By Geoff Fein
The Coast Guard is hoping to get the Deepwater Integrated Coast Guard Systems (ICGS) team to negotiate a settlement to the service’s attempts to seek $96 million in repayment for the 123-foot patrol boat conversion effort that was eventually canceled after the vessels showed design defects.
The Coast Guard sent ICGS a letter on Dec. 28, Laura Williams, a Coast Guard spokeswoman, told Defense Daily yesterday.
The service will also be sending a copy of the letter to lawmakers, she added.
“The Government’s position on ICGS’ response to the 123-foot revocation of acceptance issued December 28, 2007 includes a summation of all previous findings and formally addresses the government’s position and quantum for revocation,” Williams said. “The response includes a position paper of over 70 pages, plus additional charts and exhibits and a point by point rebuttal of over 130 pages of ICGS’ response to the revocation. It is not the Contracting Officer’s Final Decision (COFD), but it does invite the parties to negotiate a settlement. The [Coast Guard] response could ultimately result in a mutual agreement to proceed to the Alternative Dispute Resolution (ADR) process or COFD.”
The Deepwater ICGS is a joint venture between Lockheed Martin [LMT] and Northrop Grumman [NOC]. Conversion of the eight 123- foot boats was actually done by Bollinger Shipyards, under a subcontract with Northrop Grumman.
The Coast Guard issued its letter of revocation for the eight 123-foot patrol boats in June 2007. ICGS responded to the revocation in July, August and October of last year, Williams said.
“The [Coast Guard] revoked acceptance of all eight cutters in part because a hidden, or latent, design defect compromised the physical integrity of the cutters and led to the inability of the cutters to meet the performance requirements of the contract,” Williams said. “On June 5, 2007, the [Coast Guard] issued a subsequent revocation letter addressing multiple class-wide issues and nonconforming topside equipment. ICGS officially responded on July 16, 2007, August 13, 2007, and October 10, 2007.”
The Coast Guard issued three “revocation of acceptance” letters. According to a source, the first concerned hull buckling and shaft misalignment issues solely under the purview of Northrop Grumman. The second letter identified nine class-wide issues, five of which were in Lockheed Martin’s area of responsibility. The third letter revised the class-wide issues downward, leaving only one issue in Lockheed Martin’s area of responsibility. This involves requests for deviation regarding certain items of topside equipment.
“Lockheed Martin is eager to achieve resolution of our remaining issue as a matter of routine contract administration. While the value of a settlement must be negotiated, the estimated replacement value for all of the topside equipment that is Lockheed Martin’s responsibility is approximately $3 million,” the company said in a statement to Defense Daily on Monday.
The Coast Guard is seeking $96.7 million in repayment from ICGS for failure to deliver the 123-foot patrol boats as contracted.
The Coast Guard had hoped to upgrade and lengthen all 49 of its 110-foot Island-class cutters to the 123-foot configuration, but hull bucklings and shaft alignment problems forced the service to halt operations with the upgraded vessels (Defense Daily, May 21, 2007).
The Coast Guard spent about $100 million on the conversion effort, which included the 13-foot lengthening to improve crew accommodations and create a stern launch and recovery small boat ramp, new C4ISR systems, and structural enhancements. However, both the 110-foot vessels and their upgraded 123-footers have been beset with hull integrity issues that have prompted one fix after another without ever seeming to solve the problem (Defense Daily, Dec. 1).
In April 2007, the Coast Guard decommissioned its eight 123-foot patrol boats. The service had observed structural failures in the 123-foot patrol boats since 2004.
In the fall of 2006, the Coast Guard removed the 123-foot patrol boats from service because of continued problems with the hulls (Defense Daily, April 18, 2007).
ICGS was awarded four Delivery Task Orders (DTOs) for the conversion of eight 110-foot patrol boats to 123-foot patrol boats beginning in August 2002.
“The contract required the entire vessel be reviewed and certified to ‘unrestricted service’ under American Bureau of Shipping (ABS) Guide for Building and Classing High Speed Craft (ABS HSC 1997 rules), and ICGS’ 123-foot, as delivered, does not meet those rules,” William said.
“The Coast Guard believes that the failure of ICGS/Bollinger Shipyards, Inc. to meet the ABS requirement resulted in early hull deformation, deck buckling, and subsequent shaft misalignment problems, rendering the vessels unserviceable,” she added. “Later investigations showed these converted cutters were unsound and unfit to operate under typical conditions expected of high speed craft that require structural resistance to hydrodynamic loads such as slamming. The [Coast Guard] was unaware of the magnitude and cause of this design defect at the time of acceptance of the eight cutters. Initial investigations into specific 123-foot patrol boat failures between September 2004 and November 2006 could not sufficiently identify the origin or the systemic nature of the hull/shaft problems.”
ICGS was responsible for designing and delivering a vessel that conformed to contract requirements, Williams said.
“ICGS did not design or deliver a vessel that conformed to contract requirements,” she said. “Based on the information and facts presented within the government’s response, it is evident the revocation was not only timely, but was also technically and legally justified.”
There is a very high probability that the Coast Guard’s formal acceptance of the eight converted 123-foot Patrol Cutters irrevocably waived any claims by the Government against the Integrated Coast Guard Systems Joint Venture, Jim, McAleese of McAleese & Associates told Defense Daily.
“As a general rule, the only way the government can win a traditional ‘revocation-of-acceptance’ argument and reject a product after formal acceptance is to clearly demonstrate that there was a ‘latent defect’, or no possibility that the Coast Guard could have discovered, or anticipated, the problem prior to acceptance,” he said.
Even then, the Coast Guard’s position that it could not have discovered the un-seaworthiness of any of the eight converted patrol cutters, is effectively a government admission of “mutual mistake,” since both parties strongly appeared to have believed that the hull modifications would ultimately meet seaworthiness requirements, McAleese explained.
“The conduct of the shipbuilder in converting eight 110 foot patrol cutters, clearly demonstrates that the contractor fully believed that the converted hulls would be seaworthy,” he said. “The Coast Guard makes this same representation, in asserting the ‘latent defect’ doctrine to retroactively revoke acceptance. Additionally, inherent in all ‘Service-Life-Extension-Programs,’ is the government recognition that ‘affordability’ constraints require the modification of existing platforms, rather than fresh production where the contractor is responsible because it would have full control over all of the design, materials, and workmanship.”
Consequently, in establishing both the requirements and the acquisition strategy, the Coast Guard embarked on a high-risk strategy from the very outset, where technical requirements were inherently subordinated to cost, McAleese added.
“Ultimately, the Coast Guard has already publicly conceded that there were similar defects in program management and oversight by its Deepwater program office, which has now led to a major restructuring of the Coast Guard Acquisition Corps. This public acknowledgment opens the door for all parties to diplomatically close out that limited portion of Deepwater program, through various negotiation vehicles,” he said. “Simply put, the black letter law supports the joint venture/contractors. However, contractors exist to execute the will and prerogative of the government customer, Congress, and the taxpayer. Ultimately, all parties should recognize that Congress will be watching closely, and that with the exception of this modest legacy issue, the Coast Guard is directly accelerating both lucrative shipbuilding and aircraft orders under the restructured Deepwater Program.”