July 31, 2008 / 10:39 PM / 11 years ago

US Navy sees cost of LCS ships reaching $550 mln

WASHINGTON, July 31 (Reuters) - New shore-hugging combat ships being built by Lockheed Martin Corp (LMT.N) and General Dynamics Corp (GD.N) are now expected to cost 2.5 times the initial price tag of $220 million, a top U.S. Navy official told lawmakers on Thursday.

That would amount to a price tag of $550 million for the new small, fast Littoral Combat Ship (LCS), which is designed to counter coastal threats, including floating mines, diesel submarines and speedboats driven by guerrillas.

Vice Adm. Barry McCullough, deputy chief of naval operations, gave the new estimate for the ship’s cost at a hearing held by the House Armed Services seapower subcommittee.

Lockheed and General Dynamics are each building the first of two different designs for the new ship class. They are now bidding for work on the next three ships, and the Navy expects to award a contract later this year.

Last year the Navy restructured the program and canceled orders with both General Dynamics and Lockheed for a second ship after it was unable to secure fixed-price deals with the companies for those ships.

The program ran into cost problems early on, partly because the Navy implemented tough new requirements for military ships that had a big impact on the contractors’ cost estimates.

McCullough said the LCS program was making good progress after the restructuring, and Lockheed’s trials of the first LCS ship in Lake Michigan, near the shipyard in Wisconsin where the ship was built, were going well.

“We’re very pleased with how the builder’s trials are going on that ship,” McCullough told the hearing.

Defense consultant Loren Thompson of the Lexington Institute noted that the lead ship or ships in a new class always cost more, but that price would drop once the Navy starting building the new ships at a faster rate.

The Navy ultimately plans to buy 55 of the littoral ships, a key component of its plan to expand the fleet from 280 ships to 313.

“The cost of the warships will eventually be below $300 million each,” Thompson said. Those estimates do not include specialized military equipment that the Navy is buying separately for the new class of ships. (Reporting by Andrea Shalal-Esa; editing by Carol Bishopric)

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