Navy Ships: Status of SSN-21 and DDG-51 Programs

Published by the Government Accountability Office on 1990-05-22.

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

                    United States General Accounting Office

For Release         NAVY SHIPS:        Status      of   SSN-21   and    DDG-51         Programs
On Delivery
Expected    at
9:3O a.m. EAST
May   22,   1990

                    Statement     of
                    Martin     M Ferber,        Director
                    National     Security        and International           Affairs
                    Before    the
                    Subconmitee     on Projection   Forces             and    Regional
                    Committee     on Armed Services
                    U.S. Senate

GAO-T-NSIAD-90-44              :'                                               GAOFmm     160 (12/W)
Mr.      Chairman                 and      members             of     the         Subcommittee:

I am pleased                      to     appear             before          the      Subcommittee                    today         to    discuss

the      status             of      the        Navy's          Seawolf             attack             submarine               (SSN-21)

program,              its         combat          system             (AN/BSY-2),                  and       the      Arleigh            Burke

class       destroyers                     (DDG-51).                  This         year        we have              issued         reports               to

this       Subcommittee                        on the          SSN-21             and      the        BSY-2         and     we issued            a

report          to      the         Secretary                of      Defense            on the           DDG-51.

Overall,             our          concerns              on both             programs              are        similar.              They        are
highly          concurrent                     programs              where         major          subsystems                are     being

developed              while              ships         are         under         construction.                       Also,        several               ships
are      being         bought              before             the     lead         ships          are        operationally                 tested.

We recognize                      that         shipbuilding                    may present                   a unique             challenge

because           of        the         time      it        takes         to      develop             and     build          a ship.            Last

year,       the         Congress                 enacted             a provision                  that        recognized                that         a

number          of      ships             could         be on contract                        prior          to     completion             of

operational                      test      and         evaluation                 on the          lead         ship.           However,              with        as
many       as        15 of             a planned              buy     of       29 SSN-21s                   (over       50 percent)                  and       13

of      a planned                 buy      of     33 DDG-51s                     (nearly          40 percent)                  under       contract

before          the         lead          ship         of     each        class          is      tested,            we are         concerned                  that
the      Navy         may be overusing                              the     exemption.                   Also,            independently,                      each

program           consumes                 a large             part         of     the        Navy's          shipbuilding                 budget.
Chairman          Nunn            has      questioned                  whether           there              is      still           a necessity

for      as much            concurrency                     in    weapon         systems                given           the         changing            world

environment.                      We testified                    (Concurrency                    in        the        Acquisition                 Process,

statement             of     Frank             C. Conahan,                GAO/T-NSIAD-90-43,                                  May        17,      1990)

before         Chairman                 Nunn         last        week     and      share            his           concern.                Although

concurrency                 can         be used             to    expedite             the        development                       and        production

of      weapon        systems,                 our        work     has       shown           that           after            a significant
expenditure                 of     procurement                    dollars,             several               high            cost        concurrent

systems          and        subsystems                    do not         perform             as        intended.                    We believe               that

DOD can          no longer                 afford            to    concurrently                     develop                  and        procure         these

high      cost        systems              without               knowing          early           whether                   the     desired

capability             can         be demonstrated.                             We also             believe                  that        the      recent

changes          in        the         national             security            environment                       mean that                we can          wait

until        we know              whether             systems            work      before               we buy               them.

Declining             defense              budgets               may     also         greatly               impact                the    Navy's           plans
for      the     systems                we are            discussing              today.                As you               know,         the

Secretary             of         Defense             is     currently             reviewing                      the        SSN-21         and      DDG-51

programs          and        his          recommendations                       are      due           at        the        end     of     this      month.

Specifically,                     he      is      looking           at     what        attack               submarine                   and      destroyer

capabilities                     the      United            States         needs;            the        extent               to     which         the

SSN-21         and         DDG-51          programs               provide             these            capabilities;                       and      fiscal

and acquisition                         considerations,                      including                  cost,               schedule,             and


I would         like            to     briefly            summarize                 our         reports           on the       SSN-21,             BSY-2

and      DDG-51.                The      reports'               summaries                are          included         as appendices                  to

this       statement.


The      SSN-21          will          be      larger,              quieter,              tactically                faster       and     deeper

diving        than         Los         Angeles            class          attack             submarines                (SSN-688)--the                  last

19 of        which         are         currently                under          construction.                        The      SSN-21      will

also       carry         more          weapons            than         earlier              classes            of    attack        submarines.

Critical            to     the          SSN-21           achieving                 its      mission            requirements              is         the

successful               development                    of      the      BSY-2            combat          system,            an advanced

computer            system             designed                to     enable             the     submarine             to     detect        and

locate        targets                 faster          than          existing              submarine               combat        systems             can,

allow        operators                  to     perform              multiple              tasks          and      address        multiple

targets            concurrently,                      and       reduce             the         time      between          detecting             a

target         and       launching                weapons.                 This           is      to     be accomplished                 through

computer-aided                        detection,                classification                         and       tracking,         the      use           of   a

wide        aperture                 array       hull          mounted             sensor,             and       enhanced         information


The        SSN-21        and BSY-2                 are         being       developed                   as separate              programs,                 each

under        the       direction                 of      its        own program                  manager            and      subject          to     its

own management                        system.                Both       are        highly             concurrent.               The BSY-2                 is

to     be provided                   as government-furnished                                     equipment                   to     the            submarine


The Navy            is        using         two       shipyards                to     design               the        SSN-21            --         the
Electric            Boat         Division               of      General              Dynamics                  and     the         Newport                News

Shipbuilding                    and     Dry        Dock         Company.                  Newport                News        is     responsible                           for

the     submarine's                   overall               design            under            a $343           million             cost-plus-
fixed-fee            contract.                       Electric              Boat          is     designing                 the       engine                 room           and

its     equipment                under          a $212              million           cost-plus-fixed-fee                                     contract.

