Guided Missile Frigate: Navy Has Taken Steps to Reduce Acquisition Risk, but Opportunities Exist to Improve Knowledge for Decision Makers [Reissued with revisions on Sept. 5, 2019.]
The Navy plans to add 20 new guided missile frigates to the fleet a cost currently estimated at about $20 billion. Prospective shipbuilders are working on potential frigate designs that are derived from the designs of existing ships. The Navy plans to award a construction contract in July 2020.
Portions of the Navy's approach should reduce the risk of design and technology problems. However, the Navy has asked for $1.3 billion to build the first ship before having a solid understanding of its design and cost.
We recommended that the Navy provide Congress with an independent cost estimate before it awards the construction contract.
Guided Missile Launch from a U.S. Navy Ship
Missile launch at seaReissued with Revisions Sep 05, 2019
Revised September 5, 2019 to include an omitted page in the report section, Comments from the Department of Defense.
What GAO Found
The Navy undertook a conceptual design phase for the FFG(X) Guided Missile Frigate program that enabled industry to inform FFG(X) requirements, identify opportunities for cost savings, and mature different ship designs. The Navy also streamlined the FFG(X) acquisition approach in an effort to accelerate the timeline for delivering the ships to the fleet. As shown in the figure, however, the Navy has requested funding for the FFG(X) lead ship even though it has yet to complete key cost estimation activites, such as an independent cost estimate, to validate the credibility of cost expectations. Department of Defense (DOD) cost estimators told GAO the timeline for completing the independent cost estimate is uncertain. Specifically, they stated that this estimate will not be finalized until the Navy communicates to them which FFG(X) design is expected to receive the contract award. GAO-identified best practices call for requisite cost knowledge to be available to inform resource decisions and contract awards.
Timeline of FFG(X) Program Key Cost and Design Knowledge and Budgeting Activities
The Navy plans to use a fixed-price incentive contract for FFG(X) detail design and construction. This is a notable departure from prior Navy surface combatant programs that used higher-risk cost-reimbursement contracts for lead ship construction. The Navy also plans to require that each ship has a minimum guaranty of $5 million to correct shipbuilder-responsible defects identified in the 18 months following ship delivery. However, Navy officials discounted the potential use of a warranty—another mechanism to address the correction of shipbuilder defects—stating that their use could negatively affect shipbuilding cost and reduce competition for the contract award. The Navy provided no analysis to support these claims and has not demonstrated why the use of warranties is not a viable option. The Navy's planned use of guarantees helps ensure the FFG(X) shipbuilder is responsible for correcting defects up to a point, but guarantees generally do not provide the same level of coverage as warranties. GAO found in March 2016 that the use of a guaranty did not help improve cost or quality outcomes for the ships reviewed. GAO also found the use of a warranty in commercial shipbuilding and certain Coast Guard ships improves cost and quality outcomes by requiring the shipbuilders to pay to repair defects. The FFG(X) request for proposal offers the Navy an opportunity to solicit pricing for a warranty to assess the cost-effectiveness of the different mechanisms to address ship defects.
Why GAO Did This Study
In response to the shortcomings of the Navy's Littoral Combat Ship program and evolving threats, the Navy began the FFG(X) program. With FFG(X), the Navy intends to deliver a multi-mission ship that will provide anti-surface, anti-submarine, and air warfare capabilities. DOD approved FFG(X) requirements in February 2019.The Navy plans for a competitive contract award to support final FFG(X) design and construction. The program is expected to cost over $20 billion for 20 ships.
The House report accompanying the National Defense Authorization Act for Fiscal Year 2019 included a provision for GAO to review the FFG(X) program. This report addresses, among other things, the FFG(X) acquisition approach and contracting plans.
GAO reviewed requirements, acquisition, design, and cost-related documentation. GAO interviewed Navy and other defense officials, and conducted industry site visits to each shipyard participating in FFG(X) conceptual design activities. GAO also leveraged prior GAO reports and best practices guides.
Reissued with revisions on Sept. 5, 2019.Revised September 5, 2019 to include an omitted page in the report section, Comments from the Department of Defense.
GAO recommends that the Navy provide Congress with the independent cost estimate for FFG(X) prior to the detail design and construction contract award and seek ship warranty cost information from industry as part of the request for proposal process. While DOD generally concurred with GAO's recommendations, it did not agree to update its request for proposal to solicit ship warranty pricing. GAO continues to believe this is an essential element of the recommendation, as discussed in the report.
Recommendations for Executive Action
|Department of the Navy||Ensure that the Assistant Secretary of the Navy for Research, Development, and Acquisition provides to Congress the finalized independent cost estimate prior to award of the detail design and construction contract and demonstrates that the estimate is consistent with the fiscal year 2020 budget request for the lead ship. (Recommendation 1)||
DOD concurred with this recommendation, stating that the FFG(X) program would ensure it provides Congress with certified cost estimate information prior to award of the detail design and construction contract. In April 2020, DOD's Office of Cost Assessment and Program Evaluation completed the independent cost estimate for the FFG(X) program. The Navy subsequently approved the program's acquisition program baseline for cost estimates and committed to fully funding the program based on the established baseline. Consistent with our recommendation, the Navy communicated this updated cost information to Congress prior to the award of the detail design and construction contract on April 30, 2020. Based on this action, we are closing this recommendation as implemented.
|Department of the Navy||Ensure that the Assistant Secretary of the Navy for Research, Development, and Acquisition directs the FFG(X) program office to request pricing for warranties for the lead ship and the nine follow-on ship options planned for FFG(X) as part of the detail design and construction request for proposals. (Recommendation 2)||
DOD concurred with this recommendation and though it's response also indicated that the Navy believed it could fulfill the intent of our recommendation by receiving guaranty pricing and requesting warranty pricing after the FFG(X) detail design and construction competition has concluded. As stated in the response to the Navy's plans that we included in the report, we do not agree that the Navy's plan will address the intent of our recommendation. In October 2019, DOD confirmed that the Navy did not request that prospective shipbuilders include warranty pricing in their proposals for the competitive FFG(X) detail design and construction contract award. Instead, the Navy required proposals to include guaranty pricing, and plans to request that the shipbuilder receiving the FFG(X) competitive award provide warranty pricing prior to the Navy exercising the contract option for construction of the second ship. As we stated in the report, the Navy's guaranty plans could allow for a better value to the government than has been typical for recent shipbuilding programs, but not requesting warranty pricing as part of the detail design and construction solicitation means the Navy lacks complete information on whether a warranty could be more cost-effective than a guaranty. Further, in waiting to pursue warranty pricing until after the competition concludes, the Navy eliminates any potential warranty pricing advantages that would occur as a result of the competitive conditions that exist for the detail design and construction contract award. Given the Navy's request for FFG(X) proposals has concluded and was not amended to include a request for warranty pricing for the lead ship, we are closing this recommendation as unimplemented.