Defense Acquisitions:

Navy Faces Challenges Constructing the Aircraft Carrier Gerald R. Ford within Budget

GAO-07-866: Published: Aug 23, 2007. Publicly Released: Sep 24, 2007.

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The Navy is investing over $3 billion to develop technologies for a new type of aircraft carrier--the Ford class--and it expects to spend almost $11 billion to design and construct the USS Gerald R. Ford (CVN 78)--the lead ship of the class. New technologies are to improve the carrier's performance and reduce crew size. The Navy requested authorization of CVN 78 in its fiscal year 2008 budget. GAO was asked to assess the Navy's ability to meet its goals for developing the new carrier. Specifically, this report assesses (1) the extent to which technology development could affect the capability and construction of CVN 78, (2) the status of efforts to achieve design stability, and (3) the challenges to building CVN 78 within budget. To accomplish this, our work includes analysis of test reports, development schedules, and ship progress reviews; interviews with Navy and other officials; and examinations of cost estimates and our own past work.

Delays in technology development may lead to increases in CVN 78's planned construction costs and potential reductions in the ship's capability at delivery. CVN 78's success depends on on-time delivery and insertion of fully mature and operational technologies in order to manage construction costs and enhance ship capabilities. Technologies that are highly integrated into the construction sequence or provide vital capabilities for the ship to carry out its mission are the most critical in achieving this goal. While the Navy has mitigated the impact of some technologies, such as the nuclear propulsion and electric plant, three systems--the electromagnetic aircraft launch system (EMALS), the dual band radar, and the advanced arresting gear--have faced problems during development that may affect the ship's construction costs. The Navy has made significant progress in maturing the ship's design. With about 70 percent of the ship design complete, design appears on track to support the construction schedule. A structured design approach and a lengthy construction preparation contract have enabled the program to perform more work prior to construction than on previous carriers. The program, however, may face challenges completing more detailed phases of design because of the tight schedule remaining for development of the ship's critical technologies, which in turn could impede the design process--and construction--of CVN 78. Costs for CVN 78 will likely exceed the budget for several reasons. First, the Navy's cost estimate, which underpins the budget, is optimistic. For example, the Navy assumes that CVN 78 will be built with fewer labor hours than were needed for the previous two carriers. Second, the Navy's target cost for ship construction may not be achievable. The shipbuilder's initial cost estimate for construction was 22 percent higher than the Navy's cost target, which was based on the budget. Although the Navy and the shipbuilder are working on ways to reduce costs, the actual costs to build the ship will likely increase above the Navy's target. Third, the Navy's ability to manage issues that affect cost suffers from insufficient cost surveillance. Without effective cost surveillance, the Navy will not be able to identify early signs of cost growth and take necessary corrective action.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In providing comments on our draft report, the agency concurred with this recommendation, stating that CVN 78-unique performance requirements and the associated testing schedule will be documented in the CVN 78 Testing and Evaluation Masterplan (TEMP). According to the agency, the TEMP draft (Revision C) is currently under development. This revision is a very significant change from the previous one as it incorporates a mission-level test strategy versus a system-level test strategy. The TEMP will include dual band radar and EMALS test requirements. The current plan is to finalize all technical inputs and stakeholders reviews by 1st quarter FY13 and signed by 3rd quarter FY13. However, as currently planned,the TEMP will not be finalized until after the Navy begins delivery of dual band radar components to the shipyard for installation on the carrier. Therefore any carrier testing that will be conducted will not influence radar development efforts prior to ship installation.

    Recommendation: The Secretary of Defense should identify and schedule carrier-specific tests to ensure that the dual band radar meets carrier-specific requirements.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: According to the agency, the program conducted an Integrated Baseline Review (IBR) in 2009. The IBR helps to ensure that the contractor has established a program management baseline comprised of discrete work packages managed at the control account level. This baseline will be used for all subsequent earned value calculations. While an IBR will ensure the baseline for the CVN 78, the baseline for the construction preparation contract for CVN 79 (the follow on ship in the class) will not be comprised of discrete work packages managed at the control account level. According to Program officials, the contract for CVN 79 is a level of effort type contract. As we reported in GAO-07-866, by using a level of effort approach the Navy is again missing an opportunity to measure the value of work accomplished according to planned budget and schedule--and ultimately an important tool for evaluating contractor performance. With the delay in the start of CVN 79 construction, this will become especially problematic because the Navy will likely contract the shipbuilder to construct advanced production units as part of the scope of the CVN 79 contract--tasks that are clearly discrete and measurable. According to the Navy, they are using a number of other tools, including quarterly program manager briefings to assess contractor performance. Since the contract for CVN 79 has already been awarded, this recommendation is closed, but not implemented.

