Defense Acquisitions: Zumwalt-Class Destroyer Program Emblematic 
of Challenges Facing Navy Shipbuilding (31-JUL-08, GAO-08-1061T).
                                                                 
The U.S. Navy is about to begin construction of the first	 
Zumwalt-class destroyer (DDG 1000) amid considerable		 
uncertainties and a high likelihood of cost and schedule growth. 
Significant cost growth and schedule delays are persistent	 
problems that continue to compromise the Navy's shipbuilding	 
goals. This testimony focuses on (1) the challenges faced by the 
DDG 1000 program and (2) the strain such challenges portend for  
long term shipbuilding plans.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-1061T					        
    ACCNO:   A83185						        
  TITLE:     Defense Acquisitions: Zumwalt-Class Destroyer Program    
Emblematic of Challenges Facing Navy Shipbuilding		 
     DATE:   07/31/2008 
  SUBJECT:   Agency missions					 
	     Battleships					 
	     Budget activities					 
	     Construction costs 				 
	     Cost analysis					 
	     Cost overruns					 
	     Defense budgets					 
	     Defense cost control				 
	     Integrated software				 
	     Military forces					 
	     Military systems analysis				 
	     Military vessels					 
	     Mission critical systems				 
	     Naval procurement					 
	     Program evaluation 				 
	     Risk management					 
	     Schedule slippages 				 
	     Shipbuilding industry				 
	     Ships						 
	     Shipyards						 
	     Strategic planning 				 
	     System software					 
	     Systems design					 
	     Systems testing					 
	     Cost estimates					 
	     Cost growth					 
	     Program costs					 
	     DDG-1000 Destroyer 				 

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GAO-08-1061T

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Testimony: 

Before the Subcommittee on Seapower and Expeditionary Forces, Committee 
on Armed Services, House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EDT: 

Thursday, July 31, 2008: 

Defense Acquisitions: 

Zumwalt-Class Destroyer Program Emblematic of Challenges Facing Navy 
Shipbuilding: 

Statement of Paul L. Francis, Director: 

Acquisition and Sourcing Management: 

GAO-08-1061T: 

GAO Highlights: 

Highlights of GAO-08-1061T, a testimony before the Subcommittee on 
Seapower and Expeditionary Forces, Committee on Armed Services, House 
of Representatives. 

Why GAO Did This Study: 

The U.S. Navy is about to begin construction of the first Zumwalt-class 
destroyer (DDG 1000) amid considerable uncertainties and a high 
likelihood of cost and schedule growth. Significant cost growth and 
schedule delays are persistent problems that continue to compromise the 
Navyï¿½s shipbuilding goals. This testimony focuses on (1) the challenges 
faced by the DDG 1000 program and (2) the strain such challenges 
portend for long term shipbuilding plans. 

What GAO Found: 

From the outset, DDG 1000 has faced a steep challenge framed by 
technical sophistication, demanding mission requirements, and a cost 
and schedule budget with little margin for error. The Navy has worked 
hard to manage the program within these competing goals. Yet recently, 
the Navy has discussed canceling construction of the remaining five DDG 
1000 ships. Although a cancellation may stem from fiscal necessity, it 
reflects poorly on the acquisition, requirements, and funding processes 
that produced the DDG 1000 business case. Future success in 
shipbuilding depends on understanding why the weaknesses in the DDG 
1000 business case, which now seem to threaten the program, did not 
prompt a similar re-examination several years ago. 

The current program of record faces significant execution risks. The 
Navy will be pressed to complete a large amount of design work in time 
for the start of construction in October 2008. Demonstration of key 
componentsï¿½particularly, the deckhouse, the volume search radar, and 
the integrated power systemï¿½have fallen behind. Despite restructuring 
the construction schedule, margins between several major events are 
gone. For example, land-based tests of the integrated power system are 
now scheduled after installation on the lead ships. Software 
development has also proven challenging; the Navy certified the most 
recent software release before it met about half of its requirements. 
Further, the full costs of constructing the two lead ships have not 
been entirely recognized or funded. The complexity and unique features 
of DDG 1000, along with the design work, testing, and actual 
construction experience to come, make cost growth beyond budgeted 
amounts likely. 

The challenges confronted by DDG 1000 are not unique. Across the 
shipbuilding portfolio, executing programs within cost and schedule 
estimates remains problematic, largely because of unexecutable business 
cases that allow programs to start with a mismatch between scope and 
resources. Collectively, problems in individual programs erode the 
buying power of the Navyï¿½s long-range construction budget. The Navy 
compensates for near-term construction deferrals by increasing 
construction in the out-years, but this will require significant 
funding increases in the future, which are unlikely. Near-term 
tradeoffs could have long-term consequences for maintaining a rational 
balance between mission capability, presence, industrial base, and 
manning. 

