Navy Budget: Potential Reductions to Shipbuilding and Conversion Funds

Published by the Government Accountability Office on 1990-12-13.

Below is a raw (and likely hideous) rendition of the original report. (PDF)


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                              NAVY BUDGET
                              Potential Reductions to
                              Shipbuilding and
                              Conversion Funds

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                                          United States
GAO                                       General Accounting Office
                                          Washington, D.C. 20648

                                          National Security and
                                          International Affairs Division

                                          B-24 1599

                                          December 13,199O

                                          The Honorable Daniel K. Inouye
                                          Chairman, Subcommittee on Defense
                                          Committee on Appropriations
                                          United States Senate

                                          The Honorable John P. Murtha
                                          Chairman, Subcommittee on Defense
                                          Committee on Appropriations
                                          House of Representatives

                                          As you requested, we reviewed the Navy’s fiscal year 1991 budget
                                          request for shipbuilding and conversion and the status of prior year
                                          appropriations for this account. In July and September 1990, we briefed
                                          your staffs on the preliminary results of our review. This report summa-
                                          rizes and updates the information provided in those briefings.

                                          We identified $89.4 million in potential reductions to the fiscal year
Results in Brief                          1991 budget request for the MHC-51 program and $13.4 million in
                                          potential rescissions from the fiscal year 1986 appropriations for the
                                          Outfitting and Post Delivery accounts. These reductions and rescissions
                                          result primarily from (1) a delay in approval of one of the three MHC-51
                                          class ships requested in fiscal year 1991 until shipyard capabilities are
                                          proven and (2) unobligated, uncommitted balances in the Outfitting and
                                          Post Delivery accounts. Table 1 shows the potential impact on ship-
                                          building and conversion, and appendix I provides further details.
Table 1: Potential Reductions   to Navy
Shipbuilding and Conversion     Funds     Dollars in millions
                                                                                               Fiscal year
                                          Accounts                                             1991           1986
                                                                                                           .-~---          ~-.- Total
                                                                --~...-_____-. _________
                                          MHC-51 program                                       $89.4                            $89.4
                                          Outfitting account                                                   $9.8                9.8
                                          Post Delivery account                                      .___ 3.6----_.-__-.         --~-
                                          Total                                                $09.4         $13.4             $102.8

                                          This review is one of a series that examines defense budget issues. We
Scopeand                                  conducted our review at the Departments of Defense and the Navy,
Methodolo&                                Washington, D.C. We interviewed budget and program officials and
                                          reviewed pertinent program documents and budget support data

                                          Page 1                                           GAO/NSIAD-91-42BR    Shipbuilding   Budget

             obtained from Defense and Navy headquarters. We examined selected
             aspects of all programs and accounts included in the fiscal year 1991
             shipbuilding and conversion budget request. We also reviewed the status
             of obligations for funds appropriated in prior years and the Navy’s
             plans to obligate these funds. We conducted our review from January to
             September 1990 in accordance with generally accepted government
             auditing standards,

             As requested, we did not obtain written agency comments on this report.
             IIowever, we discussed our findings with responsible Defense and Navy
             officials and have included their comments where appropriate. The offi-
             cials generally agreed with the facts presented in this report.

--._ -.-..
             We are sending copies of this report to the Secretaries of Defense and
             the Navy; the Director, Office of Management and Budget; and other
             interested parties.

             This report was prepared under the direction of Martin M Ferber,
             Director, Navy Issues, who may be reached on (202) 275-6504 if you or
             your staff have any questions. Other major contributors are listed in
             appendix II.

             Frank C. Conahan
             Assistant Comptroller   General

             Page 2                                   GAO/NSIAD-91-42BR   Shipbuilding   Budget

    Page 3   GAO/NSIAD-91-42BR   Shipbuilding   Budget
Appendix I

Potential Reductions to Navy Shipbuilding and
Conversion F’unds

                       We identified    a potential reduction of $89.4 million in the fiscal year
                       1991 budget     request for MHC-51 class coastal minehunter ships and a
                       $13.4 million    potential rescission from the fiscal year 1986 appropria-
                       tions for the   Outfitting and Post Delivery accounts.

                       The MHC-51 class coastal minehunter is designed to clear U.S. harbor
MHC-51 Class Coastal   and coastal waters of acoustic, magnetic, and pressure/contact type
Minehunter             mines. The MHC-5 1, the lead ship of this class, is a modification of the
                       Lerici fiberglass ships built by Intermarine SpA of Italy. Congress
                       appropriated funds for the first five MHC-51 coastal minehunters in
                       fiscal years 1986, 1989, and 1990.

Results of Analysis    The Navy requested $268.1 million for fiscal year 1991 to buy three
                       more MHC-51 class ships. Congressional approval of one of the
                       requested ships could be deferred because one of the shipyards will
                       deliver the first two ships later than contracted for, and the other ship-
                       yard has not yet demonstrated a capability to produce fiberglass hulls.

                       A sole-source contract for the MHC-51 was awarded in May 1987, with
                       funds appropriated in fiscal year 1986, to Intermarine USA (IMIJSA),
                       Savannah, Georgia. IMIJSAwas established by Intermarine SpA of Italy.
                       No additional funds were authorized until fiscal year 1989, when
                       funding for the MIIC-52 and 53 was approved.

