Order Code RS20643
Updated JuneMay 24, 20052006
CRS Report for Congress
Received through the CRS Web
Navy CVN-21 Aircraft Carrier Program:
Background and Issues for Congress
Ronald O’Rourke
Specialist in National Defense
Foreign Affairs, Defense, and Trade Division
Summary
CVN-21 is the Navy’s next planned aircraft carrier. Congress has been providing
advance procurement funding for the ship since FY2001. The Navy’s FY2006 budget
requests $565 million in FY2006 advance procurement funding for the ship and defers
its procurement by one year, to FY2008. The Navy estimates that CVN-21 would cost
about $3.2 billion to develop and about $10.5 billion to procure, for a total estimated
acquisition cost of about $13.7 billion. This report The Navy’s proposed FY2007 budget requests $739 million in advance
procurement funding for CVN-78, the lead ship in the Navy’s proposed CVN-21 class
of aircraft carriers. The budget also requests $45 million in advance procurement
funding for CVN-79, the second ship in the class. The Navy wants to procure CVN-78
in FY2008 and CVN-79 in FY2012. The House and Senate versions of the FY2007
defense authorization bill (H.R. 5122/S. 2766) support procurement of CVN-78 and
CVN-79 but differ on certain items relating to aircraft carrier acquisition. This report
will be updated as events warrant.
Background
The Navy’s Current Carrier Force. The Navy’s current carrier force of 12 ships
includes includes
two conventionally powered carriers (the Kitty Hawk [CV-63] and the John F.
Kennedy Kennedy
[CV-67]) and 10 nuclear-powered carriers (the one-of-a-kind Enterprise [CVN65CVN-65]) and
9 Nimitz-class ships [(CVN-68 through CVN-76)-76]. The most recently commissioned
carrier, the Ronald Reagan (CVN-76), was procured in FY1995 at a cost of $4.45 billion
and entered service in July 2003 as the replacement for the Constellation (CV-64). The
next carrier, the George H. W. Bush (CVN-77), was procured in FY2001 and is scheduled
to enter service in 2008 as the replacement for the Kitty Hawk. The Navy is proposing
to retire the John F. Kennedy in FY2006FY2007 and thereby reduce the carrier force to 11 ships.1
The Department of Defense (DOD) is considering reducing the carrier force further, to
10 or 9 ships. These developments could affect the schedule for procuring new carriers.
The Aircraft Carrier Construction Industrial Base. All U.S. aircraft carriers
procured since FY1958 have been built by Northrop Grumman’s Newport News
Shipbuilding (NGNN) of Newport News, VA — the only U.S. shipyard that can build
large-deck, nuclear-powered aircraft carriers. The aircraft carrier construction industrial
base also includes hundreds of subcontractors and suppliers in dozens of states.
1
For discussion of this issue, see CRS Report RL32731, Navy Aircraft Carriers: Proposed
Retirement of USS John F. Kennedy — Issues and Options for Congress, by Ronald O’Rourke.
Congressional Research Service ˜ The Library of Congress
CRS-2
Navy Aircraft Carrier Acquisition Programs. Navy aircraft carrier acquisition
efforts currently revolve around CVN-77 and the CVN-21 program. Each of these is
discussed below.
CVN-77. CVN-77, which was named the George H. W. Bush on December 9, 2002,
is the Navy’s final Nimitz-class carrier. Congress approved $4,053.7 million in FY2001
procurement funding to
complete CVN-77’sthe ship’s then-estimated total procurement cost of
$4,974.9 million. The ship’s estimated
total procurement cost has since grown to about $6.35 billion. The ship was named in
honor of former president George H. W. Bush on December 9, 2002.
CVN-21 Program. CVN-21 (also called CVN-78) is the next planned aircraft
carrier after CVN-77. CVN-21 simply means aircraft carrier for the 21st Century. In
August 2004 DOD began describing the CVN-21 program as a 3-ship program
encompassing CVN-21 and two similar follow-on ships (CVN-79 and CVN-80) to be
procured in later years. On August 19, 2004, DOD reported that the estimated
development cost for the 3-ship program had increased by $728 million, to $4.33 billion.
