Amid Concerns, Coast Guard About To Award 2nd Offshore Patrol Cutter Contract

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After barely more than two weeks at the helm, the new U.S. Coast Guard Commandant, Admiral Linda Fagan, is poised to make her first multi-billion-dollar decision on the long-term future of the Coast Guard. Rumors suggest the Coast Guard is set to award a likely controversial construction contract for up to eleven medium-endurance Heritage-class Offshore Patrol Cutters.

While four of the Coast Guard’s planned set of 25 new Heritage class cutters are set to be built at Eastern Shipbuilding Group’s facilities in Panama City, Florida, a range of Coast Guard and industry stakeholders are eager to speed up the Offshore Patrol Cutter program, either adding to Eastern’s workload or potentially inaugurating a second cutter manufacturing site.

The Coast Guard is aching to replace the fleet’s 29 aging medium endurance cutters. The anticipation, however, is infused with tension over the cutter’s shifting design and over worries that the Coast Guard’s fleet mix is obsolete, poorly aligned for the rapidly changing geopolitical environment.

Waiting sixteen months to re-scrub old fleet mix studies and to test the first Offshore Patrol Cutter would reduce some of the risk. But the Coast Guard’s old cutters aren’t getting any younger, and with contract pricing expiring at the end of June, the Coast Guard appears to be moving forward, with at least four shipyards hoping for a big new contract.

The contract award announcement could occur at any time.

Why Not Wait?

Testing the first ship before buying more of them would be prudent. Unfortunately, nobody seems to publicly know when, exactly, the first ship—the future USCGC Argus—will arrive. While Eastern Shipbuilding Group stated in April it only “expects to christen the first vessel this year,” the Congressional Research Service, citing Coast Guard statements, reported in April that the Argus will be “completing construction in FY 2022”. Realistically, with the ship still on blocks ashore, the Argus will probably only start operating sometime in late FY 2023, too late to inform this next tranche of Offshore Patrol Cutters.

Waiting and testing the Argus would answer a lot of questions about the increasingly controversial Offshore Patrol Cutter design. While the Heritage-class cutter is, at heart, a fine multi-mission ship, piecemeal efforts to address the Coast Guard’s shifting operational priorities have wreaked havoc on what was, once, an austere, bare-bones alternative to the Coast Guard’s high-end National Security Cutter. Designed particularly for anti-terrorism and drug war interdiction work, the Coast Guard has done what it could throughout the later stages of the ship’s design process to make the new cutter a heavy-hitting geopolitical player.

Those efforts risk fundamentally changing the ship. Originally expected to displace a trim 3,500 to 3,750 tons, the new vessel is now currently projected to displace some 4,500 tons, “making it essentially as large as the NSC in terms of full-load displacement.” And that’s not good. With little reserve likely left for platform growth, an overweight Offshore Patrol Cutter may exhibit faster-than expected hull fatigue, or even, potentially, disappoint at sea.

Delay might actually be OK. Away from the ship, the Coast Guard has yet to design, fund, and build out the shore infrastructure needed to support their new mid-endurance cutters. The Coast Guard’s Base Los Angeles/Long Beach is still building piers and other shore facilities necessary to moor and maintain the first two Offshore Patrol Cutters. Neither Base Kodiak in Alaska, nor the Coast Guard base in Newport, Rhode Island are remotely ready to homeport the Offshore Patrol Cutters they are already slated to receive. The Coast Guard Yard in Baltimore isn’t prepared to start maintaining the new ships, either.

The old ships still work. And even though the Coast Guard is eager to replace their ancient Famous and Reliance class medium-endurance cutters, the obsolete boats are still effective. They’re soldiering on, somehow finding their way into new regions and missions. And, rather than just let the old ships decay in a Navy-like fait accompli for new vessels, the Coast Guard is pushing their old mid-endurance ships harder and farther, and appreciating more and more that the no-frills legacy mid-endurance cutters will likely cost far less to operate than their updated replacements.

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The decades-old medium-endurance cutters are actually getting really high-profile roles. At least one old mid-endurance cutter is getting a refit so it can be sent out into the Pacific. Re-imagined as a combination “cutter tender,” floating schoolhouse, and embassy, the ship, reinvented as an “Indo-Pacific Support Platform” will be permanently based forward, tasked to do good work in supporting the Pacific’s fragile island democracies, helping the tiny countries protect their hard-pressed Exclusive Economic Zones.

