LCS is designed to move fast and transport manned and unmanned mine countermeasures, surface warfare, and anti-submarine warfare systems into theater. For the LCS, the seaframe consists of the hull; command and control systems; automated launch, handling, and recovery systems; and certain core combat systems like an air defense radar and 57- millimeter gun. The Navy is embedding LCS’s mine countermeasures, surface warfare, and anti-submarine warfare capabilities within mission packages. These packages—acquired separately from the seaframes— are comprised of unmanned underwater vehicles, unmanned surface vehicles, towed systems, and hull- and helicopter-mounted weapons. The Navy acquired the first two seaframes, LCS 1 and LCS 2, in two different designs from shipbuilding teams led by Lockheed Martin and General Dynamics. Lockheed Martin constructed LCS 1 at Marinette Marine, which is located in Marinette, Wisconsin, while General Dynamics constructed LCS 2 at Austal USA in Mobile, Alabama. In addition to LCS 1 and LCS 2, the Navy has also contracted for construction of an additional 22 ships, of which 2 (LCS 3 and LCS 4) have been delivered to date.set of performance requirements. The most notable difference is that the The two designs reflect different contractor solutions to the same Lockheed Martin version—referred to as the Freedom variant—is a monohull design with a steel hull and aluminum superstructure, while the General Dynamics/Austal USA version—known as the Independence variant—is an aluminum trimaran. LCS was intended to be an affordable ship at $220 million per seaframe. The Navy executed cost-reimbursement contracts with the shipbuilding teams for design of LCS 1 and LCS 2 in July 2003. Subsequently, the Navy exercised options under these contracts for the detail design and construction of LCS 1 and LCS 2—in December 2004 and October 2005—for $188.2 million and $223.2 million, respectively. Cost- reimbursement contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract, and establish an estimate of the total cost of the contract—referred to as the total estimated cost or ceiling cost. This contract type places most of the risk on the government, which may pay more than budgeted should incurred costs be more than expected when the contract is signed, and can be appropriate for use on complex research and development projects when performance uncertainties or the likelihood of changes makes it difficult to estimate performance costs in advance. Under this contracting arrangement, the contractor agrees to use its best efforts to perform the work specified under the contract within the estimated cost. However, the government must reimburse the contractor for its allowable costs regardless of whether the contractor completes work on the particular item. The Navy contracted for the remaining seaframes currently under contract using fixed-price incentive contracts. Fixed-price incentive contracts place increased risk on the contractor, which generally bears some responsibility for increased costs of performance, including full responsibility once the contract’s price ceiling is exceeded. The Navy’s acquisition strategy for LCS seaframes has changed several times over the past decade. The original plan was to fund one or two initial ships—in what the Navy called a Flight 0 configuration—based on the designs it selected through a conceptual design competition, and then spend time experimenting with the seaframes and overall LCS concept. Further, the significant differences between the two seaframe designs lent even more importance to the experimentation concept to inform a decision about which seaframe design was better suited to meet the Navy’s needs. After a down-select decision, the winning design was to be procured in larger numbers, with any design changes incorporated into a new Flight 1 configuration. The Navy abandoned this strategy, however, after concluding it would be unrealistic to expect the two competing shipyards to build only one or two ships and then wait for the Navy to complete the period of experimentation before awarding additional contracts. Instead, the Navy opted to continue funding additional seaframes. Several federal and DOD regulations and Navy policies govern Navy ship acceptance processes. For LCS 1 and LCS 2, these regulations and policies include the following: FAR part 46: Prescribes policies and procedures to ensure that supplies (such as ships) and services acquired under a government contract conform to the contract’s quality and quantity requirements, including provisions on inspection and acceptance. Under the terms of inspection clauses in government contracts, the government generally has the right to inspect and test supplies tendered under the contract before accepting the supplies. FAR section 46.101 defines acceptance as the act of an authorized representative of the government by which the government assumes ownership of supplies tendered as partial or complete performance of the contract. FAR subpart 46.5 prescribes specific regulations on acceptance. Section 46.501 states, among other things, that acceptance constitutes acknowledgement that the supplies or services conform with applicable contract quality