U.S. Navy Lowballing Shipbuilding Costs [REPORT]

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July 25, 2012

An illustration depicting the USS Gerald R. Ford (CVN-78), the first in a series of six Gerald R. Ford-class vessels planned through 2042.

The U.S. Navy is underestimating the cost of its proposed 30-year shipbuilding program by 19 percent, the non-partisan Congressional Budget Office said in a report.

The Navy’s plan, submitted to Congress in late March, is to buy 268 ships during the next three decades at an average annual cost of $16.8 billion for a total of $505 billion, according to the report today. If other activities such as refueling nuclear- powered aircraft carriers that typically are funded from the service’s shipbuilding accounts are included, the average annual cost is $18.8 billion, the CBO said.

“By comparison, using its own models and assumptions, CBO estimates that the cost for new-ship construction under the 2013 plan would average $20.0 billion per year, or a total of $599 billion through 2042,” the CBO said. “That figure is 19 percent more than the Navy’s estimate. Including the expense of refueling aircraft carriers and the other items raises that average cost to about $22 billion per year — 37 percent more than what the Navy has spent through its shipbuilding accounts on average during the past 30 years.”

In response, a Navy spokeswoman, Lieutenant Courtney Hillson, said, “The Navy welcomes the CBO’s review of our shipbuilding estimates, and we will take the time needed to review the CBO report.”

The Navy’s 2013 plan calls for buying 222 combat ships, including aircraft carriers, submarines and amphibious warfare ships, between 2013 and 2042, 17 more than called for in its 2012 plan, said the CBO. In addition, the plan calls for 46 “logistics and support” ships.

Among the prime contractors for the Navy’s shipbuilding programs are General Dynamics Corp. of Falls Church, Virginia; Huntington Ingalls Industries Inc. of Newport News, Virginia; Austal USA of Mobile, Alabama; and Lockheed Martin Corp. of Bethesda, Maryland. Raytheon Co. of Waltham, Massachusetts, makes radar, electronics and self-defense missiles.

The 2013 plan for a fleet of about 300 warships “would still leave the Navy short of its inventory objectives for attack submarines, large surface combatants and amphibious warfare ships for significant parts of the 2013-2042 period, although those shortfalls are now less pronounced than they would have been under the 2012 plan,” according to the report.

By contrast, the CBO said, the Navy would exceed its goal of 11 aircraft carriers, including six new Gerald R. Ford-class vessels, for all but four years of that period.

The Navy now estimates the average cost of the six new CVN- 78 carriers, the first one of which is about 40 percent completed at Huntington Ingalls Shipbuilding’s Newport News, Virginia, yard, at $10.9 billion. The CBO’s average estimate for the six vessels through 2042 is $13 billion.

The lead ship USS Gerald Ford has drawn the most scrutiny this year from lawmakers, such as Senate Armed Services Committee ranking Republican John McCain of Arizona.

CBO today confirmed an earlier McCain claim that the projected cost of the CVN-78 grew 18 percent between 2008 and 2013. That’s up from a 10 percent increase since 2008 CBO projected last year.

CBO projects the total CVN-78 cost by the time its delivered in September 2015 will be at least $14.2 billion, up from $13.3 billion in fiscal 2012 dollars, the agency estimated in last year’s report.

The final cost of the CVN-78 could be even higher than CBO’s estimate, for several reasons, according to the CBO.

These include the fact that the Navy’s own cost estimates assume the vessel has a 50 percent chance of exceeding its budget, the CBO said.

In addition, “a number of critical technologies” are supposed to be incorporated into the ship, such as a new General Atomics of San Diego electromagnetic catapult system for launching aircraft. They remain under development and will require integration as the ship nears the final stages of construction, CBO said.

Difficulties in completing that integration could arise and increase costs, and those increases would also probably affect the costs for subsequent ships of the class,” according to the CBO.

Some military experts have questioned the wisdom of relying heavily on such large ships when nations such as China are developing new anti-ship missiles, drones and attack submarines.

Chief of Naval Operations Admiral Jonathan Greenert said in a Bloomberg interview today that the service will soon release its latest force structure plan.

By John Walcott. Copyright 2012 Bloomberg

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