Bath Iron Works Anxiously Awaits Word on Coast Guard Contract

Adm. Paul F. Zukunft (U.S. Coast Guard photo by Petty Officer 2nd Class Patrick Kelley)
Adm. Paul F. Zukunft (U.S. Coast Guard photo by Petty Officer 2nd Class Patrick Kelley)

BATH, Maine -- As the temperature on the Bath Savings Institute sign reached 94 degrees Friday afternoon, the heat and maybe an icy, after-work beverage were likely foremost in the minds of the 6,100 shipbuilders at Bath Iron Works.

But running a close third is a pending award by the U.S. Coast Guard of a contract to build the first ships in a new class of offshore patrol cutter that altogether will cost roughly $11 billion.

It's the largest shipbuilding contract ever to be awarded by the U.S. Coast Guard and a contract identified by Adm. Paul F. Zukunft, commandant of the Coast Guard, as the service's "highest investment priority."

In February 2014, the U.S. Coast Guard awarded Bath Iron Works a $21 million contract for preliminary design work on offshore patrol cutters. Bollinger Shipyards Lockport LLC in Lockport, Louisiana, and Eastern Shipbuilding Group Inc. in Panama City, Florida, also secured contracts, for a total award of $65 million.

Sometime this month, the Coast Guard is expected to announce which of those three yards will complete the second phase of the project -- building the first nine to 11 cutters.

Should BIW best its two competitors, the contract would provide new work at the yard just as construction of the last of three Zumwalt-class destroyers winds down in Bath.

"We've got our fingers crossed," Rich Nolon, president of Local S6 of the machinists union, said Friday.

So do company officials. While BIW spokesman Matt Wickenheiser declined on Thursday to comment on an open competition or on the potential for layoffs should the Maine shipyard not win the contract, president Fred Harris said in January 2015 that as many as 1,200 manufacturing employees, or 35 percent of its workforce, could be laid off.

In 2015, soon after taking the helm at BIW, Harris instituted changes he said were necessary to make the yard competitive to land the Coast Guard contract, as well as the next multi-year contract for U.S. Navy destroyers.

The changes also resulted in a tumultuous year, including lawsuits and a heated labor contract dispute.

"Bath has worked hard to bring down its costs, but it's operating at a disadvantage. Nobody doubts that Bath can build a world-class cutter," defense industry analyst Loren Thompson, chief operating officer at nonprofit Lexington Institute, said Friday. "The question is whether it can offer a world-class price."

Quality at a premium

The Coast Guard aims to add 25 offshore patrol cutters to replace a fleet of 29 medium-endurance cutters ranging from 25 to 50 years old.

At about $421 million per ship, according to a May report by the Congressional Research Service, the cutters are smaller and less expensive than national security cutters, which patrol the open ocean, but larger than the fast response cutters, which patrol close to shore.

"The OPC will be the backbone of Coast Guard offshore presence and the manifestation of our at-sea authorities," Zukunft wrote in a fact sheet. "It is essential to stopping smugglers at sea, for interdicting undocumented migrants, rescuing mariners, enforcing fisheries laws, responding to disasters and protecting our ports."

Although BIW hasn't built ships for the Coast Guard since the early 1930s, defense industry analysts and Maine's congressional delegation have for decades touted the slogan, "Bath built is best built." And in fact, BIW has continued to secure contracts despite higher costs connected with the cold-weather, northeastern shipyard.

"BIW can deliver performance far superior to the competing yards, but the Coast Guard has to be willing to pay for that and it may not have the money," Thompson said Friday.

Cost continues to play an ever-larger role in shipbuilding -- and southern shipyards have often come in with lower bids.

For example, in late 2008, Bollinger edged out BIW in securing a $1.5 billion contract to build the last round of Coast Guard ships.

But Bollinger also carries history with the Coast Guard, having agreed in December to pay $8.5 million after the U.S. Justice Department alleged the company "lied about the strength of those redesigned patrol boats, which were prone to buckling once they were put into service," The Times-Picayune in New Orleans reported.

"It's never good to get into those situations with a major customer," Jay Korman an analyst with The Avascent Group, said Friday. "Memories can linger, but I'm sure Coast Guard evaluators are looking at each of the proposals on their own merit, reflecting the current requirement and industry's ability to meet those needs with the quality expected at a decent price. Anything other than that could give Bollinger grounds to protest the award."

Current work

Bath Iron Works has six ships under construction: four DDG 51s and two DDG 1000s, with the original, the USS Zumwalt, due to leave the dock soon. Next year, the company will bid on the next multi-year contract to build Arleigh Burke class destroyers.

The cost-saving changes instituted in recent years should help with that bid as well.

But first the workers await word on the Coast Guard contract. In March, one day before BIW submitted its bid to build the first group of cutters, Nolon said he was hopeful the bid would be competitive.

"I'm hoping it will be close enough," he said. "It used to be that we could stand by our quality alone, but the way the federal government has changed how it does business, that's gone away. It's all about costs now -- even with the Navy and the [destroyers]. But I think quality will win out ... as long as it's a reasonable [bid]."

On Friday, Nolon said members of Local S6, and workers throughout the yard, are acutely aware that the award is imminent. While the specter of layoffs looms, Nolon said it's hard to tell how they would "play out."

"From the data I'm seeing, I don't see overall numbers being affected for one or two years, win or lose," he said. "But who knows what Congress is going to do in the fall. If we have another sequestration, and that delays the next round of [Arleigh Burke class destroyers], it could significantly affect us."

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