Government report says Navy pays shipbuilders to fix defects

MILWAUKEE -- The U.S. Navy is paying shipbuilders a profit for correcting defects from the builders, according to a new government report that cites multiple examples including a littoral combat ship built in Marinette, Wis.

That's despite guarantees that come with vessels costing hundreds of millions of dollars, the Government Accountability Office said in the report titled "Navy and Coast Guard Shipbuilding."

On four ships with guarantee clauses in the contract, the government paid the shipbuilder 89 percent of the cost -- including profit -- to correct defects, according to the report.

"This means the Navy and the Coast Guard paid the shipbuilder to build the ship as part of the construction contract, and then paid the same shipbuilder again to repair the ship when defects were discovered after delivery -- essentially rewarding the shipbuilder for delivering a ship that needed additional work," the report said.

"Navy officials stated that the Navy accepts the cost of fixing deficiencies to lower the overall purchase price of its ships. However, this contracting approach results in the shipbuilder profiting from fixing deficiencies on a ship that it was initially responsible for delivering to the government in a satisfactory condition," the GAO said.

The report was not centered on littoral combat ships being built by Marinette Marine in Marinette. But it referenced one of the ships, USS Fort Worth, built at the shipyard.

The Navy spent $46 million, under a post-delivery agreement, to correct defects, complete ship construction and assist with other tasks including tests and trials, the report said about Fort Worth.

Defense contractor Lockheed Martin Corp., through Marinette, has delivered three of the vessels to the Navy: USS Freedom, USS Fort Worth and USS Milwaukee, which was christened in Milwaukee last November.

Seven more of the warships are in various stages of construction in Marinette, while a different version is being built in Mobile, Ala.

In a statement Monday, Lockheed Martin said: "Each of the three ships delivered have met or exceeded Navy specifications for quality and performance prior to acceptance. The Lockheed Martin-led LCS team is executing the program within the Navy's budget and fulfilling its commitment to build 11 ships at a competitive construction price of approximately $360 million each. "

In December, USS Milwaukee broke down at sea and had to be towed more than 40 miles to a Navy base near Norfolk, Va. Not long after, USS Fort Worth had a major mechanical failure in Singapore. USS Freedom, the first littoral ship built by Marinette, has suffered several setbacks including a 6-inch crack in the hull, a failed gas turbine, problems with the jet propulsion system, and a leak in the port-shaft seal that caused flooding.

The GAO recommended that the Navy structure contracts so that shipbuilders cannot profit from correcting construction deficiencies deemed to be their responsibility.

This story was originally published March 7, 2016 at 9:55 PM with the headline "Government report says Navy pays shipbuilders to fix defects ."