Some research                    and        development                    and       detailed                  design           efforts                  will

continue            concurrently                      with          construction                     of        the     first            SSN-21.

In     January            1989,         the          Navy       awarded              Electric                  Boat       a construction

contract            for         the     first           SSN-21.                 Delivery               is        scheduled                   for         May 1995

with       an estimated                     cost        of         $1.9       billion.                 The Navy                   expects                the       unit

cost       of    the          next      three           SSN-21s               will        decline                and      that          the         fifth            and

subsequent                SSN-21s             will           not      exceed             $1 billion                   each         in        1985          base

year       dollars              which         would           equate            to       $1.3        billion              in       today's

dollars.                 For      fiscal             year          1991,        the           Navy        is     requesting                    $3.5             billion

for     the      second               and     third           ships,            two       combat               systems,             and            long           lead

time       items          for         the      fiscal              year       1993            program.

The BSY-2                is     critical               to     the         submarine               achieving                  its        full             mission

and     performance                    capabilities.                          The Navy               has         no alternate                        combat

system          planned               should           the         BSY-2        development                      be delayed.                         In March
1988,         the        Navy         awarded           General               Electric               a fixed-price                           incentive                    fee

contract         worth             up to           $1.84          billion               to      develop             the         BSY-2       combat

system        and      produce               the        first         unit          for         the      lead           submarine,                 with

options        for          two        more        systems            and      related                  items.                Full-scale

engineering             development                       is      scheduled                   to      proceed              into      fiscal           year

1996.         Total          development                       and    procurement                      costs            for       29 planned                BSY-2

combat        systems              are       estimated                to     be $7.4                  billion              in     then-year


We continue                 to     have        several               concerns                 that       must           be addressed                   in      the

SSN-21        and      BSY-2             development.


To meet         its         planned            de livery              date          of        May 1995,                 the       SSN-21            program

is    using      a concurrent                       scheduling                 approach                   that          has       construction

ongoing        while             design            is         continuing.                     Current              plans          call        for      as many
as    15 ships,              at        an estimated                   cost          of        more        than          $21 billion,                   to      be

on contract                 or     under           construction                     before              the        first          ship        is

available             for         operational                    testing.

The     SSN-21's             construction                        schedule                is        driving           the        development                  and

production             schedule                of        its      combat            system.                   In     1988         the       Navy

stipulated              that           the     delivery               of      the            first        BSY-2            was      required              by

November            1993          to     meet        the         scheduled                   delivery              of      the      first           SSN-21.

However,            when          the        Navy       awarded              the         full-scale                  development                    contract
for     the    combat              system,               it      agreed            to        have       all        system          hardware                 and

about          86 percent                   of      its        software             delivered                    to     the             Navy         by that

date.           The remaining                        software                would            be delivered                         in         November               1994.

In      our     January                1990        report             (Navy         Acquisition:                        Cost,                 Schedule,               and

Performance                     of     New Submarine                     Combat               Systems,                 GAO/NSIAD-90-72,

Jan.          31,      1990),             we expressed                   our         concern            that             this             program              could

be high              risk          because           development                    of        the     BSY-2              is        one          of      the      most

technically                     challenging                     and     complex               software                 development                       efforts

undertaken                   for       a submarine.                      The BSY-2                  combat               system                 will          require

up to          800          software              personnel              to        develop             and            integrate                   about          3.2

million              lines           of     code          --     over         2 million                of        which              is        planned            to     be

written              in      the       new Ada programming                                language.                      Our            report            also

discussed                   some submarine                       redesign               caused          by BSY-2                        changes               and,      more

recently,                    we have              learned             that         because             of        increased                      weight           of     the

BSY-2          hardware,                  additional                  redesign                may be necessary.                                        The

sh ipbu ilder                   has       not       yet         made      a full              assessment                      of         this          impact.

In      his         April            1990        report          on "Concurrency                            in        Major              Acquisition

Programs"                   the       Under         Secretary                 of       Defense              said         that             the          overall          risk

assessment                   of       the        BSY-2          was considered                        low        for          performance                      and

schedule                  and moderate                    for        cost.             However,              this             differs                  from      an

internal                  DOD assessment                        by the          Special             Assistant                       on software                      and

computer                  technology                in         the    Office             of     the         Director                     of     Defense

Research                  and        Engineering                 who         identified                several                  potential                     problems

that          could          prevent              delivery              of      the       BSY-2             system                 in     time          to     support

the       planned                 May 1995            delivery                date        for         the        SSN-21.                      For       example,

the     Special          Assistant                   was concerned                that         General              Electric            does       not

have      enough         personnel                   with     Ada training,                    and      those             that      are        trained

need      more        expertise.

At     your      request,               we are          continuing               to    review           the         technical

development              of        the     BSY-2.


The     Navy      plans            to     buy        29 SSN-21s            by     the     year           2000        at      an estimated

cost       of    about            $44 billion                in     then-year            dollars.

In     April        1990,          we reported                    (Navy    Ships:             Status          of      SSN-21            Ship

Construction                  Program,               GAO/NSIAD-90-163,                        April          19,      1990)         our        concern

that       fiscally               constrained                budgets         and        the      cost         of      the         SSN-21        may

not     allow         the         Navy     to        buy     all     29 SSN-21s.                      The Navy's                  SSN

construction                  plan        is     based         upon       several             assumptions                   that,         in     our

opinion,          may not                be achievable.

