[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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                            A P P E N D I X

                            December 1, 2015

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                            December 1, 2015

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