[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




                         [H.A.S.C. No. 112-152]

                     NAVY SHIPBUILDING AND IMPACTS

                     ON THE DEFENSE INDUSTRIAL BASE

                    IN A TIME OF FISCAL UNCERTAINTY

                               __________

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD

                           SEPTEMBER 11, 2012




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              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                    ROB WITTMAN, Virginia, Chairman
K. MICHAEL CONAWAY, Texas            JIM COOPER, Tennessee
MO BROOKS, Alabama                   ROBERT ANDREWS, New Jersey
TODD YOUNG, Indiana                  MARK S. CRITZ, Pennsylvania
TOM ROONEY, Florida                  COLLEEN HANABUSA, Hawaii
MIKE COFFMAN, Colorado
               Michele Pearce, Professional Staff Member
                 Paul Lewis, Professional Staff Member
                     Arthur Milikh, Staff Assistant











                            C O N T E N T S

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                     CHRONOLOGICAL LIST OF HEARINGS
                                  2012

                                                                   Page

Hearing:

Tuesday, September 11, 2012, Navy Shipbuilding and Impacts on the 
  Defense Industrial Base in a Time of Fiscal Uncertainty........     1

Appendix:

Tuesday, September 11, 2012......................................    23
                              ----------                              

                      TUESDAY, SEPTEMBER 11, 2012
NAVY SHIPBUILDING AND IMPACTS ON THE DEFENSE INDUSTRIAL BASE IN A TIME 
                         OF FISCAL UNCERTAINTY
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Wittman, Hon. Rob, a Representative from Virginia, Chairman, 
  Subcommittee on Oversight and Investigations...................     1

                               WITNESSES

Stackley, Hon. Sean J., Assistant Secretary of the Navy, 
  Research, Development and Acquisition, and RADM Thomas J. 
  Eccles, USN, Chief Engineer and Deputy Commander for Naval 
  Systems Engineering, Naval Sea Systems Command, U.S. Navy......     4

                                APPENDIX

Prepared Statements:

    Stackley, Hon. Sean J., Assistant Secretary of the Navy, 
      Research, Development and Acquisition, joint with RADM 
      Thomas J. Eccles, USN, Chief Engineer and Deputy Commander 
      for Naval Systems Engineering, Naval Sea Systems Command, 
      U.S. Navy..................................................    30
    Wittman, Hon. Rob............................................    27

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    Mr. Conaway..................................................    45

Questions Submitted by Members Post Hearing:

    Mr. Wittman..................................................    49
 
NAVY SHIPBUILDING AND IMPACTS ON THE DEFENSE INDUSTRIAL BASE IN A TIME 
                         OF FISCAL UNCERTAINTY

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
              Subcommittee on Oversight and Investigations,
                       Washington, DC, Tuesday, September 11, 2012.
    The subcommittee met, pursuant to call, at 2 p.m., in room 
2212, Rayburn House Office Building, Hon. Rob Wittman (chairman 
of the subcommittee) presiding.

 OPENING STATEMENT OF HON. ROB WITTMAN, A REPRESENTATIVE FROM 
       VIRGINIA, CHAIRMAN, SUBCOMMITTEE ON OVERSIGHT AND 
                         INVESTIGATIONS

    Mr. Wittman. I call to order the House Armed Services 
Committee's Subcommittee on Oversight and Investigations. We 
will begin our deliberations. We do have some votes coming up, 
gentlemen, so we are going to try to get under way on time 
and----
    Mr. Conaway. Is that a nautical term?
    Mr. Wittman. We are in the spirit of the hearing.
    Before I begin the hearing, I would like to note today's 
importance in our Nation's history. Today is the 11th 
anniversary of the terrorist attacks of September 11th. For 11 
years now, our All-Volunteer Force has been engaged in combat 
operations requiring cyclical deployments. Some of our sailors, 
soldiers, airmen, and marines have deployed 4, 5, even 6 times; 
some have even been called upon to serve on 12 or 13 combat 
deployments.
    We owe a debt of gratitude, thanks, and unwavering support 
to the men and women of our Armed Forces and their families, a 
debt that can never be repaid. These men and women and their 
families epitomize the United States of America, and their 
courage, bravery and commitment, work ethic, pride and 
professionalism, which are characteristics that continue to 
make this Nation great, are exhibited every day in what they do 
for our Nation.
    You need look no further than some of the names of the 
newest ships in our fleet to understand the honor that is paid 
to the men and women that made the ultimate sacrifice for this 
country over the past 11 years, names such as the USS Jason 
Dunham, DDG 109; and USS Michael Murphy, DDG 112; and USS 
Rafael Peralta, DDG 115. These ships will serve this Nation for 
the next 30 to 40 years, and the service, sacrifice, and legacy 
of these men will never be forgotten.
    Our thoughts and prayers are with all of the families who 
lost loved ones on September 11, 2011, our All-Volunteer Force 
and their families. Never has so much been sacrificed by so few 
for so many for so long.
    With that as our backdrop, I can think of no better topic 
to discuss than the 30-year shipbuilding plan and concerns I 
have had regarding our defense industrial base. Over the last 
year this subcommittee has held two hearings, conducted 
numerous briefings, and facilitated many engagements with the 
Department of the Navy and industry and traveled to shipyards 
across the country to learn firsthand about how effective DOD's 
30-year plan is and how it impacts our national defense 
industrial base. We learned that the annual plan is critical to 
establishing priorities and identifying challenges that need to 
be addressed in both the short and long term. We also learned 
that historically the plans have played an integral role in 
leading to programmatic improvements and cost savings over 
time.
    I would like to take this time to thank all of these yards 
for their hospitality and professionalism as they shared with 
us their enthusiasm for their trade and their commitment to 
building the best Navy in the world.
    This hearing is focused on the 30-year plan's impact on our 
shipyards and closes out what I believe has been a valuable 
effort in identifying challenges and concerns so that we in 
Congress can make decisions based on fact rather than 
speculation. Critical to this effort were oversight visits to 
Electric Boat in Groton, Connecticut; Bath Iron Works in Bath, 
Maine; NASSCO [General Dynamics National Steel and Shipbuilding 
Company] in San Diego, California; Huntington Ingalls 
Industries in Pascagoula, Mississippi; Austal in Mobile, 
Alabama; and Huntington Ingalls Industries in Newport News, 
Virginia. Those yards build our Navy ships and submarines and 
do an absolutely fantastic job at their trade.
    In my view, nothing takes the place of ``on the ground'' 
observations and the opportunity to speak frankly with the 
people responsible for the day-to-day operations, particularly 
in an industry as unique and critical to our Nation as 
shipbuilding.
    As we all know, warship planning, design and construction 
is one of the most complex industrial endeavors a nation faces 
when determining national and maritime strategy. Whether we are 
building submarines, amphibious ships, destroyers, logistics 
ships, or aircraft carriers, we can't get the job done without 
an industrial base that has the talent and intellect to solve 
unique design and engineering problems. Shipbuilding is an art 
form and a perishable skill. It is done by the most highly 
trained and experienced corps of engineers and tradesmen in the 
world. It is supported through business and industry spanning 
50 States and designed and engineered by our greatest asset: 
the American people.
    After conducting our oversight visits, it was clear to me 
that while American ingenuity, creativity and initiative are 
alive and well in our shipyards, it is also clear to me that 
challenges still exist. In a constrained fiscal environment 
facing the dire impacts of sequestration, many in industry are 
considering forced layoffs, contract renegotiations, 
disruptions to production, and poor future vendor supply 
prospects.
    This afternoon the subcommittee will focus on maintaining a 
robust and sustainable industrial base capable of executing the 
Navy's shipbuilding plan and our national strategic objectives, 
particularly as the we pivot to Asia. As articulated in the 
final report of the QDR Independent Panel: ``A robust U.S. 
force structure, one that is largely rooted in maritime 
strategy . . . will be essential.'' I look forward to hearing 
your perspectives on the challenges we face, including planning 
for surge capacity and recapitalization of the fleet.
    The focus of this hearing is not to dive into specific 
programs and the nuances and challenges of certain platforms; 
this is the duty and responsibility of another subcommittee. 
The goal here today is to focus on the macro level of 
shipbuilding and discuss the impact on the defense industrial 
base in a time of fiscal uncertainty.
    The one lesson we have learned during our visits to all the 
shipyards is the delicate execution and attention to detail 
that must be displayed while progressing through the planning 
process. A balance must be achieved in order to attain a 
sustainable workload, workforce, all while producing a capable 
and effective platform. The industrial capacity at these yards 
and the supply chains that support them are unique. It is 
imperative that as we move forward and shift to an Asia-
Pacific-centric strategy, that we effectively balance the 
planning process with the industrial base capacity that is 
needed to achieve maritime and national security success in the 
21st century.
    Secretary Stackley, Rear Admiral Eccles, thank you for 
being here today. Thank you for your continued distinguished 
service to our Nation. Each of you, along with Vice Admiral 
Blake, who has appeared before this committee in the past, 
understands ships, and you know this business. We appreciate 
your expertise and insight on this very important matter. The 
bottom line is this: Ships are different from many perspectives 
particularly in acquisition and procurement. As you gentlemen 
note, ``Shipbuilding programs do not have the opportunity to 
build full-scale prototypes.'' The United States Navy is the 
only service that will commission a prototype and then take it 
to war.
    I look forward to your testimony, and I hope that we can 
have a thoughtful and meaningful dialogue on these important 
issues.
    [The prepared statement of Mr. Wittman can be found in the 
Appendix on page 27.]
    Mr. Wittman. As a matter of business, before we get 
started, I have a quick administrative matter to address. I 
anticipate that there will be members of other subcommittees 
that will join us, and I would like to ask for unanimous 
consent that they be allowed to participate.
    Absent objection, it is so ordered. I will recognize these 
Members at the appropriate times for 5 minutes after all 
Oversight and Investigations Subcommittee members have had an 
opportunity to question the witnesses.
    And with that, gentlemen, I will turn to you for your 
opening statements, and, Secretary Stackley, we will start with 
you.

