Navy TAO(X) Oiler Shipbuilding Program:
Background and Issues for Congress

Ronald O'Rourke
Specialist in Naval Affairs
February 6, 2015
Congressional Research Service
7-5700
www.crs.gov
R43546


Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

Summary
The TAO(X) oiler shipbuilding program is a program to build a new class of 17 fleet oilers for the
Navy. The primary role of Navy fleet oilers is to transfer fuel to Navy surface ships that are
operating at sea, so as to extend the operating endurance of these surface ships and their
embarked aircraft. The Navy wants to procure the first TAO(X) in FY2016.
The Navy’s proposed FY2016 budget requests $674.2 million to fully fund the procurement of
the first TAO(X). The Navy is requesting this funding in its regular shipbuilding account (the
Shipbuilding and Conversion, Navy, or SCN, account), rather than in the National Defense Sealift
Fund (NDSF), a separate account in the Department of Defense (DOD) budget where DOD
sealift ships and Navy auxiliary ships have been funded.
It was reported in January 2015 that the Navy wants to bundle the competition for the TAO(X)
program with the competition for an amphibious assault ship called LHA-8 that the Navy wants
to procure in FY2017 and the competition for the LX(R) program, a program to procure a new
class of 11 amphibious ships, the first of which the Navy wants to procure in FY2020. It was also
reported that the Navy wants to limit bidding for this bundled competition to two bidders—
Ingalls Shipbuilding of Huntington Ingalls Industries (HII/Ingalls) and National Steel and
Shipbuilding Company of General Dynamics (GD/NASSCO)—on the grounds that these are the
only two shipbuilders that have the capability to build both TAO(X)s and LHA-8.
Issues for Congress for FY2016 regarding the TAO(X) program include:
• whether to approve, reject, or modify the Navy’s FY2016 request for $674.2
million for the procurement of the first TAO(X);
• whether to fund the procurement of TAO(X)s in the SCN account, as the Navy
proposes, or the NDSF; and
• whether to approve, reject, or modify the Navy’s proposal to bundle together the
TAO(X), LHA-8, and LX(R) competitions and limit bidding in the bundled
competition to HII/Ingalls and GD/NASSCO.

Congressional Research Service

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

Contents
Introduction ...................................................................................................................................... 1
Background ...................................................................................................................................... 1
Role of Navy Fleet Oilers .......................................................................................................... 1
Existing Henry J. Kaiser (TAO-187) Class Oilers ..................................................................... 3
TAO(X) Program ....................................................................................................................... 4
Program Quantity ................................................................................................................ 4
Program Schedule ............................................................................................................... 5
Program Funding ................................................................................................................. 6
Contracts for Trade Studies ................................................................................................. 6
Ship Capabilities and Design .............................................................................................. 6
January 2015 Report of Bundled Competition Limited to Two Builders ............................ 8
FY2016 Procurement Funding Request .................................................................................... 8
Issues for Congress .......................................................................................................................... 9
FY2016 Procurement Funding .................................................................................................. 9
Whether to Fund Procurement of TAO(X)s in SCN account or NDSF ................................... 10
Use of Funds ..................................................................................................................... 10
U.S. Content ...................................................................................................................... 11
Navy’s Proposal For Bundled Competition Limited to Two Builders ..................................... 12
Legislative Activity for FY2016 .................................................................................................... 12
FY2016 Budget ....................................................................................................................... 12

Figures
Figure 1. Fleet Oiler Conducting An UNREP ................................................................................. 2
Figure 2. Fleet Oiler Conducting an UNREP .................................................................................. 3
Figure 3. Fleet Oiler Conducting an UNREP .................................................................................. 4
Figure 4. Henry J. Kaiser (TAO-187) Class Fleet Oiler .................................................................. 5

Tables
Table 1. TAO(X) Program Procurement Funding ............................................................................ 6

Contacts
Author Contact Information........................................................................................................... 13

