The U.S. Government Accountability Office (GAO) issued a report (GAO-17-575) on June 13th, 2017 to draw attention to the Ford Class Carrier program and its unreliable cost estimate.
The report, “Follow-On Ships Need More Frequent & Accurate Cost Estimates to Avoid Pitfalls of Lead Ship”, points out that the estimate for follow-on ships does not address setbacks and lessons learned from the lead ship, CVN-79. The CVN-79 lead ship cost increased 23 percent from $10.5 billion to $12.9 billion (as of 2016) while at the same time saw its promised levels of capability drop. The setbacks were largely due to the installation of premature advanced systems like the Dual Band Radar (DBR), Advanced Arresting Gear (AAG), and the Electromagnetic Aircraft Launch System (EMALS) all of which were still undergoing land based testing.
These setbacks, along with many others, still have not been resolved and have been deferred to post-delivery testing. The Navy is planning to invest an estimated $43 billion on an additional three Ford-Class nuclear-powered aircraft carriers. GAO believes the estimated $11.4 Billion the Navy has budgeted to construct CVN-79 is not realistic and recommends an independent cost estimate before requesting funding for future ships.
The cost estimate for the second Ford-Class aircraft carrier, CVN 79, is not reliable and does not address lessons learned from the performance of the lead ship, CVN 78. As a result, the estimate does not demonstrate that the program can meet its $11.4 billion cost cap. Cost growth for the lead ship was driven by challenges with technology development, design, and construction, compounded by an optimistic budget estimate. Instead of learning from the mistakes of CVN 78, the Navy developed an estimate for CVN 79 that assumes a reduction in labor hours needed to construct the ship that is unprecedented in the past 50 years of aircraft carrier construction, as shown in the figure below.
After developing the program estimate, the Navy negotiated 18 percent fewer labor hours for CVN 79 than were required for CVN 78. CVN 79’s estimate is optimistic compared to the labor hour reductions calculated in independent cost reviews conducted in 2015 by the Naval Center for Cost Analysis and the Office of Cost Assessment and Program Evaluation. Navy analysis shows that the CVN 79 cost estimate may not sufficiently account for program risks, with the current budget likely insufficient to complete ship construction. The Navy’s current reporting mechanisms, such as budget requests and annual acquisition reports to Congress, provide limited insight into the overall Ford Class program and individual ship costs. For example, the program requests funding for each ship before that ship obtains an independent cost estimate. During an 11-year period prior to 2015, no independent cost estimate was conducted for any of the Ford class ships; however, the program received over $15 billion in funding. In addition, the program’s Selected Acquisition Reports (SAR)—annual cost, status, and performance reports to Congress—provide only aggregate program cost for all three ships currently in the class, a practice that limits transparency into individual ship costs. As a result, Congress has diminished ability to oversee one of the most expensive programs in the defense portfolio. This is a public version of a sensitive but unclassified report that GAO issued in March 2017. Information the Department of Defense deemed sensitive has been removed. Areas where redactions occurred are noted in the body of the report.
The Navy is investing over $43 billion to develop three Ford-Class nuclear-powered aircraft carriers. This class of ships was intended to feature an array of cutting-edge technologies to improve combat capability and create operational efficiencies by increasing the rate of aircraft launches and reducing the number of personnel needed to operate the ship. The Navy expected to achieve these improvements while simultaneously reducing acquisition and life-cycle costs. However, this expectation has not been borne out. Costs to construct the lead ship Gerald R. Ford (CVN 78) have increased from $10.5 billion to $12.9 billion (nearly 23 percent), and promised levels of capability have been reduced. Since 2007, we have reported extensively on issues with the Ford-Class program, including weaknesses in the program’s cost estimates. To help ensure that the Navy adhered to its cost estimates, Congress established a procurement cost cap for Ford-Class ships. The lead ship is now capped at $12.9 billion, while the follow-on ships are capped at $11.4 billion each.1 CVN 78 was recently delivered, in May 2017. Construction of the second ship John F. Kennedy (CVN 79) is underway, and Congress appropriated advance procurement funding for the carrier replacement program in fiscal year 2016, which the Navy has budgeted for the third ship Enterprise (CVN 80). The Navy is currently considering adding a fourth ship (CVN 81) to the program baseline. […]
Persistent Issues with Lead Ship Construction Continue to Drive Cost Uncertainty
Since August 2007, we have reported on key risks to the CVN 78 program that would impair the Navy’s ability to deliver the ship at cost, on time, and with its planned capabilities. These risks have been realized, with nearly $2.4 billion in cost growth and over a 1-year delay in delivery. While construction of CVN 78 is complete, recent technical deficiencies— discovered as the Navy continues to test the systems installed on the ship and the shipbuilder completes the latter stage of construction activities— suggest that additional costs are likely. Program officials stated they have not fully estimated these remaining costs. As a result, the current cost cap of $12.9 billion does not represent the required budget necessary to deliver the ship.
CVN 78’s critical technologies drove approximately 40 percent of the ship’s procurement cost growth. This cost growth was largely attributable to EMALS, DBR, and AAG, as seen in table 3.
