The Congressional Budget Office found that a common type of attack submarine maintenance availability is actually less expensive to perform at private shipyards than at the Navy’s own public naval shipyards, according to a summary of the report obtained by USNI News.
The four public shipyards that do maintenance work on nuclear-powered submarines and aircraft carriers have experienced massive backlogs in recent years, and in a small number of cases the Navy has asked General Dynamics Electric Boat and Huntington Ingalls Industries’ Newport News Shipbuilding to step in and take on an attack submarine maintenance availability. In those instances, though, Navy officials have said that conducting this work at a private yard comes at a higher price tag but was deemed to be in the best interest of national security due to the high demand around the globe for attack submarine presence.
However, the new CBO report says that the Navy’s calculations were off – that overhead costs were not fully included in the service’s accounting of the cost per availability at public yards, and that when those costs are fully accounted for it is actually cheaper for Electric Boat and Newport News to do the work than it is for the Navy.
The CBO looked specifically at Docking Selected Restricted Availability (DSRA) events on Los Angeles-class attack submarines, at availabilities dating back to 1999. The CBO then looked at three ways to measure the cost comparison: “Unadjusted costs (as reported in the Navy’s data system); costs adjusted to include comparable overhead activities; and costs estimated using a model that accounts for differences in the age of the submarine and its maintenance plan as well as including comparable overhead.”
“CBO found that no matter which method it used to calculate costs, private shipyards were less expensive, on average, than public shipyards for DSRA overhauls,” according to slides released by the CBO, ahead of the release of a full report.
Looking at the entire span of availabilities from 1999 through 2017, the CBO found the unadjusted average cost of a DSRA for an L.A.-class sub at a public naval shipyard was $26.1 million, compared to $20.9 million in the private yards. Both took an average of 113 days. The CBO notes that both cost averages are somewhat biased – the private yards did the bulk of their work on LA-class subs in the 1990s, when the boats were newer and therefore the availabilities would have been simpler to perform; and this unadjusted average does not yet include overhead for the public yards that would push their average higher.
The Navy along the way changed how it funds its naval shipyards, from a working capital funding model that charged rates that also supported overhead costs to a mission funding model that did not include overhead. The working capital fund model is closer to what private industry does, where they consider overhead costs when submitted bids for Navy contracts.
Once the CBO calculated the overhead costs and added those back into the cost of availabilities under the new mission funding model, it found “the average costs at private shipyards were 38 percent lower than at public shipyards over the 1993–2017 period,” according to the slides.
“CBO found that cost differences between public and private shipyards narrowed after 1999, but costs remained lower at private shipyards.”
The slides also state that “CBO also compared the costs of overhauls estimated using a model that accounts for differences in the age of the submarine and its maintenance plan as well as including comparable overhead. The results from that analysis were similar to those presented on the previous slide,” it states, though the actual numbers are not included.
This new look at the full cost of conducting submarine maintenance at private and public yards comes after extensive discussions on Capitol Hill and with the media in recent years about what options the Navy had to get subs out of the yards faster amid massive backlogs of work – with sending availabilities to the private sector being one of the most talked-about options.
Vice Adm. Tom Moore, commander of Naval Sea Systems Command (NAVSEA), told USNI News last summer that it cost 20-percent more to do submarine work at the private yards, though that lever had been used and could be used more in the short-term while the four public yards continued to eat away at their backlogs.
Vice Chief of Naval Operations Adm. Bill Moran in February 2017 called it an “expensive proposition” to move sub availabilities to Electric Boat or Newport News, though part of that cost arises due to the last-minute nature of the Navy deciding it needs to contract out the world. Moore has discussed with USNI News the need to put more work into the private yards and to plan for and contract that work earlier to provide more stability to cost and schedule – this includes both handing over entire availabilities to Electric Boat and Newport News, as well as including smaller companies in availabilities conducted at the public yards to supplement the yards’ workforce. Despite looking at leveraging the private sector more, though, Moore has never backed away from the idea that it is a more expensive option that is needed in the short-term to help address a maintenance backlog.
“The Navy looks forward to reviewing the details and analysis in the CBO report. Ship maintenance is critical to meeting the [National Defense Strategy],” Navy spokesman Capt. Danny Hernandez said in a Thursday statement. “In recognition of this Secretary Geurts announced earlier this year the Navy will publish a 30-year ship maintenance plan that will look at the most efficient use of all the tools available, including public and private shipyards, as the Navy ensures readiness of its fleet.”
In a Thursday statement, Assistant Secretary of the Navy for Research, Development and Acquisition James Geurts said, “delivering Affordable readiness to the fleet is an absolute priority.”
Rep. Joe Courtney (D-Conn.), the ranking member on the House Armed Services seapower and projection forces subcommittee, told USNI News today that his subcommittee had been concerned about the Navy’s accounting of maintenance costs and overhead for several years now, which led to the CBO report.
“When the topic has come up about using the private yards as sort of an escape valve for attack sub work that’s been piling up, the Navy’s response has been, no, there’s a cost issue that’s a barrier to moving that forward. We’ve been aware for a couple years that this issue of overhead cost not being included in the public yard quotes for repairs was more of an accounting maneuver as opposed to an accurate apples-to-apples comparison of public yards and private yards, and so that’s why this request went into CBO,” Courtney said.
“My own expectation was that it was going to come up with a result which showed the two sectors, public and private, were pretty much on par. This report which says there’s an over 30-percent savings differential, with private yards costing less, is more than I would have expected,” he added.
Several factors affect how this CBO report may influence matters going forward. First, the Navy is in the midst of planning a massive recapitalization and optimization effort for its four naval shipyards, which should make each yard more efficient and therefore lower the cost of each maintenance availability in the future. Second, capacity at the private yards may decline or go away altogether in the 2020s, as Electric Boat and Newport News Shipbuilding see a surge in work from the construction of the Columbia-class ballistic missile submarines and some years where potentially three Virginia-class attack subs may be built. And third, the Navy intends to release a 30-year ship maintenance plan in the spring to accompany its 30-year shipbuilding plan, allowing all interested parties to take a long-term look at vulnerabilities in the Navy’s repair and modernization capabilities and begin to address any shortfalls now.
“If we see a repair plan come over from the Navy, this (CBO report) is going to be an excellent tool for us to be able to come up with ways to get the best, most cost-effective and efficient ship [repair] plan developed so we’re not going to see these kinds of situations with Albany and others occur,” Courtney said, referring to USS Albany (SSN-753), which spent 48 months in what was supposed to be a 24-month availability due to the yard bringing in more work than the workforce could handle.
Courtney said he didn’t plan to hold any hearings right away to get to the bottom of this cost discrepancy, with it being so close to the November elections, but he said he hoped this CBO report would change the dialogue about using private yards as a more regular option to keep SSN maintenance on track.
“I feel these numbers are so significant it should not be sort of a business as usual kind of response, that we really should look at what’s out there right now in terms of ship repair inventory or schedules that are coming up and really look at what the private yards are capable of taking on. I know looking at Electric Boat, looking at the schedule that there is going to be some capacity for taking on more repairs,” Courtney said.
“Hopefully we can move past this sort of presumption that the private yards are really only there as a last-possible resort and really view it as one shipyard, which I think is the right approach.”