Littoral Combat Ship:

Actions Needed to Improve Operating Cost Estimates and Mitigate Risks in Implementing New Concepts

GAO-10-257: Published: Feb 2, 2010. Publicly Released: Feb 2, 2010.

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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 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.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD partially concurred with this recommendation stating that the Navy will prepare two Program Life Cycle Cost Estimates in support of the Milestone B Defense Acquisition Board Review of the Littoral Combat Ship program (one for each seaframe) using best cost estimating practices. In its April 2011 Program Life Cycle Cost Estimate for the Littoral Combat Ship Seaframe, Navy developed long-term operating and support cost estimates for each seaframe option, which supports the program's Milestone B review. The long-term operating and support cost estimates for each seaframe option included an assessment of cost-risk, an independent cost estimate, and cost driver sensitivity analyses.

    Recommendation: In order to assess the long-term affordability of the LCS program and enhance decision making ability for the LCS program, the Secretary of Defense should direct the Secretary of the Navy that, 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.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: DOD concurred with this recommendation, stating that the costs for operating and supporting the two non-selected Littoral Combat Ships will be included in the life cycle cost estimates prepared for the Milestone B Defense Acquisition Board Review. Subsequently in November 2010, the Navy announced that it would implement a dual-award strategy and forego making a down select decision.

    Recommendation: In order to assess the long-term affordability of the LCS program and enhance decision making ability for the LCS program, the Secretary of Defense should 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.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: DOD concurred with this recommendation stating that OSD 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 Life Cycle Cost Estimates information prepared for the Milestone B Defense Acquisition board review as the baseline. The Milestone B reviews for both the seaframes and mission packages have been held and revised Selected Acquisition Reports included updated operations and support cost estimates.

    Recommendation: In order to assess the long-term affordability of the LCS program and enhance decision making ability for the LCS program, the Secretary of Defense should 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 DOD as well as to Congress as part of the LCS Selected Acquisition Report.

    Agency Affected: Department of Defense

  4. Status: Closed - Not Implemented

    Comments: DOD concurred with this recommendation stating that 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. The December 31, 2013 Selected Acquisition Report still includes 64 mission packages, the same as when we reported. In the May 2014 House Report on the FY2015 National Defense Authorization Act (H.Rpt 113-446), Congress directed the Navy to perform an updated the force structure analysis to determine the overall Navy fleet size necessary to support the Defense Strategy, which could include an analysis of mission packages. We did not obtain documentation of this or any additional force structure analyses to support the number of mission packages.

    Recommendation: In order to assess the long-term affordability of the LCS program and enhance decision making ability for the LCS program, the Secretary of Defense should direct the Secretary of the Navy to 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.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: DOD concurred with this recommendation stating that the Navy will update its seaframe force structure analysis as required to reflect changes in key underlying assumptions that affect the force structure. The Navy performed a force structure review to reflect the 2012 Defense Strategic Guidance. In January 2013, the Navy provided its annual 30-year shipbuilding plan to Congress, which reduced the requirement for LCS to 52 based on a reduction in AFRICOM presence requirements. Additionally, in January 2014, the Navy?s 30-year shipbuilding plan further reduced the requirement for LCS to 32 while the Navy completes the studies to support the future procurement of a capable and lethal small surface combatant. The December 31, 2013 Selected Acquisition Report for LCS seaframes reflected an updated cost estimate based on the reduced quantity.

    Recommendation: In order to assess the long-term affordability of the LCS program and enhance decision making ability for the LCS program, the Secretary of Defense should 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.

    Agency Affected: Department of Defense

  6. Status: Closed - Not Implemented

    Comments: DOD partially concurred with this recommendation, stating that it agrees that risk assessments are appropriate and should be conducted, and will consider reviewing the risk assessments at the start of each new block buy. We reported in July 2014 (GAO-14-447) that the Navy had conducted studies to assess LCS manning, training, and maintenance and that the Navy deployed its first LCS in 2013 to, in part, collect data on the ship?s manning, training, maintenance, and logistics needs in the actual overseas environment in which it is expected to operate. These are positive steps that the Navy has taken to manage some of the risks in the LCS program. However, these actions do not fully meet the intent of our recommendation because the Navy has not developed a strategy to fully identify and plan to mitigate the operational limitations if the operational concepts cannot be implemented as intended.

    Recommendation: To improve the Navy's ability to make better informed LCS program and investment decisions, the Secretary of Defense should 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.

    Agency Affected: Department of Defense

  7. Status: Closed - Not Implemented

    Comments: DOD partially concurred with this recommendation, stating that it agrees that risk assessments are appropriate and should be conducted, and will consider reviewing the risk assessments at the start of each new block buy. We reported in July 2014 (GAO-14-447) that the Navy had adjusted some concepts based on data collected and lessons learned from the initial 2013 LCS deployment, such as increasing the core crew size, increasing the number of shore personnel as support requirements have become better understood, and drafting revisions to the Wholeness Concept of Operations. These are positive steps that the Navy has taken to manage some of the risks in the LCS program. However, these actions do not fully meet the intent of our recommendation because the Navy has not fully assessed the risks, assessed alternatives, including the costs of those alternatives if the concepts cannot be implemented as envisioned.

    Recommendation: To improve the Navy's ability to make better informed LCS program and investment decisions, the Secretary of Defense should 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 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.

    Agency Affected: Department of Defense

  8. Status: Closed - Not Implemented

    Comments: DOD partially concurred with this recommendation, stating that it agrees that risk assessments are appropriate and should be conducted, and will consider reviewing the risk assessments at the start of each new block buy. The USS Freedom (LCS-1) deployed in 2013 and tested new concepts related to personnel such as distance support, size of the crew, and swapping crews mid-deployment. We did not obtain evidence that the Navy did a holistic review of personnel policies and processes to determine what is required to support the program over the long-term.

    Recommendation: To improve the Navy's ability to make better informed LCS program and investment decisions, the Secretary of Defense should 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 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 Affected: Department of Defense

 

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