VSRA News

By JON W. GLASS, The Virginian-Pilot
© August 28, 2007
NORFOLK

Local shipyard executives no longer shrug it off when their yards lose lucrative contracts for Navy ship repair.

They say they can't afford to. The Navy now awards contracts that give a shipyard a group of ships to maintain over several years, so there's more to win - and lose.

As a result, the shipyards are more likely to file legal protests - with a good chance of success.

All of the biggest yards in Hampton Roads - Earl Industries Inc., Metro Machine Corp., Marine Hydraulics International Inc. and BAE Systems Norfolk Ship Repair - have protested Navy contract awards with the Government Accountability Office, a federal oversight agency.

In the latest case, Portsmouth-based Earl lodged a challenge earlier this month after its Florida operation lost a contract to maintain guided missile frigates at Mayport Naval Station.

The protests are expensive and risk alienating their largest customer, but shipyards are hiring lawyers to scrutinize contract awards for potential flaws - and often find them.

Of three protests filed last year by local yards, the GAO sustained one and denied another while the Navy took corrective steps on the third without the watchdog agency's prompting.

The disputes involve the Navy's new multiship, multioption maintenance contracts. They can be worth hundreds of millions dollars and run for five years or more, if all options are exercised, giving the winning shipyard a long-term lock on a group of ships in a class.

Losing yards often team with the winner to do subcontracting work, which softens the blow. But those left with empty piers or dry docks take a financial hit, shipyard officials say, making them more vulnerable to layoffs and other business woes.

Since 2004, after the Navy began issuing the multiship contracts for vessels based at Norfolk Naval Station, three of the seven awards for local ships have sparked protests.

Before, local yards mostly competed to maintain single ships one at a time. Losing companies could always snag the next ship up for repairs. Protests were relatively rare.

"You were dealing with a marble, and now it's the whole bag of marbles," said Robert Tata, a Norfolk lawyer who is representing Earl Industries.

Shipyard officials say the protests are not frivolous. Legal bills and other expenses can run more than $200,000. If the shipyard loses, those costs can't be recovered from the Navy.

"I look at it as risk and reward," said Gary Brandt, president and chief executive officer of Marine Hydraulics. "Is it worth spending $200,000 to get a contract potentially worth $100 million to $200 million? These protests are nothing personal. To me, it's good business."

Officials with the Naval Sea Systems Command in Washington, which has awarded the disputed contracts, could not say last week whether the protests have delayed or driven up the costs of ship repair.

They also could not say whether the Navy is taking steps to reduce the number of protests.

Pat Dolan, a spokeswoman for the command, said trying to avoid challenges is "almost an impossible task to achieve."

"You try to make your procurements fair, but that perception is in the eye of the contractor who didn't win," Dolan said. "They have the right to protest."

Even so, Joe Carnevale, a senior defense adviser for the Washington-based Shipbuilders Council of America, said the number of protests sustained by the GAO is troubling.

"There definitely is some reason for concern," said Carnevale, a retired rear admiral. "It affects the credibility of the process, it delays the process and it causes the expenditure of time and effort. Getting them right the first time is really, really important."

 The Navy introduced the multiship, multioption contracts aiming to lower maintenance costs and allow fleet commanders to quickly "surge" ships into duty. The idea was that shipyards would become more efficient if they could work on the same class of ships over several years.

Local shipyard owners say the contracts have merit, offering some stability to an industry long buffeted by unpredictable feast-and-famine cycles.

But the cost-plus contracts - in which shipyards are paid their costs plus a performance fee - are more complex than the old single-ship, fixed-price awards.

One complexity is a requirement that the winning yard farm out at least 40 percent of the work to small businesses. To satisfy that, rival shipyards are vying to be the prime contractor while, at the same, time agreeing to work as a subcontractor for competitors.

That has made bids more difficult to prepare and evaluate, raising the possibility for error, shipyard officials say.

"There's more justification for turning over every stone," Tata said. "The stakes are just so much higher now that you look at the awards with a more critical eye."

Those complexities were reflected in May 2006 when the GAO upheld a protest filed by Metro Machine. In that case, Metro alleged that the Navy had improperly evaluated the cost of Earl's winning bid to maintain a group of amphibious landing and transport ships.

Four yards had bid as the prime contractor - Metro, Earl, BAE Systems and Marine Hydraulics. In its proposal, Earl included BAE Systems and Marine Hydraulics as team members. Since they are competitors, the yards did not share labor rates and other expenses, and Earl did not include cost estimates for the work its teammates would perform.

