Attack Submarines: Alternatives for a More Affordable SSN Force Structure
(Chapter Report, 10/13/94, GAO/NSIAD-95-16).

Faced with a changed world threat, a new defense posture, and shrinking
budgets, the Navy is reducing the size of its nuclear-powered attack
submarine (SSN) fleet.  To maintain a force of 45 to 55 SSN submarines,
as directed in the Defense Department's bottom-up review budgets, the
Navy plans to extend the amount of time SSN operate between major
maintenance period, allow no more than three costly SSN-699 submarine
refuelings per year, and operate the submarines for their service life
of 30 years.  At the same time, the Navy plans to buy 31 SSN through
2014 at an estimated cost of $48 billion.  GAO identified several
alternatives that would allow the Navy to free up money and still
maintain the minimum force structure of 45 SSN.  For example, if the
Navy were to acquire only 25 SSN through 2014, it would save $9 billion
and maintain close to 55 SSN through 2013, but declining to 45 SSN by
2020--still within the range directed by the bottom-up review.  Under
another alternative, the Navy could study the feasibility of operating
some SSN-688 beyond 30 years and defer spending an additional $8 billion
in procurement costs. A third alternative would be to defer new
construction of SSN and free up billions of dollars in the near term.
This alternative offers the opportunity to defer near-term costs at a
time when defense budgets have been reduced.  Further, studies have
shown that the estimated reconstitution costs to restart submarine
construction in 2003 are less than the potential $9 billion in savings,
suggesting that a deferral strategy warrants further study.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-95-16
     TITLE:  Attack Submarines: Alternatives for a More Affordable SSN 
             Force Structure
      DATE:  10/13/94
   SUBJECT:  Defense contingency planning
             Nuclear powered submarines
             Shipbuilding industry
             Future budget projections
             Military cost control
             Navy procurement
             Combat readiness
             Naval warfare
             Military budgets
             Antisubmarine warfare
IDENTIFIER:  Los Angeles Class Attack Submarine
             SSN-637 Nuclear Attack Submarine
             Seawolf Attack Submarine
             SSN-21 Submarine
             SSN-688 Submarine
             SSN-688I Submarine
             SSN-726 Submarine
             Trident Submarine
             DOD Bottom-Up Review
             JCS National Military Strategy
             
**************************************************************************
* This file contains an ASCII representation of the text of a GAO        *
* report.  Delineations within the text indicating chapter titles,       *
* headings, and bullets are preserved.  Major divisions and subdivisions *
* of the text, such as Chapters, Sections, and Appendixes, are           *
* identified by double and single lines.  The numbers on the right end   *
* of these lines indicate the position of each of the subsections in the *
* document outline.  These numbers do NOT correspond with the page       *
* numbers of the printed product.                                        *
*                                                                        *
* No attempt has been made to display graphic images, although figure    *
* captions are reproduced. Tables are included, but may not resemble     *
* those in the printed version.                                          *
*                                                                        *
* A printed copy of this report may be obtained from the GAO Document    *
* Distribution Facility by calling (202) 512-6000, by faxing your        *
* request to (301) 258-4066, or by writing to P.O. Box 6015,             *
* Gaithersburg, MD 20884-6015. We are unable to accept electronic orders *
* for printed documents at this time.                                    *
**************************************************************************


Cover
================================================================ COVER


Report to Congressional Requesters

October 1994

ATTACK SUBMARINES - ALTERNATIVES
FOR A MORE AFFORDABLE SSN FORCE
STRUCTURE

GAO/NSIAD-95-16

SSN Force Structure


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  OSD - Office of the Secretary of Defense
  SSBN - Nuclear-Powered Ballistic Missile Submarine
  SSN - Nuclear-Powered Attack Submarine

Letter
=============================================================== LETTER


B-248259

October 13, 1994

The Honorable Edward M.  Kennedy
Chairman, Subcommittee on Regional
 Defense and Contingency Forces
Committee on Armed Services
United States Senate

The Honorable John Conyers, Jr.
Chairman, Legislation and National
 Security Subcommittee
Committee on Government Operations
House of Representatives

In response to your requests, we evaluated (1) the Navy's strategy
for maintaining the nuclear-powered attack submarine (SSN) force
structure as directed in the Department of Defense's bottom-up review
and (2) alternatives available to the Navy for maintaining its SSN
force structure at less cost. 

As agreed with your offices, we plan no further distribution of this
report until 30 days from its issue date.  At that time, we will send
copies to the Chairmen, Senate Committee on Governmental Affairs,
House Committee on Government Operations, Senate and House Committees
on Appropriations, and Senate and House Committees on Armed Services;
the Director, Office of Management and Budget; and the Secretaries of
Defense and the Navy.  Copies will be made available to others on
request. 

If you or your staff have any questions on this report, please call
me on (202) 512-3504.  Major contributors to this report are listed
in appendix V. 

Richard Davis
Director, National Security
 Analysis


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

Nuclear-powered attack submarines (SSNs) are the Navy's prime
antisubmarine warfare asset.  Today, faced with a changed world
threat, a new defense posture, and constrained defense budgets, the
Navy is reducing the size of its SSN fleet. 

In response to requests from the Chairmen, Subcommittee on Regional
Defense and Contingency Forces, Senate Committee on Armed Services,
and the Legislation and National Security Subcommittee, House
Committee on Government Operations, GAO reviewed (1) the Navy's
strategy for maintaining the SSN force structure as directed in the
Department of Defense's (DOD) bottom-up review and (2) alternatives
available to the Navy for maintaining its SSN force structure at less
cost. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

For more than four decades, U.S.  national security and military
strategies focused on fighting a global war with the former Soviet
Union.  However, after the dissolution of the Warsaw Pact and the
Soviet Union, the Navy began to refocus its maritime strategy. 
Because of the changed threat and constrained U.S.  defense budgets,
the Navy plans to reduce its fleet of
87 SSNs to 55 by fiscal year 1999.  The DOD's bottom-up review
determined that the Navy needed to maintain a force of 45 to 55 SSNs
thereafter to meet the requirements of the defense strategy,
including both regional conflicts and peacetime presence operations. 
GAO did not independently verify or validate DOD's force level
requirements. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

To maintain an SSN force of 45 to 55 submarines, as directed in DOD's
bottom-up review, and remain within affordable budgets, the Navy
plans to (1) extend the amount of time SSNs operate between major
maintenance periods, (2) allow no more than three costly SSN-688
submarine refuelings per year, and (3) operate the submarines for
their design service life of
30 years.  At the same time, the Navy plans to acquire 31 SSNs
through 2014 at an estimated procurement cost of $48 billion.\1 This
approach allows the Navy to maintain an SSN force close to the
required maximum of 55 SSNs through 2020. 

GAO identified several alternatives that would allow the Navy to free
up money and still maintain the required minimum force structure of
45 SSNs.  For example, GAO analysis shows that if the Navy were to
acquire only
25 SSNs through 2014, it could save $9 billion in procurement costs
and maintain an SSN force close to 55 through 2013, but declining to
45 SSNs by 2020--still within the range directed by the bottom-up
review.  Under another alternative, the Navy could consider studying
the feasibility of operating some SSN-688s beyond 30 years and defer
spending an additional $8 billion in procurement costs.  A third
alternative would be to defer new construction of SSNs and free up
billions of dollars in the near term.  While GAO and DOD do not know
the magnitude of the reconstitution costs, this alternative offers
the opportunity to defer near-term costs at a time when defense
budgets have been reduced.  Further, studies have shown that the
estimated reconstitution costs to restart submarine construction in
2003 are less than the potential $9 billion savings, suggesting that
a deferral strategy is worth further study. 


