Defense Acquisitions
Zumwalt-Class Destroyer Program Emblematic of Challenges Facing Navy Shipbuilding Gao ID: GAO-08-1061T July 31, 2008The U.S. Navy is about to begin construction of the first Zumwalt-class destroyer (DDG 1000) amid considerable uncertainties and a high likelihood of cost and schedule growth. Significant cost growth and schedule delays are persistent problems that continue to compromise the Navy's shipbuilding goals. This testimony focuses on (1) the challenges faced by the DDG 1000 program and (2) the strain such challenges portend for long term shipbuilding plans.
From the outset, DDG 1000 has faced a steep challenge framed by technical sophistication, demanding mission requirements, and a cost and schedule budget with little margin for error. The Navy has worked hard to manage the program within these competing goals. Yet recently, the Navy has discussed canceling construction of the remaining five DDG 1000 ships. Although a cancellation may stem from fiscal necessity, it reflects poorly on the acquisition, requirements, and funding processes that produced the DDG 1000 business case. Future success in shipbuilding depends on understanding why the weaknesses in the DDG 1000 business case, which now seem to threaten the program, did not prompt a similar re-examination several years ago. The current program of record faces significant execution risks. The Navy will be pressed to complete a large amount of design work in time for the start of construction in October 2008. Demonstration of key components--particularly, the deckhouse, the volume search radar, and the integrated power system--have fallen behind. Despite restructuring the construction schedule, margins between several major events are gone. For example, land-based tests of the integrated power system are now scheduled after installation on the lead ships. Software development has also proven challenging; the Navy certified the most recent software release before it met about half of its requirements. Further, the full costs of constructing the two lead ships have not been entirely recognized or funded. The complexity and unique features of DDG 1000, along with the design work, testing, and actual construction experience to come, make cost growth beyond budgeted amounts likely. The challenges confronted by DDG 1000 are not unique. Across the shipbuilding portfolio, executing programs within cost and schedule estimates remains problematic, largely because of unexecutable business cases that allow programs to start with a mismatch between scope and resources. Collectively, problems in individual programs erode the buying power of the Navy's long-range construction budget. The Navy compensates for near-term construction deferrals by increasing construction in the out-years, but this will require significant funding increases in the future, which are unlikely. Near-term tradeoffs could have long-term consequences for maintaining a rational balance between mission capability, presence, industrial base, and manning. The Navy's consideration of cutting the DDG 1000 program back comes after over 10 years of development and $13 billion have been invested. Clearly, changes are needed in how programs are conceptualized and approved. Although the elements needed for success are well known, unrealistic compromises are made to make business cases conform to competing demands. An examination of the root causes of unexecutable business cases must be done or shipbuilding programs will continue to produce unsatisfactory outcomes. This examination must begin with an honest appraisal of the competing demands made on new programs early in the acquisition process and how to strike a better balance between them.
GAO-08-1061T, Defense Acquisitions: Zumwalt-Class Destroyer Program Emblematic of Challenges Facing Navy Shipbuilding
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Testimony:
Before the Subcommittee on Seapower and Expeditionary Forces, Committee
on Armed Services, House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EDT:
Thursday, July 31, 2008:
Defense Acquisitions:
Zumwalt-Class Destroyer Program Emblematic of Challenges Facing Navy
Shipbuilding:
Statement of Paul L. Francis, Director:
Acquisition and Sourcing Management:
GAO-08-1061T:
GAO Highlights:
Highlights of GAO-08-1061T, a testimony before the Subcommittee on
Seapower and Expeditionary Forces, Committee on Armed Services, House
of Representatives.
Why GAO Did This Study:
The U.S. Navy is about to begin construction of the first Zumwalt-class
destroyer (DDG 1000) amid considerable uncertainties and a high
likelihood of cost and schedule growth. Significant cost growth and
schedule delays are persistent problems that continue to compromise the
Navy‘s shipbuilding goals. This testimony focuses on (1) the challenges
faced by the DDG 1000 program and (2) the strain such challenges
portend for long term shipbuilding plans.
What GAO Found:
From the outset, DDG 1000 has faced a steep challenge framed by
technical sophistication, demanding mission requirements, and a cost
and schedule budget with little margin for error. The Navy has worked
hard to manage the program within these competing goals. Yet recently,
the Navy has discussed canceling construction of the remaining five DDG
1000 ships. Although a cancellation may stem from fiscal necessity, it
reflects poorly on the acquisition, requirements, and funding processes
that produced the DDG 1000 business case. Future success in
shipbuilding depends on understanding why the weaknesses in the DDG
1000 business case, which now seem to threaten the program, did not
prompt a similar re-examination several years ago.
