Coast Guard May End Lockheed-Northrop Contract, Commandant Says

Thursday, February 15, 2007
According to reports, the U.S. Coast Guard may not renew its $24 b contract with Lockheed Martin Corp. and Northrop Grumman Corp. to modernize the service's aging ships, the Coast Guard's top eofficial said. The service is considering a number of options as it negotiates with the two companies about renewing their contract to continue the Deepwater modernization program, Coast Guard Commandant Thad Allen told reporters after a Senate subcommittee hearing. The $3bcontract extension would start in June and continue for 43 months.

Senators from both parties said the Coast Guard has done a poor job of managing a program which, since its 2002 inception, has experienced delays, cost overruns and design flaws.

Deepwater, the Coast Guard's largest ever acquisition, was launched as a joint venture of Los Angeles-based Northrop, the Navy's top warship maker, and Bethesda, Maryland-based Lockheed, the nation's No. 1 defense contractor. The cost was originally projected at $17 billion over 25 years before the Coast Guard last year increased the price by $7 billion and extended the time frame to 30 years. Senator John Kerry, a Massachusetts Democrat, urged Allen to drop Lockheed and Northrop and put the contract out for competitive bids.

The combined cost of the first two vessels under the program has risen to $775 million from $517 million, an audit by the service's inspector general said last month. The first eight of 49 revamped cutters were retired after they were found to have cracked hulls.

The inspector general released another report saying that the contractors installed cables on 123-ft. patrol boats that could cause toxic smoke if they caught fire. The contractors also installed electronics equipment that was prone to breakdowns in the open sea, the report said. These boats have been suspended from operation. Source: Bloomberg

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