Navy Contract:

AOE 6 Shipbuilding Claims Settled But More Delays and Cost Growth Likely

NSIAD-93-298: Published: Sep 30, 1993. Publicly Released: Sep 30, 1993.

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GAO reviewed the Navy's claims resolution process for the AOE 6 class shipbuilding program, focusing on: (1) the reasons for program cost growth; (2) the Navy's claims settlement procedures; and (3) whether AOE 6 program costs and schedule delays are expected to increase and continue.

GAO found that: (1) AOE 6 program cost increases and schedule delays are a result of an unrealistic low bid, concurrent development and construction, inadequate Navy and contractor management oversight, and continued low shipyard productivity; (2) in 1991, the Navy agreed to provide emergency financial aid to the contractor because it experienced severe financial difficulties due to increased costs and significant schedule delays; (3) the Navy administered the claims evaluation process according to established procedures; (4) the Navy's claims files documented the contractor's legal entitlement to each claim, the technical and audit analyses, and support for the Navy's position; (5) the contractor's cost and schedule control system did not comply with Department of Defense standards as required; (6) the AOE 6 program is expected to experience further cost increases and schedule delays because of the lack of initial testing and continuing contractor-labor disputes; and (7) the future need for the AOE 6 program is uncertain due to changing defense priorities and declining defense budgets.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD did not concur. The Navy indicated that it had now identified the final total costs for the AOE 6, 7, and 8. DOD indicated that the estimates of final costs are inherently conservative. DOD also contended that, as a result of the 2-day, at sea limited propulsion test, the ability of the AOE 6 to perform to the requirements had been demonstrated. DOD reported that the trial presented no major technical problems and successfully demonstrated the operability of the reversing reduction gears and the machinery centralized control system. In addition, DOD contends that the development process risk is inherently low because there is very little developmental work, and that all equipment and systems are thoroughly tested before going to sea. DOD maintains that the risks of AOE 6 systems integration are no greater than any other shipbuilding program.

    Recommendation: The Secretary of Defense should direct the Secretary of the Navy to suspend further expenditures under the AOE 10 ship construction contract until the: (1) total cost and operational capabilities of the AOE 6 are known; and (2) risks associated with continuing the program are identified and controlled.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: DOD did not concur. DOD and the Joint Staff extensively reviewed the requirement for AOE 10. The Chairman of the Joint Chiefs of Staff advised that the AOE 10 acquisition was an appropriate step in meeting support ship requirements of one station ship for each aircraft carrier battle group. The AOE 10 will be the eighth station ship of the eleven required to support the active carrier force structure approved in the Bottom-up Review of October 1993.

    Recommendation: The Secretary of Defense should direct the Secretary of the Navy to reevaluate the current need for the AOE 10. If the reevaluation does not support the need for the AOE 10, the Secretary of Defense should direct the Secretary of the Navy to terminate the AOE 10 ship construction contract.

    Agency Affected: Department of Defense


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