To execute              the        SSN      construction                  plan        within           a shipbuilding                      budget

that       would,           for      example,               grow     at    an annual                  real         rate      of     3 percent,

the      Navy       would          have         to

--     increase             the      percentage                of     shipbuilding                    funds         allocated              to     SSN

       construction                  from        19 to            26 percent,
--     reduce         average             planned            SSN construction                         time         from          65 months             to

       about        52 months,
--     receive                 authorization                      and          funding               for     an average                     of        about         three

       ships             per         year,          and
--     incur             no cost              overruns                 requiring                 supplemental                          funding.

Further,                 during             a period              of        zero          or     3 percent                  negative                  real         growth

budgets,                 the          Navy's         planned                  SSN program                   could           consume               up to            36

percent              of        its      shipbuilding                        budget.

DDG-51          ARLEIGH                 BURKE DESTROYER

The DDG-51                     will          replace             retiring                 destroyers                     and       will          be equipped

with          the        AEGIS          combat             system.                   The        lead        ship's              complex               design

incorporates                          features              to        increase                 the     ship's              ability               to     survive

during              battle.                  For      example,                 it      will          have         a seakeeping                        hull,         all

steel          construction                         and         extensive                  armor           around            vital           spaces,               and        a

system              to     protect                 the      crew         from          contaminated                        air.

 Initially,                    the          lead         ship         was      scheduled                   for          delivery             in       September

1989,          but         Bath             Iron      Works            encountered                     delays              in      designing                  and

constructing                          the      lead         ship.              For         example,                it      planned               to     use        mostly

computer-aided                           design,                but      it         was        unable            to.         Bath          Iron         Works            is

now making                     an extraordinary                               effort            to     meet             a planned                delivery                in

February                  1991.

The Navy                  has         awarded             contracts                  for        12 follow-on                       ships          out         of     a

planned               program                of     at      least             33 ships               estimated                    to      cost        $27 billion.

Prior        to      the        award           of        the      last         five             ships          in      January            1990,         we

expressed                our          concern             that      much            work          still          had        to      be done             on the

lead       ship          --      it     was          estimated                 at         50 percent                  complete             --      and     that         7

follow-on                ships          were          already                 under          construction                     or     contract                (Navy

Shipbuilding:                         Cost      and        Schedule                 Problems               on the             DDG-51             AEGIS

Destroyer                Program,               GAO/NSIAD-90-84,                                 Jan.      17,          1990).             We believed

that       DOD should                   have          considered                    not          awarding               contracts                for
additional                    ships          until         after              sea      trials             scheduled                 for         this      coming

fall.         DOD disagreed                           and        awarded                  contracts              for         five         ships.

We cant inue                   to      be concerned                      about             the      concurrency                     in     the         DDG-5

program            and         its       affordability.


Until        Bath             Iron      Works             completes                 the          lead      ship             and     it     undergoes               sea

trials            this         fall,           the        Navy         will         not          know      if         the        integration                 of    the

AEGIS        combat              system              and        various               systems             is         effective.                   For

example,             new systems                      such         as         the         collective                  protection                  system          and       a

data       multiplex                   system             are      still            being            incorporated                        on the          lead

ship.             The Navy's                   own assessment                             was     that          extraordinary                      efforts

were       needed              to      incorporate                     these              systems          to         meet         the     ship's

delivery             schedule.                       At     the        same           time,          follow-on                   ships          are     under
construction                     at      both         Bath         Iron          Works            and      Ingalls                 Shipbuilding.                     If

problems             develop                 on the             lead          ship,          corrections                     may require                  changes

in     design           to     follow-on             ships           or      retrofitting.                       The Navy            would

likely          be responsible                      for        these        costs.

Although               DOD's        Office          of     Developmental                       Test        and       Evaluation

categorizes                  the     DDG-51          as a highly                     concurrent               program,              the      Under

Secretary               of     Defense's              recent           report             on concurrency                     did     not

include           the        DDG-51.           We have               been         told         by DOD that                  was an



DOD has           determined                 that         the     original                fixed-price                  incentive             contract

may no longer                      be appropriate                    for         developing                the       DDG-51         and      last

fall       changed             the     cost-sharing                       ratios,             which        significantly                   increased

DOD's        costs           while         eliminating                    Bath       Iron       Work's           projected                losses

under           the     original             contract             terms.                 In    our        January           1990        report       we

expressed               our        concern          about         the        potential                impact          on other             programs

because               over     50 percent                 of    competitively                        awarded           fixed-price

incentive               shipbuilding                     contracts               were         experiencing                  cost        growth.

Lead       ship         design         and      construction                        costs        have        increased

significantly                      since      the         original               estimate.                 Before           restructuring

the       contracts                design       costs           were         expected                to    more        than        double,          from

$111       million             to     $247      million,                  and       construction                    costs        were      expected

to       grow         by more         than      60 percent,                      from         $157        million           to     $253      million.

In     April          1990           the      estimated                  costs          for       design                and        construction                         were

$516       million.                   However,              DOD believes                        that           the         total          cost         of         the

lead       ship           after            integrating                   all      systems,                    including                  the        government-

furnished                 AEGIS            combat          system,              will          still            be under                  the        original

estimate              of        $1.25         billion              (in         1985      dollars)                    --        approximately                       $1.45

billion             in     current              dollars.                   The Navy's                    February                  1991         buy      of        5

ships          cost        about            $700        million                each.

