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Huntington $4 Billion Carrier Deal Said to Be Delayed

The Navy will delay by as much as a year awarding Huntington Ingalls Industries Inc. (HII) a contract for at least $4 billion to start construction on the second vessel in a new class of aircraft carriers, according to U.S. officials.

Award of the “detail design and construction” contract for the USS John F. Kennedy, designated CVN-79, was planned for this month until recently, said the officials, who asked not to be identified because the postponement hasn’t been announced.

The Navy is grappling in a time of budget cuts with how to pay for a shipbuilding plan that anticipates $43 billion for three carriers in the new class, as well as $34 billion for 52 Littoral Combat Ships and the costs, not yet estimated, for a 12-vessel nuclear submarine fleet to replace the Ohio-class subs.

Huntington Ingalls is currently operating under a $4.9 billion construction contract awarded in 2008 for the USS Gerald R. Ford, or CVN-78, the first vessel in the three-ship class. The Ford, already the costliest warship ever built, is projected to cost $12.8 billion when completed and fully equipped, 22 percent more than estimated five years ago.

Negotiations Continue

Sean Stackley, the Navy’s assistant secretary for acquisition, made the decision to delay the Kennedy contract, the officials said. Also, the Pentagon’s independent Cost Assessment and Program Evaluation office hasn’t completed an analysis of total costs for the Kennedy carrier that’s required before a contract award.

Commander Thurraya Kent, a Navy spokeswoman, said in an e-mailed statement that the service continues to negotiate with Huntington Ingalls on the contract and, “until these negotiations conclude,” the Navy intends to extend funding on a current, smaller, construction-preparation contract to “avoid a costly production break.” The Navy awarded that $296 million contract to the shipbuilder last year.

Continued negotiations on the larger contract “will allow Huntington Ingalls and the Navy to account for construction process improvements and other cost reduction opportunities,” she said.

Suppliers, Workers

Beci Brenton, a spokeswoman for Newport News, Virginia-based Huntington Ingalls, said in an e-mailed statement that extension of the existing contract “will help ensure that the fragile supplier base and our shipbuilders remain working, minimizing delay to ship delivery and associated cost increases.”

“This extension also provides time for the Navy and industry team to implement lessons learned from CVN-78 construction, implement further construction process improvements, identify any government requirement reductions, and increase the maturity of government technologies in order to stay within a challenging budget,” Brenton said.

The Navy’s action wasn’t prompted by a recommendation made by the Government Accountability Office this month to delay the contract until deficiencies with systems on the Ford were corrected and tested, according to a Navy official.

Michele Mackin, the GAO official who led the carrier study, said in an e-mail that “a delay in the CVN-79 detail design and construction contract would improve the government’s negotiating position. The additional time could enable the Navy to incorporate results of ship system testing and to have better insight into the expected costs of the ship.”

Huntington Ingalls rose less than 1 percent to $68 at the close of New York trading and has increased 57 percent this year.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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