    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                             [H.A.S.C. No. 114-69]

                ACQUISITION EFFICIENCY AND THE FUTURE NAVY FORCE

                                   __________

                                    HEARING

                                   BEFORE THE

                 SUBCOMMITTEE ON SEAPOWER AND PROJECTION FORCES

                                     OF THE

                          COMMITTEE ON ARMED SERVICES

                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  HEARING HELD

                                DECEMBER 1, 2015

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                 SUBCOMMITTEE ON SEAPOWER AND PROJECTION FORCES

                      J. RANDY FORBES, Virginia, Chairman

    K. MICHAEL CONAWAY, Texas            JOE COURTNEY, Connecticut
    BRADLEY BYRNE, Alabama               JAMES R. LANGEVIN, Rhode Island
    ROBERT J. WITTMAN, Virginia          RICK LARSEN, Washington
    DUNCAN HUNTER, California, Vice      MADELEINE Z. BORDALLO, Guam
        Chair                            HENRY C. ``HANK'' JOHNSON, Jr.,
    VICKY HARTZLER, Missouri                 Georgia
    PAUL COOK, California                SCOTT H. PETERS, California
    JIM BRIDENSTINE, Oklahoma            TULSI GABBARD, Hawaii
    JACKIE WALORSKI, Indiana             GWEN GRAHAM, Florida
    RYAN K. ZINKE, Montana               SETH MOULTON, Massachusetts
    STEPHEN KNIGHT, California
    STEVE RUSSELL, Oklahoma
                   David Sienicki, Professional Staff Member
                  Phil MacNaughton, Professional Staff Member
                            Katherine Rember, Clerk

                                C O N T E N T S

                                  ----------
                                                                       Page

                  STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

    Courtney, Hon. Joe, a Representative from Connecticut, Ranking
      Member, Subcommittee on Seapower and Projection Forces.........     2
    Forbes, Hon. J. Randy, a Representative from Virginia, Chairman,
      Subcommittee on Seapower and Projection Forces.................     1

                                   WITNESSES

    Labs, Eric J., Senior Analyst for Naval Forces and Weapons,
      Congressional Budget Office....................................     3
    O'Rourke, Ronald, Specialist in Naval Affairs, Congressional
      Research Service...............................................     5

                                    APPENDIX

    Prepared Statements:

        Courtney, Hon. Joe...........................................    27
        Forbes, Hon. J. Randy........................................    25
        Labs, Eric J.................................................    29
        O'Rourke, Ronald.............................................    71

    Documents Submitted for the Record:

        [There were no Documents submitted.]

    Witness Responses to Questions Asked During the Hearing:

        [There were no Questions submitted during the hearing.]

    Questions Submitted by Members Post Hearing:

        [There were no Questions submitted post hearing.]

                 ACQUISITION EFFICIENCY AND THE FUTURE NAVY FORCE

                                  ----------

                      House of Representatives,
                           Committee on Armed Services,
                Subcommittee on Seapower and Projection Forces,
                             Washington, DC, Tuesday, December 1, 2015.
        The subcommittee met, pursuant to call, at 2:25 p.m., in
    room 2212, Rayburn House Office Building, Hon. J. Randy Forbes
    (chairman of the subcommittee) presiding.

      OPENING STATEMENT OF HON. J. RANDY FORBES, A REPRESENTATIVE
         FROM VIRGINIA, CHAIRMAN, SUBCOMMITTEE ON SEAPOWER AND
                           PROJECTION FORCES

        Mr. Forbes. Today, the subcommittee meets to discuss Navy
    shipbuilding plans and to discuss opportunities to procure the
    platforms we need at lower costs to the Department [of Defense,
    DOD] and the American taxpayer. Our panel today includes two
    distinguished experts: Mr. Ronald O'Rourke of the Congressional
    Research Service [CRS]; and Dr. Eric Labs of the Congressional
    Budget Office [CBO].
        Gentlemen, we thank you both for being here once again and
    all the help and advice you give to this subcommittee. We also
    want to thank you for the invaluable support you have provided
    to this subcommittee over the years. In April of 2013, the
    Under Secretary of Defense for Acquisition, Technology, and
    Logistics, Frank Kendall, wrote a memo to the Defense
    Acquisition Workforce about how to achieve better buying power.
    In this memo, he indicated that the first responsibility of the
    acquisition workforce is to think.
        When I read this memo for the first time, I must admit that
    I laughed a little. I couldn't believe that the Department of
    Defense's senior acquisition official was reminding the
    workforce to think. However, reflecting on this memo now, I
    think he may have been on to something. And I hope that our
    hearing today can stimulate some fresh thinking about how we
    pay for our national defense.
        Looking at the Armed Services acquisition reform efforts to
    date, it seems to me that they have been focused primarily on
    structural efficiencies within the Department of Defense. I
    believe that there is a significant amount of work to do in
    this area. And I applaud Chairman Thornberry for his leadership
    and his efforts. At the same time, I think it is equally
    plausible that we can achieve more efficiencies and savings if
    all of us in Congress work with the Department to use the
    legislative tools that are already available in our toolbox.
    Those tools include the authority to execute multiyear
    procurement contracts and incremental funding. These
    authorities provide contract stability for the industrial base
    and allow the government customer to achieve economies of
    scale.
        On the programs within the subcommittee's jurisdiction, I
    believe that we may be able to achieve savings of 10 percent
    just by changing the way we go about buying our ships. Ten
    percent may not sound like a lot. But if applied to something
    like the Ohio Replacement Program, which is projected to cost
    around $100 billion, that 10 percent would equate to savings of
    $10 billion over the course of the program. Looking at all the
    pressures and demands on the shipbuilding budget, that kind of
    money really matters, especially as the Ohio Replacement
    Program ramps up. That is why Mr. Courtney and I have worked to
    grant those authorities to the National Sea-Based Deterrence
    Fund. I think it is time for the Department to take Secretary
    Kendall's direction to heart and think hard about what
    acquisition vehicles will provide the most savings to the
    Department.
        As to the broader 30-year shipbuilding plan, I still fear
    that the existing plan is predicated on pixie dust and highly
    optimistic. While the Navy's plan purports to achieve a 308-
    ship Navy by 2022, it assumes that there will be a significant
    expansion in the funding for shipbuilding beyond what we have
    seen in recent history. I think a more plausible alternative is
    to increase the overall Department of Defense top line, ensure
    that a credible Navy build plan is accommodated within this
    higher top line. I think that CBO's assessment of a 30-year
    shipbuilding plan seeks to provide some budget reality to the
    pixie dust. And I look forward to hearing your testimony on
    this issue. Ultimately, at the end of this hearing, I hope to
    have a clearer picture of both the challenges that we face in
    funding our Navy and of the opportunities that Congress can
    exploit to turn Navy requirements into a shipbuilding reality.
        With that, I turn to another leading proponent of American
    seapower, Ranking Member Mr. Joe Courtney of Connecticut.
        [The prepared statement of Mr. Forbes can be found in the
    Appendix on page 25.]

