Coast Guard Cancels Contract

By Renae Merle
Washington Post Staff Writer
Thursday, March 15, 2007

The Coast Guard took the unusual step yesterday of canceling a troubled $600 million patrol boat program, saying the service could manage the effort more efficiently than two of the nation's largest defense contractors.

The Coast Guard had given Lockheed Martin and Northrop Grumman broad latitude to develop the Fast Response Cutter, shifting significant control to the contractors. But the effort stalled after concerns emerged last year about the design of the vessel. By managing the work itself and rebidding the development work, Coast Guard officials estimated they would save enough money to buy an extra ship and address a patrol boat shortage by getting ships built faster.

"We are the patrol boat experts in the United States," said Rear Adm. Gary Blore, the program's executive officer.

Development of the Fast Response Cutter is part of a $24 billion Coast Guard effort, known as Deepwater, to modernize and greatly expand its aging fleet of ships, planes and helicopters. The program has faced heavy criticism from Congress as government auditors have identified design flaws in three ship programs and attributed the problems in part to the service's decision to give so much control to the contractors. About $2.3 billion has been spent on the overall Deepwater effort.

Lockheed, based in Bethesda, and Northrop, headquartered in Los Angeles, had teamed up to manage the entire Deepwater project. They said they understood that the Coast Guard had the option to cancel the contract.

The companies said in a statement yesterday that they had "only just been informed of the Coast Guard's decision. It is difficult to comment as we have not seen their new program plan."

The Fast Response Cutter is meant to be speedier and more durable than its predecessor. To achieve those goals, the contractors had proposed a hull design using composite materials instead of steel, which they said would weigh less and be cheaper in the long run. The Coast Guard approved the approach despite having never used such material, officials have confirmed. But concern emerged within the service about the decision, and the Coast Guard opted to halt work in February 2006 so it could study alternatives.

During that lull, service officials said they reassessed the contract and estimated they could save 4 to 6 percent overall if they did not have to pay the contractors to manage the program. The Coast Guard also surveyed the market for potential builders and found more companies willing to do the work than Lockheed and Northrop had initially identified when they were running the program. "Competition is really going to help us," Blore said.

The move is also a reflection of the Coast Guard's effort to beef up its internal acquisition capabilities, he said.

"The Coast Guard has become a lot more self-sufficient" than when Deepwater was launched, Blore said.

When it restarts the program, the service plans to solicit bids on the first 12 of 58 cutters it buys. Delivery on ships is expected to begin in 2010.

The decision to rebid the contract comes as Congress continues to heap criticism on the management of the Deepwater program. One measure being considered by the House would limit Lockheed's and Northrop's powers. "We need a comprehensive fix for Deepwater's problems before any more taxpayer dollars go down the drain," Sen. Maria Cantwell (D-Wash.) said in a statement yesterday, calling for the Coast Guard to ensure that taxpayers would not cover cost overruns on the project.

The Coast Guard said it would review other portions of the Deepwater program as it goes forward. "We will make the decision on an asset by asset basis" whether the contractors or the service will be in charge of those phases, said Adm. Thad Allen, commandant of the Coast Guard.


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