--------------------
\1 Unless stated otherwise, all cost estimates in this report are
expressed in undiscounted constant fiscal year 1998 dollars. 
Discounted cost estimates are presented in appendix III. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      NAVY IS INCREASING SUBMARINE
      OPERATING CYCLES TO ACHIEVE
      AN AFFORDABLE SSN FORCE
      STRUCTURE
-------------------------------------------------------- Chapter 0:4.1

Until recently, the Navy planned to operate the SSN-688s for three
84-month cycles, perform major maintenance twice, and retire the
submarines after 24 years.  If the Navy had continued to follow this
approach it would have faced the unaffordable procurement cost of $68
billion to build 44 SSNs to maintain a minimum 45-SSN force through
2020.  Funding at that level would have consumed about 45 percent of
the Navy's shipbuilding budget, double the historical average.  Also,
the Navy would have had to perform costly refueling overhauls (at
about $294 million each) on as many as six SSN-688s in 1 year, which
the Navy believed was unaffordable. 

In July 1992, the Navy began to evaluate the feasibility of extending
the operating cycle of SSN-688s beyond 90 months.  The study is
expected to be completed in November 1994.  Based on preliminary
analysis, the Navy has begun using an extended 120-month operating
cycle for planning and scheduling purposes.  The Navy also plans to
operate its SSN-688 fleet for
30 years. 


      NAVY CAN MAINTAIN FORCE
      STRUCTURE BY BUYING FEWER
      SSNS
-------------------------------------------------------- Chapter 0:4.2

The Navy currently plans to begin to build 31 SSNs (1 Seawolf class
and a new 30-ship class of SSNs) from 1996 through 2014 at an
estimated procurement cost of $48 billion to support an SSN force
level close to the maximum required force structure through 2020. 
GAO analysis shows that the Navy could buy six fewer submarines at a
procurement cost savings of $9 billion while sustaining SSN
production.  Using this alternative, the Navy would maintain an SSN
force level close to its currently planned level through 2013,
declining to the minimum required force structure by 2020.  The
difference between the Navy's plan and this alternative plan is
illustrated in figure 1. 

   Figure 1:  Comparison of the
   Navy's Shipbuilding Plan and
   Alternative
   Plan

   (See figure in printed
   edition.)


      SERVICE LIFE EXTENSION OF
      NINE REFUELED SSN-688S COULD
      FURTHER REDUCE SSN
      PROCUREMENTS
-------------------------------------------------------- Chapter 0:4.3

The Navy has an opportunity to study the feasibility of extending the
SSN-688's service life beyond 30 years.  Because the older SSN-688s
are being refueled, they will have sufficient nuclear fuel to operate
for an additional 120-month operating cycle beyond the end of their
30-year design life.  The Navy has previously extended the SSN-637
class submarines' service life from 20 to 30 years and is studying an
extension from 30 to 40 years for the SSBN-726 (Trident) class
submarines.  Although not planned at this time, Navy officials stated
that a similar study at the end of this decade could be the basis for
extending SSN-688s' service life.  If the Navy were to perform a
third overhaul on the nine newest refueled SSN-688s and operated them
for one more 120-month operating cycle, the submarines could operate
for
42 years.  This would reduce to 17 the number of SSNs the Navy needs
to buy through 2014, at a procurement cost savings of $21 billion,
while maintaining an SSN force level within the range directed by the
bottom-up review.  GAO estimates the cost of performing the third
overhauls on nine submarines to be about $4 billion, resulting in a
net savings of about $17 billion. 


      NAVY COULD CONSIDER
      DEFERRING CONSTRUCTION
-------------------------------------------------------- Chapter 0:4.4

To sustain the submarine shipbuilding industrial base, DOD is
expected to request construction funding for new SSNs in 1996 and
1998.  However, the Secretary of Defense has told Congress that there
is no force structure need to build SSNs until after the turn of the
century.  GAO analysis shows that construction could be deferred into
the next decade, freeing up billions in planned shipbuilding funds. 
For example, deferring construction until 2003 instead of following
the Navy's plan could free up as much as $9 billion in procurement
funding.  However, this acquisition strategy would require higher
average annual production rates and higher annual shipbuilding
budgets when SSN production resumed.  While GAO and DOD do not know
the magnitude of the reconstitution costs, this alternative offers
the opportunity to defer near-term costs at a time when defense
budgets have been reduced.  Further, studies have shown that the
estimated reconstitution costs to restart submarine construction in
2003 are less than the potential $9 billion savings, suggesting that
a deferral strategy is worth further study. 


   MATTER FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:5

GAO believes that Congress should consider these analyses of less
costly alternatives as it deliberates SSN force structure and
acquisition issues. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

DOD provided comments on a draft of this report, which are included
in appendix IV.  Although DOD agrees with certain aspects of each of
the alternatives presented by GAO in the report, none is supported by
DOD. 

DOD did not take issue with the smaller SSN forces that would result
from accepting any of the alternatives presented in the report, and
DOD agreed that procuring a smaller submarine force would cost less. 
However, DOD disagreed with the magnitude of cost savings or cost
avoidance cited by GAO in each of the alternatives because DOD
believes that the savings would be reduced by shutdown and
reconstitution costs or increased unit costs by building fewer
submarines.  However, neither GAO nor DOD knows the magnitude of the
reconstitution costs, and DOD officials estimate the increased unit
costs to be less than $1 billion. 

OSD and the Navy believe that deferral is not a preferable strategy
because of (1) adverse impacts to the submarine industrial base, (2)
higher annual production rates requiring high percentages of
shipbuilding budgets, and (3) a resulting lesser quality SSN force. 
While OSD and the Navy do not agree on how many submarine industrial
base vendors are critical, they both believe that all
submarine-unique component vendors will lose their capabilities under
the deferral strategy presented.  Higher out-year production rates
and costs are an outcome of a deferral strategy in which the benefits
are more near term.  However, even the Navy's shipbuilding plan
includes a series of high production rates in the out-years. 
Qualitatively, the SSN force structure provided under the deferral
strategy is close to meeting the Joint Chiefs' requirements. 


INTRODUCTION
============================================================ Chapter 1

For more than four decades, U.S.  national security and military
strategies focused on fighting a global war with the former Soviet
Union.  During this period, an increasingly quiet and more capable
Soviet submarine force drove the U.S.  Navy's nuclear-powered attack
submarine (SSN) force level requirement and the need for newer,
quieter, and more capable SSNs.  However, with the collapse of the
Warsaw Pact and the December 1991 breakup of the Soviet Union, the
Navy began to refocus its maritime strategy.  The new strategy places
greater emphasis on regional contingencies, which are considered the
most likely scenarios to involve U.S.  naval forces, and requires a
smaller fleet.  The Navy, which had already begun to reduce the size
of the fleet in the late 1980s, is planning further reductions to
respond to direction in the Department of Defense's (DOD) bottom-up
review\1 and constrained U.S.  defense budgets. 


--------------------
\1 Report on the Bottom-Up Review, Department of Defense (Washington,
D.C., Oct.  1993). 


