< Back to Current Version

Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress

Changes from September 16, 2011 to January 6, 2012

This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with red strikethrough and textual matter added in the later version is indicated with blue.


. Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Ronald O'Rourke Specialist in Naval Affairs September 16, 2011January 6, 2012 Congressional Research Service 7-5700 www.crs.gov RS20643 CRS Report for Congress Prepared for Members and Committees of Congress . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Summary CVN-78, CVN-79, and CVN-80 are the first three ships in the Navy’s new Gerald R. Ford (CVN78) class of nuclear-powered aircraft carriers (CVNs). CVN-78 was procured in FY2008 and was funded with congressionally authorized four-year incremental funding in FY2008-FY2011. The Navy’s proposed FY2012 budget estimates the ship’s procurement cost at $11,531.0 million (i.e., about $11.5 billion) in then-year dollars. The Navy’s proposed FY2011 budget requested $1,731.3 million in procurement funding as the final increment to complete this estimated procurement cost; the FY2011 Department of Defense and Full-Year Continuing Appropriations Act (H.R. 1473/P.L. 112-10 of April 15, 2011) reduced this request by $9.3 million. CVN-79 is scheduled for procurement in FY2013, and has received advance procurement funding since FY2007. The Navy’s proposed FY2012 budget estimates the ship’s procurement cost at $10,253.0 million (i.e., about $10.3 billion) in then-year dollars and requests $554.8 million in advance procurement funding for the ship. CVN-80 is scheduled for procurement in FY2018, with advance procurement funding scheduled to begin in FY2014. The Navy’s proposed FY2012 budget estimates the ship’s procurement cost at $13,494.9 million (i.e., about $13.5 billion) in then-year dollars. Oversight issues for Congress for the CVN-78 program include: • the possibility that DOD will propose deferring procurement of CVN-79 by two years, to FY2015; • the potential for cost growth on CVNs 78, 79, and 80; and • technical and design issues for CVN-78 class carriers that were raised in a December 2010 report from the Department of Defense (DOD) Director of Operational Test and Evaluation (DOT&E). Congressional Research Service . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Contents Introduction...................................................................................................................................... 1 Background...................................................................................................................................... 1 The Navy’s Aircraft Carrier Force............................................................................................. 1 Aircraft Carrier Construction Industrial Base............................................................................ 1 Gerald R. Ford (CVN-78) Class Program ................................................................................. 1 CVN-78 ............................................................................................................................... 2 CVN-79 ............................................................................................................................... 3 CVN-80 ............................................................................................................................... 4 Procurement Funding .......................................................................................................... 4 Past Changes in Estimated Unit Procurement Costs ........................................................... 5 Procurement Cost Cap......................................................................................................... 6 Issues for Congress .......................................................................................................................... 7 Possibility That DOD Will Propose Deferring CVN-79 to FY2015 ......................................... 7 Potential for Cost Growth.......................................................................................................... 9 10 General .............................................................................................................................. 10 EMALS ............................................................................................................................. 1417 Technical and Design Issues in December 2010 DOT&E Report........................................... 1720 Legislative Activity for FY2012 .................................................................................................... 1821 FY2012 Funding Request........................................................................................................ 1821 FY2012 National Defense Authorization Bill (H.R. 1540/S. 1253)........................................ 18 House (Committee Report) Act (H.R. 1540/P.L. 112-81) .................................. 21 House (Committee Report) ............................................................................................... 21 House (Floor Consideration)............................................................................................. 22 Senate (S. 1867) ................................................................................................ 18 House (Floor Consideration)................ 23 Senate (S. 1253) .............................................................................................. 19 Senate .................. 23 Conference ........................................................................................................................ 23 FY2012 Military Construction and Veterans Affairs and Related Agencies Appropriations Act (H.R. 2055/P.L. 112-74)........................................................................ 24 Conference ..................................................................................... 20................................... 24 FY2012 DOD Appropriations BillAct (H.R. 2219) ....................................................................... 2024 House................................................................................................................................. 2024 Senate ................................................................................................................................ 2024 Conference ........................................................................................................................ 24 Figures Figure 1. Navy Illustration of CVN-78............................................................................................ 2 Tables Table 1. Procurement Funding for CVNs 78, 79, and 80 Through FY2016.................................... 4 Table 2. Estimated Procurement Costs of CVNs 78, 79, and 80 ..................................................... 6 Table A-1. Cost Impact of Shifting to Five-year Intervals............................................................. 25 29 Congressional Research Service Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Table C-1. Aircraft Carrier Force Levels, FY2011-FY2045.......................................................... 30 Congressional Research Service . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress34 Appendixes Appendix A. Earlier Oversight Issue: Shift to Five-Year Intervals—A More Fiscally Sustainable Path?........................................................................................................................ 2125 Appendix B. Text of Navy Report on Effects of Shifting to Five-Year Intervals .......................... 2630 Appendix C. Force-Level Implications of Shifting to Six- or Seven-Year Procurement Intervals ...................................................................................................................................... 3034 Contacts Author Contact Information........................................................................................................... 3135 Congressional Research Service . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Introduction This report provides background information and potential oversight issues for Congress on the Gerald R. Ford (CVN-78) class aircraft carrier program. Oversight issues for Congress for the CVN-78 program include the potential for cost growth on CVNs 78, 79, and 80; the possibility that DOD may propose deferring procurement of CVN-79; and technical and design issues for CVN-78 class carriers that were raised in a December 2010 report from the Department of Defense (DOD) Director of Operational Test and Evaluation (DOT&E). Congress’s decisions on the CVN-78 program could substantially affect Navy capabilities and funding requirements and the shipbuilding industrial base. Background The Navy’s Aircraft Carrier Force The Navy’s aircraft carrier force consists of 11 nuclear-powered ships—the one-of-a-kind Enterprise (CVN-65), which entered service in 1961, and 10 Nimitz-class ships (CVNs 68 through 77) that entered service between 1975 and 2009. The most recently commissioned carrier, the George H. W. Bush (CVN-77), the final Nimitz-class ship, was procured in FY2001 and commissioned into service on January 10, 2009.1 CVN-77 replaced the Kitty Hawk (CV-63), which was the Navy’s last remaining conventionally powered carrier.2 Aircraft Carrier Construction Industrial Base All U.S. aircraft carriers procured since FY1958 have been built by Newport News Shipbuilding (NNS), of Newport News, VA, a shipyard that is part of Huntington Ingalls Industries (HII). HII was previously owned by Northrop Grumman, during which time it was known as Northrop Grumman Shipbuilding (NGSB). NNS is 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. Gerald R. Ford (CVN-78) Class Program The Gerald R. Ford (CVN-78) class carrier design (Figure 1) is the successor to the Nimitz-class carrier design.3 The Ford-class design uses the basic Nimitz-class hull form but incorporates 1 Congress approved $4,053.7 million in FY2001 procurement funding to complete CVN-77’s then-estimated total procurement cost of $4,974.9 million. Section §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 testified in 2006 that with these permitted adjustments, the cost cap stood at $5.357 billion. The Navy also testified that CVN-77’s estimated construction cost had increased to $6.057 billion, or $700 million above the adjusted cost cap. Consequently, the Navy in 2006 requested that Congress increase the cost cap to $6.057 billion. Congress approved this request: Section §123 of the FY2007 defense authorization act (H.R. 5122/P.L. 109-364 of October 17, 2006), increased the cost cap for CVN-77 to $6.057 billion. 2 The Kitty Hawk was decommissioned on January 31, 2009. 3 The CVN-78 class was earlier known as the CVN-21 class, which meant nuclear-powered aircraft carrier for the 21st (continued...) Congressional Research Service 1 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress several improvements, including features permitting the ship to generate substantially more aircraft sorties per day, more electrical power for supporting ship systems, and features permitting the ship to be operated by several hundred fewer sailors than a Nimitz-class ship, significantly reducing life-cycle operating and support (O&S) costs. Navy plans call for procuring at least three Ford-class carriers—CVN-78, CVN-79, and CVN-80. Figure 1. Navy Illustration of CVN-78 Source: Navy image accessed at http://www.navy.mil/management/photodb/photos/060630-N-0000X-001.jpg on April 20, 2011. CVN-78 CVN-78, which was named for President Gerald R. Ford in 2007,4 was procured in FY2008 and was funded with congressionally authorized four-year incremental funding in FY2008-FY2011.5 The Navy’s proposed FY2012 budget estimates the ship’s procurement cost at $11,531.0 million (...continued) century. 4 Section §1012 of the FY2007 defense authorization act (H.R. 5122/P.L. 109-364 of October 17, 2006) expressed the sense of the Congress that CVN-78 should be named for President Gerald R. Ford. On January 16, 2007, the Navy announced announced that CVN-78 would be so named. CVN-78 and other carriers built to the same design will consequently be referred to as Ford (CVN-78) class carriers. For further discussion of Navy ship names, see CRS Report RS22478, Navy Ship Names: Background for Congress, by Ronald O’Rourke. 