The Navyï¿½s consideration of cutting the DDG 1000 program back comes 
after over 10 years of development and $13 billion have been invested. 
Clearly, changes are needed in how programs are conceptualized and 
approved. Although the elements needed for success are well known, 
unrealistic compromises are made to make business cases conform to 
competing demands. An examination of the root causes of unexecutable 
business cases must be done or shipbuilding programs will continue to 
produce unsatisfactory outcomes. This examination must begin with an 
honest appraisal of the competing demands made on new programs early in 
the acquisition process and how to strike a better balance between 
them. 

What GAO Recommends: 

While GAO is making no new recommendations in this testimony, GAO has 
made numerous recommendations through the years to improve business 
cases for Navy acquisitions as well as other Department of Defense 
weapon acquisitions. The Departmentï¿½s acquisition policies largely 
incorporate these recommendations, but program execution has fallen 
short. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-1061T]. For more 
information, contact Paul Francis at (202) 512-4841 or 
[email protected]. 

[End of section] 

Mr. Chairman and Members of the Subcommittee, 

I am pleased to be here today to discuss the Department of the Navy's 
Zumwalt-class (DDG 1000) destroyer program, part of the family of 
future surface combatants. Much of my statement is drawn from a 
detailed report we issued today on the status of the program.[Footnote 
1] DDG 1000 is an ambitious program that is now in the first year of a 
6-year construction schedule for the two lead ships. Last week, the 
Navy began discussing cancellation of the remaining five ships in the 
class. While a cancellation may stem from fiscal necessity, it comes 
after well over 10 years of development and over $13 billion in 
investments thus far. Future success in shipbuilding programs depends 
on recognizing the factors that necessitated the decision and taking 
steps to avoid having to do so again in the future. 

Accordingly, today I will be discussing (1) the challenges faced by the 
DDG 1000 program and (2) the strain such challenges portend for the 
shipbuilding budget. I do this not as a critique of the Navy's 
management of the program (for there is much about the acquisition that 
exhibits foresight and thoughtful planning), but as the latest in a 
series of shipbuilding programs in which the scope of the program is a 
mismatch for the time and money resources that have been allotted for 
it. These mismatches result in reductions in quantities that, in turn, 
have a collective effect on the Navy's long-term shipbuilding goals. I 
look forward to today's hearing as an opportunity to discuss not only 
the symptoms of the problem, but the root causes as well. 

Summary: 

DDG 1000 development has been framed by challenging multimission 
requirements, resultant numerous new technologies, and a cost and 
schedule budget that added to--rather than eased--the challenge. While 
the Navy has done much work to try to manage the program within these 
competing goals, it will begin lead ship construction in October 2008 
with significant uncertainties, particularly in developing the ship's 
design, key components, and the ship software system. Recent 
restructuring of the schedule buys more time for technology 
development, but shifts key efforts like installation and testing of 
the combat systems until later in the construction schedule--after the 
ships have been initially delivered. Such compromises--made before 
construction has even begun--suggest that the Navy already has little 
margin for solving future problems without adding money and time. In 
fact, it appears that the budget for the lead ships is not adequate to 
deliver fully operational ships. The complexity and unique features of 
DDG 1000, along with the design work, testing, and actual construction 
experience to come, add to the risk of cost growth. 

DDG 1000 is not unique in this respect. Across the shipbuilding 
portfolio, the Navy has had problems executing its programs within cost 
and schedule estimates, particularly with first-in-class ships. I see 
this as a mismatch between the scope of programs and the resources 
(time and money) allotted to execute them. For example, albeit a much 
simpler vessel, the Littoral Combat Ship (LCS) program proceeded into 
construction with unstable designs and unrealistic cost and schedule 
estimates. Similarly, the Navy is proceeding with construction of the 
Ford-class (CVN 78) aircraft carrier as it faces problems with an 
enabling technology and a budget that has no margin for unanticipated 
problems. Cost and schedule problems in individual programs have a 
collective effect on the Navy's long-range construction plans. Each 
year, the Navy prepares a 30-year shipbuilding plan that attempts to 
balance the competing objectives of maximizing the mission capabilities 
of each ship and reducing crew size, while at the same time providing a 
sufficient quantity of ships to achieve the necessary level of global 
presence and to provide a stable workload for shipyards. This year, the 
Navy has reduced the plan's ship quantities in the near term and 
compensated for current shipbuilding problems by projecting increased 
ship construction in the out-years based on the hope that more money 
will be available in the future. The Navy's proposed decision to 
discontinue the DDG 1000 program after the two lead ships and build 
more of the less costly Arleigh Burke-class (DDG 51) destroyers should 
restore some balance in the plan. However, we would do well to 
understand the factors that led to the DDG 1000 business case so that 
future programs do not suffer the same fate. 

