Trident Submarine Case Study Essay Example for Free

Trident Submarine Case Study Essay In the fall of 1971, as President Nixon was attempting to convince The Soviet Union to include submarines and ballistic missiles in the Strategic Arms Limitation Talks (SALT), the US Navy was planning on introducing a new class of submarines called the Trident. The Trident submarines were to succeed the Polaris submarines, which was developed in the 1950s. The Trident submarines were not only physically larger than the Polaris submarines, they also possessed revolutionary propulsion components and weaponry. If the US could successfully launch the Trident program, Nixon felt it would generate progress in SALT by demonstrating the United States’ commitment to strategic submarines and missiles. However, if the Trident program was unable to deliver, Nixon would consider revamping the Polaris class, which could halt the Trident program indefinitely. In response to Nixon’s focus on the United States’ submarine capabilities, the Navy declared that they could assemble a Trident submarine just as quickly as building a Polaris. These bold claims introduced additional pressure on the people behind the Trident program, as the estimated build time had now been reduced. The updated time frame also shifted the discussion to the type of contract the Navy would use when dealing with contractors on the Trident. Instead of designing the contract to distribute risk equally and promote easy management, the Navy now needed a contract that would guarantee delivery of the first submarine within six years and would include strict controls over the project. The contract discussion quickly turned into a debate between the supporters for cost-reimbursement and fixed price contracts. A fixed price contract holds the contractor responsible for delivering a product that meets all of the performance specifications for an agreed price. A cost-reimbursement contract means that a contractor attempts to meet the customer’s performance, time, and cost requirements and will be reimbursed for the cost of the project. Both fixed-cost and cost-reimbursement contracts can be crafted in multiple forms. However, the Navy traditionally used fixed-cost contracts for products with known build times and little development effort. Cost-reimbursement contracts were typically used in first time development projects, where the time and costs could not be accurately estimated. The Navy has a history of using cost-reimbursement contracts on the first or lead ship and then using a fixed-cost contract for any additional ships. While the rationale behind using a cost-reimbursement contract on the lead ship in a class is understandable, I believe the Navy would benefit more from a fixed-cost contract in this situation. More specifically, by taking into account the shortened time frame, strict management requirements, and the desire to protect the government’s interests, I believe the Navy should use a Fixed Price Incentive (FPI) contract. A FPI contract establishes a final contract price that includes a target cost plus a profit adjustment. FPI contracts can use a formula to calculate the final cost allowing for an adjustment in profit if the cost and schedule changes. An FPI contract also contains a negative fee feature, which can be applied to adjust the profit of the contractor if the final cost or schedule exceeds the target cost or schedule. I believe the FPI is applicable because there is not enough information to set a firm target cost for the work, but there is enough information to establish initial target cost, initial target profit, and an initial profit adjustment formula. Moving forward after the lead ship is developed, the Navy can negotiate a firm-fixed-price contract when the actual cost is better defined. However, the fact remains that the Trident submarine is a new ship, and the shipbuilders could be faced with unrealized production challenges, such as mirror welds, which could slow down the build time and increase labor costs. These types of unexpected costs are the basis for the cost-reimbursement contract approach and remain a risk within every fixed cost contract. Fixed cost contracts also run the risk of reducing the quality of work in favor of remaining under budget. Considering the risks associated with a fixed-cost contract, I still believe that a fixed-cost contract in this situation will be more successful. It will allow the Navy to strictly enforce the contract, which will appease Admiral Rockover and bolster confidence in the House and Senate. The incentive portion of the contract is intended to ensure that the shipbuilders devote adequate time and resources to the Trident project as it directly impacts their profits. I also believe that risk associated with high development related costs is reduced by having the propulsion and weapons delivered to the shipbuilders as government furnished equipment (GFE), which are prefabricated systems that just require installation. The shipbuilders are experts in building submarines, so while the Trident ships will be larger the real development costs have already been experienced when creating the GFEs, so unexpected spikes in cost should be avoided.