United States General Accounting Office ‘C -” l Report to the Chairman, Committee on GAO . Armed Services, U.S. Senate September 1990 NAVY MAINTENANCE # Status of the Public and Private Shipyard Competition Program GAO/NSLAD-90-161 . United States _ General Accounhng Office washington Dc-axa, . . National Security and International Affairs Division B-240400 September 26,199O The Honorable Sam Nunn Chairman, Committee on Armed Services United States Senate Dear Mr. Chairman: Since fiscal year 1985, defense appropriations acts have included provi- sions for competition between public and private shipyards for a portion of the Navy’s depot level ship maintenance and modernization work. In a March 1988 report,1 we concluded, in part, that inherent differences preclude public and private shipyards from competing on an equal footing. We noted, however, that the Navy had taken steps to ensure that public and private shipyards be treated as equitably as possible. At that time, only a few overhauls and repairs had been completed. In response to a request from your office, we reviewed the current status of the shipyard competition program. This report summarizes the results of that work. The public and private shipyard competition program has resulted in Results in Brief limited competition between public and private shipyards with both types of shipyards submitting proposals on less than half the vessels competed. In part, this is because private shipyards can price proposals below expected costs, whereas public shipyards are required to include a proportionate share of all expected costs. Additionally, the limited availability of commercial ship construction and repair work has cre- ated a highly competitive market among private shipyards resulting in relatively low price proposals. Also, only two private shipyards are capable of overhauling or repairing nuclear submarines. The Navy believes the program has encouraged the public shipyards to adopt a more businesslike approach to ship repair work. However, the Navy’s projected cost savings cannot be substantiated. Before fiscal year 1985, Navy surface ship overhauls and repairs either Background were assigned to public shipyards or were competed, in most cases, only ‘Navy Maintenance:CompetingVesselOverhaulsand RepairsBetweenPublic and Private Shipyards (GAO/NSlAD43-109,Mar. 25,19&3). Page 1 GAO/NSL4D9&161 Navy Maintenance B240406 - . among private shipyards. Nuclear-powered vessels were allocated, sometimes without competition, to private shipyards as well as assigned to public shipyards. In fiscal year 1985, the Congress created a program that tested the fea- sibility of competing two Navy ship repairs and overhauls between public and private shipyards. The program has since grown to include an estimated 40 vessels to be competed in fiscal year 1990. (See app. II.) As of the end of fiscal year 1989, work involving 43 surface ships and Program Results and 25 submarines had been competed and final costs for 55 of these vessels Cost Growth had been determined. Private shipyards were awarded work involving 38 surface ships, and public shipyards were awarded work involving 5 surface ships. Of the submarines competed, 21 went to public shipyards and 4 went to private shipyards. One of the four was later terminated at the private yard’s request and assigned to a public shipyard. (See am. V-1 Final costs for work on the 33 surface ships and 22 submarines com- pleted totaled $962.5 million and showed an increase of about 23 per- cent, or $182.3 million, over the cumulative award price of $780.2 million. Of the total increase of $182.3 million, about $69.8 million was for work in public shipyards and about $112.5 million was for work in private shipyards. In both cases, the cost growth resulted from increased costs for (1) unanticipated work requirements, (2) correction of inaccurate specifications and drawings, (3) delays in the delivery of government-furnished materials, and (4) overly optimistic proposals. (See app. III.) So far, the program has resulted in limited competition between public Limited Competition and private shipyards. Price proposals from both public and private shipyards were submitted for only 22 of 43 surface ships competed. Of the 21 remaining vessels, 1 was assigned to a public shipyard and only private shipyards submitted proposals on the 20 other ships. In fiscal year 1989, private shipyards did not submit any proposals for work involving nuclear submarines, and in fiscal year 1990, these ship- yards submitted proposals on two solicitations, one of which was a package for three submarine repair availabilities. For submarines