5 Section §121 of the FY2007 John Warner National Defense Authorization Act (H.R. 5122/P.L. 109-364 of October 17, 2006) granted the Navy the authority to use four-year incremental funding for CVN-78, CVN-79, and CVN-80. Congressional Research Service 2 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress (i.e., about $11.5 billion) in then-year dollars. Of this total, about $2.9 billion is for detailed design and non-recurring engineering (DD/NRE) costs for the CVN-78 program, and about $8.6 billion is for construction cost of CVN-78 itself. (It is a traditional Navy budgeting practice to attach the DD/NRE costs for a new class of ships to the procurement cost of the lead ship in the class.) The Navy’s proposed FY2011 budget requested $1,731.3 million in procurement funding as the final increment to complete this estimated procurement cost; the FY2011 Department of Defense and Full-Year Continuing Appropriations Act (H.R. 1473/P.L. 112-10 of April 15, 2011) reduced this request by $9.3 million. CVN-78 is scheduled to enter service as the replacement for Enterprise (CVN-65). The Navy projects that there will be a 33-month period between the scheduled decommissioning of Enterprise in November 2012 and the scheduled commissioning of CVN-78 in September 2015. During this 33-month period, the Navy’s carrier force is to temporarily decline from 11 ships to 10 ships. Since 10 USCU.S.C. 5062(b) requires the Navy to maintain a force of at least 11 operational carriers, the Navy asked Congress for a temporary waiver of 10 USCU.S.C. 5062(b) to accommodate the 33-month period between the scheduled decommissioning of Enterprise and the scheduled commissioning of CVN-78. Section 1023 of the FY2010 National Defense Authorization Act (H.R. 2647/P.L. 111-84 of October 28, 2009) authorizes the waiver and required the Secretary of Defense to submit a report on the operational risk of temporarily reducing the size of the carrier force. CVN-79 CVN-79, which was named for President John F. Kennedy on May 29, 2011,6 is scheduled for procurement in FY2013, and has received advance procurement (AP) funding since FY2007. The Navy’s proposed FY2012 budget estimates the ship’s procurement cost at $10,253.0 million (i.e., about $10.3 billion) in then-year dollars and requests $554.8 million in AP funding for the ship. On April 6, 2009, Secretary of Defense Robert Gates announced a number of recommendations he was making to the President for the FY2010 defense budget submission. One of these was to shift procurement of carriers to five-year intervals. This recommendation, which was included in the FY2010 defense budget submission, deferred the scheduled procurement of CVN-79 from FY2012 to FY2013. Gates stated in his April 9, 2009, address that shifting carrier procurement to five-year intervals would put carrier procurement on “a more fiscally sustainable path.”7 For further discussion, see Appendix A and Appendix B. 6 See “Navy Names Next Aircraft Carrier USS John F. Kennedy,” Navy News Service, May 29, 2011, accessed online on June 1, 2011 at http://www.navy.mil/search/display.asp?story_id=60686. See also Peter Frost, “U.S. Navy’s Next Aircraft Carrier Will Be Named After The Late John F. Kennedy,” Newport News Daily Press, May 30, 2011. CVN-79 is the second ship to be named for President John F. Kennedy. The first, CV-67, was the last conventionally powered carrier procured for the Navy. CV-67 was procured in FY1963, entered service in 1968, and was decommissioned in 2007. 7 Source: Statement of Secretary of Defense Robert Gates, at April 6, 2009, news conference on his recommendations for the FY2010 defense budget. Congressional Research Service 3 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress CVN-80 CVN-80 is scheduled for procurement in FY2018, with advance procurement funding scheduled to begin in FY2014. The Navy’s proposed FY2012 budget estimates the ship’s procurement cost at $13,494.9 million (i.e., about $13.5 billion) in then-year dollars. Secretary of Defense Gates’ April 2009 recommendation to shift carrier procurement to five-year intervals (see above discussion of CVN-79) deferred the procurement of CVN-80 from FY2016 to FY2018. Procurement Funding Table 1 shows procurement funding for CVNs 78, 79, and 80 through FY2016. Each ship is being procured with several years of advance procurement (AP) funding, followed by four-year incremental procurement funding of the remainder of the ship’s cost.8 The funding profile for CVN-78, for example, includes AP funding in FY2001-FY2007, followed by four years of incremental procurement funding in FY2008-FY2011. The figures shown for FY2011 in Table 1 are the requested figures for FY2011 as presented in the FY2012 budget submission. The FY2011 Department of Defense and Full-Year Continuing Appropriations Act (H.R. 1473/P.L. 112-10 of April 15, 2011), which was enacted after the submission of the proposed FY2012 budget, reduced the Navy’s request for FY2011 procurement funding for CVN-78 by $9.3 million, and fully funded the Navy’s request for FY2011 advance procurement funding for CVN-79. Table 1. Procurement Funding for CVNs 78, 79, and 80 Through FY2016 (Millions of then-year dollars, rounded to nearest tenth) FY CVN-78 CVN-79 CVN-80 Total FY01 21.7 (AP) 0 0 21.7 FY02 135.3 (AP) 0 0 135.3 FY03 395.5 (AP) 0 0 395.5 FY04 1,162.9 (AP) 0 0 1,162.9 FY05 623.1 (AP) 0 0 623.1 FY06 618.9 (AP) 0 0 618.9 FY07 735.8 (AP) 52.8 (AP) 0 788.6 FY08 2,685.0 123.5 (AP) 0 2,808.6 FY09 2,684.6 1,210.6 (AP) 0 3,895.1 737.0 482.9 (AP) 0 1,219.9 FY11 (requested)a FY10 1,731.3 908.3 (AP) 0 2,639.6 FY12 (requested) 0 554.8 (AP) 0 554.8 FY13 (projected) 0 1,942.4 0 1,942.4 FY14 (projected) 0 1,920.3 228.1 (AP) 2,148.4 FY15 (projected) 0 2,030.9 1,514.9 (AP) 3,545.8 FY16 (projected) 0 1,026.5 1,476.5 (AP) 2,503.0 Source: FY2009-FY2012Navy budget submissions. 8 As noted in footnote 5, Section §121 of the FY2007 defense authorization act (H.R. 5122/P.L. 109-364 of October 17, 2006) granted the Navy the authority to use four-year incremental funding for CVN-78, CVN-79, and CVN-80. Congressional Research Service 4 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Notes: Figures may not add due to rounding. “AP” is advance procurement funding. a. The figures shown for FY2011 are the requested figures for FY2011 as presented in the FY2012 budget submission. The FY2011 Department of Defense and Full-Year Continuing Appropriations Act (H.R. 1473/P.L. 112-10 of April 15, 2011), which was enacted after the submission of the proposed FY2012 budget, reduced the Navy’s request for FY2011 procurement funding for CVN-78 by $9.3 million, and fully funded the Navy’s request for FY2011 advance procurement funding for CVN-79. Past Changes in Estimated Unit Procurement Costs As shown in Table 2, the estimated procurement costs of CVNs 78, 79, and 80 in the FY2011 budget submission are 10.3%, 11.5%, and 25.9% higher, respectively, in then-year dollars than those in the FY2009 budget submission.9 Table 2 also shows that the estimated procurement costs of CVNs 79 and 80 in the FY2012 budget are 1.5% and 0.1% lower, respectively, than those in the FY2011 budget. 9 CBO in 2008 and the Government Accountability Office (GAO) in 2007 questioned the accuracy of the Navy’s cost estimate for CVN-78. CBO reported in June 2008 that it estimated that CVN-78 would cost $11.2 billion in constant FY2009 dollars, or about $900 million more than the Navy’s estimate of $10.3 billion in constant FY2009 dollars, and that if “CVN-78 experienced cost growth similar to that of other lead ships that the Navy has purchased in the past 10 years, costs could be much higher still.” CBO also reported that, although the Navy publicly expressed confidence in its cost estimate for CVN-78, the Navy had assigned a confidence level of less than 50% to its estimate, meaning that the Navy believed there was more than a 50% chance that the estimate would be exceeded. (Congressional Budget Office, Resource Implications of the Navy’s Fiscal Year 2009 Shipbuilding Plan, June 9, 2008, p. 20.) GAO reported in August 2007 that: Costs for CVN 78 will likely exceed the budget for several reasons. First, the Navy’s cost estimate, which underpins the budget, is optimistic. For example, the Navy assumes that CVN 78 will be built with fewer labor hours than were needed for the previous two carriers. Second, the Navy’s target cost for ship construction may not be achievable. The shipbuilder’s initial cost estimate for construction was 22 percent higher than the Navy’s cost target, which was based on the budget. Although the Navy and the shipbuilder are working on ways to reduce costs, the actual costs to build the ship will likely increase above the Navy’s target. Third, the Navy’s ability to manage issues that affect cost suffers from insufficient cost surveillance. Without effective cost surveillance, the Navy will not be able to identify early signs of cost growth and take necessary corrective action. (Government Accountability Office, Defense Acquisitions[:] Navy Faces Challenges Constructing the Aircraft Carrier Gerald R. Ford within Budget, GAO-07-866, August 2007, summary page. See also Government Accountability Office, Defense Acquisitions[:] Realistic Business Cases Needed to Execute Navy Shipbuilding Programs, Statement of Paul L. Francis, Director, Acquisition and Sourcing Management Team, Testimony Before the Subcommittee on Seapower and Expeditionary Forces, Committee on Armed Services, House of Representatives, July 24, 2007 (GAO-07-943T), p. 15.) Congressional Research Service 5 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Table 2. Estimated Procurement Costs of CVNs 78, 79, and 80 (As shown in FY2009-FY2012 budgets, in millions of then-year dollars) Budget CVN-78 FY09 budget CVN-79 CVN-80 Estimated procurement cost Scheduled fiscal year of procurement Estimated procurement cost Scheduled fiscal year of procurement Estimated procurement cost Scheduled fiscal year of procurement 10,457.9 FY08 9,191.6 FY12 10,716.8 FY16 FY13b n/aa FY18b FY10 budget 10,845.8 FY08 n/aa FY11 budget 11,531.0 FY08 10,413.1 FY13 13,577.0 FY18 FY12 budget 11,531.0 FY08 10,253.0 FY13 13,494.9 FY18 % change: FY09 budget to FY10 budget +3.7 n/a n/a FY10 budget to FY11 budget +6.3 n/a n/a FY11 budget to FY12 budget No change - 1.5 - 0.1 FY09 budget to FY12 budget +10.3 +11.5 +25.9 Source: FY2009, FY2010, and FY2011Navy budget submissions. a. n/a means not available; the FY2010 budget submission did not show estimated procurement costs for CVNs 79 and 80. b. The FY2010 budget submission did not show scheduled years of procurement for CVNs 79 and 80; the dates shown here for the FY2010 budget submission are inferred from the shift to five-year intervals for procuring carriers that was announced by Secretary of Defense Gates in his April 6, 2009, news conference regarding recommendations for the FY2010 defense budget. The increases in the estimated procurement costs of CVNs 78, 79, and 80 since the FY2009 budget submission have at least four potential causes: • one additional year of inflation being incorporated into the cost of CVN-79 as a result of its scheduled procurement being deferred from FY2012 to FY2013, and two years of additional inflation being incorporated into the cost of CVN-80 as a result of its scheduled procurement being deferred from FY2016 to FY2018; • increases in projected annual rates of inflation; • higher estimates of real (i.e., inflation-adjusted) material costs, real labor rates, or labor hours (given a certain position on the production learning curve) for building CVN-78 class carriers; and • increased costs due to loss of learning and reduced spreading of fixed overhead costs resulting from shifting to five-year intervals for procuring carriers. Procurement Cost Cap Section 122 of the FY2007 John Warner National Defense Authorization Act (H.R. 5122/P.L. 109-364 of October 17, 2006) established a procurement cost cap for CVN-78 of $10.5 billion, Congressional Research Service 6 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress plus adjustments for inflation and other factors, and a procurement cost cap for subsequent Fordclass carriers of $8.1 billion each, plus adjustments for inflation and other factors. The conference report (H.Rept. 109-702 of September 29, 2006) on P.L. 109-364 discusses Section 122 on pages 551-552. The Navy on February 19, 2010, notified the congressional defense committees that, after making permitted adjustments in the cost cap for inflation and other factors, the estimated cost of CVN78 was $224 million below the cost cap for that ship.10 The Navy on April 19, 2010, informed CRS and the Congressional Budget Office (CBO) that, after making permitted adjustments in the cost cap for inflation and other factors, the estimated costs of CVN-79 and CVN-80 each were several hundred million dollars below the cost cap for those ships.11 Issues for Congress Oversight issues for Congress for the CVN-78 program include: • the possibility that DOD will propose deferring procurement of CVN-79 by two years, to FY2015; • the potential for cost growth on CVNs 78, 79, and 80; and • technical and design issues for CVN-78 class carriers that were raised in a December 2010 report from the Department of Defense (DOD) Director of Operational Test and Evaluation (DOT&E). Possibility That DOD Will Propose Deferring CVN-79 to FY2015 AnotherOne oversight issue for Congress concerns the possibility that DOD will propose deferring procurement procurement of CVN-79. On July 11, 2011, it was reported that the Navy, as a potential measure for reducing near-term funding requirements, iswas considering the option of deferring the scheduled procurement of CVN-79 by two years, to FY2015.12 Other options reportedly under consideration include deferring procurement of CVN-79 by one year, to FY2014, or not procuring CVN-79.13 On September 1, 2011, it was reported that the Navy, in response to anticipated reductions in planned levels of defense spending, iswas considering options for maintaining a fleet of considerably considerably fewer than 300 ships, including an option for a 250-ship fleet with ten aircraft carriers, and a 240ship240-ship fleet with eight aircraft carriers. A fleet with nine aircraft carriers is another reported possibility. As one measure for reducing the size of the carrier force, the Navy reportedly is reportedly was considering the option of retiring (rather than performing a nuclear-refueling 10 Source: Letter dated February 19, 2010, from Secretary of the Navy Ray Mabus to the chairmen of the House and Senate Armed Services committees and the Defense subcommittees of the House and Senate Appropriations Committees. Copy of letter provided by the Navy to CRS and the Congressional Budget Office (CBO) on April 19, 2010. 