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Eastern Shipbuilding protesting Austal’s cutter win, cites ‘unfair competitive advantage’

Posted on July 25, 2022

Eastern Shipbuilding Group is formally protesting a Coast Guard shipbuilding contract potentially worth billions that was awarded late last month to Austal USA, in part due to what ESG claims was an “unfair competitive advantage and conflict” among other issues.

That contract, the second stage of the Offshore Patrol Cutter program, went to Austal among a crowded field of competitors, including the Florida-based ESG, the incumbent vendor already building the first four ships in the class. The second stage contract includes construction for up to 11 Heritage-class vessels, with a total value that could hit $3.33 billion.

The OPC program is one of the two highest acquisition priorities for the Coast Guard, alongside the Polar Security Cutter. The new Heritage-class cutters will ultimately become the core of the service’s fleet and tasked with a variety of missions both on the high seas and coastal areas. ESG’s protest could have major ramifications for how quickly the Coast Guard can receive those vessels — and for the two companies fighting over the right to make them.

The Florida shipbuilder’s complaint alleges, among other issues, that Austal gained an unfair advantage because the company employs a former Coast Guard officer who had previously worked on the service’s OPC program and was privy to “useful nonpublic information” at that time, effectively giving Austal access to data not distributed to other bidders.

The complaint also alleges the Coast Guard failed to meet its own solicitation’s criteria appropriately when considering the two company’s past performances.

“ESG was higher rated and provided lower risk with strong, relevant past performance,” according to a redacted copy of the complaint obtained by Breaking Defense. “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.”

The comment about Austal being a “new entrant” to steel shipbuilding is a reference to the fact the Alabama-based shipbuilder has long built aluminum vessels for the US Navy. Thanks to a 2020 agreement with the Pentagon, Austal earlier this year was able to open up steel shipbuilding facilities and begin work on the Navy’s new towing, salvage and rescue ships. Between the Coast Guard vessel, the Navy auxiliary ship and a floating dry dock contract, Austal has picked up three steel shipbuilding contracts in relatively short succession since planning its entrance into steel shipbuilding.

“Given Austal’s new entry into the steel shipbuilding industry and its lack of relevant past performance, it is highly likely that Austal’s price was incomplete and unbalanced for critical items, especially where there are significant differences between steel and aluminum shipbuilding,” Eastern Shipbuilding argues in its complaint.

ESG President Joey D’Isernia said in a statement to Breaking Defense that the decision to protest did “not come lightly.”

“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. It begs the question, why?” he said.

In a statement after publication, an Austal spokesperson said “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 II OPC shipbuilder will be upheld. We will remain focused on delivering world-class ships to our customers.”

A Coast Guard spokeswoman subsequent to publication defended the service’s selection process.

“This award was accomplished through full and open competition, demonstrating due diligence in the careful evaluation of proposals to choose the most viable solution offering best value to the government,” she said in a statement to Breaking Defense. “Nonetheless, the Coast Guard respects the right of all bidders to appeal the decision and file a protest with the Government Accountability Office. The Coast Guard will wholly support any investigative action.”

Bid protests, which are filed with the Government Accountability Office, are one mechanism that companies can use if they suspect a government contract was improperly awarded. Once filed, the watchdog’s attorneys review the claims and make a decision on whether to “sustain” or “deny” the protest.

Denial is straight forward. It means GAO sided with the government — in this case the Coast Guard — and the contract will likely move forward as planned. If GAO sustains a protest however, the watchdog will make recommendations on how the government can resolve a contract award’s flaws.

But that comes with a catch. A ruling from GAO is not legally binding, meaning federal agencies may ignore the watchdog’s opinion entirely. The risk in doing that comes from running afoul of Congress, who gives much deference to GAO’s legal opinions — especially when the opinion suggests a business back home lost out on a lucrative contract award.

Not long after the Coast Guard’s contract was awarded, the Florida delegation quickly sounded off in defense of ESG, led by Republican Sen. Marco Rubio, who called the service’s decision “short-sighted.”

Bid protests are notoriously difficult for industry to win. The watchdog in its verdicts often states that its job is not to substitute its judgement in place of an agency’s experts. Rather, GAO narrowly decides whether the government laid out its criteria clearly and if they followed them appropriately.

If a GAO bid protest fails, then another option industry has is to take the issue to court. Although a court ruling can force the government to act, it also comes with negative public optics of suing the customer.

Not surprisingly, ESG wants the watchdog to recommend the Coast Guard award them the contract.

But short of that, GAO “should recommend that the USCG reevaluate proposals, conduct clarifications or discussions, reevaluate revised proposals in accordance with the [solicitation’s] criteria, assess Austal’s conflict and unfair competitive advantage issues and then make new responsibility and award determinations,” according to the complaint.


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