Defense giant BAE Systems is exiting the surface ship repair business at Pearl Harbor Naval Shipyard after a more than 10-year run, eliminating about 325 jobs and leaving some uncertainty whether the work sometimes topping $50 million per ship can be fully retained in Hawaii under new Navy contracting terms.

The multinational security, aerospace and ship repair company in 2014 announced a new five-year “multi-ship, multi-option,” or MSMO, contract for modernization and maintenance on nine destroyers and cruisers homeported or visiting Pearl Harbor as a follow-on to a previous seven-year contract.

Cost-reimbursement multi-ship, multi-option contracts have been replaced nationally by a Navy strategy called “multiple award contract-multi order,” or MAC-MO, that uses firm-fixed-price contracts and increased competition. Firm-fixed-price means no adjustment for cost overruns.

The change comes against a backdrop of ongoing concern about major surface ship repair projects being siphoned off to San Diego, where costs are lower. Hawaii remains a strategically and economically important ship-repair hub, however.

Officials said BAE, which was the prime contractor for repair projects through which subcontractor surface ship work was funneled, now can’t bid on smaller $1 million to $2 million contracts under the new construct, but can seek major ship projects that can be $50 million to $100 million.

BAE’s decision not to tender a new bid “resulted from a thorough analysis and careful consideration of the business environment in Pearl Harbor under a new contracting structure,” spokesman Karl Johnson said.

Johnson said attrition and a dozen layoffs have left BAE — which had 325 employees in the spring — with an on-island workforce of about 260 that is finalizing repairs to the cruiser USS Port Royal and working on the destroyer USS Hopper part way through next year.

In late 2018, the Defense Department announced that BAE Systems Hawaii Shipyards had been awarded a $50.6 million contract modification for an extended docking repair availability for Hopper.

The Navy contracts with private shipyards and other firms for maintenance on non-nuclear surface ships.

Pearl Harbor shipyard’s more than 6,000 civilian and military personnel mostly work on submarines. BAE, assigned the use of pierside space and Dry Dock 4, augmented its surface ship workforce with hundreds of subcontracted workers from companies such as Pacific Shipyards International and Marisco Ltd.

Under the new construct, the Navy will earmark the smaller jobs for small businesss, “so the big guys like BAE cannot bid on the smaller work, which kept them busy between the big jobs,” said John Stewart, a founding member of the Ship Repair Association of Hawaii and vice president and general manager of Marisco.

In the past, with BAE overseeing multiple projects on a long-term basis, “you would have long-term planning for these jobs coming up,” Stewart said. “Now, you don’t. You are not sure who is going to be getting it.”

“BAE could have their guys work on the smaller stuff and sub out a little bit of it to us,” he added. “Now it’s going to be the other way around — where the smaller subcontractors will be bidding for their guys to do the work.”

Iain Wood, CEO of Pacific Shipyards International, said the Navy is contemplating between two and four awardees in the large and small repair projects categories, with decisions expected late this year or in January.

“We supported the industry’s efforts to keep it as a single award, single entity contract, and when the Navy said, ‘We’re not going to do that,’ we then got onboard with putting our hat in the ring for a MAC-MO award,” said Wood, president of the ship repair association.

“The model changed,” he added, “and we’re looking forward and we’re investing in hiring employees to try and position ourselves to be in the best spot to support the Navy.”

Cameron Salony, a Pearl Harbor shipyard spokesman, said contracting changes already are here.

The Navy in September awarded Pacific Shipyards International a firm-fixed-price contract — used in Hawaii for the first time in recent history — for a maintenance availability on the destroyer USS Michael Murphy, Salony said.

Vigor marine out of the Pacific Northwest was subsequently awarded a similar type of contract for work on the destroyer USS Wayne E. Meyer to begin in the spring.

“The Navy is firmly committed to maintaining a robust and competitive ship repair environment in Hawaii,” Salony said in an email. “The Navy has no plan to move planned ship maintenance out of Hawaii and expects, and has already seen evidence of, increased competition for work on-island.”

U.S. Rep. Ed Case said the Navy’s stated reason for the contracting change was to curb project cost overruns.

“I reviewed the Navy’s reasons and found no reason to question its change,” the Hawaii Democrat said in an email. “The Navy does not intend to shift the surface ship repair work out of Pearl Harbor Naval Shipyard and has bid out the contract to replace BAE. This could be a major opportunity for smaller local contractors to come together in a consortium to do the work.”

Case said his focus “has been to ensure a fair and expedited bid process that opens up that opportunity and gets the BAE replacement in place as soon as possible so that the current workforce will be rehired.”