WASHINGTON (Reuters) - The U.S. Navy on Monday awarded a $17.6 billion contract for 10 more Virginia-class, nuclear-powered attack submarines to General Dynamics Corp (GD.N) and its major subcontractor, Huntington Ingalls Industries Inc (HII.N), the largest ever Navy shipbuilding contract.
The contract, which funds work on two Virginia-class submarines per year from fiscal year 2014 through 2018, will net savings of over $2 billion, effectively giving the Navy 10 ships for the price of nine, said Navy Captain David Goggins, program manager for the Virginia-class submarines.
Rear Admiral David Johnson, the Navy’s program executive officer for submarines, said the new contract would result in additional reductions in procurement costs and will also lower operating costs.
“The Block IV award is the largest shipbuilding contract in U.S. Navy history in terms of total dollar value and builds upon the Virginia-class program’s successful Navy and industry relationship,” he said in a statement.
Johnson said the contract would reduce the number of major maintenance visits for the submarines to three from four, which meant that each of the new subs would be able to carry out 15 full-length deployments instead of 14.
“With the decrease in cost and the increase in capability, we are essentially getting more for less,” he said.
The Navy spent 20 months negotiating the contract with General Dynamics’ Connecticut-based Electric Boat unit and Huntington Ingalls’ Virginia-based Newport News Shipbuilding, the biggest subcontractor on the program.
The contract was formally awarded to General Dynamics, but continues the teaming agreement between the two companies.
The Navy is already operating 10 Virginia-class submarines, with eight more submarines from a third block under contract.
The Navy this month delayed the commissioning of the first of the Block III Virginia-class submarines to carry out more design work and resolve quality issues.
The Navy’s Virginia-class submarines are equipped to fight submarines and surface ships, strike targets on land, support special operations, and engage in surveillance.
General Dynamics closed at $107.39 and Huntington Ingalls closed at $99.08 on the New York Stock Exchange on Monday, both down about 1.5 percent.
Reporting by Andrea Shalal; Editing by Ros Krasny and Sandra Maler