STATEMENT OF HON. SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE 
NAVY, RESEARCH, DEVELOPMENT AND ACQUISITION; AND RADM THOMAS J. 
  ECCLES, USN, CHIEF ENGINEER AND DEPUTY COMMANDER FOR NAVAL 
   SYSTEMS ENGINEERING, NAVAL SEA SYSTEMS COMMAND, U.S. NAVY

    Secretary Stackley. Chairman, Representative Conaway, thank 
you for the opportunity to appear before you today to address 
the Department of the Navy shipbuilding and the defense 
industrial base. With permission of the subcommittee, I propose 
to provide a brief joint oral statement and submit a separate 
formal statement for the record.
    Today's Navy is a battle force of 286 ships, nearly half of 
which are deployed or under way on any given day supporting 
operations in Afghanistan; providing maritime security along 
the world's vital sea lanes of communication; missile defense 
in the Mediterranean and Sea of Japan; intelligence, 
surveillance, and reconnaissance where needed as needed. They 
are conducting antipiracy patrols, global partnership stations, 
humanitarian assistance operations, providing global presence 
at sea and with embarked Marine Expeditionary Forces ready to 
move ashore.
    They are training to ensure constant readiness in 
preparation for the next deployment, next operation, and all 
the while they are quietly, reliably on patrol providing 
strategic deterrence.
    The Navy's long-range shipbuilding plan, submitted annually 
with the budget, outlines the requirements for building and 
sustaining the balanced force of nuclear aircraft carriers and 
submarines, surface combatants, amphibious assault ships, 
auxiliary and support ships that provide our sailors and 
marines the capability and the capacity needed to sustain these 
operations and maintain our maritime superiority in support of 
our Nation's defense strategy.
    This objective is cast alongside the fiscal realities that 
come with the Budget Control Act of 2011, and so when shaping 
our shipbuilding plan to reflect the priorities of the 
Department's strategic guidance, there is an overarching 
requirement that we remain relentlessly focused on improving 
affordability in our shipbuilding programs. Further, as this 
committee is well aware, the strength of our shipbuilding plan 
is closely coupled with the strength of our shipbuilding 
industrial base.
    Naval warship design and construction is arguably the 
nation's most complex heavy industry. The range of capabilities 
that characterize today's fleet require an industrial base with 
extraordinarily diverse manufacturing capabilities underpinned 
by a skilled workforce and a unique design and engineering 
capability. Accordingly, in the course of balancing resources 
and requirements in the formulation of the shipbuilding plan, 
the effect of program decisions on the industrial base must be 
carefully weighed.
    This industrial base comprises nominally a dozen new 
construction shipyards building our battleforce ships, and a 
greater number of private and public repair shipyards 
maintaining and modernizing the fleet, in total employing about 
120,000 skilled workers at shipyards in our East, West and Gulf 
Coasts and the Great Lakes.
    To this number we must also add the skilled labor 
responsible for developing and manufacturing the radar, command 
and control communications and weapons systems that give each 
of our ships the warfighting edge that comes with our technical 
superiority.
    And finally, we must add the skilled labor that stretches 
virtually across the country responsible for manufacturing the 
full range of critical warship components and equipments, from 
heavy forgings and castings to reactor compartments and 
propulsion engines, right down to shock-qualified circuit 
breakers and specialty hardened steel.
    Compounding the technical and manufacturing challenges 
inherent to shipbuilding, ships are procured at very low annual 
production rates. Their construction requires significant 
capital investment and infrastructure. Competitive 
opportunities are limited, and depending on ship type, 
production of a single ship may require from 5 to as long as 10 
years to complete, with ship unit costs measured in the 
billions. And skilled trade workers take over 5 years to train 
and to develop, so, if lost, they are not easily replaced.
    Meanwhile, developmental risks that other major programs 
are able to retire through build and test of a prototype unit 
must be retired through the production of the lead ship of each 
new ship class.
    The Navy's shipbuilding plan must account for these unique 
characteristics when considering the effect of the plan on the 
industrial base. To this end, the Navy assesses the industrial 
base sector by sector and tier by tier, monitoring the health 
of the shipbuilders and major suppliers. In doing so, the Navy 
examines not only production labor employment, but also 
engineering capabilities, facility capabilities and efficiency, 
overall skill and experience of the workforce, and, as 
warranted, financial strength.
    The objective is to arrive at a plan which provides 
stability for the industrial base on meeting the Navy's 
prioritized shipbuilding requirements. Stability translates 
into retention of skilled labor, improved material purchasing 
and workforce planning, strong learning curve performance, and 
the ability for industry to invest in facility improvements, 
all resulting in more efficient ship construction and a more 
affordable shipbuilding program.
    Through measures such as multiyear procurement of the DDG 
51 [Arleigh Burke class guided missile destroyer] and Virginia 
class ships, the DDG 1000 [Zumwalt class guided missile 
destroyer] swap/DGG 51 Restart Agreement, the Littoral Combat 
Ship dual block buy, the Mobile Landing Platform modification 
for the Afloat Forward Staging Base, the ongoing effort to 
develop an optimal build plan for aircraft carrier 
construction, incentives for capital investment in shipbuilding 
facilities, and investments in industrywide manufacturing 
process improvements through the National Shipbuilding Research 
Program, the Navy has worked with the shipbuilding industry to 
try to maintain stability in procurement, balance workloads, 
improve affordability, and induce more efficient utilization of 
industrial base capacity.
    In summary, the U.S. shipbuilding industrial base is a 
strategic national asset, providing our Navy and Marine Corps 
the highly capable warships required by the nation's defense 
strategy. Accordingly, in the course of balancing resources and 
requirements in the formulation of the shipbuilding plan, the 
Department carefully weighs the effects of program decisions on 
the industrial base to ensure our nation maintains the skills, 
capabilities, and capacities critical to meeting the needs of 
our national security now and for the future.
    Thank you, sir.
    [The prepared statement of Secretary Stackley and Admiral 
Eccles can be found in the Appendix on page 30.]
    Mr. Wittman. Thank you, Secretary Stackley. We have votes, 
so we are going to recess until the votes are finished, and 
then we will reconvene when we arrive back from votes, so thank 
you so much for your patience. We will ask that you endure with 
us while we walk across the street and vote, and we will be 
back shortly. Thank you.
    Secretary Stackley. Sure. Thank you.
    [Recess.]
    Mr. Wittman. We will reconvene the House Armed Services 
Committee Subcommittee on Oversight and Investigations.
    Admiral Eccles.
    Admiral Eccles. Sir, Mr. Stackley's statement is our joint 
statement, and we appreciate your interest in the matter, and 
we look forward to your questions.
    Mr. Wittman. Gentlemen, thank you, and thanks again for 
your patience and understanding as we navigate today's 
technologies.
    I will begin with questions, and then we will move to the 
Members. Secretary Stackley, I will start with you. If you look 
at where we are today with needs within our naval fleet, 
looking at the need for a surge construction capacity, looking 
at from time to time national disasters that create demand for 
our ships, looking at the strategic pivot to the Pacific, the 
question is, is do you believe that we have the proper 
strategic laydown for our new-construction shipyards in that 
realm of capacity? And are you satisfied that that capacity is 
sufficient on both coasts? And if you were to have a 30-year 
shipyard plan, would that plan properly reflect the nation's 
needs, the strategic laydown needs, not only today, but how 
would you propose that it would meet those potentially in the 
future, and how do those needs for the strategic laydown change 
if you were to put together a 30-year shipyard plan?
    Secretary Stackley. Yes, sir. Let me first draw on the 30-
year shipbuilding report, I will call it the reference 
document. The effort that goes into building that plan before 
it comes over as a report to Congress involves Navy, Marine 
Corps, OSD [Office of the Secretary of Defense], starting with 
top-tier documents regarding the defense strategy, and this 
year in particular regarding the defense strategy that was 
released coincident with the 2013 budget coming to the Hill, 
considering the rebalance towards the Pacific.
    We start by identifying not just numbers, but the force 
mix, the capability by platform required to meet that defense 
strategy. Then we have to overlay upon that some realization of 
fiscal constraints. And near term, those definitely drive the 
decisions inside the FYDP [Future Years Defense Program]. The 
top line ends up becoming a very important consideration and 
constraint as we build the program plan. Longer-term 
uncertainty starts to take over in that regard.
    So when we talk about the strategic laydown, and the 
capacity, and working the two coasts, that dialogue all takes 
place within I will call it fiscal realities. So we have the 
overarching guidance of the strategic defense guidance, and we 
have the overarching constraint associated with budget reality, 
and across the two we arrive at a balanced force that we can 
not just build, but we have to be able to sustain it, what the 
CNO [Chief of Naval Operations] refers to as wholeness. It is 
not just about platforms, it is about capabilities and about 
wholeness in the fleet in service.
    So we balance what we can afford to build with what we can 
afford to sustain, maintain and operate across a mix of ships, 
looking at the mix of missions, because we have to size 
ourselves for the major combat operations that are considered, 
but also to deal with the routine operations globally day in, 
day out.
    So a long, roundabout way to get to your question, I think 
it is about balance; when we talk about optimizing, it is about 
balancing requirements with resources, looking at the force 
structure, looking at the industrial base, looking at the 
missions. That brings with it a measure of risk. And so at the 
same time, we have to deal with mitigating the risk near-term 
and long-term.
    In the near term we are working with the Hill on those risk 
areas. In the long term we have to take advantage of the time 
we have available to address whether it is a cost risk or an 
operational risk that we are staring at as a result of the 
force structure that we can afford.
    Mr. Wittman. Thank you.
    Let me ask another question. If you look and take into 
consideration how unique shipbuilding is and look at the 
current process of procurement, is there efficiency in 
directing procurement to specific shipyards? And when you look 
at the uniqueness of the classes of ships--and I ask that in 
the context, and you mention it in your opening statement, that 
there is essentially uniqueness in the procurement process. And 
if we go to an open competition for ships, the question is if 
you do that, and one of the yards wins, and then the capacity 
of the other yard is so low that it can't sustain that 
particular yard, and then you have that capacity that 
essentially leaves because of that direct competition, does 
that help us maintain the necessary capacity growing in the 
future?
