Littoral Combat Ship
Actions Needed to Improve Operating Cost Estimates and Mitigate Risks in Implementing New Concepts Gao ID: GAO-10-257 February 2, 2010The Navy plans to spend about $28 billion to buy 55 Littoral Combat Ships (LCS) and at least 64 interchangeable mission packages to perform one of three missions--mine countermeasures, antisubmarine warfare, and surface warfare--in waters close to shore. The Navy has been developing two different LCS seaframes and plans to select one for production in 2010. Due to the small 78-person crew size--40 core crew, 23 for aviation detachment, and typically 15 for mission packages--the Navy is developing new concepts for personnel, training, and maintenance. GAO was asked to assess the extent to which the Department of Defense (DOD) has (1) estimated LCS long-term operating and support costs and (2) developed plans to operate and support LCS. To do so, GAO compared Navy cost estimates to DOD guidance and GAO best practices; and analyzed Navy plans to implement its concepts for personnel, training, and maintenance and the extent these plans included assessments of program risk.
The Navy estimated operating and support costs for LCS seaframes and mission packages in 2009, but the estimates do not fully reflect DOD and GAO best practices for cost estimating and may change due to program uncertainties. GAO's analysis of the Navy's 2009 estimates showed that the operating and support costs for seaframes and mission packages could total $84 billion (in constant fiscal year 2009 dollars) through about 2050. However, the Navy did not follow some best practices for developing an estimate such as (1) analyzing the likelihood that the costs could be greater than estimated, (2) fully assessing how the estimate may change as key assumptions change, and (3) requesting an independent estimate and comparing it with the program estimate. The estimates may also be affected by program uncertainties, such as potential changes to force structure that could alter the number of ships and mission packages required. The costs to operate and support a weapon system can total 70 percent of a system's costs, and the lack of an estimate that fully reflects best practices could limit decision makers' ability to identify the resources that will be needed over the long term to support the planned investment in LCS force structure. With a decision pending in 2010 on which seaframe to buy for the remainder of the program, decision makers could lack critical information to assess the full costs of the alternatives. The Navy has made progress in developing operational concepts for LCS, but faces risks in implementing its new concepts for personnel, training, and maintenance that are necessitated by the small crew size. Specifically, the Navy faces risks in its ability to identify and assign personnel given the time needed to achieve the extensive training required. GAO's analysis of a sample of LCS positions showed an average of 484 days of training is required before reporting to a crew, significantly more than for comparable positions on other surface ships. Moreover, the Navy's maintenance concept relies heavily on distance support, with little maintenance performed on ship. The Navy acknowledges that there are risks in implementing its new concepts and has established groups to address how to implement them. However, these groups have not performed a risk assessment as described in the 2008 National Defense Strategy. The Strategy describes the need to assess and mitigate risks to executing future missions and managing personnel, training, and maintenance. If the Navy cannot implement its concepts as envisioned, it may face operational limitations, have to reengineer its operational concepts, or have to alter the ship design. Many of the concepts will remain unproven until 2013 or later, when the Navy will have committed to building almost half the class. Having a thorough risk assessment of the new operational concepts would provide decision makers with information to link the effectiveness of these new concepts with decisions on program investment, including the pace of procurement.
RecommendationsOur 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.
Director: Team: Phone:GAO-10-257, Littoral Combat Ship: Actions Needed to Improve Operating Cost Estimates and Mitigate Risks in Implementing New Concepts
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Report to the Subcommittee on Readiness and the Subcommittee on
Seapower and Expeditionary Forces, Committee on Armed Services, House
of Representatives:
United States Government Accountability Office:
GAO:
February 2010:
Littoral Combat Ship:
Actions Needed to Improve Operating Cost Estimates and Mitigate Risks
in Implementing New Concepts:
GAO-10-257:
GAO Highlights:
Highlights of GAO-10-257, a report to the Subcommittee on Readiness
and the Subcommittee on Seapower and Expeditionary Forces, Committee
on Armed Services, House of Representatives.
Why GAO Did This Study:
The Navy plans to spend about $28 billion to buy 55 Littoral Combat
Ships (LCS) and at least 64 interchangeable mission packages to
perform one of three missions”mine countermeasures, antisubmarine
warfare, and surface warfare”in waters close to shore. The Navy has
been developing two different LCS seaframes and plans to select one
for production in 2010. Due to the small 78-person crew size”40 core
crew, 23 for aviation detachment, and typically 15 for mission
packages”the Navy is developing new concepts for personnel, training,
and maintenance. GAO was asked to assess the extent to which DOD has
(1) estimated LCS long-term operating and support costs and (2)
developed plans to operate and support LCS. To do so, GAO compared
Navy cost estimates to DOD guidance and GAO best practices; and
analyzed Navy plans to implement its concepts for personnel, training,
and maintenance and the extent these plans included assessments of
program risk.
What GAO Found:
The Navy estimated operating and support costs for LCS seaframes and
mission packages in 2009, but the estimates do not fully reflect DOD
and GAO best practices for cost estimating and may change due to
program uncertainties. GAO‘s analysis of the Navy‘s 2009 estimates
showed that the operating and support costs for seaframes and mission
packages could total $84 billion (in constant fiscal year 2009
dollars) through about 2050. However, the Navy did not follow some
best practices for developing an estimate such as (1) analyzing the
likelihood that the costs could be greater than estimated, (2) fully
assessing how the estimate may change as key assumptions change, and
(3) requesting an independent estimate and comparing it with the
program estimate. The estimates may also be affected by program
uncertainties, such as potential changes to force structure that could
alter the number of ships and mission packages required. The costs to
operate and support a weapon system can total 70 percent of a system‘s
costs, and the lack of an estimate that fully reflects best practices
could limit decision makers‘ ability to identify the resources that
will be needed over the long term to support the planned investment in
LCS force structure. With a decision pending in 2010 on which seaframe
to buy for the remainder of the program, decision makers could lack
critical information to assess the full costs of the alternatives.
The Navy has made progress in developing operational concepts for LCS,
but faces risks in implementing its new concepts for personnel,
training, and maintenance that are necessitated by the small crew
size. Specifically, the Navy faces risks in its ability to identify
and assign personnel given the time needed to achieve the extensive
training required. GAO‘s analysis of a sample of LCS positions showed
an average of 484 days of training is required before reporting to a
crew, significantly more than for comparable positions on other
surface ships. Moreover, the Navy‘s maintenance concept relies heavily
on distance support, with little maintenance performed on ship. The
Navy acknowledges that there are risks in implementing its new
concepts and has established groups to address how to implement them.
However, these groups have not performed a risk assessment as
described in the 2008 National Defense Strategy. The Strategy
describes the need to assess and mitigate risks to executing future
missions and managing personnel, training, and maintenance. If the
Navy cannot implement its concepts as envisioned, it may face
operational limitations, have to reengineer its operational concepts,
or have to alter the ship design. Many of the concepts will remain
unproven until 2013 or later, when the Navy will have committed to
building almost half the class. Having a thorough risk assessment of
the new operational concepts would provide decision makers with
information to link the effectiveness of these new concepts with
decisions on program investment, including the pace of procurement.
What GAO Recommends:
GAO recommends, among other things, that DOD develop an estimate of
the long-term operating and support costs which fully reflects best
practices and use this estimate in making key program decisions, and
conduct and consider the results of a risk assessment before
committing to buy LCS ships in the future. DOD generally agreed with
the recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-10-257] or key
components. For more information, contact John Pendleton at (404) 679-
1816 or pendletonj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
The Navy's Operating and Support Cost Estimates Do Not Fully Reflect
Best Practices and May Change Due to Program Uncertainties:
The Navy Has Made Progress but Faces Risks in Implementing Its Plans
to Operate and Support LCS:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Defense:
Appendix III: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Description and Quantity of LCS Mission Packages:
Table 2: Estimate of the Total Navy Personnel Required for a Fleet of
55 LCS Ships:
Figures:
Figure 1: Two Littoral Combat Ship Seaframes:
Figure 2: Notional Example of Risk Analysis Results Displayed in an S-
curve Showing the Range and Likelihood of Possible Cost Increases:
Figure 3: Comparison of Average Training Days Required before
Reporting on Board for LCS with Two Other Surface Ships for a Sample
of Positions:
Figure 4: Timeline Comparing the Navy's LCS Procurement Plans with Key
Events Affecting Implementation of the Operational Concepts:
Abbreviations:
CAPE: Cost Analysis and Program Evaluation:
DOD: Department of Defense:
LCS: Littoral Combat Ship:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
February 2, 2010:
The Honorable Solomon Ortiz:
Chairman:
The Honorable J. Randy Forbes:
Ranking Member:
Subcommittee on Readiness:
Committee on Armed Services:
House of Representatives:
The Honorable Gene Taylor:
Chairman:
The Honorable W. Todd Akin:
Ranking Member:
Subcommittee on Seapower and Expeditionary Forces:
Committee on Armed Services:
House of Representatives:
With the ability to maneuver in shallow waters inaccessible to other
surface combatants, the Littoral Combat Ship (LCS) is a new class of
warship meant to facilitate U.S. Navy access to and operations in the
littorals, which are waters close to shore. The Navy plans a major
investment in the LCS program, which could cost $28 billion to buy 55
ships and related, interchangeable combat capability. The planned 55
ships would comprise about 38 percent of the Navy's surface combatants
[Footnote 1] in a 313-ship Navy. The Navy is using two contractors to
build differently designed ships, called seaframes. As of October
2009, the Navy had procured two ships (one of each design) and
contracted for two more (one of each design). The Navy plans to select
one design in fiscal year 2010. To increase flexibility, the LCS's
combat capability will be contained in removable, interchangeable
mission packages[Footnote 2] to perform one of three primary missions--
mine countermeasures, antisubmarine warfare, and surface warfare
[Footnote 3] concentrating on countering small surface boat attacks.
Each LCS ship will carry only one package at any given time. Further,
since the cost to operate and support a weapon system traditionally
accounts for over 70 percent of the total cost over a system's
lifetime, the resources needed to operate and support the LCS
seaframes and mission packages could be significant over time.
In 2005, the Navy began developing an LCS concept of operations which
broadly describes these unique approaches to personnel, training, and
maintenance and outlines the responsibilities of shore organizations
to support LCS operations. LCS differs from other Navy ships in three
key areas--personnel, training, and maintenance. First, a deployed LCS
will have a total of 78 personnel on board comprised of 40 core
crewmembers to operate the ship, 15 to operate the mission packages,
and 23 for the aviation detachment. A crew of this size is
significantly less than on other surface combatants--about 172 for a
frigate and about 254 for a destroyer. In order to increase
operational availability, the Navy intends to rotate crews about every
4 months to enable each LCS to deploy continuously for up to 18
months. Second, due to the decision to operate the ship with 40
sailors, training will be tailored to each position and include
training in skills outside the crewmember's specialty. For example, a
fire fighter specialist is also required to be trained in an
engineering skill area. Third, the crew will perform minimal
maintenance on board the ship and will rely extensively on support
from organizations ashore to perform maintenance and administrative
functions such as maintaining supply and pay records.