         STATEMENT OF HON. JOE COURTNEY, A REPRESENTATIVE FROM
       CONNECTICUT, RANKING MEMBER, SUBCOMMITTEE ON SEAPOWER AND
                           PROJECTION FORCES

        Mr. Courtney. Thank you, Mr. Chairman.
        And thank you for holding these series of hearings really
    which are I think, you know, building to this afternoon's
    testimony. So, in the interest of time, I am not going to read
    my whole statement. I will submit it for the record.
        But, again, just, you know, a couple of quick points which
    is that, you know, I think a lot of people, when they think
    about defense issues and shipbuilding issues understandably
    focus on the Budget Control Act [BCA], sequestration. And, you
    know, thank goodness we came together with a 2-year agreement
    that lifted at least partially those caps to give some
    stability in terms of planning and some relief in terms of the,
    you know, the Defense Act that we passed this year and the
    budget that we passed. But I think many closer observers
    understand that the challenge is actually in many respects much
    bigger than that. And I think the two witnesses understand that
    intimately.
        A couple days ago, Mike McCord, who is the Defense
    Department Comptroller, gave an interview in one of the
    journals. And he made the point that I think really the
    uncertainty is more about beyond the BCA. And, again, that is
    where we have a lot of concern. This is not a problem that I
    think, frankly, we can do much to solve in this administration
    of what is going to happen in the 2020s. I mean, in one sense,
    he acknowledged what I think we have been saying in this
    subcommittee for a number of years which is the challenge to
    shipbuilding, frankly, is longer term and bigger than even the
    Budget Control Act. And the solution is something that can't
    wait until the 2020s. It really requires people to focus on
    ways to stretch the dollars in an intelligent way and not a
    reckless way.
        And, again, I think our subcommittee has distinguished
    itself actually with the National Sea-Based Deterrence Fund,
    with the tools it created, as well as the structure of funding,
    which has a good, solid precedent, as Mr. O'Rourke can point
    out, and I think he does in his testimony here today. And the
    time is now, that we can't sort of just sort of put this off as
    a 2020s issue. And, again, I think the two witnesses can help
    us amplify that message and create a good record so that we can
    continue to build on the work that we did in this year's
    Defense Authorization Act. So, again, I will submit my full
    statement and yield back the balance of my time.
        [The prepared statement of Mr. Courtney can be found in the
    Appendix on page 27.]
        Mr. Forbes. Mr. Courtney yields back the balance of his
    time.
        With that, we are ready for our witness.
        Thank you, once again, gentlemen, for all that you do for
    our country and for being here consistently to help us and
    advise us.
        And, Dr. Labs, it is my understanding that you are going to
    go first. So, with that, we yield the floor to you and look
    forward to your comments.

    STATEMENT OF ERIC J. LABS, SENIOR ANALYST FOR NAVAL FORCES AND
                  WEAPONS, CONGRESSIONAL BUDGET OFFICE

        Dr. Labs. Thank you. Chairman Forbes, Representative
    Courtney, members of the subcommittee, it is a pleasure to be
    here today to discuss the Navy's 2016 shipbuilding plan.
        Mr. Chairman, with your permission, I would like to submit
    my statement for the record and summarize it here in a few
    brief remarks.
        Mr. Forbes. Without objection, both statements will be
    submitted for the record.
        Dr. Labs. My written testimony today focuses on the costs
    and force structure implications of the Navy's 2016 plan, and
    is based on the recently released CBO report entitled
    ``Analysis of the Navy's Fiscal Year 2016 Shipbuilding Plan,''
    which is required under section 1011 of the 2012 National
    Defense Authorization Act [NDAA]. In my remarks today, I will
    focus on the key points of that report and highlight a few
    points on acquisition efficiency.
        First, if the Navy received the same amount of funding for
    ship construction over the next 30 years that it has over the
    last 30 years, which is a little less than $16 billion for all
    activities related to ship construction, it will not be able to
    afford all 264 ships in its plan. The Navy estimates that it
    will cost an average of $16.5 billion per year over 30 years to
    implement its plan. But I want to stress that that amount is
    for new construction only. The Navy must fund a number of other
    activities from its shipbuilding accounts. CBO estimates that
    those other activities, such as refueling of nuclear-powered
    aircraft carriers and the outfitting and delivery of all new
    warships, would add an additional $1.9 billion per year to the
    Navy's estimate. Thus, the Navy's cost is actually $18.3
    billion per year, or more than 15 percent higher than what the
    service has received historically.
        In contrast, CBO's estimates of the Navy's shipbuilding
    plan are $1.8 billion or about 10 percent higher than the
    Navy's. CBO estimates that it would cost $18.4 billion per year
    for new ship construction and $20.2 billion for everything the
    Navy needs to fund in its ship accounts. That amount is about
    30 percent higher than the historical average.
        The Navy shipbuilding plans over the last 3 years have
    become progressively more frank and direct in reporting to
    Congress the challenge the Navy faces in implementing its plan
    under current fiscal conditions. The 2016 plan does not, for
    example, depend on achieving any heroic assumptions regarding
    the level of spending in other budget accounts. And while the
    Navy's cost estimates for new ships are, in my view, a little
    optimistic, they are not dramatically so. As I stated before
    this committee 2 years ago, the Navy's shipbuilding plan is
    really a statement of resources required to buy the fleet the
    Navy says it needs. As a result, the Budget Control Act of
    2011, now amended by the Bipartisan Budget Act of 2015, did not
    affect the composition of the Navy's report. However, if the
    BCA remains in place, funding for ship construction will be
    well below the amounts required for the 2016 shipbuilding plan
    unless such funding is protected at the expense of other
    military activities.
        Between 2016 and 2021, which are the remaining years of the
    Budget Control Act, the Navy's shipbuilding account would have
    28 percent less funding if the service receives the same
    percentage of DOD's budget and devotes the same 10 percent of
    its budget to shipbuilding that it has historically. That
    represents a difference of about 15 fewer ships or $26 billion
    less by 2021.
        In recent years, Congress has added additional money to
    shipbuilding, increasing the Navy's shipbuilding account by an
    average of 10 percent above the President's request. But even
    if that were to continue, it would only partially alleviate the
    shortfalls under the Navy's plan.
        Let me turn to the subject of acquisition efficiency, which
    Mr. O'Rourke will discuss in more detail. Generally, one of the
    most effective ways to reduce the unit price of individual
    ships is to buy them at higher rates. However, if such a
    strategy is pursued for all shipbuilding programs, the
    budgetary resources required annually would likely be higher
    than those already proposed in the Navy's shipbuilding plan. If
    purchasing more ships as an acquisition strategy is pursued for
    different ships, ship types, and rotation, parts of the
    shipbuilding industrial base may be left barren for periods of
    time, which would result in higher start-up costs when the
    rotation favors the sector again or, alternatively, yards could
    exit the shipbuilding business altogether.
        The cost estimates associated with the Navy's shipbuilding
    plan, both the Navy's and CBO's, already incorporate in most
    cases acquisition efficiencies that stem from multiyear and
    block buy contracts, as well as competition. A notable
    exception is the Ohio Replacement Program. The Navy's cost
    estimate for the follow-on Ohio replacements, boats 2 through
    12, is $5.7 billion per ship. CBO's equivalent estimate is
    about a billion dollars higher. Using a block buy strategy or
    purchasing those ships through the National Sea-Based
    Deterrence Fund could potentially save several hundred million
    dollars per submarine under both Navy's and the CBO's
    estimates.
        I would like to close with a word of caution. While there
    may be other acquisition efficiencies still to be had in
    various programs of the Navy's shipbuilding accounts, those
    efficiencies alone will not likely close the gap between the
    Navy's plan and historical funding levels.
        Thank you, Mr. Chairman. I would be happy to respond to any
    questions you may have.
        [The prepared statement of Dr. Labs can be found in the
    Appendix on page 29.]
        Mr. Forbes. Thank you Dr. Labs.
        Mr. O'Rourke.

