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Testimony: 

Before the Subcommittee on Seapower and Expeditionary Forces, Committee 
on Armed Services, House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2:00 p.m. EDT: 

Tuesday, July 24, 2007: 

Defense Acquisitions: 

Realistic Business Cases Needed to Execute Navy Shipbuilding Programs: 

Statement of Paul L. Francis, Director:
Acquisition and Sourcing Management Team: 

GAO-07-943T: 

GAO Highlights: 

Highlights of GAO-07-943T, a testimony before the Subcommittee on 
Seapower and Expeditionary Forces, Committee on Armed Services, House 
of Representatives 

Why GAO Did This Study: 

The Navy is beset with long-standing problems that affect its ability 
to accomplish ambitious goals for its shipbuilding portfolio. 
Significant cost growth and long schedule delays are persistent 
problems. Making headway on these problems is essential in light of the 
serious budget pressures facing the nation. 

This testimony focuses on (1) cost growth in shipbuilding, (2) 
acquisition approaches in the LPD 17, Littoral Combat Ship, DDG 1000 
and CVN 78 programs and (3) steps the Navy can take to improve its 
acquisition decision-making, particularly the adoption of a knowledge-
based framework. 

What GAO Found: 

The Navy has exceeded its original budget by more than $4 billion for 
the 41 ships under construction at the beginning of this fiscal year. 
And more cost growth is coming. Cost growth is not just a problem for 
lead ships of a new class but also for follow-on ships. For example, 
costs for the first two Littoral Combat Ships have more than doubled. 
Similarly, costs for the first two San Antonio class (LPD 17 and LPD 
18) amphibious ships have increased by over $1.3 billion—almost a 77 
percent increase above the initial budgets. Cost growth of this 
magnitude leads to lost opportunities for tomorrow’s needs. 

These types of problems point to the wisdom of using solid, executable 
business cases to design and build ships. A business case requires a 
balance between the concept selected to satisfy warfighter needs and 
the resources—technologies, design knowledge, funding, time, and 
management capacity—needed to transform the concept into a product, in 
this case a ship. Neither LPD 17 nor the Littoral Combat Ship programs 
was framed around an executable business case; rather, the programs 
pushed ahead without a stable design and without realistic cost 
estimates, resulting in higher costs, schedule delays, and quality 
problems. The Navy has a more thoughtful business case for its next 
generation aircraft carrier and destroyer programs (CVN 78 and DDG 
1000, respectively) before construction, but the programs remain at 
risk for cost growth partly because of continuing efforts to mature 
technologies. GAO’s work on best practices highlights the need for a 
disciplined, knowledge-based approach to help shipbuilding, and other 
defense acquisition programs achieve more successful outcomes. This 
approach is predicated on certain essentials, including: 

* ensuring that technology maturity is proven before a design is 
considered stable and understanding that production outcomes cannot be 
guaranteed until a stable design is demonstrated;

* improving cost estimating to develop initial shipbuilding budgets 
that are realistically achievable; and: 

* improving cost management through increased use of fixed-price 
contracting and comprehensive cost surveillance. 

A significant challenge to adapting a knowledge-based approach is the 
lack of a common understanding across programs regarding the 
definition, timing, and criteria for key knowledge junctures. For 
example, each shipbuilding program seems to have a different measure as 
to how much of the design needs to be complete before beginning ship 
construction. Similarly, there appears to be little criteria across 
programs regarding how much knowledge—such as the percent of ship units 
built—is needed at different decision points, including keel lay, 
fabrication start, and ship launch. 

What GAO Recommends: 

While GAO is making no new recommendations in this testimony, GAO has 
made numerous recommendations through the years to improve business 
cases for Navy acquisitions as well as other Department of Defense 
weapon acquisitions. The Department’s acquisition policies largely 
incorporate these recommendations, but they have not been implemented 
on actual programs. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-943T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Paul L. Francis at (202) 
512-4841 or francisp@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee, 

I am pleased to be here today to discuss the Department of the Navy's 
shipbuilding programs, including its surface combatant programs. The 
Navy has ambitious goals for its shipbuilding programs. The Navy 
expects to build more--and often increasingly complex ships--and 
deliver them to meet warfighter needs, while still achieving reduced 
acquisition and/or life cycle costs. These are admirable goals, 
representing the Navy's desire to provide the fleet with the most 
advanced ships to meet national defense and military strategies. 
However, there is often tension among the Navy's cost, schedule, 
industrial base, and capability goals. While this tension is embedded 
at the beginning of shipbuilding programs, its effects are realized 
later, during ship construction. Budgets set prior to beginning 
construction are not realistically achievable and often include 
optimistic dates for delivery to the fleet. The consequence is often 
that costs increase after construction has begun, schedule targets 
slip, and contract scope is reduced. The LPD 17--the lead ship of the 
San Antonio class amphibious ships--is a case in point. The cost to 
construct the ship has more than doubled, delivery was delayed by over 
3 years, and ship quality ultimately compromised. 

Today, I would like to discuss (1) cost growth in shipbuilding 
programs, (2) acquisition approaches in the LPD 17, Littoral Combat 
Ship (LCS), the next-generation destroyer and aircraft carrier programs 
(DDG 1000 and CVN 78, respectively), and (3) steps the Navy can take to 
improve its acquisition decision making, particularly the adoption of a 
knowledge-based management framework. 

Summary: 

Cost growth in shipbuilding programs remains a problem. Ships under 
construction at the beginning of the fiscal year have experienced 
cumulative cost growth almost $5 billion above their original budgets. 
Cost growth displaces other ships contemplated in the Navy's 30-year 
shipbuilding plan and reduces the buying power of the shipbuilding 
budget. 

This cost growth illustrates the problems that arise when programs 
proceed without a solid business case. A business case requires a 
balance between the concept selected to satisfy warfighter needs and 
the resources--technologies, design knowledge, funding, time, and 
management capacity--needed to transform the concept into a product, in 
this case a ship. Both the LPD 17 and the LCS programs illustrate the 
perils of proceeding without a solid, executable business case. Both 
programs pushed ahead without stable designs or realistic cost and 
schedule estimates, resulting in higher costs, schedule delays, and 
quality problems. 

A paradigm shift is needed for shipbuilding programs. Technology 
maturity must be proved before a design can be considered stable, and 
production outcomes cannot be guaranteed until a stable design is 
demonstrated. The Navy also needs to: 

² define and align knowledge points more consistently across programs 
to optimize resource allocation and improve performance; 

² ensure initial shipbuilding budgets are realistic by improving cost 
estimating, and: 

² improve cost management through increased use of fixed-price 
contracting and comprehensive cost surveillance. 

Cost Growth Remains a Problem in Navy Shipbuilding Programs--and May 
Threaten Future Success: 

Cost growth is a persistent problem for shipbuilding programs as it is 
for other weapon systems. Over 40 ships were under construction at the 
beginning of this fiscal year. If the performance of future 
shipbuilding programs continues at the same rate as current programs, 
the Navy will be forced to fund cost growth in future budget years at 
the expense of other ships in the Navy's shipbuilding plan. 