The current program of record faces significant execution risks. The
Navy will be pressed to complete a large amount of design work in time
for the start of construction in October 2008. Demonstration of key
components”particularly, the deckhouse, the volume search radar, and
the integrated power system”have fallen behind. Despite restructuring
the construction schedule, margins between several major events are
gone. For example, land-based tests of the integrated power system are
now scheduled after installation on the lead ships. Software
development has also proven challenging; the Navy certified the most
recent software release before it met about half of its requirements.
Further, the full costs of constructing the two lead ships have not
been entirely recognized or funded. The complexity and unique features
of DDG 1000, along with the design work, testing, and actual
construction experience to come, make cost growth beyond budgeted
amounts likely.
The challenges confronted by DDG 1000 are not unique. Across the
shipbuilding portfolio, executing programs within cost and schedule
estimates remains problematic, largely because of unexecutable business
cases that allow programs to start with a mismatch between scope and
resources. Collectively, problems in individual programs erode the
buying power of the Navy‘s long-range construction budget. The Navy
compensates for near-term construction deferrals by increasing
construction in the out-years, but this will require significant
funding increases in the future, which are unlikely. Near-term
tradeoffs could have long-term consequences for maintaining a rational
balance between mission capability, presence, industrial base, and
manning.
The Navy‘s consideration of cutting the DDG 1000 program back comes
after over 10 years of development and $13 billion have been invested.
Clearly, changes are needed in how programs are conceptualized and
approved. Although the elements needed for success are well known,
unrealistic compromises are made to make business cases conform to
competing demands. An examination of the root causes of unexecutable
business cases must be done or shipbuilding programs will continue to
produce unsatisfactory outcomes. This examination must begin with an
honest appraisal of the competing demands made on new programs early in
the acquisition process and how to strike a better balance between
them.
What GAO Recommends:
While GAO is making no new recommendations in this testimony, GAO has
made numerous recommendations through the years to improve business
cases for Navy acquisitions as well as other Department of Defense
weapon acquisitions. The Department‘s acquisition policies largely
incorporate these recommendations, but program execution has fallen
short.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-1061T]. For more
information, contact Paul Francis at (202) 512-4841 or
francisp@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee,
I am pleased to be here today to discuss the Department of the Navy's
Zumwalt-class (DDG 1000) destroyer program, part of the family of
future surface combatants. Much of my statement is drawn from a
detailed report we issued today on the status of the program.[Footnote
1] DDG 1000 is an ambitious program that is now in the first year of a
6-year construction schedule for the two lead ships. Last week, the
Navy began discussing cancellation of the remaining five ships in the
class. While a cancellation may stem from fiscal necessity, it comes
after well over 10 years of development and over $13 billion in
investments thus far. Future success in shipbuilding programs depends
on recognizing the factors that necessitated the decision and taking
steps to avoid having to do so again in the future.
Accordingly, today I will be discussing (1) the challenges faced by the
DDG 1000 program and (2) the strain such challenges portend for the
shipbuilding budget. I do this not as a critique of the Navy's
management of the program (for there is much about the acquisition that
exhibits foresight and thoughtful planning), but as the latest in a
series of shipbuilding programs in which the scope of the program is a
mismatch for the time and money resources that have been allotted for
it. These mismatches result in reductions in quantities that, in turn,
have a collective effect on the Navy's long-term shipbuilding goals. I
look forward to today's hearing as an opportunity to discuss not only
the symptoms of the problem, but the root causes as well.
Summary:
DDG 1000 development has been framed by challenging multimission
requirements, resultant numerous new technologies, and a cost and
schedule budget that added to--rather than eased--the challenge. While
the Navy has done much work to try to manage the program within these
competing goals, it will begin lead ship construction in October 2008
with significant uncertainties, particularly in developing the ship's
design, key components, and the ship software system. Recent
restructuring of the schedule buys more time for technology
development, but shifts key efforts like installation and testing of
the combat systems until later in the construction schedule--after the
ships have been initially delivered. Such compromises--made before
construction has even begun--suggest that the Navy already has little
margin for solving future problems without adding money and time. In
fact, it appears that the budget for the lead ships is not adequate to
deliver fully operational ships. The complexity and unique features of
DDG 1000, along with the design work, testing, and actual construction
experience to come, add to the risk of cost growth.
DDG 1000 is not unique in this respect. Across the shipbuilding
portfolio, the Navy has had problems executing its programs within cost
and schedule estimates, particularly with first-in-class ships. I see
this as a mismatch between the scope of programs and the resources
(time and money) allotted to execute them. For example, albeit a much
simpler vessel, the Littoral Combat Ship (LCS) program proceeded into
construction with unstable designs and unrealistic cost and schedule
estimates. Similarly, the Navy is proceeding with construction of the
Ford-class (CVN 78) aircraft carrier as it faces problems with an
enabling technology and a budget that has no margin for unanticipated
problems. Cost and schedule problems in individual programs have a
collective effect on the Navy's long-range construction plans. Each
year, the Navy prepares a 30-year shipbuilding plan that attempts to
balance the competing objectives of maximizing the mission capabilities
of each ship and reducing crew size, while at the same time providing a
sufficient quantity of ships to achieve the necessary level of global
presence and to provide a stable workload for shipyards. This year, the
Navy has reduced the plan's ship quantities in the near term and
compensated for current shipbuilding problems by projecting increased
ship construction in the out-years based on the hope that more money
will be available in the future. The Navy's proposed decision to
discontinue the DDG 1000 program after the two lead ships and build
more of the less costly Arleigh Burke-class (DDG 51) destroyers should
restore some balance in the plan. However, we would do well to
understand the factors that led to the DDG 1000 business case so that
future programs do not suffer the same fate.
