Littoral Combat Ship and Frigate: Congress Faced with Critical Acquisition Decisions
Published: 2016-12-01T00:00:00

Fast Facts:
The Navy took a revolutionary, dual ship approach to buying the Littoral Combat Ship over a decade ago, but this approach has fallen short. LCS has taken longer, cost more, and delivered less capability than expected. The Navy recently decided to pursue a modified LCS that it calls a frigate.
The Navy intends to commit quickly and buy 12 frigates, but the ship's design, cost, and capabilities remain uncertain.
We testified that Congress faces a key decision in 2017—whether to authorize the Navy's strategy for buying all of the frigates, which may be premature and may set a precedent for what aspiring programs view as acceptable strategies.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Navy envisioned a revolutionary approach for the LCS program: dual ship designs with interchangeable mission packages intended to provide mission flexibility at a lower cost. This approach has fallen short, with significant cost increases and reduced expectations about mission flexibility and performance. The Navy has changed acquisition approaches several times. The latest change involves minor upgrades to an LCS design—referred to now as a frigate. Yet, questions persist about both the LCS and the frigate.
GAO has reported on the acquisition struggles facing LCS and now the frigate, particularly in GAO-13-530 and GAO-16-356 . This statement discusses: (1) the evolution of the LCS acquisition strategy and business case; (2) key risks in the Navy's plans for the frigate based on the LCS program; and (3) remaining oversight opportunities for the LCS and small surface combatant programs. This statement is largely based on GAO's prior reports and larger work on shipbuilding and acquisition best practices. It incorporates limited updated audit work where appropriate.
section_title: What GAO Found
paragraphs: The Navy's vision for Littoral Combat Ship (LCS) program has evolved significantly over the last 15 years, reflecting degradations of the underlying business case. Initial plans to experiment with two different prototype ships adapted from commercial designs were abandoned early in favor of an acquisition approach that committed to numerous ships before proving their capabilities. Ships were not delivered quickly to the fleet at low cost. Rather cost, schedule, and capability expectations degraded over time. In contrast, a sound business case would have balanced needed resources—time, money, and technical knowledge—to transform a concept into the desired product.
Concerned about the LCS's survivability and lethality, in 2014 the Secretary of Defense directed the Navy to evaluate alternatives. After rejecting more capable ships based partly on cost, schedule, and industrial base considerations, the Navy chose the existing LCS designs with minor modifications and re-designated the ship as a frigate. Much of the LCS's capabilities are yet to be demonstrated and the frigate's design, cost, and capabilities are not well-defined. The Navy proposes to commit quickly to the frigate in what it calls a block buy of 12 ships.
Congress has key decisions for fiscal years 2017 and 2018 that have significant funding and oversight implications. First, the Navy has already requested funding to buy two more baseline LCS ships in fiscal year 2017. Second, early next year, the Navy plans to request authorization for a block buy of all 12 frigates and funding in the fiscal year 2018 budget request for the lead frigate. Making these commitments now could make it more difficult to make decisions in the future to reduce or delay the program should that be warranted. A more basic oversight question today is whether a ship that costs twice as much yet delivers less capability than planned warrants an additional investment of nearly $14 billion. GAO has advised Congress to consider not funding the two LCS requested in 2017 given its now obsolete design and existing construction backlogs. Authorizing the block buy strategy for the frigate appears premature. The decisions Congress makes could have implications for what aspiring programs view as acceptable strategies.
section_title: What GAO Recommends
paragraphs: GAO is not making any new recommendations in this statement but has made numerous recommendations to the Department of Defense (DOD) in the past on LCS and frigate acquisition, including strengthening the program's business case before proceeding with acquisition decisions. While DOD has, at times, agreed with GAO's recommendations, it has taken limited action to implement them.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Department of the Navy’s  Littoral Combat Ship (LCS) and frigate programs. The Navy envisioned a  revolutionary approach to the LCS program. Unlike other surface  combatant programs, LCS consists of two different ship design variants  (called seaframes) with interchangeable mission packages carrying  equipment for three mission areas—surface and anti-submarine warfare,  and mine countermeasures—intended to give the Navy flexibility to  rapidly deploy equipment and incorporate new systems. Coupled with this  approach, the LCS would have a smaller crew that would rely on shore- based support for its maintenance needs in an effort to reduce life-cycle  costs. To execute the program, the Navy deviated from traditional  shipbuilding acquisition in hopes of rapidly delivering ships to the fleet.  The consequences of this approach are well known today—costs to  construct the ships have more than doubled from initial expectations, with  promised levels of capability unfulfilled and deliveries significantly  delayed. Acknowledging capability and affordability concerns, the  Department of Defense (DOD)—in conjunction with the Navy—changed  course in February 2014 to pursue a more capable frigate based on the  LCS concept.
