Order Code RL32914
CRS Report for Congress
Received through the CRS Web
Navy Ship Acquisition:
Options for Lower-Cost Ship Designs —
Issues for Congress
June 1, 2005
Ronald O’Rourke
Specialist in National Defense
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Navy Ship Acquisition: Options for
Lower-Cost Ship Designs — Issues for Congress
Summary
Rising procurement costs for Navy ships have recently emerged as a matter of
concern for both Navy officials and some Members of Congress who track Navy-
related issues. Combined with constraints on ship-procurement funding, these rising
costs have caused the Navy to reduce planned ship procurement rates.
The issue for Congress is how to respond to rising Navy ship procurement costs.
Aside from reducing planned ship procurement rates, one option would be to reduce
Navy ship procurement costs by shifting from currently planned designs to designs
with lower unit procurement costs.
Lower-cost designs for attack submarines, aircraft carriers, larger surface
combatants, and smaller surface combatants have been proposed in recent reports by
the Congressional Budget Office (CBO), DOD’s Office of Force Transformation
(OFT), and the Center for Strategic and Budgetary Assessments (CSBA). Options
for lower-cost designs can be generated by starting with currently planned designs
and making one or more of the following changes: reducing ship size; shifting from
nuclear to conventional propulsion; and shifting from a hull built to military
survivability standards to a hull built to commercial-ship survivability standards.
Compared to the current Virginia-class nuclear-powered attack submarine
(SSN) design, lower-cost options include a non-nuclear-powered submarine equipped
with an air-independent propulsion (AIP) system and a reduced-cost SSN design
using new technologies now being developed. Compared to today’s large, nuclear-
powered aircraft carriers, lower-cost options include a medium-sized, conventionally
powered carrier based on either the LHA(R) amphibious assault ship design or a
commercial-like hull, and a small, high-speed carrier using a surface effect ship
(SES)/catamaran hull. Compared to the current 14,000-ton DD(X) destroyer design,
lower-cost options include a new-design 9,000-ton surface combatant (SC(X)), a
6,000-ton frigate (FFG(X)), or a low-cost gunfire support ship. Compared to the
current 2,500- to 3,000-ton Littoral Combat Ship (LCS) design, lower cost options
include a 1,000- or 100-ton surface combatant.
The FY2006 defense authorization bill (H.R. 1815) as reported by the House
Armed Services Committee (H.Rept. 109-89) contains provisions that establish
procurement cost caps on several Navy shipbuilding programs, direct the Navy to
begin developing a lower-cost destroyer and a lower-cost nuclear-powered
submarine, and create a new program for U.S. shipyards aimed in part at improving
the efficiency and cost-effectiveness of the construction of Navy ships. The
committee’s report expressed concern regarding rising Navy ship procurement costs.
In its report (S.Rept. 109-69) on the FY2006 defense authorization bill (S. 1042), the
Senate Armed Services Committee expressed concern for the Navy’s shipbuilding
program and the committee’s belief that significantly higher funding is required in
the shipbuilding budget.

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Contents
Introduction and Issue For Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Recent Reports Proposing Lower-Cost Designs . . . . . . . . . . . . . . . . . . . . . . 2
Basic Approaches For Arriving At Lower-Cost Designs . . . . . . . . . . . . . . . . 3
Options for Lower-Cost Ships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Attack Submarines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Aircraft Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Larger Surface Combatants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Smaller Surface Combatants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Issues For Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Development And Design Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Procurement Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Life-Cycle Operation and Support (O&S) Cost . . . . . . . . . . . . . . . . . . 17
End-Of-Life Disposal Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Capability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Payload . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Detectability and Survivability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Ship Numbers In Naval Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Technical Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Homeporting Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Impact On Shipbuilding Industrial Base . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Total Volume Of Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Distribution Of Work Among Shipyards . . . . . . . . . . . . . . . . . . . . . . . 25
Legislative Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
H.R. 1815/S. 1042 (FY2006 Defense Authorization Bill) . . . . . . . . . . . . . . 26
H.R. 1815 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
S. 1042 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Appendix A: Other Options for Responding To Rising Ship Costs . . . . . . . . . . 31
List of Tables
Table 1. Matrix of Notional Options For Aircraft Carriers . . . . . . . . . . . . . . . . . 11

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Navy Ship Acquisition: Options for
Lower-Cost Ship Designs —
Issues for Congress
Introduction and Issue For Congress
Rising procurement costs for Navy ships have recently emerged as a matter of
concern for both Navy officials and some Members of Congress who track Navy-
related issues. Admiral Vernon Clark, the Chief of Naval Operations (CNO), has
expressed strong concern, if not outright frustration, about the matter.1 Combined
with constraints on ship-procurement funding, rising ship procurement costs have
caused the Navy to reduce planned ship procurement rates. Some Members of
Congress have expressed concern about the effects these reduced rates would have
on the future size of the Navy and on the shipyards that build the Navy’s ships.2
The issue for Congress is how to respond to rising Navy ship procurement costs.
Congress’ decisions on this issue could affect future Navy capabilities, Navy funding
requirements, and the shipbuilding industrial base.
Aside from reducing planned ship procurement rates, options for responding to
rising Navy ship procurement costs include the following:
! increasing annual Navy ship-procurement funding;
! changing the way Navy ships are funded in the budget;
! making greater use of multiyear procurement (MYP) in Navy ship-
procurement;
! changing the acquisition strategy for building certain Navy ships;
! taking steps to reduce the amount of shipyard fixed overhead costs
that are incorporated into the procurement costs of Navy ships;
! improving the operating efficiency of yards building Navy ships;
! building ships without some of their planned equipment (or with less
expensive substitute equipment); and
! building ships in foreign shipyards where construction costs may be
lower to due lower wages and material prices or other factors.
1 See, for example, Statement of Admiral Vernon Clark, USN, Chief of Naval Operations,
Before The Senate Armed Services Committee, Feb. 10, 2005, pp. 20-21. Ship procurement
costs have been rising in part because the cost of materials and components delivered to
shipyards, and the cost of shipyard labor, have risen more quickly than projected.
2 See, for example, Dave Ahearn, “Lawmakers Assail Navy Ships Budget As Inadequate,”
Defense Today Instant Update, Mar. 14, 2005.

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CRS-2
For a few additional comments relating to these options, see Appendix A.
An additional option, particularly if the above options are not implemented or
prove insufficient, would be to reduce Navy ship procurement costs by shifting from
currently planned designs to designs with lower unit procurement costs. This report
focuses on this option.
The following section of the report provides background information on
notional options for lower-cost attack submarines, aircraft carriers, larger surface
combatants, and smaller surface combatants. The section that follows discusses
issues that Congress may consider in assessing the merits — the potential advantages
and disadvantages — of shifting to lower-cost designs. The final section of the report
reviews recent legislative activity relating to rising Navy ship procurement costs.
The FY2006 defense authorization bill (H.R. 1815) as reported by the House
Armed Services Committee (H.Rept. 109-89) contains provisions that establish
procurement cost caps on several Navy shipbuilding programs, direct the Navy to
begin developing a lower-cost destroyer and a lower-cost nuclear-powered
submarine, and create a new program for U.S. shipyards aimed in part at improving
the efficiency and cost-effectiveness of the construction of Navy ships. The
committee’s report expressed concern regarding rising Navy ship procurement costs.
In its report (S.Rept. 109-69) on the FY2006 defense authorization bill (S. 1042), the
Senate Armed Services Committee expressed concern for the Navy’s shipbuilding
program and the committee’s belief that significantly higher funding is required in
the shipbuilding budget.
Background
Recent Reports Proposing Lower-Cost Designs
Lower-cost designs for attack submarines, aircraft carriers, larger surface
combatants, and smaller surface combatants have been proposed in three recent
reports discussing the future of the Navy. The reports were authored by the
Congressional Budget Office (CBO),3 DOD’s Office of Force Transformation
(OFT),4 and an independent policy-research organization called the Center for
Strategic and Budgetary Assessments (CSBA).5 Several of the lower-cost ship
designs discussed below are taken from these reports.
3 Congressional Budget Office, Budget Options, Feb. 2005, pp. 18-19; and Congressional
Budget Office, Transforming the Navy’s Surface Combatant Force, Mar. 2003, pp. 27-28,
63. (Hereafter CBO 2005 report and CBO 2003 report, respectively.)
4 Department of Defense, Office of the Secretary of Defense, Alternative Fleet Architecture
Design, 2005. (Hereafter OFT report.)
5 Robert O. Work, Winning the Race: A Naval Fleet Platform Architecture for Enduring
Maritime Supremacy, Center for Strategic and Budgetary Assessments, Washington, 2005.
(Hereafter CSBA report.)

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CRS-3
Basic Approaches For Arriving At Lower-Cost Designs
Options for lower-cost Navy ship designs can be generated by starting with
currently planned Navy ship designs and making one or more of the following
changes:
! Reducing ship size. For a given type of ship, procurement cost
tends to be broadly proportional to ship size.
! Shifting from nuclear to conventional propulsion. This is a
strategy that can be considered for the Navy’s submarines and
aircraft carriers, whose current designs are nuclear-powered.
Equipping a Navy ship with a conventional (i.e., fossil-fuel)
propulsion plant rather than a nuclear propulsion plant can reduce
the ship’s procurement cost by several hundred million dollars.
! Shifting from a hull built to military survivability standards to
a hull built to commercial-ship survivability standards. A hull
built to military survivability standards has more internal
compartmentalization and armoring than a hull built to commercial-
ship standards, making it more expensive to build than a
commercial-like hull. The Navy is considering building Maritime
Prepositioning Force (Future), or MPF(F), ships, with commercial-
like hulls.
Most of the lower-cost ship options presented below use one or more of these
three approaches. Information on the estimated procurement costs of the lower-cost
designs is presented when available. Lower-cost ship designs using these approaches
will in most cases be individually less capable than the currently planned ship designs
from which they are derived, and this is one of the assessment factors that is
discussed in the final section of the report.