      STATEMENT OF RONALD O'ROURKE, SPECIALIST IN NAVAL AFFAIRS,
                     CONGRESSIONAL RESEARCH SERVICE

        Mr. O'Rourke. Chairman Forbes, Ranking Member Courtney,
    distinguished members of the subcommittee, thank you for the
    opportunity to appear before you today to testify on
    acquisition efficiency and the future Navy force. As requested,
    my testimony focuses on multiyear procurement, block buy
    contracting, combined purchases of materials and components,
    and incremental funding. Now, these are topics I have been
    following in my CRS reports since 2002. I have eight points
    that I would like to make.
        The first is that multiyear procurement can reduce the cost
    of ships by roughly 10 percent compared to costs under the
    standard approach of annual contracting. In recent years,
    savings from the use of multiyear procurement have helped
    Congress and the Navy to convert a 9-ship buy of DDG 51
    destroyers into a 10-ship buy, and a 9-ship buy of Virginia-
    class attack submarines into a 10-ship buy.
        The second point is that block buy contracting can reduce
    costs by comparable amounts if the authority granted for using
    block buy contracting explicitly includes authority for making
    economic order quantity, or EOQ, purchases of components. If
    EOQ authority is not included, then the savings from block buy
    contracting will be something less.
        Third point is that block buy contracting can be used at
    the outset of a shipbuilding program starting with the lead
    ship in the class. Multiyear procurement, in contrast, cannot
    be used until the lead ship has completed construction. This is
    due to a provision in the law regulating multiyear procurement.
        The fourth point is that shipbuilding programs that do not
    use multiyear procurement or block buy contracting might still
    be able to reduce their procurement costs by using combined
    purchases of materials and components. This is possible for
    ships funded through the National Defense Sealift Fund or the
    National Sea-Based Deterrence Fund.
        The fifth point is that multiyear procurement contracts and
    block buy contracts can be awarded competitively, that
    multiyear procurement contracts by law must be fixed-price
    contracts, and that block buy contracts can also be fixed-price
    contracts.
        The sixth point is that incremental funding can help
    mitigate budget spikes associated with very expensive ships
    that are procured at a rate of less than one per year, such as
    aircraft carriers and LHA-type [Landing Helicopter Assault]
    amphibious assault ships. Mitigating budget spikes might reduce
    the need for the Navy to shift the procurement of other items
    to years before and after the spike. Since shifts of that kind
    can increase costs for those other programs, using incremental
    funding in a shipbuilding program might help avoid cost
    increases to other programs.
        The seventh point is that from a congressional perspective,
    making greater use of multiyear procurement and block buy
    contracting involves certain tradeoffs, such as accepting
    reduced congressional control over year-to-year spending,
    accepting reduced flexibility for making changes in Navy
    shipbuilding programs in response to changes in strategic or
    budgetary circumstances, and accepting the risk of having to
    make penalty payments to shipbuilders if multiyear contracts
    need to be terminated due to unavailability of funds needed for
    the continuation of the contracts.
        My eighth and final point is that several Navy shipbuilding
    programs can be viewed as candidates for using multiyear
    procurement, block buy contracting, or combined purchases of
    materials and components.
        My prepared statement discusses these opportunities. In
    considering whether to grant authority for using multiyear
    procurement or block buy contracting, Congress may weigh the
    potential savings of these measures against the tradeoffs I
    just mentioned.
        Mr. Chairman, this concludes my remarks. Thank you again
    for the opportunity to testify. And I look forward to the
    subcommittee's questions.
        [The prepared statement of Mr. O'Rourke can be found in the
    Appendix on page 71.]
        Mr. Forbes. Thank you, Mr. O'Rourke.
        And I am going to save my questions for the end because I
    have a number of them that I want to make sure we get on the
    record.
        So, at this time, I will recognize Mr. Courtney for any
    questions he may have.
        Mr. Courtney. Thank you, Mr. Chairman.
        So, Mr. O'Rourke, I mean, your work on shipbuilding goes
    back obviously decades at this point. And when we crafted the
    National Sea-Based Deterrence Fund in the last Congress, again,
    there was some question about just, you know, the novelty or
    what was perceived as the novelty of that approach in terms of
    removing it from the shipbuilding account. You mentioned the
    Sealift Fund, and I just wonder if you could sort of talk a
    little bit more about that in terms of how it has operated over
    the years and particularly in terms of whether it was able to
    achieve efficiencies because of the authority that Congress
    gave when it was created.
        Mr. O'Rourke. That is right. When the idea of having
    something like the Sea-Based Deterrence Fund was being
    considered in Congress, I included in my report on the Ohio
    Replacement Program a discussion of possible precedents for
    that fund, and there were two. One was the National Defense
    Sealift Fund, and the other was mission-oriented budgeting for
    missile defense programs, which was also a way of taking
    funding for a certain thing and segregating it to a particular
    part of the budget.
        To get at your question about how the National Defense
    Sealift Fund has operated, because that fund was located
    outside the procurement title of the DOD Appropriation Act, the
    full funding policy was applied differently to the use of that
    fund than it would be to funds inside accounts that were
    underneath the procurement title of the DOD Appropriations Act.
    And because the full funding policy was applied differently, it
    gave the Navy the ability to, in effect, cash flow money across
    the hulls, and that in turn allowed the Navy to pursue batch
    orders of components for the ships in the class that they were
    procuring through the National Defense Sealift Fund.
        So, on two occasions, more recently with the T-AKE-class
    [Lewis and Clark-class] cargo ships and, before that, for a
    class of DOD sealift ships called the large medium-speed roll-
    on/roll-off ships, the Navy used this cash-flowing strategy to
    pursue batch orders, combine purchases of components for ships,
    several ships in the class, not just for the one that happened
    to be funded that year, and that allowed the Navy to reduce the
    cost of those ships by a few percent because those components
    happened to be purchased in a batch fashion, which was more
    efficient for the component manufacturers.
        Mr. Courtney. And, Mr. Labs, again, that experience is at
    least somewhat analogous if not the same as your comments
    regarding the Ohio Replacement Program. Is that right?
        Dr. Labs. Yes, Mr. Courtney. What I would envision, the way
    I envisioned the National Sea-Based Deterrence Fund to work
    would be similar to the National Defense Sealift Fund and the
    authorities that have given to that of providing for economic
    order quantity purchases of components and various materials
    for the ships as well as then being able to cash flow that
    money across more than one ship of the program. The way I look
    at it, that should give a savings of the current estimated
    round numbers of $6 billion per boat. You are going to save
    somewhere in the neighborhood of 5 percent with those kinds of
    authorities and that kind of ability to cash flow an economic
    order of quantities of those ships.
        Mr. Courtney. Well, thank you. That is a point we probably
    want to highlight in the transcript when we are done here
    today.
        And my last question is that, you know, during the
    discussion about the Ohio Replacement Program, you know, a lot
    of our military witnesses have talked about the fact that the
    New START [Strategic Arms Reduction Treaty] Treaty is going to
    shift a greater burden on sea-based deterrence in terms of the,