Congressional Research Service

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

Introduction
This report provides background information and issues for Congress on the TAO(X) oiler
shipbuilding program, a program to build a new class of 17 fleet oilers for the Navy. The Navy
wants to procure the first TAO(X) in FY2016. The Navy’s proposed FY2016 budget requests
$674.2 million to fully fund the procurement of the first TAO(X).
Issues for Congress for FY2016 regarding the TAO(X) program include whether to approve,
reject, or modify the Navy’s FY2016 request for $674.2 million for the procurement of the first
TAO(X); whether to fund the procurement of TAO(X)s in the Shipbuilding and Conversion, Navy
(SCN) account, as the Navy proposes, or in the National Defense Sealift Fund (NDSF); and
whether to approve, reject, or modify the Navy’s proposal to bundle the competition for the
TAO(X) with competitions for two amphibious shipbuilding programs and limit bidding in the
bundled competition to Ingalls Shipbuilding of Huntington Ingalls Industries (HII/Ingalls) and
National Steel and Shipbuilding Company of General Dynamics (GD/NASSCO).
Decisions that Congress makes regarding the program could affect Navy capabilities and funding
requirements and the U.S. shipbuilding industrial base.
Background
Role of Navy Fleet Oilers
The primary role of Navy fleet oilers is to transfer fuel to Navy surface ships that are operating at
sea, so as to extend the operating endurance of these surface ships and their embarked aircraft.
Fleet oilers also provide other surface ships with lubricants, fresh water, and small amounts of dry
cargo. Fleet oilers transfer fuel and other supplies to other surface ships in operations called
underway replenishments (UNREPs). During an UNREP, an oiler steams next to the receiving
ship and transfers fuel by hose (see Figure 1, Figure 2, and Figure 3).1
Oilers are one kind of Navy UNREP ship; other Navy UNREP ships include ammunition ships,
dry cargo ships, and multiproduct replenishment ships. The Navy’s UNREP ships are known

1 The Navy states that
A typical connected replenishment starts when a warship makes an “approach” on a CLF ship. The
CLF ship maintains steady course and speed while the “customer ship” approaches and comes
alongside the CLF ship, matching course and speed. The distance between the two ships is usually
between 120-200 feet. The CLF ship then passes heavy metal wires, to the customer ship, that are
connected at the replenishment stations. These wires are placed under tension to support fuel hoses
for refueling operations or trolleys that move pallets of provisions, ammunition, or other cargo from
ship to ship. Ships with flight decks can also receive provisions and ammunition via vertical
replenishment. During this evolution a helicopter transfers cargo in external sling loads, or in the
case of mail or passengers, inside the helicopter.
(Statement of Mr. F. Scott DiLisio, Director, Strategic Mobility / Combat Logistics Division,
Office of the Chief of Naval Operations, on the Logistics and Sealift Force Requirements and Force
Structure Assessment Before the House Armed Services Committee Seapower and Projection
Forces Subcommittee, July 30, 2014, p. 3.)
Congressional Research Service
1


Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

more formally as the Navy’s combat logistics force (CLF). Most of the Navy’s CLF ships are
operated by MSC.
Navy oilers carry the designation TAO (sometimes written as T-AO). The T means that the ships
are operated by the Military Sealift Command (MSC) with a mostly-civilian crew; the A means it
is an auxiliary ship of some kind; and the O means that it is, specifically, an oiler.
Figure 1. Fleet Oiler Conducting An UNREP

Source: Navy photo accessed May 5, 2014, at http://www.navy.mil/view_image.asp?id=163895. The Navy states
that the photo is dated October 24, 2013, and shows the oiler Tippecanoe (TAO-199) extending its fuel probe to
the Aegis cruiser USS Antietam (CG-54), a part of the George Washington (CVN-73) Carrier Strike Group, in
the South China Sea.
Although the role of fleet oilers might not be considered as glamorous as that of other Navy ships,
fleet oilers are critical to the Navy’s ability to operate in forward-deployed areas around the world
on a sustained basis. The U.S. Navy’s ability to perform UNREP operations in a safe and efficient
manner on a routine basis is a skill that many other navies lack. An absence of fleet oilers would
significantly complicate the Navy’s ability to operate at sea on a sustained basis in areas such as
the Western Pacific or the Indian Ocean/Persian Gulf region. The Navy states that
the ability to rearm, refuel and re-provision our ships at sea, independent of any restrictions
placed on it by a foreign country, is critical to the Navy’s ability to project warfighting
power from the sea.
As the lifeline of resupply to Navy operating forces underway, the ships of the Navy’s
Combat Logistic Force (CLF) enable Carrier Strike Groups and Amphibious Ready Groups
Congressional Research Service
2


Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

to operate forward and remain on station during peacetime and war, with minimal reliance on
host nation support.2

