Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Ronald O'Rourke Specialist in Naval Affairs November 5, 2015 Congressional Research Service 7-5700 www.crs.gov RS20643 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Summary CVN-78, CVN-79, and CVN-80 are the first three ships in the Navy’s new Gerald R. Ford (CVN78) class of nuclear-powered aircraft carriers (CVNs). The Navy’s proposed FY2016 budget requests procurement or advance procurement (AP) funding for all three ships—a rare occurrence of the Navy requesting procurement or AP funding for three aircraft carriers in a single year. CVN-78 was procured in FY2008. The Navy’s proposed FY2016 budget estimates the ship’s procurement cost at $12,887.0 million (i.e., about $12.9 billion) in then-year dollars. The ship received advance procurement funding in FY2001-FY2007 and was fully funded in FY2008FY2011 using congressionally authorized four-year incremental funding. To help cover cost growth on the ship, the ship received an additional $588.1 million in FY2014 and $663.0 million in FY2015 in so-called cost-to-complete procurement funding. As a final planned increment of cost-to-complete procurement funding, the Navy is requesting $123.8 million for the ship in FY2016. The ship is scheduled for delivery to the Navy in March 2016. CVN-79 was procured in FY2013. The Navy’s proposed FY2016 budget estimates the ship’s procurement cost at $11,347.6 million (i.e., about $11.3 billion) in then-year dollars. The ship received advance procurement funding in FY2007-FY2012, and the Navy plans to fully fund the ship in FY2013-FY2018 using congressionally authorized six-year incremental funding. The Navy’s proposed FY2016 budget requests $1,634.7 million in procurement funding for the ship. The ship is scheduled for delivery to the Navy in June 2022. CVN-80 is scheduled to be procured in FY2018. The Navy’s proposed FY2016 budget estimates the ship’s procurement cost at $13,472.0 million (i.e., about $13.5 billion) in then-year dollars. The Navy plans to request AP funding for the ship in FY2016 and FY2017, and then fully fund the ship in FY2018-FY2023 using congressionally authorized six-year incremental funding. The Navy’s proposed FY2016 budget requests $874.7 million in AP funding for the ship. Oversight issues for Congress for the CVN-78 program include the following:       the potential impact on the CVN-78 program of an extended or full-year continuing resolution (CR) for FY2016; cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program’s cost caps; CVN-78 program issues that were raised in a January 2015 report from the Department of Defense’s (DOD’s) Director of Operational Test and Evaluation (DOT&E); the potential for a combined material purchase on CVN-80 and CVN-81; whether the Navy should shift at some point from procuring large-deck, nuclearpowered carriers like the CVN-78 class to procuring smaller aircraft carriers; and whether to conduct the shock trial for the CVN-78 class on the lead ship or the second ship in the program. Congressional Research Service Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Contents Introduction ..................................................................................................................................... 1 Background ..................................................................................................................................... 1 Strategic and Budgetary Context............................................................................................... 1 The Navy’s Aircraft Carrier Force ............................................................................................ 1 Statutory Requirement to Maintain Not Less Than 11 Carriers ................................................ 1 Origin of Requirement ........................................................................................................ 1 Waiver for Period Between CVN-65 and CVN-78 ............................................................. 1 Funding and Procuring Aircraft Carriers ................................................................................... 2 Some Key Terms ................................................................................................................. 2 Incremental Funding Authority for Aircraft Carriers .......................................................... 2 Aircraft Carrier Construction Industrial Base ........................................................................... 3 Gerald R. Ford (CVN-78) Class Program ................................................................................. 3 CVN-78 ............................................................................................................................... 4 CVN-79 ............................................................................................................................... 4 CVN-80 ............................................................................................................................... 4 Program Procurement Funding ........................................................................................... 5 Changes in Estimated Unit Procurement Costs Since FY2008 Budget .............................. 5 Program Procurement Cost Cap.......................................................................................... 7 Issues for Congress .......................................................................................................................... 7 Potential Impact of Continuing Resolution (CR) for FY2016 .................................................. 7 Overview ............................................................................................................................. 7 Impact on CVN-78 Program ............................................................................................... 8 Cost Growth and Managing Costs Within Program Cost Caps................................................. 8 Overview ............................................................................................................................. 8 October 1, 2015, Senate Armed Services Committee Hearing ......................................... 10 Additional Navy, CBO, and GAO Testimony, Reports, and Other Documents ................ 20 Recent Press Reports......................................................................................................... 33 Issues Raised in January 2015 DOT&E Report ...................................................................... 35 Potential for Combined Material Purchase for CVNs 80 and 81 ............................................ 39 Navy Study on Smaller Aircraft Carriers ................................................................................ 40 Shock Trial for CVN-78 Class ................................................................................................ 42 Legislative Activity for FY2016 .................................................................................................... 43 FY2016 Funding Request ....................................................................................................... 43 FY2016 National Defense Authorization Act (H.R. 1735/S. 1376) ........................................ 43 House (Committee Report) ............................................................................................... 43 House (Floor Action) ........................................................................................................ 45 Senate ................................................................................................................................ 45 Conference (Version Vetoed) ............................................................................................ 51 FY2016 DOD Appropriations Act (H.R. 2685/S. 1558) ......................................................... 56 House ................................................................................................................................ 56 Senate ................................................................................................................................ 56 Figures Figure 1. Navy Illustration of CVN-78 ........................................................................................... 3 Congressional Research Service Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Tables Table 1. Procurement Funding for CVNs 78, 79, and 80 Through FY2020 ................................... 5 Table 2. Changes in Estimated Procurement Costs of CVNs 78, 79, and 80 .................................. 6 Appendixes Appendix. March 2013 Navy Report to Congress on Construction Plan for CVN-79 ................. 57 Contacts Author Contact Information .......................................................................................................... 75 Congressional Research Service Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Introduction This report provides background information and potential oversight issues for Congress on the Gerald R. Ford (CVN-78) class aircraft carrier program. The Navy’s proposed FY2016 budget requests a total of $2,633.1 million in procurement and advance procurement (AP) funding for CVN-78, CVN-79, and CVN-80, the first three ships in the program. Congress’s decisions on the CVN-78 program could substantially affect Navy capabilities and funding requirements and the shipbuilding industrial base. Background Strategic and Budgetary Context For an overview of the strategic and budgetary context in which this and other Navy shipbuilding programs may be considered, see CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background and Issues for Congress, by Ronald O'Rourke. The Navy’s Aircraft Carrier Force The Navy’s current aircraft carrier force consists of 10 nuclear-powered Nimitz-class ships (CVNs 68 through 77) that entered service between 1975 and 2009. Until December 2012, the Navy’s aircraft carrier force included an 11th aircraft carrier—the one-of-a-kind nuclear-powered Enterprise (CVN-65), which entered service in 1961. CVN-65 was inactivated on December 1, 2012, reducing the Navy’s carrier force from 11 ships to 10. The most recently commissioned carrier, George H. W. Bush (CVN-77), the final Nimitz-class ship, was procured in FY2001 and commissioned into service on January 10, 2009. CVN-77 replaced Kitty Hawk (CV-63), which was the Navy’s last remaining conventionally powered carrier.1 Statutory Requirement to Maintain Not Less Than 11 Carriers Origin of Requirement 10 U.S.C. 5062(b) requires the Navy to maintain a force of not less than 11 operational aircraft carriers. The requirement for the Navy to maintain not less than a certain number of operational aircraft carriers was established by Section 126 of the FY2006 National Defense Authorization Act (H.R. 1815/P.L. 109-163 of January 6, 2006), which set the number at 12 carriers. The requirement was changed from 12 carriers to 11 carriers by Section 1011(a) of the FY2007 John Warner National Defense Authorization Act (H.R. 5122/P.L. 109-364 of October 17, 2006). Waiver for Period Between CVN-65 and CVN-78 As mentioned above, the carrier force dropped from 11 ships to 10 ships when Enterprise (CVN65) was inactivated on December 1, 2012. The carrier force is to return to 11 ships when its replacement, Gerald R. Ford (CVN-78), is commissioned into service. Anticipating the gap between the inactivation of CVN-65 and the commissioning of CVN-78, the Navy asked Congress for a temporary waiver of 10 U.S.C. 5062(b) to accommodate the period between the 1 The Kitty Hawk was decommissioned on January 31, 2009. Congressional Research Service 1 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress two events. Section 1023 of the FY2010 National Defense Authorization Act (H.R. 2647/P.L. 111-84 of October 28, 2009) authorized the waiver, permitting the Navy to have 10 operational carriers between the inactivation of CVN-65 and the commissioning of CVN-78. Funding and Procuring Aircraft Carriers Some Key Terms The Navy procures a ship (i.e., orders the ship) by awarding a full-ship construction contract to the firm building the ship. Part of a ship’s procurement cost might be provided through advance procurement (AP) funding. AP funding is funding provided in one or more years prior to (i.e., in advance of) a ship’s year of procurement. AP funding is used to pay for long-leadtime components that must be ordered ahead of time to ensure that they will be ready in time for their scheduled installation into the ship. AP funding is also used to pay for the design costs for a new class of ship. These design costs, known more formally as detailed design/non-recurring engineering (DD/NRE) costs, are traditionally incorporated into the procurement cost of the lead ship in a new class of ships. Fully funding a ship means funding the entire procurement cost of the ship. If a ship has received AP funding, then fully funding the ship means paying for the remaining portion of the ship’s procurement cost. The full funding policy is a Department of Defense (DOD) policy that normally requires items acquired through the procurement title of the annual DOD appropriations act to be fully funded in the year they are procured. In recent years, Congress has authorized DOD to use incremental funding for procuring certain Navy ships, most notably aircraft carriers. Under incremental funding, some of the funding needed to fully fund a ship is provided in one or more years after the year in which the ship is procured.2 Incremental Funding Authority for Aircraft Carriers Section 121 of the FY2007 John Warner National Defense Authorization Act (H.R. 5122/P.L. 109-364 of October 17, 2006) granted the Navy the authority to use four-year incremental funding for CVNs 78, 79, and 80. Under this authority, the Navy could fully fund each of these ships over a four-year period that includes the ship’s year of procurement and three subsequent years. Section 124 of the FY2012 National Defense Authorization Act (H.R. 1540/P.L. 112-81 of December 31, 2011) amended Section 121 of P.L. 109-364 to grant the Navy the authority to use five-year incremental funding for CVNs 78, 79, and 80. Since CVN-78 was fully funded in FY2008-FY2011, the provision in practice applied to CVNs 79 and 80. Section 121 of the FY2013 National Defense Authorization Act (H.R. 4310/P.L. 112-239 of January 2, 2013) amended Section 121 of P.L. 109-364 to grant the Navy the authority to use sixyear incremental funding for CVNs 78, 79, and 80. Since CVN-78 was fully funded in FY2008FY2011, the provision in practice applies to CVNs 79 and 80. 2 For more on full funding, incremental funding, and AP funding, see CRS Report RL31404, Defense Procurement: Full Funding Policy—Background, Issues, and Options for Congress, by Ronald O'Rourke and Stephen Daggett, and CRS Report RL32776, Navy Ship Procurement: Alternative Funding Approaches—Background and Options for Congress, by Ronald O'Rourke. Congressional Research Service 2 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Aircraft Carrier Construction Industrial Base All U.S. aircraft carriers procured since FY1958 have been built by Newport News Shipbuilding (NNS), of Newport News, VA, a shipyard that is part of Huntington Ingalls Industries (HII). HII/NNS is the only U.S. shipyard that can build large-deck, nuclear-powered aircraft carriers. The aircraft carrier construction industrial base also includes hundreds of subcontractors and suppliers in various states. Gerald R. Ford (CVN-78) Class Program The Gerald R. Ford (CVN-78) class carrier design (Figure 1) is the successor to the Nimitz-class carrier design.3 Figure 1. Navy Illustration of CVN-78 Source: Navy image accessed at http://www.navy.mil/management/photodb/photos/060630-N-0000X-001.jpg on April 20, 2011. The Ford-class design uses the basic Nimitz-class hull form but incorporates several improvements, including features permitting the ship to generate 33% more aircraft sorties per day, more electrical power for supporting ship systems, and features permitting the ship to be operated by several hundred fewer sailors than a Nimitz-class ship, significantly reducing lifecycle operating and support (O&S) costs. Navy plans call for procuring at least three Ford-class carriers—CVN-78, CVN-79, and CVN-80. 3 The CVN-78 class was earlier known as the CVN-21 class, which meant nuclear-powered aircraft carrier for the 21st century. Congressional Research Service 3 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress CVN-78 CVN-78, which was named for President Gerald R. Ford in 2007,4 was procured in FY2008. The Navy’s proposed FY2016 budget estimates the ship’s procurement cost at $12,887.0 million (i.e., about $12.9 billion) in then-year dollars. Of the ship’s total procurement cost, about $3.3 billion is for detailed design/non-recurring engineering (DD/NRE) costs for the class, and about $9.6 billion is for construction of the ship itself. CVN-78 received advance procurement funding in FY2001-FY2007 and was fully funded in FY2008-FY2011 using congressionally authorized four-year incremental funding. To help cover cost growth on the ship, the ship received an additional $588.1 million in FY2014 and $663.0 million in FY2015 in so-called cost-to-complete procurement funding. As a final planned increment of cost-to-complete procurement funding, the Navy is requesting $123.8 million for the ship in FY2016. The ship is scheduled for delivery to the Navy in March 2016. CVN-79 CVN-79, which was named for President John F. Kennedy on May 29, 2011,5 was procured in FY2013. The Navy’s proposed FY2016 budget estimates the ship’s procurement cost at $11,347.6 million (i.e., about $11.3 billion) in then-year dollars. The ship received advance procurement funding in FY2007-FY2012, and the Navy plans to fully fund the ship in FY2013-FY2018 using congressionally authorized six-year incremental funding. The Navy’s proposed FY2016 budget requests $1,634.7 million in procurement funding for the ship. The ship is scheduled for delivery to the Navy in June 2022. CVN-80 CVN-80, which was named Enterprise on December 1, 2012,6 is scheduled to be procured in FY2018. The Navy’s proposed FY2016 budget estimates the ship’s procurement cost at $13,472.0 million (i.e., about $13.5 billion) in then-year dollars. The Navy plans to request AP funding for the ship in FY2016 and FY2017, and then fully fund the ship in FY2018-FY2023 using congressionally authorized six-year incremental funding. The Navy’s proposed FY2016 budget requests $874.7 million in AP funding for the ship. 4 §1012 of the FY2007 defense authorization act (H.R. 5122/P.L. 109-364 of October 17, 2006) expressed the sense of Congress that CVN-78 should be named for President Gerald R. Ford. On January 16, 2007, the Navy announced that CVN-78 would be so named. CVN-78 and other carriers built to the same design will consequently be referred to as Ford (CVN-78) class carriers. For more on Navy ship names, see CRS Report RS22478, Navy Ship Names: Background for Congress, by Ronald O'Rourke. 5 See “Navy Names Next Aircraft Carrier USS John F. Kennedy,” Navy News Service, May 29, 2011, accessed online on June 1, 2011 at http://www.navy.mil/search/display.asp?story_id=60686. See also Peter Frost, “U.S. Navy’s Next Aircraft Carrier Will Be Named After The Late John F. Kennedy,” Newport News Daily Press, May 30, 2011. CVN-79 is the second ship to be named for President John F. Kennedy. The first, CV-67, was the last conventionally powered carrier procured for the Navy. CV-67 was procured in FY1963, entered service in 1968, and was decommissioned in 2007. 6 The Navy made the announcement of CVN-80’s name on the same day that it deactivated the 51-year-old aircraft carrier CVN-65, also named Enterprise. (“Enterprise, Navy’s First Nuclear-Powered Aircraft Carrier, Inactivated,” Navy News Service, December 1, 2012; Hugh Lessig, “Navy Retires One Enterprise, Will Welcome Another,” Newport News Daily Press, December 2, 2012.) CVN-65 was the eighth Navy ship named Enterprise; CVN-80 is to be the ninth. Congressional Research Service 4 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Program Procurement Funding Table 1 shows procurement funding for CVNs 78, 79, and 80 through FY2020. Table 1. Procurement Funding for CVNs 78, 79, and 80 Through FY2020 (Millions of then-year dollars, rounded to nearest tenth) FY CVN-78 CVN-79 CVN-80 Total FY01 21.7 (AP) 0 0 21.7 FY02 135.3 (AP) 0 0 135.3 FY03 395.5 (AP) 0 0 395.5 FY04 1,162.9 (AP) 0 0 1,162.9 FY05 623.1 (AP) 0 0 623.1 FY06 618.9 (AP) 0 0 618.9 FY07 735.8 (AP) 52.8 (AP) 0 788.6 FY08 2,685.0 (FF) 123.5 (AP) 0 2,808.6 FY09 2,684.6 (FF) 1,210.6 (AP) 0 3,895.1 FY10 737.0 (FF) 482.9 (AP) 0 1,219.9 FY11 1,712.5 (FF) 903.3 (AP) 0 2,615.8 FY12 0 554.8 (AP) 0 554.8 FY13 0 491.0 (FF) 0 491.0 FY14 588.1 (CC) 917.6 (FF) 0 1,505.7 FY15 663.0 (CC) 1,219.4 (FF) 0 1,882.4 FY16 (requested) 123.8 (CC) 1,634.7 (FF) 874.7 (AP) 2,633.1 FY17 (projected) 0 1,829.0 (FF) 1,126.1 (AP) 2,955.1 FY18 (projected) 0 1929.0 (FF) 1,601.8 (FF) 3,530.8 FY19 (projected) 0 0 2,076.0 (FF) 2,076.0 FY20 (projected) 0 0 873.3 (FF) 873.3 Source: Table prepared by CRS based on FY2009-FY2016 Navy budget submissions. Notes: Figures may not add due to rounding. “AP” is advance procurement funding; “FF” is full funding; “CC” is cost to complete funding (i.e., funding to cover cost growth). Changes in Estimated Unit Procurement Costs Since FY2008 Budget Table 2 shows changes in the estimated procurement costs of CVNs 78, 79, and 80 since the FY2008 budget submission.7 7 CBO in 2008 and the Government Accountability Office (GAO) in 2007 questioned the accuracy of the Navy’s cost estimate for CVN-78. CBO reported in June 2008 that it estimated that CVN-78 would cost $11.2 billion in constant FY2009 dollars, or about $900 million more than the Navy’s estimate of $10.3 billion in constant FY2009 dollars, and that if “CVN-78 experienced cost growth similar to that of other lead ships that the Navy has purchased in the past 10 years, costs could be much higher still.” CBO also reported that, although the Navy publicly expressed confidence in its cost estimate for CVN-78, the Navy had assigned a confidence level of less than 50% to its estimate, meaning that the Navy believed there was more than a 50% chance that the estimate would be exceeded. (Congressional Budget Office, Resource Implications of the Navy’s Fiscal Year 2009 Shipbuilding Plan, June 9, 2008, p. 20.) GAO reported in August 2007 that: Costs for CVN 78 will likely exceed the budget for several reasons. First, the Navy’s cost estimate, which underpins the budget, is optimistic. For example, the Navy assumes that CVN 78 will be built with fewer labor hours than were needed for the previous two carriers. Second, the Navy’s (continued...) Congressional Research Service 5 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Table 2. Changes in Estimated Procurement Costs of CVNs 78, 79, and 80 (As shown in FY2008-FY2016 budgets, in millions of then-year dollars) Budget FY08 budget FY09 budget FY10 budget FY11 budget FY12 budget FY13 budget FY14 budget FY15 budget FY16 budget % change: FY08 budget to FY09 budget FY09 budget to FY10 budget FY10 budget to FY11 budget FY11 budget to FY12 budget FY12 budget to FY13 budget FY13 budget to FY14 budget FY14 budget to FY15 budget FY15 budget to FY16 budget FY08 budget to FY15 budget CVN-78 Estimated Scheduled procurement fiscal year of cost procurement 10,488.9 FY08 10,457.9 FY08 10,845.8 FY08 11,531.0 FY08 11,531.0 FY08 12,323.2 FY08 12,829.3 FY08 12,887.2 FY08 12,887.0 FY08 -0.3 CVN-79 Estimated Scheduled procurement fiscal year of cost procurement 9,192.0 FY12 9,191.6 FY12 a n/a FY13b 10,413.1 FY13 10,253.0 FY13 11,411.0 FY13c 11,338.4 FY13 11,498.0 FY13 11,347.6 FY13 CVN-80 Estimated Scheduled procurement fiscal year of cost procurement 10,716.8 FY16 10,716.8 FY16 a n/a FY18b 13,577.0 FY18 13,494.9 FY18 13,874.2 FY18c 13,874.2 FY18 13,874.2 FY18 13,472.0 FY18 No change +3.7 Almost no change n/a +6.3 n/a n/a No change - 1.5 - 0.1 +6.9% +11.3% +2.8% +4.1% - 0.6% No change +0.5% +1.4% No change Almost no change +22.9% -1.3% -2.9% +23.5% +25.7% n/a Source: Table prepared by CRS based on FY2008-FY2016 Navy budget submissions. (...continued) target cost for ship construction may not be achievable. The shipbuilder’s initial cost estimate for construction was 22 percent higher than the Navy’s cost target, which was based on the budget. Although the Navy and the shipbuilder are working on ways to reduce costs, the actual costs to build the ship will likely increase above the Navy’s target. Third, the Navy’s ability to manage issues that affect cost suffers from insufficient cost surveillance. Without effective cost surveillance, the Navy will not be able to identify early signs of cost growth and take necessary corrective action. (Government Accountability Office, Defense Acquisitions[:] Navy Faces Challenges Constructing the Aircraft Carrier Gerald R. Ford within Budget, GAO-07-866, August 2007, summary page. See also Government Accountability Office, Defense Acquisitions[:] Realistic Business Cases Needed to Execute Navy Shipbuilding