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entitled 'Defense Acquisitions: Additional Analysis Needed to Capture 
Cost Differences Between Conventional and Nuclear Propulsion for Navy's 
Future Cruiser' which was released on August 7, 2009. 

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United States Government Accountability Office: 
Washington, DC 20548: 

August 7, 2009: 

The Honorable Edward M. Kennedy: 
The Honorable Mel Martinez: 
Ranking Member: 
Subcommittee on Seapower: 
Committee on Armed Services: 
United States Senate: 

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

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. For example, two concepts 
are based upon making modifications to the DDG 1000 Zumwalt-class 
destroyer and another concept is based upon making modifications to the 
DDG 51 Arleigh Burke-class destroyer. The ship design concepts vary in 
both capability, including the sensitivity of the radar and number of 
missile cells, and propulsion system. The variability is based on 
whether the concept uses a previous hull or is a new design. The Navy 
analyzed two new cruiser design concepts, one with a conventional 
propulsion system and one with a nuclear propulsion system. Both 
included the most sensitive radar and highest number of missile cells 
of all the concepts. 

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 

The draft cost analysis--which has not yet been approved within the 
Navy--includes a life-cycle cost estimate and a break-even analysis. 
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. By 
incorporating present value analysis, as required by Department of 
Defense guidance, and future oil projections from the Department of 
Energy's Energy Information Administration, we found that the life- 
cycle cost of the conventional cruisers would be less than the nuclear 
cruisers. This demonstrates the sensitivity of the cost estimates to 
different assumptions, underscoring the need for more rigorous analysis 
before reaching conclusions about the alternatives. 

Recommendations for Executive Action: 

We recommend that the Secretary of Defense require that the Navy (1) 
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 and 
(2) include present value analysis and alternative fuel scenarios in 
any future analyses of the trade-off between conventional and nuclear 

Agency Comments: 

The Department of Defense provided us with restricted comments on our 
report. In its comments, the department agreed with the recommended 
actions. However, it disagreed with several of GAO's underlying 

If you or your staff have any questions about this report, please 
contact me at (202) 512-4841. 

Signed by: 

Paul L. Francis: 
Managing Director Acquisition and Sourcing Management: 

[End of section] 

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