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LCS shipbuilder president resigns amid US and Australian financial investigations

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WASHINGTON – The head of Alabama shipbuilder Austal USA has resigned amid investigations from U.S. and Australian authorities into a $115 million loss the company posted in 2016 that was tied to the builder’s Independence-class littoral combat ship program.

The company announced in a press release Monday that Austal USA President Craig Perciavalle has resigned and been replaced in the interim by Rusty Murdaugh, the company’s chief financial officer.

Austal USA is a wholly owned subsidiary of the Australian shipbuilder Austal.

In 2016, the company posted a loss $120.9 million, down from a reported profit of $85.3 million the year before. At the time, the company attributed the loss to underestimating the costs associated with the littoral combat ship.

In its Feb. 22 release, the company said it was under investigation by the Department of Justice, the Securities and Exchange Commission and the Australian Securities and Investments Commission. As part of its own investigation, Austal said it hired attorneys to look into the loss posted in 2016, claiming that it underestimated how much it would cost to meet the U.S. Navy’s rigorous shock standards, among other requirements.

Austal said its internal investigation found that because the company did not have a strong understanding on how much the ship would cost to construct, it overstated the value of the work on the LCS-6, the USS Jackson, according to the press release.

Furthermore, U.S. officials are investigating valves installed on several ships that did not meet military specifications. But the company said the Navy decided to amend the contract to allow the valves to remain, rather than force the company to replace them all, the company claims.

Austal USA said it was continuing to cooperate with investigators and said it did not know if any further action would be taken against the company.

“Austal and Austal USA are engaging with the relevant US regulatory authorities regarding these investigations,” the statement read. “It is not possible at this stage to predict what action (if any) they may take in relation to these matters.

“However, the Company is confident that the proactive steps it has already implemented to strengthen its internal reporting and compliance practices will be taken into account in determining whether there are any potential consequences arising from matters identified by the investigation, as well as ensuring such circumstances do not happen again.”

In 2016, Defense News reported that the write-off was due to “a significantly higher level of modifications to the ship design and cost than previously estimated.”

The changes, Austal said in a statement to investors, are driven by a “contractual requirement to meet the military shock standard and U.S. Naval Vessel Rules,” a set of building standards imposed by the U.S. Naval Sea Systems Command.

The cost of building and modifying the ships to meet the shock rating standard and U.S. Naval Vessel Rules is “materially more than what was previously estimated,” the company said.



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