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Navy Using ‘Legally Creative’ Contract Structure to Keep Ship Availabilities On Track Despite Continuing Resolutions

USS Harry S. Truman (CVN-75) transits the Elizabeth river from its homeport at Naval Station Norfolk to Norfolk Naval Shipyard in 2016. US Navy Photo

The Navy has gotten creative in dealing with budget uncertainties and continuing resolutions, developing a new ship maintenance contract structure to keep 11 ship availabilities on track at the beginning of Fiscal Year 2018 that would otherwise face major delays due to the impending CR, the head of surface ship maintenance told USNI News.

Rear Adm. Jim Downey, commander of Navy Regional Maintenance Centers and deputy commander for surface warfare at Naval Sea Systems Command (NAVSEA) told USNI News today that up to a third of the ship maintenance workload can be put at risk when the fiscal year starts with a CR. This year, the Pentagon has already said 11 ship availabilities are at risk: USS Kidd (DDG-100), USS Pinckney (DDG-91), USS Coronado (LCS-4), USS Port Royal (CG-73), USS Princeton (CG-59), USS San Diego (LPD-22), USS Carter Hall (LSD-50), USS Oscar Austin (DDG-79), USS Vella Gulf (CG-72), USS James E. Williams (DDG-95) and USS Mahan (DDG-72).

“Under a 90-day CR, all listed ship inductions will be delayed, as the shipyards’ capacity is not capable of fully ‘catching up’ lost work, thus the entire schedule slips to the right. This means that even a short CR creates delays in ship depot maintenance, thus deployment timelines, into subsequent years,” reads a Sept. 8, 2017, memo from Defense Secretary James Mattis to Senate Armed Services Committee chairman Sen. John McCain (R-Ariz.)

In the current fiscal year, Navy officials had warned that 14 ships were at risk of delayed or canceled availabilities due to a string of CRs.

To avoid these delays, Downey said the Navy is now awarding contracts that are structured differently, to leverage the fact that maintenance work is typically funded with one-year money – use-it-or-lose-it money which must be spent in the year it is appropriated by lawmakers – whereas modernization efforts are typically paid for with three-year money. In essence, the planning and early work for a ship availability can get started as a ship modernization effort, with planning and early activities paid for with three-year money already in the Navy’s accounts, and one-year maintenance work can be added in later, once the availability is already underway and Congress eventually gives the Navy its full-year appropriations.

“We’ve worked very hard on how we structure our funding to get the planning to keep all those ships in play, and to keep them in play to their schedule, expecting that the funding is going to come just in time,” Downey said.
“So we do the planning for them. … And then we go ahead and structure that contract to deal with the continuing resolution. So the base work now may be more modernization-related because I have that money, and I’m going to lay the maintenance work in as an option. So I’m going to award you the contract; I may not be 100-percent funded but I am funded for this part. I’m going to award the contract to you – we’re currently referring to it as a split-CLIN approach – so that you’ve got the work and you know that the rest of the work is coming, you’re going to be able to bid against it, we’re going to exercise those options if we get the budget approved.”

Downey told USNI News that he can’t change how Congress appropriates money – the Department of Defense has begun every fiscal year since FY 2010 under a continuing resolution, during which time the Navy cannot fund new projects and cannot ramp up spending above the previous year’s levels – but he can best set up the Navy to succeed in this kind of new normal. Though the Navy has already largely stopped planning acquisition contract actions during the first quarter of the year, ship maintenance, modernization and repair work must take place throughout the year to maintain even workloads at the yards and to address emergent issues, and therefore required a creative solution to get around the CRs.

“The first issue is, if you don’t have all the money, especially with single-year appropriations in maintenance, how do you do that? So we’re getting as legally creative as we can. So then you get a repair yard that says, okay, so I’m betting on this other work. Then you go to, historically, when have we not had a budget ultimately? It’s going to come through at some point,” he said.
“So you’ve got to mix them, I’ve got to keep the industrial base healthy, and I need to get the work done – could you potentially get into inefficient ways of doing it because of that structure? Potentially. But at least you’re planning to do it. So that approach keeps [on-time maintenance availabilities] in play, potentially causes inefficiencies, but not as bad as having them all hanging out there. So it is a big challenge, but that’s our job.”

The fiscal year ends Saturday at midnight and the Continuing Resolution takes effect. The CR will last until early December.

  • sferrin

    The politicians need to start doing their damn jobs and stop taking so many vacations. This continuing resolution nonsense is ridiculous. Any person in a normal job would have been fired long ago if they were incapable of making a budget.

  • Pat

    One year money does not have to be “spent” within the year. It must be obligated. Section 2410a might need to be invoked, but that is not impacted by a CR.

    • airider

      The work does need to be put on contract and obligated within that year though. You can’t put things on contract that you don’t have the money and just as importantly the authorization for. If the HASC and SASC would add language to the CR to support authorization of this work, then the continuous shuffle our services are constantly doing could be relieved a bit.

  • D. Jones

    “Legally Creative Structure” = LCS

    Coincidence? I think not.

  • homey

    They should get all the banks that were bailed out to start funding some ship maintenance…

  • John King

    I thought all the maintenance at navy yards was in a working capital fund, which doesn’t need an appropriation except to get reimbursed? The private yards should proceed with bank financing, knowing they are getting reimbursed when an appropriation is passed.