    And we all know now as we look at the capacity across the 
board, each of the yards kind of has its lanes that it operates 
in. Its capability of operating outside those lanes is 
constrained at least in the near term. So I wanted to get your 
perspective on the efficiency in directing procurement to 
specific shipyards based on their lanes of expertise or the 
direct open competition, obviously all driven by, as you 
pointed out in your opening statement, driving down costs.
    Secretary Stackley. Yes, sir. So let us start with, again, 
requirements, the balanced force. We have outlined what we 
consider to be a balanced force of about 300 ships inside the 
report: 11 carriers, 48 attack boats, 10 to 14 ``boomers'' 
[ballistic missile submarines] depending on where we are across 
the 30 years, about 90 large surface combatants, 55 LCSs 
[littoral combat ship], we need a 33-ship amphib [amphibious] 
force to ensure 2 MEB [Marine Expeditionary Brigade] lift 
capability, and then about 29 support ships. That is the 
balanced force.
    Now, the way we go about procuring it, if I go directly to 
your question, if you go call it class by class, start with 
carriers, one builder of aircraft carriers for the Nation, we 
are going to build carriers one every 5 years. That is what we 
need to sustain an 11-carrier force out through the 2040 
timeframe. That is single source. What we need to do is manage 
the workload at that shipyard for aircraft carriers.
    But there is much more than just new construction that is 
taking place at Newport News. We have an RCOH [Refueling and 
Complex Overhaul] about every 3 years, and they are also 
involved in submarine construction. And now we start the 
decommissioning of nuclear carriers. So the total workforce at 
Newport News is more than just carrier new construction. So as 
we look at their challenges, their workload, their skill sets, 
we have to look across all that they have got under 
construction and in overhaul.
    Submarines. When we get to submarines, we want dual 
sourcing for the nation, and this decision was made back in the 
beginning of the Virginia program, and so we, in fact, do have 
dual sourcing. It is not competitive, it is through a teaming 
agreement with the two shipyards. At the time the teaming 
agreement was struck, we were literally building less than one 
submarine per year, frankly an inadequate rate of production to 
support that size industrial base efficiently, but the Nation 
was willing to pay that premium to keep two shipyards with that 
capability.
    Now we have been able to ramp up to two boats per year, a 
more efficient rate of construction, across the two shipyards. 
And, in fact, when you consider their workload, submarine 
construction is very robust right now, particularly as we 
approach the added program associated with replacing the Ohio 
class within the next decade.
    Moving on to surface combatants, dual-sourcing surface 
combatants, so Bath Iron Works and Ingalls. This decision, 
again, was made back a couple of decades ago that we are going 
to keep two shipyards building surface combatants. And each 
opportunity that we have to revisit that, we conclude that it 
is in the Nation's best interest to keep two builders building 
surface combatants, and then it is incumbent upon the Navy 
working with industry to ensure there is adequate workload to 
support efficiency, but also that we are no longer building 
three to five destroyers per year. So the shipyards are going 
to have make some adjustments in terms of their capacity, their 
level of efficiency given the near- and longer-term projections 
for surface combatant construction.
    It gets more difficult when you start looking at amphibs 
and auxiliaries, and this is where I will tell you my concern 
today is greatest. On the amphibious shipbuilding side, we have 
signed a contract for the final of the LPD 17 class [Landing 
Platform Dock]. We have the LSD class [Landing Ship, Dock] is 
in operation and in service, and they are not due for 
replacement until the mid-2020s, and the big-deck amphibs are 
at a build rate of about one every 4 to 5 years.
    What that creates is we do not have the steady-state, 
steady-flow workload that we like to put through what is today 
a single amphibious shipbuilder, Ingalls, and looking at 
Ingalls and Avondale as a single operation. And so there are 
some challenges in the longer term, the back end of this 
decade, when it comes to amphibious ships. It receives a lot of 
attention inside the Department of the Navy as well as with the 
Navy and industry on how do we posture ourselves for that 
period after the completion of the LHA 7 [USS Tripoli large-
deck amphibious assault ship], which is now under contract, and 
the completion of the LPD 17 class in the next few years.
    And similarly on the auxiliary side, we have one 
shipbuilder today that is building auxiliary ships, NASSCO. 
NASSCO is currently completing a very successful production run 
of the T-AKE program [Tanker--Dry Cargo and Ammunition], and 
they are off to a great start on the Mobile Landing Platform 
class of ships, which is literally we have three MLPs [mobile 
landing platform] authorized and appropriated. We are going 
forward with a request for a fourth. But that is the full 
extent of that ship class, and it is a few years beyond MLP 
before there is another auxiliary program.
    So the type of challenge that we have got inside of the 
Department of the Navy is wrestling with that potential gap to 
our industrial base, other challenges within the shipbuilding 
top line, and then the opportunities to be able to pull work to 
the left to build that bridge for those critical shipbuilders.
    Mr. Wittman. Very good. Thank you, Secretary Stackley.
    Ms. Hanabusa.
    Ms. Hanabusa. Thank you, Mr. Chair.
    Along the line that you were saying, I visited NASSCO, and 
I got their nice little graph about their concerns about the 
dips and where the military is not building. I think this is 
what you are talking about with the auxiliary base.
    And in that situation, what they were hoping for was to be 
sort of replaced with commercial--the commercial building so 
that we would have a constant, and we would not lose really 
the, for lack of a better description, the talent pool that we 
would normally lose if we go beyond a certain point. So this 
then brought in, of course, the discussions on the Jones Act, 
which, of course, affects our cargo ships and the commercial 
base.
    So given the fact that the military has a strong sense 
about maintaining, for example, and keeping MLPs, and keeping 
everything going, keeping our first-tier shipbuilders healthy, 
which is what your statement says, that they are going to be 
healthy, but then we come to the second-tier level, the 
auxiliaries and the amphibious, we have these potential gaps.
    So do you feel that the Government itself should take a 
position to strongly encourage and again maintain the Jones Act 
capabilities requirements so that we would be able to see the 
constant or hopefully have the commercial needs then meet those 
peaks and valleys that we have?
    Secretary Stackley. Yes, ma'am. Let me first, specifically 
with regards to NASSCO, very clearly NASSCO needs more than 
just Navy auxiliary shipbuilding to remain a viable new-
construction shipyard. And part of their business strategy, 
and, frankly, part of our industrial base strategy working with 
NASSCO, is that Navy shipbuilding will provide a base, but they 
will need commercial shipbuilding over and above the Navy 
program.
    And so we have with NASSCO what is referred to a 
shipbuilding capabilities preservation agreement that takes the 
overhead associated with Navy shipbuilding work and provides 
NASSCO the ability to bring commercial work in over and above 
the Navy work without having to further adjust the overhead 
except as outlined in the agreement with the Navy. That gives 
them the opportunity to be more competitive for commercial 
work.
    You raised the question on Jones Act shipbuilding. The Navy 
has been and continues to be a strong supporter for Jones Act 
shipbuilding. One of the challenges that the Nation is 
wrestling with right now is that a lot of the shipping where 
the owners would be coming to our shipbuilders through the 
Jones Act is being held up because of the economic picture.
    Ms. Hanabusa. And that is exactly, I guess, the issue, 
because that is where we start to have MARAD [United States 
Maritime Administration] and loan guarantees, because for most 
of the commercial shipbuilders, they need to be able to access 
MARAD and the loan guarantees.
    So has there been any consideration given to maintain the 
shipbuilding capabilities as to whether some of that 
responsibility, whether Congress should consider shifting it 
partially or looking at it in terms of the defense strategy as 
well? Because clearly to maintain our second-tier shipbuilders 
and ship-repair facilities, we need to have that constant flow 
and that relationship with the commercial. Has that been given 
any consideration? Because I know that the loan guarantees for 
the commercial building is an issue.
    Secretary Stackley. I can clearly say it has been given 
consideration, and that we have looked at some initiatives. But 
we are limited in terms of how much the Navy can do beyond SCPA 
[Shipbuilding Capabilities Preservation Agreement], beyond 
support for Jones Act, and beyond direct Navy contracts, which 
we do have a good number of with our second-tier shipbuilders, 
but when it comes to the commercial shipping side, we are very 
limited as far as how far we can go to bring that forward 
particularly as I described in these economic times. Yes, 
ma'am.
    Ms. Hanabusa. Thank you.
    Mr. Chair, I yield back the balance of my time.
    Mr. Wittman. Thank you, Ms. Hanabusa.
    Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman.
    Gentlemen, thanks for being here.
    Secretary Stackley, you mentioned as you were talking 
through your path that in addition to building ships, we also 
have to sustain them across their life cycle, and it is all 
about resourcing, resource shepherding and management.
    Can you give us some sense as to what--between 282 ships in 
the fleet now, what level of deferred maintenance each of those 
ships is in place that is not--is resource-constrained as 
opposed to just timing issues that, you know, we will get to it 
when it is appropriate? But how much of our deferred 
maintenance is a result of not having the resources to get it 
done on a timely basis?
    Secretary Stackley. Yes, sir. I am going to share this 
response with Admiral Eccles. But I will describe this. For the 
past decade effectively, we have been operating with either an 
OCO [Overseas Contingency Operations] funding or a wartime 
supplemental. So we have been able to leverage those funds to 
address much of our maintenance backlog. And so more so than 
prior, our maintenance for a surface submarine and aircraft 
carrier maintenance has been either fully funded or very well 
funded. One of the challenges that we have now as we emerge 
from a period of OCOs is ensuring that we sustain that level of 
funding.
    Mr. Conaway. I don't need to know the exact numbers, 
Admiral, but thank you. That is where I wanted to go to.
    Admiral, Secretary Mabus and I have had a couple of 
spirited conversations about spending extra operation and 
maintenance money on theater, on publicity stunts like the 
Great Green Fleet, the Rim of the Pacific deal this summer, 
where we spent a lot of extra money on bio jet fuel at 16 to 20 
bucks a gallon, which is way in excess of what commercial is. 
According to reports in the newspaper, DOD is buying 1,500 
Chevy Volts, I guess to help a sister agency, General Motors 
department, with that issue.
    Where we see those kinds of things going on, and I look at 
resources, deferred maintenance, the OCO, and the warfights are 
not going to be here much longer, and so we will get back to 
over a period of time a situation where we were previously 
where we did have, in fact, significant backlogs of deferred 