DOD estimates that the 3-ship program would have a total acquisition cost of about $36.1
billion ($4.33 billion for development and $31.75 billion for procurement), or an average
of about $12 billion per ship.
CVN-21. CVN-21 is to be the replacement for the Enterprise, which is scheduled
to retire in 2012-2014, at age 51-53, depending on how long its nuclear fuel core lasts.
The Navy’s FY2006 budget submission defers the procurement of CVN-21 by one year,
to FY2008. If procured in FY2008, CVN-21 would enter service in 2015.
Congress has been providing advance procurement funding for CVN-21 since
FY2001. The Navy’s FY2006 budget requests $565 million in advance procurement
funding for the ship. The Navy estimates that CVN-21 would cost about $3.2 billion to
develop and about $10.5 billion to procure, for a total estimated acquisition cost of about
$13.7 billion. This estimate is $2 billion higher than the Navy’s estimate from early 2004.
The Navy estimates that about $400 million of this increase is due to the decision to defer
the procurement of the ship to FY2008.
Under the Navy’s proposed funding plan, 35.2% of CVN-21’s procurement cost is
to be provided in the form of advance procurement funding between FY2001 and
FY2007, 33.5% is to be provided in the procurement year of FY2008, and 31.3% is to be
provided in FY2009. Dividing the main portion of the ship’s procurement cost between
two years (FY2008 and FY2009) is called split funding, which is a form of incremental
funding. Some Navy officials, Members of Congress, and industry officials have called
for making greater use of incremental funding or another funding approach called advance
appropriations for funding expensive ships like CVN-21.2
The Navy originally wanted the carrier after CVN-77 to be a completely new-design
aircraft carrier (hence its initial name of CVNX-1, rather than CVN-78). In May 1998,
however, the Navy announced that it could not afford to develop an all-new design for the
ship and would instead continue to modify the Nimitz-class design with each new carrier
2
For discussion of this issue, see CRS Report RL32776, Navy Ship Procurement: Alternative
Funding Approaches — Background and Options for Congress, by Ronald O’Rourke.
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that is procured. Under this strategy, CVN-77 and CVNX-1 were to be, technologically,
the first and second ships in an evolutionary series of carrier designs.
Compared to the baseline Nimitz-class design, CVNX-1 was to require 300 to 500
fewer sailors to operate and would feature an entirely new and less expensive nuclear
reactor plant, a new electrical distribution system, and an electromagnetic (as opposed to
steam-powered) aircraft catapult system. In large part because of the reduction in crew
size, CVNX-1 was projected to have a lower life-cycle operation and support (O&S) cost
than the baseline Nimitz-class design. CVNX-1 was to cost $2.54 billion to develop and
$7.48 billion to procure, giving it a total acquisition cost of $10.02 billion.
In May 2002 Secretary of Defense Donald Rumsfeld directed DOD offices to
reexamine the need for 5 major defense acquisition programs, including CVNX-1. In
response, the Office of the Secretary of Defense (OSD) began studying several
alternatives to the Navy’s carrier acquisition plan, including procuring smaller
conventional carriers instead of large nuclear-powered carriers; procuring a repeat version
of CVN-77 in FY2007 instead of CVNX-1; and skipping procurement of CVNX-1.
In November and December 2002, after reviewing these alternatives, OSD decided
to alter the design of CVNX-1 to incorporate additional advanced features originally
intended for CVNX-2 (the name at the time for the next carrier after CVNX-1). These
changes included a new and enlarged flight deck, an increased allowance for future
technologies (including electric weapons), and additional manpower reductions.
Compared to the baseline Nimitz-class design, the ship would now require at 500 to 800
fewer sailors to operate. To signify these changes the ship’s name was changed from
CVNX-1 to CVN-21. Incorporating the changes increased the ship’s development cost
by about $600 million and its procurement cost by about $700 million. OSD reportedly
did not consider CVNX-1 sufficiently transformational; the CVN-21 proposal appears
intended to increase the transformational content of the ship.3
The Navy in the latter months of 2002 proposed to fund the procurement of CVNX1/CVN-21 starting in FY2004 through the Navy’s research and development account
rather than the Navy’s ship-procurement account, known formally as the Shipbuilding and
Conversion, Navy (SCN) account. In December 2002, however, it was reported that the
Office of Management and Budget (OMB) objected to this proposal. As a result, the
Pentagon is proposing to fund the procurement of CVN-21 through the SCN account.4
3
For more on naval transformation, see CRS Report RS20851, Naval Transformation,
Background and Issues for Congress, by Ronald O’Rourke.
