Navy acknowledges delay in warship contract

WASHINGTON (Reuters) - The U.S. Navy acknowledged on Monday that it will miss its summer target for awarding a multibillion contract for new warships but said it still expects to reach a decision before the end of the year.

Austal USA, a unit of Australia's Austal Ltd ASB.AX, and Lockheed Martin Corp LMT.N are competing for a contract valued at upwards of $5 billion to build 10 Littoral Combat Ships (LCS) for the Navy, and combat systems for five more.

Sources told Reuters on Friday that a contract award, which had been expected in late July or early August, was unlikely to come until fall given ongoing discussions with the bidders.

Navy spokesman Commander Victor Chen said on Monday that the Navy is working on the source selection diligently, thoroughly and in line with applicable laws.

He said the Navy is in talks with the two bidding teams and will soon request a fresh set of final proposal revisions that would be due in September.

The Navy will also require that those revised final offers remained valid for 90 days, Chen said. That would take the offers through the end of the year.

“The Navy intends to make a contract award as expeditiously as practicable, consistent with its source selection plan, but in any event prior to the expiration of such offers,” Chen said.

He said the Navy’s need to protect the integrity of the competition process and the confidentiality of the information submitted by the bidders significantly limits its ability to provide additional details.

The new class of warships would be designed for emerging missions such as fighting pirates, chasing drug-runners and sweeping for mines in shallow coastal waters. The Navy plans to buy 55 of the ships overall, a key part of its plan to increase the number of ships in the fleet to 313 over time.

The Navy, in an unusual step, reopened discussions with the companies about cost and technical matters after they submitted their final proposal revisions on July 12, according to sources closely following the process.

Both companies were due to have discussions with the Navy on Monday.

A meeting of the Pentagon’s high-level Defense Acquisition Board to review the Littoral Combat Ship program, initially scheduled for August 4, has also been delayed until mid-October, Pentagon spokeswoman Cheryl Irwin said on Friday.

Reporting by Andrea Shalal-Esa, editing by Gerald E. McCormick