This statement is based on work we conducted between September 2007 and 
July 2008, as well as our previous testimonies and reports and is in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Navy Unlikely to Execute DDG 1000 Program within Current Cost and 
Schedule Estimates: 

The DDG 1000 program has from the onset faced a steep challenge framed 
by demanding mission requirements, stealth characteristics, and a 
desire to reduce manning levels by more than half that of predecessor 
destroyers. These requirements translated into significant technical 
and design challenges. Rather than introducing three or four new 
technologies (as is the case on previous surface combatants), DDG 1000 
plans to use a revolutionary hull form and employ 11 cutting-edge 
technologies, including an array of weapons, highly capable sensors 
integrated into the sides of a deckhouse made primarily of composite 
material--not steel, and a power system designed for advanced 
propulsion as well as high-powered combat systems and ship service 
loads. This level of sophistication has necessitated a large software 
development effort--14 million to 16 million lines of code. All of this 
is to be accomplished while splitting construction between two 
shipyards. The Navy believes this approach and schedule is important to 
managing shipyard workloads, as starting later would have caused 
shipyard workload to drop too low. In a sense, then, the construction 
approach and schedule became an additional challenge as they became 
constraints on the pace of technology and design development. To meet 
these multiple and somewhat conflicting demands, the Navy structured 
its acquisition strategy to develop key systems and mature the design 
before starting to build the ship. While the Navy has made good 
decisions along the way to address risk, it is already likely, shortly 
before the Navy embarks on ship construction, that additional funding 
will be necessary or trade-offs will need to be made to develop and 
deliver DDG 1000 ships. 

Despite a Thoughtful Approach, Delays in Technology, Software, and 
Design Development Pose a Risk to Successful Program Execution: 

Despite multiple and somewhat competing demands, the Navy conceived a 
thoughtful approach and achieved developmental successes on DDG 1000. 
Developing 10 prototypes of the ship's critical systems helped to 
create confidence that a number of technologies would operate as 
intended, and the Navy's plan to mature the ship's design before 
starting construction aims to reduce the risk of costly design changes 
after steel has been cut and bulkheads built. For example, the Navy 
successfully demonstrated the advanced gun system through initial 
guided flight and testing on land. In other cases, such as for the 
integrated power system, tests brought to light technical problems, 
which the Navy was able to address by going to an alternate technology. 
However, notwithstanding these efforts, significant challenges remain 
in developing the ship's design and a number of key components--in 
particular, the deckhouse, volume search radar, and the integrated 
power system. Moreover, the ship's capability is contingent on an 
unprecedented software development effort. Recently, the Navy 
restructured the schedule to buy more time for development--a good 
decision. However, as construction of the first ship has not yet begun, 
the Navy may have exhausted its options for solving future problems 
without adding money and time. 

Although the initial phases of the design are complete, the 
shipbuilders will be pressed to complete a large amount of design work 
by October 2008 when lead ship construction begins. From August 2007 
through May 2008, the shipbuilders finished work on 16 of the 100 
design zones (individual units that make up the ship's design) leaving 
5 months to finish the final design phases in 84 zones leading up to 
the start of construction. While the shipbuilders believe they can 
finish the design by the start of ship construction, delays in the 
development of the ship's key systems could impede completion of the 
design and eventually interfere with DDG 1000 construction. If the 
shipbuilders cannot finish planned design work prior to the start of 
lead-ship construction, the program is at greater risk for costly 
rework and out-of-sequence work during construction. 

To maintain the start of ship construction in 2008 while continuing to 
develop the ship's technologies, the Navy recently realigned the 
program's schedule. Rather than delivering a fully mission-capable 
ship, the Navy will take ownership of just the vessel and its 
mechanical and electrical systems--including the ship's power system-- 
in April 2013. At that point, the Navy plans to have completed "light- 
off" of the power, mechanical, and electrical systems. Light-off refers 
to activating and testing these systems aboard ship. The Navy deferred 
light-off of the combat systems--which include the radars, guns, and 
the missile launch systems--by over 2 years until May 2013. According 
to the Navy, conducting light-off in phases allows the program to test 
and verify the ship's major systems, in particular the integrated power 
system, in isolation and creates additional time to mature the combat 
systems, as well as the software that supports these systems, before 
ship installation and shipboard testing. However, since the Navy will 
only test and inspect the hull prior to taking ownership of the vessel, 
it will not have a full understanding of how the ship operates as a 
complete and integrated system until after final shipboard testing of 
the combat systems in 2014. 

While the restructure maintains the construction schedule, it does 
delay verifying the performance of the integrated power system before 
producing and installing it on the ship. Tests of a complete integrated 
power system with the control system will not occur until 2011--nearly 
3 years later than planned. To meet the shipyard's schedule, the Navy 
will buy a power system intended for the third ship and use it in land- 
based tests. As a result, the integrated power system will not be 
demonstrated until a year after the power systems have been produced 
and installed on the two lead ships--an approach that increases 
exposure to cost and schedule risk in production. 

