The U.S. Navy has settled an insurance dispute with two key shipbuilding companies that has delayed the ordering of two Virginia-class submarines, according to people familiar with the matter.
The dispute centered on who should pay if a Tomahawk cruise missile were to accidentally explode during construction, damaging or destroying a nuclear-powered submarine worth more than $3 billion. For years, the Navy had indemnified the yards—Electric Boat, which is owned by General Dynamics, and Newport News Shipbuilding, a division of HII—essentially providing the insurance that the yards found difficult to obtain from a private insurer.
But in 2018, the Navy decided the arrangement heaped too much risk on the service, and ceased to offer indemnification. The service asked the shipyards to find private insurance, but they declined. In February 2022, the Navy suspended plans to order long-lead parts for two Virginia-class attack submarines. “Under the current law, Secretary of the Navy Carlos Del Toro makes the final decision on indemnification for Navy and Marine Corps contracts,” USNI News wrote in December.
In January, Del Toro urged the companies to come to the table and negotiate.
“I’m going to hold the ground and I’m willing to compromise on some things,” Del Toro said. “I’m not willing to compromise on everything. They’re going to have to come to the table with reasonable language that the American taxpayer can accommodate on that ground.”
Congress as well expressed worry about the impending delays to the delivery of the planned submarines, and alluded to the dispute in the 2023 defense policy bill. This all comes as companies are trying to quell supply issues caused by the pandemic and hire workers.
Last week, Newport News Shipbuilding President Jennifer Boykin said delays in long-lead parts typically produce delays in sending the submarines to the fleet.
“In order for the assembly line to get healthy and to begin to increase the rate, the worst thing we can do as an enterprise is starve the beginning” of the supply chain,” Boykin said May 5. “That’s part of what we’re really working with the Navy on—to get advanced funding to those suppliers who are already struggling with workforce, etcetera, is key if we’re going to, in two or three or five years later, actually increase our throughput rate. When you start the beginning, because the end is not coming out, you’re not going to change the scenario.”
On Thursday, a Navy official said a deal had been agreed upon by the Navy and the shipyards.
“We have reached agreements with the companies that are involved here,” said the Navy official, speaking anonymously because the contracts for the sub parts had not yet been awarded.
The official declined to say what the deal entailed or whether the subs’ delivery would be delayed.
Both companies declined to comment before the contracts were awarded.
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