Navy unhappy with LCS bids, wants cost cap raised
WASHINGTON (Reuters) - The U.S. Navy is unhappy with the bids submitted by Lockheed Martin Corp (LMT.N) and General Dynamics Corp (GD.N) for three more shore-hugging warships and will ask both companies to go back and provide more information, said sources briefed about the Navy's plans.
At the same time, the Navy also is talking with lawmakers about modifying a $460 million cost cap imposed by Congress for new Littoral Combat Ships purchased in fiscal 2008 or later, said the sources, who asked not to be identified.
Some Navy officials have suggested in the past that the cap should be raised to as high as $560 million, said one congressional aide, who asked not to be named.
Industry officials say inflationary pressures, including a 21 percent rise in steel prices, mean the cap will eventually have to be changed.
The new price compares to the initial projections of $220 million per ship, a figure Navy Secretary Donald Winter now says was unrealistic from the start.
"There's a limit to what we can expect in terms of low cost ships," he said in an interview last week. He said the Navy could not reasonably expect to buy a warship for the cost of a fast coastal ferry.
Asked if the cost cap would have to be raised, he said, "I don't know yet. We're working through that matter right now."
The Navy confirmed its officials have been meeting with lawmakers to "discuss the details and implications of the LCS cost cap," but declined to give any details.
"The Navy remains committed to effective cost control and has modified contracting strategies and management practices to provide program stability for this important new class of warship," said Navy spokesman Lt. Cmdr. Victor Chen.
Congressional aides said lawmakers were deeply skeptical about the Navy's latest stance on the cost cap, which was written into law with strong guidance from the Navy last year.
Last month, the Navy drew criticism when it first announced a plan to end the DDG-1000 destroyer program after two ships, then reversed course two weeks later and said it would build three DDG-1000 destroyers. General Dynamics and Northrop Grumman Corp (NOC.N) are the contractors for the destroyers.
"The Navy has lost credibility," said one aide. "There is a continued perception that the Navy can't make up its mind."
But the aide added, "I think Congress would agree with the Navy that the bids the companies submitted are unacceptable."
In order to meet the cost cap, both companies removed items from the ships, including a gun and a fire-suppression system, a move that has clearly troubled Navy officials and lawmakers.
A spokeswoman for Rep. Roscoe Bartlett, said Bartlett supported a move by the House of Representatives to adjust the cost cap for inflation -- up to a maximum of $10 million this year -- a move not matched by the Senate thus far. Continued...