Today, with 26 ships delivered or under contract, the LCS program again  stands at a crossroads, as Congress will decide on funding the last two  planned LCS and will be asked early next year to authorize the Navy’s  plans to procure the remaining 12 ships, including funding the lead  frigate. With that context in mind, I will discuss today: (1) the evolution of  the LCS acquisition strategy and business case; (2) key risks in the  Navy’s plans for the frigate based on the LCS program; and (3) remaining  oversight opportunities for the LCS and small surface combatant  programs.
This testimony largely leverages our past reports on the LCS program  from 2005 to 2016. We also draw on some conclusions from our broader  work on Navy shipbuilding and acquisition reform initiatives. More  detailed information on our objectives, scope, and methodology for that  work can be found in the issued reports. We conducted the work on which  this statement is based in accordance with generally accepted  government auditing standards. Those standards require that we plan  and perform the audit to obtain sufficient, appropriate evidence to provide  a reasonable basis for our findings and conclusions based on our audit  objectives. We believe that the evidence obtained provides a reasonable  basis for our findings and conclusions based on our audit objectives. This  statement also includes updates to information, as appropriate, based on  program documentation and discussion with DOD officials—work that  also was conducted in accordance with generally accepted government  auditing standards.
subsections: section_title: The Course of the LCS Program Has Changed Significantly over Time
paragraphs: When first conceived, the LCS program represented an innovative  approach for conducting naval operations, matched with a unique  acquisition strategy that included two nontraditional shipbuilders and two  different ships based on commercial designs—Lockheed Martin’s  Freedom variant and Austal USA’s Independence variant, respectively.  The Navy planned to experiment with these ships to determine its  preferred design variant. However, in relatively short order, this  experimentation strategy was abandoned in favor of a more traditional  acquisition of over 50 ships. More recently, the Secretary of Defense has  questioned the appropriate capability and quantity of the LCS. The  purpose of the program has evolved from concept experimentation, to  LCS, and more recently, to an LCS that will be upgraded to a frigate. The  strategy for contracting and competing for ship construction has also  changed. This evolution is captured in figure 1.
While one could argue that a new concept should be expected to evolve  over time, the LCS evolution has been complicated by the fact that major  commitments have been made to build large numbers of ships before  proving their capabilities. Whereas acquisition best practices embrace a  “fly before you buy” approach, the Navy has subscribed to a buy before  you fly approach for LCS. Consequently, the business imperatives of  budgeting, contracting, and ship construction have outweighed the need  to demonstrate knowledge, such as technology maturation, design, and  testing, resulting in a program that has delivered 8 ships and has 14 more  in some stage of the construction process (includes LCS 21, with a  planned December 2016 construction start) despite an unclear  understanding of the capability the ships will ultimately be able to provide  and with notable performance issues discovered among the few ships  that have already been delivered.
section_title: LCS Business Case Has Eroded as Cost, Schedule, and Performance Expectations Have Not Been Met
paragraphs: The Navy’s vision for the LCS has evolved significantly over time, with  questions remaining today about the program’s underlying business case.  In its simplest form, a business case requires a balance between the  concept selected to satisfy warfighter needs and the resources— technologies, design knowledge, funding, and time—needed to transform  the concept into a product, in this case a ship. In a number of reports and  assessments since 2005, we have raised concerns about the Navy’s  business case for LCS, noting risks related to cost, schedule, and  technical problems, as well as the overall capability of the ships. Business  case aside, the LCS program deviated from initial expectations, while  continuing to commit to ship and mission package purchases.
