Eastern Shipbuilding protests cutter award to Austal USA

A rendering showing how the vessel will look when finished.
Eastern is about three-quarters finished building the lead Heritage-class offshore patrol cutter.
Eastern is about three-quarters finished building the lead Heritage-class offshore patrol cutter.
A rendering showing how the vessel will look when finished.
A rendering showing how the vessel will look when finished.

Eastern Shipbuilding Group (ESG) is challenging the U.S. Coast Guard’s contract with Austal USA to build up to 11 offshore patrol cutters (OPCs), alleging performance issues with the Alabama shipyard and irregularities in the bidding process. 

Eastern, based in Panama City, Fla., said the Coast Guard leaked its pricing data, putting Eastern at a distinct disadvantage for the Stage 2 OPC contract that could exceed $3 billion. Eastern also alleged Austal employed a former Coast Guard official who had insider knowledge of Eastern’s operations and pricing.

Eastern filed its protest with the Government Accountability Office (GAO). It is asking the comptroller general of the United States, which heads the GAO, to terminate the contract with Austal and award it to Eastern. Short of that, the yard wants the GAO to instruct the Coast Guard to reevaluate existing bids. 

“Upon careful evaluation of the OPC Stage 2 award, we have found several grounds for protest that have been filed with the U.S. Government Accountability Office. Our decision to protest does not come lightly,” said Joey D’Isernia, president of Eastern Shipbuilding Group. 

“Our community is left reeling from the decision to abandon our workforce and move the Coast Guard’s largest acquisition program from our successful production line to a high-risk situation,” he continued. “It begs the question, why?”

Austal USA, based in Mobile, Ala., did not respond directly to allegations made by Eastern. 

“We are confident in the integrity of the solicitation process and that the United States Coast Guard’s selection of Austal USA as the Stage 2 OPC shipbuilder will be upheld,” a shipyard spokesperson said. “We will remain focused on delivering world-class ships to our customers.”

The Coast Guard plans to build 25 of the 360-by-54-foot Heritage-class OPCs, which will replace existing 270- and 210-foot cutters that date back more than 30 years in some cases. The OPC hull is based on a design developed by Vard Marine. 

The vessel can sail at 22.5 knots for long periods and travel more than 10,000 miles at slower speeds. It fills a need between the Coast Guard’s 410-foot national security cutters that patrol in open water and its 154-foot fast response cutters that remain closer to shore. 

Eastern won the Stage 1 OPC contract in 2016 for construction of the first nine OPCs. About a year later, the Florida Panhandle took a direct hit from Hurricane Michael, which caused extensive damage to Eastern’s facilities. 

The Department of Homeland Security granted extraordinary contract relief to Eastern in 2019 because of the serious storm damage. But it also restructured the contract to reopen bidding for hulls 5 through 15, according to a report from the Congressional Research Service. Shipyards bidding on the Stage 2 OPCs had leeway to redesign the interior of the vessel, a move intended to spur competition, the report said. 

The Coast Guard on June 30 awarded a contract to Austal USA worth $208.3 million for detail design and the purchase of equipment and materials for the fifth OPC. Options could bring the total number of vessels built by Austal to 11, with a total value of $3.33 billion. 

Austal was among at least four shipyards that bid on the Stage 2 work. Bollinger Shipyards, Huntington Ingalls Industries and Eastern also are known to have submitted bids for the Stage 2 OPC contract. The Coast Guard would not disclose the number of bidders or details about the contract vetting process.

The lead Heritage-class OPC, the future USCGC Argus, is nearly 75 percent done, according to Eastern. The second and third ships in the series are roughly 50 and 25 percent completed, respectively. Construction began on Eastern’s fourth OPC hull in April and delivery is slated for 2025.

“ESG is successfully executing the production of the first four OPCs, keeping the program on schedule and budget despite a Cat 5 hurricane, a global pandemic and supply chain challenges,” D’Isernia said. 

Eastern’s protest filed with the GAO is not a public document, and the agency would not release it. However, Professional Mariner obtained excerpts from the filing that allege practical and procedural issues with the bidding process. 

Specifically, Eastern alleges its bid suffered from a leak of non-public price data for the OPC project. The yard also alleges Austal gained an unfair advantage by employing a former senior Coast Guard official who worked on the OPC project while in the service and thus had access to non-public information. 

Eastern pointed to its performance with the construction of the first four hulls, which it reiterated are proceeding on time and on budget. It also highlighted the Coast Guard’s decision to modify the contract in May to include installation of advanced combat weapons and radar systems at the shipyard, rather than after delivery. 

“The Austal award cannot be reconciled with the RFP (request for proposal) and stated USCG objectives,” Eastern’s protest filing said. “ESG was higher rated and provided lower risk with strong, relevant past performance. Austal’s purported lower price is overwhelmed by the substantial risks associated with an award to Austal, a new entrant to the steel shipbuilding industry with a record of well-publicized cost overruns and performance issues.”

Austal USA has primarily built aluminum hulls, including the U.S. Navy’s Independence-class littoral combat ships. It recently invested $100 million in a steel facility in Mobile and began construction on its first steel ship for the Navy. 

The GAO has an established process for protests of federal contracts. The office receives about 2,000 protests each year ranging from small-dollar contracts to multibillion-dollar procurements, according to Ed Goldstein, the GAO’s managing associate general counsel for procurement law. 

By statute, the GAO must render a decision by Oct. 24, 2022. Depending on the outcome of that decision, Goldstein said, one or more parties can file another protest with the U.S. Court of Federal Claims. 

Eastern said it has about 1,500 workers working solely on the OPC project and it is hiring for additional positions. The total economic impact from the contract is in the billions of dollars throughout the region. 

“While this process plays out, we remain committed to our USCG partners and delivering shipbuilding excellence on the first four hulls,” D’Isernia said. “We are grateful for the outpouring of support we have received.”

Meanwhile, Austal had not begun any work toward construction of its first hull as of July 27. Coast Guard spokesman Kurt Fredrickson said a clause in the Stage 2 contract prohibits any activity without written authorization. “No written authorization to proceed with any contract performance has been issued,” he said.