[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 110-30]
SUBMARINE FORCE STRUCTURE AND ACQUISITION POLICY
__________
HEARING
BEFORE THE
SEAPOWER AND EXPEDITIONARY FORCES SUBCOMMITTEE
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 8, 2007
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
U.S. GOVERNMENT PRINTING OFFICE
37-655 PDF WASHINGTON DC: 2008
---------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
SEAPOWER AND EXPEDITIONARY FORCES SUBCOMMITTEE
GENE TAYLOR, Mississippi, Chairman
NEIL ABERCROMBIE, Hawaii ROSCOE G. BARTLETT, Maryland
JAMES R. LANGEVIN, Rhode Island KEN CALVERT, California
RICK LARSEN, Washington TERRY EVERETT, Alabama
MADELEINE Z. BORDALLO, Guam JO ANN DAVIS, Virginia
BRAD ELLSWORTH, Indiana J. RANDY FORBES, Virginia
JOE COURTNEY, Connecticut JOE WILSON, South Carolina
JOE SESTAK, Pennsylvania
Will Ebbs, Professional Staff Member
Heath Bope, Professional Staff Member
Jenness Simler, Professional Staff Member
Jason Hagadorn, Staff Assistant
C O N T E N T S
----------
CHRONOLOGICAL LIST OF HEARINGS
2007
Page
Hearing:
Thursday, March 8, 2007, SUBMARINE FORCE STRUCTURE AND
ACQUISITION POLICY............................................. 1
Appendix:
Thursday, March 8, 2007.......................................... 49
----------
THURSDAY, MARCH 8, 2007
SUBMARINE FORCE STRUCTURE AND ACQUISITION POLICY
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Bartlett, Hon. Roscoe G., a Representative from Maryland, Ranking
Member, Seapower and Expeditionary Forces Subcommittee......... 1
Taylor, Hon. Gene, a Representative from Mississippi, Chairman,
Seapower and Expeditionary Forces Subcommittee................. 1
WITNESSES
Casey, John P., President, Electric Boat Corporation............. 24
Courtney, Hon. Joseph D., a Representative from Connecticut...... 2
Donnelly, Vice Adm. John J., Commander Naval Submarine Forces,
U.S. Navy; Rear Adm. Carl V. Mauney, Director of Submarine
Warfare, U.S. Navy; Rear Adm. William H. Hilarides, Program
Executive Officer for Submarines, U.S. Navy; and Allison
Stiller, Deputy Assistant Secretary of the Navy (Ship
Programs), U.S. Navy........................................... 3
Nash, Winfred, President, BWXT, Nuclear Operation Division....... 31
O'Rourke, Ronald, Specialist in National Defense, Congressional
Research Service............................................... 32
Petters, C. Michael, Corporate Vice President and President,
Northrop Grumman Newport News.................................. 28
APPENDIX
Prepared Statements:
Bartlett, Hon. Roscoe G...................................... 53
Casey, John P................................................ 103
Courtney, Hon. Joseph D...................................... 143
Davis, Hon. Jo Ann, a Representative from Virginia........... 56
Donnelly, Vice Adm. John J. joint with Rear Adm. Carl V.
Mauney..................................................... 65
Nash, Winfred................................................ 137
O'Rourke, Ronald............................................. 78
Petters, C. Michael.......................................... 123
Rell, Hon. M. Jodi, Governor, State of Connecticut........... 141
Stiller, Allison joint with Rear Adm. William Hilarides...... 58
Documents Submitted for the Record:
Letter submitted by John P. Casey, President, General
Dynamics, dated March 30, 2007............................. 149
Letter submitted by Winfred D. Nash, President, BWXT, dated
March 22, 2007............................................. 150
Questions and Answers Submitted for the Record:
Mr. Taylor................................................... 153
SUBMARINE FORCE STRUCTURE AND ACQUISITION POLICY
----------
House of Representatives,
Committee on Armed Services,
Seapower and Expeditionary Forces Subcommittee,
Washington, DC, Thursday, March 8, 2007.
The subcommittee met, pursuant to call, at 3 p.m., in room
2212, Rayburn House Office Building, Hon. Gene Taylor (chairman
of the subcommittee) presiding.
OPENING STATEMENT OF HON. GENE TAYLOR, A REPRESENTATIVE FROM
MISSISSIPPI, CHAIRMAN, SEAPOWER AND EXPEDITIONARY FORCES
SUBCOMMITTEE
Mr. Taylor. The committee will come to order.
We are very fortunate today to be joined by Vice Admiral
John Donnelly, Commander of Submarine Forces; Commander Carl
Mauney, Director of the Submarine Warfare Division; Rear
Admiral William Hilarides, United States Navy, Program
Executive Officer of Submarines; and Ms. Allison Stiller,
Deputy Assistant Secretary of the Navy for Ship Programs.
This committee over the past few years has expressed
concerns that our Nation has not kept pace with our submarine
requests, with our submarine building to meet current and
future needs. The committee hopes to address that this year and
in the years to come. We note that there have been a number of
submarine studies that show the submarine force shrinking in
future years to what I think most of us would agree is an
unacceptable level, but we are laymen. We come from all parts
of the country, and we are not experts in the field. You people
are. So we would welcome your testimony today. Hopefully, all
of our concerns are your concerns and we can find common
ground, and where we can do some good for our Navy, we hope to
do so. We are honored to have you here.
I now turn to my ranking member, the gentleman from
Maryland, Mr. Bartlett.
STATEMENT OF HON. ROSCOE G. BARTLETT, A REPRESENTATIVE FROM
MARYLAND, RANKING MEMBER, SEAPOWER AND EXPEDITIONARY FORCES
SUBCOMMITTEE
Mr. Bartlett. Mr. Chairman, before I forget, I would like
to ask unanimous consent to place in the record a statement
from our colleague, Jo Ann Davis, who cannot be here today.
Mr. Taylor. Without objection.
[The prepared statement of Mrs. Davis can be found in the
Appendix on page 56.]
Mr. Bartlett. Thank you.
In the interest of time let me submit my opening statement
for the record, too, so we can get right to the testimony.
[The prepared statement of Mr. Bartlett can be found in the
Appendix on page 53.]
Mr. Taylor. I thank you very much.
The Chair now recognizes the gentleman from Connecticut,
Mr. Courtney, for an opening statement.
STATEMENT OF HON. JOSEPH D. COURTNEY, A REPRESENTATIVE FROM
CONNECTICUT
Mr. Courtney. Thank you, Mr. Chairman.
With that presentation, I am going to keep my remarks very
brief to get us moving along here, but I want to thank you and
the staff of the subcommittee and the ranking member for
responding to my requests for this hearing. Myself and
Congressman Langevin, and I know members from Virginia, Mrs.
Davis and Mr. Forbes, come from a part of the country where the
industrial base exists for building nuclear submarines, and I
think we have got a great story to tell about the progress that
has been made over the last few years in terms of the
production of Virginia-class submarines. I personally saw the
latest submarine, the USS Hawaii, which was delivered ahead of
schedule and, according to Admiral Haney of the Groton sub
base, was in almost perfect condition, which, again, is the
result of a lot of hard work that both the Navy and both
companies that produce nuclear submarines have put in over the
last few years to make the production more efficient and to
reassure the taxpayers of that as we consider this decision
that they are going to have a program, a shipbuilding program,
that they can have confidence in, and again, as you have said
on many occasions, the decision we are making here this year is
really not about the sub fleet today; it is about the sub fleet
10 years and 15 and 20 years down the road, and I am looking
forward to the testimony to help us make good decisions as we
move forward in this session of Congress.
[The prepared statement of Mr. Courtney can be found in the
Appendix on page 143.]
Mr. Taylor. Thank you.
I would ask the witnesses--there are a couple of things
that I would hope you would address, and to you, it is going to
sound almost simplistic, but for the American people who are
going to pay for these submarines, I would hope that you would
walk them through the time it takes from the day that Congress
authorizes a submarine to the time that you actually purchase
the power plant for the submarine before that submarine becomes
an operational part of your fleet. I would hope you would walk
us through the decline in the submarine production and the
decline in the size of the fleet, at what point the Nation
would bottom out, what kind of concerns you have about that
timeline. I am told it is somewhere around 2020 when we would
reach an unacceptable number of submarines, but also how long
it would take us to respond to that if we do not start
responding right now, and even if we do respond right now, if
we were to put an additional submarine in the budget this year
and next year, how soon we can start turning this around, and
also the need to maintain the industrial base. I think it is
fairly obvious to everyone at this podium that there are not
too many other things that a submarine designer can do in his
off time to make a living. He is either designing submarines
and building submarines or he is going on and finding another
job, but he is not going to be dropping back and forth between
the two.
So, with that in mind, Mr. Forbes, do you have an opening
statement?
Mr. Forbes. No.
Mr. Taylor. Ms. Bordallo, do you have an opening statement?
Ms. Bordallo. I do not have an opening statement, but I do
have some questions.
Mr. Taylor. Great.
With that in mind, who would prefer to begin?
Admiral Donnelly. I will begin, sir.
Mr. Taylor. Okay. Vice Admiral Donnelly, thank you.
Vice Admiral, because the committee has a five-minute rule,
this subcommittee does not, so within the bounds of fairness,
if you could keep it to ten minutes or less, we would certainly
welcome it if you can get your point across in that time.
Admiral Donnelly. Yes, sir. Certainly, I can do that, sir.
Chairman Taylor and Representative Bartlett----
Mr. Taylor. Admiral, would you hold it for one second? The
other gentleman from Connecticut is going to join us--I am
sorry--Rhode Island, somewhere a long ways from the shores of
the Gulf of Mexico.
I would ask unanimous consent that the gentleman from Rhode
Island would join the subcommittee for the day without
objection.
STATEMENT OF VICE ADM. JOHN J. DONNELLY, COMMANDER NAVAL
SUBMARINE FORCES, U.S. NAVY; REAR ADM. CARL V. MAUNEY, DIRECTOR
OF SUBMARINE WARFARE, U.S. NAVY; REAR ADM. WILLIAM H.
HILARIDES, PROGRAM EXECUTIVE OFFICER, SUBMARINES, U.S. NAVY;
AND ALLISON STILLER, DEPUTY ASSISTANT SECRETARY OF THE NAVY
(SHIP PROGRAMS), U.S. NAVY
STATEMENT OF VICE ADM. JOHN J. DONNELLY
Admiral Donnelly. Chairman Taylor, Representative Bartlett,
distinguished members of the Subcommittee for Seapower and
Expeditionary Forces, Rear Admiral Van Mauney and I thank you
for your continued support for our men and women in uniform and
for the opportunity to appear before you today. I am honored to
join Deputy Assistant Secretary Stiller, Rear Admiral Mauney,
and Rear Admiral Hilarides, and I thank you for the opportunity
to represent the men and women of your Navy and of your
submarine force.
As you have requested today, we will discuss the Navy's
required attack submarine force level, how we developed it and
the impacts of altering the Navy's future shipbuilding plan. We
will also address the submarine force's current operational
tempo and fleet requirements and relate them to the future
force structure. Our remarks will be unclassified. However, we
are prepared to provide classified details to the committee, if
desired.
First, let me say something about the cornerstone of our
force, our people. I have always been proud to be a submariner.
My father was a submariner. My son is a submariner, and in my
first month as a submarine force commander, I have been
repeatedly reminded of the caliber and of the quality of my
fellow submarine sailors. They are talented and motivated. They
have chosen to serve their Nation on the world's finest
submarines.
As an example, I recently visited sailors of the USS
Hampton just before she departed Norfolk on her way to the
Pacific for deployment. They were well-trained, enthusiastic
and eager to go do what they have been trained to do. At the
end of her deployment, Hampton will pull into her new home at
the Port of San Diego, California as part of the Quadrennial
Defense Review.
Moving back to the topic of operations, today's submariners
make up a small portion of our Navy, approximately seven
percent of our personnel who operate 24 percent of our ships.
They are out in front, around the globe every day, providing
our national security. Even while serving in a capacity outside
the Undersea Enterprise, such as on Joint Staffs or in Iraq and
in Afghanistan, these sailors use their unique talents and
submarine force experiences to make valuable contributions to
joint operations and the Nation's defense.
Currently, our 14 nuclear powered ballistic missile
submarines remain ready and vigilant, submerged in a secure and
survivable posture, able to rapidly respond to national
tasking. We have also brought on line the nuclear powered
guided missile submarine with the first one, USS Ohio,
deploying later this year.
Now let me turn from current operations to our future force
structure. The Chief of Naval Operations has developed a
shipbuilding plan that builds a Navy the Nation needs--a Navy
that is both affordable and that meets with acceptable risk the
future national security requirements outlined in the 2006
Quadrennial Defense Review. Force structure requirements were
developed and validated through detailed joint campaign and
mission level analysis and optimized through innovative
sourcing initiatives.
In 2005, the Chief of Naval Operations (CNO) directed an
effort to examine existing force structure studies, including
the 1999 Chairman of the Joint Chiefs of Staff Attack Submarine
Study and the 2005 Decision Memorandum III Study as well as a
number of other submarine studies, to support his decisions
regarding the right SSN force structure mix with the Navy's
long-term shipbuilding plan. To maximize return on investment,
the focus was for a Navy that was able to fight the Global War
on Terror, execute maritime security operations and win in any
major combat operation (MCO). The SSN force structure was
examined using a capabilities-based assessment, which included
peacetime demand and deterrents and warfighting requirements.
The analysis found that 48 was the minimum number of SSNs that
presented an acceptable risk and still allowed for an
affordable plan for long-range shipbuilding.
There will be some increased risk during the 2020 to 2034
time frame when the shipbuilding plan results in an SSN force
structure below 48 to a minimum of 40 SSNs, and the Navy is
looking to mitigate this shortfall by fully funding cost
reduction measures and fully implementing cost reduction
measures for the Virginia-class SSN, which met this week. It is
anticipated that the shipbuilders will also reduce construction
time, thereby accelerating ships to the front lines.
Another option, Los Angeles-class and Seawolf-class
submarines. Together, these initiatives could mitigate the
current 14-year requirement gap to as few as six years.
Finally, let me emphasize how important it is to sustain
the submarine force of 48 SSNs, 14 SSBNs and 4 SSGNs. That is
the right size and shape for our Navy and for our Nation, and
to sustain that force we need an effective and stable
shipbuilding plan presented by the Navy, including that program
that builds two Virginia-class submarines per year starting in
2012.
I am certain that our submarines will continue to be in
high demand, and I assure you that they will be forward-
deployed and ready for any task. Day in and day out, your
submariners gather intelligence. They shape the environment,
and they help avert the next conflict. Yet, they stand ready to
act quickly and decisively if needed.
Again, on behalf of your sailors, Navy civilians and
families of the submarine force, I thank you for the
opportunity to appear before you, and I stand ready to answer
your questions.
[The joint prepared statement of Admiral Donnelly and
Admiral Mauney can be found in the Appendix on page 65.]
Mr. Taylor. Thank you, Admiral.
Secretary Stiller.
STATEMENT OF ALLISON STILLER
Secretary Stiller. Mr. Chairman, Congressman Bartlett,
members of the subcommittee, it is a privilege for Admiral
Hilarides and me to appear before you to discuss the Navy
submarine industrial base issues. I request that our written
testimony be submitted for the record.
Mr. Taylor. Without objection.
Secretary Stiller. We thank you for this opportunity to
discuss the acquisition side of the submarine business, and
specifically, we will address the submarine construction and
design industrial base, the Navy's plan to reduce the average
per unit cost of Virginia-class to $2 billion, the fiscal year
2005 baseline, by fiscal year 2012, and the procurement
strategies to increase the build rate of submarines.
The submarine industrial base is composed of two major
components, the construction base and the design base. As you
know, the Navy is currently procuring one Virginia-class
nuclear attack submarine per year. Nine of the Virginia-class
submarines are under contract with three ships delivered and
another six under construction. The tenth will start
construction in early fiscal year 2008. The Navy's 2013
shipbuilding plan calls for procuring two Virginia-class
submarines per year starting in fiscal year 2012. The submarine
construction base will remain stable until then, when we will
see an increase due to the two submarines per year.
Though the submarine construction base is at a sustained
and constant level, this does not imply that the submarine
construction base is at its optimal level. Instead, while far
from robust, it is at a sustaining and constant level, two
attributes that could not have been said ten years ago.