Programs, Statement of Paul L. Francis, Director, Acquisition and Sourcing Management Team, Testimony Before the Subcommittee on Seapower and Expeditionary Forces, Committee on Armed Services, House of Representatives, July 24, 2007 (GAO-07-943T), p. 15.) Congressional Research Service 6 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress a. b. c. n/a means not available; the FY2010 budget submission did not show estimated procurement costs for CVNs 79 and 80. The FY2010 budget submission did not show scheduled years of procurement for CVNs 79 and 80; the dates shown here for the FY2010 budget submission are inferred from the shift to five-year intervals for procuring carriers that was announced by Secretary of Defense Gates in his April 6, 2009, news conference regarding recommendations for the FY2010 defense budget. Although the FY2013 budget did not change the scheduled years of procurement for CVN-79 and CVN-80 compared to what they were under the FY2012 budget, it lengthened the construction period for each ship by two years (i.e., each ship is scheduled to be delivered two years later than under the FY2012 budget). Program Procurement Cost Cap Section 122 of the FY2007 John Warner National Defense Authorization Act (H.R. 5122/P.L. 109-364 of October 17, 2006) established a procurement cost cap for CVN-78 of $10.5 billion, plus adjustments for inflation and other factors, and a procurement cost cap for subsequent Fordclass carriers of $8.1 billion each, plus adjustments for inflation and other factors. The conference report (H.Rept. 109-702 of September 29, 2006) on P.L. 109-364 discusses Section 122 on pages 551-552. Section 121 of the FY2014 National Defense Authorization Act (H.R. 3304/P.L. 113-66 of December 26, 2013) amended the procurement cost cap for the CVN-78 program to provide a revised cap of $12,887.0 million for CVN-78 and a revised cap of $11,498.0 million for each follow-on ship in the program, plus adjustments for inflation and other factors (including an additional factor not included in original cost cap). Issues for Congress Potential Impact of Continuing Resolution (CR) for FY2016 Overview One issue for Congress concerns the potential impact on the CVN-78 program of an extended continuing resolution (CR) or a full-year CR for FY2016. Extended or full-year CRs can lead to challenges in program execution because they typically prohibit the following:    new program starts (“new starts”), meaning the initiation of new program efforts that did not exist in the prior year; an increase in procurement quantity for a program compared to that program’s procurement quantity in the prior year; and the signing of new multiyear procurement (MYP) contracts.8 In addition, the Navy’s shipbuilding account, known formally as the Shipbuilding and Conversion, Navy (SCN) appropriation account, is written in the annual DOD appropriations act not just with a total appropriated amount for the entire account (like other DOD acquisition accounts), but also with specific appropriated amounts at the line-item level. As a consequence, under a CR (which is typically based on the prior year’s appropriations act), SCN funding is managed not at the account level (like it is under a CR for other DOD acquisition accounts), but 8 For more on MYP contracts, 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. Congressional Research Service 7 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress at the line-item level. For the SCN account—uniquely among DOD acquisition accounts—this can lead to line-by-line misalignments (excesses and shortfalls) in funding for SCN-funded programs, compared to the amounts those programs received in the prior year. The shortfalls in particular can lead to program-execution challenges under an extended or full-year CR. In addition to the above impacts, a CR might also require the agency (in this case, the Navy) to divide a contract action into multiple actions, which can increase the total cost of the effort by reducing economies of scale and increasing administrative costs. The potential impacts described above can be avoided or mitigated if the CR includes special provisions (called anomalies) for exempting individual programs or groups of programs from the general provisions of the CR, or if the CR includes expanded authorities for DOD for reprogramming and transferring funds. Impact on CVN-78 Program The Navy states that an extended continuing resolution (CR) or a full-year CR for FY2016 would affect the aircraft carrier CVN-80 due to a CR’s typical prohibition on new starts, because the first increment of advance procurement (AP) funding for the ship is requested for FY2016. A CR’s typical prohibition on new starts, the Navy says, would also affect the refueling complex overhaul (RCOH) for the aircraft carrier CVN-73, because CVN-73 ship is scheduled to be inducted into the RCOH during FY2016.9 Cost Growth and Managing Costs Within Program Cost Caps Overview Cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program’s cost caps have been continuing oversight issues for Congress on the CVN-78 program. As shown in Table 2, the estimated procurement costs of CVNs 78, 79, and 80 have grown 22.9%, 23.5%, and 25.7%, respectively, since the submission of the FY2008 budget. Cost growth on CVN-78 required the Navy to program $1,374.9 million in cost-to-complete procurement funding for the ship in FY2014-FY2016 (see Table 1). As also shown in Table 2, however,    while the estimated cost of CVN-78 grew considerably between the FY2008 budget (the budget in which CVN-78 was procured) and the FY2014 budget, it has remained stable in the FY2015 and FY2016 budgets; while the estimated cost of CVN-79 grew considerably between the FY2008 budget and the FY2013 budget (in part because the procurement date for the ship was deferred by one year in the FY2010 budget),10 it has decreased a bit since the FY2013 budget; and while the estimated cost of CVN-79 grew considerably between the FY2008 budget and the FY2011 budget (in part because the procurement date for the ship 9 Source: Navy point paper, entitled “FY 2016 DON Continuing Resolution (CR) Impact,” undated, provided by Navy Office of Legislative Affairs to CRS on September 14, 2015. See also Christopher P. Cavas, “US Navy Considers Impact of a Yearling CR,” Defense News, September 5, 2015. 10 Deferring the ship’s procurement from FY2012 to FY2013 put another year of inflation into the ship’s estimated cost in then-year dollars (which are the type of dollars shown in Table 2), and may have reduced production learning curve benefits in shifting from production of CVN-78 to production of CVN-79. Congressional Research Service 8 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress was deferred by two years in the FY2010 budget),11 it has decreased a bit since the FY2011 budget. Section 121 of the FY2014 National Defense Authorization Act (H.R. 3304/P.L. 113-66 of December 26, 2013), in addition to amending the procurement cost cap for the CVN-78 program (see previous section), requires the Navy to submit on a quarterly basis a report setting forth the most current cost estimate for the aircraft carrier designated as CVN-79 (as estimated by the program manager). Each cost estimate shall include the current percentage of completion of the program, the total costs incurred, and an estimate of costs at completion for ship construction, Governmentfurnished equipment, and engineering and support costs. Section 121 also states that The Secretary [of the Navy] shall ensure that each prime contract for the aircraft carrier designated as CVN-79 includes an incentive fee structure that will, throughout the period of performance of the contract, provide incentives for each contractor to meet the portion of the cost of the ship, as limited by subsection (a)(2) and adjusted pursuant to subsection (b) [i.e., the amended procurement cost cap for the program], for which the contractor is responsible.’. Sources of risk of cost growth on CVN-78 in the past have included, among other things, certain new systems to be installed on CVN-78 whose development, if delayed, could delay the completion of the ship. These systems include a new type of aircraft catapult called the Electromagnetic Launch System (EMALS), a new aircraft arresting system called the Advanced Arresting Gear (AAG), and the ship’s primary radar, called the Dual Band Radar (DBR). Congress has followed these and other sources of risk of cost growth for years. The Navy in March 2015 stated that of these sources of risk of cost growth, the one that it is currently watching the most closely is the AAG, because of the discovery in testing of a problem that required the redesign of key component of the AAG called the water twister. As a result of the need to redesign the water twister, the Navy says, the effort to complete testing of the AAG has fallen about two years behind schedule, adding risk to the Navy’s ability to meet its delivery date for CVN-78.12 More generally, the Navy states, now that construction of CVN-78 is mostly complete,13 the primary remaining risk of further cost growth on CVN-78 relates to the testing of equipment that has been installed on the ship. If that testing reveals problems in the performance of equipment, fixing those problems may add to the ship’s cost. Navy officials have stated that they are working to control the cost of CVN-79 by equipping the ship with a less expensive primary radar,14 by turning down opportunities to add features to the 11 Deferring the ship’s procurement from FY2016 to FY2018 put additional years of inflation into the ship’s estimated cost in then-year dollars (which are the type of dollars shown in Table 2), and may have reduced production learning curve benefits in shifting from production of CVN-79 to production of CVN-80. 12 See, for example, Sam LaGrone, “NAVSEA: Advanced Arresting Gear Design Flaw Delayed Testing Schedule Two Years, Adds Risk to On Time Ford Carrier Delivery,” USNI News, March 19, 2015; Mike McCarthy, “New Landing System Biggest Challenge To Ford’s Delivery Date, Admiral Says,” Defense Daily, March 20, 2015: 1-2. 13 Construction of CVN-78 was about 87% complete as of March 17, 2015, according to a Navy briefing on the CVN78 program. (Program Executive Officer, Aircraft Carriers, “State of the Carrier Program,” Rear Admiral Tom Moore, 17 March 2015, slide 6, posted at USNI News, March 23, 2015.) 14 See, for example, Megan Eckstein, “PEO Carriers: CVN-79 Will Have a New Radar, Save $180M Compared to [CVN-78’s] Dual Band Radar,” USNI News, March 17, 2015; Christopher P. Cavas, “Dual Band Radar Swapped Out In New Carriers,” Defense News, March 17, 2015; Christopher P. Cavas, “New US Carrier Radar Enters the Picture,” (continued...) Congressional Research Service 9 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress ship that would have made the ship more capable than CVN-78 but would also have increased CVN-79’s cost, and by using a build strategy for the ship that incorporates improvements over the build strategy that was used for CVN-78. These build-strategy improvements, Navy officials have said, include the following items, among others:    achieving a higher percentage of outfitting of ship modules before modules are stacked together to form the ship; achieving “learning inside the ship,” which means producing similar-looking ship modules in an assembly line-like series, so as to achieve improved production learning curve benefits in the production of these modules; and more economical ordering of parts and materials including greater use of batch ordering of parts and materials, as opposed to ordering parts and materials on an individual basis as each is needed. October 1, 2015, Senate Armed Services Committee Hearing Cost growth and other issues in the CVN-78 program were reviewed at an October 1, 2015, hearing before the Senate Armed Services Committee. Below are excerpts from the prepared statements of the witnesses at the hearing. OSD ASD Testimony The prepared statement of the Assistant Secretary of Defense (Acquisition) within the Office of the Secretary of Defense (OSD) states in part: By 2000, the CVN(X) Acquisition Strategy that had been proposed by the Navy was an evolutionary, three-step development of the capabilities planned for the CVN. This evolutionary strategy intending to mature technology and align risk with affordability originally involved using the last ship of the CVN 68 NIMITZ Class, USS GEORGE H. W. BUSH (CVN 77), as the starting point for insertion of some near term technology improvements including information network technology and the new Dual Band Radar (DBR) system from the DD(X) (now DDG 1000) program, to create an integrated warfare system that combined the ship’s combat system and air wing mission planning functions. However, the then incoming Secretary of Defense Donald Rumsfeld in 2002 directed reexamination of the CVN program, among others, to reduce the overall spend of the department and increase the speed of delivery to the warfighters. As a result of the SECDEF’s direction, the Navy proposed to remove the evolutionary approach and included a new and enlarged flight deck, an increased allowance for future technologies (including electric weapons), and an additional manpower reduction of 500 to 800 fewer sailors to operate. On December 12, 2002, a Program Decision Memorandum approved by then Deputy Secretary of Defense Paul Wolfowitz codified this Navy proposal and gave this direction back to the DOD enterprise. The ship was renamed the CVN-21 to highlight these changes. By Milestone B in April 2004, the Navy had evaluated the technologies intended for three ships, removed some of them, and consolidated the remaining ones into a single step of capability improvement on the lead ship. The new plan acknowledged technological, cost, and schedule challenges were being put on a single ship, but assessed this was achievable. The Acting USD AT&L (Michael Wynne) (...continued) Defense News, March 23, 2015. Congressional Research Service 10 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress at that milestone also directed the Navy to use a hybrid of the Service Cost Position and Independent Cost Estimate (ICE) to baseline the program funding in lieu of the ICE, (although one can easily argue even the ICE was optimistic given these imposed circumstances). By 2004, DOD and Congressional leadership had lost confidence in the acquisition system, and Deputy Secretary of Defense Gordon England established the Defense Acquisition Performance Assessment (DAPA) panel to conduct a sweeping and integrated assessment of “every aspect” of acquisition. The result was the discovery that the Industrial Base had consolidated, that excessive oversight and complex acquisition processes were cost and schedule drivers, and a focus on requirements stability was key to containing costs. From this, a review of the requirements of the CVN resulted in a revised and solidified “single ship” Operational Requirements Document (ORD) for the FORD Class as defined today, with the CVN 78 as lead ship. On the heels of a delay because of the budgetary constraints in 2006, the start of the construction of CVN 78 was delayed until 2008, but the schedule for delivery was held constant, further compounding risks and costs. The Navy’s testimony covers these technical and schedule risks and concurrency challenges well. By 2009, this Committee had issued a floor statement in support of the Weapon Systems Acquisition Reform Act (WSARA). Congress was now united in its pursuit of acquisition reform and, in concert, USD AT&L re-issued and updated the Department of Defense’s acquisition instruction (DoDI 5000.2) in 2008. WSARA included strengthening of the ‘Nunn-McCurdy” process with requires DOD to report to Congress when cost growth on a major program breaches a critical cost growth threshold. This legislation required a root-cause assessment of the program and assumed program termination within 60 days of notification unless DOD certified in writing that the program remained essential to national security. WSARA had real impact on the CVN 78, as by 2008 and 2009 the results of all the previous decisions were instantiated in growth of cost and schedule. Then USD AT&L John Young required the Navy to provide a list of descoping efforts and directed the Navy to have an off-ramp back to steam catapults if the Electromagnetic Aircraft Launching System (EMALS) remained a problem for the program. He also directed an independent review of all of the CVN 78 technologies by a Defense Support Team (DST). Prior to the DST, the Navy had chartered a Program Assessment Review (PAR) with USD (AT&L) participation of EMALS/Advanced Arresting Gear (AAG) versus steam. One of the key PAR findings was converting the EMALS and AAG production contracts to firm, fixed price contracts to cap cost growth and imposed negative incentives for late delivery. The Dual Band Radar (DBR) cost and risk growth was a decision by-product of the DDG 1000 program Nunn-McCurdy critical unit cost breach in 2010. Faced with a need to reduce cost on the DDG 1000 program and the resultant curtailment of the program, the expectation of development costs being borne by the DDG 1000 program was no longer the case and all of the costs associated with the S-band element development and a higher share of the X-band element then had to be supported by the CVN 78 program. The design problems encountered with AAG development have had the most deleterious effects on CVN 78 construction of any of the three major advanced technologies including EMALS and DBR. Our view of AAG is that these engineering design problems are now in the past and although delivery of several critical components have been delayed, the system will achieve its needed capabilities before undergoing final operational testing prior to deployment of the ship. Again, reliability growth is a concern, but this cannot be improved until a fully functional system is installed and operating at the Lakehurst, New Jersey land based test site, and on board CVN 78. Congressional Research Service 11 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress With the 2010 introduction by then USD AT&L Ashton Carter (now in its third iteration by under USD AT&L Frank Kendall) of the continuous process improvement initiative that was founded in best business practices and WSARA called “Better Buying Power,” the CVN underwent affordability, “Should Cost,” and requirements assessment. Navy’s use of the “Gate” process has stabilized the cost growth and reset good business practices .However, there is still much to do. We are in the testing phase of program execution prior to deployment and we had been concerned about the timing of the Full Ship Shock Trial (FSST). After balancing the operational and technical risks, the Department decided to execute FSST on CVN 78 prior to deployment. EMALS and AAG are also a concern with regard to final operational testing stemming from the development difficulties that each experienced. The Navy still needs to complete a significant amount of land-based testing to enable certification of the systems to launch and recover the full range of aircraft that it is required to operate under both normal and emergency conditions. This land-based testing is planned to complete before the final at-sea operational testing for these systems begins.... USD AT&L continues to work with Navy to tailor the program and ensure appropriate oversight at both the Navy Staff level as well as OSD. Our review of the Navy’s plan for maintaining control of the cost for CVN 79 included an understanding of the application of lessons learned from the construction of CVN 78 along with the application of a more efficient construction plan for the ship including introduction of competition where possible. We have established an excellent relationship with the Navy to work together to change process and policies that have impacted the ability of the program to succeed, to include revitalizing the acquisition workforce and their skills. We are confident in the Navy’s plan for CVN 79 and CVN 80 and, as such, Under Secretary Kendall recently authorized the Navy to enter into the detail design and construction phase for CVN 79 and to enter into advanced procurement for long lead time materials for CVN 80 construction. OSD and the Navy are committed to delivering CVN 79 within the limits of the cost cap legislated for this ship. 15 OSD DOT&E Testimony The prepared statement of the Director, Operational Test & Evaluation (DOT&E), within OSD states in part: The Navy intends to deliver CVN 78 early in calendar year 2016, and to begin initial operational test and evaluation (IOT&E) in late calendar year 2017. However, the Navy is in the process of developing a new schedule, so some dates may change. Based on the current schedule, between now and the beginning of IOT&E, the CVN 78 program is proceeding on an aggressive schedule to finish development, testing, troubleshooting, and correction of deficiencies for a number of new, complex systems critical to the warfighting capabilities of the ship. Low or unknown reliability and performance of the Advanced Arresting Gear (AAG), the Electromagnetic Aircraft Launch System (EMALS), the Dual Band Radar (DBR), and the Advanced Weapons Elevators (AWE) are significant risks to a successful IOT&E and first deployment, as well as to achieving the life-cycle cost reductions the Navy has estimated will accrue for the Ford-class carriers. The maturity of these systems is generally not at the level that would be desired at this stage in the program; for example, the CVN 78 test program is revealing problems with the DBR typical of discoveries in early developmental testing. Nonetheless, AAG, 15 Statement of Hon Katharina McFarland, Assistant Secretary of Defense (Acquisition), Before the Senate Armed Services Committee on Procurement, Acquisition, Testing and Oversight of the Navy’s Gerald R. Ford Class Aircraft Carrier Program, October 1, 2015, 5 pp. Congressional Research Service 12 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress EMALS, DBR, and AWE equipment is being installed on CVN 78, and in some cases, is undergoing shipboard checkout. Consequently, any significant issues that testing discovers before CVN 78’s schedule-driven IOT&E and deployment will be difficult, or perhaps impossible, to address. Resolving the uncertainties in the reliability and performance of these systems is critical to CVN 78’s primary function of conducting combat operations. CVN 78 has design features intended to enhance its ability to launch, recover, and service aircraft. EMALS and AAG are key systems planned to provide new capabilities for launching and recovering aircraft that are heavier and lighter than typically operated on Nimitz-class carriers. DBR is intended to enhance radar coverage on CVN 78 in support of air traffic control and ship self-defense. DBR is planned to reduce some of the known sensor limitations on Nimitz-class carriers that utilize legacy radars. The data currently available to my office indicate EMALS is unlikely to achieve the Navy’s reliability requirements. (The Navy indicates EMALS reliability is above its current growth curve, which is true; however, that growth curve was revised in 2013, based on poor demonstrated performance, to achieve EMALS reliability on CVN 78 a factor of 15 below the Navy’s goal.) I have no current data regarding DBR or AWE reliability, and data regarding the reliability of the re-designed AAG are also not available. (Poor AAG reliability in developmental testing led to the need to re-design components of that system.) In addition, performance problems with these systems are continuing to be discovered. If the current schedule for conducting the ship’s IOT&E and first deployment remain unchanged, reliability and performance shortfalls could degrade CVN 78’s ability to conduct flight operations. Due to known problems with current aircraft carrier combat systems, there is significant risk CVN 78 will not achieve its self-defense requirements. Although the CVN 78 design incorporates several combat system improvements relative to the Nimitz-class, these improvements (if achieved) are unlikely to correct all of the known shortfalls. Testing on other ships with similar combat systems has highlighted deficiencies in weapon employment timelines, sensor coverage, system track management, and deficiencies with the recommended engagement tactics. Most of these limitations are likely to affect CVN 78 and I continue to view this as a significant risk to the CVN 78’s ability to defend itself against attacks by the challenging anti-ship cruise missile and other threats proliferating worldwide. The Navy’s previous decision to renege on its original commitment to conduct the Full Ship Shock Trial (FSST) on CVN 78 before her first deployment would have put CVN 78 at risk in combat operations. This decision was reversed in August 2015 by the Deputy Secretary of Defense. Historically, FSSTs for new ship classes have identified for the first time numerous mission-critical failures the Navy had to address to ensure the new ships were survivable in combat. We can expect