Finalizing deckhouse manufacturing and assembly processes are essential 
to constructing and delivering the deckhouse as planned. Changes to the 
manufacturing processes for deckhouse production are ongoing. The 
shipbuilder is validating process changes through production and 
inspection of a series of test units, culminating with a large-scale 
prototype manufactured to the same thickness and other specifications 
of the deckhouse. Final validation of the manufacturing processes for 
deckhouse construction will not occur until after construction, 
inspection, and shock testing of the large-scale prototype. However, 
test and inspection activities are not scheduled for completion until 
after the deckhouse production readiness review in September 2008. 
Problems discovered during testing and inspection may require 
additional changes to manufacturing methods. Moreover, facility and 
machinery upgrades necessary to construct and assemble the deckhouse 
are not all scheduled to be complete until March 2010--over a year 
after the start of construction of the first deckhouse. While the 
shipbuilder expects to complete efforts to meet the construction 
schedule, if difficulties occur, the deckhouses may not be delivered to 
the shipyards on time, disrupting the construction sequence of the 
ships. 

Further, the volume search radar (one of two radars in the dual band 
radar system) will not be installed during deckhouse construction as 
initially planned. Instead, installation will occur at the shipyard 
when the first ship is already afloat, a more costly approach. The 
change was partly due to delays in developing the volume search radar. 
Land-based demonstrations of the volume search radar prototype 
originally planned to be done before starting ship construction will 
not be completed until 2009--almost 2 years later. Development 
difficulties center on the radar's radome and transmit-receive units. 
The contractor has been unable to successfully manufacture the radome 
(a composite shield of exceptional size and complexity), and the 
transmit-receive units (the radar's individual radiating elements) have 
experienced failures operating at the voltage needed to meet range 
requirements. While the Navy believes that the voltage problem has been 
resolved, upcoming land-based tests will be conducted at a lower 
voltage--and without the radome. The Navy will not demonstrate a fully 
capable radar at its required power output until after testing of the 
first production unit sometime before combat systems light-off in 2013. 

Crucial to realizing DDG 1000's required manning reductions is the 
ability to achieve a high degree of computer automation. If the ship's 
software does not work as intended, crew size would need to be 
increased to make up for any lack of automation. Given the risks 
associated with the ship's software system, referred to as the total 
ship computing environment, the Navy initially planned to develop and 
demonstrate all software functionality (phased over six releases and 
one spiral) over 1 year before ship light-off. As a result of changes 
in the software development schedule, the Navy eliminated this margin. 
Until recently, the Navy was able to keep pace with its development 
schedule, successfully completing the first three software releases. 
However, the Navy is now entering the complex phases of software 
development when ship functionality is introduced. The Navy certified 
release 4 without the release meeting about half of the software system 
requirements, mainly because of issues coding the ship's command and 
control component--the heart of the ship's decision-making suite. 
Problems discovered in this release, coupled with the deferred work, 
may signify larger software issues that could disrupt the development 
of releases 5 and 6 and prevent the timely delivery of software to meet 
the ship's schedule. 

DDG 1000 Costs Likely to Exceed Budget: 

Costs of the DDG 1000 ships are likely to exceed current budgets. If 
costs grow during lead ship construction due to technology, design, and 
construction risks, as experience shows is likely, remaining funds may 
not be sufficient to buy key components and pay for other work not yet 
under contract. 

Despite a significant investment in the lead ships, the remaining 
budget is likely insufficient to pay for all the effort necessary to 
make the ships operational. The Navy estimates a total shipbuilding 
budget of $6.3 billion for the lead ships. Of this amount, the Navy has 
approximately $363 million remaining in unobligated funds to cover its 
outstanding costs and to manage any cost growth for the two lead 
ships,[Footnote 2] but known obligations for the lead ships, assuming 
no cost growth during construction, range from $349 million to $852 
million (see table 1). 

Table 1: Unfunded Lead Ship Expenses: 

Expense: Deferred ship construction scope; 
Status: Work removed from scope of construction contract to stay within 
construction budget. Since this work is necessary to meet ship 
specifications, the Navy plans to perform and fund work sometime after 
the lead ships are delivered. Includes the following: 
* windows and enclosures for certain sensors; 
* special hull treatment; 
* deck coverings that comply with the ship's radar cross section 
requirements; 
* secondary hull sheathing; 
* anchor handling system; 
Estimated value: $85 million. 

Expense: Contract price adjustments; 
Status: Construction contracts structured to allow price adjustments 
based on future events that were considered largely outside of the 
shipbuilders' control. Adjustments reduced the shipbuilders' risk 
premium allowing a lower initial contract price. Includes the 
following: 
* shifts in future workload; 
* escalations in future rates; 
* changes in the price of raw materials such as steel and copper; 
Estimated value: Not available. 

Expense: Deferred procurement of select combat systems; 
Status: Purchase and installation are not yet under contract for the 
following systems: 
* volume search radar aperture and other components; 
* vertical launch system electronics, cell adapters, uptakes, and 
junction boxes; 
* 34 external communications antennas and apertures per ship; 
The contractor estimate of these costs is approximately $763 million; 
the Navy estimates approximately $200 million for both ships; 
Estimated value: $264 million to $767 million. 