   NAVY HAS BEEN REDUCING SSN
   FORCE IN RESPONSE TO CHANGING
   THREAT
---------------------------------------------------------- Chapter 1:1

In 1988, the Navy's requirement for SSNs dictated by the Navy's
maritime strategy was 100 submarines.  Under the 1991 base force
concept, the Navy reduced the fiscal year 1995 SSN force level
requirement to 80.  Prior to 1993, the Navy took several measures to
reduce the SSN force structure, including (1) accelerating the
retirement of the SSN-637 class so that the entire class (except for
two special purpose ships) would be retired by the end of the
century, (2) removing five improved Los Angeles class (SSN-688I)
submarines from its shipbuilding plan, and (3) truncating the Seawolf
class shipbuilding program after construction of the second submarine
(SSN-22).  In 1992, the Deputy Secretary of Defense directed the
Joint Chiefs of Staff to conduct a comprehensive examination of the
submarine forces needed to meet the future threats to American
interests.  In April 1993, the Joint Chiefs concluded that 51 to 67
SSNs were needed to satisfy the National Military Strategy's
requirements.  Additionally, the Joint Chiefs required that a portion
of the submarine force in 2012 have Seawolf class stealth and more
capability than either the SSN-688 or SSN-688I class submarines to
meet the emerging threat posed by new generation nuclear and
diesel-electric submarines. 

The Navy's current SSN force consists of 87 SSNs, including 54 Los
Angeles class submarines (SSN-688).  Two classes of SSNs are still
being built--seven SSN-688Is and two Seawolf class (SSN-21).  (See
app.  II for a description of the SSN classes and a comparison of
their characteristics.)


   BOTTOM-UP REVIEW DIRECTS
   FURTHER SSN FORCE REDUCTIONS
---------------------------------------------------------- Chapter 1:2

Following the April 1993 Joint Chiefs report, the Secretary of
Defense in his October 1993 bottom-up review recognized that

     "the threat that drove our defense decision-making for four and
     a half decades--that determined our strategy and tactics, our
     doctrine, the size and shape of our forces, the design of our
     weapons and the size of our defense budgets--is gone."

Specifically, the review determined that

  a force of 45 to 55 SSNs is needed to meet the requirements of the
     defense strategy, including both regional conflicts and
     peacetime presence operations;

  production of the third Seawolf class submarine (SSN-23) beginning
     in fiscal year 1995 or 1996\2 at Electric Boat\3

would bridge the projected gap in submarine construction; and

  the Navy should develop and build a new attack submarine as a more
     cost-effective follow-on to the Seawolf class, with construction
     beginning in fiscal year 1998 or 1999 at Electric Boat. 

The last two decisions were made to maintain the two shipyards that
currently build all of the Navy's nuclear-powered ships:  Electric
Boat and Tenneco Corporation's Newport News Shipbuilding and Dry Dock
Company (Newport News Shipbuilding), Newport News, Virginia.  Newport
News Shipbuilding also builds nuclear-powered aircraft carriers. 
These decisions were accepted in the Secretary of Defense's Defense
Planning Guidance for fiscal years 1995 through 1999. 

The number of SSNs in the active fleet will primarily be dependent
upon the (1) number of submarines being retired each year, (2)
building rate, and (3) security environment.  As a result, DOD
expects the number to vary from year to year but be within the
established range of 45 to 55 SSNs. 


--------------------
\2 DOD plans to request SSN-23 funds in fiscal year 1996. 

\3 General Dynamics Corporation's Electric Boat Division (Electric
Boat), Groton, Connecticut. 


   NAVY ACTIONS TO REDUCE SSN
   FORCE TO 55
---------------------------------------------------------- Chapter 1:3

To reduce its SSN force to the maximum of 55 submarines by 1999, the
Navy plans to retire 31 pre-SSN-688 class submarines and 10 of its
older SSN-688s, while taking delivery of the 7 SSN-688Is and 2
Seawolf class submarines currently under construction.  Retirement of
the
10 SSN-688s will take place at about the midpoint of their 30-year
design life, or the time a refueling overhaul would be required;
therefore, each of these submarines will have as much as 14 years of
their design service life remaining.  The Navy believes that retiring
the SSN-688s prior to their mid-life refueling is the lowest cost
means of reducing the SSN force.  The Navy says it will save the cost
of the refueling overhaul of the 10 SSN-688s, approximately $294
million each.  After fiscal year 1999, the Navy plans to retire an
additional three SSN-688s at their mid-life.  These actions do not
have an adverse impact on the SSN force structure in the long term
because the submarines being retired early are some of the oldest of
the SSN-688 class. 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:4

In response to requests from the Chairmen, Subcommittee on Regional
Defense and Contingency Forces, Senate Committee on Armed Services,
and the Legislation and National Security Subcommittee, House
Committee on Government Operations, we reviewed (1) the Navy's
strategy for maintaining the SSN force structure as directed in the
DOD's bottom-up review and (2) alternatives available to the Navy for
maintaining its SSN force structure at less cost. 

To accomplish our objectives, we obtained and analyzed information on
the Navy's current SSN force levels, construction programs, and
estimated future SSN force levels and budgets.  We did not
independently verify or validate DOD's force level requirements
determined by the bottom-up review. 

To determine the effects of different alternatives on the SSN force
structure and on the nuclear-powered shipbuilding industrial base and
the feasibility of extending the operating cycle and the operational
life of SSN-688s, we met with key Navy program and technical
officials.  We began by analyzing the Navy's submarine shipbuilding
plans of September 1993 (presented in table 3.1) and then analyzed
the effects of different assumptions concerning shipbuilding
profiles.  In developing force structure models for comparing
alternative acquisition strategies, we first modeled the existing
force structure using the Navy's assumptions for (1) the starting
force level (54 SSN-688s and SSN-21s in fiscal year 1999), (2) the
retirement of
13 SSN-688s at their mid-life and the remaining SSN-688s at 30 years,
(3) the submarine construction period for new submarines (6 years for
a lead ship and 5 years for subsequent ships), and (4) the cost
estimate for the SSN-23. 

For new attack submarine costs, we used estimates from the September
1993 cost and operational effectiveness analysis of the baseline new
attack submarine--$2.8 billion (in constant fiscal year 1994 dollars
with no production savings)\4 and $1.5 billion for 29 follow-on
submarines.\5 On August 1, 1994, DOD approved Phase I design efforts
for the new attack submarine program but has not released a specific
acquisition plan with cost estimates.  We did not verify or validate
the estimates of reconstitution costs presented in chapter 4. 

To aid comparison of alternatives, we also performed a present value
analysis of each force structure alternative's funding profile to
account for the time value of money, since each investment
alternative has a different annual funding profile.  This analysis
showed no relative difference from the constant dollar analysis of
funding used throughout the report.  Appendix III contains a more
detailed discussion of our present value analysis. 

We observed a regional crisis demonstration and toured the USS Key
West (SSN-722), the USS Finback (SSN-670), and the submarine tender
USS
L.Y.  Spear (AS-36), which are stationed at Norfolk, Virginia.  We
also toured four of the Navy's six nuclear-capable public repair and
maintenance shipyards.  (See app.  I for a listing of the
organizations visited during our review.)

Our review was performed between October 1992 and June 1994 in
accordance with generally accepted government auditing standards. 


--------------------
\4 The estimate would be $3.1 billion in fiscal year 1998 dollars,
which we used in our calculations. 

\5 A fiscal year 1998 dollar estimate provided by new attack
submarine program officials. 


NAVY IS INCREASING SSN OPERATING
CYCLES TO ACHIEVE AN AFFORDABLE
FORCE STRUCTURE
============================================================ Chapter 2

The Navy's SSN-688 class submarines are designed to operate for 30
years.  However, until recently, Navy submarine operating and
maintenance plans would have resulted in the early retirement of most
of the fleet.  The Navy recognized that building submarines to
replace the retired fleet would require more funds than it could
afford.  It therefore initiated a study to determine the feasibility
of increasing the SSN-688's operating cycles.  An increase in
operating cycle would enable the fleet to operate for 30 years and
thereby support a more affordable acquisition strategy to meet the
force level requirement set by the bottom-up review.  Although the
study is not expected to be completed until November 1994, the Navy
has recently determined that an increase in the SSN-688's operating
cycle sufficient to operate for 30 years is technically feasible. 