that CVN 78’s FSST results will have significant and substantial implications on future carriers in the Ford-class and any subsequent new class of carriers. I also have concerns with manning and berthing on CVN 78. The Navy designed CVN 78 to have reduced manning to reduce life-cycle costs, but Navy analyses of manning on CVN 78 have identified problems in manning and berthing. These problems are similar to those seen on other recent ship classes such as DDG 1000 and the Littoral Combat Ship (LCS).... There are significant risks to the successful completion of the CVN 78 IOT&E and the ship’s subsequent deployment due to known performance problems and the low or unknown reliability of key systems. For AAG, EMALS, AWE and DBR, systems that are essential to the primary missions of the ship, these problems, if uncorrected, are likely to affect CVN 78’s ability to conduct effective flight operations and to defend itself in combat. Congressional Research Service 13 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress The CVN 78 test schedule leaves little or no time to fix problems discovered in developmental testing before IOT&E begins that could cause program delays. In the current program schedule, major developmental test events overlap IOT&E. This overlap increases the likelihood problems will be discovered during CVN 78’s IOT&E, with the attendant risk to the successful completion of that testing and to the ship’s first deployment. The inevitable lessons we will learn from the CVN 78 FSST will have significant implications for CVN 78 combat operations, as well as for the construction of future carriers incorporating the ship’s advanced systems; therefore, the FSST should be conducted on CVN 78 as soon as it is feasible to do so.16 Navy Testimony The prepared statement of the Navy witnesses at the hearing states in part: In June 2000, the Department of Defense (DOD) approved a three-ship evolutionary acquisition approach starting with the last NIMITZ Class carrier (CVN 77) and the next two carriers CVNX1 (later CVN 78) and CVNX2 (later CVN 79). This approach recognized the significant risk of concurrently developing and integrating new technologies into a new ship design incrementally as follows: • The design focus for the evolutionary CVN 77 was to combine information network technology with a new suite of multifunction radars from the DDG 1000 program to transform the ship’s combat systems and the air wing’s mission planning process into an integrated warfare system. • The design focus for the evolutionary CVNX1 (future CVN 78) was a new Hull, Mechanical and Electrical (HM&E) architecture within a NIMITZ Class hull that included a new reactor plant design, increased electrical generating capacity, new zonal electrical distribution, and new electrical systems to replace steam auxiliaries under a redesigned flight deck employing new Electromagnetic Aircraft Launch System (EMALS) catapults together with aircraft ordnance and fueling “pit-stops”. Design goals for achieving reduced manning and improved maintainability were also defined. • The design focus for the evolutionary CVNX2 (future CVN 79) was a potential “cleansheet” design to “open the aperture” for capturing new but immature technologies such as the Advanced Arresting Gear (AAG) and Advanced Weapons Elevators (AWE) that would be ready in time for the third ship in the series; and thereby permit the experience gained from design and construction of the first two ships (CVN 77 and CVN 78) to be applied to the third ship (CVN 79). Early in the last decade, however, a significant push was made within DOD for a more transformational approach to delivering warfighting capability. As a result, in 2002, DOD altered the program acquisition strategy by transitioning to the new aircraft carrier class in a single transformational leap vice an incremental three ship strategy. Under the revised strategy, CVN 77 reverted back to a “modified-repeat” NIMITZ Class design to minimize risk and construction costs, while delaying the integrated warfare system to CVN 78. Further, due to budget constraints, CVN 78 would start construction a year later (in 2007) with a NIMITZ Class hull form but would entail a major re-design to accommodate all the new technologies from the three ship evolutionary technology insertion plan. 16 Statement by J. Michael Gilmore, Director, Operational Test and Evaluation, Office of the Secretary of Defense, Before the Senate Armed Services Committee, [October 1, 2015], 19 pp. Congressional Research Service 14 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress This leap ahead in a single ship was captured in a revised Operational Requirements Document (ORD) in 2004, which defined a new baseline that is the FORD Class today, with CVN 78 as the lead ship. The program entered system development and demonstration, containing the shift to a single ship acquisition strategy. The start of CVN 78 construction was then delayed by an additional year until 2008 due to budget constraints. As a result, the traditional serial evolution of technology development, ship concept design, detail design, and construction – including a total of 23 developmental systems incorporating new technologies originally planned across CVN 77, CVNX1, CVNX2 - were compressed and overlapped within the program baseline for the CVN 78. Today, the Navy is confronting the impacts of this compression and concurrency, as well as changes to assumptions made in the program planning more than a decade ago.... Given the lengthy design, development, and build span associated with major warships, there is a certain amount of overlap or concurrency that occurs between the development of new systems to be delivered with the first ship, the design information for those new systems, and actual construction. Since this overlap poses cost and schedule risk for the lead ship of the class, program management activities are directed at mitigating this overlap to the maximum extent practicable. In the case of the FORD Class, the incorporation of 23 developmental systems at various levels of technical maturity (including EMALS, AAG, DBR, AWE, new propulsion plant, integrated control systems) significantly compounded the inherent challenges associated with accomplishing the first new aircraft carrier design in 40-years. The cumulative impact of this high degree of concurrency significantly exceeded the risk attributed to any single new system or risk issue and ultimately manifested itself in terms of delay and cost growth in each element of program execution; development, design, material procurement (government and contractor), and construction.... Shipbuilder actions to resolve first-of-class issues retired much of the schedule risks to launch, but at an unstable cost. First-of-class construction and material delays led the Navy to revise the launch date in March 2013 from July 2013 to November 2013. Nevertheless, the four-month delay in launch allowed increased outfitting and ship construction that were most economically done prior to ship launch, such as completion of blasting and coating operations for all tanks and voids, installation of the six DBR arrays, and increased installations of cable piping, ventilation, electrical boxes, bulkheads and equipment foundations. As a result, CVN 78 launched at 70 percent complete and 77,000 tons displacement – the highest levels yet achieved in aircraft carrier construction. This high state of completion at launch enabled improved outfitting, compartment completion, an efficient transition into the shipboard test program, and the on-time completion of key milestones such as crew move aboard. With the advent of the shipboard test program, first time energization and grooming of new systems have required more time than originally planned. As a result, the Navy expects the sea trial schedule to be delayed about six to eight weeks. The exact impact on ship delivery will be determined based on the results of these trials. The Navy expects no schedule delays to CVN 78 operational testing and deployability due to the sea trials delay and is managing schedule delays within the $12.887 billion cost cap. Additionally, at delivery, AAG will not have completed its shipboard test program. The program has not been able to fully mitigate the effect of a two-year delay in AAG equipment deliveries to the ship. All AAG equipment has been delivered to the ship and will be fully installed on CVN 78 at delivery. The AAG shipboard test and certification program will complete in time to support aircraft launch and recovery operations in summer 2016.... The Navy, in coordination with the shipbuilder and major component providers, implemented a series of actions and initiatives in the management and oversight of CVN 78 that crossed the full span of contracting, design, material procurement, GFE, Congressional Research Service 15 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress production planning, production management and oversight. The Secretary of the Navy directed a detailed review of the CVN 78 program build plan to improve end-to-end aircraft carrier design, material procurement, production planning, build and test, the results of which are providing benefit across all carriers. These corrective measures include: • CVN 78 design was converted from a ‘level of effort, fixed fee’ contract to a completion contract with a firm target and incentive fee. Shipbuilder cost performance has been on-target or better since this contract change. • CVN 78 construction fee was reduced, consistent with contract provisions. However, the shipbuilder remains incentivized by the contract shareline to improve upon current cost performance. • Contract design changes are under strict control; authorized only for safety, damage control, and mission-degrading deficiencies. • Following a detailed “Nunn-McCurdy-like” review in 2008-2009, the Navy converted the EMALS and AAG production contract to a firm, fixed price contract, capping cost growth to each system. • In 2011, Naval Sea Systems Command completed a review of carrier specifications with the shipbuilder, removing or improving upon overly burdensome or unneeded specifications that impose unnecessary cost on the program. Periodic reviews continue. Much of the impact to cost performance was attributable to shipbuilder and government material cost overruns. The Navy and shipbuilder have made significant improvements upon material ordering and delivery to the shipyard to mitigate the significant impact of material delays on production performance. These actions include: • The Navy and shipbuilder instituted optimal material procurement strategies and best practices (structuring procurements to achieve quantity discounts, dual-sourcing to improve schedule performance and leveraging competitive opportunities) from outside supply chain management experts. • The shipbuilder assigned engineering and material sourcing personnel to each of their key vendors to expedite component qualifications and delivery to the shipyard. • The shipbuilder inventoried all excess material procured on CVN 78 for transfer to CVN 79. • The Program Executive Officer (Carriers) has conducted quarterly Flag-level GFE summits to drive cost reduction opportunities and ensure on-time delivery of required equipment and design information to the shipbuilder. The CVN 78 build plan, consistent with the NIMITZ Class, had focused foremost on completion of structural and critical path work to support launching the ship on-schedule. Achieving the program’s cost improvement targets required that CVN 78 increase its level of completion at launch, from 60 percent to 70 percent. To achieve this and drive greater focus on system completion: • The Navy fostered a collaborative build process review by the shipbuilder with other Tier 1 private shipyards in order to benchmark its performance and identify fundamental changes that are yielding marked improvement. • The shipbuilder established specific launch metrics by system and increased staffing for waterfront engineering and material expediters to support meeting those metrics. This ultimately delayed launch, but drove up pre-outfitting to the highest levels for CVN new construction which has helped stabilize cost and improve test program and compartment completion performance relative to CVN 77. Congressional Research Service 16 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress • The shipbuilder linked all of these processes within a detailed integrated master schedule that has provided greater visibility to performance and greater ability to control cost and schedule performance across the shipbuilding disciplines. These initiatives, which summarize a more detailed list of actions being implemented and tracked as a result of the end-to-end review, were accompanied by important management changes. • In 2011, the Navy assigned a second tour Flag Officer with considerable carrier operations, construction, and program management experience as the new Program Executive Officer (PEO). • The new PEO established a separate Program Office, PMS 379, to focus exclusively on CVN 79 and CVN 80, which enables the lead ship Program Office, PMS 378, to focus on cost control, schedule performance and the delivery of CVN 78. • In 2012, the shipbuilder assigned a new Vice President in charge of CVN 78, a new Vice President in charge of material management and purchasing, and a number of new general ship foremen to strengthen CVN 78 performance. • The new PEO and shipyard president began conducting bi-weekly launch readiness reviews focused on cost performance, critical path issues and accomplishment of the targets for launch completion. These bi-weekly reviews will continue through delivery. • Assistant Secretary of the Navy (Research, Development, and Acquisition) (ASN (RD&A)) conducts quarterly reviews of program progress and performance with the PEO and shipbuilder to ensure that all that can be done to improve on cost performance is being done. The series of actions taken by the Navy and the shipbuilder are achieving the desired effect of arresting cost growth, establishing stability, and have resulted in no changes in the Government’s estimate at completion over the past four years. The Department of the Navy is continuing efforts to identify cost reductions, drive improved cost and schedule performance, and manage change. The Navy has established a rigorous process with the shipbuilder that analyzes each contract change request to approve only those change categories allowed within the 2010 ASN(RD&A) change order management guidance. This guidance only allows changes for safety, contractual defects, testing and trial deficiencies, statutory and regulatory changes that are accompanied by funding and value engineering change proposals with instant contract savings. While the historical average for contractual change level is approximately 10 percent of the construction cost for the lead ship of a new class, CVN 78 has maintained a change order budget of less than four percent to date despite the high degree of concurrent design and development. Finally, the Navy has identified certain areas of the ship whose completion is not required for delivery, such as berthing spaces for the aviation detachment, and has removed this work from the shipbuilder’s contract. This deferred work will be completed within the ship’s budgeted end cost and is included within the $12,887 million cost estimate. By performing this deferred work in the post-delivery period using CVN 78 end cost funding, it can be competed and accomplished at lower cost and risk to the overall ship delivery schedule.... The CVN 79 cost cap was established in 2006 and adjusted by the Secretary of the Navy in 2013, primarily to address inflation between 2006 and 2013 plus $325 million of the allowed increase for non-recurring engineering to incorporate design improvements for the CVN 78 Class construction. The Navy and the shipbuilder conducted an extensive affordability review of carrier construction and made significant changes to deliver CVN 79 at the lowest possible cost. These changes are focused on eliminating the largest impacts to cost performance identified during the construction of CVN 78 as well as furthering improvements in Congressional Research Service 17 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress future carrier construction. The Navy outlined cost savings initiatives in its Report to Congress in May, 2013, and is executing according to plan. Stability in requirements, design, schedule, and budget, are essential to controlling and improving CVN 79 cost, and therefore is of highest priority for the program. Requirements for CVN 79 were “locked down” prior to the commencement of CVN 79 construction. The technical baseline and allocated budget for these requirements were agreed to by the Chief of Naval Operations and ASN(RD&A) and further changes to the baseline require their approval, which ensures design stability and increases effectiveness during production. At the time of construction contract award, CVN 79 has 100 percent of the design product model complete (compared to 65 percent for CVN 78) and 80 percent of initial drawings released. Further, CVN 79 construction benefits from the maturation of virtually all new technologies inserted on CVN 78. In the case of EMALS and AAG, the system design and procurement costs are understood, and CVN 79 leverages CVN 78 lessons learned.... A completed FORD Class design enabled the shipbuilder to fully understand the “whole ship” bill of materials for CVN 79 construction and to more effectively manage the procurement of those materials with the knowledge of material lead times and qualified sources accrued from CVN 78 construction. The shipbuilder is able to order ship-set quantities of material, with attendant cost benefits, and to ensure CVN 79 material will arrive on time to support construction need. Extensive improvements have been put in place for CVN 79 material procurement to drive both cost reductions associated with more efficient procurement strategies and production labor improvements associated with improved material availability. Improved material availability is also a critical enabler to many construction efficiency improvements in CVN 79. The shipbuilder has developed an entirely new material procurement and management strategy for CVN 79. This new strategy consists of eight separate initiatives.... The shipbuilder and the Navy have performed a comprehensive review of the build strategy and processes used in construction of CVN 78 Class aircraft carriers as well as consulted with other Navy shipbuilders on best practices. As a result, the shipbuilder has identified and implemented a number of changes in the way they build aircraft carriers, with a dedicated focus on executing construction activities where they can most efficiently be performed. The CVN 79 build sequence installs 20 percent more parts in shop, and 30 percent more parts on the final assembly platen, as compared to CVN 78. This work will result in an increase in pre-outfitting and work being pulled to earlier stages in the construction process where it is most efficiently accomplished.... In conjunction with the Navy and the shipbuilder’s comprehensive review of the build strategy and processes used in construction of CVN 78 Class aircraft carriers, a number of design changes were identified that would result in more affordable construction. Some of these design changes were derived from lessons learned in the construction of CVN 78 and others seek to further simplify the construction process and drive cost down.... In addition to the major focus discussed above, the shipbuilder continues to implement capital improvements to facilities that serve to reduce risk and improve productivity.... To enhance CVN 79 build efficiency and affordability, the Navy is implementing a twophase delivery plan. The two-phase strategy will allow the basic ship to be constructed and tested in the most efficient manner by the shipbuilder (Phase I) while enabling select ship systems and compartments to be completed in Phase II, where the work can be completed more affordably through competition or the use of skilled installation teams.... The CVN 80 planning and construction will continue to leverage class lessons learned in the effort to achieve cost and risk reduction for remaining FORD Class ships. The CVN 80 strategy seeks to improve on CVN 79 efforts to frontload as much work as possible to Congressional Research Service 18 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress the earliest phases of construction, where work is both predictable and more cost efficient.... While delivery of the first-of-class FORD has involved challenges, those challenges are being addressed and this aircraft carrier class will provide great value to our Nation with unprecedented and greatly needed warfighting capability at overall lower total ownership cost than a NIMITZ Class CVN. The Navy has taken major steps to stem the tide of increasing costs and drive affordability into carrier acquisition.17 GAO Testimony The prepared statement of the GAO witness at the hearing states in part: The Ford-class aircraft carrier’s lead ship began construction with an unrealistic business case. A sound business case balances the necessary resources and knowledge needed to transform a chosen concept into a product. Yet in 2007, GAO found that CVN 78 costs were underestimated and critical technologies were immature—key risks that would impair delivering CVN 78 at cost, on-time, and with its planned capabilities. The ship and its business case were nonetheless approved. Over the past 8 years, the business case has predictably decayed in the form of cost growth, testing delays, and reduced capability—in essence, getting less for more. Today, CVN 78 is more than $2 billion over its initial budget. Land-based tests of key technologies have been deferred by years while the ship's construction schedule has largely held fast. The CVN 78 is unlikely to achieve promised aircraft launch and recovery rates as key systems are unreliable. The ship must complete its final, more complex, construction phase concurrent with key test events. While problems are likely to be encountered, there is no margin for the unexpected. Additional costs are likely. Similarly, the business case for CVN 79 is not realistic. The Navy recently awarded a construction contract for CVN 79 which it believes will allow the program to achieve the current $11.5 billion legislative cost cap. Clearly, CVN 79 should cost less than CVN 78, as it will incorporate lessons learned on construction sequencing and other efficiencies. While it may cost less than its predecessor, CVN 79 is likely to cost more than estimated. As GAO found in November 2014, the Navy’s strategy to achieve the cost cap relies on optimistic assumptions of construction efficiencies and cost savings—including unprecedented reductions in labor hours, shifting work until after ship delivery, and delivering the ship with the same baseline capability as CVN 78 by postponing planned mission system upgrades and modernizations until future maintenance periods. Today, with CVN 78 over 92 percent complete as it reaches delivery in May 2016, and the CVN 79 on contract, the ability to exercise oversight and make course corrections is limited. Yet, it is not too late to examine the carrier’s acquisition history to illustrate the dynamics of shipbuilding—and weapon system—acquisition and the challenges they pose to acquisition reform. The carrier’s problems are by no means unique; rather, they are quite typical of weapon systems. Such outcomes persist despite acquisition reforms the Department of Defense and Congress have put forward—such as realistic estimating and “fly before buy.” Competition with other programs for funding creates pressures to overpromise performance at unrealistic costs and schedules. These incentives are more powerful than policies to follow best acquisition practices and oversight tools. Moreover, 17 Statement of The Honorable Sean J. Stackley, Assistant Secretary of the Navy (Research, Development and Acquisition), Rear Admiral Donald E. Gaddis, Program Executive Officer, Tactical Aircraft, Department of the Navy, Rear Admiral Thomas J. Moore, Program Executive Officer, Aircraft Carriers, Department of the Navy, Rear Admiral Michael C. Manazir, Director, Air Warfare (OPNAV), Before the Senate Armed Services Committee on Procurement, Acquisition, Testing, and Oversight of the Navy’s Gerald R. Ford Class Aircraft Carrier Program, October 1, 2015, 22 pp. Congressional Research Service 19 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress the budget process provides incentives for programs to be funded before sufficient knowledge is available to make key decisions. Complementing these incentives is a marketplace characterized by a single buyer, low volume, and limited number of major sources. The decades-old culture of undue optimism when starting programs is not the consequence of a broken process, but rather of a process in equilibrium that rewards unrealistic business cases and, thus, devalues sound practices.18 Additional Navy, CBO, and GAO Testimony, Reports, and Other Documents This section presents additional discussions of cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program’s cost caps from the Navy, the Congressional Budget Office (CBO), and the Government Accountability Office (GAO), starting with the most recent item. October 2015 CBO Report An October 2015 CBO report on the potential cost of the Navy’s 30-year shipbuilding plan states the following regarding the CVN-78 program: The Navy’s current estimate of the total cost of the lead ship of the CVN-78 class is $12.9 billion in nominal dollars for the period from 2001 to 2016, an amount that is equal to the cost cap set in law.19 CBO used the Navy’s inflation index for naval shipbuilding to convert that figure to $14.7 billion in 2015 dollars, or 23 percent more than the amount requested in the President’s budget proposal when the ship was first authorized in 2008. The Navy’s estimate does not include $4.7 billion in research and development costs that apply to the entire class. Because construction is nearly finished and no major problems have arisen in the test program (which is about half completed), CBO used the Navy’s estimate for the lead ship to estimate the cost of successive ships in the class. That does not mean that all of the cost risk has been eliminated, but CBO estimates that the remaining risk of cost growth would be less than $100 million for the ship. (CBO thus no longer expects the $500 million in cost growth it had estimated for last year’s report.) The next carrier after the CVN-78 will be the CVN-79, the John F. Kennedy. Funding for that ship began in 2007, the Congress officially authorized its construction in 2013, and appropriations for it are expected to be complete by 2018. The Navy estimates that the ship will cost $11.5 billion in nominal dollars and $10.6 billion in 2015 dollars. The Navy’s selected acquisition report on the CVN-79 states that “the Navy and shipbuilder have made fundamental changes in the manner in which the CVN 79 will be built to incorporate lessons learned from CVN 78 and eliminate key contributors to cost performance challenges realized in the construction of CVN 78.”20 Although CBO expects the Navy to achieve a considerable cost reduction in the CVN-79 compared with the CVN-78, CBO’s estimates are somewhat higher than the Navy’s. Specifically, CBO estimates that the cost of the ship will be $11.9 billion in nominal dollars and $11.3 billion in 2015 dollars, about 4 percent more than the Navy’s estimate. The Navy estimates an average cost of $11.3 billion for the 6 carriers in the 2016 shipbuilding plan, the CVN-80 through CVN-85. CBO’s estimate is $12.3 billion per ship. Both estimates are substantially lower for the 2016 plan than they were for 2015. 