Coast Guard Says Main Drive Shaft Issue Puts OPC Delivery Schedule ‘At Risk’

In a sign of impending trouble for the Offshore Patrol Cutter (OPC) program, the U.S. Coast Guard reports that a production issue on the first two OPCs has put the scheduled delivery of the first Heritage Class Cutter, the future USCGC Argus (WMSM 915), at risk. Eastern Shipbuilding Group, headquartered in Panama City, Fla., is building the first four OPCs. Austal USA won a contract for the next 11 ships, and Eastern is reportedly preparing to contest the Coast Guard’s decision in federal court.

According to the Coast Guard, both the Argus and the future USCGC Chase (WMSM 916), are suffering an “issue on the main drive shafts.” Main drive shafts are critical components of the vessel’s propulsion system, responsible for transferring power from the vessel’s engines to the ship’s propellers.

The Coast Guard did not describe the problem in detail, but industry sources suggested the shafts suffered from machining and other defects, cautioning that, as the shipbuilder scrambles to find a contractually acceptable path forward, the problem may ultimately affect, in some way, all four OPCs currently under construction at Eastern Shipbuilding. Unless Eastern orders completely new shafting—a long and expensive process—the shipbuilder will likely need the Coast Guard to waive certain contractual specification requirements before accepting delivery of the affected vessels. Coast Guard contracting officers could also suspend or withhold a portion of the Coast Guard’s progress payments until corrective action is implemented.

The Coast Guard notes the problem risks impacting schedule. In an emailed statement Monday, the U.S. Coast Guard noted that the contractual delivery date for the first OPC is June 2023, but warned that “due to the previously described main drive shaft non-conformance, this delivery date is at risk. Once a path forward to repair and install shafting is finalized, the Coast Guard will be better positioned to understand any potential impacts to the contract schedule and delivery date.”

While not a contractual issue, the Coast Guard says the Argus launch ceremony “was originally scheduled to occur” in the third quarter of Fiscal Year 2022 (between April 1 and June 30). As of Monday, no launch date was in sight. And while the Coast Guard was loathe to characterize the launch delay as an indicator of schedule delay, it said it was “working with the shipbuilder on a repair and remediation plan and will be able to provide an estimated launch date once that plan is finalized.” As an important, albeit symbolic milestone, a vessel launch or float-out is often used as a metric for schedule. And, in shipbuilding, a failure to launch speaks for itself.

Jessica Ditto, Eastern Shipbuilding’s vice president of communications, declined repeated requests for comment.

However, the company announced Tuesday it was cutting steel for the fourth OPC, but, rather than focus on the ceremony, the company used three of the five paragraphs in the press release to suggest that additional work stemming from a May 20 contract modification was the reason for the first OPC’s current 2023 delivery date—a date that, according to the Coast Guard, is currently “at risk” due to the shafting issues.

What Now For The OPC Program?

Despite problems and concerns, the OPC remains the Coast Guard’s highest investment priority. After the OPC program gestated for more than two decades, little more than a total catastrophe—or lengthy litigation—will stop the long-anticipated program.

The Coast Guard, which, in an iteration of the failed Deepwater asset recapitalization program, once expected the first OPCs to enter service as early as 2010, desperately wants the new cutters in service as soon as possible. But the service does have a range of options and fallbacks if the program is delayed. The older 270-foot Famous Class and 210-foot Reliance Class cutters the 25-ship OPC “Program of Record” is meant to replace are still getting the job done, and the Coast Guard, as it pushes the mid-endurance cutter fleet to do more, seems confident it can accommodate some near-term hiccups.

The main drive shaft issue is a big deal, but it is not a crisis. With Eastern set, at this point, to only build the first four OPCs, even a significant production delay is manageable. By awarding the next tranche of 11 ships to Alabama shipbuilder Austal USA (where I worked as an executive a decade ago), the Coast Guard has effectively eliminated the risk that any potential delays at Eastern will threaten the current delivery schedule for the rest of the 25-ship OPC fleet. And, if future OPC builders are given an opportunity to accelerate OPC production beyond two ships a year, the impact of any delay in the first few Eastern-built OPCs will be minimal.

However, delays in getting the first mid-sized cutters into service may breathe new life into the Legend Class National Security Cutter and Sentinel Class Fast Response Cutter production lines. With the OPC serving as a “capability bridge” between the larger Legend Class and the smaller Sentinels, Congress might seize the opportunity to redirect some procurement funding away from the OPC. And, since Congress has kept its options open, the Coast Guard is particularly well-positioned to procure at least one additional National Security Cutter.