Funding for the 41 ships under construction is over $56 billion, almost 
$4.6 billion above initial budget requests.[Footnote 1] Congress has 
already appropriated additional funds to cover most of these cost 
increases (see table 1). 

Table 1: Cost Growth in Program Budgets for Ships under Construction in 
Fiscal Year 2007: 

Dollars in millions: 

Ship: CVN 77; 
Initial budget: $4,975; 
Fiscal year 2008 or latest President's budget: $5,822; 
Total cost growth: $847; 
Cost growth as a percent of initial budget: 17%. 

Ship: DDG 100-112; 
Initial budget: 14,309; 
Fiscal year 2008 or latest President's budget: 14,679; 
Total cost growth: 370; 
Cost growth as a percent of initial budget: 3. 

Ship: LCS 1-LCS 2[A]; 
Initial budget: 472; 
Fiscal year 2008 or latest President's budget: 1,075; 
Total cost growth: 603; 
Cost growth as a percent of initial budget: 128. 

Ship: LHD 8; 
Initial budget: 1,893; 
Fiscal year 2008 or latest President's budget: 2,196; 
Total cost growth: 303; 
Cost growth as a percent of initial budget: 16. 

Ship: LPD 18-23[B]; 
Initial budget: 6,194; 
Fiscal year 2008 or latest President's budget: 7,742; 
Total cost growth: 1,548; 
Cost growth as a percent of initial budget: 25. 

Ship: SSN 775-783[C]; 
Initial budget: 20,744; 
Fiscal year 2008 or latest President's budget: 21,678; 
Total cost growth: 934; 
Cost growth as a percent of initial budget: 5. 

Ship: T-AKE 1-9; 
Initial budget: 3,354; 
Fiscal year 2008 or latest President's budget: 3,386; 
Total cost growth: 32; 
Cost growth as a percent of initial budget: 1. 

Ship: Total: 41 ships; 
Initial budget: $51,941; 
Fiscal year 2008 or latest President's budget: $56,578; 
Total cost growth: $4,637; 
Cost growth as a percent of initial budget: [Empty]. 

Source: GAO analysis of Navy data. 

[A] Includes about $484 million in reprogrammed funding requested by 
the Navy through June 2007. A small amount of these funds may be 
designated for certain LCS research and development activities. 

[B] Includes $29.3 million in reprogrammed funding requested by the 
Navy in 2007 to complete LPD 18 and LPD 20. 

[C] The Navy has transferred $25.5 million in funding from SSN 776 to 
cover the costs of completing SSN 775 after delivery--and believes that 
additional unfunded shortfalls may still exist. 

Note: For ships constructed on the Gulf Coast, cost growth can be 
attributed in part to the effects of Hurricanes Katrina and Rita. The 
Navy has already received over $1.1 billion in funding, and an 
additional $1.3 billion has also been appropriated for hurricane- 
related damages, but it has not yet been allocated to individual 
programs. 

[End of table] 

Breaking these costs down further reveals the dynamics of shipbuilding 
cost growth and the challenges it presents for the 30 year shipbuilding 
plan. For example, cost growth in mature programs, like the Arleigh 
Burke class destroyers (DDG 100-112) is low because most cost growth 
has already been captured in earlier ships. Cost growth in the Virginia 
class submarines (SSN 775-783) and the Lewis and Clark class auxiliary 
ships (T-AKE 1-9) is also low because they include several ships early 
in construction--before cost growth tends to occur. On the other hand, 
cost growth is particularly high on lead ships of a new class (see fig. 
1). 

Figure 1: Cost Growth in Lead Ships and Significant Follow-ons (Dollars 
in Millions): 

[See PDF for image] 

Source: GAO analysis of Navy data. 

[A] LCS 1 and 2 include about $484 million in reprogrammed funding 
requested by the Navy through June 2007. A small amount of these funds 
may be designated for certain LCS research and development activities. 

[B] Includes $20.6 million in reprogrammed funding requested by the 
Navy in 2007 to complete LPD 18. 

[C] SSN 774 and LPD 17 were delivered in October 2004 and January 2005, 
respectively. 

[D] The Navy has transferred $25.5 million in funding from SSN 776 to 
cover the costs of completing SSN 775 after delivery--and believes that 
additional unfunded shortfalls may still exist. 

[End of figure] 

Cost growth for recent lead ships has been on the order of 27 
percent.[Footnote 2] The Navy is developing two lead ships in the LCS 
program--each with a unique design. These ships have already 
experienced a 128 percent cost growth. Cost increases are also 
significant if the second ship is assembled at a different shipyard 
than the first ship. This is the case with SSN 775, which has had cost 
growth of well over $500 million. Although the ship has been delivered, 
the Navy continues to incur costs for unfinished work. 

Follow-on ships in many cases are also experiencing significant cost 
increases in construction. Although LPD 18 is the second ship of the 
class, construction costs grew by over $500 million--a more than 90 
percent increase over its initial budget for construction. LPD 18 has 
recently been delivered, but the Navy requested an additional $20.6 
million in reprogrammed funding in 2007 to complete the ship. Cost 
growth is particularly prevalent where major changes were made to an 
existing ship design. For example, CVN 77 is the final aircraft carrier 
of the Nimitz class and is based on the design of previous carriers, 
but it included over 3,500 design changes. CVN 77 has experienced cost 
growth in construction of over $847 million--a 17 percent increase over 
the initial budget. 

Besides lead and mature ships, a number of ships under construction may 
not have realized the full extent of cost growth--which tends to lag 
behind the initial budget request by several years. In fact, the 
magnitude of cost growth occurs in later phases of construction--after 
ships are 60 percent or more complete (see fig. 2). 

Figure 2: Figure 2 Cost Growth in Ships by Percent of Construction 
Completed: 

[See PDF for image] 

Source: GAO analysis of Navy data. 

[End of figure] 

The current budgets for many ships have already proven inadequate to 
cover the likely costs to complete construction. Funding has been 
transferred from other Navy programs, obtained through prior year 
completion requests or shifted away from future build plans. The most 
prominent example is the LCS program. The Navy has already reprogrammed 
almost $485 million to fund cost increases for the first two LCS and 
deleted three Flight 0 ships from its budgets. The Navy transferred 
about $62 million in funding from future T-AKE ships to cover cost 
increases on the first two ships under construction. In the Virginia- 
class program, the Navy estimates about $130 million shortfall and 
plans to cover the shortfall from transfers from within the program. In 
December 2006, the Navy believed that about $67 million would be needed 
to complete LPD 20 and LPD 21. However, Navy officials stated that 
these estimates are too conservative because they represent cost growth 
against the current contract baseline for LPD ships under construction. 
The Navy anticipates increasing the baseline for the LPD 17 ships-- 
resulting in even higher completion costs. 

