Nov. 1 (Bloomberg) -- The U.S. Navy said today it is
canceling General Dynamics Corp.'s contract to build a second
ship in a new class of warships.
Negotiations over the Navy's demand that General Dynamics
assume more risk for cost overruns broke down, Navy Secretary
Donald Winter said.
``While this is a difficult decision, we recognize that
active oversight and strict cost controls in the early years are
necessary to insuring we can deliver these ships to the fleet
over the long term,'' Winter said in a statement issued at the
U.S. Defense Department.
General Dynamics, the Navy's second-largest shipbuilder, and
Lockheed Martin Corp., the world's biggest defense company by
sales, are building competing versions of the new ship, called
the Littoral Combat Ship. Costs for developing the vessel have
increased as much as 70 percent, Navy officials have said.
Each was under contract to build two prototypes. Each has
its first ship under construction, and both are experiencing
significant cost overruns.
The Navy canceled Bethesda, Maryland-based Lockheed's
contract for a second ship in April after costs rose almost 50
percent on its first craft and Lockheed refused to accept a fixed
price incentive contract for the second.
General Dynamics offered a fixed-price-incentive contract
that would have assumed more responsibility for overruns, but the
price it offered ``was above the number we were willing to
accept,'' Rear Admiral Charles Goddard, told reporters at the
Pentagon. ``Their offer was in excess'' by a ``significant''
amount, he said.
``We hope and expect General Dynamics and its team members
will compete'' to build other ships in what's planned to be a 55-
vessel fleet, said Goddard, who oversees surface-ship programs.
Jim DeMartini, spokesman for General Dynamics, said the
company's offer ``reflected realistic cost estimates.''
``We are disappointed that the Navy has decided to reject
the proposal,'' but ``remain focused on completing'' the first
ship and ``delivering the most-capable, most-affordable ship we
can,'' he said in an e-mailed statement.
General Dynamics received the contract for the first ship in
October 2005 and the contract for the second in December 2006.
Its craft is 417 feet (127 meters) long and features three
parallel hulls. The design, called a trimaran hull, makes the
vessel more stable, allowing for helicopter takeoffs and landings
in rough waters.
The design is based on one from Australia-based Austal Ltd.
General Dynamics is supervising construction of the first ship at
an Austal shipyard in Mobile, Alabama.