Figure 2. Fleet Oiler Conducting an UNREP

Source: Navy photo accessed May 5, 2014, at http://www.navy.mil/view_image.asp?id=61415. The Navy states
that the photo is dated July 13, 2008, and shows the oiler Leroy Grumman (TAO-195) refueling the frigate
Underwood (FFG-36) during an exercise with the Iwo Jima (LHD-7) Expeditionary Strike Group in the Atlantic
Ocean.
Existing Henry J. Kaiser (TAO-187) Class Oilers
The Navy’s existing force of fleet oilers consists of 15 Henry J. Kaiser (TAO-187) class ships
(Figure 4).3 These ships were procured between FY1982 and FY1989 and entered service
between 1986 and 1996. They have an expected service life of 35 years; the first ship in the class
will reach that age in 2021. The ships are about 677 feet long and have a full load displacement of
about 41,000 tons, including about 26,500 tons of fuel and other cargo. The ships were built by
Avondale Shipyards of New Orleans, LA, a shipyard that eventually became part of the

2 Statement of Mr. F. Scott DiLisio, Director, Strategic Mobility / Combat Logistics Division, Office of the Chief of
Naval Operations, on the Logistics and Sealift Force Requirements and Force Structure Assessment Before the House
Armed Services Committee Seapower and Projection Forces Subcommittee, July 30, 2014, pp. 2-3.
3 The oilers shown in Figure 1, Figure 2, and Figure 3 are also Kaiser-class class oilers.
Congressional Research Service
3


Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

shipbuilding firm Huntington Ingalls Industries (HII). HII is currently winding down Navy
shipbuilding operations at Avondale and plans to have Avondale exit the Navy shipbuilding
business. (HII continues to operate two other shipyards that build Navy ships.)

Figure 3. Fleet Oiler Conducting an UNREP

Source: Navy photo accessed May 5, 2014, at http://www.navy.mil/view_image.asp?id=1737. The Navy states
that the photo is dated June 19, 2002, and shows the oiler Walter S. Diehl (TAO-193), at center, conducting
simultaneous UNREPs with the aircraft carrier John F. Kennedy (CV-67) and the Aegis destroyer Hopper (DDG-
70). CV-67, a conventional y powered carrier, has since retired from the Navy, and al of the Navy’s aircraft
carriers today are nuclear powered. Even so, Navy oilers continue to conduct UNREPs with Navy aircraft
carriers to provide fuel for the carriers’ embarked air wings.
TAO(X) Program
Program Quantity
The Navy envisages building 17 new TAO(X) oilers as replacements for the 15 Kaiser-class
ships. In the designation TAO(X), the (X) means that the exact design of the ship has not yet been
determined. The figure of 17 TAO(X)s was determined as part of a Force Structure Analysis
(FSA) that the Navy completed in 2012 and presented to Congress in 2013. This FSA established
a goal of achieving and maintaining a future Navy fleet of 306 battle force ships of various kinds,
including 17 oilers.4 The required number of oilers largely depends on the numbers and types of

4 For more on the Navy’s 306-ship plan, see CRS Report RL32665, Navy Force Structure and Shipbuilding Plans:
(continued...)
Congressional Research Service
4


Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

other surface ships (and their embarked aircraft) to be refueled, and the projected operational
patterns for these ships and aircraft.
Figure 4. Henry J. Kaiser (TAO-187) Class Fleet Oiler

Source: U.S. Navy image accessed April 14, 2014, at http://www.navy.mil/management/photodb/photos/130703-
N-TG831-240.jpg. (The oilers shown in Figure 1, Figure 2, and Figure 3 are also Kaiser-class class oilers.)
Program Schedule
The Navy wants to procure the first TAO(X) in FY2016 and the remaining 16 ships at a rate of
one per year during the period FY2018-FY2033.5 If this procurement schedule were
implemented, the Navy projects that the lead ship would enter service in FY2020 and that the
remaining ships would enter service at a rate of one per year during the period FY2021-FY2036.