If current patterns of performance continue in the future, the Navy's 
shipbuilding plan will be in jeopardy. The Navy outlined its strategy 
for achieving a 313-ship force in its updated long-range shipbuilding 
plan. Over the next 5 years, the Navy plans to significantly increase 
the rate of construction and introduce nine new classes of ships, 
including the Ford-class aircraft carrier (CVN 78) and the Zumwalt- 
class destroyer (DDG 1000). To support the plan, the Navy will require 
shipbuilding funding significantly above current levels--on the order 
of $5 billion more by fiscal year 2013. The Navy recognizes that the 
success of the plan will depend on its ability to realistically 
estimate and control shipbuilding costs. Over the next year the Navy 
will begin construction of CVN 78, DDG 1000, and LHA 6 amphibious 
assault ship. The Navy estimates that these ships alone will require 
nearly $20 billion in construction funding, representing the Navy's 
most costly lead ships. Even a small percentage of cost growth on the 
big ships could lead to the need for hundreds of millions of dollars in 
additional funding. 

Shipbuilding Programs Often Have Unexecutable Business Cases: 

Navy shipbuilding programs are often framed around an unexecutable 
business case, whereby ship designs seek to accommodate immature 
technologies, design stability is not achieved until late in 
production, and both cost and schedule estimates are unrealistically 
low. This situation has recently been evidenced in the LPD 17 and LCS 
programs, which have required costly out-of-sequence work during 
construction. The DDG 1000 and CVN 78 programs are at risk because of 
lingering technology immaturity, coupled with cost and schedule 
estimates with little margin for error. 

Elements of a Business Case: 

We have frequently reported on the wisdom of using a solid, executable 
business case before committing resources to a new product development 
effort. In its simplest form, a business case requires a balance 
between the concept selected to satisfy warfighter needs and the 
resources--technologies, design knowledge, funding, time, and 
management capacity--needed to transform the concept into a product, in 
this case a ship. At the heart of a business case is a knowledge-based 
approach that requires that managers demonstrate high levels of 
knowledge as the program proceeds from technology development to system 
development and, finally, production. Adapting this approach to 
shipbuilding is a challenge, as I will discuss later. Ideally, in such 
an approach, key technologies are demonstrated before development 
begins. The design is stabilized before the building of prototypes or, 
in the case of ships, construction begins. At each decision point, the 
balance among time, money, and capacity is validated. In essence, 
knowledge supplants risk over time. 

A sound business case would establish and resource a knowledge-based 
approach at the outset of a program. We would define such a business 
case as firm requirements, mature technologies, and an acquisition 
strategy that provides sufficient time and money for design activities 
before construction start. The business case is the essential first 
step in any acquisition program that sets the stage for the remaining 
stages of a program, namely the business or contracting arrangements 
and actual execution or performance. If the business case is not sound, 
the contract will not correct the problem and execution will be subpar. 
This does not mean that all potential problems can be eliminated and 
perfection achieved, but rather that sound business cases can get the 
Navy better shipbuilding outcomes and better return on investment. If 
any one element of the business case is weak, problems can be expected 
in construction. The need to meet schedule is one of the main reasons 
why programs cannot execute their business cases. This pattern was 
clearly evident in both the LPD 17 and LCS programs. In both cases, the 
program pushed ahead with production even when design problems arose or 
key equipment was not available when needed. Short cuts, such as doing 
technology development concurrently with design and construction, are 
taken to meet schedule. In the end, problems occur that cannot be 
resolved within compressed, optimistic schedules. Ultimately, when a 
schedule is set that cannot accommodate program scope, delivering an 
initial capability is delayed and higher costs are incurred. 

In shipbuilding programs, the consequences of moving forward with 
immature technologies or an unstable design become clear once ship 
construction begins. Ships are designed and constructed with an optimal 
sequence--that is, the most cost-efficient sequence to construct the 
ship. This includes designing and building the ship from the bottom up 
and maximizing the units completed in shipyard shops and installed in 
the dry dock while minimizing tasks performed when the ship is already 
in the water, which tend to be costlier than tasks on land. Once units 
are installed access to lower decks of the ship becomes more difficult. 
If equipment is not ready in time for installation, the shipbuilder 
will have to work around the missing equipment. Additional labor hours 
may be needed because spaces will be less accessible and equipment may 
require more time for installation. 

Business Cases Deteriorated with Construction of LPD 17 and Littoral 
Combat Ships: 

What happens when the elements of a solid business case are not 
present? Unfortunately, the results have been all too visible in the 
LPD 17 and the LCS. Ship construction in these programs has been 
hampered throughout by design instability and program management 
challenges that can be traced back to flawed business cases. The Navy 
moved forward with ambitious schedules for constructing LPD 17 and LCS 
despite significant challenges in stabilizing the designs for these 
ships. As a result, construction work has been performed out of 
sequence and significant rework has been required, disrupting the 
optimal construction sequence and application of lessons learned for 
follow-on vessels in these programs. 

In the LPD 17 program, the Navy's reliance on an immature design tool 
led to problems that affected all aspects of the lead ship's design. 
Without a stable design, work was often delayed from early in the 
building cycle to later, during integration of the hull. Shipbuilders 
stated that doing the work at this stage could cost up to five times 
the original cost. The lead ship in the LPD class was delivered to the 
warfighter incomplete and with numerous mechanical failures, resulting 
in a lower than promised level of capability. These problems continue 
today--2 years after the Navy accepted delivery of LPD 17. Recent sea 
trials of the ship revealed problems with LPD 17's steering system, 
reverse osmosis units, shipwide area computing network, and electrical 
system, among other deficiencies. Navy inspectors noted that 138 of 943 
ship spaces remained unfinished and identified a number of safety 
concerns related to personnel, equipment, ammunition, navigation, and 
flight activities. To date, the Navy has invested over $1.75 billion 
constructing LPD 17. 

In the LCS program, design instability resulted from a flawed business 
case as well as changes to Navy requirements. From the outset, the Navy 
sought to concurrently design and construct two lead ships in the LCS 
program in an effort to rapidly meet pressing needs in the mine 
countermeasures, antisubmarine warfare, and surface warfare mission 
areas. The Navy believed it could manage this approach, even with 
little margin for error, because it considered each LCS to be an 
adaptation of an existing high-speed ferry design. It has since been 
realized that transforming a high-speed ferry into a capable, 
networked, survivable warship was quite a complex venture. 
Implementation of new Naval Vessel Rules (design guidelines) further 
complicated the Navy's concurrent design-build strategy for LCS. These 
rules required program officials to redesign major elements of each LCS 
design to meet enhanced survivability requirements, even after 
construction had begun on the first ship. While these requirements 
changes improved the robustness of LCS designs, they contributed to out 
of sequence work and rework on the lead ships. The Navy failed to fully 
account for these changes when establishing its $220 million cost 
target and 2-year construction cycle for the lead ships. 

