be deferred under the alternative approach. The NAVSEA study also concluded that cost, workload, and facilities considerations favored the assignment of U.S.S. Kitty Hawk to Philadelphia for a single long shipyard period. Accordingly, the .Commander of the Naval Sea Systems Command recommended to the Chief of Naval Operations and the Secretary of the Navy that U.S.S. Kitty Hawk be assigned to the Philadelphia Naval Shipyard for extension of service life in a single shipyard period.

The committee directs the Secretary of the Navy to assess the cost effectiveness of alternate approaches to extension of service life of U.S.S. Kitty Hawk and to submit a report to the Committees on Armed Services of the Senate and House of Representatives describing the results and conclusions of that assessment.

The report should include the following: a description of the work planned to be accomplished during the SLEP; an assessment of the costs and benefits (to include operational availability) of accomplishing the planned work in a Service Life Extension Program as compared to accomplishing the same work in a complex overhaul; and a comparison of the work planned to be accomplished during the SLEP with the work identified as being required in the "AIRPAC Study." The Senate Armed Services Committee requested that Navy certify the cost effectiveness of its plan and placed limits on use of funds until the certification is provided: The committee recommends authorization of $133.4 million for CV SLEP. The committee also has included bill language prohibiting the obligation or expenditure of more than $86.4 million of these funds until ninety days after the Secretary of the Navy certifies that, all relevant factors considered, a full SLEP at Philadelphia Naval Shipyard is more cost effective than alternative means for achieving the same service life extension of the U.S.S.

Kitty Hawk at other naval shipyards.

Certification should be provided in a letter to the Committees on Armed Services of the Senate and the House of Representatives.

Ship Maintenance Performed In Japan In general provisions attached to the FY 1986 defense authorization bill, the House has instructed Navy to: . .. carry out in U.S. shipyards not less than one-half of the depotlevel maintenance work (measured in cost) for fiscal years 1986 through 1988 scheduled to be accomplished in Japanese shipyards as of May 8, 1985 for ships homeported on the West Coast.

This provision was introduced by Rep. Duncan Hunter (R, Calif.) in full Committee markup of the defense authorization bill. It does not apply to MSC ships. The Senate bill does not contain a similar provision and it will be an issue taken up by the conferees.

Strategic Homeporting Navy has decided to station the battleship Wisconsin (BB 64) in Corpus Christi, Texas. This was the outcome of competition over the past year to select a Navy homeport in the Gulf. Navy has also decided to assign ships to eight other Gulf ports. A 15th battle group will be stationed in the Gulf.

This concept of strategic homeporting has significant political advantage.

It produces wider political support for Navy programs. However, it is a very expensive idea which raises many logistics issues.

The cost issue was recently addressed by the Senate Armed Services Committee. In approving the initial $36 million project to develop homeports in Staten Island and Everett, the Committee sought further justification of the proposed expenditure: The Navy is currently expanding to meet the goal of a force of 600 ships. With this increase comes the requirement for increased port facilities. In this year's re- quest, the Department has sought funding totaling $36 million to open two new ports, one to support a battleship surface action group at Staten Island, NY, and one for a carrier battle group at Everett, WA. The total military construction cost of facilities for these two ports is estimated at $750 million. However, a substantial part of these funds would be required to homeport these new ships whether new or existing ports are used.

The committee has approved the initial projects requested for both of these facilities, subject to a requirement that no funds authorized to be appropriated in this act for naval strategic homeporting may be obligated or expended until 90 days have elapsed following the submission of a report to the Congress by the Secretary of the Navy justifying the expenditures of such funds on the basis of military necessity and cost effectiveness.

INDUSTRY ACTIVITY Navy continues to be the dominant source of shipyard business in this country. Commercial work is depressed due to the strong dollar and poor economic conditions in international and domestic shipping.

Most U.S. ship repair yards are relying on Navy contracts for their business base.

Navy Contract Awards Major Navy contract awards over the past three months are described below: • Todd Shipyards—An $11.5 million fixed price contract was awarded the San Francisco division to overhaul the ammunition ship Mt. Hood (AE-29). Todd was one of five bidders. The San Pedro division received a $3.5 million fixed price contract to perform SRA work on the destroyer Paul Foster (DD 964). It was one of two bidders.

• Boston Shipyard—The firm received a $5.0 million fixed price contract from the Military Sealift Command to overhaul the fleet oiler Mississinewa (TAO 143).

Boston Shipyard was one of eight firms that bid the job.

• Southwest Marine—The San Pedro division received a $14.9 million contract to overhaul the amphibious landing ship Mt. Vernon (LSD 39). Two firms competed for this contract.

• Continental Maritime (San Diego)— A $7.5 million fixed price contract was received to overhaul the frigate Roark (FF 1053). Continental was one of six firms competing for the contract.

• NASSCO—The firm was awarded a $12.8 million fixed price contract to overhaul the amphibious assault ship Tripoli (LPH 10). Two companies competed for this job.

A $6.0 million fixed price contract for SRA work on the destroyer Merrill (DD 976) was awarded to NASSCO. Three firms competed for the work. NASSCO also received a $3.5 cost plus award fee contract for phased maintenance of four tank landing ships. Two firms competed for this job.

• Service Engineering—This San Francisco firm received a $4.2 million cost plus award fee contract for phased maintenance of four Kilauea-class ammunition ships: Kiska (AE 35), Shasta (AE 33), Mt. Hood (AE 29) and Flint (AE 32). Five firms competed for this contract.

• Braswell-Hoboken—The yard received a $7.6 million fixed price contract to overhaul the frigate McCloy (FF 1038). Work is to be performed by its Hoboken division.

Seven firms competed for this contract. Boston Shipyard was low bidder at $5.8 million but, according to the Navy contracting office, was "determined to be nonresponsible." • Litton-Ingalls—A $12.0 million fixed price incentive contract was awarded to overhaul the destroyer Preble (DDG 46). Litton was one of five firms competing for this contract.

• Burrard Yarrows—This Canadian firm was awarded a $3.0 million fixed price contract for work on the combat stores ship Spica (TAFS 9). The firm was one of six companies who competed for the job.

• Alabama Dry Dock—The firm received an $8.8 million fixed price contract to overhaul and upgrade the combat stores ship Saturn (TAFS 10). Ten firms competed for this contract.

PROJECTED N A V Y SHIP MAINTENANCE In May Navy released its 1985-86 schedule of ship maintenance to be performed in commercial yards. It shows the dramatic change in overhaul scheduling which results from the shift to engineered operating cycle and phased maintenance.

International Maritime Associates, Inc. (IMA) provides systematic coverage of the Navy ship maintenance and modernization market. Subscribers to IMA's unique Navy ship maintenance reporting service receive quarterly updates and special memos which systematically report important business developments. Included in the reports are projected repair work, contract awards, industry developments, policy changes, legislation, etc. information is up-to-date, the analysis concise. The reports are designed for use by marketing managers and business planners.

This service can be obtained for $380.00 to cover the period July 1985 through June 1986. To order please contact: International Maritime Associates, Inc., 1800 K Street N. W., Washington, D.C. 20006; Telephone (202) 296-4615; Telecopier (202) 293-7508; Telex 64325 IMA.

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