Considering the Navy's unique LCS concept of operations, you asked us
to review the Navy's efforts to estimate the program's operating and
support costs and to plan for how the ship will be operated and
supported considering the small crew size. For this review, we
assessed the extent to which the Navy has (1) estimated the long-term
operating and support costs for LCS seaframes and mission packages;
and (2) developed and implemented plans to operate and support the LCS
particularly in the areas of personnel, training, and maintenance.
To assess the extent to which the Navy estimated the long-term
operating and support costs for LCS seaframes and mission packages, we
reviewed documentation of seaframe and mission package cost estimates
prepared by the Naval Sea Systems Command. We compared the estimates
to cost estimating best practices identified by the Office of the
Secretary of Defense's Office of the Director of Cost Assessment and
Program Evaluation (CAPE)[Footnote 4] as well as in our GAO Cost
Estimating and Assessment Guide.[Footnote 5] To assess the extent to
which the Navy analyzed the force structure requirements underlying
the planned purchase quantities of LCS seaframes and mission packages,
we reviewed force structure analysis documents and met with officials
of the Assessments and Surface Warfare divisions of the Office of the
Chief of Naval Operations. Although, as discussed later in this
report, the Navy's estimates did not fully reflect best practices,
they were based on a cost estimating process we deemed sufficient for
reporting the results of our analysis of the Navy's operating and
support cost estimates.
To assess the extent to which the Navy has developed and implemented
plans to operate and support LCS, particularly in the areas of
personnel, training, and maintenance, we reviewed and analyzed the
Department of Defense (DOD) and Navy guidance and reviewed key studies
and planning documents including the LCS Wholeness Concept of
Operations.[Footnote 6] We also reviewed prior GAO products and DOD
guidance on risk management to assess the extent that Navy plans
included assessments of program risk. To estimate long term LCS
personnel requirements, we analyzed Navy documentation and validated
the results with appropriate Navy officials. To compare LCS training
days to training days for other surface ships, we first identified a
non-probability sample of LCS positions from both seaframes based on
criteria for which positions required a wide variety of training or,
based on Navy information, might be hard to fill. Then we compared the
required training days for these LCS positions with comparable
positions on two other surface ships. We validated the data and
results with appropriate Navy officials. On the basis of the work
described above, we concluded that the data had no limitations and
were sufficiently reliable for our purposes.
We conducted this performance audit from October 2008 to February 2010
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.
Results in Brief:
The Navy has estimated operating and support costs for LCS seaframes
and mission packages, but the estimates do not fully reflect DOD and
GAO best practices for cost estimating and may change due to program
uncertainties. Our analysis of the Navy's 2009 estimates showed that
the operating and support costs for the planned seaframes and mission
packages could total $84.8 billion through about 2050[Footnote 7].
However, although the Navy demonstrated some aspects of a high-quality
cost-estimating process, we found that it did not follow some key cost-
estimating best practices, including analyzing the likelihood that the
costs could be greater than estimated, fully assessing how the
estimate may change as key assumptions change, and requesting an
independent estimate and comparing it to the program estimate.
Typically, an independent estimate is prepared for a program's second
milestone decision point, referred to as Milestone [Footnote 8]B, when
lead and initial follow-on ships are normally approved. However, the
Navy has not yet passed this milestone decision point or included
operating and support costs in its annual reports to Congress on LCS.
In addition, the Navy's LCS operating and support cost estimates may
change due to program uncertainties such as changes to the operational
concepts, or completing and updating analyses of the required
quantities of seaframes and mission packages. Specifically, Navy
officials said that they had not analyzed the quantities required for
one of the mission packages or updated the quantities required for
another package after the contents changed. Also, any changes in key
assumptions, such as homeporting or crewing, could change the seaframe
quantities required, which in turn could affect estimates of the
program's total operating and support costs. Considering that
operating and support costs are typically about 70 percent of a
program's total costs, the information available to decision makers is
limited without an estimate of the long-term operating and support
costs that fully reflects best practices and without reporting these
costs to DOD and Congress. However, such a complete cost estimate
could enhance decision makers' ability to make fully informed trade-
off and investment decisions. For example, decision makers could
benefit from an analysis of the long-term operating and support costs
of each seaframe before deciding which one to buy for the remainder of
the program. Also, decision makers could benefit from an analysis of
the costs of options for what to do with the two ships of the design
that is not selected. In addition, the absence of an independent cost
estimate and analyses of how operating and support costs could
increase over time limits the ability of decision makers to assess the
affordability of LCS within the broader portfolio of Navy and DOD
programs and to identify the resources that will be needed over the
long term to support the planned investment in the LCS force
structure. Further, information available to decision makers could be
enhanced by basing estimates of the program's total operating and
support costs on complete and current analyses of seaframe and mission
package quantities. To enhance decision making, we are recommending
that DOD develop, and annually update, an estimate of the LCS
program's long-term operating and support costs that fully reflects
best practices and use this estimate to make key program decisions
such as which seaframe to buy, to annually report the estimated costs
to Congress, and to update force structure analyses. DOD agreed to
annually report the estimated costs to Congress and to update force
structure analyses. Although DOD stated that the Navy will prepare
updated costs estimates, one for each seaframe, DOD stated that, since
the Navy has not released the solicitation for the fiscal year 2010-
2014 purchase of LCS, it is premature to discuss the criteria for
selecting one seaframe design. Since operating and support costs
constitute over 70 percent of a system's life-cycle costs, we continue
to believe that decision makers should consider long-term operating
and support costs when deciding which of the two seaframes to buy for
the remainder of the program.
The Navy has made progress, but faces risks in planning to operate and
support LCS, particularly in implementing its new concepts for
personnel, training, and maintenance. Although the Navy is conducting
studies to determine personnel requirements for LCS, it has not fully
identified these requirements for the ship and shore support and faces
risks in its ability to identify and assign personnel over the long
term. The Navy also faces risks in implementing its concept to achieve
the extensive LCS training required as well as implementing its
maintenance concept. The Navy acknowledges that there are risks in
implementing its new LCS operational concepts and has established some
groups that focus on the details of how to implement the concepts.
However, these groups have not performed a risk assessment as outlined
in the 2008 National Defense Strategy.[Footnote 9] The Strategy
describes the need to assess and mitigate risk including risks
relating to the department's capacity to execute future missions and
manage personnel, training, and maintenance. If the Navy cannot
implement its concepts as envisioned, the Navy may face operational
limitations, may have to reengineer its operational concepts, or may
have to alter the ship design after committing to building almost half
the class. In contrast, having a thorough risk assessment of the new
operational approaches to personnel, training, and maintenance would
provide decision makers with information to link the effectiveness of
these new operational concepts with decisions on program investment,
specifically the pace of procurement. To improve decision making, we
are recommending that the Navy conduct a risk assessment and consider
the results before committing to buy LCS ships in order to link
procurement with evidence that the Navy is progressing in its ability
to implement its new operational concepts. DOD partially agreed with
our recommendation stating that it agrees such risk assessments are
appropriate and should be conducted. However, DOD also stated that the
acquisition strategy has changed from annual procurements to buying
LCS ships in fiscal years 2010, 2012, and 2015 and proposed reviewing
the risk assessments at these intervals. We believe that DOD's
proposal meets the intent of our recommendation but emphasize that,
given the new acquisition approach, it is even more important to
conduct the risk assessment and consider the results before making
procurement decisions since the department will be committing to
several ships in each of the years cited and there will be a gap of
several years between each procurement decision. A more detailed
discussion of DOD's comments and our responses to these comments
follow the Recommendations for Executive Action section of this report.
Background:
Program Description:
The LCS is being developed to assure access to the littorals that are
threatened from mines, submarines, and surface forces. The LCS program
consists of two distinct parts, the ship itself--called a seaframe--
and the mission package it carries and deploys to provide combat
capability. In addition to the capabilities associated with the
mission packages, the LCS may be expected to perform inherent
capabilities such as homeland defense, search and rescue, or
humanitarian assistance. The Navy is using two contractors to build
differently designed seaframes. As of December 2009, the Navy had
bought two ships of each design, of which the first ship of each
design has been delivered. The Navy plans to select one design in
fiscal year 2010 for the remainder of the class. Figure 1 shows each
of the seaframes.
Figure 1: Two Littoral Combat Ship Seaframes:
[Refer to PDF for image: two photographs]
USS Freedom (LCS 1):
USS Independence (LCS 2):
Source: The Navy.
[End of figure]
By the end of fiscal year 2015, the Navy plans to have bought up to 23
of the planned 55 ships. These ships represent a significant
investment in the LCS program not only for procurement but also for
long-term operating and support costs. A weapon system's life-cycle
costs include research and development, procurement, military
construction, operations and support,[Footnote 10] and disposal. Since
operating and support costs are historically the largest portion (over
70 percent) of a weapon system's lifetime costs, these costs were the
focus of our analysis of the Navy's LCS cost estimates.
The LCS seaframe's combat capability will be provided by one of three
interchangeable mission packages. Each mission package will also
include an aviation detachment of manned helicopters and unmanned
aerial vehicles. Currently the Navy plans to buy 64 mission packages
for three mission areas--24 for mine countermeasures, 16 for
antisubmarine warfare, and 24 for surface warfare. The surface warfare
mission package also includes a module for maritime security,
primarily to provide capability for boarding other ships. The Navy has
not yet decided how many maritime security modules it will buy.
[Footnote 11] Table 1 below describes the basic mission of each
mission package.
Table 1: Description and Quantity of LCS Mission Packages:
Mission package: Mine Countermeasures;
Planned quantity: 24;
Package mission: Detect and neutralize mines.
Mission package: Anti-submarine Warfare;
Planned quantity: 16;
Package mission: Detect submarines and protect forces in transit.
Mission package: Surface Warfare;
Planned quantity: 24;
Package mission: Detect, track and engage small boat threats.
Source: GAO analysis of Navy information.
[End of table]
The Navy plans to incrementally add capability to these packages over
time, and, according to Navy officials, may develop additional mission
packages as needed.
Rotational Crewing for LCS:
The Navy intends to rotationally crew LCS to enable each seaframe to
remain deployed for up to 18 months. The Navy plans to have four crews
for every three ships with one of the three ships being deployed at
any one time. Since the LCS crew is smaller than the crews on many
other surface ships, the Navy plans to rotate the core crews after
about 4 months (117 days) to help reduce crew fatigue. During the 2-
week turnover period, the crews and contractors will perform
preventive and corrective maintenance and resupply the ship. Navy
officials stated that one benefit to having more crews than ships is
that the Navy is able to quickly replace a deployed crew member who
becomes sick or injured with a comparably trained sailor. The primary
benefit of rotational crewing will be the ability to maintain a
deployed seaframe for up to 18 months continuously while allowing the
crews to relieve one another and return to their homeport without
undue hardship. The seaframes would be rotated every 18 months with a
30-day overlap period.
Navy Organizations Are Intended to Monitor Development of and Resolve
Implementation Issues with the LCS Concept of Operations:
Given the challenges in implementing new concepts for personnel,
training, and maintenance, the Navy established several groups to
identify and resolve challenges it faces. These groups include an
Oversight Board, a Council of Captains, and two cross-functional
teams. These groups are comprised of members from across the Navy and,
collectively, these groups identify and review issues and barriers to
implementing the LCS concepts articulated in the Wholeness Concept of
Operations and work together to jointly develop solutions.