The LCS acquisition was challenging from the outset. The Navy hoped to  deliver large numbers of ships to the fleet quickly at a low cost. In an  effort to achieve its goals, the Navy deviated from sound business  practices by concurrently designing and constructing the two lead ship  variants while still determining the ship’s requirements. The Navy  believed it could manage this approach because it considered LCS to be  an adaptation of existing commercial ship designs. However, transforming  a commercial ship into a capable, survivable warship was an inherently  complex undertaking. Elements of the business case further eroded— including initial cost and schedule expectations. Table 1 compares the  Navy’s initial expectations of the LCS business case with the present  version of the program.
Our recent work has shown that the LCS business case continues to  weaken. LCS ships under construction have exceeded contract cost  targets, with the government responsible for paying for a portion of the  cost growth. This growth has prompted the Navy to request $246 million  in additional funding for fiscal years 2015-2017 largely to address cost  overruns on 12 LCS seaframes. Similarly, deliveries of almost all LCS  under contract (LCS 5-26) have been delayed by several months, and, in  some cases, closer to a year or longer. Navy officials recently reported  that, despite having had 5 years of LCS construction to help stabilize ship  delivery expectations, the program would not deliver four LCS in fiscal  year 2016 as planned. Whereas the program expected to deliver all 55  ships in the class by fiscal year 2018, today that expectation has been  reduced to 17 ships.
LCS mission packages, in particular, lag behind expectations. The Navy  has fallen short of demonstrating that the LCS with its mission packages  can meet the minimum level of capability defined at the beginning of the  program. As figure 2 shows, 24 LCS seaframes will be delivered by the  time all three mission packages achieve a minimum capability.
Since 2007, delivery of the total initial mission package operational  capability has been delayed by about 9 years (from 2011 to 2020) and the  Navy has lowered the level of performance needed to achieve the initial  capability for two packages—surface warfare and mine countermeasures.  In addition to mission package failures, the Navy has not met several  seaframe objectives, including speed and range. For example, Navy  testers estimate that the range of one LCS variant is about half of the  minimum level identified at the beginning of the program. As the Navy  continues to concurrently deliver seaframes and develop mission  packages, it has become clear that the seaframes and mission package  technologies were not mature and remain largely unproven. In response,  the Navy recently designated the first four LCS as test ships to support an  aggressive testing schedule between fiscal years 2017 and 2022.  Additional deficiencies discovered during these tests could further delay  capability and require expensive changes to the seaframes and mission  packages that have already been delivered.
As the cost and schedule side of the business case for LCS has grown,  performance and capabilities have declined. Changes in the LCS concept  of operations are largely the consequence of less than expected lethality  and survivability, which remain mostly unproven 7 years after delivery of  the lead ships. LCS was designed with reduced requirements as  compared to other surface combatants, and over time the Navy has  lowered several survivability and lethality requirements further and  removed some design features—making the ships less survivable in their  expected threat environments and less lethal than initially planned. This  has forced the Navy to redefine how it plans to operate the ships. Our  previous work highlighted the changes in the LCS’s expected capability,  as shown in table 2.
Further capability changes may be necessary as the Navy continues to  test the seaframes and mission packages, as well as gain greater  operational experience. For example, the Navy has not yet demonstrated  that LCS will achieve its survivability requirements and does not plan to  complete survivability assessments until 2018—after more than 24 ships  are either in the fleet or under construction. The Navy has identified  unknowns related to the Independence variant’s aluminum hull, and  conducted underwater explosion testing in 2016 but the Navy has yet to  compile and report the results. Both variants also sustained some  damage in trials in rough sea conditions, but the Navy has not completed  its analytical report of these events. Results from air defense and  cybersecurity testing also indicate capability concerns.
section_title: Business Case for Frigate Program Remains Uncertain
paragraphs: The Navy elected to pursue a frigate concept based on a minor modified  LCS. The frigate, as planned, will provide multi-mission capability that is  an improvement over LCS and offers modest improvements to some  other capabilities, such as the air search radar. Still, many questions  remain to be settled about the frigate’s design, cost, schedule, and  capabilities—all while the Navy continues to purchase additional LCS.  Despite the uncertainties, the Navy’s acquisition strategy involves  effectively demonstrating a commitment to buy all of the planned  frigates—12 in total—before establishing realistic cost, schedule, and  technical parameters—because the Navy will ask Congress to authorize  the contracting approach for the 12 frigates (what the Navy calls a block  buy contract) in 2017. Further, the frigate will inherit many of the  shortcomings or uncertainties of the LCS, and does not address all the  priorities that the Navy had identified for its future frigate.
