From the U.S. Government Accountability Office, www.gao.gov Transcript for: Navy Shipbuilding Cuppa GAO: Coffee with Our Experts (Facebook Live Chat) Description: In 2007, the Navy set a goal to have 330 ships by 2018. Over the last decade, GAO has issued 26 reports and made 67 recommendations to improve Navy shipbuilding. In this June 8, 2018 “Cuppa GAO: Coffee with Our Experts” Facebook Live chat, we talk about some of the challenges and the opportunities for the Navy to improve how it builds its ships. Learn more: https://www.gao.gov/products/GAO-18-238SP Related GAO Work: GAO-18-238SP: Navy Shipbuilding: Past Performance Provides Valuable Lessons for Future Investment Released: June 2018 [ Matt Oldham: ] Hello and welcome to Cuppa GAO. It's your coffee break with our experts as we're here to answer your questions live on Facebook. In 2007, the Navy set a goal to have 330 ships in the fleet and since then, they've been 50 ships short. They've seen $11 billion in cost overruns and they've seen scheduling delays. I'm here with Shelby Oakley. She's a director in our Contracting and National Security Acquisitions team and she's here to answer your questions about a report that she led on Navy shipbuilding. Thank you, Shelby, for being here. [ Shelby Oakley: ] Thanks, Matt, I'm glad to be here. [ Matt Oldham: ] So tell us a little bit about this report. What is it and why is it important? [ Shelby Oakley: ] For this report, we wanted to take a look back at the last 10 years of Navy shipbuilding programs so that we could understand how those programs went from a cost, capability, and performance perspective. We didn't take this retrospective to look back and point all of the problems that happen. We took -- we undertook this report to really focus on a prospective look at what could the Navy do over the next 10 years to improve its shipbuilding practices. And this is really important because the Navy set a new, more ambitious, goal to obtain a 355 ship fleet. [ Matt Oldham: ] So this is the perfect time to kind of look at what the Navy's going over the next 10 years and see what can be improved. [ Shelby Oakley: ] Absolutely. [ Matt Oldham: ] So as you were joining us, we, of course, are going to take your questions and we'll answer the ones we can get to and we'll go along and we are at the Washington Navy Yard where they have built ships in the past but they were wooden and they were quite some time ago. Shelby, I'm assuming the ships we're talking about are a little more contemporary? [ Shelby Oakley: ] Yeah, it's been a long time since ships have been built here at the Navy Yard, Matt, but the Navy Yard actually does host all of the program offices that manage the contemporary ships that we looked at in this report. So it's an appropriate place to be today. [ Matt Oldham: ] And these ships, could we talk a little bit about them? What were some of the ships that you looked at? [ Shelby Oakley: ]We looked at all of the Navy shipbuilding programs under construction over the past decade. These are things like aircraft carriers, destroyers, submarines, and auxiliary ships. [ Matt Oldham: ] So this report is a little different, I think, from the usual GAO report. It's a collection of 10 years' worth of reports. What were some of the prevailing trends that you found when you looked back at the last 10 years? [ Shelby Oakley: ] When we looked back at the last 10 years, we really identified that the Navy has not proceeded with these shipbuilding programs with good business cases. They have -- haven't had a match between the requirements that the war fighter needs and the resources that are available to translate those requirements into a product, in this case a ship. And we found that when those matches aren't there, things start to break down and as these things start to break down, the Navy has to make difficult trade-offs about the cost and scheduling capability that it provides to our war fighter. [ Matt Oldham: ] So there have been, of course, recommendations in the past from GAO. How has the Navy handled those recommendations? [ Shelby Oakley: ] You know, we took a look at commercial shipbuilding best practices and what we did in looking at commercial shipbuilding best practices is identify some of the key things that they do to ensure that the buyers of ships understand the ship before they sign up to purchase the ship. And this has allowed them to deliver ships on schedule, on cost with the capability's promise. So we've made 67 recommendations to the Navy over the past 10 years in our reports that have really focused on getting the Navy to develop more executable business cases for its programs. While the Navy has