Defense: Navy Shipbuilding (2017-18)

In January 2018, the Navy finalized guidance that clarifies the objective (or purpose) for using guarantees—a contract provision that applies to a specified period of time under which the shipbuilder retains responsibility for correcting construction defects that arise on the ship after delivery—and provides guidance about how to use a guaranty. This guidance should help the Navy better ensure the effectiveness of its guaranty in its shipbuilding contracts.

The Navy partially agreed with GAO's March 2016 recommendation. However, based on discussions with Navy officials in March 2021, the Navy does not plan to take any further action to meet the intent of GAO's recommendation. As of January 2022, the Navy has not changed its stance and is not collecting pricing data on warranties to better inform decisions about the use of warranties or guarantees in its ship contracts. In August 2019, GAO found that the Navy did not request warranty pricing on a new class of ships during the procurement process, the FFG(X) Guided Missile Frigate, even though the Navy's purchase of this ship class presented a unique opportunity to gain pricing on a FAR-based warranty in a competitive environment.

In its response, the Navy stated that using up to an unlimited guaranty represented an appropriate balance between cost and risk for the Navy and the shipbuilders. However, by not requesting warranty pricing, the Navy will not have complete information on whether a warranty could be more cost effective than a guaranty. Further, the Navy stated that it requested warranty pricing for its current class of Ship to Shore connectors, but that the contractor declined to submit this pricing. Based on the Navy's response to GAO's report on FFG(X) and consistent with its response to GAO's 2016 report, the Navy maintains that warranties are not practical for Navy ship purchases.

Regardless, GAO continues to encourage the Navy to request additional cost proposals from additional shipbuilders for FAR-based warranties on ship construction contracts. These data will help the Navy to determine if warranties are feasible. To support its decision making, we continue to recommend that the Navy should collect data differentiating the government's and shipbuilder's responsibility for defects and track the costs to correct all defects after ship delivery. Without these data, the Navy cannot make informed decisions regarding whether a FAR-based warranty or other contract mechanism will best protect the government from paying for shipbuilder-responsible defects after ships are delivered.

The Navy agreed with GAO's March 2017 recommendation and has taken action to study and share information on its use of additional incentives on fixed-price incentive contracts across shipbuilding programs. In September 2018, the Center for Naval Analyses issued a report that concluded there was not sufficient evidence to demonstrate that the Navy's use of special incentives on fixed-price incentive contracts across shipbuilding programs was either unproductive or wasteful, or that the use was unequivocally productive and valuable.

In December 2020, the Navy shared lessons learned across the shipbuilding enterprise by building a repository of shipbuilding contracts with special incentives. This included contracts with incentives awarded over approximately the last 10 years for Acquisition Category (ACAT) I and II programs. These programs identified the contract number, program, ACAT, program executive office, incentive type, incentive description, incentive amount, incentive earned to date, lessons learned, and the driving factor or need to establish the incentive. Also in December 2020, the Navy developed and documented a consensus recommendation regarding special incentives for Shipbuilding contracts. These efforts will better ensure that the Navy is sharing information on additional incentives on its fixed-price incentive contracts for shipbuilding programs to inform future contract award decisions.

In January 2021, Congress passed the William H. (Mac) Thornberry National Defense Authorization Act (NDAA) for fiscal year 2021 which set forth several changes to planning, execution, and oversight of life cycle sustainment activities (Pub L. No. 116-283, § 802, 134 Stat. 3388, 3731 (Jan. 1, 2021)). Among other things, the NDAA requires all covered systems to have an approved life cycle sustainment plan with performance goals, a product support strategy, and affordability constraints on each covered programs’ operating and support costs. The NDAA also established critical cost growth parameters of 25 and 50 percent that, if surpassed, will require the program to develop a remediation plan. The NDAA provides the oversight mechanism that will, along with other services, require the Navy to evaluate and report on sustainment cost growth.

The Department of Defense (DOD) agreed with GAO's March 2020 recommendation and as of February 2021, had said it was planning to include the operational availability key performance parameter as a part of the next update to the Joint Capabilities Integration and Development System policy. However, DOD did not specifically state that it would implement GAO's suggested changes to its operational availability metric for shipbuilding and has not determined the schedule for the next update.

