Austal USA Wins Massive $3.3 Billion Dollar Offshore Patrol Cutter Contract

In the tense hours before the U.S. Coast Guard awarded the Offshore Patrol Cutter “Stage 2,” a $3.3 billion dollar contract to build up to 11 Heritage class Offshore Patrol Cutters, shipbuilding executives struggled to stay on task. One shipbuilder, holed up in a shadowy Navy Yard bar, studied his cell phone, trading the latest rumors, and counting down the hours before notification. In a series of afternoon phone calls to at least four shipyards, the U.S. Coast Guard finally broke the news that it had awarded Austal USA the massive cutter shipbuilding contract—one of the largest openly competed shipbuilding contests over the past few years.

Austal’s win is particularly notable.

Originally a pure-play aluminum shipbuilder, Austal’s Alabama-based U.S. subsidiary had only recently shifted to steel manufacture, using $50 million in federal funding to open a $100 million steel shipbuilding facility in April 2022. As Austal USA’s Independence Class Littoral Combat Ship andSpearhead Expeditionary Fast Transport production lines progressively wound down, the Navy gradually shifted some steel work to Austal. In late 2021, the Navy awarded Austal a $385 million contract for two—and up to five—Navajo (T-ATS 6) Class towing, salvage, and rescue ships. Last week, the Navy awarded Austal a $128 million contract for an Auxiliary Floating Dry Dock, Medium, or AFDM. The shipyard was making progress, but, without a large contract, the shipyard’s painstakingly-recruited and trained workforce would have been let go.

The Offshore Patrol Cutter contract changes things. As Austal USA President Rusty Murdaugh said in a statement, “this program will provide our shipbuilding team the stability for continued growth.”

Senator Richard Shelby, Alabama’s powerful Republican Senator, was gleeful, saying the decision “highlights the world-class workforce and proven track record of the Mobile shipyard.” He continued, “this contract speaks to the reliability and strength of Austal employees along the Gulf Coast, as well as their ability to deliver.”

As Jilted Shipbuilders React, A Protest Looms:

Reaction was swift as stunned shipbuilders registered their losses.

Eastern Shipbuilding Group, the incumbent shipyard that is set to build the first four Offshore Patrol Cutters, did not welcome the news of a second production line. The Group’s President, Joey D’Isernia, was blunt, telling Defense News “We are extremely disappointed in this decision and are evaluating our options.”

Florida Senator, Republican Marco Rubio, wasted no time to set himself at odds with the U.S. Coast Guard and with Alabama’s largely Republican Congressional Delegation, declaring that “today’s decision is short sighted,” and fuming that “this decision will cost taxpayers more money and slow down the delivery of these critical vessels.

Other shipbuilding observers were stunned by the Coast Guard’s decision, wondering if Austal, given that it was inexperienced with steel fabrication, had underbid, and, by facing an already daunting portfolio of new steel work, was at risk of failure—falling victim to the typical “boom-bust” business cycles seen in many shipyards.

While the Coast Guard has yet to provide bidders feedback on the competition, the potential for a costly bid protest is impossible to dismiss. As this author has warned before, “legal wrangling after the award announcement could delay the program to the point where the Coast Guard would need to throw it all away and start bidding for the 2^nd tranche of Offshore Patrol Cutters all over again.”

An Austal OPC Changes The Game:

Austal’s win will have wide ramifications for the Gulf Coast shipbuilding industry.

Huntington Ingalls, as a pure naval shipbuilder, will, after absorbing the loss, immediately launch a full-throated fight to keep their National Security Cutter production line alive long enough for the Coast Guard to fully evaluate the first few Eastern-built Offshore Patrol Cutters. By growing the “Program of Record” and maintaining the larger cutter as a viable alternative, a healthy National Security Cutter production line reduces the risk that the Offshore Patrol Cutter emerges strategically irrelevant or operationally unsuitable.

With Austal’s workers and new facility apparently set to be occupied with Coast Guard work, efforts to enlist smaller Gulf Coast naval shipbuilders into larger naval shipbuilding projects gets harder. The ability to leverage the efficiencies of small yards for extra Virginia and Columbia Class submarine work becomes harder and any potential initiative to find a second yard for the Constellation Class Frigate may become more complex.

Shipbuilders throughout the Gulf must recalibrate their commercial contract work as Bollinger Shipyards and Eastern refocus their energies on commercial projects, driving down profit margins in the white-hot commercial shipbuilding marketplace.

Austal, too, faces change. The Offshore Patrol Cutter hammers home the idea that Austal’s future is in steel as well as in the U.S. market. And, with Austal moving to develop a vessel maintenance center in San Diego, Austal USA is well-positioned to take on more Coast Guard maintenance, supporting the first four Offshore Patrol Cutters that are bound for the West Coast. A deeper move into the Pacific—long anticipated with the Littoral Combat Ship program—would offer other interesting opportunities, and, finally, the shipyard could use the Offshore Patrol Cutter program to help pioneer collaborative workforce and defense information exchanges—complex initiatives that must be built out now to efficiently advance wider defense collaborations expected to be part and parcel of the larger AUKUS alliance.

But the big challenge for the Gulf Coast shipbuilding community is to see, after all the dust settles, if both Eastern and Austal—as well as both Florida and Alabama’s Congressional delegations—can work together in growing the Offshore Patrol Cutter Program. The U.S. Coast Guard needs to replace their aging mid-endurance cutters, and could use more of them. Working together is the easiest way to grow the “Program of Record,” keeping both production lines active and healthy for years to come.