to be competed during fiscal year 199 1, private shipyards have indicated that Page 2 GAO/NSW~l61 Navy Maintenance they are interested in submitting proposals for only 2 of 13 submarines to be included in the program. Our earlier report concluded that the Navy’s original estimate that the Projected Cost Saving program resulted in cost savings of $200 million could not be substanti- and Claimed ated. The Navy’s report on the two surface ships competed in fiscal year Improvements Not 1985 concluded that the private shipyard costs were about 8 percent less than the public shipyard’s costs. The Navy now believes that the Substantiated final costs were comparable since the private shipyard, subsequently, submitted a claim and was paid for some additional costs. Navy officials claim the program has encouraged public shipyards to adopt a more businesslike approach to ship overhauls and repairs and has reduced costs. However, they have not provided empirical evidence to support these claims. (See app. IV.) We did not obtain official agency comments. However, we discussed a Agency Comments draft of this report with Navy program officials and have included their comments where appropriate. Our scope and methodology are discussed in appendix I. We are sending copies of this report to the Chairmen, Senate Committee on Governmental Affairs, Senate and House Committees on Appropria- tions, and House Committees on Government Operations and on Armed Services; the Director of the Office of Management and Budget; the Sec- retaries of Defense and the Navy; and other interested parties. Please contact me at (202) 275-6504 if you or your staff have any ques- tions concerning the report. Major contributors to this report are listed in appendix VI. Sincerely yours, Martin M Ferber Director, Navy Issues Page 3 GAO,‘NSIAD3@161 Navy Maintename Contents Letter Appendix I 6 Scopeand Methodology Appendix II Background Initiating Competition Appendix III Program Results Ships Competed 9 Cost Growth 9 Limited Competition 10 Agency Comments and Cur Evaluation 13 Appendix IV Projected Cost Savings Original $200 Million Projected Cost Savings 15 Reported Test Results 16 Not Substantiated Current Navy Position on the Competition Program 16 Agency Comments and Our Evaluation 17 Appendix V 18 List of Ships Competed Fiscal Years 1985 Through 1989 Appendix VI Major Contributors to This Report Tables Table II. 1: Vessels in the Program and the Percentage of 8 the Ship Maintenance and Modernization Budget Represented Table 111.1:Distribution of Overhaul and Repair Work 9 Between Public and Private Shipyards From Fiscal Years 1985 Through 1989 Page 4 GAO/TQ3IAIMW161 Navy Maintenancr Contenta Table 111.2:Cost Growth of Completed Work 10 Table 111.3:Competitions Where Both Public and Private 12 Shipyards Offered Proposals Table 111.4:Public Shipyard Participation in the 13 Competition Program Through Fiscal Year 1989 Abbreviations NAVSEA Naval Sea Systems Command Page 6 GAO/NtUMO-161 Navy Mahtmance Scopeand Methodology We performed work at the offices of the Assistant Secretary of the Navy (Shipbuilding and Logistics);’ the Naval Sea Systems Command (NAVSEA); the Commander in Chief, U.S. Atlantic Fleet, and the Supervisors of Shipbuilding, Conversion, and Repair at Bath, Maine; Groton, Connect- icut; Boston, Massachusetts; Newport News, Virginia; Portsmouth, Vir- ginia; Long Beach, California; and Seattle, Washington. We also performed work at the Norfolk Naval Shipyard, Portsmouth, Virginia; Charleston Naval Shipyard, Charleston, South Carolina; the Long Beach Naval Shipyard, Long Beach, California; the Puget Sound Naval Ship yard, Bremerton, Washington; the Newport News Shipbuilding and Dry- dock Company, Newport News, Virginia; and the General Ship Corporation, Boston, Massachusetts. We reviewed specific contracts for work that had been competed between public and private shipyards as of September 1989, to deter- mine program results. We analyzed current financial data on those con- tracts to determine the amount of cost growth as of December 31,1989. For work completed by public shipyards, we compared award prices with actual shipyard costs. For work completed by private shipyards, we compared contract award prices with final contract prices. If the final contract prices had not been negotiated, we compared contract award prices to the Navy’s estimate of the final contract prices. Further- more, we reviewed contract files and interviewed public shipyard and Navy officials to document the (1) causes for cost growth, (2) extent of cost savings, and (3) additional costs of the program. In conducting this review, we used the same