This statement is based on work we conducted between September 2007 and
July 2008, as well as our previous testimonies and reports and is in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Navy Unlikely to Execute DDG 1000 Program within Current Cost and
Schedule Estimates:
The DDG 1000 program has from the onset faced a steep challenge framed
by demanding mission requirements, stealth characteristics, and a
desire to reduce manning levels by more than half that of predecessor
destroyers. These requirements translated into significant technical
and design challenges. Rather than introducing three or four new
technologies (as is the case on previous surface combatants), DDG 1000
plans to use a revolutionary hull form and employ 11 cutting-edge
technologies, including an array of weapons, highly capable sensors
integrated into the sides of a deckhouse made primarily of composite
material--not steel, and a power system designed for advanced
propulsion as well as high-powered combat systems and ship service
loads. This level of sophistication has necessitated a large software
development effort--14 million to 16 million lines of code. All of this
is to be accomplished while splitting construction between two
shipyards. The Navy believes this approach and schedule is important to
managing shipyard workloads, as starting later would have caused
shipyard workload to drop too low. In a sense, then, the construction
approach and schedule became an additional challenge as they became
constraints on the pace of technology and design development. To meet
these multiple and somewhat conflicting demands, the Navy structured
its acquisition strategy to develop key systems and mature the design
before starting to build the ship. While the Navy has made good
decisions along the way to address risk, it is already likely, shortly
before the Navy embarks on ship construction, that additional funding
will be necessary or trade-offs will need to be made to develop and
deliver DDG 1000 ships.
Despite a Thoughtful Approach, Delays in Technology, Software, and
Design Development Pose a Risk to Successful Program Execution:
Despite multiple and somewhat competing demands, the Navy conceived a
thoughtful approach and achieved developmental successes on DDG 1000.
Developing 10 prototypes of the ship's critical systems helped to
create confidence that a number of technologies would operate as
intended, and the Navy's plan to mature the ship's design before
starting construction aims to reduce the risk of costly design changes
after steel has been cut and bulkheads built. For example, the Navy
successfully demonstrated the advanced gun system through initial
guided flight and testing on land. In other cases, such as for the
integrated power system, tests brought to light technical problems,
which the Navy was able to address by going to an alternate technology.
However, notwithstanding these efforts, significant challenges remain
in developing the ship's design and a number of key components--in
particular, the deckhouse, volume search radar, and the integrated
power system. Moreover, the ship's capability is contingent on an
unprecedented software development effort. Recently, the Navy
restructured the schedule to buy more time for development--a good
decision. However, as construction of the first ship has not yet begun,
the Navy may have exhausted its options for solving future problems
without adding money and time.
Although the initial phases of the design are complete, the
shipbuilders will be pressed to complete a large amount of design work
by October 2008 when lead ship construction begins. From August 2007
through May 2008, the shipbuilders finished work on 16 of the 100
design zones (individual units that make up the ship's design) leaving
5 months to finish the final design phases in 84 zones leading up to
the start of construction. While the shipbuilders believe they can
finish the design by the start of ship construction, delays in the
development of the ship's key systems could impede completion of the
design and eventually interfere with DDG 1000 construction. If the
shipbuilders cannot finish planned design work prior to the start of
lead-ship construction, the program is at greater risk for costly
rework and out-of-sequence work during construction.
To maintain the start of ship construction in 2008 while continuing to
develop the ship's technologies, the Navy recently realigned the
program's schedule. Rather than delivering a fully mission-capable
ship, the Navy will take ownership of just the vessel and its
mechanical and electrical systems--including the ship's power system--
in April 2013. At that point, the Navy plans to have completed "light-
off" of the power, mechanical, and electrical systems. Light-off refers
to activating and testing these systems aboard ship. The Navy deferred
light-off of the combat systems--which include the radars, guns, and
the missile launch systems--by over 2 years until May 2013. According
to the Navy, conducting light-off in phases allows the program to test
and verify the ship's major systems, in particular the integrated power
system, in isolation and creates additional time to mature the combat
systems, as well as the software that supports these systems, before
ship installation and shipboard testing. However, since the Navy will
only test and inspect the hull prior to taking ownership of the vessel,
it will not have a full understanding of how the ship operates as a
complete and integrated system until after final shipboard testing of
the combat systems in 2014.