For       fiscal           year            1991,        the        Navy          is     requesting                        $3.6      billion                 for

another             5 ships.                  Like         the      SSN-21              program,                   achieving                   the     planned

DDG-51          program               of      five         ships           per         year           will         require               an increasing

share          of        the      Navy's           shipbuilding                        program                in     an era              of     declining

defense             budgets.                  For       example,                 at     3 percent                    negative                  real         growth
the       DDG-51           program              will          consume                 32 percent                   of      the       fiscal            year             1991

requested                 shipbuilding                     budget.


In     conclusion,                    we believe                   that          the      changing                   world           environment                        may

provide             the         opportunity                   to     reduce             concurrency                        in      shipbuilding

programs.                      One of         the         justifications                         for          concurrency,                       if     not         the

main         justification,                        has        been         the         urgent                need         to     field          a system                  to
respond             to         the     threat           which            several              analysts                    now see              as     lessening.

At     the       same time,                   affordability                           issues            of     the         SSN-21              and      the         DDG-51
will         likely             require             the       Navy         to         make       important                     trade-off                decisions.

It      is    our        hope   that     the      Secretary            of   Defense's          mandated     review      of

the      attack           submarine        and     destroyer            programs        will     provide     the     high

level         attention          programs          of    this      importance           deserve.

This         concludes          my     prepared         remarks         and    I   would       be pleased      to

respond             to    any   questions.

APPENDIX   I                                                                  APPENDIX        I

                   I’nitrd States
                   General Accounting Office
                   Washington. D.C. 205-M

                   National !Security and
                   International Affairs Dkision

                   April   19,   1SRl

                   The Honorable Edward \I lienned)
                   Chairman. Subcommittee on ProJection
                      Forces and Regional Defense
                   Committee on Armed Services
                   I’mted States ,Senate

                   The Honorable John R liasich
                   House of Representative\

                   This report is the unclassified version of the classified report we pro-
                   vided you m Sovembcr 1989 on the results of our review of the Navy‘s
                   Seawolf Suclcar -4ttack Submarine (ss\-211 construction program Our
                   ObJeCtlX’eSwert to address the program’s status. the ss\-21‘s perform
                   ance capabilities. and the Navy’s ability to maintain the nuclear attack
                   submarine (~1 j force structure

                   The Savy is usmg two shipyards to design the ssx-21 and is proceeding
Results in Brief   with its ship construction plans Durmg the research and development
                   phase. the program experienced some cost increases and a revised dehv-
                   cry schedule Indications arc that further cost mcreases and schedule
                   adJustmen& are possible and it is unclear whether overall performance
                   goals will be met smw the lead submarine will not be available for test-
                   ing until 199.5 The s\-21’s shipbuilding plan is designed to achieve the
                   Navy‘s lO(1S+ force goal However. fiscal constramts and ship cost ma)
                   prevent the Savy from ac~hievmgits SY force goals

                   The 100 nuclear attack submarine force is a keystone of the Navy’s mar-
Background         itime strategy and thf, next %%-?I is to be one of the princtpal compo-
                   nents of that force The \avy SW\ no alternative to the sl;\-21 in
                   providmg the quantum improvements needed m submarine warfightmg
                   capability .4ccordinp to the Sax-h-,the w-21 is needed becauseof Soviet
                   deployments of mart’ c,apableand quieter su and because space and
                   weight hmltatwns prevent further performanw Improvements to the
                   Los Angelrs cla% nuclear attack submarmc (s<\-(i88) Designed to be
                   quieter. deeper diving and tactically faster. the w-21 also will cart
                   more weapons than th(t %vfi88s being built today. In addition. a nw
                   combat system (AS I3SY~2)1sexpected to pro\-ldrl the ~~-21 with a
                   greatrr CapabIlIty to detect. classify. localize. and launch weapons
                   against enemy tarR(‘ti (See app 1 1

                    Page1                                  GAONSlABso.,&~

APPENDIX   I                                                                   APPENDIX          I

                 The ~~-21 construction program is a major Navy initiative. Between fis-
                 cal years 1989 and 2000. the Navy plans to award contracts for 29
                 s%-21s. including combat systems. at an estimated cost of $36 billion.
                 The ss~21 program is completing its detail design phase, and in January
                 1989 the Navy awarded the Electric Boat Division of General Dynamics
                 Corporation a construction contract for the first ship. Someresearch
                 and development and detail design effort will continue concurrently
                 with construction of the lead submarine. Construction of the first ship
                 began in October 1989 and delivery is scheduled for May 1995. In terms
                 of 1985 base year dollars, the first ssh-21 is estimated to cost $1.6 billion
                 and the Navy expects the unit cost of the next three w\-21s will decline
                 to the point that the fifth and the 24 following s%-21s will not exceed
                 $1 .Obillion each.

                 The ~~-21 shipbuilding program has experienced cost increases over
Program Status   estimates and a &month schedule adjustment. Piewport News Shipbuild-
                 ing-the lead shipyard for submarine design-has reported increased
                 costs under its cost-plus-fixed-fee design contract that has an authorized
                 cost of $343 million Not yet included m the authorized cost is $5 million
                 for submarine redesign caused by changes in the configuration of the
                 combat system Electric Boat. which is designing the engine room and its
                 equipment also under a cost-plus-fixed-fee contract with an authorized
                 cost of $212 million. shows a cost increase in its cost report. The Kavy
                 contended that the cost mcrease figure was invalid because the contrac-
                 tor’s budgeted costs, against which actual costs were compared, were
                 incomplete. The amount of the individual cost increases is considered to
                 be proprietary by the contractors According to the Kavy, it agreed to a
                 6-month schedule adjustment for constructing the first ~~-21 to secure
                 a lower price

