Navy Ship Construction Contracts

GAO discussed selected Navy ship construction contracts, focusing on whether the: (1) Navy could actually execute the contracts within its funding limits; (2) awards would result in future claims against the government; (3) Navy planned to take any action to address current and future claims against it; and (4) Navy provided effective contract oversight. GAO found that: (1) although the Navy's competitive procurement policy generally resulted in lower prices, it also resulted in cost overruns because of poor labor productivity and inefficiencies at some shipyards; (2) the Navy projected cost overruns of about $1.4 billion for 19 of the 22 contracts reviewed, of which it would have to fund about $706 million; (3) optimistic bidding and unrealistic production and low labor estimates were the principal causes of overruns; and (4) the Navy implemented claims avoidance or prevention programs to track contractor performance. GAO also found that: (1) although shipbuilders are generally in favor of competitive procurement and fixed-price contracts, they believe that the process could adversely affect the already weak shipbuilding industry because it forces them to bid aggressively; and (2) although the Navy emphasized price in evaluating the contracts, it did consider technical and management factors.