accounting systems, reports, and statistics that the Navy uses to monitor the competition program. We did not inde- pendently determine their reliability. Navy officials reviewed a draft of this report, and we have incorporated their comments where appropriate. Our review was performed from February 1989 through May 1990 in accordance with generally accepted government auditing standards. ‘This office is now referred to as Research,Development,and Acquisition. Page 6 GAO/NSIAD9O-161Navy Maintenance Background In the early 197Os, the Congress limited the amount of funds for altera- tions, overhauls, and repairs of naval vessels that should be done in public shipyards to a percentage of the total amount appropriated for such purposes. In fiscal year 1985, it also initiated a program to test competing a portion of that work between public and private shipyards. Beginning in fiscal year 1974, the Congress placed a 70-percent ceiling Initiating Competition on appropriations for all alterations, overhauls, and repairs of naval vessels that could be reserved exclusively for public shipyards. Current legislation contains no such restriction. In fiscal year 1985, the Congress created a program to test acquiring naval vessel overhauls and repairs through competition between public and private shipyards. Although this legislation did not earmark amounts available for competitive purposes, it made funds available that year for two or more ships to be placed in the test and stated that: “The Secretary of the Navy shall certify, prior to the award of a contract under this test, that the successful bid includes comparable estimates of all direct and indirect costs for both public and private shipyards.” NAVSEAdevised its plan for conducting the test of competition so that each sector would overhaul one ship. The Navy’s competitive test involved the regular overhauls of the USS Duluth (LPD 6) and the USS Cleveland (LPD 7), which were homeported on the west coast and had comparable work packages and overhaul schedules. Under the plan, NAVSEAissued a solicitation for the USS Duluth to both public and pri- vate shipyards on the west coast. A fixed-price incentive contract was awarded to Northwest Marine Iron Works of Portland, Oregon, which was the lowest priced, technically qualified private sector offeror. NAVSEAthen assigned the USS Cleveland to the lowest priced, technically qualified public sector offeror - Long Beach Naval Shipyard. The results of the test were published by the Navy in fiscal year 1987 and are discussed in detail in appendix IV. In legislation for fiscal year 1986, the Congress continued the program, authorizing competition for work involving at least four ships. The number of ships was not specified for fiscal year 1987 or 1988. How- ever, the conference report on the Defense Department’s appropriations for fiscal year 1989 required that four naval vessel upgrades be included in that fiscal year’s program. Table II.1 shows the number of Page 7 GAO/NSIAD-90-161 Navy Maintenance ships included in the competition program each fiscal year and the per- centage of the ship maintenance and modernization budget the work represented. Table 11.1:Ver8els in the Program and the Percentage of the Ship Maintenance Fiscal year No. of ships Percent of budget and Modernization Budget Represented 1985 la b 1986 12 10.5 1987 15 9.6 1988 19 4.6 1989 21 10.8 1990 (est.) 40 13.1 ‘The other vessel in the test was asslgned to the lowest priced, technically qualified pubk sector offeror. bLess than 1 percent. Program Implementation NAVSEA implements the program, issues project orders to public ship yards for competed work, and manages the eight public shipyards. NAVSEA and the Supervisors of Shipbuilding, Conversion, and Repair award contracts to private shipyards. The Commanders in Chief, U.S. Atlantic and Pacific Fleets, also issue project orders. The Navy Comp- troller issues pricing guidance to the public shipyards for the competi- tion program. In performing its responsibilities, NAVSEA nominates each vessel to be competed and sends a solicitation to public and private shipyards quali- fled to perform the work. After evaluating proposals, NAVSEA performs a comparability analysis on the apparently lowest priced, technically acceptable proposal received from a public and private shipyard. This analysis is the Navy’s basis for certifying to the Congress that the suc- cessful proposal includes comparable estimates of all direct and indirect costs. NAVSEA, in its analysis, adds certain costs, such as those for mili- tary personnel and the services of the Navy’s Supervisors of Ship- buikling, Conversion, and