* Oversight Board: The board is chaired by the Commander Naval Surface
Forces and the membership includes executive-level representatives
from program executive offices, program sponsors, and other major
stakeholders from across the Navy. The board is supported by a senior
executive-level working group called the Council of Captains. The
board meets quarterly to consider key issues that require high-level
decisions. For example, issues discussed this past year included the
need to support development of distance support capabilities, and the
need to fund aviation crews for the detachments that will support LCS
operations.
* Cross functional teams: Two cross functional teams support the
Oversight Board--one focused on manning and training issues and the
other focused on maintenance and logistics issues. For example, the
manning and training team is working on issues such as upgrading the
shore-based trainers and the need to determine the appropriate level
of shore support personnel. Also, the maintenance and logistics team
has raised issues, such as remotely monitoring the condition of ship
systems and funding for distance support development.
In addition, the LCS Program Office, an office within the Naval Sea
Systems Command, chairs the Risk Management Board. The board's work is
predominately contained within the LCS Program Office and focuses on
identifying, measuring, and mitigating technical, schedule, and cost
risks. Navy officials stated that the board differs from the other
groups in that the risks it manages are almost exclusively focused on
development and production--issues within the program office's
control. The few operationally related risks that the board has
identified to date include: personnel operating the launch and
recovery equipment, personnel transporting supplies on board,
potential for increased crew fatigue caused by the ship's motion, and
crew training. According to Navy officials, the mitigation for the
training issues is the ongoing study to develop a long-term LCS
training plan and the mitigation for the personnel issues is to
observe and learn from the ongoing test and trials period and initial
deployments and then make adjustments, if needed.
The Navy's Operating and Support Cost Estimates Do Not Fully Reflect
Best Practices and May Change Due to Program Uncertainties:
The Navy Estimated Operating and Support Costs for the LCS Program:
The Navy has estimated operating and support costs that include most
elements of the LCS program.[Footnote 12] Our analysis of the Navy's
2009 estimates showed that the operating and support costs for the
planned seaframes and mission packages could total $84.8 billion which
amounts to about $61.7 million per seaframe annually to operate and
support both the seaframes and mission packages.[Footnote 13]
For the seaframes, the Navy's 2009 estimate of operating and support
costs projected a total of $64.1 billion based on a 25-year service
life.[Footnote 14] According to Navy officials, this estimate assumed
a nearly even split of the two seaframe types as the seaframes have
different operating and support cost profiles. However, the Navy has
announced that it will choose one of the two seaframe designs in 2010
so the associated operating and support costs will likely change
depending on the design selected.
For the mission packages, operating and support costs could total
$20.8 billion. The Navy provided us with its estimate of the average
annual operating and support costs of each mission package. Therefore,
to calculate the total operating and support costs, we multiplied the
average annual estimates by the number of packages of each type with
an expected 30-year service life. The Navy's most recent estimates
were prepared to support the fiscal year 2010 budget but did not
include the antisubmarine package since its contents are under
development; therefore, we used the prior year's estimate to calculate
the operating and support costs for this mission package.
Operating and Support Cost Estimates Do Not Fully Reflect Best
Practices:
Although the Navy has estimated operating and support costs, we found
that the Navy had not fully implemented cost estimating best
practices. According to DOD and GAO best practices for cost
estimating,[Footnote 15] a credible cost estimate should include the
following three steps:
* analyze the likelihood that the costs could be greater than
estimated,
* assess how the cost estimate may change in response to changes in
key program assumptions, and:
* compare the estimate to an independently developed estimate.
The Navy's estimates showed some aspects of a high-quality cost
estimating process. For example, the estimates included most cost
categories recommended by DOD's cost estimating best practices--such
as personnel, maintenance, and sustaining support--and documented
ground rules and assumptions, methodologies, and data sources.
However, our assessment of the Navy's operating and support cost
estimates showed that the Navy did not take two of the three steps
listed above to ensure the estimates' credibility, and only partially
completed the other step.
First, the Navy did not perform an analysis to assess the likelihood
that the operating and support costs for either the seaframe or
mission packages could be greater than estimated. This analysis, known
as a risk analysis, estimates the likelihood that operating and
support costs could rise beyond what was projected and the degree of
the possible increase. We reported in 2009 that out of 10 of DOD's
largest acquisition programs, 5 had increased overall acquisition
costs from their first full cost estimate.[Footnote 16] Of those that
didn't, three programs sharply reduced procurement quantities, and
unit costs increased for all but one of the systems. According to best
practices, a credible cost estimate should include a risk analysis
that shows the range of possible costs and the likelihood that costs
could increase to particular levels. The results of a risk analysis
are usually shown in a cumulative probability distribution or "S-
curve." Figure 2 below shows a notional example of an S-curve.
Figure 2: Notional Example of Risk Analysis Results Displayed in an S-
curve Showing the Range and Likelihood of Possible Cost Increases:
[Refer to PDF for image: line graph]
The graph depicts an S-curve the is a result of increasing costs
combined with increasing probability of occurrence. Specifically
depicted are points of 50 percent probability and 85 percent
probability.
Source: GAO analysis.
[End of figure]
This notional example shows that the higher the cost estimate, the
greater the probability that actual costs will not exceed the
estimate. Navy guidance indicates that the confidence level of a
program's cost estimate should be above 85 percent to merit a "green"
or low-risk designation and that a confidence level of less than 60
percent merits a "red" or high-risk designation.[Footnote 17] The
Weapon Systems Acquisition Reform Act of 2009 requires that the
confidence level--usually developed based on an analysis of the
likelihood that costs will be greater than estimated--for cost
estimates be disclosed and, if less than 80 percent, justified.
[Footnote 18] Navy cost estimating officials told us that they have
not yet decided what confidence level they will use for the operating
and support cost estimate prepared for the next milestone decision
point. Since the Navy has not performed this risk analysis, neither
the Navy nor DOD decision makers have a full picture of the range of
possible operating and support costs and the likelihood of costs
increasing beyond the estimates discussed above.
Second, according to DOD and GAO best practices, a credible cost
estimate should include an assessment of how the cost estimate may
change in response to changes in key program assumptions. This is
known as a sensitivity analysis of cost drivers. Such an analysis
helps decision makers identify areas that could significantly affect a
program's cost, choose between program alternatives, and mitigate
risks. Cost drivers could include operational plans and assumptions
such as crew size, maintenance plans, or the system's expected useful
life. The Navy has identified several cost drivers for the LCS
program, including fuel, manning, maintenance, and infrastructure.
However, to date the Navy has only completed analysis of one of these
cost drivers--fuel--and, officials said, is conducting analyses of
other areas such as manning and maintenance. Without a more complete
identification and analysis of key cost drivers, the Navy may not have
a complete picture of how changes in program operations or assumptions
could affect operating and support costs.
Third, according to DOD and GAO best practices, a credible cost
estimate should be developed and compared to an independently
developed cost estimate. DOD and Navy guidance require that an
independent life-cycle cost estimate, including an estimate of
operating and support costs, be completed for a shipbuilding program
at the program's Milestone B decision point, when lead and initial
follow-on ships are normally approved, and at the Navy's internal
review, referred to as Gate 4,[Footnote 19] which occurs just before
Milestone B. As the LCS program has not gone through Milestone B, no
independent life-cycle cost estimate has been performed for the LCS
program. Specifically, neither the Naval Center for Cost Analysis nor
the Office of the Secretary of Defense's Office of the Director of
Cost Assessment and Program Evaluation (CAPE) has developed an
independent estimate of LCS operating and support costs according to
Navy and CAPE officials. Independent cost estimates are one of the
best and most reliable methods of validating a cost estimate. Past
experience has shown that an independent estimate, prepared by an
entity separate from those connected to the program, tends to be
higher and more accurate than estimates developed by a system's
program office. In a previous review of DOD acquisition programs, we
found that 19 of 20 independent estimates developed by CAPE were
higher than the service estimate. Even so, some of the CAPE's
estimates understated actual program costs.[Footnote 20]
In addition, two other important elements of a cost estimate were
omitted from the documentation the Navy provided to us on the mission
package operating and support costs prepared in July 2009. First, Navy
officials told us that they had not updated and therefore did not
include the estimate for the antisubmarine package because the
contents are under development.[Footnote 21] However, the Navy plans
to buy 16 of these packages. According to DOD and GAO best practices,
cost estimates should be complete and account for all possible costs.
Further, the Navy did not show total lifetime operating and support
costs or costs expected in each year of the program--instead, the Navy
only showed average annual mission package operating and support
costs. Showing cost estimates for each year of the program, known as
time phasing, is also a best practice and necessary for use in the
formulation of and comparison with actual program budgets.
Operating and Support Cost Estimates Are Likely to Change Due to
Program Uncertainties:
The Navy has not yet decided which one of the two LCS seaframes it
will buy for the remainder of the program, leading to uncertainty
about the effects of this program decision on the operating and
support cost estimates developed to date. Also, the Navy has not yet
decided what it will do over the long term with the two ships of the
design that is not chosen. The Navy currently plans to deploy these
two ships as they become available, according to Navy officials. Since
the two designs will require separate training facilities and core
crew, and since each design has unique equipment and therefore
different maintenance requirements, continuing to support both designs
may carry a cost premium. Likewise, deciding which one of the two LCS
seaframes to buy is likely to, in turn, affect decisions on issues
such as infrastructure and training requirements, with accompanying
cost implications.
The Navy's force structure analyses supporting the planned purchase
quantities of mission packages are incomplete, adding to uncertainty
about costs in future budget years. Our prior work has shown that a
knowledge-based decision-making process can help provide a
comprehensive analytic basis for an acquisition program, including
determining the optimum quantities of LCS seaframes and mission
packages.[Footnote 22] This information in turn can help decision
makers evaluate the affordability of the LCS program and establish
funding priorities. Navy officials from two divisions within the
Office of the Chief of Naval Operations--the Surface Warfare Division
and the Assessments Division--said they were unaware of any analysis
supporting the total planned quantities for either the surface warfare
package or its maritime security module. Also, Navy officials said
that the Navy has not performed a force structure analysis on the
antisubmarine package because the contents are under development. The
Navy has not performed a complete analysis of LCS seaframe and mission
package quantities because certain information needed for the analyses
was not yet available, including decisions on potential changes to
program operating assumptions and requirements. Further, an analysis
of LCS seaframe and mission package quantities is not included in the
Assessments Division's fiscal year 2010 agenda.
The planned force structure of 55 LCS seaframes is based on a 2005
analysis of requirements for responding to possible overseas conflicts
and meeting overseas presence requirements, which officials said they
revalidated in 2007 and 2008. However, this analysis is based, in
part, on certain assumptions that are not yet verified. For example,
one assumption is that rotational crewing plans will work as expected,
allowing a greater presence per ship than the traditional one crew per
ship. However, rotational crewing has never been routinely conducted
by the Navy for an entire class of surface combatants. If the Navy
switches to a different crewing model, a different number of ships
could be required to sustain the same presence, or alternatively, a
different number of crews could be required. The expected purchase of
55 seaframes is also based on an assumption that some ships would be
homeported overseas, according to Navy officials. If the assumed
number homeported overseas changes, then the number of LCS needed to
maintain the same presence requirements could also change. If these
assumptions change due to program decisions or operating experience,
the total number of LCS seaframes needed to meet requirements may
change. It may be important for Navy and DOD decision makers to have
updated and complete force structure analyses for the LCS program
since any changes to the planned purchase quantities as a result of
updated force structure analyses would affect the program's total
operating and support costs. Without such analyses, decision-makers
may not be able to effectively evaluate the affordability of the
program.