While the restructure maintains the construction schedule, it does
delay verifying the performance of the integrated power system before
producing and installing it on the ship. Tests of a complete integrated
power system with the control system will not occur until 2011--nearly
3 years later than planned. To meet the shipyard's schedule, the Navy
will buy a power system intended for the third ship and use it in land-
based tests. As a result, the integrated power system will not be
demonstrated until a year after the power systems have been produced
and installed on the two lead ships--an approach that increases
exposure to cost and schedule risk in production.
Finalizing deckhouse manufacturing and assembly processes are essential
to constructing and delivering the deckhouse as planned. Changes to the
manufacturing processes for deckhouse production are ongoing. The
shipbuilder is validating process changes through production and
inspection of a series of test units, culminating with a large-scale
prototype manufactured to the same thickness and other specifications
of the deckhouse. Final validation of the manufacturing processes for
deckhouse construction will not occur until after construction,
inspection, and shock testing of the large-scale prototype. However,
test and inspection activities are not scheduled for completion until
after the deckhouse production readiness review in September 2008.
Problems discovered during testing and inspection may require
additional changes to manufacturing methods. Moreover, facility and
machinery upgrades necessary to construct and assemble the deckhouse
are not all scheduled to be complete until March 2010--over a year
after the start of construction of the first deckhouse. While the
shipbuilder expects to complete efforts to meet the construction
schedule, if difficulties occur, the deckhouses may not be delivered to
the shipyards on time, disrupting the construction sequence of the
ships.
Further, the volume search radar (one of two radars in the dual band
radar system) will not be installed during deckhouse construction as
initially planned. Instead, installation will occur at the shipyard
when the first ship is already afloat, a more costly approach. The
change was partly due to delays in developing the volume search radar.
Land-based demonstrations of the volume search radar prototype
originally planned to be done before starting ship construction will
not be completed until 2009--almost 2 years later. Development
difficulties center on the radar's radome and transmit-receive units.
The contractor has been unable to successfully manufacture the radome
(a composite shield of exceptional size and complexity), and the
transmit-receive units (the radar's individual radiating elements) have
experienced failures operating at the voltage needed to meet range
requirements. While the Navy believes that the voltage problem has been
resolved, upcoming land-based tests will be conducted at a lower
voltage--and without the radome. The Navy will not demonstrate a fully
capable radar at its required power output until after testing of the
first production unit sometime before combat systems light-off in 2013.
Crucial to realizing DDG 1000's required manning reductions is the
ability to achieve a high degree of computer automation. If the ship's
software does not work as intended, crew size would need to be
increased to make up for any lack of automation. Given the risks
associated with the ship's software system, referred to as the total
ship computing environment, the Navy initially planned to develop and
demonstrate all software functionality (phased over six releases and
one spiral) over 1 year before ship light-off. As a result of changes
in the software development schedule, the Navy eliminated this margin.
Until recently, the Navy was able to keep pace with its development
schedule, successfully completing the first three software releases.
However, the Navy is now entering the complex phases of software
development when ship functionality is introduced. The Navy certified
release 4 without the release meeting about half of the software system
requirements, mainly because of issues coding the ship's command and
control component--the heart of the ship's decision-making suite.
Problems discovered in this release, coupled with the deferred work,
may signify larger software issues that could disrupt the development
of releases 5 and 6 and prevent the timely delivery of software to meet
the ship's schedule.
DDG 1000 Costs Likely to Exceed Budget:
Costs of the DDG 1000 ships are likely to exceed current budgets. If
costs grow during lead ship construction due to technology, design, and
construction risks, as experience shows is likely, remaining funds may
not be sufficient to buy key components and pay for other work not yet
under contract.
Despite a significant investment in the lead ships, the remaining
budget is likely insufficient to pay for all the effort necessary to
make the ships operational. The Navy estimates a total shipbuilding
budget of $6.3 billion for the lead ships. Of this amount, the Navy has
approximately $363 million remaining in unobligated funds to cover its
outstanding costs and to manage any cost growth for the two lead
ships,[Footnote 2] but known obligations for the lead ships, assuming
no cost growth during construction, range from $349 million to $852
million (see table 1).
Table 1: Unfunded Lead Ship Expenses:
Expense: Deferred ship construction scope;
Status: Work removed from scope of construction contract to stay within
construction budget. Since this work is necessary to meet ship
specifications, the Navy plans to perform and fund work sometime after
the lead ships are delivered. Includes the following:
* windows and enclosures for certain sensors;
* special hull treatment;
* deck coverings that comply with the ship's radar cross section
requirements;
* secondary hull sheathing;
* anchor handling system;
Estimated value: $85 million.
