Defense Acquisitions:

Additional Analysis Needed to Capture Cost Differences Between Conventional and Nuclear Propulsion for Navy's Future Cruiser

GAO-09-886R: Published: Aug 7, 2009. Publicly Released: Aug 7, 2009.

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The National Defense Authorization Act for Fiscal Year 2008 requires that any budget request for construction of a new class of major combatant vessels will be for one with an integrated nuclear power system, unless the Secretary of Defense submits notification to Congress that it is not in the national interest to do so. The Navy's Next Generation Cruiser--CG(X)--is subject to this legislation. In response to a congressional request, GAO reviewed the Navy's analysis of options for CG(X), including cost estimates related to building nuclear and conventional cruisers. GAO examined (1) the design concepts included in the CG(X) Analysis of Alternatives, (2) how each ship design concept addresses threats that cause capability gaps for maritime air and missile defense, and (3) how the Navy's methodology and assumptions affect its estimates of the relative costs for conventional and nuclear cruisers. To accomplish this, GAO analyzed CG(X) program documents, interviewed Navy and Department of Defense officials, and assessed the effect of alternative methodologies and assumptions on cost estimates. This letter is an unclassified summary of the classified report.

In the CG(X) Analysis of Alternatives, the Navy identified six ship design concepts. These concepts include developing new designs as well as making modifications to previous hulls. The sensitivity of the radar on each ship design drives the ability of that ship to address threats that cause capability gaps for joint forces. The Navy developed a minimum performance standard that each alternative would need to meet to address the gap. As the radar sensitivity level increases, the capability gaps against these threats diminish because the radar's ability to meet the performance standards improves. The Navy estimated the life-cycle costs for 19 nuclear cruisers and 19 conventional cruisers using the 2007 price of crude oil. Then, in the break-even analysis, the Navy calculated the price of crude oil at which the cost of 19 nuclear cruisers equals the cost of 19 conventional cruisers. Using this analysis, the Navy determined that if oil prices behaved similarly to the past 35 years, the nuclear cruisers would be cheaper than the conventional cruisers. The Navy's analysis does not include: (1) present value analysis to adequately account for the decreasing time value of money, (2) alternative scenarios for the future price of oil, and (3) an examination of how a less efficient conventional propulsion system would affect its cost estimates.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: This recommendation has been overcome by events. After this report was released, the Department of the Navy decided to restart the DDG 51 production line rather than pursue a new platform, CG(X). The Navy has never finalized Phase 2 of the Maritime Air and Missile Defense of Joint Forces Analysis of Alternatives and there are no Navy plans to finalize it so that OSD can complete its sufficiency review since the CG(X) program was cancelled.

    Recommendation: The Secretary of Defense should require that the Navy, before finalizing Phase 2 of the Maritime Air and Missile Defense of Joint Forces Analysis of Alternatives, include present value analysis, alternative fuel scenarios, and analysis on the effect that a less efficient conventional propulsion system has on the cost estimates.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: This recommendation has been overcome by events. As documented in the Navy's Report to Congress on Annual Long-Range Plan for Construction of Naval Vessels for FY 2011, the Navy is not pursuing any new platforms during the FYDP time period that would require an analysis of the trade-off between conventional and nuclear propulsion.

    Recommendation: The Secretary of Defense should require that the Navy include present value analysis and alternative fuel scenarios in any future analyses of the trade-off between conventional and nuclear propulsion.

    Agency Affected: Department of Defense

 

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