and quantity requirements except as provided in the subpart and subject to other terms and conditions of the contract. Other subpart 46.5 sections identify regulations related to responsibility for and place of acceptance, certificates of conformance, and transfer of title and risk of loss. DFARS subpart 246.5: Identifies DOD regulations related to certificates of conformance, including use of a certificate of conformance for ship critical safety items. Office of the Chief of Naval Operations Instruction (OPNAVINST) 4700.8H, Trials, Acceptance, Commissioning, Fitting Out, Shakedown, and Post Shakedown Availability of U.S. Naval Ships Undergoing Construction or Conversion (Dec. 5, 1990). This instruction outlines Navy policy, procedures, and responsibilities related to ship acceptances. As is typical for all Navy ships, including LCS seaframes, after the shipbuilder is satisfied that the ship is complete, the ship embarks on a series of dockside and at-sea tests—known as sea trials—to evaluate overall quality and performance against the contractually required technical specifications and performance requirements. Navy shipbuilding programs, including LCS, generally conduct two sets of sea trials— builder’s trials and acceptance trials. During builder’s trials, inspectors from the Navy’s Supervisor of Shipbuilding, Conversion, and Repair (SUPSHIP) are generally responsible for observing and identifying deficiencies. SUPSHIP is the organization charged with administering and managing DOD contracts with commercial entities in the shipbuilding and ship repair industry. During acceptance trials, the responsibility for identifying deficiencies falls upon the Navy’s Board of Inspection and Survey (INSURV), an independent organization whose inspectors evaluate the newly constructed ship and report on its material condition to Congress and Navy leadership. Ideally, following the successful completion of sea trials and once the government is satisfied that the ship meets requirements, the shipbuilder delivers the ship. Delivery is also referred to as preliminary acceptance of the ship. The Navy accepted delivery of LCS 1 and LCS 2 on September 18, 2008, and December 18, 2009, respectively. In Navy shipbuilding, the official transfer of custody occurs at preliminary acceptance when the Navy signs a Material Inspection and Receiving Report (Form DD 250). Following preliminary acceptance, Navy ships undergo several additional activities to prepare them for service within the fleet. These activities, which can generally take up to a year to complete, include the following: Guaranty period: The guaranty period is a time specified in the contract during which the shipbuilder retains responsibility for correcting any defects that arise on the ship (other than normal wear and tear). The guaranty period is initiated once the Navy accepts delivery of the ship (i.e., once the Form DD 250 is signed). The LCS 1 and LCS 2 contracts each provided for 8-month guaranty periods. Industrial post-delivery availability and/or post-delivery availability: The Navy completes one or both of these availabilities following ship delivery to accomplish remaining work, including critical engineering changes identified late in the construction schedule that were not completed during ship construction. These changes are to address safety or mission critical issues or are essential to support post-delivery test and trials. Final outfitting and post-delivery tests: Following delivery and until sailaway from the shipbuilder’s yard—usually anywhere from 10 to 90 days after the Navy accepts delivery—the crew boards the ship and begins training. Additional training and operational tests of mission systems occur at the ship’s home port. Final contract trials: INSURV inspectors conduct a second round of sea trials to assess whether the ship and all mission equipment are operating as intended. Typically, these trials are held prior to expiration of the ship’s guaranty period. Final acceptance: Upon expiration of any contractually specified guaranty period, final acceptance occurs. The Navy does not complete any documentation related to final acceptance of ships. For LCS 1 and LCS 2, final acceptances occurred in May 2009 and August 2010, respectively. Post shakedown availability: A period of planned maintenance follows final contract trials. During this time, class-wide upgrades and correction of new or previously identified deficiencies that are the government’s responsibility also occur. Obligation and work limiting date: The official date on which full responsibility for funding the ship’s operation and maintenance is transferred from the acquisition command to the operational fleet. The Navy is required to set an obligation and work limiting date for any ship it constructs using Shipbuilding and Conversion, Navy (SCN) appropriations. LCS 1 and LCS 2, however, are unique among Navy ships in that they were constructed using Research, Development, Test and Evaluation (RDT&E) appropriations, and pursuant to Navy guidance, there is no requirement for an obligation and work limiting date for ships constructed with RDT&E funds. Figure 1 highlights how these different events are typically sequenced for Navy ships.