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

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


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

Summary
The TAO(X) oiler shipbuilding program is a program to build a new class of 17 fleet oilers for the
Navy. The primary role of Navy fleet oilers is to transfer fuel to Navy surface ships that are
operating at sea, so as to extend the operating endurance of these surface ships and their
embarked aircraft. The Navy wants to procure the first TAO(X) in FY2016.
The Navy’s proposed FY2016 budget requests $674.2 million to fully fund the procurement of
the first TAO(X). The Navy is requesting this funding in its regular shipbuilding account (the
Shipbuilding and Conversion, Navy, or SCN, account), rather than in the National Defense Sealift
Fund (NDSF), a separate account in the Department of Defense (DOD) budget where DOD
sealift ships and Navy auxiliary ships have been funded.
It was reported in January and February 2015 that the Navy, as part of its acquisition strategy for
the TAO(X) program, wants to issue a combined solicitation consisting of separate Requests for
Proposals (RFPs) for the detailed design and construction of the first six TAO(X)s, the detailed
design and construction of an amphibious assault ship called LHA-8 that the Navy wants to
procure in FY2017, and contract design support for the LX(R) program, a program to procure a
new class of 11 amphibious ships. It was also reported that the Navy wants to limit bidding in this
combined solicitation to two bidders—Ingalls Shipbuilding of Huntington Ingalls Industries
(HII/Ingalls) and National Steel and Shipbuilding Company of General Dynamics
(GD/NASSCO)—on the grounds that these are the only two shipbuilders that have the capability
to build both TAO(X)s and LHA-8.
Issues for Congress for FY2016 regarding the TAO(X) program include
 the potential impact on the TAO(X) program of an extended or full-year
continuing resolution (CR) for FY2016;
 whether to approve, reject, or modify the Navy’s FY2016 request for $674.2
million for the procurement of the first TAO(X);
 whether to fund the procurement of TAO(X)s in the SCN account, as the Navy
proposes, or the NDSF;
 whether to approve, reject, or modify the Navy’s proposal to use a combined
solicitation for the detailed design and construction of the first six TAO(X)s, the
detailed design and construction of LHA-8, and contract design support for the
LX(R) program, and to limit the bidding in this solicitation to HII/Ingalls and
GD/NASSCO; and
 whether to grant the Navy authority to use a block buy contract to procure the
first few TAO(X)s.
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

Contents
Introduction ..................................................................................................................................... 1
Background ..................................................................................................................................... 1
Strategic and Budgetary Context............................................................................................... 1
Role of Navy Fleet Oilers ......................................................................................................... 1
Existing Henry J. Kaiser (TAO-187) Class Oilers .................................................................... 3
TAO(X) Program....................................................................................................................... 4
Program Quantity ................................................................................................................ 4
Program Schedule ............................................................................................................... 5
Program Funding ................................................................................................................ 5
Contracts for Trade Studies ................................................................................................. 6
Ship Capabilities and Design .............................................................................................. 6
Combined Solicitation Limited to Two Builders ................................................................ 8
FY2016 Procurement Funding Request .................................................................................... 8
Issues for Congress .......................................................................................................................... 9
Potential Impact of Continuing Resolution (CR) for FY2016 ................................................ 10
Overview ........................................................................................................................... 10
Impact on TAO(X) Program ............................................................................................. 10
FY2016 Procurement Funding ................................................................................................ 10
Whether to Fund Procurement of TAO(X)s in SCN account or NDSF ................................... 11
Use of Funds ..................................................................................................................... 12
U.S. Content ...................................................................................................................... 13
Navy’s Proposal for Combined Solicitation Limited to Two Builders .................................... 14
Whether to Authorize a Block Buy for the First Few TAO(X)s .............................................. 16
Legislative Activity for FY2016 .................................................................................................... 17
FY2016 Budget ....................................................................................................................... 17
FY2016 National Defense Authorization Act (H.R. 1735/S. 1376) ........................................ 17
House ................................................................................................................................ 17
Senate ................................................................................................................................ 19
Conference (Version Vetoed) ............................................................................................ 20
FY2016 DOD Appropriations Act (H.R. 2685/S. 1558) ......................................................... 22
House ................................................................................................................................ 22
Senate ................................................................................................................................ 22

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

Tables
Table 1. TAO(X) Program Procurement Funding ........................................................................... 6
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress


Contacts
Author Contact Information .......................................................................................................... 23

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Introduction
This report provides background information and issues for Congress on the TAO(X) oiler
shipbuilding program, a program to build a new class of 17 fleet oilers for the Navy. The Navy
wants to procure the first TAO(X) in FY2016. The Navy’s proposed FY2016 budget requests
$674.2 million to fully fund the procurement of the first TAO(X).
Issues for Congress for FY2016 regarding the TAO(X) program include whether to approve,
reject, or modify the Navy’s FY2016 request for $674.2 million for the procurement of the first
TAO(X); whether to fund the procurement of TAO(X)s in the Shipbuilding and Conversion, Navy
(SCN) account, as the Navy proposes, or in the National Defense Sealift Fund (NDSF); whether
to approve, reject, or modify the Navy’s proposal to use a combined solicitation for the detailed
design and construction of the first six TAO(X)s, the detailed design and construction of LHA-8,
and contract design support for the LX(R) program, and to limit the bidding in this solicitation to
HII/Ingalls and GD/NASSCO; and whether to grant the Navy authority to use a block buy
contract to procure the first few TAO(X)s.
Decisions that Congress makes regarding the program could affect Navy capabilities and funding
requirements and the U.S. 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.
Role of Navy Fleet Oilers
The primary role of Navy fleet oilers is to transfer fuel to Navy surface ships that are operating at
sea, so as to extend the operating endurance of these surface ships and their embarked aircraft.
Fleet oilers also provide other surface ships with lubricants, fresh water, and small amounts of dry
cargo. Fleet oilers transfer fuel and other supplies to other surface ships in operations called
underway replenishments (UNREPs). During an UNREP, an oiler steams next to the receiving
ship and transfers fuel by hose (see Figure 1, Figure 2, and Figure 3).1

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

Oilers are one kind of Navy UNREP ship; other Navy UNREP ships include ammunition ships,
dry cargo ships, and multiproduct replenishment ships. The Navy’s UNREP ships are known
more formally as the Navy’s combat logistics force (CLF). Most of the Navy’s CLF ships are
operated by MSC.
Figure 1. Fleet Oiler Conducting an UNREP

Source: Navy photo accessed May 5, 2014, at http://www.navy.mil/view_image.asp?id=163895. The Navy states
that the photo is dated October 24, 2013, and shows the oiler Tippecanoe (TAO-199) extending its fuel probe to
the Aegis cruiser USS Antietam (CG-54), a part of the George Washington (CVN-73) Carrier Strike Group, in
the South China Sea.
Navy oilers carry the designation TAO (sometimes written as T-AO). The T means that the ships
are operated by the Military Sealift Command (MSC) with a mostly-civilian crew; the A means it
is an auxiliary ship of some kind; and the O means that it is, specifically, an oiler.
Although the role of fleet oilers might not be considered as glamorous as that of other Navy ships,
fleet oilers are critical to the Navy’s ability to operate in forward-deployed areas around the world
on a sustained basis. The U.S. Navy’s ability to perform UNREP operations in a safe and efficient
manner on a routine basis is a skill that many other navies lack. An absence of fleet oilers would
significantly complicate the Navy’s ability to operate at sea on a sustained basis in areas such as
the Western Pacific or the Indian Ocean/Persian Gulf region. The Navy states that
the ability to rearm, refuel and re-provision our ships at sea, independent of any
restrictions placed on it by a foreign country, is critical to the Navy’s ability to project
warfighting power from the sea.