The submarine design industrial base has more challenges.
The Navy has recognized the potential impact of losing a
national submarine design capability and is taking active steps
to mitigate this risk. We commissioned RAND to study this
unique portion of the industrial base. They evaluated
strategies for managing submarine design resources, including
shipyards, critical component suppliers and the Navy itself.
They concluded that extending the period of the design of the
next submarine class would alleviate the concern over the
erosion of critical design skills.
RAND recommended that the Navy consider accelerating the
next submarine design to mitigate excess cost delays and risks
that a design gap would cause. They also said sustaining
workers in excess of current demand was found to be the least
expensive. The shipyards would be able to more efficiently
accomplish the next design by retaining a minimum range of 800
to 1,050 designers and engineers to perform design work during
the design gap. The shipyards are addressing specifics of the
critical skills problem, so RAND did not repeat that effort.
However, RAND described the recommended sustained workforces by
general skill category. The Navy has elected to preserve the
critical engineering skills in two ways, first by investing
approximately $300 million in Research, Development, Training &
Evaluation (RDT&E) across the Five Year Defense Plan (FYDP) and
cost design.
Next, I would like to discuss the Virginia-class cost
reduction plans. Cost reductions will be achieved by
implementing a three-part approach. The first part will be
realized by ordering two Virginia-class submarines a year
starting in fiscal year 2012 as part of the seven ships multi-
year procurement contract with Economic Order Quantity. This
effort will reduce the per-unit cost by $200 million in fiscal
year 2005 dollars.
The second part of the cost reduction initiatives estimated
to save an additional $100 million per boat include realigning
work between the two shipbuilders to increase production
efficiencies, full utilization of the capital expenditure
initiative, reducing the construction span from seven to five
years, and modifying how we install and test nonpropulsion
electronic systems.
The third part of the initiative is designed for cost
reduction and is intended to lower costs by an additional $100
million per boat. These redesign efforts will not impact the
ship's capabilities and will include simplifying systems, using
lower cost components and implementing the use of technologies
to improve construction techniques. Together, these three
initiatives will help us reach our goal of $2 billion a copy in
fiscal year 2012.
Finally, I will discuss potential procurement strategies to
increase the build rate of submarines. One option for
increasing the build rate of submarines is to fully fund nine
SSNs, starting at two a year in fiscal year 2010. This would
require the next contract to cover nine instead of seven hulls
and require an additional $5.1 billion in FCN funding in the
FYDP. We also considered alternative financing strategies
spanning three years that utilize either incremental funding or
advance appropriations. For this approach, nine SSNs procured
between fiscal years 2009 and 2013 would still require an
additional $1.7 billion of shipbuilding conversion (SCN)
funding within the FYDP and an additional $3.4 billion beyond
the FYDP. Any alternative funding strategy that requires
additional SCN funding without top-line relief would cause
significant deviation from the Navy's 313 shipbuilding plan,
significantly increasing the risk of destabilizing the plan and
negatively impacting other shipbuilding programs and the
associated industrial facilities and suppliers.
In summary, the Navy and industry are working together to
reduce the cost and deliver these critical platforms. We have
established a solid foundation to meet our goal of two ships
for $4 billion in fiscal year 2012. We have addressed the RAND
conclusions in the near and far term, and we have concluded
that alternative financing strategies cause significant
downstream builds which negatively affect other aspects of the
shipbuilding account.
Mr. Chairman, we would like to thank you for this
opportunity to discuss the Navy's submarine industrial base and
look forward to answering your questions.
[The joint prepared statement of Secretary Stiller and
Admiral Hilarides can be found in the Appendix on page 58.]
Mr. Taylor. Thank you, Ms. Stiller.
Any additional opening statements?
Admiral Hilarides. No, sir.
Admiral Mauney. No, sir.
Mr. Taylor. Secretary Stiller, I hear you talking of the
advantages of multi-year procurement, the advantages of buying
two a year. What I did not hear you say is, if all of these
things make sense to do in 2009, 2010, why don't they make
sense to do now. Since we know we are going to have a shortfall
of submarines in the future, if we know that even if we start
now we still have a shortfall but we can lessen that shortfall,
why doesn't the Administration that has grown the defense
budget by approximately $150 billion since they took office
request those submarines now?
Secretary Stiller. As I mentioned, there is the three-prong
approach. The multi-year is part of it, and we have a multi-
year right now for the block, the first block, and what we are
talking about is requesting authority for the next block of
ships that we would also like to buy in a multi-year. We do see
that providing savings, and that is about $200 million per
boat.
The other part of it, to get to the $2 billion a year,
requires the investment in R&D dollars that we have talked
about. That is $300 million that goes through the FYDP. In
order to reduce those, simplify the systems and to introduce
the cost reduction initiatives, it is going to take us until we
get to 2012 before we can realize that additional $200 million
per boat in savings, and so that is why the Department is
focused on fiscal year 2012 to getting to $2 billion a year.
Mr. Taylor. You keep speaking of 2012. Now, is that to
order the ship, to fund the ship or to have the ship delivered?
Secretary Stiller. It is to order and fund the ship. The
ships will go----
Mr. Taylor. So, by your admission, it is going to take five
to seven years after that?
Secretary Stiller. Yes, sir. One of the initiatives is to
reduce the construction cycle time from seven to five years.
Yes, sir.
Mr. Taylor. I think we have an opportunity because of the
leadership of Chairman Skelton, because of the leadership of
Chairman Murtha to begin that process this year and the
cooperation of some other committee chairmen who are working
with us to move some funds around. I wish the Administration
had been a bit more aggressive on this, but that is neither
here nor there. The opportunity is there. I believe the need is
there. So my question for you is:
It is my understanding that the longest lead time for
procurements will be for the nuclear propulsion plant.
Secretary Stiller. Yes, sir.
Mr. Taylor. What type of funding would you need should this
committee, should the House, should the Senate see fit to get
this program going sooner rather than later? What kind of
funding would you need from that vendor to initiate this
process?
Secretary Stiller. Typically in submarine procurement, we
have two years of advance procurement that comes before you buy
the submarine. So, realistically, looking at this, you really
could not start construction on the submarine until fiscal year
2010 because you do require two years of advance procurement
money. Advance procurement money in the first year is usually
on the order of about $400 million. I will defer to Admiral
Hilarides in case I have missed something there.
Admiral Hilarides. No. That is correct.
Mr. Taylor. I would hope what I have just told you is not a
surprise to you.
Secretary Stiller. No, sir.
Mr. Taylor. I would also hope that given what I think is
the move again of those important players to see this happen
that you would begin initial conversations with those suppliers
so that we could know exactly what that dollar amount is and so
that, since there is a need that everyone agrees to, that we
can start filling that need now rather than later, but we will
need your help and guidance on that.
Secretary Stiller. Yes, sir.
Mr. Taylor. Is that a reasonable request?
Secretary Stiller. Yes, sir, and as I mentioned in my
opening statement, the multi-year procurement authority that we
have sent over as a legislative proposal covers seven boats. If
there are additional boats that would need to be added, that
has to be included in the multi-year authority as well.
Mr. Taylor. Is there any hope of additional savings with
those additional boats? Has anyone in your office calculated
that scenario?
Secretary Stiller. Well, for the fiscal year 2010 boat, we
know we will not be able to achieve $2 billion a year because
we will not have invested the time and the resources that we
need to get to the $2 billion goal. So a fiscal year 2010
submarine--as I said, if we look at that alternative, it causes
us to add $5.1 billion to the FYDP that we do not have, and if
we do that, it is going to be part of other critical
shipbuilding programs that are in the account. As for the
Economic Order Quantity, I will defer to Admiral Hilarides.
Admiral Hilarides. Sir, the two additional boats would
cause more learning. Again, with every boat you build the
shipbuilders learn. The costs come down as a result of that
learning. So there would be a benefit to the follow-on ships.
It is not exactly calculable, but in the learning curves that
are used to project our shipbuilding costs, that is part of it.
Economic Order Quantity--buying nine ship sets worth, over
seven ship sets worth does lower the costs in basic economic
principles. Yes, it would lower the cost in things that you
bought, that the Economic Order Quantity buys, and the number
of years from when you buy it in the Economic Order Quantity to
when you use it determines the total amount of savings that
accrues to Economic Order Quantity. So, since they are closer
to 2009, there is less than there would be for the 2011 and
2012 ships, but there is a savings that would accrue in that.
Yes, sir.
Mr. Taylor. Admiral, I want to give you the opportunity to
play the devil's advocate because I would rather hear it from
you than from anybody else, but I think we did have, to the
best of my recollection, the Secretary of the Navy on record
last week saying that if additional funds were made available
that would be one of his priorities.
Is there anything in your overall pipeline that would keep
this from happening? For example, do you have enough sailors to
man it? Are there enough young people processing through the
school of Charleston to man it? Is there anything that this
committee has missed that would tell us that this is not a good
idea?
Admiral Hilarides. Sir, we have not gone all the way into
the vendor base and looked at every supplier to say, ``In this
year, could that supplier ramp up to two per year?'' the CNO
shipbuilding plan has brought stability to shipbuilding, and we
have continued to stand by that plan because that stability is
what really lets the shipbuilders make the right investments
and get the things lined up for the most efficient production.
In that vendor base, I know there are some pretty fragile
suppliers. Generally, giving them additional business earlier
is better. I do not know of any of those vendors that would
have a problem, but I have not done the analysis to tell you
that they would all be able to provide their equipment.
Mr. Taylor. Would anyone else on the panel like to comment
on that?
Admiral Donnelly. Sir, we have 52 SSNs today, and if you
were to authorize additional submarines in 2010 and 2011 which
would not be delivered until 2015 and 2016, manning would not
be an issue.
Mr. Taylor. What if they were authorized in 2008?
Admiral Donnelly. Well, I mean the construction would begin
in 2010. We have enough people or we could adjust our
recruiting and our personnel programs to accommodate it.
Mr. Taylor. And are you in agreement?
Admiral Mauney. I know of no other consideration that we
have looked at to limit this particular approach.
Mr. Taylor. The Chair recognizes the ranking member, the
gentleman from Maryland.
Mr. Bartlett. Thank you very much.
One of the biggest challenges that we face in the designing
and the building of submarines is maintaining our industrial
design base. Clearly, if, as our chairman and I both wish, we
could move up the calendar our commitment to two submarines a
year, that makes it easier, but absent that, what is your plan
to make sure that we have designers available in the future to
design the submarines, because we are not doing that now?
Admiral Hilarides. Yes, sir.
The two per year really affects mostly the construction
base. It does not do a lot for the design base. What the RAND
study told us is that, as we come off the designs for Virginia
and the SSGN that, as the designers drop below a critical
minimum--and the RAND study does make an attempt to define that
critical minimum--it says that we should do something to
sustain those designers. Again, construction will not do it. It
has got to be a design. By the CNO shipbuilding plan, we
logically would start the next design in about 2012, and that
provides a couple of years of gap between when the designers
would go away and when they would have to come back up for
that.
The RAND study also did a series of sort of ``what if''
drills about what we might do. We are assessing those options
and the other options that are in front of us, and we will be
coming forward with a plan that ensures we keep those critical
designers on the books so that they are ready to design that
next submarine for the Nation, sir.
Mr. Bartlett. How do we do that? If we do not have a
submarine for them to design, how do we keep them on the books?
Admiral Hilarides. The RAND study specifically recommended
accelerating the design of the next SSBN and designing it in a
different way than we have designed ships before--instead of a
dramatic ramp-up just before you start construction, doing it
in a more measured fashion over a longer period of time--and we
are assessing that option. We just have not had a chance to
fully vet that to see if that makes sense, sir.
Mr. Bartlett. Do our authorizations and appropriations
bills need to reflect that or do you have the option of doing
that within the gross amount of money we give you?
Admiral Hilarides. Sir, for now, we have the resources
required. This issue really comes up in 2010, in fiscal year
2010, and so the follow-on budgets, I would suspect, would
reflect the results of our study of those plans and of our
putting in a plan that will sustain that base.
Mr. Bartlett. But if we moved up the procurement two years
for two submarines a year, then the problem goes away?
Admiral Hilarides. No, sir. Again, that is not principally
a design effort; it is a construction effort. The design effort
is pretty much unrelated to the Virginia-class. The Virginia
cost-reduction efforts do help. That is, we are hiring
designers to figure out how to change the design such that it
can be produced more effectively, but when that work completes,
there will still be a gap between then and when we logically
would start the next submarine design.
Mr. Bartlett. But if we are building these more quickly,
wouldn't we get to the next ones quicker?
Admiral Hilarides. Sir, the requirement for the follow-on
SSBN is determined by the end of life of the SSBNs that are
currently in the fleet, and so that number is not affected by
the Virginia-class. It is affected by the Ohio-class SSBNs.
Mr. Bartlett. So this program is independent of whether we
ramp up the design or not?
Admiral Hilarides. The design base is independent in a very
large measure, and I would defer to Ms. Stiller to tell you
there are probably some interlinkings but not in the main sense
of the design base.
Mr. Bartlett. So tell me, what will they be doing absent a
design challenge? See, the problem I have is I know you can
keep some people on board. I suspect that if they do not have
meaningful things to do, you will not keep the best people on
board.
Admiral Hilarides. That is correct, sir.
My opinion is that the best use of their time is to design
that next SSBN, but again the Navy has not come through with
the results of the RAND study to lay that plan in place.
Mr. Bartlett. Is there anything you need from us to
expedite that?
Admiral Hilarides. Sir, I do not believe there is anything
we need this year.
Mr. Bartlett. Thank you.
Thank you, Mr. Chairman.
Mr. Taylor. I thank the gentleman.
The Chair now recognizes the gentlewoman from Guam, Ms.
Bordallo.
Ms. Bordallo. Thank you very much, Mr. Chairman.
Admiral Donnelly and the other gentlemen and, of course,
our Secretary Stiller, thank you very much for your testimony
today.
I am interested in receiving an update on the progress
being made on the Trident submarine conversion program, and I
respectfully request that you discuss with the subcommittee
today your level of satisfaction with the progress being made
to date on this effort, and also I would appreciate your
discussing today your level of satisfaction with the two
converted submarines that I believe rejoined the fleet last
year.
Last, Admiral, I am interested in knowing more about the
role, if any, that Guam can play or will play in supporting the
missions carried out by the submarines.
Admiral Donnelly. Yes, ma'am.
We are very satisfied with the SSGN program. We have
actually had three ships delivered to date. The Ohio was the
first, and she will deploy later this year in the fall time
frame. Behind Ohio is USS Florida and then USS Michigan, and
all three of those ships have been delivered to the Navy. They
are in various stages of sea trial, of final outfitting and
evaluation and testing. The USS Georgia is the fourth and final
SSGN, and we expect she will deliver in the September 2007 time
frame. Those ships will be on a slightly different patrol
cycle. They will have two crews, and the plan is that one crew
will operate the ship, once it is forward-deployed, for about
75 days, and then the ship will pull into port and do a crew
swap, and then the next crew will do about a 21-day voyage,
repair, maintenance period, and then we will take the ship out
for 75 days. We will do three of those cycles, and then the
ship will return to its home port of either Bangor, Washington
or Kings Bay, Georgia--we plan to put two SSGNs in Bangor and
two in Kings Bay--and then we go through about a 100-day
maintenance period where more extensive maintenance would be
performed, and then the cycle would repeat. We do plan, as you
know, to use Guam as one of those forward-staging bases where
the crew swaps and voyage repairs will occur. We do have some
dredging projects in the harbor to enable that much larger
submarine to get into the pier in Guam, and we are very excited
about the capability that these ships bring to the Navy, and we
look forward to the first deployment of Ohio this year.
Ms. Bordallo. Thank you. Thank you very much, Admiral, and
we want to thank you all for discussing it with me prior to
this meeting and giving me the date of the arrival of the
nuclear sub, the USS Buffalo. Thank you.
Thank you, Mr. Chairman. I yield back.
Mr. Taylor. Thank you.
The Chair recognizes the gentleman from Virginia, Mr.
Forbes.
Mr. Forbes. Thank you, Mr. Chairman. Thank you for holding
this hearing.
I want to thank all of our witnesses for their patience in
working with us to educate us on these matters.
The first question I have is just the timeline. I am trying
to go through the sequencing and make sure I understand it. If
Chairman Taylor had it within his power to write you a check
today and say ``we want to bring on line a new sub or a new
carrier,'' give me the timeline before it would be deployed
from today, if he presented the check to you today.