11 Source: April 19, 2010, Navy briefing on the CVN-78 program to CRS and CBO. 12 Christopher P. Cavas, “U.S. May Delay Next Carrier,” Defense News, July 11, 2011: 1. 13 Michael Fabey, “Budget Concerns Put Carriers In Crosshairs Again,” Aerospace Daily & Defense Report, July 14, 2011: 1-2. Congressional Research Service 7 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress considering the option of retiring (rather than performing a nuclear-refueling overhaul on) the aircraft carrier George Washington (CVN-73).14 overhaul on) the aircraft carrier George Washington (CVN-73).14 Implementing this option would reduce the Navy’s carrier force a few years from now from 11 ships to 10. A January 5, 2011, press report stated that Defense Secretary Leon E. Panetta has concluded... that the United States should not cut any of its 11 aircraft carriers, according to Pentagon officials and military analysts briefed on the secretary’s budget proposals.... Military experts familiar with Mr. Panetta’s thinking said that [President] Obama had opposed reducing the American carrier fleet to 10 from 11 because of what he sees as the need to have enough force in the Pacific Ocean to act as a counterweight to China.15 Deferring procurement of CVN-79 by two years, to FY2015, might • substantially reduce FY2013 and FY2014 funding requirements for CVN-79; • increase the total procurement cost of CVN-79, potentially by hundreds of millions of dollars;1516 • increase the procurement costs of Virginia-class attack submarines being built at NNS over the next few years;1617 • increase costs at NNS over the next few years for mid-life nuclear refueling overhauls of Nimitz-class aircraft carriers (called refueling complex overhauls, or RCOHs);1718 and • have implications for the aircraft carrier industrial base and future aircraft carrier force levels. An August 9, 2011, press report states: Delaying the purchase of an aircraft carrier could have sweeping consequences at the Newport News shipyard, the nation’s lone builder of the $10 billion-plus nuclear-powered flattops, its top executive told the Daily Press. Matthew J. Mulherin, president of Newport News Shipbuilding, warned that pushing back the construction contracts of future carriers would raise the overall costs associated with building the giant ships and affect the yard’s construction and engineering workforce. Further, he said, delaying the purchase of a carrier would force the Newport News shipyard to alter its long-term financial plans and cause a ripple effect throughout its far-reaching base of suppliers, which manufacture steel, valves, pipes, nuts, bolts and thousands of other components that go into building the 1,092-foot vessels. A delay, Mulherin said, “affects everything.” “It’s something you really have to think through, and the Navy knows this—there are a lot of ramifications,” he said during a brief interview at an art exhibit opening last week. “We’ve said and the Navy has said that a five-year build cycle is optimal for building carriers. That’s why that remains the plan of record today.”... 14 Christopher J. Castelli, “Navy Of Tomorrow Could Have Fewer Cruisers, Aircraft Carriers,” Inside the Pentagon, September 1, 2011. 15A November 21, 2011, press report states: The Navy needs to stay on the five-year buy rate for aircraft carriers to keep a strong industrial base and an efficient transition from building one carrier to the next, the president of Newport News Shipbuilding said last week. Widening the gap between procuring the carriers could cause costs to rise and diminish the strength of the workers and their skill set as they may be forced to seek jobs elsewhere, Matt 14 Christopher J. Castelli, “Navy Of Tomorrow Could Have Fewer Cruisers, Aircraft Carriers,” Inside the Pentagon, September 1, 2011. See also Christopher P. Cavas, “U.S. Navy May Cut Carrier’s Life In Half To Save Money,” DefenseNews.com, October 6, 2011. 15 Thom Shanker and Elisabeth Brumiller, “In New Strategy, Panetta Plans Even Smaller Army,” New York Times, January 5, 2012. 16 CVN-79’s procurement cost could increase due to (1) additional inflation being incorporated into the ship’s cost, (2) reduced spreading of fixed overhead costs at NNS due a reduced volume of work at the shipyard, and (3) reduced production learning curve benefits (i.e., loss of learning) at NNS in moving from CVN-78 to CVN-79 due to the increased time interval between CVN-78 and CVN-79. Increases due to the second and third of these factors would increase the ship’s real (i.e., inflation-adjusted) procurement cost. Cost increases could also occur due to the impact of the deferral on subcontractors and suppliers. 1617 The procurement cost of Virginia-class attack submarines could increase as a result of reduced spreading of fixed overhead costs at NNS due a reduced volume of work at the shipyard. 1718 Costs for RCOHs could increase as a result of reduced spreading of fixed overhead costs at NNS due a reduced volume of work at the shipyard. Congressional Research Service 8 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Mulherin, who runs the shipyard owned by Huntington Ingalls Industries [HII], told reporters on conference call. “If the time elapses and it’s going to be long enough they are not going to wait around,” Mulherin said. Ideally, it would be best to transition works from the completed carrier to beginning work on a new one, he said.19 An August 9, 2011, press report states: Delaying the purchase of an aircraft carrier could have sweeping consequences at the Newport News shipyard, the nation’s lone builder of the $10 billion-plus nuclear-powered flattops, its top executive told the Daily Press. Matthew J. Mulherin, president of Newport News Shipbuilding, warned that pushing back the construction contracts of future carriers would raise the overall costs associated with building the giant ships and affect the yard’s construction and engineering workforce. Further, he said, delaying the purchase of a carrier would force the Newport News shipyard to alter its long-term financial plans and cause a ripple effect throughout its far-reaching base of suppliers, which manufacture steel, valves, pipes, nuts, bolts and thousands of other components that go into building the 1,092-foot vessels. A delay, Mulherin said, “affects everything.” “It’s something you really have to think through, and the Navy knows this—there are a lot of ramifications,” he said during a brief interview at an art exhibit opening last week. “We’ve said and the Navy has said that a five-year build cycle is optimal for building carriers. That’s why that remains the plan of record today.”... “We’re certainly paying attention to the situation,” Mulherin said. “You can't overreact, but you have to provide constant input and offer insight into the consequences.” Even if the Navy opts to push out a carrier like the Kennedy, the impact to Newport News “all depends on how they do it,” he said, noting that previous carrier orders have been delayed due to budgetary constraints. Should the major construction contract be bumped to fiscal 2014 or 2015, the Navy could soften the impact by funneling money to Newport News through smaller, advance funding contracts in the interim that help pay for engineering, pre-fabrication and procurement of parts and materials, Mulherin said. “That’s pretty much what happened with the (George H.W.) Bush,” he said, referring to the last ship of the Nimitz class, which was originally scheduled to be purchased in 2000 but was pushed back to 2001. The yard got a series of smaller contracts in the run-up to construction that helped smooth the workload in Newport News.1820 An August 12, 2011, press report states that Mike Petters, HII’s president and chief executive officer, 19 Mike McCarthy, “Navy Needs To Maintain 5-Year Carrier Bay [sic: Buy] Rate, NNS Says,” Defense Daily, November 21, 2011: 6. Material in brackets as in original. 20 Peter Frost, “Mulherin: Aircraft Carrier Delay Would Have ‘A Lot Of Ramifications’ For Newport News Shipyard,” Newport News Daily Press, August 9, 2011. Congressional Research Service 9 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress addressed the looming uncertainty over the Navy’s future budgets, which includes consideration of delaying the purchase of the John F. Kennedy aircraft carrier by up to two years and altering its long-term carrier construction plan. Each time a multibillion-dollar carrier comes up for budget approval, the program tends “to come under a lot of scrutiny … and the Kennedy is no different,” he said. Petters warned that such a delay would have a wide-ranging impact on the Navy, the 20,000worker Newport News shipyard and its stable of suppliers. “Extending the carrier-build cycle to six or seven years not only increases the overall cost of the ship but would also have a severe and far-reaching impact nationwide,” he said, noting that the shipyard buys up to $3 billion of materials from suppliers across the country.1921 Deferring procurement of CVN-79 by one or two years might be done as part of a larger decision to shift procurement of carriers from five-year intervals (the current plan) to six- or seven-year intervals. Table C-1 in Appendix C shows projected aircraft carrier force levels for FY2011FY2045 that would result from procuring carriers at five-, six-, or seven-year intervals, beginning with CVN-79. Potential for Cost Growth One oversightAnother issue for Congress for the CVN-78 program concerns potential for cost growth on CVNs CVNs 78, 79, and 80. One possible source of cost growth in CVN-78 are new technologies that are are being developed for the ship, particularly the electromagnetic aircraft launch system (EMALS)— an electromagnetic (as opposed to the traditional steam-powered) aircraft catapult. 18 Peter Frost, “Mulherin: Aircraft Carrier Delay Would Have ‘A Lot Of Ramifications’ For Newport News Shipyard,” Newport News Daily Press, August 9, 2011. 19 Problems in developing EMALS or other technologies could delay the ship’s completion and increase its development and/or procurement cost. General December 2011 Press Report A December 22, 2011, press report stated: The U.S. Navy has estimated a worst-case cost overrun of as much as $1.1 billion for the aircraft carrier USS Gerald R. Ford, the service’s most expensive warship. The carrier is being built by Huntington Ingalls Industries Inc. under a cost-plus, incentivefee contract in which the Navy pays for most of the overruns. Even so, the service’s efforts to control expenses may put the company’s $579.2 million profit at risk, according to the Navy. A review of the carrier’s rising costs began in August after the Navy’s program manager indicated that the “most likely” overrun had risen to $884.7 million, or about 17 percent over the current contract’s target price of $5.16 billion. That’s up from a $650 million overrun estimated in April, according to internal Navy figures made available to Bloomberg News. The worst-case assessment would be about 21 percent over the target. 21 Peter Frost, “Huntington Ingalls Posts Second-Quarter Profit Of $40 Million, Warms Of Potential Carrier Delay,” Newport News Daily Press, August 12, 2011. Congressional Research Service 9 . 10 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Problems in developing EMALS or other technologies could delay the ship’s completion and increase its development and/or procurement cost. General “Regular reviews of the cost performance indicated cost increases were occurring,” said Navy spokeswoman Captain Cate Mueller in a statement. Some rising costs are tied to construction inefficiencies, the Navy said. Navy Assistant Secretary for Acquisition Sean Stackley directed the review “to determine specific causes and what recovery actions could be put in place,” Mueller said. Even as the Navy conducts its internal review, it is trying to assure U.S. lawmakers and Pentagon officials that costs of major vessel programs are being controlled. The Pentagon is evaluating strategy, retirement health benefits, weapons programs and military service budgets to find as much as $488 billion in reductions through 2021. The service has already offered to delay construction of the second Ford-class vessel, the CVN-79 John F. Kennedy, by two years. Stackley’s assessment is focusing on “every aspect of the ship’s construction including the risks” of delays and cost growth to both contractor- and government-furnished equipment, Mueller said. Among the largest government-furnished equipment is the carrier’s nuclear reactor. The review includes officials from Stackley’s office, as well as the Naval Sea Systems Command, the chief of naval operations, and the Navy’s supervisor of shipbuilding, Mueller said. Late delivery of Huntington-furnished material has been a key factor in late assembly and inefficient construction, the Navy said. Still, the carrier remains on schedule for its planned September 2015 delivery, the service said. Huntington Ingalls’s goal is to reduce the program’s costs, Chief Executive Officer Michael Petters said in an interview. “If there was something else I thought we needed to do, we’d be doing it,” Petters said. “If there is something else somebody else thinks we ought to be doing, we’ll listen and, if it makes sense, we’ll do it.” Mueller said some of Huntington’s cost-control efforts are producing “favorable results.” For example, the Newport News, Virginia-based