(...continued)
Forces Subcommittee, July 30, 2014, p. 3.)
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As the lifeline of resupply to Navy operating forces underway, the ships of the Navy’s
Combat Logistic Force (CLF) enable Carrier Strike Groups and Amphibious Ready
Groups to operate forward and remain on station during peacetime and war, with minimal
reliance on host nation support.2
Figure 2. Fleet Oiler Conducting an UNREP

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

2 Statement of Mr. F. Scott DiLisio, Director, Strategic Mobility / Combat Logistics Division, Office of the Chief of
Naval Operations, on the Logistics and Sealift Force Requirements and Force Structure Assessment Before the House
Armed Services Committee Seapower and Projection Forces Subcommittee, July 30, 2014, pp. 2-3.
3 The oilers shown in Figure 1, Figure 2, and Figure 3 are also Kaiser-class class oilers.
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

shipbuilding operations at Avondale and plans to have Avondale exit the Navy shipbuilding
business. (HII continues to operate two other shipyards that build Navy ships.)
Figure 3. Fleet Oiler Conducting an UNREP

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

4 For more on the Navy’s 306-ship plan, see CRS Report RL32665, Navy Force Structure and Shipbuilding Plans:
Background and Issues for Congress
, by Ronald O'Rourke.
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Figure 4. Henry J. Kaiser (TAO-187) Class Fleet Oiler

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

5 The “gap” year in FY2017 is intended to give the Navy and the shipbuilder time to correct problems in the ship’s
design that are discovered in the process of building the first ship in the class, before those problems are built into
succeeding ships in the class. Inserting a gap year between the first and second ships is a common practice in Navy
shipbuilding programs.
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

Table 1. TAO(X) Program Procurement Funding
(Millions of dollars, rounded to nearest tenth)
FY16
FY17
FY18
FY19
FY20

FY15
(req.)
(proj.)
(proj.)
(proj.)
(proj.)
Procurement funding
0
674.2
0
576.8
579.2
590.6
Procurement quantity
0
1
0
1
1
1
Source: Navy FY2016 budget submission.
The estimated procurement cost of the lead ship includes detailed design/non-recurring
engineering (DD/NRE) costs for the class. This one-time cost accounts for most of the difference
in estimated procurement cost between the first ship and the follow-on ships. Incorporating most
or all of the DD/NRE cost for a class of ship into the procurement cost of the lead ship in the
class is a traditional budgeting practice for Navy shipbuilding programs.
Contracts for Trade Studies
On July 3, 2013, the Navy awarded three shipbuilding firms—General Dynamics’ National Steel
and Shipbuilding Company (GD/NASSCO) of San Diego, CA; HII’s Ingalls Shipbuilding
Division (HII/Ingalls) of Pascagoula, MS; and VT Halter Marine (VTHM) of Pascagoula, MS—
contracts of $1.7 million each to conduct eight-month design trade-off studies for the TAO(X).6
The studies informed Navy deliberations regarding the capabilities and cost of the TAO(X).
Ship Capabilities and Design
Although the design of the TAO(X) has not yet been determined in detail, the Navy anticipates
that the ship will have capabilities similar to those of the Kaiser-class ships, and that the TAO(X)
will rely on existing technologies rather than new technologies. To guard against oil spills,
TAO(X)s are to be double-hulled, like modern commercial oil tankers, with a space between the
two hulls to protect the inner hull against events that puncture the outer hull. (The final Kaiser-
class ships are double-hulled, but earlier ships in the class are single-hulled.)
At an April 24, 2013, hearing on Navy and Air Force acquisition before the Seapower and
Projection Forces subcommittee of the House Armed Services Committee, Sean Stackley, the
Assistant Secretary of the Navy for Research, Development, and Acquisition (i.e., the Navy’s
acquisition executive), testified that
we’re doing design studies leading up to the ultimate competition for procurement in
2016. We are, in fact, doing everything we can to just leverage mature technologies.
There is no invention or breakthrough required for TAOX. We want to leverage
commercial design to the extent practical, and we’re working through those details right
now, inside the building [i.e., the Pentagon], inside the process and with industry.7
A July 15, 2013, press report quoted Frank McCarthy, the Navy’s program manager for support
ships, boats, and craft, as stating that

6 See, for example, Megan Eckstein, “Navy Awards Three Trade-Off Industry Study Contracts For T-AO(X) Oilers,”
Inside the Navy, July 8, 2013.
7 Transcript of hearing.
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

We know the [TAO(X)’s] basic capacities, the size, the relative speed, how much dry
cargo we're going to hold, and whether it’s going to be aircraft-capable or not, and how
capable it’s going to be.... So we do know those things, and we have tons of lessons
learned from the T-AO-187 program and the [Lewis and Clark class] T-AKE [dry cargo
ship] program because it’s a similar mission ship in terms of being a shuttle [i.e.,
UNREP] ship. We’ve taken all those lessons learned and rolled them into the system
specification, and we've involved our operators and users at Military Sealift Command to
help inform the system specification.
The press report stated that the TAO(X) would have capabilities similar to the Kaiser-class ships,
but that compared to the Kaiser-class design, the TAO(X) will have increased space for dry cargo,
as well as a refueling capability for helicopters on its deck.8
At an April 10, 2014, hearing on Navy shipbuilding programs before the Seapower subcommittee
of the Senate Armed Services Committee, the Navy testified that
Research and development efforts continue as the Navy matures its concept for the
replacement of the KAISER Class (T-AO 187) of Fleet Replenishment Oilers. The new
replacement oilers, currently designated as T-AO(X), will be double-hulled and meet Oil
Pollution Act 1990 and International Marine Pollution Regulations. Similar to the
LHA(R) and LX(R) [amphibious ship acquisition] programs, T-AO(X) benefitted from
early industry engagement in terms of cost/capability trade-off studies that will help to
refine the ship specifications.9
At a July 30, 2014, hearing on logistics and sealift ships before the Seapower and Projection
Forces subcommittee of the House Armed Services Committee, the Navy stated:
Basically, we did a complete study of the current oiler base, [the] Kaiser class, to
determine what pieces of the Kaiser class gave us our acceptable requirement set. We
took the Kaiser class, [and] increased—increased some of the freeze chill [cargo-
carrying] portions. [We] Increased the lift so we could handle a heavier lift. [We]
Readdressed speed requirements so we have a ray [sic: an array] of different speed
requirements that we went and looked at, which would bring you [i.e., imply] different
propulsion sets.
So—so, basically, we're looking at what is does a carrier need to take oil? And
provisions—what does the rest of the [carrier] strike group need? So, you get a strike
group answer, you get an ARG answer, and then you get a—basically, a rest of the strike
group answer. So, we were looking [at] kind of a middle of the road [approach]. We have
a very good class of ships right now in the Kaiser class. So, we didn't have to go too far
from the Kaiser class [design] to get to something that we liked [for the TAO-X
requirements].
Then we want to use the—the competition in the industry to take us the rest of the way
with some interesting ideas on how to manage energy, get the O&S [operation and
support] costs down, and—and see if we can get the number of mariners [needed to
operate the ship] down, as well.

