Lockheed, Northrop asked to pay $96 mln for bad boats

WASHINGTON, Jan 7 (Reuters) - The U.S. Coast Guard has asked a joint venture of Lockheed Martin Corp LMT.N and Northrop Grumman Corp NOC.N to pay $96.1 million for eight patrol boats that it modified, but that cannot be used.

In the latest exchange between the Coast Guard and the venture, Integrated Coast Guard Systems (ICGS), the government said it concluded after reviewing thousands of documents that its revocation of acceptance of the patrol boats, was “not only timely, but was also technically and legally justified.”

“The government is seeking $96.1 million in repayment from ICGS for the failure to deliver 123-foot patrol boats that conform to the requirements of the contract,” said Coast Guard spokeswoman Laura Williams.

She said it was not clear what would be done with the boats, noting that they experienced “early hull deformation, deck buckling, and subsequent shaft misalignment problems, rendering the vessels unserviceable.”

Lockheed and Northrop, which began work in 2002 to lengthen the eight 110-foot patrol boats to 123 feet, had challenged the legality of the Coast Guard’s decision to reject the boats this past summer, since the service initially accepted the boats.

But Williams said later investigations showed the converted cutters were unsound and unfit to operate under typical conditions expected of high speed craft that require structural resistance to hydrodynamic loads such as slamming. The service was “unaware of the magnitude and cause of this design defect at the time of acceptance of the eight cutters,” she said.

In April the Coast Guard announced it was decommissioning the boats because of structural problems and was taking back management responsibility for the overall $24 billion, 25-year modernization program known as Deepwater.

The program, which was due to produce more than 91 new cutters, 195 new aircraft plus new communications and surveillance equipment, has been dogged by cost overruns and delays.

She said the $96.1 million payment was not a final estimate, but could form the basis for a negotiated settlement with the venture.

ICGS spokeswoman Megan Mitchell said the company was reviewing the Coast Guard letter and would respond directly to the Coast Guard. “ICGS remains willing to further discuss these issues with the Coast Guard and explore an amicable resolution of all issues,” she said.

Lockheed Martin said the Coast Guard initially identified nine class-wide issues, of which five were under its area of responsibility. But in a subsequent letter, the service expressed concern about only one issue under Lockheed’s watch involving certain topside equipment items.

Lockheed was eager to resolve that remaining issue, said spokesman Troy Scully. He said a settlement needed to be negotiated, but the estimated replacement value for all of the topside equipment in question was only about $3 million.

The matter is also being examined by the Justice Department, the congressional Government Accountability Office and the Pentagon’s Inspector General. (Reporting by Andrea Shalal-Esa, editing by Richard Chang)