Finally, the LCS cost estimates could change as actual operating data
become available and operational concepts are refined. Since little
actual LCS operating and support data are available to date, the
estimates are currently based on data from other systems, and the
estimates could change as actual cost data become available. The cost
estimates are also based on new operational concepts for personnel,
training, and maintenance. These new concepts are not fully developed,
tested, and implemented, and, if these concepts change, the estimates
could change. For example, the Navy has not yet fully developed or
implemented a comprehensive training plan, and it is possible that the
plan could cost more or less than the training costs accounted for in
the current estimates.
Upcoming Program Decisions Would Benefit from Further Analysis of Long-
Term Operating and Support Costs:
Decision makers could benefit from further analysis of the program's
long-term operating and support costs before making key program and
investment decisions. Since operating and support costs constitute a
major portion of system life-cycle costs--over 70 percent--they are
critical to the evaluation of acquisition alternatives. Navy officials
told us that they are developing criteria for selecting one seaframe
for the remainder of the program; however, at this time it is not
clear that the criteria will include a comparison of the operating and
support costs of each seaframe or whether the estimates will be
developed according to all three steps for ensuring credibility and
the results presented to decision makers in the Navy and DOD.
According to DOD and GAO best practices for cost estimating, decision
makers should consider affordability at major decision points, and a
comparative analysis should be done to identify costs and benefits of
competing alternatives, including an operating and support estimate of
each alternative.[Footnote 23] The lack of cost estimates that fully
meet best practices, such as including an analysis to assess the
likelihood that costs will be greater than estimated, raises questions
about the credibility of the estimates that have been produced to date
and limits the ability of decision makers to make fully informed
program and investment decisions, such as:
* accurately assessing the affordability of LCS within the broader
portfolio of Navy and DOD programs,
* identifying the resources needed over the long term to support the
planned investment in the LCS force structure,
* assessing the long-term cost implications of alternative acquisition
strategies such as which seaframe the Navy will buy for the remainder
of the 55-ship class, and:
* analyzing the costs of options for what to do with the two seaframes
of the design that is not selected.
According to DOD acquisition guidance, at the Milestone B decision
point lead and initial follow-on ships are normally approved and an
independent life-cycle cost estimate for the program, including
operating and support costs, is required.[Footnote 24] The Milestone B
decision point for the LCS program has been delayed several times.
Originally scheduled for January 2007, Navy officials now say they
plan to hold the milestone in May or June 2010.
According to Naval Sea Systems Command officials, the Navy plans to
develop a life-cycle cost estimate including operating and support
costs and have an independent cost estimate prepared by CAPE to
support the program's Milestone B decision in May or June 2010. Navy
officials told us they plan to complete the other two steps for a
credible estimate--analyzing the likelihood that costs will increase
over time, and fully assessing the effects of changing key program
assumptions--at Milestone B. However, Navy officials said that this
information may not be presented to top decision makers in the Navy
and DOD, and therefore may not inform key program decisions such as
the decision of which seaframe to buy for the remainder of the
program. Further, congressional decision makers may not be fully aware
of the LCS program's operating and support costs since, to date, the
LCS Selected Acquisition Reports submitted to Congress have not
included operating and support cost estimates.[Footnote 25] Operating
and support costs are required to be included in such reports for
programs that have passed Milestone B[Footnote 26] and, as previously
noted, the LCS program has not yet passed that point. Without the
benefit of current, credible estimates of the long-term operating and
support costs, congressional decision makers may not be fully aware of
the resources that will be needed over time to support the ships for
which DOD requests funds to buy each year.
The Navy Has Made Progress but Faces Risks in Implementing Its Plans
to Operate and Support LCS:
The Navy Faces Risks in Implementing Its Personnel Plans over the Long
Term:
Although the Navy is conducting studies to determine personnel
requirements for LCS, it has not fully identified the number of ship
and shore support personnel required to support LCS over the long term
and faces risks in its ability to identify and assign personnel over
the long term. Additionally, the Navy has not routinely rotationally
crewed an entire class of surface combatants; therefore, the concept
being planned for the LCS class is unproven. Although the Navy
rotationally crews some small ships, such as the mine countermeasure
ships, the Navy has only experimented with rotationally crewing
surface combatants such as destroyers and only did so for a short
time.[Footnote 27]
The current Navy plan for a 40-person core crew has not yet been
validated by an analysis of the crew's expected workload. Early Navy
estimates indicated that the core crew might need to be more than 40
to mitigate a concern that a crew this small could experience fatigue.
For example, one study raised the issue that crew fatigue could affect
missions which could be mitigated by temporarily augmenting the crew
or modifying how missions are conducted. The 40-person core crew size
was based upon the results of a 2005 conference to explore options for
reducing the size of the core crew, which was not the typical workload
analysis. The Navy's Manpower Analysis Center typically conducts
analyses of a ship's workload to determine the number and type of
personnel required to complete all operational and maintenance tasks.
However, this analysis for the LCS core crew and the three mission
packages is not scheduled to be complete until after the first full
deployment, around fiscal year 2014.[Footnote 28]
The Navy's initial analysis to identify shore personnel requirements
is due by the end of 2009; however, the full requirements for shore
personnel may not be known for several years. Due to the limited crew
size, many administrative and maintenance duties will have to be
performed ashore rather than on board as on other surface ships and
will be managed by LCS squadrons. [Footnote 29] Navy officials
estimated that the number of people needed in a squadron organization
to manage and support 12 to 15 LCSs might be about 170. The LCS
squadrons are likely to be larger than squadrons for other surface
ships since their responsibilities for the level of shore-based
support required for the small core crew will be greater. However,
Navy officials said that they will not know how large the LCS
squadrons should be until they have experience with supporting
deployed ships. In addition, the shore support personnel required will
be affected by outstanding decisions, such as where to homeport the
ships and the long-term maintenance strategy. Since the Navy has not
yet completed its studies to identify the LCS personnel requirement,
we compiled Navy estimates of the personnel that may be required to
support LCS over the long term. Specifically, we added Navy estimates
of the personnel that may be required for the ship crews, mission
package crews, and the LCS squadrons to derive a total number of
personnel that may be required for the program. Table 2 below shows
that the total personnel required for the LCS program over the long
term might be approximately 4,600 people.
Table 2: Estimate of the Total Navy Personnel Required for a Fleet of
55 LCS Ships:
Ship crews:
Estimate of Navy personnel required[A]: 2,880.
Mission package crews[B]:
Estimate of Navy personnel required[A]: 888[C].
LCS squadrons (ashore):
Estimate of Navy personnel required[A]: 680 to 850.
Total personnel required:
Estimate of Navy personnel required[A]: 4,448 to 4,618.
Source: GAO compilation of Navy data.
[A] The personnel estimate is for Navy personnel only and does not
include contractor personnel who are currently performing most
maintenance.
[B] The total number of personnel for mission package crews includes
personnel for three types of mission packages--mine countermeasures,
antisubmarine warfare, and surface warfare. Currently, additional
personnel are required to support maritime security operations. The
Navy is reviewing options for providing personnel using existing
personnel. However if additional personnel are required for each
maritime security module, the additional personnel could total up to
432.
[C] Navy officials stated that there is a proposal to reduce the
number of mission package crews for antisubmarine warfare, mine
countermeasures, and surface warfare. If approved, the total number of
personnel for mission package crews could decrease to 465. Also, if
the Navy decides to use personnel from the other warfare packages, the
total number of personnel for mission packages could also decrease.
[End of table]
The above estimate of the total personnel required does not include
aviation crews, which could total an additional 1,656 people. We did
not include aviation crew personnel in the table because these crews
are not totally dedicated to LCS and may be tasked to support other
ship types, according to Navy officials. The Navy has the core and
mission package crews in its personnel plans, but to date has not
funded all the aviation crews. According to Navy officials, if the
aviation crews are not funded in the Navy's fiscal year 2012 budget,
then the Navy may begin to experience shortfalls in aviation crews
beginning in fiscal year 2014.
The Navy also faces risks in its ability to identify and assign
personnel to LCS over the long term due to the requirement for
relatively senior, highly trained personnel. Specifically:
* LCS sailors must be experienced sailors and positions must be filled
by a person of the exact pay grade required, which could limit the
pool of personnel available. Sailors must also commit to serving on an
LCS crew for 36 months after completing their LCS training.
Considering the concept for rotational crewing, a sailor might serve
two or three 4-month deployments during their 36-month LCS tour for a
total of 8 to 12 months of LCS deployment time.
* The number of requirements that potential sailors must meet in order
to qualify for an LCS assignment is rigorous. For example, potential
LCS sailors must meet current physical fitness standards as well as
have passed the previous 18 months of physical fitness assessments. In
contrast, sailors are considered qualified for assignment on other
surface ships if they passed the most recent physical fitness test.
Also, sailors will not be considered for assignment to LCS if they are
color blind or have a pending application for the officer
commissioning program.
* Due to the longer training time required to prepare LCS sailors, the
Navy's Personnel Command must identify personnel 18 to 24 months prior
to when they need them to report to the LCS crew. For other surface
ships, the Personnel Command needs to identify personnel only 5 to 9
months ahead of time. Personnel Command officials stated that they
must manually identify the personnel for LCS since the computer system
normally used to identify personnel can only identify personnel up
to12 months in advance. Due to the increased workload resulting from
the manual process, the Navy Personnel Command has set up a separate
office specifically to handle LCS personnel assignments and added
eight positions. Officials stated that they will likely need more
personnel as more ships and mission packages enter service. Since the
average annual turnover rate is about one-third, according to Navy
officials, the Personnel Command will have to manually identify a
significant number of replacement sailors each year to support the LCS
program.
The Navy Faces Risks in Achieving the Extensive LCS Training
Requirements:
The Navy has made progress in identifying LCS-unique training
requirements, but faces risks in implementing its training concept.
According to the Navy's concept for LCS,[Footnote 30] sailors must be
ready to perform their duties when they arrive on board without
additional supervised, on-the-job training that is typical of other
surface ships. The Navy calls this the "train to qualify" standard. In
contrast, it is typical on other ships for a sailor to complete his or
her training on board via supervised, on-the-job training. According
to Navy officials, it may take about 6 months of onboard on-the-job
training for a sailor on other surface ships to reach the same level
of proficiency as that described in the concept for LCS sailors. The
Navy's approach to LCS training is different than for other surface
ships since the small LCS crew size means that there is little
capacity on board for supervised training and no training group on
board the ship as is typical of other surface ships. LCS sailors will
also be required to be trained in several skill areas outside their
primary specialty. For example, an LCS Damage Control Assistant will
also have to train in an engineering skill area and an Electronics
Technician will also have to train in a Fire Controlman skill area. In
addition, LCS sailors will be expected to perform various collateral
duties, such as serving as the crew's barber and running the ship's
store.
The Navy expects to complete a study of LCS training by the end of
2009 but may not fully implement the results for several years. The
Navy began this study to fully identify LCS training requirements and
to recommend alternatives for providing training over the life of the
LCS program. This is a complex process since training requirements for
the core crew are unique for each position on the two seaframes.
