Issue Relating to Escalation Provisions Under Shipbuilding Contracts Warrants Action

Construction of a naval ship takes several years. Since construction would be a great risk to shipbuilders if they were not protected from cost increases over which they have little control, shipbuilders are protected by special contract clauses which provide for escalation payments. Because of the recent high inflation rate in the shipbuilding industry and the long construction period needed to complete the ships, the amount of escalation payments are substantial. Under some current shipbuilding contracts the Navy is paying shipbuilders for escalation on costs subject to inflation. Action is needed to prevent such excessive and unwarranted payment under proposed contracts.