Summary
Cost growth is a prevalent problem in Navy shipbuilding programs, particularly for the first ships in new classes. In response to a mandate in the conference report accompanying the Defense Appropriations Act for Fiscal Year 2008, GAO undertook this review to (1) identify key practices employed by leading commercial ship buyers and shipbuilders that ensure satisfactory cost, schedule, and ship performance; (2) determine the extent to which Navy shipbuilding programs employ these practices; and (3) evaluate how commercial and Navy business environments incentivize the use of best practices. To address these objectives, GAO visited leading commercial ship buyers and shipbuilders, reviewed its prior Navy work, and convened a panel of shipbuilding experts.
Delivering ships on time and within budget are imperatives in commercial shipbuilding. To ensure design and construction of a ship can be executed as planned, commercial shipbuilders and buyers do not move forward until critical knowledge is attained. Before a contract is signed, a full understanding of the effort needed to design and construct the ship is reached, enabling the shipbuilder to sign a contract that fixes the price, delivery date, and ship performance parameters. To minimize risk, buyers and shipbuilders reuse previous designs to the extent possible and attain an in-depth understanding of new technologies included in the ship design. Before construction begins, shipbuilders complete key design phases that correspond with the completion of a three-dimensional product model. Final information on the systems that will be installed on the ship is needed to allow design work to proceed. During construction, buyers maintain a presence in the shipyard and at key suppliers to ensure the ship meets quality expectations and is delivered on schedule. Navy programs often do not employ these best practices. Ambitious requirements are set and substantial investments made in technology development, but often the Navy does not afford sufficient time to fully mature technology. New designs often make little use of prior ship designs. As a result, a full understanding of the effort needed to execute a program is rarely achieved at the time a design and construction contract is negotiated. This in turn leads the Navy and its shipbuilders to rely on cost-reimbursable contracts (rather than fixed-price contracts) that largely leave the Navy responsible for cost growth. Complete information on the systems that will be installed on the ship may not be available, leading to changes that ripple through the design as knowledge grows. Starting construction without a stable design is a common practice and the resulting volatility leads to costly out-of-sequence work and rework. These inefficient practices cause Navy ships to cost more than they otherwise should, reducing the number of ships that can be bought under constrained budgets. The Navy's in-house capability to oversee design and construction has eroded, and it has been slow to build capacity to support new programs. Congress has recently encouraged greater technology maturity and design stability at key points, but required reporting does not directly address completion of a three-dimensional product model. Differences in commercial and Navy practices reflect the incentives of their divergent business models. Commercial shipbuilding is structured on shared priorities between buyer and shipbuilder, a healthy industrial base, and maintaining in-house expertise. The need to sustain profitability incentivizes disciplined practices in the commercial model. In Navy shipbuilding, the buyer favors the introduction of new technologies on lead ships--often at the expense of other competing demands--including fleet size. This focus--along with low volume, a relative lack of shipyard competition, and insufficient expertise--contributes to high-risk practices in Navy programs. Further, the consequences of delayed deliveries and cost growth are not as severe in Navy programs because of the use of cost-reimbursable contracts.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director:
Team:
Phone:
Paul L. Francis
Government Accountability Office: Acquisition and Sourcing Management
(202) 512-2811
Matters for Congressional Consideration
Recommendation: Congress may wish to consider refining the required reporting on production readiness29 to incorporate additional metrics into the assessment of design stability that address completion of basic and functional design activities and 3D product modeling (when employed).
Status: In process
Comments: When we determine what steps the Congress has taken, we will provide updated information.
Recommendations for Executive Action
Recommendation: The Secretary of Defense should define a shipbuilding acquisition approach that calls for (1) demonstrating balance among program requirements, technology demands, and cost considerations by preliminary design review; (2) retiring technical risk and closing any remaining gaps in design requirements before a contract for detail design is awarded; and (3) stabilizing a ship's design before construction can start. While shipbuilding programs can differ in scope and complexity, any new shipbuilding program should embody these three principles.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To attain the level of knowledge needed to demonstrate balance among requirements, technologies, and cost in programs, the Secretary of Defense should require that by the preliminary design review for a new ship, (1) critical technologies be developed into representative prototypes and successfully demonstrated in a relevant environment and (2) the Navy develop, in cooperation with industry, an analysis of cost and requirements trade-offs that can identify ways to further reduce the technical demands of the ship.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To attain the level of knowledge needed to retire technical risk and close gaps in design requirements, the Secretary of Defense should require that before a contract is awarded for detail design of a new ship, (1) critical technologies be matured into actual system prototypes and successfully demonstrated in a realistic environment and (2) the Navy provide sufficient time for thorough discussion with the prospective shipbuilder(s) to fully understand the technical specifications that will guide the ship's design and to resolve key differences.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To attain the level of knowledge needed to retire design risk and reduce construction disruptions, the Secretary of Defense should require that by the start of construction for a new ship, the design be stabilized through completion of basic and functional design and 3D product modeling (when employed), with the recognition that complete--versus notional--vendor information must be incorporated for the design to be truly stable.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To promote disciplined application of knowledge-based practices in shipbuilding programs, the Secretary of Defense should direct the Secretary of the Navy to report to Congress on what steps and changes in the acquisition process would be needed to allow the Navy to rely primarily upon fixed-price contracts for lead ships within 3 years.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To maximize the Navy's role as an intelligent buyer, the Secretary of Defense should direct the Secretary of the Navy to evaluate the Navy's in-house capability and capacity to provide strong, consistent buyer oversight and to make changes where necessary.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
Recommendation: To promote efficient investments in fleet capabilities, the Secretary of Defense should assess whether the Navy's desire to provide a certain fleet size sufficiently constrains decisions on the technical content and cost of each new ship class, and recommend changes where necessary.
Agency Affected: Department of Defense
Status: In process
Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