Repair, which are not funded by either public or private shipyards. If a public shipyard’s proposal is the lowest, NAVSEA also performs a cost analysis to determine if the proposed amount reflects reasonable and realistic costs. Awards are made based on the lowest evaluated price for technically acceptable proposals. Page I3 GAO/NSLAIHO-161 Navy Maintenance Appendix III Program Results The Navy has competed overhaul and repair work for 68 vessels since the program’s inception through the end of fiscal year 1989. Private shipyards were awarded work on most of the surface vessels, and public shipyards were awarded work on most of the submarines. Final costs to the government for work on 55 vessels completed as of that date were $182.3 million more than the cumulative award price of $780.2 million. Ships Competed table III. 1. Table 111.1:Distribution of Overhaul and Repair Work Between Public and Private Shipyard Submarines Surface ships Total Shipyards From Fiscal Years 1985 Public 21 5 28 Through 1989 Private 4a 38 428 Total 25 43 88 aOne submarine won by a pnvate shipyard was subsequently terminated at that yard’s request and assigned to and repaired by a public shipyard. The ships included in the competition program, the shipyard awarded the work, and the amount of the award are shown in appendix V. Cost growth was experienced on the 55 vessels completed as of the end Cost Growth of fiscal year 1989. Table III.2 shows that the final cost for 23 vessels completed by public shipyards was $576.6 million, about 14 percent more than the total original job order price of $506.8 million. The final cost of 32 vessels completed by private shipyards was $385.9 million, about 41 percent more than the contract award prices of $273.4 million. Page 9 GAO/NSIADsQ161 Navy Maintenance AppendixIII Program Resulta Table 111.2:Cost Growth of Completed Work (Dollars in millions) Award Final Percent of Shipyards No. of ships price cost Growth. growth Public Surface ships 4 $52.6 $87.4 $34.0 66.2 Submarines 19 454.2 489.2 35.0 7.7 Subtotal 23 508.8 578.8 69.8 13.8 Private Surface shkx 29 249.0 356.6 109.6 440 Submarines 3 24.4 27.3 2.9 11.9 Subtotal 32 273.4 388.9 112.5 41.1 Total 55 $780.2 $982.5 $182.3 23.4 Test growth can include both growth work and new work. Growth work relates to technvzal shortfalls in the original estimate of work requirements, and new work pertains to requirements not included in the original scope of work The causes for cost growth of overhauls and repairs are discussed in a recent report, Navy Maintenance: Cost Growth and Schedule Overrun Problems Continue at The Shipyards (GAO/NSIADQO-M, July 24,199O). According to Navy officials, the causes include (1) work requirements not foreseen at the time the proposals were developed, (2) inaccurate specifications and drawings, (3) untimely deliveries of govemment-fur- nished material, and (4) overly optimistic bidding. posals to do the work for less than the expected costs. In contrast, public shipyards are required by the Navy to include a proportionate share of all expected costs. Another reason is that the limited availability of com- mercial ship construction and repair work has created a highly competi- tive market among private shipyards for work involving Navy surface ships resulting in relatively low price proposals compared to public ship- yards’ proposals. Additionally, only two private shipyards are capable of overhauling or repairing nuclear submarines, and they have shown limited interest in submitting proposals for that type of work. As a result, both public and private shipyards submitted proposals on less than half of the vessels competed. PaaelO GAO/NSIADS@161NwyMaintenance Appendix III ProgmInltesult.9 Public Shipyards Now In mid-1987, NAVSEA began requiring public shipyards to include a pro- Include a Proportionate portionate share of all overhead costs in their price proposals to more accurately reflect the cost of accomplishing competed work. Before Share of All Costs then, the proposals were developed using only the incremental overhead costs expected to be incurred to accomplish the competed work. Prior to that change, public shipyards had won 3 of 10 surface ships competed. Since then, public shipyards won only 1 of the 12 surface ships com- peted from the end of fiscal year 1987 through fiscal year 1989. Conversely, private shipyards can propose prices below their expected costs to complete work. Current laws and NAVSEA regulations provide no basis to exclude an otherwise technically acceptable, responsible private shipyard from a competition solely on the basis that the contractor sub- mitted an excessively