Complicating LCS construction was a compressed and aggressive schedule. 
When design standards were clarified with the issuance of Naval Vessel 
Rules and major equipment deliveries were delayed (e.g., main reduction 
gears), adjustments to the schedule were not made. Instead, with the 
first LCS, the Navy and shipbuilder continued to focus on achieving the 
planned schedule, accepting the higher costs associated with out of 
sequence work and rework. This approach enabled the Navy to achieve its 
planned launch date for the first Littoral Combat Ship, but required it 
to sacrifice its desired level of outfitting. Program officials report 
that schedule pressures also drove low outfitting levels on the second 
Littoral Combat Ship design as well, although rework requirements have 
been less intensive to date. However, because remaining work on the 
first two ships will now have to be completed out-of-sequence, the 
initial schedule gains most likely will be offset by increased labor 
hours to finish these ships. 

The difficulties and costs discussed above relate to the LCS seaframe 
only. This program is unique in that the ship's mission equipment is 
being developed and funded separately from the seaframe. The Navy faces 
additional challenges integrating mission packages with the ships, 
which could further increase costs and delay delivery of new 
antisubmarine warfare, mine countermeasures, and surface warfare 
capabilities to the fleet. These mission packages are required to meet 
a weight requirement of 180 metric tons or less and require 35 
personnel or less to operate them.[Footnote 3] However, the Navy 
estimates that the mine countermeasures mission package may require an 
additional 13 metric tons of weight and 7 more operator personnel in 
order to deploy the full level of promised capability. Because neither 
of the competing ship designs can accommodate these increases, the Navy 
may be forced to reevaluate its planned capabilities for LCS. 

DDG 1000 and CVN 78 Have More Thoughtful Business Cases, but 
Significant Technical Risks Remain: 

Figure 3: Elements of a successful business case are present in the 
Navy's next-generation shipbuilding programs--CVN 78 and DDG 1000. The 
Navy's plans for these programs call for a better understanding of the 
designs of these ships prior to beginning construction, thereby 
reducing the risk of costly design changes after steel has been bent 
and bulkheads built. Yet some elements of their business cases put 
execution within budgeted resources at risk. While the Navy has 
recognized the need to mature each ship's design before beginning 
construction, CVN 78 and DDG 1000 remain at risk of cost growth due to 
continuing efforts to mature technologies. Success in these programs 
depends on on-time delivery and installation of fully mature and 
operational technologies in order to manage construction costs. Budgets 
and schedules for each ship leave little if any margin for error. 

DDG 1000: 

The DDG 1000 development has been framed by challenging multi-mission 
requirements, resultant numerous technologies and a tight construction 
schedule driven by industrial base needs. In the DDG 1000 program, the 
Navy estimates that approximately 75 percent of detail design will be 
completed prior to the start of lead ship construction in July 2008. 
Successfully meeting this target, however, depends on maturing 12 
technologies as planned. Currently, three of these technologies are 
fully mature. Two DDG 1000 technologies--the volume search radar and 
total ship computing environment--have only completed component-level 
demonstrations and subsequently remain at lower levels of maturity. 
Schedule constraints have also forced the Navy to modify its test plans 
for the integrated power system and external communication systems. 

The volume search radar, one of two radars in the dual band radar 
system, will not have demonstrated the power output needed to meet 
requirements even after integrated land-based testing of the prototype 
radar system is completed in 2009. Production of the radars, however, 
is scheduled to begin in 2008, introducing additional risk if problems 
are discovered during testing. According to Navy officials, in the 
event the volume search radar experiences delay in testing, it will not 
be integrated as part of the dual band radar into the DDG 1000 
deckhouse units that will be delivered to the shipbuilders. Instead, 
the Navy will have to task the shipbuilder with installing the volume 
search radar into the deckhouse, which program officials report will 
require more labor hours than currently allocated. The DDG 1000 
program's experience with the dual band radar has added significance as 
the same radar will be used on CVN 78. 

In the case of the DDG 1000 total ship computing environment, the Navy 
is developing hardware infrastructure and writing and releasing six 
blocks of software code. Although development of the first three 
software blocks progressed in line with cost and schedule estimates, 
the Navy has been forced to defer some of the functionalities planned 
in software release four to software blocks five and six due to changes 
in availability of key subsystems developed external to the program, 
introduction of non development items, and changes in program 
integration and test needs. The Navy now plans to fully mature the 
integrated system following ship construction start-- an approach that 
increases program exposure to cost and schedule risk in production. 

The DDG 1000 program also faces challenges completing testing for its 
integrated power system and external communications systems. Currently, 
shipbuilder-required equipment delivery dates for these systems do not 
permit time for system-level land-based integration testing prior to 
delivery. As a result, the Navy has requested funds in fiscal year 2008 
for the third shipset of this equipment so that testing can be 
completed without interrupting the planned construction schedules of 
the first two ships. However, in the event problems are discovered, DDG 
1000 construction plans and costs could be at risk. 

CVN 78: 

The Navy has completed the basic design of CVN 78, and the shipbuilder 
is currently developing the carrier's more detailed design. According 
to the shipbuilder, about 70 percent of CVN 78's design is complete, 
with almost all of the very low decks of the ship completely designed. 
Progress in designing CVN 78 is partially the result of a longer 
preparation period that has enabled the shipbuilder to design more of 
the ship prior to construction than was the case on previous carriers. 
However, the Navy may face challenges in maintaining its design 
schedule because of delays in the development of the ship's critical 
technologies. Such delays could impede the completion of the ship's 
design and interfere with the construction of the ship. 

CVN 78 will feature an array of advanced technologies such as a new 
nuclear propulsion and electric plant, an electromagnetic aircraft 
launch system (EMALS) and an improved aircraft arresting system. These 
technologies, along with an expanded and improved flight deck, are 
designed to significantly improve performance that the Navy believes 
will simultaneously reduce acquisition and life cycle costs compared to 
previous carriers. The Navy has focused much attention on developing 
technologies and has retired much risk. Yet risk remains. The schedule 
for installing CVN 78's technologies takes advantage of construction 
efficiencies. The shipbuilder has identified key dates when 
technologies need to be delivered to the yard in order to meet its 
optimal construction schedule. A number of CVN 78's technologies have 
an increased potential to affect this schedule because they are (1) 
located low in the ship and needed early in construction or (2) highly 
integrated or embedded in the ship's design. The dual band radar is 
integrated into the design of the carrier's island and is critical to 
the smaller island design. EMALS crosses 48 of the ship's 423 zones (or 
separate units that make up the ship's design). For example, problems 
with EMALS could have a cascading effect on other areas of the ship. 

While the Navy has mitigated the risk posed by some technologies, like 
the nuclear propulsion and electric plant, key systems, in particular, 
EMALS, the advanced arresting gear, and the dual band radar have 
encountered difficulties during development that will likely prevent 
timely delivery to the shipyard. Challenges include the following: 

² EMALS encountered technical difficulties developing the prototype 
generator and meeting detailed Navy requirements, which led to 
increased program costs and an over 15-month schedule delay. To meet 
shipyard dates for delivering equipment, the contractor eliminated all 
schedule margin, normally reserved for addressing unknown issues. Yet, 
significant challenges lay ahead--the Navy will begin testing a 
production representative system in 2008, and the shipboard system will 
be manufactured in a new facility inexperienced with production. If 
problems occur in testing or production, the contractor will not be 
able to meet its delivery date to the shipyard, causing work to be done 
out of sequence. 