4
The Navy reportedly wanted to start funding the procurement of CVNX-1/CVN-21 through the
Navy’s research and development account in part because the new technologies to be
incorporated into CVNX-1/CVN-21 give it somewhat the character of a research and
development activity as opposed to a straight procurement action. The Navy reportedly believed
that funding procurement of the ship through the research and development account would permit
the Navy to better manage the technical and cost risks involved in developing and building the
ship. Items acquired through research and development accounts are not subject to the full
funding policy as traditionally applied to DOD weapon procurement programs. If procured
through the research and development account, the Navy would be able, for example, to fund the
procurement of CVN-21 using a stream of annual funding increments — a funding strategy that,
(continued...)
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CVN-79. Until recently Navy plans have called for procuring CVN-79 (previously
called the CVN-21 Follow-On and before that, CVNX-2) in FY2011 and commissioning
it into service in 2018 as the replacement for the John F. Kennedy, which would then be
50 years old. The FY2006-FY2011 FYDP, however, defers procurement of CVN-79
beyond FY2011. And as mentioned earlier, the Navy is proposing to retire the John F.
Kennedy in FY2006. Compared to CVN-21, CVN-79 would feature a more significantly
redesigned flight deck, an electromagnetic arresting gear, and possibly hull-design
improvements, including reactive armor protection.
CVN-80. This is the third ship in the 3-ship CVN-21 program. It nominally would
be procured a few years after CVN-79.
Table 1 below shows funding for CVN-21 and CVN-79 through FY2011.
Table 1. Procurement and Development Funding for
CVN-21 and CVN-79, FY2001-FY2011
(millions of then-year dollars, rounded to nearest million; figures may not add due to rounding)
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
Total thru
FY11
Procurement (Shipbuilding and Conversion, Navy [SCN] account)
21
22
135
396
1163
624
565
796
3521
3290
0
0
10512
79
0
0
0
0
0
0
0
169
441
1657
540
2807a
Development (Navy research and development account)
21
231
277
319
306
354
308
272
194
171
140
94
2666a
79
0
0
0
0
0
0
79
88
90
92
44
393a
Source: U.S. Navy data provided to CRS March 23, 2005.
21= CVN-21; 79 = CVN-7; n/a = not available.
a. Additional funding to be provided beyond FY2011.
Potential Issues for Congress
Accelerating CVN-21 To FY2007. One potential issue for Congress concerns
CVN-21’s year of procurement. Deferring CVN-21’s procurement to FY2008, and thus
its entry into service to 2015, will create a minimum one-year gap between the retirement
of the Enterprise in 2012-2014 and its replacement by CVN-21, temporarily reducing the
4
(...continued)
when used in funding items procured through DOD procurement accounts, is called incremental
funding. Such a strategy would reduce the financial strain that procurement of CVN-21 would
place on the Navy budget in any single year. Congress, however, imposed the full funding policy
on DOD in the 1950s in part to end the use of incremental funding in defense procurement,
because it was viewed as having disadvantages in terms of reducing DOD budgeting discipline
and making the total costs of weapons less visible. For a discussion, see CRS Report RL31404,
Defense Procurement: Full Funding Policy — Background, Issues, and Options for Congress,
by Ronald O’Rourke and Stephen Daggett.
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size of the carrier force by one ship during that time. Some observers have proposed
accelerating procurement of CVN-21 back to FY2007 to reduce the operational risks of
a temporary reduction in the carrier force and to avoid the roughly $400-million cost
increase of procuring the ship in FY2008. The Navy wants to procure several other
expensive ships in FY2007, including the lead DD(X) destroyer and the LHA(R)
amphibious ship.5 Accelerating CVN-21 to FY2007 might require deferring procurement
one of these ships, or some other ship planned for FY2007, to FY2008 or another year.
