By Andrea Shalal-Esa

One source said the multiyear contract would cover one submarine in 2009, one in 2010 and two submarines in each of the following three years, which would help lower the price and give contractors more stability in their business outlooks.

General Dynamics, based in Falls Church, Virginia, is the lead contractor on the nuclear-powered submarines, but construction is shared equally with Northrop, which is based in Los Angeles.

"By providing money over a period of several years, it becomes easier for the contractor to plan ahead and cut the cost of each vessel," said Loren Thompson, defense analyst with the Lexington Institute in Virginia.

He said the multiyear contract would help reassure shipyard workers in New England and Virginia "that their jobs will exist five years from today."

Northrop Chief Executive Ron Sugar last week told the Reuters Aerospace and Defense Summit that the submarine contract was expected soon, but he gave no details.

Navy officials had long said they expected to finalize the submarine contract by the end of the year.

General Dynamics does its submarine work at its Electric Boat shipyard in Groton, Connecticut, while Northrop does its submarine work at the Newport News shipyard in Virginia.

The Navy contract will cover what it costs to build the submarines, or around $1.75 billion, but each ship will have additional costs for other weapons and materials that the government buys separately for use on board.

Overall, the submarines are slated to cost around $2.6 billion each by 2012. In 2005 dollars, the cost would be around $2 billion, which the Navy had set as its goal for the cost of each of two submarines that it planned to buy in 2012.

Ronald O'Rourke, analyst with the nonpartisan Congressional Research Service, said the Navy already had 10 of the new attack submarines in service or under construction, and the new orders would bring the total to 18.

Overall, the Navy plans to build about 30 or more of the Virginia-class submarines.

Navy Secretary Donald Winter recently noted that the Virginia-class submarine was an example of effective measures to cut costs in shipbuilding.

Efficiency savings generated by accelerating production to two per year and process improvements at the shipyards have allowed the contractors to reduce the cost of each submarine by some 16 percent to 17 percent, O'Rourke said.

If the Navy had not undertaken the cost-cutting measures, the price of each submarine probably would have risen to around $3.1 billion, analysts said.

(Reporting by Andrea Shalal-Esa; Editing by Tim Dobbyn, Toni Reinhold)