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Northrop, Lockheed dispute US Coast Guard reversal

Tue Jul 3, 2007 1:49am EDT

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By Jim Wolf

WASHINGTON, July 2 (Reuters) - Northrop Grumman Corp. (NOC.N) and Lockheed Martin Corp. (LMT.N) have questioned the legality of the Coast Guard's reversal of its initial acceptance of 123-foot patrol boats the companies modified.

Integrated Coast Guard Systems (ICGS), as the partnership is known, "does not consider the revocation of acceptance to be supported as a matter of fact or law," said a June 27 letter from the team to the Coast Guard that Reuters obtained on Monday.

The cutters are part of a troubled $24 billion, 25-year modernization program known as Deepwater.

Due to produce more than 91 new cutters, 195 new aircraft plus new communications and surveillance equipment, the program has been dogged by capability cuts, cost overruns and delays.

The eight boats were lengthened by ICGS from 110 feet. The Coast Guard announced in April it was decommissioning them because of structural problems and taking back management responsibility for the Deepwater program overall.

The ICGS letter was reported first by the trade publication Inside the Navy. The Coast Guard had no immediate comment. An ICGS spokeswoman, Margaret Mitchell-Jones, said the companies would not debate the matter in public.

Coast Guard Commandant Adm. Thad Allen said in April it could cost well over $50 million to permanently repair the eight 123-foot patrol boats.

The ICGS letter took issue with a May 17 letter in which the Coast Guard said it decommissioned the cutters due to "hull buckling and shaft alignment issues" and a June 5 letter in which the Coast Guard cited "class wide issues" including nonconforming installed equipment.

Kevin O'Neill, the team's director of contracts, wrote that ICGS would respond in detail to both assertions as promptly as circumstances permit.

Contract disputes with the government sometimes develop into lengthy court battles. Earlier this year the Court of Federal Claims upheld a 1991 cancellation of an attack aircraft contract despite objections from Boeing Co. (BA.N) and General Dynamics Corp. (GD.N).

((Editing by Tim Dobbyn; e-mail:jim.wolf@reuters.com; telephone: 202-898-8402, washington.bureau.newsroom@reuters.com)) Keywords: NORTHROP LOCKHEED/COASTGUARD

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