18 Government Accountability Office, Ford Class Aircraft Carrier[:] Poor Outcomes Are the Predictable Consequences of the Prevalent Acquisition Culture, GAO-16-84T, October 1, 2015, summary page. (Testimony Before the Committee on Armed Services, U.S. Senate, Statement of Paul L. Francis, Managing Director Acquisition and Sourcing Management.) Congressional Research Service 20 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress The Navy’s current estimate incorporates the effects of efforts to reduce costs for the CVN-79 and successive ships in the class. CBO’s estimate is based on the Navy’s estimate for the final cost of the CVN-78, which reduced the estimated cost of succeeding ships in the class. CBO’s estimate is still above the Navy’s, however, because CBO projects smaller reductions in price than the Navy predicts and because CBO anticipates real cost growth in the naval shipbuilding industry. 19 March 2015 GAO Report A March 2015 GAO report assessing major DOD weapon acquisition programs stated the following regarding the status of the CVN-78 program, including the potential for cost growth: Technology and Design Maturity The Navy reported 9 of CVN 78's 13 critical technologies are now fully mature, with the electromagnetic aircraft launch system (EMALS) fully maturing this year. Critical technologies are installed and shipboard testing is underway; land-based testing continues for EMALS, advanced arresting gear (AAG), and dual band radar (DBR). While EMALS has launched aircraft on land, it has not yet done so in a sea-based environment in its four-launcher configuration. Due to land-based testing failures, the Navy modified AAG's test strategy to ensure the ship begins flight deck certification in 2016. However, this approach means the system will begin arresting certain aircraft on CVN 78 before completing land-based testing on other aircraft types, risking discovery of new issues after ship delivery. The Navy is also unlikely to demonstrate full maturity of a DBR component radar until the completion of shipboard testing, scheduled to begin in January 2015. Further, the Navy will not install DBR on the follow-on ship (CVN 79) as planned, but intends to purchase an alternative radar at a lower cost. Given the concurrency in testing critical technologies, ship testing, and construction, CVN 78 risks further delays. For example, as a result of prior testing, the Navy implemented changes to the design of several key systems, including AAG, EMALS, and DBR. As construction progresses, the shipbuilder is also discovering "first-of-class" design changes, which it is using to update the design model to inform CVN 79 construction. Production Maturity With CVN 78 production over 80 percent complete, the shipbuilder appears to have resolved many of the challenges we noted in our September 2013 report. However, the lagging effect of these issues and a concurrent test program is creating a backlog of activities that threaten the ship's delivery date and could increase costs. Early construction is underway for the first follow-on ship, CVN 79 with about 20 percent of the ship's overall construction effort complete. Other Program Issues In 2007, Congress established a procurement cost cap of $10.5 billion for CVN 78. Since then, legislation increased the cost cap by almost 23 percent to $12.9 billion as the ship's procurement costs increased. Cost and analyses offices in the Office of the Secretary of Defense estimated CVN 78's total cost could exceed the cost cap by $300-$800 million. Delivering CVN 78 under its cost cap depends on the Navy's plan to defer work and costs to the ship's post-delivery period—a strategy that could obscure true costs and likely result in delivery of an incomplete ship. To meet CVN 79's cost cap of $11.5 billion, the Navy is assuming unprecedented efficiency gains in construction by the shipbuilder and plans to adopt a new two-phased acquisition approach that will shift some construction 19 Congressional Budget Office, An Analysis of the Navy’s Fiscal Year 2016 Shipbuilding Plan, October 2015, pp. 2123. Congressional Research Service 21 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress after delivery. The Navy recently delayed the CVN 79 detail design and construction contract and extended the ship's construction preparation contract. The Navy and DOD have not yet resolved whether a full ship shock trial will be required for CVN 78. Navy officials stated that DOD's Director, Operational Test and Evaluation has not approved the Navy's plan to defer this trial to CVN 79. According to the Navy, conducting this trial on CVN 78 would result in additional post-delivery costs and schedule delays. The Navy is awaiting a final determination by the Undersecretary of Defense for Acquisition, Technology and Logistics in March 2015. Program Office Comments In addition to providing technical comments, the program office noted that the Navy is committed to completing CVN 78 and CVN 79 within their respective cost caps. The Navy and shipbuilder continue to take aggressive steps to control CVN 78 costs and drive affordability, as evidenced by stable cost performance over the past three years. Steps were taken to manage the shipboard test program to ensure cost performance remains stable. The Navy deferred some non-critical work not required at delivery to allow the shipbuilder to focus on critical activities to support delivery and provide the Navy the opportunity to complete work at a lower cost through competition. Deferred work cost is accounted for within the ship's end cost and thus is accounted for within the cost cap. For CVN 79, the Navy is executing a two-phase delivery strategy, whereby select system installations will occur in a Phase 2 construction period, minimizing obsolescence risk and increasing opportunity for competition. All costs for both phases of construction are included within the cost cap.20 February 2015 Department of the Navy Testimony At a February 25, 2015, hearing on Department of the Navy acquisition programs, Department of the Navy officials testified: The Navy is committed to delivering CVN 78 within the $12.887 billion Congressional cost cap. Sustained efforts to identify cost reductions and drive improved cost and schedule on this first-of-class aircraft carrier have resulted in highly stable performance since 2011. Parallel efforts by the Navy and shipbuilder are driving down and stabilizing aircraft carrier construction costs for the future John F Kennedy (CVN 79) and estimates for the future Enterprise (CVN 80). As a result of the lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review. The Navy and the shipbuilder have made significant changes on CVN 79 to reduce the cost to build the ship as detailed in the 2013 CVN 79 report to Congress. The benefits of these changes in build strategy and resolution of first-of-class impacts on CVN 79 are evident in metrics showing significantly reduced man-hours for completed work from CVN 78. These efforts are ongoing and additional process improvements continue to be identified. The Navy extended the CVN 79 construction preparation contract into 2015 to enable continuation of ongoing planning, construction, and material procurement while capturing lessons learned associated with lead ship construction and early test results. The continued negotiations of the detail design and construction (DD&C) contract afford an opportunity to incorporate further construction process improvements and cost reduction efforts. Award of the DD&C contract is expected in third quarter FY 2015. This will be a fixed price-type contract. 20 Government Accountability Office, Defense Acquisitions[:] Assessments of Selected Weapon Programs, GAO-15342SP, March 2015, p. 88. Congressional Research Service 22 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Additionally, the Navy will deliver the CVN 79 using a two-phased strategy. This enables select ship systems and compartments to be completed in a second phase, wherein the work can be completed more efficiently through competition or the use of skilled installation teams responsible for these activities. This approach, key to delivering CVN 79 at the lowest cost, also enables the Navy to procure and install shipboard electronic systems at the latest date possible. The FY 2014 NDAA adjusted the CVN 79 and follow ships cost cap to $11,498 million to account for economic inflation and non-recurring engineering for incorporation of lead ship lessons learned and design changes to improve affordability. In transitioning from first-of-class to first follow ships, the Navy has maintained Ford class requirements and the design is highly stable. Similarly, we have imposed strict interval controls to drive changes to the way we do business in order to ensure CVN 79 is delivered below the cost cap. To this same end, the FY 2016 President’s Budget request aligns funding to the most efficient build strategy for this ship and we look for Congress’ full support of this request to enable CVN 79 to be procured at the lowest possible cost. Enterprise (CVN 80) will begin long lead time material procurement in FY 2016. The FY 2016 request re-phases CVN 80 closer to the optimal profile, therefore reducing the overall ship cost. The Navy will continue to investigate and will incorporate further cost reduction initiatives, engineering efficiencies, and lessons learned from CVN 78 and CVN 79. Future cost estimates for CVN 80 will be updated for these future efficiencies as they are identified.21 November 2014 GAO Report A November 2014 GAO report on the CVN-78 program stated: The extent to which the lead Ford-class ship, CVN 78, will be delivered by its current March 2016 delivery date and within the Navy’s $12.9 billion estimate is dependent on the Navy’s plan to defer work and costs to the post-delivery period. Lagging construction progress as well as ongoing issues with key technologies further exacerbate an already compressed schedule and create further cost and schedule risks. With the shipbuilder embarking on one of the most complex phases of construction with the greatest likelihood for cost growth, cost increases beyond the current $12.9 billion cost cap appear likely. In response, the Navy is deferring some work until after ship delivery to create a funding reserve to pay for any additional cost growth stemming from remaining construction risks. This strategy will result in the need for additional funding later, which the Navy plans to request through its post-delivery and outfitting budget account. However, this approach obscures visibility into the true cost of the ship and results in delivering a ship that is less complete than initially planned. CVN 78 will deploy without demonstrating full operational capabilities because it cannot achieve certain key requirements according to its current test schedule. Key requirements—such as increasing aircraft launch and recovery rates—will likely not be met before the ship is deployment ready and could limit ship operations. Further, CVN 78 will not meet a requirement that allows for increases to the size of the crew over the service life of the ship. In fact, the ship may not even be able to accommodate the likely need for additional crew to operate the ship without operational tradeoffs. Since GAO’s 21 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 Lieutenant General Kenneth J. Glueck, Jr., Deputy Commandant, Combat Development and Integration & Commanding General, Marine Corps Combat Development Command, Before the Subcommittee on Seapower and Projection Forces of the House Armed Services Committee on Department of the Navy Seapower and Projection Forces Capabilities, February 25, 2015, pp. 5-6. Congressional Research Service 23 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress last report in September 2013, post-delivery plans to test CVN 78’s capabilities have become more compressed, further increasing the likelihood that CVN 78 will not deploy as scheduled or will deploy without fully tested systems. The Navy is implementing steps to achieve the $11.5 billion congressional cost cap for the second ship, CVN 79, but these are largely based on ambitious efficiency gains and reducing a significant amount of construction, installation, and testing—work traditionally completed prior to ship delivery. Since GAO last reported in September 2013, the Navy extended CVN 79’s construction preparation contract to allow additional time for the shipbuilder to reduce cost risks and incorporate lessons learned from construction of CVN 78. At the same time, the Navy continues to revise its acquisition strategy for CVN 79 in an effort to ensure that costs do not exceed the cost cap, by postponing installation of some systems until after ship delivery, and deferring an estimated $200 million - $250 million in previously planned capability upgrades of the ship’s combat systems to be completed well after the ship is operational. Further, if CVN 79 construction costs should grow above the legislated cost cap, the Navy may choose to use funding intended for work to complete the ship after delivery to cover construction cost increases. As with CVN 78, the Navy could choose to request additional funding through post-delivery budget accounts not included in calculating the ship’s end cost. Navy officials view this as an approach to managing the cost cap. However, doing so impairs accountability for actual ship costs. 22 Navy Response to November 2014 GAO Report A Navy information paper responding to the November 2014 GAO report states (bold font as in original): — The Navy cost estimate to complete CVN 78 is $12.887B. Cost performance on the ship has been stable since this estimate was established in 2011, thus providing confidence that the Navy will deliver the ship within the cost cap. — This cost estimate accounts for inflation and cost growth associated with completing the ship design, ship construction (material and labor), and government furnished equipment. The inflation impact (cost associated with economic impacts during the period of performance, 2006-2016) was not included in the original $10.5B cost cap. — Performance-related cost growth is largely due to the lack of maturity of the design and development at the point in time when the estimate was established and the impact of concurrency of design, development and construction in the early stages of this first of class aircraft carrier. — The significant new design features incorporated in the CVN 78 class provide for increased warfighting capability, increased survivability, increased service life margins to handle weapons of the future, and most notably, reduced operating and support cost throughout the carrier‘s life. The advanced design enables increased sortie generation rates (SGR) and a reduction of up to 1200 crew and airmen which, alongside other new design features, results in an estimated $4B reduction per aircraft carrier in its service life. Current Navy SGR model results and manpower analysis indicate these requirements will be met. — The Navy has provided monthly reports to Congress since the fall of 2011 and has testified regarding progress on the ship’s completion, including the risk of future cost growth associated with shipboard testing of the significant new 22 Government Accountability Office, Ford-Class Aircraft Carrier[:] Congress Should Consider Revising Cost Cap Legislation to Include All Construction Costs, GAO-15-22, November 2014, summary page. Congressional Research Service 24 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress capabilities designed into this first of class carrier. The Navy believes it has an effective plan to mitigate the risk, which places primary emphasis on a ‘build-to-test’ strategy for completing the highest risk systems, but cannot discount that there is potential for test issues that could impact the carrier’s completion. — In order to alleviate some of the cost and schedule pressures associated with completing CVN 78, the Navy has identified certain areas of the ship whose completion is not required for delivery—such as berthing spaces for the aviation detachment—and has removed this work from the shipbuilder’s contract. This deferred work will be completed within the ship’s budgeted end cost and is included within both the $12.887B cost estimate and cost cap. — By performing this deferred work in the post-delivery period using CVN 78 end cost funding, it can be competed and accomplished at lower cost and risk to the overall ship delivery schedule. Importantly, this action uniquely introduces competition within the otherwise sole-source cost-plus environment at the shipyard and is the type of action necessary to complete the ship at the lowest cost possible. — The Navy intends to continue to seek these types of opportunities to drive down the cost and risk of aircraft carrier new construction. — Outfitting/Post Delivery funding will not be used to accomplish this deferred work on CVN 78. — The cost estimate and cost cap for CVN 79 was established in 2006. This estimate did not include adjustment for the near-decade of inflation that would occur between 2006 and the timeframe when CVN 79 would be procured. The CY$2006 $8.1B estimate for CVN 79, escalated to the ships actual years of procurement, equates to the $11.498B budget and cost cap established for CVN 79. The cost cap established in 2006 for CVN 79 and follow ships did not account for: — Potential revision to the cost estimate as a result of experience gained through completion of design, development, construction, and test of the first of class ship, or — Potential upgrades, modernization, or new requirements subsequent to establishing the 2006 CVN 78 design baseline. — The Navy is proceeding with a two-phased plan to deliver CVN 79 as an operationally deployable CVN 78-like repeat under the $11.498M cost cap. The twophased strategy will allow the basic ship to be constructed and tested in the most efficient manner by the shipbuilder (phase I) while enabling select ship systems and compartments to be completed in a second phase wherein the work can be completed more efficiently through competition or the use of skilled installation teams responsible for these activities. Critically, this two-phased approach also enables the Navy to procure and install at the latest date possible shipboard electronic systems which otherwise would be subject to obsolescence prior to CVN 79’s first deployment in the 2027 timeframe. Both phase I and phase II are funded within the CVN 79 budgeted end cost and are included within both the $11.498B cost estimate and cost cap. — Outfitting/Post Delivery funding will not be used to procure or install systems planned for phase II on CVN 79. — Capability beyond that contained in CVN 78 will be considered using established Navy procedures for ship modernization. — Navy will take these actions consistent with the Congressional cost cap and existing regulations, and will continue to do so with full transparency to ensure there is no cause for confusion or concern regarding obscuring the cost of our aircraft carriers. — The Navy strongly recommends against any change by Congress that would include Post-Delivery and Outfitting within the cost cap because of the potential Congressional Research Service 25 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress direct and deleterious impact this may have on training, certification and making these ships ready for operations and deployment. Separate and distinct from ship ‘end cost’, funding is budgeted within a centrally managed account for Navy ships to provide for ship’s outfitting material and spares, crew support and certifications, shipyard services and support (pier services, material handling, security, technical assistance, etc), and correction of government responsible test and trial deficiencies during the postDelivery period. In certain cases, modernization may be conducted during this postDelivery period to update/upgrade ship systems based on requirements that have emerged since the ship was originally contracted. This Outfitting/Post Delivery fund is highly variable, by-hull, is not used for ship completion, and accordingly is not included by Congress in the ship’s cost cap.23 March 2013 Navy Report to Congress (Released May 2013) A March 2013 report to Congress on the Navy’s plan for building CVN-79 that was released to the public on May 16, 2013, states in its executive summary: As a result of the lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review and the Navy and the shipbuilder have made significant changes on CVN 79 that will significantly reduce the cost to build the ship. These include four key construction areas: — CVN 79 construction will start with a complete design and a complete bill of material — CVN 79 construction will start with a firm set of stable requirements — CVN 79 construction will start with the development complete on a host of new technologies inserted on CVN 78 ranging from the Electromagnetic Aircraft Launch System (EMALS), the Dual Band Radar, and the reactor plant, to key valves in systems throughout the ship — CVN 79 construction will start with an ‘optimal build’ plan that emphasizes the completion of work and ship outfitting as early as possible in the construction process to optimize cost and ultimately schedule performance. In addition to these fundamentals, the Navy and the shipbuilder are tackling cost through a series of other changes that when taken over the entire carrier will have a significant impact on construction costs. The Navy has also imposed cost targets and is aggressively pursuing cost reduction initiatives in its government furnished systems. A detailed accounting of these actions is included in this report. The actions discussed in this report are expected to reduce the material cost of CVN 79 by 10-20% in real terms from CVN 78, to reduce the number of man-hours required to build the CVN 79 by 15-25% from CVN 78, and to reduce the cost of government furnished systems by 5-10% in real terms from CVN 78.24 For the full text of the Navy’s report, see the Appendix. 23 Navy information paper entitled “Navy Response to GAO Report on CVN 78 Class (GAO 15-22, Nov [20]14),” December 3, 2014, provided by Navy Office of Legislative Affairs to CRS and CBO on December 17, 2014. See also Jason Sherman, “Navy To Seek OSD Approval To Revamp CVN-79 Acquisition In Wake Of ‘Affordability’ Review,” Inside the Navy, December 1, 2014. 