UPDATE 1-Congressional report cites problems with LCS ships
* Launch and recovery of smaller boats seen as major risk
* Neither shipyard meeting management system standards
* General Dynamics ship headed for dry dock repairs (Adds responses from General Dynamics, Lockheed)
By Andrea Shalal-Esa
WASHINGTON, March 30 (Reuters) - The U.S. Navy sees the launch and recovery of smaller boats as a "major risk" to both competing designs for its new Littoral Combat Ship program, a congressional watchdog agency said on Tuesday.
The Government Accountability Office (GAO), the research arm of Congress, said the Navy's risk assessment was troubling, given that watercraft launch and recovery are "essential to complete the LCS antisubmarine warfare and mine countermeasures missions" for the new class of warships.
The systems for launching and recovering smaller ships had not been fully demonstrated for either of the rival designs by Lockheed Martin Corp (LMT.N) and General Dynamics Corp (GD.N), the GAO said in its annual report on major weapons systems.
It also cited other problems with both ships designs, including one that will send the General Dynamics ship to dry dock repairs, and noted that neither of the shipyards had met earned value management systems (EVMS) standards set by the Pentagon's Defense Contract Management Agency.
Until they meet those requirements, the companies' cost and schedule data "cannot be considered fully reliable," GAO said.
Lockheed won a contract for LCS-3 based on its steel single hull design on March 23, 2009. General Dynamics won a contract for LCS-4, based on an aluminum trimarin design by Austal (ASB.AX) on May 1, 2009, or 10 months ago.
Austal and General Dynamics have split up for the next competition, with Austal planning to submit a prime bid that includes General Dynamics as a subcontractor for the ship combat system. General Dynamics's shipyards hope to bid separately for follow-on orders in 2012.
TOTAL COST OF PROGRAM TO DATE IS $5 BLN
The rival teams are due to submit their bids for 10 more ships by April 12, a deal valued at over $5 billion, with Navy officials eyeing a contract award in July. Over time, the Navy plans to buy 55 of the new smaller, more agile warships.
GAO said the total cost of the LCS program so far, including research and development as well as procurement funding, was $5.1 billion, nearly 300 percent more than the $1.3 billion cost projected in 2004.
It said the unit cost per ship was $730 million, up from $331 million in 2004, but analysts said that included the first ship of each design, which generally cost more to produce.
GAO said the Navy was conducting dynamic load testing of Lockheed's LCS-1 ship, but integration with the Remote Multi-Mission Vehicle was not due to happen before the ship's so-called shakedown cruise, although it is a "physically stressing system to launch and recover."
For LCS 2, testing of the crane used to launch and recover smaller boats "revealed performance and reliability concerns that were not fully addressed prior to installation."
Lockheed spokeswoman Kim Martinez said the company's first LCS ship, the USS Freedom, had successfully completed its small boat launch and recovery tests, and had used the capability during Freedom's current deployment to catch drug traffickers.
GAO said the main propulsion diesel engines on the General Dynamics ship had not completed a required endurance test due to corrosion in the engines' intake valves, which had to be replaced so the ship could complete acceptance trials.
The General Dynamics ship had also experienced pitting and corrosion in its waterjet tunnels, an issue that the Navy has temporarily fixed, but which will require welding work during a future dry dock availability, GAO said.
Design changes were also made to the General Dynamics ship to address the corrosion and pitting in its waterjet tunnels by isolating the propulsion shafts from the waterjets, GAO said.
General Dynamics spokesman Rob Doolittle said issues sometimes arose during construction of the first ship of any class, but the company and the Navy had already addressed the concerns raised in the GAO report.
He noted that LCS-2 had passed both builder's and Navy acceptance trials, and was now under way from the shipyard in Mobile, Alabama, headed toward the East Coast.
The GAO report also noted previously reported concerns about the stability of Lockheed's ship if critically damaged, but said the Navy had added external tanks to the rear of the ship to allow it to meet the damage stability requirement.
The design for Lockheed's second ship was also modified to lengthen its transom by four meters to improve stability.
Martinez said Freedom had proven to be very stable, and the tanks were only needed in a severely damaged condition. (Reporting by Andrea Shalal-Esa; Editing by Bernard Orr)