One option for accelerating CVN-21 to FY2007 without necessarily deferring another
ship from FY2007 to a later year would be to use incremental funding or advance
appropriations to fund either CVN-21 or one or more of the ships now planned for
FY2007.6
Affordability, Cost Effectiveness, and Potential Alternatives. With an
estimated average acquisition cost of about $12 billion per ship, would the three carriers
in the CVN-21 program be affordable and cost effective? Supporters could argue that
in spite of their cost, carriers are flexible platforms that in recent years have proven
themselves highly valuable in various U.S. military operations, particularly where U.S.
access to overseas bases has been absent or constrained. Carriers, they could argue, have
been useful not only not only for operating strike fighters and other tactical aircraft, but
also for embarking Army forces (as during the 1994 Haiti crisis) and special operations
forces (as in the 2001-2002 war in Afghanistan). Supporters could also argue that
Congress is already heavily committed to procuring CVN-21, having approved more than
$3.8 billion of the ship’s total acquisition cost from FY2001 through FY2005.
Skeptics, while acknowledging the operational value of large carriers, could
question whether, in light of their cost, there might be more cost effective alternatives.
Potential alternatives include, among other things, smaller carriers about the size of the
LHA(R) amphibious assault ship, which might cost roughly $3 billion to procure;
UAV/UCAV carriers (which would be designed to embark air wings composed mostly
of unmanned air vehicles [UAVs] and unmanned combat air vehicles [UCAVs]); and
small carriers, such as high-speed ships large enough to embark a small number of
manned tactical aircraft each. A February 2005 report on potential Navy force
architecture by DOD’s Office of Force Transformation (OFT) proposed a medium-sized
(57,000-ton) carrier based on a commercial-like ship hull design, and also a small
(13,500-ton), high-speed catamaran carrier.7 Skeptics could argue that even though
substantial funds have already been appropriated for CVN-21, not all of these funds have
been expended, and that if large carriers are not cost effective compared to alternatives,
Congress should not “throw good money after bad” by continuing to fund CVN-21.
5
For more on the DD(X) and LHA(R) programs, see CRS Report RS21059, Navy DD(X)
Destroyer Program: Background and Issues for Congress, by Ronald O’Rourke, CRS Report
RL32109, Navy DD(X) and LCS Ship Acquisition Programs: Oversight Issues and Options for
Congress, by Ronald O’Rourke, and CRS Report RL32513, Navy-Marine Corps Amphibious and
Maritime Prepositioning Ship Programs: Background and Oversight Issues for Congress, by
Ronald O’Rourke.
6
7
For more discussion, see CRS Report RL32776, op. cit.
For more on the OFT report, including these two proposed carriers, see CRS Report RL32814,
Navy Force Architecture and Ship Acquisition: Selected FY2006 Issues for Congress, by Ronald
O’Rourke.
CRS-6
Potential Reduction in Carrier Force. A third potential issue for Congress
concerns the Navy’s proposal to retire the Kennedy in FY2006 and thereby reduce the
carrier force to 11 ships, and the possibility that the Navy might eventually reduce the
carrier force further, to 10 or 9 ships. Such a reduction might not affect plans for
procuring CVN-21, but it could affect plans for procuring CVN-79 and subsequent
carriers. The Navy believes that reducing the carrier force to 11 ships, or possibly fewer,
is acceptable in light of the increasing capabilities of Navy carrier air wings and steps that
have been taken to increase the ability of carriers to deploy rapidly in response to crises
and conflicts. Other observers argue that there are good reasons to maintain a force of
at least 12 carriers.8
FY2006 Legislative Activity9
H.R. 1815/S. 1042 (FY2006 Defense Authorization Bill). Section 129 of
H.R. 1815 as reported by the House Armed Services Committee (H.Rept. 109-89 of
May 20, 2005) would increase the FY2006 advance procurement funding request for
CVN-21 by $86.7 million if DOD certifies to Congress that this amount would permit
construction of CVN-21 to begin in FY2007 rather than FY2008. The report noted the
cost of CVN-21 as part of a critical discussion of the increasing costs of Navy
shipbuilding programs. (Page 63).
