Coast Guard wants $96.1 million refund from Lockheed Martin, Northrop Grumman for faulty ships

Published 5:04 pm Wednesday, January 9, 2008

Northrop Grumman and Lockheed Martin are open to negotiating a refund for faulty ships they provided the Coast Guard, but do not appear ready to fork over the $96.1 million the agency has requested.

The Coast Guard in May revoked its acceptance of eight 123-foot patrol boats due to hull buckling. A month later, problems were identified with other equipment and systems provided by Integrated Coast Guard Systems, a joint venture between Lockheed Martin Corp. and Northrop Grumman Corp.

The companies in June said the Coast Guard’s request for a refund was not “supported as a matter of fact or law.” They have left open the possibility of negotiating a settlement, however.

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Northrop Grumman builds the ships while Lockheed Martin provides communications equipment and other technology.

The eight faulty cutters were removed from the waters off Florida in late 2006 and permanently decommissioned in April. Some of the electronics problems were first identified in 2003, a year after the joint venture was awarded the contract for the Coast Guard’s so-called Deepwater fleet modernization.

The agency earlier this year said it lost up to $60 million on the those ships but had not specified a refund total until a Dec. 28 letter to the companies asked for a $96.1 million repayment. The request is not the Coast Guard contracting officer’s final decision, “but it does invite the parties to negotiate a settlement,” Coast Guard spokeswoman Laura Williams said.

A Northrop Grumman spokesman on Tuesday referred all questions to the joint venture. ICGS is reviewing the government request and “remains willing to further discuss these issues with the Coast Guard and explore an amicable resolution of all issues,” spokeswoman Megan Mitchell said.

Lockheed spokesman Troy Scully said “while the value of a settlement must be negotiated, the estimated replacement value for all of the topside equipment that is Lockheed Martin’s responsibility is approximately $3 million.”

“I’d bet the Coast Guard gets very little back because they probably defined and (managed) the contract too loosely to be entitled to recovery,” said Loren Thompson, a defense analyst at the Lexington Institute, an Arlington, Va.-based think tank. Thompson consults for Lockheed Martin but not on the Deepwater program.

The Coast Guard in April removed ICGS as program manager, but in June extended its contract with the joint venture for 43 months despite internal and congressional scrutiny of the 25-year, $24 billion program that has been plagued by cost overruns, design flaws and lax oversight.

The Senate last month passed a bill sponsored that requires open competition for future Deepwater contracts and would prohibit the Coast Guard from relying on a single contractor to oversee the project. The House approved a similar bill in July and a conference committee is expected to resolve differences between the two.

The Justice Department also is investigating the Deepwater contract. The agency has told Lockheed, Northrop and other contractors not to destroy certain documents, and the companies have said they are cooperating with the investigation.

Deepwater will modernize more than 91 cutters, 195 aircraft, computer and communication equipment, and integrated logistics support capabilities.

Shares of Bethesda, Md.-based Lockheed added $1.53 to $107.79 in afternoon trading, while Los Angeles-based Northrop Grumman dipped 99 cents to $77.10.