Expense: Deferred activation of combat systems; 
Status: Funds also not obligated toward light-off and final shipboard 
testing of the combat systems. The Navy estimates as much as $64 
million for both ships, including about $4 million in costs for 
activation to be provided to the shipbuilders. Contractor and 
shipbuilder estimates may be higher; 
Estimated value: $264 million to $767 million. 

Source: GAO analysis of Navy and contractor data. 

[End of table] 

The main discrepancy is the current estimated cost of the combat 
systems. In order to create a cash reserve to pay for any cost 
increases that may occur during construction of the lead ships, the 
Navy has deferred contracting and funding work associated with 
conducting shipboard testing of the combat systems--and in some cases 
has also delayed purchasing and installing essential ship systems until 
later in the construction sequence. The Navy has estimated the cost of 
these combat systems to be around $200 million, while the contractor's 
estimate is over $760 million. If the agreed-on cost approaches the 
contractor's estimate, the Navy will not have enough in its remaining 
funds to cover the cost.[Footnote 3] 

There is little margin in the budget to pay for any unknown cost. To 
ensure that there was enough funding available in the budget to cover 
the costs of building the lead ships, the Navy negotiated contracts 
with the shipbuilders that shifted costs or removed planned work from 
the scope of lead ship construction and reduced the risk contingency in 
the shipbuilders' initial proposals. For example, the Navy stated that 
it shifted in excess of $100 million associated with fabrication of the 
peripheral vertical launch system from the scope of ship construction 
and funded this work separately using research and development 
funding.[Footnote 4] As a result, this work is no longer included in 
the $6.3 billion end cost to construct DDG 1000. 

To the extent that the lead ships experience cost growth beyond what is 
already known, more funding will be needed to produce operational 
ships. However, these problems will not surface until well after the 
shipyards have begun construction of the lead ships. Cost growth during 
construction for lead ships has historically been about 27 percent, and 
an independent estimate by the Department of Defense already projects 
the cost of the two lead ships to be $878 million higher than the 
Navy's budget. With ships as expensive as DDG 1000, even a small 
percentage of cost growth could lead to the need for hundreds of 
millions of dollars in additional funding. 

Program Execution Challenges Have Required the Navy to Make Trade-Offs 
In Its Long-Range Shipbuilding Goals: 

The challenges facing DDG 1000 are not unique among Navy shipbuilding 
programs nor to Department of Defense acquisition programs at large. 
Across the shipbuilding portfolio, the Navy has not been able to 
execute programs within cost and schedule estimates, which has, in 
turn, led to disruptions in its long-range construction plans. This 
outcome has largely resulted from Navy decisions to move ships forward 
into construction with considerable uncertainties--like immature 
technologies and unstable designs. However, by doing so the Navy has 
effectively eroded its buying power by forcing it to make near-term 
quantity reductions within its shipbuilding plan. Because fleet 
requirements remain steady at 313 ships, the Navy must compensate for 
near term construction deferrals by increasing ship construction in the 
out-years. Achieving this plan, however, will require significant 
funding increases in the future, which will likely be difficult to 
obtain. These near term trade-offs could have long-term consequences 
for balancing mission, presence, industrial base, and manning tensions. 
For example, if ship quantities are deferred to the future to 
accommodate near-term cost growth, the Navy could be trading off 
presence and industrial base if additional funds do not materialize in 
the future. 

The Navy Consistently Underestimates the Effort Required to 
Successfully Execute Its New Shipbuilding Programs: 

Cost growth and schedule delays are persistent problems for 
shipbuilding programs as they are for other weapon systems. These 
challenges are amplified for lead ships in a class (see figs. 1 and 2). 

Figure 1: Cost Growth in Recent Lead Ships (Dollars in Millions): 

This figure is a combination bar graph showing cost growth in recent 
lead ships (dollars in millions). One bar represents the initial 
budget, and the other represents cost growth. 

LCS 1-2; 
Initial budget: 472; 
Cost growth: 566. 

LPD 17; 
Initial budget: 954; 
Cost growth: 804. 

SSN  774; 
Initial budget: 3260; 
Cost growth: 492. 

SSN 775; 
Initial budget: 2192; 
Cost growth: 522. 

T-AKE 1; 
Initial budget: 489; 
Cost growth: 49. 

[See PDF for image] 

Source: GAO analysis of Navy data. 

[A] SSN 775 is the second Virginia-class submarine, but represents the 
first hull delivered by Northrop Grumman Newport News shipyard. 

Note: all ships with the exception of LCS 1-2 have been delivered to 
the Navy. 

[End of figure] 

Figure 2: Delays in Achieving Initial Operating Capability in Recent 
Lead Ships: 

This figure is a combination bar graph showing delays in achieving 
initial operating capability in recent lead ships. One bar represents 
initial schedule, and the other represents schedule slip. 

LCS 1; 
Initial Schedule: 41; 
Schedule Slip: 21. 

LPD 17; 
Initial Schedule: 80; 
Schedule Slip: 52. 