A potentially more serious challenge for the Coast Guard OPC program is in understanding any potential cost implications of the main drive shaft issue. The cost of the first four OPCs has already increased substantially since the initial 2018 award, and the Coast Guard may not be eager to provide more funding to fix contractor mistakes. In addition, delivering out-of-specification main drive shafts may generate unanticipated operational constraints or maintenance expenses over time.

As a privately held, family-owned enterprise, Eastern Shipbuilding’s financials are not released to the public. Eastern certainly seems healthy, but shipyards, as capital-intensive ventures, often live paycheck-to-paycheck, depending on regular progress payments from customers. It’s about cash flow. If the Department of Homeland Security decides that Eastern is fiscally responsible for the production “issues” and withholds portions of shipyard’s OPC progress payments for a significant period, Eastern may face unwelcome financial hardship.

The Heat Is On At Eastern

The Coast Guard’s public comments on the production “issue” suggest that the stakes are now very high for Eastern Shipbuilding.

The shipyard, hurt by the Coast Guard’s June decision to award the next tranche of up to 11 OPCs to Austal USA, has embarked upon a high-profile, scorched earth effort to litigate the bid outcome. After withdrawing an earlier bid protest at the Government Accountability Office, the shipyard announced it was pursuing a high-stakes suit in federal court, forgoing a more collegial effort to grow the overall OPC program of record and position itself to compete for the next production run. Florida’s congressional delegation is engaged as well, forcing the Coast Guard to spend precious political capital that it would prefer to focus on other priorities.

Eastern now faces the uncomfortable task of reconciling its optimistic public statements with the yard’s subsequent performance record. The Coast Guard and Congress need to understand when the shafting “issue” emerged, and why, as the issue progressed to threaten delivery of the first ship, the Coast Guard authorized Eastern in April to start building the yard’s fourth—and potentially final—OPC, as well as why it modified Eastern’s contract in May so installation of the Athena combat weapons system and multi-mode radar system would be completed during the production phase.

In public, as Eastern Shipbuilding positioned itself to contend for the next tranche of 11 OPCs, Eastern accentuated the positive, acknowledging few programmatic problems with the Offshore Patrol Cutter. But now, after the contract award, a retrospective look at Eastern’s sunny external communications suggests a potentially troubling and otherwise unexplained lack of progress on the first two Offshore Patrol Cutters.

In an April “In The Know” podcast, Eastern Shipbuilding Group President Joey D’Isernia said that the first Offshore Patrol Cutter, Argus, was “approximately 70% complete.” An October press release from the company says the Argus is now only 75% complete.

Progress on the second OPC, the Chase, seems frozen. In April, Eastern said it “is nearly halfway through completion of the second vessel.” And now, six months later, Eastern says “the second OPC is approximately 50% complete.”

The slow progress on both ships has not been explained, nor has the shipyard discussed any potential financial consequences from the apparently slow production. At best, the numbers reflect scope creep or optimistic production estimates, but, at worst, they may reflect an unexplained stall in production.

Progress projections aside, Eastern Shipbuilding Group modified its messaging as the issues with the main drive shafts were apparently coming to light, and appeared to be publicly socializing a schedule shift well before the Coast Guard’s combat systems-oriented contract modification was announced.

The change was marked. A year ago, D’Isernia was optimistic about the OPC, saying “delivery of the lead OPC is planned for fiscal year 2022.” In November 2021, D’Isernia told Defense News that “Argus is tracking “on time”” to a 2022 delivery. But by April, Eastern Shipbuilding offered a new approach, saying only that “it expects to christen the first vessel this year,” which, in shipbuilding terms, marks a mid-production milestone for an incomplete ship. Until this week, neither the Coast Guard nor the shipbuilder had offered an explanation for the apparent delay, and, as Eastern’s statements demonstrate, the shift away from a 2022 completion and towards a 2023 delivery target appears to predate the May 20 contract modification.

As Eastern awaited the Coast Guard’s decision on the next tranche of Offshore Patrol Cutters, the shipyard continued to roll out positive messaging, showing every sign that the program was proceeding. On June 4, Eastern released photos of a newly-painted Argus, and on June 24, the shipyard released a tweet saying the yard was “hard at work” to deliver OPCS to the Coast Guard “on schedule and on budget.” One day before the award announcement, Eastern declared on social media that “OPC Hull 1 is moving into position for launch.”

The public posturing was of little help. On June 30, with the Argus still ashore, the Coast Guard awarded the second tranche of OPCs to Austal USA.