Although the Navy has identified LCS-specific training requirements
for both seaframes and the three mission packages, the Navy has not
yet completed plans for how to provide this training over the long
term. Further, the training plan resulting from the Navy's LCS
training study may not be fully implemented until about 2013 or after,
largely due to the need to develop and buy simulators and virtual
training facilities. Depending on homeporting decisions, the Navy may
need to build comparable simulators on the east coast as well as the
west coast. Although the Navy has built one shore-based trainer for
each seaframe, the trainers will need to be upgraded in accordance
with the training study results and to meet the train-to-qualify
standard. Until the results of the training analysis are implemented,
the Navy has developed an interim solution, called the LCS Academy, to
provide LCS-specific training and fill training gaps.
Another reason the training required prior to the sailor coming on
board the LCS is longer and more extensive than for other surface
ships is that the training requirements include courses outside of the
sailor's primary specialty. To assess the training requirements for
LCS versus other surface ships, we compared the training days required
before a sailor reports to an LCS crew to the training days required
before a sailor reports to other types of surface ships.[Footnote 31]
Our analysis of a sample of LCS positions showed that the number of
training days required before an LCS sailor reports to the crew is
significantly longer than for sailors in comparable positions on other
ships--an average of 484 days versus 126 days for an amphibious
transport docking ship and 103 days for a destroyer.[Footnote 32] The
lowest number of training days required for an LCS position in our
sample was 264 and the highest was 832. Figure 3 below shows the
average number of training days for the positions in our sample on a
typical destroyer, amphibious transport docking ship, and the LCS.
Figure 3: Comparison of Average Training Days Required before
Reporting on Board for LCS with Two Other Surface Ships for a Sample
of Positions:
[Refer to PDF for image: horizontal bar graph]
Training periods: Average training days
LCS: 484
Destroyer: 103
Amphibious Transport Dock Ship: 126.
Source: GAO analysis of Navy data.
[End of figure]
As noted above, a sailor on ships other than LCS may spend an
additional 6 months completing training on board via supervised, on-
the-job training. Therefore, even accounting for this time, the LCS
training time required is significantly higher. Implementing the LCS
concept of train-to-qualify has two important effects. First, the
costs to train sailors before they report to an LCS crew are likely to
be significantly higher than for other surface ships due to the longer
training time required before the sailors report to a crew and due to
the costs to build and sustain the shore-based training facilities.
Second, the longer training time before reporting to a crew is the
major reason that the Personnel Command has to identify people 18 to
24 months before they report to an LCS crew, which Navy documents have
indicated may be unsustainable using the current personnel
distribution system.
The Navy Faces Risks in Implementing Its Maintenance Concept:
The Navy also faces risks in implementing the maintenance concept
being developed to allow for a small assigned crew. Performing
preventive maintenance is an important factor in maintaining the
material condition of the ship. According to the Navy's Board of
Inspection and Survey, deferred maintenance was a key factor in some
surface ships having significant material problems identified during
recent inspections.[Footnote 33] The risks for LCS are in preventive
maintenance--periodic tasks to keep equipment in good condition--and
distance support--moving work from the ship to the shore. Regarding
preventive maintenance, the Navy is still assessing how much
preventive maintenance the core crew can accomplish. Due to the small
core crew size, a significant amount of maintenance has to be moved
off ship. The initial analysis was that 20 to 30 man-years of
preventive maintenance would have to be moved off of the ship.
According to the Navy's LCS concept, the core crew is expected to do
little or no corrective maintenance and minimal preventive and
facilities maintenance.[Footnote 34] The rest would be done during in-
port periods--by the crew or contractors--or by teams that fly out to
the ship to perform maintenance during crew turnover periods. As of
October 2009, Navy officials stated that well over 50 percent of the
preventive maintenance had been transferred from the ship to the shore
and is being accomplished by contractors under the interim support
plan agreement. In contrast, on other surface ships, the crew performs
all preventive maintenance and much corrective maintenance that
involves diagnosing problems and completing somewhat complex repairs.
During fiscal year 2009, the Navy spent $6.0 million on the interim
support plan for seaframe preventive and facilities maintenance. The
Navy is also still working to resolve issues in the system developed
for LCS to schedule and track accomplishment of preventive maintenance.
The Navy also faces risks in implementing its plans for distance
support. Distance support is a key enabler for supporting LCS and
requires the capability to move information to and from the ship.
Although other ships in the Navy rely to some extent on distance
support, Navy officials stated that distance support is critical to
enabling LCS to operate as envisioned in the operational concept due
to the small crew size. According to the concept, many administrative
functions are also planned to be moved ashore such as postal,
administrative records, logistic support, and maintenance and fuel
records. Commander, Naval Surface Forces established LCS distance
support requirements in April 2009, which included developing the
capability to move the workload for 120 processes from the ship to the
shore. Navy officials stated that they are still evaluating what work
to move ashore and how to do so. The processes identified to date
include identifying corrective maintenance, monitoring crew
qualifications, fuel reporting, and remote monitoring of the condition
of some ship systems. However, the Navy has not yet provided funding
for the development, implementation, and long-term sustainment of
these distance support capabilities. If these capabilities are not
fully developed and maintained, then the crew's workload could
increase or the crew size might need to be increased.
In addition, the Navy does not yet have a long-term maintenance
strategy for the LCS seaframes and mission packages. Currently, the
Navy has interim support plans for both the seaframes and mission
packages that include contractor-provided maintenance. The Navy
intends to develop and implement a long-term maintenance strategy by
about 2015 for the mission packages and by the end of 2011 for the
seaframes. The long-term strategy may continue to employ mostly
contractor-provided maintenance or could consist of a combination of
contractor-and service-provided maintenance in a Navy shipyard.
According to Navy officials, the Navy has not yet analyzed core
logistics capabilities for the LCS program but plans to do so as part
of its analysis to identify a long-term maintenance strategy. Under
section 2464 of Title 10 U.S. Code, DOD is required to maintain a
"core logistics capability" that is government owned, government
operated, and that uses government personnel, equipment, and
facilities. However, we reported in May 2009 that DOD has neither
identified nor established core capabilities in a timely manner for
certain new systems that were included in the May 2009 report.
[Footnote 35] Consequently, among other things, we recommended that
DOD require an initial core assessment early in the acquisition
process, preferably before Milestone B, and that acquisition
strategies for new or modified systems include either a plan for
establishing core capability within 4 years of initial operational
capability, or a statement that no core capability requirements were
identified.
A Risk Assessment Could Inform Key Procurement Decisions:
Despite risks in implementing its new LCS operational concepts, the
Navy has not specified the potential operational effects or identified
alternative approaches if its concepts cannot be implemented as
envisioned. The 2008 National Defense Strategy describes the need to
assess and mitigate risk in the execution of defense programs critical
to national security, including risks relating to the department's
capacity to execute future missions and manage personnel, training,
and maintenance.[Footnote 36] Our prior work also showed that a risk
assessment is a best practice that informs an organization's decision
making and includes identifying potential risks and identifying
countermeasures to reduce the risks.[Footnote 37]
The Navy acknowledges that there are risks in implementing its new LCS
operational concepts for personnel, training, and maintenance, and has
established some groups to manage the details of how to implement the
concepts, such as the cross-functional teams and the Oversight Board.
These groups identify and review issues and barriers to implementing
the LCS concepts and work together to jointly develop solutions. In
addition, the LCS program office has established a Risk Management
Board, which monitors issues primarily related to development and
production of the seaframe and mission packages and focuses on
technical, schedule, and cost risks. In general, this board does not
focus on personnel, training, and maintenance risks. Although the work
these groups perform is important, their scope does not include a
thorough risk assessment as described in DOD's Strategy and GAO best
practices. These groups are focused on how to make the operational
concepts work and, as yet, have not fully identified operational risks
and assessed alternatives to mitigate the risks if these new concepts
for personnel, training, and maintenance cannot be implemented as
intended. In the case of LCS, a thorough risk assessment could be
used, for example, to: identify the operational limitations if a 40-
person core crew experiences undue fatigue and assess alternatives to
the 40-person core crew or to identify the operational limitations if
the distance support does not work as intended and assess alternatives
for supporting a small crew. Without such a risk assessment to inform
decision makers, the Navy faces unspecified operational and program
risks at the same time that it plans to buy a total of 23 ships by the
end of fiscal year 2015. Although the LCS operational testing is
expected to provide some insights into the effectiveness of the new
operational concepts, according to Navy officials, the tests are not
scheduled to be completed until about fiscal year 2014. As shown in
figure 4 below, the Navy plans to make a significant investment in LCS
force structure before it has information indicating whether the
operational concepts are likely to be successful.
Figure 4: Timeline Comparing the Navy's LCS Procurement Plans with Key
Events Affecting Implementation of the Operational Concepts:
[Refer to PDF for image: illustration]
Cumulative number of ships bought: 1;
Calendar year: 2004;
Events: None.
Cumulative number of ships bought: 2;
Calendar year: 2005;
Events:
* Navy decides ships‘ crews should be 40 (May);
* Operational concept (first version - October).
Cumulative number of ships bought: 2;
Calendar year: 2008;
Events:
* Operational concept (updated - March).
Cumulative number of ships bought: 4;
Calendar year: 2009;
Events:
* Distance support requirements identified (April);
* Operational concept (updated September);
* Training study complete (December).
Cumulative number of ships bought: 6;
Calendar year: 2010;
Events:
* Milestone Decision Point B (May-June);
* Limited deployment of LCS 1[A].
Cumulative number of ships bought: 8;
Calendar year: 2011;
Events:
* Decide long-term maintenance strategy;
* LCS 1 ’Fleet Ready“ with Surface Warfare Package (December)[B].
Cumulative number of ships bought: 11;
Calendar year: 2012;
Events:
* LCS 2 ’Fleet Ready“ (June)[B].
Cumulative number of ships bought: 15;
Calendar year: 2013;
Events:
* Complete implementation of training study results.
Cumulative number of ships bought: 19;
Calendar year: 2014;
Events:
* Complete analysis of personnel requirements;
* Operational test events scheduled through September 2014.
Cumulative number of ships bought: 23;
Calendar year: 2015.
Source: GAO analysis of Navy data.
[A] Although Navy officials expect to gather useful information about
how to operate and support LCS during this limited deployment, the
deployment will not fully reflect how the Navy intends to deploy LCS
as described in the Wholeness Concept of Operations, according to Navy
officials. For example, the ship will not be deployed for 18 months,
may not rotate crews, and will have more than 78 people on board such
as contractors to provide additional support and assistance.
[B] "Fleet Ready" means that a specific LCS and mission package
combination has completed some testing and certification and is ready
for a deployment tasking, according to a Navy official.
[End of figure]
If the operational concepts for personnel, training, and maintenance
cannot be implemented as desired, then, according to Navy officials,
the Navy may face operational limitations, may have to reengineer its
operational concept, or may have to make significant design changes to
the ship after committing to building 23 ships which represents a
significant portion (42 percent) of the class. Further, without an
assessment identifying the operational effects and without exploring
alternatives, if the Navy's approach to personnel, training, and
maintaining LCS ships does not work as planned the Navy risks
continuing to buy ships without the assurance that its plans for
personnel, training, and maintenance can be implemented as envisioned.