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

So—so, basically, we're pretty happy with our current [Kaiser-class] oiler. What we're
looking for is something new. Something as fast as we could get it, that could do multi-
product [replenishment work], and continue the workforce development that we currently
enjoy.10
Combined Solicitation Limited to Two Builders11
On June 25, 2015, the Navy, as part of its acquisition strategy for TAO(X) program, issued a
combined solicitation consisting of separate Requests for Proposals (RFPs) for the detailed design
and construction (DD&C) of the first six TAO(X)s, the detailed design and construction in
FY2017 (and also procurement of long lead-time materials in FY2016) for an amphibious assault
ship called LHA-8 that the Navy wants to procure in FY2017, and contract design support for the
LX(R) program, a program to procure a new class of 11 amphibious ships.12 The Navy has
limited bidding in this combined solicitation to two bidders—Ingalls Shipbuilding of Huntington
Ingalls Industries (HII/Ingalls) and National Steel and Shipbuilding Company of General
Dynamics (GD/NASSCO)—on the grounds that these are the only two shipbuilders that have the
capability to build both TAO(X)s and LHA-8. Under the Navy’s plan for the combined
solicitation, one of these two yards would be awarded the DD&C contract for the first six
TAO(X)s, the other yard would be awarded the DD&C contract (and procurement of long lead-
time materials) for LHA-8, and the shipyard with the lowest combined evaluated price will
receive a higher profit on its DD&C contract13 and will be awarded the majority of the LX(R)
contract design engineering man-hours.
FY2016 Procurement Funding Request
The Navy’s proposed FY2016 budget requests $674.2 million in procurement funding for the
procurement of the first TAO(X). The Navy is requesting this funding in the Navy’s regular
shipbuilding account, called the Shipbuilding and Conversion, Navy (SCN) account, rather than
in the National Defense Sealift Fund (NDSF), an account in the Department of Defense’s
(DOD’s) budget that has been used in recent years for funding the construction of new DOD
sealift ships and Navy auxiliary ships.
The Navy states that it is requesting procurement funding for TAO(X)s in the SCN account rather
than in the NDSF because the Navy judged that it has received a signal from Congress that
Congress wants to fund the procurement of TAO(X)s in the SCN account rather than the NDSF.14
The Navy states that there were three components to this perceived signal:

10 Spoken remarks of F. Scott DiLisio, Director, Strategic Mobility / Combat Logistics Division, Office of the Chief of
Naval Operations, during the question-and-answer portion of hearing, as shown in transcript of hearing.
11 Source for this section: Navy briefing for CRS and Congressional Budget Office (CBO), March 23, 2015.
12 Press reports describe it as a single RFP; see, for example, Sam LaGrone, “Navy Issues RFP for Oilers and LHA-8 to
NASSCO, Ingalls,” USNI News, July 10, 2015; Valerie Insinna, “Navy Quietly Issues RFP for LHA-8, TAO(X),”
Defense Daily, July 14, 2015: 2. For more on the LX(R) program, see CRS Report R43543, Navy LX(R) Amphibious
Ship Program: Background and Issues for Congress
, by Ronald O'Rourke. Contract design work is intended to develop
the design of a ship enough so that a contract can then be awarded for the detailed design of the ship.
13 The Navy is planning to employ a Profit Related to Offer (PRO) contracting approach within this combined
solicitation strategy to encourage competitive pricing by the shipyards. Under PRO bidding, both bidders are granted
work, but the bidder with the lower price is given a high profit margin. PRO bidding has been used in other Navy
shipbuilding programs, particularly the DDG-51 destroyer program, where it has been used since the 1990s.
14 Source for this discussion: Verbal explanation provided by Navy officials to CRS following the Department of the
Navy’s FY2016 budget rollout briefing for the House Armed Services Committee on February 6, 2015, which CRS
(continued...)
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 Congress’s decision to fund research and development work for the TAO(X)
program not in the NDSF account, as the Navy had requested, but in the Navy’s
regular research and development account;
 Senate Appropriations Committee report language on the FY2015 DOD
Appropriations Act;15 and
 Bill language in the enacted FY2015 DOD Appropriations Act.16
Issues for Congress
The Navy’s proposals for the TAO(X) program raise certain issues for Congress for FY2016,
including those discussed below.

(...continued)
attended.
15 S.Rept. 113-211 of July 17, 2014 on the FY2015 DOD Appropriations Act (H.R. 4870) stated (emboldening added
for emphasis):
National Defense Sealift Fund [NDSF].—In the fiscal year 2015 budget request, the Navy proposes
the elimination of the National Defense Sealift Fund [NDSF], which was established in fiscal year
1993 to address shortfalls in U.S. sealift capabilities. While the Committee has lingering concerns
over some previous application of NDSF funds, the Committee sees no reason to eliminate the
NDSF in its entirety. Therefore, the Committee recommends retaining the NDSF and transferring
funds included in the Shipbuilding and Conversion, Navy; Research, Development, Test and
Evaluation, Navy; and Operation and Maintenance, Navy accounts for functions previously funded
in the NDSF back into the NDSF. The Committee directs that none of these funds may be used
for the development or acquisition of ships.
(Page 245.)
16 The paragraph in the enacted FY2015 DOD appropriations act (Division C of H.R. 83/P.L. 113-235 of December 16,
2014) that appropriates funding for the NDSF included a newly added proviso, shown below in bold:
For National Defense Sealift Fund programs, projects, and activities, and for expenses of the
National Defense Reserve Fleet, as established by section 11 of the Merchant Ship Sales Act of
1946 (50 U.S.C. App. 1744), and for the necessary expenses to maintain and preserve a U.S.-flag
merchant fleet to serve the national security needs of the United States, $485,012,000, to remain
available until expended: Provided, That none of the funds provided in this paragraph shall be used
to award a new contract that provides for the acquisition of any of the following major components
unless such components are manufactured in the United States: auxiliary equipment, including
pumps, for all shipboard services; propulsion system components (engines, reduction gears, and
propellers); shipboard cranes; and spreaders for shipboard cranes: Provided further, That the
exercise of an option in a contract awarded through the obligation of previously appropriated funds
shall not be considered to be the award of a new contract: Provided further, That none of the
funds provided in this paragraph shall be used to award a new contract for the construction,
acquisition, or conversion of vessels, including procurement of critical, long lead time
components and designs for vessels to be constructed or converted in the future:
Provided
further
, That the Secretary of the military department responsible for such procurement may waive
the restrictions in the first proviso on a case-by-case basis by certifying in writing to the
Committees on Appropriations of the House of Representatives and the Senate that adequate
domestic supplies are not available to meet Department of Defense requirements on a timely basis
and that such an acquisition must be made in order to acquire capability for national security
purposes.
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Potential Impact of Continuing Resolution (CR) for FY2016
Overview
One issue for Congress concerns the potential impact on the TAO(X) 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.17
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
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 TAO(X) Program
The Navy states that an extended or full-year CR for FY2016 would impact the TAO(X) program
because a CR’s typical prohibition on new starts would prevent the awarding of a contract for the
construction of the first TAO(X) in FY2016.18
FY2016 Procurement Funding
Another issue for Congress is whether to approve, reject, or modify the Navy’s FY2016 request
for $674.2 million for the procurement of the first TAO(X). Decisions on this issue could depend

