THE PENTAGON — Extended procurement contracts for two of the Navy’s Block V Virginia-class attack submarines have been extended for 10 months due to an impasse between the service and its leading submarine manufacturer over insurance related to Tomahawk missiles and future hypersonic weapons suspended, USNI News learned.
General Dynamics and the Navy are at odds over which organization should be financially responsible if an accident occurs during construction or during operation aboard attack boats deploying Tomahawks. The disagreement has held up final long-lead contracts for the two submarines the Navy plans to buy in fiscal 2024, four sources familiar with the conflict told USNI News. Long-term contracts are usually awarded two years before the final construction contracts.
Since 2018, the Navy has not extended liability protection for Tomahawks to General Dynamics’ new submarine build, arguing that the company should purchase its own insurance to cover any accidents resulting from its vertical launch system, according to a report to the July Congress Office of the Under Secretary of Defense for Acquisition and Sustainment, obtained from USNI News. The company, in turn, has told the Navy that it is unable to obtain adequate insurance to cover the risk of an explosive accident that could result in billions of dollars in damages, the sources told USNI News.
The dispute over the obscure insurance issue between the defense company and the Navy could further delay the construction of new submarines. The Navy also denied a similar request from Lockheed Martin to indemnify the company if an accident involving the development of the Conventional Prompt Strike hypersonic missile in development occurred, a move that could further delay a new weapons program being launched the Navy wants to use on the Virginia. Virginia Payload Module of the Attack Boat class. Hypersonic weapons and new attack submarines are among the Defense Department’s procurement priorities, officials said during the launch of the latest Pentagon budget.
Under current law, Secretary of the Navy Carlos Del Toro makes the final decision on compensation for Navy and Marine Corps contracts.
The current fiscal 2023 defense bill, passed by the House of Representatives last week and awaiting a vote in the Senate, contains language requiring the Department of Defense to study the compensation issue and the Navy to submit a report to Congress on the compensation issue Conventional Prompt Strike weapon system.
The provision is a compromise from the House version that would have stripped service secretaries of compensation authority and placed them under the purview of the secretary of defense.
“We remain concerned about the lack of a resolution regarding open claims for compensation related to the Conventional Prompt Strike program, other weapons programs and related planned employment platforms. We note that these delays could result in significant delivery delays for both the Navy and Army hypersonic weapons programs, the next block of Virginia-class submarines, and other programs,” the statement, which accompanies the National Compromise, said Defense Authorization Act for Fiscal Year 2023.
“We are aware of the language in the NDAA draft and continue to actively work with the industry to address any concerns related to conventional instant strikes, other weapons and their platforms of employment,” Del Toro spokesman Capt. JD Dorsey told USNI News this week.
“Unusually high risk”
For decades, the Navy compensated General Dynamics Electric Boat against a Tomahawk accident on its submarines under an “unusually high risk” clause that arose out of the service’s nuclear ballistic missile program.
The Navy’s Tomahawk and ballistic missiles, such as the decommissioned Poseidon and current Trident II D5, use a high-energy solid rocket propellant that has been used for years without incident but carries a low risk of devastating explosions.
“The actual or potential cost of this compensation is impossible to estimate as it is contingent upon the occurrence of a nuclear incident or an unusually hazardous incident resulting from the use of high energy propellants,” said a 2008 compensation memo from the then Secretary of the Navy Donald Winter.
“Such incidents must never happen; but in the event of a major event, the damages could be catastrophic… In the event of a major event due to nuclear risks or unusually dangerous risks resulting from the use of high-energy propellants, the potential claims and damages to the contractors and subcontractors could exceed the amounts claimed by contractors and could easily exceed available insurance.
For example, if fuel exploded at a naval base or repair yard, the consequences would damage not only the submarine, but other ships and infrastructure nearby, with damage that could easily run into the billions, additional claims against anyone not trapped killed or injured in the explosion.
The Navy used a nuclear variant of the Tomahawk for decades, and the service grouped the Tomahawk land-attack missile with the other missile launched by nuclear submarines in terms of compensation, according to a July Pentagon report to Congress.
“In the past, DON has approved claims for compensation for nuclear-capable Tomahawk missiles (TLAM-N) and related systems. In 2015, the Navy completed all actions related to the retirement of the TLAM-N, but the Tomahawk continued to be included in the Secretary of the Navy’s (SECNAV) annual allowances through 2018,” the report reads.
“The coverage period for the non-nuclear version of the Tomahawk was short, and DON adjusted its indemnity decision within a reasonable timeframe…DoN never considered Tomahawk fuels to be an unusually dangerous risk to itself, nor does DoN believe contractors are in a position to provide adequate insurance.” for the risks that this missile system now poses.”
The Navy doesn’t compensate tomahawks aboard surface ships as an unusually dangerous hazard, but the risk of an accident on a surface ship is much lower than aboard a running submarine, a source familiar with the system told USNI News.
General Dynamics is the prime contractor for the Tomahawk vertical launch systems aboard the Navy’s Los Angeles- and Virginia-class attack submarines, but Raytheon is building the actual missile.
“General Dynamics Electric Boat’s claim for compensation is different because the company is contracted only for the launch systems, not the missiles,” the July Pentagon report said.
The concern for a company like GD is that claims from a catastrophic incident could pose an existential threat to the company, three sources familiar with the company’s reasoning told USNI News.
A spokesman for General Dynamics confirmed a request for comment but referred USNI News to the Navy. A Raytheon spokesman declined to comment on the issue when contacted by USNI News. A spokesman for Lockheed Martin relayed questions from USNI News to the Navy about their claim for compensation.
Defense contractors involved in the effort have been unsuccessful in finding an insurer to cover the risk of a Tomahawk accident, a lawmaker said during an Armed Services Committee hearing in May House.
“One issue that I think the Navy created some scheduling risk with was the change in the policy for compensation for unusual hazard risks, which again, there is no question the Navy changed their policy in the last administration, in terms of how you know who is paying the costs in terms of compensation,” Rep. Joe Courtney (D-Conn.), chair of the House Armed Services Subcommittee on Naval Forces and Projection Forces, said during an exchange with Jay Stefany, who was then acting as Assistant Secretary of the Navy for Research, Development and Procurement.
“[Private industries] I have found insurance coverage that is the maximum allowable in the market, $2 billion coverage, which I believe is certainly a good faith attempt.
At a military readiness hearing in July, Courtney said repair work on Virginia-class and Los Angeles-class attack boats at the private shipyards could be stalled because of compensation rules.
“This problem really just calls out for a solution. And I really think there’s a compromise here.” You know, we can insure contractors – risk insurance up to the maximum that’s available in the market. But that – as has been the case for 40 years, the Navy is going to be there as a sort of backstop… this high-risk activity.”