By Jim Wolf

WASHINGTON (Reuters) - The Defense Department said Friday it had terminated Boeing Co's top U.S. Army radio program, kicking off an expected new round of cutbacks as the Pentagon trims spending in an austere budget climate.

Full-rate production of the Joint Tactical Radio System's "Ground Mobile Radio" was once estimated to be worth nearly $20 billion.

But the Boeing contract was merely for development and to certify two companies to compete to produce the radio.

"Our contract specifically restricted Boeing from production," said Matthew Billingsley, a company spokesman.

The program was canceled in line with the Nunn-McCurdy statute, said Air Force Lieutenant Colonel Melinda Morgan, a Pentagon spokeswoman. The statute was triggered after the planned purchase was slashed over the summer from 86,209 radios to 10,293.

The law calls for a program's termination once unit-procurement costs exceed the original estimate by 25 percent unless it is deemed essential to national security.

In this case, the Pentagon also would have had to certify the lack of a viable alternative and that problems that led to the cost growth are under control.

"I can confirm the program has been terminated," Morgan said. A notice from Frank Kendall, the acting under secretary for acquisition, was sent to the House of Representatives' and Senate Armed Services Committees on Thursday night, she said.

The Army plans to conduct a full and open competition early next year for a lower-cost alternative, said Major Christopher Kasker, an Army spokesman.

Prior investment in "software-defined" radios through the program has fostered competitive alternatives, he said in an emailed statement.

"The Army has committed to a new way of doing acquisition -- an agile approach that emphasizes affordability, embraces innovation, supports competition and rewards technological maturity," the statement said.

"The decision to cancel GMR is fully consistent with this approach," it said.

The Pentagon's joint program office that oversees the program estimates that GMR's ten-year development has incurred about $1.6 billion in research and development costs, the Army said.

"This investment was fully harvested, as GMR has spawned key breakthroughs in related software and hardware technologies" making it possible to go a cheaper route, the statement said.

Boeing is disappointed by the decision to end the development effort, but its contract was scheduled to end in March 2012 anyway, the company said.

The decision by the Pentagon simply "confirms that fact," Billingsley said, adding: "We look forward to applying our experience and knowledge in future competitions."

President Barack Obama and the Congress agreed to a deal in August that requires as much as $450 billion in cuts to security-related spending over 10 years compared with previous Pentagon projections.

Defense Secretary Leon Panetta warned Congress on Thursday that any cuts over the $450 billion "will truly devastate our national security."

The Army and Navy have proposed to terminate a multibillion-dollar Joint Air-to-Ground Missile program, InsideDefense.com, a trade publication, reported this week.

But Kasker, the Army spokesman, said Friday that the competition was still under way for the program's engineering, manufacturing and development phase. Lockheed Martin Corp is competing for the deal against a team of Raytheon and Boeing.

(Reporting by Jim Wolf, Editing by Matthew Lewis)




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