August 8, 2007 / 5:44 PM / 12 years ago

UPDATE 1-US Navy sees progress on General Dynamics LCS ship

(Adds Navy details)

By Andrea Shalal-Esa

WASHINGTON, Aug 8 (Reuters) - General Dynamics Corp. (GD.N) is working closely with the Navy to rein in cost overruns on its first shore-hugging Littoral Combat Ship and is “moving forward in a good direction,” U.S. Navy acquisitions chief Delores Etter said on Wednesday.

Etter said in an interview that General Dynamics is about 54 percent done with its first ship, one of two designs developed for the Navy’s proposed fleet of 55 littoral combat ships. The General Dynamics ship, dubbed LCS-2, is due to be delivered in mid-2008, Etter said.

Etter said she is in weekly contact with General Dynamics officials about the need to rein in costs and prevent the kind of overruns that prompted the Navy to restructure its LCS contract with Lockheed Martin Corp. (LMT.N), and cancel its work on the second of its LCS ships.

“GD certainly understands how important it is for them. It’s something that’s at the top of their minds,” Etter said.

Navy officials are not making any changes to the ship’s design, which can increase costs, unless they involve safety concerns, Etter said.

The Navy still has the option to stop work on the General Dynamics ship, but she declined to say what type of cost overrun would trigger such an action.

“We do have points at which our concern will go up. You can’t predict what will happen, but things are moving forward in a good direction,” she said.

She said the Navy continues to see progress on both the Lockheed and General Dynamics ships, but said the Navy is keeping close tabs on specific challenges with each ship.

“We ... continue to see challenges with the program and with each platform, specifically with the propulsion system on LCS-1 and systems integration on LCS-2,” she added.

Etter has made acquisition improvements across the Navy as a result of the problems with LCS. The changes include achieving more realistic cost estimates, beefing up oversight and conducting more frequent reviews.

In addition, Etter met with all Navy program managers and deputy program managers to hammer home the need for better control over acquisitions. She will soon start a similar series of discussions about systems engineering on programs.

Navy officials have asked lawmakers to approve a 55 percent increase in a cost cap for the fifth and sixth LCS ships to $460 million. They also said costs for the first Lockheed ship and GD’s LCS-2 could be up to 75 percent higher than expected.

Eric Labs, with the Congressional Budget Office (CBO), estimates the first two ships will cost $630 million each. That means the 55 ships in the Navy plan would each cost about $450 million, far above initial forecasts of $220 million.

Etter said she is pleased with progress on Lockheed’s first LCS ship after a tour last week of the Wisconsin shipyard where it is being built. Navy Secretary Donald Winter also was on the tour, and hopes the shipyard will meet its goal of initiating sea trials in December, his spokeswoman said.

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