SSN 774; 
Initial Schedule: 124; 
Schedule Slip: 17. 

T-AKE 1; 
Initial Schedule: 61; 
Schedule Slip: 7. 

[See PDF for image] 

Source: GAO analysis of Navy data. 

[End of figure] 

The Navy's six most recent lead ships[Footnote 5] have experienced 
cumulative cost growth over $2.4 billion above their initial budgets. 
These cost challenges have been accompanied by delays in delivering 
capability totaling 97 months across these new classes. The first San 
Antonio-class ship (LPD 17) was delivered to the warfighter incomplete 
and with numerous mechanical failures--52 months late and at a cost of 
over $800 million above its initial budget. For the LCS program, the 
Navy established a $220 million cost target and 2-year construction 
cycle for each of the two lead ships. To date, costs for these two 
ships have exceeded $1 billion, and initial capability has been delayed 
by 21 months. Cost increases are also significant if the second ship is 
assembled at a different shipyard than the first ship. This was the 
case with SSN 775, with cost growth of well over $500 million. 

These outcomes result from the Navy consistently framing its 
shipbuilding programs around unexecutable business cases, whereby ship 
designs seek to accommodate immature technologies and design stability 
is not achieved until late in production. New ship programs have moved 
forward through milestones, whether or not desired knowledge had been 
attained. In turn, initial ships in Navy programs require costly, time- 
consuming out-of-sequence work and rework during construction, and 
undesired capability trade-offs are often required. In essence, 
execution problems are built into the initial strategy for a new ship, 
as the scope of the ship--that is, the innovative content and 
complexity owing to multiple mission requirements--overmatches the time 
and money set aside to develop and construct the ship. For example, 
while the scope of the DDG 1000 and CVN 78 ships were driven by mission 
requirements, the schedules for these ships was set by shipyard 
workload needs or by the retirement schedule of a predecessor ship. The 
result is the scope of work is compressed into a schedule that is based 
on something else. 

LCS is a recent example. In this program, the Navy sought to 
concurrently design and construct two lead ships in an effort to 
rapidly meet pressing needs in the mine countermeasures, antisubmarine 
warfare, and surface warfare mission areas. However, changes to Navy 
requirements required redesign of major elements in both lead ships to 
provide enhanced survivability, even after construction had begun on 
the first ship. While these requirements changes improved the 
robustness of LCS designs, they contributed to out-of-sequence work, 
rework, and weight increases on the lead ships. These difficulties 
caused LCS construction costs to grow and delivery schedules to be 
extended and prompted the Navy to reduce speed requirements for the 
class due to degraded hydrodynamic performance. In turn, the Navy 
canceled construction contracts for the third and fourth ships and used 
funds from other previously appropriated ships to pay for lead ship 
cost growth. Although these steps increased the resources available to 
the two lead ships, continuing technology immaturity and unproven 
watercraft launch and recovery systems included within each design 
could trigger additional cost growth and schedule delays above and 
beyond current estimates. 

The Ford-class aircraft carrier (CVN 78) also faces uncertainty related 
to its cost and schedule estimates and eventual capability. The 
business case for CVN 78 is framed around delivering the carrier to 
maintain the Navy's force of 11 operational carriers given the 
impending retirement of USS Enterprise (CVN 65), but includes a cost 
target that leaves little if any margin for error. As construction 
begins, remaining technology risk in the program--particularly with the 
electromagnetic aircraft launch system (EMALS)--has positioned the 
program to face future construction challenges similar to other lead 
ships. Previously, the Navy planned to demonstrate full functionality 
of a ship-ready system prior to production and installation on CVN 78-
-an approach aimed at reducing risk to ship construction. However, the 
contractor encountered technical difficulties developing the prototype 
generator and meeting detailed Navy requirements which left no margin 
in the schedule to accommodate unanticipated problems discovered in 
testing or production. In order to maintain the ship's construction 
schedule, the Navy adopted a test and production strategy that will 
test, produce, and ultimately install EMALS with a high degree of 
concurrency. At the same time test events are occurring, the Navy will 
authorize and begin production of EMALS intended for ship installation. 
While Navy officials recognize that concurrency is undesirable, they 
believe it is the only way to meet the ship's delivery date in 
September 2015. However, by moving ahead with production in order to 
accommodate schedule milestones, CVN 78 is at risk of cost growth and 
ultimately schedule changes if unexpected problems arise in EMALS 
testing. 

Challenges Facing Current Programs Have Disrupted the Navy's Long-Range 
Construction Plans: 

Since 2006, the Navy has annually issued a long-range plan for 
shipbuilding. These plans outline expected new ship procurements 30 
years into the future and the funding the Navy estimates will be needed 
to support those procurements. The long-range plan is predicated upon 
the stated fleet need for 313 ships. However, mounting cost and 
schedule challenges in current programs have required the Navy to 
increasingly reshape its long-range ship procurement plans, placing the 
313 ship goal in jeopardy. 