17 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.
18 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.
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in part on assessments as to whether the Navy has accurately estimated the procurement cost of
the first TAO(X).
Whether to Fund Procurement of TAO(X)s in SCN account or
NDSF
A second issue for Congress is whether to fund the procurement of TAO(X)s in the Navy’s
regular shipbuilding account, called the Shipbuilding and Conversion, Navy (SCN) account, or in
the National Defense Sealift Fund (NDSF), an account in DOD’s budget that has been used in
recent years for funding the construction of new DOD sealift ships and Navy auxiliary ships. As
noted above, the Navy’s FY2016 budget submission proposes funding the procurement of the
ships in the SCN account.
The NDSF was established by the FY1993 Defense Authorization Act, as amended by the
FY1993 Defense Appropriations Act, to fund the construction of Department of Defense (DOD)
sealift ships.19 The provision in the U.S. Code governing the NDSF (10 U.S.C. 2218) was
amended in 1999 to, among other things, permit the NDSF to also be used for the construction of
CLF ships and other auxiliary support ships.20 Consistent with congressional views expressed in
committee reports on the FY2001 Defense Authorization Bill, the NDSF since FY2003 has been
used to fund the construction of Navy auxiliaries.21 The NDSF was established and later amended
in large part so that DOD sealift ships and Navy auxiliary ships would not have to compete
directly against Navy combat ships for finite shipbuilding funds in the SCN account.
As part of its proposed FY2015 budget, the Navy proposed disestablishing the NDSF.22 Congress,
in marking up the FY2015 DOD appropriations act, did not agree to disestablish the NDSF.23

19 Section 1024 of the FY1993 Defense Authorization Act (H.R. 5006/P.L. 102-484 of October 23, 1992; see pages
178-181 of H.Rept. 102-966 of October 1, 1992, the conference report on the act), as amended by Title V of the
FY1993 Defense Appropriations Act (H.R. 5504/P.L. 102-396 of October 6, 1992). Although P.L. 102-396 was signed
into law before P.L. 102-484, the paragraph on the NDSF in Title V of P.L. 102-396 states: “That for purposes of this
paragraph, this Act shall be treated as having been enacted after the National Defense Authorization Act for Fiscal Year
1993 (regardless of the actual dates of enactment).”
20 Section 1014(b) of the FY2000 39 Defense Authorization Act (S. 1059/P.L. 106-65 of October 5, 1999; see pages
792-793 of H.Rept. 106-301 of August 6 (legislative day, August 5), 1999, the conference report on the act).
21 See H.Rept. 106-616 of May 12, 2000, the House Armed Services Committee report on the FY2001 Defense
Authorization Bill (H.R. 4205), page 89; S.Rept. 106-292 of May 12, 2000, the Senate Armed Services Committee
report on the FY2001 Defense Authorization Bill (S. 2549), page 93. See also H.Rept. 106-945 of October 6, 2000, the
conference report on the FY2001 Defense Authorization Act (H.R. 4205/P.L. 106-398 of October 30, 2000), page 35
(§127).
For an earlier discussion of the issue of the changing composition of the SCN account, including the transfer to the
NDSF of ships previously funded in the SCN account, see Statement of Ronald O’Rourke, Specialist in National
Defense, Congressional Research Service, before the House Armed Services Committee Subcommittee on Military
Procurement hearing on The Navy’s Proposed Shipbuilding Program for FY2003, March 20, 2002, pp. CRS-20 to
CRS-23.
22 In discussing its proposal to disestablish the NDSF, the Navy stated that
The FY 2015 President’s Budget includes no funding for the National Defense Sealift Fund
(NDSF). The [funding] requirements have been moved to the Shipbuilding and Conversion, Navy
(SCN), Research, Development, Test, and Evaluation, Navy (RDTEN), and Operation and
Maintenance, Navy (OMN) appropriations as appropriate, and the NDSF appropriation is
recommended for disestablishment. This proposal streamlines the number of DoN [Department of
the Navy] accounts, reducing financial complexity, and supports the Department’s audit readiness
goals.
(continued...)
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In considering whether to fund the procurement of TAO(X)s in the SCN account of the NDSF,
issues that Congress may consider include differences in how shipbuilding funds in the two
accounts may be used, and differences in U.S. content requirements for ships funded through the
two accounts.
Use of Funds
The NDSF is located in a part of the DOD budget that is outside the procurement title of the
annual DOD appropriations act. Consequently, ships whose construction is funded through the
NDSF are not subject to the DOD full funding policy in the same way as are ships and other
DOD procurement programs that are funded through the procurement title of the annual DOD
appropriations act.24 In explaining the use of NDSF funding, DOD in 1995 stated:
The National Defense Sealift Fund (NDSF) is not a procurement appropriation but a
revolving fund. Dollars appropriated by Congress for the fund are not appropriated to
purchase specific hulls as in the case of, for example the Navy’s DDG-51 [destroyer]
program. Rather, dollars made available to the NDSF are executed on an oldest money
first basis. Therefore, full funding provisions as normally understood for ship acquisition
do not apply.25

