oversight

Strategic Mobility: Late Deliveries of Large, Medium Speed Roll-On/Roll-Off Ships

Published by the Government Accountability Office on 1997-06-16.

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

                   United States General Accounting Office

GAO                Report to the Secretary of Defense




June 1997
                   STRATEGIC
                   MOBILITY
                   Late Deliveries of
                   Large, Medium Speed
                   Roll-On/Roll-Off Ships




GAO/NSIAD-97-150
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-276849

             June 16, 1997

             The Honorable William S. Cohen
             The Secretary of Defense

             Dear Mr. Secretary:

             This report discusses the Navy’s progress in acquiring 19 Large, Medium
             Speed Roll-On/Roll-Off (LMSR) ships to preposition Army equipment and
             add to surge sealift capacity. To fulfill its sealift requirements, the
             Department of Defense (DOD) is converting 5 used commercial container
             ships and will build 14 ships. Specifically, this report discusses (1) the
             Navy’s efforts to deliver the LMSR conversion and new construction ships
             on schedule and the impact of any delays on the Army meeting its
             prepositioning afloat requirements, (2) the capability of the LMSR
             conversion ships to adequately perform their mission, (3) the level of
             crewing for the LMSR ships, and (4) increases in LMSR procurement costs.


             DOD bases its requirements for strategic mobility forces on the 1992
Background   congressionally mandated analysis called the Mobility Requirements
             Study. The study established a requirement for an additional 3 million
             square feet of surge capacity and 2 million square feet of prepositioned
             capacity by fiscal year 1998.1 The study recommended that DOD acquire 20
             LMSR ships, 9 for prepositioning, and 11 for surge to meet this requirement.
             In 1992, we reported on the Navy’s plans to acquire the 20 ships and
             concluded that significant time and cost savings could be realized to the
             extent that the Navy buys and converts ships.2 In its most recent
             requirements study—the 1995 Mobility Requirements Study Bottom-Up
             Review Update—DOD validated the study’s recommendation and
             reinforced an earlier recommendation by the Joint Chiefs of Staff to buy
             19 LMSR ships and established a requirement for 10 million square feet of
             surge capacity and 4 million square feet of prepositioned capacity, for a
             total capacity of 14 million square feet. In addition to the LMSR ships, sealift
             capacity would come from reduced operating status ships already in the
             Ready Reserve Force and Fast Sealift Ships under Maritime
             Administration and Military Sealift Command control.



             1
              Surge sealift ships transport equipment and supplies from the United States to help complete the
             initial buildup of U.S. forces. Prepositioning ships store equipment and supplies for U.S. military forces
             in ocean areas close to potential regional crises and conflicts.
             2
              Shipbuilding: Navy’s Plan to Acquire Additional Strategic Sealift (GAO/NSIAD-92-224, July 30, 1992).



             Page 1                                                        GAO/NSIAD-97-150 Strategic Mobility
B-276849




Eight LMSR ships will provide about 2 million square feet of cargo capacity
to preposition Army equipment for heavy forces and support units, nearly
50 percent of DOD afloat prepositioning requirements. The remaining 11
LMSR ships will move equipment quickly from the United States to areas of
conflict. This action will provide nearly 3 million square feet of surge
capacity, or nearly 30 percent of DOD’s surge sealift requirements. Initially,
the Army will use the five conversion LMSR ships for prepositioning
equipment; eventually, these ships will move into the surge force as the
new construction ships are completed (see fig. 1).




Page 2                                        GAO/NSIAD-97-150 Strategic Mobility
B-276849




Page 3     GAO/NSIAD-97-150 Strategic Mobility
                                                          B-276849




Figure 1: Projected Operational Schedule for LMSR Ships and Capacity Provided (1997-2001)

   Cummulative                               1997                                                     1998                                                    1999
 Square Footage      J     F   M    A   M   J   J     A    S    O    N   D   J     F    M   A     M   J   J   A   S   O     N   D   J   F     M   A       M   J   J
    (In millions)
         0.0


                         USNS Gordon
         0.5                             USNS Shughart
                                                               USNS Yano
                                                                                 USNS Gilliland
         1.0
                                                                                                  USNS Soderman

                                                                                                                  USNS Bob Hope
         1.5
                                                                                                                                                      USNS Fisher

                                                                                                                                                          USNS Watson
         2.0


                                                                                                                                            Preposition

         0.0                                                                                                                                  Surge




         0.5




         1.0




         1.5




         2.0




         2.5




         3.0

                    Legend
                                   Conversion

                                   New construction




                                                          Page 4                                                          GAO/NSIAD-97-150 Strategic Mobility
                                                  B-276849




    1999                                              2000                                                                2001
A   S     O   N       D   J      F   M    A   M       J      J   A    S      O    N    D    J      F   M    A    M    J      J   A     S     O     N      D




                                                                                                                                                 Preposition
                                                                                                                                                    Goal
         TAKR 302
                          TAKR 311                               TAKR 303              TAKR 313
                                         TAKR 312




        USNS Gordon

                              USNS Shughart


                                         TAKR 304

                                                    USNS Yano

                                                                          USNS Gilliland

                                                                            TAKR 314

                                                                                                USNS Soderman


                                                                                                           TAKR 305


                                                                                                           TAKR 315


                                                                                                                                     99A
                                                                                                                                                       Surge
                                                                                                                                                       Goal
                                                                                                                                           99B


                                                  Notes: LMSR ships that have not been given names are identified by Navy-assigned hull
                                                  numbers.

