Navy Cancels A General Dynamics Ship Contract

Team Infidel

Forum Spin Doctor
Wall Street Journal
November 2, 2007
Pg. 8
By August Cole
The U.S. Navy yesterday canceled a General Dynamics Corp. ship contract worth potentially hundreds of millions of dollars, in a blow to the defense contractor and a sign of the service's struggle to contain the costs of building ships.
The decision reduced to one from two the number of ships General Dynamics will make as part of a competition to build a new generation of coastal vessels.
The winner of the contract could get business to build the Littoral Combat Ship, as the vessel is known, that could be worth tens of billions of dollars over the life of the contract.
The Navy said the two sides couldn't agree on terms for a new fixed-price contract covering the second ship, which was expected to cost about $400 million.
"While this is a difficult decision, we recognize that active oversight and strict cost controls in the early years are necessary to ensuring we can deliver these ships to the fleet over the long term," said Navy Secretary Donald Winter in a statement.
A General Dynamics spokesman said in a statement that the company was disappointed with the decision and that it will continue to focus on developing its current ship.
Previously, the Navy canceled a second ship to be built by Lockheed Martin Corp., the other competitor. Both contractors had initially been told to build three ships each, but early cost overruns led officials to shelve some of them.
The Navy is wrestling with a series of new ships whose costs have ballooned, in part because Navy officials have made numerous changes to the requirements after the original contracts were awarded. Against a backdrop of pressure from lawmakers over the service's inability to curb such costs, the Navy's top weapons buyer resigned last month.
The Littoral Combat Ship is designed for fast-paced missions in shallow waters closer to shore.
The vessels are supposed to be capable of reaching speeds of 45 knots while being maneuverable enough to deal with foes in smaller vessels. These ships are a key part of the government's plans for dealing with the potential threats posed by terrorists and others who might try to carry out attacks in shallow harbors.
General Dynamics said in its latest quarterly filing with the Securities and Exchange Commission that the outcome of the negotiations on the ship wasn't material to its financial results.