(...continued)
Background and Issues for Congress, by Ronald O'Rourke.
5 The “gap” year in FY2017 is intended to give the Navy and the shipbuilder time to correct problems in the ship’s
design that are discovered in the process of building the first ship in the class, before those problems are built into
succeeding ships in the class. Inserting a gap year between the first and second ships is a common practice in Navy
shipbuilding programs.
Congressional Research Service
5

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

Program Funding
Table 1 shows procurement funding for the TAO(X) program under the Navy’s proposed FY2016
budget. The funding is located in the Navy’s regular shipbuilding account, called the Shipbuilding
and Conversion, Navy (SCN) account.
Table 1. TAO(X) Program Procurement Funding
(Millions of dollars, rounded to nearest tenth)
FY16
FY17
FY18
FY19
FY20
FY15
(req.)
(proj.)
(proj.)
(proj.)
(proj.)
Procurement funding
0
674.2
0
576.8
579.2
590.6
Procurement
quantity 0 1 0 1 1 1
Source: Navy FY2016 budget submission.
The estimated procurement cost of the lead ship includes detailed design/non-recurring
engineering (DD/NRE) costs for the class. This one-time cost accounts for most of the difference
in estimated procurement cost between the first ship and the follow-on ships. Incorporating most
or all of the DD/NRE cost for a class of ship into the procurement cost of the lead ship in the
class is a traditional budgeting practice for Navy shipbuilding programs.
Contracts for Trade Studies
On July 3, 2013, the Navy awarded three shipbuilding firms—General Dynamics’ National Steel
and Shipbuilding Company (GD/NASSCO) of San Diego, CA; HII’s Ingalls Shipbuilding
Division (HII/Ingalls) of Pascagoula, MS; and VT Halter Marine (VTHM) of Pascagoula, MS—
contracts of $1.7 million each to conduct eight-month design trade-off studies for the TAO(X).6
The studies informed Navy deliberations regarding the capabilities and cost of the TAO(X).
Ship Capabilities and Design
Although the design of the TAO(X) has not yet been determined in detail, the Navy anticipates
that the ship will have capabilities similar to those of the Kaiser-class ships, and that the TAO(X)
will rely on existing technologies rather than new technologies. To guard against oil spills,
TAO(X)s are to be double-hulled, like modern commercial oil tankers, with a space between the
two hulls to protect the inner hull against events that puncture the outer hull. (The final Kaiser-
class ships were double-hulled, but earlier ships in the class were single-hulled.)
At an April 24, 2013, hearing on Navy and Air Force acquisition before the Seapower and
Projection Forces subcommittee of the House Armed Services Committee, Sean Stackley, the
Assistant Secretary of the Navy for Research, Development, and Acquisition (i.e., the Navy’s
acquisition executive), testified that

6 See, for example, Megan Eckstein, “Navy Awards Three Trade-Off Industry Study Contracts For T-AO(X) Oilers,”
Inside the Navy, July 8, 2013.
Congressional Research Service
6

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

we’re doing design studies leading up to the ultimate competition for procurement in 2016.
We are, in fact, doing everything we can to just leverage mature technologies.
There is no invention or breakthrough required for TAOX. We want to leverage commercial
design to the extent practical, and we’re working through those details right now, inside the
building [i.e., the Pentagon], inside the process and with industry.7
A July 15, 2013, press report quoted Frank McCarthy, the Navy’s program manager for support
ships, boats, and craft, as stating that
We know the [TAO(X)’s] basic capacities, the size, the relative speed, how much dry cargo
we're going to hold, and whether it’s going to be aircraft-capable or not, and how capable it’s
going to be.... So we do know those things, and we have tons of lessons learned from the T-
AO-187 program and the [Lewis and Clark class] T-AKE [dry cargo ship] program because
it’s a similar mission ship in terms of being a shuttle [i.e., UNREP] ship. We’ve taken all
those lessons learned and rolled them into the system specification, and we've involved our
operators and users at Military Sealift Command to help inform the system specification.
The press report stated that the TAO(X) would have capabilities similar to the Kaiser-class ships,
but that compared to the Kaiser-class design, the TAO(X) will have increased space for dry cargo,
as well as a refueling capability for helicopters on its deck.8
At an April 10, 2014, hearing on Navy shipbuilding programs before the Seapower subcommittee
of the Senate Armed Services Committee, the Navy testified that
Research and development efforts continue as the Navy matures its concept for the
replacement of the KAISER Class (T-AO 187) of Fleet Replenishment Oilers. The new
replacement oilers, currently designated as T-AO(X), will be double-hulled and meet Oil
Pollution Act 1990 and International Marine Pollution Regulations. Similar to the LHA(R)
and LX(R) [amphibious ship acquisition] programs, T-AO(X) benefitted from early industry
engagement in terms of cost/capability trade-off studies that will help to refine the ship
specifications.9
At a July 30, 2014, hearing on logistics and sealift ships before the Seapower and Projection
Forces subcommittee of the House Armed Services Committee, the Navy stated:
Basically, we did a complete study of the current oiler base, [the] Kaiser class, to determine
what pieces of the Kaiser class gave us our acceptable requirement set. We took the Kaiser
class, [and] increased—increased some of the freeze chill [cargo-carrying] portions. [We]
Increased the lift so we could handle a heavier lift. [We] Readdressed speed requirements so
we have a ray [sic: an array] of different speed requirements that we went and looked at,
which would bring you [i.e., imply] different propulsion sets.