maintenance. How do you look at your budgets and decide for the 
American taxpayer how it makes more sense to spend money at 20 
bucks a gallon for bio jet fuel versus the regular fuel when we 
have got resource issues across the entire spectrum including 
building and maintaining our ships?
    Secretary Stackley. Sir, the answer comes down to investing 
in the future. The decision to operate ships and aircraft 
during the Rim of the Pacific exercises with biofuels wasn't 
because of the business case of that specific exercise. It is 
because the Secretary has a vision that we need to become more 
energy independent.
    Mr. Conaway. With that--I got it--have you looked at the 
goal of by 2020 we are going to be a 50/50 blend? How much, do 
you have any clue what the increased cost to the taxpayers will 
be because of that at that point in time? Biofuels will not be 
competitive with standard fuels by that point in time, I don't 
believe.
    Secretary Stackley. Let me take that question for the 
record.
    [The information referred to can be found in the Appendix 
on page 45.]
    Mr. Conaway. We can't not talk about sequestration. And can 
you give us some sense of what--and I know Secretary Panetta 
said not much is being done with respect to planning, but can 
you, both of you, give us your thoughts as to what you think 
the disruption will be to all of this grand plan that we have 
in place if sequestration does occur and lasts a significant 
amount of time? What does it mechanically do to you in the 
shipbuilding capacity that we are trying to maintain?
    Secretary Stackley. Yes, sir. I am going to draw a 
distinction between planning and understanding.
    Mr. Conaway. Exactly. I was trying to get you to that 
latter point.
    Secretary Stackley. We are spending a lot of time trying to 
understand what all of the implications are associated with a 
sequestration. It was established very mechanical, so we are 
using nominally a 10-percent number. When you set aside MILPERS 
[Military Personnel] for fiscal year 2013, second of January, 
barring action by Congress to preclude it, then there would 
be--at a project and activity level, there would be a 10-
percent reduction across the board.
    And in the shipbuilding, specifically with regards to 
shipbuilding, then we are going to be challenged program by 
program to determine how can we execute a program of record. 
And so there are three questions that I put forward. First is, 
well, what is the 2013 baseline that we are going to sequester 
from? So we will not, in fact, have a 2013 authorization and 
appropriation act by the second of January per current plans; 
we will be under a CR [continuing resolution]. So right there 
we start with a CR baseline for a sequestration.
    And then the second challenge is, what comes next? So if we 
are only dealing with a 10-percent impact to 2013, that is one 
set of problems, but if that is compounded each year subsequent 
with additional 10-percent reductions, we have to understand 
that before we talk about the impacts to 2013.
    So inside of shipbuilding, if I take a 10-percent cut, can 
I get my ships under contract in 2013? Some definitely; some 
definitely, definitely not unless there are other budget 
actions that supplement the budget requirement. And that is the 
part that is too difficult to plan right now because there are 
too many unknowns and uncertainties to be able to make those 
decisions.
    Mr. Conaway. So what I heard you say was that in 2013, it 
could mean we would not start some new ships that we anticipate 
doing based on these plans if sequestration stands as it is 
currently understood?
    Secretary Stackley. Until there is other budget action 
either through a reprogramming, or in certain cases we could 
defer work into 2014, but then we would have to backfill those 
requirements with the 2014 budget, and we would have to be 
doing this with Congress so that we are collectively agreeing 
that we are not fully funding these ships in 2013, we are going 
to pick up the balance of funding in 2014 in that particular 
case.
    Mr. Conaway. Thank you, Mr. Secretary. I appreciate it.
    Mr. Wittman. Thank you, Mr. Conaway.
    Now we will go, Mr. Young is one of the committee members, 
I think he stepped out momentarily. We do want to get to all 
the O&I subcommittee members first, but with that we will now 
go to Mr. Courtney.
    Mr. Courtney. Thank you, Mr. Chairman, for the invitation 
to join you here today and for your leadership on this issue.
    Secretary Stackley, I mean, again, your comments just again 
show why sequestration should not happen. And as Senator Levin 
said earlier today, since 90 percent of the Members in both 
Chambers oppose sequestration, we should roll up our sleeves 
and avoid it and defuse it from going forward. And again, the 
scenario you described is just one of many reasons why that 
should happen.
    Earlier today the language of the CR was released, and that 
is going to, again, fund the government through March to avoid 
a shutdown. My office has reviewed the text, and the language 
appears to support moving forward with two submarines planned 
for in 2013 since the CR from fiscal year 2012 was for two a 
year. But I just was wondering if you could comment on your 
interpretation of the CR as it pertains to the Virginia class.
    Secretary Stackley. Yes, sir, so it will be two pieces of 
this. So we have two boats have been requested with the 2013 
budget. Those have been supported by all the committees, and so 
when we look at how does the CR impact the program, we have to 
look at what each of the committees did.
    We also have to look at 2012. So when we look at 2012 high 
water mark, we impose the CR impact on 2012, we look at what 
the four committees did, we think we are in pretty good shape, 
the 2013 execution for the Virginia multiyear. So we don't need 
further. For example, in the 51 multiyear we don't have 
authorization, so we are not hamstrung in that regard.
    Mr. Courtney. So I guess so the concern, though, that is 
already starting to percolate out there is regarding other 
programs such as carriers and cruisers. I just wonder again if 
you could give your sort of initial take on the impact of the 
language that was released today as far as those programs are 
concerned.
    Secretary Stackley. Yes, sir. With regard to carriers, that 
is, frankly, where our concern is greatest. Today the CVN-71 
[Nimitz class supercarrier USS Theodore Roosevelt] is in her 
fourth year of her RCOH. She will be entering her fourth year 
of her RCOH. She is due to complete in June, and we had 
requested funding in 2013 to complete that RCOH; $135 million 
was included in the request.
    Without that provision in the CR, current estimates are 
funding will not take us to completion. We are going to need 
subsequent budget action to pick up the balance of the RCOH. So 
our concern is that we will disrupt the completion of that 
RCOH, which would impact that ship's schedule and ultimately 
cause cost increases.
    Separately and distinctly, the CVN-72 [Nimitz class 
supercarrier USS Abraham Lincoln] will be entering her RCOH. 
She is due to enter the shipyard in February of 2013. That is a 
new start, and so we will need Congress to basically give us 
the new start authority that goes with CVN-72 RCOH as well as 
the funding that would not be included with the CR.
    So we have one carrier that is in execution, another one 
that we need to bring in to start the RCOH. The absence of what 
we are referring to as an anomaly in the CR to address these, 
it poses havoc for our carrier, not just the RCOH process, but 
the workload at Newport News is heel to toe. So if you impact 
the CVN-71's completion, you are going to impact the other work 
at the shipyard, if you impact the start of CVN-72, you are 
going to be impacting operations on the far end of 72 as well.
    So there is an operational impact, there is a cost impact, 
there is disruption at the shipyard impact, and that is why it 
was such a higher priority for the Department to get some 
consideration in the CR.
    Mr. Courtney. For an anomaly.
    Secretary Stackley. Yes, sir.
    Mr. Courtney. Right. So assuming it is enacted as written, 
that carries us through March, will there be time for a future 
Congress to be able to rescue that need for an anomaly of some 
form either through another CR or through a real budget?
    Secretary Stackley. Two things. We are going to do 
everything we can to take the dollars that we have in hand for 
the CVN-71 and get as far into the execution as possible, but 
we can't do anything for a CVN-72 other than the limited 
funding that we have available for advanced planning to prepare 
for the RCOH. This exact scenario occurred for the CVN-70 
[Nimitz class supercarrier USS Carl Vinson] RCOH in 2005, and 
that required standalone legislation by the Congress to allow 
us to go ahead and start the CVN-70 RCOH inside of the terms of 
a CR.
    Mr. Courtney. Thank you, Mr. Chairman. I yield back.
    Mr. Wittman. Thank you, Mr. Courtney.
    Now we will go to Mr. Young.
    Mr. Young. Thank you, Mr. Chairman, and thank you, 
gentlemen, for being here today.
    Admiral Eccles, I represent a district in south central and 
southern Indiana. It is adjacent to Naval Surface Warfare 
Center Crane, and I recently visited Crane for a ribbon 
cutting. There is, as you know, a new strategic weapon systems 
engineering facility that recently opened there. We discussed, 
of course, while I was there the excellent support that Crane 
provides to the Navy, including engineering support for the 
Ohio replacement program.
    As we look into increasing program efficiencies in this 
particular program, what sort of design improvements and 
technologies might be incorporated as we provide 12 additional 
SSBNs [Ship, Submersible, Ballistic, Nuclear]?
    Admiral Eccles. Sir, thank you for the question. In the 
Ohio replacement program, we are in the early stages now of 
working through the translation of concept to design. And as we 
look at some of the major features that will characterize that 
submarine and its affordability for the Navy and the nation, 
one example would be reactor core fuel for life, avoiding the 
need for refueling in future. Another would be stability in the 
strategic weapons system in that the submarine is built around 
the same features that today are hosted in Ohio with the latest 
Trident missile, a missile system well proved and reliable.
    There are many, many details of the design that are still 
being worked through, but the maximum ability to leverage 
technologies developed for Virginia, including at the component 
level, making sure that systems and components within the 
Virginia class can be leveraged to the Ohio replacement, will 
give us the greatest opportunity to have a common base for 
submarine parts, submarine supply support for predictable 
maintenance and the like, which I think all feature very well 
in creating an environment where not only is the procurement a 
predictable outcome, but so, too, is the sustainment through 
the life of the class.
    Mr. Young. Thank you.
    Secretary Stackley, I would like to briefly discuss the 
importance of our sea-based deterrent and strategic 
capabilities provided for our Nation and our allies. As you 
know, the sea-based deterrent and ballistic missile submarines 
provide the most reliable and survivable leg of our nuclear 
triad. Under this fiscal environment I am sure we recognize the 
significant impacts the Ohio replacement program has to the 
Navy shipbuilding budget. I know that you and Admiral McCoy are 
working toward the cost-effective approaches with the Ohio 
replacement program, and perhaps looking to consolidate 
strategic systems funding outside of the Navy shipbuilding 
budget.
    Could you please speak to your cost-effective 
recapitalization of our Nation's sea-based strategic deterrent 
and the joint cost-sharing approaches of our strategic weapons 
systems?
    Secretary Stackley. Yes, sir. There are two aspects to 
that. First is the actual design and development phase for the 