shipbuilder has established specific labor-cost targets for its key manufacturing and construction jobs. Mueller did not say whether these moves have reduced costs yet. The Navy also has agreed to consider changes to specifications and modify them “where appropriate to lower cost and schedule risk,” Mueller said. Huntington has designated a senior vice president and ship construction superintendent with daily oversight responsibility. The Navy plans to report a new contract completion cost in its next annual report to Congress. The document would be submitted to lawmakers next year. Mueller declined to discuss the current overrun estimates. The Navy earlier disclosed that the carrier faced the $650 million overrun to complete the contract—$562 million of which the Navy would absorb; the remaining $88 million by Huntington.... Any discussion of cost growth should reflect the Gerald Ford’s status as a first-of-a-kind ship under development, Petters said. Congressional Research Service 11 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress “A lead ship comes with a whole lot of churn—things that don’t go the way it should,” he said. “It’s like building a prototype.” Petters said the company “put a lot of thought” into the construction when it designed the carrier. “As a result, this ship is coming together pretty well, but it’s a lead ship and it’s a big ship so we’ll probably be having this kind of discussion for the next four years,” he said.22 August 2011 Press Reports An August 8, 2011, press report stated: The U.S. Navy’s newest aircraft carrier, the most expensive warship ever, is overrunning its contract target price by 11 percent “due to contractor performance,” according to Navy figures and documents. The USS Gerald R. Ford is being built under a cost-plus incentive fee contract by Newport News, Virginia-based Huntington Ingalls Industries Inc. That means the Navy pays for cost overruns, typical for the first vessel in a class. The company is projected to exceed the current contract’s $5.161 billion target price by $562 million because of “construction inefficiencies,” the Naval Sea Systems Command said without elaboration.... The company’s $579.2 million fee, its profit under the contract, may be at risk as the Navy takes steps to contain the overrun. “The final cost will determine the amount of fee earned by Huntington Ingalls” and the Navy will pay less than the $579.2 million if “the contractor will not achieve the target cost,” the command said in a statement to Bloomberg News.... The Gerald R. Ford overrun projection is based on company data as of April 24, which indicates the September 2008 design and construction contract is about 39 percent complete..... Huntington Ingalls spokesman Jerri Dickseski said in an e-mail that the company’s Newport News Shipbuilding division has seen “month-over-month cost improvements since late 2010.” The company has put in place at least five major improvements to stem cost growth, Dickseski said. They include use of 3-D computer modeling technology; increased use of automated welding; leveraging the buying power of all Huntington Ingalls to obtain bulk quantities of commodities at lower costs, and better coordination of the division’s engineering, manufacturing and construction teams. The company also is improving its infrastructure to enhance productivity, she said.... 22 Tony Capaccio, “Huntington’s Gerald Ford Carrier May Have $1.1 Billion Overrun,” Bloomberg Government (bgov.com), December 22, 2011. Congressional Research Service 12 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress The Navy said it is working with Huntington Ingalls “to drive construction costs down and reduce material expenditures.” The company has assigned a full-time vice president for construction and a construction director to “improve accountability and focus management attention” on reducing costs, the Navy said. Dickseski said Huntington Ingalls shares in any cost growth in terms of “impact to our fee.” Congressional Research Service 10 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress As part of a $504 million modification to Huntington’s contract, the Navy on July 29 tightened the linkage between the company’s fee and cost control, the company and Navy sea command said. “This provides more incentive for the contractor to complete the design within the contract negotiated cost,” the command said.2023 An August 12, 2011, press report states that Mike Petters, HII’s president and chief executive officer, defended the company’s performance on the Ford, saying it “remains committed to our financial targets on that program.” “The performance on the ship right now is pretty solid,” Petters said. “(W)e’re very confident with the financial performance on that program.”2124 Another August 12, 2011, press report states: Huntington Ingalls Industries’ (HII) Newport News Shipbuilding unit should meet its overall cost-and-schedule targets for the U.S. Navy’s next-generation aircraft carrier CVN-78 Gerald R. Ford despite recently acknowledged potential overruns on the ship’s current design-andconstruction contract, HII CEO Michael Petters says. “We remain committed to the financial targets,” Petters told Wall Street investment analysts during the company’s Aug. 11 conference call to detail second-quarter financial results. “The targets on this ship have not changed.”… Potential cost-growth concerns have been a worry for the Ford-class carrier, CRS notes in its report. But what analysts need to remember, according to Petters, is that the Ford is a leadclass ship. “Lead ships are always challenging,” he says. Ford construction is further challenged by “aggressive” shipbuilding targets negotiated by the Navy and Newport News, Petters says. One of the reasons Newport News and the Navy negotiated a cost-plus contract was to help the company manage the cost performance with the risk involved in building such an advanced lead ship, Petters says. “This lead ship is better than any one I’ve worked with,” he says, adding that Newport News is constantly working to bring down costs. The next Ford-class carrier—the CVN-79 John F. Kennedy—will likely be a fixed-price contract. “That’s a 2013 ship,” Petters says, and assuming the Navy stays on course for its carrier construction plan, Navsea and Newport News should start negotiating the contract at the end of 2012 or beginning of 2013. 20 23 Tony Capaccio, “Huntington’s USS Gerald Ford Carrier Contract Has 11% Overrun,” Bloomberg News, August 9, 2011. 2124 Peter Frost, “Huntington Ingalls Posts Second-Quarter Profit Of $40 Million, Warms Of Potential Carrier Delay,” Newport News Daily Press, August 12, 2011. Ellipsis and parentheses as in original. Congressional Research Service 11 . 13 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress The next Ford-class carrier—the CVN-79 John F. Kennedy—will likely be a fixed-price contract. “That’s a 2013 ship,” Petters says, and assuming the Navy stays on course for its carrier construction plan, Navsea and Newport News should start negotiating the contract at the end of 2012 or beginning of 2013. That negotiation will not be about price, Petters says; it instead will be about “how to allocate risk.” The more the Navy and Newport News share the risk of building these ships on schedule and within budget, the lower the price of the carrier will be, he says. “If we bear the risk,” he says, “that will drive the price up.”2225 June 2011 CBO Report A June 2011 CBO report on the potential cost of the Navy’s FY2011 30-year shipbuilding plan states (with costs expressed on constant FY2011 dollars): The Navy’s projected cost of the lead ship of the CVN-78 class grew by 10 percent between the President’s 2008 and 2012 budget requests. The Navy’s budget now projects the lead ship’s cost to be about $12.0 billion (about what CBO estimated in its analysis of the Navy’s 2009 plan). However, further increases appear likely. According to the Selected Acquisition Report for the CVN-78 program, the program manager is currently estimating an additional $600 million in cost overruns above the budgeted amount. In addition, the lead ship of the CVN-78 class is only about 23 percent complete, and cost growth in shipbuilding programs typically occurs when a ship is more than half finished—particularly in the later stages of construction, when all of a ship’s systems must be installed and integrated. Therefore, greater cost growth in the lead ship appears likely, which would signal higher costs for subsequent ships in the class as well. To estimate the cost of the lead ship of the CVN-78 class, CBO used the actual costs of the previous carrier—the CVN-77—and then adjusted them for higher costs for governmentfurnished equipment and for more than $3 billion in costs for nonrecurring engineering and detail design (the plans, drawings, and other one-time items associated with the first ship of a new class). As a result, CBO estimates that the lead CVN-78 will cost about $12.9 billion once it is completed. Subsequent ships of the class will not require as much funding for onetime items, although they will incur the higher costs for government-furnished equipment. Altogether, CBO estimates the average cost of the six carriers in the [FY]2012 [30-year shipbuilding] plan at $12.1 billion, whereas the Navy estimates their average cost at $10.3 billion (see Table 3). CBO’s estimate for all carriers under the 2012 plan is lower than the estimate for the 2011 plan primarily because... the projected gap between inflation in the economy overall and long-run shipbuilding inflation has narrowed. There are several reasons to believe that the final cost of the CVN-78 could be even higher than CBO’s estimate. First, most lead ships built in the past 20 years have experienced cost growth of more than 40 percent. (CBO’s estimate for the lead CVN-78 accounts for some but not all of that historical cost growth.) Second, Navy officials have told CBO that they have 25 Michael Fabey, “HII CEO Downplays Potential Ford Carrier Overruns,” Aerospace Daily & Defense Report, August 12, 2011: 3. Congressional Research Service 14 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress budgeted to the 40th percentile of possible cost outcomes. That is, there is a 60 percent probability that the final cost of the CVN-78 will exceed the service’s estimate and only a 40 percent probability that the final cost will be less than that estimate. Third, a number of critical technologies that are supposed to be incorporated into the ship, such as a new electromagnetic catapult system for launching aircraft, remain under development. 22 Michael Fabey, “HII CEO Downplays Potential Ford Carrier Overruns,” Aerospace Daily & Defense Report, August 12, 2011: 3. Congressional Research Service 12 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Difficulties in completing their development could arise and increase costs, which would also affect the costs for subsequent ships of the class.2326 December 31, 2010, SAR (Released April 2011) Regarding a contract that NNS has with the Navy for detailed design and construction work on CVN-78—a contract that accounts for a portion of the ship’s total cost—the December 31, 2010, Selected Acquisition Report (SAR) for the CVN-78 program, which was released in mid-April 2011, states: “The [CVN-78] Program Manager’s (PM) Estimate At Completion (EAC) [for the contract] increased from $5,295.5M to $5,723.5M reflecting unfavorable contractor material and labor performance.” This statement would appear to suggest a potential for $428 million in cost growth on CVN-78. The December 31, 2010, SAR for the program also states that the contract has a current target price of $5,161.3 million. Compared to this figure, the EAC figure of $5,723.5 million would appear to suggest a potential for $562.2 million in cost growth, which would equate to about 10.9% cost growth. At a May 3, 2011, briefing on the CVN-78 program for CRS and CBO, officials from the CVN-78 program office stated that the EAC figure in the SAR reflected information available at the time the SAR was being compiled, and that the Navy is working to reduce the EAC figure. March 2011 GAO Report The Government Accountability office (GAO) reported the following in March 2011 regarding the status of the CVN-78 program, including the potential for cost growth: Technology Maturity Seven of the CVN 21 program’s 13 current critical technologies have not been demonstrated in a realistic, at-sea environment. Of these technologies, EMALS, the advanced arresting gear, and dual band radar present the greatest risk to the ship’s cost and schedule. Program officials stated that EMALS development has been one of the primary drivers of CVN 78 cost increases. Problems have occurred in EMALS testing which could result in more design changes later in the program. Testing uncovered a crack in the motor, which has already resulted in several design changes; and in January 2010, a motor controller software error caused damage to the EMALS hardware. Both fixes have successfully been retested. The program completed the first four F/A-18E launches in December 2010. The advanced arresting gear is nearing maturity and has completed extended reliability testing. However, delays in land-based testing with simulated and live aircraft could lead to late delivery. The Navy finalized a fixed-price production contract for EMALS and the advanced arresting gear in June 2010. Although the Navy continues to pay design and testing costs, any EMALS changes identified during development will be incorporated into the production units at no cost to the government. The dual band radar, which includes the volume search and multifunction radars, is being 26 Congressional Budget Office, An Analysis of the Navy’s Fiscal Year 2012 Shipbuilding Plan, June 2011, pp. 13-14. Congressional Research Service 15 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress developed by the DDG 1000 destroyer program and is also nearing maturity. However, as a part of a program restructuring, the DDG 1000 eliminated the volume search radar from the program. According to Navy officials, radar development has not been affected, but CVN 78 will now be the first ship to operate with this radar. Radar equipment will be delivered for 23 Congressional Budget Office, An Analysis of the Navy’s Fiscal Year 2012 Shipbuilding Plan, June 2011, pp. 13-14. Congressional Research Service 13 . Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress installation and testing beginning September 2011 for the multifunction radar and in January 2012 for the volume search radar. Design Maturity In September 2008, CVN 78 began production with only 76 percent of its three-dimensional product model complete. The three-dimensional product model was completed by November 2009, but the contractor is currently making design changes to prevent electrical cable routing from interfering with other design features. As EMALS and other systems complete testing, additional design changes may be necessary. Production Maturity The Navy awarded the CVN 78 construction contract in September 2008. Construction of approximately 65 percent of the ship’s structural units is complete. These units account for about 19 percent of the ship’s total production hours. As of July 2010, construction of the hull in dry dock was behind schedule because of late material deliveries from suppliers. Other Program Issues In 2010, the CVN 21 program shifted from a 4- to 5-year build cycle, which could increase program costs. According to program officials, the shipbuilder projects that this change will increase costs by 9 to 15 percent due to the loss of learning and effect on the supplier base, among other inefficiencies. The Navy disagrees with this assessment and reported to Congress that the shift will have minimal negative consequences. The dual band radar also presents cost risks for the program. Program officials are considering buying the radar for both CVN 79 and CVN 80 at the same time, in order to reduce the risks associated with the production line being idle for up to 5 years. However, this strategy could lead to increased costs if changes identified during at-sea testing on CVN 78 need to be incorporated into the already-procured systems for the two follow-on ships. Program Office Comments In commenting on a draft of this assessment, the Navy generally concurred with this assessment. Officials stated the program is addressing the technology and construction challenges for a successful September 2015 delivery, and that CVN 79 is on track to award a construction contract by the first quarter fiscal year 2013. The Navy stated that while the change from a 4- to 5-year build cycle will increase the unit cost of the CVN 78 class carrier, it facilitates a reduced average yearly funding requirement over a longer period of time. The Navy also provided technical comments, which were incorporated as appropriate.24 EMALS June 2011 Press Report A June 27, 2011, press report states: 24 Government Accountability Office, Defense Acquisitions[:] Assessments of Selected Weapon Programs, GAO-11233SP, March 2011, p. 55. Congressional Research Service 14 . 27 27 Government Accountability Office, Defense Acquisitions[:] Assessments of Selected Weapon Programs, GAO-11233SP, March 2011, p. 55. Congressional Research Service 16 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress EMALS October 2011 Press Report An October 10, 2011, press report states: After ironing out software glitches that stopped the next generation of U.S. aircraft carrier catapults from launching planes for five months, the people developing the electromagnetic aircraft launch system (EMALS) are working on making the system more reliable…. The goal is to cut the average re-pair time to less than one hour, a vast improvement compared with the 12 hours it takes to fix the average breakdown on existing steam catapults…. EMALS has just two major moving parts and will break down less frequently than steam catapults, said Capt. James Donnelly, EMALS program manager…. The EMALS team has moved on to improving reliability after fixing a glitch with the 29 “blocks” that line the catapult track. The blocks turn on and off in a finely timed succession, building a wave of energy that pushes the aircraft down the flight deck. But after launching an F/A-18E Super Hornet in mid-December [2010], developers discovered bugs in the software that controls when the blocks fire. “It was a minor correction,” said Susan Wojtowicz, program manager for General Atomics, the contractor developing EMALS. “It wasn’t herky-jerky, it was different” from a steam catapult. That software problem seems to be over. After catapulting aboard an E-2D Advanced Hawkeye from EMALS on Sept. 27, Lt. Cmdr. Brian Tollefson gave the best review an aviator could give a new catapult: It was a typical flight. “We have around 300 cat shots apiece. It felt just like the rest of them,” he said, after landing her with two naval flight officers onboard…. So far, EMALS has completed 32,000 launch cycles. EMALS has launched during hot and cold conditions, and while being exposed to salt, acid and firefighting foam. There have been 1,212 dead load shots and 96 aircraft launches, including the recent Advanced Hawkeye flight. EMALS is 80 percent through the system development stage. About 135 different components have been delivered to Newport News Shipbuild-ing, Va., where Ford is being built. The EMALS team has also tested the system for electromagnetic interference and found it does not harm the aircraft, carrier, communication systems or any weapons.28 June 2011 Press Report A June 27, 2011, press report states: 28 Joshua Stewart, “EMALS Developers Fix Glitch, Tout Launcher’s Reliability,” Defense News, October 10, 2011: 54. Congressional Research Service 17 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Flight tests of the U.S. Navy’s new electromagnetic aircraft launch system (EMALS) resumed in late May after a five-month hiatus, and two more aircraft types have now passed their initial launch tests. The program’s maiden launches were accomplished in mid-December when an F/A-18E Super Hornet strike fighter from Air Test and Evaluation Squadron 23 (VX-23) made four takeoffs from the Navy’s catapult test center at Lakehurst, N.J. But the tests revealed the need to fine-tune the software that controls the system’s motors and better control the miniscule timing gaps between when the motors are energized and turned off. “The linear motors fire sequentially as you go down the catapult track,” said Capt. James Donnelly, the Navy’s program man-ager for EMALS. “Only three are energized at a time. They turn on, turn off. As each one energizes, a force is exerted on the aircraft, and the timing needed to be fine-tuned.” Flight tests with the F/A-18E resumed May 25, and “the launches validated the software changes,” Donnelly said. The Super Hornet made 14 launches using the revamped software, followed by 12 launches on June 1 and 2 with a T-45C Goshawk training jet from VX-23. A C-2A Carrier Onboard Delivery aircraft from VX-20 made a further series of 12 launches on June 8 and 9. The Super Hornet will return in July to Lakehurst for another series of launches using a variety of stores, or weapons, mount-ed under the wings and on the aircraft. Later in the summer, an E-2D Advanced Hawkeye airborne command-and-control aircraft will begin launch tests, Donnelly said. The multiple launches are used to test a variety of weights on the aircraft, he said, and to validate the EMALS system and improve reliability. The aircraft are also tested at various launch speeds. Reliability of the EMALS system is “improving,” Donnelly said. “We have more and more launches without any [warning] lights that come on, anything we annotate in launch logs,” he said during a June 23 interview. “A lot of corrections” were made during the early stages of the program’s flight testing, Donnelly said. “We’re doing much less of that. We had very few issues in the May and June launches.”... Despite the five-month pause in the test schedule, production and delivery of EMALS components is proceeding for the Gerald R. Ford, under construction at Huntington Ingalls Industries’ Newport News, Va., shipyard. “No impact to the ship [construction] schedule,” Donnelly said. “We’re meeting our required in-yard dates. We started deliveries in May, and we’re delivering a lot of equipment this month, including most of the motor generators—the components that many folks were most concerned about schedule-wise.” Asked about the program’s budget performance, Donnelly noted that production elements are being procured under a fixed-price contract—“no ups and extras there,” he said—but he declined to provide test budget figures. Congressional Research Service 15 . 18 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress “We’re constantly looking at the testing budget, so that’s under discussion,” he said. “The bottom line is, we’ll continue testing,” he said. “Our focus is to ensure the catapult is as reliable as possible as when we deliver and the ship gets underway with sailors aboard.”2529 April 2011 News Report An April 18, 2011, news report stated that the EMALS program office has completed work on six [EMALS] generators scheduled to be delivered to the shipyard soon, but it will likely have to make changes after they are installed on the aircraft carrier since integration testing is ongoing, according to officials from Huntington Ingalls Industries. HII representatives told reporters at a Navy League conference here on April 12 that so far EMALS is on track to be installed on the Gerald Ford (CVN-78) which the company is building on schedule at Newport News, VA. They also said they are confident that the generators will not need extensive changes because the Navy has already put them through component testing.2630 March 9, 2011, Hearing At a March 9, 2011, hearing on Navy shipbuilding issues before the Seapower and Projection Forces subcommittee of the House Armed Services Committee, the following exchange occurred between Representative Akin, the chairman of the subcommittee, and Sean Stackley, the Assistant Secretary of the Navy for Research, Development, and Acquisition (i.e., the Navy’s acquisition executive): REPRESENTATIVE AKIN: … one of the things we’ve been paying attention to is the EMALS systems on new carrier and that has to be built into the hull and everything, and I gather the timeline on that is pretty tight. How is that going and do you see any problems with that or not? STACKLEY: Yes, sir. We have—we have been managing EMALS to the smallest detail. We are very concerned about two years ago that the program was not on track. We placed basically—we have replaced the management team as well as ensure that the program is properly funded both to complete its development and also to support in-yard- need-dates for the CVN-78. Today—today, we are at a point in system development that we have turned over to the shipyard which referred to as the green book which takes all the testing that’s been conducted up at Lakehurst where we have a full-scale model in the ground that we’ve used to launch aircraft. So we’ve developed the test requirements, turned over that green book to Newport News on schedule so that they can continue to build the CVN-78 to support the test program. 2529 Christopher P. Cavas, “U.S. Navy Resumes EMALS Tests,” Defense News, June 27, 2011: 19. Material in brackets as in original. 2630 Cid Standifer, “EMALS Set To Deliver 6 Generators To HII; May Require Changes Later,” Inside the Navy, April 18, 2011. Congressional Research Service 16 . 