Lockheed, Navy Could Reach Deal on Ships

U.S. Navy and Lockheed Martin could reach a preliminary agreement as early as next week on how much the defense contractor will be paid for a pair of next-generation combat ships according to the AP. Secretary of the Navy Donald Winter has indicated he plans to strike a deal with Bethesda, Md.-based Lockheed Martin Corp. ahead of an April 12 deadline after a stop-work order was placed on one of its ships due to cost overruns, Capt. Beci Brenton, spokeswoman for Winter's office, said on Friday. Senior Navy officials in January placed a 90-day stop-work order on the second of two ships Lockheed is building as part of the Littoral Combat Ship (LCS) program so they could conduct a cost review. The Navy awarded contracts for four LCS ships, initially estimated to cost $270m each, two to Lockheed and two to Falls Church, Va.-based General Dynamics Corp.

Work has continued on Lockheed's first ship — the Navy says it is almost three-quarters completed — but its cost has already soared to roughly $350 million. The company has said cost overruns were due to revised Navy requirements and material delays from subcontractors. Last month, Winter said he would allow Lockheed to start work on the second ship at its Wisconsin shipyard — which was expected to begin last month — if the company agreed by mid-April to switch to a fixed-price contract. Since then, the company has been in negotiations with the Navy to restructure its contract for both ships. The first ship was scheduled to be delivered to the Navy this summer. A new delivery deadline will be set for both ships as part of the negotiations, according to Lockheed.

General Dynamics' shipbuilding unit in Mobile, Ala., is on track to deliver on schedule its first ship, which is roughly 40 percent complete, by spring 2008, said spokesman Kendell Pease. The company has been put on close watch by the Navy to track costs, but has not been asked to restructure its contracts. Source: AP