It makes sense to wait. A pause, while unpopular, allows the Coast Guard to better prepare for the new ships, iron out the ship’s design hiccups, and re-evaluate a decade-old and obsolete fleet mix. The Coast Guard certainly could, if Congress helped out, still pivot, re-energizing hot production lines for a 12th National Security Cutter and a few more Fast Response Cutters. Even the Navy’s soon-to-be-discarded Littoral Combat Ships could help out in a resource pinch.

Delay May Be Inevitable:

Ironically enough, even if the Coast Guard speeds ahead with the Offshore Patrol Cutter program, industry bid protests may bring it all to a grinding halt. Legal wrangling after the award announcement could delay the program to the point where the Coast Guard would need to throw it all away and start bidding for the 2nd tranche of Offshore Patrol Cutters all over again.

Put bluntly, the Coast Guard’s “Request for Proposal” seemed rather weak, prioritizing “production” and “design” approach over “price” and “schedule”. With no performance data available to inform the design of the second tranche of eleven Offshore Patrol Cutters, the Coast Guard has been stuck balancing “a complex witches’ brew of design changes and notional production efficiencies.” If a jilted contractor protests, the Coast Guard will have a really hard time justifying their decision-making.

That said, the second Offshore Patrol Cutter contract is still Eastern Shipbuilding Group’s to lose. While Eastern has had serious challenges with the Offshore Patrol Cutter contract, the incumbent builder always has an innate advantage when bidding for “follow-on” work.

Only a really hungry shipyard is capable of beating Eastern right now.

But you never know. With higher fuel prices supercharging the Gulf Coast’s shipbuilding sector, diversified shipyards with a big book of commercial business—like Eastern—may well prefer the higher commercial margins and the far less complex contractual bureaucracy of commercial work. This abrupt change in economic circumstances may have made Eastern a bit less eager to add government business right now, opening an opportunity for a motivated company to really undercut on price.

Louisiana-based Bollinger Shipyards is a well-regarded Coast Guard shipbuilder that also wants to win the Coast Guard’s Offshore Patrol Cutter program. But Bollinger has a strong book of commercial business, even counting SpaceX as a customer. Bollinger also has close ties with General Dynamics
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and may be well-positioned to help General Dynamics build the high-priority Columbia-class submarine. With all the potential work, Bollinger may not have seen the need to offer the government cut-rate pricing.

On the other hand, Huntington Ingalls and Austal USA are, at this point, pure naval shipbuilders. And while Huntington Ingalls has a strong book of naval shipbuilding business, it also has a record of turning around troubled ship designs. Over the last decade, the National Security Cutter has gone from chump to champ, and, with the support of powerful home-state Senator Roger Wicker, the Ranking member of the Senate Committee on Commerce, Science and Transportation, Huntington Ingalls—if they can beat the smaller yards on cost—has the mix of capacity, political backing, and Coast Guard knowledge to help push the Offshore Patrol Cutter forward.

But Austal USA, a mid-sized shipyard in Mobile, Alabama, is the underdog that might end up surprising everybody. With the production of the Austal-built Independence-class Littoral Combat Ships and Spearhead-class Expeditionary Fast Transport programs winding down, the shipyard, as it pivots to steel construction, is highly motivated to offer extremely favorable contract terms to the Coast Guard. As a yard that has demonstrated an unmatched ability to scale up and move forward, building ships in hurricane-hardened facilities, Austal may well have caught the bus, and is about to become the Coast Guard’s next major supplier.

Right now, only Admiral Linda Fagan’s confidants and a bunch of Coast Guard lawyers know how this contract will unfold. Unlike the Navy’s Constellation-class frigate contest, where the contract was obviously headed towards a politically-valuable swing state, the outcome of the race for the Coast Guard’s second tranche of Offshore Patrol Cutters is anybody’s guess. Austal or Bollinger are likely in the lead, but, whether or not those shipyards actually win the contract later this month will depend upon just how hungry Eastern Shipbuilding Group is, and how tightly the Coast Guard justifies their award decision.

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