19 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress On the production side, we are carefully watching each of the components that need to be delivered to Newport News. We have two in particular. Two motor generator sets out of 12 that have very limited float on in-yard-need-date, but we don’t see difficulties right now in terms of meeting that and all the other components have float on the order of four to six months. So, tight, yes, closing manage [sic: closely managed], yes. I think the risk is acceptable absolutely. We have to yet to complete the STD testing that we, as I described, we launched aircraft off the Lakehurst system in December. They really do stress it and to drive learning early on and coming out of that. In fact, we have uncovered some dynamics associated between the system and the aircraft’s performance that we’ve taken a pause to work on more on the software side of correcting that issue so that we can ... AKIN: Software in order to change the amount of force relative to distance that the system develops or ... ? STACKLEY: No, Sir. The – what’s beautiful about the EMALS is it’s very scalable in terms of you dial in the load that you’re putting on it and what you want for speed when at the end of the runway and the EMALS will do the rest. What we discovered in moving away from a dead load to an F-18 is: EMALS is a long – it’s a number of linear motors that are in series and then a hand off from linear motor to linear motor as the aircraft is accelerating. There’s a slight gap. And that can be tuned in terms of the way you ramp up the load and where you drop it off to minimize that gap so it’s not perceptible to the pilot. So it’s an example what were not able to pick up in dead load testing which put a pilot on aircraft and that’s a report I received back until we docked in to that to figure out what the best way to mitigate that so that it’s not a problem. So the test program—bottom line is the test program is frankly in good shape. It is a fairly exhaustive test program. We did take a pause because we did not while we were working on these changes or corrections coming out of the live aircraft testing. We did not want to have a standing army on the test side that was performing inefficiently, so we took a pause; we’re coming back with corrections and picking back up the system functional demonstration this month.2731 Technical and Design Issues in December 2010 DOT&E Report Another issue for Congress concerns technical and design issues for CVN-78 class carriers that were raised in a report on various DOD acquisition programs from DOD’s Director, Operational Test and Evaluation (DOT&E)—DOT&E’s annual report for FY2010. The report stated, in its section on the CVN-78 program, that The CVN 78 program continues to have challenges with F-35 Joint Strike Fighter (JSF) integration. The thermal footprint from the main engine exhaust, shipboard noise levels, and information technology requirements need work. Design changes may be required for the jet 2731 Source: Transcript of hearing. Congressional Research Service 17 . 20 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress blast deflectors, and active cooling may be required in the flight deck just forward of the jet blast deflector…. Numerous integrated warfare system items are of concern, including: • The ship-self-defense combat systems on aircraft carriers have historically had reliability and weapon system integration shortcomings. While the Navy has made efforts, it has not yet developed a detailed plan to address these concerns on CVN 78. • The Navy lags in developing a new anti-ship ballistic missile target and in obtaining a capability to launch four simultaneous supersonic sea-skimming targets. Both are required to assess effectiveness of ship self-defense…. EMALS experienced two notable hardware/software incidents that caused test delays at the SFD [System Functional Design] test site at Lakehurst [NJ]. One incident involved an uncommanded armature retraction due to a software anomaly in the asset protection module. The second anomaly involved the loss of an encoder from the catapult armature during a dead-load test. Both anomalies have been resolved. EMALS has started performance verification with dead loads at the SFD site, and [the] AAG [Advanced Arresting Gear] is nearing the start of Jet Car Track Site dead load testing. Required In Yard Date (RIYD) for these systems continues to drive the development schedule; however, to date development and testing remains on track.2832 At a May 3, 2011, briefing on the CVN-78 program for CRS and CBO, officials from the office overseeing the EMALS development effort stated that the issues concerning EMALS that are raised in the final paragraph cited above occurred in FY2010 and FY2011 and do not change the change the Navy’s earlier-cited testimony at the March 9, 2011, hearing (see “EMALS” in “Potential for Cost Growth”). Legislative Activity for FY2012 FY2012 Funding Request As shown in Table 1, the Navy’s proposed FY2012 budget requests $554.8 million in advance procurement (AP) funding for CVN-79. FY2012 National Defense Authorization BillAct (H.R. 1540/S. 1253P.L. 112-81) House (Committee Report) The House Armed Services Committee, in its report (H.Rept. 112-78 of May 17, 2011) on H.R. 1540, recommends approving the Navy’s FY2012 request for advance procurement (AP) funding for CVN-79 (page 345). Page 33 of the report states: CVN-78 is the lead ship of the Ford-class of aircraft carriers. The committee was critical when the Navy changed construction starts of these carriers from 4-year to 5-year centers. 2832 Director, Operational Test and Evaluation, FY 2010 Annual Report, December 2010, p. 112. Congressional Research Service 18 . 21 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress The committee encourages the Secretary of the Navy to keep these aircraft carriers on 5-year centers at the most, with fiscal year 2013 being the first year of detail design and construction funding for CVN-79. The committee believes one key to success in this program will be to minimize changes from ship to ship in the class. (page 33) Section 221 of H.R. 1540 as reported by the committee states: SEC. 221. DESIGNATION OF ELECTROMAGNETIC AIRCRAFT LAUNCH SYSTEM DEVELOPMENT AND PROCUREMENT PROGRAM AS MAJOR SUBPROGRAM. Not later than 30 days after the date of the enactment of this Act, the Secretary of Defense shall designate the electromagnetic aircraft launch development and procurement program as a major subprogram of the CVN-78 Ford-class aircraft carrier major defense acquisition program, in accordance with section 2430a of title 10, United States Code. Regarding sectionSection 221, the committee’s report states: This section would direct the Secretary of Defense to designate the Electromagnetic Aircraft Launch System (EMALS) as a major subprogram of the CVN-78 Ford-class aircraft carrier major defense acquisition program within 30 days after the date of enactment of this Act. A major subprogram is defined in section 2430a of title 10, United States Code. The committee is aware that EMALS is progressing through its land-based testing. However, earlier problems in development have reduced almost all schedule margin in order to make the date the equipment must be in the shipyard for installation in the first ship of the class. The committee acknowledges elevating EMALS to a major subprogram will provide the proper oversight to this critical system as it continues its development and production. (Page 93) House (Floor Consideration) On May 25, 2011, as part of its consideration of H.R. 1540, the House agreed by voice vote to H.Amdt. 301, the text of which is as follows: SEC. 127. FORD-CLASS AIRCRAFT CARRIER PROCUREMENT. (a) In General.—Subject to the availability of appropriations for such purpose, the Secretary of the Navy may enter into multiyear contracts for the start of major construction of the Ford-class aircraft carriers designated CVN 79 and CVN 80 and for the construction of major components, modules, or other structures related to such carriers. (b) Requirements.—In carrying out this section, the Secretary of the Navy may— (1) enter into contracts under subsection (a) in a manner that the Secretary determines will result in the lowest cost to the United States given the variability of shipyard industrial capacity and other factors; and (2) enter into contracts with the prime contractor chosen for major fabrication and construction of the vessels or directly with other contractors to supply materiel and equipments for the construction of the vessels in such a manner as to reduce cost to the United States of such materiel and equipments by purchasing in economic order quantities. Congressional Research Service 19 . 22 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress (c) Condition for Out-Year Contract Payments.—A contract entered into under subsection (a) shall provide that any obligation of the United States to make a payment under the contract for a fiscal year after fiscal year 2012 is subject to the availability of appropriations for that purpose for such later fiscal year. (d) Other Authority.—Section 121(a) of the John Warner National Defense Authorization Act for Fiscal Year 2007 (P.L. 109-364; 120 Stat. 2104) is amended by striking “three fiscal years” and inserting “four fiscal years”. Regarding subsection (d) above, as mentioned earlier (see footnote 5), Section 121 of the FY2007 John Warner National Defense Authorization Act (H.R. 5122/P.L. 109-364 of October 17, 2006) granted the Navy the authority to use four-year incremental funding for CVN-78, CVN-79, and CVN-80. Subsection (d) above would change that authority to permit the use of five-year incremental funding. Since DOD currently plans to procure CVN-79 in FY2013 and CVN-80 in FY2018, procuring the two ships in those years using five-year incremental funding would result in a continuous stream of carrier procurement funding from FY2013 through FY2022. Senate S. 1253 as reported by the Senate Armed Services Committee (S.Rept. 112-26 of June 22, 2011) recommends approving the Navy’s FY2012 request for advance procurement (AP) funding for CVN-79. (See Section 4101 of the bill as reported by the committee. In the printed version of the bill as reported by the committee, the relevant table within this section appears on page 606.) FY2012 DOD Appropriations Bill (S. 1867) S. 1867, an original measure reported by Senator Levin on November 15, 2011, without written report, in effect supersedes S. 1253 (see below). S. 1867 recommends approving the Navy’s FY2012 request for advance procurement (AP) funding for CVN-79. (See §4101 of the bill as reported by Senator Levin. In the printed version of the bill as reported by the committee, the relevant table within this section appears on page 611.) Senate (S. 1253) S. 1253 has been, in effect, superseded by S. 1867 (see above). S. 1253 as reported by the Senate Armed Services Committee (S.Rept. 112-26 of June 22, 2011) recommends approving the Navy’s FY2012 request for advance procurement (AP) funding for CVN-79. (See §4101 of the bill as reported by the committee. In the printed version of the bill as reported by the committee, the relevant table within this section appears on page 606.) Conference The conference report (H.Rept. 112-329 of December 12, 2011) on H.R. 1540/P.L. 112-81 of December 31, 2011, recommends approving the Navy’s FY2012 request for advance procurement (AP) funding for CVN-79 (page 811). As mentioned earlier (see footnote 5), Section 121 of the FY2007 John Warner National Defense Authorization Act (H.R. 5122/P.L. 109-364 of October 17, 2006) granted the Navy the authority to use four-year incremental funding for CVN-78, CVN-79, and CVN-80. Section 124 of the conference report would change that authority to permit the use of five-year incremental funding. Since DOD currently plans to procure CVN-79 in FY2013 and CVN-80 in FY2018, procuring the two ships in those years using five-year incremental funding would result in a continuous stream of carrier procurement funding from FY2013 through FY2022. Section 124 of the conference report states: SEC. 124. EXTENSION OF FORD-CLASS AIRCRAFT CARRIER CONSTRUCTION AUTHORITY. Congressional Research Service 23 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Section 121(a) of the John Warner National Defense Authorization Act for Fiscal Year 2007 (P.L. 109-364; 120 Stat. 2104) is amended by striking `three fiscal years’ and inserting `four fiscal years’. Section 221 of the conference report states: SEC. 221. DESIGNATION OF ELECTROMAGNETIC AIRCRAFT LAUNCH SYSTEM DEVELOPMENT AND PROCUREMENT PROGRAM AS MAJOR SUBPROGRAM. Not later than 30 days after the date of the enactment of this Act, the Secretary of Defense shall designate the electromagnetic aircraft launch development and procurement program as a major subprogram of the CVN-78 Ford-class aircraft carrier major defense acquisition program, in accordance with section 2430a of title 10, United States Code. The Secretary may cease such designation after the date on which the electromagnetic aircraft launch system is certified as operationally effective and suitable by the Director of Operational Test and Evaluation. FY2012 Military Construction and Veterans Affairs and Related Agencies Appropriations Act (H.R. 2055/P.L. 112-74) Conference In final action, H.R. 2055 became a “megabus” appropriations vehicle incorporating nine appropriations bills, including the FY2012 DOD appropriations bill, which was incorporated as Division A. The conference report (H.Rept. 112-331 of December 15, 2011) on H.R. 2055/P.L. 112-74 of December 23, 2011, approves the Navy’s FY2012 request for advance procurement (AP) funding for CVN-79 (page 628). FY2012 DOD Appropriations Act (H.R. 2219) House The House Appropriations Committee, in its report (H.Rept. 112-110 of June 16, 2011) on H.R. 2219, recommends approving the Navy’s FY2012 request for advance procurement (AP) funding for CVN-79 (page 153). Senate The Senate Appropriations Committee, in its report (S.Rept. 112-77 of September 15, 2011) on H.R. 2219, recommends approving the Navy’s FY2012 request for advance procurement (AP) funding for CVN-79 (page 120). Conference For the conference report on the FY2012 DOD appropriations bill, see the above discussion of H.R. 2055. Congressional Research Service 20 . 