Admiral Hilarides. Sir, if I may, the basic timeline is
this: two years prior to authorization, we need two years
advance procurement (AP) to buy long lead materials. In the
propulsion plant, there is a small tranche of one year advance
procurement that gets the rest of the government furnished
equipment in place, and then the year of authorization starts
the clock on the construction, but really your two years on the
clock that you asked. By the tenth ship of the Virginia-class,
we believe will be at a five-year construction span, somewhere
close to that. So about five years from that authorization that
ship would go out to sea on its trials.
We also intend to change the construction such that that
ship does not require a shipyard period after that, but what we
call the ``post shakedown availability.'' Our intent would be
to reduce that to the smallest possible. So, about a year after
that delivery, so the sixth year after authorization, she would
start her pre-overseas movement workup and about six months
after that she would deploy.
So, from today, from the AP, it is 7 plus about 2, and from
the authorization, it is the 5 plus 2.
Mr. Forbes. So, doing your math, if you would tell me
exactly how many years of the years you have just told me from
today--if Mr. Taylor presents you with a check, tell me what
the total number of years would be before it would be deployed.
Admiral Hilarides. That would be 11, sir.
Mr. Forbes. That is 11 years.
So, if today he could say we need a new sub, we would be
looking at 11 years before we could have it deployed?
Admiral Hilarides. Yes, sir.
Mr. Forbes. Any idea on the carrier?
Secretary Stiller. The carrier has four years of advance
procurement funding required. The construction cycle of the
carrier--Mr. Petters can best answer this on the second panel,
too--is longer than the submarine. It has got a seven-year
construction cycle, and then it has a similar on the back end
of how long you have to do your workups and your trials before
you deploy. So I would add about four more years to your number
from the submarine.
Mr. Forbes. So, from 11, you would give me 15?
Secretary Stiller. Yes, sir.
Mr. Forbes. So, if Mr. Taylor were to authorize that today
and he had it in his power, that would be 15 years?
Mr. Taylor. Mr. Forbes, I understand my limitations. ``if
this committee.''
Mr. Forbes. ``if this committee.''
Fifteen years. If whoever would come in here and we had 11
years for a sub, it would be 15 years from today. Now----
Admiral Donnelly. Mr. Forbes, if I may, I am not sure that
Admiral Hilarides has got the math exactly right.
As I understand it for a submarine, it is two years advance
procurement, five years construction. That is seven years. Then
with the PSA and the POM workup, it would be nine years.
Mr. Forbes. So your total would be nine years?
Admiral Donnelly. Nine years for a submarine.
Mr. Forbes. So 9 years for a sub, 15 years for a carrier.
Is my time about up?
Can you tell me--we hear all the time the words
``acceptable level of risk.'' can you tell us what that means,
anybody?
Admiral Donnelly. I assume you are talking about the
period----
Mr. Forbes. When we are told how many subs we need, we are
always told 48 subs is an acceptable level of risk, and that is
kind of like giving a symbol of this is the certification. That
is okay. You know if you have it.
So what is an ``acceptable level of risk''? How do we
define that?
Admiral Donnelly. That is a tough question, sir.
I look at this as a shortfall. Under the current 30-year
civilian plan, in 2020 we will dip below 48 submarines, and we
will remain below 48 fast attack submarines until 2033, so that
is a 14-year period when our force levels will be below the
minimum required force level of this most recent 2005 study. So
there is risk associated with that. Quantifying that risk is a
function of your assumptions about what that future from 2020
to 2033 will look like. So we are undertaking a number of steps
to mitigate that risk such as if those shipbuilders can deliver
the ship in 60 months as opposed to 72 months. That will
accelerate two ships to the front line, and that will help fill
that shortfall period.
As I mentioned in my oral statement, we have identified 19
hulls, by hull number, and that we could extend their service
lives based on their fuel remaining. Now, that would require
some additional maintenance periods for those ships, but we
think we could get 10 additional 6-month deployments from those
19 ships, and that would further mitigate that shortfall period
but not completely.
Mr. Forbes. My time is up, but let me just state my concern
and maybe you could get back to me either privately after this
or in writing.
I look at our Quadrennial Defense Review (QDRs), and I
recognize that just a few years ago, when we looked at a
country like China, for example, we felt they were not going to
be involved in carriers. You know, that was the wording we were
getting. That was what we were hearing. Then many of us
thought, oh, yes, they are going to be involved in carriers. We
wrote about that. We talked about it. Then, all of a sudden, we
get the satellite imagery of their retrofitting the carrier
that they are doing. We find them at the Moscow air show,
looking at planes that would only fly on the Super Carrier. We
now have, you know, the generals coming out and saying they
will have carriers on line or could have in about 2010.
We also had the same problem looking at subs. You know, we
had language that indicated they were not concerned about their
having a sub program. We then find out they have got underwater
docking bases and what they are doing with the Kilos and the
production of subs that are there.
My concern is, when we are looking at an acceptable level
of risk, we better be calculating some of that and factoring it
in because we cannot afford 9-year windows and 15-year windows
if we find out it is different 2 years from now or 3 years from
now, and I think that is one of the things this subcommittee is
very much concerned about. Are we allocating those risks?
My time is up. The Chairman has been very lenient with me,
but at some point in time I would love to have that discussion
with you or maybe it is something we can get our hands around
and look at what we are projecting on that.
Mr. Chairman, thank you.
Mr. Taylor. Thank you, Mr. Forbes.
The Chair recognizes the gentleman from Connecticut, Mr.
Courtney.
Mr. Courtney. Thank you, Mr. Chairman.
Before I forget, there is a statement, actually, from the
Governor of Connecticut, which I wanted to submit to the
record.
Mr. Taylor. Without objection, it will be added to the
record.
[The prepared statement of Mr. Rell can be found in the
Appendix on page 141.]
Mr. Courtney. Thank you, Mr. Chairman.
As a new member up here talking to other new members about
this issue, obviously coming from where I come from, it is
obvious why this issue, the question of the size of our sub
fleet, is an important one for the national security of this
country, but frankly some folks who are not from my region or
perhaps from Virginia sometimes are a little confused about why
in the sort of post-Cold War era this is a need for our
Nation's national defense, and I thought maybe we could just
step back from the prior discussion about production schedules
and ask you, Admiral Donnelly, if you could sort of comment on
what you see the need is for submarines so that, as we
deliberate on this question of the size of the fleet, people
clearly understand why it is important.
Admiral Donnelly. Yes, sir.
The submarine force has been active around the world in the
past year. We have provided submarine deployments for each of
the regional combatant commanders and for U.S. Strategic
Command (USSTRATCOM), of course, and for Special Operations
Command. Submarines are not a Cold War relic. They are a highly
modern sensor suite, strike platform that utilizes stealth,
endurance, mobility, persistence to gather intelligence, to be
forward in what we call ``intelligence preparation'' of the
battlefield. You could think of a submarine as a scout that is
out every day, walking the ground and providing valuable
information about the environment. There is a deterrent value
in the submarine because of its stealth. It is never seen. It
may be there. It may not be there. We are using submarines
extensively in the global war on terror. Using their stealth
capability and their impressive intelligence-gathering
capabilities, we can and have been gathering intelligence that
is briefed at the very highest levels of our government and of
our military. We are monitoring the activities and the plans of
the enemy, and our submarines are very heavily employed
throughout the world. I would be happy to provide classified
details in an off-line session.
Mr. Courtney. Admiral Mauney, do you want to comment on
that?
Admiral Mauney. Yes.
I would add that we also participate in a number of other
activities. We are working with our allies to build a coalition
of nations that respect national interests and global security.
We have an active program in the Pacific and in fact in all of
the geographic areas.
Additionally, we are cooperating with our own forces to
maintain our dominance of the areas in which we need to operate
to be prepared to gain access if directed by our national
leaders, and those complement the global war on terror with a
longer view toward maintaining our national security.
Mr. Courtney. Thank you.
Again, a lot of people may be watching this through webcast
or through the press, and again, members on this committee, I
think, have the benefit of great briefing papers from staff,
and just so that there is some clarity as far as the public who
may be listening or interest in this issue, again, I just want
to clarify comments that have been made earlier about what is
going to happen in the future, starting in 2013. I believe that
was the year that you mentioned, Admiral Donnelly, when there
is going to be a rate of decommission that is going to affect
the size of the fleet.
Again, maybe you can state for the record so we can make
sure that that is clearly stated what is actually going to
happen starting around that time frame.
Admiral Donnelly. Sir, the date is 2020 under the current
shipbuilding plan, and at that point, we will be
decommissioning large numbers of our Los Angeles-class
submarines that were built at a rate of about five a year.
Although, by that time, we will be building two a year
Virginia-class, the two a year increase does not offset the
five per year decrease because of the end of life. So there is
a 13-14 year period from 2020 to 2033 when our projected force
levels will drop below 48, which is our best estimate of the
minimum number we need to meet the combatant command
requirements in wartime and peacetime.
Mr. Courtney. Again, just to be clear, because the staff
has given us the benefit of this with their materials, there
actually will be a period where it will dip close to 40 within
that decade or so.
Admiral Donnelly. Yes, sir. The year 2027 to 2028. The
number bottoms at 40 and then begins to come back up.
Mr. Courtney. So to follow up on Mr. Forbes' question about
acceptable levels of risk, what we have to decide here is
really whether or not the decisions we make today which will
have an effect on that number down the road, using our best
possible judgment, is actually an acceptable level of risk for
our Nation. I mean that is pretty much the decision we have
before us; isn't that correct?
Admiral Donnelly. Yes, sir. I think that is an important
consideration in the decision, and as I mentioned before, we
are looking at a number of initiatives that we can use to also
mitigate that risk. Given the number of hulls, it will be what
it is, and then there will be a shortfall, I think, regardless
of what action this committee takes. You know, we will be
paying the price of a long period of time when we did not build
submarines in sufficient numbers from about in the 1990's. So
my job and the job of my successors will be to take what we
have and to do the best we can through the various, innovative
techniques. We have already begun that process in the
redistribution of attack submarines from the Atlantic to
Pacific, which will shorten transit times and which will
provide more presence for the given number. We are also looking
at a number of other alternatives that we might be able to
employ to get us through that period.
Mr. Courtney. That kind of involves looking into a crystal
ball, to some degree, as the world changes, and nothing is
static in terms of security challenges.
Admiral Donnelly. Exactly, sir.
Mr. Courtney. Just one other follow-up question if I could,
Mr. Chairman.
Secretary Stiller, when you talked about the design part of
our industrial base--and actually, we have some folks who are
here in the audience, listening very anxiously to your
testimony, and I welcome them from my district--there is also
the production piece of the industrial base also, which I
believe brings a skillset which may not be quite as technically
trained as maybe the designers and engineers, but clearly at
the production level it is not assembly line production when
you build a submarine, and we are seeing stress as far as that
part of the industrial base.
Would you agree?
Secretary Stiller. Well, sir, I think we are seeing--as I
said in my oral statement, we are seeing a much more steady
pace in the production industrial base than we did, say, ten
years ago when we had a hiatus in submarine construction, and
so, looking at the health of the design of the industrial base
versus the production industrial base, yes, sir, there are
critical skills there that we need to maintain, and we look
very closely at that and at the one-year ramping to two-year.
We feel very confident that the skillsets that we need there on
the production side are there, and yes, we do value them as
well.
Mr. Courtney. Again, I would respectfully point out that in
the last 18 months there are about 2,000 jobs that have been
eliminated at Electric Boat because of this production
schedule, and if we stay on track to 2012, before we go up to
two a year, based on everything I know, that workforce is going
to continue to be under a lot of pressure because it is just
not sustainable without some of the repair and maintenance work
that may not be there at Electric Boat, and you know, I can
just tell you, as someone who stood outside those factory gates
at 5:30 in the morning, greeting people, it is getting older in
terms of the people who are there doing the production work,
and I really think that--again, I applaud the fact that the
Navy has used the foresight with the RAND study to look at
preserving those design and engineering skills, but there is
another piece to this, too, in terms of where the shipbuilding
schedule is sort of leaving the production side of the equation
as well, and you do not have to comment on that. If you would
like, you certainly are welcome to, but that is certainly, I
think, another of the challenges that we have as a committee
and as a Congress to make sure that the whole workforce is
looked at in terms, again, of these decisions that we are about
to make.
Secretary Stiller. Yes, sir.
Mr. Courtney. All right. Thank you, Mr. Chairman.
Mr. Taylor. Thank you, Mr. Courtney.
The Chair now recognizes the gentleman from Rhode Island,
Mr. Langevin.
Mr. Langevin. Thank you, Mr. Chairman.
I want to thank you all for your testimony here today.
Mr. Chairman, I want to thank you for allowing me to rejoin
the committee today. I have enjoyed my work on the Intelligence
Committee, but I certainly miss the work on the Armed Services
Committee, and I welcome the opportunity to return today.
If I could just start with one question with respect to the
work our submarines do in the field, and I believe it was
Admiral Mullen who had testified previously before the Armed
Services Committee that right now our submarines are only able
to meet about 60 percent of the mission requests of our
combatant commanders in the field right now.
Do you concur with that number, Admiral Donnelly?
Admiral Donnelly. Yes, sir. If I could, just to clarify,
the combatant commanders submit requests for forces, and those
requests go to the Joint Staff where they are evaluated and
validated and prioritized, and the Joint Staff ranks those as
critical, high priority, priority, and routine, and then it
allocates the available forces to the combatant commanders
accordingly, so that becomes my requirement is the Joint Staff
validated allocation. I am meeting 95 percent of my requirement
in all of the critical mission requests and about 95 percent of
the high priority, but overall, if you go back to the original
requests from the combatant commanders, Admiral Mullen is
exactly right. I think it is 62 percent of those original
requests that are actually being satisfied after that global
force management process and the allocation.
Mr. Langevin. I just said we recognize that as a
significant number that are going unfulfilled, and again, these
are from combatant commanders in the field.
Going to Mr. Forbes' question, does the Navy's future
submarine force structure plan to provide adequate capability
against emerging threats? Mr. Forbes mentioned China. How does
the plan address China's growing submarine fleet?
Admiral Mauney. Yes, sir.
Our analysis and Admiral Donnelly's opening statement
briefly covered the three more recent--the Joint Staff in 1999,
the program decision in 2003 and 2005--and the Navy's force
structure analysis considers the range of what our Intelligence
Community sees, and using their best analysis, it provides an
estimate. That estimate has risk associated with it. There are
unknowns. We use those estimates in parallel with detailed
analysis of potential situations in which our submarines and,
in fact, all of our forces would be employed to determine how
they perform given the design criteria that we use in building
submarines and surface ships and aircraft.
From that performance, we look at how many we would need.
Generally, you come up with a range of submarines--48 being
what we call the ``sweet spot''--in the range of 45 to 50,
which is the minimum number several studies have come up with.
Those allow us to perform the critical missions in warfighting
as we would postulate them. That warfighting consideration is
then done in additional analysis, in parallel, using peacetime
forward presence. As Admiral Donnelly mentioned, we have been
providing about 10 submarines a year forward presence to the
combatant commanders to accomplish the missions that we have
been required by the Joint Staff to accomplish.
One of the assumptions that you make is how much is that
going to change over time, and the assumption that was made was
that this force structure, or this forward presence number, is
about right given what our Intelligence Community forecasts for
the future, and that is the force structure of about 45 to 50
will meet both the 10 submarines of forward presence per year
as well as our warfighting needs as we have analyzed it.
Mr. Langevin. But even given that, you recognize, according
to Admiral Donnelly's testimony, that in the outyears, 2028 and
2029, our force structure, our submarine force structure, drops
below or to about the level of 40. We are going to be at a
significant disadvantage, and that troubles all of us.
Because I know my time is limited, if I could, I would like
to go back to the issue of the multi-year contract and getting
two subs per year. As to the multi-year procurement plan, I
guess estimates are it saves us about $80 million per ship.
Going back to the chairman's question, if we were to add more
ships into the mix, adding an eighth or a ninth, what does that
do in terms of bringing costs down using multi-year contracts?
What do we expect to save?
