Navy Contracting:

Cost Growth Continues on Ship Construction Contracts

NSIAD-92-218: Published: Aug 31, 1992. Publicly Released: Aug 31, 1992.

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GAO provided information on the cost growth of Navy ship construction contracts, focusing on the: (1) status of the cost growth; (2) cost growth trends; and (3) recent actions to finance additional costs and implications of future cost growth.

GAO found that: (1) the 1991 projected cost for completing 165 ships in the Navy's remaining 54 construction contracts is $6.4 billion higher than the initial $27.1-billion estimate; (2) the Navy is responsible for $4 billion of the cost overrun, and the remainder is attributable to the shipyards; (3) the Navy and the shipyards are liable for annual increases in target prices, costs, profits, and projected over-cost targets; (4) the Navy covers deficient individual ship construction accounts by transferring funds from other reduced, cancelled, or lower priority shipbuilding and procurement programs; (5) for fiscal year 1992, the Navy transferred $1.5 billion among programs and Congress provided $463.6 million in new funding to cover funding shortages; and (6) increasing cost growth will reduce total funds available, potentially reduce the number of ships built, and require greater congressional funding assistance.