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WASHINGTON: The U.S. Navy ordered Lockheed Martin Corp. to halt work on one of its two littoral combat ships due to significant cost overruns, the service said on Friday.
The Navy said Lockheed's work would be stopped immediately for 90 days, while costs are reviewed. The Navy would not disclose how much costs had risen, but defense officials called the overrun “significant.”
The $1.3 billion littoral combat ship program is a major piece of the Navy's vision for its future fleet.
Lockheed, the top U.S. defense contractor, is building the first and third of the Navy's littoral combat ships, designed for closer-to-shore missions, while General Dynamics Corp. is building the second and fourth.
Lockheed won the $198 million contract in June for the second ship. According to the Navy, work will be stopped on the second ship because of cost overruns on both its vessels.
“I determined that at this point in time it was critical to stop work on LCS 3 to assess the LCS program and ensure we understand the program's cost and management processes before we move forward,” said Navy Secretary Donald Winter.
“It is essential that we complete LCS 1 and get it to sea so we can evaluate this new ship design.”
Lockheed Martin was disappointed with the Navy's decision.
“We take very seriously our commitment to our customers and it is for that reason we kept the Navy fully informed of LCS 1 cost issues and worked with the Navy to identify opportunities to reduce costs on subsequent ships,” said company spokesman Craig Quigley.
U.S. Navy shipbuilding has been plagued by billions of dollars in cost overruns and lengthy schedule delays. The U.S. Government Accountability Office has estimated cost growth of 27 percent for first-in-class ships.
In September, however, the Navy's acquisition chief, Delores Etter, praised Lockheed's and General Dynamics' work on the littoral combat ships and said that program would become an example of a new way of building ships affordably and quickly.
Defense officials on Friday said the cost overruns on Lockheed's littoral combat ships now exceeded typical cost growth in shipbuilding.
One defense official said the Navy was searching for the root causes of Lockheed's cost problems on the program. Higher- than-expected labor costs may be among the driving factors, the official said.
Lockheed Martin shares closed up 65 cents at $96.31 on Friday, off a high of $96.68.