   SSN-688 MAINTENANCE PLANS
   REQUIRED CHANGES
---------------------------------------------------------- Chapter 2:1

Navy regulations require that SSNs undergo major maintenance, which
is fundamental to safe submarine operation, at fixed intervals.  The
interval between major maintenance is called an operating cycle. 
When SSN-688 class submarines entered the fleet in 1976, the
operating cycle was
70 months with three major maintenance periods.  In 1981, the
operating cycle was extended to 84 months with three major
maintenance periods.  In 1987, the Navy eliminated the third major
maintenance period and planned to retire the SSN-688s after about 24
years of service.  Figure 2.1 shows the SSN-688s' operating and
maintenance cycles after elimination of the third maintenance period. 

   Figure 2.1:  SSN-688 Operating
   and Maintenance Cycles After
   1987 Changes

   (See figure in printed
   edition.)

   Source:  Our analysis of Navy
   data.

   (See figure in printed
   edition.)

Because the SSN-688s would operate for only about 4 years after the
third overhaul, which takes about 2 years, the Navy believed that
such a short operating cycle was not worth the expense of a third
overhaul. 

Retiring the SSN-688 fleet at 24 years was unaffordable.  Our
analysis shows that the Navy would have to build 44 SSNs at an
estimated procurement cost of $68 billion to maintain a minimum force
of 45 submarines through 2020.  We estimate that the Navy would have
to commit about 45 percent of its shipbuilding and conversion budget
to support this level of SSN procurement, more than double the
historical 20 percent spent for SSN construction. 

Another factor influencing the Navy's need to alter its operating
cycles was an unaffordable SSN maintenance burden.  In February 1992
guidance for developing budgets for fiscal years 1994 and beyond,
Navy officials directed that no more than three submarine refuelings
could be funded per year.  Of the 62 SSN-688 class submarines built
or under construction, the older 31 were all scheduled to receive
refueling overhauls at the time of their second major maintenance
period.  The newer 31 SSN-688s in the class are not expected to
require a refueling overhaul.  Because SSN-688 class submarines were
built in large numbers from year to year, the number of submarine
refueling overhauls could reach as high as six in a single year.  At
about $294 million per refueling, the costs could rise as high as
$1.8 billion per year. 


   NAVY IS STUDYING EXTENSION OF
   OPERATING CYCLE
---------------------------------------------------------- Chapter 2:2

In July 1992, the Navy began to evaluate the feasibility of extending
the SSN-688 class operating cycle beyond 90 months so that it could
spread refueling overhauls over a longer period of time.  Much of the
data for the operating cycle extension study will come from
engineering evaluations of system and component condition from the
first three SSN-688s in refueling overhaul and SSN-688s undergoing
other maintenance.  To date, the refueling overhaul of two SSN-688s
is near completion, and the refueling of the third has just begun. 
The condition of 111 of 119 major systems on SSN-688 class submarines
has been reviewed.  According to Navy officials, based on preliminary
analysis of the data received from the two refueling overhauls and
other inspections, a 120-month operating cycle is technically
feasible.  The Navy expects that the extension study will be complete
in November 1994.  Figures 2.2 and 2.3 show that a 120-month
operating cycle allows SSN-688 class submarines to operate for 30
years with only two major maintenance periods.  Figure 2.2 applies to
the 18 remaining SSN-688s requiring refuelings. 

   Figure 2.2:  120-Month
   Operating Cycle for SSN-688s
   Requiring Refueling

   (See figure in printed
   edition.)

   Source:  Our analysis of Navy
   data.

   (See figure in printed
   edition.)

   Figure 2.3:  120-Month
   Operating Cycle for SSN-688s
   Not Requiring Refueling

   (See figure in printed
   edition.)

   Source:  Our analysis of Navy
   data.

   (See figure in printed
   edition.)

Although the SSN-688 operating cycle study is not yet complete, the
Navy has begun using a 120-month operating cycle for fleet planning
and budget purposes.  For example, according to Navy officials, the
fiscal year 1995-99 program review assumed a 120-month operating
cycle for the SSN-688s to allow the reduction of planned refueling
overhauls to no more than three per year.  In November 1993, the Navy
used a 120-month operating cycle as the basis for the scheduling of
refueling overhauls and maintenance at its shipyards through fiscal
year 2003. 

While the Navy has begun to implement a 120-month operating cycle for
SSN-688 class submarines, Navy officials stated that significant
problems with some SSN-688 components may prevent them from extending
the operating cycle to 120 months without three 2- or 3-month
maintenance periods to repair or replace the components.  Examples of
such components are hull castings and seawater valves, which require
a drydocking and welding for repair. 


ALTERNATIVES TO THE NAVY'S
SHIPBUILDING PLAN ARE LESS COSTLY
AND MEET DOD'S NEEDS
============================================================ Chapter 3

Although the Navy can maintain a force level of 45 to 55 SSNs through
2020 with its current shipbuilding plan, our analysis shows that the
Navy can meet its requirement by building fewer submarines.  This
alternative would allow the Navy to sustain SSN production and buy
six fewer submarines, saving $9 billion in procurement costs.  The
Navy could also consider extending the service life of 9 refueled
SSN-688s and buy 14 fewer submarines than currently planned, saving
an additional $8 billion in procurement costs. 


   NAVY SSN SHIPBUILDING PLAN WILL
   SUPPORT DOD'S REQUIREMENT
---------------------------------------------------------- Chapter 3:1

The shipbuilding plan\1 shows that the Navy expects to begin building
31 SSNs between 1996 and 2014.  In response to direction in the
bottom-up review, the Navy plans to begin building the SSN-23 at
Electric Boat in 1996.  The Navy estimates the SSN-23 will require
$1.5 billion\2 more in fiscal year 1996 than the $900 million already
appropriated.  A new class of attack submarines is planned to be
initially built at Electric Boat beginning in 1998; the Navy plans to
begin construction of 30 by 2014.  The design and construction cost
of the first new attack submarine is estimated at $3.1 billion. 
Follow-on SSNs are expected to cost about $1.5 billion each.  Table
3.1 shows the Navy's SSN shipbuilding plan along with estimated
construction costs. 



                          Table 3.1
           
               Navy's SSN Shipbuilding Plan and
                       Estimated Costs

            (Fiscal year 1998 dollars in billions)

Fiscal year                             Quantity        Cost
------------------------------------  ----------  ----------
1996                                           1        $1.6
1997                                           0           0
1998                                           1         3.1
1999                                           0           0
2000                                           1         1.5
2001                                           1         1.5
2002                                           1         1.5
2003                                           2         3.0
2004                                           2         3.0
2005                                           2         3.0
2006                                           2         3.0
2007                                           2         3.0
2008                                           2         3.0
2009                                           2         3.0
2010                                           2         3.0
2011                                           3         4.5
2012                                           3         4.5
2013                                           3         4.5
2014                                           1         1.5
============================================================
Total                                         31       $48.2
------------------------------------------------------------
Source:  Our analysis of Navy data. 

As shown in figure 3.1, the Navy's shipbuilding plan will support an
SSN force level close to the required maximum of 55 SSNs through
2020.  The Navy plans to begin construction of 3 SSNs every 2 years
beginning in 2015 in order to maintain a 45-SSN force over the long
term. 

   Figure 3.1:  Effects of the
   Navy's SSN Shipbuilding Plan on
   SSN Force Levels (1999-2020)

   (See figure in printed
   edition.)

   Source:  Our analysis of Navy
   data.

   (See figure in printed
   edition.)