Section 122 of S. 1042 as reported by the Senate Armed Services Committee
(S.Rept. 109-69 of May 17, 2005) would permit CVN-21 to be procured with split
funding (i.e., incremental funding) during the period FY2007-FY2010.10 The report
expressed concern about the Navy’s plan to defer procurement of CVN-21 from FY2007
to FY2008 because of the effect this would have on increasing the cost of CVN-21 and
increasing the gap in time between the retirement of the Enterprise and its replacement
by CVN-21. The report recommended increasing the FY2006 advance procurement
funding request for the ship by $86.7 million so as to support the acceleration of
procurement of CVN-21 to FY2007. (Pages 66-67; see also page 50)
H.R. 2863 (FY2006 Defense Appropriations Bill).
The House
Appropriations Committee, in its report (H.Rept. 109-119 of June 10, 2005) on H.R.
2863, recommends approving the FY2006 advance procurement funding request for
CVN-21 (page 148). The report states that “The Navy is now estimating a total
government liability of $6,057,000,000 on the CVN-77 — a program with a statutory
cost cap of $4,600,000,000,” and that “Navy did not conduct independent cost estimates
for its most expensive asset, nuclear aircraft carriers” (page 145).
8
For more discussion, see CRS Report RL32731, op cit.
9
For legislative activity relating to the issue of the size of the carrier force, see CRS Report
RL32731, op cit.
10
For additional discussion of incremental funding in the procurement of Navy ships, see CRS
Report RL32914, Navy Ship Acquisition: Options for Lower-Cost Ship Design — Issues for
Congress, by Ronald O’Rourke, and CRS Report RL31404, op citSection 122 of the FY1998 defense authorization act (H.R. 1119/P.L.
105-85 of November 18, 1997) limited the ship’s procurement cost to $4.6 billion, plus
adjustments for inflation and other factors. The Navy states that with these permitted
adjustments, the cost cap now stands at $5.357 billion. The Navy also states that CVN77’s estimated construction cost has increased to $6.057 billion, or $700 million above
the cost cap, and that this $700 million is due to factors not covered by the adjustments
permitted under the cost cap. The Navy consequently this year is requesting that Congress
amend Section 122 of P.L. 105-85 to increase the cost cap to $6.057 billion.
CVN-21 Program. The Navy’s successor to the Nimitz-class aircraft carrier design
is the CVN-21 design. CVN-21 simply means nuclear-powered aircraft carrier for the 21st
Century. Compared to the Nimitz-class design, the CVN-21 design will incorporate
several improvements, including an ability to generate substantially more aircraft sorties
per day than a Nimitz-class carrier, as well as features permitting the ship to be operated
by a crew that is several hundred sailors smaller than a Nimitz-class crew, which will
significantly reduce life-cycle operating and support costs.
In August 2004, DOD began describing the CVN-21 program as a 3-ship program
encompassing a lead ship (CVN-78) and two similar follow-on ships (CVN-79 and CVN80). Each of these ships is discussed below.
CVN-78. The Navy wants to procure CVN-78 in FY2008 and have it enter service
in FY2015 as the replacement for the Enterprise, which is scheduled to retire in 2013, at
age 52. The Navy estimates CVN-78’s total acquisition (i.e., research and development
plus procurement) cost at about $13.7 billion. This figure includes about $3.2 billion in
research and development costs and about $10.5 billion in procurement costs. Of the
$10.5 billion in procurement costs, about $2.4 billion is for detailed design and
nonrecurring engineering (DD/NRE) work for the CVN-21 class, and about $8.1 billion
is for building CVN-78 itself.
The Navy’s proposed FY2007 budget requests $739 million in advance procurement
funding for CVN-78. Congress has been providing advance procurement funding for
CVN-78 since FY2001. As shown in Table 1, under the Navy’s proposed funding plan,
the ship is to be funded over a total of 9 years, with 35.3% of it’s procurement cost to be
provided in the form of advance procurement funding between FY2001 and FY2007,
32.1% to be provided in the procurement year of FY2008, and 32.6% to be provided in
FY2009.