low proposal. Thus, the Navy can award a con- tract to a shipyard if the Navy determines that the shipyard can sustain the loss and is otherwise responsible. Further, limited commercial ship repair work in the United States results in a highly competitive market among private shipyards and, thus, lower price proposals for available Navy surface ship repair work The results of the program show that it is difficult for public shipyards to compete for surface ships in this environment. Limited Interest in Private shipyards did not offer any proposals for submarine repairs Submarine Competition during fiscal year 1989. As a result, in September 1989, NAVSEA requested approval from the Assistant Secretary of the Navy for Ship- building and Logistics to temporarily suspend the competition program for submarines. The Assistant Secretary directed NAVSEA to continue the competition but to survey capable shipyards to determine the level of interest in competing for the proposed work. If less than two shipyards were interested or if no private shipyard was interested, NAVSIU could eliminate the competitive process and make assignments where deemed most effective. As of May 10,1990, NAVSEA had surveyed the private shipyards and found they had no interest in submitting proposals for eight submarines not yet competed in fiscal year 1990 and had interest in only 2 of 13 submarines to be competed during fiscal year 1991. Thus, public ship- yards will likely be assigned the work. Page11 GAO/NSIAD-9@161NavyMaintenance Appendix III PNxgramResults Head-To-HeadCompetition Proposals from both public and private shipyards were offered on 22 on Less Than Half the surface ships and 10 submarines of the 68 vessels competed as shown by table 111.3. Ships Table 111.3:Competitions Where Both Public and Private Shipyards Offered Number of Winning shipyard Proposals Type of vessel competition8 Public Private Surface ships 22 4 18 Submarines 10 9 1 Total 32 13 19 In addition to the USS Cleveland, which was assigned to a public ship yard as part of the test of the program, public shipyards won four sur- face ships when competing directly with private shipyards. Private shipyards won 18 ships on which both sectors offered contract pro- posals. Private shipyards won another 20 surface ships because the public shipyards did not offer contract proposals or withdrew proposals because they could not accommodate the work at that time. Public shipyards won competitions for 9 of 10 submarines on which both sectors offered contract proposals and were assigned 8 other sub- marines when private shipyards did not offer price proposals. They were assigned four other submarines because no proposals or no accept- able proposals were offered by either sector. Private shipyards were awarded work involving three submarines when no public shipyard offered contract proposals. One submarine won by a private shipyard was later assigned to a public shipyard at the private shipyard’s request. Two Public Shipyards Not Of the eight public shipyards, six have participated in the program. Participating in the They are Portsmouth Naval Shipyard, Philadelphia Naval Shipyard, DWC.rlrr\- Norfolk Naval Shipyard, Charleston Naval Shipyard, Puget Sound Naval rru~lalll Shipyard, and Long Beach Naval Shipyard. The two shipyards that had not competed as of fiscal year 1989 were the Pearl Harbor Naval Ship- yard and the Mare Island Naval Shipyard. Navy officials said that the Pearl Harbor shipyard has not participated because it has no effective competition in Hawaii and it is noncompetitive against mainland ship- yards. They also said Mare Island’s heavy work load has precluded that shipyard’s participation. The Philadelphia and the Long Beach ship yards are not qualified to do nuclear work.- Table III.4 shows public shipyards’ participation in the program. Page 12 GAO/NSIAD-90.161Navy Maintenance Table 111.4:Public Shipyard Participation in the Competition Program Through Fiscal Year 1989 Public shipyards Puget Long Beach Sound Charleston Norfolk Portsmouth Philadelphia Total Surface ships No. of proposals offered 1 3a 3 1 2 0 6 25 No. won 4 0 0 0 0 1 5 No. of ships repaired 4 0 0 0 0 1 - 5 Submarines No. of proposals offered 0 2 6 5 8 0 21 No. won 0 1 5 5 6 0 17 No. of submarines reoaired 0 1 8 7 6 0 22 %cludes a proposal the Long Beach shipyard prepared on the USS Cleveland after being asslgned the ship as part of the original test In only two instances did more than one public shipyard offer a proposal on the same surface vessel. Public shipyards capable of doing nuclear work offered six contract proposals on surface ships but did not win any of