America’s New Frigate Will Blow Through Cost Estimates

With the selection of a FREMM (Fregata Europea Multi-Missione) Frigate as the basis for the U.S. Navy’s future small combatant, the Navy’s surface community is justifiably happy to have a ship it understands—a basic “monohull with margin”—entering the fleet. 

But now, after the contract is signed, the U.S. Navy needs to shift from the contentment of awarding the “right” shipbuilder’s hull and get about the hard work of keeping the program alive.

And that means being brutally honest about cost and schedule.

If the past is any guide, America’s FREMM Frigate will cost far more than estimated, and likely enter the fleet late, too.

Set Realistic Expectations:

Nothing sinks a new shipbuilding program faster than propagating unrealistic expectations about platform schedule and price.

Some post-award optimism is OK. Upon announcing the U.S. Navy’s future frigate design last month, James Geurts, the Secretary of the Navy for Research, Development and Acquisition, chortled over the compressed timeline, saying his program “was able to accelerate almost six years as compared to normal shipbuilding programs.” The Navy announced that the follow-on, per-ship cost dropped from $800-950 million to $781 million.

A little bit of exuberance about schedule and cost right now is fine, but it is worth remembering that America’s “next-gen” frigate program is far from the norm in naval shipbuilding. With the FREMM—the winning design—the Navy picked a platform whose conceptual “clean sheet” origin can be traced all the way back to 1985, in an effort to build a common frigate for NATO countries.

In short, a lot of work has already been done to define the FREMM, and with over fifteen FREMM variants in service for four other navies, a good amount of risk has already been driven out of the platform. Progress, right now, should be fast and cheap.

But that will change.

Expect Delay:

As any new U.S. naval shipbuilding program has shifted from “best-case” PowerPoint slides to actual production, delay has been the norm. Delay, in this case, will lead to both political and national security upheaval.

The new frigates must deliver on time. The shipbuilder, Fincantieri, is set to deliver the first frigate in 2026, just as the first of America’s mainstream fleet of Arleigh Burke class destroyers reach the end of their 35-year service lives. Burke retirements ramp up quickly; by 2028, four to five Burkes a year will be aging out of the fleet. That’s when America’s new frigates will needed in real numbers.

National security aside, delay could lead to a political confrontation as well. With the prospect of delays likely to really start manifesting themselves sometime in 2023, the next Administration will need to move quickly to address any delays in schedule or new procurement strategies.

Expect Cost Overruns:

Right now, the Navy is sounding confident about cost, estimating that the average price per hull (the basic components of the ship without the warfighting gear included) will be about $781 million dollars apiece.

But that price is only about $110 million dollars more than the U.S. Coast Guard’s National Security Cutter, a far smaller and less sophisticated vessel. Accounting for the FREMM’s greater size, additional structural requirements and overall hull strengthening needs, the additional $110 million in the frigate budget will be asked to do an enormous amount. The estimate seems, at best, optimistic.

Naval shipbuilding observers are already sounding the alarm. After the award, Ronald O’Rourke, the dean of naval shipbuilding with the Congressional Research Service, dove into the Navy’s cost estimates. Using the general rule of thumb that, in naval shipbuilding, unit procurement costs are “more or less proportional to their displacements,” O’Rourke wondered how the new FREMM frigate—a ship that is about 76% of a Flight III Arleigh Burke class destroyer’s displacement (or size)— can be estimated to cost about 49% less.

O’Rourke believes the first new frigates will cost somewhere in the vicinity of $1.47 million.

It would not be a surprise to see the new frigates will settle into a per-hull cost of more than a billion dollars apiece—more than half of what the Navy pays for a brand new Flight III Arleigh Burke Destroyer today. The FREMM is a good hullform, but the secret sauce for the FREMM will be what gets put into it—the combat system, the sensors, the launchers and other “government-furnished equipment”. So, once the shipyard delivers the basic platform—the hull, the mechanical gear to drive the hull and the electrical services—then the government can then add in whatever it wishes.

With the first FREMM, at least $400 million will go towards warfighting gear. The Navy, of course, is already likely eying the FREMM’s commodious margin for additional warfighting capability—all at additional cost.

Now, the tactic of loosely disassociating warfighting gear from the basic hull cost is smart. Once the base hull is approved and passes various tests, then, on a flexible, commodious ship like the FREMM, the Navy can make additions and variations relatively easily. The shipbuilder, Fincantieri, likely made the potential for easy enhancement/modification of the proposed frigate quite plain in their pitch to Navy buyers.

This, of course, is where shipbuilding gets tricky. If the shipbuilder runs into problems with cost on an easily-upgraded ship, it is far simpler for the Navy to short needed “government-furnished equipment” and allow the shipyard to deliver a functional but “bare-bones” hull seemingly “at cost”. In essence, the Navy gets a workable hull, but it is an incomplete warship, unready for warfighting. The idea would be, that, at later refits—and at a likely higher cost—the missing capability can be added in. But those refits don’t hit the all-important shipbuilding account, and the Navy dodges an embarrassing budget bullet.

That’s just how business is done at the waterfront.

No More “Business As Usual”

But the Navy is running out of time for “business as usual” shipbuilding. China’s relentless maritime expansionism demands that America’s future naval ships be built on time and on budget. The new frigates cannot be delivered late and over-budget, only to sit around, working their leisurely way towards full combat capability sometime around 2030.

Good estimates matter. The decision-makers who developed the current frigate cost estimates will largely be gone by 2026. If their estimates turned out to be wrong, they won’t care. They did their job—developing an estimate that magically priced out the new frigate to barely half the cost of a brand new Flight III Arleigh Burke destroyer.

There is no penalty for low-balling a procurement estimate.

Poor early-procurement estimating, however, does come back to haunt America. Price and schedule blowouts in naval shipbuilding make for good press, and long-time shipbuilding observers like Bloomberg’s Anthony Capaccio will always be ready to highlight any perceived failings. It’s terrible for any shipbuilding program to endure. Budget and schedule missteps on such high-profile projects also diminish the Nation, leaving both friends and rivals to question the Navy’s competence. Each blowout on a Navy hull allows China’s low-cost but less-than-perfect shipbuilders to look better in comparison.

Beating the original estimate is a big deal. If the Navy had the guts to say—at this early stage—that their new frigate would likely cost about as much as an early-flight Arleigh Burke destroyer, and then, in a few years, ended up beating that estimate, it would do a lot for America, the Navy and the new frigate program itself.

But then again, if naval estimators came out a few years ago and declared outright that the new frigate would likely cost about 1.5 billion dollars, America’s new frigate would have ended up being a de-scoped, simplified Arleigh Burke variant.