Shipbuilding Strategies for Success

Sea Power, Jan 2005 by McNeill, Sheila M

There are few issues in official Washington that attract more heat and less light than the annual release of the Navy's plan for new ship construction. Billions of dollars are at stake as the shipbuilding industry struggles with overcapacity and Congress reconciles defense needs with domestic priorities and deficit reduction. But we have to get it right. Building a powerful and effective Navy and Marine Corps for the future is a central element of our national security strategy.

Shipbuilding is a volatile issue in part because there is no stability in the shipbuilding program. Even in the best of years, the Navy buys a few ships at very high unit cost. Changing the number of ships in the plan has a huge effect on every constituency, including the services, shipyards, unions and our political leadership. Nonetheless, the numbers change frequently along with shifting defense priorities, alterations in total Pentagon spending and evolving political agendas.

Currently, the Navy is in the midst of a transformation that will bring fundamental change to its structure, operations and people. Defense spending seems likely to level off after several years of gain, and members of Congress remain reluctant to commit future Congresses to a long-term course of action. Meanwhile, shipbuilders yearn for some stability year-to-year to guide their investments in infrastructure, materials and skilled labor. These factors help explain why the shipbuilding program has become a lightning rod for confrontation and conflict.

Congress, the Office of Management and Budget (OMB) and the Navy have struggled for years to bring a measure of constancy to naval shipbuilding. Their results are difficult to discern. A major barrier to their success arises each time the Navy buys a large capital ship, such as an aircraft carrier or large-deck amphibious ship. They cost from $3 billion to $11 billion each and are purchased every four to five years, creating sharp spikes in the Navy's budget. Best-laid plans to the contrary, those extraordinary costs collide with limits on top-line defense spending and inevitably lead to cuts in other resources, such as readiness and aircraft. The tradeoffs and budget churn also generate a lot of blowback from groups affected, such as aircraft makers and their congressional advocates, and wreak havoc for managers in the Navy and at the shipbuilding companies.

There are, however, ways to reduce those spikes, mitigate the accompanying tradeoffs and lay the groundwork for less internecine warfare and more efficient operations by government and industry.

First, large capital ships should be purchased on a splitfunding basis, with procurement costs spread over two years rather than one. This is not a novel acquisition strategy. Congress and OMB have approved split funding for major carrier overhauls costing about $3 billion each. Also, some of the costs of large capital ships already are paid over several years. For example, the power plant and many of the components and materials for new carriers are purchased up to six years prior to construction at a typical cost of $3 billion during the "advance procurement" period.

Second, large capital ships should be procured heel-to-toe. As a carrier is finishing the second year of a split-funding procurement cycle, the Navy should begin procurement of a large-deck amphibious ship. This would help moderate the budget spikes despite the fact that these two classes of ships are built in separate yards.

Third, the detailed design costs of all lead ships of a class should be funded during advance procurement. Advance funding of these costs - typically $500 million for a destroyer to $1.1 billion for a carrier to cover detailed engineering, production drawings and related tasks - would provide an enormous advantage to industry planners without increasing costs to the taxpayer.

These acquisition practices will help government and industry better plan and program the procurement of Navy ships, but they will do little to increase the size of the fleet or improve the rate of production. That will not happen until the Navy develops and issues a shipbuilding plan for the future that reflects the analyses of innovations in operating procedures and the real world requirements of the post-9/11 military strategy.

The Navy's figure for a nominal fleet of 375 ships was generated prior to 9/11 and without benefit of the lessons learned from Sea Swap, the Fleet Response Plan or other initiatives intended to get more sea days and combat capability out of existing resources. The resultant increases in utility may mean the United States will need fewer ships. However, the oceans are not getting any smaller and threats to our nation abound.

It is incumbent upon the Navy and Marine Corps to quickly complete and release the results of the several analyses under way that were conducted as guideposts to the future. Only then will we know the number, type and capabilities of the ships that will comprise our Navy fleet for the next half-century This strategy will provide a foundation for broad support of our Navy Marine Corps and shipbuilding program by the Navy League, the Congress and the American people.