August 08, 2013
While the Huntington Ingalls Industries (HII) Newport News Shipbuilding unit continues to build the next-generation CVN-78 Ford-class carrier, the company and U.S. Navy are negotiating for the deal to construct the next ship, CVN-79 John F. Kennedy.
“Without going into the inner workings of the negotiations or the discussions, our expectation is that this would be a fixed-price incentive contract,” HII CEO Michael Petters told Wall Street investment analysts during an Aug. 7 quarterly earnings call.
“The question about contract type really is a question about how much risk is there and how do you put your arms around the risk,” Petters says. “We can put our arms around that in a fixed-price incentive contract. But then it’s a question of, can you fund that? And that will be part of the discussion. Contract type may be a way that we end up mitigating risk, but I’m not expecting that right now.”
Petters underscored the urgency of getting the contract signed, while acknowledging the “dilemma” faced by the Navy, Congress and the company in drafting a fixed-price contract for a second ship when the first ship has not yet been completed.
“I would tell you, emphatically, we need to get to that contract and get under way because what we’re doing now is we’re piecemealing the contract ... We’re doing some advanced construction, and we’re doing that one phase at a time. That really limits our ability to energize the complete supply chain,” he says. Holding off on the contract until more risk is reduced could incur costs greater than what might have resulted from that risk, he says.
However, Petters acknowledges, “It’s an environment where the contract is not necessarily the driver. The other pressures in Washington may end up being the driver. And that’s part of how we discussed this project with the Navy going forward — what’s the right thing to do and what makes the most sense? We’re having good discussions with the Navy today, and we’re optimistic about where the program is going to go.”
Progress on the CVN-78 Ford continues in preparation for its launch and christening in November, he says. On CVN-79, he adds, “Efforts continue under our construction preparation contract to ramp up engineering design, planning, long-lead-time material procurement and advanced construction.”