Navy Halts Lockheed Contract

Cost Overrun Suspends Work on New Close-to-Shore Ship

The Navy yesterday ordered Lockheed Martin to stop work on a $260 million ship 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.

Lockheed of Bethesda is one of two contractors building the new ships. 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-longship, known as a littoral combat ship, is supposed to be capable of operating in less than 13 feet of water, allowing the Navy to maneuver 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 labor costs, Navy spokesman Lt. John Gay said. For example, a key part of the propulsion system was delayed 27 weeks because of a manufacturing error, driving up costs, he said.

"We're disappointed that the Navy made that decision," said company spokesman Craig Quigley. The company has warned the Navy about the cost increase since March, he said.

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

While it is not uncommon for the cost of the first versions of a new line of ships to increase, Lockheed knew the requirements, Gay said. "It remained unchanged, that is why we are concerned," he said.

Lockheed acknowledged a problem with a part related to the propulsion system, saying it had been cut incorrectly by a subcontractor, but the company also blamed changes the Navy made to the way the ship was to be constructed and a shortage of the kind of steel it required.

The stricter construction standard is "a positive change because it's going to be a far more resilient, tough vessel, but there is a cost impact," said Quigley.

A Navy official was unavailable last night to respond to Lockheed's claims, but earlier said steel-related cost issues already had been accounted for.

The cost of stopping and restarting the program could be about $14 million, Quigley said, adding that Lockheed is likely to attempt to recoup those costs from the Navy.

Some in Congress have questioned whether a littoral combat ship, or LCS, is necessary if submarines, tanks and guns would suffice. "The Navy is committed to the LCS program and it remains the cornerstone of the future fleet. It will provide critical capability," Gay said.

Falls Church-based General Dynamics Corp. has received contracts to build two of the littoral ships. The first ship, which will be 400 feet long and hold a crew of 40, is half done, and construction on the second hasn't begun, said company spokesman Rob Doolittle. "We're focused on delivering a very capable, affordable ship to the United States Navy," he said. But, Doolittle said, "it's premature to discuss the final construction cost because we're so early in the process."