subsections: section_title: Frigate Cost Uncertainty and a Compressed Schedule Contribute to Gaps in Program Knowledge
paragraphs: The costs for the frigate are still uncertain. Navy officials have stated that  the frigate is expected to cost no more than 20 percent—approximately  $100 million—more per ship than the average LCS seaframes. However,  the Navy will not establish its cost estimate until May 2017— presumably  after the Navy requests authorization from Congress in its fiscal year  2018 budget request for the block buy contracting approach for 12  frigates—raising the likelihood that the budget request will not reflect the  most current costs for the program moving forward.
In addition to the continued cost uncertainty, the schedule and approach  for the frigate acquisition have undergone substantial changes in the last  year, as shown in table 3.
According to frigate program officials, under the current acquisition  approach the Navy will award contracts in fiscal year 2017 to each of the  current LCS contractors to construct one LCS with a block buy option for  12 additional LCS—not frigates. Then, the Navy plans to obtain proposals  from both LCS contractors in late 2017 that would upgrade the block buy  option of LCS to frigates using frigate-specific design changes and  modifications. The Navy will evaluate the frigate upgrade packages and  then exercise the option—now for frigates—on the contract that provides  the best value based on tradeoffs between price and technical factors.  This downselect will occur in summer 2018. Figure 3 illustrates how the  Navy plans to modify the fiscal year 2017 LCS contract to convert the  ships in the block buy options to frigates.
The Navy’s current plan, which moves the frigate award forward from  fiscal year 2019 to fiscal year 2018, is an acceleration that continues a  pattern of committing to buy ships in advance of adequate knowledge.  Specifically, the Navy has planned for its downselect award of the frigate  to occur before detail design of the ship begins. As we previously  reported, awarding a contract before detail design is completed—though  common in Navy ship acquisitions—has resulted in increased ship  prices.   Further, in the absence of a year of frigate detail design, the  Navy plans to rely on a contractor-driven design process that is less  prescriptive. This approach is similar to that espoused by the original LCS  program, whereby the shipyards were given performance specifications  and requirements, selecting the design and systems that they determined  were best suited to fit their designs in a producible manner. Program  officials told us that this new approach should yield efficiencies; however,  history from LCS raises concern that this approach for the frigate similarly  could lead to the ships having non-standard equipment, with less  commonality with the other design and the rest of the Navy.
section_title: Frigate Does Not Address All Navy Priorities and Will Likely Carry Forward Some of the Limitations of the LCS Designs
paragraphs: As LCS costs grew and capabilities diluted, the Secretary of Defense  directed the Navy to explore alternatives to the LCS to address key  deficiencies. In response, the Navy created the Small Surface Combatant  Task Force and directed it to consider new and existing frigate design  options, including different types of modified LCS designs. The task force  concluded that the Navy’s desired capability requirements could not be  met without major modifications to an LCS design or utilizing other non- LCS designs. When presented with this conclusion, senior Navy  leadership directed the task force to explore what capabilities might be  more feasible on a minor modified LCS. This led the task force to develop  options with diminished capabilities, such as reduced speed or range,  resulting in some capabilities becoming equal to or below expected  capabilities of the current LCS. Ultimately, the department chose a frigate  concept based on a minor modified LCS in lieu of more capable small  surface combatant options because of LCS’s relatively lower cost and  quicker ability to field, as well as the ability to upgrade remaining LCS.
Table 4 presents an analysis from our past work, which found that the  Navy’s proposed frigate will offer some improvements over LCS. For  example, the Navy plans to equip the frigates with the mission systems  from both the surface and anti-submarine mission packages  simultaneously instead of just one at a time like LCS. However, the  Navy’s planned frigate upgrades will not result in significant  improvements in survivability areas related to vulnerability—the ability to  withstand initial damage effects from threat weapons—or recoverability— the ability of the crew to take emergency action to contain and control  damage.