24 Aircraft Carrier Construction, John F Kennedy (CVN 79), Report to Congress, March 2013, p. 3. An annotation on the report’s cover page indicates that the report was authorized for public release on May 16, 2013. The report was posted at InsideDefense.com (subscription required) on June 21, 2013. See also Megan Eckstein, “Navy Plan To Congress Outlines New Strategies To Save On CVN-79,” Inside the Navy, June 24, 2013. Congressional Research Service 26 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress May 2013 Navy Testimony In its prepared statement for a May 8, 2013, hearing on Navy shipbuilding programs before the Seapower subcommittee of the Senate Armed Services Committee, the Navy stated that In 2011, the Navy identified spiraling cost growth [on CVN-78] associated with first of class non-recurring design, contractor and government furnished equipment, and ship production issues on the lead ship. The Navy completed an end-to-end review of CVN 78 construction in December 2011 and, with the shipbuilder, implemented a series of corrective actions to stem, and to the extent possible, reverse these trends. While cost performance has stabilized, incurred cost growth is irreversible.... As a result of lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review; and the Navy and the shipbuilder have made significant changes on CVN 79 that will reduce the cost to build the ship. CVN 79 construction will start with a complete design, firm requirements, and material economically procured and on hand in support of production need. The ship’s build schedule also provides for increased completion levels at each stage of construction with resulting improved production efficiencies.... Inarguably, this new class of aircraft carrier brings forward tremendous capability and life-cycle cost advantages compared to the NIMITZ-class it will replace. However, the design, development and construction efforts required to overcome the technical challenges inherent to these advanced capabilities have significantly impacted cost performance on the lead ship. The Navy continues implementing actions from the 2012 detailed review of the FORD-Class build plan to control cost and improve performance across lead and follow ship contracts. This effort, taken in conjunction with a series of corrective actions with the shipbuilder on the lead ship, will not recover costs to original targets for GERALD R. FORD [CVN-78], but should improve performance on the lead ship while fully benefitting CVN 79 and following ships of the class. 25 In the discussion portion of the hearing, Sean Stackley, the Assistant Secretary of the Navy for Research, Development and Acquisition (i.e., the Navy’s acquisition executive), testified that First, the cost growth on the CVN-78 is unacceptable. The cost growth dates back in time to the very basic concepts that went into take in the Nimitz-class and doing a total redesign of the Nimitz class to get to a level of capability and to reduce operating and support cost for the future carrier. Far too much risk was carried into the design of the first of the Ford-class. Cost growth stems to the design was moving at the time production started. The vendor base that was responsible for delivering new components and material to support the ship production was (inaudible) with new developments in the vendor base and production plan do not account for the material ordering difficulties, the material delivery difficulties and some of the challenges associated with building a whole new design compared to the Nimitz.... Sir, for CVN-79, we have—we have held up the expenditures on CVN-79 as we go through the details of—one, ensuring that the design of the 78 is complete and repeated for the 79s [sic] that we start with a clean design. 25 Statement of The Honorable Sean J. Stackley, Assistant Secretary of the Navy (Research, Development and Acquisition) and Vice Admiral Allen G. Myers, Deputy Chief of Naval Operations for Integration of Capabilities and Resources and Vice Admiral Kevin M. McCoy, Commander, Naval Sea Systems Command, Before the Subcommittee on Seapower of the Senate Armed Services Committee on Department of the Navy Shipbuilding Programs, May 8, 2013, p. 8. Congressional Research Service 27 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Two, we're going through the material procurement. We brought a third party into assessment material-buying practices at Newport News to bring down the cost of material. And we're metering out the dollars for buying material until it hits the objectives that we're setting for CVN-79 through rewriting the build plan on CVN-79. If you take a look at how the 78 is being constructed, far too much work is being accomplished late in the build cycle. So we are rewriting the build plan for CVN-79, do more work in the shops where it’s more efficient, more work in the buildings where it’s more efficient, less work in the dry dock, less work on the water. And then we're going after the rates—the labor rates and the investments needed by the shipbuilder to achieve these efficiencies.26 Later in the hearing, Stackley testified that the history in shipbuilding is since you don't have a prototype for a new ship, the first of class referred to as the lead ship is your prototype. And so you carry a lot of risk into the construction of that first of class. Also, given the nature that there’s a lengthy design development and build span associated with ships, so there is a certain amount of overlap or concurrency that occurs between the development of new systems that need to be delivered with the first ship, the incorporation of the design of those new systems and the actual construction. And so to the extent that there is change in a new ship class then the risk goes up accordingly. In the case of the CVN-78, the degree of change compared to the Nimitz was fairly extraordinary all for good reasons, good intentions, increased capability, increased survivability, significant reduction in operating and support costs. So there was a determination that will take on this risk in order to get those benefits, and the case of the CVN-78, those risks are driving a lot of the cost growth on the lead ship. When you think about the follow ships, now you've got a stable design, now your vendor base has got a production line going to support the production. Now you've got a build plan and a workforce that has climbed up on the learning curve to drive cost down. So you can look at—you can look at virtually every shipbuilding program and you'll see a significant drop-off in cost from that first of class to the follow ships. And then you look for a stable learning curve to take over in the longer term production of a ship class. Carriers are unique for a number of reasons, one of which we don't have an annual procurement of carriers. They're spread out over a five and, in fact, in the case of 78 as much as seven-year period. So in order to achieve that learning, there are additional challenges associated with achieving that learning. And so we're going at it very deliberately on the CVN-79 through the build plan with the shipbuilder to hit the line that we've got to have—the cost reductions that we've got to have on the follow ships of the class.27 March 2012 Navy Letter to Senator McCain Secretary of the Navy Ray Mabus, in a letter with attachment sent in late March 2012 to Senator John McCain on controlling cost growth in CVN-78, stated: Dear Senator McCain: 26 27 Transcript of hearing. Transcript of hearing. Congressional Research Service 28 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Thank you for your letter of March 21, 2012, regarding the first-of-class aircraft carrier, GERALD R. FORD (CVN 78). Few major programs carry greater importance or greater impact on national security, and no other major program comprises greater scale and complexity than the Navy’s nuclear aircraft carrier program. Accordingly, successful execution of this program carries the highest priority within the Department of the Navy. I have shared in the past my concern when I took office and learned the full magnitude of new technologies and design change being brought to the FORD. Requirements drawn up more than a decade prior for this capital ship drove development of a new reactor plant, propulsion system, electric plant and power distribution system, first of kind electromagnetic aircraft launching system, advanced arresting gear, integrated warfare system including a new radar and communications suite, air conditioning plant, weapons elevators, topside design, survivability improvements, and all new interior arrangements. CVN 78 is a near-total redesign of the NIMITZ Class she replaces. Further, these major developments, which were to be incrementally introduced in the program, were directed in 2002 to be integrated into CVN 78 in a single step. Today we are confronting the cost impacts of these decisions made more than a decade ago. In my August 29, 2011 letter, I provided details regarding these cost impacts. At that time, I reported the current estimate for the Navy’s share of the shipbuilder’s construction overrun, $690 million, and described that I had directed an end-to-end review to identify the changes necessary to improve cost for carrier design, material procurement, planning, build and test. The attached white paper provides the findings of that review and the steps we are taking to drive affordability into the remaining CVN 78 construction effort. Pending the results of these efforts, the Navy has included the ‘fact of life’ portion of the stated overrun in the Fiscal Year 2013 President’s Budget request. The review also highlighted the compounding effects of applying traditional carrier build planning to a radically new design; the challenges inherent to low-rate, sole-source carrier procurement; and the impact of external economic factors accrued over 15 years of CVN 78 procurement—all within the framework of cost-plus contracts. The outlined approach for ensuring CVN 79 and follow ship affordability focuses equally upon tackling these issues while applying the many lessons learned in the course of CVN 78 procurement. As always, if I may be of further assistance, please let me know. Sincerely, [signed] Ray Mabus Attachment: As stated Copy to: The Honorable Carl Levin, Chairman [Attachment] Improving Cost Performance on CVN 78 CVN 78 is nearing 40 percent completion. Cost growth to-date is attributable to increases in design, contractor furnished material, government furnished material (notably, the Electromagnetic Aircraft Launching System (EMALS), Advanced Arresting Gear (AAG), and the Dual Band Radar (DBR)), and production labor performance. To achieve the best case outcome, the program must execute with zero additional cost growth in design and material procurement, and must improve production performance. The Navy and the shipbuilder have implemented a series of actions and initiatives in the management and oversight of CVN 78 that cross the full span of contracting, design, material procurement, government furnished equipment, production planning, production, management and oversight. CVN 78 is being procured within a framework of cost-plus contracts. Within this framework, however, the recent series of action taken by the Navy to improve contract effectiveness are achieving the desired effect of incentivizing improved cost performance and reducing government exposure to further cost growth. Congressional Research Service 29 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress  CVN 78 design has been converted from a ‘level of effort, fixed fee’ contract to a completion contract with a firm target and incentive fee. Shipbuilder cost performance has been on-target or better since this contract was changed.  CVN 78 construction fee has been retracted, consistent with contract performance. However, the shipbuilder is incentivized by the contract shareline to improve upon current performance to meet agreed-to cost goals.  Contract design changes are under strict control; authorized only for safety, damage control, mission-degrading deficiencies, or similar. Adjudicated changes have been contained to less than 1 percent of contract target price.  The Navy converted the EMALS and AAG production contract to a firm, fixed price contract, capping cost growth to that system and imposing negative incentives for late delivery.  Naval Sea Systems Command is performing a review of carrier specifications with the shipbuilder, removing or improving upon overly burdensome or unneeded specifications that impose unnecessary cost on the program. The single largest impact to cost performance to-date has been contractor and government material cost overruns. These issues trace to lead ship complexity and CVN 78 concurrency, but they also point to inadequate accountability for carrier material procurement, primarily during the ship’s advance procurement period (2002-2008). These effects cannot be reversed on CVN 78, but it is essential to improve upon material delivery to the shipyard to mitigate the significant impact of material delays on production performance. Equally important, the systemic material procurement deficiencies must be corrected for CVN 79. To this end, the Navy and shipbuilder have taken the following actions.  The Navy has employed outside supply chain management experts to develop optimal material procurement strategies. The Navy and the shipbuilder are reviewing remaining material requirements to employ these best practices (structuring procurements to achieve quantity discounts, dual-sourcing to improve schedule performance and leverage competitive opportunities, etc.).  The shipbuilder has assigned engineering and material sourcing personnel to each of their key vendors to expedite component qualifications and delivery to the shipyard.  The shipbuilder is inventorying all excess material procured on CVN 78 for transfer to CVN 79 (cost reduction to CVN 78), as applicable.  The Program Executive Officer (Carriers) is conducting quarterly flag-level government furnished equipment summits to drive cost reduction opportunities and ensure on-time delivery of required equipment and design information to the shipbuilder. The most important finding regarding CVN 78 remaining cost is that the CVN 78 build plan, consistent with the NIMITZ class, focuses foremost on completion of structural and critical path work to support launching the ship on-schedule. This emphasis on structure comes at the expense of completing ship systems, outfitting, and furnishing early in the build process and results in costly, labor-intensive system completion activity during later; more costly stages of production. Achieving the program’s cost improvement targets will require that CVN 78 increase its level of completion at launch, from current estimate of 60 percent to no less than 65 percent. To achieve this goal and drive greater focus on system completion: Congressional Research Service 30 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress  the Navy fostered a collaborative build process review by the shipbuilder with other Tier 1 private shipyards in order to benchmark its performance arid identify fundamental changes that would yield marked improvement;  the shipbuilder has established specific launch metrics by system (foundations, machinery, piping, power panels, vent duct, lighting, etc.) and increased staffing for waterfront engineering and material expediters to support meeting these metrics;  the shipbuilder has linked all of these processes within a detailed integrated master schedule, providing greater visibility to current performance and greater ability to control future cost and schedule performance across the shipbuilding disciplines;  the Navy and shipbuilder are conducting Unit Readiness Reviews of CVN 78 erection units to ensure that the outfitted condition of each hull unit being lifted into the dry-dock contains the proper level of outfitting. These initiatives, which summarize a more detailed list of actions being implemented and tracked as result of the end-to-end review, are accompanied by important management changes.  The shipbuilder has assigned a new Vice President in charge of CVN 78, a new Vice President in charge of material management and purchasing, and a number of new general shop foreman to strengthen CVN 78 performance.  The Navy has assigned a second tour Flag Officer with considerable carrier operations, construction, and program management experience as the new ProgramExecutive Officer (PEO).  The PEO and shipyard president conduct bi-weekly launch readiness reviews focusing on cost performance, critical path issues and accomplishment of the target for launch completion.  The Assistant Secretary of the Navy (Research, Development, and Acquisition) conducts a monthly review of program progress and performance with the PEO and shipbuilder, bringing to bear the full weight of the Department, as needed, to ensure that all that can be done to improve on cost performance is being done. Early production performance improvements can be traced directly to these actions, however, significant further improvement is required. To this end, the Navy is conducting a line-by-line review of all ‘cost to-go’ on CVN 78 to identify further opportunity to reduce cost and to mitigate risk. Improving Cost Performance on CVN 79 CVN 79 Advance Procurement commenced in 2007 with early construction activities following in 2011. Authorization for CVN 79 procurement is requested in Fiscal Year 2013 President’s Budget request with the first year of incremental funding. Two years have been added to the CVN 79 production schedule in this budget request, afforded by the fact that CVN 79 will replace CVN 68 when she inactivates. To improve affordability for CVN 79, the Navy plans to leverage this added time by introducing a fundamental change to the carrier procurement approach and a corresponding shift to the carrier build plan, while incorporating CVN 78 lessons learned. The two principal ‘documents’ which the Navy and shipbuilder must ensure are correct and complete at the outset of CVN 79 procurement are the design and the build plan. Design is governed by rules in place that no changes will be considered for the follow ship except changes necessary to correct design deficiencies on the lead ship, fact of life changes to correct obsolescence issues, or changes that will result in reduced cost for the follow ship. Exceptions to these rules must be approved by the JROC, or designee. Accordingly, the Navy is requesting procurement authority for CVN 79 with the Design Congressional Research Service 31 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Product Model complete and construction drawings approximately 95 percent complete (compared to approximately 30 percent complete at time of lead ship authorization). As well, first article testing and certification will be complete for virtually all major new equipments introduced in the FORD Class. At this point in time, the shipbuilder has developed a complete bill of material for CVN 79. The Navy is working with the shipbuilder to ensure that the contractor’s material estimates are in-line with Navy ‘should cost’ estimates; eliminating non-recurring costs embedded in lead ship material, validating quantities, validating escalation indices, incorporating lead ship lessons learned. The Navy has increased its oversight of contractor furnished material procurement, ensuring that material procurement is competed (where competition is available); that it is fixed priced; that commodities are bundled to leverage economic order quantity opportunities; and that the vendor base capacity and schedule for receipt supports the optimal build plan being developed for production. In total, the high level of design maturity and material certification provides a stable technical baseline for material procurement cost and schedule performance, which are critical to developing and executing an improved, reliable build plan. In order to significantly improve production labor performance, based on timely receipt of design and material, the Navy and shipbuilder are reviewing and implementing changes to the CVN 79 build plan and affected facilities. The guiding principles are:  maximize planned work in the shops and early stages of construction;  revise sequence of structural unit construction to maximize learning curve performance through ‘families of units’ and work cells;  incorporate design changes to improve FORD Class producibility;  increase the size of erection units to eliminate disruptive unit breaks and improve unit alignment and fairness;  increase outfitting levels for assembled units prior to erection in the dry-dock;  increase overall ship completion levels at each key event. The shipbuilder is working on detailed plans for facility improvements that will improve productivity, and the Navy will consider incentives for capital improvements that would provide targeted return on investment, such as:  increasing the amount of temporary and permanent covered work areas;  adding ramps and service towers for improved access to work sites and the dry-dock;  increasing lift capacity to enable construction of larger, more fully outfitted superlifts: An incremental improvement to carrier construction cost will fall short of the improvement necessary to ensure affordability for CVN 79 and follow ships. Accordingly, the shipbuilder has established aggressive targets for CVN 79 to drive the game-changing improvements needed for carrier construction. These targets include:  75 percent Complete at Launch (15 percent> [i.e., 15 percent greater than] FORD);  85-90 percent of cable pulled prior to Launch (25-30 percent> FORD);  30 percent increase in front-end shop work (piping details, foundations, etc);  All structural unit hot work complete prior to blast and paint;  25 percent increase to work package throughput; Congressional Research Service 32 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress  100 percent of material available for all work packages in accordance with the integrated master schedule;  zero delinquent engineering and planning products;  resolution of engineering problems in < 8 [i.e., less than 8] hours. In parallel with efforts to improve shipbuilder costs, the PEO is establishing equally aggressive targets to reduce the cost of government furnished equipment for CVN 79; working equipment item by equipment item with an objective to reduce overall GFE costs by ~$500 million. Likewise, the Naval Sea Systems Command is committed to continuing its ongoing effort to identify specification changes that could significantly reduce cost without compromising safety and technical rigor. The output of these efforts comprises the optimal build plan for CVN 79 and follow, and will be incorporated in the detail design and construction baseline for CVN 79. CVN 79 will be procured using a fixed price incentive contract. 28 Recent Press Reports A July 2, 2015, press report states: The Navy plans to spend $25 million per year beginning in 2017 as a way to invest in lowering the cost of building the services’ new Ford-class aircraft carriers, service officials said. “We will use this design for affordability to make new improvements in cost cutting technologies that will go into our ships,” said Rear Adm. Michael Manazir, Director, Air Warfare.... “We just awarded a contract to buy long lead item materials [for CVN-79] and lay out an allocated budget for each of the components of that ship. We want to build the ship in the most efficient manner possible,” Rear Adm. Thomas Moore, Program Executive Officer, Carriers, said. Navy leaders say the service is making positive strides regarding the cost of construction for the USS Kennedy and plans to stay within the congressional cost cap of $11.498 billion.... The $25 million design for affordability initiative is aimed at helping to uncover innovative shipbuilding techniques and strategies that will accomplish this and lower costs. Moore said the goal of the program is to, among other things, remove $500 million from the cost of the third Ford-class carrier, the USS Enterprise, CVN 80. “It is finding a million here and a million there and eventually that is how you get a billion dollars out of the ship from (CVN) 78 to (CVN) 79. The goal is to get another $500 million out of CVN 80. The $25 million dollars is a pretty prudent investment if we can continue to drive the cost of this class of ship down,” Moore told reporters recently. Moore explained that part of the goal is to get to the point where a Ford-class carrier can be built for the same amount of man-hours it took to build their predecessor ships, the Nimitz-class carriers. 