Navy halts Lockheed contract

The US Navy ordered Lockheed Martin to stop work on a $260 million littoral combat ship (LCS) after the company warned of a significant cost increase that has also spurred the service to reconsider the way it purchases the vessels. The unusual order, which lasts 90 days, is a blow to Lockheed and is among a series of cost overruns in Navy shipbuilding programs.

A Navy official said the cost of the ship was “closer to the mid-threes,” or around $350 million. Other, unofficial, figures approach and break the $400 million barrier.

One problem with providing accurate figures is that it appears cost estimates prepared by different groups are being analyzed by the Navy, although officials could not confirm that is the case.

Navy officials stressed that the cost figures applied only to the USS Freedom, the first LCS, and not to the class a whole, nor to a competing LCS design being built by General Dynamics. But the price of GD?s first ship also is rising, although one source claimed the price for their first ship remains well under $300 million, and that “the estimate for the second GD ship will be around $240 million to $250 million.” The Navy plans to buy 55 of the vessels, making the program potentially worth billions of dollars to Lockheed if it wins even half the work.

The 378-foot-long vessel is supposed to be capable of operating in less than 13 feet of water, allowing the Navy to manoeuvre in “littoral” waters close to shore to hunt submarines and destroy underwater mines. Navy and Lockheed officials said they do not know the extent of the cost overrun. The increase is related to “contractor poor performance” and increased labour costs according to a Navy spokesman. For example, a key part of the propulsion system was delayed 27 weeks because of a manufacturing error, driving up costs.

Lockheed acknowledged a problem with a part related to the propulsion system. Mistakes by General Electric in manufacturing the ship?s reduction gears, critical elements in a ship?s propulsion system, resulted in schedule changes as the builders struggled to keep construction on track while waiting for new gears. Supply issues also arose in getting the right kind of steel for the ship because it was the same high-priority material used by the Army in up-armouring its Humvee vehicles being used in Iraq. Both these issues caused a re-sequencing of production to maintain schedule which increased cost.

The order applies to the second of two LCS vessels that Lockheed is building for the Navy. Work on the first one, which is 70% completed, is to continue so the Navy can launch it and evaluate the design, a Navy statement said.