Secretary Stiller. Right now, for the second multi-year
contract that we have been talking about in fiscal year 2009
through fiscal year 2013, we assess the savings to be about
$200 million per boat, and we have not--and as Admiral
Hilarides said earlier, there would be some if you added an
additional submarine, one or two. There would be additional
savings that we have not yet calculated because of the learning
that you would see with two boats a year. Would it be
significantly more? No. I mean it is not going to be another
$200 million, but there would be some savings, but we have not
calculated that.
Admiral Hilarides. We just have not run those numbers, sir.
Mr. Langevin. Okay. If I could ask one last question.
We talked about and you mentioned here today the fact that
we can get the build cost down to about $2 billion per ship.
Could you discuss in more detail the design changes you deem
most important for the cost reduction, obviously, and design
and describe the elements in your budget request to support
those efforts?
Admiral Hilarides. Sir, there are about 300 different
initiatives that we are working on, and they have, some of
them, a relatively small cost effect on a per hull basis, but
additively, they will get us to the target that we need. We are
shooting for more than $100 million out of these cost reduction
initiatives, but in order to do that, we have these, and many
of them are small ones, simple things like taking out hydraulic
pipes and valves and putting in electric actuators, changing
the way we buy government furnished equipment, and some big
ones that would involve major changes to the structure of the
ship. They are all under evaluation in terms of how well we can
execute them, how much cost they take out and their impact on
the capability of the ship. That analysis is going on this
year, and our shipbuilders have been very, very helpful in
helping us sort all of that out. They have been the source of
many of those ideas. We will put that hull package together,
and it will form the basis of the cost reduction, and again
there are about 300 that are under assessment, and as we decide
to incorporate them, then we and the shipbuilders agree on the
amount of savings that accrue, and then we put those in play,
and again the goal will be to have the predominance of the
savings in place by the fall, and we have just started that
process with the shipbuilders.
Mr. Langevin. How much weight are you giving to the
government's investing in the capital equipment up front?
Sometimes the SSR is reticent to invest in that equipment,
particularly if we do not know if ships are going to be built,
so it will not necessarily make the investment. If it is not
used, it is a big waste of money.
What about the government's funding some of the upfront
costs of investing in the capital equipment? Could you comment
on that and what degree that would achieve a significant
savings?
Admiral Hilarides. Yes, sir.
The current contract has some contract incentives that the
shipbuilders have made great use of. It is called Capex. Ms.
Stiller referred to it in her opening statement. That
incentivizes and helps the shipbuilder get the capital
investment required to improve the shipyards. Both of our
shipbuilders have made good use of that, continue to propose
projects under that contract's capital expenditure that are
helping us bring the cost of those ships down. We would intend
in the next multi-year to work to have those incentives be in
place as well, and of course, that would be part of the
negotiations that would go in, but it has been so successful
for us that we would intend to continue that as a going-in plan
to those negotiations, sir.
Mr. Langevin. That is good to hear.
I want to thank the panel for your testimony here today and
for answering our questions, and thanks for the job you do.
Thank you, Mr. Chairman. I yield back.
Mr. Taylor. Thank you, Mr. Langevin.
It would be the Chair's intention to now recognize those
members who came after the gavel, so that would be Mr.
Ellsworth, Mr. Wilson should he return, and Mr. Sestak.
The gentleman from Indiana, Mr. Ellsworth.
Mr. Ellsworth. Thank you, Mr. Chairman.
Thank you all for your testimony. I apologize for being
late, so I may have missed something. You know, I think a lot
of my questions got answered in some of the other questions,
but I would ask--you know, Mr. Courtney sounded out about how
many job losses when we cannot estimate it in the shipyard and
cannot estimate how much they need when they are waiting for
our Federal Government to decide how many ships we need, but
how does that trickle down? If you will, tell me how that
trickles down.
Also, I do not want to assume that everything that goes
into a sub is made there at the shipyard. There are outside
contractors, and I guess I would ask how difficult that is to
find the people who are making the equipment that is not the
hull or in the ship, keeping them out there hanging, and then,
in turn, is it a concern that it goes--and I do not know this--
to foreign companies, and if that is the case, is there the
concern for either foreign companies that make that equipment
and foreign materials that go into our equipment, and would
that be a concern if that is the case?
Secretary Stiller. I am going to start and then turn to
Admiral Hilarides for the specifics on the submarine vendor
base.
One of the goals of the SSN 313 plan has been to introduce
stability into the ship so that the shipyards can plan, and we
have made no changes as we submitted the budget from fiscal
year 2007 to fiscal year 2008 to the shipbuilding plans so that
the industry can plan and understand the industry even at the
sub vendor level to know what the Navy's plans are for
construction not only in submarines but across the board in
carriers, amphibious ships, auxiliary ships, and SARC
combatants. We do have a monitor on critical vendors, and I am
going to turn that over to Admiral Hilarides, who is a
specialist on the submarine side. We are in a soul search
situation in a lot of cases there.
Admiral Hilarides. Yes. The vendor base is fragile, and I
think, in Ms. Stiller's testimony, she said it is sustainable
but not optimal, and I think that is true of our vendor base as
well. We do not have foreign vendors producing things for the
submarine. We have U.S. suppliers for the things that go into
the ship, and we see some stress on those suppliers, but we do
not see anything that makes us say we have to go look at
alternate suppliers or develop foreign suppliers for the ship,
so it is not optimal but stable.
Mr. Ellsworth. Mr. Chairman, thank you. Like I said, most
of my questions were answered, so I yield back.
Mr. Taylor. I thank the gentleman.
The gentleman from Pennsylvania, Mr. Sestak.
Mr. Sestak. I apologize for being late.
Admiral, if you put some submarines in Guam, if you had a
dry dock there to do the maintenance, rather than how you have
been doing it by bringing them back to Hawaii or when they have
been brought all the way back to California, and you put the
training facilities in Guam, what is the difference in the
operational availability with the investment of those
submarines in Guam?
Admiral Donnelly. It would clearly improve the operational
availability. I do not have the exact number. The limiting
factor, of course, is when we send the ship out of Guam for
maintenance, the PERSTEMPO rules then require us when the ship
gets back to Guam to stay in home port for as long as she was
gone.
Mr. Sestak. So, if you had the training facilities and the
dry dock there, this would probably cost $1 billion, I would
imagine--I just pulled that out of the air--but whatever it is,
my limited understanding is the operational availability would
be quite significantly changed. Is that wrong? You would not
have to worry about the PERSTEMPO.
Admiral Donnelly. I think it would improve. Clearly, we are
getting about 48 days of mission time per year above--for the
Guam boats, 48 mission days above what a rotational deployment
submarine would provide.
Mr. Sestak. Is it possible to get that figure, Admiral?
Admiral Donnelly. I can provide that to you, sir.
Mr. Sestak. Okay. Admiral, also, why not put more out there
if, really, the only remaining force of import as far as the
submarine fleet might be is, let us just say, China, and if
time is of essence in getting there, why don't we put more out
there?
Admiral Donnelly. Well, there are certainly some
infrastructure challenges with doing that--family housing,
enlisted bachelor quarters, all of the MWR hospitals, schools.
Mr. Sestak. Is there anything being done to say how much
more it would cost with the difference of, let us say, 11
submarines out there?
Admiral Donnelly. Something is being done.
Mr. Sestak. Could I see that?
Admiral Donnelly. I do not have that with me, but we will
provide it to you, sir.
Mr. Sestak. The other one I was curious about--and I only
bring that up because there are scenarios when time matters as
we all know. I mean China is so different from the Soviet
Union.
Admiral, the Joint Staff attack submarine study, the number
of oppressants was 68; is that correct?
Admiral Mauney. Yes, that is correct.
Mr. Sestak. And that is kind of the joint, non-naval kind
of study?
Admiral Mauney. It was conducted by the Joint Staff,
relatively independent of the Navy, but it included Navy
personnel, and certainly I think Admiral Donnelly's predecessor
contributed when questions were asked.
Mr. Sestak. The reason I bring it up is do you remember
what the wartime scenarios were and what the number of
submarines were based upon.
Admiral Mauney. We have reviewed those. Yes, sir.
Mr. Sestak. The launch of China to Korea and Russia into
Poland, should we update that study for wartime requirements
since it is such a major part of the testimony and for the
analysis, potentially, of the different wartime scenarios?
Admiral Mauney. The details of the study, of course, as you
know, are classified, sir, and we can certainly discuss those
in a different forum if you would desire.
As to whether the study should be invaded, as you know,
also, other studies--PDM-3 and then the Navy's force structure
study--did review the assumptions, conclusions and used a more
recent campaign analysis to determine their conclusions.
Mr. Sestak. The last question is of the distributed Anti-
Submarine Warfare (ASW) task force. The ASW, how does that
dovetail well? I guess this is yours, Admiral. How does that
work?
Admiral Mauney. The current Navy's ASW doctrine is a total
force doctrine. It envisions a number of different elements of
the concept of operations, which includes distributed forces,
aviation, submarines, surface ships, and a layered approach to
the problem.
So I think submarines are an important part of ASW. They
are capable and continue to be part of this total picture.
Mr. Sestak. Is there still the effort to pursue this
distributed ASW concept, the one with, for instance, the
advanced deployable system, which I gather has just been
canceled; is that right?
Admiral Mauney. There is an effort. Admiral Mullen has
reiterated in the last six to eight months on a number of
occasions that ASW is a priority of his in terms of the Navy
and the Navy's capabilities. We continue to look at these
distributed approaches and have several projects in the works
that were funded by Task Force AFW and continue under the
resource sponsors today and will deliver in due course, or we
will continue to learn if they are not effective, if that turns
out to be the case.
Mr. Sestak. But that system is canceled?
Admiral Mauney. Yes, sir. The advanced deployable system
concept of operations was examined by the fleet. And for
reasons which included the tethering of specific ships to the
communications from those systems at a pretty short leash,
Fleet Forces Command determined that was not a viable concept
considering the other concepts in ASW. We will complete that
program in the near future with a test of the system, and we
will carry those lessons into additional examinations and
projects of the future for ASW.
Mr. Sestak. So it is the tethering that was the challenge?
Admiral Mauney. Yes, sir. That is my understanding.
Mr. Sestak. So technologically it could work, but it is
that short tether that they can't roam once they leave and run
away.
Admiral Mauney. The tether that was the issue that was
identified to me, and the system, as I understand it, has not
yet been fully tested. That is scheduled for later this year,
but did meet the general attributes that were attributed to the
system in the initial documentation.
Mr. Sestak. Thank you.
Mr. Taylor. We have been pretty lenient with the five-
minute rule with your questions.
Mr. Sestak. The Navy has, by and large, by my
understanding, has been justified for structure on presence.
And so the reason I was curious on the warfighting scenario is
that is important to what you are using today. In particular,
as you have worked at Guam and other places, what is the most
efficient way to achieve that? That is what I am most
interested in, because the study did say, the GS Study, 68. I
think it was 55, and I think it came in at 68 at the end. Is
that correct, Admiral?
Admiral Mauney. Yes. That is correct. It wasn't 100. I
think it was 55 to 68.
Mr. Sestak. It actually went to 68 and 155, but the select
came in with 68. So the present number, I understand, was what
the war-time scenario, which I gather was subsumed within that,
which we look at for it, which I think might be the same or is
the smaller number.
Admiral Mauney. The studies considered both warfighting and
presence, and they are both presented to decision-makers who
end up measuring and assessing the risk. In this case it was
the Navy leadership, and the number of 48 was the balance that
they selected from a number of considerations. I would say that
it is not only for force presence, but it is concepts from the
analysis based on different warfighting scenarios as well.
Mr. Sestak. I don't think there is a more versatile
platform than the submarine for presence or warfare.
Just how you take those warfare scenarios and do what you
just said, take the presence and bring them together and look
at some operational base in a strategic operation of ours, and
how much you want to put there to help meld those two to a less
efficient way was the reason for my questions.
Thanks very much, Mr. Chairman.
Mr. Taylor. Thank you, Mr. Sestak.
Admiral Donnelly, for the record, since on several
occasions Congress has been accused of building and buying
platforms that the Nation didn't need or the military didn't
want, for the record, should Chairman Skelton, should Chairman
Murtha, both of our Senate counterparts, show their willingness
to build this additional platform for this year? Would you
prefer to have it this year or wait for the Administration here
to build the program?
Admiral Donnelly. Sir, that is an excellent question.
Mr. Taylor. That is why you make the big bucks.
Admiral Donnelly. No. I am the submarine force commander,
but I am also a naval officer, and I would say I am a naval
officer first and submariner second.
Of course, I would love to have two additional submarines,
as you suggest. We could use them. They would greatly mitigate
the problem that we will have between 2020 and 2033.
But--and I would have to qualify this--the CNO has built a
shipbuilding plan, a 30-year shipbuilding plan, that balances
across the Navy for surface ships, logistic ships, amphibious
ships and submarines, and takes into account the industrial
base across the entire Nation, not just the submarine
shipbuilders. And as a naval officer, I honestly support the
CNO's 30-year shipbuilding plan because it has balance across
it. There are periods when our aircraft carriers dipped below
the minimum number that we would like, as the submarines did,
too. But in balance, that is the right plan for the Nation.
Mr. Taylor. If you had the assurances at the top line so
that no other programs would suffer as a result, what would
your answer be?
Admiral Donnelly. That we would have to have two additional
shipbuilders. And that is consistent with, I think, Admiral
Mullen's testimony that I heard as well.
Mr. Taylor. As a matter of curiosity, what would the hull
capacity of that ship be?
Admiral Hilarides. Addition is not my strong suit, as I
indicated earlier.
Mr. Taylor. I think we have got that.
Admiral Hilarides. I believe it would be the 786.
Mr. Taylor. Seven hundred eighty-six. Would you know a cap
vendor that could possibly have a cap that says USS Missouri ?
I have a very strong feeling that could seal the deal. Just as
a suggestion.
And the CNO, the Secretary of the Navy, was also asked the
same question.
We thank our panel very much. We thank you for your service
to the Nation and the men and women that you represent here
today. We will try to get to those ships sooner rather than
later.
Any additional questions for this panel?
Okay. This panel is dismissed. Thank you.
The subcommittee now welcomes our second panel: Mr. John
Casey, President of Electric Boat Corporation; Mr. Mike
Petters, Corporate Vice President and President of Northrup
Grumman Newport News Shipyard; Mr. Winfred Nash, President of
BWXT Nuclear Operations Division; and Mr. Ronald O'Rourke,
senior naval analyst, Congressional Research Service. So we
welcome you for your testimony.
It is the tradition of this committee to have the witnesses
stay within five minutes. Without objection, I would be asking
to ask unanimous consent to let them speak up to ten minutes.
Hearing no objection, so ordered.
Who would like to begin?
STATEMENT OF JOHN P. CASEY, PRESIDENT, ELECTRIC BOAT
CORPORATION
Mr. Casey. I am John Casey, President of Electric Boat
Corporation. With me today, along with my personal staff, are
the leaders of the two unions of Electric Boat (EB), Ken
Delacruz and John Wardy, and collectively we speak for the
talent and capability that resides in southeastern Connecticut
and Rhode Island.
Mr. Chairman, Ranking Member Bartlett and other members of
the committee, we are really pleased and excited about the fact
that you scheduled this hearing today to talk about submarine
procurement rates. I am pleased to be joined on the panel with
Mike Petters, the government's nuclear vendor from BWXT, and
naval analyst and a great thinker, Ron O'Rourke.
I would like to request my written submittal become part of
the record and just cover the highlights here.
I did ask that some pictures be distributed to you all that
really exemplify some of the recent successes of Virginia.
There is a picture of the bow of the USS New Hampshire recently
delivered from Newport News, and you can see that is fully one-
quarter of the entire ship. You can see a picture of the stern,
part of which was built at Newport News, part of which was
built at Quonset Point. Together they were joined there, and
they were recently shipped up, as recently as yesterday
afternoon. In fact, I was on the phone with the admiral when
that barged shipment went by with the stern of that vessel.
We have also got the midsection there of 777, and I believe
you have got the USS Hawaii at sea with the beautiful sunset in
the background from this past December, a ship that was
delivered ahead of its schedule, created over a decade ago. You
all talked about the time frame for these vessels. That ship
was delivered ahead of its schedule. It was delivered a decade
ago.
You have requested our view on five topics related to the
most complex weapons system known to man. These five topics are
the Virginia-class Acquisition Strategy, the CNO's cost
challenge, the USS Virginia CAPEX program, our ability both in
terms of infrastructure and people to up the procurement rate
in advance of 2012, and any alternate funding strategies that
we might be able to conceive.