                                                  The five conversion ships will begin to move to surge status as T-AKR 311, T-AKR 303, T-AKR
                                                  312, and T-AKR 313 are deployed.

                                                  Source: Our analysis based on data from U.S. Transportation Command, Military Sealift
                                                  Command, and Naval Sea Systems Command.



                                                  Page 5                                                        GAO/NSIAD-97-150 Strategic Mobility
                   B-276849




                   Of the five conversion ships, two are being converted by Newport News
                   Shipbuilding, Newport News, Virginia, and three are being converted by
                   National Steel and Shipbuilding Company (NASSCO), San Diego, California,
                   from container ships purchased from commercial ship operators.
                   Avondale Industries, New Orleans, Louisiana, and NASSCO are each
                   designing and building six new ships. One or both of these shipyards will
                   build the last two LMSR ships. The Military Sealift Command, DOD’s manager
                   for sealift, operates and maintains the LMSR ships with civilian commercial
                   contract merchant mariners. The Military Sealift Command puts each ship
                   through a ship introduction period, which usually lasts about 8 months,
                   after delivery from the contractor. The ships are ready for prepositioning
                   or surge deployment once all major deficiencies have been resolved. (See
                   app. I for photographs of LMSR conversion ships and app. II for drawings of
                   LMSR new construction ships.)


                   As of April 1997, the Congress had appropriated about $4.8 billion of the
                   estimated $6 billion for the 19 LMSR ships at an average cost of about
                   $314 million. Funding for the LMSR acquisition program is appropriated in
                   the defense budget through the National Defense Sealift Fund, which was
                   established in fiscal year 1993 as a revolving fund that acts as a centralized
                   fiscal authority for all sealift activities.


                   As of May 1997, four of the five Large, Medium Speed Roll-On/Roll-Off
Results in Brief   conversion ships were delivered 16 to 20 months late and the remaining
                   ship is 24 months behind schedule. Deliveries of new construction ships
                   are expected to be 4 to 12 months later than planned. The delays in
                   conversion ships are due to both government and contractor problems.
                   Late deliveries of the new construction ships are due to labor strikes and
                   similar problems experienced in the conversions. Additionally, inadequate
                   controls in the material management systems at all three shipyards could
                   result in further schedule delays. These delays will cause the Army to rely
                   on smaller, less capable ships and to incur an estimated $18.5 million
                   additional cost in operations and maintenance funds over 3 years ending in
                   fiscal year 1998.

                   The number of major deficiencies identified on the four delivered
                   conversion ships has decreased since the first delivery. The final
                   performance issue, the inability of a water discharge system to remove
                   water from cargo areas, was corrected and cleared by the Coast Guard
                   after testing in mid-May 1997. Also, the Navy operational testers identified




                   Page 6                                        GAO/NSIAD-97-150 Strategic Mobility
                            B-276849




                            the inability of the first conversion ship to sustained a speed of 24 knots; it
                            averaged a maximum speed of 23.665 knots.

                            Defense Department officials said that the older, Large, Medium Speed
                            Roll-On/Roll-Off conversion ships would likely require increased
                            maintenance. The Military Sealift Command, through its ship manager,
                            plans to crew the 5 conversion ships at the minimum levels required by the
                            Coast Guard plus 4 additional crewmembers to manage and perform food
                            service and housekeeping duties for a total of 26 crewmembers. Minimum
                            crewing is a cost-saving measure several ship operating companies use,
                            but it may not provide the crew levels necessary for adequate ship
                            maintenance. According to Military Sealift Command officials, the ship
                            operating company will use industrial assistance workers to augment the
                            permanent crew for ship maintenance and repair.

                            The Large, Medium Speed Roll-On/Roll-Off conversion and new
                            construction ships have had a net cost increase of about $131.5 million as
                            a result of schedule delays. The five conversion ships have experienced a
                            total cost increase of about $173.3 million. The new construction ships
                            have experienced a cost decrease of about $41.8 million, which can
                            primarily be attributed to a change in price indexes issued by the Office of
                            Management and Budget. Despite the net increase, Navy cost projections
                            show a downward trend in ship cost through delivery of the last ship in
                            fiscal year 2001.


                            As of May 1997, the LMSR conversion ships were 16 to 24 months late and
Delivery Delays and         deliveries of new construction ships were expected to be 4 to 12 months
Impact on Army’s            behind schedule. These delays have caused the Army to change its afloat
Afloat Prepositioning       prepositioning plans.

Significant Conversion      To date, four of the five LMSR conversion ships have been delivered 16 to 20
Delays Affect Army Afloat   months late. The remaining ship, the USNS Soderman, is in the final
Prepositioning Plans        phases of conversion and is expected to be delivered in November 1997, 24
                            months behind schedule. Table 1 shows the delivery delays based on the
                            revised contract dates.




