Navy Contracting

For the last several years, GAO has monitored cost growth on Navy ship construction contracts and has testified and issued several reports on the subject. This report updates the status of the cost growth, describes trends in that growth, and discusses recent actions to finance additional costs and the implications of future cost growth.

GAO found that: (1) the 1991 projected cost for completing 165 ships in the Navy's remaining 54 construction contracts is $6.4 billion higher than the initial $27.1-billion estimate; (2) the Navy is responsible for $4 billion of the cost overrun, and the remainder is attributable to the shipyards; (3) the Navy and the shipyards are liable for annual increases in target prices, costs, profits, and projected over-cost targets; (4) the Navy covers deficient individual ship construction accounts by transferring funds from other reduced, cancelled, or lower priority shipbuilding and procurement programs; (5) for fiscal year 1992, the Navy transferred $1.5 billion among programs and Congress provided $463.6 million in new funding to cover funding shortages; and (6) increasing cost growth will reduce total funds available, potentially reduce the number of ships built, and require greater congressional funding assistance.