Further, the Navy sacrificed capabilities that were prioritized by fleet  operators. For example, fleet operators consistently prioritized a range of  4,000 nautical miles, but the selected frigate concept is as much as 30  percent short of achieving such a range.
The Director, Operational Test and Evaluation has noted that the Navy’s  proposed frigate design is not substantially different from LCS and does  not add much more redundancy or greater separation of critical  equipment or additional compartmentation, making the frigate likely to be  less survivable than the Navy’s previous frigate class. Further, the Navy  plans to make some similar capability improvements to existing and future  LCS, narrowing the difference between LCS and the frigate. We found  that the proposed frigate does not add any new offensive anti-submarine  or surface warfare capabilities that are not already part of one of the LCS  mission packages, so while the frigate will be able to carry what equates  to two mission packages at once, the capabilities in each mission area  will be the same as LCS. While specific details are classified, there are  only a few areas where there are differences in frigate warfighting  capability compared to the LCS.
Since it will be based on the LCS designs, the frigate will likely carry  forward some of the limitations of the LCS designs. For example, LCS  was designed to carry a minimally-sized crew of approximately 50. The  Navy has found in various studies that the crew is undersized and made  some modest increases in crew size. A frigate design based on LCS may  not be able to support a significant increase in crew size due to limited  space for berthing and other facilities. Additionally, barring Navy-directed  changes to key mechanical systems, the frigate will carry some of the  more failure-prone LCS equipment, such as some propulsion equipment,  and will likely carry some of the non-fleet-standard, LCS-unique  equipment that has challenged the Navy’s support and logistics chain.  Uncertainties or needs that remain with the surface and anti-submarine  warfare mission packages, such as demonstrating operational  performance of the surface-to-surface missile and the anti-submarine  warfare package, also pose risk for the frigate.
section_title: Limited Opportunities Remain to Shape LCS and Frigate Programs
paragraphs: The Navy’s plans for fiscal years 2017 and 2018 involve significant  decisions for the LCS and the frigate programs, including potential future  commitments of approximately $14 billion for seaframes and mission  packages. First, the Navy plans to buy the last two LCS in fiscal year  2017, even though DOD and the Navy recognize that the LCS does not  meet needs. Second, the Navy is planning to seek congressional  authorization for a block buy of all planned frigates and funding for the  lead frigate as soon as next year—2017—despite significant unknowns  about the cost, schedule, and capability of the vessel. The Navy’s  acquisition approach for the frigate raises concerns about overcommitting  to the future acquisition of ships for which significant cost, schedule, and  technical uncertainty remains. Similar to what we previously have advised  about LCS block buy contracting, a frigate block buy approach could  reduce funding flexibility. For example, the LCS contracts provide that a  failure to fully fund the purchase of a ship in a given year would make the  contract subject to renegotiation. Following this reasoning, such a failure  to fund a ship in a given year could result in the government paying more  for remaining ships under the contract, which provides a notable  disincentive to take any action that might delay procurement, even when  a program is underperforming.
The Navy requested funding for two LCS in its fiscal year 2017 budget  request. We previously suggested that Congress consider not funding  any requested LCS in fiscal year 2017 because of unresolved concerns  with lethality and survivability of the LCS design, the Navy’s ability to  make needed improvements, and the lagging construction schedule of  the shipyards. As figure 4 depicts, even if no ships were funded in fiscal  year 2017, delays that have occurred for previously funded ships have  resulted in a construction workload that extends into fiscal year 2020.
In all, 8 ships have been delivered (LCS 1-8) and 14 are in various  phases of construction (LCS 9-22), with 3 more (LCS 23, 24, and 26) set  to begin construction later in fiscal year 2017. Although the Navy has  argued that pausing LCS production would result in loss of production  work and start-up delays to the frigate program, the schedule suggests  that the shipyards in Marinette, Wisconsin, and Mobile, Alabama, will  have sufficient workload remaining from prior LCS contract awards that  offsets the need to award additional LCS in fiscal year 2017. The Navy’s  concern also does not account for any other work that the shipyards may  have from other Navy or commercial contracts and the possibility of  continued delays in the delivery of LCS.