The Navy's long-range ship construction plan embodies multiple 
objectives including: 

* building sophisticated ships to support new and existing missions, 

* improving presence by increasing the numbers of ships available to 
execute these missions, 

* designing ships and operating concepts that reduce manning 
requirements, and: 

* supplying construction workloads that stabilize the industrial base. 

There is an inherent tension among the multiple objectives in the plan 
that is depicted in simple form in figure 3. 

Figure 3: Multiple Objectives Embodied in the Navy Shipbuilding Plan: 

This figure is a circular drawing representing multiple objectives 
embodied in the Navy shipbuilding objectives. 

The following text is represented: 

Multiple Missions; 
Reduced Manning; 
Stable Industrial Base; 
Adequate Presence. 

[See PDF for image] 

Source: GAO. 

[End of figure] 

This tension can play out in several ways. If, for example, a class of 
ship is expected to perform multiple challenging missions, it will have 
sophisticated subsystems and costs will be high. The cost of the ship 
may prevent its being built in desired numbers, subsequently reducing 
presence and reducing work for the industrial base. Requirements to 
reduce manning can actually add sophistication if mission requirements 
are not reduced. To some extent, this has happened with DDG 1000 as 
decisions have tended to trade quantities (that affect presence and 
industrial base) in favor of sophistication. Several years ago, the 
program was expected to deliver 32 ships at an approximate unit cost of 
$1 billion. Over time, sophistication and cost of the ship grew as 
manning levels lower than current destroyers were maintained. Today, 
the lead ships are expected to cost $8.9 billion in research and 
development funding and another $6.3 billion to build. Similarly, cost 
growth in the LCS program has precluded producing ships at the rate 
originally anticipated, and it is possible the Navy will never regain 
the recent ships it traded off to save cost. Had the Navy anticipated 
that LCS lead ship costs would more than double, it may have altered 
its commitment to the program within its previous long-range 
shipbuilding plan. 

The Navy's fiscal year 2009 long-range ship construction plan reflects 
many of the recent challenges that have confronted Navy shipbuilding 
programs. The plan provides for fewer ships at a higher unit cost--in 
both the near term and the long term--from what the Navy outlined in 
its fiscal year 2008 plan. Across the next 5 years, the Navy now 
expects to fund construction of 47 new ships at a cost of almost $74 
billion. However, only 1 year ago the Navy expected to purchase 60 
ships at a cost of $75 billion during this same time span. Instead, as 
cost growth has mounted in current shipbuilding programs, the Navy has 
had to reallocate funds planned for future ships to pay for ones 
currently under construction. These problems have also required the 
Navy to adjust its long-term plans. To compensate for its recent near- 
term quantity reductions, the Navy now plans to increase construction 
rates starting in fiscal year 2014. This strategy is based upon the 
premise that increased funding--on the order of $22 billion between 
fiscal years 2014 and 2018--will become available to support its plans. 
The Navy assumes this trend of increased funding--above and beyond 
annual adjustments for inflation--will continue through the end of its 
plan, which culminates in fiscal year 2038. 

Cost and schedule pressures in current programs have also led the Navy 
to make a number of operational trade-offs to help maintain the 
viability of its shipbuilding goals. For instance, the Navy's current 
long-range plan includes a new provision to extend the service lives of 
current DDG 51 ships by 5 years to maintain an adequate number of 
surface combatants in its fleet. In addition, the Navy plans to extend 
the service life of selected attack submarines as well as the length of 
attack submarine deployments. These actions, however, will require the 
Navy to increase funding for future upgrades, modernization programs, 
and maintenance for these vessels--from sources the long-range plan 
does not identify. 

Concluding Remarks: 

The discussion over whether to conclude the DDG 1000 program at two 
ships should prompt some introspection given that over $13 billion has 
been spent. In a sense, some of the key factors influencing the 
discussion--such as the high cost of the ship, the potential for cost 
growth, and the questionable affordability of the 30-year shipbuilding 
plan--are not markedly different from what they were a few years ago. 
Future success in shipbuilding depends on understanding why the 
weaknesses in the DDG 1000 business case, which now seem to threaten 
the program, did not prompt a similar re-examination several years ago. 

I believe that Navy managers and shipbuilders have enough knowledge 
about cost estimating, technology development, engineering, and 
construction to develop more executable business cases for new ships-- 
that is, a better match between the scope of the ship and the time and 
money allotted for delivering it. The fact remains that we do not get 
these matches when they really count--before detail design and 
construction for a new ship are approved. So, the question is, why are 
well-understood elements of success not incorporated into new ship 
programs? 

