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Marine Log

November 1, 2007

Navy cancels LCS 4

Secretary of the Navy Donald C. Winter and Chief of Naval Operations Adm. Gary Roughead announced Nov. 1 that the Department of the Navy is terminating construction of the fourth littoral combat ship (LCS 4) "for convenience" under the termination clause of the contract because the Navy and General Dynamics could not reach agreement on the terms of a modified contract.

The contract for the vessel--which is the second to be built at Austal USA, Mobile--was awarded General Dynamics in December. However, the Navy said it had not yet authorized construction on LCS 4, "following a series of cost overruns on LCS 2," the first of the GD team ships building at Austal.

The Navy terminated the contract for the second of Lockheed Martin's competing design, LCS 3, in the spring.

The Navy says it intended to begin construction of LCS 4 if the Navy and General Dynamics could agree on the terms for a fixed-price incentive agreement.

The Navy says it worked closely with General Dynamics to try to restructure the agreement for LCS 4 to more equitably balance cost and risk, but could not come to terms and conditions that were acceptable to both parties.

The Navy says it remains committed to the LCS program.

"LCS continues to be a critical warfighting requirement for our Navy to maintain dominance in the littorals and strategic choke points around the world," said Winter. "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."

"I am absolutely committed to the Littoral Combat Ship," said Roughead. "We need this ship. It is very important that our acquisition efforts produce the right littoral combat ship capability to the fleet at the right cost."

In Australia, Austal Limited Executive Chairman John Rothwell expressed disappointment with the cancellation decision.

He noted that despite Austal USA CEO Bob Browning working very closely to achieve a positive outcome, Austal "had no control over the prime contractor General Dynamics who ultimately controlled negotiations on price with the Navy."

"We maintain the view that the Austal LCS will prove successful during testing of the two competing protype ship designs in 2008," said Rothwell.

In the meantime, says Austal, the U.S. Navy is assisting Austal USA in identifying short term contracts that will fully utilize its workforce.

Austal says construction of the first General Dynamics LCS is 70 percent complete with the ship scheduled for launch in early 2008.