Submarine procurement--in answer to the first question
relative to acquisition strategy, submarine procurement has
fluctuated dramatically, as you see in my written testimony.
There have been three significant policy changes in the last
ten years. Over a decade ago, there was a plan to sole-source
submarine production. Over a decade ago there was a plan to
start two ships per year, and during that ensuing decade, there
was a six-year period where only one submarine was delivered to
the United States Navy as a result of a holiday taken from
submarine shipbuilding activities.
The current plan, as we discussed, keeps one a year in the
budget until fiscal year 2011, and there are two starting in
fiscal year 2012. Of that, ships that have been authorized, in
Block I there are four ships, Block II there are six ships.
Five of those six were bought in a multiyear procurement. So
when I refer to those blocks, it is just for reference point of
view.
The plan, as you have all discussed already, will create,
in essence, a force-level shortfall, and the Navy testified
that they are trying to mitigate that, including using
activities we have, accelerate production down to five years as
a means of getting more ships to the fleet sooner.
My primary concern as a shipbuilder is the cyclical demand
this one-per-year production rate or procurement rate will
cause to the people that work on the waterfront in my Groton
front shipyard. The plan needs to be stable. It needs to be
increased in terms of volume in order to achieve the $2 billion
ship. They need to be bought in a multiyear procurement. We
need to be a two-year. We need to use economic quality
techniques, and the government vendors need advanced
procurement moneys. In fact, we could use advanced procurement
moneys in the shipyard to accelerate manufactured items that we
build that are very similar to the items that are bought
through the vendor base.
There was a question asked during earlier testimony, I
think it was by Mr. Ellsworth, regarding the national vendor
base. I think it is interesting to point out the approximately
$20 billion that have been obligated for submarine procurement
to date. Almost $7 billion of that money, not counting me,
Mike, or the nuclear vendor, are allocated to vendors across
the country. In fact, there are over 15 States in this country
where over $100 million of submarine pieces and parts are
manufactured.
We are working very closely with the Navy to reduce the
cost. And the cost has three major constituents: the
government-provided material, the contractor-furnished
material, and the shipyard labor we use to build these ships.
We are working with the Navy through a model. We are working on
inherent costs, the design; structural costs, the schedule;
systemic costs, the way we acquire materials; and realized
cost, the efficiency of our people in a shipyard. We are not
just leaning on the people. We are looking at all four key
elements of cost.
The total cost, of course, on the labor side has two
components. There are the number of hours you spend and how
much you charge per hour.
Dollars we charge per hour include absorption of overhead.
Electric Boat has been very aggressive at cutting down on our
overhead expenses. If we took the future procurement rates,
pricing rates, excuse me--the future pricing rates in the early
1990's, and applied those to the programs for the next decade,
we would have had a certain cost for the products we have
produced for the United States Navy.
Through our aggressive re-engineering, we have reduced
those costs by $2.7 billion, and 95 percent of those savings
have been accrued for the United States Government.
Meeting the $2 billion challenge will require support from
all of us, all of the stakeholders, including the ones at the
table, but the Navy as well. And it also presumes that there
aren't any significant perturbations for the global economy,
including major commodity pricing changes. Working together, we
can make it happen. It cannot be done if we only buy one ship
per year.
There was also a question on the Capital Expenditure
program, in particular on our Virginia class. This Capital
Expenditure (CAPEX) program is one where a portion of the
profit that we would ordinarily receive is allocated to CAPEX,
tied to the CAPEX process.
CAPEX incentive payments equal the invested costs; 50
percent of that profit or of that cost can be applied when a
project is authorized, including Navy authorization, 50 percent
when it is implemented.
There are three recent very successful examples: light
metal fabrication facility, a coatings facility, and a
transportation project. The total investment was about $30
million. The total savings are about $270 million over the life
of the program, approximately an 8-to-1 return. There is a
significant balance of money remaining. My teammate will talk
about some of the items he has done at his yard. It is a good
method to incentivize shipbuilders to make investments they
might not otherwise make.
The next question they asked was about increasing
production prior to 2012, And I love this question. I love it
because, as an example, at 5 o'clock this morning, I am at the
gym--in fact, it happens to be in your district, Mr. Langevin--
practicing Ashtanga yoga. Somebody comes over to me and says,
``John, can I ask you a personal question?''
I said, ``Certainly.'' ``Will there be any more layoffs
this year?''
I have answered that question almost every day, every day
for the last ten years of my life. EB has the infrastructure in
place to build up to three SSNs per year. Minimal investment
will be required in tools and equipment to accelerate this
production. Our workforce can grow. We grew--in fact, we were
so small, we were 1,500 people until 1998. We doubled the size
of that workforce in the Groton waterfront to support the
Navy's maintenance requirements. But we have sustained this
low-submarine-production-rate environment because we had the
Jimmy Carter multimission platform being built, because we had
an SSGN program, and because the Navy asked us to participate
in maintenance work. Those things, I am told, two are gone, and
the third one is going away. All those are now happening at the
same time.
There is no new submarine design for the first time in the
history of naval nuclear power. Continued rollout for Electric
Boat at current levels and maintenance work could actually save
$65 million on Virginia-class procurement rates during the next
ten years.
As far as alternative funding strategies are concerned, 20
of 30 planned Virginia ships have, in fact, been contracted or
authorized. There are, in fact, in my opinion, more options
through acquisition processes and strategies to acquire those
remaining 20 ships more efficiently than the first 10. The
traditional approach, multiyear procurement, using advanced
procurement moneys like the $70 million we recommended be put
into the advance procurement line this year to get us going
early, that isn't to get to two a year necessarily, that is to
make sure we reduce the cost of the ones we are building in
Block II, to allow the shipyards themselves to use advanced
procurement money for the parts we manufacture. We don't all
just assemble. There are some things that can't be bought that
we manufacture. And to expand the use of economic or quantity
of moneys. And one last item would be to authorize the Navy to
procure one set of main machinery as a spare. Every program
would have a main machinery spare. That would avoid any
potential for that particular piece of equipment of hindering
our ability for delivering that next ship as soon as possible.
A more difficult option that hasn't been considered would
be to--think about this for a second. There have been on Block
II ships about $7 billion obligated already. Because of the
time it takes to build ships, we will not use all of those
funds until we deliver the last ship of that block. So in my
mind, there is an opportunity to look at Virginia-class
procurement from a programmatic point of view rather than
looking at it from a ship-by-ship point of view. I am not an
expert in that area. Clearly you are going to have to ask
people in the Office of Management and Budget (OMB) and the
Treasury whether or not those alternatives are acceptable.
Let me wrap up, and I probably have taken more than the
allotted time.
The Virginia program metrics are outstanding, in my
opinion. The cost is under control. It is predictable. We are
achieving the schedules that we sent many, many years ago, and
the Navy has testified to the performance of these vessels,
including testimony that the first ship reached initial
operational capability this past Monday.
Three of the first ten ships have been delivered. Seven
remain. The submarine cost reduction plan is under way. We can,
in fact, meet the challenge if, in fact, we are given the
opportunity to do so. We have two ships per year. Your support
is absolutely critical to our success here.
So I have talked about product, I have talked about the
performance, and as the leader of the organization, I have to
close with the people. That is what makes the difference in
these vessels going to a place that cannot otherwise sustain
human life. Many of us go on these initial sea trials. There
are thousands of people that participate in the creation of
these vessels. When you put yourself inside of one, you have to
be satisfied that the people who are participating in that
process have their heads in the game. And they do, and I am
proud of them, and we have got to make sure we preserve that.
Thank you. I would be glad to take your questions.
Mr. Taylor. Thank you.
[The prepared statement of Mr. Casey can be found in the
Appendix on page 103.]
Mr. Taylor. Who would like to go next?
The Chair recognizes Mr. Petters.
STATEMENT OF C. MICHAEL PETTERS, CORPORATE VICE PRESIDENT AND
PRESIDENT, NORTHROP GRUMMAN NEWPORT NEWS
Mr. Petters. Thank you, Mr. Chairman.
Mr. Chairman, Ranking Member Bartlett, and distinguished
members of the Seapower and Expeditionary Forces Subcommittee.
I would like to thank you again for this opportunity to appear
before you to discuss Virginia-class submarine program and the
acquisition policy for the submarines.
In your invitation, Mr. Chairman, you asked me to address
several questions, and I believe Mr. Casey has sort of
highlighted those. I responded to all of your questions in my
written testimony, and I request that that be accepted into the
record.
For my statement, I would like to discuss just two of those
questions, if I might. First, you asked if the Electric Boat
Newport News team could meet the Navy's challenge of two
submarines for $4 billion in 2012 in 2005 dollars, and my
response to that is a solid yes.
You also asked if we have the ability to accelerate
production to two submarines a year before 2012. If the
question is can we do it, the answer to that is another solid
yes. If the question is should we do it, that response is
obviously more complicated, and you have heard some testimony
already on that today. That answer is clearly a function of
stability of the entire shipbuilding base and the shipbuilding
plan, as the CNO has already testified, and I will talk a
little bit more about that in a minute.
First, let me tell you why I have so much confidence in the
Virginia-class program. This confidence comes from our
experiences in the past year and on the continuing strength of
the team relationship. As partners, we have struggled together,
learned together, and today we are succeeding together. And
together the team accomplished much in 2006.
In June, Newport News delivered USS Texas, the second
submarine to the Virginia class and importantly our first
submarine delivery in 10 years, and I can tell you I rode that
initial sea trial, and I agree 100 percent with Mr. Casey, you
rely on everybody to have their head in the game when you go
out on that first dock.
We are all very proud of the way we have reentered the
submarine business at Newport News, and we recognize the
important role that the Congress played in making this happen,
and we are very grateful. The Nation is very well served by
having two great shipyards in the submarine business.
In August, we closed a pressure hull on the fourth ship,
USS North Carolina, well ahead of this milestone for USS Texas.
This came as a result of applying lessons learned from USS
Texas as well as the third ship in the class, USS Hawaii, which
our partners delivered in December. And we are now marching
toward an April 21st christening for USS North Carolina,
followed by the launch on May 5th with sea trials, and delivery
at the end of this year.
Importantly, USS North Carolina is the first of our ships
with a shortened construction schedule, and we have been able
to do this because of the innovation, sharing lessons learned,
and significant movement down the construction learning curve.
Reduced schedules will result in lower costs, and this is one
of the ways we will achieve the Navy's cost target.
We also finished our work on USS New Hampshire and shipped
our final module to our partners at Electric Boat, as Mr. Casey
pointed out. USS New Hampshire was the first of the class to
have a 1,600-ton bow supermodule. This unit included the sail
for the first time, a production change that will save the
program many manhours. Newport News will install this sail on
this unit for every ship regardless of which yard is to deliver
the ship to the Navy. Also important is the fact that we
delivered this module with greater work content than any
previous module while achieving an 18 percent reduction in
manhours from our work on USS Hawaii.
So I am confident in our ability because of the strength
and creativity of this team, that the team continues to show,
and because of what we have accomplished this past year in
terms of manhours and schedule reductions.
Now, I am also confident because of the progress we are
making in reducing the cost and construction. As shipbuilders,
we are focused on reducing the 40 percent of costs attributable
to labor and the 25 percent of the cost of material we provide
for construction. We have made tremendous progress in both
areas, and we will only get better.
We are seeing the benefits of learning on each ship we
work. We are implementing design and process changes to make
each ship more produceable and more affordable. These changes
provide manufacturing, schedule and material savings with input
coming from a submarine industrial base and actual cost returns
on completed production efforts ensuring we are attacking true
costs.
And we are working on value streams to cut across the
entire shipyard through our Progress Excellence Initiative. As
you know, the remaining third of the costs of each submarine is
government-furnished equipment, or GFE, and I know the Navy is
working to vigorously to reduce these costs as well. By
combining the savings shipbuilders are working to achieve and
savings the Navy plans to achieve, I know we can meet the $2
billion price per ship goal, and the last element of those
savings will come from volume. The sooner we start producing
two submarines per year, the sooner we will see the benefits of
being able to order material in larger quantities, and the
sooner we will be able to reduce the time between similar
construction jobs, which will increase our learning. And
learning translates to lower labor costs.
Now, this leads me to your question of supporting
accelerated production of two submarines per year. Over the
last couple of years, we have invested in our facilities to
reduce construction costs. These investments are also integral
to the protection of two ships per year. We have invested our
capital carefully in facilities and equipment that are multiuse
to benefit all of the Navy programs we work at Newport News. We
have used the capital incentives in the Block II contract to
make changes that are reducing costs and schedules, and I
provide some very specific examples of that in my written
testimony.
We can successfully start early production as long as we
are able to procure from the submarine industrial base material
components we need. Acceleration will require all of us to
adjust existing work plans and schedules and to take the
necessary steps to ensure we have skilled craftsman with the
required certifications to do this expanded work.
This careful and detailed planning cannot, however, be
accomplished overnight. Authorization and funding must be
received in sufficient time for the industrial base in our
shipyards to proceed.
I promise you that we at Newport News will respond to the
decision to accelerate production enthusiastically and
energetically. Yet a decision to accelerate production must not
come at the price of destabilizing the entire shipbuilding
plan. There must be balance. I remain mindful of the painful
lessons about stability that all of us in the shipbuilding
industry have learned. We all welcome the stability inherent in
the CNO's 30-year shipbuilding plan, and it is important to all
of us that accelerating the production of submarines does not
destabilize the entire plan.
In the year that has elapsed since my last appearance
before you, the Electric Boat Newport News team has
accomplished a great deal. We are proud of what our people have
achieved with their hard work. To ensure our Navy has the
number of ships it needs when it needs them, we must continue
to take weeks and months out of our production schedules. We
are doing just that today, and we are committed to doing more.
I welcome the attention of Congress and this subcommittee
in particular to the submarine needs of our Navy.
Shipbuilders are skilled men and women who choose this
difficult occupation because of their strong belief in America
and a desire to contribute to our Nation's security. All of us
on the Electric Boat Newport News team are working hard to
build the most cost-efficient and highly capable nuclear-
powered submarines for the world's greatest Navy. It is work we
are very privileged to perform.
Thank you, and I look forward to your questions.
Mr. Taylor. Thank you.
[The prepared statement of Mr. Petters can be found in the
Appendix on page 123.]
Mr. Taylor. The Chair recognizes Mr. Nash.
STATEMENT OF WINFRED NASH, PRESIDENT, BWXT, NUCLEAR OPERATIONS
DIVISION
Mr. Nash. Chairman Taylor, Congressman Bartlett, and
members of the committee, my name is Winfred Nash, President of
BWXT's Nuclear Operation Division.
As a long-term supplier of heavy components, including
nuclear power units, I believe I bring a unique perspective on
the critical issues before you today. BWXT could support a
procurement rate of two Virginia-class shipsets per year in
2008 and beyond. The additional volume would produce a nine
percent savings over current prices and would also yield an
eight percent savings in the next Ford-class carrier shipset.
Mr. Taylor. May I interrupt? Just for the record, I presume
you would be willing to make that commitment in writing?
Mr. Nash. Yes, sir.
Mr. Taylor. Thank you.
Mr. Nash. An option to drive down costs and to protect
schedules, short of authorizing a second Virginia-class
submarine before 2012, is to fund advance procurement for a
second shipset in 2008 at $400 million, which would not only--
would not be designated for a specific submarine, but would
roll forward for future use. A revolving inventory captures the
savings associated with a second submarine shipset without
impacting the Navy's planned shipbuilding budget in 50 years.
It also provides Congress flexibility in funding future
submarine procurements.
Another critical reason for rolling--for having a rolling
shipset is the systemic stress that will result from the
commercial nuclear renaissance. Nuclear power has become an
attractive option for a number of nations. Higher commercial
demands could significantly affect price and the availability
of raw materials, labor, and facilities. A revolving shipset
would substantially alleviate these problems.
Expanding nuclear propulsion to a new class of surface
combatant would also have a cost benefit to existing programs.
Fluctuations in the Ford-class shipset production schedule
would allow BWXT to support an additional near-term procurement
beyond a second Virginia-class submarine. Depending on the
Navy's requirements, this could reduce shipset costs an
additional five percent.
In conclusion, BWXT can support a second Virginia-class
shipset in 2008 and beyond, which would yield production cost
savings across the entire Navy program--nuclear program.