those competitions. In only two instances did more than one public shipyard offer contract proposals on the same submarine. In commenting on a draft of this report, Navy program officials stated Agency Comments and that much of the difference between the award price and the final cost is Our Evaluation related to new work resulting from (1) “open and inspect” repairs when the full scope of repairs and price cannot be determined until after the systems have been opened and their condition is determined or (2) the addition of alterations or other new work items after the contract has been awarded. In addition, these officials said that some cost growth is not necessarily bad. They asserted that the award price is driven prima- rily by competition and market pressures and the resultant proposals may not be reflective of the basic work package or the Navy’s initial predicted end cost. They added that the Navy gets the initial work at a lower rate because of competition but gets subsequent work at a pre- mium price rate because it is then negotiating in a sole-source environ- ment. On balance, they believe the overall costs for the work are fairly close to what the Navy predicted. Thus, the Navy obtains greater value for maintenance dollars spent. The Navy believes a more balanced approach would be to evaluate the predicted end cost against the final contract cost. Page 13 GAO/NSIADoQ161 Navy Maintenance Appendix Ill Program l&sults We agree that the difference between the award price and the final cost results, in part, from both (1) growth in the original scope of work and (2) new work. Our intent was to show that the difference can be signifi- cant; for example, the difference was over 23 percent for the vessels included in the scope of this review. Page 14 GAO/NSuD90-161 Navy Maintenance Appendix IV ProjectedCost SavingsNot Substantiated We could not substantiate the Navy’s original estimate that the competi- tion program has resulted in a cost saving of $200 million. Also, not all costs resulting from the competition program were included in the Navy’s estimate. The Navy’s report on the results of a fiscal year 1985 two-ship test competition concluded that the private shipyard’s price to repair the USS Duluth was about 8 percent less than the public ship- yard’s price to repair the USS Cleveland. The Navy now believes that the final prices were comparable. The Navy believes there have been other program benefits but does not have any analyses that directly link savings with the competition program. In March 1987, the Navy claimed an estimated savings of $200 million Original $200 Million from the competition program. This projected savings was based on an Projected Cost Savings estimated $150 million savings from the overhaul of five submarines and $50 million in savings from the overhaul of six surface ships. Dif- ferent methodologies were used for the two types of vessels because, according to Navy officials, submarine work packages are better defined and historically have been more consistent than surface ship work packages. Now that the ships have completed repairs, we found that cost growth of $55.6 million on the six surface ships canceled the projected cost sav- ings of $50 million. The cost growth of $89.9 million experienced on the five submarines substantially reduced the projected savings on those vessels. Also, the Navy’s methodology used to estimate the savings for submarine-related work attributed all savings to the program without considering the impact of the Navy’s other cost reduction efforts that may have created savings in public shipyards during this period. The analysis also did not consider costs associated with implementing the program. The analysis excluded the costs of evaluating proposals, awarding the contract or project orders, performing a comparability analysis on the lowest priced proposals from a public and a private ship- yard, certifying to the Congress that the successful proposal included comparable estimates of all direct and indirect costs, and developing the public shipyard’s initial proposal. According to a public shipyard official, a shipyard expends between $60,000 and $75,000 to develop a proposal for less complex projects and between $150,000 and $250,000 for more complex proposals. Another public shipyard official said that the preparation of a proposal costs over $185,000. From fiscal years 1985 through 1989, public shipyards Page 15 GAO/NSIAKWO-161 Navy Mdntenance Appendix IV Pro]ected Coat Savings Not Substantiated submitted 24 unsuccessful proposals. Significant headquarters and ship- yard personnel resources were involved in