                            Page 7                                         GAO/NSIAD-97-150 Strategic Mobility
                                      B-276849




Table 1: Delays in Delivery of LMSR
Conversion Ships as of May 1997       Ship name and               Contract delivery
                                      number                      date                       Actual delivery date          Months delayed
                                      USNS Shughart               Jan. 1995                  May 1996                                  16
                                      T-AKR 295
                                      USNS Gordon                 Jan. 1995                  Aug. 1996                                 19
                                      T-AKR 296
                                      USNS Yano                   June 1995                  Feb. 1997                                 20
                                      T-AKR 297
                                      USNS Gilliland              Sept. 1995                 May 1997                                  20
                                      T-AKR 298
                                      Note: The delivery date is the month the contractor delivered the ship to the Military Sealift
                                      Command.

                                      Source: Our analysis based on data from Naval Sea Systems Command.



                                      These delays are due to both government and contractor problems,
                                      according to Navy officials. The USNS Gordon was delivered 19 months
                                      late. The late government-furnished information on class standard
                                      equipment slowed completion of detail design work by 7 months. There
                                      were also government-required changes in the foam fire fighting system
                                      design that required major redesign work. Navy officials stated that the
                                      shipyard’s underestimation of the complexity and difficulty of the
                                      conversion work and its efforts in detail design and production, especially
                                      in the double bottom hull, caused an additional delay of 12 months. The
                                      USNS Shughart and the USNS Yano were delivered 16 months and 20
                                      months late, respectively, for basically the same reasons as the USNS
                                      Gordon, with the exception of the double bottom hull work. The USNS
                                      Gilliland was delivered in May 1997, 20 months later than the original
                                      scheduled date. According to Navy officials, 18 months of this delay was
                                      caused by the same government- and contractor-related problems
                                      associated with the other conversion ships. The most recent delay of 2
                                      months was attributed to the contractor temporarily lowering the level of
                                      workers.

                                      The Navy accepted the LMSR conversion ships at delivery with major
                                      deficiencies. According to Navy officials, this practice is common in
                                      shipbuilding programs because they have about 45 days to correct the
                                      deficiencies before accepting a ship for sail-away and deployment. Major
                                      deficiencies included the Machinery Control Console System computer
                                      screen locking up, problems with fire detection sensor limits, short
                                      operational life of gas detection sensors, and auxiliary fire fighting foam
                                      valves that did not operate properly.



                                      Page 8                                                        GAO/NSIAD-97-150 Strategic Mobility
                                   B-276849




                                   The number of major deficiencies identified on the four delivered LMSR
                                   conversion ships has decreased since the first delivery. For example, the
                                   first conversion ship was delivered with 22 major deficiencies, the second
                                   with 3, the third with 1, and the fourth with 3. According to Navy officials,
                                   these deficiencies generally do not preclude the conversion ships from
                                   being used for training. However, in the case of the USNS Shughart, the
                                   problem with the ship’s fire fighting system, machinery console, and
                                   system for removing water from the cargo areas delayed its deployment.
                                   The contractor corrected the water removal system deficiency and the
                                   Coast Guard cleared the deficiency after testing in mid-May 1997. The
                                   contractor also corrected the other deficiencies.

                                   The USNS Soderman is expected to be delivered in November 1997, 24
                                   months later than its original scheduled date. This delay also is directly
                                   related to the other ship delays previously discussed for a total of about 22
                                   months. A labor strike against the shipyard resulted in an additional
                                   2-month delay.

                                   These late LMSR conversion deliveries have also delayed ship deployments,
                                   which are normally scheduled to deploy between 6 to 8 months after
                                   delivery. Table 2 shows the delays in deployments of the LMSR conversion
                                   ships.

Table 2: Delays in Deployment of
LMSR Conversion Ships as of        Ship name and             Original                Estimated
May 1997                           number                    deployment date         deployment date                 Months late
                                   USNS Shughart             Sept. 1995              June 1997                                   21
                                   T-AKR 295
                                   USNS Gordon               Sept. 1995              Feb. 1997                                   17
                                   T-AKR 296
                                   USNS Yano                 Feb. 1996               Oct. 1997                                   20
                                   T-AKR 297
                                   USNS Gilliland            May 1996                Feb. 1998                                   21
                                   T-AKR 298
                                   USNS Soderman             July 1996               June 1998                                   23
                                   T-AKR 299
                                   Note: The deployment date represents the month in which the Army loads its equipment aboard
                                   ship and moves it to a prepositioning location.

                                   Source: Our analysis based on data from Naval Sea Systems Command.



                                   Had the original delivery schedules been achieved, the five conversion
                                   ships would now be deployed to their prepositioning locations. These




                                   Page 9                                                  GAO/NSIAD-97-150 Strategic Mobility
                          B-276849




                          larger LMSR ships would replace smaller, less capable Ready Reserve Force
                          ships in operation.3 The LMSR ships can get to an area of conflict faster than
                          the ships currently in use. For example, the Ready Reserve Force ships
                          currently in operation require 7 to 8 days to transit from their base in the
                          Indian Ocean to Southwest Asian ports, whereas the LMSR ships require
                          only 5 days for this journey. According to Army officials, the faster time is
                          significant because operational flexibility increases, military risks
                          decrease, and equipment arrives in theater sooner.

