By Geoff Fein
The Navy yesterday terminated General Dynamics‘ [GD] second Littoral Combat Ship (LCS-4), after failing to agree to contract modifications sought by the service because of cost growth on the company’s first ship.
The situation is reminiscent of the Navy’s decision in April to cancel LCS-3, Lockheed Martin‘s [LMT] second LCS (Defense Daily, April 13).
The Navy acknowledged there have been some challenges with the LCS program.
“The Navy set this up as fast track acquisition. Because of the current warfighting gap, we put a lot of emphasis on schedule. We did concurrent design build to a degree we probably shouldn’t have, and it’s one of the lessons we have learned,” Rear Adm. Barry McCullough, director warfare integration/senior national representative (N8F), told reporters at a Pentagon briefing yesterday. “We took this approach and there have been some hiccups in the road…we acknowledge that.”
The move to terminate LCS-4 now leaves the Navy with only two ships under contract: Lockheed Martin’s USS Freedom (LCS-1) and General Dynamics USS Independence (LCS-2), both of which will be used to determine which company could end up building the fleet of 55 LCS.
On Sept. 19, the Navy sent a letter to General Dynamics seeking to restructure the company’s cost plus contract to a fixed price incentive contract within 30 days, Rear Adm. Charles Goddard, program executive officer (PEO) ships, told reporters.
The Navy, however, extended that deadline, hoping it could reach an agreement with the company, he added.
Service officials had been meeting in recent weeks, attempting to reach an agreement with General Dynamics. However, earlier this week, it appeared the two sides were no closer to reaching an accord.
“Despite our mutual efforts, we could not come to terms and conditions on a modified contract that was acceptable to both parties. Therefore, we are initiating a termination for convenience on LCS- 4,” Goddard said. “General Dynamics was above the number we were willing to accept.”
The Navy’s decision also means officials will have to work a new acquisition strategy for the ship, Allison Stiller, deputy assistant secretary, Navy, for ships told reporters.
“We have to lay out the facts and come up with an acquisition strategy for the way forward,” she said.
LCS was seen as a low cost solution for mine warfare, anti-submarine and surface warfare that could be built quickly. While the Navy has been maintaining the ship would cost $220 million in FY ’05 dollars, earlier this year the service had to acknowledge LCS was facing significant cost overruns.
Back in April when the Navy terminated LCS-3, service officials said the cost of the lead ship, built by Lockheed Martin at Marinette Marine [MTW] in Wisconsin, was in the range of $350 million to $375 million (Defense Daily, April 13). Yesterday, the Navy declined to discuss the cost of General Dynamics’ ship, adding that the cost growth was 50 percent to 75 percent over the original $220 million price tag.
General Dynamics is building LCS-2 at Austal USA in Mobile, Ala.
In May, the Navy revised its cost caps for LCS-5 and -6, increasing them to $460 million apiece. Goddard noted that amount could change again.
“That was dependent on some assumptions, like how many other [LCS] we were going to build. We will have to go and re-look at that,” he said.
LCS-2 will be delivered in 2008. Goddard said the Navy will work with the shipyard to determine the best schedule to deliver Independence.
Goddard noted Independence and Freedom had compatible cost growth. However, he was confident that the cost of future ships will fall once production begins.
Once the Navy has both versions of LCS, it will begin operational assessment of the ships. The original acquisition plan called for a fly-off between General Dynamics and Lockheed Martin in the 2010 time frame. However, the Senate in its version of the appropriations bill sought to move the competition two years to the left to 2008.
Goddard said the Navy needed to have 2008 to do its operational assessment. “We need to be in ’09 to do an operational assessment. We won’t be able to deliver those to the fleet and give them time to certify the crews and have some time operating…”
Stiller added the Navy still has to lay out all the facts and come up with an acquisition strategy for the way forward. “We haven’t done that.”
She added that as far as any future LCS buys, the Navy would like to go to fixed price incentive contracts for those.
McCullough added that given what has occurred with LCS-4, the Navy will review the LCS mission package profile see what the service needs to do.
Rep. John Murtha (D-Pa.), chairman of the House Appropriations defense subcommittee, said Wednesday he supports the Navy’s decision.
“The LCS is absolutely imperative to the number of ships. If you want 313 ships you’ve got to build 10 per year, and LCS is a very important component of that. I don’t see that changing. I see even though they canceled one ship, they were very close in negotiations,” he said. “The Secretary of the Navy called me yesterday [Oct. 30], and I support what he did. So, I think they’ll need the money they put in this year to complete the competition. And I [suggested] to him they have an overall competition not just for these two companies but anybody be able to compete once they get the final design.”
House and Senate conferees earlier this week agreed to set aside $339 million in FY ’08 to buy a future LCS along with materials bought in prior years (Defense Daily, Nov. 1).