    you know, the three-legged stool of nuclear deterrence. Given
    the fact that, again, there is that shift that is going to take
    some of the burden away from the Air Force and the Army, you
    know, in terms of trying to, you know, justify the special
    treatment, if you want to call it that, of the National Sea-
    Based Deterrence Fund, again, it sort of aligns with the
    strategic policy of this country in terms of nuclear deterrence
    because of the way that, you know, the system is going to be
    designed after New START. I mean, and I guess, well, that is
    sort of a statement. I guess the question is, in the past, has
    Congress, because of those kinds of, you know, rationales,
    shifted greater budget dollars to one branch versus another? I
    mean, there is no sort of precast pie chart for how the
    different branches get their money. And given the fact that we
    may have different priorities from one year to the next, I
    mean, we are free to make that choice. Is that a safe
    statement, Mr. O'Rourke?
        Mr. O'Rourke. I would agree with that. I think both Eric
    and I have testified in the past and will do so again today,
    that the idea that the distribution of funding within the DOD
    top line is fixed in stone or sacrosanct is not correct. If you
    look at the historical record, you will see that there was a
    period of rather stable division of resources between 1973 and
    2003. And I think it was during that 30-year period that many
    people got the idea that that division was fixed or set in
    stone. But in the years before that period, and in the years
    after the end of that period, in fact, there have been fairly
    significant swings in the division of resources among the
    services within the DOD top line. But to build a little bit
    more on what Eric was saying, and I think to get at part of
    what your question was about in terms of the value of the fund
    in relation to this program, now that the National Defense
    Authorization Act has been enacted, there is a new enhanced
    authority within the Sea-Based Deterrence Fund that is unique
    and goes beyond what is in the permanent statute for multiyear
    procurement or what by precedent you might also write into a
    block buy authorizing provision. And that is a new authority to
    pursue joint procurement of materials and components across
    shipbuilding classes, specifically across the nuclear-powered
    ships. So there is three programs there, not just Ohio
    replacement, but also Virginia and the Ford class, that can now
    have as an option the idea of procuring materials and
    components across all three programs. That authority does not
    exist in the statute for multiyear procurement. So in terms of
    making a dollars-and-cents argument for saving money and
    achieving efficiency during a time of constrained defense
    resources, there is now a mechanism within the National Sea-
    Based Deterrence Fund that does not exist under multiyear
    procurement or by extensions doing something similar under
    block buy contracting, and that is the ability to do these
    cross-class combined purchases of materials and components.
    That can achieve savings that would not be possible under
    multiyear procurement alone or under a similar provision that
    might be written into a block buy contract.
        Mr. Courtney. Well, thank you both for your testimony.
        Yield back, Mr. Chairman.
        Mr. Forbes. Before we go to Mr. Conaway, I just want to
    make sure we have got a good picture of what Mr. Courtney has
    just said. As we are looking right now, Mr. O'Rourke, as we put
    in the new authorities that we have in the National Sea-Based
    Deterrence Fund, we have had some individuals indicate to us
    that we could have savings anywhere between 5 percent or as
    much as 10 percent or so. And would you think that those
    estimates would be unreasonable to project?
        Dr. Labs.
        Dr. Labs. Mr. Chairman, yes. I agree with the 5 to 10
    percent range. And the way that works and the way the CBO sort
    of does the estimating process sort of economic order quantity
    authority, which has been put into the National Sea-Based
    Deterrence Fund, is going to give you somewhere in the
    neighborhood of a 5 percent savings because of the ability to
    sort of, as Mr. O'Rourke said, to buy components either jointly
    with other programs or just within the Ohio-class replacement
    itself.
        Further authorities that would allow it to sort of do a
    block buy contract over, you know, several ships of the class
    could get you another 5 percent and upwards in the 10 percent
    range. So if you are talking about a $6 billion submarine in
    round numbers, you know, you are looking at a $300 million to
    $600 million savings, you know, per boat.
        Mr. Forbes. And if you are looking at $100 billion program
    and you could save 10 percent, you are talking about roughly
    $10 billion.
        Dr. Labs. That's fair.
        Mr. Forbes. So at a time when we are making enormous cuts
    in Army brigades, in readiness, in strike fighter shortfalls,
    in munition shortfalls, all taking real pain to the warfighter,
    this is an opportunity for us to have a substantial savings
    without having to take that pain to the warfighter simply by
    setting up this fund. Would that be a fair statement to make?
        Dr. Labs. Yes, Mr. Chairman.
        Mr. Forbes. And the last part on that before we go to Mr.
    Conaway, is one of the downsides to that normally is the fear
    that we may not ultimately purchase all of those boats, but in
    this particular case, it is also another difference because we
    know we are going to be acquiring and building those 12 boats.
    Is that a fair statement?
        Dr. Labs. The Navy has stated that the Ohio-class
    replacement is their number one priority, and the assumption
    is, is that that will be funded before all other acquisition
    programs will be in the Department of the Navy.
        Mr. Forbes. Okay.
        Mr. Conaway is recognized for 5 minutes.
        Mr. Conaway. Thanks, Chairman.
        As I listen to both of you on multiple occasions, it seems
    like we are constantly stuffing square pegs in round holes. If
    you could be dictator or king for a week and could eliminate
    all of this morass that you know so well, how would a proper
    acquisition program look like? I mean, we have got all this
    multiyear block and all this other kind of stuff that you talk
    about. All of that has been cobbled together over a number of
    years in responses to struggles and everything else. Cutting
    through all of that, and maybe this is a waste of time, but
    cutting through all of that, is there a better way to build
    this mousetrap than the current Rubik's Cube we currently put
    ourselves through?
        Mr. O'Rourke. Well, as you know, Eric and I can't make
    policy recommendations. That is prohibited by our agencies. But
    your question gets at the issues of lessons learned in
    shipbuilding and what are good ways of conducting shipbuilding
    programs and, to some degree, acquisition programs in general.
    It is my view that the lessons in shipbuilding have been
    identified quite thoroughly over the years. And the question
    has not been to identify those lessons; it has been to live up
    to them and to continue to implement them and not stray from
    them. And if I could give you a short list of what those
    lessons are, they have been mentioned over the years by many
    people, and I think they would be echoed to a large degree
    within the acquisition directorate of the Department of the
    Navy, it would be the following. There are eight or nine points
    here.
        The first would be to get the operational requirements for
    the program right, up front, so that you don't get into a
    situation of changing the requirements in the midst of the
    program.
        You would impose cost discipline up front by using
    realistic price estimates and consider not only development and
    procurement costs but lifecycle operation and support costs as
    well.
        Third point would be to employ competition where possible
    in the awarding of design and construction contracts.
        A fourth would be to use a contract type that is
    appropriate for the amount of risk involved and structure its
    terms to align incentives with desired outcomes.
        A fifth is to minimize design/construction concurrency by
    developing the design to a high level of completion before