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CRS-4
Options for Lower-Cost Ships
For each category of ship below, the discussion describes the current design and
then outlines potential lower-cost options. The discussions are descriptive only; the
potential advantages and disadvantages of shifting to the lower-cost designs are
discussed in the final section of the report.
Attack Submarines.
Current design:
! Virginia (SSN-774) class nuclear-powered submarine
Potential lower-cost options:
! AIP-equipped non-nuclear-powered submarine
! Reduced-cost “Tango Bravo” nuclear-powered submarine
Virginia-Class (SSN-774) Nuclear-Powered Submarine.6 The Navy is
currently procuring one Virginia (SSN-774) class nuclear-powered attack submarine
(SSN) per year. Each submarine costs about $2.4 billion to $3.0 billion to procure
($2.4 billion for the FY2006 boat, rising to $3.0 billion for the FY2011 boat). The
FY2006-FY2011 Future Years Defense Plan (FYDP) maintains Virginia-class
procurement at one per year through FY2011 rather than increasing it to two per year
starting in FY2009, as previously planned.
A March 2005 Navy report to Congress on potential future Navy force levels
states that the Navy in the future may need to maintain a force of 37 to 41 SSNs.7 To
maintain a force of at least 40 SSNs, the SSN procurement rate would need to
increase to two per year starting in FY2012 or FY2013 and remain at that level for
about a dozen years.8
The reduction in planned Virginia-class procurement to one per year through
FY2011 can be viewed as a signal that, unless budget conditions change, Virginia-
class procurement may never be more than one per year. A continued one-per-year
rate could reduce the SSN force to fewer than 30 boats by about 2030, before
recovering to a steady-state level of 33 boats.9
Two options for lower-cost attack submarines have recently emerged. One
option involves designing a non-nuclear-powered submarine equipped with an air-
independent propulsion (AIP) system that could be procured in tandem with Virginia-
6 For more on the Virginia-class program, see See CRS Report RL32418, Navy Attack
Submarine Force-Level Goal and Procurement Rate: Background and Issues for Congress,
by Ronald O’Rourke.
7 U.S. Department of the Navy, An Interim Report To Congress on Annual Long-Range Plan
For The Construction Of Naval Vessels For FY 2006.
8 See CRS Report RL32418, op. cit., Table 5.
9 See CRS Report RL32418, op. cit., graph entitled “Potential SSN Force Levels,
2000-2050.”

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CRS-5
class SSNs. The other option involves designing a reduced-cost SSN using new
“Tango Bravo” technologies being developed by the Navy and the Defense Advanced
Research Projects Agency (DARPA) that would be procured as a successor to the
Virginia-class design. Some or all of a $600-million fund included in the FY2006-
FY2011 FYDP for “a future undersea superiority system” could be used to help
finance either option.
AIP-Equipped Non-Nuclear-Powered Submarine. Non-nuclear-powered
submarines are less expensive than nuclear-powered submarines not only because of
the difference in propulsion systems, but also because non-nuclear-powered
submarines tend to be smaller than nuclear-powered submarines.
The OFT report proposed a future Navy consisting of several new kinds of
ships, including air-independent propulsion (AIP)-equipped non-nuclear-powered
submarines.10 An AIP system such as a fuel-cell or closed-cycle diesel engine
extends the stationary or low-speed submerged endurance of a non-nuclear-powered
submarine. AIP-equipped submarines are currently being acquired by certain foreign
navies.
AIP submarines could be procured in tandem with Virginia-class boats. One
possibility, for example, would be to procure one Virginia-class boat plus one or
more AIP submarines each year.
The OFT report recommended substituting four AIP submarines for one
Virginia-class submarine in each carrier strike group, suggesting that four AIP
submarines might be procured for the same cost ($2.4 billion to $3.0 billion in the
FY2006-FY2011 FYDP) as one Virginia-class submarine. This suggests an average
unit procurement cost for an AIP submarine of roughly $600 million to $750 million
each. Although AIP submarines being built by other countries might cost this much
to procure, a U.S. Navy AIP submarine might be built to higher capability standards
and consequently cost more to procure, possibly reducing the equal-cost ratio of
substitution to three to one or possibly something closer two to one. If so, then the
annual cost of procuring one Virginia-class SSN plus one, two, or perhaps three AIP
submarines could be equal to or less than that of procuring two Virginia-class boats
per year.
Reduced-Cost “Tango Bravo” SSN. The Virginia class was designed in
the early to mid-1990s, using technologies that were available at the time. New
technologies that have emerged since that time may now permit the design of a new
SSN that is equivalent in capability to the Virginia class design, but substantially less
expensive to procure. The Navy and DARPA are now pursuing the development of
these technologies under a program called Tango Bravo, a name derived from the
initial letters of the term “technology barriers.” As described by the Navy,
10 See also Christopher J. Castelli, “Defense Department Nudges Navy Toward Developing
Diesel Subs,” Inside the Navy, Mar. 7, 2005; Dave Ahearn, “Lawmakers Assail Navy
Budget, But Eye Non-Nuke Subs,” Defense Today, Mar. 3, 2005.

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CRS-6
TANGO BRAVO will execute a technology demonstration program to enable
design options for a reduced-size submarine with equivalent capability as the
VIRGINIA Class design. Implicit in this focus is the goal to reduce platform
infrastructure and, ultimately, the cost of future design and production.
Additionally, reduced platform infrastructure provides the opportunity for greater
payload volume.
The intent of this collaborative effort is to overcome selected technology barriers
that are judged to have a significant impact on submarine platform infrastructure
cost. Specifically, DARPA and the Navy will jointly formulate technical
objectives for critical technology demonstrations in (a) shaftless propulsion, (b)
external weapons, (c) conformal alternatives to the existing spherical array, (d)
technologies that eliminate or substantially simplify existing submarine systems,
and (e) automation to reduce crew workload for standard tasks.11
Some Navy and industry officials believe that if these technologies are
developed, it would be possible to design a new submarine equivalent in capability
to the Virginia class, but with a procurement cost of perhaps 75% of the Virginia
class. Such a submarine could more easily be procured within available resources
at a rate of two per year.
Consequently, as an alternative to the option of procuring AIP submarines,
another option would be to start design work now on a new “Tango Bravo” SSN.
The idea of designing a submarine with capability equivalent to that of Virginia-class
and a procurement cost that is less than that of the Virginia class has been discussed
by Navy and industry officials. Under this option, Virginia-class procurement could
continue at one per year until the Tango Bravo submarine was ready for procurement,
at which point Virginia-class procurement would end, and procurement of the Tango
Bravo submarine would begin.
If design work on a Tango Bravo submarine is begun now and pursued in a
concerted manner, the first Tango Bravo submarine might be ready for procurement
by FY2011. (Some industry officials believe that under ideal program conditions, the
lead ship could be procured earlier than FY2011; conversely, some Navy officials
believe the lead ship might not be ready for procurement until after FY2011.) If the
lead ship is procured in FY2011, then the procurement rate could be increased to two
per year starting in FY2012 or FY2013, meeting the time line needed to avoid falling
below 40 boats.
11 Navy information paper on advanced submarine system development provided to CRS by
Navy Office of Legislative Affairs, Jan. 21, 2005. For additional discussion of the Tango
Bravo program, see Aarti Shah, “Tango Bravo Technology Contract Awards Expected This
Spring,” Inside the Navy, Mar. 14, 2005; Andrew Koch, “US Navy In Bid To Overhaul
Undersea Combat,” Jane’s Defence Weekly, Mar. 9, 2005, p. 11; Lolita C. Baldor, “Smaller
Subs Could Ride Waves Of The Future,” NavyTimes.com, Feb. 4, 2005; Robert A.
Hamilton, “Navy, DARPA Seek Smaller Submarines,” Seapower, Feb. 2005, pp. 22, 24-25.

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CRS-7
Aircraft Carriers.
Current design:
! Large nuclear-powered carrier, as exemplified by the George H.W.
Bush (CVN-77) and the planned next carrier, called CVN-21
Potential lower-cost options:
! Medium-sized, conventionally powered carrier based on LHA(R)
amphibious assault ship design
! Medium-sized, conventionally powered carrier based on a
commercial-like hull design
! Small carrier based on high-speed surface effect ship (SES)/
catamaran hull design
CVN-77 and CVN-21.12 The Navy is currently building large nuclear-powered
aircraft carriers (CVNs). These ships have a full load displacement of about 100,000
tons and can embark an air wing of about 75 conventional takeoff and landing
(CTOL) airplanes and helicopters.
The George H. W. Bush (CVN-77) was procured in FY2001 at a total cost of
$4.975 billion, but the ship’s estimated construction cost has since risen to $6.35
billion. The ship is scheduled to enter service in 2008.
The FY2006-FY2011 FYDP defers the planned procurement of the next aircraft
carrier, called CVN-21 (or CVN-78), by one year, to FY2008. Navy officials have
explained that the one-year deferral was due to an inability to fund the procurement
of CVN-21 in FY2007 while also funding the procurement of other ships planned for
FY2007.
CVN-21’s estimated procurement cost has increased about $1.9 billion since
2004 and is now $10.51 billion, including $2.355 billion in detailed design and
nonrecurring engineering (DD/NRE) costs and $8.155 billion in hands-on
construction costs.13 The Navy estimates that about $400 million of the $1.9-billion
increase was due to the decision to defer the procurement of the ship to FY2008.
Advance procurement funding for CVN-21 has been provided since FY2001.
If the ship is procured in FY2008, it would enter service in 2015.
The next carrier, called CVN-79, is currently planned for procurement in
FY2012. Its currently estimated procurement cost is $9.548 billion, including $651
million in DD/NRE costs and $8.897 billion in hands-on construction costs. If the
ship is procured in FY2012, it would enter service around 2019.
12 For more on CVN-77 and the CVN-21 program, see CRS Report RS20643, Navy CVN-21
Aircraft Carrier Program: Background and Issues for Congress, by Ronald O’Rourke.
13 The total estimated acquisition cost of CVN-21, which also includes $3.2 billion in
research and development funding for the ship, is $13.7 billion.

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CRS-8
Three options for lower-cost aircraft carriers have recently emerged. One option
involves designing a medium-sized, conventionally powered aircraft carrier based on
the design for a new amphibious assault ship called the LHA Replacement ship, or
LHA(R), that is currently being developed by the Navy.14 A second option involves
designing a medium-sized, conventionally powered aircraft carrier based on a
commercial-like hull design. The third option involves designing a small, high-
speed, conventionally powered aircraft carrier built on a surface effect ship
(SES)/catamaran hull design.15
Medium-Sized Carrier Based on LHA(R) Design. The CSBA report
recommended procuring CVN-21-class aircraft carriers as needed to maintain a force
of 10 large carriers (two ships less than the current 12-ship force). It also
recommended procuring an additional four medium-sized, conventionally powered
aircraft carriers based on the LHA(R) design. This ship might displace about 40,000
tons and embark an air wing of perhaps about two dozen vertical/short takeoff or
landing (VSTOL) versions of the F-35 Joint Strike Fighter (JSF). Its unit
procurement cost might be roughly $2.7 billion, which is the approximate estimated
cost of the LHA(R) ship that is scheduled for procurement in FY2007.16
Medium-Sized Carrier Based on Commercial-Like Hull. The OFT
report recommended procuring a medium-sized carrier based on a relatively
inexpensive, commercial-like hull design developed in 2004 for the Navy’s Maritime
Prepositioning Force (Future), or MPF(F), analysis of alternatives.17 This carrier,
which would have a full load displacement of about 57,000 tons, would embark a
notional air wing of 36 manned aircraft — 30 Joint Strike Fighters (JSFs) and 6 MV-
22 Osprey tilt-rotor aircraft — and 15 unmanned air vehicles (UAVs).
This ship would be somewhat larger than the LHA(R)-based carrier
recommended in the CSBA report, and roughly the same size as the United
Kingdom’s new aircraft carrier design. (The LHA(R)-based ship and the UK carrier,
however, would use military hulls.) The OFT report recommended substituting two
of these 57,000-ton carriers for each of the Navy’s current large carriers, so that the
number of manned aircraft based at sea would remain about the same.
14 Navy amphibious ships are given designations beginning with the letter L, which stands
for landing, as in amphibious landing. LHA can be translated as amphibious ship (L),
helicopter platform (H), assault (A). Navy LHAs and closely related ships designated LHDs
(the D standing for well deck, an opening in the stern of the ship for landing craft that the
LHAs also have) have flight decks that run the length of the ship, giving these ships an
aircraft-carrier-like appearance.
15 A surface effect ship is supported above the water by a cushion of air that is trapped
beneath the ship.
16 For more on the LHA(R), see CRS Report RL32513, Navy-Marine Corps Amphibious and
Maritime Prepositioning Ship Programs: Background and Oversight Issues for Congress,
by Ronald O’Rourke.
17 The MPF(F) is a planned ship that would preposition combat equipment and supplies at
sea. For more on the MPF(F) program, see CRS Report RL32513, op. cit. The OFT report
also recommended using this same 57,000-ton hull as the basis for a missile-and-rocket ship,
an amphibious ship, and a small-combatant mother ship.