(...continued)
The Strategic Sealift programs will continue to be funded within the Department [of the Navy],
meeting COCOM [Combatant Commander] mobility requirements.
(Department of the Navy, Highlights of the Department of the Navy FY 2015 Budget, 2014, pp. 4-
5.)
23 The Senate Appropriations Committee, in its report (S.Rept. 113-211 of July 17, 2014) on the FY2015 DOD
Appropriations Act (H.R. 4870) stated:
National Defense Sealift Fund [NDSF].—In the fiscal year 2015 budget request, the
Navy proposes the elimination of the National Defense Sealift Fund [NDSF], which was
established in fiscal year 1993 to address shortfalls in U.S. sealift capabilities. While the
Committee has lingering concerns over some previous application of NDSF funds, the
Committee sees no reason to eliminate the NDSF in its entirety. Therefore, the
Committee recommends retaining the NDSF and transferring funds included in the
Shipbuilding and Conversion, Navy; Research, Development, Test and Evaluation, Navy;
and Operation and Maintenance, Navy accounts for functions previously funded in the
NDSF back into the NDSF. The Committee directs that none of these funds may be used
for the development or acquisition of ships. (Page 245.)
The enacted version of the FY2015 DOD Appropriations Act (Division C of H.R. 83/P.L. 113-235 of December 16,
2014) included a paragraph appropriating funds for the NDSF that is similar to the paragraphs that appropriated funds
for the NDSF in DOD appropriations acts for prior fiscal years. The explanatory statement for Division C of H.R.
83/P.L. 113-235 included a table showing FY2015 appropriations for line items within the NDSF (PDF page 284 of
368). See also pages 30-31 of H.Rept. 113-446 of May 13, 2014), the House Armed Services Committee’s report on the
FY2015 National Defense Authorization Act (H.R. 4435).
24 For more on the full funding policy, see CRS Report RL31404, Defense Procurement: Full Funding Policy—
Background, Issues, and Options for Congress
, by Ronald O'Rourke and Stephen Daggett.
25 DOD information paper on strategic sealift acquisition program provided to CRS by U.S. Navy Office of Legislative
Affairs, January 25, 1995, p. 1. For additional discussion, see the subsection entitled “DOD Sealift and Auxiliary Ships
in NDSF” in the Background section of CRS Report RL31404, Defense Procurement: Full Funding Policy—
Background, Issues, and Options for Congress
. For a similar discussion, see the section entitled “DOD LMSR-Type
Sealift Ships” in Appendix C to CRS Report RL32776, Navy Ship Procurement: Alternative Funding Approaches—
Background and Options for Congress
, by Ronald O'Rourke.
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For NDSF-funded ships, what this has meant is that although Congress in a given year would
nominally fund the construction of an individual ship of a certain class, the Navy in practice
could allocate that amount across multiple ships in that class. This is what happened with both the
NDSF-funded Lewis and Clark (TAKE-1) class dry cargo ships and, before that, an NDSF-funded
class of DOD sealift ships called Large, Medium-Speed Roll-on/Roll-off (LMSR) ships. In both
cases, the result was that although ships in these two programs were each nominally fully funded
in a single year, they in fact had their construction financed with funds from amounts that were
nominally appropriated in other fiscal years for other ships in the class.26
The Navy’s ability to use NDSF funds in this manner permits the Navy to, among other things,
marginally reduce the procurement cost of ships funded through the NDSF by batch-ordering
certain components of multiple ships in a shipbuilding program before some of the ships in
question are funded—something that the Navy cannot do with a shipbuilding program funded
through the SCN account unless the Navy receives approval from Congress to execute the
program through a multiyear procurement (MYP) contract.27
U.S. Content
In recent years, the paragraph in the annual DOD appropriations act that appropriates funds for
the NDSF has contained a provision that states:
Provided, That none of the funds provided in this paragraph shall be used to award a new
contract that provides for the acquisition of any of the following major components
unless such components are manufactured in the United States: auxiliary equipment,
including pumps, for all shipboard services; propulsion system components (engines,
reduction gears, and propellers); shipboard cranes; and spreaders for shipboard cranes....
The paragraph in the annual DOD appropriations act that appropriates funds for the SCN account
does not contain exactly the same provision.28 During Congress’s consideration of the Navy’s
proposed FY2015 budget (which proposed disestablishing the NDSF—a proposal that Congress
did not agree to), this led to concern among firms that manufacture the ship components listed in
the above provision, and among supporters of those firms, that disestablishing the NDSF and
shifting the execution of the TAO(X) program and other future auxiliary and sealift shipbuilding
programs from the NDSF to the SCN account would lead to the Navy possibly selecting foreign
firms rather than U.S. firms to make these components for the TAO(X) program and other future
auxiliary and sealift shipbuilding programs, unless the paragraph in the annual DOD
appropriations act that appropriates funds for the SCN account were amended to include a

26 This situation can be summarized in a funding matrix of hulls vs. funding sources of the kind shown for the LMSR
program in Table 1 on page CRS-6 of CRS Report 96-257 F, Sealift (LMSR) Shipbuilding and Conversion Program:
Background and Status
, by Valerie Bailey Grasso. This report is out of print and is available from Ronald O’Rourke.
27 For more on MYP contracting, including batch-ordering of components, see CRS Report R41909, Multiyear
Procurement (MYP) and Block Buy Contracting in Defense Acquisition: Background and Issues for Congress
, by
Ronald O'Rourke and Moshe Schwartz. For programs being executed under MYP contracts, the batch orders of
components are referred to as Economic Order Quantity (EOQ) procurements.
28 The SCN account includes a provision that states: “Provided further, That none of the funds provided under this
heading for the construction or conversion of any naval vessel to be constructed in shipyards in the United States shall
be expended in foreign facilities for the construction of major components of such vessel ... ” This provision does not
define “major components” and does not specifically mention “auxiliary equipment, including pumps, for all shipboard
services; propulsion system components (engines, reduction gears, and propellers); shipboard cranes; and spreaders for
shipboard cranes,” as does the paragraph that appropriates funds for the NDSF.
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provision with the same key wording as the provision in the paragraph that appropriates funds for
the NDSF.29
Navy’s Proposal for Combined Solicitation Limited to Two
Builders
A third issue for Congress is whether to approve, reject, or modify the Navy’s proposal to use a
combined solicitation consisting of separate Requests for Proposals (RFPs) for the detailed design
and construction of the first six TAO(X)s, the detailed design and construction of LHA-8, and
contract design support for the LX(R) program, and to limit bidding in this combined solicitation
to HII/Ingalls and GD/NASSCO. Potential matters to consider include the Navy’s rationale for
using the combined solicitation and the potential impact on various shipyards of the Navy’s
proposal to limit bidding to HII/Ingalls and GD/NASSCO.
At a March 18, 2015, hearing on Navy shipbuilding programs before the Seapower subcommittee
of the Senate Armed Services subcommittee, the following exchange occurred:
SENATOR MAZIE K. HIRONO, RANKING MEMBER (continuing):
For you again, Mr. Secretary, the Navy announced the intention to complete a package of
ship contracts including the TAO(X) oiler, the LHA(R)30 (ph)—I just love all these
acronyms, amphibious assault ship and the LX(R) dock landing ship replacement, all in
one package.
The Navy also said that it would restrict competition for that package or contract to only
two shipyards. What is the Navy's strategy for awarding these contracts? And why is it in
the taxpayers' best interest to restrict competition for these ships?
SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH,
DEVELOPMENT, AND ACQUISITION:
Thanks for the question, Ma'am. We're trying to balance a couple of things. First, our
requirements, so we have a requirement to replace our fleet oilers and that's the, that first
of class ship for the TAO(X) as the replacement for our fleet oilers is in the [FY]2016
budget year.
We also have a requirement for a new big deck amphib, the LHA-8, which is a[n]
[FY]2017 ship with advance procurement in [FY]2016. And we've talked about the
LX(R), which is the replacement amphibious ship for our LSD 41 class, which we have
in the budget in [FY]2020 with advance procurement the year prior.
So when we look ahead at those three major programs across our industrial base, a couple
of things become immediately apparent. First, we talked about the fragility of the
industrial base, what we want to do is add stability to the industrial base.
Second, we've talked about affordability of our shipbuilding programs, so what we want
to do is figure out how to drive affordability into those programs to the extent possible.
And then third is competition, which couples the industrial base in the element of
affordability.

