Navy offers Lockheed Martin a break

Secretary of the Navy Donald Winter offered Lockheed Martin the option of accepting a fixed-price contract for the troubled Littoral Combat Ship, which has been plagued by large cost overruns, according to a senior House Armed Services member.

“[Secretary] Winter is giving Lockheed Martin an offer they can’t refuse,” Rep. Gene Taylor (D-Miss.), chairman of the Seapower and Expeditionary Forces subcommittee, told The Hill.

In a press release, the Navy announced that it is going to lift a stop-work order on the Littoral Combat Ship (LCS) built by Lockheed, and that lifting the stop-work order is contingent upon the Navy and the company reaching an agreement on a renegotiated contract.

That contract would be a fixed-price incentive contract, according to a Navy spokesman. 

“The Navy has identified the process to resume work on LCS-3,” said Craig Quigley, a Lockheed Martin spokesman. “We have agreed to enter into discussion with the customer to better understand their proposal and to identify a solution that best meets the interests of all parties.”

If Lockheed Martin were to operate under a fixed-price contract and correct the deficiencies that have led to problems in the already-built first Littoral Combat Ship (LCS), Lockheed would be able to get another order for the shore-hugging combat ship. Taylor said Congress is planning to fund to additional LCSs this year.

“If Secretary Winter would be empowered to purchase two additional LCSs,” he would do that “from the contractor who meets the Navy’s requirements.”

Lockheed Martin and General Dynamics both have contracts to build the LCS, with Lockheed building the first and third ship and General Dynamics building the second and fourth.

In January, the Navy ordered Lockheed to halt work for 90 days on LCS-3 due to soaring costs. Lockheed was ordered to stop work because of cost overruns on the first of the new ships built by Lockheed, known as LCS-1.

The Navy has said the first Lockheed LCS ship will cost between $350 million and $375 million, far above initial estimates of $220 million for each of the new ships.

If General Dynamics can meet the Navy's cost objectives for LCS-2, the Navy will continue construction of LCS-4 under the current cost plus contract it has with the company, the Navy spokesman said. If there is , however, a trend of escalating costs, the Navy would go into negotiation with General Dynamics.