                 The AN B$%-2 combat system development program could further exac-
                 erbate the ~3-21 program’s cost and schedule problems Managed sepa-
                 rately from the sss-21 program, the Ali/BS-2 is critical to the
                 submarine achievmg its full mission and performance capabilities The
                 combat system’s development schedule is set by the ship’s construction
                 schedule. and the Kavg has no alternate system planned should the
                 AN,/BSi-2 development be delayed. In October 1988 Newport News
                 Shipbuilding indicated to the Navy that, on the basis of its assessment.it
                 believed the AN,‘BSk-2 development program was 12 to 16 months
                 behind that needed for the lead submarine delivery schedule. The Kavy
                 has since extended dellvery of the lead submarme 6 months. to May

                 Page 2

APPENDIX   I                                                                     APPENDIX         I


                      As of March 1989. design of the combat system was about 3 months
                      behind schedule and two important Navy design reviews had been
                      delayed about 5 months. In addition, the Department of Defense (DOD)
                      has identified problems rn developing two combat system components.
                      Further combat system changes could have a major impact on completed
                      s.sh-21design, with an adverse effect on program cost and schedule.

                      Until the first ~~-21 is built and fully tested, the Navy will not know
                      the exact extent to which the ~~-21 will achieve its performance goals
                      Except for the two components, component and system development
                      test results appear satisfactory

                      .4 more detailed discussion of the s&h’-21program and the AN/BSr-2
                      combat system is provided m appendix Il.

Operational Testing   Section 2366 of title 10 of the United States Code provided that major
                      defense acquisition programs may not proceed beyond low rate produc-
                      tion until operational testing and evaluation is completed. The acquisi-
                      tion schedule for the ~~-21 program provides that contracts for 14
                      submarines are to be awarded before the first ship is available for oper-
                      ational testing. The Navy plans to begin construction of the second and
                      third ~~~-21smore than 4 years before the lead ship is ready for opera-
                      tional testing.

                      In an opinion dated February 27, 1989, we concluded that the ~-21
                      program could not proceed beyond low-rate initial production on the
                      basis of “early operational assessments” that did not constitute opera-
                      tional testing.!

                       The Navy believed that waiting for operational testing of the first SSS-21
                       before contracting for more submarines would delay the program ,5or 6
                       years and entail a large cost increase. The Navy. therefore, had no plans
                       to change its acquisition schedule. However, in its comments on a draft
                       of our November 1989 report, DOD indicated that actions were underway
                       to seek legislative relief from the current requirement. Subsequent to
                       our November report, the Congress resolved this issue in the Navy’s

APPENDIX   I                                                                       APPENDIX            I

                       The Savy believes the ~3-21 ~111allow it to mamtain far-term
SSN-21 Affordability   submarme superiority into the next century Yet. fiscally constrained
                       budgets may not allow the Navy to buy all of the wr-21s it needs to
                       achieve and maintain its 100 ssx force. To achieve its .sshforce goal and
                       execute its ~-21 shipbuilding program. the Navy. according to our
                       analysis, with sustained annual shipbuilding and conversion budget
                       growth of 3 percent above Inflation. will need to increase the SSS’Sshare
                       of the shipbuilding and conversion budget from 19 to 26 percent. Fur-
                       ther. during a period of zero or negative real growth budgets, the Navy’s
                       planned s5> program could consume up to 36 percent of its total ship-
                       building and conversion budget, which may affect Savy total force
                       structure decisions (See app III.)

                       The Navy could achieve its sss force level goals by building a mix of
                       ~3s This might entail acquiring fewer ~~-21s and more of the less
                       costly ss\-688s However, the Navy does not consider this a viable alter-
                       native to the ~5-21 program According to Navy officials, if ~~-21
                       affordability becomes an issue they would rather reduce the SSKforce

                       Without aggressive funding, the iSavy will probably have difficulty
Conclusions            achievmg its sss force goal and executing its us\-21 program ~~-21
                       affordability issues will likely require the Savy to make total force, as
                       well as sss force, trade-off decisions. The Navy also may experience dif-
                       ficulties m achievmg its current ~~-21 construction plan because the
                       AN BSY-2’sdevelopment, which is critical to the ~~-21 construction
                       program, may not be completed when the first submarine IS delivered.
                       The ~~-21 will not be operationally tested until after construction of the
                       second and third ships has started: therefore. the Savy will not pre-
                       cisely know whether the ~5-21 will provide the warfighting capabilities

                       In our November 1989 report, we recommended that the Secretary of
Recommendations        Defense direct the Secretary of the Navy to either (1) ensure that the
                       ~5-21 and its combat system undergo operational testing and evaluation
                       before proceeding past low-rate initial production, as required in the
                       law. or ( 2) seek legislative relief that would change the law to either
                       exempt shipbuilding in general or the ~~-21 program specifically.

                       Page I                                 GAO NSlAD90163   Submarine   CmMnxtlon

APPENDIX   I                                                                        APPENDIX              I

                      Ix~rlycncrally agreed !rith our report and with the facts as presented In
Agency Comments and   some (‘av?s it disagreed ASto how those facts were characterized and
Our Evaluation        provided an update to the Sav) ‘s ss\ force structure data. Where appro-
                      priate. we modified the report to reflect DOD’S position.

                      LXXJ agreed with our recommendation that the Navy either seek legisla-
                      tive relief or comply with the law. It indicated that actions were under-
                      way to seek legislative relief from the current requirement. In November
                      1989. Pubhc Law 101-189 was enacted, which allows shipbuilding pro-
                      grams to proceed prior to the completion of operational testing of the
                      first ship

                      This report was prepared under the direction of Martin M Ferber. Direc-
                      tor. Savy Issues. who may be reached on (202) 275-6504 if you or your
                      staff have any questions. Other major contributors are listed m appen-
                      dix 11’.