29 Lara Seligman, “Suppliers: Navy’s Plan Could Open TAO(X) Parts To Foreign Manufacturers,” Inside the Navy,
November 14, 2014; Sydney J. Freedberg Jr., “Engine Maker ‘At Risk;’ Wants Navy Help,” Breaking Defense
(http://breakingdefense.com), November 14, 2014; Philip Ewing, “Engine Maker: Navy Should Stick With U.S.-
Made,” Politico Pro Defense, November 13, 2014.
30 LHA(R) means LHA replacement; it is an alternative term for the Navy’s new LHA-type ships, including LHA-8.
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The strategy that we had put forward does a couple of things. First, it sends—it sends a
signal to our industrial base, so we're going to limit competition to the two shipbuilders
that we believe are absolutely essential to our industrial base.
HIRONO:
By the way, what are the two shipbuilders?
STACKLEY:
Ingalls Shipbuilding and ...
HIRONO:
In Mississippi.
STACKLEY:
In Mississippi. And NASSCO in San Diego. Today, Ingalls builds four different ship
classes. Today, NASSCO builds one Navy ship class in commercial work. We view
them, both critical to our industrial base.
And if we were to go down a path of open competition, and soliciting these one at a time,
there is tremendous uncertainty in terms of what the outcome would be in terms of our
industrial base and our—the affordability of those programs.
So what we've—what we've elected to do is—one, limit the competition to those two
builders. Two, we're soliciting each of these programs separately but together and
requiring bids on each from both shipbuilders, so that we can get competition inside of
each as opposed to either allocating or awarding one at a time which puts one of the
shipbuilders at risk.
So in order to preserve the industrial base, leverage competition, bring affordability and
stability to that industrial base, we've elected to limit the competition, go out with a single
solicitation that contains both the LHA-8 and the TAO(X).
Size them what we believe to be about the same in terms of man hours of work and also
about the same in terms of horizon of time, so that the industry has some surety that,
“OK, we understand how much work is coming our way. We can build that in our
business base.” We're sharpening our pencils in terms of competition.31
A March 23, 2015, press report states:
Decisions are looming on two major new US Navy shipbuilding programs, and while the
service wants to get the best deal for the ships, it's also concerned about preserving its
industrial base.
To that end, acquisition chief Sean Stackley is structuring the competition to build the
new T-AO(X) fleet oiler and LHA 8 amphibious assault ship so that San Diego-based
General Dynamics National Steel and Shipbuilding Co. (NASSCO) and the Huntington
Ingalls Industries' yard in Mississippi—each of which plan to bid for the ships—both get
enough work to remain viable.
The ships “are key to our core structure. And they're also key to our industrial base,”
Stackley said March 18 in an interview. “So when we try to balance requirements and
affordability in the industrial base, a couple of things come to mind. First and foremost is,
we have two major builders for these types of ships, Ingalls and NASSCO. And each of
them are in a position where they have to win one of the programs. However, if we go

31 Transcript of hearing.
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down the path of competing them one at a time, it's easy to envision a scenario where
either one of them sweeps the table.”
A decision on the T-AO(X) is expected in 2016, with the LHA 8 to come in 2017.
Stackley noted that the yard that does not win the oiler “will be in a very difficult position
to compete head-to-head for the next program, the LHA 8, because of the imbalance of
workload that was just created between the two. So to keep them head-to-head in terms of
competiveness, we have determined that first, we're going to limit the competition to
those two shipyards, because each needs to win one of those first two contracts” to
remain viable.
In return for limiting the competition to Ingalls and NASSCO, Stackley said, “we are
going to require that they both bid on both programs, with a commitment that each of
them will win one of the contracts, as long as their bids are responsible.”
That approach, he said, “gives us the stability we're looking for in the industrial base. It
gives us the advantages of competition across the programs.”...
To many observers, it appears as if the Navy's bidding strategy concedes that Ingalls will
win the assault ship and NASSCO the oiler.
“No. There's no predetermination whatsoever here,” Stackley insisted. “We've
determined that both shipyards are capable of building both ship classes—and we spent a
lot of time doing that evaluation before we went forward with this acquisition strategy.
We've also sized, as best as we reasonably can, the awards so they're about equal in terms
of the amount of work going into the winner of each of these—six T-AO(X)s on one
hand and LHA 8 on the other. We think that, in terms of the shipyards' capabilities and in
terms of the size and shape of the workload, we've got parity here for a very healthy
competition.”
Whether to Authorize a Block Buy for the First Few TAO(X)s
A fourth issue for Congress is whether to grant the Navy authority to use a block buy contract to
procure the first few TAO(X)s. The Navy, as part of the combined solicitation discussed in the
previous section, intends to award a contract for detailed design and construction (DD&C) of the
first six TAO(X)s.32 A March 2015 Government Accountability Office (GAO) report states that
“the Navy anticipates competitively awarding a fixed-price incentive type contract in fiscal year
2016 for lead ship detail design and construction with options for five follow-on ships at a rate of
one per year beginning in fiscal year 2018.”33 Although the Navy is proposing that the DD&C
contract be a contract with options, Congress has the option of granting the Navy the authority to
make it a block buy contract.
Block buy contracts are similar in some ways to multi-year procurement (MYP) contracts, but are
not governed by the statutory requirements that govern MYP contracts. One consequence of this
difference is that block buy contracts, unlike MYP contracts, can be used at the outset of a
shipbuilding program, to procure the first ship in the program and the next few ships that follow.
Block buy contracts can reduce the Navy’s flexibility for making changes in its shipbuilding
program to respond to changes in the strategic or budgetary environment. Compared to a contract
with options, however, block buy contracts can reduce the cost of the ships being procured by

32 Lara Seligman, “Navy: Bidder With Lowest Total Price For LHA, Oiler To Win Bulk Of LX(R),” Inside the Navy,
February 23, 2015 (posted online February 20, 2015).
33 Government Accountability Office, Defense Acquisitions[:]Assessments of Selected Weapon Programs, GAO-15-
342SP, March 2015, p. 140.
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several percent, particularly if the authority to use a block buy contract includes a phrase granting
authority to use Economic Order Quantity (EOQ) purchases (i.e., up-front batch orders) of
selected ship components.34
The Navy used a block buy contract to procure the first four boats in the Virginia-class attack
submarine program during the five-year period FY1998-FY2002.35 The Navy is also using a pair
of 10-ship block buy contracts to procure ships 5 through 24 in the Littoral Combat Ship (LCS)
program during the seven-year period FY2010-FY2016.36 The legislative provisions granting the
Navy authority to use block buy contracts in the Virginia-class and LCS programs did not include
a phrase granting authority to use EOQ purchases as part of the block buy contracts. As a result,
the Virginia-class and LCS block buy contracts did not employ EOQ purchases, and the savings
realized under these block buy contracts were somewhat less than what would have been possible
under block buy contracts that included EOQ purchases. Including EOQ purchases in a block buy
contract can increase a program’s near-term procurement funding requirements because of the
need to pay up front for the batch orders of selected ship components.
Legislative Activity for FY2016
FY2016 Budget
The Navy’s proposed FY2016 budget requests $674.2 million in procurement funding in the SCN
account for the procurement of the first TAO(X).
FY2016 National Defense Authorization Act (H.R. 1735/S. 1376)
House
The House Armed Services Committee, in its report (H.Rept. 114-102 of May 5, 2015) on H.R.
1735, recommends approving the Navy’s FY2016 request for procurement funding for the
TAO(X) program, but recommends providing this funding in the National Defense Sealift Fund
(NDSF) rather than the SCN account (page 422, line 017, and page 526, National Sealift Defense
Fund, Transfer from SCN—TAO(X)).
H.Rept. 114-102 states:
National Defense Sealift Fund
The committee notes that the National Defense Sealift Fund (NDSF) was created by the
National Defense Authorization Act for Fiscal Year 1993 (Public Law 102–484) to
address sealift funding issues using a revolving fund concept. Since its inception, the