7 Transcript of hearing.
8 Megan Eckstein, “TAO(X) Leverages Lessons From Recent Ship Classes, Uses Existing Tech,” Inside the Navy, July
15, 2013.
9 Statement of The Honorable Sean J. Stackley, Assistant Secretary of the Navy (Research, Development and
Acquisition) and Vice Admiral Joseph P. Mulloy, Deputy Chief of Naval Operations for Integration of Capabilities and
Resources and Vice Admiral William H. Hilardes, Commander, Naval Sea Systems Command, Before the
Subcommittee on Seapower of the Senate Armed Services Committee on Department of the Navy Shipbuilding
Programs, April 10, 2014, p. 16.
Congressional Research Service
7

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

So—so, basically, we're looking at what is does a carrier need to take oil? And provisions—
what does the rest of the [carrier] strike group need? So, you get a strike group answer, you
get an ARG answer, and then you get a—basically, a rest of the strike group answer. So, we
were looking [at] kind of a middle of the road [approach]. We have a very good class of
ships right now in the Kaiser class. So, we didn't have to go too far from the Kaiser class
[design] to get to something that we liked [for the TAO-X requirements].
Then we want to use the—the competition in the industry to take us the rest of the way with
some interesting ideas on how to manage energy, get the O&S [operation and support] costs
down, and—and see if we can get the number of mariners [needed to operate the ship] down,
as well.
So—so, basically, we're pretty happy with our current [Kaiser-class] oiler. What we're
looking for is something new. Something as fast as we could get it, that could do multi-
product [replenishment work], and continue the workforce development that we currently
enjoy.10
January 2015 Report of Bundled Competition Limited to Two Builders
It was reported in January 2015 that the Navy wants to bundle the competition for the TAO(X)
program with the competition for an amphibious assault ship called LHA-8 that the Navy wants
to procure in FY2017 and the competition for the LX(R) program, a program to procure a new
class of 11 amphibious ships, the first of which the Navy wants to procure in FY2020. It was also
reported that the Navy wants to limit bidding for this bundled competition to two bidders—
Ingalls Shipbuilding of Huntington Ingalls Industries (HII/Ingalls) and National Steel and
Shipbuilding Company of General Dynamics (GD/NASSCO)—on the grounds that these are the
only two shipbuilders that have the capability to build both TAO(X)s and LHA-8.11
FY2016 Procurement Funding Request
The Navy’s proposed FY2016 budget requests $674.2 million in procurement funding for the
procurement of the first TAO(X). The Navy is requesting this funding in the Navy’s regular
shipbuilding account, called the Shipbuilding and Conversion, Navy (SCN) account, rather than
in the National Defense Sealift Fund (NDSF), an account in DOD’s budget that has been used in
recent years for funding the construction of new DOD sealift ships and Navy auxiliary ships.
The Navy states that it is requesting procurement funding for TAO(X)s in the SCN account rather
than in the NDSF because the Navy judged that it has received a signal from Congress that
Congress wants to fund the procurement of TAO(X)s in the SCN account rather than the NDSF.12
The Navy states that there were three components to this perceived signal:

10 Spoken remarks of F. Scott DiLisio, Director, Strategic Mobility / Combat Logistics Division, Office of the Chief of
Naval Operations, during the question-and-answer portion of hearing, as shown in transcript of hearing.
11 See Christopher P. Cavas, “Bidding for new Oiler, Amphibs to be Bundled,” Defense News, January 30, 2015; and
Lara Seligman, “Ingalls, NASSCO Will Compete For Single Contract For New Amphibs, Oiler,” Inside the Navy,
January 30, 2015 (with additional reporting by Lee Hudson).
12 Source for this discussion: Verbal explanation provided by Navy officials to CRS following the Department of the
Navy’s FY2016 budget rollout briefing for the House Armed Services Committee on February 6, 2015, which CRS
attended.
Congressional Research Service
8