Dividing the main portion of the ship’s procurement cost between two years
(FY2008 and FY2009) is called split funding, which is a 2-year form of incremental
funding. Although incremental funding is not consistent with the full funding policy that
normally governs defense procurement, it has gained a measure of acceptance in recent
years within DOD, the Office of Management and Budget (OMB), and Congress as a
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method for funding aircraft carriers and LHA/LHD-type large-deck amphibious assault
ships. Since aircraft carriers and LHA/LHD-type ships are very expensive ships that are
typically procured once every few years, using split funding can mitigate the budget
“spikes” that would occur if these ships were fully funded in a single year.
Accommodating such spikes within a finite Navy or DOD budget can require moving
other defense programs away from the year in which the carrier or LHA/LHD-type ship
is procured, which in turn can increase the costs of these other defense programs by
disrupting their production schedules. Split funding, by mitigating budget spikes
associated with funding carriers or LHA/LHD-type ships, can reduce the need to shift
other programs to other years, and thus avoid the extra costs associated with disrupting
their production schedules.2
CVN-79. The Navy wants to procure CVN-79 in FY2012 and have it enter service
in 2019. Under earlier Navy plans, the ship was to be the replacement for the John F.
Kennedy, which was to retire in 2018 at age 50. As mentioned earlier, however, the Navy
is now proposing to retire the John F. Kennedy in FY2007. The Navy reportedly wants
the procurement cost of CVN-79 to be no more than $8.8 billion.3 The FY2007 budget
requests an initial increment of $45 million in advance procurement funding for CVN-79.
CVN-80. The Navy wants to procure CVN-80 in FY2016. Its procurement cost
would likely be similar to that of CVN-79, plus inflation.
Table 1 shows funding for CVN-78 and CVN-79 through FY2011 as reflected in the
FY2007 budget submission.
Table 1. Funding for CVN-78 and CVN-79, FY2001-FY2011
(millions of then-year dollars, rounded to nearest million; figures may not add due to rounding)
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Total
thru
FY11
Procurement (Shipbuilding and Conversion, Navy [SCN] account)
22
135
395 1163
623
619
739 3357 3407
0
0 10461
CVN-78
45
124
451
1679
541
2841a
Development (Navy research and development account)
277
319
306
350
303
274
CVN-78 231
0
0
0
0
0
0
35
CVN-79
Source: U.S. Navy data provided to CRS February 16, 2006.
a. Additional funding to be provided beyond FY2011.
196
40
174
40
141
111
95
60
2665a
286a
CVN-79
0
0
0
0
0
0
2
For discussion of the full funding policy and incremental funding, see CRS Report RL32776,
Navy Ship Procurement: Alternative Funding Approaches — Background and Options for
Congress, by Ronald O’Rourke.
3
Christopher P. Cavas, “U.S. Ship Plan To Cost 20% More,” Defense News, December 5, 2005:
1, 8
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Issues for Congress
CVN-21 Acquisition Strategy. One issue for Congress concerns the acquisition
strategy to be used for the CVN-21 program. Specific questions here include 2-year vs.
4-year incremental funding, economic order quantity (EOQ) of long-leadtime
components, and block-buy contracting.
2-year vs. 4-year Incremental Funding. Some observers have proposed
shifting from 2-year incremental funding (i.e., split funding) to 4-year incremental funding
for procuring carriers. Under 4-year incremental funding, the main portion of the ship’s
procurement cost would be divided between the year the ship is procured and three
subsequent years. In the case of CVN-78, shifting to 4-year incremental funding would
result in the ship being funded over a total of 11 years (FY2001-FY2011).
Supporters could argue that 4-year incremental funding would more fully mitigate
the budget spikes associated with procuring aircraft carriers, and consequently further
reduce the need to disrupt other programs by shifting them away from the year that the
carrier is procured. Opponents could argue that the budget spike associated with
procuring a carrier is sufficiently mitigated by 2-year incremental funding, that shifting
to 4-year incremental funding would result in an 11-year funding profile for a ship with
a nominal 7-year shipyard construction period, and that shifting to 4-year incremental
funding would further weaken the full funding policy, encouraging advocates of other
defense programs to seek the use of incremental funding for their programs.