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CRS-9
Small Carrier Using High-Speed SES/Catamaran Hull Design. As an
alternative to the 57,000-ton medium-sized carrier, the OFT report recommended
procuring a small, high-speed carrier displacing 13,500 tons that would use a surface
effect ship (SES)/catamaran hull. The ship was based on a design for an unmanned
aerial vehicle/unmanned combat aerial vehicle (UAV/UCAV) carrier that was
developed in 2000-2002 by a team at the Naval Postgraduate School.18 The OFT
report recommended using the ship to embark a notional air wing of 10 manned
aircraft — 8 JSFs and 2 MV-22s — and 8 UAVs, and have a maximum speed of 50
to 60 knots.
This ship would be slightly larger than Thailand’s 11,500-ton aircraft carrier,
which was commissioned in 1997. It would be smaller than Spain’s 17,000 aircraft
carrier, which was based on a U.S. design19 and was commissioned in 1988, or the
UK’s three existing 20,600-ton carriers, which were commissioned between 1980
and 1985. The OFT-recommended ship would be much faster than the Thai,
Spanish, or existing UK carriers, or any other aircraft carrier now in operation. The
OFT report recommended substituting eight of these 13,500-ton carriers for each of
the Navy’s current large carriers, so that the number of manned aircraft based at sea
would remain about the same.
Additional Potential Options. Studies of aircraft carrier acquisition options
over the years have discussed many other potential designs, including the following:
! A large, conventionally powered carrier. Such a ship, which
might use the same hull design as the CVN-21, might displace about
100,000 tons. It would be broadly similar to the Kitty Hawk (CV-
63) and John F. Kennedy (CV-67), the Navy’s two remaining
conventionally powered carriers, which displace roughly 82,000 tons
and embark air wings similar to those embarked by the Navy’s large
nuclear-powered carriers. The ship might have a procurement cost
several hundred million dollars less than that of CVN-21.
! A medium-sized nuclear-powered carrier. Such a ship might be
based on the LHA(R) hull and use a half-sized version of the CVN-
21 nuclear propulsion plant.20 Like the CSBA-recommended
18 The design was developed by the Total Ship Systems Engineering group at the Naval
Postgraduate School under an effort called the Crossbow project. Within that project, the
carrier was referred to as Sea Archer. For more on the Sea Archer, see
[http://web.nps.navy.mil/~me/tsse/files/2001.htm]. See also Jason Ma, “Naval Postgraduate
School Issues Report on Crossbow Project,” Inside the Navy, Oct. 28, 2002; Randy Woods,
“Students Design Small, Fast Carrier At Projected Cost Of $1.5 Billion,” Inside the Navy,
Jan. 7, 2002. The latter article quoted the leader of the project as saying that if the ship’s
speed were reduced from 60 knots to 40 knots, the ship’s estimated procurement cost of $1.5
billion could be reduced substantially.
19 The U.S. design, which was called the Sea Control Ship, was never built for the U.S.
Navy.
20 The nuclear propulsion plant planned for CVN-21, like those on almost all the Navy’s
(continued...)

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CRS-10
conventionally powered carrier based on the LHA(R) design, this
ship might displace about 40,000 tons and embark about two dozen
VSTOL JSFs. If the CSBA-recommended conventionally powered
carrier would cost roughly $2.7 billion, a nuclear-powered version
would cost more than $3 billion. The ship might be considered
broadly similar to the France’s nuclear-powered carrier, the Charles
de Gaulle, which was commissioned in 2001, displaces 42,000 tons,
and embarks an air wing of about 34 conventional takeoff and
landing (CTOL) airplanes and two helicopters.
Matrix of Possible Designs. Table 1 below shows how ship size,
propulsion type, and hull type create a matrix of notional aircraft carrier options,
including the large nuclear-powered carriers currently being procured and the
potential alternatives described above.
Medium-sized carriers of 40,000 to 70,000 tons might operate either VSTOL
or CTOL aircraft, though ships at the higher end of this size range might be able to
operate CTOL aircraft more easily or efficiently. Small carriers, because of their
shorter length, would likely be limited to VSTOL aircraft.
Although the table does not provide any examples of large or small
conventionally powered carriers using a commercial-like hulls, or any examples of
a small nuclear-powered carrier, such ships are possible. Regarding the possibility
of a small nuclear-powered carrier, the Navy between FY1957 and FY1975 procured
a total of nine nuclear-powered cruisers with displacements ranging from about 9,000
tons to about 17,500 tons.21
20 (...continued)
nuclear-powered aircraft carriers, includes two nuclear reactors and two sets of associated
propulsion equipment. (The sole Navy carrier with a different propulsion plant arrangement
is the Enterprise [CVN-65], the Navy’s first nuclear-powered carrier, whose plant includes
eight smaller nuclear reactors.) A half-sized version of the CVN-21 plant would use one
reactor and one set of associated equipment.
21 The nine cruisers — three one-of-a-kind ships, a class of two ships, and a class of four
ships — entered service between 1961 and 1980 and were decommissioned between 1993
and 1999. Procurement of nuclear-powered cruisers was halted after FY1975 due largely
to a desire to constrain the procurement costs of future cruisers. In deciding in the late
1970s on the design for the new cruiser that would carry the Aegis defense system, two
nuclear-powered design options were rejected in favor of the option of placing the Aegis
system onto the smaller, conventionally powered hull developed for the Spruance (DD-963)
class destroyer. The resulting design became the Ticonderoga (CG-47) class Aegis cruiser.
The first Aegis cruiser was procured in FY1978. Although nuclear power was abandoned
for Navy cruisers, it was retained for the Navy’s large aircraft carriers because adding
nuclear power increases total ship procurement cost in percentage terms less for a large
carrier than for a cruiser, and because the mobility advantages of nuclear power for a surface
ship (see the discussion on mobility in the next section of the report) were viewed as
important for carriers in light of their combat capabilities and limited numbers. Some
observers believe that if oil prices are deemed likely to remain high, the option of nuclear-
powered surface combatants might bear revisiting.

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CRS-11
The table also does not provide examples of ships combining a nuclear
propulsion plant with a commercial-like hull. Although a small number of nuclear-
powered commercial cargo ships were built years ago, a combat ship such as an
aircraft carrier that combined a relatively expensive nuclear propulsion plant with a
commercial-like hull having relatively limited survivability features might be viewed
as a contradictory design.
Table 1. Matrix of Notional Options For Aircraft Carriers
Ship size
Military hull
Commercial-like hull
(full load
displacement)
Nuclear-
Conventionally
Nuclear- Conventionally
powered
powered
powered
powered
Large CTOL
CVN-77 or
Ship broadly similar
carrier (~80,000 CVN-21
to CV-63 and
to ~100,000tons)
CV-67
Medium CTOL Carrier based on Carrier based on
57,000-ton
or VSTOL
LHA(R) design
LHA(R) design
carrier (OFT)
carrier (~40,000 (CSBA) or ship
(CSBA) or ship
to ~70,000 tons) similar to new
similar to new UK
French carrier
carrier design
Small VSTOL
13,500-ton high-speed
carrier (~10,000
carrier (OFT) or ship
to ~30,000 tons)
similar to Spanish,
Thai, or existing UK
carriers
Source: Table prepared by CRS based on Navy data, OFT and CSBA reports, and Jane’s Fighting
Ships 2004-2005.
Notes: CTOL = conventional takeoff land landing aircraft.
VSTOL = vertical/short takeoff and landing aircraft.
Larger Surface Combatants.
Current design:
! 14,000-ton DD(X) destroyer/CG(X) cruiser
Potential lower-cost options:
! Roughly 9,000-ton surface combatant (SC(X))
! Roughly 6,000-ton frigate (FFG(X))
! Low-cost gunfire support ship
14,000-Ton DD(X) Destroyer/CG(X) Cruiser.22 The Navy currently plans
to procure DD(X) destroyers and, starting in FY2011, CG(X) cruisers. The CG(X)
would be based on the DD(X) design and could be somewhat larger and more
expensive than the DD(X). Congress for FY2005 approved $220 million in advance
22 For more on the DD(X) and CG(X) programs, see CRS Report RS21059, Navy DD(X) and
CG(X) Programs: Background and Issues for Congress, by Ronald O’Rourke and CRS
Report RL32109, Navy DD(X), CG(X), and LCS Ship Acquisition Programs: Oversight
Issues and Options for Congress, by Ronald O’Rourke.