In December 2021, Congress passed the National Defense Authorization Act for Fiscal Year 2022, which included a provision for the Chairman of the Joint Chiefs of Staff to review its policy for setting sustainment key performance parameters and key system attributes for shipbuilding programs. Pub. L. No. 117-81, 135 Stat. 1541 (2021). In line with GAO’s recommendation, the law required the Chairman of the Joint Chiefs of Staff to ensure, through this review, that such parameters and attributes account for a comprehensive range of factors that could affect the operational availability and materiel availability of a ship.

As of January 2022, DOD officials had not provided any additional information about the Department’s efforts to implement the recommendation. Until DOD reviews and updates its requirements setting policy, Navy shipbuilding programs cannot reasonably ensure that they are setting sustainment requirements that will result in reliable, maintainable, and available ships.

The Department of Defense (DOD) agreed with GAO's March 2020 recommendation and as of February 2021, had said it was planning to include the materiel availability key performance parameter as a part of the next update to the Joint Capabilities Integration and Development System policy. However, DOD did not specifically state that it would implement GAO's suggested changes to its materiel availability metric for shipbuilding and has not determined the schedule for the next update.

In December 2021, Congress passed the National Defense Authorization Act for Fiscal Year 2022, which included a provision for the Chairman of the Joint Chiefs of Staff to review its policy for setting sustainment key performance parameters and key system attributes for shipbuilding programs. Pub. L. No. 117-81, 135 Stat. 1541 (2021). In line with GAO’s recommendation, the law required the Chairman of the Joint Chiefs of Staff to ensure, through this review, that such parameters and attributes account for a comprehensive range of factors that could affect the operational availability and materiel availability of a ship.

As of January 2022, DOD officials had not provided any additional information about the Department’s efforts to implement the recommendation. Until DOD reviews and updates its requirements setting policy, Navy shipbuilding programs cannot reasonably ensure that they are setting sustainment requirements that will result in reliable, maintainable, and available ships.

The Navy agreed with GAO's March 2020 recommendation and as of February 2021, had said it was planning to revisit its operational availability key performance parameters once the Department of Defense (DOD) updates the Joint Capabilities Integration and Development System policy. However, DOD did not specifically state that it would implement GAO's suggested changes to its operational availability metric for shipbuilding and has not determined the schedule for the next update.

In December 2021, Congress passed the National Defense Authorization Act for Fiscal Year 2022, which included a provision for the Chairman of the Joint Chiefs of Staff to review its policy for setting sustainment key performance parameters and key system attributes for shipbuilding programs. Pub. L. No. 117-81, 135 Stat. 1541 (2021). In line with GAO’s recommendation, the law required the Chairman of the Joint Chiefs of Staff to ensure, through this review, that such parameters and attributes account for a comprehensive range of factors that could affect the operational availability and materiel availability of a ship.

As of January 2022, DOD officials had not provided any additional information about the Navy’s efforts to implement the recommendation. Until the Navy revises its requirements setting policy and updates shipbuilding programs’ operational availability requirements accordingly, shipbuilding programs will continue to be at risk of delivering ships to the fleet that are not as reliable and sustainable as needed.

The Navy agreed with GAO's March 2020 recommendation and as of February 2021, had said it was planning to revisit its materiel availability key performance parameters once the Department of Defense (DOD) updates the Joint Capabilities Integration and Development System policy. However, DOD did not specifically state that it would implement GAO's suggested changes to its materiel availability metric for shipbuilding and has not determined the schedule for the next update.

In December 2021, Congress passed the National Defense Authorization Act for Fiscal Year 2022, which included a provision for the Chairman of the Joint Chiefs of Staff to review its policy for setting sustainment key performance parameters and key system attributes for shipbuilding programs. Pub. L. No. 117-81, 135 Stat. 1541 (2021). In line with GAO’s recommendation, the law required the Chairman of the Joint Chiefs of Staff to ensure, through this review, that such parameters and attributes account for a comprehensive range of factors that could affect the operational availability and materiel availability of a ship.

As of January 2022, DOD officials had not provided any additional information about the Navy’s efforts to implement the recommendation. Until the Navy revises its requirements setting policy and updates shipbuilding programs’ materiel availability requirements accordingly, shipbuilding programs will continue to miss opportunities to make informed acquisition decisions about how ships are maintained and, therefore, may not be able to ensure ships are available for operations when needed.

The Navy agreed with GAO's March 2020 recommendation and stated that it would report on operational and materiel availability in the Selected Acquisition Reports. However, in February 2021, the Department of Defense (DOD) stated that no action is necessary because it would continue to report operational and materiel availability according to a program's approved acquisition program baseline.