Expense: Contract price adjustments;
Status: Construction contracts structured to allow price adjustments
based on future events that were considered largely outside of the
shipbuilders' control. Adjustments reduced the shipbuilders' risk
premium allowing a lower initial contract price. Includes the
following:
* shifts in future workload;
* escalations in future rates;
* changes in the price of raw materials such as steel and copper;
Estimated value: Not available.
Expense: Deferred procurement of select combat systems;
Status: Purchase and installation are not yet under contract for the
following systems:
* volume search radar aperture and other components;
* vertical launch system electronics, cell adapters, uptakes, and
junction boxes;
* 34 external communications antennas and apertures per ship;
The contractor estimate of these costs is approximately $763 million;
the Navy estimates approximately $200 million for both ships;
Estimated value: $264 million to $767 million.
Expense: Deferred activation of combat systems;
Status: Funds also not obligated toward light-off and final shipboard
testing of the combat systems. The Navy estimates as much as $64
million for both ships, including about $4 million in costs for
activation to be provided to the shipbuilders. Contractor and
shipbuilder estimates may be higher;
Estimated value: $264 million to $767 million.
Source: GAO analysis of Navy and contractor data.
[End of table]
The main discrepancy is the current estimated cost of the combat
systems. In order to create a cash reserve to pay for any cost
increases that may occur during construction of the lead ships, the
Navy has deferred contracting and funding work associated with
conducting shipboard testing of the combat systems--and in some cases
has also delayed purchasing and installing essential ship systems until
later in the construction sequence. The Navy has estimated the cost of
these combat systems to be around $200 million, while the contractor's
estimate is over $760 million. If the agreed-on cost approaches the
contractor's estimate, the Navy will not have enough in its remaining
funds to cover the cost.[Footnote 3]
There is little margin in the budget to pay for any unknown cost. To
ensure that there was enough funding available in the budget to cover
the costs of building the lead ships, the Navy negotiated contracts
with the shipbuilders that shifted costs or removed planned work from
the scope of lead ship construction and reduced the risk contingency in
the shipbuilders' initial proposals. For example, the Navy stated that
it shifted in excess of $100 million associated with fabrication of the
peripheral vertical launch system from the scope of ship construction
and funded this work separately using research and development
funding.[Footnote 4] As a result, this work is no longer included in
the $6.3 billion end cost to construct DDG 1000.
To the extent that the lead ships experience cost growth beyond what is
already known, more funding will be needed to produce operational
ships. However, these problems will not surface until well after the
shipyards have begun construction of the lead ships. Cost growth during
construction for lead ships has historically been about 27 percent, and
an independent estimate by the Department of Defense already projects
the cost of the two lead ships to be $878 million higher than the
Navy's budget. With ships as expensive as DDG 1000, even a small
percentage of cost growth could lead to the need for hundreds of
millions of dollars in additional funding.
Program Execution Challenges Have Required the Navy to Make Trade-Offs
In Its Long-Range Shipbuilding Goals:
The challenges facing DDG 1000 are not unique among Navy shipbuilding
programs nor to Department of Defense acquisition programs at large.
Across the shipbuilding portfolio, the Navy has not been able to
execute programs within cost and schedule estimates, which has, in
turn, led to disruptions in its long-range construction plans. This
outcome has largely resulted from Navy decisions to move ships forward
into construction with considerable uncertainties--like immature
technologies and unstable designs. However, by doing so the Navy has
effectively eroded its buying power by forcing it to make near-term
quantity reductions within its shipbuilding plan. Because fleet
requirements remain steady at 313 ships, the Navy must compensate for
near term construction deferrals by increasing ship construction in the
out-years. Achieving this plan, however, will require significant
funding increases in the future, which will likely be difficult to
obtain. These near term trade-offs could have long-term consequences
for balancing mission, presence, industrial base, and manning tensions.
For example, if ship quantities are deferred to the future to
accommodate near-term cost growth, the Navy could be trading off
presence and industrial base if additional funds do not materialize in
the future.
The Navy Consistently Underestimates the Effort Required to
Successfully Execute Its New Shipbuilding Programs:
Cost growth and schedule delays are persistent problems for
shipbuilding programs as they are for other weapon systems. These
challenges are amplified for lead ships in a class (see figs. 1 and 2).
Figure 1: Cost Growth in Recent Lead Ships (Dollars in Millions):
This figure is a combination bar graph showing cost growth in recent
lead ships (dollars in millions). One bar represents the initial
budget, and the other represents cost growth.
LCS 1-2;
Initial budget: 472;
Cost growth: 566.
LPD 17;
Initial budget: 954;
Cost growth: 804.
SSN 774;
Initial budget: 3260;
Cost growth: 492.
SSN 775;
Initial budget: 2192;
Cost growth: 522.
T-AKE 1;
Initial budget: 489;
Cost growth: 49.
[See PDF for image]
Source: GAO analysis of Navy data.
[A] SSN 775 is the second Virginia-class submarine, but represents the
first hull delivered by Northrop Grumman Newport News shipyard.
