WASHINGTON (Reuters) - The U.S. Navy last week awarded submarine contracts worth up to $4.5 billion to General Dynamics Corp (GD.N) and Huntington Ingalls Industries Inc. (HII.N), securing the funds from automatic budget cuts if Congress cannot reach agreement on other ways to reduce U.S. deficits.
The Navy awarded General Dynamics a five-year contract valued at up to $1.99 billion if all options are exercised, for research and development work on a new submarine to replace the current Ohio-class vessels, which carry nuclear weapons.
It awarded a separate contract worth nearly $2.5 billion for construction of two smaller Virginia-class submarines, work that will be split between General Dynamics’ Electric Boat division, based in Groton, Connecticut, and Huntington Ingalls’ Newport News shipyard.
Connecticut Representative Joe Courtney welcomed the contract news, saying it would help stabilize the local workforce and ensure continued production of submarines, which he described as “a key component of our national security.”
He said hundreds of new engineers and designers had already been hired to work on the new submarine program at a New London, Connecticut, facility.
“This contract will leverage the unique skills of Electric Boat’s submarine and design workforce in designing a capable and cost effective replacement for our Ohio class submarines,” Courtney said, noting that Electric Boat had a record of building submarines ahead of schedule and under budget.
General Dynamics spokesman Kendell Pease said the orders demonstrated the continued and increasing importance of submarines to U.S. national security, particularly given the Obama administration’s planned pivot to the Asia-Pacific region.
“As we move to the Asia Pacific region, submarines will become increasingly important,” Pease said.
The Pentagon announced the cost-plus, fixed-fee contract for design work on the Ohio-class replacement submarine late last Friday, and said it included special incentives. The contract is worth up to $1.99 billion if all options are exercised.
The Pentagon said the contract included design work on the new submarine and continued work on a new common missile compartment being developed jointly by the U.S. Navy and Britain, as well as cost reduction initiatives and full-scale prototype manufacturing and assembly.
Most of the work will be done at General Dynamics’ Connecticut facility, but about 7 percent of the work will be done by Huntington Ingalls. The Navy eventually plans to buy 12 new submarines to replace the current fleet of aging Ohio-class submarines, with construction slated to begin in 2021.
The Navy also awarded a contract to General Dynamics and Huntington Ingalls for construction of the last two Virginia-class submarines under a multi-year contract approved by Congress in fiscal 2008 that locked in a two-a-year production rate.
General Dynamics and Huntington Ingalls split the work on the Virginia-class submarines.
Reporting by Andrea Shalal-Esa; Editing by Dan Grebler