RPT-U.S. chief critical of fees in Army contract

* Competition key to next ground vehicle program

* Fee structure of Army modernization contract faulted

* Boeing confident concerns can be resolved (Adds quotes from Young, Boeing reaction)

By Andrea Shalal-Esa

WASHINGTON, April 27 (Reuters) - The Pentagon's outgoing arms buyer John Young on Monday said the fee structure of the U.S. Army's modernization program was flawed and competition should play a bigger role in a future ground vehicle program.

Defense Secretary Robert Gates recommended cancelling the current $87 billion ground vehicle part of the Future Combat Systems modernization effort, but later told reporters he would seek substantial funding to develop a revamped vehicle plan.

Young said the contractors leading the FCS program, Boeing Co (BA.N) and Science Applications International Corp [SAICI.UL], could have a role in systems engineering for any future vehicle program because it would still be critical to network other Army weapons together with the ground vehicles.

The current contract allocated ground vehicles to two producers without competition, but any future program should include more competition to get the best vehicle designs, Young told reporters shortly before his successor, Ashton Carter, was sworn into office.

Gates scrapped the ground vehicle part of the huge Army modernization program, saying its designs were conceived nine years ago before the close-quarters combat, urban warfare and increasingly lethal ambushes seen in Iraq.