--------------------
\1 This shipbuilding plan was the Navy's notional plan dated
September 30, 1993.  The plan matched the shipbuilding profile
underlying the Navy's Program Review 95, which was approved by the
Secretary of the Navy in September 1993. 

\2 The estimate would be $1.6 billion in fiscal year 1998 dollars,
which we used in our calculations. 


   NAVY CAN MAINTAIN MINIMUM FORCE
   STRUCTURE BY BUYING FEWER SSNS
---------------------------------------------------------- Chapter 3:2

The Navy's shipbuilding plan maintains an SSN force level near the
maximum 55 SSNs required in DOD's bottom-up review through 2020.  Our
analysis shows that the Navy would need to fund only 25 SSNs through
2014 and save about $9 billion in procurement costs.  Using this
alternative, the Navy would maintain an SSN force level close to the
maximum 55 SSNs required in DOD's bottom-up review through 2013
before declining to
45 SSNs in 2020, continue low-rate SSN construction, and never
require funds for more than 2 SSNs per year.  Beyond 2014, this
alternative would require managed procurements of no more than three
SSNs per year. 
Table 3.2 shows this alternative plan and the estimated costs. 



                          Table 3.2
           
            Alternative SSN Shipbuilding Plan and
                       Estimated Costs

            (Fiscal year 1998 dollars in billions)

Fiscal year                             Quantity        Cost
------------------------------------  ----------  ----------
1996                                           1        $1.6
1997                                           0           0
1998                                           1         3.1
1999                                           0           0
2000                                           1         1.5
2001                                           2         3.0
2002                                           1         1.5
2003                                           2         3.0
2004                                           1         1.5
2005                                           2         3.0
2006                                           1         1.5
2007                                           2         3.0
2008                                           1         1.5
2009                                           1         1.5
2010                                           2         3.0
2011                                           2         3.0
2012                                           1         1.5
2013                                           2         3.0
2014                                           2         3.0
============================================================
Total                                         25       $39.2
------------------------------------------------------------
Figure 3.2 shows SSN force level projections based on this
alternative SSN shipbuilding plan. 

   Figure 3.2:  SSN Force Level
   Projections Through 2020 if the
   Navy Buys 25 SSNs Through 2014
   (1999-2020)

   (See figure in printed
   edition.)


   REFUELING OLDER SSN-688S OFFERS
   OPPORTUNITY TO REDUCE
   PROCUREMENTS
---------------------------------------------------------- Chapter 3:3

The Navy could extend the SSN-688's service life beyond 30 years. 
The first half of the SSN-688 fleet is scheduled to be refueled at
about the midpoint of the submarine's design life.  The new nuclear
cores to be installed are of the same design as those installed in
the second half of the SSN-688 class.  With these new nuclear cores,
the early SSN-688 class submarines will have sufficient fuel to
operate for an additional 120-month operating cycle at the end of
their 30-year design life.  Furthermore, officials from both SSN
shipbuilders stated that SSN-688 class submarines could operate for
much longer than 30 years; one of the shipbuilders stated that 10 to
20 years of additional service would not be unreasonable. 

Past Navy actions indicate that extending a submarine's service life
may be feasible.  After a 5-year study was completed on the SSN-637
class submarine--the predecessor of the SSN-688 class--the design
life was extended from 20 years to 30 years, with a possible
extension to 33 years on a case-by-case basis.\3

According to Navy officials, a similar study could be the basis for
extending the SSN-688's service life.  Technical information from the
SSN-688s' midpoint overhauls could be used in an assessment of the
feasibility of a service life extension.  In addition, both SSN
shipbuilders agree that conducting various destructive and
nondestructive metallurgical tests on retiring submarines would be
useful for determining the validity of the submarines' operational
life prediction models and their actual conditions.  Navy officials
said, however, that (1) it would be premature to begin a study before
1998 at the earliest, when the SSN-688s near the end of their design
life, and (2) the Navy plans no such study for the SSN-688 class. 
The Navy has begun to study an extension from 30 to
40 years of the service life of its Nuclear-Powered Ballistic Missile
Submarine (SSBN)-726 Ohio class (Trident) submarine, which entered
the fleet 5 years later than the SSN-688. 

If the SSN-688's service life could be extended and the Navy chose to
operate the submarines longer than 30 years, substantial procurement
savings would be possible through 2014.  The 18 SSN-688 class
submarines that will be refueled at their mid-life could make good
candidates for a service life extension because they could operate
for nearly 30 years after the refueling.  We analyzed the effect on
the force structure of extending the service life of the 18 refueled
SSN-688s, assuming that the refueled SSN-688s would operate for one
additional operating cycle.  After these submarines serve for 30
years, they could undergo a 2-year overhaul and serve for one more
10-year operating cycle, for a total service life of
42 years.  We found that extending the service life of the newer 9
refueled SSN-688s was a more cost-effective alternative than
extending the service life of all 18 refueled SSN-688s. 

We estimated that the cost for the additional overhaul of SSN-688
class submarines would be about $406 million.  If the service life of
the
9 SSN-688s was extended to 42 years, SSN procurements from 1996
through 2014 could be reduced from 31 to 17.  At $1.5 billion per
submarine, the Navy could save about $21 billion in procurement
costs.  However, the cost of extending the service life of the nine
SSN-688 class submarines would be about $3.7 billion, reducing the
overall savings to about $17.3 billion.  Also, after 2020, submarine
procurements would have to be increased to 2 or
3 per year to maintain the minimum 45-SSN force level.  Figure 3.3
shows the effects on the force structure of operating nine of the
refueled SSN-688s for an additional 120-month operating cycle. 

   Figure 3.3:  Effects on SSN
   Force Levels of Extending the
   Service Life of Nine Refueled
   SSN-688s (1999-2020)

   (See figure in printed
   edition.)


--------------------
\3 Budget decisions in 1989 led the Navy to accelerate the retirement
of the SSN-637 class so that most will be retired by 27 years of
service. 


   DOD COMMENTS AND OUR EVALUATION
---------------------------------------------------------- Chapter 3:4

DOD agreed that buying fewer submarines would cost less, but
indicated that lower procurement rates would increase unit costs. 
The alternative plan presented satisfies the bottom-up review's
minimum 45-SSN force level, providing a less costly alternative
during times of reduced defense budgets.  DOD officials said that
procurement savings could be reduced by as much as $1 billion due to
the higher unit costs caused by building
25 SSNs versus the 31 planned by the Navy.  If service life extension
proves feasible, it also provides an opportunity to buy fewer
submarines later in the program, although unit costs again may be
higher.  The two alternatives presented both satisfy DOD's industrial
base concerns by continuing low-rate production and defer higher SSN
production rates (three per year) until after 2014.  The Navy's plan
will require this higher production rate beginning in 2011. 

DOD commented that we did not adequately address the current and
future threat.  However, like the Navy's shipbuilding plan, the
alternative plans in this chapter meet the Joint Chiefs' requirement
for more capable submarines by 2012. 


ALTERNATIVE ACQUISITION STRATEGY
AVAILABLE TO NAVY
============================================================ Chapter 4

The confluence of reductions in the SSN force structure and the
extension of the SSN-688's service life affords the Navy an
opportunity to choose an alternative SSN acquisition strategy.  The
Navy could defer SSN construction until early in the next century and
build the submarines in larger numbers when production resumes. 
Using this strategy, the Navy could free up billions of dollars in
near-term shipbuilding funds required for planned SSN construction. 
However, some uncertain reconstitution costs would reduce the $9
billion savings that the Navy could achieve by building 25 submarines
versus 31 as the Navy plans (as discussed in ch.  3).  Depending on
the assumptions used regarding closing, maintaining, and restarting
shipbuilder facilities; hiring and retraining personnel; and
shipbuilder workloads, reconstitution costs could range from less
than $1 billion to as much as $6 billion. 