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CRS-12
procurement funding for the first DD(X), which is planned for FY2007, and $84
million in advance procurement funding for the second DD(X), which is planned for
FY2008. The FY2006 budget requests $666 million in additional advanced
procurement funding for the first DD(X), $50 million in additional advance
procurement funding for the second DD(X), and $1,115 million for DD(X)/CG(X)
research and development.
The DD(X) would have a full-load displacement of about 14,000 tons, which
would make it roughly 50% larger than the Navy’s current 9,000-ton Aegis cruisers
and destroyers, and larger than any U.S. Navy destroyer or cruiser since the nuclear-
powered cruiser Long Beach (CGN-9), which was procured in FY1957.23
Estimated DD(X) unit procurement costs have increased substantially since
2004:
! The Navy in 2004 estimated that the first DD(X) would cost about
$2.8 billion to procure, including about $1 billion in detailed design
and nonrecurring engineering costs (DD/NRE) for the class; it now
estimates the cost at $3,291 million (an increase of about 18%),
including $558 million in DD/NRE costs.
! The Navy in 2004 estimated that the second DD(X) would cost
$2,053 million to procure; it now estimates the cost at $3,061
million (an increase of about 49%), including $219 million in
DD/NRE costs.
! The Navy in 2004 estimated that subsequent DD(X)s would cost
between $1.5 billion and $1.8 billion each to procure; it now
estimates the cost at about $2.2 billion to $2.6 billion each (an
increase of roughly 45%). This is much higher than the cost of
Arleigh Burke (DDG-51) class Aegis destroyers procured in recent
years. The three DDG-51s procured in FY2005, for example, were
funded at a total cost of $3,491 million, or an average cost of about
$1,164 million per ship.
The Cost Analysis Improvement Group (CAIG) within the Office of the
Secretary of Defense (OSD) reportedly believes that DD(X) procurement costs may
be 20% to 33% higher than the figures above.24
23 Over the last few decades, U.S. Navy cruisers have become smaller while U.S. Navy
destroyers have become larger, with the result that there is now considerable overlap
between U.S. Navy cruisers and destroyers in terms of size and capability. Remaining
points of distinction between the two types of ships include the presence on all recent U.S.
Navy cruiser classes but not all recent U.S. Navy destroyer classes of a high-capability area
air-defense system, and the presence on cruisers but not destroyers of additional command
facilities for accommodating senior officers who are directing operations on multiple ships.
24 Tony Capaccio, “Destroyer May Cost 33% More Than Navy Budgeted, Pentagon Says,”
Bloomberg.net, May 4, 2005; Christopher P. Cavas, “Rising Costs of DD(X) Threaten U.S.
(continued...)

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CRS-13
The Navy originally envisaged procuring a total of 16 to 24 DD(X)s, but Navy
officials now state they have a requirement for 8 to 12. The FY2005-FY2009 FYDP
submitted to Congress in February 2004 called for procuring the first DD(X) in
FY2005, another two in FY2007, two more in FY2008, and three more in FY2009,
for a total of eight ships through FY2009. The FY2006-FY2011 FYDP submitted
to Congress in February 2005 reduces planned DD(X) procurement to one per year
for FY2007-FY2011, for a total of five ships through FY2009. The FY2006-FY2011
FYDP also accelerates procurement of the first CG(X) from FY2018 to FY2011.
The decision to reduce DD(X) procurement to one per year in FY2007-FY2011,
which appears to have been driven in large part by affordability considerations,
suggests that, unless budget conditions change, the Navy may never be able to afford
to procure more than one DD(X) or CG(X) per year. A one-per-year DD(X)/CG(X)
procurement rate, if sustained for a period of many years, might not be enough to
introduce the planned new DD(X)/CG(X) technologies into the fleet in sufficient
numbers to meet operational needs. The prospect of a one-per-year rate might also
raise questions about the potential cost effectiveness of the DD(X)/CG(X) effort
when measured in terms of average unit acquisition cost, which is the average cost
to develop and procure each ship. Given the $10 billion dollars in research and
development funding programmed for the DD(X)/CG(X) effort, if DD(X)s or
CG(X)s are procured at a rate of one per year, the average acquisition cost for each
DD(X) or CG(X) could be more than $3 billion, using the Navy’s cost estimates, or
possibly closer to $4 billion, using the reported CAIG estimates.
Options for a reduced-cost surface combatant include a roughly 9,000-ton
surface combatant, a roughly 6,000-ton frigate, and a low-cost gunfire support ship.
Roughly 9,000-Ton Surface Combatant (SC(X)). One option for a lower-
cost surface combatant would be a new-design ship about equal in size to the Navy’s
current 9,000-ton Aegis cruisers and destroyers. Such a ship, which might be called
the SC(X) (meaning surface combatant, in development) could:
! be intended as a replacement for either the CG(X) program or both
the DD(X) and CG(X) programs;
! incorporate many of the same technologies now being developed for
the DD(X) and CG(X), including, for example, radar technologies,
the Advanced Gun System (AGS), integrated electric-drive
propulsion, and technologies permitting a reduced-sized crew;
! cost substantially less to procure than a DD(X) or CG(X), and
perhaps about as much to procure as a DDG-51 class Aegis
destroyer (which currently costs about $1,350 million per ship when
procured at a rate of two per year);
24 (...continued)
Fleet Plans,” DefenseNews.com, May 2, 2005; Christopher J. Castelli, “Pentagon Postpones
DD(X) DAB Meeting To Resolve Cost Estimates,” Inside the Navy, May 2, 2005.

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CRS-14
! be similar to the DD(X) and CG(X) in terms of using a reduced-size
crew to achieve annual operation and support costs that are
considerably less than those of the current DDG-51 design;
! carry a payload — a combination of sensors, weapon launchers,
weapons, related computers and displays, aircraft, and fuel — that
is smaller than that of the DD(X) or CG(X), but comparable to that
of current DDG-51s or Aegis cruisers.
A land-attack oriented version of the SC(X) might be able to carry one
Advanced Gun System, or AGS (a new-design 155mm gun), as opposed to the two
on the DD(X). An air- and missile-defense version of the SC(X) would have fewer
missile tubes than CG(X), but still a fairly substantial number.
Roughly 6,000-Ton Frigate (FFG(X)). A second option for a smaller, less
expensive, new-design ship that has been suggested by CBO would be a frigate
intended as a replacement for both the DD(X)/CG(X) effort and the Littoral Combat
Ship (LCS) program that is discussed later in this report. CBO estimated that such
a ship, which it calls the FFG(X), might displace about 6,000 tons. CBO estimates
that a 6,000-ton FFG(X) might have a unit procurement cost of about $800 million.
A 6,000-ton FFG(X) might be too small to be equipped with the AGS, in which
case it could not provide the additional naval gunfire capability that would be
provided by the DD(X). A 6,000-ton FFG(X) might, however, be capable of
performing the non-gunfire missions that would be performed by both the DD(X) and
the LCS. A 6,000-ton FFG(X) would could be viewed as a replacement in the surface
combatant force structure for the Navy’s Oliver Hazard Perry (FFG-7) class frigates
and Spruance (DD-963) class destroyers. Since a 6,000-ton FFG(X) would be
roughly midway in size between the 4,000-ton FFG-7 design and the 9,000-ton DD-
963 design, it might be suitable for carrying more modern versions of the mission
equipment currently carried by the FFG-7s and DD-963s.
Low-Cost Gunfire Support Ship. A third option for a smaller, less
expensive, new-design ship would be a low-cost gunfire support ship — a relatively
simple ship equipped with one or two AGSs and only such other equipment that is
needed for basic ship operation. Other than the AGSs and perhaps some advanced
technologies for reducing crew size and thus total life-cycle cost, such a ship could
use existing rather than advanced technologies so as to minimize development time,
development cost, and technical risk. Some of these ships might be forward-
stationed at sites such as Guam or Diego Garcia, so as to be available for rapid
crewing and movement to potential contingencies in the Western Pacific or Indian
Ocean/Persian Gulf regions. The goal would be to procure specialized AGS-armed
ships as a niche capability for the Navy, and then forward-station some of that
capability so as to maximize the odds of being able to bring a desired number of
AGSs to an overseas theater of operation in a timely manner on those occasions when
it is needed.
A variant of this option that was suggested in the CSBA report would be to
place one or two AGSs on the basic San Antonio (LPD-17) class amphibious ship
hull design. LPD-17s currently under construction for supporting Marine operations

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CRS-15
are to displace about 25,000 tons, but a basic version of the LPD-17 hull equipped
with one or two AGSs might have a different displacement.25
Smaller Surface Combatants.
Current design:
! 2,500- to 3,000-ton Littoral Combat Ship (LCS)
Potential Lower-Cost Options:
! Roughly 1,000-ton surface combatant
! Roughly 100-ton surface combatant
2,500- to 3,000-ton Littoral Combat Ship (LCS).26 In addition to DD(X)
destroyers and CG(X) cruisers, the Navy currently plans to procure Littoral Combat
Ships (LCSs), which would be small (2,500- to 3,000-ton), fast surface combatants
that would use modular “plug-and-fight” weapon systems. Congress for FY2005
provided $212.5 million to fully fund the first LCS “sea frame,”which is the term the
Navy uses to refer to the basic ship, without any modular mission packages. For
FY2006, the Navy has requested $613.3 million for the program, including $240.5
million in research and development funding to build the second LCS sea frame,
$336.0 million in additional research and development funding, and $36.8 million
in procurement funding for LCS mission modules.
A March 2005 Navy report to Congress on potential future Navy force levels
suggests that the Navy wants to procure a total of 63 to 82 LCSs.27 The Navy wants
the procurement cost of each LCS sea frame to be no more than $220 million.
Figures from the FY2006-FY2011 FYDP suggest that when the cost of the mission
modules is added in, the LCS program might have an average ship procurement cost
of about $387 million, and that a program of 63 to 82 LCSs might therefore have a
total acquisition (i.e., research and development plus procurement) cost of about
$25.3 billion to $32.7 billion.28
25 The Navy currently plans to procure a total of nine LPD-17 class ships, with the eighth
and ninth ships to be procured in FY2006 and FY2007, respectively. The estimated
procurement costs of the two final ships are $1,353 million and $1,584 million, respectively,
but these figures may reflect costs associated with the winding down of LPD-17 production.
The seventh LPD-17, procured in FY2005, has an estimated procurement cost of $1,193
million. An additional surface combatant option recommended in the OFT report is a large
missile-and-rocket ship based on the same 57,000-ton commercial-like hull design that the
report recommended using as the basis for a medium-sized aircraft carrier. Although this
ship would be based on a commercial-like hull, the unit procurement cost of this ship would
be higher than, not lower than, that of the DD(X).
26 For more on the LCS program, see CRS Report RS21305, Navy Littoral Combat Ship
(LCS): Background and Issues for Congress, by Ronald O’Rourke and CRS Report
RL32109, op. cit.
27 An Interim Report To Congress on Annual Long-Range Plan For The Construction Of
Naval Vessels For FY 2006, op. cit.
28 For a discussion, see CRS Report RS21305 and CRS Report RL32109, op. cit.

