San Diego Business Journal

Every cloud has a silver lining.

The Navy’s next-generation warship, the littoral combat ship, or LCS, uses far fewer crew members than earlier generation fighting vessels.

The shallow-draft tri-hulled vessels, designed to maneuver closer to the shoreline when fighting erupts, carry just 80-100 sailors and officers, which means they don’t have experts on board to handle the routine repairs and maintenance now done aboard older warships.

That’s good news for San Diego-based contract engineering firms like San Diego-based Indus Technology Inc., which expects to land more contracts as the Navy homeports up to a dozen LCS vessels over the next decade.

The work could offset expected cutbacks in other areas as the Navy trims its financial sails in the wake of the deficit budget mess in Washington.

“It’s going to be cheaper to contract out many required services than hire on sailors to do the same job,” said James Lasswell, CEO of the 21-year-old engineering services company.

‘Far Fewer Obligations’

Lasswell said it’s simply a matter of cost, which has become the critical consideration as the Pentagon, and especially the Navy, winds down its role in the various conflicts of the Middle East.

It costs far less to pay engineering service firms to do the work than bring on career uniformed sailors, he said.

For every active duty sailor working on board the Navy is paying for another four to five sailors who are disabled or retired, said Lasswell.

“We can do the work with far fewer obligations,” he added. “We come in, do the work, then leave.”

The Navy expects to homeport up to 12 LCS ships in San Diego, as the military shifts its attention away from the Atlantic to the Pacific.

Two of the ships have already arrived, including the Independence, which was greeted earlier this month.

The warships are designed so that weapon systems and other components can be installed in modules, which means more work for the engineering service providers as the mission and roles of the ships change in future years and the modules changed for new purposes.

An Old Salt’s Perspective

The firms bring an expertise that’s invaluable in the process.

For example, Lasswell said Indus is filled with ex-Navy personnel who know the workings of a warship inside out, and probably know ships better than the uniformed personnel assigned to them, given their years of experience in the service.

Lasswell is a retired Navy officer, and his staff is retired Navy. And that expertise is brought to a wide range of contracts undertaken here in San Diego.

Indeed, defense contractors have a long tradition in San Diego, and have had a close relationship with the military in the region, since the Navy arrived here a century ago.

The companies range from the giants of U.S. defense industry, such as BAE Systems, Cubic Corp., General Dynamics (which operates the local Nassco shipbuilding subsidiary) and the homegrown SAIC to smaller, privately held contractors like Indus Technology, Epsilon Systems Solutions Inc. and Sullivan International Group, to name just a few.

Procurement Tops $1.7 Billion

The San Diego Military Advisory Council, or SDMAC, in its 2011 report detailing the impact of the military on the local economy said the Navy spends more than $1.7 billion on contracts for engineering and technical services. That’s close to 40 percent of the $5 billion plus the Navy spends on all procurement contracts locally.

Those numbers could change after SDMAC releases the results of its 2012 impact study next month.

Ken Slaght, immediate past president of the local chapter of the influential member organization National Defense Industrial Association, or NDIA, estimates that as many as 150 of the 3,000 local members are engineering services firms.

“They are an important part of the defense infrastructure,” he said, “even though their numbers might be small.”

Slaght is also vice president at General Dynamics, the largest defense contractor in terms of contracts awarded here in San Diego, according to the 2011 SDMAC impact study.

Deepening the Relationship

Meanwhile, Indus’s Lasswell said his firm is preparing for the arrival of the next generation of combat ships, which could help deepen his business relationships with the Navy.

“They are lightly manned vessels that have special needs,” said Lasswell, “and that’s where we come in.”

“The cost of labor aboard ship is the single biggest capital cost,” added Lasswell. “The Navy is anxious to get those costs under control, since it has to wrestle with smaller budgets in future years.

“The Navy is only obligated for the length of the contract, in our case, not for a lifetime of benefits,” said Lasswell.

He said contractors like Indus will provide such services as maintenance and repairs, as well as work with the Navy to install the necessary modules according to the mission of each of the ships.

When it comes time for repairs and other work, the ships will be brought to port where the contracts will be performed.

For example, Lasswell said that some of the littoral combat ships will feature missile modules that will have to be installed by contractors, and which will require regular maintenance and periodic upgrades as the weapon systems evolve.

Fewer Sailors on Older Ships, Too

“The current impact to San Diego on defense contractors is immense,” said Lasswell, given the fact that engineering firms are stepping in to replace the traditional role of sailors.

Slaght said even the older generation ships ported in San Diego “require more industry support” as the number of uniformed personnel are reduced aboard ship.