1. U.S. Navy Shipbuilding and Ship Procurement Presented at the Conference on Shipbuilding and Ship Procurement Strategy for Canada November, 2009

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6. 6 Topics for Discussion U.S. Navy Ship Procurement Plans U.S. Shipbuilding Industrial Base Issues in U.S. Navy Shipbuilding

7. 7 Navy Has Specific Goals in Ship Programs Ship designs that provide greater attention to life cycle costs Given a design, lower procurement costs Given a design, faster delivery Reliability in design, cost, and schedule goals Responsiveness to unexpected, emerging requirements Current acquisition strategies fall short in achieving these goals

8. 8 Any Acquisition Strategy Must Consider the Goals of Other Participants Shipbuilders –Enhanced cash flow –High return on investment –Order stability and predictability –Above average profits Congress –Stability in local jobs –No long-term commitments –Perceived contribution to the defense mission of TOA committed to ships It may be difficult to find acquisition strategies that are agreeable to all three parties

9. 9 A Sharp Downturn in the Procurement of Navy Ships Started in the Early-1990s Source: Ronald O’Rourke, Congressional Research Service, 2008

10. 10 And the Cost of Ships Has Grown Substantially Source: Clark SASC Testimony (2005)

11. 11 Surface Combatants Have Seen a Significant Increase in Cost Added capabilities lead to increased costs $10M $100M $1B $10B End Unit Costs (then- year$) 195019601970198019902000 Fiscal Year Guided missile destroyers Guided missile frigates Destroyers

12. 12 Those Surface Combatants That Have Been Built Have Gotten Bigger and More Complex

13. 13 Navy Developed Long-Range Shipbuilding Plan to Provide Stability to the Industrial Base Source: Report to Congress on Annual Long-Range Plan for Construction of Naval Vessels for FY 2009, February 2008 But the plan continues to change

14. 14 There Have Been Notable Changes in the Annual SBP FORD-class CVNs every five years VIRGINIA-class SSNs move to two per year DDG-1000 buy cut dramatically; buy more DDG-51s CG(X) buy reduced Replacement for the OHIO-class SSBNs QDR will suggest further changes

15. 15 Topics for Discussion U.S. Navy Ship Procurement Plans U.S. Shipbuilding Industrial Base Issues in U.S. Navy Shipbuilding

16. 16 A Number of Shipyards Have Left Navy Shipbuilding 969800020406088280848688909294 … Todd Pacific Lockheed Shipbuilding Penn Shipbuilding Tacoma Boat Building Southern Shipbuilding Tampa Shipyards Peterson Builders Marinette Marine Austal USA (stops Navy shipbuilding work) (shuts down) (out of business) (bankrupt) (shuts down) (bankrupt) (shuts down) (begins LCS work) Currently-operating Navy shipbuilders Formerly-operating Navy shipbuilders

17. 17 The Six Major Shipbuilders Are Now Owned by Two Corporations GENERAL DYNAMICS Electric Boat Bath Iron Works NASSCO 9596979800019902030405060708 GENERAL DYNAMICS Electric Boat Bath Iron Works NASSCO NASSCO LITTON Ingalls Avondale Newport News NORTHROP GRUMMAN Ingalls Ingalls Avondale Avondale Newport News Newport News … Consolidated ownership shipyards Independent shipyards

18. 18 Mid-Tier Shipyards Are Making Inroads Martin Marinette – LCS 1 (foreign owned) Austal – LCS 2, JHSV (foreign owned) Bollinger – patrol craft, USCG cutters Bender – small commercial boats Aker Philadelphia – commercial cargo ships (foreign owned)

19. 19 The Shipyards Build a Range of Ship Types ShipyardType of Ships Bath Iron Works (GD)Surface combatants Electric Boat (GD)Nuclear submarines NASSCO (GD)Auxiliaries Avondale (NG)Amphibious, auxiliaries Ingalls (NG)Surface combatants, amphibious Newport News (NG)Nuclear aircraft carriers, submarines Martin MarinetteSmall combatants BollingerPatrol craft AustalSmall combatants, high-speed support

20. 20 Topics for Discussion U.S. Navy Ship Procurement Plans U.S. Shipbuilding Industrial Base Issues in U.S. Navy Shipbuilding

21. 21 Some Questions Facing U.S. Navy Ship Procurement Is the future shipbuilding plan affordable? –SCN budget is flat while future calls for more new ships –Many new designs, each with cost and schedule risk How can certain design skills be sustained? –Larger gaps in new program starts –Desire to reuse designs to reduce costs What will be the impact of new missions, such as BDM? –Choice between modifying a current platform or designing a new platform –Uncertainty on the number of ships needed When and how should competition be used? –Sustaining the industrial base requires allocation of work –Congress can constrain the use of competition

22. 22 Shipbuilder Competition Is Peculiar Since Navy requirements typically evolve, the shipbuilder probably believes it will not be bound by initial promises –Shipbuilders generally become monopolists when competition is over and the Navy wants specification changes –Even when a ship is built by two shipbuilders, it is probably not credible that workload will be removed entirely from a shipyard A shipbuilder’s motivation is to get the work through optimistic bidding –Even “fixed-price” contracts are effectively cost-based Changing Navy specifications are always an “out” The Navy does not want the shipbuilder to default