The president of Austal USA has resigned after the conclusion of a company-driven investigation related to multiple issues with the Littoral Combat Ship program.
Australian-based Austal Limited and Austal USA had hired outside lawyers to look into several LCS-related problems that U.S. government agencies are also investigating. The company said in a Tuesday statement that Austal USA President Craig Perciaville resigned after the lawyers finished the probe. Rusty Murdaugh, who has been Austal USA’s chief financial officer since March 2017, will serve as the shipbuilder’s interim president.
“Prior to Austal USA, he has spent thirty years in financial management in the defense industry with roles at United Technologies, Goodrich, Honeywell and most recently as Vice President of Finance for a business segment of Esterline Technologies,” the company said of Murdaugh in the statement.
Perciaville’s resignation comes as the Australian Securities and Investments Commission, the U.S. Securities and Exchange Commission and U.S. Department of Justice have ongoing investigations into the Littoral Combat Ship program prior to July 2016, the company noted.
“The investigations by US regulatory authorities have been focussed primarily on Austal’s U.S. operations, including the write back of work in progress (WIP) attributable to the LCS program in July 2016, the procurement of certain ship components for use in connection with US Government contracts and charging and allocation of labor hours,” the company statement reads.
“Austal and its wholly-owned subsidiary Austal USA have been cooperating with the US regulatory authorities in relation to these investigations,” it continues. “Austal and Austal USA have also engaged external lawyers in the US to conduct their own detailed investigation in relation to what they understand to be the focus of the US regulatory investigations,” the statement adds, referring to the probe that just wrapped up.
The statement refers to the “one-off write back of WIP” in 2016, citing Navy shock testing requirements as the reason for the cost increases on the LCS program. A work in progress is an accounting term for inventory that is not finished, or in this case a ship currently under construction. The write back refers to an increase in costs to the program that the company had to account for in its books.
“Prior to mid-2016, inaccuracies in Austal USA’s internally generated cost estimates understated the full costs to construct the LCS vessels, which delayed Austal Ltd’s understanding of the magnitude of those costs and the need to change those estimates. This overstated the WIP attributable to the LCS program for those periods,” the statement reads.
“Austal is satisfied that the extensive review of the LCS program conducted in 2016 and the subsequent write back announced in July 2016 appropriately rectified the financial impact of these issues,” it continues. “The Company is also satisfied that Austal USA materially complied with its reporting requirements with the US Navy.”
Austal also found situations where the company misapplied work hours on the LCSs at the beginning of the program and noted a problem with valves it outfitted on the six even-numbered hulls from LCS-10 to LCS-20.
“The US Navy has since agreed to modify the contract in regard to these vessels to accept the as-built condition of those valves onboard the LCS vessels such that they are not required to be replaced,” the company said. “Austal has resolved the US Navy’s contractual claims in relation to the installation of these valves and is in discussions with US regulatory authorities regarding these issues.”
The company said it is working with American authorities on their probes but notes it cannot anticipate potential outcomes from the investigations. While the company said the write back “appropriately” addressed the cost increases and that the valve issue has been settled because the U.S. Navy will take the ships as-is, the U.S. and Australian federal investigations are ongoing.
“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.”
Perciaville’s resignation was first reported by AL.com.
Federal authorities in early 2019 conducted a raid of the Alabama shipyard as part of an ongoing unspecified probe. Australian media reported at the time that the Australian Securities and Investments Commission was investigating the company due to market updates about its losses on the LCS program.