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Navy to LCS builders: Control costs or else

Navy Secretary Donald Winter announced Thursday he was lifting a stop-work order on a new Littoral Combat Ship, but he made it clear that once new cost figures are set to finish the ships, he expects shipbuilders to end the excessive cost growth that has threatened the LCS program.

“We’ve determined we need to take a number of steps,” Winter told reporters during a Pentagon news conference. The chief elements are:

* Renegotiating the construction contract for LCS 3, the second ship under construction by a Lockheed Martin team. The stop-work order was issued Jan. 12 on that ship after significant cost overruns were discovered on LCS 1, also being built by Lockheed. But work won’t begin again on LCS 3, Winter said, until a new construction contract is negotiated by mid-April. If an agreement isn’t reached by mid-April — or at least “a meeting of the minds,” he said — “we will terminate LCS 3.”

* Using $519 million appropriated by Congress in fiscal 2007 for two more LCS ships to pay for cost overruns on the first four, effectively eliminating any new LCS ships in FY07.

* Reducing the planned number of LCS ships the Navy will ask for in 2008 and 2009. The 2008 budget submitted in February asks for three ships, while the Navy planned to ask for six in 2009.

* Selecting in 2010 a single design to proceed with for the remainder of a planned total of 55 littoral combat ships. Winter said the Flight 1 design could incorporate elements of competing designs from Lockheed Martin and General Dynamics.

* Beefing up staffing at the Navy’s LCS program office and increasing the number of Navy supervisors at the individual shipyards.

The LCS program has been on a fast-track since its inception in 2002. Contracts were awarded to Lockheed Martin and General Dynamics in 2004 to build competing versions intended to use a modular outfitting approach to carry out mine, anti-surface and anti-submarine warfare in contested areas close to shore. Lockheed Martin’s steel and aluminum monohull design is being built at Marinette Marine, Marinette, Wis., and Bollinger Shipyards, Lockport, La., while the aluminum General Dynamics trimaran version is under construction at Austal USA, Mobile, Ala.

The Navy projected the basic cost of each LCS at $220 million. But although other factors raised the true acquisition cost to an average of about $300 million per ship, the Navy became aware last fall that true costs on Lockheed’s USS Freedom (LCS 1) could top $400 million. Winter, in congressional testimony this year, has repeatedly cited a figure in the range of $350 million to $375 million for LCS 1.

Both LCS 1 and 2, Winter said, are experiencing cost growth of 50 percent to 75 percent, although he declined to cite specific cost figures.

Winter personally has led an intensive effort over the past two months to discover exactly what’s going on with the LCS program and where the cost growth is coming from. He appeared determined not to ask for more money for the program to fix current problems — at least for now.

“Our objective here is to solve the LCS financial challenges within the LCS program,” he said.

As the builder of the first ship, Lockheed Martin has suffered the brunt of criticism from the Navy for the cost overruns. But Winter made it clear General Dynamics also was on notice.

“We will be watching General Dynamics very closely,” Winter said. “If they experience cost growth comparable or similar to what we saw here with Lockheed Martin we will seek the same remedy with General Dynamics.”

Winter said meetings would be held “in the next 48 hours” to determine new LCS 3 cost figures for negotiating with Lockheed Martin.

General Dynamics and Lockheed Martin each declined to offer substantive comments on the Navy’s moves.