In ruling to sustain Metro's protest, the GAO concluded that the Navy had "failed to reasonably capture" the probable cost of the teaming arrangement.

In response, the Navy rebid the contract - potentially worth $430 million over five to seven years. In the meantime, Earl has been allowed to continue working the original award. For more than a year, the industry has waited for the Navy to decide whether to re-award the contract to Earl or give it to one of the rival yards that rebid.

The Naval Sea Systems Command said Friday that the bids were still under evaluation. Shipyard officials say the Navy may be taking more time to try to bullet proof its decision.

"They can rush an award and if it gets overturned, they've got a bigger problem," said John Strem Jr., Metro's president and chief operating officer.

In another contract dispute, Marine Hydraulics has lodged two protests since the Navy awarded Metro Machine a group of guided missile frigates in April 2006.

After the first protest, the Navy agreed to re-examine the award after acknowledging it made a mathematical error in assessing the bids. The shipyard re protested in March after the Navy finished its review and let Metro keep the contract. Since the second protest, Brandt said, the Navy has agreed to rebid the contract.

However, Metro continues to work the contract, which has a potential value of $181 million over five years. It is the only multiship contract Metro holds.

"We really don't want to see anybody hurt," Brandt said, "but obviously we have to protect our company."

 Several local shipyards have set up shop in Florida as they cast a wider net for work on the Navy's smaller post-Cold War fleet.

The protest Earl Industries filed earlier this month is over a contract the Navy awarded to a joint venture formed by Marine Hydraulics and Chesapeake-based Tecnico Corp. With a potential value of $54 million over seven years, the contract is to maintain 13 frigates - more than half of the Navy's 21-ship fleet at Mayport.

Jerry Miller, Earl's president, said he believes the Navy's evaluation of the winning bid was "unrealistic" and that it would cost the government more.

This is the first time Earl has protested a contract award, Miller said, and he's not happy about it. Challenges can strain relations in the port and be disruptive.

If Earl loses the amphibious ship contract to Metro's protest, for example, it could upend expansion plans, Miller said.

But in the end he said he had little choice. If he did nothing, Miller said, Earl's Florida operation would suffer. It's been there since the mid-1990s and employs about 120 workers. It will be November before the GAO renders its opinion on the Mayport protest.

"I'm either going to protest and try to show the government they were not correct," Miller said, "or I risk going out of business down there."

Jon W. Glass, (757) 446-2318, jon.glass@pilotonline.com

By JON W. GLASS, The Virginian-Pilot
© October 23, 2007

Four years after introducing a new way to award ship maintenance contracts, the Navy says local shipyards are meeting technical performance goals, but costs have not gone down as hoped.

With the military engaged in conflicts in Afghanistan and Iraq, the Navy began issuing the multiship, multioption contracts in the Norfolk port in 2004. The Navy wanted private shipyards to develop expertise on a class of ships, aiming to cut costs, speed up repairs and more quickly deploy vessels as the yards gained experience.

The Navy hoped to use savings to pay for other needs, including shipbuilding.

Top Navy officials say the contracts, known as MSMOs, have led to better planning and on-time delivery from local shipyards. However, they said, the overall price of surface-ship maintenance has not dropped - a key goal the Navy had set.

"We're all under pressure to lower the cost of fleet maintenance," said Vice Adm. Paul Sullivan, commander of Naval Sea Systems Command in Washington. "I have to satisfy my bosses that MSMOs are going to save money. I'm not seeing that yet."

Even on the West Coast, where multiship contracts have been used for more than a decade, the Navy has not experienced a decline in the cost of routine maintenance and repairs, Sullivan said.

The Navy now spends roughly $4 billion a year on ship maintenance at all its home ports.

Under multiship contracts, a shipyard is responsible for maintaining a class of ships over five to seven years. In Hampton Roads, they replaced a system in which the private yards competed for one-time jobs on individual ships.

The thinking behind MSMOs was that cost savings would come as the winning yard developed a "learning curve" from repeated work on ships in the same class.

So far, Sullivan said, "we're not seeing that much of a curve" from local shipyards. He acknowledged, however, that it may be "a little early to call the ball on that."