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CRS-16
1,000-Ton Surface Combatant. Rather than procuring the LCS, the OFT
report recommended procuring a 1,000-ton surface combatant. Like the LCS, this
ship would have a maximum speed of 40 to 50 knots and standard interfaces for
accepting various modular mission packages, and would self-deploy to the theater of
operations. The ship would be supported in theater by one or more larger types of
ships that were also recommended by OFT.
100-ton Surface Combatant. As an alternative to the 1,000-ton surface
combatant, the OFT report recommended procuring a 100-ton surface combatant
with a maximum speed of 60 knots and standard interfaces for accepting various
modular mission packages. These ships would be transported to the theater by a
“mother ship” based on the same 57,000-ton commercial-like hull used for OFT’s
proposed medium-sized aircraft carrier. The 100-ton surface combatants would be
supported in theater by the mother ship and possibly another larger ship that was
recommended by OFT.
Issues For Congress
The potential lower-cost ship designs outlined above can be assessed in terms
of cost, capability, technical risk, homeporting arrangements, and potential impact
on the shipbuilding industrial base.
Cost
Although the potential ship designs outlined in the previous section would have
lower unit procurement costs than currently planned designs, a complete assessment
of the cost implications of these options would take into account development and
design cost, procurement cost, life-cycle operation and support cost (O&S), and end-
of-life disposal costs. Each of these are discussed below.
Development And Design Cost. Developing and designing a large,
complex Navy ship can cost billions of dollars. Consequently, if a currently planned
ship has already been developed and designed, stopping that program in favor of a
new, lower-cost design could incur substantial additional development and design
costs, and consequently might save money over the long run (i.e., reach the financial
break-even point compared to continuing with the current design) only if the lower-
cost design is procured in large enough total numbers so that the cumulative
procurement savings were greater than the additional up-front development and
design costs. The earlier in the development and design process that an existing ship
acquisition program is stopped, the earlier in the future it might be that a lower-cost
alternative design might reach the break-even point. In addition, if a lower-cost ship
could use many of the same technologies intended for the more-expensive ship, or
technologies already developed for other ships, then the cost to develop the new
design could be reduced, perhaps substantially.
Procurement Cost. Through a process common to many manufacturing
activities called moving down the learning curve, the number of shipyard labor hours
required to build a ship design decreases as a shipyard builds more ships to that

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CRS-17
design and shipyard workers become increasingly familiar with the design.29
Consequently, if some number of ships have already been built to a currently planned
design, the difference in cost between that design and the first units of a lower-cost
alternative design might be less than if the currently planned design had not yet
entered production, and the break-even point for the lower-cost design will be further
into the production run than if the currently planned design had not yet entered
production. On the other hand, if the lower-cost design can be procured at a greater
annual rate than the currently planned design (e.g., two ships per year for the lower-
cost design vs. one ship per year for the currently planned design), then the lower-
cost design could move down the learning curve more quickly and achieve the cost-
reducing benefits of the learning curve more fully than the currently planned design.
Life-Cycle Operation and Support (O&S) Cost. Navy ships are
expensive to operate and support, and can remain in service for many years — 20 or
more years for a small combatant, 30 or more years for an attack submarine or larger
surface combatant, and up to 50 years for an aircraft carrier. Consequently, although
ship procurement costs are often more visible in the budget than ship O&S costs, a
ship’s life-cycle O&S cost can contribute as much as, or even more than, its
procurement cost to total long-term Navy expenditures.
Personnel And Maintenance Costs. Reducing a ship’s life-cycle O&S
cost can sometimes involve including design features that increase its procurement
cost. Personnel costs are a major component of ship O&S costs, and reducing crew
size can involve fitting the ship with technology for automating functions that were
previously performed by people, including damage control, which is a function that
traditionally has contributed to a need for larger crews. If the cost of added
technology is greater than the avoided expense of building extra crew-related spaces
into the ship, then adding the technology will increase the ship’s procurement cost.
Maintenance costs are another major component of ship O&S costs, and reducing
maintenance costs might require building certain parts of the ship with more-durable
but more-expensive materials, or increasing the size (and thus construction cost) of
certain spaces on the ship, so as to provide room for easier access during
maintenance.
In light of these considerations, it is possible for an alternative ship design to
have a lower procurement cost in part because it incorporates features that give it a
higher life-cycle O&S cost. If so, then procuring this ship rather than the currently
planned design might not reduce total Navy expenditures over the long run as much
as might be expected by looking only at ship procurement costs.
Fuel Costs. The life-cycle O&S cost of a conventionally powered ship
includes the cost of all the fuel the ship uses over its life. That is not the case for
nuclear-powered ships, because the procurement cost of a nuclear-powered ship
includes the cost of the nuclear fuel core that is loaded into the ship’s reactor at the
time the ship is built. In the case of a nuclear-powered attack submarine, that fuel
29 For more on learning-curve effects in Navy shipbuilding, see CRS Report 96-785 F, Navy
Major Shipbuilding Programs and Shipbuilders: Issues and Options for Congress, by
Ronald O’Rourke, pp. 59, 95-110. (Out of print; available from the author.)

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CRS-18
core costs about $158 million and is designed to power the ship for its entire 33-year
expected life, while in the case of a nuclear-powered carrier, the core costs about
$300 million and is designed to power the ship for one-half of its 50-year expected
life.30
Consequently, although a nuclear-powered submarine or carrier is more
expensive to procure than an otherwise-equal conventionally powered submarine or
carrier, the nuclear-powered submarine will incur no fuel-related O&S costs over its
lifetime, while the conventionally powered carrier will incur no fuel-related O&S
costs during the first half of its lifetime.
This difference in accounting for fuel costs means that when procurement and
life-cycle O&S costs are added together, the difference in cost between a nuclear-
powered submarine and a conventionally submarine will be smaller than the
difference in procurement cost alone. The same can true in comparing a nuclear-
powered carrier to a conventionally-powered carrier, if the cost of the nuclear-
powered carrier’s second core is less than the cost of the conventionally powered
carrier’s fuel over its entire life. The higher the price of oil during conventionally
powered carrier’s life, the more likely this is to be the case.
A more general consideration arising out of this discussion is that other things
held equal, the higher that oil costs are expected to be in coming decades, the more
cost-effective nuclear power might be compared to conventional power for powering
a given type of ship. In theory, if the cost of oil is high enough, the total ownership
cost (i.e., the sum of procurement cost, life-cycle O&S cost, and end-of-life disposal
cost discussed below) of a nuclear powered ship could be less than that of an
otherwise-equal conventionally powered ship.
End-Of-Life Disposal Cost. Other things held equal, nuclear-powered ships
have higher end-of-life disposal costs than conventionally powered ships because of
the need to defuel, cut out, and seal up the reactor compartment and transport it to the
permanent Navy reactor-plant storage area at the Hanford nuclear reservation in
Washington state. For a nuclear-powered submarine, this work might cost about $30
million to $35 million, while for a nuclear-powered carrier, which has a much larger
nuclear propulsion plant, it might cost roughly $570 million.31
30 Source for cost figures: Telephone discussion with Naval Nuclear Propulsion Office, May
21, 2004. The $158-million figure is for a 33-year core for a Virginia-class submarine,
while the $300 million figure is for a 25-year core for the aircraft carrier CVN-21. Both
figures are in constant FY2005 dollars.
31 Source: Telephone consultation with the office of the Navy Nuclear Propulsion Program,
Apr. 28, 2005. The office stated that the total cost to inactivate, dismantle, and dispose of
a retired nuclear-powered submarine is currently about $64 million, and that work related
to the reactor compartment accounts for roughly half of this total. The office stated that the
currently estimated cost to inactivate the nuclear-powered carrier Enterprise (CVN-65) in
2013 is about $1.1 billion in then-year dollars, which equates to about $830 million in
FY2005 dollars, and that work related to the reactor compartment accounts for about $570
million of this $830-million figure.

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CRS-19
Capability
As mentioned earlier, lower-cost ship designs in most cases will be individually
less capable than their higher-cost counterparts. One exception to this might be the
reduced-cost Tango Bravo SSN, which might be equal in capability to the Virginia-
class design due to its use of the more advanced technologies being pursued under
the Navy-DARPA Tango Bravo program.
Aspects of capability that may be considered include ship payload, ship
detectability and survivability, ship mobility, and the value of ship numbers in naval
operations.
Payload. As the size of a Navy combat ship decreases, its total payload — the
weight and volume of the ship’s sensors, weapon launchers, weapons, related
computers and displays, aircraft, and fuel — tends to decrease. Indeed, due to certain
factors relating to ship design, as ship size decreases, payload can often decrease
more quickly, making the smaller ship not just less capable than the larger ship, but
proportionately less capable. One factor contributing to this effect relates to
propulsion: As ship size increases, the amount of horsepower needed to move a ton
of the ship’s weight through the water at a certain speed tends to decrease. As a
result, as ship size increases, the size of the propulsion plant increases less than
proportionately, leaving proportionately more room for payload.32
Consequently, for example, as the size of an aircraft carrier is reduced, the total
weight of the aircraft that can be embarked on the carrier can decline even more
quickly. A 40,000-ton LHA(R)-based medium-sized carrier, for example, is about
40% as large as a 100,000 ton carrier, but its potential air wing of about two dozen
aircraft might have a total weight equivalent to less than 40% of the 75 aircraft on the
100,000-ton carrier.
Moreover, if a medium-sized carrier’s air wing is transferred to a larger carrier,
the larger carrier may be able to use that air wing to generate more sorties (i.e.,
flights) per day because of its larger flight deck and greater fuel and ordnance
capacities. According to one study, for example, a carrier capable of embarking 75
aircraft, can, with a 55-aircraft air wing, generate 40% more strike sorties per day
than a medium-sized carrier that is sized for that same 55-aircraft air wing.33
Reducing ship size can, in addition to reducing total payload, make it difficult
or impossible for a ship to be equipped with certain desired systems. A carrier
smaller than a certain size, for example, would not be able to operate CTOL aircraft,
32 The Navy’s 100,000-ton carriers, for example, are about 11 times as large as the Navy’s
9,000-ton DDG-51 class destroyers, and both types of ships have a maximum sustained
speed of more than 30 knots. In terms of shaft horsepower, however, the carriers’
propulsion plant is less than three times as powerful as the DDG-51-class propulsion plant
(about 280,000 shaft horsepower vs. about 100,000 shaft horsepower, respectively).
33 David A. Perin, “Are Big Decks Still the Answer?” U.S. Naval Institute Proceedings, June
2001, pp. 30-33.

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CRS-20
while a surface combatant smaller than a certain size could not be equipped with
certain large radars, sonars, missile-launching tubes, or guns.
A principal implication of payload decreasing more rapidly than ship size is that
the total cost to put a certain collection of combat-related equipment to sea can go up
as the size of the ships used to put the equipment to sea goes down. If total fleet
payload is held constant, in other words, then reducing unit procurement costs by
shifting to smaller ships can lead to a fleet design with a higher total procurement
cost. In addition, if crew size and fuel consumption does not go down
proportionately with ship size, then a similar effect could occur with regard to total
fleet operation and support (O&S) costs.
The OFT report counters some of these points by arguing that using new
technologies would permit the payload fraction of its recommended 1,000- and 100-
ton surface combatants to be greater than what would have been possible in the past.
Another counter-argument is that improvements in precision-guidance technology for
weapons is permitting weapon size to be reduced because a smaller warhead that
lands precisely on a target can do the same amount of damage to the target as a larger
warhead that lands less precisely. As a result, it could be argued, payload related to
weapons and weapon launchers can be reduced without reducing the ship’s
capability. Any improvements in technology that would permit a reduction in the
weight and volume of sensors (e.g., radars or sonars) could lead to a similar argument
relating to the sensor portion of a ship’s payload.
Detectability and Survivability. Supporters of larger ships could argue that
with careful design and construction, a large ship can be made no more susceptible
to detection by enemy sensors (e.g., radars, sonars, or infrared sensors) than a much
smaller ship. They could also argue that other things held equal, larger ships and
ships built to military survivability standards are better able to withstand a hit from
a weapon of a given size than a smaller ship or a ship built with an equal-sized
commercial-like hull. A larger ship or a ship built to military survivability standards,
they could argue, might be able to continue operations to some degree after being hit,
or would at least would not be sunk, whereas a smaller ship or a ship built with a
commercial-like hull is more likely to be sunk or rendered completely operable.
Supporters of smaller ships or ships built with commercial-like hulls could
argue that making larger ships less detectable adds to their cost, and that a fleet
composed of a large number of small ships could, by presenting the enemy with a
large number of targets, overwhelm the enemy’s target-tracking capabilities.34 They
could also argue that even large ships built to military survivability standards can be
sunk or put out of operation, and that a fleet consisting of a relatively small number
of such ships concentrates too large a fraction of the fleet’s total capability and
replacement value in each individual platform. They could argue that the most
important measure of survivability is not individual-ship survivability but overall
fleet survivability, and that a fleet consisting of a larger number of smaller ships can
have superior overall fleet survivability. They could also argue that U.S. leaders
might be averse to using expensive, highly capable Navy ships in certain high-threat
34 The OFT report makes the second argument.