                          The deployment delays will cause the Army to incur an estimated
                          $18.5 million in additional operations and maintenance costs over a 3-year
                          period. These costs are for additional ship leasing and operating costs for
                          the prepositioning ships activated from the Ready Reserve Force. The
                          increased costs include $1.7 million in fiscal year 1996 for extended
                          leasing and associated operations and maintenance costs (i.e., canal fees,
                          deactivation charges, and additional ship leasing days, etc.) for two Ready
                          Reserve Force ships; $14.5 million in fiscal year 1997 for additional ship
                          leasing days, increased leasing rates, canal fees, and ship deactivation; and
                          $2.3 million in fiscal year 1998 for additional ship leasing days and ship
                          deactivation cost.


New Construction Delays   The LMSR new construction ships are critical to the Army’s afloat
Could Result in Late      prepositioning program as they increase the square foot capacity from
Deliveries                about 1.1 million square feet to the Military Requirements Study’s
                          requirement of at least 2 million. These ships will also increase total surge
                          sealift capacity from nearly 7 million to nearly 10 million square feet. The
                          first new construction ship, the USNS Bob Hope, is expected to deploy in
                          the fall of 1998. The last ship for the Army’s prepositioning program is
                          scheduled to deploy in late fiscal year 2000, and the last ship for surge
                          sealift is scheduled for late fiscal year 2001. The current planned delivery
                          dates meet the Army’s operational requirements. Table 3 shows the delays
                          in delivery of the first four new construction ships based on revised
                          contract dates.




                          3
                           The Ready Reserve Force is a government-owned, inactive fleet of former commercial ships of
                          various configurations and capabilities. This fleet is the government’s largest source of strategic sealift
                          capability.



                          Page 10                                                        GAO/NSIAD-97-150 Strategic Mobility
                                       B-276849




Table 3: Delays in Delivery of First
Four LMSR New Construction Ships as                                                           Current estimated
of May 1997                            Ship name and                  Original contract       contract delivery
                                       number                         delivery date           datea                       Months late
                                       USNS Bob Hope                  Sept. 1997              Jan. 1998                               4
                                       T-AKR 300
                                       USNS Fisher                    Mar. 1998               Sept. 1998                              6
                                       T-AKR 301
                                       USNS Watson                    Oct. 1997               Oct. 1998                              12
                                       T-AKR 310
                                       T-AKR 302                      Sept. 1998              Apr. 1999                               7
                                       a
                                           Date includes estimated impact of labor strikes.

                                       Source: Our analysis based on data from Naval Sea System Command.



                                       Early production inefficiencies, a 4-month bid protest action, and a
                                       1-month labor strike contributed to delays of the new construction ships at
                                       NASSCO. Avondale Industries is currently negotiating an extension of 8 to 10
                                       weeks on three ships—T-AKR 301, T-AKR 302, and T-AKR 303—due to a
                                       strike at a subcontractor’s facility.

                                       Navy officials stated that the progress of the first new construction ships’
                                       schedule is more difficult to predict than subsequent ship deliveries.
                                       However, they are optimistic that the two shipyards will deliver the ships
                                       on schedule by meeting program milestones such as launching the ship
                                       and dock and sea trial tests. They further stated that they will be able to
                                       project schedule progress with greater confidence as they gain experience
                                       with the first new construction ships.

                                       The Defense Contract Audit Agency (DCAA) found that the three
                                       contractors could improve schedule efficiencies by correcting deficiencies
                                       in their material management and accounting systems. These deficiencies
                                       include inadequate procedures or practices for measuring the accuracy of
                                       production and material ordering schedules. The DCAA audit reports
                                       identified deficiencies that could result in late delivery of end items,
                                       increased contract costs resulting from purchases of parts that were not
                                       required, and the need to compress work schedules due to late deliveries
                                       of purchased parts.4 According to a DCAA official, DCAA has been trying to

                                       4
                                        Report on Audit of Avondale Industries, Inc.’s Material Management and Accounting System (DCAA:
                                       Audit Report No. 1221-96B12500001 Chron. No. 080), December 1996. For Newport News Shipyard see
                                       Report on Material Management and Accounting System Internal Controls (DCAA: Audit Report No.
                                       1721-945F12500012 Chron. 0122), June 1996. For NASSCO see Report on Review of Material
                                       Management and Accounting System for New Construction Contracts (DCAA: Audit Report No.
                                       4151-96R1200001), September 1996.



                                       Page 11                                                     GAO/NSIAD-97-150 Strategic Mobility
              B-276849




              resolve these deficiencies with the contractors since 1994. The official told
              us that the contractors’ production efficiency could be adversely affected
              and ship construction could be delayed until the deficiencies are
              corrected. However, DOD officials responsible for the LMSR program do not
              believe that these system deficiencies have had an affect on the delivery
              schedule for the new construction ships.


