Ford-Class Aircraft Carrier:
Follow-On Ships Need More Frequent and Accurate Cost Estimates to Avoid Pitfalls of Lead Ship
GAO-17-575: Published: Jun 13, 2017. Publicly Released: Jun 13, 2017.
The Navy's Ford-Class aircraft carrier was meant to improve combat capability while reducing costs. However, we've found that the first version of this ship cost over $2 billion more than estimated. We recently reviewed the second Ford-Class ship, and found that the Navy is again underestimating its cost—potentially to the tune of hundreds of millions of dollars.
We recommended that the Navy develop a more accurate cost estimate for the second ship, and obtain independent cost estimates before requesting funding for future Ford-Class ships.
The First Ford-Class Aircraft Carrier
The first aircraft carrier in the Navy's Ford Class.
What GAO Found
The cost estimate for the second Ford-Class aircraft carrier, CVN 79, is not reliable and does not address lessons learned from the performance of the lead ship, CVN 78. As a result, the estimate does not demonstrate that the program can meet its $11.4 billion cost cap. Cost growth for the lead ship was driven by challenges with technology development, design, and construction, compounded by an optimistic budget estimate. Instead of learning from the mistakes of CVN 78, the Navy developed an estimate for CVN 79 that assumes a reduction in labor hours needed to construct the ship that is unprecedented in the past 50 years of aircraft carrier construction, as shown in the figure below.
John F. Kennedy Aircraft Carrier (CVN 79) Estimated Labor Hour Percentage Change Compared to Actual Nimitz Class Labor Hour Percentage Change
After developing the program estimate, the Navy negotiated 18 percent fewer labor hours for CVN 79 than were required for CVN 78. CVN 79's estimate is optimistic compared to the labor hour reductions calculated in independent cost reviews conducted in 2015 by the Naval Center for Cost Analysis and the Office of Cost Assessment and Program Evaluation. Navy analysis shows that the CVN 79 cost estimate may not sufficiently account for program risks, with the current budget likely insufficient to complete ship construction.
The Navy's current reporting mechanisms, such as budget requests and annual acquisition reports to Congress, provide limited insight into the overall Ford Class program and individual ship costs. For example, the program requests funding for each ship before that ship obtains an independent cost estimate. During an 11-year period prior to 2015, no independent cost estimate was conducted for any of the Ford class ships; however, the program received over $15 billion in funding. In addition, the program's Selected Acquisition Reports (SAR)—annual cost, status, and performance reports to Congress—provide only aggregate program cost for all three ships currently in the class, a practice that limits transparency into individual ship costs. As a result, Congress has diminished ability to oversee one of the most expensive programs in the defense portfolio.
This is a public version of a sensitive but unclassified report that GAO issued in March 2017. Information the Department of Defense deemed sensitive has been removed. Areas where redactions occurred are noted in the body of the report.
Why GAO Did This Study
The Navy intended for the Ford Class aircraft carrier to improve combat capability while reducing acquisition and life-cycle costs. However, as GAO has reported on extensively since 2007, the lead ship has experienced cost growth of nearly 23 percent, with a reduced capability expected at delivery. CVN 78 is estimated to cost $12.9 billion, while the next ship, CVN 79, is estimated to be $11.4 billion. The Navy plans to buy 1-2 more ships in the coming years.
The Senate Armed Services Committee Report accompanying the National Defense Authorization Act for Fiscal Year 2016 included a provision that GAO review Ford-class cost estimates, among related issues. This report assesses: (1) the extent to which the CVN 79 cost estimate is a reliable basis for meeting the cost cap and addresses known cost risks from the lead ship, and (2) the extent to which oversight mechanisms provide Congress with insight into ship costs. To do this work, GAO compared the CVN 79 cost estimate with GAO's Cost Estimating and Assessment Guide, analyzed cost reports, and interviewed relevant officials.
What GAO Recommends
The Navy should develop a new, reliable cost estimate for CVN 79 validated by cost reviews and obtain an independent cost estimate before requesting funding for future ships. The Navy partially concurred with these recommendations, but did not concur with a draft recommendation to prepare a SAR for each Ford class ship. In response to comments, GAO revised the recommendation to focus on SAR cost and funding summaries.