Recent Shipboard Testing Problems Create Cost and Schedule Uncertainty
Recent issues discovered during shipboard testing of the systems installed on the ship further delayed CVN 78’s delivery date, creating added uncertainty regarding the program’s ability to maintain costs under the current $12.9 billion cost cap. Since we last reported on the status of CVN 78 in November 2014, EMALS has completed deadload testing—a key aspect of the system’s test program—and the shipbuilder has positioned the ship to begin testing the ship’s propulsion system in preparation for sea trials. However, other systems have experienced the following problems, which have resulted in cost and schedule uncertainty:
• DBR—In August 2016, program officials told us that testing for DBR had been further delayed due to problems with ship integration, specifically related to its interface with the power system. The Navy is working to resolve technical deficiencies with the volume search radar. Program officials stated that they plan to continue DBR testing during sea trials following ship delivery. However, issues with DBR may still affect CVN 78’s schedule. For example, warfare and aircraft operations events scheduled for 6 weeks after ship delivery may be pushed back if DBR issues are not resolved.
• AAG— In May 2017, the Navy reported that shipboard testing of AAG is 85 percent complete, and the remaining testing has been deferred to post-delivery.17 The Navy is still resolving issues with emergent faults with the AAG system discovered during shipboard testing, while land-based testing with live and simulated aircraft continues. The Navy needs to resolve these issues in order to support aircraft operations during an exercise scheduled to take place 10 weeks after ship delivery.
• Propulsion Plant—According to the Navy, in June 2016, a transformer in one of the main turbine generators in CVN 78’s propulsion plant experienced a catastrophic failure. A shipbuilder and vendor review of this incident found that the failure was likely due to a manufacturing defect in the transformer. However, a follow-on review uncovered additional problems, including issues with the voltage regulator on the main turbine generator; design and performance problems with the protection system; and excessive noise in the plant. Detailed assessments of these issues show that the voltage regulator and protection systems require design modifications. Laboratory testing of the design modifications are complete and shipboard installation is underway, which will be followed by shipboard testing. The generator incident and the time needed to conduct the subsequent reviews have affected propulsion plant testing, but program officials believe that they are able to meet the new delivery date.
• Advanced Weapons Elevators—In early January 2017, the Navy reported that testing of the Advanced Weapons Elevators was 35 percent complete and that the shipbuilder would complete construction and testing of 2 of the 11 elevators by ship delivery. The Navy is working to resolve a problem with the elevator doors in order to continue with testing. In general, the elevators continue to have issues with reliability, which will affect their ability to support aircraft operations.
Program officials stated that they are considering several options to resolve problems uncovered during shipboard testing and have not fully estimated the resulting costs. Because the remaining costs have not been estimated, the current program baseline does not represent the required budget necessary to deliver the ship. Data from contract performance reports—owned and maintained by the shipbuilder—in turn no longer provide an accurate assessment of the costs at completion, as additional undefined work will be required to resolve problems identified in testing. In the likely event that additional funding is needed to complete the ship, the Navy may choose to defer more construction work or installation of mission-related systems until after ship delivery to stay within the cost cap. Finally, the delivery schedule for CVN 78 has continued to slip from its initial plan of September 2015 and was delivered in May 2017.18 Delays in delivery will result in additional costs, as the government may continue to have to pay for unanticipated construction work and unanticipated overhead costs. […]
Significant Funding Decisions Are Made Prior to Attaining Independent Cost Estimates
Because the entire Ford-Class program is considered a single major defense acquisition program, the Navy requested and received a significant portion of funding for each of the first three Ford-Class ships without an independent cost estimate to confirm the credibility of program estimates.26 An independent cost estimate is important because it provides an unbiased assessment of whether a program’s estimate is reasonable.
DOD acquisition policy and federal statute state that independent cost estimates for major defense acquisition programs are conducted at milestone events. In the case of the Ford-Class program, although each individual ship exceeds the $2.79 billion procurement cost threshold to be designated a major defense acquisition program, DOD considers the entire Ford-Class program—rather than each individual ship—as a major defense acquisition program. Therefore, independent cost estimates are not required for each individual ship and CAPE only developed independent cost estimates to support milestone events in 2004 and 2015 for the Ford-Class program as a whole. Figure 5 shows that the independent cost estimates have trailed behind the Navy’s funding requests and Congress’s authorization of advance procurement and construction funding.
[…] The experiences of the Ford-Class program are well known. We have reported for many years on the program’s challenges that contributed to nearly $2.4 billion in cost growth for the lead ship. Even as construction of CVN 78 was just getting underway in 2007, we noted key risks in the Ford-Class carrier program and pointed out the optimism in the cost estimate. CVN 79’s cost estimate appears to suffer from similar optimism, indicating that lessons were not learned from the lead ship in this regard. NAVSEA 05C’s CVN 79 estimate is not realistic, as it does not accurately capture actual program risks. As a result, CVN 79 is likely to experience cost growth beyond the congressionally mandated cost cap and will require additional program funding. Congress designed the cost cap in order to encourage the program to adhere to its cost estimate. However, the cost cap for CVN 79 was established without the input from a program cost estimate. Consequently, instead of the program cost estimate informing the cost cap, the cost cap informed the program cost estimate. Developing a new CVN 79 cost estimate would allow the program to have a more realistic budget that accurately reflects current shipbuilder performance.
Further, the infrequent independent cost estimates result in Congress being asked to commit billions of dollars to the program before key information is available. As a result, individual ships receive billions of dollars in funding before a realistic cost is determined, at which point there are fewer opportunities to identify cost efficiencies or potential tradeoffs. More frequent independent cost reviews would identify risks for program cost growth sooner, allowing actions to be taken.
Read the full report here.
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