              The USNS Shughart was the first ship scheduled to deploy for
LMSR Ship     prepositioning service. However, the contractor’s and the Navy’s attempts
Performance   to resolve a mission critical deficiency during the post-delivery period had
              not been fully resolved to support a February 1997 deployment. As a
              result, the Military Sealift Command replaced the USNS Shughart with the
              USNS Gordon for the first prepositioning deployment. Army and Navy
              officials stated that there was no adverse impact to the Army’s operations
              since the USNS Gordon was able to support the deployment date that was
              previously scheduled for the USNS Shughart. However, as of May 1997, the
              USNS Shughart did not have any mission critical deficiencies, and it is now
              scheduled for deployment in June 1997.

              The Army and Navy operational test commands jointly conducted tests on
              the USNS Shughart in September 1996 and recommended the continued
              deployment of the conversion ships in their report. Also, in the same
              report, they stated that the USNS Shughart did not sustain the required
              speed of 24 knots in a loaded condition. The speed was recorded at 23.665
              knots. The test report also said that there will be occasions when currents,
              seas, and winds will increase the ships speed above 24 knots. The
              operational testers recommended that military planners should not rely on
              a sustained 24-knot speed for the Shughart class ships in developing
              operational plans. However, Navy officials disagreed with this
              recommendation and contended that tests on the USNS Shughart during
              predelivery trials verified its average speed at 24.4 knots.

              Based on the experience with the USNS Shughart, the Navy’s Supervisor
              of Shipbuilding established more rigorous criteria for future LMSR ship
              deliveries. According to officials from the Navy Board of Inspection and
              Survey, the Navy Supervisor of Shipbuilding, and the Military Sealift
              Command, the USNS Yano was delivered with fewer deficiencies and in
              better operational condition than the USNS Shughart. The Military Sealift
              Command officials believe that the USNS Yano should meet its planned
              deployment date of October 1997.




              Page 12                                      GAO/NSIAD-97-150 Strategic Mobility
                     B-276849




                     The Military Sealift Command, through its contracted ship operating
Crewing Levels for   company, plans to crew the five LMSR conversions at the minimum number
LMSR Ship            required by the Coast Guard to operate the ships and ensure the safety of
Maintenance          the crew, the public, and the environment. These minimum Coast Guard
                     standards are used on many commercial ships; however, these standards
                     may not provide the crewing levels necessary for adequate ship
                     maintenance.

                     In our 1992 report on the Navy’s plan to acquire LMSR ships, DOD stated that
                     the older, LMSR conversion ships would likely require increased
                     maintenance and support. According to the current contract between the
                     Military Sealift Command and the ship operating company, the LMSR
                     conversion ships will use a minimum of 26 crewmembers. The minimum
                     Coast Guard crew level includes 22 crewmembers to operate, maintain,
                     and repair the ships’ systems and equipment. The Military Sealift
                     Command adds four crewmembers to manage and perform food service
                     and housekeeping duties.

                     In the area of maintenance and support, the Military Sealift Command’s
                     automated maintenance manual identifies the LMSR ship’s periodic
                     maintenance requirements and the hours required to accomplish them.
                     The ship operating company is responsible for properly managing the
                     maintenance and repairing of the LMSR ships and determining the most
                     cost-effective method to accomplish these tasks. Some ship operating
                     companies’ maintenance and repair methods include using the permanent
                     crew for most maintenance and repair tasks, doing more of this work at
                     shipyards, or using industrial assistance workers to augment the
                     permanent crews.

                     Industrial assistance workers are temporary personnel brought aboard
                     ships by the ship operating company to accomplish specific maintenance
                     and repair tasks. They perform time-consuming and labor intensive tasks,
                     such as paint removal and painting, which allows the permanent crews to
                     focus on more complex maintenance and repair tasks and ship operations.
                     According to DOD officials, the use of industrial assistance workers allows
                     the ship operating company to lower overall operating costs by operating
                     with minimum permanent crews and reducing the amount of shipyard
                     repairs. According to Military Sealift Command officials, this is a common
                     commercial practice and is currently used in the Marine Corps’
                     prepositioning program.




                     Page 13                                      GAO/NSIAD-97-150 Strategic Mobility
                                          B-276849




                                          Military Sealift Command officials told us that the use of industrial
                                          assistance workers on LMSR ships appears to be the most cost-effective
                                          method. The Military Sealift Command, working with the ship operating
                                          company, has developed a maintenance and repair plan using these
                                          industrial assistance workers. These officials believe that adequate
                                          maintenance and repair can be performed on the ships with the 26
                                          permanent crewmembers augmented by industrial assistance workers.


                                          Since 1993, acquisition cost growth of the LMSR conversion and new
LMSR Costs Exceed                         construction ships has had a net increase of about $131.5 million. This net
Current Projections                       increase represents about a 2-percent total program cost growth, from
                                          approximately $5.8 billion to $5.9 billion. The LMSR conversion ships
                                          account for $173.3 million of the cost increase, while the new construction
                                          ships show an estimated net cost decrease of $41.8 million. The cost
                                          increase was the direct result of the previously discussed delivery delays,
                                          while the net decrease can be attributed to a change in the escalation
                                          indexes. However, the cost increase in the conversion ships shows a
                                          downward trend from the first to the last completed ship. Table 4 shows
                                          the estimated cost increases at completion for the LMSR conversion ships.