    starting construction and by resisting changes in requirements
    during construction.
        Next one is to properly supervise construction work by
    maintaining an adequate number of properly trained Supervisor
    of Shipbuilding, or SUPSHIP, personnel.
        And the final two are to provide stability for industry in
    part by using, where possible, multiyear procurement or block
    buy contracting.
        And then, lastly, to maintain a capable government
    acquisition workforce that understands what it is buying, as
    well as the points that I have just gone through. Again, these
    are points that people who have worked a long time in
    shipbuilding have mentioned over and over again over the years.
    The challenge is not identifying those points. It is living up
    to them.
        Mr. Conaway. Well, it is one thing to--and, by the way, I
    am impressed that you had that list handy like that because I
    just made up my question sitting here. It wasn't like you got
    any heads-up.
        So, all right, the question about living up to it. What
    about the current legal structure, all the vast, you know,
    number of NDAAs that have been signed over the years, what
    about the current system that does not allow that. Does that
    mechanically keep you from being able to--or the system from
    being able to implement those best practices? Are there things
    that we should do differently or laws we should change to make
    that happen?
        Mr. O'Rourke. I think in connection with that, I will refer
    back to something that the Navy's own acquisition executive,
    Sean Stackley, I think has said, which is that the first thing
    is to have good people in your acquisition workforce. And if
    they know what they are doing and they are knowledgeable and
    skilled in what they are doing, they can make the system work,
    even if there are imperfections in that system; whereas the
    opposite or the obverse is much more problematic. You can have
    a perfect system----
        Mr. Conaway. Yeah, but we intend to have both----
        Mr. O'Rourke. Right, and you want to strive toward----
        Mr. Conaway [continuing]. And a system that works for them.
    So to your first point, if we put great people in place, they
    can make any system work. Well, that may be great as an
    exercise, but wouldn't it be better to have both really good
    people in place as well as a scheme that makes the most sense?
    And I know you can't make policy recommendations, but we don't
    do--every time we go through some sort of acquisition reform
    process, we never let it fix and bake enough before we start on
    the next round. But all your conversation you guys both went
    through, it seems incredibly difficult to get through all of
    those hoops and get the ships we need. So----
        Dr. Labs. The one thing I would add to Ron's answers, which
    were excellent, was that--and he touched on it. I am going to
    put a term on it, which is organizational culture. The culture
    of your acquisition organizations have got to be incentivized
    in a way that they are interested in getting things right. In
    other words, you don't sort of do unrealistic cost estimates
    which are going to create any number of problems as the program
    evolves. And if they are interested in sort of getting all the
    requirements right and the design right ahead of time, and to
    the extent that there is legislation--I don't know if there is;
    I am not a lawyer, and I am not an expert on acquisition
    reform--to the extent that you can sort of encourage those
    kinds of organizational imperatives within your acquisition
    directorates, I think that is all to the good.
        Mr. Conaway. I guess the frustration I have is that there
    is no way to--there seems to be no upside to folks in that
    business to take risks. And taking risks, if it works, great.
    If it doesn't work, you just get punished and beat to death.
    And so there is no upside to do that.
        And, anyway, I yield back.
        Mr. Forbes. Thank you, Mr. Conaway.
        Mr. Langevin is recognized for 5 minutes.
        Mr. Langevin. Thank you, Mr. Chairman.
        I want to thank both of our witnesses for your testimony
    and the extraordinary work and contributions you are making to
    the committee in helping us to understand these challenges. I
    want to continue on the line of questioning Mr. Courtney had
    raised with the National Sea-Based Deterrence. In your
    statements, you both noted that the Ohio Replacement Program is
    the Nation's number one strategic priority and will have a
    significant impact on the Navy's 30-year shipbuilding plan if
    its effects aren't mitigated. So obviously to help answer this,
    the Congress created the National Sea-Based Deterrence Fund,
    and I would like to give you an opportunity to further explain
    how cost savings from this method of implementation would
    perhaps indirectly benefit other programs of interest to the
    Navy at risk due to the budgetary strain from recapitalizing
    our strategic deterrent.
        Mr. O'Rourke. In terms of the benefits of the mechanism and
    how they can help other programs as a result, there are two
    things that I would say. The first would be to reiterate my
    point earlier that there is now an authority within the
    National Sea-Based Deterrence Fund that does not exist in the
    standard statute that governs multiyear procurement. And that
    is an authority to do--combine purchases of materials and
    components across classes. So that legislation, which has just
    been enacted into law, provides a unique mechanism of savings
    that would be on top of the savings that you would get from
    using a block buy contract with EOQ authority or a multiyear
    procurement contract with its automatic EOQ authority. How much
    more, I don't know exactly what the additional savings would
    be, but we are in a situation with a constrained defense top
    line where additional savings are, in general, a welcome thing
    because it can free up money for use in other programs.
        The other way in which you can mitigate the impact of this
    program on other Navy programs or on other DOD programs
    generally is by mitigating the budget spikes associated with
    the funding of each ship in the program. That is something that
    can be done through incremental funding if the Congress and the
    executive branch agree to do that. And this is something that
    is already used with aircraft carriers and LHA-type amphibious
    assault ships, and very much for that reason: so that you don't
    have to push programs to either side of that budget spike. When
    you do that to those other programs and you move them to the
    years before and after the spike, you can disrupt their
    procurement schedules, which can drive up their costs by
    causing instability in their production timelines.
        So if you can mitigate the spike that would otherwise force
    you to move those other programs to the side, you can preserve
    the production timelines a little better for those other
    programs and avoid the cost increases that would result from
    those disruptions.
        Dr. Labs. To put the specific Ohio-class replacement
    example on that, in 2021, the Navy would currently plan to
    spend $7 billion in 1 year buying the bulk of the lead Ohio
    replacement ship. There is, you know, procurement funding that
    occurs before that period starting in 2017, but the plan is $7
    billion in 2021. That is a big hunk of money to swallow in 1
    year. So to the extent that the authorities, as Mr. O'Rourke
    said, can sort of help spread that out a little bit, it would
    make sort of planning and going back to the issue of stability
    something that helps other shipbuilding programs or certainly
    the avoidance of higher costs in other shipbuilding programs.
        Mr. O'Rourke. If you wanted to do that in a very forward
    leaning or even aggressive manner, it would be to pursue the
    revised procurement schedule that I laid out in notional form
    in my testimony for starting the procurement boats--the
    procurement of the 12 boats earlier and maybe stretching it out
    at the end a little bit later. That would put more open years
    into the total procurement profile, into which the incremental
    funding for those individual boats could be transferred and
    would provide more opportunities for avoiding budget spikes
    than you have in the current schedule for the program.
