Report sees cost risks in U.S. Navy ship program

WASHINGTON (Reuters) - The U.S. Navy's $25 billion coastal warship program may face further cost overruns given ongoing design changes and delays in the equipment needed to reconfigure each ship for various missions, a new congressional report said.

"Recurring cost growth and schedule delays have jeopardized the Navy's ability to deliver promised LCS capabilities," the Government Accountability Office, the research arm of Congress, said in a report released on Tuesday.

The report provided more bad news for the Navy's new class of warships, which are designed for a variety of different missions like chasing down pirates, attacking enemy submarines and sweeping for mines in shallow coastal waters.

The Navy plans to buy 55 of the ships overall, a key part of its plan to increase the number of ships in the fleet to 313 over time, but costs have more than doubled in recent years.

Last week, the Navy said it would miss its summer target for awarding a multibillion contract for 10 new LCS ships, but still expected to reach a decision before the end of the year.

Austal USA, a unit of Australia's Austal Ltd and Lockheed Martin Corp are competing for a contract valued at upwards of $5 billion to build 10 of the new ships and mission systems for five more.

Austal is teamed with General Dynamics Corp, which was the prime contractor for the team's first two LCS ships, based on aluminum trimarin design. Lockheed, teamed with Marinette Marine, is bidding a steel monohull design.

The Navy has already accepted a first ship of each design, and each team is working on a second ship, but all four ships faced technical, design and building issues, the report said.

Lessons learned on the first two ships should help build the next ships more effectively, but design changes were being made during construction, which could drive costs higher.

"Although the Navy has emphasized the importance of affordability to successful outcomes in the LCS program, it continues to make key investment decisions without a clear understanding of program costs," the report said.

The GAO report said the Navy also lacked comprehensive cost estimates and an independent review, raising questions about whether it could deliver LCS at "prices it is willing to pay."

It was not immediately clear if the Navy's decision to delay a new contract award until fall was related to the GAO study, which was sent to the Pentagon for review in June.

The report did note the Navy planned a comprehensive cost estimate before awarding any more contracts.

The report chafed at the Pentagon's statements that it could use service contracts to take care of further changes after contract award, noting that could drive costs up more.

"We would expect the Navy to set the bar extremely high for making design changes to ships that are already under construction," it said.

The Navy had no immediate comment on the report, which also raised serious concerns about the interchangeable mission packages being designed for the new class of warships, noting that procurement of all three packages was delayed.

Key mine countermeasures had problems in operational testing that delayed their fielding, while four of six Non-Line-of-Sight Launch System missiles missed their targets, leading to that program's cancellation, the report said.

It said the Navy's own analysis of the anti-submarine warfare systems showed they "do not contribute significantly" to the anti-submarine mission.

"Until mission packages are proven, the Navy risks investing in a fleet of ships that does not deliver promised capability," the report said.

(Reporting by Andrea Shalal-Esa;editing by Sofina Mirza-Reid)