                      Frank C. Conahan
                      Assistant Comptroller General

                      Page 5                                 GAO/NSL4&9tlI63   Submarine   Construction

APPENDIX   II                                                                    APPENDIX              I I

Executive Summary

                   To meet new Soviet threats and ensure continued I’S submarine
Purpose            superiority the L’S Navy has initiated development of two new
                   advancedcombat systems. These systems-the AN/W-l and the AN.
                   BSY-Z-are to be installed in improved Los Angeles (~~~-688) and new
                   Seawolf (~~21) class nuclear attack submarines, respectively. The life-
                   cycle costs for the two systems have been estimated at over $26 billion

                   The Chairman. Subcommittee on Projection Forces and Regional
                   Defense. Senate Committee on Armed Services, requested that GAO
                   examine the status of the Navy’s submarine combat system develop-
                   ment programs. Specifically. GAO determined whether these two combat
                   systems will meet cost. schedule, and performance goals and whether
                   the combat system being developed for ~~~-21scan avoid developmental
                   problems experienced with the ~~688 combat system.

                   In 1980 the Navy began developing an advanced combat system for
Background         improved ~~-688s authorized m fiscal year 1989 and beyond. Origi-
                   nally. it planned a single-phased program. However. in October 1983 the
                   Secretary of Defense accelerated the program and approved a three-
                   phased plan to apply to ~5-688s authorized. starting in fiscal year
                    1983-a B-year acceleration

                   Because of ambitious program objectives and schedules. cost. schedule.
                   and technical problems surfaced causing the Navy to restructure the
                   program into two separate development efforts-.4N’BSY-1 for use on
                   improved sss-688s and AK ,BSY-2for ~~3-21~ These combat systems are
                   designed to improve data processing and management capabihties With
                   the use of new and more capable computers, new data displays. and
                   additional software, certain tasks, such as searching for. detecting. and
                   tracking targets, will be more automated System operators can thus
                   perform multiple tasks. address multiple targets concurrently. and proc-
                   ess tactical data faster and more accurately than they can with prior
                   systems Collectively, these capabilities are designed to reduce the
                   response time between initially detecting a target and launching a

                   The Savy’s submarine combat system development programs are
Results in Brief   experiencing problems. AN BSY-1program problems raise questions as
                   to when the improved ~~~-688swill be fully mission capable. Becauseof
                   continued ambitious development objectives and schedules for the com-
                   bat system development program. the Savy allowed insufficient time m

                   Pa@ 2                                GAO   NSLADW-72   Submarine(‘o?ba~   Sjstrma
APPENDIX   II                                                                         APPENDIX                II

                       Executivr   Summar)

                       the development schedule to resolve technical problems. As a result. the
                       AK/BSY-1 systems will provide the ~~~-688simproved performance
                       capabilities in the acoustics and weapons launch areas, but the systems
                       will be less capable in other areas. Also, the capabilities will be delivered
                       later and cost more than originally planned under the earlier program.

                       The Navy has taken steps to reduce risks in the AlC/BS’-2 program.
                       However, it appears that potential problems in the AK/M-2 are similar
                       to those experienced in developing prior submarine advanced combat
                       systems, including the AKi,‘BSY-1.In order to meet the ss>-2l‘s construc-
                       tion schedule, the liavy also has established ambitious objectives and
                       schedules for the AN.‘BS-2 development program. As a result. the first
                       combat system will not have full capabilities when delivered to the ship-
                       builder. In addition, combat system development problems could
                       adversely affect the planned cost, schedule, and performance of the first

                       The Navy contmues to establish ambitious program objectives and
Principal Findings     schedules in its development of complex submarine combat systems. As
                       a result. the Navy must accept less than fully capable combat systems in
                       order to meet the shipbuilders’ schedule.

AN/BSY-1 Has           The estimated life-cycle costs for the AK,/BS-1 have Increased from
Experienced Problems   $5.4 billion to $12.1 billion for 19 and 24 systems, respectively. The first
                       four systems will not have full AN/B%-1 offensive capabilities and will
                       be upgraded during the submarines’ post shakedown availability period.
                       Therefore. these submarines will not be able to perform a full range of
                       missions In addition. the AN/&V-l will provide less capabilities than
                       originally planned under the original submarine advanced combat sys-
                       tem program

                       AN ‘BSi-1 design changes were the major cause of several improved
                       ~3-688s under construction being modified. These changes also resulted
                       in one shipyard being awarded almost $82 million for changes to five
                       submarines and another requesting a $150 million contract adjustment
                       for modifications for nine submarines. The first nine AN/BSY-l-
                       equipped submarines will be delivered an average 17 months late to the

                        Pag* 3                                 GAO, ssL4D4w72   Submsrinr   ~‘omba, S)r,*m.

APPENDIX   II                                                                         APPENDIX              II

AK/BSY-2 Will Kot Have     Like the improved ~\-688 program, the need to meet the ~1-21 ship
Full Capabilities W‘hen    construction schedule also is affecting the Aii/BS’-2 development pro-
                           gram. As a result, the prime contractor does not have sufficient time to
Delivered                  dehver the first combat system with full capabilities to the Navy.
                           Remaining capabilities are scheduled to be delivered to the Navy in
                           November 1994.