Ohio replacement program, which we are in today, so there is a 
very concerted effort across the Navy comprising naval 
reactors, the strategic systems program, and the PEO [Program 
Executive Office] submarines program to attack, frankly, the 
design and development costs for the program during this 
period. But they have to do that in concert with the United 
Kingdom, because while we are recapitalizing the Ohio program's 
capability and the Ohio replacement program, at the same time 
the United Kingdom is recapitalizing their strategic deterrent 
vanguard with the successor program.
    So there is a close collaborative effort between the U.S. 
and the U.K. through the development of a significant portion 
of our respective boats referred to as the common missile 
compartment. So we actually have a joint U.S.-U.K. development 
of a common missile compartment that is predominantly our 
strategic weapons system with the PEO submarines, the submarine 
portion of that compartment, while in parallel we have 
development for the new reactor plant. So there is effort on 
the development side leading into the procurement side.
    The current estimate for the recurring costs for the higher 
program for boats 2 through 12 is about $5.7 billion, and that 
is in 2011 fiscal year dollars. And that is a strict parametric 
estimate based on the capabilities of the platform.
    We went through significant effort to tailor the 
requirements to ensure we can meet the mission, but we do not 
go to the exquisite level of capability, tailor the 
requirements to bring earlier cost estimates, which were in the 
$6 to $7 billion, down to that range.
    Now we are in the more getting into the more detailed 
design phase. We are attacking design details to go from a $5 
to $6 billion estimate to a target of a $4.9 billion recurring 
cost for the higher program.
    We have a disciplined approach with literally hundreds of 
initiatives ongoing where it is using advanced design tools, it 
is leveraging ongoing activities on Virginia so we get to reuse 
as much of the technology design and manufacturing as possible 
from the Virginia into the higher replacement program, and then 
also challenging not the higher-level requirements, but some of 
the lower-level requirements and the specifications that go 
into the design of the boat to see if is there a more 
affordable, more produceable way of coming forward with a 
program.
    So we are marching forward in this what we are referring to 
as a design for affordability effort, and frankly we would 
welcome the opportunity to come and brief interested Members of 
the Hill on the methodology and the progress. And this is going 
to be a long road from now until the 2021 contract award, but 
it is absolutely critical that we get this right, because 
during the period of construction of the Ohio replacement 
program, it will dominate not just our shipbuilding program, 
but much of our procurement, and we have to ensure that we get 
it at the right price, and this is the time when we make those 
critical decisions that 10, 15 years from now our successors 
will be living with.
    Mr. Young. Thank you, and thank you for your service, both 
of you.
    I yield back.
    Mr. Wittman. Thank you, Mr. Young.
    We now go to Mr. Rigell.
    Mr. Rigell. Thank you, Mr. Chairman.
    I appreciate you gentlemen being here today and your 
service to our country.
    Secretary Stackley, I would like to pivot back to your 
point with respect to this current CR. And our office is 
working through this. I just want to make sure that I have got 
the facts straight, because it has been a busy day, and our 
staff is working on a lot of things, but it does appear and I 
believe your testimony here today is that in the CR there is 
absent, noticeably absent, any RCOH funding for a CVN-71 for 
fiscal year 2013. Is that correct?
    Secretary Stackley. That is correct, because under the CR 
rules we had no funding in 2012 for CVN-71. So under CR rules, 
you go back to 2012, and if there is zero dollars in 2012, then 
you are not allowed to spend dollars in 2013.
    Mr. Rigell. Well, this is that hidden layer of inefficiency 
that is built into this terrible system that we are under right 
now whether one is Republican or Democrat serving our country.
    What is the ripple effect of that? You touched on it 
briefly, but I would like for us to fully understand to the 
extent that we can today in the time available if that stays as 
is if it does actually ripple through and become law.
    Secretary Stackley. Yes, sir. Well, let me start with 
current estimates, and we are refining these. Current estimates 
are the funding that we have on hand will support continued 
execution of the CVN-71 until the January-February timeframe. 
And we will continue to refine that. But that is the point at 
which we absolutely have to have continued funding.
    Mr. Rigell. That is right around the corner.
    Secretary Stackley. Yes, sir. And we cannot wait until a 
couple weeks before we run out of money to have assurance that 
there is continuation of funding.
    Mr. Rigell. Understood and agreed.
    So I don't want to put words in your mouth here, but I 
think it is your testimony this is just really bad policy; this 
is bad for our country and needs to be addressed in prompt 
order. And again, I don't want to characterize your testimony, 
but it seems to be along those lines.
    Secretary Stackley. Let me just describe that we have to 
have budget action to continue execution of CVN-71 continuous 
through this period. The CR would have been the first 
opportunity. Absent an anomaly in the CR, we are going to have 
to pursue some other way of getting continued funding to the 
CVN-71. That will come with its own challenges.
    Mr. Rigell. Because of the high priority of just the 
overall program and just as it ripples through.
    Secretary Stackley. Yes, sir.
    Mr. Rigell. I would like to pivot back again also to the 
statement that was made earlier, Mr. Secretary, concerning--
and, Admiral, it might have been you, sir--that OCO funds 
embedded in those I think are some maintenance work being done 
on our ships; that I have some concern that if we go to 
absolute zero in OCO funds, that really it is going to put some 
heavier burden on the regular defense budget for maintenance 
and repair.
    Admiral Eccles. If I can jump on that, the OCO funding in 
years recent has accounted for about 20 percent of maintenance 
in the surface Navy, for example. And if that OCO were to go 
away, it doesn't mean the maintenance goes away, so, of course, 
there is a budget burden.
    The question in my mind has a lot to do with whether or not 
we have got surface maintenance sized right, and in the 2013 
proposal we sent forth dollars and maintenance, which, while 
accounting for that OCO, would for the first time in a long 
time get this as squared away as we could for a full, wholesome 
surface maintenance program, and that is based on looking at 
covering backlog with OCO over a number of years, also 
resetting ourselves with respect to the way maintenance 
discipline in the surface Navy has been working. We have been 
getting better and better over the last few years instilling a 
process of understanding better what our ship condition is and 
then documenting the necessary engineering and maintenance to 
improve and hold that for the wholeness of expected service 
life for those ships.
    Mr. Rigell. Is it true, then, that OCO funds are doing more 
than just paying for the marginal costs, if you will, maybe to 
use an accounting term, the marginal costs of the war, for 
example, in Afghanistan; that they are not only paying for 
that, but they are also paying for things that otherwise would 
have been paid for through the regular defense budget?
    Secretary Stackley. Let me offer----
    Mr. Rigell. Very short, but you will get the last word.
    Secretary Stackley. Yes, sir. In my opening statement I 
describe that half of our ships have been underwater deployed 
pretty constant through this period. And so what the OCO is 
doing is that is funding, it is an accounting for the funding 
that goes with sustaining that OPTEMPO [Operational Tempo] and 
keeping the ships up to the level of the maintenance 
requirements to support current operations.
    So I don't think this is simply a matter of we are 
augmenting our base funding to account for other shortfalls. I 
think we are driving the fleet--it is not just the ships, but 
the aircraft as well--at a very high OPTEMPO during the period, 
and we have been relying on the OCO to be able to keep up that 
pace.
    And so the challenge is now as we back away from it is to 
ensure that our base budget does, in fact, appropriately fund 
our maintenance requirements.
    Mr. Rigell. I thank you for your testimony.
    Mr. Wittman. Thank you, Mr. Rigell.
    We will pursue a second round of questions, so if the panel 
members would like to stay around. I am going to begin with one 
question for both you gentlemen. You have heard some questions 
about the looming additional massive defense cuts to our 
defense budget potentially in 2013, and then lower budget caps 
from fiscal year 2014 through fiscal year 2021.
    I wanted to ask you in that particular scenario, and 
obviously at this point I am sure you all in some way, shape, 
or form are looking forward about what that means. And 
certainly on the outside with our contracting community, our 
vendors, there is some uncertainty that is building out there 
both from their planning aspects, and looking what they are 
planning for, and also understanding, going forward, how they 
make investments in people, and equipment and infrastructure 
there in their businesses.
    The question then becomes if they look at the uncertainty 
there, they will make those investments, pull things back. How 
does that affect the industrial base? How does it affect our 
vendor base? And then, in turn, what is the Navy doing now to 
plan for that potential scenario?
    We all hope that it doesn't happen. We are all working hard 
to make sure that it doesn't happen. As we heard earlier, there 
is lots of agreement that it shouldn't happen. The question is, 
how does it come about to make sure that it doesn't happen? But 
in the meantime the question is from your standpoint what are 
you going to plan for that? What are you doing in your 
conversations with the shipbuilders and vendors to say, in 
case, this is what we will do?
    Secretary Stackley. Yes, sir. Thanks for that question.
    Let me first describe when we talk about the top line 
coming down, that is at a macro level. Inside the top line, 
rules of sequestration aside, inside the top line it becomes a 
matter of prioritizing your resources, and clearly shipbuilding 
is a top priority for the Department of the Navy. That will be 
point number one.
    When we look ahead at least within the FYDP at those types 
of challenges, we have been very careful to look at long-term 
agreements with our shipbuilders through our contracts to 
provide the degree of stability that will weather that type of 
budget downturn. And so going program by program, carriers, we 
are locked in at a carrier every 5 years, and the work that we 
are doing at Newport News on this optimal build plan, that is 
to bolster that plan against an economic, a budget adjustment.
    Submarines. We are marching into the next multiyear. As you 
are well familiar, we have requested 9, but we are working with 
Congress to get that 10th boat, and that will lock in the 2014-
2018 window, a nice, stable, two-boat-per-year run not just for 
the shipbuilders, but the vendor base that supports them.
    Destroyers. As soon as we get an authorization 
appropriation bill for 2013, we will be ready to award fiscal 
year 2013 through fiscal year 2017 multiyear. Again, we have 
requested 9, but we will work with Congress to get a 10th, 
providing that long-term stability for our large surface 
combatant industrial base.
    LCS. We worked with Congress to get the dual block buy 
award, 20 ships over 5 years.
    Each one of these actions is going after the stability that 
