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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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