UPDATE 3-US Army's FCS program ended in current form

* Army working on details for continuing modernization

* Future role of integrator still unclear

* Army, contractors to discuss termination fee (Adds Boeing reaction)

By Andrea Shalal-Esa

WASHINGTON, May 18 (Reuters) - Pentagon chief arms buyer Ashton Carter said on Monday that the Army's $160 billion Future Combat Systems (FCS) modernization program was ending, not just the $87 billion manned ground vehicle segment.

He said Army modernization efforts would continue as separate programs and that the future role of Boeing Co (BA.N) and Science Applications International Corp SAIC.UL, lead system integrators for FCS, was still being determined.

"FCS has been stopped. It's the entire program," Carter told reporters after addressing an event hosted by the Center for Naval Analyses, noting that the program includes many different elements. "Now we'll have to see what to do with these different pieces."

Defense Secretary Robert Gates last month said he planned to cancel the manned ground vehicle part of the huge FCS program to better integrate lessons learned from the wars in Iraq and Afghanistan, but it was not clear at the time that the Pentagon meant to revamp the entire program.

Paul Mehney, the Army's FCS spokesman, said the program would now be known as the Brigade Combat Team Modernization, but work would proceed on several FCS technologies to be fielded soon. These include small unmanned aerial and ground vehicles, unattended ground sensors, a non-line-of-sight launch system or "rockets in a box," as well as the Boeing-developed network tying it all together.

He said a Pentagon review last week had validated the FCS concept of fielding the so-called "spinouts" as a system of equipment to soldiers.

But he said Army officials were also analyzing what other capabilities combat teams needed from outside the FCS program.

A separate study would reexamine the Army's manned ground vehicle needs and map out a new way forward by September.

TERMINATION FEE TALKS

Carter is due to issue a formal acquisition decision memorandum on the FCS program this week, possibly as early as Thursday, said two officials familiar with the program.

Once the memo comes out, the Army will issue a stop-work order for the manned ground vehicle part, and start talks with the contractors about a termination fee, Mehney said.

One of the officials, who asked not to be named, said those discussions would give the Army an opportunity to rework the terms of the overall contract with Boeing and SAIC. "It throws everything back on the table," the official said.

Top Pentagon officials wanted to focus more on incremental fielding of the different air and ground vehicles being developed under FCS and move toward individual funding lines, and away from the lump sum approach under the existing deal.

Last month, Carter's predecessor, John Young, criticized the existing contract with Boeing and SAIC, saying it ensured the companies a "very high" fixed fee of 7.5 percent, plus fees earned on specific programs.

Asked if there would still be a role for the two companies once the contract was reworked, Carter said, "Don't know."

He said he assumed that both companies had "a lot of knowledge" on the programs, but it was unclear what role they would play going forward.

"It's supposed to be a new start and I'm waiting for the Army to think that through," Carter said, suggesting the lead systems integrator approach would be scrapped.

One official familiar with the program, who asked not to be named because no decisions had been finalized, said Boeing and SAIC would still oversee work on the FCS network and various weapons being developed for early fielding with troops.

Boeing spokesman Matthew Billingsley said the program was continuing to meet all its milestones and last week's review had validated the substantial progress made to date.

He said Boeing, SAIC and their subcontractors were continuing to work on the program until they received direction from the Army. Any discussion of termination fees was premature until the Pentagon issued its acquisition decision, he said. (Reporting by Andrea Shalal-Esa, editing by Dave Zimmerman and Gunna Dickson)