High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
By Tony Capaccio
(Bloomberg) — The U.S. Navy must pay “for the vast majority of defects” on its troubled Littoral Combat Ship, not contractors Lockheed Martin Corp. and Austal Ltd., according to congressional investigators.
The government has to foot the bill because the Navy didn’t require warranties that would force contractors to pay many of the costs, as the U.S. Coast Guard does, the Government Accountability Office said in a statement delivered at a congressional hearing Thursday.
The hearing before the House Armed Services oversight subcommittee follows one last week by a Senate panel examining the $29 billion program that’s ballooned in cost over a decade, from an initial Navy estimate of about $220 million a vessel to an average currently of $478 million each, according to the GAO. Questions have been raised about its mission, capabilities and survival in combat.
“All the while, the Navy has continued to request funding to buy more ships and mission packages and Congress has appropriated funds,” Michele Mackin, the GAO’s director of acquisition and sourcing management, said in testimony that added the concern that the Navy must pay to remedy breakdowns and flaws.
Twenty-six ships of what’s now a 28-vessel program of Littoral Combat Ships in separate versions built by Lockheed and Austal have been delivered or are on contract; the last two are being authorized this year. An additional 12 better-armored “frigate” models are planned.
“Taxpayers are still responsible for most of these repair costs, even when the shipbuilders are at fault,” Representative Jackie Speier, a California Democrat, said at the hearing. “These contracts mean that in some cases, the shipbuilders aren’t responsible for even one cent of potential defects. Why is it that the Coast Guard can hold its shipbuilders responsible for defects, but the Navy puts the burden on taxpayers?”
The contract with Austal to build the Coronado, the fourth vessel built, required that the Navy pay “all the costs to correct all defects,” the GAO said. In August, the Coronado suffered the failure of a part in its propulsion system while in transit from Hawaii to Singapore. A Navy review board identified “shaft misalignment” as a contributing factor that was part of “deficiencies in the ship construction process,” the Navy said last week in testimony before the Senate Armed Services Committee.
The contracts for the fifth through eighth Littoral Combat Ships provided for the shipbuilders to absorb a portion of the costs, but only up to the first $1 million. “Time will tell whether this amount is sufficient to account for discovered defects,” Mackin said.
The Navy towed the fifth ship, the Lockheed-made USS Milwaukee, more than 40 nautical miles to port in Virginia last December after its high-speed clutch and combining gear were damaged. Navy weapons buyer Sean Stackley told the Senate panel the failure was “specifically design-related.”
Altogether, there have been three recent major failures of five Littoral Combat Ships tied to either design flaws or shortcomings in construction; two others, including the failure of gears on the USS Fort Worth in January that sidelined the Lockheed-built vessel in Singapore for months, were attributed to sailors failing to follow procedures.
© 2016 Bloomberg L.P
Join the 67,378 members that receive our newsletter.
Have a news tip? Let us know.