Economic Order Quantity (EOQ) of Long-Leadtime Components. Longleadtime components are components whose manufacturing time requires that they be
ordered before the end item itself (in this case, a ship) is procured. For nuclear-powered
ships, long-leadtime components include, for example, nuclear propulsion components,
which are typically ordered two years prior to the year the ship is procured. Some
observers have proposed an up-front batch procurement of long-leadtime components for
CVN-78, CVN-79, and CVN-80. An up-front batch procurement of long-leadtime items
for multiple end items is referred to as an Economic Order Quantity (EOQ).
Supporters could argue that procuring long-leadtime components for all three CVN21 class carriers through an EOQ could reduce the cost of these components by as much
as 15%, reducing the total procurement cost of the three ships. Supporters could argue
that the enduring value of aircraft carriers, the Navy’s commitment to the CVN-21 design,
and Congress’ support over the last several years for procuring CVN-78, together make
it very unlikely that DOD or a future Congress would change its mind about the need for
CVN-79 and CVN-80. Supporters could argue that although EOQs normally take place
only within programs that have been approved for multiyear procurement (MYP), for
which the CVN-21 program has not been approved, Congress can still choose to approve
the use of an EOQ for the CVN-21 program as a means of realizing cost savings.
Opponents could argue that an EOQ for all three ships would tie the hands of future
Congresses — something that Congress traditionally tries to avoid in decisions on
discretionary spending — by creating in the near term a financial commitment to fund the
procurement of CVN-80, a ship that is not scheduled to be procured until 9 years from
now, in FY2016, under the 114th Congress. In spite of the enduring value of carriers and
DOD and Congressional support for the CVN-21 design, they could argue, potential
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changes over the next 9 years in the strategic environment, budgetary conditions, or
technology make it less than certain that the Navy will still want to procure CVN-80 in
FY2016. It would be inappropriate, opponents could argue, to use an EOQ for the CVN21 program, because the program has not been approved for MYP. The program currently
would not qualify for MYP, they could argue, because it cannot meet the requirement
under the law governing MYP (10 USC 2306b) that candidate programs demonstrate
design stability — a requirement that is normally met in shipbuilding programs by
delivering at least one completed ship built to the design. Even if the CVN-21 program
were to qualify for MYP, opponents could argue, the MYP law limits MYP arrangements
to end items that are to be procured over a period of no more than 5 years, meaning that
the arrangement could cover CVN-78 and CVN-79, but not CVN-80. An EOQ covering
long-leadtime components for all three ships, they could argue, would create an MYP-like
commitment to procure end items over an unprecedented 9-year (FY2008-FY2016)
procurement period.
Block-Buy Contract For CVN-78 and CVN-79. Another acquisition option
would be to procure CVN-78 and CVN-79 under a block-buy contract. Block-buy
contracts are similar to MYP arrangements in that they permit a single contract to be used
to contract for the construction of multiple end items that are to be procured over a
number of years. As with MYP, block-buy contracting can reduce the cost of the items
being procured by a few percent by giving the construction facility (in this case, NGNN)
the confidence about future business that is needed to justify investments that can better
optimize its workforce and production equipment for the expected work, thereby reducing
construction costs. Unlike MYP, block-buy contracting does not require demonstration
of design stability, and it does not include authority for using EOQ on long-leadtime items
(which is the second way that MYP arrangements reduce the total cost of the end items
being procured).
Block-buy contracting was invented for the Virginia-class submarine program, where
it was used to contract for the first four boats in the program; these boats were procured
over the 5-year period FY1998-FY2002. Based on the Virginia-class experience, a blockbuy contract for CVN-78 and CVN-79 might reduce the cost of the ships by a few
percent. Since these two ships have a combined construction cost of about $17 billion,
a 3% reduction, for example, would equate to a savings of roughly $500 million — about
enough to procure a Navy auxiliary ship or two Littoral Combat Ships (LCSs).