   NEW ATTACK SUBMARINES ARE NOT
   NEEDED UNTIL THE NEXT DECADE
---------------------------------------------------------- Chapter 4:1

In February 1994, the Secretary of Defense testified that DOD has no
force structure need to build new submarines until after the turn of
the century.  New SSN construction can be deferred because the Navy
can maintain the minimum force structure with its current fleet until
2012; that is, the force level would not fall below the minimum
required 45-SSN level until 2012.  Deferring new construction can
free up billions of dollars in planned construction costs in the near
term.  As an illustration of the potential for deferring SSN
construction, we analyzed an alternative in which construction is
deferred until 2003.  We assumed that construction of the submarines
would take 5 years, which is how long the Navy estimates new attack
submarine construction will take.  However, we lengthened
construction time for the first two SSNs to 7 and 6 years,
respectively, to account for the additional time needed to build the
first submarine of a class and any extra effort required to restart
production after a hiatus.  We believe that using 7 and 6 years is
reasonable because a recently issued RAND report\1 noted that 6 years
was required to deliver the first submarine after restarting
submarine production at Newport News Shipbuilding, assuming
construction of the funded aircraft carrier, CVN-76.  Although SSN
unit costs would vary based on the number of SSNs bought, we used the
same procurement costs as the Navy's current estimates for the new
attack submarine program because OSD and the Navy did not provide
alternative unit costs.  Table 4.1 shows the production rate and cost
of the deferral scenario. 



                          Table 4.1
           
              Deferred SSN Shipbuilding Plan and
                       Estimated Costs

            (Fiscal year 1998 dollars in billions)

Fiscal year                             Quantity        Cost
------------------------------------  ----------  ----------
1996-2002                                      0           0
2003                                           1        $3.1
2004                                           0           0
2005                                           1         1.5
2006                                           1         1.5
2007                                           2         3.0
2008                                           2         3.0
2009                                           3         4.5
2010                                           3         4.5
2011                                           3         4.5
2012                                           3         4.5
2013                                           3         4.5
2014                                           3         4.5
============================================================
Total                                         25       $39.1
------------------------------------------------------------
Compared to the Navy's September 1993 SSN shipbuilding plan, this
alternative would save about $9 billion in procurement costs through
2014.  Also, this alternative defers as much as $9 billion in planned
SSN construction funding from 1996 to 2002.  However, savings would
be offset by reconstitution costs. 

The 1994 RAND report, which evaluated the U.S.  submarine production
base, shows that reconstitution costs are highly dependent on
assumptions regarding closing, maintaining, and restarting
shipbuilder facilities; hiring and retraining personnel; and
shipbuilder workloads.  According to the report, shipbuilder
facilities and personnel reconstitution costs are estimated at $800
million to $2.7 billion.\2 The $800 million estimate is based on the
Navy beginning to build CVN-76 at Newport News Shipbuilding in 1995
and then restarting submarine production in 2003.  The $2.7 billion
represents RAND's estimate to restart submarine production at
Electric Boat in 2003.  Further, Navy officials cited a Navy
industrial base study estimate of $4 billion to $6 billion for
reconstitution coats, including vendor costs. 

Even with a deferral of SSN construction and a reduction in the
number of submarines built, the Navy can still support its required
SSN force structure.  Figure 4.1 shows the force structure
implications of deferring SSN construction to 2003 and building at
the rate shown. 

   Figure 4.1:  SSN Force
   Structure Under a Deferred
   Acquisition Scenario
   (1999-2020)

   (See figure in printed
   edition.)

Deferring SSN construction has budgetary risks.  If construction is
deferred until 2003, the average annual production rate would
increase from about 1.5 SSNs to about 3 SSNs.  These higher
production rates would force the Navy to sustain higher annual
shipbuilding budgets than it currently plans once SSN construction
resumed. 


--------------------
\1 The U.S.  Submarine Production Base:  An Analysis of Cost,
Schedule, and Risk for Selected Force Structures, RAND (Santa Monica,
CA., 1994). 

\2 The RAND report used fiscal year 1992 dollars. 


   SSN CONSTRUCTION TO CONTINUE
   FOR INDUSTRIAL BASE REASONS
---------------------------------------------------------- Chapter 4:2

DOD decided to build the SSN-23 in 1996 and commence with new SSN
construction in 1998 at Electric Boat to support the nuclear
shipbuilding industrial base.  The United States has two nuclear
shipbuilders:  Electric Boat, which builds submarines and Newport
News Shipbuilding, which builds aircraft carriers and submarines.  In
the bottom-up review, DOD considered consolidating nuclear
shipbuilding at Newport News Shipbuilding.  This would have
eliminated the need to build the SSN-23 before the commencement of
new SSN construction.  Newport News Shipbuilding could shut down
construction of nuclear submarines and still preserve the capability
to resume production in the future because much of the shipbuilder's
skilled workforce would continue building nuclear-powered aircraft
carriers.  An official from the shipbuilder reported that aircraft
carrier production would account for 69 to
92 percent of the specialized job areas and skills needed for
submarine construction.  These percentages would increase from 95
percent to
100 percent if the shipbuilder also overhauled and refueled SSNs.\1
According to the bottom-up review, consolidating construction at
Newport News would save the Navy about $1.2 billion after accounting
for about $625 million of shutdown/reconstitution costs during the
future years defense program period. 

DOD determined that the Navy needs to retain both nuclear
shipbuilders for industrial base and national security reasons.  To
support DOD's decision, Electric Boat will continue to build
nuclear-powered submarines, while Newport News Shipbuilding will
build nuclear-powered aircraft carriers.  This decision is based on
DOD's belief that given the uncertain world situation, it is too
risky to have only one provider for both nuclear-powered aircraft
carriers and submarines.  Unless DOD changes its policy to retain the
two shipbuilders, the alternative of deferring SSN construction may
not be feasible. 

Our analysis shows that either shipbuilder can meet the Navy's SSN
shipbuilding requirements.  Both nuclear-capable shipbuilders have
the capacity to build at least three Seawolf-size submarines per year
and can build a larger number of smaller submarines.  The new attack
submarine class is planned to be at least 20 percent smaller than the
Seawolf class.  Under either the Navy's shipbuilding plan or a
deferred construction acquisition strategy, either shipbuilder could
meet the Navy's SSN construction needs. 


--------------------
\1 Currently, naval shipyards at Puget Sound, Washington; Mare
Island, California; Pearl Harbor, Hawaii; Portsmouth, New Hampshire;
Norfolk, Virginia; and Charleston, South Carolina, overhaul and
refuel SSNs. 


      EFFECT OF CONSTRUCTION
      DEFERRAL ON CRITICAL
      INDUSTRIAL VENDORS IS
      UNCLEAR
-------------------------------------------------------- Chapter 4:2.1

The Navy has stated that if no submarine is built before the start of
the new class of attack submarines in 1998, several critical
submarine vendors will be lost.  However, OSD and the Navy lack
uniform criteria for determining what constitutes a critical vendor,
and the Navy may not be considering the availability of alternate
suppliers. 

According to OSD, a vendor is critical if no alternate sources or
substitutes are available or can reasonably be developed and still
meet long-term defense needs.  The Navy, however, considers some
vendors critical even when alternate sources are available.  For
example, although OSD has identified 8 critical suppliers of nuclear
and nonnuclear submarine components, the Naval Sea Systems Command
has identified 49 critical vendors of nonnuclear components alone,
and the Seawolf program office has identified 63 critical nonnuclear
vendors. 