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CRS-21
situations because they would not want to risk one or more of them being heavily
damaged or sunk, in which case the effective utility of these ships would be reduced.
Mobility.
Nuclear Power. Since nuclear propulsion plants do not require access to the
atmosphere to generate power, equipping a submarine with a nuclear propulsion plant
produces a fundamental change in ship mobility and consequently in the kinds of
operations for which the submarine may be suitable. Some observers, particularly
supporters of nuclear-powered submarines, have stated that without nuclear power,
ships referred to as submarines are simply submersibles — ships that occasionally
and for limited periods of time operate below the surface — and that it is the addition
of nuclear power that creates a true submarine — a ship whose primary operating
environment is below the surface.
As mentioned earlier, an AIP system such as a fuel-cell or closed-cycle diesel
engine extends the stationary or low-speed submerged endurance of a
non-nuclear-powered submarine. A conventional diesel-electric submarine has a
stationary or low-speed submerged endurance of a few days, while an AIP-equipped
submarine may have a stationary or low-speed submerged endurance of up to two or
three weeks.
An AIP system does not, however, significantly increase the high-speed
submerged endurance of a non-nuclear-powered submarine. A non-nuclear-powered
submarine, whether equipped with a conventional diesel-electric propulsion system
or an AIP system, has a high-speed submerged endurance of perhaps 1 to 3 hours, a
performance limited by the electrical storage capacity of the submarine’s batteries,
which are exhausted quickly at high speed.
In contrast, a nuclear-powered submarine’s submerged endurance, at any speed,
tends to be limited by the amount of food that it can carry. In practice, this means
that a nuclear-powered submarine can remain submerged for weeks or months at a
time, operating at high speeds whenever needed.
As a consequence of their very limited high-speed submerged endurance, non-
nuclear-powered submarines, even those equipped with AIP systems, are not well
suited for submarine missions that require:
! long, completely stealthy transits from home port to the theater of
operation,
! submerged periods in the theater of operation lasting more than two
or three weeks, or
! submerged periods in the theater of operation lasting more than a
few hours or days that involve moving the submarine at something
more than low speed.
With regard to the first of the three points above, the OFT report proposes
transporting the AIP submarines into the overseas theater of operations aboard a

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CRS-22
transport ship.35 In doing so, the OFT report accepts that the presence of a certain
number of U.S. AIP submarines in the theater of operations will become known to
others. A potential force-multiplying attribute of having an SSN in a carrier strike
group, in contrast, is that the SSN can be detached from the strike group, and
redirected to a different theater to perform some other mission, without alerting
others to this fact. Opposing forces in the strike group’s theater of operations could
not be sure that the SSN was not in their own area, and could therefore continue to
devote resources to detecting and countering it. This would permit the SSN to
achieve military effects in two theaters of operation at the same time — the strike
group’s theater of operations, and the other theater to which it is sent.
With regard to the second and third points above, the effectiveness of an AIP
submarine would depend on what kinds of operations the submarine might need to
perform on a day-to-day basis or in conflict situations while operating as part of a
forward-deployed carrier strike group.
For aircraft carriers, the effects of adding nuclear power are less dramatic than
they are for submarines, but still significant. Nuclear-powered carriers can make
high-speed transits over long distances to respond to urgent crises without need for
stopping or slowing down to refuel along the way. They do not need to be refueled
upon arriving at the area of operations, permitting them to commence combat
operations immediately upon arrival. And since they do not need large fuel tanks to
store fossil fuel for their own propulsion plant, they can devote more of their internal
volume to the storage of aircraft fuel and ammunition, which permits them to sustain
combat operations for longer periods of time before they need to be resupplied.
Maximum Speed. Proponents of higher-speed ships like the LCS, the
13,500-ton carrier recommended in the OFT report, or the 1,000- or 100-ton surface
combatants recommended in the OFT report, argue that the higher maximum speeds
of these ships increases their capability by enabling them to shift locations more
rapidly and making them more difficult for the enemy to track and target. Skeptics
could argue that the advantages of ship speeds much higher than about 30 knots are
unproven or overrated.
Ship Numbers In Naval Operations. Advocates of a fleet with a larger
number of ships, which is something that might be facilitated by shifting to lower-
cost ship designs, argue that a ship cannot be in two places at the same time, and
consequently that a fleet with a larger number of ships would be better able to
maintain a day-to-day presence in multiple locations around the world or be better
able to respond to simultaneous crises or conflicts in multiple locations. A fleet
consisting of a larger number of less-capable ships, they could argue, might offer
more flexibility for responding to situations with an appropriate amount of naval
capability, as opposed to being forced to deploy a naval force with more capability
35 The strategy of transporting the AIP submarines to the theater using transport ships is not
mentioned in the report but was explained at a Feb. 18, 2005 meeting between CRS and
analysts who contributed to the OFT report.

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CRS-23
than needed at a high daily O&S cost.36 Advocates of a fleet with a larger number
of ships could also argue that under the theory of network-centric warfare, the
capability of the force grows as a function of the number of nodes (e.g., ships,
aircraft, unmanned vehicles, and distributed sensors) that make up the network, and
that increasing the number of ship nodes will consequently increase the total
capability of the force.37 Advocates who make this last argument in some cases
might argue that in light of networking and other advanced technologies, U.S.
military forces in general should shift to less concentrated and more highly
distributed force designs.
Defenders of a fleet consisting of a smaller number of more-expensive ships
could argue that being able to deploy ships to a greater number of locations around
the world might be of limited value if those ships are less-capable designs that are not
capable of performing required missions. They could also argue that the Navy has
taken steps in recent years to increase the fraction of the fleet that is deployed, or
ready to be deployed, at any given time, mitigating the effects of having a relatively
limited total number of ships in the fleet.38 They could argue that current ship
designs already provide adequate flexibility for creating naval formations with
appropriate amounts of capability for responding to various situations. They could
also argue that when numbers of aircraft, unmanned vehicles, and distributed sensors
are taken into account, a fleet consisting of a smaller number of more-expensive
ships would still have an adequate number of nodes for engaging in network-centric
warfare.
Technical Risk
Of the lower-cost options outlined earlier, those that might pose some technical
risk for the Navy include the AIP-equipped non-nuclear-powered submarine (because
a non-nuclear-powered submarine has not been designed and built for the U.S. Navy
since the 1950s), the Tango Bravo nuclear-powered submarine (because of the need
to mature the Tango Bravo technologies), the 13,500-ton high-speed carrier (because
of its fairly large SES/catamaran hull design), and perhaps the 1,000- and 100-ton
surface combatants (because of the new technologies that are intended to increase
their payload fractions).
36 The OFT report makes this point from a budgetary perspective as well, arguing that a fleet
consisting of lower-cost ships can be adjusted in size more smoothly to adapt to changes in
available funding levels.
37 For more on network-centric warfare, see CRS Report RL32411, Network Centric
Warfare: Background and Oversight Issues for Congress, by Clay Wilson and CRS Report
RL20557, Navy Network-Centric Warfare Concept: Key Programs and Issues for Congress,
by Ronald O’Rourke.
38 For additional discussion of this point, see CRS Report RS21338, Navy Ship
Deployments: New Approaches — Background and Issues for Congress, by Ronald
O’Rourke.

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CRS-24
Homeporting Arrangements
Smaller ships might offer a wider range of homeporting possibilities because
some ports might not have large enough berthing spaces or deep enough waters to
accommodate ships of more than a certain size.
Homeporting a nuclear-powered carrier or submarine can be a more complex
undertaking than homeporting a conventionally powered ship due to requirements
that are unique to nuclear-powered ships, such as having access in the home port to
a nuclear-certified maintenance shop. In addition, gaining permission to forward-
homeport a Navy ship in a foreign country can be politically more difficult if the ship
in question is nuclear-powered and there are substantial anti-nuclear sentiments in
the intended host country.39
Impact On Shipbuilding Industrial Base
Lower-cost ship designs could affect the shipbuilding industrial base by
changing the total volume of Navy shipbuilding work or the distribution of that work
among various shipyards.
Total Volume Of Work. The total volume of Navy shipbuilding work is to
a large degree a function of the total amount of funding available for Navy ship
procurement. Consequently, the effect that shifting to lower-cost designs might have
on the total volume of shipbuilding work would depend to a large degree on whether
the shift somehow affects the total amount of funding available for Navy ship
procurement. At least three scenarios are possible:
! One possibility is that shifting to lower-cost designs does not
substantially affect the total amount of funding available for Navy
ship procurement, in which case the total volume of Navy
shipbuilding work might not change substantially.
! A second possibility is that the shift to lower-cost designs is used to
reduce the total cost of building the same total number of ships as
previously planned, in which case the total volume of Navy
shipbuilding work would be reduced.
! A third possibility is that the shift to lower-cost designs makes Navy
ships appear more cost-effective compared to competing Navy or
39 The Navy may face this second issue at some point with regard to the continuation of its
carrier homeporting arrangement with Japan. A Navy carrier has been homeported in Japan
since the early 1970s, and the three carriers that have been homeported there over the years
have all been conventionally powered. Of the Navy’s 12 carriers, only two — the Kitty
Hawk (CV-63) and the John F. Kennedy (CV-67) — are conventionally powered, and these
two ships are among the oldest carriers in the fleet. The Kitty Hawk is scheduled for
retirement in 2008, and the Navy has proposed retiring the Kennedy in FY2006. For further
discussion, see CRS Report RL32731, Navy Aircraft Carriers: Proposed Retirement of USS
John F. Kennedy — Issues and Options for Congress, by Ronald O’Rourke.

