UPDATE 2-Coast Guard cancels Lockheed, Northrop ship work
(Adds details, companies' response)
WASHINGTON, March 14 (Reuters) - The U.S. Coast Guard on Wednesday said it was terminating work by a joint venture of Lockheed Martin Corp. (LMT.N) and Northrop Grumman Corp. (NOC.N) on 12 fast patrol boats and would launch a fresh competition for the ships in May.
The venture was overseeing a competition for the fast response cutters as part of the Coast Guard's $24 billion, 25-year Deepwater modernization project, with an eye to beginning deliveries of the ships in spring 2010.
Now the Coast Guard will assume control of the competition, a move that could delay a contract award for some time. Integrated Coast Guard Systems, the Lockheed-Northrop venture, had planned to award a contract for the ships this spring.
The Coast Guard move comes amid increasing criticism of its management of the Deepwater project by lawmakers and watchdog groups, who cited delays, soaring costs and design flaws.
"This decision is based on the Coast Guard's ongoing commitment to improve management of the Integrated Deepwater System contract," Coast Guard Adm. Thad Allen said.
The service said its decision affected only the fast patrol boats. Negotiations with IGCS were continuing for other work to be done under the Deepwater contract, beginning in June 2007.
The Coast Guard said it would issue a new request for proposals in May for a fixed-price contract based on an existing patrol boat that is already in service and requires only minimal modifications to meet basic requirements.
Design work on the initial A-version of the cutters, which would have had a composite hull, was suspended in early 2006 due to technical issues.
"The service is taking the action to ensure full and open competition, to control costs and deliver urgently needed patrol boats to meet basic mission requirements in the shortest time possible," it said.
Integrated Coast Guard Systems said it had only just learned of the Coast Guard decision and had not yet seen its new program plan.
It said its own plan also called for robust competition, but the Coast Guard's decision had always been an option.
It said Northrop Grumman, which was managing this part of the Deepwater contract, had even agreed not to bid for the boats to avoid any appearance of a conflict of interest.
"We will continue to provide any support we can to our Coast Guard customer as they further refine their requirements moving forward," the joint venture said.
Sen. John Kerry, a Massachusetts Democrat and member of a Commerce subcommittee that oversees the Coast Guard, last month urged the Coast Guard to cancel the overall Deepwater contract, which he said was nine years behind schedule and $7 billion over budget.
The Deepwater project includes plans to build 91 new ships, 124 small boats, 195 new or rebuilt helicopters and planes, and dozens of unmanned aerial vehicles to help the Coast guard keep up with expanded missions since the Sept. 11, 2001 hijacking attacks.
((Editing by Jerry Kearney; e-mail: andrea.shalal-esa@reuters.com; +1 202 354 5807)) Keywords: LOCKHEED NORTHROP/COASTGUARD
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