http://www.businessweek.com/ap/financialnews/D8Q8VBD00.htmNavy reasserting control of shipbuilding
By DAVID SHARP
BATH, Maine
Stung by cost overruns, the Navy is looking to return to a past when it controlled the shipbuilding process from beginning to end. The change follows a period when the Navy told shipyards what it wanted the ships to do and then let them deliver rather than getting mired in design details.
But that approach failed to control costs in construction of the speedy Littoral Combat Ship for close-to-shore operations and in the design of the stealthy DDG-1000 destroyer, the successor to the mainstay Arleigh Burke destroyers built at Bath Iron Works and at Northrop Grumman Corp.'s Ingalls shipyard in Mississippi.
The growing cost of warships in recent years has led the Navy to reduce its orders, and the resulting loss of economies of scale has driven costs of individual warships even higher. That spiral has left everyone unhappy, including the Navy, members of Congress, defense contractors -- and shipbuilders who fear for their jobs.
The Navy recently took the unusual step of punishing Lockheed Martin for cost overruns on the smaller vessel -- the Littoral Combat Ship -- by canceling the second of its two ships. Lockheed's first ship had grown from $275 million to between $350 million and $375 million. Lockheed, which accepted responsibility, isn't expected to take a big financial hit. In April, the company reported it earned $690 million in the first quarter, beating Wall Street's expectations, and raised its full-year financial forecast.
Construction hasn't begun on the new destroyer, but its cost already has ballooned from early estimates of about $2 billion for the lead ship to more than $3 billion apiece for the first two, according to Ron O'Rourke of the Congressional Research Service. As the ship has grown bigger, more complicated and more expensive, the Navy scaled back the number to be built to just seven.
The Navy's fleet, meanwhile, has shrunk to 276 ships, down from nearly 600 during President Reagan's defense buildup. The Navy, which blames the cost of ships in part for the low orders that cut back the fleet, has a goal of 313 ships.
"The Navy obviously needs to do something. The plan we've been on has resulted in a shrinking, aging Navy," said Winslow Wheeler, military analyst for the Center for Defense Information, a Washington-based think tank.
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