NEWPORT NEWS, Va. — Back in February, Huntington Ingalls Industries lost out to three rival shipbuilders in a bid to design a new Coast Guard cutter, a setback that surprised some in the industry, given HII's stature and track record.
In a rare move, HII and another shipbuilder filed a formal protest with the federal government. HII was going to bat for its Ingalls Shipbuilding division in Pascagoula, Miss., which builds the Coast Guard national security cutter. Between Ingalls and Newport News Shipbuilding, HII is the government's most productive shipbuilder.
But the Government Accountability Office recently denied the protest in a 21-page decision that sheds light on what factored into a highly competitive bidding war for a program presumed to be worth an eventual $12 billion.
Eight companies originally pursued the project to design the new Coast Guard offshore patrol cutter, smaller than the national security cutter. It is intended to replace its fleet of 210-foot and 270-foot medium endurance cutters.
Five companies made the cut and three were awarded contracts to develop competing designs: General Dynamics Bath Iron Works in Maine; Eastern Shipbuilding Group Inc. of Panama City, Fla. and Bollinger Shipyards Lockport LLC of Lockport, La. Each received design awards worth about $22 million.
The Coast Guard rejected submissions from HII and VT Halter Marine of Pascagoula. Both companies protested to GAO.
"I think it was a big surprise to the industry that Huntington Ingalls was not included," said Loren Thompson, a defense analyst with The Lexington Institute, Arlington-based research group. "First of all, they make the national security cutter, which is widely considered to be a success."
But anyone applying for a job knows that references count for something. In this case, the company's past performance on other programs came into play, including the San Antonio class amphibious transport dock ships, the GAO report showed.
A side-by-side comparison of the bids showed HII running even with the three eventual winners in factors such as sound design, its design approach, organizational management and production capability.
The key difference was past performance. HII was rated "marginal" while the three winners were deemed "satisfactory."
Problems with the San Antonio class ships began with the first-in-class San Antonio and continued in varying degrees through subsequent ships in the class, although HII cites improved performance as the production line has continued.
Ultimately, those past problems appear to have doomed HII's February bid. The ruling was announced in early June.
The GAO report says the "SSA (Source Selection Authority) concluded that past performance provided the basis upon which to differentiate these proposals."
Regarding the San Antonio class problems, HII spokeswoman Beci Brenton said the company "has vigorously applied lessons learned, markedly improving quality and efficiency with each successive ship, resulting in very successful trials and, we believe, a very satisfied customer."
The company has delivered USS Somerset and is building the future John P. Murtha and the Portland, the 10th and 11th ships in the class.
"We are seeing the benefits of lower costs, higher quality and increased learning which comes from serial production," she said.
In its protest, HII said the Coast Guard should have given more credit for positive past performance on the national security cutter, which is more relevant.. But GAO said the Coast Guard wasn't wrong to consider the San Antonio class.
Thompson said these types of solicitations place a major emphasis on past performance. But in this case, "past performance isn't really indicative of current capability," he said.
Huntington Ingalls "is a completely different company today than when the mistakes were made on LPD-17, completely different management," he said
HII spun off from defense giant Northrop Grumman Corp in March 2011. The San Antonio was delivered to the Navy in 2005.
Still, Thompson said Coast Guard's source selection authority "is in a legal strait jacket in terms of applying its selection criteria. If the solicitation places an emphasis on past performance, then Huntington Ingalls is stuck with that aspect of its credentials, even though the company is better run today and has better capability."
"You've got to stick with the rules," he said.
Information from a Defense News article was used in this story.