preparing, submitting, and evaluating necessary documentation that produced no significant cost savings and actually deprived shipyards of needed planning time. In fiscal year 1985, the Congress authorized a test competition to eval- Reported Test Results uate the possibility of public and private shipyards competing for repair and overhaul work. In November 1987, the Secretary of the Navy reported the results to the Chairman, Senate Subcommittee on Defense, Committee on Appropriations1 The report stated that the quality and the schedule performance of the two shipyards performing the over- hauls were satisfactory. The report also stated that the two overhauls were not exactly identical in scope, though the work was similar. The scope of work at the public shipyard was about 8 percent larger than that done by the private shipyard. Thus, the report concluded that the private shipyard performed work for about 8 percent less than the public shipyard after a government estimate was used as a normalizing factor to account for the difference in work scope. This evaluation was made before a $6.4 million claim filed by the pri- vate shipyard was settled. The claim was settled for $2.7 million in December 1988. A NAVSEAofficial stated that the Navy now believes the costs to the government were comparable for both shipyards after con- sidering the private shipyard’s increased price. Further, another Navy representative stated that the private shipyard’s costs actually exceeded the price the government paid by about $3.7 million. The con- tractual ceiling price prevented the shipyard from recovering the addi- tional costs from the Navy. In a hearing before the House Armed Services Committee in March 1989, Current Navy Position a Navy official said that the program had paid the following dividends: on the Competition Program . The public shipyards had developed a more businesslike approach to the ship repair business. There had been improvements in the overall esti- mating process as well as more discipline in identifying new work and growth in the work package itself. ‘Public Private SectorOverhaul CompetitionFinal Report,August 31,1987, Departmentof the Navy, NAVSEA,Washington,DC. Page 16 GAO/NSIAD-SO-161 Navy Maintenance Appendix IV Rejected Coat Savings Not Substantiated l In the instances where true public/private competition existed (e.g., more than one proposal was received), the early nuclear ballistic subma- rines and surface ship availabilities did show reduced costs. l As a result of the move toward competition and increased cost efficien- cies, the naval shipyards had placed stronger emphasis on “state-of-the- art” management and technical processes. While these may be valid observations, the Navy has not substantiated that the program has directly resulted in major improvements and costs reductions. Navy program officials restated their belief that the competition pro- Agency Comments and gram has resulted in cost savings. They cited as an example, the reduc- Our Evaluation tion in the cost to complete nuclear ballistic submarine overhauls since the inception of competition. They also noted that two of the most active public shipyards in the competition program have made significant improvements as a result of the program, We agree that the program has encouraged public shipyards to adopt a more businesslike approach to ship overhaul and repair work. However, since the inception of the program, many management and technical ini- tiatives have been undertaken to improve the efficiency of public ship yards. Also, as we pointed out in another report on the program, officials at one of the public shipyards that has been actively involved in overhauling nuclear ballistic submarines believed that their experi- ence with that type of work had enabled them to estimate the scope and cost of work more accurately. Therefore, we do not believe it is appro- priate to directly attribute all cost reductions to the competition program. Page 17 GAO/NSIAIMO-161 Navy Maintenance List of Ships CompetedF’iscalYears 1985 Through 1989 Dollars in millions Amount Name (USS)/HuII No. Successful offeror Private Public Surface shiDs --‘--” \-’ - --I \lorthwest Manne Iron Works $12.3 Cleveland (LPD 7) Long Beach Naval Shipyard $23.8 Jarrett (FFG 33) Long Beach Naval Shipyard 16 L.Y. Sbear (AS 36) Norfolk Shipbuildinq and Drydock Corp. 18.4 Fort Fisher (LSD 40) Lockport Marine Co. 15.4 Mahan (DDG 42) Metro Machine Corp. 13.8 Albert David (FF 1050) National Steel & Shipbuilding Co. 14.6 O’Callahan (FF 1051) Todd Pacific Shtpyards Corp. 16.6 John A. Moore (FFG 19) Southwest Marine, Inc. 6.0 Clifton Sprague (FFG 16) Philadelphia