Best Practices: High Levels of Knowledge at Key Points Differentiate Commercial Shipbuilding from Navy Shipbuilding
Highlights
Cost growth is a prevalent problem in Navy shipbuilding programs, particularly for the first ships in new classes. In response to a mandate in the conference report accompanying the Defense Appropriations Act for Fiscal Year 2008, GAO undertook this review to (1) identify key practices employed by leading commercial ship buyers and shipbuilders that ensure satisfactory cost, schedule, and ship performance; (2) determine the extent to which Navy shipbuilding programs employ these practices; and (3) evaluate how commercial and Navy business environments incentivize the use of best practices. To address these objectives, GAO visited leading commercial ship buyers and shipbuilders, reviewed its prior Navy work, and convened a panel of shipbuilding experts.
Delivering ships on time and within budget are imperatives in commercial shipbuilding. To ensure design and construction of a ship can be executed as planned, commercial shipbuilders and buyers do not move forward until critical knowledge is attained. Before a contract is signed, a full understanding of the effort needed to design and construct the ship is reached, enabling the shipbuilder to sign a contract that fixes the price, delivery date, and ship performance parameters. To minimize risk, buyers and shipbuilders reuse previous designs to the extent possible and attain an in-depth understanding of new technologies included in the ship design. Before construction begins, shipbuilders complete key design phases that correspond with the completion of a three-dimensional product model. Final information on the systems that will be installed on the ship is needed to allow design work to proceed. During construction, buyers maintain a presence in the shipyard and at key suppliers to ensure the ship meets quality expectations and is delivered on schedule. Navy programs often do not employ these best practices. Ambitious requirements are set and substantial investments made in technology development, but often the Navy does not afford sufficient time to fully mature technology. New designs often make little use of prior ship designs. As a result, a full understanding of the effort needed to execute a program is rarely achieved at the time a design and construction contract is negotiated. This in turn leads the Navy and its shipbuilders to rely on cost-reimbursable contracts (rather than fixed-price contracts) that largely leave the Navy responsible for cost growth. Complete information on the systems that will be installed on the ship may not be available, leading to changes that ripple through the design as knowledge grows. Starting construction without a stable design is a common practice and the resulting volatility leads to costly out-of-sequence work and rework. These inefficient practices cause Navy ships to cost more than they otherwise should, reducing the number of ships that can be bought under constrained budgets. The Navy's in-house capability to oversee design and construction has eroded, and it has been slow to build capacity to support new programs. Congress has recently encouraged greater technology maturity and design stability at key points, but required reporting does not directly address completion of a three-dimensional product model. Differences in commercial and Navy practices reflect the incentives of their divergent business models. Commercial shipbuilding is structured on shared priorities between buyer and shipbuilder, a healthy industrial base, and maintaining in-house expertise. The need to sustain profitability incentivizes disciplined practices in the commercial model. In Navy shipbuilding, the buyer favors the introduction of new technologies on lead ships--often at the expense of other competing demands--including fleet size. This focus--along with low volume, a relative lack of shipyard competition, and insufficient expertise--contributes to high-risk practices in Navy programs. Further, the consequences of delayed deliveries and cost growth are not as severe in Navy programs because of the use of cost-reimbursable contracts.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| Congress may wish to consider refining the required reporting on production readiness29 to incorporate additional metrics into the assessment of design stability that address completion of basic and functional design activities and 3D product modeling (when employed). | Congress initiated, but did not complete, action related to our recommendation. Most recently, in its markup of the National Defense Authorization Act for Fiscal Year 2011 (S. 3454), the U.S. Senate refined the production readiness reporting requirements for shipbuilding programs to include assessments of basic and functional design activities and 3D product modeling (when employed) (See Sec. 124). The House mark of the bill did not include this provision, and the passed version of the Act also did not include this provision. No subsequent congressional action occurred on this recommendation. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | The Secretary of Defense should define a shipbuilding acquisition approach that calls for (1) demonstrating balance among program requirements, technology demands, and cost considerations by preliminary design review; (2) retiring technical risk and closing any remaining gaps in design requirements before a contract for detail design is awarded; and (3) stabilizing a ship's design before construction can start. While shipbuilding programs can differ in scope and complexity, any new shipbuilding program should embody these three principles. |
As of February, 2011, DOD updated the Defense Acquisition Guidebook (DAG) to reflect guidance to program managers for shipbuilding programs for demonstrating balance among program requirements, technology demands, and cost considerations by preliminary design review.
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| Department of Defense | To attain the level of knowledge needed to demonstrate balance among requirements, technologies, and cost in programs, the Secretary of Defense should require that by the preliminary design review for a new ship, (1) critical technologies be developed into representative prototypes and successfully demonstrated in a relevant environment and (2) the Navy develop, in cooperation with industry, an analysis of cost and requirements trade-offs that can identify ways to further reduce the technical demands of the ship. |
As of February, 2011, the Department of Defense has updated its Defense Acquisition Guidebook to reflect guidance for program managers ensuring that by preliminary design review for a new ship, critical technologies should be developed into representative prototypes and successfully demonstrated in a relevant environment. This Guidebook also includes guidance stating that by preliminary design review the Navy should, in cooperation with industry, develop an analysis of cost and requirements trade-offs that can identify ways to further reduce the technical demands of the ship.