24 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Appendix A. Earlier Oversight Issue: Shift to FiveYear Intervals—A More Fiscally Sustainable Path? On April 6, 2009, Secretary of Defense Robert Gates announced a number of recommendations he was making to the President for the FY2010 defense budget submission. One of these was to shift procurement of carriers to five-year intervals. This recommendation, which was included in the FY2010 defense budget submission, deferred the scheduled procurement of CVN-79 from FY2012 to FY2013, and the scheduled procurement of CVN-80 from FY2016 to FY2018. Gates stated in his April 9, 2009, address that shifting carrier procurement to five-year intervals would put carrier procurement on “a more fiscally sustainable path.”2933 This was interpreted as meaning that shifting to five-year intervals (compared to a combination of four- and five-year intervals in previous Navy 30-year shipbuilding plans) would reduce the average amount of funding required each year for procuring carriers. As a simplified notional example, if carriers are assumed to cost $10 billion each, then shifting from a four-year interval to a five-year interval would reduce the average amount of carrier procurement funding needed each year from $2.5 billion to $2.0 billion, a reduction of $500 million per year. This simplified notional example, however, assumes that shifting from four- to five-year intervals does not by itself cause an increase in the real (i.e., inflation-adjusted) procurement cost of the carriers. Increasing the procurement interval could by itself cause an increase in the real procurement cost of the carriers by reducing learning-curve benefits (i.e., causing a loss of learning) from one carrier to the next, and by reducing the spreading of fixed overhead costs at the Newport News shipyard and at supplier firms. A real increase in carrier procurement costs due to such effects would offset at least some of the reduction in the average amount of carrier procurement funding needed each year that would result from shifting to five-year intervals. Shifting to five-year intervals for procuring carriers could also increase the costs of other Navy ship programs. NGSB’s Newport News shipyard performs mid-life nuclear refueling complex overhauls (RCOHs) on Nimitz-class carriers, and jointly builds Virginia-class nuclear-powered attack submarines along with another shipyard (General Dynamics’ Electric Boat Division). In addition, vendors that make nuclear-propulsion components for carriers make analogous components for nuclear-powered submarines. A reduced spreading of fixed costs at NGSB’s Newport News yard and at nuclear-propulsion component vendors due to the shift to five-year intervals for carrier procurement might thus also increase costs for Nimitz-class RCOHs and Virginia-class submarines. Increases in costs for these programs would further offset the reduction in the average amount of carrier procurement funding needed each year that would result from shifting to five-year intervals for carrier procurement. Potential key oversight questions for Congress included the following: 2933 Source: Statement of Secretary of Defense Robert Gates, at April 6, 2009, news conference on his recommendations for the FY2010 defense budget. Congressional Research Service 21 . 25 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress • How much of the increase since the FY2009 budget submission in the estimated procurement costs of CVNs 78, 79, and 80 (see Table 2) is due to the shift to five-year intervals for procuring carriers? • How do potential increases in the costs of CVN-78 class aircraft carriers, Nimitzclass RCOHs, and Virginia-class submarines caused by the shift to five-year intervals for procuring carriers affect the calculation of the net change in average annual funding requirements that results from shifting carrier procurement to five-year intervals? May 2009 Northrop Grumman Shipbuilding Statement A May 2009 Northrop Grumman Shipbuilding statement on the cost impact of shifting to fiveyear intervals for procuring carriers states: One element of the announcement by the Secretary of Defense last week was to shift from four (4) years to five (5) years between construction start for each new Ford Class carrier. Past Northrop Grumman Shipbuilding experience with carrier new construction has shown that the optimum time between carrier construction is less than 4 years. This allows the most efficient flow of the work force from one ship to the next, and facilitates a learning curve for carriers. Moving to five (5) year intervals between starts will require the shipyard to suboptimize manning level sequencing and result in added trade training, loss of learning, and added startup costs. Increasing the time between carrier construction can have a large impact on the supplier base, driving cost increases of 5-10 percent, or higher in some cases, above normal escalation. Material costs of suppliers who provide similar components to other Navy programs currently under contract will also experience cost growth. Some equipment suppliers can be expected to exit the market as a result of the additional year with the expense of component requalification being realized. Finally, the decrease in production labor volume on an annual basis, created by the increase in the time interval between carrier construction starts will increase the cost to other programs in the yard. This applies to work already under contract, namely Virginia class submarines (VCS) Block 2 and Block 3, and CVN 78 predominately; and for future work not yet under contract, namely Carrier RCOH’s, CVN79 and follow-on Ford class carrier construction, and later Blocks of VCS. The impact to work already under contract is expected to be in the range of $100M of cost growth. We also expect cost increases for future contracts yet to be priced. Conservative projections of the shipbuilder cost impact to CVN 79 and CVN80 for the one year delay will be on the order of a 9-15 percent cost increase.30 3034 34 Northrop Grumman Shipbuilding statement dated May 1, 2009, entitled “NGSB Statement Regarding Extending the Time Interval between New Build Starts For the Ford Class of Aircraft Carriers,” provided to CRS by Northrop Grumman. Congressional Research Service 22 . 26 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress March 2010 GAO Report A March 2010 GAO report stated that if carrier procurement were shifted to five-year intervals, “the fabrication start date for CVN 80 will be delayed by 2 years, which will increase the amount of shipyard overhead costs paid under the CVN 79 contract.”3135 March 2010 Navy Report Required by Section 126 Section 126 of the FY2010 defense authorization act (H.R. 2647/P.L. 111-84 of October 28, 2009) required the Secretary of the Navy to submit a report to the congressional defense committees on the effects of using a five-year interval for the construction of Ford-class aircraft carriers. The conference report (H.Rept. 111-288 of October 7, 2009) on H.R. 2647/P.L. 111-84 stated the following regarding Section 126: The conferees note that a 5-year interval for aircraft carrier construction, as proposed by the Secretary of Defense, may be the appropriate course of action for the Department of the Navy. However, the conferees are concerned that this decision may not have been made following a rigorous cost-benefit analysis. Therefore, the conferees expect that the Secretary of the Navy will take no further action to preclude the ability of the Secretary to award a construction contract for CVN–79 in fiscal year 2012 or the aircraft carrier designated CVN– 80 in fiscal year 2016, consistent with the Annual Long-Range Plan for Construction of Naval Vessels for Fiscal Year 2009, until he completes the required assessment and fully informs the congressional defense committees of any such a decision. (Page 680) The Navy submitted the report on March 4, 2010.3236 The report states, among other things, that • “It is reasonable to assume that some vendor base inefficiencies, in addition to inflation may occur by increasing CVN build intervals to five years.” • “While a five-year interval between carrier construction starts will result in potential inefficiencies and gaps for specific carrier construction trade skills, the Navy plans to closely manage the transition to 5-year centers to minimize the impact of this change on training of individuals required to support ship construction.” • “The Navy estimated that a four-year build interval would maximize the opportunity to achieve labor efficiencies due to learning. A five-year build interval reduces this opportunity; however, the overall impact for loss of learning associated with a shift to five-year centers is manageable through Advance Procurement and Advance Construction.” • “The Navy assessed the NIMITZ Class cost returns for shipbuilder labor and material and GFE to determine the correlation between these cost elements and the number of years between carrier awards. The Navy estimates that impact to Basic Construction is around 1.0% for CVN 79 and CVN 80.” 3135 Government Accountability Office, Defense Acquisitions[:] Assessments of Selected Weapon Programs, GAO-10388SP, March 2010, p. 54. 3236 This is the date of the cover letters to the congressional recipients. The report itself has a cover date of February 2010. Congressional Research Service 23 . 27 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress • “The change to five-year build intervals results in an overhead decrease in direct labor workload for aircraft carrier construction, thereby causing the overhead rates to increase proportionately. The Navy estimates the construction portion increase is less than 1% each for CVN 78, CVN 79 and CVN 80.” • “The impact of changing the interval between carrier awards to the VIRGINIA Class submarine current Block II and Block III contracts is estimated to be $3050 million per hull.”3337 The report does not provide an overall dollar calculation of how much of the increase since the FY2009 budget submission in the estimated procurement costs of CVNs 78, 79, and 80 is due to the shift to five-year intervals for procuring carriers. Virginia-class submarines are scheduled to be procured at a rate of two ships per year starting FY2011. If the cost increase of $30 million to $50 million for each Virginia-class boat cited in the Navy’s report holds for Virginia-class boats procured in FY2011 and subsequent years, then the shift to five-year intervals for procuring carriers would increase Virginia-class procurement costs by $60 million to $100 million per year. For the text of the Navy’s report, see Appendix B. June 30, 2010, Selected Acquisition Report (SAR) The Department of Defense’s (DOD’s) June 30, 2010, Selected Acquisition Report (SAR) for the CVN-78 program states that the estimated increase in Ford-class procurement costs resulting from shifting to five-year intervals for procuring carriers is $1,798.0 million in then-year dollars, consisting of $521.0 million for CVN-79 and $1,277.0 million for CVN-80.3438 The June 30, 2010, SAR states that these two figures are a “clarification” of figures presented in the December 31, 2009, SAR. The December 31, 2009, SAR estimated the increase at $4,131.2 million in then-year dollars, consisting of $1,131.4 million for CVN-79 and $2,999.8 million CVN-80, but also stated that these figures were “overstated, and will be corrected in the June 2010 SAR.”3539 The difference between the June 30, 2010, SAR, and the December 31, 2009, SAR regarding the estimated increase in procurement costs resulting from shifting to five-year intervals for procuring carriers (i.e., $4,131.2 million minus $1,798.0 million) is $2,333.2 million. The June 30, 2010, SAR reattributes a net total of $2,333.2 million in estimated cost increases to factors other than shifting to five-year intervals for procuring carriers, and reports total estimated procurement costs for CVN-79 and CVN-80 that are the same as those reported in the December 31, 2009, SAR. Neither the June 30, 2010, SAR nor the December 31, 2009, SAR shows an estimated increase in the procurement cost for CVN-78 resulting from shifting to five-year intervals for procuring carriers. The figures in the June 30, 2010, SAR are consistent with the Navy-provided figures presented in Table A-1. Navy Data Provided to CRS and CBO on June 24, 2010 On April 19, 2010, following a Navy briefing to CRS and CBO on the CVN-78 program, CRS asked the Navy to provide the procurement costs of CVNs 78, 79, and 80 in constant FY2011 3337 Department of the Navy, Report to Congress on Effects of Five-year Build Intervals for Force Class Aircraft Carriers, February 2010, 5 pp. Copy provided to CRS by Navy Office of legislative Affairs on April 8, 2010. 3438 Department of Defense, Selected Acquisition Report (SAR), CVN-78, As of June 30, 2010, p. 26. 3539 Department of Defense, Selected Acquisition Report (SAR), CVN-78, As of December 31, 2009, pp. 4 and 25. Congressional Research Service 24 . 28 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress dollars as in the proposed FY2011 budget, and what these costs would have been in the proposed FY2011 budget if there had been no shift to five-year intervals for carrier procurement (i.e., if CVN-79 were procured in FY2012 and CVN-80 were procured in FY2016). The Navy provided the figures (in both then-year and constant FY2011 dollars) to CRS and CBO on June 24, 2010. Table A-1 shows the figures. Table A-1. Cost Impact of Shifting to Five-year Intervals (Millions of dollars, rounded to nearest tenth) CVN-78 CVN-79 CVN-80 Cost in FY2011 budget 11,531.0 10,413.1 13,577.0 What the figure would have been in FY2011 budget if there had been no shift to five-year intervals 11,531.0 9,892.1 12,300.0 Difference (dollars) 0 521.0 1,277.0 Difference (%) 0 5.3% 10.4% Cost in FY2011 budget 11,875.9 9,742.3 11,628.5 What the figure would have been in FY2011 budget if there had been no shift to five-year intervals 11,875.9 9,396.7 10,872.2 Difference (dollars) 0 345.6 756.3 Difference (%) 0 3.7% 7.0% Then-year dollars Constant FY2011 dollars Source: Briefing slide entitled “CVN 78 Class CBO/CRS Data Request,” dated June 24, 2010, and provided as an attachment to a Navy information paper dated May 19, 2010. The May 19, 2010, information paper and the June 24, 2010, attachment were provided to CRS and CBO on June 24, 2010. Notes: In the scenario assuming there had been no shift to five-year intervals for carrier procurement, CVN-79 would be procured in FY2012 and CVN-80 would be procured in FY2016. The Navy converted then-year dollars to constant FY2011 dollars using a January 2010 SCN (i.e., shipbuilding budget) deflator. FY2011 budget figures for CVN-80 reflect a CVN-78 program estimate pending official approval from the Naval Sea Systems Command (NAVSEA). Congressional Research Service 25 . 