The following is excerpted from remarks by the secretary of the Navy at the National Press Club:
The Electric Boat division of General Dynamics has a total of 20 submarines currently under construction. They are a total of 15 ship-years behind original projections on those submarines.
In April, I informed the General Dynamics management that I intended to make judgments on future contracts based not on the past, but on measurable performance from that time forward. I believe that their management is working diligently to resolve the production difficulties that have resulted in the cost overruns and the schedule slippages. However, they are not there yet.
We still hope that the first of the Trident class submarines, the Ohio, can be delivered before the end of this calendar year, which will then be some two and one-half years later than originally planned.
Electric Boat has already delivered three submarines this year, and we are optimistic that they will be able to deliver four more before the end of the year. Problems remain, however, in those ships under construction, and there we have not yet seen sufficient progress to warrant giving additional work without compounding those problems.
When the data show that the manning levels working on the remaining seven Trident boats under construction are sufficient to get those boats on a sound production schedule, then I would be prepared to begin negotiations for the construction of the ninth Trident submarine that has been authorized and appropriated by Congress. We would then be in a position to negotiate a realistic contract, with realistic pricing and realistic schedules. I honestly hope that time will not be long in coming.
Regrettably however, Electric Boat has recently injected a new and very disruptive element into our business relations. They have submitted a multi-million dollar claim to compensate them for rework costs caused by their own faulty performance on certain of the 688 submarines (Los Angeles class nuclear-powered attack submarines). This, in my judgment, was an ill-advised move by the General Dynamics management, and I hope that they will reconsider and withdraw that claim.
For a corporation to pursue, as a policy, the principle that the taxpayers should pay for the mistakes, the negligence, the poor workmanship or the inadequate management of that company in carrying out a contract with the government, is preposterous. Spokesmen for General Dynamics have attempted to argue that this is not a policy issue, that it is a matter for the lawyers and the courts. We, of course, do not question that platoons of corporate lawyers could construct a legal brief to support any policy decision, but for Electric Boat to direct them to do so makes it an issue of policy and a clear indication of an attitude toward the customer.
This attempt to take advantage of the inherent disadvantage that the taxpayer suffers in the arena of corporate litigation has been tried before, unfortunately with some success. Indeed, there are others, even now, acting in the same manner. There are some officials, for instance, in the McDonnell Douglas Corp., who are tempted to construct a case to "rip off" the Navy of $38 million owed for the F18 that crashed after the British Farmborough Air Show last year, while on a McDonnell Douglas marketing trip. They are attempting to pursue this policy decision based on the best legal loophole they can find-- namely, that there was a Navy passenger on board at the time the plane crashed while under the command of a McDonnell Douglas test pilot.
The Department of Defense will not tolerate such corporate attitudes. They are unacceptable. We will not subscribe to the notion that the government always pays, and we intend to respond in two ways.
First, with regard to Electric Boat, continued pursuit of this policy of claims cannot avoid poisoning the atmosphere as we consider entering further contract negotiations. Second, while our legal departments are already overextended in the normal conduct of defense business, we will nevertheless prepare and pursue in the most energetic fashion counterclaims not only for direct damages caused by contractor actions and delays, but also for those consequential damages which our lawyers believe to be supportable, and which could run into large sums.
If we find that we cannot realistically contract for additional submarines at Electric Boat in the near future, it is our intention in the Department of the Navy to qualify a third shipyard, private or naval, to produce nuclear submarines, possibly including the Trident submarine. In our judgment, the slowdown of several years in submarine production, while deplorable, would nevertheless be in the long-term interests of achieving naval superiority on an afforable basis, and we shall do so.