        Mr. Langevin. Thank you. That was helpful.
        So let me look at it the other way. Conversely, if we fail
    to take advantage of the National Sea-Based Deterrence Fund and
    force these costs on the Ohio Replacement Program to come out
    of the shipbuilding account, what would that mean for the
    Navy's ability to project power and remain technologically
    superior in the future?
        Dr. Labs. Mr. Langevin, I have a section in the CBO report
    that discusses if the Navy is still constrained with a
    historical level of shipbuilding, $16 billion a year, and they
    must pay for the Ohio replacement--and I also include the
    aircraft carrier program in that--out of that first and there
    is no cuts to those programs to sort of get the Navy
    shipbuilding top lines down into that historical level, the
    result would be buying 192 ships over the 30-year period
    instead of 264. And that would lead you to a 237-ship Navy by
    2045 instead of the 305-ship Navy that the Navy envisions in
    the plan. So cutting that many ships out of the shipbuilding
    program is going to substantially affect the amount of forward
    presence that the Navy can provide at any given time. It is
    going to substantially affect the number of ships that can be
    brought to bear in a conflict situation through the surge
    process that normally that the Navy would go through in those
    kinds of scenarios.
        Mr. O'Rourke. Another way of looking at it is this. We had
    a discussion earlier about what the savings would be just
    inside the Ohio Replacement Program if you could get a 10
    percent savings. And the figure was in the billions of dollars.
    Another way I have of characterizing that is to say that if you
    get a 10 percent reduction in the cost of each ship in a 12-
    boat program, then you are getting a little bit more than one
    of the 12 boats in that program for, quote, unquote, ``free.''
    But the obverse, which is what you are asking about, is what
    did you have to pay for that boat? Well, that boat is like a $6
    billion boat in then-year dollars when you are out in those
    years. And that is money that could pay for two or three other
    kinds of major combatants. So to get at your bottom line
    question, what would you lose? You could lose another two or
    three major combatants.
        Mr. Langevin. Thank you. Great. Very powerful scenario.
    Thank you.
        And I yield back, Mr. Chairman.
        Mr. Forbes. The gentleman yields back.
        Mr. Hunter is recognized for 5 minutes.
        Mr. Hunter. Thanks, Mr. Chairman.
        Thank you, gentlemen, for being here and answering
    questions. I guess my question is on testing. So you have
    talked about buying the stuff to build the ships, the steel,
    all the cable and everything you need to build the ships. What
    about the integration portion and the testing portion?
        Mr. O'Rourke. That is the phase in construction where a lot
    of the cost growth in shipbuilding programs has been
    experienced in trying to bring everything together during the
    final stages. The testing can then discover further problems,
    but the history of cost growth in lead ship construction is one
    in which quite often a lot of that cost growth has occurred in
    the final stages, when you are trying to integrate. And that is
    why the question of design stability becomes important
    potentially as a requirement, for example, for multiyear
    procurement or, more generally, for the philosophy in
    shipbuilding making sure that you get the design right and not
    trying to do too much with any one new design for a new class.
        Mr. Hunter. You wouldn't possibly have any numbers, would
    you, on what you think you could save if you could--have you
    heard of the thing called automatic test retest, ATRT? Okay. It
    is a way that they test Aegis ships right now, and it is very
    simple. It takes a day versus 6 months. But, anyway, so do you
    not have a number on how much savings it would be compared to
    the buying stuff savings? I mean, the integration savings, the
    not changing things midway through? I mean, if you could save 5
    percent or 5 to 10 percent talking about what you are talking
    about now, what could you save on----
        Mr. O'Rourke. I guess what I would say is that changing the
    design, design/construction concurrency, finding problems with
    the design because you did not bring it to a high state of
    completion before you started building it is a significant part
    of--significant contributor of the overall amount of cost
    growth that historically has been experienced on lead ships. I
    don't know what the fraction is, but it is probably a
    substantial fraction. And Eric has actually calculated
    historically what that total amount of cost growth has been for
    lead ships in recent decades.
        Dr. Labs. Yeah. What we have seen for cost growth in lead
    ships in recent decades is about a 45 percent growth average
    overall over the last 30 years or a 27 percent growth as a
    weighted average. But our data does not break it down to that
    level of detail. And I am not even sure, as I sit here
    thinking, contemplating your question, how I would go about
    doing that calculation because there is so much potential for
    idiosyncrasies and variability among the different shipbuilding
    programs, it just--there are so many potential unknowns there.
    But I agree with the general thrust of your point that to the--
    and what Mr. O'Rourke said--that to the extent that we can make
    the design stable and that things can be tested and avoid any
    changes at the last minute and so forth, you are going to have
    a more stable and less cost growth, if any at all.
        Mr. Hunter. Thank you.
        I yield back, Mr. Chairman.
        Mr. Forbes. Ms. Graham is recognized for 5 minutes.
        Ms. Graham. Thank you, Mr. Chairman.
        Thank you, gentlemen. Listening to you all, I hear the
    issues associated with contracts. And the structure of
    contracts can diminish options, obviously, that we have with
    our shipbuilding plans. What other options--you mentioned
    extending--within the contractual language--extending the
    timeline for the building of the ships as one potential for
    driving--being able to drive down cost. What are some other
    options where we could put in place a more flexible contracts
    approach that would help with driving down some of the cost of
    shipbuilding, taking advantage of opportunities to help our
    shipbuilding program be more efficient and effective? And I
    have one more question. It deals with flexibility as well, but
    totally different subject.
        Mr. O'Rourke. In terms of contracting options, the Federal
    Acquisition Regulations give you two broad families of
    contracts that you can pursue. You can do cost-reimbursement-
    type contracts or you can do fixed-price contracts of one kind
    or another. And then there are variations that some people look
    at and say: Well, they fall somewhere in between those two.
    Cost-reimbursement contracts are kinds of contracts that, for
    shipbuilding, we try to get away from historically and to move
    as much as possible toward fixed-price contracts. Within fixed-
    price contracts, there is firm fixed-price, and there is fixed-
    price incentive. And a lot of the shipbuilding programs have
    been done with fixed-price incentive, where there is a target
    cost, a ceiling cost, and a line in between the two that
    determines how the government and the contractor will share the
    costs as you run from target up toward ceiling. And above
    ceiling, the contractor takes responsibility for everything. I
    think, within that framework, there are innumerable specific
    combinations about what the slope of that share line looks like
    or what allowable adjustments might be for the target cost or
    the ceiling cost. And there is actually a lot of flexibility
    that you have for building in the specific terms of the
    contract within that overall framework. I think what the Navy
    would say, what DOD would say, is that you should use that
    flexibility to wind up with a contract that aligns the
    incentives that the contract provides with your desired
    outcomes so that you are not rewarding something that is not
    important to you but that you are rewarding something that is
    important to you, like making a certain cost or meeting a
    certain schedule or quality or capability. So aligning the
