Senior Navy officials asked a congressional committee March 20 to again consider allowing the Navy to buy ships and submarines through multi-year contracts. Using multi-year contracts would help the Navy control construction costs on programs like the SSN-774 Virginia-class submarine, said Adm. Vern Clark, chief of naval operations.

"The right thing for us to do is to get to a multi-year [contract] that allows the contractor to go to the supplier and do a long-term acquisition of components so that the supplier can operate at a more effective pace," Clark said at a hearing of the House Appropriations Committee's defense subcommittee. General Dynamics Electric Boat and Northrop Grumman's Newport News Shipbuilding sector are building the first four Virginia-class submarines.

The first is scheduled for delivery in 2004 and will be commissioned in 2006. Procuring one submarine a year is expected to cost the Navy about $2 billion. That price could fall slightly if the Navy bought two submarines per year. Clark said the Navy has introduced an "economic order quantity" (EOQ) process in its fiscal 2004 budget request to hold down construction costs on all ships.

The EOQ process helps senior Navy procurement officers determine which product quantities should be bought on an annual basis to get the best purchase price. Congressional reservations "For us to get through multiple submarines a year, to get to the right place on the production curve so that we are making better use of the fixed costs of the shipyards, that is provided for in this budget with a $400 million investment in economic order quantity issues and measures," Clark said. A multi-year submarine contract would further the Navy's efforts to hold down construction costs, he added.

Rep. Jerry Lewis, R-Calif., said the committee continues to have "reservations" about multi-year contracts because of the need to maintain some control of the budget. "That clearly can't be the only answer to get us in line for where we need to go," Lewis said. "How can we justify considering a multi-year when we haven't seen the first ship yet?" Clark said multi-year contracts could save taxpayers an estimated $100 million per submarine.

The costs of building submarines will continue to rise as long as the Navy has to work with a few specialty suppliers who cannot plan their employee and production baselines over the long term, he said. In other matters, acting Navy Secretary Hansford Johnson said the Navy expects to run short of money sometime during the summer due to the increased operating tempo. "Some say it will be in early June and some say in late July," Johnson said. "The Marines are probably spending at the highest rate."

-- Nick Jonson