Evidence shows that the Navy has not fully considered alternative
sources to the vendors it considers critical.  For example, of the
products produced by 49 vendors considered critical by the Naval Sea
Systems Command, if no more than two Seawolf class submarines are
built, a majority are available from multiple vendors or from
single-source vendors for which alternate suppliers exist. 
Furthermore, the Navy could create new or expand existing
relationships with the SSN shipbuilders and government-owned
laboratories to compensate for the loss of commercial industrial
skills.  For example, in the past the SSN shipbuilders have been
forced to produce submarine components that vendors stopped
producing.  When Newport News Shipbuilding lost its sole-source
manufacturer of torpedo tubes, it began producing torpedo tubes. 
Newport News Shipbuilding officials stated that they can now produce
the tubes faster and at less cost than the vendor could.  The Navy
could also rely on government laboratories like the Department of
Energy's Y-12 facility at the Oak Ridge National Laboratory and the
Kansas City Plant, both of which already produce components for Navy
submarine-related programs.  For example, the Y-12 facility is
responsible for machining and assembling the SSN-21 propulsor. 


   DOD COMMENTS AND OUR EVALUATION
---------------------------------------------------------- Chapter 4:3

DOD nonconcurs with the deferral strategy presented in this chapter
because it believes that deferring construction would (1) cause SSN
unit costs to rise, (2) result in the loss of the submarine
shipbuilding industrial base, and (3) require billions of dollars to
reconstitute the industrial base.  DOD believes that low-rate
submarine production is the preferable option for sustaining the
submarine industrial base. 

OSD and Navy officials disagreed with using the same SSN construction
cost estimates for a strategy that defers construction to 2003
because the cost estimates were developed for a 30-SSN buy starting
in 1998.  Our estimate that the Navy could save as much as $9 billion
by building 25 SSNs, versus the 31 SSNs the Navy plans to build, is
based on notional cost estimates from the best information available;
OSD and the Navy did not provide alternative cost estimates.  We
agree that the actual costs for the new attack submarine could be
affected by design and construction learning curves, variation in
overhead expenses, the wide variation of material costs, and
construction inefficiencies caused by fluctuations in the
construction workforce.  Because of these factors, cost estimates
become less certain over time.  However, regardless of the unit cost,
the alternatives presented in this report require building fewer
submarines and should require less total funding than the Navy's
current plans. 

DOD commented that the deferral strategy does not adequately address
the threat.  However, this strategy meets the Joint Chiefs'
requirement for more capable submarines in 2014, only 2 years later
than required. 

DOD believes that a construction deferral and subsequent
reconstitution of the submarine industrial base would create an
enormous management challenge and increase program risk.  DOD
commented that funds saved by deferring SSN construction would need
to be spent during the deferral period to reconstitute the industrial
base.  Our report clearly states that deferring SSN construction to
2003 could defer the spending of as much as $9 billion in costs
between 1996 and 2002.  While we and DOD do not know the magnitude of
the reconstitution costs, this alternative does offer the opportunity
to defer near-term costs, which may be appealing during a period of
reduced defense budgets.  Further, the 1994 RAND report shows that
the estimated reconstitution costs to restart submarine construction
in 2003 are less than the potential $9 billion savings, suggesting
that a deferral strategy is an alternative warranting further study. 

In its comments, DOD acknowledged that OSD and the Navy had not
thoroughly explored the expansion of current manufacturing
relationships to sustain the industrial base, but argued that such a
restructuring would have a large cost (although not estimated by DOD)
that would offset near-term cost avoidance.  However, expanding
current manufacturing relationships might reduce the adverse effects
on the submarine industrial base during a deferral and might reduce
the time and funding required when reconstitution begins. 


ORGANIZATIONS GAO VISITED
=========================================================== Appendix I

The following is a list of the U.S.  government organizations and
private companies contacted during our review. 


   DEPARTMENT OF DEFENSE
--------------------------------------------------------- Appendix I:1

Office of the Secretary of Defense, Washington, D.C. 

  Assistant Secretary of Defense for Program Analysis and Evaluation,
     General Purpose Forces, Naval Force Division

Office of the Chairman, Joint Chiefs of Staff, Washington, D.C. 

  Force Structure, Resource, and Assessment Directorate

Defense Intelligence Agency, Washington, D.C. 

Advanced Research Projects Agency, Arlington, Virginia


   DEPARTMENT OF THE NAVY
--------------------------------------------------------- Appendix I:2

Office of the Assistant Secretary of the Navy (Research, Development
and Acquisition), Washington, D.C. 

  Program Executive Officer, Submarine Programs

Office of the Chief of Naval Operations, Washington, D.C. 

  Assistant Deputy Chief of Naval Operations for Undersea Warfare,
     Attack Submarine Division

Commander in Chief, U.S.  Atlantic Fleet, Norfolk, Virginia

  Commander, Submarine Forces Atlantic

  Commanders, Submarine Squadrons 6 and 8, Naval Submarine Forces,
     U.S.  Atlantic Fleet, Norfolk, Virginia

  Chief of Staff, Submarine Squadron 4, Naval Submarine Forces, U.S. 
     Atlantic Fleet, Charleston, South Carolina

  Commanding Officer, USS Albany (SSN-753), U.S.  Atlantic Fleet,
     Norfolk, Virginia

  Director, Special Surveillance and Commander, Task Force 84
     Operations, U.S.  Atlantic Fleet, Norfolk, Virginia


Naval Sea Systems Command, Washington, D.C. 

  Deputy Commander for Nuclear Propulsion

  Deputy Commander for Submarines

Submarine Safety and Quality Assurance Division

Program Manager, SSN-688 Ship Acquisition Program Office, Arlington,
Virginia

Submarine Maintenance Engineering, Planning and Procurement Activity,
Portsmouth, New Hampshire

  Deputy Commander for Industrial and Facility Management

Industrial Planning Division

Puget Sound Naval Shipyard, Bremerton, Washington

Portsmouth Naval Shipyard, Kittery, Maine

Mare Island Naval Shipyard, Vallejo, California

Charleston Naval Shipyard, Charleston, South Carolina

Office of Naval Intelligence, Suitland, Maryland


   DEPARTMENT OF ENERGY
--------------------------------------------------------- Appendix I:3

Office of Technology Utilization, Washington, D.C. 

Y-12 Plant, Oak Ridge, Tennessee

Kansas City Plant, Kansas City, Missouri


   OTHER ORGANIZATIONS AND
   COMPANIES
--------------------------------------------------------- Appendix I:4

Babcock and Wilcox, Nuclear Equipment Division, Barberton, Ohio

Electric Boat Division, General Dynamics Corporation, Groton,
Connecticut

Marine Mechanical Corporation, Cleveland, Ohio

Newport News Shipbuilding and Dry Dock Company, Tenneco Corporation,
Newport News, Virginia

Westinghouse Electro-Mechanical Division, Cheswick, Pennsylvania

Congressional Research Service, Washington, D.C. 


U.S.  SSN CHARACTERISTICS
========================================================== Appendix II


   SUBMARINE CHARACTERISTICS
-------------------------------------------------------- Appendix II:1

The Navy claims that a submarine's unique combination of stealth,
endurance, and agility gives it a critical advantage over other
weapons.  A submarine's stealth is derived from its ability to
submerge and become essentially invisible and undetectable.  Nuclear
propulsion allows submarines to remain submerged 24 hours a day. 
Nuclear propulsion also gives a submarine endurance because the
ship's nuclear fuel lasts for many years of operation.  The endurance
of a nuclear-powered submarine is limited only by the crew's food
supply and weapons expenditures.  Endurance provides submarines the
advantages of continuity and independence.  The Navy defines
submarine agility as the ability to proceed quickly where needed,
often before other forces, and respond to a broad range of
situations.  A submarine's agility results from (1) nuclear
propulsion, which allows unlimited high speed operation; (2) multiple
mission capability; and (3) ship- and shore-based command, control,
and communications systems. 