Part of the answer is that while managers may know what it takes to put 
an executable business case together, compromises in judgment have to 
be made to bring the business case in conformance with competing 
demands. For example, in a program like the DDG 1000 that undertook 
multiple technical leaps to meet challenging requirements, yet also had 
to deliver in time to match shipyard availability, pressures existed to 
make optimistic assumptions about the pace of technology maturity. At 
the same time, budget constraints exert pressure on cost estimates to 
be lower. These demands do not all fall just within the province of the 
Navy--industry, Congress, and the Office of the Secretary of Defense 
all play important roles. Over time, the business case for DDG 1000 
eroded. The primary mission of DDG 1000--and the foundation for its 
business case--was land attack. Yet, subsequent decisions ultimately 
forced trade-offs in that mission. For example, while including 
features like a more sophisticated radar and stealth characteristics 
may be good decisions individually, collectively they made the ship 
more expensive. Efforts to contain cost involved both reducing the 
quantity of ships and the actual land attack capability possessed by 
each individual ship. Ironically, the advanced gun system, which was 
the primary land attack weapon of the ship and a technical success to 
date, will now not have a platform to operate from beyond the first two 
DDG 1000s. 

The reconsideration of the DDG 1000 buy reflects poorly on the 
requirements, acquisition, and funding processes that produced the 
ship's business case. Unless some attempt is made to examine the root 
causes of decisions that hope for the best and result in poor outcomes, 
shipbuilding programs seem destined to the same fate: despite the best 
efforts to manage, the scope of the program will outstrip the cost and 
schedule budget. This examination must begin with an honest self- 
appraisal of what each player in the shipbuilding acquisition process 
demands of programs in terms of requirements, technologies, design, 
industrial base, quantities, and cost. Otherwise, while cost and other 
problems of current ships are lamented, these same problems could 
continue to curb the outcomes of future programs like the potentially 
sophisticated next-generation cruiser (CG(X)) or even renewed 
construction of DDG 51. 

Mr. Chairman, that concludes my statement. I would be pleased to answer 
any questions. 

Objectives, Scope, and Methodology: 

To develop information on the status of the DDG 1000 program, we relied 
largely on our current work examining the DDG 1000 program, as well as 
a number of prior GAO products on shipbuilding programs. We 
supplemented this work with analysis of the Navy's most recent and 
previous long-range plan for ship construction and Selected Acquisition 
Reports for current Navy ships. Finally, we updated our estimates of 
lead ships costs through the use of the Navy's budget justification 
documentation. 

Contact and Staff Acknowledgments: 

For future questions about this statement, please contact me at (202) 
512-4841 or [email protected]. Individuals making key contributions to 
this statement include Marie P. Ahearn, Christopher R. Durbin, Brian 
Egger, James Madar, Diana Moldafsky, Gwyneth B. Woolwine, and Karen 
Zuckerstein. 

[End of section] 

Related GAO Products: 

Defense Acquisitions: Cost to Deliver Zumwalt-Class Destroyers Likely 
to Exceed Budget. GAO-08-804. Washington, D.C.: July 31, 2008. 

Defense Acquisitions: Assessments of Selected Weapon Programs. GAO-08- 
467SP. Washington, D.C.: March 31, 2008. 

Defense Acquisitions: Overcoming Challenges Key to Capitalizing on Mine 
Countermeasures Capabilities. GAO-08-13. Washington, D.C.: October 12, 
2007. 

Defense Acquisitions: Realistic Business Cases Needed to Execute Navy 
Shipbuilding Programs. GAO-07-943T. Washington, D.C.: July 24, 2007: 

Defense Acquisitions: Navy Faces Challenges Constructing the Aircraft 
Carrier Gerald R. Ford within Budget. GAO-07-866. Washington D.C.: 
August 23, 2007. 

Defense Acquisitions: Challenges Remain in Developing Capabilities in 
Naval Surface Fire Support. GAO-07-115. Washington, D.C.: November 30, 
2006. 

Defense Acquisitions: Challenges Associated with the Navy's Long-Range 
Shipbuilding Plan. GAO-06-587T. Washington, D.C.: March 30, 2006. 

Defense Acquisitions: Progress and Challenges Facing the DD(X) Surface 
Combatant Program. GAO-05-924T. Washington, D.C.: July 19, 2005. 

Defense Acquisitions: Plans Need to Allow Enough Time to Demonstrate 
Capability of First Littoral Combat Ships. GAO-05-255. Washington, 
D.C.: March 1, 2005. 

Defense Acquisitions: Improved Management Practices Could Help Minimize 
Cost Growth in Navy Shipbuilding Programs. GAO-05-183. Washington, 
D.C.: February 28, 2005. 

[End of section] 

Footnotes: 

[1] See GAO, Defense Acquisitions: Cost to Deliver Zumwalt-Class 
Destroyers Likely to Exceed Budget, GAO-08-804 (Washington, D.C.: July 
31, 2008). 

[2] Based on data as of June 2008. 

[3] According to Navy officials, the Navy expects to definitize the 
contract for combat systems procurement in August 2008. 

[4] By shifting these costs the Navy stated that it could use research, 
development, testing, and evaluation (RDT&E) funding instead of 
procurement funding (SCN). However, this may lead to increases in the 
RDT&E budget. 

[5] While SSN 775 does not use a different ship design, it was 
constructed by a different shipyard than SSN 774.

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