As of January 2022, DOD officials had not provided any additional information about the Navy’s efforts to implement the recommendation. Until the Navy updates the operational and materiel availability requirements for shipbuilding programs and includes such revised requirements in their acquisition program baselines, the Selected Acquisition Reports—and any alternatives to the Selected Acquisition Reports—will continue to report information that does not reflect the fleet’s experience with new ship classes. GAO continues to believe that reporting accurate information to Congress is critical to improving ship sustainment.

The Navy agreed with GAO's March 2020 recommendation. In February 2021, the Navy cited recent updates to the Department of Defense (DOD) cost guidance. While one of the DOD guidance documents provides direction on using sensitivity analysis to assess operating and support cost risk, it is unclear if the Navy plans to incorporate this guidance into its own cost estimating procedures.

As of January 2022, DOD officials had not provided any additional information about the Navy’s efforts to implement the recommendation. Until the Navy improves its assessments of operating and support cost risks, it will continue to lack full insight into the range of resources that will potentially be required to sustain new ship classes. 

The Navy initially agreed with GAO's March 2020 recommendation but in February 2021, the Navy stated that it does not need to take any action. Navy officials said that the Navy uses DOD’s life-cycle sustainment plan guidance, which Navy officials said supports the requirements in statute and broader acquisition guidance, and therefore, shipbuilding programs do not need to do anything further. However, as GAO found in its March 2020 report, the Navy’s shipbuilding programs are not fully implementing DOD’s guidance and all of the ship shipbuilding programs GAO reviewed needed to complete or update their life cycle sustainment plans. As such, GAO maintains that to fully implement this recommendation, the Navy needs to complete life-cycle sustainment plans for all of its shipbuilding programs and update those existing plans that do not fully align with the DOD guidance.

As of January 2022, DOD officials had not provided any additional information about the Navy’s efforts to implement the recommendation. Until the Navy ensures all of its shipbuilding programs have life cycle sustainment plans that align with DOD guidance, these programs will continue to make acquisitions decisions without the context of a comprehensive sustainment planning document to help identify and mitigate the sustainment effects of their decisions.

The Navy agreed with GAO's March 2020 recommendation and stated that a Navy Independent Logistics Handbook is in the review process. In addition, as of February 2021, the Navy stated that it was updating its policy and guidance as well as developing a database to track deficiencies identified in an independent logistics assessment until they are resolved.

As of January 2022, DOD officials had not provided any additional information about the Navy’s efforts to implement the recommendation. Until the Navy implements changes to improve the independent logistics assessment process, the Navy will continue to be at risk of not identifying and resolving shipbuilding programs’ sustainment challenges during the acquisition process, before ships are provided to the fleet.

The Navy agreed with GAO's March 2020 recommendation and noted that it established a Deputy Assistant Secretary of the Navy for Sustainment and was executing a new sustainment review. In February 2021, the Navy stated that this office had made progress in developing sustainment performance baselines and updating guidance.

As of January 2022, DOD officials had not provided any additional information about the Navy’s efforts to implement the recommendation. To fully implement the recommendation, the Navy should ensure that the changes it is pursuing result in sustainment-related topics being discussed in all Gate reviews, not just during the new sustainment review that occurs at the end of the Gate review process. GAO maintains that Gate reviews offer Navy leadership key opportunities to ensure shipbuilding programs are adequately considering sustainment goals and planning for sustainment.

The Navy agreed with GAO's March 2020 recommendation. As of January 2022, the Navy stated that it has implemented sustainment program baselines for two air assets but no sea assets. The Navy told GAO it is in the process of updating its acquisition policy to include guidance on the use of sustainment program baselines, after which it plans to begin developing sustainment program baselines for sea assets, including certain ship and submarine programs. GAO will continue to monitor the Navy's implementation of sustainment program baselines for sea assets, as these documents could be used to hold shipbuilding programs accountable to sustainment goals during the acquisition process.

The Navy agreed with GAO's March 2020 recommendation but stated, in February 2021, that it does not need to take action because existing guidance is sufficient. As of January 2022, DOD officials had not provided any additional information about the Navy’s efforts to implement the recommendation. GAO continues to believe that a revision is necessary because current guidance allows product support managers to be appointed as late as milestone B, which is too late for these officials to provide input on key acquisition decisions that affect sustainment, such as development of sustainment requirements and life-cycle sustainment plans. Until the Navy updates its policy to ensure shipbuilding programs appoint product support managers early in the acquisition process, these programs will continue to make critical decisions that affect sustainment without the input of the programs’ senior sustainment official.