Navy Contract

AOE 6 Shipbuilding Claims Settled But More Delays and Cost Growth Likely Gao ID: NSIAD-93-298 September 30, 1993

In January 1987, the Navy awarded an $863 million, fixed-price incentive contract for the design and construction of the first AOE 6 class ship, with options for three more ships. Because of program schedule delays and cost increases, however, the Navy reduced the program from seven to four ships. By February 1991, the contractor, National Steel and Shipbuilding Company, had submitted more than $300 million in claims against the Navy for cost increases that it believed the Navy was responsible for. GAO concludes that these problems and resulting claims stemmed from an optimistically low bid, concurrent development and construction, inadequate Navy and contractor management attention, and unrealized gains in expected shipyard productivity. The Navy administered the claims evaluation process according to established procedures. The lead ship has yet to be fully tested at sea, where operational problems may first arise. Thus, the final costs, delivery dates, and extent to which the ships under construction will meet expectations are still unknown. Declines in the size of the fleet and carrier force and a reordering of defense priorities may preclude the need for another AOE class ship, the AOE 10.

GAO found that: (1) AOE 6 program cost increases and schedule delays are a result of an unrealistic low bid, concurrent development and construction, inadequate Navy and contractor management oversight, and continued low shipyard productivity; (2) in 1991, the Navy agreed to provide emergency financial aid to the contractor because it experienced severe financial difficulties due to increased costs and significant schedule delays; (3) the Navy administered the claims evaluation process according to established procedures; (4) the Navy's claims files documented the contractor's legal entitlement to each claim, the technical and audit analyses, and support for the Navy's position; (5) the contractor's cost and schedule control system did not comply with Department of Defense standards as required; (6) the AOE 6 program is expected to experience further cost increases and schedule delays because of the lack of initial testing and continuing contractor-labor disputes; and (7) the future need for the AOE 6 program is uncertain due to changing defense priorities and declining defense budgets.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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