Winter to shipbuilders: I meant it

Navy Secretary Donald Winter announced late today that the Navy was canceling construction of Lockheed Martin's second Littoral Combat Ship, the third of the class, after the two sides could not agree on a new contract to shift more shipbuilding risk onto the giant contractor.

If anyone thought Winter's keel-hauling of industry at last week's Navy League conference was just rhetoric, now might be a good time to reconsider.

"The Navy worked closely with Lockheed Martin to try to restructure the agreement for LCS-3 to more equitably balance cost and risk, but could not come to terms and conditions that were acceptable to both parties," the Pentagon said after U.S. stock markets closed April 12.

Lockheed expressed "disappointment" with the decision and lamented not being able to apply lessons-learned from its first-in-class LCS 1 to another ship."We believe that our proposal was fully consistent with the secretary's stated desire to bring the benefits of increased competition to shipbuilding while holding the Navy's industrial partners accountable for cost performance within their control," said Lockheed Martin chief executive Bob Stevens.

What about the other ships? The Navy said:

"The Navy remains committed to completing construction on LCS 1 under the current contract with Lockheed Martin. LCS 2 and 4 are under contract with General Dynamics, and the Navy will monitor their cost performance closely. The Navy intends to continue with the plan to assess costs and capabilities of LCS 1 and LCS 2 and transition to a single seaframe configuration in fiscal year 10 after an operational assessment and considering all relevant factors. General Dynamics' ships will continue on a cost-plus basis as long as its costs remain defined and manageable. If the cost performance becomes unacceptable, then General Dynamics will be subject to similar restructuring requirements."

--Michael Bruno