                       In February 1989, IMUSAwas awarded a sole-source contract for the
                       MHC-52. Avondale Industries, a competitively selected second source,
                       was awarded a contract for the MHC-53 in October 1989. The remaining
                       ships of this class will be competed between Avondale and IMIJSA.

                       Both IMIJSA(in 1987) and Avondale (in 1989) were allowed a year to
                       prepare facilities to construct this type of ship. Both shipyards opted for
                       facilities capable of assembling one MHC hull at a time. Avondale, which
                       had not built fiberglass ships before, procured the technology directly
                       from Intermarine Spa. On August 2, 1990, Avondale was awarded a con-
                       tract for one of the two ships included in the fiscal year 1990 appropria-
                       tion. The contract included an option for the other fiscal year 1990 ship,
                       and separate options for one, two, or all three of the ships requested in
                       the fiscal year 1991 budget.

                       If Avondale is awarded both of the fiscal year 1990 ships, the Navy
                       must decide whether to exercise its options for the fiscal year 1991

                       Page 4                                      GAO/NSLAD-91-42BR   Shipbuilding   Budget
                      Appendix I
                      Potential Reductions and to Navy
                      Shlpbufldlng and Conversion Funds

                      ships and leave IMUSAwith no work or to recompete part of the 1991
                      ships between Avondale and IMUSA.Alternatively, the Navy may award
                      the second fiscal year 1990 ship to IMUSA,with or without options for
                      the fiscal year 1991 ships. In either case, it appears that one of the ship-
                      yards will be awarded at least three and as many as five ships in 2

                      As of July 1, 1990, the Navy’s program manager estimated the MHC-51
                      will be delivered by IMUSA9 months later than originally contracted for
                      and the MHC-52 will be delivered 2 months later than originally sched-
                      uled. The Navy plans to have eight ships funded before the first ship is
                      delivered, including the three ships requested for fiscal year 1991. Also,
                      as of July 2, 1990, Avondale had not made any of the fiberglass hull test
                      sections required to prove successful adoption of the technology for
                      molding complete MHC hulls.

                      Considering the delivery delays from IMUSA,Avondale’s lack of experi-
                      ence with fiberglass shipbuilding, and the plan to have eight ships
                      funded before the first is delivered, the Navy could be limited to two
                      ships a year until the shipyards prove the capacity to successfully build
                      this size fiberglass ship. Deletion of one third of the fiscal year 1991
                      request for MHC-51 class ship construction would result in a reduction
                      of about $89.4 million.

                      MHC program officials said they informed Congress that they had rees-
                      timated costs based on offers from both shipyards. They now estimate
                      that three ships will cost about $298 million, whereas two ships would
                      cost about $204 million. If the Navy’s new estimates are used, the fiscal
                      year 1991 budget request could be reduced by about $64 million rather
                      than $89.4 million. The $64 million is the difference between $268.1 mil-
                      lion-the original budget request for three ships-and $204 million-
                      the new estimated cost for two ships.

                      The Outfitting account provides spares, repair parts, and other material
Outfitting and Post   required to fill ships’ initial allowance of storeroom and operating space
Delivery Accounts     items. Funds are budgeted for each ship far enough in advance to ensure
                      that long-lead or large-quantity items are received in time to meet the
                      ship’s projected fitting out completion date.

                      The Post Delivery account provides funding for design, planning,
                      government-furnished material and related labor costs required to cor-
                      rect ship deficiencies identified during sea trials. Post delivery funds are

                      Page 5                                     GAO/N&W-91-42BR   Shipbuilding   Budget


                      Appendix I
                      Potential Reductions and to Navy
                      Shlpbulldlng and Conversion Funds

                      limited to the work that can be accomplished within 11 months (15
                      months for attack submarines) after the month in which completion of
                      fitting out occurs. All funds to correct deficiencies for a particular ship
                      are budgeted in the first fiscal year in which funding is estimated to be

Results of Analysis   The fiscal year 1986 appropriation for the Navy’s Outfitting account
                      had an unobligated, uncommitted balance of $9.776 million. According
                      to Navy budget officials, there are no requirements for these funds for
                      the purpose for which they were appropriated. Also, the fiscal year
                       1986 appropriation for the Navy’s Post Delivery account had an unobli-
                      gated, uncommitted balance of $3.586 million. According to the Navy,
                      these funds could be obligated only for post delivery costs for one ship
                      (TAGOS 13, Adventurous). Since this ship was delivered on August 19,
                       1988, its requirement for post delivery funds to correct deficiencies
                      identified during sea trials appears to have been satisfied, leaving no
                      further requirement for these funds. A rescission of both balances
                      would yield $13.4 million.

                      Page 6                                    GAO/NSIAD-9142BR   Shipbuilding   Budget
Appendix II

IkIqjor Contributors to This Report

                        Brad Hathaway, Associate Director
National Security and   Robert Eurich, Assistant Director
International Affairs   Joseph Walsh, Evaluator-in-Charge
Division,               Alan Hooper, Senior Evaluator
                        Robert Wright, Senior Evaluator
Washington, D.C.

(384367)                Page 7                              GAO/NSIAD-9142BR   Shipbuilding   Budget
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