Congress probes costly ship programs

Congress probes costly ship programs

	Published : Wed, 25 Apr 2007 22:02 By : Agencies Print this Story

WASHINGTON (AP) - Defense industry executives blame unexpected contract revisions ordered by the Navy and unanticipated labor and material charges for soaring cost overruns on new military ships.

At a House Appropriations defense subcommittee hearing on Wednesday, lawmakers wanted to know who is responsible for skyrocketing costs in some Navy ship programs. Their scrutiny follows the recent cancellation of a Lockheed Martin Corp. deal to build a multimillion-dollar combat ship and the military taking back management of a contract from Lockheed and Northrop Grumman Corp. that is part of a troubled $24 billion modernization program.

Executives from Northrop and General Dynamics Corp., the nation's two largest shipbuilders, testified at the hearing, detailing cost overages on their ship programs.

Additional requests made by the Navy during ship construction, a reduced rate in the number of ships built per year and expensive weapons systems make it impossible to meet contract cost estimates, said Philip Teel, president of Northrop Grumman Ship Systems Inc.

'These factors have been key drivers in the resulting instability and ... underperformance in the shipbuilding industry,' he testified.

Northrop and General Dynamics are working on seven new ships this year. Each one is the first of its class, which is always more expensive than subsequent ships built in each class.

Teel also noted higher construction and material fees and a lower overall rate of shipbuilding even though the number of first-in-class ships is high. On average, six ships a year are built so far this decade compared to more than 15 ships a year during the early 1990s. The lower rate makes it harder to spread costs, Teel said.

'The reductions in volume, the volatility in the shipbuilding plan and the increased number of program starts have negatively impacted the shipbuilding industry,' he added.

In an unusual move earlier this month, the Navy canceled Lockheed's second LCS ship after costs on the first ship ballooned to $350 million from an initial price tag of $270 million.

Senior Navy officials have warned that skyrocketing costs could derail efforts to increase its fleet to 313 from the current 267, which is already below target.

Michael W. Toner, executive vice president of General Dynamics Marine Systems, said the company was experiencing the kind of cost growth on its first LCS ship as Lockheed did. Toner declined to specify how much costs had increased.

'We are challenged building this (LCS) ship,' said Toner. 'We have had similar types of issues that the other vendor has had.'

Toner expressed concern about future cost overruns, when the company starts integrating electronic systems on the ship.

The Navy has warned General Dynamics that it could face a restructured contract or cancellation if cost overruns aren't kept in check.

However, some U.S. lawmakers agreed that the Navy changing final design requirements are to blame for some overruns. The Navy was warned that it must reduce contract changes prior to construction to prevent unexpected cost increases.

Rep. John Murtha, D-Penn., said without completed ship requirements, companies low-ball cost estimates and when the Navy later requests changes, Congress has to foot the bill for added costs.

'It's not going to happen overnight, but we have to get this under control,' said Murtha.

Shares of Northrop rose 48 cents to $74.65 Wednesday on the New York Stock Exchange, while shares of General Dynamics fell 15 cents to $79.24 after ending the day down 68 cents to $79.39, also on the NYSE.