On the heels of the decision to fund fiscal year 2017 LCS will be the  decision on whether to authorize the frigate contracting approach and  fund the lead frigate. As I noted above, the current acquisition plans for  the frigate have been accelerated during the past year. If these plans  hold, Congress will be asked in a few months to consider authorizing a  block buy of 12 frigates and funding the lead frigate when the fiscal year  2018 budget is proposed—before detail design has begun and the scope  and cost of the design changes needed to turn an LCS into a frigate are  well understood. The frigate acquisition strategy also reflects a proclivity  by the Navy to use contracting approaches such as block buys and  multiyear procurement for acquisition programs, which may have the  cumulative effect of inuring the programs against changes—such as in  quantities bought.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staff has any questions about this statement, please contact  Paul L. Francis at (202) 512-4841 or francisp@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this statement. GAO staff who made key  contributions to this testimony are Michele Mackin (Director), Diana  Moldafsky (Assistant Director), Pete Anderson, Jacob Leon Beier, Laurier  Fish, Kristine Hassinger, C. James Madar, Sean Merrill, LeAnna Parkey,  and Robin Wilson.
section_title: Related GAO Products
paragraphs: Littoral Combat Ship: Need to Address Fundamental Weaknesses in LCS  and Frigate Acquisition Strategies. GAO-16-356. Washington, D.C.: June  9, 2016.
Littoral Combat Ship: Knowledge of Survivability and Lethality Capabilities  Needed Prior to Making Major Funding Decisions. GAO-16-201.  Washington, D.C.: December 18, 2015.
Littoral Combat Ship: Additional Testing and Improved Weight  Management Needed Prior to Further Investments. GAO-14-827.  Washington, D.C.: September 25, 2014.
Littoral Combat Ship: Navy Complied with Regulations in Accepting Two  Lead Ships, but Quality Problems Persisted after Delivery. GAO-14-749.  Washington, D.C.: July 30, 2014.
Littoral Combat Ship: Deployment of USS Freedom Revealed Risks in  Implementing Operational Concepts and Uncertain Costs. GAO-14-447.  Washington, D.C.: July 8, 2014.
Navy Shipbuilding: Opportunities Exist to Improve Practices Affecting  Quality. GAO-14-122. Washington, D.C.: November 19, 2013.
Navy Shipbuilding: Significant Investments in the Littoral Combat Ship  Continue Amid Substantial Unknowns about Capabilities, Use, and Cost.  GAO-13-738T. Washington, D.C.: July 25, 2013.
Navy Shipbuilding: Significant Investments in the Littoral Combat Ship  Continue Amid Substantial Unknowns about Capabilities, Use, and Cost.  GAO-13-530. Washington, D.C.: July 22, 2013.
Defense Acquisitions: Realizing Savings under Different Littoral Combat  Ship Acquisition Strategies Depends on Successful Management of  Risks. GAO-11-277T. Washington, D.C.: December 14, 2010.
National Defense: Navy’s Proposed Dual Award Acquisition Strategy for  the Littoral Combat Ship Program. GAO-11-249R. Washington, D.C.:  December 8, 2010.
Defense Acquisitions: Navy’s Ability to Overcome Challenges Facing the  Littoral Combat Ship Will Determine Eventual Capabilities. GAO-10-523.  Washington, D.C.: August 31, 2010.
Littoral Combat Ship: Actions Needed to Improve Operating Cost  Estimates and Mitigate Risks in Implementing New Concepts.  GAO-10-257. Washington, D.C.: February 2, 2010.
Best Practices: High Levels of Knowledge at Key Points Differentiate  Commercial Shipbuilding from Navy Shipbuilding. GAO-09-322.  Washington, D.C.: May 13, 2009.
Defense Acquisitions: Overcoming Challenges Key to Capitalizing on  Mine Countermeasures Capabilities. GAO-08-13. Washington, D.C.:  October 12, 2007.
Defense Acquisitions: Plans Need to Allow Enough Time to Demonstrate  Capability of First Littoral Combat Ships. GAO-05-255. Washington, D.C.:  March 1, 2005.
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