In contrast, having a thorough risk assessment of the new operational
approaches to personnel, training, and maintenance would provide
decision makers with information to link the effectiveness of these
new operational concepts with decisions on program investment,
specifically the pace of procurement.
Conclusions:
Given the Navy's major investment in the LCS program, it is critical
that DOD and congressional decision makers have a complete cost
estimate that fully reflects best practices--including analyses of how
costs may increase with time and vary with changing program
assumptions, as well as comparison with an independently developed
estimate. Such estimates are needed to enable decision makers to
assess the program's affordability, including the long-term, recurring
operating and support costs, and assess the long-term operating and
support costs of all the acquisition alternatives before a decision is
made. Specifically, having complete estimates of the long-term
operating and support costs that are periodically updated and based on
results of complete and current force structure analyses could be an
important factor for decision makers to consider when weighing program
investment alternatives such as which seaframe to buy or options for
what to do with the two seaframes of the design that is not selected.
Although the Navy's operating and support cost estimates showed some
qualities of a sound estimating process, the Navy did not follow best
practices, such as requesting an independent estimate and comparing it
to the program estimate, analyzing the likelihood that costs will
increase, and analyzing the effects on the estimate of key cost
drivers. Further, the Navy's force structure analyses of the
quantities of required seaframes and mission packages are incomplete
and based on assumptions, such as how many ships may be homeported
overseas, which, if changed, could change the quantities required.
Changes in the quantities of required seaframes and mission packages
could affect estimates of the program's total operating and support
costs. Cost estimates that fully reflect best practices and are based
on complete and current force structure analyses of required
quantities could enhance the ability of decision makers to identify
the resources needed over the long term to support the seaframes and
mission packages and assess the affordability of the LCS program.
Further, decision makers in both DOD and Congress lack a complete
picture of the likely long-term operating and support costs that will
be incurred when buying an increasing number of LCS ships, hampering
their ability to make sound program and investment decisions.
At the beginning of the LCS program, the Navy stated that reducing the
number of ship personnel would be a major factor in lowering operating
and support costs. As a result, the Navy's decision to operate the LCS
with a core crew of only 40 sailors drove the need to develop new
operational concepts. Currently, these concepts are broadly stated and
the Navy has not fully developed the details to implement its vision
for identifying personnel, providing LCS-unique training over the long
term, or shifting maintenance from the ship to shore. Although the
Navy acknowledges its approach entails risk, the Navy has not
specified what the potential operational effects might be if its
concept cannot be fully implemented as envisioned. For example, the
Navy has not specified potential negative consequences to LCS missions
or identified mitigating strategies if there are not enough or
insufficiently trained personnel on board or if the distance support
concepts cannot be fully implemented. The Navy's LCS plans represent a
significant investment to achieve its force structure goals at a time
when there are competing demands for limited resources. However,
without a thorough risk analysis including an assessment of
alternatives, the Navy faces undefined and, potentially significant
operational and program risks. If the operational concepts for
personnel, training, and maintenance cannot be implemented as desired,
the Navy may face operational limitations, may have to reengineer its
operational concept, or may have to make significant design changes to
the ship after committing to building almost half of the class. For
example, a thorough risk assessment could help the Navy identify the
operational risks of a 40-person core crew, such as whether the crew
can operate continuously for a 30-day mission without undue fatigue. A
risk assessment could assess the alternatives such as the pros and
cons of conducting shorter missions or increasing the size of the
crew. Having such a risk assessment would enable decision makers to
identify and assess: the operational effects if these concepts cannot
be implemented as envisioned; alternatives to mitigate these risks;
and information to link the effectiveness of these new operational
concepts with decisions on program investment, specifically how many
ships the Navy should buy each year. Moreover, doing so could help the
Navy avoid costly retrofits if ship design changes are needed in order
to implement its new concepts.
Recommendations for Executive Action:
We recommend that the Secretary of Defense take the following six
actions:
In order to assess the long-term affordability of the LCS program and
enhance decision making ability for the LCS program, we recommend that
the Secretary of Defense direct the Secretary of the Navy to take the
following actions:
* before deciding which seaframe to buy, produce a complete estimate
of the long-term operating and support costs which fully reflects cost
estimating best practices for each seaframe and use these updated
estimates in deciding which seaframe to buy for the remainder of the
program;
* use an updated estimate as a basis for analyzing the costs and
benefits of options regarding the two seaframes built but not selected
for long-term production, and use the results of this analysis in
making the decision of how to use, or whether to retire, these
seaframes;
* annually update the cost estimate for the long-term operating and
support costs of the seaframe and each mission package using cost
estimating best practices and submit the results to DOD as well as to
Congress as part of the LCS Selected Acquisition Report;
* perform complete and updated force structure analyses on the LCS
mission packages to help determine the appropriate purchase quantities
over the life of the program, and use these updated quantities for the
mission package cost estimate; and:
* perform an updated seaframe force structure analysis when key
underlying assumptions affecting seaframe quantities change, such as
crewing policy, overseas homeports, or presence requirements, and use
this updated analysis to adjust quantities and to update the seaframe
cost estimate.
To improve the Navy's ability to make better informed LCS program and
investment decisions, we recommend that the Secretary of Defense
direct the Secretary of the Navy to perform a risk assessment and
consider the results before committing to buy LCS ships each year in
order to link procurement with evidence that the Navy is progressing
in its ability to implement its new personnel, training, and
maintenance concepts and has taken actions to mitigate the operational
effects if these concepts cannot be implemented as intended.
Specifically, this analysis should identify and assess the:
* operational limitations the Navy may face if the Navy's approach to
personnel, training, and maintenance cannot be implemented as
envisioned;
* possible alternatives, such as changes to the concepts or the ship
design, and the related costs of those alternatives if the Navy's
approach to LCS personnel, training, and maintenance cannot be
implemented as envisioned in its concept of operations; and:
* personnel policies and processes to reduce the risks to the LCS
program. Such a holistic review could include the processes for
identifying and assigning personnel, requirements LCS personnel must
meet to qualify for assignment to an LCS crew, and identifying the
total ship and shore LCS personnel required steady state to support
the program over the long term.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, DOD agreed with four
recommendations and partially agreed with two of our six recommended
actions. The department's comments are reprinted in their entirety in
appendix II. DOD also provided technical comments, which we have
incorporated as appropriate.
DOD partially agreed with our first recommendation that the Navy
produce an estimate of the long-term operating and support costs and
use these estimates in deciding which seaframe to buy. DOD stated that
the Navy will prepare two cost estimates, one for each seaframe
design, that will include estimates of the total operating and support
costs for the entire class of LCS ships. However, DOD stated that,
since the Navy has not released the solicitation for the fiscal year
2010-2014 buy, it is premature to discuss the down-select criteria
included in the solicitation. While we appreciate the sensitivity of
discussing criteria for the down-select prior to the release of the
solicitation, we noted in the report that operating and support costs
are critical to any evaluation of acquisition alternatives since these
costs constitute over 70 percent of system life-cycle costs. We
continue to believe that decision makers should consider long-term
operating and support costs when deciding which of the two seaframes
to buy for the remainder of the program. DOD also stated that the LCS
seaframe estimate we reviewed for the report was developed solely to
support trade study analysis and was not intended as a budget quality
estimate. We understand this was the case, but the seaframe estimate
we analyzed was the only estimate available even though the Navy has
bought four LCS ships. The intent of our recommendation is to
encourage DOD to develop a comprehensive cost estimate to assist
decision makers as the program moves forward.
DOD agreed with our recommendation to use updated operating and
support cost estimates to analyze the costs and benefits of options
regarding the two seaframes built but not selected for long-term
production. However, DOD stated that the Navy intends to operate and
maintain the two non-selected LCS ships as part of the total LCS force
structure but will continue to explore options to keep, sell, or
retire the two non-selected ships during annual budget reviews. DOD's
response implies that, for the present, the department has decided to
keep the two non-selected LCS ships without considering the results of
a complete analysis of the costs and benefits of keeping the ships
compared to other alternatives. As we point out in the report, it is
important that estimates of long-term operating and support costs are
available to decision makers to assess alternatives before a decision
is made. However, if the department's intent is to do such a cost
analysis of alternatives and consider the results as part of the
annual budget process, then their actions would meet the intent of our
recommendation. DOD also agreed with our recommendations to include an
annual update to the operating and support costs for the LCS program
in the Selected Acquisition Report, and our recommendations to update
both the seaframe and mission package force structure analyses and use
these results in updating operating and support cost estimates.
DOD partially agreed with our sixth recommended action that DOD
perform a risk assessment and consider the results before committing
to buy LCS ships each year in order to link procurement with evidence
that the Navy is progressing in its ability to implement its new
personnel, training, and maintenance concepts. DOD stated that it
agrees such risk assessments are appropriate and should be conducted.
However, DOD disagreed that the risk assessment results should be
linked to annual procurement decisions since the acquisition strategy
is now to buy LCS in blocks--that is multiple ships--in fiscal years
2010, 2012, and 2015. DOD stated that, as an alternative, it will
consider reviewing the risk assessments for personnel policies,
training, and maintenance planning at the start of each new block buy.
At the time of our review, the acquisition strategy involving the
block buys was not yet approved by DOD. We believe that DOD's proposed
alternative approach would meet the intent of our recommendation.
However, we also believe that, given the new acquisition approach, it
is even more important that DOD conduct the risk assessment and
consider the results before making a procurement decision for each
block buy since the department will be committing to several ships
with each block and there will be a gap of several years between each
block buy. As we point out in our report, without such a risk
assessment to inform each procurement decision, the Navy risks buying
ships without the assurance that its plans for personnel, training,
and maintenance can be implemented as envisioned.
We are sending copies of this report to the Secretary of Defense; the
Secretary of the Navy; Naval Sea Systems Command; and Fleet Forces
Command. In addition, the report will be available at no charge on the
GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions, please call me at (404) 679-
1816. Contact points for our Offices of Congressional Relations and
Public Affairs may be found on the last page of this report. Staff
members who made key contributions to this report are listed in
appendix III.
Signed by:
John H. Pendleton:
Director:
Defense Capabilities and Management:
[End of section]
Appendix I: Scope and Methodology:
To assess the extent to which the Navy estimated the long-term
operating and support costs for the Littoral Combat Ship (LCS)
seaframes and mission packages, we reviewed documentation of seaframes
and mission package cost estimates prepared by the cost-estimating
division of the Naval Sea Systems Command. We met with officials from
Naval Sea System Command's cost-estimating division, as well as the
program offices responsible for developing both seaframes and mission
packages, to discuss and document the methodologies employed in the
estimates. We also met with the Office of the Secretary of Defense's
office of the Director of Cost Assessment and Program Evaluation
(CAPE) to determine the extent to which CAPE had reviewed Navy cost
estimates for LCS and produced an independent estimate. We compared
the estimates to cost estimating best practices identified by the CAPE
[Footnote 38] and in the GAO Cost Estimating and Assessment Guide,
[Footnote 39] and reviewed Department of Defense (DOD) and Navy
acquisition regulations. To assess the extent to which the Navy
analyzed the force structure requirements underlying the planned
purchase quantities of LCS seaframes and mission packages, we met with
officials of the Assessments and Surface Warfare divisions of the
Office of the Chief of Naval Operations. We also reviewed documents
reflecting the force structure analyses the Navy performed on LCS
seaframes and mission packages.
