Multi-year destroyer contracts will bolster shipyards, workforces: Navy

The Navy hopes new multi-billion dollar, multi-year contracts for nine Arleigh Burke-class destroyers will help two shipyards stabilize their workforces and stay in shape for future orders.

“This contract will provide both of our major large surface combatant providers a stable industrial workload and industrial base…for their workforce and for their investments,” Frederick Stefany, acting assistant Navy secretary for research, development and acquisition, told reporters Wednesday. “Whether it's another DDG multi-year contract afterwards or DDG(X), it sets the environment for a healthy, competitive effort going forward on the DDG(X).”

DDG(X), or the Navy’s Next-Generation Guided-Missile Destroyer, is to follow the Arleigh Burke class.

On Tuesday, the Pentagon announced five-year contracts that will see HII’s Ingalls Shipbuilding build six DDG-51 Flight III destroyers and General Dynamics’ Bath Iron Works build three. 

The Navy will buy destroyers from Bath in 2023, 2024, and 2026, with the final ship to be finished by December 2033, according to the contract announcement. The Navy will buy its first ship from Ingalls Shipbuilding this year, one in 2024, two in 2025, one in 2026 and one in 2027, with the latter to be ready by June 2034.

The Navy's 2024-28 shipbuilding plan called for buying 10 destroyers at two per year, a March Congressional Research Service report said. Congress in its 2023 budget authorized the Navy to use a multi-year procurement contract to buy destroyers between 2023 and 2027.

Those decisions meant this week's contracts were no surprise, said Mark Cancian, a senior advisor for the International Security Program at the Center for Strategic and International Studies.

“Nevertheless, it is good news for the shipbuilders because they can plan on a steady stream of work. The Navy benefits from efficiencies resulting from the long-term commitment,” Cancian said via email.

He added that there is “a minor concern” about just one ship starting construction in 2027, because “That might signal a transition to DDG(X), or might be a hedge against a lower goal for large surface combatants. However, that's far in the future, and there will be many opportunities for change.”

These multi-year contracts are the first to include the “Navy shipbuilding workforce development special incentive,” created in Section 122 of the 2023 National Defense Authorization Act. Stefany said it allows the two shipbuilders to use between a quarter of a percent to one percent of the cost of the contract “to work with their local schools and other local entities to improve the pipeline of talent coming into the shipyards.”

The Section 122 money will help shipyards retain workers, which will help the industry recover from the COVID-19 pandemic, said Rear Adm. Tom Anderson, the Navy’s program executive officer for ships.

“During COVID, the shipyards had some experience leave the yard, just like every other sector of the economy. And they have— it's really important that they retain the skilled workforce that they have, and that they attract future workforce,” Anderson said. “That Section 122 funding, that's exactly what it was intended to do. So getting it on that contract, I think, will absolutely benefit them.”

Stefany said these contracts will help the companies and their suppliers become stronger and more flexible.

Anderson said the Navy’s confidence in the shipyards’ abilities to deliver the ships on time is growing as they come out of the pandemic. 

“We certainly had some challenges with workforce and throughput, but we are seeing improving trends with regards to schedule performance. There are also a number of capital investments that are being made” in both shipyards, he said.

The Navy said it would not release the total price of the contracts because they include the option for six more ships. However, Stefany said the Navy will save an estimated $830 million across the five years by using multi-year procurement contracts instead of buying each ship individually.

Each destroyer costs about $2.2 billion, according to the CRS report, but not all of that goes to the shipbuilders themselves; the Navy buys some key parts, called government furnished equipment, separately.