AN/BSY-2 Development       As of November 1989 AKiB5Y-2 development was about 3 months
Problems Could Adversely   behind the program’s current schedule and further delays are expected
                           Delays have resulted in deferring two Navy critical system design
Delay Further System       reviews and some critical item testing. l’ntil the Navy completes these
Delivery                   reviews. the prime contractor is unable to begin developing most hard-
                           ware and writing most system software code

                           GAOis not making recommendations in this report.

                           The Department of Defense (eon) generally agreed with ~40’s report and
Agency Comments            with the facts as presented on the AN/BS-I but only partially con-
                           curred with GAO’Sfindings on the AN/B=-2. In those cases where it par-
                           tially agreed with the report, DOD provided further elaboration. (See
                           aw II.1
                           MID agreed that AN I BSi-1 combat system design changes were a major
                           contributor to submarine delivery delays and cost increases but added
                           that other design changes also contributed to the submarines’ delays and
                           cost increases. Regardmg the AN/B%2. DOD stated that the slippage of
                           the preliminary design review and the critical design review had no
                           impact on the scheduled delivery of the system to the Kavy. Although
                           DOD agreed that some critical item tests have been delayed, it stated that
                           many have been satisfactorrly completed. Also, DOD agreed slowness in
                           subcontract defirutization Increased program risks but added that no
                           subcontractor design effort is being delayed.

                           Page 4                                GAOjNSlABSO72   Submarine   Combat   Systems

APPENDIX   III                                                              APPENDIX            III

Executive Summary

                   The Savy currently plans to acquire at least 33 Arleigh Burke (DDG-Sl
Purpose            class) guided missile destroyers at a total cost of about $27 billion. The
                   ships will replace retiring battle-force destroyers and will be equipped
                   with the AEGIS combat system. Originally, the Department of Defense
                   (DOD) estimated the total cost of the lead ship at about $1.25 billion (in
                    1985 dollars) after design. construction, and outfitting with the AEGIS
                   combat system

                   The lead ship’s complex design incorporates features to increase its abil-
                   ity to survive during battle. For example. it will have a seakeeping hull.
                   which increases stability by reducing vertical motion all-steel construc-
                   tion and extensive armor around vital spaces; and a collective protection
                   system to protect the crew from contaminated air.

                   Because of the program’s importance to the Navy mission and its signifi-
                   cant costs. GAOassessedthe status of the program.

                   In April 1985, the Navy awarded Bath Iron Works a fixed-price incen-
Background         tive contract for the lead ship of the DDG-51 class destroyers. Bath Iron
                   Works was responsible for designing the ship, which included integrat
                   mg the AEGIS combat system and other government-furnished equip-
                   ment. The contract called for ship construction to begin in May 1987.
                   with delivery of the ship to the Navy in September 1989

                   The Navy has awarded construction contracts for seven additional. or
                   follow ships. The Savy awarded the contract for the second ship (DDG-
                   .52) m May 1987 to Ingalls Shipbuilding and the contract for the third
                   ship (DDG-53) in September 1987 to Bath Iron Works. Contracts for five
                   additional ships (DDGs 54 through 58) were awarded in December
                   1988-three to Bath Iron Works and two to Ingalls Shipbuilding.

                   Bath Iron Works has encountered problems in designing and construct-
Results in Brief   mg the lead ship. As a result of these problems and Navy changes in the
                   contract requirements. costs have increased substantially over the origi-
                   nal contract estimate Design and other problems contributed to two
                   revisions to the ship‘s delivery schedule. The revisions, in January 1987
                   and February 1988. delayed the expected delivery by 17 months. Bath
                   Iron Works is now accelerating construction to meet the planned deli\
                   ery m February 1991

                   Page 2                                             GAO/NSIADSO-Sd   Shipbuildiw

APPENDIX   III                                                                   APPENDIX           III

                        While Bath Iron Works estimates that more than 50 percent of the lead
                        ship IS complete. the major part of outfitting the ship still has to be
                        done. The combat system and certain other technical components have
                        to be mstalled and integrated within the ship. Often in the development
                        of new systems, it is these activities and the subsequent testing of the
                        complete system that surface problems that could affect follow ships’
                        schedule and cost. Therefore, GAO believes that DOD should ensure that
                        sufficient information exists on program development and affordability
                        before the award of contracts for follow ships beyond the seven
                        awarded to date.

Principal Findings

Design Delays           Bath Iron Works planned to prepare production drawings using
                        computer-aided design, but major problems arose. The computer equip-
                        ment did not have adequate data storage capacity needed to design a
                        complex warship. Design delays were also due to Navy changes in ship
                        requirements, late government-furnished design data for the reduction
                        gear, and difficulties with several developmental systems. As of Novem-
                        ber 1989, Bath Iron Works and Kavy representatives believed that
                        design problems had been resolved and production drawings were essen-
                        tially complete. GAObelieves that the installation and integration of the
                        ship systems, which still has to be done, could surface additional design
                        or performance problems.

Construction Problems   Design and other problems contributed to two revisions to the ship’s
                        scheduled delivery, totaling I7 months. The last revision to the delivery
                        schedule was made m February 1988. The ship. originally scheduled to
                        be completed m September 1989, is currently scheduled for delivery in
                        February 1991. Bath Iron Works is accelerating construction to meet
                        this date

                        Bath Iron Works had not been able to perform as much construction in
                        the fabrication buildmgs as planned because of delays in preparing pro-
                        duction drawings. Therefore, more construction has been required in the
                        production yard. which is more time-consuming and costly.

