LCS Deja-vu?

As Congress hammers out its differences on the 2008 Defense Appropriations Bill, it has become a nail-biter for service leaders and the Defense contractors who love them.

Specifically, the Navy has been holding its breath awaiting the fate of the Senate’s $910 million cut from its littoral combat ship program, effectively killing off the already gasping LCS-4.

In a rare move, the Senate, possibly tiring of the shipbuilding side show, cut nearly $1 billion, probably leaving Lockheed Martin and General Dynamics to compete for top honors with just one ship each as the Navy decides which company will build the projected 55 ships in the class. That decision projected for 2010 might now come as early as late 2008 if the cuts stand.

According to a source close to the program, it seems the Navy might have backed its way into this corner and should not be surprised by Senate actions.

“Inside the Headquarters” reported earlier this year the Navy ordered work stopped on Lockheed Martin’s LCS-3 in January after it understood the first in the class — Lockheed’s LCS-1 — was running tens of millions of dollars over budget, due, in great part, to the Navy’s own requests for design changes. According to a source close to the program, Lockheed specifically explained the cost reality to the Navy, though those financial facts had been reported to the Navy’s program officials in the mandated, monthly contract performance reports.

In April, the Navy reported it could not reach an agreement with Lockheed for a fixed-price alternative for LCS-3, but in reality, it applied to LCS-1, too, which was nearing completion. Including LCS-1 in the mix seemed to be the deal breaker for Lockheed, according to a source familiar with the contract.

Though it appeared to be anchors aweigh for General Dynamics on LCS-2 and LCS-4, despite similar, known cost overruns, a source familiar with the program acknowledged the Navy has asked General Dynamics to slow production on LCS-4. (Deja-vu?) One source speculates that the slowdown might be an effort to avoid the millions the Navy will have to pay Lockheed Martin for the stop-work stunt.

It also been reported that the Navy and General Dynamics are looking at a fixed-price alternative for LCS-2 and LCS-4. Deja-vu, part deux?

Can one really blame the Senate?

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