not just the shipbuilders, but the industrial base requires so 
that they can plan, so that they can invest, so that they can 
train and retain that skilled workforce that we rely upon for 
affordability and, frankly, reliable operational and schedule 
performance when the ships deliver.
    We are, again, challenged on the amphib and the auxiliary 
side because we are looking at the end of programs, we are at 
the end of the LPD program. We have a very short run on the MLP 
program. And so we are looking ahead at the replacement to the 
LSD and as well to the next big-deck amphib. Those are 
challenges towards the back end of this FYDP. We have to start 
planning for today so that we don't go down some irreversible 
path in the meantime that would harm our industrial base at the 
shipyard or the vendor base.
    Mr. Wittman. Very good. So what I understand, then, is 
those efforts to make sure the long-term elements both within 
the FYDP and outside the FYDP are going to continue even in the 
face of what potentially happens with sequestration?
    Secretary Stackley. Yes, sir.
    Mr. Wittman. Okay. Very good. Thank you.
    We will then move back to Mrs. Hanabusa.
    Ms. Hanabusa. Thank you, Mr. Chair.
    In one of the hearings we had regarding a discussion about 
how sequestration may affect especially shipbuilding, I think 
the person testifying said that shipbuilding was somewhat 
different in that you are, for lack of a better description, 
almost line-itemed per ship. So, for example, if there was an 
8-percent or 10-percent cut across the board, which is what 
will be in total sequestration could be or may be, that that 
would then cancel out, for example, the second ship. The 
exception, as we were told, were carriers, because carriers are 
permitted to be funded over a period of time.
    Is that correct as to how the impact could be, so if you 
get 10 percent, and you have two or three, say, MLPs, just 
hypothetically, and it would cut the third one completely out? 
Is that the correct understanding of what the impact of 
sequestration could be?
    Secretary Stackley. Not quite. It is correct that 
shipbuilding is different. The programs are effectively line-
item projects, and so they will separately incur nominally a 
10-percent impact associated with if sequestration occurs.
    And so when you go down to the program level--you mentioned 
MLP is not a good example because fiscal year 2013 is not a--we 
are not requesting a ship in 2013--but when you go down to the 
program level, if you take a 10-percent cut, the challenge that 
we, the Navy, are going to deal with is how can we take a 10-
percent cut and minimize the impact to the shipbuilding 
program?
    And there is more than just the shipbuilding contract. We 
have a number of activities inside of that program. So there is 
a shipbuilder piece, there is a Government-furnished equipment 
piece, there are technical services. So the challenge is if we 
took a 10-percent hit in the shipbuilding program, what can we 
deliver within the remaining budget, and then how do we 
backfill either through a reprogramming action or through a 
subsequent budget, a fiscal year 2013 budget, so that we don't 
lose what we have got in terms of efficiency and good pricing 
in our contracts?
    But the challenges are extremely hard, because there is 
going to be a cumulative impact, and we will be very limited in 
terms of places where we can go to augment the funding in those 
programs, and we do not today know what we are going to be 
staring at in 2014. We will not know that when it is time to 
make those decisions.
    So this is a good example of why you are hearing such 
strong reaction from the Department on the impacts of 
sequestration.
    Ms. Hanabusa. So, in essence, you don't quite know what you 
would do. It wouldn't just be a matter of just saying, if it is 
a 10-percent cut, that we can't fund the third ship; just 
hypothetically, if there were three ships, you can't fund the 
third ship. That would then result in the elimination of the 
third ship. It may be you may have more flexibility if you can 
cut something else within that program.
    Secretary Stackley. Well, first we would need to know what 
comes across the line in the 2013 budget, and, second, we are 
going to need to know what happens in 2014. And so when you 
bound the problem in that way, then we are going to be looking 
at what do we have left in terms of resources to execute? And I 
hesitate to give you a hypothetical response, but if across the 
board each of our shipbuilding programs took a 10-percent cut 
in 2013, and there is a subsequent type action in 2014, I can't 
quickly arrive at a scenario that says we are going to be able 
to put all the ships that we had requested under contract in 
2013.
    Ms. Hanabusa. So you haven't even gotten to the point as to 
what or how, under the Budget Control Act, which we now shift 
to caps after the sequestration issue, so we are talking about 
caps--you haven't even looked at how those caps may then affect 
shipbuilding?
    Secretary Stackley. Our energy and focus has been on 
building a 2014 budget that we plan to execute building on top 
of the 2013 budget that we requested with Congress. We haven't 
looked at the alternatives associated with 2000--a 
sequestration taking place starting the 2nd of January carrying 
out into subsequent years.
    Ms. Hanabusa. But you do know that under the BCA [Budget 
Control Act], there are going to be caps, and the caps are 
not--well, they don't look like you are going to be able to 
recoup any of this. So there has got to be some understanding 
or analysis done as to what those caps are going to mean and 
how it is going to effect, for example, shipbuilding.
    Secretary Stackley. Yes, ma'am.
    Ms. Hanabusa. So as you work through the 2014 budget, you 
have already looked at the impact of the caps with the caps in 
place? Or are you hoping that Congress is going to do something 
so that those caps are not going to affect you?
    Secretary Stackley. It has taken all of our efforts to 
build the 2014, the budget that we plan to execute. We don't 
have added bandwidth to then build a separate budget that 
brings the Budget Control Act impacts in across the FYDP. We 
have not done that.
    Ms. Hanabusa. That is the answer I was interested in.
    Thank you, Mr. Chairman.
    Secretary Stackley. I started by describing the way we 
build our shipbuilding program as an example, and it is very 
similar to our other capabilities, is we start with the defense 
guidance, we overlay on top of that our resource constraints, 
and then we put together the best program possible to meet our 
national security needs. When you take a look at the impact 
associated with the Budget Control Act, we are going to have to 
go back and arrive at a new defense strategy. The impact is 
significant enough that we will not be able to put together the 
force that we need, maintain the wholeness that the CNO 
demands, and operate at the pace that we are operating with 
those types of budget adjustments.
    Ms. Hanabusa. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Wittman. Very good. Thank you, Ms. Hanabusa.
    Mr. Rigell.
    Mr. Rigell. Thank you, Mr. Chairman.
    And, Secretary Stackley, I just want to make sure I have 
this right. If we do find ourselves in really the most 
unfortunate situation where sequestration becomes a reality, is 
it true that the budget cuts would be allocated not over four 
quarters, but three, in some ways making them even more 
problematic?
    Secretary Stackley. Absolutely. In fact, I think it is 
going to be worse than that, because sequestration would hit 
inside of a CR. So we are already somewhat constrained in terms 
of our execution in the CR. The sequestration would hit in the 
second quarter, and so we have very limited flexibility and a 
very limited amount of time to adjust to the full impacts.
    Mr. Rigell. Thank you.
    Given the complexity of the Department of Defense budget 
and certainly within the Navy's budget there, it is difficult 
enough to try to get a handle over what is being spent and 
making sure it is being spent wisely.
    Given that, have you allocated or reallocated some 
resources, some accounting resources and planning resources, 
for the contingency plan of if sequestration becomes a reality? 
To what extent have you developed a real plan to adapt to it 
and deal with it?
    Secretary Stackley. I had described earlier that we haven't 
planned for sequestration, but we are spending time 
understanding what the impacts would be. You can't solve 
individual program issues, you can't deal with any of this in 
isolation. Since it impacts the entire budget, you really have 
to take a look at the entire budget.
    And so if we are unable to halt--``we'' being the 
collective Administration and Congress--halt sequestration, we 
are probably looking at building a new budget inside of a 
budget, that being 2013 execution. And at the same time we are 
going to have to revisit the 2014 budget because the 2014 
budget is built upon 2013.
    Mr. Rigell. Going back for just a moment to CVN-71 and the 
current CR, and I know engineers don't like to maybe comments 
on things like that, but I will ask anyway, were you surprised 
that that funding was not there? Was it on the process side 
that the funding did not appear in this new CR, or did you 
fully expect it because it can only just bring forward what has 
been brought forward?
    Secretary Stackley. It was at the top of our priority list 
as an anomaly for the CR.
    Mr. Rigell. And that was expressed, I am certain, to the 
contacts here?
    Secretary Stackley. Yes, sir.
    Mr. Rigell. Okay. Maybe beyond the scope of what we should 
cover here, but, I mean, was there a basis for someone not 
acting on that information?
    Secretary Stackley. I am probably not the right person to 
answer that question.
    Mr. Rigell. I thought we would get to a full halt on that, 
but that is okay. I wanted to press this as far as I could just 
to understand where we broke down in the whole process.
    Mr. Chairman, I really appreciate your holding this hearing 
today and just the opportunity to inquire about that from 
really the good leaders within our country who are right at the 
tip of the spear in trying to help us do the right thing. So 
again, I appreciate your service, Mr. Chairman. I yield back.
    Mr. Wittman. Thank you, Mr. Rigell.
    If there are no other questions from the panel members, we 
will move to adjourn. And I want to thank our panelists today, 
Rear Admiral Eccles, Secretary Stackley, for your testimony 
today. Obviously this is a challenging issue for us here in 
Congress. I think it is interesting to know what is lacking in 
the CR, especially since it affects the RCOH on CVN-71. We know 
that that is absolutely critical. That is a problem, I think a 
significant problem, obviously, going forward in the budgeting 
process.
    Also, I think what we took from this hearing, too, is the 
need to make sure that planning takes place from the 
congressional side, and obviously some direction on SSBN(X) 
[Ohio class replacement ballistic submarine] as far as their 
continued efforts, and I know there has been some definition 
and some resources there, but obviously continuing that; and 
then also the future decisions occurring not too far outside 
the FYDP for the amphib ships and auxiliary ships and making 
sure that we maintain not only this nation's needs, but also 
the industrial capability there.
    So I deeply appreciate your testimony today. It gave us 
some great information as to how the planning process ought to 
take place going forward, and how we, as a committee, as a full 
committee, have an obligation to make sure that we include 
those planning aspects in what we do as a full committee.
    So again, gentlemen, thank you so much for your testimony 
today, and if there are any further questions, I would ask that 
the panel members submit them in writing to our panelists 
today. And, again, with that, this subcommittee is adjourned.
    [Whereupon, at 3:54 p.m., the subcommittee was adjourned.]