34 For more on block buy and MYP contracting, 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.
35 Congress granted the authority for the block buy contract in Section 121(b) of the FY1998 National Defense
Authorization Act (H.R. 1119/P.L. 105-85 of November 18, 1997). For more on the Virginia-class program, including
its use of block buy and MYP contracting, see CRS Report RL32418, Navy Virginia (SSN-774) Class Attack
Submarine Procurement: Background and Issues for Congress
, by Ronald O'Rourke.
36 Congress granted the authority for the block buy contracts in Section 150 of H.R. 3082/P.L. 111-322 of December
22, 2010, an act that, among other things, funded federal government operations through March 4, 2011.
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committee notes that NDSF has been successfully used to support multiple procurements
and has a legacy of success in supporting U.S. shipbuilding interests.
Therefore, the committee recommends the transfer of $674.2 million for the Navy
TAO(X) Oiler Shipbuilding Program from the Shipbuilding and Conversion, Navy
account to the National Defense Sealift Fund, Navy account. (Pages 29-30)
Section 836 of H.R. 1735 as reported by the committee states:
SEC. 836. Requirement that certain ship components be manufactured in the national
technology and industrial base.
(a) Additional procurement limitation.—Section 2534(a) of title 10, United States Code,
is amended by adding at the end the following new paragraph:
“(6) COMPONENTS FOR AUXILIARY SHIPS.—Subject to subsection (k), the
following components:
“(A) Auxiliary equipment, including pumps, for all shipboard services.
“(B) Propulsion system components, including engines, reduction gears, and propellers.
“(C) Shipboard cranes.
(D) Spreaders for shipboard cranes.”.
(b) Implementation.—Such section is further amended by adding at the end the following
new subsection:
“(k) Implementation of auxiliary ship component limitation.—Subsection (a)(6) applies
only with respect to contracts awarded by the Secretary of a military department for new
construction of an auxiliary ship after the date of the enactment of the National Defense
Authorization Act for Fiscal Year 2016 using funds available for National Defense Sealift
Fund programs or Shipbuilding and Conversion, Navy.”.
Section 143 of H.R. 1735 as reported by the committee states:
SEC. 143. Independent assessment of United States Combat Logistic Force requirements.
(a) Assessment required.—
(1) IN GENERAL.—The Secretary of Defense shall seek to enter into an agreement with
a federally funded research and development center with appropriate expertise and
analytical capability to conduct an assessment of the anticipated future demands of the
combat logistics force ships of the Navy and the challenges such ships may face when
conducting and supporting future naval operations in contested maritime environments.
(2) ELEMENTS.—The assessment under paragraph (1) shall include the following:
(A) An assessment of the programmed ability of the United States Combat Logistic Force
to support the Navy and the naval forces of allies of the United States that are operating
in a dispersed manner and not concentrated in carrier or expeditionary strike groups, in
accordance with the concept of distributed lethality of the Navy.
(B) An assessment of the programmed ability of the United States Combat Logistic Force
to support the Navy and the naval forces of allies of the United States that are engaged in
major combat operations against an adversary possessing maritime anti-access and area-
denial capabilities, including anti-ship ballistic and cruise missiles, land-based maritime
strike aircraft, submarines, and sea mines.
(C) An assessment of the programmed ability of the United States Combat Logistic Force
to support distributed and expeditionary air operations from an expanded set of
alternative and austere air bases in accordance with concepts under development by the
Air Force and the Marine Corps.
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

(D) An assessment of gaps and deficiencies in the capability and capacity of the United
States Combat Logistic Force to conduct and support operations of the United States and
allies under the conditions described in subparagraphs (A), (B), and (C).
(E) Recommendations for adjustments to the programmed ability of the United States
Combat Logistic Force to address capability and capacity gaps and deficiencies described
in subparagraph (D).
(F) Any other matters the federally funded research and development center considers
appropriate.
(b) Report required.—
(1) IN GENERAL.—Not later than April 1, 2016, the Secretary of Defense shall submit
to the congressional defense committees a report that includes the assessment under
subsection (a) and any other matters the Secretary considers appropriate.
(2) FORM.—The report required under paragraph (1) shall be submitted in unclassified
form, but may include a classified annex.
(c) Support.—The Secretary of Defense shall provide the federally funded research and
development center that conducts the assessment under subsection (a) with timely access
to appropriate information, data, resources, and analyses necessary for the center to
conduct such assessment thoroughly and independently.
Senate
The Senate Armed Services Committee, in its report (S.Rept. 114-49 of May 19, 2015) on S.
1376, recommends approving the Navy’s FY2016 request for procurement funding for the
TAO(X) program (page 363, line 17).
Section 118 of the bill as reported by the committee states:
SEC. 118. Fleet Replenishment Oiler Program.
(a) Contract authority.—The Secretary of the Navy may enter into one or more contracts
to procure up to six Fleet Replenishment Oilers. Such procurements may also include
advance procurement for Economic Order Quantity (EOQ) and long lead time materials,
beginning with the lead ship, commencing not earlier than fiscal year 2016.
(b) Liability.—Any contract entered into under subsection (a) 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 the time of termination.
Regarding Section 118, S.Rept. 114-49 states:
Fleet replenishment oiler program (sec. 118)
The committee recommends a provision that would grant the Secretary of the Navy
contracting authority to procure up to six fleet replenishment oilers (T–AO(X)). This new
ship class is a nondevelopmental recapitalization program based on existing commercial
technology and standards. The ship design is considered to be low risk by the Navy, with
the design scheduled to be complete prior to the start of construction on the lead ship.
This provision would generate an estimated $45.0 million in savings per ship compared
to annual procurement cost estimates. In addition, the provision would provide a long-
term commitment to the shipbuilder and vendors, which would enable workforce stability
and planning efficiency. (Pages 11-12)
S.Rept. 114-49 also states:
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