    incentives that are bound into the contract with what you truly
    have as your desired outcome becomes the goal. And then, after
    that, the devil is in the details. And there are innumerable
    permutations for what the guts of the contract can look like.
        Ms. Graham. So are they form contracts, or are they
    modified for each, or are they individually drafted for the
    particular project?
        Mr. O'Rourke. The contracts tend to be negotiated program
    by program, and if the program is being pursued through annual
    contracting, then you have an annual contract for each year's--
    or more than one annual contract for each year's worth of
    procurement within that program.
        Dr. Labs. I am not sure I can improve upon what Mr.
    O'Rourke said.
        Ms. Graham. Yeah. I agree. He did an excellent job.
    Excellent. Thank you very much. My contract law is kind of
    coming back into my head a little bit. Scary. Long time ago.
    Law school was a long time ago.
        Second question on flexibility issues. If you have one
    major piece of a ship, let's say a hull, for example, could you
    use that hull as the basis for a ship that performs multiple
    functions?
        Dr. Labs. Yes. And the Navy has already been pursuing those
    types of strategies in the past. One of the things that the
    Navy has done is they have been evolving the DDG 51 program,
    for example, from the Flight I, IIs, to the Flight IIA, and
    then the Flight IIIs, with the prospect that they may pursue
    that in their shipbuilding program, you know, later on down the
    road.
        In the world of amphibious shipping, the LPD 17 hull form
    is something that we are completing the process of building 11
    of those ships with a 12th still to be started. And then we are
    now going to adapt that hull form for the LXR program, taking
    capability off that ship to reduce its cost but still the basic
    hull is there. And, conceivably, if the Navy chose to do so,
    that hull form could be used for other types of missions,
    whether you want to replace hospital ships or command ships or
    something else. You can reuse hulls for different purposes.
        Mr. O'Rourke. Yeah. There is actually a fair amount of
    history behind this. The Spruance-class destroyer became the
    basis for the Kidd-class destroyer and also the Aegis cruiser
    that we have today. And the Mobile Landing Platform Ship more
    recently became the basis for the Afloat Forward Staging Base.
    The latter is essentially a modified version of the former. So
    there are multiple examples you can point to of hulls being
    reused and adapted to create specific new designs for ships
    that have slightly different mission orientations.
        Dr. Labs. And to the extent you can do more of that is
    going to be--on average, should be more cost-effective than
    designing something new and fresh.
        Ms. Graham. Thank you. I am out of time, but, again, I so
    appreciate you coming here today and helping us to understand
    in a more specifically, you know, information-driven way the
    issues that we face with funding these incredibly huge
    contracts and important projects for our military. So thank you
    very much. Appreciate it.
        I know I am way out of time. I am sorry, Mr. Chairman.
        Mr. Forbes. Well, that is okay, Ms. Graham. Good questions.
        And as we look at all the questions that have been asked
    today and we try to get an aerial view of them because each one
    of them are important, Mr. Conaway's question about what
    legally we can do to change the language we certainly want to
    explore because if we can do that, it is important. Mr. Hunter
    said about testing and those kinds of things: If we can save
    dollars, we want to do it.
        Ms. Graham, your question is very important for us to look
    at. And, of course, Mr. Courtney and Mr. Langevin looked at the
    Sea-Based Deterrence Fund.
        Let me put it in a picture maybe that we can give to our
    other policymakers in Congress. We have had testimony that if
    we reach about a level of 260 ships, we cease to be a
    superpower, and we become a regional power. That is what some
    of our admirals have testified to. How many ships--and this is
    not a quiz for you; like Mr. Conaway, I know we haven't given
    you the questions before--but how many ships do we currently
    have in the Navy today if we started with just a number? Best
    estimates you have.
        Dr. Labs. 273 today, sir.
        Mr. Forbes. So if we have 273 ships today and we look at
    our 30-year--we are basically 13 ships above that magical 260-
    ship line that would cause us significant problems. If we take
    the 30-year shipbuilding plan and we follow that plan to what
    the Navy would propose would be its conclusion, how many ships
    would we have at the end of that period of time?
        Dr. Labs. 305 ships in 2045.
        Mr. Forbes. So we would have 305 ships.
        Now, Dr. Labs, CBO has said roughly that there is a $4
    billion delta between what they looked at as the average amount
    that the Navy had for shipbuilding over the last 30 years and
    between what it would take to do the shipbuilding plan that
    they have given to Congress. Is that a fair----
        Dr. Labs. Yes, sir.
        Mr. Forbes [continuing]. Representation?
        Dr. Labs. About 4.5 billion would be the CBO number.
        Mr. Forbes. So to fill that $4.5 billion a year, I haven't
    seen any proposals being put on the table from anybody where
    they are going to fill that for the Navy. So if that delta
    remains, based on what we have done over the last 30 years, can
    you tell me where we would be in terms of our ship count at the
    end of the 30-year period of time?
        Dr. Labs. There is a variety of ways that you can do that
    calculation.
        Mr. Forbes. I understand.
        Dr. Labs. The way the CBO report did it is it made two
    starting assumptions that the Ohio Replacement Program would be
    fully funded because that is our number one acquisition
    priority and that the Ford-class carrier program would also be
    fully funded because that is something that Congress has
    mandated in law, that they want an 11-carrier force. After
    that, I did sort of basically roughly proportionate reductions,
    and then the result is that, in 2045, you have a fleet of 237
    ships, not 305.
        Mr. Forbes. So then if we let things go just the way they
    are and with the proposals that have been put in there, we will
    go in 30 years from 273 ships to 237 ships. And the shortfall
    between what even the Navy says, which we all recognize is
    lower than what a lot of analysts say we need, but you would
    have the difference between 305 and 237 ships as the shortfall
    we would have in terms of ships, ship count. Fair?
        Dr. Labs. Yes, sir, based on those assumptions, correct.
        Mr. Forbes. Now, one of the ways we can begin to close that
    gap--Mr. Courtney alluded to this earlier with the Sea-Based
    Deterrence Fund, and, Mr. O'Rourke, you said it very properly--
    one of the things that we are doing with that fund is if those
    numbers hold, instead of paying for 12, we would get 12, but we
    would pay for 11, and that could save us a substantial amount
    of money.
        The other thing, Mr. O'Rourke, you have at some time talked
    about the ability we could have--would be to shift a small
    portion of the overall budget of the Department of Defense to
    build some of these ships. If we did that, what percentage
    would we be talking about that we would need to shift to be
    able to build the ships that we need over that 30-year period
    of time?
        Mr. O'Rourke. Shifting that $4.5 billion would equate to
    shifting less than 1 percent of the DOD base budget.
        Mr. Forbes. So if we shifted approximately 1 percent or
    less, then we could build all the ships that the Navy says that
    they need over that 30-year period of time. So the options, it
    seems to us, is to end up at the end of 30 years with 237
    ships. One shift of about 1 percent of the current Department
    of Defense budget or adding additional dollars to the top line
    of the Navy for doing that shipbuilding if we want to build
    those ships. Fair argument on that?
        Mr. Conaway, did you have another question?
        Mr. Conaway. No, just the math is 30 years times 4.5, so
    $135 billion shortfall. And so where did this come from? You
    know, you were talking about the $10 billion here, the $3