Naval Shipyard 4.5 Fletcher (DD 992) Long Beach Naval Shipyard 22.7 Farragut (DDG 37) Norfolk Shipbuilding and Drydock Corp. 2.5 Paul F. Foster (DD 964) Northwest Marine Iron Works 26.4 Santa Barbara (AE 28) Metal Trades, Inc. 2.2 Brumby (FF 1044) Bath Iron Works Corp. 14.5 Coontz (DDG 40) Metro Machine Corp. 1.6 Trippe (FF 1075) General Ship Corp. 8.8 Prairie (AD 15) Southwest Marine, Inc. 7.2 A.W. Radford (DD 968) Avondale Industries, Inc. 20.8 Bowen (FF 1079) Metro Machine Corp. 6.9 Knox (FF 1052) Southwest Marine, Inc. 8.1 Stern (FF 1065) Southwest Marine, Inc. 9.1 Crommelin (FFG 37) Todd Pacific Shipvards Corp. 4.3 Estocin (FFG 15) Phillv Ship 3.8 Robert E. Peary (FF 1073) Honolulu Shipyard 1.5 Harold E. Holt (FF 1074) Marisco Limited 1.9 Ouellet (FF 1077) Honolulu Shipyard 1.7 Caron (DD 970) Avondale Industries. Inc. 18.9 John Hancock (DD 981) lngalls Shipbuilding Div., Litton Industries 17.8 Vreeland (FF 1068) Metro Machine Corp. 6.5 Halsey (CG 23) Continental Maritime, Inc. 27.9 Fox (CG 33) National Steel and Shipbuilding Co. 34.4 O’Brien (DD 975) Southwest Marine. Inc. 22.0 Callaghan (DDG 994) Long Beach Naval Shipyard 25.3 Chandler (DDG 996) Todd Pacific Shipyards Corp. 26.7 Reasoner (FF 1063) National Steel and Shipbuilding Co. 7.9 (contrnued) Page 18 GAO/NSIAD-90461 Navy Maintenance Appendix V List of Ships Compe.tedFiscal Years 1996 Through 1999 - Name (USS)/HuII No. Successful offeror Private Public Surface ships Kirk (FF 1087) Todd Pacific Shipyards Corp 93 Oliver Perrv (FFG 7) General Ship Corp. 10.2 Estocrn (FFG 15) Metro Machine Corp. 8.1 Emory S. Land (AS 39) Norfolk Shrpburlding & Drydock Corp. 11.4 Clifton Soraaue fFFG 16) G. Marine Diesel 2.5 Badaer (FF 1071) Marisco Limited 2.3 Vandergrift (FFG 48) Southwest Marine 1.9 Total 426.2 77.9 Submarines Benjamrn Franklin (SSBN 640) Charleston Naval Shipyard 112.0 Georae Bancroft (SSBN 643) Charleston Naval Shrpvard 112.2 Lavfavette (SSBN 616) Portsmouth Naval Shipyard 6.4 Augusta (SSN 710) Portsmouth Naval Shipyard 5.7 Woodrow Wilson (SSBN 624) Charleston Naval Shipyard 120.9 Kamehameha (SSBN 642) Portsmouth Naval Shipyard 112.1 Alexander Hamilton (SSBN 617) Puaet Sound Naval Shipyard 110.7 Corpus Christ1 (SSN 705) Portsmouth Naval Shipyard 6.4 Lapon (SSN 661) Norfolk Naval Shipyard 2.7 Norfolk (SSN 714) Norfolk Naval Shipyard 3.0 Providence (SSN 719) General Dvnamics Corp.. Electric Boat Division 6.1 Albuctueraue (SSN 706) Portsmouth Naval Shipvard 6.0 Philadelphia (SSN 690) Portsmouth Naval Shipyard 5.4 Henry Clay (SSBN 625) Charleston Naval Shipyard 9.7 Lewis & Clark a (SSBN 644) Newport News Shipbuildinga and Drydock Company 10.8a George C. Marshall (SSBN 654) Newport News Shipbuilding and Drydock Company 11.2 John Marshall (SSN 611) Norfolk Naval ShipvardI 10.4 Baton Rouge (SSN 689)’ Norfolk Naval Shipyard 5.5 Memphrs (SSN 691) Norfolk Naval Shipyard 8.5 Pittsburgh (SSN 720) Newport News Shipbuilding and Drydock Company 7.1 Henry L. Stimson (SSBN 655) Charleston Naval Shipyard 10.1 Manano G. Valleio (SSBN 658) Charleston Naval Shipvard 9.6 Pargo (SSN 650) Charleston Naval Shipyard 9.5 Cincinnati (SSN 693) Norfolk Naval Shipyard 9.3 Minneapolts/St. Paul (SSN 708) Norfolk Naval Shipyard 9.6 Total 35.2 685.7 Total $461.4 $763.6 aThe private shipyard requested that this availability be terminated. The availability was then asslgned to and repaired by a publrc shipyard. Page 19 GAO/NSWWlBl Navy Maintenance Appendix VI Major Contributors to This Report Associate Director Assistant Director International Affairs Division, Washington, D.C. 7 Los Angeles Regional James R. Bancroft, Evaluator Office Johnnie M. Phillips, Senior Evaluator Norfolk Regional George 0. Morse, Evaluator Office Kevin F. Murphy, Senior Evaluator Boston Re@ona1 Office I&u,I A. Ferguson , 111 >&&l&or (394333) Page20 GAO/NSIAIM@161 Navy Mahtenanct Ordering Information The first five copies of each GAO report are free. Additional copies are $2 each. Orders should be sent to the following address, accom- panied by a check or money order made out to the Superintendent of Documents, when necessary. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. U.S. General Accounting Office P.O. Box 6015 Gaithersburg, MD 20877 Orders may also be placed by calling (202) 275-6241. United States First-Class Mail - General Accounting Office Postage & Fees Paid ’ Washington, D.C. 20548 GAO Permit No. GlOO Official Business Penalty for Private Use $300
Navy Maintenance: Status of the Public and Private Shipyard Competition Program
Published by the Government Accountability Office on 1990-09-26.
Below is a raw (and likely hideous) rendition of the original report. (PDF)