² The advanced arresting gear program faced difficulties delivering 
drawings to the Navy, leading to program delays. Schedule delays have 
slipped the production decision and delivery to CVN 78 by 6 months. In 
an effort to maintain shipyard delivery dates, the Navy has 
consolidated upcoming test events--increasing test cycles and 
eliminating schedule margin. However, by compressing test events, the 
Navy will have little time to address any problems prior to production 
start. Late delivery of the advanced arresting gear will require 
installation after the flight deck has been laid. The shipbuilder will 
expend additional labor to lower the system into place through a hole 
cut in the flight deck. 

² The dual band radar presents the most immediate risk to the DDG 1000 
program, but delays in production could cascade down to CVN 78-- 
affecting delivery to the shipyard. Moreover, upcoming land-based 
testing will not include certain demonstrations of carrier-specific 
performance. In particular, the Navy has not yet scheduled tests to 
verify the radar's air traffic control capability, but expects such 
demonstrations will occur by the end of fiscal year 2012. This leaves 
little to no time to make any necessary changes before the radar's 2012 
in-yard date. 

The CVN 78 business case also faces risks in the area of cost because 
the estimate that underpins the budget is optimistic. For example, the 
Navy estimates that fewer labor hours will be needed to construct CVN 
78 than the previous two carriers--even though it is a lead ship that 
includes cutting edge technologies and a new design. Although the Navy 
is working with the shipbuilder now to reduce costs prior to the award 
of a construction contract (scheduled for early next year) through such 
measures as subsidizing capital expenditures to gain greater shipyard 
efficiency, costs will likely exceed budget if technologies or other 
materials are delivered late or labor hour efficiencies are not 
realized. 

A Disciplined, Knowledge-Based Process Is Key to Better Outcomes: 

How can the Navy achieve better outcomes in its shipbuilding programs? 
Our work on best practices highlights the need for a disciplined, 
knowledge-based approach so that programs proceed with a high 
probability of success. This means technology maturity must be proven 
before a design can be considered stable, and production outcomes 
cannot be guaranteed until a stable design is demonstrated. The 
challenge in adapting such an approach to shipbuilding is determining 
when these levels of knowledge should be reached in shipbuilding 
programs and what standards should serve as criteria for demonstrating 
this knowledge. It seems that no two shipbuilding programs are run the 
same way. For example, it can be agreed that key aspects of a ship's 
detail design must be completed before construction begins. However, 
what those aspects are or how they should be measured is not defined. 
What may be acceptable in one shipbuilding program is not acceptable in 
another. In our reviews of ship programs, the definition of phases, 
strategies, and decision points varies from program to program. In 
addition to defining key junctures of knowledge, standards, and 
corresponding decision points for shipbuilding programs, there are 
other steps the Navy could take that would better inform its 
acquisition decision making in shipbuilding programs. These include: 

² ensuring that initial shipbuilding budgets are realistically 
achievable by improving cost estimating, and: 

² improving cost management through increased use of fixed-price 
contracting and comprehensive cost surveillance. 

Aligning Knowledge and Decision Points Consistently across Shipbuilding 
Programs: 

Each shipbuilding program seems to embody its own strategy for making 
decisions. In programs other than shipbuilding, the Milestone B 
decision represents the commitment to design and develop a system, at 
which time requirements should be firm and critical technologies 
mature. Milestone B means different things in different shipbuilding 
programs. The CVN 21 program held its Milestone B review shortly before 
a preliminary design review, and 3 years before the planned approval 
for the construction contract. The Milestone B review for DDG 1000-- 
called DD(X) at the time--occurred over 1 year after the preliminary 
design review and shortly after the critical design review--it was used 
to authorize negotiation of a construction contract. The LCS program 
has received authorization for construction for six ships--it has yet 
to hold a Milestone B review. 

The need for a common understanding of what Milestone B represents is 
all the more important given the requirements for certification at 
Milestone B enacted by Congress in 2006.[Footnote 4] These provisions 
require the decision authority to certify that, among other things, 

² the technology has been demonstrated in a relevant environment, 

² requirements have been approved by the Joint Requirements Oversight 
Council, 

² the program is affordable, and: 

² the program demonstrates a high likelihood of accomplishing its 
intended mission. 

We believe that the certification for all shipbuilding programs should 
take place at the same point. The uniqueness of individual program 
strategies leads to similar challenges in trying to establish what 
level of knowledge is needed at subsequent critical junctures in 
shipbuilding programs. Each shipbuilding program seems to have a 
different measure as to how much of the design needs to be complete-- 
and what constitutes design readiness--prior to beginning ship 
construction. It seems to us that there should be clear metrics for 
what the Navy expects at key junctures across all shipbuilding 
programs. Further, there appears to be few criteria across shipbuilding 
programs regarding how much knowledge--such as the percentage of ship 
units built--is needed at different decision points, including keel 
lay, fabrication start, and ship launch. A clearer understanding of the 
key knowledge junctures and corresponding criteria across shipbuilding 
programs would help establish a better basis for cost and schedule 
estimates. 

Establishing Executable Program Budgets through Improved Cost 
Estimating: 

As we have seen, the Navy's track record for achieving its initial 
budgets for shipbuilding programs has not been good. If we expect 
programs to be executed within budget, programs need to begin with 
realistic budgets. Since ship construction is generally budgeted in 1 
fiscal year--or in the case of CVN 78 and DDG 1000--over 2 years, it is 
essential that the Navy understand and plan for the likely costs of the 
ship when construction is authorized. A ship's initial budget will, in 
large part, determine whether and how much cost growth will occur and 
require funding in later years. 

The foundation of an executable budget is a realistic cost estimate 
that takes into account the true risk and uncertainty in a program. 
Realistic cost estimates are important not only because they are used 
to establish program budgets, but also because they help enable the 
Navy to determine priorities, including whether to proceed with a 
program. Our past work has shown that the Navy tends to underestimate 
the costs needed to construct ships--resulting in unrealistic budgets 
and large cost increases after ship construction has begun. Initial 
estimates of LPD 17 and LCS 1 assumed significant savings based on 
efficiencies that did not materialize as expected. Future ships like 
CVN 78 make similar assumptions. 