    billion there, $5 billion there, but 135, you know, you don't
    get there. You can't save your way into fixing this.
        Mr. Forbes. You can't save your way into----
        Mr. Conaway. In terms of, you know, you ought to do those
    things, but at the end of the day, building all these ships we
    plan to at less than what we thought they were going to cost
    still doesn't get you 135 you need to make----
        Mr. Forbes. That is exactly--and that is why we have to
    have a combination of these things if we want to get there.
        Mr. O'Rourke, the one last question I have for you, when we
    look at different services, they have different acquisition
    schemes, approaches, that they use. For example, the Navy seems
    to make great use of multiyear procurement contracts and block
    buys while the Air Force currently has no multiyear
    procurements. Can you give us any idea from your analysis why
    there is such a significant difference between the approaches
    of various military services and what do you believe drives
    those services toward different acquisition approaches?
        Mr. O'Rourke. I don't track the Air Force or the Army, so I
    really can't speak to detail about the other two services. But
    in terms of why the Navy makes extensive use of multiyear
    procurement and block buy contracting, I think a primary reason
    has to do with program stability. When you ask both the Navy
    and industry, what is a foundation for success in shipbuilding,
    they will tell you that a big part of that foundation is
    stability. And so I know that the idea of program stability in
    all dimensions, funding stability, design stability, and so on,
    appears to be fairly central to their thinking. It is a
    starting point for them in thinking about how to have success
    in ship acquisition. And if that is a big part of their
    starting point, then it seems to me that it would only be
    natural for them to then think about multiyear procurement and
    block buy contracting for two reasons. One is that if you have
    a stable program, then the risks of using multiyear procurement
    and block buy contracting are less. And, conversely, using
    those programs can then become a new and added dimension of
    stability in shipbuilding.
        So if the Navy is using multiyear procurement and block buy
    contracting a lot, which it is--it is using it for all--
    currently for all three of its year-to-year shipbuilding
    programs, they account for almost three-quarters of all the
    ships in the Navy's 5-year shipbuilding plan. That is
    extraordinary, the amount of commitment that the Navy has to
    these contracting mechanisms. And I believe, as I look at the
    situation, that this is a reflection in both of those ways of
    how the Navy puts stability at the heart of its formula for how
    to achieve success in ship acquisition.
        Mr. Forbes. Thank you, Mr. O'Rourke.
        Mr. Courtney had one final question.
        Mr. Courtney. Yeah, actually, just to follow up on that
    last line of thought, and certainly the Navy has embraced
    multiyear procurement and incremental funding, but it has done
    it somewhat in tandem with Congress. I mean, when we acted in
    2012 in the Virginia-class program to, you know, create
    incremental funding, I mean, that 10-for-the-price-of-9 block
    for a contract became possible. And so I just think that it is
    also good to underscore the fact that, you know, we gave the
    Navy the tools, and they have demonstrated that it works. And I
    think we have done it again with the Sea-Based Deterrence Fund.
        And, you know, Mr. Conaway's point is well taken that that
    by itself is not going to fix this problem, but certainly in
    terms of making the case to our colleagues and to the country
    that we are being smart buyers here, you know, these approaches
    are definitely showing real tangible results that we can point
    to historically and empirically, and your reports did that. I
    don't know if you want to comment on that. I just wanted to,
    again, remind people that it was partly because of the 2012
    NDAA that we got to some of those savings.
        Mr. O'Rourke. To underscore that, I think it is worth
    reiterating that every single use of multiyear procurement,
    every single use of block buy contracting, was done with the
    approval, the positive approval, of the Congress. The Navy, the
    services cannot do this except with congressional approval. And
    it was Congress that legislated the creation of the National
    Defense Sealift Fund back in the early 1990s. And it was also
    Congress just within the recent past, within the last year or
    two, that did not agree with the idea of eliminating the
    National Defense Sealift Fund when that was a proposal that was
    part of the executive branch's budget submission for that year.
        Mr. Forbes. Gentlemen, you have both done incredible work
    to do this analysis. We thank you. I would like to give you at
    this time an opportunity if you need it to do any kind of wrap-
    up to make sure you get on the record what we need to get on
    the record based on your work.
        So why don't we start with you, Mr. O'Rourke, and we will
    end as we started with Dr. Labs.
        Mr. O'Rourke. I have one wrap-up point, as it were, which
    is that even though we have talked a lot today about the Ohio
    Replacement Program and the ability to use contracting
    mechanisms and incremental funding to save money in that
    program, that program is not the only Navy shipbuilding program
    where there are opportunities of this kind. My testimony goes
    through all of the opportunities that I can identify in one
    form or another. And, indeed, the list I come up with
    encompasses every one of the Navy's principal shipbuilding
    programs, either as a continuation of what you are already
    doing or as a new opportunity because it is a new start
    program. So it is important to understand what these mechanisms
    can do for the Ohio Replacement Program, but you don't want to
    assume that that is the only place where you can do these
    things. You can do block buys and eventually multiyears on
    things like the TAO(X) program and the LXR program. You can
    even think about doing a two-ship block buy on the LHA program.
    So I would underscore going through the list of opportunities
    and candidate programs that forms the back half of my testimony
    because it certainly includes the Ohio program and talks about
    more about that program than any other, but it talks about
    virtually all of the other principal Navy shipbuilding programs
    as well.
        Mr. Forbes. And that is a good point because as Mr. Conaway
    said, the math is the math, and as Mr. Courtney pointed out,
    you are going to have to get there with a combination of means.
    But $10 billion here and $10 billion there starts adding up to
    real dollars. And also when you start shifting some of the top
    line of Department of Defense and maybe adding a little bit
    more, it helps get us closer to home.
        So, Dr. Labs, we are going to let you have the last word.
        Dr. Labs. Well, the only thing I would add to what both Mr.
    O'Rourke said and what I have said earlier is that going back
    to this question of sort of stability under the Budget Control
    Act, the Budget Control Act and the Bipartisan Budget Act of
    2015 has provided a fair amount of stability for the Department
    of Defense top line. But that is at the top line. Underneath
    that top line there is no stability guaranteed to the
    shipbuilding accounts or any other number of accounts. That is
    something that is a choice that is made underneath that line by
    the administration or ultimately by the Congress.
        So to the extent that the stability that is provided by the
    BCA with the Bipartisan Budget Act does not ensure that
    shipbuilding is going to be funded to levels that maybe you
    might desire, that is something that is still going to have to
    be actively done by the policymakers.
        Mr. Forbes. Okay.
        Well, thank you all. If we have nothing else, then we are
    adjourned.
        [Whereupon, at 3:23 p.m., the subcommittee was adjourned.]

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                                December 1, 2015

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                                December 1, 2015

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