Local shipyard executives say comparing costs from ship to ship is difficult because, even though they are of the same class, the repairs are rarely identical. Even routine maintenance can be different, depending on the ship's age and other variables, they say.

"I don't think there's any question there's a learning curve. The biggest problem is trying to measure it," said John Strem Jr., president and chief operating officer at Norfolk yard Metro Machine Corp., which holds an MSMO for frigates. "The only way you can really demonstrate it is if you had the exact same item on the same ship."

In one case, Portsmouth shipyard Earl Industries LLC developed a way to remove and reinstall rudders at pierside for a class of amphibious ships it has under an MSMO contract. The yard performed the underwater set up at less cost the second time, but the job ended up being more expensive because of unexpected damage found after the rudder was removed, said shipyard owner Jerry Miller.

"Just looking at the number of dollars doesn't really tell the whole story," Miller said.

Shipyard officials say they have achieved savings on some alteration and modernization work. Those jobs, done to replace old shipboard systems or add something new, usually involve the same kind of tasks on each ship.

On the West Coast, such modernization work is the only area in which the ship-repair industry has shown consistent cost savings, the Navy says.

In Hampton Roads, Miller said his yard has reduced the cost of installing the guidance, launch and retrieval systems for an unmanned aerial vehicle being added to amphibious dock landing ships.

Tom Epley, an executive at Norfolk shipyard Marine Hydraulics International Inc., said his yard has found savings in the way it installs defense systems on guided-missile destroyers.

Epley and other shipyard officials contend that the Navy is getting more work done for the dollars being spent.

"The Navy probably has expectations of achieving constant cost savings, and for them to say that they haven't quite made it yet doesn't surprise me," Epley said. "You have to set a goal high enough to make sure people are always striving to get to it."

While the Navy remains unsatisfied with costs, there seems to be general agreement among top brass that the multiship contracts offer "the best framework" for achieving savings, said Rear Adm. Jim McManamon, the deputy commander for surface warfare in Naval Sea Systems Command.

Sullivan described himself as "a fan," saying the method has added stability for the industry and allowed the Navy to quickly schedule needed work.

Under the "cost-plus" MSMO contracts, the Navy pays the shipyard its costs plus an award fee of up to about 10 percent based on performance. This method has enabled the Navy to track a shipyard's actual expenses and profit, something it could not do under the old fixed-price, single-ship contracts, which were handled as arms-length transactions, McManamon said.

With MSMOs, the shipyard that wins the prime contract works with the Navy to plan work in advance. Both the Navy and shipyard officials say this has helped better define the scope of work and kept costs within budget estimates.

In the single-ship, fixed-price contracts, the yards competed for a specific work package defined by the Navy. Unexpected problems uncovered during the work had to be added to the contract as additional repairs. As a result, the Navy routinely saw the final costs of those contracts increase by 20 to 40 percent - one of the reasons it turned to multiship contracts, McManamon said. The Navy never knew for sure how much of the money it spent went to shipyard profit, he said.

The Navy now is attempting to gather data on hundreds of maintenance and repair jobs being done under MSMO contracts nationwide to better measure shipyard performance. The goal, Sullivan said, is either to save money that can be spent elsewhere or get more work done for the same amount of money.

Jon W. Glass, (757) 446-2318, jon.glass@pilotonline.com

By JON W. GLASS, The Virginian-Pilot
© February 16, 2007

NORFOLK — A period of relative stability in the region’s ship repair industry is expected to continue at least for the next two years with a steady flow of Navy work, the director of fleet maintenance for Fleet Forces Command said Thursday.

Rear Adm. Jeffrey Brooks based that outlook on the Navy’s new way of bundling ship maintenance contracts and on a commitment by senior leadership to adequately fund future maintenance budgets.

Speaking before members of the Virginia Ship Repair Association at Nauticus, Brooks gave his first detailed public comments about a three-hour briefing he presented on ship maintenance issues last September to Adm. Mike Mullen, the chief of naval operations, and his senior Pentagon staff .

One of the “most positive takeaways,” he said, was Mullen’s forceful statement of support for meeting the funding requirements to maintain the fleet.

There is a “resounding commitment on the part of the leadership that we were not going to do what we did in the past,” Brooks said. “We mortgaged the life cycle of the ships, and we didn’t want to get back into that. The CNO’s comeback was, 'I refuse to mortgage the future.’”