28 Letter and attachment from Secretary of the Navy Ray Mabus to Senator John McCain, undated but posted at InsideDefnse.com (subscription required) on March 27, 2012. InsideDefense.com’s description of the letter states that it is dated March 26, 2012. Congressional Research Service 33 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress “We want to get back to the goal of being able to build it for historical Nimitz class levels in terms of man hours for a ship that is significantly more capable and more complex to build,” Moore added. The money will invest in new approaches and explore the processes that a shipyard can use to build the ship, Moore added. “They’ve made a significant investment in these new welding machines. These new welding machines allow the welder to use different configurations. This has significantly improved the throughput that the shipyard has,” Moore said, citing an example of the kind of thing the funds would be used for. The funds will also look into whether new coatings for the ship or welding techniques can be used and whether millions of feet of electrical cabling can be installed in a more efficient manner, Moore added. Other cost saving efforts assisted by the funding include the increased use of complex assemblies, common integrated work packages, automated plate marking, weapons elevator door re-design and vertical build strategies, Navy officials said. Shipbuilders could also use a new strategy of having work crews stay on the same kind of work for several weeks at a time in order to increase efficiency, Moore said. Also, some of the construction work done on the USS Ford while it was in dry dock is now being done in workshops and other areas to improve the building process, he added. 29 A June 29, 2015, press report states: Newport News Shipbuilding will see cost reduction on the order of 18 percent fewer man hours overall from the first Ford-class aircraft carrier to the second, according to a company representative. Ken Mahler, Newport News vice president of Navy programs, touted the shipyard's cost savings on the John F. Kennedy (CVN-79) during a June 15 interview with Inside the Navy. This reduction was facilitated by the investments the shipyard is making in carrier construction, as well as lessons learned from the first ship, the Gerald R. Ford (CVN-78), which will deliver next year.30 A June 23, 2015, press report states: The Pentagon’s cost-assessment office now says the Navy’s second aircraft carrier in a new class will exceed a congressionally mandated cost cap by $235 million. That’s down from an April estimate that the USS John F. Kennedy, the second warship in the new Ford class, would bust a $11.498 billion cap set by lawmakers by $370 million. 31 The Navy maintains that it can deliver the ship within the congressional limit. “The original figure was a draft based on preliminary information,” Navy Commander Bill Urban, a spokesman for the Pentagon’s Cost Assessment and Program Evaluation office, said in an e-mail. As better information, such as updated labor rates, became available, the office “revised its estimate to a more accurate number,” he said. 32 29 Kris Osborn, “Navy Launches New Affordability Plan for Ford-Class Carriers,” DOD Buzz, July 2, 2015. Lara Seligman, “Newport News See 18 Percent Fewer Man Hours On Second Ford Carrier,” Inside the Navy, June 29, 2015. 31 See Anthony Capaccio, “Aircraft Carrier $370 Million Over Congressional Cost Cap,” Bloomberg News, May 19, 2015. 32 Anthony Capaccio, “Second New Carrier Now Seen Busting a Cost Cap by $235 Million,” Bloomberg News, June 23, 2015. 30 Congressional Research Service 34 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress A June 15, 2015, press report states: [Rear Admiral Tom] Moore [program executive officer for aircraft carriers]. said the program would save a billion dollars by decreasing the man hours needed to construct the ship by 18 percent from CVN-78 to 79—down to about 44 million manhours. He said this reduction is only a first step in taking cost ouot of the carrier program. The future Enterprise (CVN-80) will take about 4 million manhours out, or another 10 percent reduction, for a savings of about $500 million. But beyond seeking ways to take cost out, the contract itself reduces the risk to the government, Moore said. “The main construction of the ship is now in a fixed price environment, so that switchover really limits the government’s liability,” he said. Without getting into specific dollar amounts due to business sensitivities, Moore explained that “this is the lowest target fee we’ve ever had on any CVN new construction. Look at tghe shape of the share [government-contractor cost] share lines, because the share lines at the end of the day are a measure of risk. So where we’d like to get quickly to [a] 50/50 [share line], in past carrier contracts we’ve been out at 85/15, 90/10—which basically means for every dollar over [the target cost figure, up to the ceiling cost figure], the government picks up 85 cents on the dollar. And this contract very quickly gets to 50/50. The other thing is ceiling price—on a fixed-price contract, the ceiling price is the government’s maximum liability. And on this particular contract, again, it is the lowest ceiling price we’ve ever had [for a CVN].” 33 Issues Raised in January 2015 DOT&E Report Another oversight issue for Congress concerns CVN-78 program issues raised in a January 2015 report from DOD’s Director, Operational Test and Evaluation (DOT&E)—DOT&E’s annual report for FY2014. The report stated the following in its section on the CVN-78 program: Assessment Test Planning • A new TEMP [Test and Evaluation Master Plan for the CVN-78 program] is under development to address problems with the currently-approved TEMP. The TEMP in the approval process improves integrated platform-level developmental testing, reducing the likelihood that platform-level problems will be discovered during IOT&E [Initial Operational Test and Evaluation]. In addition, the Program Office is in the process of refining the post-delivery schedule to further integrate testing. • The current state of the VCVN [Virtual CVN] model does not fully provide for an accurate accounting of SGR [Sortie Generation Rate] due to a lack of fidelity regarding manning and equipment/aircraft availability. Spiral development of the VCVN model continues in order to ensure that the required fidelity will be available to support the SGR assessment during IOT&E. • The Navy plans to take delivery CVN-78 in March 2016. The ship’s post-shipyard shakedown availability will follow delivery in late 2016. During the post-shipyard shakedown availability installations of some systems will be completed. The first at-sea operational test and evaluation of CVN-78 will begin in September 2017. Reliability 33 Megan Eckstein, “Navy: CVN-79 Contract Has Lowest Ceiling Price Ever; R&D Investment Will Take Out Further Cost,” USNI News, June 15, 2015. Congressional Research Service 35 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress • CVN-78 includes several systems that are new to aircraft carriers; four of these systems stand out as being critical to flight operations: EMALS [Electromagnetic Aircraft Launching System], AAG [Advanced Arresting Gear], DBR [Dual Ban d Radar], and the Advanced Weapons Elevators (AWEs). Overall, the uncertain reliability of these four systems is the most significant risk to the CVN-78 IOT&E. All four of these systems will be tested for the first time in their shipboard configurations aboard CVN-78. Reliability estimates derived from test data were provided last year for EMALS and AAG and are discussed below. The Navy has stated that in the last year, they did not assess EMALS and AAG reliability due to systems’ redesign and investigative and developmental testing. For DBR and AWE, estimates based on test data are not available and only engineering reliability estimates are available. EMALS • EMALS is one of the four systems critical to flight operations. While testing to date has demonstrated that EMALS should be able to launch aircraft planned for CVN- 78’s air wing, present limitations on F/A-18E/F and EA-18G configurations as well as the system’s reliability remains uncertain. As of December 2013, at the Lakehurst, New Jersey, test site, over 1,967 launches had been conducted with 201 chargeable failures. At that time, the program estimates that EMALS has approximately 240 Mean Cycles Between Critical Failure in the shipboard configuration, where a cycle represents the launch of one aircraft. Based on expected reliability growth, the failure rate for the last reported Mean Cycles Between Critical Failure was five times higher than should have been expected. As of August 2014, the Navy has reported that over 3,017 launches have been conducted at the Lakehurst test site, but have not provided DOT&E with an update of failures. The Navy intends to provide DOT&E an update of failures in December 2014. AAG • AAG is another system critical to flight operations. Testing to date has demonstrated that AAG should be able to recover aircraft planned for the CVN-78 air wing, but as with EMALS, AAG’s reliability is uncertain. At the Lakehurst test site, 71 arrestments were conducted early in 2013 and 9 chargeable failures occurred. The Program Office last provided reliability data in December 2013 and estimated that AAG had approximately 20 Mean Cycles Between Operational Mission Failure in the shipboard configuration, where a cycle represents the recovery of one aircraft. Following these tests, the Navy modified the system and has yet to score reliability of AAG. Based on expected reliability growth as of 2013, the failure rate was 248 times higher than should have been expected. DBR • Previous testing of Navy combat systems similar to CVN-78’s revealed numerous integration problems that degrade the performance of the combat system. Many of these problems are expected to exist on CVN-78. The previous results emphasize the necessity of maintaining a DBR/CVN-78 combat system asset at Wallops Island. The Navy is considering long-term plans (i.e., beyond FY15) for testing DBR at Wallops Island, but it is not clear if resources and funding will be available. Such plans are critical to delivering a fully-capable combat system and ensuring life-cycle support after CVN-78 delivery in 2016. SGR • It is unlikely that CVN-78 will achieve its SGR requirement. The target threshold is based on unrealistic assumptions including fair weather and unlimited visibility, and that aircraft emergencies, failures of shipboard equipment, ship maneuvers, and manning shortfalls will not affect flight operations. DOT&E plans to assess CVN-78 performance Congressional Research Service 36 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress during IOT&E by comparing it to the SGR requirement as well as to the demonstrated performance of the Nimitz class carriers. • During the operational assessment, DOT&E conducted an analysis of past aircraft carrier operations in major conflicts. The analysis concludes that the CVN-78 SGR requirement is well above historical levels and that CVN 78 is unlikely to achieve that requirement. There are concerns with the reliability of key systems that support sortie generation on CVN-78. Poor reliability of these critical systems could cause a cascading series of delays during flight operations that would affect CVN-78’s ability to generate sorties, make the ship more vulnerable to attack, or create limitations during routine operations. DOT&E assesses the poor or unknown reliability of these critical subsystems will be the most significant risk to CVN-78’s successful completion of IOT&E. The analysis also considered the operational implications of a shortfall and concluded that as long as CVN-78 is able to generate sorties comparable to Nimitz class carriers, the operational implications of CVN-78 will be similar to that of a Nimitz class carrier. Manning • Current manning estimates have shortages of bunks for Chief Petty Officers (CPOs) and do not provide the required 10 percent SLA for all berthing. The Navy plans to redesignate/design some officer rooms as CPO berthing spaces. Per the Office of the Chief of Naval Operations Instruction 9640.1B, Shipboard Habitability Program, all new ships are required to have a growth allowance of 10 percent of the ship’s company when the ship delivers. The SLA provides empty bunks to allow for changes in the crew composition over CVN 78’s expected 50-year lifespan and provides berthing for visitors and Service members temporarily assigned to the ship. JPALS • As the Navy reformulates the JPALS Test and Evaluation Master Plan, it faces significant challenges in defining how it will demonstrate the operational effectiveness and operational suitability of the restructured system without a representative aircraft platform. F-35 • The arresting hook system remains an integration risk as the F-35 development schedule leaves no time for discovering new problems. The redesigned tail hook has an increased downward force as well as sharper design that may induce greater than anticipated wear on the flight deck. • F-35 noise levels remain moderate to high risk in F-35 integration and will require modified carrier flight deck procedures. -- Flight operations normally locate some flight deck personnel in areas where double hearing protection would be insufficient during F-35 operations. To partially mitigate noise concerns, the Navy will procure new hearing protection with active noise reduction for flight deck personnel. -- Projected noise levels one level below the flight deck (03 level), which includes mission planning spaces, will require at least single hearing protection that will make mission planning difficult. The Navy is working to mitigate the effects of the increased noise levels adjacent to the flight deck. • Storage of the F-35 engine is limited to the hangar bay, which will affect hangar bay operations. The impact on the F-35 logistics footprint is not yet known. • Lightning protection of F-35 aircraft while on the flight deck will require the Navy to modify nitrogen carts to increase their capacity. Nitrogen is filled in fuel tank cavities while aircraft are on the flight deck or hangar bay. Congressional Research Service 37 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress • F-35 remains unable to share battle damage assessment and non-traditional Intelligence, Surveillance, and Reconnaissance information captured on the aircraft portable memory device or cockpit voice recorder in real- time. In addition, the CVN-78 remains unable to receive and display imagery transmitted through Link 16 because of bandwidth limitations; this problem is not unique to F-35. These capability gaps were identified in DOT&E’s FY12 Annual Report. The Combatant Commanders have requested these capabilities to enhance decision-making. LFT&E [Live Fire Test & Evaluation] • The Navy has made substantial progress on defining the scope of the TSST and the Analytical Bridge task. While these portions of the LFT&E Management Plan were adequately defined in the Revision B document, DOT&E returned the LFT&E Management Plan to the Navy solely on the basis of the FSST on CVN 79 verses CVN78. • CVN-78 has many new critical systems, such as EMALS, AAG, and DBR, that have not undergone shock trials on other platforms. Unlike past tests on other new classes of ships with legacy systems, the performance of CVN-78’s new critical systems is unknown. • The Navy proposes delaying the shock trial by five to seven years because of the approximately four- to six- month delay required to perform the FSST. The benefit of having test data to affect the design of future carriers in the class outweighs the delay in delivery of CVN-78 to the fleet to conduct this test. The delay is not a sufficient reason to postpone the shock trial. Recommendations • Status of Previous Recommendations. The Navy should continue to address the eight remaining FY10, FY11, and FY13 recommendations. 1. Adequately test and address integration challenges with F-35; specifically: -- Logistics (unique concerns for storage and transportation) -- Changes required to JBDs -- Changes to flight deck procedures due to heat and noise -- Autonomic Logistics Information System integration 2. Finalize plans that address CVN-78 Integrated Warfare System engineering and ship’s self-defense system discrepancies prior to the start of IOT&E. 3. Continue aggressive EMALS and AAG risk-reduction efforts to maximize opportunity for successful system design and test completion in time to meet required in-yard dates for shipboard installation of components. 4. Continue development of a realistic model for determining CVN-78’s SGR, while utilizing realistic assumptions regarding equipment availability, manning, and weather conditions for use in the IOT&E. 5. Provide scheduling, funding, and execution plans to DOT&E for the live SGR test event during the IOT&E. 6. Continue to work with the Navy’s Bureau of Personnel to achieve adequate depth and breadth of required personnel to sufficiently meet Navy Enlisted Classification fit/fill manning requirements of CVN-78. 7. Conduct system-of-systems developmental testing to preclude discovery of deficiencies during IOT&E. Congressional Research Service 38 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress 8. Address the uncertain reliability of EMALS, AAG, DBR, and AWE. These systems are critical to CVN-78 flight operations, and are the largest risk to the program. • FY14 Recommendations. The Navy should: 1. Aggressively fund and address a solution for the excessive EMALS holdback release dynamics during F/A-18E/F and EA-18G catapult launches with wing-mounted 480gallon EFTs. 2. Plan for fully integrated, robust, end-to-end testing of the restructured JPALS onboard both manned high-performance and unmanned aircraft, including operations in neutral and potentially hostile electronic warfare environments. 34 Potential for Combined Material Purchase for CVNs 80 and 81 Another potential issue for Congress is the possibility of reducing the procurement costs of CVN80 and CVN-81 (a carrier scheduled for procurement in FY2023) through the use of combined purchases of materials and components for the two ships. The issue was discussed at a February 25, 2015, hearing on Department of the Navy acquisition programs before the Seapower and Projection Forces subcommittee of the House Armed Services Committee. At this hearing, the following exchange occurred: REPRESENATIVE WITTMAN (continuing): Secretary Stackley, traditionally, as you look at aircraft carrier advice, we've done them in two-ship procurements....35 We've seen with Arleigh Burke-class destroyers as we purchase ships in groups [i.e., under multiyear procurement contracts], we've seen about 15 percent savings when we do that just because of certainties especially for our suppliers for those ships especially aircraft carriers. Is there any consideration given to grouping advance procurement on CVN 80 and CVN 81...? SEAN STACKLEY, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH, DEVELOPMENT, AND ACQUISITION: Let me start with the advance procurement for CVN 80 and CVN 81. There's strong argument for why that makes great sense. When you're procuring an aircraft carrier about once every five years and you're relying on a very unique industrial base to do that what you don't want to do is go through the start-stop-start-stop cycle over a stretched period of time and that's a big cost impact. But the challenge is by the same token, the build cycle for our carrier is greater than 10 years. So CVN 79, for example, she started her advance procurement in [FY]2009 and then she will be delivering to the Navy in 2022. So that's a 13-year period. So when you talk about doubling down and buying material to support two carriers five years apart that have a 13-year build span, you're trying to buy material as much as 18 years ahead of when the carrier went through the fleet. 34 Department of Defense, Director, Operational Test & Evaluation, FY2014 Annual Report, released January 2015, pp. 168-170. 35 This appears to be a reference to the two-ship aircraft carrier buys of FY1983 (CVNs 72 and 73) and FY1988 (CVNs 74 and 75). Congressional Research Service 39 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress So it's a—it makes great sense looking at just from the program's perspective on why we want to do that to drive the cost of the carrier down, there's risk associated with things like not necessarily obsolescence but change associated with the carrier because the threat changes and that brings change. And then the investment that far in advance when the asset actually interests the fleet. As the acquisition guy, I will argue for why we need to do that but getting through -carrying that argument all the way through to say that we're going to take the [CVN] 80 which is in [FY]2018 ship, the [CVN] 81 which is at [sic:an] [FY]2023 ship, buy material early for that 2023 ship delivering to the Navy in the mid 2030s. That's going to be a hard—it's going to be hard for me to carry the day in terms of our budget process. WITTMAN: So we have to have the compelling case for the specific things that from industrial base perspective from a move the needle from a cost perspective justify the combined buys of [CVN] 80 and [CVN] 81 together. Well, it seems like even if the scale is an issue as far as how much you've have to expand to do that and manage that within the budget, you could at least then identify those critical suppliers and look for certainty to make sure that they can continue providing those specialty parts and if you can at least pair it down, again, at a critical mass where you can demonstrate economies scale saving that you get at least say, these are the areas we need to maintain this industrial base especially for small scale suppliers that rely on certainty to continue that effort. So have you all given any thoughts to be able to scale at least within that area maybe not to get 15 percent savings but still create certainty, make sure the suppliers are there but also gain saving. STACKLEY: Yes, sir. We have a very conservative effort going on for the Navy and Newport News [Shipbuilding] on all things cost related to the CVN 78 class for all the right reasons. We are looking ahead at [CVN] 80 which is a 2016— the advance procurement starts in 2016 for the [CVN] 80, most of that could be nuclear material. But Newport News [Shipbuilding] has bought the initiative to the table in terms of combined buys from material and now we have to sort out can we in fact come up with the right list of material that make sense to buy early, to buy combined, to get the savings and not just savings people promising savings in the (inaudible) but to actually to be able to book the savings so we can drive down the cost to those carriers. So we are—I would say that we're working with industry on that. We've got a long way to go to be able to carry the day inside the budget process. First inside the building and then again, I will tell you, we're going to have some challenges convincing some folks on the Hill that this makes sense to invest this early in the future aircraft carrier.36 Navy Study on Smaller Aircraft Carriers Another oversight issue for Congress is whether the Navy should shift at some point from procuring large-deck, nuclear-powered carriers like the CVN-78 class to procuring smaller aircraft carriers. The issue has been studied periodically by the Navy and other observers over the years. To cite one example, the Navy studied the question in deciding on the aircraft carrier 36 Source: transcript of hearing. Earlier versions of this CRS report discussed the possibility for reducing the procurement costs of CVN-79 and CVN-80 through the use of a block buy of the two ships. Congressional Research Service 40 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress design that would follow the Nimitz (CVN-68) class. At a March 18, 2015, hearing on Navy shipbuilding programs before the Seapower subcommittee of the Senate Armed Services Committee, the Navy testified that it has initiated a new study on the question.37 Advocates of smaller carriers argue that they are individually less expensive to procure, that the Navy might be able to employ competition between shipyards in their procurement (something that the Navy cannot with large-deck, nuclear-powered carriers like the CVN-78 class, because only one U.S. shipyard, HII/NNS, can build aircraft carriers of that size), and that today’s aircraft carriers concentrate much of the Navy’s striking power into a relatively small number of expensive platforms that adversaries could focus on attacking in time of war. Supporters of large-deck, nuclear-powered carriers argue that smaller carriers, though individually less expensive to procure, are less cost-effective in terms of dollars spent per aircraft embarked or aircraft sorties that can be generated, that it might be possible to use competition in procuring certain materials and components for large-deck, nuclear-powered aircraft carriers, and that smaller carriers, though perhaps affordable in larger numbers, would be individually less survivable in time of war than large-deck, nuclear-powered carriers. At the March 18, 2015, hearing on Navy shipbuilding programs, the following exchange occurred: SENATOR ROGER WICKER, CHAIRMAN: Well, Senator McCain expressed concern about competition. And I think that was with, in regard to aircraft carriers. SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH, DEVELOPMENT,AND ACQUISITION, Yes, Sir. WICKER: Would you care to respond to that? STACKLEY: He made a generic comment that we need competition to help control cost in our programs and we are absolutely in agreement there. With specific regards to the aircraft carrier, we have been asked and we are following suit to conduct a study to look at alternatives to the Nimitz and Ford class size and type of aircraft carriers, to see if it make sense. We've done this in the past. We're not going to simply break out prior studies, dust them off and resubmit it. We're taking a hard look to see is there—is there a sweet spot, something different other than today's 100,000 ton carrier that would make sense to provide the power projection that we need, that we get today from our aircraft carriers, but at the same time put us in a more affordable position for providing that capability. WICKER: OK. But right now, he's—he's made a correct factual statement with regard to the lack of competition. STACKLEY: 37 Spoken testimony of Sean Stackley, Assistant Secretary of the Navy for Research, Development, and Acquisition, in response to a question from Senator John McCain, as reflected in transcript of hearing. Congressional Research Service 41 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Yes, Sir. There is—yes, there is no other shipyard in the world that has the ability to construct a Ford or a Nimitz nuclear aircraft carrier other than what we have in Newport News and the capital investment to do that is prohibitive to set up a second source, so obviously we are—we are content, not with the lack of competition, but we are content with knowing that we're only going to have one builder for our aircraft carriers. 