Note: all ships with the exception of LCS 1-2 have been delivered to
the Navy.
[End of figure]
Figure 2: Delays in Achieving Initial Operating Capability in Recent
Lead Ships:
This figure is a combination bar graph showing delays in achieving
initial operating capability in recent lead ships. One bar represents
initial schedule, and the other represents schedule slip.
LCS 1;
Initial Schedule: 41;
Schedule Slip: 21.
LPD 17;
Initial Schedule: 80;
Schedule Slip: 52.
SSN 774;
Initial Schedule: 124;
Schedule Slip: 17.
T-AKE 1;
Initial Schedule: 61;
Schedule Slip: 7.
[See PDF for image]
Source: GAO analysis of Navy data.
[End of figure]
The Navy's six most recent lead ships[Footnote 5] have experienced
cumulative cost growth over $2.4 billion above their initial budgets.
These cost challenges have been accompanied by delays in delivering
capability totaling 97 months across these new classes. The first San
Antonio-class ship (LPD 17) was delivered to the warfighter incomplete
and with numerous mechanical failures--52 months late and at a cost of
over $800 million above its initial budget. For the LCS program, the
Navy established a $220 million cost target and 2-year construction
cycle for each of the two lead ships. To date, costs for these two
ships have exceeded $1 billion, and initial capability has been delayed
by 21 months. Cost increases are also significant if the second ship is
assembled at a different shipyard than the first ship. This was the
case with SSN 775, with cost growth of well over $500 million.
These outcomes result from the Navy consistently framing its
shipbuilding programs around unexecutable business cases, whereby ship
designs seek to accommodate immature technologies and design stability
is not achieved until late in production. New ship programs have moved
forward through milestones, whether or not desired knowledge had been
attained. In turn, initial ships in Navy programs require costly, time-
consuming out-of-sequence work and rework during construction, and
undesired capability trade-offs are often required. In essence,
execution problems are built into the initial strategy for a new ship,
as the scope of the ship--that is, the innovative content and
complexity owing to multiple mission requirements--overmatches the time
and money set aside to develop and construct the ship. For example,
while the scope of the DDG 1000 and CVN 78 ships were driven by mission
requirements, the schedules for these ships was set by shipyard
workload needs or by the retirement schedule of a predecessor ship. The
result is the scope of work is compressed into a schedule that is based
on something else.
LCS is a recent example. In this program, the Navy sought to
concurrently design and construct two lead ships in an effort to
rapidly meet pressing needs in the mine countermeasures, antisubmarine
warfare, and surface warfare mission areas. However, changes to Navy
requirements required redesign of major elements in both lead ships to
provide enhanced survivability, even after construction had begun on
the first ship. While these requirements changes improved the
robustness of LCS designs, they contributed to out-of-sequence work,
rework, and weight increases on the lead ships. These difficulties
caused LCS construction costs to grow and delivery schedules to be
extended and prompted the Navy to reduce speed requirements for the
class due to degraded hydrodynamic performance. In turn, the Navy
canceled construction contracts for the third and fourth ships and used
funds from other previously appropriated ships to pay for lead ship
cost growth. Although these steps increased the resources available to
the two lead ships, continuing technology immaturity and unproven
watercraft launch and recovery systems included within each design
could trigger additional cost growth and schedule delays above and
beyond current estimates.
The Ford-class aircraft carrier (CVN 78) also faces uncertainty related
to its cost and schedule estimates and eventual capability. The
business case for CVN 78 is framed around delivering the carrier to
maintain the Navy's force of 11 operational carriers given the
impending retirement of USS Enterprise (CVN 65), but includes a cost
target that leaves little if any margin for error. As construction
begins, remaining technology risk in the program--particularly with the
electromagnetic aircraft launch system (EMALS)--has positioned the
program to face future construction challenges similar to other lead
ships. Previously, the Navy planned to demonstrate full functionality
of a ship-ready system prior to production and installation on CVN 78-
-an approach aimed at reducing risk to ship construction. However, the
contractor encountered technical difficulties developing the prototype
generator and meeting detailed Navy requirements which left no margin
in the schedule to accommodate unanticipated problems discovered in
testing or production. In order to maintain the ship's construction
schedule, the Navy adopted a test and production strategy that will
test, produce, and ultimately install EMALS with a high degree of
concurrency. At the same time test events are occurring, the Navy will
authorize and begin production of EMALS intended for ship installation.
While Navy officials recognize that concurrency is undesirable, they
believe it is the only way to meet the ship's delivery date in
September 2015. However, by moving ahead with production in order to
accommodate schedule milestones, CVN 78 is at risk of cost growth and
ultimately schedule changes if unexpected problems arise in EMALS
testing.