One way to improve the cost-estimating process is to present a 
confidence level for each estimate, based on risk and uncertainty 
analyses. By conducting an uncertainty analysis that measures the 
probability of cost growth, the Navy can identify a level of confidence 
for its estimates and determine whether program costs are realistically 
achievable. Navy cost analysts told us that they used quantitative risk 
analyses to test the validity of cost estimates of CVN 78 and DDG 1000. 
We believe that the Navy and the Department of Defense (DOD) should 
take this a step further--requiring a high confidence level threshold 
when making program commitments and budget requests. The Defense 
Acquisition Performance Assessment Panel recommended an 80 percent 
confidence level, meaning that a program has an 80 percent chance of 
achieving its estimated costs.[Footnote 5] Whether this is the right 
level warrants thoughtful discussion, but it is worth noting that 
analyses for CVN 78 and DDG 1000 were well below an 80 percent 
confidence level (in the case of DDG 1000 at around 45 percent)-- 
increasing the likelihood that costs will grow above budget. 

Timing is also an important element for achieving realism in budgets. 
In the past, the Navy has generally requested approval for detail 
design and construction of the lead ship at the same time. As a result, 
construction budgets did not benefit from the knowledge gained in 
system design or early stages of detail design. An alternative approach 
is to separate the decision to fund detail design from the decision to 
fund construction. The benefits of this approach are evident in the 
funding of DDG 1000. The Navy first requested funding for detail design 
and construction of the lead ship in its fiscal year 2005 budget 
request, estimating these costs to total $2.7 billion. Congress did not 
fund construction of the lead ship, but instead funded detail design 
and purchase of some materials in the fiscal years 2005 and 2006 
budgets. In March 2005, the Navy completed a life-cycle cost estimate 
for the ship that placed the cost of DDG 1000 at $3.3 billion. DOD 
independent cost analysts estimated even higher costs. The budget 
request for fiscal years 2007 and 2008 included $3.3 billion for each 
of the two lead ships, reflecting an improved understanding of budget 
requirements compared to the initial fiscal year 2005 request. 

Better Management of Costs through Fixed-Price Contracting and 
Comprehensive Cost Surveillance: 

The Navy can take other steps to improve the outcomes of its 
shipbuilding programs by strengthening its cost management capability, 
including: 

² greater use of fixed-price contracting and: 

² enhanced and comprehensive cost surveillance: 

Fixed-priced-Contracting for Construction: 

In an effort to improve cost management, the Navy is promoting fixed- 
priced contracts for ship construction. In a fixed-price incentive 
contract, costs above a target are shared with the contractor, up to a 
ceiling price. Both the target cost and price ceiling are negotiated at 
the outset. The contractor is responsible for costs above the ceiling 
price, limiting the government's cost risk. In shipbuilding, lead ships 
are commonly done under cost-plus-incentive-fee contracts as are some 
follow-on ships. Under these contracts, the government is responsible 
for paying allowable costs incurred and the fee will be adjusted 
according to a negotiated formula. The first five LPD 17 ships use cost-
plus-incentive-fee contracts and the first two LCS are being built 
under cost-type contracts. The Navy typically uses fixed-priced 
incentive contracts for ships that are later in the class, including 
DDG 51 class destroyers and CVN 77, and for all ships in the T-AKE 
class of auxiliary ships, a less complex ship. 

We are encouraged by the Navy's efforts to move to fixed-price 
contracts. Fixed-price contracts limit the government's risk of cost 
growth while encouraging realism in negotiating contract prices and 
careful cost management. However, the move to fixed-price contracting 
is feasible only if risks can be understood and managed. If the Navy is 
to use fixed-price contracts for the second or third ship in the class-
-or even the lead ship--it must supplant risk with knowledge. We are 
convinced that a move to fixed-price contracting will only succeed if 
the Navy adopts a more disciplined process, one that ensures that the 
elements of an executable business case exist as the development effort 
begins. If technologies are still being demonstrated, the delivery of 
critical systems when needed cannot be assured. Nor can designs be 
finalized. Increased used of fixed-price contracting requires that 
technologies be demonstrated early, the design stabilized before 
construction begins, and realistic estimates for cost and schedule 
made. 

Cost Surveillance: 

Given the risk of cost growth in shipbuilding, it is equally important 
that the Navy strengthen its oversight of shipyard cost performance. 
Our work has shown that the Navy may not have adequate management tools 
necessary to identify and react to early signs of cost growth. In 
particular, in the CVN 78 program the Navy has not effectively used 
earned value management data captured in cost performance reports 
submitted by the contractor. Earned value management is a tool that 
provides the government and contractors with insight into technical, 
cost, and schedule progress on their contracts. Although the 
shipbuilder is designing much of CVN 78 prior to the award of the 
construction contract, we found that contractor cost performance 
reports do not provide an objective measure of program schedule and 
costs incurred. While the Navy expects that future cost performance 
reports will better reflect shipyard performance after the construction 
contract is awarded and significant construction work is under way, it 
has missed an opportunity to gain insight into current costs--and gauge 
future shipyard performance. Moreover, the Navy may not require the 
shipbuilder to submit monthly cost performance reports that include 
variance analyses, which describe the reasons for cost and schedule 
variances. Without monthly contractor performance reports that include 
variance analyses, the Navy will miss timely information regarding root 
causes for cost and schedule problems and mitigation efforts--making it 
more difficult to identify risk and take corrective action. 

But timely and complete cost performance reports are not enough. The 
Navy must leverage this information to better manage shipbuilder 
performance. In particular, the Navy's Supervisor of Shipbuilding 
(SUPSHIP) is not engaged in evaluating shipbuilder cost performance for 
all shipbuilding programs. SUPSHIP provides the Navy with unique 
insight into program performance because it is located at the shipyard, 
providing on-site program surveillance, including independent analysis 
of shipbuilder cost and schedule performance. However, SUPSHIP does not 
currently have the capability to conduct independent cost surveillance 
of the CVN 78 program. We believe that this capability is necessary to 
effectively analyze shipbuilder cost data and verify that the data 
depict actual conditions and trends. 

Cost surveillance at the shipyard is just one element of the management 
capacity needed to plan and execute shipbuilding programs. There has 
also been considerable discussion of the need to have a workforce with 
the right skills in the right numbers. It has been more difficult to 
arrive at a firm definition of the size and composition of the 
workforce needed, and the appropriate balance between government and 
contractor personnel. Sharp declines in the size of the acquisition 
workforce have occurred over the last several years. The Navy's numbers 
are a case in point. The Navy reports that staffing at Naval Sea 
Systems Command headquarters has decreased by almost 50 percent since 
1991, from 4,871 to 2,331 personnel. 

Mr. Chairman, that concludes my statement. I would be pleased to answer 
any questions. 

Objectives, Scope, and Methodology: 

To develop information on the status of Navy shipbuilding programs and 
practices that can improve the process for acquiring ships, we relied 
largely on our prior reporting on shipbuilding programs and updates to 
this work, as well as work under way for the committee on the CVN 78 
program. In the course of this work, we analyzed program documents, 
including program baselines, contractor performance reports, cost 
estimates, budget documents and other program assessments, as well as 
policy guidance. We also interviewed government, shipbuilding, and 
other contractor officials associated with a number of shipbuilding 
programs, including CVN 77 and 78, LPD 17, DDG 1000, LCS, and Virginia- 
class Submarines. 

