General Dynamics got the Christmas bonus many others in the defense sector missed. The defense firm's shipbuilding sector received three contracts worth $4.6 billion over the holiday season to develop the next ballistic missile submarine and continue building Virginia-class submarines.
The financial boost comes at a time that the rest of the defense sector is bracing for cuts. General Dynamics will join the rest of the defense industry as its massive firm reaches out beyond submarines, but this should serve as a cushion to absorb those blows.
The Navy awarded General Dynamics' Electric Boat Division a $1.85 billion contract for the development of the Ohio-Class Replacement Program. Navy leaders hope to build 12 new ballistic missile submarines out of the program to replace the 14 existing Ohio-class submarines.
The $1.85 billion will obviously not cover the entire development, but it's a boost for a program that Navy officials have listed as its top priority.
Navy acquisition officials worked a series of incentives into the cost-plus-fixed-fee contract. They were included by Naval Sea Systems Command to motivate General Dynamics in a sector they don't face much competition.
"The Navy established a structured series of incentives to motivate General Dynamics Electric Boat and the government to further innovation to lower non-recurring engineering costs, construction costs, and operation and support costs," said Capt. William Brougham, NAVSEA's Ohio Replacement program manager, in a statement.
Navy officials do not expect next generation Ohio-class submarines to conduct their first mission until 2031. Long lead modernization programs like the Ohio-Class Replacement have left some analysts worried they could be delayed by the coming sequestration cuts. General Dynamics executives said the contract shows the level of the Navy's commitment.
“These awards provide the stability to the submarine industrial base that will allow us to achieve even greater cost reduction through improved efficiencies in support of the Navy’s submarine force-level requirements,” said Kevin J. Poitras, General Dynamics' Electric Boat president, in a statement.
The largest of the three contracts General Dynamics received was a $2.5 billion contract to build the 17th and 18th Virginia-class submarines for the Navy. General Dynamics' Electric Boat works with Newport News Shipbuilding in construction of the South Dakota (SSN-790) and Delaware (SSN-791) submarines.
The last of three contracts is one for $308 million to purchase long lead-time materials for the fourth production block of the Virginia class submarine.
Pentagon officials pushed to get these contracts cleared ahead of the fiscal cliff deadline of Jan. 2. Doing so protected the contracts from the possible sequestration cuts. The decision on those cuts was punted to March by Congress, which many defense analysts fear make them more realistic since they will be roped into the debt ceiling debates.