=======================================================================




                           A P P E N D I X

                           September 11, 2012

=======================================================================


              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                           September 11, 2012

=======================================================================

      
                     Statement of Hon. Rob Wittman

      Chairman, House Subcommittee on Oversight and Investigations

                               Hearing on

              Navy Shipbuilding and Impacts on the Defense

            Industrial Base in a Time of Fiscal Uncertainty

                           September 11, 2012

    Before we begin this hearing, I would like to note today's 
importance in our Nation's history, the 11th anniversary of the 
terrorist attacks of September 11th. For 11 years now, our All-
Volunteer Force has been engaged in combat operations requiring 
cyclical deployments. Some of our sailors, soldiers, airmen, 
and marines have deployed 4, 5, 6 times . . . some have even 
been called upon to serve on 12 or 13 combat deployments. We 
owe a debt of gratitude, thanks, and unwavering support to the 
men and women of our armed forces and their families--a debt 
that can never be repaid. These men and women and their 
families epitomize the United States of America and their 
courage, bravery, commitment, work ethic, pride, and 
professionalism which are the characteristics that continue to 
make this country great. You need look no further than some of 
the names of the newest ships in our Fleet to understand the 
honor that is paid to the men and women who made the ultimate 
sacrifice fighting for this country over the last 11 years: 
names such as the USS Jason Dunham (DDG 109), USS Michael 
Murphy (DDG 112), and USS Rafael Peralta (DDG 115). These ships 
will serve this Nation for the next 30-40 years and the 
service, sacrifice, and legacy of these men will never be 
forgotten. Our thoughts and prayers are with all the families 
who lost loved ones on September 11th, 2001, our All-Volunteer 
Force and their families. Never has so much been sacrificed by 
so few for so many for so long.
    With this as our backdrop, I can think of no better topic 
to discuss than the 30-Year Shipbuilding Plan and concerns I've 
had regarding our defense industrial base. Over the last year, 
this subcommittee has held two hearings, conducted numerous 
briefings and facilitated many engagements with the Department 
of the Navy and industry, and traveled to shipyards across the 
country to learn firsthand about how effective DOD's 30-year 
plan is and how it impacts our defense industrial base. We 
learned that the annual plan is critical to establishing 
priorities and identifying challenges that need to be addressed 
in both the short and long-term. We also learned that 
historically the plans have played an integral role in leading 
to programmatic improvements and cost savings over time. I 
would like to take this time to thank all of these yards for 
their hospitality and professionalism as they shared with us 
their enthusiasm for their trade and their commitment to 
building the best Navy in the world.
    This hearing is focused on the 30-year plan's impact on our 
shipyards and closes out what I believe has been a valuable 
effort in identifying challenges and concerns so that we in 
Congress can make decisions based on fact rather than 
speculation. Critical to this effort were oversight visits to 
Electric Boat in Groton, Connecticut; Bath Iron Works in Bath, 
Maine; NASSCO in San Diego, California; Huntington Ingalls 
Industries in Pascagoula, Mississippi; Austal in Mobile, 
Alabama; and Huntington Ingalls Industries in Newport News, 
Virginia, where we build our Navy's ships and submarines. In my 
view, nothing takes the place of ``on the ground'' observations 
and the opportunity to speak frankly with the people 
responsible for day-to-day operations, particularly in an 
industry as unique and critical to our Nation as shipbuilding.
    As we all know, warship planning, design, and construction 
is one of the most complex industrial endeavors a nation faces 
when determining national and maritime strategy. Whether we're 
building submarines, amphibious ships, destroyers, logistic 
ships, or aircraft carriers, we can't get the job done without 
an industrial base that has the talent and intellect to solve 
unique design and engineering problems. Shipbuilding is an art 
form and a perishable skill. It is done by the most highly 
trained and experienced corps of engineers and tradesmen in the 
world. It is supported through business and industry spanning 
50 States and designed and engineered by our greatest asset: 
the American people.
    After conducting our oversight visits, it was clear to me 
that while American ingenuity, creativity, and initiative are 
alive and well in our shipyards, it is also clear to me that 
challenges exist. In a constrained fiscal environment facing 
the dire impacts of sequestration, many in industry are 
considering forced layoffs, contract renegotiations, 
disruptions to production, and poor future vendor supply 
prospects.
    This afternoon the subcommittee will focus on maintaining a 
robust and sustainable industrial base capable of executing the 
Navy's shipbuilding plan and our national strategic objectives, 
particularly as we pivot to Asia. As articulated in the final 
report of the QDR Independent Panel: ``A robust U.S. force 
structure, one that is largely rooted in maritime strategy . . 
. will be essential.'' I look forward to hearing your 
perspectives on the challenges we face, including planning for 
surge capacity and recapitalization of the fleet.
    The focus of this hearing is not to dive into specific 
programs and the nuances and challenges of certain platforms; 
this is the duty and responsibility of another subcommittee. 
The goal here today is to focus on the macro level of 
shipbuilding and discuss the impact on the defense industrial 
base in a time of fiscal uncertainty. The one lesson we learned 
during our visits to all the shipyards is the delicate 
execution and attention to detail that must be displayed while 
progressing through the planning process. A balance must be 
achieved in order to attain a sustainable workload, workforce, 
all while producing a capable and effective platform. The 
industrial capacity at these yards and the supply chains that 
support them is unique. It is imperative that as we move 
forward and shift to an Asia-Pacific-centric strategy that we 
effectively balance the planning process with the industrial 
base capacity that is needed to achieve maritime and national 
security success in the 21st century.
    Secretary Stackley, Rear Admiral Eccles, thank you for 
being here today and thank you for your continued distinguished 
service to this Nation. Each of you, along with VADM Blake, who 
has appeared before the committee in the past, understands 
ships and you know this business. We appreciate your expertise 
and insight on this very important matter. The bottom line is: 
ships are different from many perspectives, particularly in 
acquisition and procurement. As you gentlemen note, 
``shipbuilding programs do not have the opportunity to build 
full-scale prototypes.'' The United States Navy essentially is 
the only service that will commission a prototype and then take 
it to war.
    I look forward to your testimony and I hope that we can 
have a thoughtful and meaningful dialogue on these important 
issues.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


=======================================================================


              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                           September 11, 2012

=======================================================================

      
             RESPONSE TO QUESTION SUBMITTED BY MR. CONAWAY

    Secretary Stackley. The July 5, 2012 Department of Defense 
Alternative Fuels Policy for Operational Platforms stipulates that:

          ``. . . alternative drop-in replacement fuel procured for 
        DOD-wide use and distribution within the Class III (Bulk) 
        supply chain will compete with petroleum products under the DLA 
        Bulk Purchase and Direct Delivery Purchase Programs. Awards 
        will be based on the ability to meet requirements at the best 
        value to the government, including cost.''

    In order to comply with the policy, the Navy and/or its purchasing 
agent, DLA Energy, are required to purchase biofuels or any alternative 
fuels for drop-in replacements in operational quantities (i.e., not 
research, development, test, and evaluation) that are cost-competitive 
with the conventional petroleum-derived fuels that they replace. [See 
page 11.]
?

      
=======================================================================


              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                           September 11, 2012

=======================================================================

      
                   QUESTIONS SUBMITTED BY MR. WITTMAN

    Mr. Wittman. How can the workload at the public and private 
shipyards be balanced efficiently and effectively to align with future 
shipbuilding plans? a. What challenges exist? b. How are they being 
addressed? c. How important is a stable, proven, fully researched 
design and workload when executing shipbuilding plans?
    Secretary Stackley. The Navy's FY2013 Long Range Shipbuilding 
Report to Congress contains the shipbuilding plan that balances 
workload stability given fiscal constraints while aligning with 
retirements and future shipbuilding plans. The goal of this plan is to 
provide a stable long-term shipbuilding forecast for private shipyards 
that reduces industrial base volatility and allows the industry to 
better match investments to meet Navy capabilities. The Navy believes 
that stability in the shipbuilding program is a key ingredient in 
sustaining a cost effective and capable capacity in the shipbuilding 
industry.
    The Long Range Shipbuilding Plan is integral to the planning of 
maintenance and modernization in both the public and private sector. 
Typically the public sector is responsible for the maintenance and 
modernization of the Navy's nuclear ships, while the private sector is 
responsible for maintenance and modernization of non-nuclear ships. 
Based on the projected ship inventory and strategic laydown, the Class 
Maintenance Plan requirements for all ships in service are translated 
into projected public and private sector workloads. These workloads are 
compared to existing capacities, which can be adjusted as required. 
These long range workload forecasts are provided to Congress on an 
annual basis.
    Challenges exist in balancing ship retirements with future 
shipbuilding plans and efficient shipyard production given fiscal 
constraints. In determining the shipbuilding plan, the Navy works to 
achieve the following:

          Stabilizing production workload across product lines 
        and within individual shipyards.

          Building ships at affordable yet efficient levels.

          Avoiding gaps in ship production which can result in 
        shipyard closure or costly production line start-up costs.

          Minimizing major design workload fluctuations.

          Addressing the rapid retirements of ships procured in 
        the 1980s. The ships brought into service during the 1980s, 
        some procured at a yearly rate of four to five ships of a 
        single class, are projected to retire during the next 20 years. 
        With today's need for capable, multi-mission platforms, the 
        Navy cannot recapitalize its legacy ships at the same rate at 
        which they were originally procured and maintain an affordable, 
        balanced procurement plan.

    Solutions:

          Because Navy ships can only be constructed at a 
        limited number of U.S. shipyards, the timing of ship 
        procurement is a critical matter to the shipbuilding and combat 
        system industries. As a result the Navy is moving toward longer 
        production runs based on common hull-forms across like-
        platforms.

          Navy is working with its industry partners to 
        consider several factors to control costs and improve 
        stability:

          Level loading shipyards to sustain employment levels 
        and skills retention, and stabilize workloads through work 
        share opportunities and regional outsourcing.

          Greater use of contract incentives, such as multi-
        year procurement, fixed price contracts and increased 
        competition.

          Reducing ship types, maximizing reuse of ship designs 
        and common components, and implementing open architecture.