Challenges Facing Current Programs Have Disrupted the Navy's Long-Range
Construction Plans:
Since 2006, the Navy has annually issued a long-range plan for
shipbuilding. These plans outline expected new ship procurements 30
years into the future and the funding the Navy estimates will be needed
to support those procurements. The long-range plan is predicated upon
the stated fleet need for 313 ships. However, mounting cost and
schedule challenges in current programs have required the Navy to
increasingly reshape its long-range ship procurement plans, placing the
313 ship goal in jeopardy.
The Navy's long-range ship construction plan embodies multiple
objectives including:
* building sophisticated ships to support new and existing missions,
* improving presence by increasing the numbers of ships available to
execute these missions,
* designing ships and operating concepts that reduce manning
requirements, and:
* supplying construction workloads that stabilize the industrial base.
There is an inherent tension among the multiple objectives in the plan
that is depicted in simple form in figure 3.
Figure 3: Multiple Objectives Embodied in the Navy Shipbuilding Plan:
This figure is a circular drawing representing multiple objectives
embodied in the Navy shipbuilding objectives.
The following text is represented:
Multiple Missions;
Reduced Manning;
Stable Industrial Base;
Adequate Presence.
[See PDF for image]
Source: GAO.
[End of figure]
This tension can play out in several ways. If, for example, a class of
ship is expected to perform multiple challenging missions, it will have
sophisticated subsystems and costs will be high. The cost of the ship
may prevent its being built in desired numbers, subsequently reducing
presence and reducing work for the industrial base. Requirements to
reduce manning can actually add sophistication if mission requirements
are not reduced. To some extent, this has happened with DDG 1000 as
decisions have tended to trade quantities (that affect presence and
industrial base) in favor of sophistication. Several years ago, the
program was expected to deliver 32 ships at an approximate unit cost of
$1 billion. Over time, sophistication and cost of the ship grew as
manning levels lower than current destroyers were maintained. Today,
the lead ships are expected to cost $8.9 billion in research and
development funding and another $6.3 billion to build. Similarly, cost
growth in the LCS program has precluded producing ships at the rate
originally anticipated, and it is possible the Navy will never regain
the recent ships it traded off to save cost. Had the Navy anticipated
that LCS lead ship costs would more than double, it may have altered
its commitment to the program within its previous long-range
shipbuilding plan.
The Navy's fiscal year 2009 long-range ship construction plan reflects
many of the recent challenges that have confronted Navy shipbuilding
programs. The plan provides for fewer ships at a higher unit cost--in
both the near term and the long term--from what the Navy outlined in
its fiscal year 2008 plan. Across the next 5 years, the Navy now
expects to fund construction of 47 new ships at a cost of almost $74
billion. However, only 1 year ago the Navy expected to purchase 60
ships at a cost of $75 billion during this same time span. Instead, as
cost growth has mounted in current shipbuilding programs, the Navy has
had to reallocate funds planned for future ships to pay for ones
currently under construction. These problems have also required the
Navy to adjust its long-term plans. To compensate for its recent near-
term quantity reductions, the Navy now plans to increase construction
rates starting in fiscal year 2014. This strategy is based upon the
premise that increased funding--on the order of $22 billion between
fiscal years 2014 and 2018--will become available to support its plans.
The Navy assumes this trend of increased funding--above and beyond
annual adjustments for inflation--will continue through the end of its
plan, which culminates in fiscal year 2038.
Cost and schedule pressures in current programs have also led the Navy
to make a number of operational trade-offs to help maintain the
viability of its shipbuilding goals. For instance, the Navy's current
long-range plan includes a new provision to extend the service lives of
current DDG 51 ships by 5 years to maintain an adequate number of
surface combatants in its fleet. In addition, the Navy plans to extend
the service life of selected attack submarines as well as the length of
attack submarine deployments. These actions, however, will require the
Navy to increase funding for future upgrades, modernization programs,
and maintenance for these vessels--from sources the long-range plan
does not identify.
Concluding Remarks:
The discussion over whether to conclude the DDG 1000 program at two
ships should prompt some introspection given that over $13 billion has
been spent. In a sense, some of the key factors influencing the
discussion--such as the high cost of the ship, the potential for cost
growth, and the questionable affordability of the 30-year shipbuilding
plan--are not markedly different from what they were a few years ago.
Future success in shipbuilding depends on understanding why the
weaknesses in the DDG 1000 business case, which now seem to threaten
the program, did not prompt a similar re-examination several years ago.
I believe that Navy managers and shipbuilders have enough knowledge
about cost estimating, technology development, engineering, and
construction to develop more executable business cases for new ships--
that is, a better match between the scope of the ship and the time and
money allotted for delivering it. The fact remains that we do not get
these matches when they really count--before detail design and
construction for a new ship are approved. So, the question is, why are
well-understood elements of success not incorporated into new ship
programs?