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| Department of Defense | To attain the level of knowledge needed to retire technical risk and close gaps in design requirements, the Secretary of Defense should require that before a contract is awarded for detail design of a new ship, (1) critical technologies be matured into actual system prototypes and successfully demonstrated in a realistic environment and (2) the Navy provide sufficient time for thorough discussion with the prospective shipbuilder(s) to fully understand the technical specifications that will guide the ship's design and to resolve key differences. |
As of February 2011, DOD has updated its Defense Acquisition Guidebook to reflect guidance for shipbuilding program managers ensuring that before a contract is awarded for detail design of a ship that critical technologies are matured into actual system prototypes and successfully demonstrated in a realistic environment. This Guidebook also provides guidance for ensuring that sufficient time is provided for a thorough discussion with prospective shipbuilder(s) to fully understand the technical specifications that will guide the ship's design and to resolve key differences.
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| Department of Defense | To attain the level of knowledge needed to retire design risk and reduce construction disruptions, the Secretary of Defense should require that by the start of construction for a new ship, the design be stabilized through completion of basic and functional design and 3D product modeling (when employed), with the recognition that complete--versus notional--vendor information must be incorporated for the design to be truly stable. |
As of February 2011, DOD has updated its Defense Acquisition Guidebook to reflect guidance for program managers of shipbuilding programs ensuring that by the start of construction for a new ship, the design be stabilized through completion of and functional design and 3D product modeling (when employed), with the recognition that complete--versus notional--vendor information must be incorporated for the design to be truly stable.
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| Department of Defense | To promote disciplined application of knowledge-based practices in shipbuilding programs, the Secretary of Defense should direct the Secretary of the Navy to report to Congress on what steps and changes in the acquisition process would be needed to allow the Navy to rely primarily upon fixed-price contracts for lead ships within 3 years. |
In June 2011, DOD informed GAO that it did not plan to issue a report to Congress on steps required to transition primarily to fixed price contracts for shipbuilding programs within three years. DOD stated that this report was not requested by Congress through statute, so it was not required. Further, DOD states that the "Better Buying Power: Guidance for Obtaining Greater Flexibility and Productivity in Defense Spending" directs the services to increase the use of fixed price incentive fee contracts where appropriate, making further action on GAO's recommendation unnecessary.
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| Department of Defense | To maximize the Navy's role as an intelligent buyer, the Secretary of Defense should direct the Secretary of the Navy to evaluate the Navy's in-house capability and capacity to provide strong, consistent buyer oversight and to make changes where necessary. |
Since our May 2009 recommendation, the Navy has embarked on a deliberate plan to increase the size of its acquisition workforce by at least 5,000 employees by fiscal year 2015, or about a 12 percent increase. This increase is based upon requirements as outlined by Navy program executive officers, systems commands, and warfare centers. Most notably, the Navy has added 400 acquisition personnel to support shipbuilding programs at the Naval Sea Systems Command. In addition, the Navy has added over 900 acquisition personnel to its warfare centers across the country, that provide critical engineering, integration support, testing, and contracting oversight to all of its shipbuilding programs. These personnel are critical since they represent a part of the pipeline of future Program Managers and Senior Systems Engineers. Further, the Navy has taken advantage of the Defense Acquisition Workforce Development Fund (DAWDF) initiated by Congress and is executing plans to add approximately 800 acquisition interns. As of March 2010, about 30 percent of the Navy's DAWDF Acquisition Workforce hires were in shipbuilding organizations. The Navy has also taken steps to improve its education and training programs in two critical areas of need -- shipbuilding program management and contracting. It has used DAWDF funds to pilot a shipbuilding program manager's course that was successful enough that the Navy is now moving it permanently to its Defense Acquisition University (DAU) program. In addition, because of the difficulty in hiring experienced contracting officers, the Navy has implemented an intense accelerated contracting training program at the Naval Sea Systems Command to increase the number of qualified contracting officers as well as increase retention rates among this group.
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| Department of Defense | To promote efficient investments in fleet capabilities, the Secretary of Defense should assess whether the Navy's desire to provide a certain fleet size sufficiently constrains decisions on the technical content and cost of each new ship class, and recommend changes where necessary. |
As part of its fiscal year 2011 budget submission, the Navy canceled the CG(X) guided missile cruiser program due to (1) the ship's projected high cost and immaturity of its combat systems technology (including evolving joint Ballistic Missile Defense architecture) and (2) the Navy's desire to optimize capacity (ship quantities) within the surface fleet. This decision was driven, in part, by the findings of a radar/hull study that the Navy conducted analyzing the total ship system solution necessary to meet Integrated Air and Missile Defense (IAMD) requirements while balancing affordability and capacity within its surface fleet. Previously, the Navy planned to procure the lead CG(X) in fiscal year 2011. However, following its determination that pursuing a new-design program was infeasible, the Navy now plans to develop a new increment of the DDG 51 program, DDG Flight III, that will be tailored for IAMD. As part of this approach, the Navy expects to develop a smaller, less powerful Air and Missile Defense Radar (AMDR) than envisaged for CG(X) and install it on the new DDG 51 hulls along with necessary hull, power, cooling, and combat systems upgrades. The Navy expects these upgraded DDG 51 class ships to provide a more effective bridge between today?s capability and that originally planned for the CG(X), and it has priced them based on continuation of the existing DDG 51 restart program. The Navy envisions procuring the first DDG Flight III ship in fiscal year 2016.
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