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CRS-25
DOD programs, in which case the total amount of funding available
for Navy ship procurement might be increased, enabling an increase
in the total volume of Navy shipbuilding work.
Distribution Of Work Among Shipyards. The lower-cost ship designs in
this report could affect the distribution of shipbuilding work among various shipyards
in one or more of the following ways:
! Attack submarines. A Tango Bravo nuclear-powered submarine
would be designed and built by one or both of the country’s two
current nuclear-submarine construction shipyards — General
Dynamics’ Electric Boat (GD/EB) of Groton, CT, and Quonset
Point, RI, and Northrop Grumman Newport News (NGNN) of
Newport News, VA. If both GD/EB and NGNN are involved in the
program, the division of work between the two yards could be
different than the current, roughly even, division of work the two
yards have for building Virginia-class submarines. An AIP-
equipped non-nuclear powered submarine could be designed and
built by GD/EB or NGNN, or by a non-nuclear shipyard, such as the
Ingalls shipyard at Pascagoula, MS, that forms part of Northrop
Grumman Ship Systems (NGSS). Ingalls has been associated with
past proposals for building non-nuclear-powered submarines for
export to foreign countries. If AIP submarines were procured in lieu
of nuclear-powered submarines, that could reduce the total amount
of work available to U.S. naval nuclear propulsion component
manufacturers, many of whom are sustained by the work provided
by the Navy’s nuclear submarine and aircraft carrier programs.
! Aircraft carriers. NGNN is the only U.S. yard that can build large
nuclear-powered carriers (and the only yard that could readily build
large conventionally powered carriers). A medium-sized,
conventionally powered carrier based on the LHA(R) design could
be built by NGNN or by another yard, such as Ingalls, the builder of
previous ships similar to the LHA(R). A medium-sized,
conventionally powered carrier based on a merchant-like hull could
be built by NGNN, Ingalls, or other shipyards, particularly those
with experience building merchant-like hulls, such as the Avondale
shipyard near New Orleans that also forms part of NGSS or General
Dynamics’ National Steel and Shipbuilding Company
(GD/NASSCO) of San Diego, CA. A small, high-speed carrier
using an SES/catamaran hull design might be built at a number of
yards, particularly any that might have experience building
SES/catamaran hulls. If conventionally powered carriers were
procured in lieu of nuclear-powered carriers, that could reduce the
total amount of work available to U.S. naval nuclear propulsion
component manufacturers, many of whom are sustained by the work
provided by the Navy’s nuclear submarine and aircraft carrier
programs. In terms of the amount of work provided to these
manufacturers, a carrier nuclear propulsion plant is considered
roughly equivalent to five submarine nuclear propulsion plants.

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CRS-26
! Larger surface combatants. DD(X) destroyers are to be built at
NGSS (particularly Ingalls) and General Dynamics’ Bath Iron Works
(GD/BIW) of Bath, ME. A 9,000-ton SC(X), a 6,000-ton FFG(X),
or a low-cost gunfire support ship would likely be built at one or
both of the same yards, but could also be built at other yards, such
as Avondale or NGNN. If built at both NGSS and GD/BIW, the
division of work between the two yards might not be the same as
would occur under the DD(X) program.
! Smaller surface combatants. One version of the LCS is to be built
at Marinette Marine of Marinette, WI, and Bollinger Shipyards of
Louisiana and Texas. The other version is to be built at the Austal
USA shipyard at Mobile, AL. A 1000- or 100-ton surface combatant
could be built at either of these yards or at other yards, particularly
yards that focus on building smaller ships.
Legislative Activity
H.R. 1815/S. 1042 (FY2006 Defense Authorization Bill)
H.R. 1815. H.R. 1815 as reported by the House Armed Services Committee
(H.Rept. 109-89) contains several provisions intended to address the issue of rising
Navy ship procurement costs:
! Section 121 limits the procurement costs of the five Virginia (SSN-
774) class submarines being procured under a multiyear procurement
(MYP) arrangement covering the five years FY2004-FY2008 to the
costs for these ships that are shown in the FY2006 budget
submission.
! Section 122 limits the procurement cost of the amphibious assault
ship LHA(R), which is to be procured in FY2007, to $2.0 billion, or
about $700 million less than the ship’s estimated cost in the FY2006
budget submission.
! Section 123 limits the cost of future destroyer-type surface
combatants to $1.7 billion per ship, and directs the Navy to develop
an acquisition plan for a future destroyer-type ship that would use
technologies now intended for the Navy’s planned DD(X) destroyer
and CG(X) cruiser, be at least as capable as the Navy’s current Aegis
(DDG-51 class) destroyers, and be ready for lead-ship procurement
not later than FY2011. The estimated cost of the lead DD(X)
destroyer is $3.3 billion, and the Navy proposes procuring the ship
in FY2007. The estimated cost of the lead CG(X) cruiser is $3.2
billion, and the Navy proposes procuring the ship in FY2011. The
DD(X) or CG(X) design likely could not be built for $1.7 billion,
unless much or all of the ships’ planned combat-related equipment
is removed. This provision would effectively restructure the

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CRS-27
DD(X)/CG(X) effort into a program aimed at developing and
acquiring a new surface combatant that is smaller and less expensive
than the DD(X).
! Section 124 limits the cost of each Littoral Combat Ship (LCS),
including its modular mission packages, to $400 million, which is
about the average cost for each LCS and its modular mission
packages as shown in the latter years of the FY2006-FY2011 Future
Years Defense Plan (FYDP).
! Section 217 directs the Navy to carry out a program for developing
and designing a new class of nuclear-powered submarine that would
be at least as capable as the Virginia (SSN-774) class design, but
cost “dramatically” less. The lead boat of this design is to be ready
for procurement in FY2014.
! Section 225 creates a new program for U.S. shipyards aimed in part
at improving the efficiency and cost-effectiveness of the construction
of Navy ships.
H.Rept 109-89 states:
The committee is deeply concerned with the skyrocketing costs of weapon
systems that cannot be explained by inflation or by reduced economies of scale.
In many instances, these increases result from the addition of costly, and often
unneeded, requirements to the Department’s most expensive platforms. To affect
the changes proposed in this bill, both the Department and Congress must accept
that current DOD acquisition culture and processes are no longer affordable....
The committee is particularly concerned by the Navy’s rising shipbuilding
costs and by recent statements from the Navy’s officials that they are uncertain
about what to do about the problem. With an annual shipbuilding budget of
approximately $10.0 billion, the committee is concerned with the amount of
capability and military presence that can be maintained with new weapons
systems. For example, the proposed Future Major Surface Combatant (DD(X)),
has price estimates of over $3.0 billion per ship. The committee is also
concerned with the effect the Navy’s procurement strategy will have on the
shipbuilding industrial base. These rising costs threaten to undermine the Navy’s
shipbuilding program, putting future naval capabilities in jeopardy. This year,
the committee asks the fundamental question of how the Navy’s appetite for
“mega-ships” will affect the industrial base and sustain production rates
necessary to deploy an operational fleet of sufficient size to meet global
commitments. The committee believes that early designs for many platforms
successfully addressed the missions of the global war on terrorism by being light,
agile and cost-effective. However, the committee notes with dismay that costly
features redundantly supported by other platforms and systems are now
contributing to spiraling program costs. (Pages 11-12.)
The report also states:

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CRS-28
The committee is greatly concerned about the dramatic increase in Navy
shipbuilding costs, the viability of the Navy’s future force structure, and the
ambiguity and volatility in the Navy’s shipbuilding plans.
The spiraling growth in the costs of modern military systems has reached
a point where it directly places at risk the ability of the United States to field
weapons platforms in sufficient numbers to support U.S. military strategy and
national security requirements. Nowhere, is this risk more apparent than in naval
shipbuilding. Admiral Vern Clark, Chief of Naval Operations, when testifying
before the committee on the fiscal year 2006 budget request for the Department
of the Navy stated, “As we seek greater combat capability and greater operational
efficiencies through upgraded power, propulsion, and computing technologies,
we find a ratio of cost growth beyond our seeming control, which may not be
fully explainable solely by reduced economies of scale.” The committee agrees
that general inflation, raw material cost increases, and reduced overhead
absorption due to shipbuilding rate decreases cannot fully explain the dramatic
increase in shipbuilding costs.
Admiral Clark, in his posture statement before the House Committee on
Appropriations, Subcommittee on Defense stated, “We need to partner with
Congress and industry to regain our buying power. Acquisition and budget
reforms, such as multi-year procurement, economic order quantity, and other
approaches help to stabilize the production path, and in our view, reduce the per
unit cost of ships and increase our shipbuilding rate.” The committee does not
agree that creative financing methodologies that delay recognizing the true cost
of shipbuilding or that provide ever-increasing amounts of funding to cover the
explosion in ship costs are responsible actions. Incremental funding, advanced
procurement, multiyear procurement, and various creative shipyard work
allocation arrangements have failed to control the cost growth of vessel classes
such as the Virginia class submarine, the replacement amphibious assault ship
(LHA(R)), the future major surface combatant ship (DD(X)), and the future
aircraft carrier CVN — 21.
The committee believes the lack of discipline in both the requirements
development process and the systems design and demonstration phase process
are the largest contributors to the spiraling cost growth in naval vessels. The
capabilities defined in the requirements development process must be
constrained by an appropriate amount of overmatch capability, acknowledgement
that some missions may be better served by other platforms in the joint battle
space and by costs that permit the continued deployment of sufficient naval force
structure. With the cost of a destroyer having potentially grown to be greater
than 50 percent of the cost of the Nimitz class aircraft carrier, this class of new
ships is simply not affordable. Further, the latest reports indicate that the CVN
— 21 aircraft carrier may cost as much as $13.0 billion.
The committee supports increased funding for naval shipbuilding.
However, the committee recognizes that fiscal constraints will not permit the
continued funding of dramatically more expensive vessels that will only further
reduce force structure of the fleet and expedite the atrophy of our shipbuilding
capability. Accordingly, the committee has included in this Act provisions that
constrain the unit cost of the Virginia class submarine, the DD(X), the Littoral
Combat Ship (LCS), and the LHA(R). Further, these provisions are intended to
force the Navy to assess the trade-off between military requirements and
affordability and to stabilize ship designs prior to construction. In the interim,