Although the Navy's estimates did not fully reflect best practices,
they were based on a cost-estimating process that we deemed sufficient
for reporting, with appropriate limitations. To calculate an average
annual seaframe operating and support cost estimate, we divided the
Navy's estimate of total operating and support costs of LCS seaframes
by the planned purchase quantity of seaframes and by their expected
service life. We multiplied the average annual estimated mission
package operating and support cost for each mission package by the
planned purchase quantity of that mission package and the assumed
service life. We then added together the seaframe and mission package
totals. To obtain an average annual seaframe cost that included the
cost of mission packages, we divided this total program operating and
support estimate by the number of seaframe service years (seaframe
quantity times assumed service life). We validated the methodology and
results of our analysis with relevant officials from the Naval Sea
Systems Command. However, our analysis of the Navy estimates is
approximate and does not fully reflect cost estimating best practices
as described in the report.
To assess the extent to which the Navy has developed and implemented
plans to operate and support LCS, particularly in the areas of
personnel, training, and maintenance, we reviewed and analyzed DOD and
Navy guidance, the LCS Wholeness Concept of Operations, and
instructions on personnel, training, and maintenance as well as key
studies and planning documents. We also reviewed prior GAO products
and DOD guidance on risk management to assess the extent that Navy
plans included assessments of program risk. In addition, we
interviewed officials at Headquarters, Department of the Navy and Navy
Sea Systems Command for personnel, training, and maintenance as well
as Fleet Forces Command, Commander, Naval Surface Forces, Navy
Personnel Command, Bureau of Naval Personnel, and Navy Manpower
Analysis Center.
To estimate long-term LCS personnel requirements, we analyzed Navy
documentation, including personnel estimate documentation and the
concept of operations, and validated the results with Navy officials
at the offices listed above. To compare LCS training days to training
days for other surface ships, we first identified a non-probability
sample of LCS positions from both seaframes which were for critical
positions such as the most senior enlisted personnel (E-8 or above),
or those that generally met three of the following four criteria:
* a position that required training in several areas outside the
sailor's primary specialty;
* a position for a specialty that was on a list of 14 specialties
which the Commander, Naval Surface Forces determined to have "unique
cross rate training";
* a position for a specialty which, at the time, was filled at less
than 100 percent or a position for a specialty which, at the time, was
filled at less than 100 percent at the lower levels, which might lead
to less availability in the future; and:
* a position in the unplanned loss pool.
To identify the training days required prior to reporting to an LCS
crew, we obtained the training days required for the positions in our
sample based on the Navy's study of training requirements for LCS. We
reviewed the process of how the Navy study team developed the course
time requirements by speaking with knowledgeable officials and found
the process was reasonable. To identify the training days required
before reporting to a destroyer and amphibious transport docking ship,
we obtained the training days required for comparable positions in our
sample. We validated these data in meetings with Naval Sea Systems
Command and Bureau of Naval Personnel officials. Finally, we compared
the training days for LCS with the training days for the destroyer and
amphibious transport docking ship. We reviewed the results of this
comparison with Bureau of Naval Personnel, Fleet Forces Command, Naval
Sea Systems Command, and several offices within the Office of the
Chief of Naval Operations who generally agreed with the data,
methodology, and results. Based on the work described above we
concluded that the data were sufficiently reliable for our purposes.
We conducted this performance audit from October 2008 through February
2010 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.
[End of section]
Appendix II: Comments from the Department of Defense:
Office Of The Under Secretary Of Defense:
Acquisition, Technology And Logistics:
3000 Defense Pentagon:
Washington, DC 20301-3000:
January 21, 2010:
Mr. John H. Pendleton:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Pendleton:
This is the Department of Defense response to the GAO draft report,
GAO-10-257, "Littoral Combat Ship: Actions Needed to Improve Operating
Cost Estimates and Mitigate Risks in Implementing New Concepts," dated
December 14, 2009 (GAO Code 351278). The Department's comments on the
six specific recommendations are enclosed.
The Department concurs with recommendations 2, 3, 4, and 5. The
Department partially concurs with recommendations 1 and 6. In response
to recommendation 1, the Department agrees that life cycle cost
estimates should be completed for both LCS designs, but it is
premature to discuss whether life cycle costs will be a factor in down-
selecting to a single design because the solicitation for the FY 2010
block buy has not been released. The partial concur on recommendation
6 relates to Department concerns about using the recommended risk
assessments as decision criteria at annual buy decisions. The
Department proposes instead to consider the risk assessments prior to
major procurement decisions in FY 2010, FY 2012, and FY 2015.
The Department appreciates the opportunity to comment on the draft
report. Technical comments were provided separately. For further
questions concerning this report, please contact Ms. Darlene Costello,
Deputy Director, Naval Warfare, 703-697-2205.
Sincerely,
Signed by:
David G. Ahern:
Director:
Portfolio Systems Acquisition:
Enclosure: As stated:
[End of letter]
GAO Draft Report ” Dated December 14, 2009:
GAO Code 351278/GA0-10-257:
"LITTORAL COMBAT SHIP: Actions Needed to Improve Operating Cost
Estimates and Mitigate Risks in Implementing New Concepts"
Department Of Defense Comments To The Recommendations:
Recommendation 1: The GAO recommends that the Secretary of Defense
direct the Secretary of the Navy to, before deciding which seaframe to
buy, produce a complete estimate of the long-term operating and
support costs which fully reflects cost estimating best practices for
each seaframe and use these updated estimates in deciding which
seaframe to buy for the remainder of the program.
DOD Response: Partially concur. The Navy will prepare two Program Life
Cycle Cost Estimates (PLCCEs) in support of the Milestone B Defense
Acquisition Board review of the Littoral Combat Ship (LCS) program,
one for each of the potential outcomes of the down-select decision.
The PLCCEs will be developed using best cost estimating practices
(including cost risk, cost driver sensitivity analyses, and an
Independent Cost Estimate, in accordance with the Naval Sea Systems
Command cost estimating group documented 12-step cost estimating
process) and include estimates of the total operating and support
costs for the entire class of LCS ships, including costs to operate
and support the two ships of the non-selected design expected to
remain as operational units in the Navy's LCS force structure. GAO
should note that the LCS seaframe estimate reviewed by the GAO for
this report was developed solely to support trade study analysis and
was not intended as a budget quality estimate.
The Navy has not released the solicitation for the FY2010-FY2014 block
buy, therefore, it is premature to discuss the down-select criteria
included in the solicitation. For reference purposes this
recommendation will be identified as item GAO-10-257-01.
Recommendation 2: The GAO recommends that the Secretary of Defense
direct the Secretary of the Navy to use an updated estimate as a basis
for analyzing the costs and benefits of options regarding the two
seaframes built but not selected for long-term production, and use the
results of this analysis in making the decision of how to use, or
whether to retire, these seaframes.
DOD Response: Concur. The costs for operating and supporting the two
non-selected Littoral Combat Ships (LCS) will be included in the life
cycle cost estimates prepared for the Milestone B Defense Acquisition
Board (DAB) review. These estimates will be used to inform the DAB on
the cost of keeping the two non-selected seaframes compared to
procuring two more seaframes of the selected design and selling-off or
retiring the two non-selected seaframes. However, at this point, the
Navy intends to operate and maintain the two non-selected LCS
seaframes as part of the total LCS force structure. There is currently
no plan to procure two additional seaframes of the selected design to
make up any reduction in force structure caused by selling-off or
retiring the two non-selected LCS seaframes. At this time, the
Department accepts the risk of keeping the two non-selected seaframes,
but will continue to explore options to keep, sell, or retire the two
non-selected seaframes during annual budget reviews. For reference
purposes this recommendation will be identified as item GAO-10-257-02.
Recommendation 3: The GAO recommends that the Secretary of Defense
direct the Secretary of the Navy to annually update the cost estimate
for the long-term operating and support costs of the seaframe and each
mission package using cost estimating best practices and submit the
results to the Department of Defense as well as to Congress as part of
the Littoral Combat Ship (LCS) Selected Acquisition Report.
DOD RESPONSE: Concur. The Office of the Secretary of Defense will
ensure that the Navy's Selected Acquisition Report for the Littoral
Combat Ship program will reflect an annual update to the operating and
support costs for the seaframe and mission packages using the Program
Life Cycle Cost Estimates information prepared for the Milestone B
Defense Acquisition Board review as the baseline. For reference
purposes this recommendation will be identified as item GAO-10-257-03.
Recommendation 4: The GAO recommends that the Secretary of Defense
direct the Secretary of the Navy to perform complete and updated force
structure analyses on the Littoral Combat Ship mission packages to
help determine the appropriate purchase quantities over the life of
the program, and use these updated quantities for the mission package
cost estimate.
DOD Response: Concur. The Navy will update the force structure
analyses used to determine the number and types of mission packages to
be procured over the life of the program as Littoral Combat Ship
mission requirements evolve.
When adjustments to the mission package procurement objectives are
deemed necessary, they will be rolled into the annual updates to the
operating and support costs for the program. However, it should be
noted that adjustments to the mission package procurement objectives
may be deemed necessary on an annual basis.
These adjustments to the mission package procurement objectives will
be rolled into the annual updates to the operating and support costs
for the program as they evolve.
However, it should be noted that these mission package adjustments
might not occur annually. For reference purposes this recommendation
will be identified as item GAO-10-257-04.
Recommendation 5: The GAO recommends that the Secretary of Defense
direct the Secretary of the Navy to perform an updated seaframe force
structure analysis when key underlying assumptions affecting seaframe
quantities change, such as crewing policy, overseas homeports, or
presence requirements, and use this updated analysis to adjust
quantities and to update the seaframe cost estimate.
DOD Response: Concur. The Navy will update its seaframe force
structure analysis as required to reflect changes in key underlying
assumptions that affect the force structure. If the procurement
quantities for seaframes changes, then the Navy will update the
seaframe cost estimate and report the resulting changes in program
operating and support costs in the following Selected Acquisition
Report for the Littoral Combat Ship program. For reference purposes
this recommendation will be identified as item GAO-10-257-05.
Recommendation 6: The GAO recommends that the Secretary of Defense
direct the Secretary of the Navy to perform a risk assessment and
consider the results before committing to buy Littoral Combat Ship
(LCS) ships each year in order to link procurement with evidence that
the Navy is progressing in its ability to implement its new personnel,
training, and maintenance concepts and has taken actions to mitigate
the operational effects if these concepts cannot be implemented as
intended. Specifically, this analysis should identify and assess the:
* operational limitations the Navy may face if the Navy's approach to
personnel, training, and maintenance cannot be implemented as
envisioned;
* possible alternatives, such as changes to the concepts or the ship
design, and the related costs of those alternatives if the Navy's
approach to LCS personnel, training, and maintenance cannot be
implemented as envisioned in its concept of operations; and;
* personnel policies and processes to reduce the risks to the LCS
program. Such a holistic review could include the processes for
identifying and assigning personnel, requirements LCS personnel must
meet to qualify for assignment to a LCS crew, and identifying the
total ship and shore LCS personnel required steady state to support
the program over the long term.