In the past few years, the Navy has been forced to play “catch-up” to recover from a period in the late 1990s and 2000s when ship maintenance was “woefully underfunded,” Brooks said, resulting in a backlog of needs exceeding $600 million.

As it pushes to expand the fleet to 313 ships, he said, the Navy understands that skimping on maintenance can shorten the life spans of ships and make that goal harder to meet. The Navy cruisers, destroyers, frigates and amphibious surface ships that make up the workload of most of the local shipyards are built to last 30 to 40 years.

In fiscal year 2006, which ended Sept. 30, “we were funded right on the mark,” Brooks said. He expects the same level of funding – in the $4 billion range – to continue at least for the next two years. The proposed 2008 fiscal year budget that the Bush administration presented to Congress this month set aside $4.4 billion for ship depot maintenance, an increase of more than $500 million over this year.

For the shipyards, when Navy money in those tight years ran out they were forced to lay off workers. The past year, however, has offered steady Navy work, and many have been hiring skilled laborers to keep pace.

Brooks attributed that stability in part to the Navy’s new “multiship, multioption” contracts, known as MSMOs, which were introduced locally in 2004. Under this method, the Navy has discarded its old way of awarding contract work one ship at a time. Instead, the shipyards compete to become the prime contractor to oversee maintenance of a class of ships over a five-year period. The winning shipyard must farm out at least 40 percent of the work to at least two other yards, which has helped spread work around.

Despite some “doubting Thomases,” Brooks said, the new approach has improved the Navy’s working relationship with the industry and has built in incentives to drive down the cost of maintenance – a key Navy goal.

Brooks said he feels “strongly that we need to stay the course” with MSMOs, and that “I don’t see us going back.”

Eventually, he said, the Navy hopes the MSMO process will lead to an “industry standard” that spells out the cost and time of doing specific maintenance, similar to auto industry standards.

Industry officials said they were encouraged to hear that the Navy leadership has linked its push for a larger fleet to ship maintenance.

“I think that’s significant,” said Jerry Miller, president of Earl Industries LLC, a Portsmouth repair yard. “Over the years, we’ve had a lot of this feast and famine when they didn’t fund maintenance. It’s good for us to know they’re going to steadily maintain these ships.”

Mal Branch, president of the ship repair association, tempered his optimism. Brooks sounded “very strong” about the Navy’s commitment to funding and that’s “very good news for the industry,” Branch said.

But he added, “we’ll see when the rubber meets the road. ”

Reach Jon W. Glass at (757) 446-2318 or jon.glass@pilotonline.com.

The Ship Repair Industry has a wonderful opportunity to gain good will in our community while helping our rising future workforce.  Lake Taylor Middle School (1380 Kempsville Road) in Norfolk has been struggling with becoming fully acredited by the state, particularly in the area of elementary math with the sixth graders.  Some of the members of VSRA companies have been working with Lake Taylor Principal Michelle Williams-Moore to provide volunteer help to the students.  There is a need for more volunteers.  YOU CAN HELP.

If you would like to volunteer to spend about two hours a week helping Lake Taylor sixth graders, please call Dee Davis 495-3524 (office) or 434-0187 (cell).  Dee, a longtime member of VSRA, is coordinating the volunteers for the school.  He can give you more specifics on how and when you can help.

What a wonderful and personally gratifying way to highlight our industry to our middle schoolers while helping them succeed.  Remember - YOUR act of kindness could cause these students to choose the ship repair industry in the future for their lifelong career.

Part-time, temporary or contract workers are at a higher risk of occupational injuries and illnesses than other workers, according to a new study conducted by NIOSH researchers.

• Fatal occupational injuries are twice that among the self-employed.
• 19 percent of day laborers reported work-related injuries, compared with less than 5 percent of workers in all private industries.
• Contract coal miners with at least 15 years of tenure had more evidence of black lung than noncontract coal mine workers.

MARAD - Assistance to Small Shipyard Grant Program Amended
The US Maritime Administration (MARAD) issued an amendment to its earlier announcement of the establishment of a new grant program to provide assistance to small shipyards. The amendment clarifies the scope of the program and explains that, if the small shipyard does not have audited financial statements, it may submit financial statements compiled by an independent Certified Public Accountant. 73 Fed. Reg. 8397 (February 13, 2008).

You are encouraged to review the program and can find the application for the assistance grant at http://www07.grants.gov/search/search.do?mode=VIEW&oppId=40743.  The closing date for applications is Monday, February 25, 2008.