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The following is the Oct. 13, 2020 Congressional Budget Office report, The Cost of the Navy’s New Frigate.

From the report

On April 30, 2020, the Navy awarded Fincantieri Marinette Marine a contract to build the Navy’s new surface combatant, a guided-missile frigate long designated as FFG(X).1 The contract guarantees that Fincantieri will build the lead ship (the first ship designed for a class) and gives the Navy options to build as many as nine additional ships. In this report, the Congressional Budget Office examines the potential costs if the Navy exercises all of those options.

• CBO estimates the cost of the 10 FFG(X) ships would be $12.3 billion in 2020 (inflation-adjusted) dollars, about $1.2 billion per ship, on the basis of its own weight-based cost model. That amount is 40 percent more than the Navy’s estimate.

• The Navy estimates that the 10 ships would cost $8.7 billion in 2020 dollars, an average of $870 million per ship.

• If the Navy’s estimate turns out to be accurate, the FFG(X) would be the least expensive surface combatant program of the past 50 years (measured in cost per thousand tons when the ship is mostly empty), even in comparison to much less capable ships.

Several factors support the Navy’s estimate:

• The FFG(X) is based on a design that has been in production for many years.

• Little if any new technology is being developed for it.

• The contractor is an experienced builder of small surface combatants.

• An independent estimate within the Department of Defense (DoD) was lower than the Navy’s estimate.

Other factors suggest the Navy’s estimate is too low:

• The costs of all surface combatants since 1970, as measured per thousand tons, were higher.

• Historically the Navy has almost always underestimated the cost of the lead ship, and a more expensive lead ship generally results in higher costs for the follow-on ships.

• Even when major parts of the ship’s estimated cost are known, as they were for the Arleigh Burke destroyer, costs have turned out to be higher than initially estimated.

• Compared with the design on which it is based, the FFG(X) will be more densely built and will have somewhat more complex weapon systems.

In addition, although the Navy’s contract with Fincantieri is for a fixed price, which limits the government’s financial liability, that fixed-price contract does not guarantee that costs will not increase for three reasons:

• The terms of the Navy’s contract permit the ship’s contract price to be increased under certain circumstances.

• The Navy could make changes to the ship’s design during construction that would increase costs, as it did, for example, in the littoral combat ship (LCS) program.

• If costs rise enough to threaten the financial viability of the shipbuilder, the Navy may opt to cover some of those higher costs rather than experience a disruption in a shipbuilding program that it considers essential.