Table 4: Increases in Estimated Cost at
Completion of LMSR Conversion Ships       Dollars in millions
                                          Ship’s name and             Initial estimated   Current estimated
                                          number                    cost at completion    cost at completion            Difference
                                          USNS Shughart                         $ 297.8                $ 343.6               $ 45.8
                                          T-AKR 295
                                          USNS Gordon                             303.1                  355.8                52.7
                                          T-AKR 296
                                          USNS Yano T-AKR 297                     251.9                  277.5                25.6
                                          USNS Gilliland                          254.0                  279.3                25.3
                                          T-AKR 298
                                          USNS Soderman                           252.3                  276.2                23.9
                                          T-AKR 299
                                          Total                                $1,359.1              $1,532.4              $ 173.3
                                          Source: Our analysis based on data from Naval Sea Systems Command.



                                          The first four new construction ships, in the early stages of production,
                                          show a net increase in cost of about $5 million. This cost increase,
                                          according to Navy officials, can be attributed to an escalation adjustment
                                          in the cost indexes to reflect inflation projections. According to the terms
                                          of the LMSR contracts, the Navy and the shipyards each pay 50 percent of



                                          Page 14                                               GAO/NSIAD-97-150 Strategic Mobility
                                        B-276849




                                        cost increases above target cost and share the same percentage in savings
                                        on all contracts that are completed below the target cost. Also, the
                                        contractor assumes total responsibility for cost once it reaches
                                        130 percent of the contract target cost. Table 5 shows the changes in the
                                        estimated cost at completion for the LMSR new construction ships.

Table 5: Changes in Estimated Cost at
Completion of LMSR New                  Dollars in millions
Construction Ships                      Ship’s name and/or               Initial estimated      Current estimated
                                        number                         cost at completion       cost at completion            Difference
                                                               a
                                        USNS Bob Hope                                $ 378.7                 $384.1                 $ 5.4
                                        T-AKR 300
                                        USNS Fishera                                   294.9                  297.3                   2.4
                                        T-AKR 301
                                        T-AKR 302a                                     292.9                  294.2                   1.3
                                        T-AKR 303                                      301.9                  293.2                  (8.7)
                                        T-AKR 304                                      308.5                  295.7                 (12.8)
                                        T-AKR 305                                      314.6                  299.3                 (15.3)
                                                           a
                                        USNS Watson                                    386.7                  382.5                  (4.2)
                                        T-AKR 310
                                        T-AKR 311                                      296.9                  307.8                 10.9
                                        T-AKR 312                                      289.4                  301.3                 11.9
                                        T-AKR 313                                      294.2                  288.3                  (5.9)
                                        T-AKR 314                                      295.3                  283.4                 (11.9)
                                        T-AKR 315                                      296.9                  282.0                 (14.9)
                                        T-AKR 99Ab                                     298.6                  298.6                    0
                                                       b
                                        T-AKR 99B                                      392.4                  392.4                    0
                                        Total                                      $4,441.9                $4,400.1               $(41.8)
                                        a
                                        Indicates first four new construction deliveries.
                                        b
                                            Final budget amounts will be established at contract award.

                                        Source: Our analysis based on data from Naval Sea Systems Command.



                                        Contractors and Navy officials stated that the lessons learned from the
                                        conversion ships will allow them to complete the new construction ships
                                        near projected cost. Navy officials stated that they monitor the LMSR
                                        contractors’ production progress, which is considered in the LMSR program
                                        manager’s cost estimate for each ship at completion. According to these
                                        officials, the LMSR program manager holds a monthly cost performance
                                        review of each shipyard and uses the information obtained to update the
                                        quarterly Defense Acquisition Executive Summary and other status reports




                                        Page 15                                                       GAO/NSIAD-97-150 Strategic Mobility
                         B-276849




                         on the LMSRs’ cost and schedule performance. Additionally, DCAA provides
                         on-site contract review and monitoring at each shipyard.


                         The Defense Contract Audit Agency has identified long-standing
Recommendation           deficiencies in the material management and accounting systems at all
                         three LMSR shipyard contractors. It believes these system deficiencies
                         could affect the delivery schedule for LMSR ships. While DOD officials
                         acknowledge the deficiencies, they do not believe they have had an effect
                         on the delivery schedule. Given that there is a valid concern that these
                         system deficiencies could affect the delivery schedule for the LMSR ships,
                         we recommend that the Secretary of Defense direct the Secretary of the
                         Navy to resolve these deficiencies expeditiously to minimize the potential
                         for additional delays.


                         In commenting on a draft of this report, DOD generally concurred with the
Agency Comments          report but did not agree completely with our rationale or the necessity for
and Our Evaluation       the Secretary of Defense to provide specific direction. For example, DOD
                         partially concurred with our recommendation that the Navy be directed to
                         resolve the long-standing deficiencies in the material management and
                         accounting systems at all three LMSR shipyard contractors and stated that
                         the following efforts were underway to demonstrate compliance with
                         these required systems:

                     •   The Navy converted one shipyard contractor’s contract to fixed price. As
                         of May 1997, the contractor had absorbed approximately $100 million of
                         cost overruns.
                     •   The Navy sent a letter to another shipyard contractor requesting either an
                         explanation of compliance with the required material management and
                         accounting systems or a corrective action plan. The contractor modified
                         its testing procedures and schedules and the Navy is currently seeking
                         DCAA concurrence with these modifications.
                     •   The Navy decided not to withhold part of the third shipyard contractor’s
                         progress payments after the shipyard contractor acknowledged that it was
                         not in compliance with the required material management and accounting
                         systems and outlined a plan to correct the deficiencies.

