Remember the old saying: "No good deed goes unpunished?" Well, walk with me, dear Fool, through to the other side of the looking glass, where today we see the mirror image of that rule. In the Land of Defense Contracting, it seems, "no bad deed goes unrewarded."
On Tuesday, General Dynamics (NYSE: GD ) announced that its old friend, Australian shipbuilder Austal LLC, has asked it to help bid on the Pentagon's latest pet project: the Joint High Speed Vessel (the "JHSV," not to be confused with the previous pet project, the Littoral Combat Ship, or "LCS").
As you may recall, General D won the contract to build two of an initial run of four Littoral Combat Ships back in 2006, with Austal's help. Lockheed Martin (NYSE: LMT ) got the contract to build the other two in cooperation with Manitowoc (NYSE: MTW ) and Bollinger Shipyards. However, just a year later, massive cost overruns at Lockheed and General D cost each contractor its right to build its second ship. (As well as, I suspect, prompting more than one "I told you so" comment from the firm that General Dynamics and Lockheed beat out for these contracts: Raytheon (NYSE: RTN ) .)
Well, get ready for history to repeat itself, people. Because from where I sit, it looks like General D is about to don an admiral's cap once again. According to yesterday's press release, General Dynamics will employ its "integration experience ... from the Littoral Combat Ship program" in helping Austal on one of three $3 million programs to draft "preliminary designs for the JHSV." And as if that weren't ominous enough, get a load of what General D had to say about its ability to keep under budget this time around: "Our ... open business model approach is bringing low-risk, affordable capability to both the Army and the Navy on this essential program."
Now, I know what you're thinking -- if the Austal/General Dynamics team is only one of three bidding on the JHSV work, surely the Pentagon will choose someone with a better record on costs, right? Perhaps, but perhaps not. Turns out, General D is actually two of the three teams. In addition to teaming up with Austal, the General is competing in its own right via its Bath Iron Works subsidiary.
Oh, and the third team? That would be Bollinger. The same people who worked with Lockheed on its over-budget attempt at building the LCS.
Sigh. While, as taxpayers, we lament the Catch-22 that defense industry consolidation has put us in, as investors, we must bow to the inevitable conclusion: These companies are going to win contracts and make profits no matter what. Because no bad deed goes unrewarded.
Make the Fool your source for all things investing and defense (investing). See also: