Coast Guard cancels patrol boat contract

The Coast Guard announced late Wednesday that it has terminated a shipbuilding deal with two high-profile defense contractors, and will exercise more control over acquisitions for its $24 billion Deepwater fleet modernization project.

The deal to develop 12 patrol boats was worth an estimated $600 million to Integrated Coast Guard Systems, a joint venture between Northrop Grumman and Lockheed Martin. The Coast Guard's acquisitions division will take over management of the project, and new bids for the development work will be solicited in May, officials announced.

Rear Adm. Gary Blore, executive officer of Deepwater, said he expects the solicitation to attract "robust industry participation" and an "outpouring of industry proposals."

Savings generated from the new approach could exceed 4 percent from the ICGS plan, Blore said. They could be substantial enough to allow the agency to build a 13th boat at no additional cost, he said.

Coast Guard Commandant Adm. Thad Allen emphasized that ICGS' other contracts within Deepwater will be maintained. "This decision pertains only to the acquisition of patrol boats," he said.

Coast Guard officials said patrol boats still can be purchased by 2010, meeting the initial timetable. Companies submitting proposals for the new contract will need to illustrate how they will design and simultaneously develop the boats, speeding up the process.

The Coast Guard also announced on Wednesday that it will take more general steps to enhance contract oversight. It will begin subjecting major purchases to "business case analyses," Blore said. The agency will conduct additional analyses of its cutter acquisitions as well, he said.

The agency's management of Deepwater has drawn criticism from Capitol Hill. At a congressional hearing in late January, officials discussed a DHS inspector general report that noted the National Security Cutter - a cornerstone of the plan to upgrade or replace aging equipment - will not meet performance expectations. The IG found the Coast Guard had abdicated its oversight authority in deference to contractors.

While the patrol boat contract termination came as a surprise to many, the addition of acquisition oversight layers was well telegraphed. In a hearing earlier this month, Allen told lawmakers that the Coast Guard will hire more contract oversight officials.