Contact and Staff Acknowledgments: 

For future questions about this statement, please contact me at (202) 
512-4841. Individuals making key contributions to this statement 
include Lisa L. Berardi, Noah B. Bleicher, Gwyneth M. Blevins, Lily J. 
Chin, Todd Dice, Christopher R. Durbin, Jennifer Echard, Diana 
Moldafsky, Moshe Schwartz, and Karen Zuckerstein. 

Related GAO Products: 

Defense Acquisitions: Progress and Challenges Facing the DD(X) Surface 
Combatant Program. GAO-05-924T, Washington, D.C.: July 19, 2005. 

Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-07- 
406SP, Washington, D.C.: March 30, 2007. 

Defense Acquisitions: Challenges Associated with the Navy's Long-Range 
Shipbuilding Plan. GAO-06-587T, Washington, D.C.: March 30, 2006. 

Defense Acquisitions: Challenges Remain in Developing Capabilities in 
Naval Surface Fire Support. GAO-07-115, Washington, D.C.: November 30, 
2006. 

Defense Acquisitions: Improved Management Practices Could Help Minimize 
Cost Growth in Navy Shipbuilding Programs. GAO-05-183, Washington, 
D.C.: Feb. 28, 2005. 

Defense Acquisitions: Plans Need to Allow Enough Time to Demonstrate 
Capability of First Littoral Combat Ships. GAO-05-255, Washington, 
D.C.: March 1, 2005. 

[End of section] 

Appendix I: Cost Growth for Individual Ships: 

Table 2: Cost Growth in Program Budgets: 

Dollars in millions (figures may not add due to rounding): 

Ship: CVN 77; 
Initial Budget: $4,975; 
Fiscal year 2008 President's budget[A]: $5,822; 
Total cost growth: $847; Cost growth due to construction: $771; 
Cost growth due to Navy-furnished equipment: $76; 
Cost growth as a percent of initial budget: 17%. 

Ship: DDG 100; 
Initial Budget: 938; 
Fiscal year 2008 President's budget[A]: 1,066; 
Total cost growth: 128; 
Cost growth due to construction: 142; 
Cost growth due to Navy-furnished equipment: (13); 
Cost growth as a percent of initial budget: 14. 

Ship: DDG 101; 
Initial Budget: 935; 
Fiscal year 2008 President's budget[A]: 984; 
Total cost growth: 49; 
Cost growth due to construction: 62; 
Cost growth due to Navy-furnished equipment: (13); 
Cost growth as a percent of initial budget: 5. 

Ship: DDG 102; 
Initial Budget: 1,016; 
Fiscal year 2008 President's budget[A]: 1,097; 
Total cost growth: 80; 
Cost growth due to construction: 126; 
Cost growth due to Navy-furnished equipment: (46); 
Cost growth as a percent of initial budget: 8. 

Ship: DDG 103; 
Initial Budget: 1,107; 
Fiscal year 2008 President's budget[A]: 1,117; 
Total cost growth: 10; 
Cost growth due to construction: 56; 
Cost growth due to Navy-furnished equipment: (46); 
Cost growth as a percent of initial budget: 1. 

Ship: DDG 104; 
Initial Budget: 1,062; 
Fiscal year 2008 President's budget[A]: 1,113; 
Total cost growth: 51; 
Cost growth due to construction: 97; 
Cost growth due to Navy-furnished equipment: (46); 
Cost growth as a percent of initial budget: 5. 

Ship: DDG 105; 
Initial Budget: 1,184; 
Fiscal year 2008 President's budget[A]: 1,207; 
Total cost growth: 23; 
Cost growth due to construction: 42; 
Cost growth due to Navy-furnished equipment: (20); 
Cost growth as a percent of initial budget: 2. 

Ship: DDG 106; 
Initial Budget: 1,233; 
Fiscal year 2008 President's budget[A]: 1,240; 
Total cost growth: 7; 
Cost growth due to construction: 27; 
Cost growth due to Navy-furnished equipment: (20); 
Cost growth as a percent of initial budget: 1. 

Ship: DDG 107; 
Initial Budget: 1,089; 
Fiscal year 2008 President's budget[A]: 1,093; 
Total cost growth: 4; 
Cost growth due to construction: 21; 
Cost growth due to Navy-furnished equipment: (17); 
Cost growth as a percent of initial budget: 0. 

Ship: DDG 108; 
Initial Budget: 1,102; 
Fiscal year 2008 President's budget[A]: 1,103; 
Total cost growth: 1; 
Cost growth due to construction: 18; 
Cost growth due to Navy-furnished equipment: (17); 
Cost growth as a percent of initial budget: 0. 

Ship: DDG 109; 
Initial Budget: 1,138; 
Fiscal year 2008 President's budget[A]: 1,142; 
Total cost growth: 4; 
Cost growth due to construction: 21; 
Cost growth due to Navy-furnished equipment: (17); 
Cost growth as a percent of initial budget: 0. 

Ship: DDG 110-112; 
Initial Budget: 3,505; 
Fiscal year 2008 President's budget[A]: 3,517; 
Total cost growth: 12; 
Cost growth due to construction: 29; 
Cost growth due to Navy-furnished equipment: (17); 
Cost growth as a percent of initial budget: 0. 

Ship: LCS 1-2; 
Initial Budget: 472; 
Fiscal year 2008 President's budget[A]: 1,075[B]; 
Total cost growth: 603; 
Cost growth due to construction: NA; 
Cost growth due to Navy-furnished equipment: NA; 
Cost growth as a percent of initial budget: 128. 

Ship: LHD 8; 
Initial Budget: 1,893; 
Fiscal year 2008 President's budget[A]: 2,196; 
Total cost growth: 303; 
Cost growth due to construction: 320; 
Cost growth due to Navy-furnished equipment: (17); 
Cost growth as a percent of initial budget: 16. 

Ship: LPD 18; 
Initial Budget: 762; 
Fiscal year 2008 President's budget[A]: 1,272; 
Total cost growth: 510; 
Cost growth due to construction: 531; 
Cost growth due to Navy-furnished equipment: (22); 
Cost growth as a percent of initial budget: 67. 

Ship: LPD 19; 
Initial Budget: 1,064; 
Fiscal year 2008 President's budget[A]: 1,286; 
Total cost growth: 222; 
Cost growth due to construction: 228; 
Cost growth due to Navy-furnished equipment: (6); 
Cost growth as a percent of initial budget: 21. 

Ship: LPD 20; 
Initial Budget: 890; 
Fiscal year 2008 President's budget[A]: 1,137; 
Total cost growth: 247; 
Cost growth due to construction: 311; 
Cost growth due to Navy-furnished equipment: (64); 
Cost growth as a percent of initial budget: 28. 

Ship: LPD 21; 
Initial Budget: 1,113; 
Fiscal year 2008 President's budget[A]: 1,287; 
Total cost growth: 173; 
Cost growth due to construction: 283; 
Cost growth due to Navy-furnished equipment: (110); 
Cost growth as a percent of initial budget: 16. 