29 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Appendix B. Text of Navy Report on Effects of Shifting to Five-Year Intervals The following is the text of the Navy’s report on the effects of shifting to five-year intervals for procuring carriers.3640 I . REPORT REQUIREMENTS Section 126 of the National Defense Authorization Act for Fiscal Year 2010, P.L. 111-84, (hereinafter “Section 126”) requires that a report be submitted to Congress no later than February 1, 2010 assessing the effects of using a five-year interval for the construction of Gerald R. Ford Class aircraft carriers. The assessment shall include impacts with respect to four specified areas resulting from this change in acquisition strategy. This report fulfills the Navy’s reporting obligation pursuant to Section 126. The language of this section is as follows: “Not later than February 1, 2010, the Secretary of the Navy shall submit to the congressional defense committees a report on the effects of using a five-year interval for the construction of FORD Class aircraft carriers. The report shall include, at a minimum, an assessment of the effects of such five-year interval on the following: (1) With respect to the supplier base(A) the viability of the base, including suppliers exiting the market or other potential reductions in competition; and (B) cost increases to the Ford Class aircraft carrier program. (2) Training of individuals in trades related to ship construction. (3) Loss of expertise associated with ship construction. (4) The costs of— (A) any additional technical support or production planning associated with the start of construction; (B) material and labor; (C) overhead; and (D) other ship construction programs, including the costs of existing and future contracts.” II. ASSESSMENT DISCUSSION On April 6, 2009, Secretary of Defense announced within a Defense Budget Recommendation Statement that the Navy’s CVN 21 aircraft carrier program (Ford Class) 3640 Department of the Navy, Report to Congress on Effects of Five-year Build Intervals for Force Class Aircraft Carriers, February 2010, 5 pp. The cover letters sent with the report are dated March 4, 2010. Copy of report provided to CRS by Navy Office of legislative Affairs on April 8, 2010. Congressional Research Service 26 . 30 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress would shift from a four-year to a five-year build cycle, thereby placing the program on a more fiscally sustainable path. This will result in 10 aircraft carriers after 2040. The five-year build cycle allows for a balance between carrier build-rate and inventory, and a more effective use of overall Shipbuilding and Conversion, Navy funding between carrier programs and other ship, submarine, support, and amphibious ship recapitalization plans. 1. IMPACT TO SUPPLIER BASE It has been the Navy’s experience that longstanding aircraft carrier suppliers have generally responded to ship construction schedule shifts and extended workload gaps without widespread disruption or loss of continuity for critical products from most vendors. For example, the interval between procurement of CVN 77 and CVN 78 was originally planned to be five years, but grew to seven years. There was no significant impact on the shipbuilder’s procurement of components to support ship construction. In addition, for a 2009 Navy-funded RAND Corporation study, RAND sought comments from 46 major suppliers regarding the impact of moving the CVN 79 award date to Fiscal Year 2013. The suppliers chosen were those deemed critical to aircraft carrier construction by the shipbuilder. The majority of the 18 major suppliers who responded indicated that less than 20% of their total annual revenues were from aircraft carrier construction, and nearly all responding vendors indicated they provide services to other Navy ship platforms including submarines, surface combatants, and aircraft carrier Refueling and Complex Overhauls (RCOH). It is reasonable to assume that some vendor base inefficiencies, in addition to inflation may occur by increasing CVN build intervals to five years. Efforts by the Navy to drive cross-platform commonality of parts and proactively manage obsolescence also mitigate the risk of economic dependence. As a result, economic dependence on Ford Class aircraft carrier order frequency for the majority of the vendor industrial base is projected to be low. The Navy plans to continue to closely manage this industrial base to minimize impacts and costs. 2-3. IMPACT TO TRAINING AND EXPERTISE The construction start of the Ford Class coincides with an overall ramp-up in shipyard production efforts in the Fiscal Year 2010-Fiscal Year 2013 timeframe due to an increase to two per year VIRGINIA Class submarines, more consistent carrier build frequencies, sustained NIMITZ Class RCOH program, and the start of CVN 65 inactivation. While a fiveyear interval between carrier construction starts will result in potential inefficiencies and gaps for specific carrier construction trade skills, the Navy plans to closely manage the transition to 5- year centers to minimize the impact of this change on training of individuals required to support ship construction. The Navy estimated that a four-year build interval would maximize the opportunity to achieve labor efficiencies due to learning. A five-year build interval reduces this opportunity; however, the overall impact for loss of learning associated with a shift to five-year centers is manageable through Advance Procurement and Advance Construction. 4. COST IMPACTS There are three primary sources of cost impact associated with increasing the intervals between carrier construction starts - inflation, inefficiencies, and overhead impacts. The effects of these are addressed in paragraphs 4A, 4B, and 4C for CVN 79 and CVN 80. For other work at the shipyard, the collective impacts of the three sources are provided in paragraph 4D. Congressional Research Service 27 . 31 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress A. Cost of any Additional Technical Support or Production Planning Associated with the Start of Construction Since CVN 79 advance planning and procurement commenced prior to the five-year build interval decision, CVN 79 technical support and production planning will be adjusted for the five-year interval. The Construction Preparation contract will be extended by one year to meet the construction award shift from Fiscal Year 2012 to Fiscal Year 2013. With the exception of costs associated with an additional year of planning amounting to about 1%, there should be no other fiscal implications with this extension. B. Cost of Material and Labor A five-year build interval imposes one additional year of inflation on the CVN 79 and two additional years on CVN 80. The Navy estimates a 3% impact on the Basic Construction Cost and Government Furnished Equipment (GFE) for CVN 79 and an 8% impact to CVN 80. This inflation impact will be addressed in the budget request for these two ships. The Navy assessed the NIMITZ Class cost returns for shipbuilder labor and material and GFE to determine the correlation between these cost elements and the number of years between carrier awards. The Navy estimates that impact to Basic Construction is around 1.0% for CVN 79 and CVN 80. C. Cost of Overhead Overhead rates (percentage of direct labor) at the shipbuilder and major suppliers are directly correlated to the projected direct labor workload. The change to five-year build intervals results in an overall decrease in direct labor workload for aircraft carrier construction, thereby causing the overhead rates to increase proportionally. The Navy estimates the construction portion increase is less than 1% each for CVN 78, CVN 79 and CVN 80. The Navy will be working with the shipbuilder on managing overhead in the shipyard. D. Costs of Other Ship Construction Programs, Including the Costs of Existing and Future Contracts The impact of changing the interval between carrier awards to the VIRGINIA Class submarine current Block II and Block III contracts is estimated to be $30-50 million per hull. The increase in costs is associated with workload reallocatjon in the shipbuilding industrial base. III. REPORT SUMMARY This report, as required by Section 126 of P.L. 111-84, assesses the impacts resulting from the shift of the acquisition schedule to five-year intervals for Ford Class aircraft carriers. A review of available information indicates there will be a minimal impact on the supplier base if closely managed. Since the shipyard has ample opportunity to plan for five-year intervals, any impacts to worker training or trade skill inefficiencies, and workload planning is assessed to be manageable. The change from a four-year to a five-year build interval will result in a unit cost increase to the Ford Class carriers that have funding requirements in the Future Years Defense Program. The Navy is continuing to refine the estimated impacts and will adjust future budget submissions. These increases are due primarily to inflation, inefficiencies, and overhead adjustments that will be factored into the overall budget request for each ship. Despite the inflation adjusted costs per ship, the change in build interval allows carrier annual funding requirements to be spread over longer periods of time, maintains a steady state 11 carrier Congressional Research Service 28 . 32 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress force structure until after 2040, and facilitates a reduced average annual aircraft carrier funding requirement. Congressional Research Service 29 . 33 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Appendix C. Force-Level Implications of Shifting to Six- or Seven-Year Procurement Intervals Table C-1 shows projected aircraft carrier force levels for FY2011-FY2045 that would result from procuring carriers at five-, six-, or seven-year intervals, beginning with CVN-79. The current plan is to procure carriers at five-year intervals. The table shows, among other things, that: • Compared to procuring carriers at five-year intervals, procuring carriers at six- or seven-year intervals would not change projected carrier force levels until FY2025. • Compared to procuring carriers at five-year intervals, and setting aside the twoyear period FY2013-FY2014, shifting to six-year intervals would accelerate by 10 years (from FY2042 to FY2032) the date when the projected carrier force first drops to 10 ships, and shifting to seven-year intervals would accelerate by 14 years (from FY2042 to FY2028) the date when the projected carrier force first drops to 10 ships. • Compared to procuring carriers at five-year intervals, which would not reduce the projected carrier force to fewer than 10 ships through FY2045, procuring carriers at six-year intervals would reduce the carrier force to 9 ships in FY2042-FY2044, and procuring carriers at seven-year intervals would reduce the projected carrier force to 9 ships in FY2040-FY2041 and FY2043-FY2045, and to 8 ships in FY2042. Table C-1. Aircraft Carrier Force Levels, FY2011-FY2045 Resulting From 5-, 6-, and 7-Year procurement intervals, beginning with CVN-79 5-year intervals 6-year intervals 7-year intervals FY Total Relative to 11ship goal Total Relative to 11ship goal Relative to 5-year intervals 11 11 — 11 — — 11 — — — 12 11 — 11 — — 11 — — — 13 10 -1 10 -1 — 10 -1 — — 14 10 -1 10 -1 — 10 -1 — — 15 11 — 11 — — 11 — — — 16 11 — 11 — — 11 — — — 17 11 — 11 — — 11 — — — 18 11 — 11 — — 11 — — — 19 11 — 11 — — 11 — — — 20 12 +1 12 +1 — 12 +1 — — 21 12 +1 12 +1 — 12 +1 — — 22 12 +1 12 +1 — 12 +1 — — Congressional Research Service Total Relative to 11ship goal Relative to 5-year intervals Relative to 6-year intervals 30 . 34 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress 5-year intervals 6-year intervals 7-year intervals FY Total Relative to 11ship goal Total Relative to 11ship goal Relative to 5-year intervals Total Relative to 11ship goal Relative to 5-year intervals Relative to 6-year intervals 23 11 — 11 — — 11 — — — 24 11 — 11 — — 11 — — — 25 12 +1 11 — -1 11 — -1 — 26 12 +1 11 — -1 11 — -1 — 27 12 +1 12 +1 — 11 — -1 -1 28 11 — 11 — — 10 -1 -1 -1 29 11 — 11 — — 11 — — — 30 12 +1 11 — -1 11 — -1 — 31 12 +1 11 — -1 11 — -1 — 32 11 — 10 -1 -1 10 -1 -1 — 33 11 — 11 — — 10 -1 -1 -1 34 11 — 11 — — 10 -1 -1 -1 35 12 +1 11 — -1 10 -1 -2 -1 36 11 — 10 -1 -1 10 -1 -1 — 36 11 — 10 -1 -1 10 -1 -1 — 38 11 — 10 -1 -1 10 -1 -1 — 39 11 — 11 — — 10 -1 -1 -1 40 11 — 10 -1 -1 9 -2 -2 -1 41 11 — 10 -1 -1 9 -2 -2 -1 42 10 -1 9 -2 -1 8 -3 -2 -1 43 10 -1 9 -2 -1 9 -2 -1 — 44 10 -1 9 -2 -1 9 -2 -1 — 45 11 — 10 -1 -1 9 -2 -2 -1 Source: Table prepared by CRS using force-level projections prepared by Congressional Budget Office (CBO) and provided by CBO to CRS on July 18, 2011. Author Contact Information Ronald O'Rourke Specialist in Naval Affairs rorourke@crs.loc.gov, 7-7610 Congressional Research Service 3135