Rebellion Rampant in the Yards

In one important respect, the U.S. Navy has fallen badly behind the Soviets. According to the U.S. Navy's own statistics, the Red Navy now has 563 combat vessels, v. the U.S. Navy's 285. Seeking to narrow the gap, the U.S. Navy has undertaken an ambitious building program that by the mid-1980s could bring the fleet up to 600 submarines and surface warships.

But the effort is imperiled because two of the nation's most important shipbuilders no longer want to produce ships for the U.S. Navy under present contract conditions. Litton Industries, whose Pascagoula, Miss., shipyard is building radically new generations of gas-turbine-powered destroyers and big helicopter assault ships, has petitioned a federal court in Los Angeles for a ruling that in effect would permit the company to halt construction of the assault ships on Aug. 1. Similarly, the giant Newport News shipyard, a subsidiary of Tenneco, has asked a federal court for permission to stop work on a guided-missile cruiser. On its own, the Newport News yard, which has been building Navy ships since 1897, has suspended construction of the most advanced U.S. nuclear carrier, the Carl Vinson.

The trouble is money. The ships are being paid for under old contracting procedures that the companies insist did not recognize how rapidly inflation and design changes would kick up their construction costs. Result: builders are presenting $2.4 billion in past claims; the Navy will only recognize $1.9 billion. Meanwhile, the shipbuilders are forced to dip into their own working capital to finance construction. They complain that the Navy has been trying to build too many ships with too little money. "You cannot expect a private company to finance the U.S. Navy," declares Glen McDaniel, chairman of Litton's executive committee.

He has a point. The rules and regulations surrounding the contract for a single naval vessel are so byzantine that a truthful U.S. Navy should name a frigate the U.S.S. Franz Kafka. In order to soothe congressional critics, the Navy often insists on an unrealistically low price in the initial contract. Then the specifications for ships and equipment are changed sometimes hundreds of times, causing delays and costly modifications. Navy-supplied weaponry often arrives late, and payments frequently run behind schedule. The amount of paper work involved in shipbuilding is mountainous. Litton has assembled 1 1/2 tons of documentation, made up largely of Navy design changes, to justify its claims.

The shipbuilders' claims have been bitterly denounced by Admiral Hyman Rickover, the father of the nuclear Navy. His nuclear propulsion division happens to be responsible for many of the costly design changes at the Newport yard, where 16 nuclear-powered vessels are under construction. Rickover describes the claims as potentially "one of the biggest rip-offs in the history of the U.S." He charges that the builders are owned by industrial conglomerates that "don't care whether they are making ships or horse turds."

In an effort to break the impasse. Deputy Defense Secretary William Clements Jr., a former Texas oilman, ordered Rickover to stay out of the squabble. Meanwhile, a Navy board was set up to negotiate a settlement. Unless the Navy is prepared to meet most of the claims, Litton and Tenneco imply that they will press ahead with court actions. "We are not bluffing," declares Litton's McDaniel. "If we cannot get a reasonable contract, we will just close the line down."

If Litton and Tenneco do go through with their actions, Clements vows that he will seek a court injunction to force the shipyards to resume work. But he hopes that he can head off a courtroom confrontation. "There is plenty of blame to go around," he sighs. Just the same, Clements is now studying a new plan to build vessels in two Navy shipyards on the West Coast that now do only repair work. That might help solve the Navy's problems with civilian contractors, but it would only aggravate the money trouble. Ships built in the Navy's own yards are far more expensive than those constructed by private builders.

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