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

• Congress’ decision to fund research and development work for the TAO(X)
program not in the NDSF account, as the Navy had requested, but in the Navy’s
regular research and development account;
• Senate Appropriations Committee report language on the FY2015 DOD
Appropriations Act;13 and
• Bill language in the enacted FY2015 DOD Appropriations Act.14
Issues for Congress
The Navy’s proposals for the TAO(X) program raise certain issues for Congress for FY2016,
including those discussed below.
FY2016 Procurement Funding
One issue for Congress is whether to approve, reject, or modify the Navy’s FY2016 request for
$674.2 million for the procurement of the first TAO(X). Decisions on this issue could depend in

13 S.Rept. 113-211 of July 17, 2014 on the FY2015 DOD Appropriations Act (H.R. 4870) stated (emboldening added
for emphasis:
National Defense Sealift Fund [NDSF].—In the fiscal year 2015 budget request, the Navy proposes
the elimination of the National Defense Sealift Fund [NDSF], which was established in fiscal year
1993 to address shortfalls in U.S. sealift capabilities. While the Committee has lingering concerns
over some previous application of NDSF funds, the Committee sees no reason to eliminate the
NDSF in its entirety. Therefore, the Committee recommends retaining the NDSF and transferring
funds included in the Shipbuilding and Conversion, Navy; Research, Development, Test and
Evaluation, Navy; and Operation and Maintenance, Navy accounts for functions previously funded
in the NDSF back into the NDSF. The Committee directs that none of these funds may be used
for the development or acquisition of ships.
(Page 245.)
14 The paragraph in the enacted FY2015 DOD appropriations act (Division C of H.R. 83/P.L. 113-235 of December 16,
2014) that appropriates funding for the NDSF included a newly added proviso, shown below in bold:
For National Defense Sealift Fund programs, projects, and activities, and for expenses of the
National Defense Reserve Fleet, as established by section 11 of the Merchant Ship Sales Act of
1946 (50 U.S.C. App. 1744), and for the necessary expenses to maintain and preserve a U.S.-flag
merchant fleet to serve the national security needs of the United States, $485,012,000, to remain
available until expended: Provided, That none of the funds provided in this paragraph shall be used
to award a new contract that provides for the acquisition of any of the following major components
unless such components are manufactured in the United States: auxiliary equipment, including
pumps, for all shipboard services; propulsion system components (engines, reduction gears, and
propellers); shipboard cranes; and spreaders for shipboard cranes: Provided further, That the
exercise of an option in a contract awarded through the obligation of previously appropriated funds
shall not be considered to be the award of a new contract: Provided further, That none of the
funds provided in this paragraph shall be used to award a new contract for the construction,
acquisition, or conversion of vessels, including procurement of critical, long lead time
components and designs for vessels to be constructed or converted in the future:
Provided
further
, That the Secretary of the military department responsible for such procurement may waive
the restrictions in the first proviso on a case-by-case basis by certifying in writing to the
Committees on Appropriations of the House of Representatives and the Senate that adequate
domestic supplies are not available to meet Department of Defense requirements on a timely basis
and that such an acquisition must be made in order to acquire capability for national security
purposes.
Congressional Research Service
9

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

part on assessments as to whether the Navy has accurately estimated the procurement cost of the
first TAO(X).
Whether to Fund Procurement of TAO(X)s in SCN account or NDSF
A second issue for Congress is whether to fund the procurement of TAO(X)s in the Navy’s
regular shipbuilding account, called the Shipbuilding and Conversion, Navy (SCN) account, or in
the National Defense Sealift Fund (NDSF), an account in DOD’s budget that has been used in
recent years for funding the construction of new DOD sealift ships and Navy auxiliary ships. As
noted above, the Navy’s FY2016 budget submission proposes funding the procurement of the
ships in the SCN account.
The NDSF was established by the FY1993 Defense Authorization Act, as amended by the
FY1993 Defense Appropriations Act, to fund the construction of Department of Defense (DOD)
sealift ships.15 The provision in the U.S. Code governing the NDSF (10 U.S.C. 2218) was
amended in 1999 to, among other things, permit the NDSF to also be used for the construction of
CLF ships and other auxiliary support ships.16 Consistent with congressional views expressed in
committee reports on the FY2001 Defense Authorization Bill, the NDSF since FY2003 has been
used to fund the construction of Navy auxiliaries.17 The NDSF was established and later amended
in large part so that DOD sealift ships and Navy auxiliary ships would not have to compete
directly against Navy combat ships for finite shipbuilding funds in the SCN account.
In considering whether to fund the procurement of TAO(X)s in the SCN account of the NDSF,
issues that Congress may consider include differences in how shipbuilding funds in the two
accounts may be used, and differences in U.S. content requirements for ships funded through the
two accounts.
Use of Funds
The NDSF is located in a part of the DOD budget that is outside the procurement title of the
annual DOD appropriations act. Consequently, ships whose construction is funded through the