38 On March 20, 2015, the Navy provided the following additional statement to the press: As indicated in testimony, the Navy has an ongoing study to explore the possible composition of our future large deck aviation ship force, including carriers. There is a historical precedent for these type[s] of exploratory studies as we look for efficiencies and ways to improve our war fighting capabilities. This study will reflect our continued commitment to reducing costs across all platforms by matching capabilities to projected threats and Also [sic] seeks to identify acquisition strategies that promote competition in naval ship construction. While I can’t comment on an ongoing study, what I can tell you is that the results will be used to inform future shipbuilding budget submissions and efforts, beyond what is currently planned.39 Shock Trial for CVN-78 Class Another potential oversight issue for Congress is whether the shock trial for the CVN-78 class should be conducted on the first ship in the class (CVN-78) or the second (CVN-79). A shock trial—known formally as a full ship shock trial (FSST)—is a test of the combat survivability of the design for a new class of ships. In a shock trial, an explosive charge is set off in the water some distance from one of the ships in the class, and the ship’s response to the shock from the blast is measured. The purpose of the test is to confirm that the ship can withstand explosive shocks up to a certain level (and to identify any design changes that might need to be made). Ship components are tested individually for their ability to withstand shock, but a full-ship shock trial helps to confirm that the ship as a whole, with all of its components integrated, will respond to the shock in the way that modeling and simulation suggests it will. The Navy’s preference is to conduct the shock trial on CVN-79, because conducting it on CVN78, the Navy says, could delay the first deployment of CVN-78 by at least six months, and perhaps as much as two years, delaying the date when the Navy’s carrier force would effectively return to 11 ships and putting additional stress on the deployment schedules of the Navy’s 10 other carriers. The Navy states that component-level shock testing will be complete before CVN78’s first deployment, and that computer modeling and simulation of full-ship responses to shock has advanced to the point where the risks of deferring the shock trial to CVN-79 are now acceptable. Past shock trials for certain other Navy ship classes, the Navy states, have been conducted not on the lead ships in those programs, but on subsequent ships. The preference of DOD’s Director of Operational Test and Evaluation (DOT&E) and certain other DOD officials is to conduct the shock trial CVN-78, because the CVN-78 class design includes many new systems and internal design changes comparted to the previous Nimitz (CVN68) class design, because computer modeling and simulation of a ship’s response to shock, no matter how well done, is not conclusive, and because CVN-79 will not enter service until 2022, creating a period of several years during which the CVN-78 would operate without real-world confirmation of the modeling and simulation. 38 39 Transcript of hearing. As printed in Sam LaGrone, “Navy Conducting Alternative Carrier Study,” USNI News, March 23, 2015. Congressional Research Service 42 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress In August 2015, the Office of the Secretary of Defense (OSD), in effect adjudicating the disagreement between the Navy on the one hand and DOT&E and the other DOD officials on the other hand, directed the Navy to conduct the shock test on CVN-78 prior to the initial operational deployment of CVN-78.40 Legislative Activity for FY2016 FY2016 Funding Request As shown in Table 1, the Navy’s proposed FY2016 budget requests $123.8 million in cost-tocomplete procurement funding to cover cost growth on CVN-78, $1,634.7 million in procurement funding for CVN-79, and $874.7 million in advance procurement (AP) funding for CVN-80. FY2016 National Defense Authorization Act (H.R. 1735/S. 1376) House (Committee Report) The House Armed Services Committee, in its report (H.Rept. 114-102 of May 5, 2015) on H.R. 1735, recommends approval of the Navy’s FY2016 requests for procurement, advance procurement, and cost-to-complete procurement funding for the CVN-78 program (page 421, lines 001 and 002, and page 422, line 025). Section 122 of H.R. 1735 as reported by the committee states: SEC. 122. Procurement authority for aircraft carrier programs. (a) Procurement authority in support of construction of Ford class aircraft carriers.— (1) AUTHORITY FOR ECONOMIC ORDER QUANTITY.—The Secretary of the Navy may procure materiel and equipment in support of the construction of the Ford class aircraft carriers designated CVN–80 and CVN–81 in economic order quantities when cost savings are achievable. (2) LIABILITY.—Any contract entered into under paragraph (1) shall provide that any obligation of the United States to make a payment under the contract is subject to the availability of appropriations for that purpose, and that total liability to the Government for termination of any contract entered into shall be limited to the total amount of funding obligated at time of termination. (b) Refueling and complex overhaul of Nimitz class aircraft carriers.— (1) IN GENERAL.—The Secretary of the Navy may carry out the nuclear refueling and complex overhaul of each of the following Nimitz class aircraft carriers: (A) U.S.S. George Washington (CVN–73). (B) U.S.S. John C. Stennis (CVN–74). (C) U.S.S. Harry S. Truman (CVN–75). 40 For additional discussion, see Valerie Insinna, “Shock trial Could Delay Ford’s First Deployment by Two Years,” Defense Daily, September 11, 2015: 1-2; David Larter, “Experts Say Ford Delay To Cause More Deployment Flux,” Defense News, August 13, 2015; Sam LaGrone, “Pentagon Orders Shock Test for Carrier Gerald Ford, Could Delay First Deployment,” USNI News, August 11, 2015; Anthony Capaccio, “U.S. Navy Ordered to Put Costliest Carrier Through Shock Testing,” Bloomberg News, August 11, 2015; Anthony Capaccio, “Delaying Shock Tests on Costliest Ship Opposed in Pentagon,” Bloomberg News, June 10, 2015. Congressional Research Service 43 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress (D) U.S.S. Ronald Reagan (CVN–76). (E) U.S.S. George H.W. Bush (CVN–77). (2) USE OF INCREMENTAL FUNDING.—With respect to any contract entered into under paragraph (1) for the nuclear refueling and complex overhaul of a Nimitz class aircraft carrier, the Secretary may use incremental funding for a period not to exceed six years after advance procurement funds for such nuclear refueling and complex overhaul effort are first obligated. (3) CONDITION FOR OUT-YEAR CONTRACT PAYMENTS.—Any contract entered into under paragraph (1) shall provide that any obligation of the United States to make a payment under the contract for a fiscal year after fiscal year 2016 is subject to the availability of appropriations for that purpose for that later fiscal year. Section 1073(e) of H.R. 1735 as reported by the committee states: SEC. 1073. Repeal or revision of reporting requirements related to naval vessels and Merchant Marine.... (e) Report on cost estimate of CVN–79.—Section 122 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364; 120 Stat. 2104), as most recently amended by section 121 of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66), is amended by striking subsection (f). The provision that would be repealed under the above language—subsection (f) of Section 122 of P.L. 109-364, as amended by Section 121 of P.L. 113-66—states: (f) Requirements for CVN-79.-(1) Quarterly cost estimate.--The Secretary of the Navy shall submit to the congressional defense committees on a quarterly basis a report setting forth the most current cost estimate for the aircraft carrier designated as CVN-79 (as estimated by the program manager). Each cost estimate shall include the current percentage of completion of the program, the total costs incurred, and an estimate of costs at completion for ship construction, Government-furnished equipment, and engineering and support costs. (2) Direction for negotiating certain contracts.--The Secretary shall ensure that each prime contract for the aircraft carrier designated as CVN-79 includes an incentive fee structure that will, throughout the period of performance of the contract, provide incentives for each contractor to meet the portion of the cost of the ship, as limited by subsection (a)(2) and adjusted pursuant to subsection (b), for which the contractor is responsible. H.Rept. 114-102 states: USS John F. Kennedy two-phase acquisition strategy The committee notes that the Secretary of the Navy has prepared a two-phase acquisition strategy to support the delivery of the USS John F. Kennedy (CVN 79) that would be concurrent with the inactivation of the USS Nimitz (CVN 68). This strategy would complete the hull, mechanical and electrical construction work (phase I) and then after a planned incremental availability, would install relevant shipboard combat systems and electronics during another availability (phase II). The Navy has indicated that this twophase acquisition strategy will reduce construction costs, increase flexibility in the schedule, provide an opportunity to install a lower-cost radar solution, and preempt required obsolescence management in the first planned incremental availability. The committee is concerned, however, that this two-phase strategy may unnecessarily extend the USS John F. Kennedy fleet induction timeline by 18 months and increase costs as a result of extended overhead and inflationary losses. Congressional Research Service 44 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Therefore, the committee directs the Secretary of the Navy to submit a report to the congressional defense committees by March 1, 2016, about the two-phase acquisition strategy. The report shall include an assessment of conducting the proposed phase II work concurrent with the phase I USS John F. Kennedy effort, and assess the cost and inflationary implications associated with the proposed and concurrent work options. (Pages 31-32) House (Floor Action) On May 14, 2015, as part of its consideration of H.R. 1735, the House rejected, 60-363, H.Amdt. 217, an amendment that would change from 11 to 10 the minimum number of operational aircraft carriers that the Navy is required to maintain under 10 U.S.C. 5062(b). H.Amdt. 217 was amendment number 2 in H.Rept. 114-112 of May 13, 2015, the report on H.Res. 260, providing for the further consideration of H.R. 1735. Senate The Senate Armed Services Committee, in its report (S.Rept. 114-49 of May 19, 2015) on S. 1376, recommends approval of the Navy’s FY2016 requests for procurement, advance procurement, and cost-to-complete procurement funding for the CVN-78 program (page 362, lines 1 and 2, and page 363, line 25). Section 111 of S. 1376 as reported by the committee states: SEC. 111. Amendment to cost limitation baseline for CVN–78 class aircraft carrier program. Section 122(a)(2) of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364; 120 Stat. 2104), as amended by section 121(a) of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66; 127 Stat. 691), is further amended by striking “$11,498,000,000” and inserting “$11,398,000,000”.41 Regarding Section 111, S.Rept. 114-49 states: Amendment to cost limitation baseline for CVN–78 class aircraft carrier program (sec. 111) The committee recommends a provision that would further amend section 122 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109– 364) as amended by section 121(a) of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66) by striking ‘‘$11,498,000,000’’ and inserting ‘‘$11,398,000,000’’. While the lead ship (CVN–78) cost cap remains $12.9 billion, this change would apply to CVN–79 and subsequent CVN–78 class nuclear aircraft carriers. The initial CVN–78 class aircraft carrier cost cap was established by the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364), which set the cost cap for the lead ship at $10.5 billion, plus adjustments for inflation and other factors, and at $8.1 billion for subsequent CVN–78 class carriers, plus adjustments for inflation and other factors. The cost cap was amended by the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66) to $12.9 billion and $11.5 billion, respectively. 41 See also Megan Eckstein, “Navy Won’t Commit to Proposed Congressional Cost Cap for Second Ford-Class Carrier,” USNI News, June 30, 2015. Congressional Research Service 45 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress While the estimated procurement cost of each of the first three CVN–78 class aircraft carriers increased more than $2.0 billion since 2008, the Navy has held cost relatively constant over the past three years. The committee is encouraged by the fiscal year 2016 budget request, which indicates the lead ship is on track to deliver in March 2016 at its cost cap and the estimated procurement costs for CVN–79 and CVN–80 are decreasing. From the fiscal year 2015 budget request to the fiscal year 2016 budget request, the estimated procurement costs for CVN–79 and CVN–80 decreased by $150.0 million and $402.2 million, respectively. In recognition of the gains made in controlling the cost of CVN–78 class aircraft carriers and to allow for $50.0 million of unexpected growth in the CVN–79 procurement cost, the committee recommends reducing the cost cap by $100.0 million from $11.5 billion to $11.4 billion, plus adjustments for inflation and other factors, for CVN–79 and subsequent aircraft carriers. (Pages 7-8) Section 112 of S. 1376 as reported by the committee states: SEC. 112. Limitation on availability of funds for USS JOHN F. KENNEDY (CVN–79). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2016 for procurement for the USS JOHN F. KENNEDY (CVN–79), $100,000,000 may not be obligated or expended until the date on which the Secretary of the Navy submits to the Committees on Armed Services of the Senate and of the House of Representatives the certification required under subsection (b) and the reports required under subsection (c) and (d). (b) Certification regarding full ship shock trials.—The Secretary of the Navy shall submit to the Committees on Armed Services of the Senate and of the House of Representatives a certification that the Navy will conduct by not later than September 30, 2017, full ship shock trials on the USS GERALD R. FORD (CVN–78). (c) Report.— (1) IN GENERAL.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Navy shall submit to the Committees on Armed Services of the Senate and of the House of Representatives a report that evaluates cost issues related to the USS JOHN F. KENNEDY (CVN–79) and the USS ENTERPRISE (CVN–80). (2) ELEMENTS.—The report required under paragraph (1) shall include the following elements: (A) Options to achieve ship end cost of no more than $10,000,000,000. (B) Options to freeze the design of CVN–79 for CVN–80, with exceptions only for changes due to full ship shock trials or other significant test and evaluation results. (C) Options to reduce the plans cost for CVN–80 to less than 50 percent of the CVN–79 plans cost. (D) Options to transition all non-nuclear government furnished equipment, including launch and arresting equipment, to contractor furnished equipment. (E) Options to build the ships at the most economic pace, such as four years between ships. (F) A business case analysis for the Enterprise Air Search Radar modification to CVN–79 and CVN–80. (G) A business case analysis for the two-phase CVN–79 delivery proposal and impact on fleet deployments. (d) Report.— Congressional Research Service 46 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress (1) IN GENERAL.—Not later than April 1, 2016, the Secretary of the Navy shall submit to the Committees on Armed Services of the Senate and of the House of Representatives a report on potential requirements, capabilities, and alternatives for future development of aircraft carriers that would replace or supplement the CVN–78 class aircraft carrier. (2) ELEMENTS.—The report required under paragraph (1) shall include the following elements: (A) A description of fleet, sea-based tactical aviation capability requirements for a range of operational scenarios beginning in the 2025 timeframe. (B) A description of alternative aircraft carrier designs that meet the requirements described under subparagraph (A). (C) A description of nuclear and non-nuclear propulsion options. (D) A description of tonnage options ranging from less than 20,000 tons to greater than 100,000 tons. (E) Requirements for unmanned systems integration from inception. (F) Developmental, procurement, and lifecycle cost assessment of alternatives. (G) A notional acquisition strategy for development and construction of alternatives. (H) A description of shipbuilding industrial base considerations and a plan to ensure opportunity for competition among alternatives. (I) A description of funding and timing considerations related to developing the Annual Long-Range Plan for Construction of Naval Vessels required under section 231 of title 10, United States Code. Regarding Section 112, S.Rept. 114-49 states: Limitation on availability of funds for USS John F. Kennedy (CVN–79) (sec. 112) The committee recommends a provision that would limit $100.0 million in Shipbuilding and Conversion, Navy procurement funds for USS John F. Kennedy (CVN–79) subject to the submission of a certification regarding full ship shock trials and two reports. The committee is concerned by the Navy’s decision to delay by up to 7 years full ship shock trials on CVN–78 class nuclear aircraft carriers from the lead ship, USS Gerald R. Ford (CVN–78), to CVN–79. While the committee understands the Navy is concerned with the cost of the test and potential deployment delay, it is the committee’s view that the benefits outweigh these concerns. With the abundance of new technology, including the catapult, arresting gear, and radar, as well as the reliance on electricity rather than steam to power key systems, there continues to be a great deal of risk in this program. Testing CVN–78 will not only improve the design of future carriers, but also reduce the costs associated with retrofitting engineering changes. Even more importantly, the thought that CVN–78 could deploy and potentially fight without this testing would be imprudent and puts sailors at risk. As a result, the committee directs the Secretary of the Navy to certify that the Navy will conduct by not later than September 30, 2017, full ship shock trials on CVN–78. The committee is also concerned by the cost growth in CVN–78 class aircraft carrier program and the potential for further growth in the future. The committee understands the $2.4 billion in CVN–78 cost growth is attributable to government furnished equipment, design and engineering changes, and shipbuilder performance. The committee views cost reduction efforts in all three of these areas as essential. As a result, the committee directs the specified report. The committee views CVN–78 class aircraft carriers as extraordinarily important instruments of U.S. national military power. However, with costs ranging from $11.5 Congressional Research Service 47 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress billion to more than $13.0 billion, these ships are also extraordinarily expensive, and only one shipbuilder in the world is capable of building these ships. Since the first advance procurement funding for this program was appropriated in fiscal year 2001, each of the first three ships in the class have experienced more than $2.0 billion in procurement cost growth. In view of the vital importance of aircraft carriers to national defense, the cost per ship, lack of competition, and history of cost overruns, the committee directs a report, which examines potential requirements, capabilities, and alternatives for future development of aircraft carriers that would replace or supplement CVN–78 class aircraft carriers. (Page 8) Section 113 of S. 1376 as reported by the committee states: SEC. 113. Limitation on availability of funds for USS ENTERPRISE (CVN–80). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2016 for advance procurement for the USS ENTERPRISE (CVN–80), $191,400,000 may not be obligated or expended until the Secretary of the Navy submits to the Committees on Armed Services of the Senate and the House of Representatives the certification required under subsection (b) and the report required under subsection (c). (b) Certification regarding CVN–80 design.—The Secretary of the Navy shall submit to the Committees on Armed Services of the Senate and the House of Representatives a certification that the design of CVN–80 will repeat that of CVN–79, with modifications only for significant test and evaluation results or significant cost reduction initiatives that still meet threshold requirements. (c) Report.— (1) IN GENERAL.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Navy shall submit to the Committees on Armed Services of the Senate and the House of Representatives a report that details the plans costs related to the USS ENTERPRISE (CVN–80). (2) ELEMENTS.—The report required under paragraph (1) shall include the following elements, reported by total cost and cost by fiscal year, with a detailed description and a justification for why each cost is recurring and attributable to CVN–80: (A) Overall plans. (B) Propulsion plant detail design. (C) Platform detail design. (D) Lead yard services and hull planning yard. (E) Platform detail design (Steam and Electric Plant Planning Yard). (F) Other. Regarding Section 113, S.Rept. 114-49 states: Limitation on availability of funds for USS Enterprise (CVN–80) (sec. 113) The committee recommends a provision that would limit $191.4 million in advance procurement funds for USS Enterprise (CVN–80), until the Secretary of the Navy submits a certification and report to the Committees on Armed Services of the Senate and of the House of Representatives. $191.4 million is the sum of funding requested for plans (detailed) and basic construction for CVN–80. The committee is concerned by the $13.5 billion estimated procurement cost of CVN–80. This cost is $2.1 billion, or 18 percent greater, than the estimated procurement cost of USS John F. Kennedy (CVN–79). While the committee understands inflation contributes Congressional Research Service 48 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress to this cost increase, the committee believes greater savings should be achieved through a stable design and the benefits of industrial base learning curve efficiencies. As a result, the Secretary of the Navy is directed to submit a certification that the design of CVN–80 will repeat that of CVN–79, with exceptions only as specified, and pursuant to section 114 of this Act. In addition, the Secretary of the Navy is directed to submit a report on the plans costs of CVN–80, including a detailed description and justification of the cost elements. (Pages 8-9) Section 114 of S. 1376 as reported by the committee states: SEC. 114. Modification of CVN–78 class aircraft carrier program. Subsection (f) of section 122 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364; 120 Stat. 2104), as added by section 121(c) of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66; 127 Stat. 692), is amended by adding at the end the following new paragraph: “(3)(A) As part of the report required under paragraph (1), the Secretary of the Navy shall include a description of new design and engineering changes to CVN–78 class aircraft carriers if applicable. “(B) The additional reporting requirement in subparagraph (A) shall include, with respect to CVN–78 class aircraft carriers in each reporting period— “(i) any design or engineering change with an associated cost greater than $5,000,000; “(ii) program or ship cost increases for each design or engineering change identified in subparagraph (A); and “(iii) cost reduction achieved. “(C) The Secretary of the Navy and Chief of Naval Operations shall each personally sign (not autopen) the additional reporting requirement in subparagraph (A). This certification may not be delegated. The certification shall include a determination that each change— “(i) serves the national security interests of the United States; “(ii) cannot be deferred to a future ship due to operational necessity, safety, or substantial cost reduction that still meets threshold requirements; and “(iii) was personally reviewed and endorsed by the Secretary of the Navy and Chief of Naval Operations.”