For more information, contact Michele Mackin at (202) 512-4841 or MackinM@gao.gov.
Recommendations for Executive Action
Comments: In their comments to our draft report, DOD agreed that an accurate cost estimate for CVN 79 is essential to support the Milestone C review for the program, but did not concur with revising the cost cap should the CVN 79 cost estimate exceed the current cost cap. In April 2018, program officials stated that Milestone C is now planned for 2022 and the Navy does not currently plan to update the CVN 79 life-cycle cost estimate.
Recommendation: To ensure the Milestone Decision Authority has an accurate and credible cost estimate for the Milestone C program review, Naval Sea Systems Command Cost Engineering and Industrial Analysis Group (NAVSEA 05C) should update the cost estimate for CVN 79 as part of the Ford-Class program life-cycle cost estimate. This estimate should be prepared in accordance with cost estimating best practices and include current shipbuilder performance data. The Naval Center for Cost Analysis (NCCA) should review the new CVN 79 cost estimate as part of the planned independent cost assessment. Further, the Secretary of Defense should direct the CAPE to include the new CVN 79 cost estimate as part of the planned independent cost estimate, which should form the basis of the program budget request. If the independent cost estimate for CVN 79 should exceed the cost cap, the Navy should submit to Congress a request to revise the cost cap.
Agency Affected: Department of Defense
Comments: In its response to our draft report, DOD agreed to develop a program life-cycle cost estimate for each individual ship according to our recommended timelines. However, DOD stated that it will not be able to meet the timeline for CVN 80 since the request for ship construction funding had already been submitted and the life-cycle cost estimate was being prepared to support the program review in fiscal year 2018. DOD stated it would follow our recommendation for all subsequent ships. However, the Navy delayed award of a detail design and construction contract for CVN 80 and suspended work on the CVN 80 cost estimate because the Navy now proposes procuring two ships in December 2018: CVN 80 and CVN 81. This decision depends on congressional authorization later in the current fiscal year. However, the Navy has not updated its life cycle cost estimate for CVN 80, nor developed an estimate for CVN 81 prior to seeking this authorization. We plan to update this status with the agency later this year.
Recommendation: Starting with CVN 80, NAVSEA 05C should develop program life-cycle cost estimates for each individual ship in the Ford-Class program baseline. Development of these estimates should be provided at milestone reviews that should be aligned with major aircraft carrier funding events. In particular, for CVN 80, a program life-cycle cost estimate should be developed prior to the request for ship construction funding. For all ships in the class after CVN 80, a program life-cycle cost estimate should be aligned with milestone reviews that correspond with the receipt of any advance procurement funding and the first year of the request for ship construction funding. These estimates should be prepared in accordance with best practices and updated regularly with actual cost data. The Secretary of Defense should further direct the Office of Cost Assessment and Program Evaluation to develop independent cost estimates for these ships prior to the listed events. The Secretary of the Navy should direct NCCA to conduct independent cost assessments for these ships prior to the listed events.
Agency Affected: Department of Defense
Comments: In its comments on our draft report DOD disagreed with our recommendation, stating that it currently provides progress reports to Congress on costs for CVN 78 and CVN 79. In April 2018, Navy officials stated that the department continues to disagree with this recommendation. We continue to maintain that Selected Acquisition Reports represent the primary statutorily required means for DOD to report on program status. Grouping average unit costs for all Ford-class ships obscures individual ship cost growth and does not provide Congress with an adequate level of insight to monitor this approximately $40 billion program. Our recommendation would ensure that Congress receives insight into the costs of each existing and planned Ford-class ship. To fully implement this recommendation, the report should include cost information on individual ships.
Recommendation: To improve insight into cost changes for individual ships in the Ford Class, the program office should prepare cost summary and funding summary sections for each individual ship in the class as part of the SAR for the overall Ford-Class program.
Agency Affected: Department of Defense