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CRS-29
the committee recommends that the construction of two additional Arleigh Burke
class (DDG — 51) destroyers be authorized with funds, in part, from the cost
savings derived from the aforementioned alterations to the DD(X) program.
(Pages 63-64.)
S. 1042. In its report (S.Rept. 109-69) on S. 1042, the Senate Armed Services
Committee states:
The committee is particularly concerned about the state of the current
shipbuilding program. The committee does not believe that the current or
projected level of funding for shipbuilding is adequate to build the numbers of
ships that will allow the Navy to perform its global missions or to sustain an
increasingly fragile industrial base. The founding fathers were specific in the
United States Constitution that it is the duty of Congress to “maintain” a Navy.
They had the foresight to realize that a Navy cannot be quickly constituted, or
reconstituted. That is as true today as it was over two centuries ago. If the
United States is to remain a global power, it must have a global presence. As a
maritime nation, that presence is often displayed in the form of naval ships, not
only through ensuring open sea lines of communication and trade in international
waters, but also through the inherently diplomatic mission of visiting foreign
ports and “showing the flag”.
The Navy currently has only 288 ships in the fleet. This is the smallest
number of ships in the Navy since before the start of the Second World War. It
is true that these ships possess capabilities far greater than those of the past, but
global presence demands sufficient numbers of ships as well as the capabilities
possessed by those ships.
Numerous officials have testified before this committee that shipbuilding
must become a subject of national debate. They have testified that the
Department of Defense, the Congress, and the shipbuilders need to engage in this
debate. Low shipbuilding rates have resulted in increased costs for ships, as
recently documented by the Government Accountability Office. These increased
costs have translated into even lower shipbuilding rates. The committee believes
this downward spiral needs to be reversed. To accomplish this, the committee
believes that significantly higher funding is required in the shipbuilding budget.
That funding must be stable, and some degree of flexibility is required in the
funding mechanisms for shipbuilding to allow for efficient management while
visibility remains to allow for sufficient oversight.
The committee believes that the shipbuilding budget must be reviewed by
the administration as a matter of the utmost urgency in the coming year. The
committee recommends that the President consider establishing a special
shipbuilding fund, which would be funded apart from the normal give and take
within the Department of Defense budget process, to dedicate a sustained amount
of funding for the construction of naval ships. The Congressional Budget Office
estimates, based on testimony before the committee, that the amount of funding
necessary to maintain a Navy of appropriate size and capability to deter any
potential adversaries and meet U.S. global commitments is at least $15.0 billion
a year, and that it needs to be sustained at that level for a period of 10 to 15
years. (Pages 6-7.)
The section of the report discussing line items in the Navy’s research and
development account (which are called program elements, or PEs) states:

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CRS-30
The budget request included no funding in PE [program element] 78730N
for maritime technology. In recent years, funding provided by this line was used
for the national shipbuilding research program — advanced shipbuilding
enterprise (NSRP-ASE). This enterprise is a collaborative effort between the
Navy and industry, which has yielded new processes and techniques that reduce
the cost of building and repairing ships. The program has already documented a
positive return on investment.
Section 242 of the Ronald W. Reagan National Defense Authorization Act
for Fiscal Year 2005 (Public Law 108-375) expressed the sense of the Congress
that the Secretary of Defense should continue to fund this program at a sustaining
level. With a shrinking industrial base for shipbuilding already driving higher
costs, this type of initiative is essential to providing efficiencies. The committee
believes it is shortsighted not to invest in improved processes that would reduce
the cost of shipbuilding. The committee recommends an increase of $10.0
million in PE 78730N for the NSRP-ASE. (Pages 179-180.)

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CRS-31
Appendix A: Other Options for Responding To
Rising Ship Costs
Aside from reducing planned ship procurement rates or shifting or shifting to
lower-cost ship designs, one option for responding to rising Navy ship procurement
costs would be to increase annual ship-procurement funding.40 Increasing annual
ship-procurement funding substantially from current levels, however, may not be
easy. In a situation of finite defense funding, increasing funding for Navy ship
procurement could require reducing funding for other Navy or DOD priorities. The
Navy has worked in recent years to operate more efficiently on a day-to-day basis so
that the resulting savings could be applied to Navy procurement programs. In
practice, however, savings from these efficiencies have been offset by rising Navy
costs in other areas, such as personnel-related costs.
A second option would be to modify the way in which new Navy ships are
funded in the budget. Possible changes that have been suggested include making
greater use of incremental funding or starting to use advance appropriations. This
option, which is examined in CRS Report RL32776,41 might marginally increase the
number of ships that could be procured for a given total amount of money. As
discussed in that report, however, it could also pose potentially significant issues
relating to Congress’ power of the purse and Congress’ responsibility for conducting
effective oversight of DOD activities.
A third option would be to make greater use in Navy ship-procurement
programs of a contracting method known as multiyear procurement (MYP). This
option, like the previous one, might marginally increase the number of ships that
could be procured for a given total amount of money. Not all Navy ship-procurement
programs, however, would meet the legal requirements for MYP,42 and making
40 The Navy estimates that roughly $12 billion to $15 billion per year in shipbuilding funds
could be required to maintain a Navy of 260 to 325 ships, which is the number of ships that
the Navy has said it might need in future years to meet operational demands. The figure of
$12 billion to $15 billion per year includes funding for construction of new ships and for
conversions of existing ships, but does not include funding for refueling nuclear-powered
ships. (Source: Telephone conversation with Navy Office of Legislative Affairs, April 14,
2005. The Navy states that this is a preliminary estimate subject to further refinement.)
CBO estimates that the Navy’s 260- and 325-ship fleet plans would require $14 billion to
$17 billion per year in constant 2005 dollars in shipbuilding funds (or $15 billion to $18
billion per year if funding for refueling nuclear-powered ships is included). Between
FY2000 and FY2005, CBO notes, annual funding for construction of new ships and
conversions of existing ships has averaged $9.5 billion in constant 2005 dollars. (Source:
Congressional Budget Office, Resource Implications of the Navy’s Interim Report on
Shipbuilding, Apr. 2005. For more on the Navy’s statement about needing a fleet of 260
to 325 ships, see CRS Report RL32665, Potential Navy Force Structure and Shipbuilding
Plans: Background and Issues for Congress, by Ronald O’Rourke.
41 CRS Report RL32776, Navy Ship Procurement: Alternative Funding Approaches —
Background and Options for Congress, by Ronald O’Rourke.
42 These requirements are set forth in 10 U.S.C. 2306b, the statute governing MYP
(continued...)

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greater use of MYP could reduce DOD’s and Congress’s flexibility to adjust
ship-procurement plans in future years to respond to changing strategic and budgetary
circumstances.43
A fourth option would be to change the acquisition strategy for building certain
Navy ships. For example, changing from the current strategy of building each
Virginia (SSN-774) class attack submarine jointly by two yards to a strategy of using
a single yard to build all Virginia-class boats might eventually reduce the cost of each
boat by roughly $60 million to $180 million.44 As another example, the Navy
estimates that changing from the currently planned strategy of dividing DD(X)
destroyers evenly between two yards to a strategy of having all DD(X)s built by a
single yard could reduce the cost for building 10 DD(X)s by a total of $3 billion, or
an average of $300 million per ship.45 In either case, however, shifting to a single-
yard acquisition strategy could cause the second yard to permanently exit the business
of building that kind of ship. That could leave the Navy with a single source for
building that kind of ship, which could prevent the Navy in the future from using
competition or benchmarking46 to spur design innovation, constrain costs, maintain
production quality, and ensure adherence to scheduled delivery dates.
A fifth option would be to take steps to reduce the amount of shipyard fixed
overhead costs that are incorporated into the procurement costs of Navy ships. This
could be accomplished by eliminating any excess capacity among the yards building
Navy ships, which would eliminate the fixed overhead costs associated with
maintaining that capacity, or by increasing other kinds of work done by those yards,
so that this other work could absorb a greater portion of the yards’ fixed overhead
costs. Potential other forms of work include construction of ships for other U.S.
government agencies, such as the Coast Guard or the National Oceanic and
Atmospheric Administration (NOAA),47 construction of commercial ships, overhaul
and repair of Navy or other U.S. government ships, and overhaul and repair of
commercial ships.
42 (...continued)
arrangements.
43 For further discussion, see CRS Report RL32776, op. cit.
44 For further discussion, see the section entitled “Joint-Production Arrangement” in CRS
Report RL32418, Navy Attack Submarine Force-Level Goal and Procurement Rate:
Background and Issues for Congress, by Ronald O’Rourke.
45 See CRS Report RS21059, Navy DD(X) and CG(X) Programs: Background and Issues
for Congress, by Ronald O’Rourke and CRS Report RL32109, Navy DD(X), CG(X), and
LCS Ship Acquisition Programs: Oversight Issues and Options for Congress, by Ronald
O’Rourke.
46 Benchmarking, which can take place in the absence of active competition, is the process
of using one yard’s performance in building a certain kind of ship to help measure or judge
the performance of another yard in building that kind of ship.
47 For a discussion of the option of increasing procurement of new Deepwater cutters for the
Coast Guard, see CRS Report RL32109, Navy DD(X), CG(X), and LCS Ship Acquisition
Programs: Oversight Issues and Options for Congress, by Ronald O’Rourke.

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A sixth option would be to improve the operating efficiency of yards building
Navy ships by incorporating more advanced design and production processes and
equipment. The National Shipbuilding Research Program (NSRP) Advanced
Shipbuilding Enterprise (ASE) is one effort aimed at this goal.48
A seventh option would be to build Navy ships without some of their planned
equipment (or with less expensive substitute equipment). This option has been
proposed as a way to reduce the cost of the first few DD(X) destroyers.49 Building
a ship without some of its planned equipment (or with less expensive substitute
equipment) would likely reduce its capabilities. Equipment not installed during the
original construction process could be added back later, after the ship had entered
service. This would restore the ship’s lost capability but add back the cost of this
equipment, in which case the ship’s procurement cost, instead of being reduced,
would have been partially deferred into the future. Installing this equipment on an
in-service ship, moreover, may be more expensive than building it into the ship
during its original construction process. As a consequence, this strategy over the
long run could increase the procurement total cost of the ship above what it would
have been if the ship had been built from the beginning with all its planned
equipment.
An eighth option would be to build Navy ships in foreign shipyards where
construction costs may be lower to due lower wages and material prices or other
factors. Regarding this option, 10 U.S.C. 7309 states that “no vessel to be
constructed for any of the armed forces, and no major component of the hull or
superstructure of any such vessel, may be constructed in a foreign shipyard.” The
provision permits the President to authorize exceptions when the President
determines that it is in the national security interest. In such cases, the President is
to notify Congress of the determination, and no contract may be made until the end
of the 30-day period beginning on the date on which the notice is received. The
provision also exempts inflatable boats and rigid inflatable boats. In addition to 10
U.S.C. 7309, the annual DOD appropriations act contains a provision in the section
entitled “Shipbuilding and Conversion, Navy,” stating that funds for Navy
shipbuilding are made available for the fiscal year in question provided, among other
things, “That none of the funds provided under this heading for the construction or
conversion of any naval vessel to be constructed in shipyards in the United States
shall be expended in foreign facilities for the construction of major components of
such vessel: Provided further, That none of the funds provided under this heading
shall be used for the construction of any naval vessel in foreign shipyards.
48 For more on this program, see the NSRP ASE website at [http://www.nsrp.org/].
49 See Rebecca Christie, “General Dynamics Offers Alternate Plan For New Destroyer,”
Wall Street Journal, Apr. 12, 2005.

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