. Regarding Section 114, S.Rept. 114-49 states: Modification of CVN–78 class aircraft carrier program (sec. 114) The committee recommends a provision that would amend subsection (f) of section 122 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364; 120 Stat. 2104), as added by section 121(c) of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66; 127 Stat. 692), by adding a reporting requirement to the USS John F. Kennedy (CVN–79) quarterly report. The committee is concerned by the continuing substantial plans costs, design changes, and engineering changes associated with the CVN–78 class aircraft carrier program. While non- recurring plans costs are expected for the lead ship in a class, the committee would expect these costs to drop substantially once the class design is complete and the follow-on ships enter construction. The plans cost for the lead ship, USS Gerald R. Ford (CVN–78), amounts to $3.3 billion, which is 25 percent of the overall ship cost ($12.9 billion). The plans cost for the next ship, CVN–79, is estimated at $880.0 million. The committee understands these costs are attributable to detail design and lead yard services, Congressional Research Service 49 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress which include: planning, material sourcing, engineering, and program management performed by the shipbuilder. The committee is also acutely aware of past cost growth and schedule delays associated with design and engineering changes to this program. The committee believes design and engineering changes to this program should be limited to operational necessity, safety, or cost reduction initiatives that meet threshold requirements. As a result, beginning January 1, 2016, the committee directs the Secretary of the Navy to submit, as part of the CVN–79 quarterly report, a description of new design and engineering changes to CVN—78 class aircraft carriers that exceed $5.0 million and occurred during the reporting period. The report shall include program or ship cost increases for each design or engineering change and any cost reduction achieved. The Secretary of the Navy and Chief of Naval Operations shall each personally sign (not autopen) this additional reporting requirement. This certification may not be delegated. The certification shall include a determination that each change serves the national security interests of the United States; cannot be deferred to a future ship due to operational necessity, safety, or substantial cost reduction; and was personally reviewed and endorsed by the Secretary of the Navy and Chief of Naval Operations. (Pages 9-10) S.Rept. 114-49 also states: Comptroller General review of the CVN–78 class aircraft carrier program The committee notes the estimated procurement costs for the first three CVN–78 class aircraft carriers are $12.9 billion, $11.3 billion, and $13.5 billion, respectively. In fiscal year 2008, the procurement costs for these ships were estimated to be $10.5 billion, $9.2 billion, and $10.7 billion, respectively. The committee remains concerned with the current and potential future cost growth in this program. In light of the significant cost growth since the original estimates and substantial costs that continue to be requested for the CVN–78 aircraft carrier program, the committee directs the Comptroller General of the United States to submit a report, not later than February 1, 2016, that includes analysis and recommendations for the following: (1) Cost estimates and cost estimating practices for the development and acquisition of the first three CVN–78 class aircraft carriers, including the factors that contributed to the quality of these estimates and the extent to which the cost estimates are reliable; (2) Effectiveness of current cost accounting and cost surveillance practices in providing reliable information for budget and program planning and execution, in light of the cost caps; and (3) Reporting format for CVN–78 aircraft carrier program costs, including annual budget requests and selected acquisition reports. (Pages 34-35) Regarding the Navy’s request for FY2016 research and development funding, S.Rept. 114-49 states: USS Gerald R. Ford full ship shock trials The budget request included $48.1 million in PE [Program Element] 64112N for research, development, test, and evaluation of the USS Gerald R. Ford-class nuclear aircraft carrier. The committee notes the Department of Defense is reviewing the Navy decision to delay full ship shock trials from CVN–78 to CVN–79. The committee urges the Department of Defense to restore full ship shock trials to CVN–78. As a result, the committee recommends an increase of $79.1 million to this program. (Page 58) Congressional Research Service 50 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Conference (Version Vetoed) The conference report (H.Rept. 114-270 of September 29, 2015) on H.R. 1735 (which was agreed to by the House and Senate on October 1 and 7, 2015, respectively, and vetoed by the president on October 22, 2015), recommends approval of the Navy’s FY2016 requests for procurement, advance procurement, and cost-to-complete procurement funding for the CVN-78 program (page 911, lines 001 and 002, and page 912, line 025). Section 121 of H.R. 1735 states: SEC. 121. Modification of CVN–78 class aircraft carrier program. (a) Reports on design and engineering changes.—Subsection (f) of section 122 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109– 364; 120 Stat. 2104), as added by section 121(c) of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66; 127 Stat. 692), is amended by adding at the end the following new paragraph: “(3) CVN–78 CLASS AIRCRAFT CARRIERS CHANGE ORDERS.— “(A) As part of each report required under paragraph (1), the Secretary shall include a description of new design and engineering changes to CVN–78 class aircraft carriers if applicable. “(B) The additional reporting requirement in subparagraph (A) shall include, with respect to CVN–78 class aircraft carriers in each reporting period— “(i) any design or engineering change with an associated cost greater than $5,000,000; “(ii) any program or ship cost increases for each design or engineering change identified in subparagraph (A); and “(iii) any cost reduction achieved. “(C) The Secretary and the Chief of Naval Operations, without delegation, shall jointly certify the design and engineering changes included in each report under paragraph (1), as required by subparagraph (A) of this paragraph. Each certification shall include a determination that each such change— “(i) serves the national security interests of the United States; and “(ii) cannot be deferred to a future ship because of operational necessity, safety, or substantial cost reduction that still meets threshold requirements.”. (b) Conforming amendments.—Such subsection is further amended— (1) by striking the heading and inserting the following new heading: “Requirements for CVN–78 class aircraft carriers”; and (2) in paragraph (1), by striking the heading and inserting the following new heading: “CVN–79 quarterly cost estimate”. Section 122 of H.R. 1735 states: SEC. 122. Amendment to cost limitation baseline for CVN–78 class aircraft carrier program. (a) Cost limitation.—Section 122(a)(2) of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364; 120 Stat. 2104), as amended by section 121(a) of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66; 127 Stat. 691), is further amended by striking “$11,498,000,000” and inserting “$11,398,000,000”. Congressional Research Service 51 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress (b) Factor for adjustment.—Subsection (b) of such section 122, as amended by section 121(b)(1) of the National Defense Authorization Act for Fiscal Year 2014, is amended by adding at the end the following new paragraph: “(8) With respect to the aircraft carrier designated as CVN–79, the amounts of increases not exceeding $100,000,000 if the Chief of Naval Operations determines that achieving the amount set forth in subsection (a)(2) (as amended by section 122(a) of the National Defense Authorization Act for Fiscal Year 2016) would result in unacceptable reductions to the operational capability of the ship.”. Regarding Section 122, H.Rept. 114-270 states: Amendment to cost limitation baseline for CVN–78 class aircraft carrier program (sec. 122) The Senate amendment contained a provision (sec. 111) that would further amend section 122 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364) as amended by section 121(a) of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66) by adjusting the procurement cost cap for USS John F. Kennedy (CVN–79) and subsequent CVN–78 class aircraft carriers from $11,498,000,000 to $11,398,000,000. The House bill contained no similar provision. The House recedes with an amendment that would add an additional amendment to section 121(b) of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364), as amended by section 121(a) of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66). The conferees recognize that the Department of the Navy has made considerable gains in controlling the cost of CVN–78 class aircraft carriers and believe further efforts at cost reduction are warranted. The current cost cap and cost estimate for CVN–79 is $11.5 billion, which includes only limited program management reserve for unforeseeable issues during CVN–79 construction. The conferees expect the Department to continue to employ efforts to reduce costs on this ship class and accordingly are lowering the Congressional cap to $11.4 billion. However, if during construction of CVN–79 the Chief of Naval Operations determines that measures required to complete the ship within the revised cost cap shall result in an unacceptable reduction to the ship’s operational capability, the Secretary of the Navy may increase the CVN–79 cost cap up to $11.5 billion. If such action is taken, the Secretary of the Navy shall adhere to the notification requirements specified in section 121(d) of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364). The conferees note that section 122 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law 109–364) set the cost cap for the lead ship at $10.5 billion, plus adjustments for inflation and other factors, and at $8.1 billion for subsequent CVN–78 class carriers, plus adjustments for inflation and other factors. Section 122 was amended by section 121(a) of the National Defense Authorization Act for Fiscal Year 2014 (Public Law 113–66), which revised the cost cap for the lead ship to $12.9 billion, plus adjustments for inflation and other factors, and to $11.5 billion for subsequent CVN–78 class carriers, plus adjustments for inflation and other factors. The conferees understand 90 percent or $3.1 billion of the $3.4 billion increase in the cost cap for follow-on ships is attributable to economic inflation, which includes actual inflation realized and updated projections of future inflation based on Navy shipbuilding inflation indices. In view of this significant cost growth attributed to inflation, the Congressional Budget Office is directed to provide a report to the congressional defense committees no later than December 1, 2015 that includes the following elements: Congressional Research Service 52 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress (1) Explanation of how inflation was calculated and projected in the cost estimates for CVN–78 class aircraft carriers in each annual budget from fiscal year 2007 to fiscal year 2015; (2) Description of inflation rates for CVN–78, CVN–79, and CVN–80, by fiscal year, from fiscal year 2007 until the obligation work limiting date for each ship; (3) Comparison of projected inflation rates vs. actual inflation rates for CVN–78 class aircraft carriers, by fiscal year, from fiscal year 2007 to fiscal year 2015; (4) Explanation of the key factors that are used to plan for and calculate current and projected inflation rates for CVN–78 class aircraft carrier cost estimates; (5) Explanation of root causes of inflation escalation above the planned inflation assumed in CVN–78 class aircraft carrier cost estimates; and (6) Component-level explanation of the $3.1 billion increase in the cost estimate for CVN–79 and following aircraft carriers attributable to economic inflation. (Pages 607608) Section 126 of H.R. 1735 states: SEC. 126. Refueling and complex overhaul of the U.S.S. George Washington. (a) Refueling and complex overhaul.—The Secretary of the Navy may carry out the nuclear refueling and complex overhaul of the U.S.S. George Washington (CVN–73). (b) Use of incremental funding.—With respect to any contract entered into under subsection (a) for the nuclear refueling and complex overhaul of the U.S.S. George Washington, the Secretary may use incremental funding for a period not to exceed six years after advance procurement funds for such nuclear refueling and complex overhaul effort are first obligated. (c) Condition for out-year contract payments.—Any contract entered into under subsection (a) shall provide that any obligation of the United States to make a payment under the contract for a fiscal year after fiscal year 2016 is subject to the availability of appropriations for that purpose for that later fiscal year. Regarding Section 126, H.Rept. 114-270 states: Refueling and complex overhaul of the USS George Washington (sec. 126) The House bill contained a provision (sec. 122) that would provide economic order quantity authority for the construction of two Ford-class aircraft carriers and incremental funding authority for the nuclear refueling and complex overhaul of five Nimitz-class aircraft carriers. The Senate amendment contained no similar provision. The Senate recedes with an amendment that would limit new aircraft carrier program procurement authority to the nuclear refueling and complex overhaul of USS George Washington (CVN–73). The Department of the Navy awarded a detail design and construction contract for the USS John F. Kennedy (CVN–79) on June 5, 2015. At the time of award, Program Executive Officer (PEO), Aircraft Carriers, Rear Admiral Thomas Moore, indicated “...with a stable design, mature requirements and an improved build process, we will reduce construction hours by 18 percent, lower the cost to build the ship by almost $1 billion in real terms compared to CVN–78...”. Following $2.4 billion in cost growth on the lead ship, CVN–78, the conferees are encouraged by the ongoing collaboration between the Department of the Navy and industry to achieve cost reductions. The conferees note that other ship construction programs have been able to reduce costs Congressional Research Service 53 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress through acquisition efficiencies and economic order decisions. Therefore, to better assess acquisition options, the conferees direct the Secretary of the Navy to submit a report to the congressional defense committees by March 1, 2016, that provides an assessment of the merits associated with using economic order quantity procurement with CVN– 80 and CVN–81. This report should assess the specific aircraft carrier components that would be best suited to include in a potential economic order quantity contract, and the estimated cost savings that could be achieved using this procurement authority. (Pages 609-610) Section 128 of H.R. 1735 states: SEC. 128. Limitation on availability of funds for U.S.S. John F. Kennedy (CVN–79). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2016 for procurement for the U.S.S. John F. Kennedy (CVN–79), $100,000,000 may not be obligated or expended until the date on which the Secretary of the Navy submits to the congressional defense committees the certification under subsection (b)(1) or the notification under paragraph (2) of such subsection, as the case may be, and the reports under subsections (c) and (d). (b) Certification regarding full ship shock trials.— (1) IN GENERAL.—Except as provided by paragraph (2), not later than 90 days after the date of the enactment of this Act, the Secretary of the Navy shall submit to the congressional defense committees a certification that the Navy will conduct full ship shock trials on the U.S.S. Gerald R. Ford (CVN–78) prior to the first deployment of such ship. (2) WAIVER.—The Secretary of Defense may waive the certification required under paragraph (1) if the Secretary submits to the congressional defense committees a notification of such waiver, including— (A) the rationale of the Secretary for issuing such waiver; (B) a certification that the Secretary has analyzed and accepts the operational risk of the U.S.S. Gerald R. Ford deploying without having conducted full ship shock trials; and (C) a certification that full ship shock trials will be completed on the U.S.S. Gerald R. Ford after the first deployment of such ship and prior to the first major maintenance availability of such ship. (c) Report on costs relating to CVN–79 and CVN–80.— (1) IN GENERAL.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Navy shall submit to the congressional defense committees a report that evaluates cost issues related to the U.S.S. John F. Kennedy (CVN–79) and the U.S.S. Enterprise (CVN–80). (2) ELEMENTS.—The report under paragraph (1) shall include the following: (A) Options to achieve ship end cost of no more than $10,000,000,000. (B) Options to freeze the design of CVN–79 for CVN–80, with exceptions only for changes due to full ship shock trials or other significant test and evaluation results. (C) Options to reduce the plans cost for CVN–80 to less than 50 percent of the CVN–79 plans cost. (D) Options to transition all non-nuclear Government-furnished equipment, including launch and arresting equipment, to contractor-furnished equipment. (E) Options to build the ships at the most economic pace, such as four years between ships. Congressional Research Service 54 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress (F) A business case analysis for the Enterprise Air Search Radar modification to CVN–79 and CVN–80. (G) A business case analysis for the two-phase CVN–79 delivery proposal and impact on fleet deployments. (d) Report on future development.— (1) IN GENERAL.—Not later than April 1, 2016, the Secretary of the Navy shall submit to the congressional defense committees a report on potential requirements, capabilities, and alternatives for the future development of aircraft carriers that would replace or supplement the CVN–78 class aircraft carrier. (2) ELEMENTS.—The report under paragraph (1) shall include the following: (A) A description of fleet, sea-based tactical aviation capability requirements for a range of operational scenarios beginning in the 2025 timeframe. (B) A description of alternative aircraft carrier designs that meet the requirements described under subparagraph (A). (C) A description of nuclear and non-nuclear propulsion options. (D) A description of tonnage options ranging from less than 20,000 tons to greater than 100,000 tons. (E) Requirements for unmanned systems integration from inception. (F) Developmental, procurement, and lifecycle cost assessment of alternatives. (G) A notional acquisition strategy for the development and construction of alternatives. (H) A description of shipbuilding industrial base considerations and a plan to ensure opportunity for competition among alternatives. (I) A description of funding and timing considerations related to developing the Annual Long-Range Plan for Construction of Naval Vessels required under section 231 of title 10, United States Code. Section 129 of H.R. 1735 states: SEC. 129. Limitation on availability of funds for U.S.S. Enterprise (CVN–80). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2016 for advance procurement for the U.S.S. Enterprise (CVN–80), $191,400,000 may not be obligated or expended until the date on which the Secretary of the Navy submits to the congressional defense committees the certification under subsection (b) and the report under subsection (c). (b) Certification regarding CVN–80 design.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Navy shall submit to the congressional defense committees a certification that the design of the U.S.S. Enterprise (CVN–80) will repeat the design of CVN–79, with modifications only for significant test and evaluation results or significant cost reduction initiatives that still meet threshold requirements. (c) Report.— (1) IN GENERAL.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Navy shall submit to the congressional defense committees a report that details the costs of the plans related to the U.S.S. Enterprise (CVN–80). (2) ELEMENTS.—The report under paragraph (1) shall include the following elements, reported by total cost and cost by fiscal year, with a detailed description and a justification for why each cost is recurring and attributable to the U.S.S. Enterprise (CVN–80): Congressional Research Service 55 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress (A) Overall plans. (B) Propulsion plant detail design. (C) Platform detail design. (D) Lead yard services and hull planning yard. (E) Platform detail design (Steam and Electric Plant Planning Yard). (F) Other. FY2016 DOD Appropriations Act (H.R. 2685/S. 1558) House The House Appropriations Committee, in its report (H.Rept. 114-139 of June 5, 2015) on H.R. 2685, recommended reducing by $74.724 million the Navy’s FY2016 procurement funding request for the CVN-78 program, with the reduction being for        “SSEE hardware and tech services cost growth” ($1.570 million); “High frequency radio cost growth” ($2.804 million); “Other electronics growth” ($4.279 million); “EMALS hardware cost growth” ($55.538 million); “AAG engineering growth” ($4.056 million); “MK-29 launching system hardware cost growth” ($2.986 million); and “HM&E [hull, mechanical, and electrical] engineering services cost growth” ($3.491 million). (Page 161) Senate The Senate Appropriations Committee, in its report (S.Rept. 114-63 of June 11, 2015) on S. 1558, recommended reducing by $191.5 million the Navy’s FY2016 advance procurement (AP) funding request for the CVN-78 program, with the reduction being for “Restoring acquisition accountability: Defer non-nuclear long-lead material.” (Page 100, line 2) Congressional Research Service 56 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Appendix. March 2013 Navy Report to Congress on Construction Plan for CVN-79 This appendix reprints a March 2013 Navy report to Congress on the Navy’s construction plan for CVN-79.42 42 Aircraft Carrier Construction, John F Kennedy (CVN 79), Report to Congress, March 2013, 17 pp. An annotation on the report’s cover page indicates that the report was authorized for public release on May 16, 2013. The report was posted at InsideDefense.com (subscription required) on June 21, 2013. See also Megan Eckstein, “Navy Plan To Congress Outlines New Strategies To Save On CVN-79,” Inside the Navy, June 24, 2013. Congressional Research Service 57 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 58 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 59 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 60 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 61 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 62 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 63 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 64 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 65 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 66 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 67 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 68 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 69 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 70 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 71 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 72 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 73 Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress Congressional Research Service 74 Navy Ford (CVN-78) Class Aircraft Carrier 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 75