Combat logistics fleet
The ability of U.S. naval forces to deter aggression and rapidly respond to crisis around
the world is sustained by Military Sealift Command ships. U.S. global logistics capability
provides a significant advantage over the regionally focused fleets of potential
adversaries. With challenges to U.S. allies and interests growing, the committee believes
U.S. naval forces must be able to remain deployed and at sea, even in the face of enemy
anti-access/area-denial (A2/AD) threats.
The size and structure of today’s logistics force appears to be based on a longstanding
operating concept in which naval forces operate almost exclusively in strike groups or
ready groups with accompanying logistics ships. While such a model applied in the years
following the end of the Cold War, today a smaller fleet, new missions, such as ballistic
missile defense and counter-piracy, and improving adversary A2/AD capabilities cause
strike groups and ready groups to disperse over more expansive areas. Additionally,
global shipping systems place fuel and supplies at depots closer to naval forces, enabling
logistics ships to shuttle them out to the fleet as opposed to having to carry them for the
whole deployment.
As the Navy finalizes the requirements for the new oiler, T–AO(X), the changes in naval
operations and threats since its predecessor, the Henry J. Kaiser-class, was designed
should be a foremost consideration. Therefore, the Secretary of the Navy, in coordination
with U.S. Pacific Command, is directed to provide the committee a report no later than
February 1, 2016, describing the requirements for T–AO(X) that addresses the following
elements:
(1) Ship’s capacity for fuel, dry stores, and chilled or frozen stores;
(2) Operational concept for fleet resupply that forms the basis for the T–AO(X)
requirement, including how T–AO(X) will complement existing T–AKE class logistics
ships and how the concept will evolve over the life of the T–AO(X) class;
(3) Number of T–AO(X) hulls required, how this requirement addresses a more dispersed
fleet and combat losses likely in a modern conflict, and how the requirement may evolve
over the next 30 years;
(4) How the T–AO(X) will be protected from missile and submarine attack as it supports
a more widely distributed fleet; and
(5) An analysis of various fleet resupply force structures to meet projected mission needs
in the 2025 timeframe, including: the current program of record, an alternative consisting
a larger number of smaller ships with the same overall resupply capacity, and a mixture
of the program of record and smaller ships. (Pages 32-33)
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 approving the Navy’s FY2016 request for procurement
funding for the TAO(X) program (page 912, line 17).
Section 127 of H.R. 1735 states:
SEC. 127. Fleet Replenishment Oiler Program.
(a) Contract authority.—The Secretary of the Navy may enter into one or more contracts
to procure up to six Fleet Replenishment Oilers. Such procurements may also include
advance procurement for economic order quantity and long lead time materials,
beginning with the lead ship, commencing not earlier than fiscal year 2016.
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress


(b) Liability.—Any contract entered into under subsection (a) 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 the time of termination.
Regarding Section 127, H.Rept. 114-270 states:
Fleet replenishment oiler program (sec. 127)
The Senate amendment contained a provision (sec. 118) that would grant the Secretary of
the Navy contracting authority to procure up to six fleet replenishment oilers (T–AO(X)).
This new ship class is a non-developmental recapitalization program based on existing
commercial technology and standards. The ship design is considered to be low risk by the
Navy, with the design scheduled to be complete prior to the start of construction on the
lead ship. This provision would enable an estimated $45.0 million in savings per ship, for
ships 2–6, for a total of $225.0 million in savings compared to current annual
procurement cost estimates.
The House bill contained no similar provision.
The House recedes. (Page 610)
Section 1026 of H.R. 1735 states:
SEC. 1026. Independent assessment of United States Combat Logistic Force
requirements.
(a) Assessment required.—
(1) IN GENERAL.—The Secretary of Defense shall seek to enter into an agreement with
a federally funded research and development center with appropriate expertise and
analytical capability to conduct an assessment of the anticipated future demands of the
combat logistics force ships of the Navy and the challenges such ships may face when
conducting and supporting future naval operations in contested maritime environments.
(2) ELEMENTS.—The assessment under paragraph (1) shall include the following:
(A) An assessment of the programmed ability of the United States Combat Logistic Force
to support the Navy and the naval forces of allies of the United States that are operating
in a dispersed manner and not concentrated in carrier or expeditionary strike groups, in
accordance with the concept of distributed lethality of the Navy.
(B) An assessment of the programmed ability of the United States Combat Logistic Force
to support the Navy and the naval forces of allies of the United States that are engaged in
major combat operations against an adversary possessing maritime anti-access and area-
denial capabilities, including anti-ship ballistic and cruise missiles, land-based maritime
strike aircraft, submarines, and sea mines.
(C) An assessment of the programmed ability of the United States Combat Logistic Force
to support distributed and expeditionary air operations from an expanded set of
alternative and austere air bases in accordance with concepts under development by the
Air Force and the Marine Corps.
(D) An assessment of gaps and deficiencies in the capability and capacity of the United
States Combat Logistic Force to conduct and support operations of the United States and
allies under the conditions described in subparagraphs (A), (B), and (C).
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

(E) Recommendations for adjustments to the programmed ability of the United States
Combat Logistic Force to address capability and capacity gaps and deficiencies described
in subparagraph (D).
(F) Any other matters the federally funded research and development center considers
appropriate.
(b) Report required.—
(1) IN GENERAL.—Not later than April 1, 2016, the Secretary of Defense shall submit
to the congressional defense committees a report that includes the assessment under
subsection (a) and any other matters the Secretary considers appropriate.
(2) FORM.—The report required under paragraph (1) shall be submitted in unclassified
form, but may include a classified annex.
(c) Support.—The Secretary of Defense shall provide the federally funded research and
development center that conducts the assessment under subsection (a) with timely access
to appropriate information, data, resources, and analyses necessary for the center to
conduct such assessment thoroughly and independently.
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, recommends approving the Navy’s FY2016 request for procurement funding for the
TAO(X) program (page 160).
In H.R. 2685 as reported by the committee, the paragraph that appropriates funds for the National
Defense Sealift Fund includes a provision that states:
Provided further, That none of the funds provided in this paragraph shall be used to
award a new contract for the construction, acquisition, or conversion of vessels, including
procurement of critical, long lead time components and designs for vessels to be
constructed or converted in the future....
Section 8123 of H.R. 2685 as reported by the committee states:
Sec. 8123. None of the funds provided in this Act for the T-AO(X) program shall be used
to award a new contract that provides for the acquisition of the following components
unless those components are manufactured in the United States: Auxiliary equipment
(including pumps) for shipboard services; propulsion equipment (including engines,
reduction gears, and propellers); shipboard cranes; and spreaders for shipboard cranes.
Senate
The Senate Appropriations Committee, in its report (S.Rept. 114-63 of June 11, 2015) on S. 1558,
recommends approving the Navy’s FY2016 request for procurement funding for the TAO(X)
program (page 98, line 17).
In H.R. 2685 as reported by the committee, the paragraph that appropriates funds for the National
Defense Sealift Fund includes a provision that states:
Provided further, That none of the funds provided in this paragraph shall be used to
award a new contract for the construction, acquisition, or conversion of vessels, including
procurement of critical, long lead time components and designs for vessels to be
constructed or converted in the future....
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Navy TAO(X) Oiler Shipbuilding Program: Background and Issues for Congress

Section 8104 of S. 1558 as reported by the committee states:
Sec. 8104. None of the funds provided in this Act for the T–AO(X) program shall be used
to award a new contract that provides for the acquisition of the following components
unless those components are manufactured in the United States: Auxiliary equipment
(including pumps) for shipboard services; propulsion equipment (including engines,
reduction gears, and propellers); shipboard cranes; and spreaders for shipboard cranes.

Author Contact Information

Ronald O'Rourke

Specialist in Naval Affairs
rorourke@crs.loc.gov, 7-7610

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