Part of the answer is that while managers may know what it takes to put
an executable business case together, compromises in judgment have to
be made to bring the business case in conformance with competing
demands. For example, in a program like the DDG 1000 that undertook
multiple technical leaps to meet challenging requirements, yet also had
to deliver in time to match shipyard availability, pressures existed to
make optimistic assumptions about the pace of technology maturity. At
the same time, budget constraints exert pressure on cost estimates to
be lower. These demands do not all fall just within the province of the
Navy--industry, Congress, and the Office of the Secretary of Defense
all play important roles. Over time, the business case for DDG 1000
eroded. The primary mission of DDG 1000--and the foundation for its
business case--was land attack. Yet, subsequent decisions ultimately
forced trade-offs in that mission. For example, while including
features like a more sophisticated radar and stealth characteristics
may be good decisions individually, collectively they made the ship
more expensive. Efforts to contain cost involved both reducing the
quantity of ships and the actual land attack capability possessed by
each individual ship. Ironically, the advanced gun system, which was
the primary land attack weapon of the ship and a technical success to
date, will now not have a platform to operate from beyond the first two
DDG 1000s.
The reconsideration of the DDG 1000 buy reflects poorly on the
requirements, acquisition, and funding processes that produced the
ship's business case. Unless some attempt is made to examine the root
causes of decisions that hope for the best and result in poor outcomes,
shipbuilding programs seem destined to the same fate: despite the best
efforts to manage, the scope of the program will outstrip the cost and
schedule budget. This examination must begin with an honest self-
appraisal of what each player in the shipbuilding acquisition process
demands of programs in terms of requirements, technologies, design,
industrial base, quantities, and cost. Otherwise, while cost and other
problems of current ships are lamented, these same problems could
continue to curb the outcomes of future programs like the potentially
sophisticated next-generation cruiser (CG(X)) or even renewed
construction of DDG 51.
Mr. Chairman, that concludes my statement. I would be pleased to answer
any questions.
Objectives, Scope, and Methodology:
To develop information on the status of the DDG 1000 program, we relied
largely on our current work examining the DDG 1000 program, as well as
a number of prior GAO products on shipbuilding programs. We
supplemented this work with analysis of the Navy's most recent and
previous long-range plan for ship construction and Selected Acquisition
Reports for current Navy ships. Finally, we updated our estimates of
lead ships costs through the use of the Navy's budget justification
documentation.
Contact and Staff Acknowledgments:
For future questions about this statement, please contact me at (202)
512-4841 or francisp@gao.gov. Individuals making key contributions to
this statement include Marie P. Ahearn, Christopher R. Durbin, Brian
Egger, James Madar, Diana Moldafsky, Gwyneth B. Woolwine, and Karen
Zuckerstein.
[End of section]
Related GAO Products:
Defense Acquisitions: Cost to Deliver Zumwalt-Class Destroyers Likely
to Exceed Budget. GAO-08-804. Washington, D.C.: July 31, 2008.
Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-08-
467SP. Washington, D.C.: March 31, 2008.
Defense Acquisitions: Overcoming Challenges Key to Capitalizing on Mine
Countermeasures Capabilities. GAO-08-13. Washington, D.C.: October 12,
2007.
Defense Acquisitions: Realistic Business Cases Needed to Execute Navy
Shipbuilding Programs. GAO-07-943T. Washington, D.C.: July 24, 2007:
Defense Acquisitions: Navy Faces Challenges Constructing the Aircraft
Carrier Gerald R. Ford within Budget. GAO-07-866. Washington D.C.:
August 23, 2007.
Defense Acquisitions: Challenges Remain in Developing Capabilities in
Naval Surface Fire Support. GAO-07-115. Washington, D.C.: November 30,
2006.
Defense Acquisitions: Challenges Associated with the Navy's Long-Range
Shipbuilding Plan. GAO-06-587T. Washington, D.C.: March 30, 2006.
Defense Acquisitions: Progress and Challenges Facing the DD(X) Surface
Combatant Program. GAO-05-924T. Washington, D.C.: July 19, 2005.
Defense Acquisitions: Plans Need to Allow Enough Time to Demonstrate
Capability of First Littoral Combat Ships. GAO-05-255. Washington,
D.C.: March 1, 2005.
Defense Acquisitions: Improved Management Practices Could Help Minimize
Cost Growth in Navy Shipbuilding Programs. GAO-05-183. Washington,
D.C.: February 28, 2005.
[End of section]
Footnotes:
[1] See GAO, Defense Acquisitions: Cost to Deliver Zumwalt-Class
Destroyers Likely to Exceed Budget, GAO-08-804 (Washington, D.C.: July
31, 2008).
[2] Based on data as of June 2008.
[3] According to Navy officials, the Navy expects to definitize the
contract for combat systems procurement in August 2008.
[4] By shifting these costs the Navy stated that it could use research,
development, testing, and evaluation (RDT&E) funding instead of
procurement funding (SCN). However, this may lead to increases in the
RDT&E budget.
[5] While SSN 775 does not use a different ship design, it was
constructed by a different shipyard than SSN 774.
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