Lockheed, Northrop Lose Management Role in $24B Deal

The Coast Guard is removing Lockheed Martin and Northrop Grumman from their management role over a troubled $24 billion modernization program and may rebid contracts for any incomplete projects.

The deal has been skewered in recent investigations and on Capitol Hill for spiraling costs, design flaws and lax contract oversight.

Lawmakers had called for the Coast Guard to take the helm of the so-called Deepwater contract, awarded in June 2002 to Integrated Coast Guard Systems, a joint venture of Lockheed Martin and Northrop Grumman .

Coast Guard Commandant Adm. Thad Allen on Tuesday will announce plans to take over the role of lead systems integrator for all agency acquisitions, including the Deepwater project, according to a Coast Guard official who spoke on the condition of anonymity because the decision has not been made public. The current round of Deepwater pacts expire in June.

The Deepwater program includes contracts to design and build 91 cutters, more than 100 small surface ships and 244 new or converted helicopters and airplanes.

"ICGS is ready to support the Coast Guard reorganization to assure the Deepwater contract meets their evolving needs and provides best value to the American taxpayer," ICGS spokeswoman Margaret Mitchell-Jones said.

The Coast Guard's decision is the latest blow for Bethesda, Md.-based Lockheed Martin, the nation's largest defense contractor. The U.S. Navy last week canceled a contract for a Lockheed Martin-built next-generation combat ship after negotiations to control costs failed. The Navy canceled work on building the start of the second ship in January after cost estimates on the first ship, which is nearly finished, have soared to at least $350 million from $270 million.

On Deepwater, the Coast Guard last month canceled a roughly $600 million deal contract for 12 "fast-response cutters" about a year after work on them was suspended due to technical concerns about the original design.

The Coast Guard is also working with ICGS to identify and implement fixes for the first two National Security Cutters, which have been hampered by design flaws and cost overruns, according to the Coast Guard official.

"The Coast Guard has made a very smart decision today to drop Lockheed Martin and Northrop Grumman as project managers," said Sen. John Kerry, D-Mass., who last month introduced a bill asking the agency to rebid remaining portions of the contract and implement more stringent government oversight.

The agency will cancel other Deepwater contracts going forward if appropriate, the Coast Guard official said.

Late last year, the Coast Guard removed from service all eight 123-foot cutters, which had been used to patrol Florida's waters because of problems with their hulls at a cost of about $64 million.

Rep. Elijah Cummings, D-Md., who chairs the House subcommittee on Coast Guard and Maritime Transportation, said Monday he has received indications that the Justice Department is investigating that aspect of the Deepwater deal.

A Justice spokesman did not immediately return requests for comment.

The House Committee on Transportation and Infrastructure, chaired by Minnesotan Democrat James L. Oberstar, has a hearing scheduled for Wednesday that will focus on the results of an investigation conducted by its oversight staff on the 123-foot patrol boat conversion that "has raised serious concerns about contractor compliance with the Deepwater program contract and about the ability of other Deepwater acquisitions to yield reliable assets," according to a committee release.