                         We continue to believe that the Navy needs to resolve the deficiencies
                         expeditiously in the three shipyard contractors’ material management and
                         accounting systems because DCAA has been trying to resolve these
                         deficiencies with the contractors since 1994 and the contractors’



                         Page 16                                     GAO/NSIAD-97-150 Strategic Mobility
              B-276849




              production efficiency could be adversely affected and ship construction
              could be delayed until the deficiencies are corrected.

              DOD also partially concurred with our draft recommendation that the Navy
              be directed to resolve the issue of the inability of the Shugart class of LMSR
              ships to maintain the required speed of 24 knots when loaded. In a May 23,
              1997, letter, the Deputy Chief of Naval Operations (Logistics) stated that
              the USNS Shughart has demonstrated the ability to achieve speeds greater
              than the required speed of 24 knots when adjusted for full load conditions.
              Based on that letter, DOD stated that the difference in the required speed of
              24 knots and the demonstrated operational test speed of 23.665 knots is
              not significant. We agree that the difference between speeds of 24 knots
              and 23.665 knots is not significant. Therefore, we have deleted that
              recommendation from our final report.

              DOD also provided technical comments, which we have incorporated
              where appropriate. (DOD’s comments are presented in their entirety in
              app. III.)


              To obtain information on the Navy’s efforts to deliver the conversion and
Scope and     new construction ships on schedule, we gathered information on the
Methodology   original contract and the current projected delivery dates reported by the
              three LMSR contractors—NASSCO, Newport News Shipbuilding, and
              Avondale Industries—and the Navy for each of the LMSR prepositioning
              ships. We examined DCAA reports to determine whether there were
              deficiencies in the contractors’ material management and accounting
              systems that could affect the delivery schedule for LMSR ships. We
              determined the impact of any delays on the Army meeting its
              prepositioning afloat requirements by examining the Army’s operational
              schedule and identifying those areas in which the Army fell short of its
              goals. We also identified the Army’s efforts to minimize the effects of late
              deliveries on its afloat prepositioning requirements. We interviewed Navy,
              Army, and contractor officials at the Naval Sea Systems Command and the
              Army’s Deputy Chief of Staff for Logistics, Washington, D.C. In addition,
              we interviewed representatives from the Navy’s Supervisor of Shipbuilding
              and the ship contractors at Newport News Shipbuilding, Avondale
              Industries, and NASSCO.

              To determine the capability of the LMSR conversion ships to adequately
              perform their mission, we observed (1) tests of critical ship systems while
              they were in port and during tests at sea and (2) the loading of Army afloat



              Page 17                                       GAO/NSIAD-97-150 Strategic Mobility
B-276849




prepositioning equipment aboard the first deployed LMSR ship. We
reviewed test reports and summaries, including the combined Army and
Navy independent, operational test report of the LMSR ship. Where there
were performance deficiencies, we discussed with Army and Navy officials
the affect of the deficiencies on the ship’s ability to carry out its mission.
We interviewed officials at the Deputy Chief of Naval Operations and
Strategic Sealift Programs and the Director of Navy Test and Evaluation
and Technology Requirements, Washington, D.C.; the Army Operational
Test and Evaluation Command, Alexandria, Virginia; the Navy Operational
Test and Evaluation Force, Norfolk, Virginia; the Military Traffic
Management Command, Falls Church, Virginia; and the Navy Board of
Inspection and Survey, Norfolk, Virginia.

To determine the level of crewing for the LMSR ships, we reviewed Military
Sealift Command and Coast Guard crewing documents. We interviewed
officials from the Military Sealift Command, Washington, D.C., and
representatives from the LMSR conversion ship operating company in
Charleston, South Carolina. We also interviewed crewmembers from a
LMSR conversion ship in Newport News, Virginia.


To identify the increases in the LMSR procurement costs, we examined
copies of LMSR conversion and new construction ship contracts, budget
estimates, and contractor cost performance reports. We also examined the
operations and maintenance budget submittals for the Army’s Strategic
Mobility Program. We interviewed Navy and Army officials at the Naval
Sea Systems Command and the Department of the Army’s Deputy Chief of
Staff for Logistics, Washington, D.C. We also interviewed representatives
from the Navy’s Supervisor of Shipbuilding and contractor officials from
Newport News Shipbuilding, Avondale Industries, and NASSCO.

We conducted our review from August 1996 through May 1997 in
accordance with generally accepted government auditing standards.


As you know, the head of a federal agency is required by 31 U.S.C. 720 to
submit a written statement on actions taken on the recommendation in
this report to the Senate Committee on Governmental Affairs and the
House Committee on Government Reform and Oversight not later than
60 days after the date of this letter and the House and Senate Committees
on Appropriations with the agency’s first request for appropriations made
more than 60 days after the date of this letter.