Additionally, we can support a new class of nuclear-powered
surface combatants.
Thank you for the opportunity to testify. I would like to
submit a more detailed written statement for the record.
Mr. Taylor. Without objection. Thank you.
[The prepared statement of Mr. Nash can be found in the
Appendix on page 137.]
Mr. Taylor. The Chair now recognizes Mr. O'Rourke.
STATEMENT OF RONALD O'ROURKE, SPECIALIST IN NATIONAL DEFENSE,
CONGRESSIONAL RESEARCH SERVICE
Mr. O'Rourke. Thank you for the opportunity to appear
today. With your permission, I would like to submit my
statement for the record.
When the Virginia-class began procurement in the mid-
1990's, the Navy anticipated going to two per year in fiscal
year 2002. That was pushed back to fiscal year 2012. If the
Navy had begun to procure in 2004, we wouldn't be talking today
about the projected attack submarine shortfall.
One option for mitigating the shortfall is to take steps
that a force of less than 48 subs can, for a time at least,
look more like a force of 48. These steps are possible, but
they could have some potential disadvantages such as using a
submarine line more quickly. That could eventually force boats
to retire before age 33, which could reduce the size of force
in the long run below what it otherwise might be.
A second option for mitigating the shortfall is to extend
submarine life beyond 33 years. A 1- to 3-year extension could
reduce the shortfall, while a 4-year extension could eliminate
it. The feasibility and cost of extending service life would
need to be examined.
The third option for mitigating the shortfall is to procure
one to four additional submarines between fiscal year 2008 and
fiscal year 2011. My statement shows a number of options that
mitigate the shortfall or eliminate it by combining surface
life extension with procurement of one to four additional boats
between fiscal year 2008 and fiscal year 2011. Those additional
boats could be funded using either traditional funding with
advanced procurement, single-year funding with no advanced
procurement, incremental funding, or advanced appropriations.
These options would permit funding for the boats to be placed
in various fiscal years, but they would not substantially
change the true amount of funding that would ultimately be
needed to procure the boats.
Some testimony to the full committee last week suggested
that two years of advanced procurement funding are required to
fund the procurement of the submarine, and consequently that no
additional submarines could be procured until fiscal year 2010.
That is not really the case. Although submarines are normally
procured with two years of advanced procurement, a submarine
can be procured without advanced procurement funding or with
only one year of advanced procurement funding. And, Mr.
Chairman, if you don't mind, I want to say that again. Although
subs are normally procured with two years advanced procurement,
a submarine can be procured without advanced procurement
funding or with only one year of advanced procurement funding.
Congress in the past has procured nuclear-powered ships for
which no prior-year advanced procurement funding had been
provided. Congress did it in fiscal year 1988 with two nuclear-
powered aircraft carriers and could do it today with
submarines. Congress thus has the option of procuring
additional submarines in fiscal year 2008 and 2009 if it wants
to. Doing so wouldn't materially change the way the subs would
be built. The process would still include about two years of
advance work on components and an additional six weeks of
constructional work on the ship itself. The outlay rate would
be slower, and the interval between the official year of
procurement and the boats entering into service would be
longer.
Some other testimony to the full committee last week
suggested that if you procured two boats in a certain year, it
wouldn't be good to go down to one boat the following year then
back up to two boats the next because it would stress the
workforce. I am not sure I agree with that either. If you
procure two boats in a certain year followed by one boat the
next, in other words, a total of three boats in 24 months, the
schedule for producing them could be phased such that you could
start one boat every eight months. That might actually help the
workforce and the rest of the industrial base transition from
the current rate of one boat every 12 months to the planned
eventual rate for one boat every six months. The Navy's own 30-
year shipbuilding plan anticipates going to a two-one-two
pattern.
The Navy's goal to reduce the cost of each Virginia-class
boat to two billion in constant 2005 dollars as a condition for
two per year in fiscal year 2012 is the goal that the Navy has
set for itself. Congress can take that goal into account, but
it doesn't have to control congressional action. Congress can
decide to fund two per year in fiscal year 2012 or some other
year even if the 2 billion goal isn't met.
My statement includes several schedules and funding
approaches for procuring one to four additional submarines
between fiscal year 2008 and fiscal year 2011, and in
connection with that, there were questions from two of the
Members about the cost effects of increasing the number of
boats under the next multiyear from a total of seven to a total
of nine and what effect that might have on further reducing the
costs to the boats.
In response, I can tell you that the current MYP includes
five boats, and the Navy at the time of that MYP being approved
estimated it would reduce the cost of each boat by about $80
million. But the Navy actually proposed seven boats, and the
Navy at the time estimated that if seven boats had been
included in that MYP, the savings would have been $115 million
per boat, or about 35 million more per boat if you had seven
boats in that MYP instead of five.
So if you take the new MYP that the Navy is proposing and
increase it from seven to nine, you might see an increase in
average savings per boat something along the lines of $35
million per boat. It might be something less because the
economies of scale are not as tremendously increased going from
seven to nine as they are from five to seven. But I think it is
something in that neighborhood that we might be looking at.
The statement also discusses the attack submarine force-
level goal and options preserving submarine design and
engineering base.
Mr. Chairman, this concludes my statement, and I will be
happy to respond to any questions the subcommittee might have.
[The prepared statement of Mr. O'Rourke can be found in the
Appendix on page 78.]
Mr. Taylor. I am going to briefly follow up your statement
and direct your observation to the gentleman from the private
sector.
How accurate do you think Mr. O'Rourke is in reflecting
those additional savings? Should we have the two ships? Mr.
Nash is already on record.
Mr. Casey. I believe he is entirely accurate.
Mr. Petters. I agree with that, too, sir. Our effort is to
get to $2 billion by 2012. If you increase the volume between
now and then, you start to move that price in sooner than 2012.
Whether you--I don't believe you can get there in 2010, but I
think that it does bring it in closer.
In terms of the multiyear procurement, the $80 million for
five ships going to--I believe he said 115- for seven ships,
whether you can get another 35- for two more ships or not, I am
not sure that that is exactly right. I think it is a good
ballpark to go check.
Mr. Taylor. The Chair would request of you gentlemen on
your official letterhead a statement to that extent.
[The information referred to can be found in the Appendix
on page 149 and 150.]
Mr. Taylor. Now, this is just the first of four steps that
we have to take to make this happen. We are going to have to
speak to our Senate colleagues, the appropriators. I think we
all want to see this happen. But it is one thing to say
something in passing; it is another thing to have something in
your official capacity on your company letterheads, and I would
ask that be done.
And now I yield to the gentleman from Maryland.
Mr. Bartlett. Mr. O'Rourke, the appropriators had told us
that they would like to increase shipbuilding by five next
year. The Navy has told us that a submarine couldn't be one of
those because we have a two-year lead time for procuring some
of the lead-time items. You have just testified that we have,
in the past, avoided that. Would you tell us how we accommodate
what we have been led to believe is an obligatory two-year
delay because of these long-lead-time items?
Mr. O'Rourke. Submarines are typically, normally or
traditionally procured with two years of advanced procurement
funding. It doesn't have to be done that way. You can fund the
entire cost of the ship right up front or some major portion of
the cost of the ship up front and declare that to be the year
of procurement, and move on the next year and put another
submarine in that next year if you want. These are all options
for Congress. It does not have to be done the way that it
usually is done. And Congress did it with a couple of aircraft
carriers in fiscal year 1988, and that is a much bigger issue
than doing one additional submarine in this year's budget. That
was a $6 billion addition that Congress put in that year.
Mr. Bartlett. Mr. Casey and Mr. Petters, do you agree with
that statement?
Mr. Casey. Mr. Bartlett, it is clear to me that if we can
find a way to commence the activities that lead to two ships
per year in the next one or two years, we can accelerate the
production of the costs closer to the $2 billion level.
There is no need that we have as a shipbuilder to wait for
the advance procurement (AP) moneys or for that money for the
nuclear components to be built before we start building a ship.
We just have to make sure we work together with the government
who manages the vendor and make sure the parts are available to
put in the ship when it is time to put them in the ship so we
don't extend the total scheduled time to construct the vessel.
So what I understand Mr. O'Rourke to say is you can
eliminate and award AP altogether and authorize the ship's
construction right now, work together in a collective fashion
on an integrated schedule, which would have the net effect of
reducing the overall time to construct the vessel. We did that
very successfully on the USS Jimmy Carter recently when the
Navy engaged Electric Boat to manage the entire vendor-based
things that they would ordinarily manage themselves.
I am not suggesting that for the nuclear material. What I
am suggesting is an opportunity to integrate the schedules
together to make sure we get the pieces and parts when we need
them, whether you define them as advanced procurement or part
of the initial procurement process.
Mr. Bartlett. So if we move forward to 12 years from now,
we would have an additional submarine if we authorized and
funded that procurement this year.
Mr. Casey. I think the number was more like nine years.
Mr. Bartlett. We are going to be building some others, too.
But in 12 years, we would have more.
Mr. Casey. Yes.
Mr. Bartlett. And in nine years, we would have an extra.
Mr. Casey. Yes, sir.
Mr. Petters. I think I agree with everything Mr. Casey
said, and I think I would amplify that there has been a lot of
testimony today that a significant part of our savings is
driving the schedule down to a five-year construction schedule,
and we are trying to drive the seven-year plan down to five
years.
Whether you can do that and integrate the procurement of
the what we call long lead today and still be able to make it
in five years or not I think would be something we would have
to go spend some time and look at.
But, in general, I think that working things in parallel
rather than working them in series could be, and would be, seen
as a great way to reduce risk, and you may actually have a net
positive effect there instead of a negative.
But I think we have to look at what the impact on the
schedule would be.
Mr. O'Rourke. When I say that Congress has the option of
procuring these additional ships now rather than in fiscal year
2010 or fiscal year 2011 or fiscal year 2012, my statement does
not depend on any change in the way that the ships are built.
You can still build them the normal way with two years of
advanced work and six years of construction time. Over time,
eventually you have stacked up a lot of boats up front, and
over time the shipyards would catch up with that even if they
continue to build boats at the normal rate and they would
eventually enter service.
So the shipyards are right that there is a potential for
changing the way the boats are built that may compress the
construction time, but my own testimony about Congress's
options for funding additional ships now rather than later does
not depend on it. You don't have to assume that to believe that
Congress has the option.
Mr. Bartlett. I was privileged to travel with our Chairman
to shipyards all over the world. The last leg of those visits
was to shipyards in our country, and we had the privilege of
visiting Electric Boat. And I was impressed that you were
really working very hard to be more efficient and reduce costs.
We were scheduled to go to Newport News, but a hurricane
was also scheduled to go there, and we decided not to compete
with the hurricane for a reception at Newport News. And so we
now are planning in the very near future to make that visit,
too. And I will be pleased if I can find at Newport News the
same commitment to cutting costs and achieving greater
efficiency than we saw--that we saw at Electric Boat.
Mr. O'Rourke, there is a suspicion that when we designate a
risk as being acceptable, that that is an accommodation to the
reality imposed by budgets that we can't have any more
resources. One of our Members Mr. Forbes asked, how do you
characterize that as acceptable? If that is all you can get,
that obviously has to be acceptable. As you look over their
shoulders, how would you characterize the risk that we will
have if we drop from 48 attack subs to 40?
Mr. O'Rourke. I guess what I would say is I think it raises
the question if 48 is acceptable, and you go below 48, are you
now at a level of risk that is less than acceptable?
Mr. Bartlett. But they are telling us that 40 is an
acceptable risk. We have some suspicion that we characterize
risk to be acceptable when it is unavoidable.
Mr. O'Rourke. And in last year's hearing on this topic, we
talked about low, moderate, and high risk, and I think last
year the Navy characterized the risk of that situation as
moderate.
Mr. Bartlett. How would you characterize it?
Mr. O'Rourke. I would say the same thing as I did last
year. If we dip below the force level, we are running the
operational risk that is something now more than moderate,
something closer to higher risk.
Mr. Taylor. The Chair recognizes the gentleman from
Connecticut Mr. Courtney.
Mr. Courtney. Just to follow up on that last question, Mr.
O'Rourke, the determination that 48 was the right target by the
Navy last year, that is not the first time that we have sort of
gone through that exercise in recent years. I mean, they have
actually had different numbers in the past; isn't that correct?
Mr. O'Rourke. That is right. There has been an evolution in
the attack force level goal that affects the outcomes of a
number of studies, some of which became official in terms of
being folded into things like the Quadrennial Defense Review
(QDR) for that coming year.
Mr. Courtney. And a number of those have been since the end
of the Cold War; isn't that correct?
Mr. O'Rourke. That is right.
Mr. Courtney. The Navy has concluded that the Navy needed a
larger number than 48 in the past.
Mr. O'Rourke. And some of those studies have indicated a
need for 55 or more submarines, and one of those that has been
mentioned a number of times already was the 1999 JCS study. But
there were others as well. There are some people that believe
that 48 is not, in fact, sufficient, that a higher number like
55 or more is better. There are debates on both sides of the
issue.
Mr. Courtney. Mr. Casey, you alluded in your testimony to a
lot of the progress that has been made in terms of proficiency
in the recent delivery of the new submarines, and I was
wondering if you could elaborate in terms of quantifying how
much savings you have been able to create.
Mr. Casey. I think the most recent and best example I could
use was that the USS Hawaii, which was recently delivered to
the Navy this past December, was delivered for 2 million
manhours less than the Virginia, the previous ship delivered
from Electric Boat. We expect to stay on that learning curve. I
think we have about 85 percent of our--this has unionized
people as well, which is not typical in industry, but we have
85 percent of the people in our shipyard, unionized and not,
participating in activities to improve the safety of how we do
the work and reduce the cost of the work that is done and
improve the quality of the work that is done.
We are working very closely with the vendors. I think that
question was asked relative to accelerating procurement rates.
I think the most important information we could provide them is
to make sure they know that we are going to buy these two
ships, and I think we will have some great response from them.
But let me summarize that and pile it together by stating
this: We are heading into a period of time where we are trying
to dramatically reduce the cost, reduce the schedule, at the
same time one ship per year without the maintenance work on our
waterfront causes these eruption cycles. We are going to have
to find a way to change the size of the waterfront workforce by
about 1,000 people during the years we deliver a ship compared
to the years when we don't deliver a ship.
If we get to two a year, that goes away. We can stabilize
that workforce, and we don't have to be as concerned about
finding something for those people to do in the intervening
years.
I believe there are opportunities to look at in the 18
ships that are home-ported in the Groton area, and where there
are availabilities on those vessels that do not require moving
of the vessels, the Navy has, in fact, asked us to participate
in maintenance in some of those vessels. If we can stabilize
that workforce and absorb the shipyard overhead via the
maintenance work, that can have the net effect of reducing the
cost of Virginia, as I think the number I gave was about $65
million over the next 10 years.
So those are some examples to answer your question.
Mr. Courtney. Thank you.
When Secretary Stiller was here earlier, she seemed to
almost suggest that accelerating the production levels to two
subs a year would almost put at risk the Navy's plan for
bringing down the costs, and I just wondered, Mr. Petters, if
you want to comment on that as well.
Mr. Casey. There are three major constituents in this cost-
reduction activity. One is the economic water quality vendor
base, about a third of the cost of the ship is contractor-
furnished material, about a third of the cost of the ship is
government-furnished material, and about a third of the cost of
the ship is the labor.
So on the government-furnished material, that portion of it
is, in some way, impacted, but in a very small way by these
design activities.
What she specifically was talking about are the inherent
costs and the design of the ship are part of that cost-
reduction package that gets us to a $2 billion vessel measured
in 2005 dollars. Nevertheless, we will reduce the cost of ships
by accelerating procurement no matter when it is done. The more
ships we build, the less dollars per ship will be charged. I
don't think there is any question on it. If we buy one at a
time, however, we will not be able to achieve the cost savings
that are designed.
But she is specifically referring, I believe, to the fact
that some of the design activities we are engaged with today,
for example, eliminating sonar sphere, will take a couple,
three years to complete. And that particular design
modification will not be implemented on that first ship if it
is authorized this year. It is still a good thing to do. Still,
the ships get cheaper. They may not get down to the $2 billion
level. I think that was her point.
Mr. Petters. I think so, too.