                        Bath Iron Works launched the lead ship in September 1989. According
                        to Bath Iron Works representatives. the ship was more than 50 percent

                        Page :i                                           GAOiNSlAB9084   Shipbuilding

APPENDIX      III                                                                    APPENDIX            III

                            complete in October 1989. However, to complete the ship requires incor-
                            porating and integrating the AEGIS combat system and demonstrating
                            that other systems, such as the collective protection system, work as

Cost Issues                 According to the June 1989 cost performance report, the total cost for
                            Bath Iron Works to design and construct the ship was estimated at
                            about $500 million (in May 1984 dollars). Design costs were expected to
                            more than double, from the original contract estimate of $111 million to
                            about $247 million. Construction costs were expected to grow more than
                            60 percent. from $157 million to about $253 million. In September 1989,
                            representatives of Bath Iron Works said that their estimate at comple-
                            tion had increased to $505 million and that costs could increase further.
                            DOD believes that the total cost, after integrating the combat system. will
                            still be under the original estimate of $1.25 billion (in 1985 dollars).

                            In September 1989, Bath Iron Works and the Navy modified the lead
                            ship contract to resolve outstanding contractual issues. The issues were
                            varied and included many technical matters. The modification provided
                            for restructuring compensation to Bath Iron W’orks and. on the basis of
                            information supplied by Bath Iron Works to the Navy, could increase
                            Navy compensation as much as $71.7 million. Projected losses of about
                            $41.5 million on design and construction would be eliminated.

                            GAO  has reported that over 50 percent of competitively awarded fixed-
                            price incentive shipbuilding contracts were experiencing overruns.
                            Therefore, GAO was concerned that the contract modification for chang-
                            ing the lead ship contract terms could establish an inappropriate prece-
                            dent. During the audit, GAO discussed this with Navy officials who said
                            they expected the total cost of the ship to be under the original estimate
                            and current shipbuilding appropriations were appropriate to cover the
                            additional costs. MD. in commenting on this report, stated that the
                            restructuring will not set a precedent for future pricing of changes to
                            Navy shipbuilding contracts because this instance presented a unique
                            set of circumstances. GAO remains concerned about the modification in
                            view of the high incidence of overruns on other fixed-price contracts.

Rescheduling of the First   In January 1989, the Navy modified the DDG-52 contract to provide for
                            better helicopter support capabilities, which rescheduled the delivery
Two Follow Ships            date by 8 months. Also. the heavy has approved a proposal by Bath Iron
                            Works to reschedule the DDG-53 construction schedule. The 7-month

                            Page4                                              GAO/NSIADSO-S4   Sbipbtiding

APPENDIX      III                                                            APPENDIX       III

                       reschedulmg will allow Bath Iron Works to more efficiently schedule its
                       work on other ships it is building for the government. These ships will
                       be delivered earlier than expected.

Other Follow Ships     Contracts for seven follow ships, including the DDG-52 and DDG-53.
                       have been awarded and will be under construction before the lead ship
                       is completed. 4 maJor program milestone-approval for full-rate pro-
                       duction - is scheduled for July 1990. Before then, contracts for five
                       more follow ships could be awarded. Moreover, contracts for another
                       five ships could be awarded before the scheduled February 1991 deliv-
                       ery of the lead ship. Thus, as many as 17 follow ships could be under
                       construction or awarded before the lead ship has finished testing and
                       has been delivered.

                       rZlthough the Navy and Bath Iron Works believe the potential for lead
                       ship problems is muumal. much work needs to be done to complete the
                       ship. Unanticipated lead ship problems may increase costs and delay
                       deliveries for many follow ships. Because of the technical advances
                       bemg made in the destroyer program and because the lead ship is still
                       only about 50 percent complete, putting a large number of ships in con-
                       struction or under contract seemsto be a risky procurement strategy.
                       Before contracting for additional ships, the Secretary of Defense should
                       review the status of the destroyer program. This is especially important
                       in light of current deliberations on force structure and budget

                       GAOrecommends that the Secretary of Defense ensure sufficient infor-
Recommendations        mation exists toJustify the award of contracts for follow ships beyond
                       the seven now under contract.

                       DODcommented that the probability of a major problem affecting follow
Kgw   Icy   a1 LU
-                      ships IS minimal and did not concur in our recommendation in the report
C;ontractobrComments   draft DODsaid that it had complied with existing federal statute regard-
                       mg the adequacy and the evaluation of tests necessary to proceed
                       beyond hmited production. It stated that the adequacy and results of
                       testing would continue to be evaluated and would be an important factor
                       in the deliberation and decision to award contracts for additional follow

APPENDIX   III                                                            APPENDIX              II I

                 GAOmaintains the thrust of its recommendation because the program
                 risks are significant; however, GAOreworded the recommendation to
                 emphasize the need for high-level assurance on the overall program
                 development and affordability. If DODis not able to provide the
                 assurances, it should delay contract award for additional follow ships.

                 Bath Iron Works commented that the report did not assessthe validity
                 of the Navy’s acquisition process-most importantly, the fixed-price
                 incentive type of contract. Bath Iron Works commented that it has
                 become widely recognized that the use of a fixed-priced contract is not
                 workable or compatible with the developmental nature of a highly com-
                 plex warship.

                 GAOdid not review the appropriateness of a fixed-price incentive con-
                 tract for the DDG-51 acquisition. However, in commenting on this
                 report, DOD did not agree with Bath Iron Works that, at the time of con-
                 tract award, a fixed-pnce incentive contract was inappropriate. DOD said
                 the contract terms at the time of award were appropriate to balance the
                 risk between the Kavy and Bath Iron Works. It also said that while Bath
                 iron Works’ bid was aggressive, it was not unreasonably low.

                 Page6                                           GAO/NSL4PW-84   ShIpbuildinS