DOD Response: Partially concur. The Department agrees that risk
assessments are appropriate and should be conducted. However, the
Department disagrees that the results of these assessments should be
linked to annual procurement decisions for Littoral Combat Ship (LCS)
seaframes. The Acquisition Strategy for the LCS program lays out a
plan for two block buys of LCS seaframes over the period from Fiscal
Year (FY) 2010 through FY 2014. These block buys are specifically
intended to promote acquisition cost reductions to make the program
more affordable over the long term. To assure a stable program, the
integrity of the block buys needs to be maintained. As an alternative,
the Department will consider reviewing the risk assessments for
personnel policies, training, and maintenance planning at the start of
each new block buy. Those review points would occur at the Milestone B
Defense Acquisition Board (DAB) review in FY 2010 and at the DAB
reviews prior to the FY 2012 block buy and the FY 2015 procurement.
While these review points do not occur annually, as recommended by the
GAO, the Department accepts the risk in considering these performance
assessments at procurement decision points spaced at two or three year
intervals and will continue to monitor risk assessments for personnel
policies, training, and maintenance planning during the intervening
years. For reference purposes this recommendation will be identified
as item GAO-10-257-06.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
John H. Pendleton, (404) 679-1816, pendletonj@gao.gov:
Acknowledgments:
In addition to the contact named above, Patricia W. Lentini, Assistant
Director; Brenda M. Waterfield; James R. Bancroft; Simon J.
Hirschfeld; Linda S. Keefer; and Grace Coleman made key contributions
to this report.
[End of section]
Footnotes:
[1] Surface combatant is a collective term including destroyers,
cruisers, frigates, and the Littoral Combat Ship.
[2] Each mission package consists of mission systems (such as weapons
and sensors), support equipment, crewmembers, and an aviation
detachment of manned helicopters and unmanned aerial vehicles.
[3] The surface warfare package includes a maritime security module
which could be employed by itself without the other components of the
surface warfare package.
[4] This office was formerly known as the Cost Analysis Improvement
Group. The functions of that office were transferred to the Office of
the Director of Cost Assessment and Program Evaluation by the Weapon
Systems Acquisition Reform Act of 2009, Pub. L. No. 111-23 § 101
(2009). See the note at 10 U.S.C. § 139c. Office of the Secretary of
Defense, Cost Analysis Improvement Group, Operating and Support Cost
Estimating Guide (Arlington, Va., October 2007), Office of the
Secretary of Defense, Cost Analysis Improvement Group, Operating and
Support Cost Estimating Guide (Arlington, Va., May 1, 1992).
[5] GAO, GAO Cost Estimating and Assessment Guide, [hyperlink,
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: March 2009).
[6] U.S. Fleet Forces Command, Littoral Combat Ship Platform Wholeness
Concept of Operations (Revision C) (Sept. 24, 2009).
[7] All dollar figures in this report are in constant fiscal year 2009
dollars. The Navy assumes that each LCS seaframe will have a service
life of about 25 years. The Navy can expect to pay operating and
support costs until the last LCS is retired--the timing of which could
vary depending on when the last seaframe enters service.
[8] Department of Defense Instruction 5000.02. Operation of the
Defense Acquisition System, Enclosure 2, Figure 1 (Dec. 8, 2008).
[9] Department of Defense, National Defense Strategy (June 2008).
[10] Operating and support costs are the resources required to operate
and support a weapon system and include maintenance of equipment/
infrastructure, operations of forces, training and readiness, base
operations, personnel, and logistics.
[11] Although the Navy reported to congress that its objective is to
buy 55 maritime security modules, Navy officials stated that future
analysis could result in the Navy actually buying fewer of these
modules. Naval Sea Systems Command, Program Executive Officer for
Littoral and Mine Warfare, Report to Congress: Littoral Combat Ship
Mission Packages, (Washington, D.C.: May 2009).
[12] Due to the upcoming decision to select one of the two seaframes
that the Navy will buy for the remainder of the program, the details
of the Navy's estimates are considered business sensitive.
[13] Since significant LCS operational capabilities are derived from
the mission packages--the ability to counter mines, submarines, and
small surface boats, and to conduct maritime security operations--and
since the mission packages are part of the LCS program, we calculated
the average annual operating and support cost by dividing the $84.8
billion by the number of seaframes and the expected seaframe service
life.
[14] The Navy can expect to pay operating and support costs until the
last LCS is retired. Therefore, if the last LCS is purchased in 2025,
then, based on the 25-year expected service life of each seaframe, the
Navy could expect to pay operating and support costs through about
2050.
[15] Office of the Secretary of Defense, Cost Analysis Improvement
Group, Operating and Support Cost Estimating Guide, (Arlington, Va.,
October 2007), Office of the Secretary of Defense, Cost Analysis
Improvement Group, Operating and Support Cost Estimating Guide
(Arlington, Va., May 1, 1992), and GAO, GAO Cost Estimating and
Assessment Guide, [hyperlink, http://www.gao.gov/products/GAO-09-3SP]
(Washington, D.C.: March 2009).
[16] GAO, Defense Acquisitions: Assessments of Selected Weapon
Programs, [hyperlink, http://www.gao.gov/products/GAO-09-326SP]
(Washington, D.C.: Mar. 30, 2009).
[17] Naval PoPS Criteria Handbook, A Program Health Assessment
Methodology for Navy and Marine Corps Acquisition Programs (September
2008), issued by the Assistant Secretary of the Navy for Research
Development and Acquisition.
[18] Pub. L. No. 111-23, §101(2009), codified at 10 U.S.C. §2334 (d).
Specifically, the law requires the Director of Cost Assessment and
Program Evaluation, as well as the Secretary of the military
department concerned to each disclose the confidence level used in
establishing a cost estimate for a major defense acquisition program,
the rationale for selecting such confidence level, and, if such
confidence level is less than 80 percent, the justification for
selecting a confidence level of less than 80 percent in certain
documentation specified in the statute.
[19] The internal Navy review that occurs just prior to the second DOD
milestone decision point is known as the Gate 4 review. Secretary of
the Navy Instruction 5000.2D, Implementation and Operation of the
Defense Acquisition System and the Joint Capabilities Integration and
Development System, paragraph 2.5.5.5 and Annex 20A (Oct 16, 2008).
[20] GAO, Defense Acquisitions: A Knowledge-Based Funding Approach
Could Improve Major Weapon System Program Outcomes, [hyperlink,
http://www.gao.gov/products/GAO-08-619 (Washington, D.C.: July 2,
2008).
[21] Our analysis of the mission package operating and support costs
used the Navy's 2008 estimate of the annual operating and support
costs for the antisubmarine package.
[22] GAO, Missile Defense: DOD Needs to More Fully Assess Requirements
and Establish Operational Units before Fielding New Capabilities, GAO-
09-856 (Washington, D.C.: Sept 16, 2009). GAO, Defense Acquisitions: A
Knowledge-Based Funding Approach Could Improve Major Weapon System
Program Outcomes, [hyperlink, http://www.gao.gov/products/GAO-08-619]
(Washington, D.C.: July 2, 2008), and GAO, Defense Acquisitions:
Assessments of Selected Weapon Programs, [hyperlink,
http://www.gao.gov/products/GAO-08-467SP] (Washington, D.C.: Mar. 31,
2008).
[23] Office of the Secretary of Defense, Cost Analysis Improvement
Group, Operating and Support Cost Estimating Guide, (Arlington, Va.,
October 2007), and GAO, GAO Cost Estimating and Assessment Guide,
[hyperlink, http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.:
March 2009).
[24] Department of Defense Instruction 5000.02, Operation of the
Defense Acquisition System (Dec. 8, 2008).
[25] Section 2432 of Title 10 of the U.S. Code requires the Secretary
of Defense to submit selected acquisition reports to Congress on
current major defense acquisition programs.
[26] Section 2436 of Title 10 of the U.S. Code requires that selected
acquisition reports for the first quarter of a fiscal year, called
comprehensive selected acquisition reports, include a full life-cycle
cost analysis for each major defense acquisition program. A full life-
cycle cost analysis is required in the second, third, and fourth
quarters of a fiscal year if a major defense acquisition program was
not included in the most recent comprehensive selected acquisition
report.
[27] GAO, Force Structure: Ship Rotational Crewing Initiatives Would
Benefit from Top-Level Leadership, Navy-wide Guidance, Comprehensive
Analysis, and Improved Lessons-Learned Sharing, [hyperlink,
http://www.gao.gov/products/GAO-08-418] (Washington, D.C.: Mar. 29,
2008).
[28] Navy officials stated that they had not yet been directed to
include an analysis of the maritime security module of the surface
warfare package.
[29] The LCS Class Squadron coordinates all shore support and is
responsible for the overarching management of seaframes, mission
packages, and personnel. The Navy plans to establish several numbered
squadrons to manage the day-to-day details of administrative,
personnel, operational, maintenance, distance support, logistics, and
training functions for a specific number of LCSs.
[30] U.S. Fleet Forces Command, Littoral Combat Ship Platform
Wholeness Concept of Operations (Revision C) (Sept. 24, 2009).
[31] To do the analysis, we identified a non-probability sample of 15
enlisted positions from the 40-person LCS core crews of both
seaframes. The sample was based on identifying LCS positions that were
critical or required cross-training. Next, we compared the training
days required before reporting on board for comparable positions on
other surface ships. See appendix I for a complete description of the
analysis methodology including a discussion of the sample selection
criteria.
[32] Navy officials noted that some positions on an Aegis ship also
have lengthy training requirements, such as training for sailors who
work on the Aegis radar. Since this type of equipment is not on LCS,
the related positions were not part of our sample.
[33] Navy Board of Inspection and Survey, 2008 INSURV Annual Report
(undated).
[34] Preventive maintenance refers to periodic tasks to keep equipment
in good condition such as inspections, lubrication, or calibration.
Facilities maintenance includes deep cleaning and preservation.
[35] GAO, Depot Maintenance: Actions Needed to Identify and Establish
Core Capability at Military Depots, [hyperlink,
http://www.gao.gov/products/GAO-09-83] (Washington, D.C.: May 14,
2009).
[36] Department of Defense, National Defense Strategy (June 2008). The
National Defense Strategy defined risk in terms of the potential for
damage to national security combined with the probability of
occurrence and the measurement of the consequences should the risk
remain unaddressed.
[37] GAO, Homeland Defense: Actions Needed to Improve Management of
Air Sovereignty Alert Operations to Protect U.S. Airspace, [hyperlink,
http://www.gao.gov/products/GAO-09-184] (Washington,D.C.: Jan. 27,
2009). GAO, Force Structure: Joint Seabasing Would Benefit from a
Comprehensive Management Approach and Rigorous Experimentation Before
Services Spend Billions on New Capabilities, [hyperlink,
http://www.gao.gov/products/GAO-07-211] (Washington, D.C.: Jan. 26,
2007).
[38] Office of the Secretary of Defense, Cost Analysis Improvement
Group, Operating and Support Cost Estimating Guide (Arlington, Va.,
October 2007), Office of the Secretary of Defense, Cost Analysis
Improvement Group, Operating and Support Cost Estimating Guide
(Arlington, Va., May 1, 1992).
[39] GAO, GAO Cost Estimating and Assessment Guide, [hyperlink,
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: March 2009).
[End of section]
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