The Navy’s latest difficulty with the troubled next generation combat ship project is affecting business on the other side of the world.
Austal USA, subsidiary of an Australian-based company, requested that the Department of Defense write off $115 million in unexpected costs of testing and redesigning the Littoral Combat Ship (LCS) program.
Austal says the project went over budget because of “a significantly higher level of modifications to the ship design and cost than previously estimated,” the company told investors Monday.
The write-off reflects Austal’s updated projections of costs and profits for the life of the program, according a report from the company. Writing off the $115 million allows Austal to post profits despite enormous losses. Austal is optimistic that the LCS program will be profitable in the future, and says cash flow is not an issue.
The first sea trials of the LCS showed several vulnerabilities in the design, which shipbuilders had to address. The LCS program’s real test, the Navy’s rigorous shock trials, began in mid-June.
Since the ship is entirely new, Austal said it’s difficult to accurately predict the cost of modifying the ship with “minimal design reference points.” However, initial results from the LCS’s first shock trials on the USS Jackson, the only ship in its class that will receive the full barrage of tests, show that modifications to the design are working, Austal said.
Austal will receive $11.7 million for repairs sustained by the USS Jackson during the tests, the Department of Defense announced Monday.
During 2015, the Navy issued several corrective action requests to Lockheed Martin, the primary contractor for the LCS, to correct what the Defense Contract Management Agency called “systemic quality deficiencies.” In an unreleased May, 2016, report obtained by Bloomberg News, the Government Accountability Office recommended Congress avoid buying any LCS craft in FY 2017. (RELATED: Internal Memo: Pentagon Testing Agency Blasts Navy Official For Defending Littoral Combat Ship)
Based in Mobile, Ala., builds several types of the LCS for the U.S. Navy, sharing contracts with Lockheed Martin. The LCS program has few friends in the Department of Defense.
Earlier in 2016, Defense Secretary Ashton Carter wanted to cap the total number of LCS-class ships the Navy can purchase. Republican Sen. Ron Johnson recently amended the National Defense Authorization Act to remove the restriction, and included appropriations for purchasing an additional ship this year. Lockheed Martin, which also builds LCS-class ships for the Navy, is based in Johnson’s home state of Wisconsin. (RELATED: Sen Snubs SecDef With Amendment In Fight Over Navy Spending)
Congress is currently reconciling the House and Senate versions of the NDAA before they send it to President Barack Obama for signing. Obama has repeatedly said he would veto the bill its current form, and ‘strongly objects’ to increasing funding for many ongoing defense programs.
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