15 Section 1024 of the FY1993 Defense Authorization Act (H.R. 5006/P.L. 102-484 of October 23, 1992; see pages
178-181 of H.Rept. 102-966 of October 1, 1992, the conference report on the act), as amended by Title V of the
FY1993 Defense Appropriations Act (H.R. 5504/P.L. 102-396 of October 6, 1992). Although P.L. 102-396 was signed
into law before P.L. 102-484, the paragraph on the NDSF in Title V of P.L. 102-396 states: “That for purposes of this
paragraph, this Act shall be treated as having been enacted after the National Defense Authorization Act for Fiscal Year
1993 (regardless of the actual dates of enactment).”
16 Section 1014(b) of the FY2000 39 Defense Authorization Act (S. 1059/P.L. 106-65 of October 5, 1999; see pages
792-793 of H.Rept. 106-301 of August 6 (legislative day, August 5), 1999, the conference report on the act).
17 See H.Rept. 106-616 of May 12, 2000, the House Armed Services Committee report on the FY2001 Defense
Authorization Bill (H.R. 4205), page 89; S.Rept. 106-292 of May 12, 2000, the Senate Armed Services Committee
report on the FY2001 Defense Authorization Bill (S. 2549), page 93. See also H.Rept. 106-945 of October 6, 2000, the
conference report on the FY2001 Defense Authorization Act (H.R. 4205/P.L. 106-398 of October 30, 2000), page 35
(§127).
For an earlier discussion of the issue of the changing composition of the SCN account, including the transfer to the
NDSF of ships previously funded in the SCN account, see Statement of Ronald O’Rourke, Specialist in National
Defense, Congressional Research Service, before the House Armed Services Committee Subcommittee on Military
Procurement hearing on The Navy’s Proposed Shipbuilding Program for FY2003, March 20, 2002, pp. CRS-20 to
CRS-23.
Congressional Research Service
10

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

NDSF are not subject to the DOD full funding policy in the same way as are ships and other
DOD procurement programs that are funded through the procurement title of the annual DOD
appropriations act.18 In explaining the use of NDSF funding, DOD in 1995 stated:
The National Defense Sealift Fund (NDSF) is not a procurement appropriation but a
revolving fund. Dollars appropriated by Congress for the fund are not appropriated to
purchase specific hulls as in the case of, for example the Navy’s DDG-51 [destroyer]
program. Rather, dollars made available to the NDSF are executed on an oldest money first
basis. Therefore, full funding provisions as normally understood for ship acquisition do not
apply.19
For NDSF-funded ships, what this has meant is that although Congress in a given year would
nominally fund the construction of an individual ship of a certain class, the Navy in practice
could allocate that amount across multiple ships in that class. This is what happened with both the
NDSF-funded Lewis and Clark (TAKE-1) class dry cargo ships and, before that, an NDSF-funded
class of DOD sealift ships called Large, Medium-Speed Roll-on/Roll-off (LMSR) ships. In both
cases, the result was that although ships in these two programs were each nominally fully funded
in a single year, they in fact had their construction financed with funds from amounts that were
nominally appropriated in other fiscal years for other ships in the class.20
The Navy’s ability to use NDSF funds in this manner permits the Navy to, among other things,
marginally reduce the procurement cost of ships funded through the NDSF by batch-ordering
certain components of multiple ships in a shipbuilding program before some of the ships in
question are funded—something that the Navy cannot do with a shipbuilding program funded
through the SCN account unless the Navy receives approval from Congress to execute the
program through a multiyear procurement (MYP) contract.21
U.S. Content
In recent years, the paragraph in the annual DOD appropriations act that appropriates funds for
the NDSF has contained a provision that states:
Provided, That none of the funds provided in this paragraph shall be used to award a new
contract that provides for the acquisition of any of the following major components unless
such components are manufactured in the United States: auxiliary equipment, including