Page 18                                       GAO/NSIAD-97-150 Strategic Mobility
B-276849




We are sending copies of this report to the Secretaries of the Army and
Navy and other interested congressional committees. Copies will be made
available to others upon request. Please contact me at (202) 512-5140 if
you or your staff have any questions concerning this report. Major
contributors to this report are listed in appendix IV.

Sincerely yours,




Mark E. Gebicke
Director, Military Operations
  and Capabilities Issues




Page 19                                    GAO/NSIAD-97-150 Strategic Mobility
Contents



Letter                                                                                               1


Appendix I                                                                                          22

Photographs of Large,
Medium Speed
Roll-On/Roll-Off
Conversion Ships
Appendix II                                                                                         26

Drawings of Large,
Medium Speed
Roll-On/Roll-Off New
Construction Ships
Appendix III                                                                                        28

Comments From the
Department of
Defense
Appendix IV                                                                                         31
                        National Security and International Affairs Division, Washington,           31
Major Contributors to     D.C.
This Report             Los Angeles Field Office                                                    31

Tables                  Table 1: Delays in Delivery of LMSR Conversion Ships as of                   8
                          May 1997
                        Table 2: Delays in Deployment of LMSR Conversion Ships as of                 9
                          May 1997
                        Table 3: Delays in Delivery of First Four LMSR New Construction             11
                          Ships as of May 1997
                        Table 4: Increases in Estimated Cost at Completion of LMSR                  14
                          Conversion Ships
                        Table 5: Changes in Estimated Cost at Completion of LMSR New                15
                          Construction Ships




                        Page 20                                     GAO/NSIAD-97-150 Strategic Mobility
          Contents




Figures   Figure 1: Projected Operational Schedule for LMSR Ships and                 4
            Capacity Provided
          Figure I.1: Newport News Shipbuilding Conversion, East Asiatic             22
            Limited Containership
          Figure I.2: Newport News Shipbuilding Conversion, USNS                     23
            Gordon
          Figure I.3: NASSCO Conversion, Maersk Containership                        24
          Figure I.4: NASSCO Conversion, USNS Shughart                               25
          Figure II.1: Avondale Industries, New Construction                         26
          Figure II.2: NASSCO New Construction                                       27




          Abbreviations

          DCAA       Defense Contract Audit Agency
          DOD        Department of Defense
          GAO        General Accounting Office
          LMSR       Large, Medium Speed Roll-On/Roll-Off
          NASSCO     National Steel and Shipbuilding Company


          Page 21                                    GAO/NSIAD-97-150 Strategic Mobility
Appendix I

Photographs of Large, Medium Speed
Roll-On/Roll-Off Conversion Ships

Figure I.1: Newport News Shipbuilding Conversion, East Asiatic Limited Containership (before conversion)




                                          Source: Naval Sea Systems Command.




                                          Page 22                                         GAO/NSIAD-97-150 Strategic Mobility
                                         Appendix I
                                         Photographs of Large, Medium Speed
                                         Roll-On/Roll-Off Conversion Ships




Figure I.2: Newport News Shipbuilding Conversion, USNS Gordon (after conversion)




                                         Source: Naval Sea Systems Command.




                                         Page 23                                   GAO/NSIAD-97-150 Strategic Mobility
                                         Appendix I
                                         Photographs of Large, Medium Speed
                                         Roll-On/Roll-Off Conversion Ships




Figure I.3: NASSCO Conversion, Maersk Containership (before conversion)




                                         Source: Naval Sea Systems Command.




                                         Page 24                              GAO/NSIAD-97-150 Strategic Mobility
                                         Appendix I
                                         Photographs of Large, Medium Speed
                                         Roll-On/Roll-Off Conversion Ships




Figure I.4: NASSCO Conversion, USNS Shughart (after conversion)




                                         Source: Naval Sea Systems Command.




                                         Page 25                              GAO/NSIAD-97-150 Strategic Mobility
Appendix II

Drawings of Large, Medium Speed
Roll-On/Roll-Off New Construction Ships

Figure II.1: Avondale Industries, New Construction




                                           Source: Naval Sea Systems Command.




                                           Page 26                              GAO/NSIAD-97-150 Strategic Mobility
                                       Appendix II
                                       Drawings of Large, Medium Speed
                                       Roll-On/Roll-Off New Construction Ships




Figure II.2: NASSCO New Construction




                                       Source: Naval Sea Systems Command.




                                       Page 27                                   GAO/NSIAD-97-150 Strategic Mobility
Appendix III

Comments From the Department of Defense




               Page 28       GAO/NSIAD-97-150 Strategic Mobility
                        Appendix III
                        Comments From the Department of Defense




Now on pp. 16 and 17.




                        Page 29                                   GAO/NSIAD-97-150 Strategic Mobility
                Appendix III
                Comments From the Department of Defense




Now on p. 17.




                Page 30                                   GAO/NSIAD-97-150 Strategic Mobility
Appendix IV

Major Contributors to This Report


                        Sharon A. Cekala
National Security and   Colin L. Chambers
International Affairs   James A. Driggins
Division, Washington,   Elliott C. Smith
                        Sharon E. Sweeney
D.C.
                        Dale M. Yuge
Los Angeles Field
Office




(703169)                Page 31             GAO/NSIAD-97-150 Strategic Mobility
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested