Coast Guard asks Deepwater contractors for refund

The Coast Guard has asked for a $96.1 million refund from its Deepwater contractors and has charged them with delivering defective boats that do not meet requirements.

The Coast Guard last May revoked its acceptance of the eight 123-foot patrol boats from Integrated Coast Guard Systems, which is a joint venture of Lockheed Martin Corp. and Northrop Grumman Corp. The agency said tests revealed systemic structural problems with the boats.

On Dec. 28, the Coast Guard notified ICGS of the amount of reimbursement it is demanding for the faulty vessels. “The Government is seeking $96.1 million in repayment from ICGS for the failure to deliver 123-foot patrol boats that conform to the requirements of the contract,” said Coast Guard spokeswoman Laura Williams.

ICGS officials declined to comment on the Coast Guard’s Revocation of Acceptance. “Our response will be submitted directly to the contracting officer of the U.S. Coast Guard and we will not comment on the matter in the media. ICGS remains willing to further discuss these issues with the Coast Guard and explore an amicable resolution of all issues,” reads an ICGS statement released by spokeswoman Megan Mitchell.

The Coast Guard in 2002 awarded task orders to convert and extend eight existing patrol boats to a longer length of 123 feet. The project is part of the $24 billion multiyear Integrated Deepwater Systems modernization contract awarded to ICGS to overhaul the Coast Guard’s fleet.

Although the Coast Guard initially accepted the converted patrol boats, officials said additional testing uncovered major structural flaws.

“Later investigations showed these converted cutters were unsound and unfit to operate under typical conditions expected of high-speed craft that require structural resistance to hydrodynamic loads such as slamming. The USCG was unaware of the magnitude and cause of this design defect at the time of acceptance of the eight cutters,” Williams said in a statement.

The Coast Guard’s position is that ICGS did not design or deliver vessels that conformed to contract requirements, Williams said. The government has prepared a position paper, along with charts and exhibits totaling more than 130 pages, she said.

“It is not the Contracting Officer's Final Decision, but it does invite the parties to negotiate a settlement. The USCG response could ultimately result in a mutual agreement to proceed to the Alternative Dispute Resolution process or COFD,” Williams said.

The Justice Department, Government Accountability Office and Homeland Security Department Office of the Inspector General also are investigating the Deepwater contract.

The Coast Guard’s ambitious Deepwater program to replace aging vessels is the agency’s largest acquisition program. Following discovery of the cutter problems in April, the Coast Guard took over as lead systems integrator for Deepwater. In June, the agency awarded a new 43-month contract to ICGS but with more-restrictive terms. The House and Senate approved legislation in December to strengthen Deepwater oversight.