Mr. Courtney. And Mr. Ellsworth actually had to leave, and
he wanted me to ask a question of Mr. Nash, and I think he kind
of alluded to when he had the opportunity to speak to the
admirals earlier about decreased workloads on the vendors
outside of the Virginia and Connecticut and the industrial
base, which includes you as well, and he wanted me to ask you
to comment on that.
Mr. Nash. Without question, the fact that we are at one
Virginia per year, and we have an aircraft carrier every five
years, it is definitely a minimum level that we can operate the
industrial base. As a result of that, a lot of our subvendors
that supply a lot of our materials are our sole source as a
result of that, and they have also had to bring in additional
work to make sure they can maintain critical mass to continue
to support the submarine and aircraft program as a result of
that.
So if we were to go below that in terms of one Virginia per
year and something less than one aircraft carrier for five
years, I think we are going to be in a situation where we are
going to have to be maintaining resources and not have them a
lot--a whole lot to do. So from that standpoint, I think we
really need to look at the second Virginia as early as we
possibly can.
And I would like to make one other point that Congressman
Bartlett had asked earlier. In 1998, the country was interested
in building two carriers per year, and the way they were able
to achieve that is they used a floating set of heavy equipment
for that aircraft carrier to do that. And that is where I think
the $4 million we have, maybe here this year, may be an
opportunity to buy a rotating or revolving set of heavy
equipment that could expedite the fabrication of a submarine
program.
Mr. Courtney. Thank you, Mr. Chairman.
Mr. Taylor. The Chair recognizes the gentleman from
Virginia.
Mr. Forbes. Thank you, Mr. Chairman.
I want to say to Mr. Casey and Petters both, these pictures
are very impressive, but they still don't do justice to the
real thing. When you see it, it makes us all proud, and we
thank you for the great job that you both do.
Mr. Petters, Mr. Bartlett made the statement that the
hurricane stopped him from coming to Northrup Grumman and
Newport News. I am going to give you my time. If you could tell
us today in a nutshell the changes to the design process,
engineering, or construction of subs that Northrup Grumman and
Newport News has implemented in order to reduce costs and make
them more efficient. And also if you give us the recommendation
of what you would like to see done that would help create more
efficient procedures; what would they be?
Mr. Petters. Thank you, sir. That is a loaded question, so
I will try to describe the universe here in 25 words or less.
First of all, Congressman Bartlett, I would invite you
again to come visit us. I know you had the chance to visit us
once, and I invite the whole committee to come at a time of
your choosing to see what we have going on at the shipyards.
Our overall scheme of thinking about business in the shipyard
is you combine investment and people with investment in your
processes to yield really great performance.
We have invested significantly in our workforce over the
last ten years from a leadership standpoint as well as from a
skilled training perspective to make sure that we have and are
able to forecast the need for the kinds of skills that we will
need for the ships of the future.
We have also invested very heavily in our processes. On my
first day as president, we stood up an organization in the yard
known as Process Excellence, which would facilitate our Lean
and Six Sigma efforts throughout the shipyard. We actually
validate the cost savings that we get out of those programs. We
put them in two buckets, a risk-reduction bucket and a cost-
savings bucket, which is what the Navy sees.
Today we have validated $55 million worth of savings there
that goes in those two buckets, and we think that is just the
beginning. That process looks at all of our value streams
across the whole waterfront of the shipyard. We look at the
pipe value stream as it goes from one end of the shipyard to
the other. We look at the steel value stream as it goes from
one end of the shipyard. We look at the electrical value
stream. We have been investing in our planning processes and
our--and we have been looking hard at our overhead, all of the
things that we have to do to drive efficient performance into
operation.
We combine that investment and process with some very
thoughtful investments in our facilities. Since the beginning
of 2002, we have invested nearly $400 million in our facilities
to improve the efficiency of building aircraft carriers and
submarines, and we have already planned for another $300
million of investment to do exactly that.
You know, I said earlier the questions that we were asked,
can we go to two submarines a year; yes, we can do that. Should
we? Yes, if we can keep it--keep the stability in place. I have
to emphasize that. I have a chance in this role to see the--I
see the submarine base, but I also see the aircraft carrier
base. I see the carrier repair base. I see all of those bases,
and I see that all of those bases are fragile, and to find
balance has been a very tricky thing for the Navy to work its
way through.
I would just ask that we--if we have a plan, let us stick
to it, and let us not disrupt our plan.
My friend here from BWXT Mr. Nash has talked about how
minimal we are at one submarine a year and one carrier every
five years. In fact, the Navy's plan today has one submarine a
year until 2012, when we go to two, and we have one carrier
every four years. There is a carrier in this year's budget
request, but there is also one in 2012. In my experience, that
is the first time the Navy has made a commitment to put the
next carrier in the budget at the same time as this carrier is
in the budget. Those are signs of stability that I think we
can't ignore.
And so while I am very hopeful that the committee can lean
forward and find a way to move ahead on this program, I
encourage you to do that in a way that is not disruptive to
stability, because that would then have an effect in my yard
relative to the people and the process things and the capital
investments that we have made there. We are on a fine balance,
and we need to keep that.
Mr. Forbes. Thank you, Mr. Chairman.
Mr. Taylor. The Chair recognizes the gentleman from Rhode
Island, Mr. Langevin.
Mr. Langevin. Thank you, Mr. Chairman.
Again, gentlemen, thank you for being here.
Chairman, again, my thanks for allowing me to rejoin the
committee today. I have enjoyed my six years on the Armed
Services Committee, and I am so proud of the men and women in
uniform who defend this country every day. We have the finest
fighting force on the face of the planet because of the men and
women who wear the uniform; and I have said this many times,
but it is equally important that we have companies like those
that are represented here today that build the finest equipment
for our men and women in uniform, that help them to do their
jobs effectively and keep them safe. So thank you all for your
patriotism and for your hard work.
If I could, just so that I am clear on the question of
whether to rebuild the submarines with or without advance
procurement. What is preferable, and are there significant cost
savings so that I am clear whether we build it without advance
procurement money or we do it with it?
Mr. Casey. I think Mr. O'Rourke is probably the most
experienced on the difference between the two of them.
My perspective is as a shipbuilder. If I am authorized to
build a ship and I am funded at the levels I need progressively
over the five-year construction cycle, whether you call it
advance procurement, whether you call it initial ship
construction authorization, it does not make a lot of
difference to me. As long as I know I have a contract to go
uild a ship and I am authorized to start, I will do that as
efficiently as I can. And, in fact, we are not satisfied with
how efficient we are on the last one, trying to make each
successive build in less hours, a shorter time than its
predecessor. So I do not have a strong preference.
We have made some recommendations. Assuming the committee
follows the traditional path, the recommendations include $70
million in advance procurement, money to allow our vendors that
we buy material from to avoid a gap, if you will, so they can
get the material to us in time to start, assuming the multiyear
procurement contract occurs on existing Navy schedule.
We have recommended that the government is authorized to
buy a ship spare main propulsion unit so they can have that
main propulsion unit available to us when the first multiyear
contract ship will sign, and it will not interfere with our
ability to get the schedule to build the ship down to reduce
the cost. We think there are opportunities in the economic
order quantity area for you to go further, and of course, the
nuclear vendor, Mr. Nash, testified that he would like to get
going, but I do not have a strong preference on how it is done.
We have made some recommendations, as I said, using
traditional funding approaches. There are alternatives; Mr.
O'Rourke laid out some great ones, and you all probably have
some good ones that we have not even thought of, but as long as
you get us going and can give the Navy the authority they need
to contract with us to start the construction process, we will
get it done within the commitments that we have made.
Mr. Langevin. Can you identify a cost saving element? Are
there more cost savings one way or the other?
Mr. Casey. Yes. I think that from a cost savings
perspective--and I probably fumbled that a little when Mr.
Courtney asked it--relative to the vendor base, we have to have
a sum of money that authorizes us to buy ships in a multiyear
procurement process. We oftentimes refer to that as ``economic
order quantity money.'' with the monies that can be saved
through that overall process--you know, about $200 million, in
that range, something like that--driving a ship schedule from 7
years down to 5 years and the rest of the construction
improvements that we are forecasting, you know, it might be in
the range of $100 million or something like that.
We have to have the engines available to make that
schedule, and we have to have materials purchased from the
vendor base in order to achieve those reduced schedules. If we
take our normal seven years, the reason it normally takes seven
years is, the first year we are awarded a contract, we are sort
of waiting for material to be built by the vendor base so we
can start in a meaningful way.
Last, you know, the cycles that are existing, the labor
rates that we are able to avoid if two per year is accelerated,
will yield considerable savings, and I think the number would
be about $65 million. If it is two per year, it is a similar
number. If we can find some way to avoid these wild swings in
the requirements for the Groton warfront personnel, we have the
potential to save a significant amount of money on this
program.
Mr. O'Rourke. Mr. Langevin, also just to answer your
question, whether you do it for a couple of years with AP money
up front or you fully fund it in a single year with no AP
money, that single change, in and of itself, is not going to
make any substantial change in the cost of the ship.
The outlay rate will be slower because you have banked all
of the money for the entire cost of the ship up front, and some
of it will have to wait a little longer to be spent, but the
actual cost of the ship, itself, of that one change, is not
going to change very much.
However, if you do this, if you procure a submarine in
2008, for example, with a single year of full funding, as part
of the initiative to get the two per year earlier or to include
more than seven boats in the multiyear that the Navy is looking
for, for 2008 through fiscal year 2012, then that would reduce
the cost of the submarines. The one change, in and of itself,
of AP or no AP, that is fairly transparent to the cost of the
ship; but if it is part of a broader strategy to get to two per
year or to include a regular number of folks in the multiyear
that the Navy is looking at, then that would reduce the cost of
the ships.
Mr. Petters. I would just add that, in my experience, there
is a whole host of different ways that you can create a funding
mechanism for, you know, advanced procurement, advanced
appropriations, incremental funding, those kinds of things.
Most of the time when we are up here, they are looked at as
accounting changes, and we kind of look at it like the area on
the curb is always the same, you know, in aggregate, but I
think that there are opportunities depending on the way that
you approach this. I think there are opportunities when you are
out, when you are back at the shipyard, to look at some of
these mechanisms as reduction mechanisms, which then translates
to some lower cost.
So I think that is another way of saying what Ron has said,
that if you did fund the entire ship in 2008 and you allow not
only some work to go on in advanced procurement, but also at
the shipyards to facilitate and to move ahead and to work
slightly in parallel, maybe we do not get the ``begin
procurement to delivery'' time all the way down to five years,
but maybe we address some of the cycles that John has going on
at Groton which drive some significant costs down, and so the
area of the curb would diminish. And I think that is a real
challenge as we look at all of these things, because we tend to
look at them here just as if they are accounting tricks or
accounting exercises, but in fact, there are real operations on
the other end of that, that depending on the method that you
choose, could have some impact.
Mr. Nash. In terms of whether you fund the ship all at one
time or whether you have AP funding for like two years in
advance of the funding of the platform itself, we would have to
work very closely with the shipyards to see how that type of
funding approach would work because there is a certain amount
of lead time, especially in some of our heavy forgings, that
just takes a couple of years before you can get with the
vendors to get it into their cycle to enable them to produce
those, to be able to meet the current schedules we have with
the shipyard today.
So there would have to be some additional integration and
discussion with the shipyard on how we would do that to be sure
that we would not end up with long lead items that we produce
and that we end up holding the shipyard up, because once you
start holding the shipyard up, that is a significant amount of
cost. We cannot be caught in that trap.
Mr. Petters. Which is why I keep coming back. You cannot
assume that we could do it in five years from today. There
would have to be some integration and some sort of schedule put
out that would integrate both of those factors.
Mr. O'Rourke. And the option, as I presented, does not
require even assuming the achievements of any of that. I
presented these options solely on the basis of proceeding with
the construction of boats as we normally would, which is why
the outlay would be slower. As to anything that Mr. Petters has
talked about, if you can achieve it, then you can get some
additional savings, but I am not even going that far in
outlining the option in my own statement.
Mr. Langevin. What are the other things that the government
could do to take some of the pressure off of the shipyards with
respect to capital outlays/capital improvements that need to be
made at the other shipyards that would make shipyards more
efficient? What are the things that the government could or
should do in helping to purchase that equipment so that the
risk is not all on the shipyard in the event that, you know, we
do not get to building the number of ships that we feel we need
to or that new technologies could come on the market that
replace the old equipment that you just invested in? Are there
things that the government could be doing in those areas?
Mr. Casey. I believe the capital expenditure (CAPEX)
program on the Virginia-class that we have today is a model
that could work across the entire shipbuilding industry. There
are a lot of ways to apply that particular model in the case of
Virginia. As I tried to explain, the process is tied to the
fees or to the profit we are eligible to earn on the contract,
but there are other alternatives.
I think the key is to make sure that there is some sort of
incentive that is tied to the existing contracts, but there has
to be an understanding of what the purpose of that investment
will be in the long term. So, when the government gets involved
and sort of absorbs what we refer to as the ``cost of money,''
if you will, it makes those hurdle rates a lot easier to
rationalize from an industrial point of view.
But I think that the model that we have is a good model,
and I think it can be expanded. It happens to be submarine-
specific on this given program. There may be some opportunities
to look at cross-program models.
Maybe, Mike, you will want to comment on that.
Mr. Petters. I think John brought up the right point.
The way the shipbuilding industry is structured today, in
order to attract capital, you really have to get the return on
the ship you are working on because of the way the contracts
are set up. The beauty of the CAPEX program and the submarine
program is that the submarine force has recognized that if you
actually look at what the return is over the class of ships,
then it makes sense for the government to invest in that
capital improvement in such a way that the corporations can
invest in it as well.
We have done something a little bit different on the
carrier program than what we do on the submarine program
because we are not now dealing with a production run of 30
ships. But in that case, the Carrier Program Office has come
back, and they have looked at some of our major facility
improvements, and they have incentivized some of those as well.
We put up shareholder money for those investments to the
tune of nearly $200 million, but some of the incentives paid to
us for making those investments will get us to the point where
we are close to the hurdle rates that we need to justify those
incentives, and I think that is the principal issue that you
need to look at. I would respectfully request that the
committee look at how do you make investments that would be
bigger than just a particular contract you are looking at,
because the accounting rules that we have, the financial rules
that we have, make it very hard for us to just go and make
investments that we have to capture all----
Mr. Taylor. Mr. Langevin, may I interrupt for a minute?
I would like to invite all of the panel to the hearing to
address that, which is on Tuesday, the 20th. We would welcome
your input.
Proceed, Mr. Langevin.
Mr. Langevin. Thank you, Mr. Chairman.
Mr. O'Rourke, would you like to comment on that?
Mr. O'Rourke. No.
Mr. Langevin. Then my final question would be--you know, I
have been one of the biggest proponents, along with many of my
colleagues, in pushing up the build rate to a year sooner than
2012. It looks like, right now, according to what we have heard
from the appropriators, that we are going to be building five
ships this year, one of which would be an additional submarine.
Does that get us to the point where we have protected our
design base that it protects our industrial base? I mean, it is
obviously important from a national security perspective so
that we have a submarine force that protects the Nation, that
meets the requirements of the Combatant Commanders, that
protects the ability to design and build these submarines; and
I am concerned, as many have been, that we could lose that
capability or degrade it significantly, and that will get
harder and harder to come back from. We do not want to be in
the position of Great Britain, for example, that is just now
trying to reconstitute its submarine building capability.
So how much pressure does that take off of us if we, in
fact, do get to start building----
Mr. Casey. In and of itself, the authorization of an
additional ship will not preserve the design capability that
exists in this country, namely of the submarines. There are
other activities that are required, one of which is related to
the Virginia-class program, which is what is referred to as the
design for an affordability study that the Navy discussed
separately, level loading or accelerating the next strategic
platform design, which I believe Admiral Hilarides has
testified to. It would also alleviate that concern to a large
extent.
But as to the authorization of the ship, I cannot answer in
the affirmative that that would, in and of itself, satisfy the
requirements to sustain the design capabilities in this
country.
Mr. Petters. I agree with that answer.
Mr. O'Rourke. Yes. I, actually, wanted to amplify that a
little bit.
The Navy talked during the first panel about the option of
accelerating the start of the design work on the SSBN, and that
does appear to be emerging as the major option or the major
element of the strategy for preserving submarine design and
engineering bases, especially in the wake of the conclusions
reached by the RAND report.