    In addition to efforts described above, a stable design with a 
focus on both acquisition and operational affordability is very 
important and is directly related to the controlling of costs.
    Mr. Wittman. Given the possible implementation of sequestration in 
FY2013 and the lower budget caps in the BCA for FY14-FY21, this 
shipbuilding industrial base is currently facing uncertainty about the 
FY2013 shipbuilding programs and the outlook for subsequent years. The 
uncertainty causes planning difficulties for shipbuilders and 
supporting vendors, and could discourage them from making investments 
in people and infrastructure that could help reduce the cost of Navy 
ships. How is the Navy addressing these concerns and what plans are 
currently in place if cuts occur?
    Secretary Stackley. If sequestration occurs, automatic percentage 
cuts are required to be applied without regard to strategy, importance, 
or priorities, resulting in adverse impact to almost every contract and 
procurement effort within the Department. Sequestration would adversely 
impact the Navy's ability to procure the shipbuilding programs 
programmed in the FY13 Department of the Navy President's Budget 
request. Potential reductions to the number of ships procured or 
stretch-outs to the programs of record will cause cost increases and 
create shortfalls or delays to ship deliveries, thus impacting the 
operating forces ability to meet its requirements. These adverse 
impacts would apply to both planned FY13 contract awards and 
shipbuilding contracts under execution that depend on Completion of 
Prior Year Shipbuilding Programs funds or other incremental funding. In 
addition, sequestration could result in percentage reductions of FY12 
and prior year unobligated balances, affecting remaining efforts to 
complete shipbuilding programs under construction.
    Depending on available transfer authority to consolidate these 
cuts, sequestration would severely limit the ability to preserve major 
acquisition programs, resulting in significant impacts to our defense 
industrial base. However, a detailed review directed by OMB would be 
required to determine the specific impacts to national security from 
sequestration.
    Mr. Wittman. Secretary Stackley, is there a benefit to the Nation 
and the taxpayer with directed procurement? Taking into consideration 
that shipbuilding is unique and unlike any other acquisition and 
procurement process, is there efficiency in directing procurement to 
specific shipyards? (logistics ships and amphibious ships in order to 
provide a constant and efficient workload and stable vendor base and 
supply chain?) My concern is that if we openly compete large capital 
ships we could compete a yard out of business and essentially cause a 
massive decline in shipyard capability, strategic lay down, and surge 
capacity.
    Secretary Stackley. The Navy uses directed procurement for a few of 
our ship classes. There is one builder of aircraft carriers for the 
Nation. As a result of Congressionally-directed teaming for attack 
submarine new construction, the Navy contracts with General Dynamics 
Electric Boat who subcontracts with Huntington Ingalls Industries 
(HII). The Navy has also been dual sourcing surface combatant 
construction since the mid-1990's, and each time that decision is 
revisited, the Navy has concluded that it is in the nation's best 
interest to keep two shipbuilders building surface combatants. In these 
cases, the Navy working with Congress, attempts to stabilize the 
procurement quantities in order to maintain adequate workload to 
support planning and achieve efficiencies. Industry has been doing 
their part too, making adjustments in terms of capacity and with 
respect to their future planning.
    However, the Navy and the nation pays a price for programmatic 
decisions that set us on a path to acquire goods or services from a set 
of directed suppliers or from a single source. Competition is a 
critical driver in innovation and performance. While shipbuilding is 
different than many other acquisition and procurement processes, the 
value achieved through competition is unmatched. With respect to the 
procurement of Amphibious and Auxiliary ships, the Navy has 
historically employed competition within its acquisition strategy. In 
more recent years, the viability of the Amphibious and Auxiliary ships' 
industrial base has become a growing concern. HII's business decision 
to close their Avondale, Louisiana facility in 2013 (after the delivery 
of LPD 25) and consolidate their shipbuilding efforts at their shipyard 
in Pascagoula, Mississippi reflects the current imbalance between 
capacity and demand in the Amphibious/Auxiliary shipbuilding sector. 
Even then, current projections for Amphibious shipbuilding pose 
challenges for Ingalls shipbuilding in this next five year period. The 
next amphibious ship program, LX-R, is not required to replace the LSD 
41/49 class ships until the mid-2020s (lead ship to be competitively 
awarded in 2018). The only first tier shipbuilder constructing 
auxiliary ships is General Dynamics NASSCO in San Diego, California. 
NASSCO has historically relied upon both Navy and commercial 
shipbuilding to remain viable, however the protracted downturn in 
commercial new construction has significantly impacted NASSCO's 
business base. The Navy has signed a Shipbuilding Capability Prevention 
Agreement with the intent of strengthening NASSCO's position for 
pending commercial awards. With regards to Navy ship construction, 
NASSCO recently delivered the last ship of the T-AKE program, and is 
currently constructing the Mobile Landing Platform (MLP) class of 
ships. NASSCO is under contract to build three MLPs, which will deliver 
in 2013, 2014 and 2015 respectively. To satisfy an operational 
requirement, the Navy requested in PB13 that Congress authorize and 
appropriate funding to modify MLP 3 and build it as an Afloat Forward 
Staging Base (AFSB) variant, and to authorize and appropriate funding 
for a fourth MLP/AFSB variant in Fiscal Year 2014 (FY14). The MLP AFSB 
variant satisfies a Combatant Commander requirement and addresses a 
significant industrial base issue. The next auxiliary ship acquisition 
will not occur until 2016, when the Navy plans to competitively award 
the T-AO(X) lead ship, targeting replacement of the Navy's fleet 
oilers. Given the sum of these challenges and projections for future 
Amphibious and Auxiliary shipbuilding programs, the Navy and industry 
must work towards increasing efficiency at low rate production and too, 
to the extent budget and requirements afford, increasing the rate of 
production; if we are to sustain the current Amphibious/Auxiliary 
shipbuilders (less Avondale). The current overarching strategy employs 
competition for these future programs as the most effective means of 
driving affordability and innovation. Directed procurement may become 
necessary based on future events and program budget decisions; however 
such a procurement strategy comes at the expense of affordability and 
innovation and therefore is not the procurement strategy of choice.
    Mr. Wittman. Considering the ever-present potential for the need of 
surge construction capacity, the ever-present threat of national 
disasters or other unforeseen events, and the strategic pivot toward 
the Pacific; are you satisfied with the current strategic laydown of 
our new construction capable shipyards? Are you satisfied with the 
construction capacities on both coasts? If there was a 30-Year Shipyard 
Plan, how do you see the strategic laydown of our national shipyards 
changing in the next 30 years?
    Secretary Stackley. Currently, there are five large shipbuilding 
facilities on the East and Gulf Coasts, and one shipbuilding facility 
on the West Coast, in addition to other second tier and smaller 
shipyards constructing ships for the Navy. The current strategic 
physical location and laydown of our new construction shipyards is 
sufficient to support the Navy's long-range shipbuilding plan even with 
the potential of unforeseen events occurring and a pivot in our 
strategic focus toward the Pacific.
    The current shipbuilding industrial base is not a legacy of the 
1980's-era 600-ship goal. The structure of the industrial base and the 
companies and shipyard facilities building battle force ships has 
changed considerably, in a dynamic process of corporate adaptation and 
adjustment to the level and nature of Navy and Jones Act shipbuilding 
activity. Three shipyards left naval construction in the 1980s and one 
is slated to close in 2013. Two yards have entered--one is new and one 
is reentering.

          Exiting: the Lockheed shipyard in Seattle and the 
        Todd shipyard in Los Angeles were closed down. The Todd 
        shipyard in Seattle left the naval shipbuilding business. The 
        Huntington Ingalls Industries Avondale shipyard near New 
        Orleans, is scheduled to be closed in 2013.

          Entering: Austal USA in Mobile, Alabama, and 
        Fincantieri's Marinette Marine in Marinette, Wisconsin. 
        Marinette, who built mine countermeasure ships in the 1980s and 
        later focused on Coast Guard ships, is now building Littoral 
        Combat Ships (LCS) after about 15 years without naval 
        construction in its portfolio. Austal USA is a relative 
        newcomer and has expanded its facilities to build LCS and Joint 
        High Speed Vessel (JHSV) ships for the Navy.

    It is hard to predict how the future Navy will adapt over the next 
30-years given operational needs and economic realities. With our 
current geographically dispersed shipbuilding footprint, the Navy and 
our shipbuilding industry are poised to adapt and flex to meet the 
Nation's needs for naval assets.
    Mr. Wittman. Significant infrastructure and manpower investments 
recently implemented at shipyards across the country have resulted in 
increased workforce capacity. If changes in procurement occur as a 
result of a lack of funding, reallocation of resources, contract 
renegotiations, or other fiscal disruptions, how will this affect the 
long-term sustainability of not just the industrial base, but the 
classes of ships being built in the shipyards as well?
    Secretary Stackley. The strength of our Navy's seapower is closely 
aligned with the strength of our shipbuilding industrial base. The 
critical skills, capabilities, and capacities inherent within our new 
construction shipyards and weapon systems developers inarguably 
underpin the U.S. Navy's dominant maritime position. Accordingly, in 
the course of balancing resources and requirements in the formulation 
of future shipbuilding plans, the Navy will continue to closely weigh 
the effect of program decisions on the industrial base. A priority will 
continue to be placed on providing stability for the shipbuilding 
industrial base and incentivizing facility investment. Stability 
translates into retention of skilled labor, improved material 
purchasing and workforce planning, and strong, sustained learning curve 
performance. Stability coupled with capital improvements translates 
into more efficient ship construction and a more affordable 
shipbuilding program. Affordability is the key to achieving and 
sustaining the shipbuilding plan.
    Mr. Wittman. If prime contractors cut back on production due to 
fiscal constraints, demand for goods and services from their 
subcontractors and suppliers goes down. Many of these suppliers will 
likely leave the shipbuilding business never to return, creating a 
deficit in required trades and skill sets that may never be regained. 
How does the Navy plan on protecting and sustaining the supplier 
community when their livelihood depends largely on business from prime 
contractors?
    Secretary Stackley. The Navy assesses the shipbuilding industrial 
base sector by sector and tier by tier, monitoring the health of the 
shipbuilders and major suppliers. In doing so, the Navy examines not 
only production labor employment, but also engineering capabilities, 
facility capabilities and efficiency, overall skill and experience of 
the workforce, and as warranted, financial strength. The Navy meets 
periodically with our prime contractors, as well as professional 
associations such as the Shipbuilders Council of America (SCA) and the 
American Shipbuilding Suppliers Association (ASSA), and one of the key 
focus areas is the health of their supply base, which products have 
sole source or limited suppliers, and where there are vulnerabilities 
or potential opportunities.
    The Navy is limited in terms of how much can be done beyond our 
direct contracts with our shipbuilders and our combat system suppliers. 
Additionally, perhaps the greatest tool available for protecting and 
sustaining the supplier community, one used to good effect in 
shipbuilding, is the use of long-term contracts; multi-years, multiple 
years, and Advance Procurement contracts. Currently, every major 
shipbuilding program is employing such a strategy, which provides for 
stable production while level-loading the vendor base. The Navy can and 
has entered into Shipyard Capability Preservation Agreements (SCPA) to 
assist in making shipyards more competitive commercially, and continues 
to support the Jones Act. In addition, the Navy is committed to using 
small businesses in support of its Sailors and Marines, and actively 
works to ensure that a fair proportion of business is provided by small 
business enterprises. Each one of these actions is aimed toward the 
stability of not just the shipbuilders, but of the entire supply chain. 
Stability is required to facilitate planning, investment, training and 
the retention of a skilled workforce that is necessary for the high 
performance, high quality, on schedule and affordable ships that our 
Sailors deserve.

                                  