Supporters of a block-buy contract for CVN-78 and CVN-79 could argue that such
an arrangement would be consistent with both past practice in the Virginia-class program
and congressional support for procuring CVN-79, as reflected, for example, in a decision
to approve the Navy’s requested for $45 million in FY2007 advance procurement funding
for CVN-79. Supporters could also argue that the potential savings from a block-buy
contract, though fairly small in percentage terms, could be significant in absolute terms,
in light of the combined construction cost of the two ships. Opponents of a block-buy
contract for CVN-78 and CVN-79 could argue that it would tie the hands of future
Congresses by creating a commitment to procure a ship (CVN-79) that is not scheduled
for procurement until FY2012, and that this commitment would be much greater than the
commitment created by approving the Navy’s request for $45 million in FY2007 advance
procurement funding.
CRS-6
Potential Alternatives to Large-Deck, Nuclear-Powered Carriers. A
second issue for Congress is whether to continue procuring only large-deck, nuclearpowered aircraft carriers like CVN-21 class ships, which have full load displacements of
about 100,000 tons, or whether procurement of such ships should be replaced by, or
supplemented with, procurement of smaller and less expensive aircraft carriers. Some
observers have suggested procurement of smaller carriers such the 57,000-ton mediumsized carrier or the 13,500-ton high-speed carrier proposed by DOD’s Office of Force
Transformation in a 2005 report to Congress on potential alternative Navy force
architectures, or an even smaller “pocket” carrier proposed a few years ago by the Naval
Postgraduate School under the project name Corsair.
Supporters of smaller carriers could argue that they would have much lower unit
procurement costs than large-deck carriers, would improve the fleet’s ability to withstand
enemy attack by putting fewer eggs (i.e., carrier-based aircraft) into each basket (i.e., each
carrier), and that building a larger number of smaller carriers is consistent with idea under
defense transformation for shifting over time to more highly distributed force
architectures. Supporters of continued procurement of only large-deck carriers could
argue that smaller carriers are individually less survivable than larger carriers, that they
are less cost-effective in terms of the number of aircraft they can embark and sorties they
can generate per unit expenditure, and that the Navy is already moving to a more
distributed force architecture through things such as Littoral Combat Ships (LCSs) and
unmanned vehicles.
Legislative Activity
FY2007 Defense Authorization Bill (H.R. 5122/S. 2766).
House. Section 122 of H.R. 5122 limits the procurement cost of CVN-78 to $10.5
billion, and the procurement cost of subsequent CVN-21 class carriers to $8.1 billion
each, both with adjustments for inflation and other factors. Section 216 provides makes
$4 million in research and development funding available only for implementing or
evaluating proposals for the CVN-21 program and DD(X) destroyer program under the
Defense Acquisition Challenge Program. The House Armed Services Committee, in its
report (H.Rept. 109-452 of May 5, 2006) on H.R. 5122, recommended approving the
Navy’s request for FY2007 procurement funding for CVN-78 and CVN-79. The
committee stated that it accepts the use of split funding in certain cases for aircraft carriers
and LHA/LHD-type ships, but that it does not support the idea of permanently authorizing
the use of split funding for all such ships (page 69).
Senate. Section 121 of S. 2766 authorizes 4-year incremental funding for CVN-21
class ships, beginning with CVN-78, and advance procurement of components for CVN79 and CVN-80, beginning in FY2007. Section 123 increases the CVN-77 cost cap to
$6.057 billion. The Senate Armed Services Committee, in its report (S.Rept. 109-254 of
May 9, 2006) on S. 2766, recommended increasing the Navy’s FY2007 request for the
CVN-21 class procurement funding by $50 million, for use in CVN-21 advance
procurement, and directed the Navy to review EOQ and long-leadtime material
procurement for the CVN-21 class and report next year on the advance procurement
requirements to potentially optimize EOQ savings and escalation avoidance for the first
three CVN-21 class ships (page 67). The report expressed concern over CVN-77 cost
growth, and directed the Navy to report quarterly on the CVN-77 contract (page 69).