LCS-1 was originally expected to be 270 million, it went over 400 million and they have cancelled LCS-3 now until LockMart can get the cost down.
U.S. Navy Cancels LCS Contract
By CHRISTOPHER P. CAVAS, Defense News
The U.S. Navy on Thursday cancelled one of two new Littoral Combat Ships being built by Lockheed Martin.
Calling Lockheed’s best offer “unaffordable,” Rear Adm. Chuck Goddard, the Navy’s program executive officer for ships, said the service initiated a “termination of convenience,” on LCS 3, the second of two LCS ships that were to have been built by Lockheed.
The Navy was seeking to renegotiate the construction contract for the ship, awarded in June 2006, from a cost-plus agreement to a fixed-price incentive deal. Navy Secretary Donald Winter, following revelations that Lockheed’s first LCS was $130 million to $155 million over its planned $220 million budget, issued a stop-work order on the LCS 3 in January and lifted it in March pending a renegotiated contract meant to hold down further cost increases.
But Winter put a tight deadline on contract renegotiations and gave Lockheed until April 12 to at least reach a “meeting of the minds” on a new agreement.
“I believe both parties made a good faith effort to reach terms that more equitably balanced cost and risk,” Goddard told reporters on Thursday. “Despite our mutual efforts, we could not come to terms and conditions on a modified contract that was acceptable to both parties.”
The move is another blow to the Navy’s vaunted LCS program, which it has been eagerly promoting and pursuing for several years. Four LCS contracts have been awarded — including the one cancelled April 12 — but two more ships planned to be ordered this year have been put off while their construction funds are applied to cost overruns on the earlier ships.
The Navy plans to build a total of 55 LCS ships, meant to plug a war-fighting gap by operating in contested waters close to shore.
Cancellation of a ship after a construction contract has been awarded is a rare event for the Navy. Although officials could not confirm the last time it happened, construction of a prototype minesweeper, the Cardinal (MSH 1), was terminated in 1986 after the program ran into severe design and cost problems.
The Navy’s termination of the LCS 3 contract does not affect Lockheed’s first ship, USS Freedom (LCS 1), which is now under construction at Marinette Marine in Wisconsin.
The move is a disappointment for Bollinger Shipyards, the Louisiana-based shipbuilder that was preparing to begin construction of the cancelled ship. Under Lockheed’s teaming approach, Bollinger was to alternate in building LCS ships with Marinette Marine.
The Navy also will continue with construction of two General Dynamics LCS ships — LCS 2 and LCS 4 — being built to a different design, and, Goddard added, still plans to choose a single design to build from 2010 and beyond.
“It is vital that the Navy continue through first-of-class construction challenges to complete LCS 1 and General Dynamics’ LCS 2,” Goddard said in a prepared statement.
Goddard and Allison Stiller, deputy assistant secretary of the Navy for ship programs, told reporters the service “will continue to monitor General Dynamics’ performance on LCS 2 and 4. LCS 4 construction will continue as long as its costs remain defined and manageable. If GD experiences comparable growth, we will use a similar process to seek to restructure” the contract for the ship.
Goddard left open the door for Lockheed to remain in the LCS program beyond the first ship.
“We hope and expect that both Lockheed Martin and General Dynamics will compete for future LCS procurements,” he said.
Lockheed officials were clearly disappointed in the Navy’s decision.
“As a team of men and women who hold ourselves accountable for our actions, we are greatly disappointed by the cost growth experienced on the first LCS and by our inability to reach a satisfactory conclusion with our Navy customer on a path forward for the second ship,” Bob Stevens, Lockheed’s chairman, president and chief executive officer, said in a statement. “We committed to a course of action that was intended to break the long-standing cycle of first-in-class ship cost growth and, while achieving several important program objectives, did not meet that goal. Although we successfully maintained the ship’s schedule and improved on its design, cost growth also occurred.
“Our team is understandably frustrated that, having invested nearly three years of dedicated effort and significant corporate resources to bring LCS 1 to within 20 percent of completion, we will not have the opportunity to apply lessons learned to a second ship, see this program through to conclusion and deliver a superior capability to sailors.”
“We believe that our proposal was fully consistent with the Secretary’s stated desire to bring the benefits of increased competition to shipbuilding while holding the Navy’s industrial partners accountable for cost performance within their control,” Stevens added.
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