But one other option that is available to Congress, which
Mr. Casey just mentioned, is to expand the scope of the already
planned redesign work on the Virginia-class to include a
greater number of projects than what the Navy has funded, and
that, too, is an option for Congress. In fact, it is something
that Congress has added money for in prior year budgets. It
could continue to do so in the fiscal year 2008 and subsequent
budgets.
Mr. Langevin. Very good. Good point. Thank you.
Thank you, gentlemen, for your testimony.
Mr. Chairman, I yield back.
Mr. Taylor. Thank you.
The Chair recognizes the gentleman from Maryland.
Mr. Bartlett. I have one quick question. Thank you very
much for your testimony.
I am having a little trouble understanding the concern for
instability with the one-ship, two-ship, one-ship procurement.
Since it takes several years to build a ship, if I have nine
ships to build and I have five years to build them, I think I
would spread that work out evenly over the five years rather
than having twice as much work in years one, two, three, and
four as I have in year five. Am I missing something?
Mr. Casey. I think the way you just explained it is a
little different than what I thought I was answering.
If we stick with the existing plan today, we have one ship
planned to be authorized in fiscal year 2009, one in fiscal
year 2010, one in fiscal year 2011. Right now, we are building
one ship a year from the block, too, so these ships that we are
building today, the last of which will be funded in this fiscal
year we are in now, fiscal year 2008, are built at a rate of
one per year.
There is only one ship in the water, an Electric Boat,
every other year. The other ship is at Newport News in the
water. We have been able to mitigate the fluctuations in those
skill-based people, those skilled craftspeople--for example,
the radiological control people, the people who operate the
vessel. We have been able to mitigate that through our
involvement in maintenance and repair activities.
Now, that is going away. That is going to our naval
shipyards, as I have been told, so that will put us in the
position of having a ship in the water one year when we deliver
a ship and then no ship in the water for a year, a ship in the
water for one year and then no ship in the water; and I hope
that helps clarify the issue.
When we get to two ships per year, there will be one in the
water every year, an Electric Boat. That is why the two per
year has for a long time been such an important priority
relative to the industrial base view of the world, at least
Electric Boat.
Mike can certainly answer a little differently, I think,
because of the----
Mr. Bartlett. That is a different concern than the one I
was addressing.
We have been led to believe that we inject instability into
the shipbuilding base if we procure one ship, two ships, one
ship. I am not having trouble understanding that since it
takes, what, five years to seven years, whatever it is, to
build a ship. You know, I would simply spread that work out so
that I would have an even workload and be thankful for that
second ship every other year. Am I wrong?
Mr. Petters. Well, sir, I think that--as I see it, I think
that there are two definitions of ``stability.'' when I think
of ``stability,'' I think of, if you decide to add a second
submarine to the plan at the expense of, say, a surface
combatant coming out of the plan or the carrier being delayed
for another year or something like that which would create some
changes in the plan of record because you had to take the money
that was designated for these other things and put them into
the submarine, that sort of instability would be very
detrimental to the entire industry.
If, on the other hand, you are thinking of ``stability'' as
being, once we go to two submarines per year, we can never go
back to one submarine per year, I think, as long as--I will
speak for myself. As long as I know that the plan is one-two-
two, one-two, whatever that plan is and we just stick to it, I
can accommodate that. I can make that work as long as we stick
to it.
My concern on ``stability'' is not about whether we go from
one submarine to two and then back to one. My concern on
``stability'' would be, if you go to two and it causes you to
do something to other types of ships in the plan that would
affect the base--you know, the overall industrial base that is
out there. I think that would be a big problem for me; it would
be a big problem for the industry.
Mr. O'Rourke. Representative Bartlett, my point along those
lines in my opening statement referred back to some testimony
the Navy gave a week ago where they said that if you did two
boats in a given year, then went back down to one, then back up
to two, that could stress the workforce.
In my own view, I disagree with that because the shipyards
can phase the total volume of work that they will understand
that they are getting, and it can actually represent a way of
helping the workforce transition from a steady rate of one per
year to a steady rate of two per year.
If, in between, Congress finds that it can only give one or
two extra boats during this four-year period, Congress, in my
view, can entertain the option of scheduling them so that it
results in two, one, two, one, so that the average rate of
about one-and-a-half boats per year could actually help make
that transition.
I am sure the shipyards would love to go directly from one
per year to two per year, but if Congress decides it can only
afford to get one or two extra boats this period rather than
three or four, then, in my view, Congress should not feel it
has to avoid examining options for adding those one or two
boats that would have a one, two, one, two schedule. I do not
think that is detrimental. In fact, it might actually be
helpful in transitioning to the eventual higher rate.
Mr. Casey. A simple way to think about it, if I understood
you correctly, is three ships every two years is better than
two ships every two years.
Mr. Bartlett. That is how I would see it, sir. Thank you
very much.
Mr. Nash. Chairman Taylor, I would like to add one thing.
I am not backing off the nine percent, but I want to be
sure. There was one assumption when I said there was a nine
percent savings as a result of the second Virginia-ship set.
That is assuming that the projections we have right now for the
second aircraft carrier will be funded on the schedule that is
predicted to be scheduled as shown in the contract.
Mr. Taylor. Mr. Nash, I am going to ask you an unusual
question.
Because of the hurricane in the part of the country where I
live, there is now very fierce competition for labor, and I am
a proponent of our next generation of cruisers being in power.
Could we, playing devil's advocate, get to the point where,
if we were to add the second submarine and continue this and
then follow that up with the desire to go--to build the next
generation of cruisers with nuclear power, could we find
ourselves in a situation where the cost of that plant actually
goes up? Or is your industrial base capable of handling that,
and does it relate, in your mind, to continuing the reduction
in cost of those power plants?
Mr. Nash. With the hardware that we provide, we could
support that and, also, as a result of that, we believe there
would be about a five percent reduction in the overall cost to
the naval reactor program if we could do that.
Mr. Taylor. I was hoping that was the answer, but I had to
at least throw the other thing out there.
I will open this up to the panel because you are so
knowledgeable. Looking for ways to avoid the bottom of the
valley as far as the number of vessels and knowing that, for
example, the block line cruisers will retire very early, is
there anything that we could or should be doing to the 688s now
that could help get the additional two or three or four years
that we would need to avoid that slump?
Mr. Casey. I guess I will take a shot at that.
You know, I think that the Navy should really be the one
answering this, but the questions I would ask them would be:
How could we extend the hull life? One of the limitations on a
Los Angeles-class submarine, or any submarine, are the number
of cycles on the hull. Every time you go test it, you cycle the
hull, and it is limited to the number of cycles it can see.
Second is the life of the fuel. How much fuel is in the
ship? How much gas is in the tank, so to speak? So one of those
two things. It limits the life of every submarine.
How much is left on each of those 688-class ships that are
in the fleet today? I cannot answer that. I do not have that
information, but I am sure the Navy is in a position to provide
details on that.
Mr. Petters. Mr. Chairman, I would just add that I think
John has got it right. As far as the end of life of ships go,
one of the things that we have seen at the end of life of these
ships is that the cost of maintenance on an older ship starts
to go up more than linearly, and it is----
Mr. Taylor. Can that be avoided with enough preventive
maintenance?
Mr. Petters. I think there is a tradeoff there about how
much investment you want to make in it, because some of the
systems, for instance, that you put on the ship that were built
in the 1980's may not--the people who built those systems may
not be around, so you have to go redesign some of those
systems.
Now, you are talking about what kind of investment would
you make. My suggestion on this issue is that the way to deal
with the force structure issue is not on the back end of the
life cycle; it is on the front end of the life cycle. The build
rate on the front end is what really drives the force
structure. I mean, you can do some things like maybe do another
refueling or maybe do a couple of system reengineerings to keep
a couple of ships out there, but that is a Band-Aid fix. I
think that dealing with the issue on the front end is a lot
more efficient because you are not dealing with the increased
cost of maintenance, and you are making investments in the
right kind of technologies, and you are doing it on the
baseline. So----
Mr. Taylor. Mr. O'Rourke, any suggestions?
Mr. O'Rourke. Among other things, you would have to look at
the operational implications of husbanding electrical cycles
and husbanding core life. If you are going to run the ships
slower and not submerge them as often, what does that do to the
utility of the submarines during the years that you are
operating them?
Plus, there are some issues you mentioned that are things
we can do now that can head this off. There is simply the
strict aging of materials and brittlement of materials and so
on; and the way to get at that is to go in there and replace
it. But that simply trades a maintenance cost later for doing a
maintenance cost now, and again, when you look at the economics
of that, it may not make sense. So this strict aging of
materials could be a limiting factor also in addition to the
ones that the other witnesses have mentioned.
Mr. Taylor. The last thing I would mention is an
observation that the Shipbuilding Caucus and I had at breakfast
this morning, and I, for one, am pleased about the very helpful
work of our Congressman Skelton and Congressman Murtha.
I would certainly encourage all of you to participate to
the greatest extent you can in the hearing in a couple of
weeks. I would welcome to know, for example, if there is an
option of a multiyear procurement for these submarines, two
additional ships that we intend to buy, what savings, if any,
does that bring. But again, I see a lot of things, a lot of
hurdles that we have to cross to make these things happen,
getting at least temporarily shorter, and as to all of those
who have a desire to see the Navy build more submarines now and
more ships now, I would certainly encourage those of you who
can work with us to work with us on that.
Mr. Ranking Member.
Mr. Forbes.
Mr. Courtney.
Mr. Courtney. Done.
Mr. Taylor. Thank you very much for being with us.
The meeting is adjourned.
[Whereupon, at 5:35 p.m., the subcommittee was adjourned.]
?
=======================================================================
A P P E N D I X
March 8, 2007
=======================================================================
=======================================================================
PREPARED STATEMENTS SUBMITTED FOR THE RECORD
March 8, 2007
=======================================================================
[GRAPHIC] [TIFF OMITTED] T7655.001
[GRAPHIC] [TIFF OMITTED] T7655.002
[GRAPHIC] [TIFF OMITTED] T7655.003
[GRAPHIC] [TIFF OMITTED] T7655.004
[GRAPHIC] [TIFF OMITTED] T7655.005
[GRAPHIC] [TIFF OMITTED] T7655.006
[GRAPHIC] [TIFF OMITTED] T7655.007
[GRAPHIC] [TIFF OMITTED] T7655.008
[GRAPHIC] [TIFF OMITTED] T7655.009
[GRAPHIC] [TIFF OMITTED] T7655.010
[GRAPHIC] [TIFF OMITTED] T7655.011
[GRAPHIC] [TIFF OMITTED] T7655.012
[GRAPHIC] [TIFF OMITTED] T7655.013
[GRAPHIC] [TIFF OMITTED] T7655.014
[GRAPHIC] [TIFF OMITTED] T7655.015
[GRAPHIC] [TIFF OMITTED] T7655.016
[GRAPHIC] [TIFF OMITTED] T7655.017
[GRAPHIC] [TIFF OMITTED] T7655.018
[GRAPHIC] [TIFF OMITTED] T7655.019
[GRAPHIC] [TIFF OMITTED] T7655.020
[GRAPHIC] [TIFF OMITTED] T7655.021
[GRAPHIC] [TIFF OMITTED] T7655.022
[GRAPHIC] [TIFF OMITTED] T7655.023
[GRAPHIC] [TIFF OMITTED] T7655.024
[GRAPHIC] [TIFF OMITTED] T7655.025
[GRAPHIC] [TIFF OMITTED] T7655.026
[GRAPHIC] [TIFF OMITTED] T7655.027
[GRAPHIC] [TIFF OMITTED] T7655.028
[GRAPHIC] [TIFF OMITTED] T7655.029
[GRAPHIC] [TIFF OMITTED] T7655.030
[GRAPHIC] [TIFF OMITTED] T7655.031
[GRAPHIC] [TIFF OMITTED] T7655.032
[GRAPHIC] [TIFF OMITTED] T7655.033
[GRAPHIC] [TIFF OMITTED] T7655.034
[GRAPHIC] [TIFF OMITTED] T7655.035
[GRAPHIC] [TIFF OMITTED] T7655.036
[GRAPHIC] [TIFF OMITTED] T7655.037
[GRAPHIC] [TIFF OMITTED] T7655.038
[GRAPHIC] [TIFF OMITTED] T7655.039
[GRAPHIC] [TIFF OMITTED] T7655.040
[GRAPHIC] [TIFF OMITTED] T7655.041
[GRAPHIC] [TIFF OMITTED] T7655.042
[GRAPHIC] [TIFF OMITTED] T7655.043
[GRAPHIC] [TIFF OMITTED] T7655.044
[GRAPHIC] [TIFF OMITTED] T7655.045
[GRAPHIC] [TIFF OMITTED] T7655.046
[GRAPHIC] [TIFF OMITTED] T7655.047
[GRAPHIC] [TIFF OMITTED] T7655.048
[GRAPHIC] [TIFF OMITTED] T7655.049
[GRAPHIC] [TIFF OMITTED] T7655.050
[GRAPHIC] [TIFF OMITTED] T7655.051
[GRAPHIC] [TIFF OMITTED] T7655.052
[GRAPHIC] [TIFF OMITTED] T7655.053
[GRAPHIC] [TIFF OMITTED] T7655.054
[GRAPHIC] [TIFF OMITTED] T7655.055
[GRAPHIC] [TIFF OMITTED] T7655.056
[GRAPHIC] [TIFF OMITTED] T7655.057
[GRAPHIC] [TIFF OMITTED] T7655.058
[GRAPHIC] [TIFF OMITTED] T7655.059
[GRAPHIC] [TIFF OMITTED] T7655.060
[GRAPHIC] [TIFF OMITTED] T7655.061
[GRAPHIC] [TIFF OMITTED] T7655.062
[GRAPHIC] [TIFF OMITTED] T7655.063
[GRAPHIC] [TIFF OMITTED] T7655.064
[GRAPHIC] [TIFF OMITTED] T7655.065
[GRAPHIC] [TIFF OMITTED] T7655.066
[GRAPHIC] [TIFF OMITTED] T7655.067
[GRAPHIC] [TIFF OMITTED] T7655.068
[GRAPHIC] [TIFF OMITTED] T7655.069
[GRAPHIC] [TIFF OMITTED] T7655.070
[GRAPHIC] [TIFF OMITTED] T7655.071
[GRAPHIC] [TIFF OMITTED] T7655.072
[GRAPHIC] [TIFF OMITTED] T7655.073
[GRAPHIC] [TIFF OMITTED] T7655.074
[GRAPHIC] [TIFF OMITTED] T7655.075
[GRAPHIC] [TIFF OMITTED] T7655.076
[GRAPHIC] [TIFF OMITTED] T7655.077
[GRAPHIC] [TIFF OMITTED] T7655.078
[GRAPHIC] [TIFF OMITTED] T7655.079
[GRAPHIC] [TIFF OMITTED] T7655.080
[GRAPHIC] [TIFF OMITTED] T7655.081
[GRAPHIC] [TIFF OMITTED] T7655.082
[GRAPHIC] [TIFF OMITTED] T7655.083
[GRAPHIC] [TIFF OMITTED] T7655.084
[GRAPHIC] [TIFF OMITTED] T7655.085
[GRAPHIC] [TIFF OMITTED] T7655.086
[GRAPHIC] [TIFF OMITTED] T7655.087
[GRAPHIC] [TIFF OMITTED] T7655.088
[GRAPHIC] [TIFF OMITTED] T7655.089
[GRAPHIC] [TIFF OMITTED] T7655.090
[GRAPHIC] [TIFF OMITTED] T7655.091
[GRAPHIC] [TIFF OMITTED] T7655.092
[GRAPHIC] [TIFF OMITTED] T7655.093
?
=======================================================================
DOCUMENTS SUBMITTED FOR THE RECORD
March 8, 2007
=======================================================================
[GRAPHIC] [TIFF OMITTED] T7655.094
[GRAPHIC] [TIFF OMITTED] T7655.095
?
=======================================================================
QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD
March 8, 2007
=======================================================================
QUESTIONS SUBMITTED BY MR. TAYLOR
Mr. Taylor. Is there any hope of additional savings with those
additional boats? Has anyone in your office calculated that scenario?
Mr. Casey. [The information referred to can be found in the
Appendix on page 149.]
Mr. Taylor. Is there any hope of additional savings with those
additional boats? Has anyone in your office calculated that scenario?
Mr. Nash. [The information referred to can be found in the Appendix
on page 150.]