Cost Overruns, Budget Uncertainties Hurting USN and Contractors
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According to a new report by Congress’ General Accountability Office (GAO), the Navy seriously underestimated the cost of building ships at Northrop Grumman Corp.’s Avondale shipyard and other facilities – including major overruns for the LPD 17 San Antonio class amphibious assault ships due to design changes during production and high attrition at the shipyard.
Northrop Grumman Ship Systems’ President Philip Dur explained how these issues were being addressed, and made a strong case for more reliable projections from the government about future ship needs. Under the “True North” initiative launched last June, Dur said, the ship systems division is reducing overhead, realigning its management structure and overhauling its supply chain. He said the company is also getting a handle on cost overruns that have plagued its LPD 17 class. “In the future, I think that the cost excursions will be fewer and farther between than the ones we’ve had in the past by a long shot,” he said.
The GAO said some of the worst cost overruns beset construction of the LPD 17 San Antonio class amphibious assault ships at Avondale.
The LPD 17 class featured both an innovative development process and 21st century features that optimize them for roles ranging from an Assault ship that carries and sustains Marine Expeditionary Units to use as a command node, disaster relief operations, etc.
The LPD 17 was initially budgeted at $954 million, but will likely end with a final price tag about $804 million over budget ($1.76 billion). The LPD 18, which is nearly 70% complete, was budgeted at $762 million and is likely to run $249 million over budget ($1.01 billion). The need to tear down and rebuild completed sections of the LPD 17 was a major cause of its overruns, while attrition rates as high as 35% annually led to construction delays. According to San Antonio Express-News, a less obvious but equally consequential source of trouble was a computer design program dubbed 3D CAD, which was touted for its ability to give three-dimensional views but was not up to the task of designing an entire ship.
With the help of a $50 million grant from the state of Louisiana, Northrop Grumman has modernized production at Avondale, and the company is now projecting completion of future amphibious ships at a much faster pace than in the past. Nevertheless, scathing Navy inspector general reviews that detailed shoddy construction and basic workmanship problems at Avondale are cause for legitimate concern in areas that will not be fixed by modernization alone.
Meanwhile, the Navy looks like it will reduce its planned purchase of new ships from 38 in 2006 to 24 in 2007. LPD production, originally authorized for 11 or 12 vessels as functional replacements for 41 1960s-era ships, would drop to nine (LPD 21 New York, with its bow stem cast of steel from the World Trade Center, would still be included).
American shipbuilders are facing increased competition from low-wage countries, and the process of budget projections and reductions in military requirements is leading to “binge and purge” hiring cycles that create high attrition and low returns. There is also some concern that plans for a DD (X) destroyer “winner take all” competition could further erode the US. shipbuilding base.
Additional Readings & Sources
- Navy Times (Dec 19/05) – Smoother Sailing for San Antonio; after being battered by Hurricane Katrina, the ship is finally ready to join the fleet.
- San Antonio Express-News (July 31/05) – Assault Ship Never Had Smooth Sailing
- San Antonio Express-News (July 22/05) – Report on USS San Antonio (transcript re: acceptance trials)
- New Orleans Times-Picayune (March 16/05) – Budget Broken on Navy Vessels
- Alabama Mobile Register (March 16/05) – Northrop Grumman head wants more stable projections (expired, see Google cache)