Ship: LPD 22; 
Initial Budget: 1,256; 
Fiscal year 2008 President's budget[A]: 1,403; 
Total cost growth: 147; 
Cost growth due to construction: 287; 
Cost growth due to Navy-furnished equipment: (140); 
Cost growth as a percent of initial budget: 12. 

Ship: LPD 23; 
Initial Budget: 1,108; 
Fiscal year 2008 President's budget[A]: 1,357; 
Total cost growth: 249; 
Cost growth due to construction: 337; 
Cost growth due to Navy-furnished equipment: (88); 
Cost growth as a percent of initial budget: 22. 

Ship: SSN 775; 
Initial Budget: 2,192; 
Fiscal year 2008 President's budget[A]: 2,740; 
Total cost growth: 548; 
Cost growth due to construction: 546; 
Cost growth due to Navy-furnished equipment: 1; 
Cost growth as a percent of initial budget: 25. 

Ship: SSN 776; 
Initial Budget: 2,020; 
Fiscal year 2008 President's budget[A]: 2,183; 
Total cost growth: 164; 
Cost growth due to construction: 154; 
Cost growth due to Navy-furnished equipment: 9; 
Cost growth as a percent of initial budget: 8. 

Ship: SSN 777; 
Initial Budget: 2,276; 
Fiscal year 2008 President's budget[A]: 2,332; 
Total cost growth: 56; 
Cost growth due to construction: 65; 
Cost growth due to Navy-furnished equipment: (9); 
Cost growth as a percent of initial budget: 2. 

Ship: SSN 778; 
Initial Budget: 2,192; 
Fiscal year 2008 President's budget[A]: 2,242; 
Total cost growth: 50; 
Cost growth due to construction: 246; 
Cost growth due to Navy-furnished equipment: (196); 
Cost growth as a percent of initial budget: 2. 

Ship: SSN 779; 
Initial Budget: 2,152; 
Fiscal year 2008 President's budget[A]: 2,255; 
Total cost growth: 102; 
Cost growth due to construction: 283; 
Cost growth due to Navy-furnished equipment: (180); 
Cost growth as a percent of initial budget: 5. 

Ship: SSN 780; 
Initial Budget: 2,245; 
Fiscal year 2008 President's budget[A]: 2,289; 
Total cost growth: 44; 
Cost growth due to construction: 41; 
Cost growth due to Navy-furnished equipment: 3; 
Cost growth as a percent of initial budget: 2. 

Ship: SSN 781; 
Initial Budget: 2,402; 
Fiscal year 2008 President's budget[A]: 2,378; 
Total cost growth: (24); 
Cost growth due to construction: (24); 
Cost growth due to Navy-furnished equipment: (0); 
Cost growth as a percent of initial budget: -1. 

Ship: SSN 782; 
Initial Budget: 2,612; 
Fiscal year 2008 President's budget[A]: 2,604; 
Total cost growth: (7); 
Cost growth due to construction: (7); 
Cost growth due to Navy-furnished equipment: 0; 
Cost growth as a percent of initial budget: 0. 

Ship: SSN 783; 
Initial Budget: 2,654; 
Fiscal year 2008 President's budget[A]: 2,654; 
Total cost growth: -; 
Cost growth due to construction: -; 
Cost growth due to Navy-furnished equipment: -; 
Cost growth as a percent of initial budget: 0. 

Ship: T-AKE 1; 
Initial Budget: 489; 
Fiscal year 2008 President's budget[A]: 538; 
Total cost growth: 49; 
Cost growth due to construction: 44; 
Cost growth due to Navy-furnished equipment: 6; 
Cost growth as a percent of initial budget: 10. 

Ship: T-AKE 2; 
Initial Budget: 358; 
Fiscal year 2008 President's budget[A]: 370; 
Total cost growth: 12; 
Cost growth due to construction: 9; 
Cost growth due to Navy-furnished equipment: 3; 
Cost growth as a percent of initial budget: 3. 

Ship: T-AKE 3; 
Initial Budget: 361; 
Fiscal year 2008 President's budget[A]: 335; 
Total cost growth: (26); 
Cost growth due to construction: (25); 
Cost growth due to Navy-furnished equipment: (1); 
Cost growth as a percent of initial budget: -7. 

Ship: T-AKE 4; 
Initial Budget: 370; 
Fiscal year 2008 President's budget[A]: 342; 
Total cost growth: (28); 
Cost growth due to construction: (32); 
Cost growth due to Navy-furnished equipment: 4; 
Cost growth as a percent of initial budget: -8. 

Ship: T-AKE 5/6; 
Initial Budget: 683; 
Fiscal year 2008 President's budget[A]: 702; 
Total cost growth: 19; 
Cost growth due to construction: 20; 
Cost growth due to Navy-furnished equipment: (1); 
Cost growth as a percent of initial budget: 3. 

Ship: T-AKE 7/8; 
Initial Budget: 713; 
Fiscal year 2008 President's budget[A]: 712; 
Total cost growth: (1); 
Cost growth due to construction: 4; 
Cost growth due to Navy-furnished equipment: (4); 
Cost growth as a percent of initial budget: 0. 

Ship: T-AKE 9; 
Initial Budget: 380; 
Fiscal year 2008 President's budget[A]: 386; 
Total cost growth: 6; 
Cost growth due to construction: 9; 
Cost growth due to Navy-furnished equipment: (3); 
Cost growth as a percent of initial budget: 2. 

Ship: Total; 
Initial Budget: $ 51,941; 
Fiscal year 2008 President's budget[A]: $ 56,578; 
Total cost growth: $ 4,637; 
Cost growth due to construction: [Empty]; 
Cost growth due to Navy-furnished equipment: [Empty]; 
Cost growth as a percent of initial budget: 9%. 

Source: GAO analysis of Navy data. 

[A] Includes reprogramming actions and requests through June 2007. 

[B] A small amount of these funds may be designated for certain LCS 
research and development activities. 

[End of table] 

FOOTNOTES 

[1] Based on the fiscal year 2008 President's budget request and over 
$513 million in fiscal year 2007 funding transfers from other Navy 
programs. 

[2] Based on the initial and most recent President's budget request for 
all lead ships authorized between fiscal year 1996 and fiscal year 
2006, including the second ship when the hull is constructed at a 
different shipyard than the first ship of the class. 

[3] LCS mission packages include combat systems, support equipment, 
computing environment, and mission crew. The mission package weight 
requirement of 180 metric tons or less also includes aviation fuel, and 
the manning requirement of 35 or less includes personnel comprising an 
aviation detachment. 

[4] National Defense Authorization Act for Fiscal Year 2006, Pub. L. 
No. 109-163, § 801; 10 U.S.C. § 2366a. 

[5] Defense Acquisition Performance Assessment Panel, Defense 
Acquisition Performance Assessment Report (Washington, D.C., January 
2006). 

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