18 For more on the full funding policy, see CRS Report RL31404, Defense Procurement: Full Funding Policy—
Background, Issues, and Options for Congress
, by Ronald O'Rourke and Stephen Daggett.
19 DOD information paper on strategic sealift acquisition program provided to CRS by U.S. Navy Office of Legislative
Affairs, January 25, 1995, p. 1. For additional discussion, see the subsection entitled “DOD Sealift and Auxiliary Ships
in NDSF” in the Background section of CRS Report RL31404, Defense Procurement: Full Funding Policy—
Background, Issues, and Options for Congress
. For a similar discussion, see the section entitled “DOD LMSR-Type
Sealift Ships” in Appendix C to CRS Report RL32776, Navy Ship Procurement: Alternative Funding Approaches—
Background and Options for Congress
, by Ronald O'Rourke.
20 This situation can be summarized in a funding matrix of hulls vs. funding sources of the kind shown for the LMSR
program in Table 1 on page CRS-6 of CRS Report 96-257 F, Sealift (LMSR) Shipbuilding and Conversion Program:
Background and Status
, by Valerie Bailey Grasso. This report is out of print and is available from Ronald O’Rourke.
21 For more on MYP contracting, including batch-ordering of components, see CRS Report R41909, Multiyear
Procurement (MYP) and Block Buy Contracting in Defense Acquisition: Background and Issues for Congress
, by
Ronald O'Rourke and Moshe Schwartz. For programs being executed under MYP contracts, the batch orders of
components are referred to as Economic Order Quantity (EOQ) procurements.
Congressional Research Service
11

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

pumps, for all shipboard services; propulsion system components (engines, reduction gears,
and propellers); shipboard cranes; and spreaders for shipboard cranes....
The paragraph in the annual DOD appropriations act that appropriates funds for the SCN account
does not contain exactly the same provision.22 During Congress’ consideration of the Navy’s
proposed FY2015 budget (which proposed disestablishing the NDSF—a proposal that Congress
did not agree to), this led to concern among firms that manufacture the ship components listed in
the above provision, and among supporters of those firms, that disestablishing the NDSF and
shifting the execution of the TAO(X) program and other future auxiliary and sealift shipbuilding
programs from the NDSF to the SCN account would lead to the Navy possibly selecting foreign
firms rather than U.S. firms to make these components for the TAO(X) program and other future
auxiliary and sealift shipbuilding programs, unless the paragraph in the annual DOD
appropriations act that appropriates funds for the SCN account were amended to include a
provision with the same key wording as the provision in the paragraph that appropriates funds for
the NDSF.23
Navy’s Proposal For Bundled Competition Limited to Two Builders
A third issue for Congress is whether to approve, reject, or modify the Navy’s proposal to bundle
together the TAO(X), LHA-8, and LX(R) competitions and limit bidding in the bundled
competition to HII/Ingalls and GD/NASSCO. Potential matters to consider include the Navy’s
rationale for bundling the competitions (which may relate, in part at least, to achieving effective
competition in the bidding for all of the programs being bundled) and the potential impact on
various shipyards of the Navy’s proposal to limit bidding to HII/Ingalls and GD/NASSCO.
Legislative Activity for FY2016
FY2016 Budget
The Navy’s proposed FY2016 budget requests $674.2 million in procurement funding in the SCN
account for the procurement of the first TAO(X).


22 The SCN account includes a provision that states: “Provided further, 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 ... ” This provision does not
define “major components” and does not specifically mention “auxiliary equipment, including pumps, for all shipboard
services; propulsion system components (engines, reduction gears, and propellers); shipboard cranes; and spreaders for
shipboard cranes,” as does the paragraph that appropriates funds for the NDSF.
23 Lara Seligman, “Suppliers: Navy’s Plan Could Open TAO(X) Parts To Foreign Manufacturers,” Inside the Navy,
November 14, 2014; Sydney J. Freedberg Jr., “Engine Maker ‘At Risk;’ Wants Navy Help,” Breaking Defense
(
http://breakingdefense.com), November 14, 2014; Philip Ewing, “Engine Maker: Navy Should Stick With U.S.-
Made,” Politico Pro Defense, November 13, 2014.
Congressional Research Service
12

Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

Author Contact Information
Ronald O'Rourke
Specialist in Naval Affairs
rorourke@crs.loc.gov, 7-7610

Congressional Research Service
13