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UPDATE 1-US Navy award keeps Lockheed LCS work going

* U.S. Navy keeps production alive at shipyard

* Navy makes progress in Lockheed contract talks

* No mention of progress with General Dynamics talks (Adds details, background)

WASHINGTON, March 2 (Reuters) - The U.S. Navy on Monday awarded Lockheed Martin Corp LMT.N a contract modification to allow continued work on the Littoral Combat Ship (LCS) program and preserve production capability at the Wisconsin shipyard where a subcontractor is building the ships.

The small, agile LCS vessels that are being built in a competition between Lockheed and General Dynamics GD.N have been plagued by cost overruns. The ships are designed to counter threats in contested coastal waters and have a maximum speed of more than 40 knots, compared with 30-plus knots for the Navy's larger surface warships.

Navy spokesman Lt. Cmdr. Victor Chen said the Navy was making progress in talks with Lockheed about a contract for a second LCS ship in fiscal 2009, which ends on Sept. 30.

The amount of Monday’s contract modification with Lockheed was not disclosed because it was part of the negotiations about ships to be built in fiscal 2009 and 2010, Chen said.

The Navy was also continuing negotiations with General Dynamics, which is working on a separate LCS design, Chen said, but he did not make reference to any progress in those talks.

General Dynamics is expected to deliver its first LCS ship to the Navy this summer, possibly by late June. Lockheed’s first LCS ship, which cost around $500 million, went into service in November.

Each company won a contract to build second ships last summer, but the negotiations have dragged on because the Navy wanted to cut the price.

Lockheed has warned that it must get a ship under contract soon to avert 100 more layoffs at the Wisconsin shipyard where its partner, Marinette Marine, built the last ship. Marinette laid off 170 workers in autumn last year.

The Navy ultimately wants to buy 55 of the ships, which were originally expected to cost $220 million each.

RELATED NEWS:

*US Navy adds LCS ships, 1st one too heavy [ID:nN16397079]

*Navy lauds performance of new LCS warship [ID:nN11412363]

*US Navy sees General Dynamics ship delay [ID:nQW461996]

*Navy sees LCS ship cost reaching $550 mln [ID:nN31370982]

*Pentagon prefers 2 firms in LCS program [ID:nN04549300] (Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn)

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