By Tony Capaccio
(Bloomberg) — The Pentagon agency that oversees contracts says it can’t rely on cost and schedule projections from General Dynamics Corp.’s warship unit in a $22 billion program to build three Zumwalt-class destroyers.
The Defense Contract Management Agency wrote in an assessment that it “has no confidence in” the data because the unit, Bath Iron Works, hasn’t shown that it’s remedied 56 serious deficiencies the agency first cited in 2011. The flaws were in the shipbuilder’s “earned value management system,” which tracks how effectively milestones for the destroyers are being met.
The finding of “no confidence” means the agency considers data produced by Bath Iron Works “unreliable and inaccurate,” agency spokesman Mark Woodbury said in an e-mail. The agency “identified systemic deficiencies in scheduling processes” and “estimates of cost at completion that were not being updated based upon performance trends” with the vessels, he said.
While Woodbury says the contracting agency hasn’t been given documentation that the flaws it cited have been remedied, the company and the Navy say most of the issues have been resolved.
The dispute concerns one of six internal systems that the Pentagon says are necessary to measure a company’s progress on weapons contracts. The systems are considered “the first line of defense against fraud, waste and abuse,” the Pentagon’s inspector general said in a June report.
The Navy awarded $8.6 billion in contracts to Bath Iron Works in Bath, Maine, from fiscal 2010 to 2014, including $4.74 billion for the Zumwalt-class destroyer, according to Bloomberg Government data.
The destroyer, designated DDG-1000, is a multimission vessel for land attacks that will use electricity generated by gas turbines to power all of its systems, including weapons. The estimated procurement cost for all three vessels, not including development, has increased by 37 percent since 2009 to $12.3 billion, according to the Congressional Research Service.
“Bath Iron Works is continuously improving its processes in coordination with its Navy customer,” General Dynamics spokeswoman Lucy Ryan said in an e-mail. She said 49 of the 56 issues cited have been formally resolved with the Navy, and the remaining seven await the services’ approval.
“We are also collaborating with the Navy, DCMA and other shipbuilders to define the proper application” of the earned value management system to shipbuilding, she said.
The Navy, which has direct oversight of its contractors’ business systems, didn’t decertify Bath’s system, which could have resulted in withholding payments. Instead it issued a deficiency report in April 2012 and approved the company’s corrective action plan in 2013.
Since then, the service has been working with Bath “to improve the overall effectiveness” of its earned value system and “resolve the outstanding deficiencies,” Captain Thurraya Kent, a Navy spokeswoman, said in an e-mail.
The Navy has said delivery of the first Zumwalt-class vessel will slip beyond November, which was already 14 months later than originally scheduled. Rear Admiral Jim Downey, the service’s program manager for the ships, estimates the new delivery date will be closer to May 2016.
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