Monday, Mar. 27, 1978

More Cash or No Subs

General Dynamics protests costly Navy design changes

Price rights are hardly a novelty between the military and the companies that make the weapons. But a dispute pitting the Navy against the Electric Boat Division of General Dynamics Corp. reached an unusually high pitch last week. After months of haggling, the company told the Navy that it will halt work in April on a $1.4 billion contract to build 18 nuclear attack submarines unless Washington ponies up an additional $544 million to pay the company for cost overruns. A shutdown would throw 14,000 employees out of work at the company's shipyards in Groton, Conn., and at Quonset Point, R.I., where components are made, and deal a stunning blow to the economies of both towns.

For the Navy, which thought it was close to a settlement with General Dynamics, the move came as a shock. The Navy immediately threatened legal action. Most likely, it will seek a court injunction ordering General Dynamics to continue building the submarines. The Los Angeles class (SSN 688) nuclear subs are sleek 360-ft. vessels designed to attack surface ships and other submarines, and are the U.S.'s answer to a relatively new class of Soviet subs. Only two of the submarines involved in the General Dynamics contract have been delivered; the remaining 16 are in various stages of construction.

General Dynamics executives contend that they can fulfill the contract only at a heavy loss because the Navy kept changing its mind about what it wanted.

The company charges that since it signed its first contract in 1971, the Navy has asked for some 35,000 engineering and design revisions, which the company could make only by incurring expenses that chewed into company cash. General Dynamics, under orders from its lawyers, would not specify what changes were involved, and the Navy simply refused to comment. But a General Dynamics official at the Groton yards offers some free-form insight. Says he: "If you design a space to hold three bunks, and then you want four, you got trouble because each bunk has its own air conditioning and lighting. See what I mean?"

According to General Dynamics, the rash of changes was ordered because the Navy was just in too much of a hurry. Ordinarily, a contracting firm builds a "lead" ship before it gets awards to construct a new class of vessels. That way, the shipyard can work out design and engineering bugs and get a fairly accurate idea of cost before moving into mass production. But to save time on the production of nuclear subs, the Navy insisted on signing contracts with incomplete designs and specifications, and left details to be settled later.

The Navy is not exactly proud of its procedures. Indeed, Secretary of Defense Harold Brown has conceded that in the submarine case the Government had "not written the contracts carefully enough, nor have we disciplined ourselves to minimize changes, which greatly escalate costs." The Navy says it has offered additional cash to General Dynamics, but obviously the amount was not enough to satisfy the company. Neither General Dynamics nor the Navy would reveal the size of the rejected offer.

In recent years, Navy settlements with contractors who have suffered cost overruns have averaged only about 30% of the original claims. Reason: the Navy is convinced that shipbuilders pad their claims to cover every item that could conceivably raise costs. Admiral Hyman Rickover--hardly a disinterested witness, since he is considered by many to be the father of the nuclear submarine--maintains that much of the additional cost of the SSN 688 subs resulted from General Dynamics' "shortage of skilled manpower, poor productivity and a five-month labor strike." He argues that the Navy should enforce its shipbuilding contracts even if it must go through lengthy court battles.

General Dynamics' action is only the latest flash point in a series of disputes between the Navy and shipbuilders. Litton Industries and the Newport News Shipbuilding and Dry Dock Co. also have claims pending against the Navy. Some shipyards may tack on unjustifiable costs, but the Navy is far from blameless. Until its own planning procedures are made more shipshape, it cannot hope to impose order and economy on its weapons costs, which eventually translate into higher taxes for everyone.

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