    Recommendation: To improve shipyard management and promote early recognition of cost issues, the Secretary of Defense should require that earned value management captured in cost performance reports for construction and construction preparation contracts be made up of discrete measurable tasks so that true cost and schedule variances can be identified.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: In response to GAO's draft report (dated July 3, 2007), the Department concurred and stated that the contract for construction of the Gerald R. Ford (known as CVN 78) would require monthly submissions of CPRs. The Department added that the CPRS would include contractor variance reports. On July 19, 2007, the Navy released a request for proposal (RFP) for construction of CVN 78 to the contractor. The RFP requires that the contractor submit monthly CPRS. The contractor was further required to provide a narrative explaining cost and schedule variances above certain thresholds.

    Recommendation: To improve shipyard management and promote early recognition of cost issues, the Secretary of Defense should require monthly cost performance reports that include contractor variance analyses.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: In providing comments on this report, the agency concurred with this recommendation and has begun to take steps to implement our recommendation. According to the agency, the agreed upon action was to increase manning at the Supervisor of Shipbuilding (SUPSHIP). However, as the program office points out the 80 full- time equivalents (FTE) are totals for the entire command--not authorized to exclusively support the CVN 78 contract and were not all intended for cost surveillance activities. Specific to CVN 78, SUPSHIP Newport News (SUPSHIPNN) currently has 5 personnel in the Earned Value Management organization, with four additional hiring actions in progress.

    Recommendation: To improve shipyard management and promote early recognition of cost issues, the Secretary of Defense should develop an independent cost surveillance capability at the cognizant Supervisor of Shipbuilding, Conversion and Repair and ensure that cost surveillance activities begin as soon as actual construction starts.

    Agency Affected: Department of Defense

  5. Status: Closed - Not Implemented

    Comments: The agency did not take any action to implement this recommendation. According to the program office, the Navy did not provide additional information along with its fiscal year 2009 or 2010 budget request, such as a stated confidence level for its cost estimate; the results of tests of key systems or changes in the workload resulting from key system test results. Since 2010 is the last year of the Navy's request for CVN 78 construction funding, we will consider this recommendation closed but not implemented.

    Recommendation: To provide more realism in the budget and minimize the likelihood of CVN 78 cost growth, the Secretary of Defense should provide Congress, along with the budget request: (1) a stated confidence level for the cost estimate; (2) results of tests of key systems and technologies; (3) schedule changes to test, production, or delivery dates for key systems; and (4) the impact of changes and test results of key systems on shipyard costs due to changes in work sequencing and workload management.

    Agency Affected: Department of Defense

  6. Status: Closed - Not Implemented

    Comments: The agency did not take any action to implement this recommendation. Since the recommendation was targeted for fiscal year 2009 and was not implemented we consider it closed.

    Recommendation: To provide more realism in the budget and minimize the likelihood of CVN 78 cost growth, the Secretary of Defense should include in the fiscal year 2009 budget request a revised cost estimate that is based on updated Navy and independent DOD cost estimates and the actual progress in the program.

    Agency Affected: Department of Defense

  7. Status: Closed - Not Implemented

    Comments: In providing comments on our draft report, the agency concurred with this recommendation, stating that CVN 78-unique performance requirements and the associated testing schedule will be documented in the CVN 78 Testing and Evaluation Masterplan (TEMP). According to the agency, the TEMP draft (Revision C) is currently under development. This revision is a very significant change from the previous one as it incorporates a mission-level test strategy versus a system-level test strategy. The TEMP will include dual band radar and EMALS test requirements. The current plan is to finalize all technical inputs and stakeholders reviews by 1st quarter FY13 and signed by 3rd quarter FY13. However, as currently planned,the TEMP will not be finalized until after the Navy begins delivery of dual band radar components to the shipyard for installation on the carrier. Therefore any carrier testing that will be conducted will not influence radar development efforts prior to ship installation.

    Recommendation: The Secretary of Defense should identify and schedule carrier-specific tests to ensure that the dual band radar meets carrier-specific requirements.

    Agency Affected: Department of Defense

 

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