   CURRENT U.S.  SSN PROGRAMS
-------------------------------------------------------- Appendix II:2

In fiscal year 1994, the U.S.  Navy operated 87 SSNs:  54 SSN-688 Los
Angeles class submarines and 33 SSNs of older classes.  The Navy is
currently building two classes of SSNs:  the SSN-688 Los Angeles
class and SSN-21 Seawolf class. 


      LOS ANGELES CLASS (SSN-688)
------------------------------------------------------ Appendix II:2.1

The SSN-688 class, introduced into the fleet in 1976, will be the
mainstay of the Navy's SSN force well into the next century.  By
1996, 62 SSN-688s will have been built to make up the entire class. 
While all SSN-688 submarines are capable of firing the Tomahawk
cruise missile, the last 31 submarines were equipped with vertical
launch tubes for these missiles.  Older class submarines launch
cruise missiles through their torpedo tubes.  The final 23 SSNs of
the SSN-688 class are improved versions of the original SSN-688
design (SSN-688Is).  Among the changes to the SSN-688 class are
improved sound quieting and an improved sonar.  Also, replacement of
the sail-mounted control planes with control planes attached to the
bow allows SSN-688Is to surface through arctic ice.  The last
SSN-688s cost the Navy approximately $800 million in then-year
dollars.  The Navy has estimated that SSN-688 procurement could be
restarted and two submarines built for approximately $2.4 billion in
current dollars. 


      SEAWOLF CLASS (SSN-21)
------------------------------------------------------ Appendix II:2.2

Two Seawolf class submarines are now being built, with the first to
be delivered in 1996 and the second to be delivered in 1998.  The
Seawolf is designed to be substantially quieter than the SSN-688
class and have better sonar and combat systems.  According to the
Navy, the Seawolf will have three times as much capability as the
SSN-688.  When the program began, the Navy justified construction of
the Seawolf largely on the need to counter the improved Soviet
submarines that were expected to appear in the future.\1 While two
Seawolf class submarines are under construction, the bottom-up review
directed building a third Seawolf to sustain the submarine
shipbuilding industrial base during the gap between the end of SSN-22
construction and the beginning of the new attack submarine
construction program.  The SSN-21 was funded in fiscal year 1989 at a
cost of $1.9 billion, while the SSN-22 was funded in fiscal year 1991
at a cost of $1.8 billion.  The Navy currently estimates the SSN-23
will cost $1.5 billion more in fiscal year 1996 dollars than the $900
million already appropriated. 


--------------------
\1 Initially, the Navy planned to procure 29 Seawolf class
submarines; after the 1991 major warship review, that number was
reduced to 12.  After three Seawolfs had been authorized, the Bush
administration proposed that the number be further reduced to 1;
however, Congress funded the second Seawolf (SSN-22). 


      NEW ATTACK SUBMARINE
------------------------------------------------------ Appendix II:2.3

In early 1991, the Navy began to plan for a new attack submarine to
replace the truncated Seawolf program.  This program has previously
been known as the Centurion.  Although no final decision has been
made about which new attack submarine design will be built, the Navy
expects it to be as quiet as the Seawolf but smaller, generally less
capable, and less costly.  In August 1992, the Under Secretary of
Defense for Acquisition approved concept definition studies for the
new attack submarine.  A cost and operational effectiveness analysis,
which analyzes the comparative cost-effectiveness of new attack
submarine alternatives, was completed in September 1993.  As a result
of the Defense Acquisition Board's review on January 12, 1994, the
Navy studied a number of alternative SSN building programs and their
impact on the industrial base.  On August 1, 1994, the Defense
Acquisition Board met to review an initial acquisition strategy for
the new attack submarine (Milestone I) and approved Phase I design
efforts focused on construction of a lead ship in fiscal year 1998. 
The cost and operational effectiveness analysis estimated that the
first new attack submarine would likely cost $3.1 billion and
follow-on submarines would cost $1.5 billion.\2


--------------------
\2 The analysis presented the cost estimates in constant fiscal year
1994 dollars:  $2.8 billion for the lead ship and $1.5 billion for 29
follow-on ships. 


PRESENT VALUE ANALYSIS
========================================================= Appendix III

Investment alternatives normally involve incurring different costs at
different times.  For two or more alternatives to be compared on an
equal economic basis, taking into account the time value of money,
the costs of each alternative at its "present value" must be
considered.  We did an analysis to determine the present value of
funding required by different SSN shipbuilding alternatives. 
Discounting, which reduces a stream of future funding requirements to
a single amount (a present value), attaches greater weight to more
current costs and less weight to future costs.  By using present
value techniques, we converted future dollar funding into their value
in 1994.  A present value analysis makes each alternative's funding
comparable despite the differing funding profiles for each
alternative. 

Although present value analysis is a generally accepted practice,
selecting an appropriate discount rate has been the subject of much
controversy.  For federal government investment analysis and
decision-making, arguments have been presented for discount rates
ranging from the cost of borrowing by the Treasury to the rate of
return that can be earned in the private sector.  Since the Treasury
meets most government funding requirements, we maintained that its
estimated cost to borrow was a reasonable basis for the discount rate
used in present value analysis.  Accordingly, for our analysis, we
used the average yield on outstanding marketable Treasury obligations
that had remaining maturities similar to the time period involved in
our analysis.  We subtracted a 20-year average of the projected gross
domestic product deflator from the average yield on outstanding
marketable Treasury obligations and applied the resulting real
discount rate to the 1994 constant dollar funding values.  Table
III.1 shows our present value analysis. 



                         Table III.1
           
              Constant Dollar and Present Value
             Analysis of Funding Profiles for SSN
             Shipbuilding Alternatives for Fiscal
                       Years 1996-2014

                    (Dollars in billions)

                                     Funding
SSN shipbuilding                   (constant   Present value
alternative                    1998 dollars)      of funding
--------------------------  ----------------  --------------
Navy plan (31 SSNs)\a                  $48.2           $24.8
Alternative plan (25                    39.2            20.9
 SSNs)\b
Deferred plan (25 SSNs)\c               39.1            17.5
------------------------------------------------------------
\a The Navy plan's funding profile is presented in table 3.1. 

\b The alternative plan's funding profile is presented in table 3.2. 

\c The deferred plan's funding profile is presented in table 4.1. 

Under the alternative plan, the stream of funding requirements begins
almost right away (1996), with the program's reduced buy of 25 SSNs
spread out fairly evenly over the 1996-2014 time interval.  Under the
deferred plan, the stream of funding requirements does not begin
until 2003; the bulk of the 25 SSNs would be bought toward the end of
the 1996-2014 time interval.  Also, estimated reconstitution costs,
which range from $800 million to $6 billion, would raise the deferred
plan's total funding and its present value. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
========================================================= Appendix III



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V


   NATIONAL SECURITY AND
   INTERNATIONAL AFFAIRS DIVISION,
   WASHINGTON, D.C. 
--------------------------------------------------------- Appendix V:1

Jess T.  Ford, Associate Director
Frederick A.  Bigden, Jr., Assistant Director
Fred P.  Fenstermaker, Evaluator-in-Charge
Blanche Jackson, Evaluator
Joseph P.  Raffa, Evaluator
James K.  Seidlinger, Evaluator