really agreed in principle with the recommendations that we've made, they haven't implemented very many of the recommendations. [ Matt Oldham: ] Okay. So it sounds like there's some improvement to be made and hopefully that'll be taken on board as we move ahead. [ Shelby Oakley: ] Yeah, I mean we are seeing the Navy take some positive steps to limit the technical risk on some of its programs and to focus on understanding the design of the ships a little bit more before beginning construction, before beginning metal. So we are seeing some of that but it's going to take a lot. It's going to take a little bit more to be able to overcome some of the pressures that force the Navy to accept weak business cases for its programs. [ Matt Oldham: ] Sounds great. For those of you joining us, this is Cuppa GAO, coffee with our experts. I'm here with Shelby Oakley. She is a director on our Contracting and National Security Acquisitions team. And we're talking about Navy shipbuilding. You -- we -- one of the things we had talked about was some of the scheduling delays that have happened. How do ship -- how do ships get delayed when they're being built? Is this a pretty big over taking? [ Shelby Oakley: ] Yeah, I mean obviously building a ship is a big deal. They're complex, highly technical, endeavors that require many, many years to accomplish. And so when a ship is delayed, the fundamental reason is typically because the business case wasn't very executable at the beginning. And when I mean business case, what I'm really talking about is that do the resources that the Navy has match the requirements that it's being asked to provide? And the resources are things like do the technologies work the way they're supposed to work? Do we understand the design? Do we have the funding that we need and do we have the time that we need? So when you see schedule delays, one of these things has -- one or some of these things has gotten out of whack but has caused schedule delays. In fact, for the lead ships and all these ship classes, that's the first ship of any given ship class, we've seen an average of over 2 years of a schedule delay for delivering these ships. And consistent with that 2-year delay, we've seen over $8 billion in cost growth just on these lead ships alone. [ Matt Oldham: ] These delays and cost overruns on lead ships that almost, it seems, has become par for the course historically. Those seemed to be more expensive to produce. Are we seeing a drop in the scheduling delays and the costs as the Navy's building on follow-on ships? [ Shelby Oakley: ] Yeah, you know we have seen that follow-on ships have done better than the lead ships in terms of cost growth and schedule days but we are still seeing more cost growth and more schedule delays on those follow-on ships than was anticipated. For example, the follow-on ships for the two LCS variants, both of them are delayed well over a year and getting to the fleet than when they were expected. [ Matt Oldham: ] Sometimes we're going to use acronyms or talk about ships in a way that I don't fully understand. When we're talking about LCS, help me -- what is an LCS? [ Shelby Oakley: ] It's a Littoral Combat Ship and it was essentially designed to provide capability in the shallower waters of the ocean. [ Matt Oldham: ] Sure. [ Shelby Oakley: ] For the Navy. [ Matt Oldham: ] So we are doing this live and we are taking your questions here on Facebook Live with Shelby Oakley. She's a director in our Contracting and National Security Acquisitions team. And Shelby, we do have some questions coming in from our viewers. I'm going to take a second. This is the Navy Yard we're at and as you can imagine, there is some unscheduled activity sometimes. In this case, we have some helicopters flying by that may affect the audio a little bit. So I think we're back on track and let me go to the first question. [ Shelby Oakley: ] Okay. [ Matt Oldham: ] From one of our viewers and that is, how long does it usually take to build a Navy ship? We're talking about scheduling delays but how long should it take? [ Shelby Oakley: ] Ooh, that can definitely. That's a good question. That response can definitely vary. On average, it takes about 4 years to construct a ship for the Navy but it really varies depending on the complexity of the ship and what you're building. [ Matt Oldham: ] So I'd like to know, one of the bigger ships, one of the more expensive ships that you guys looked at was the USS Ford. The first of the Ford class aircraft carriers. How long does it take to build an aircraft carrier? [ Shelby Oakley: ] [Laughing] Well I can give you a little indication on the -- I'm sorry with the helicopter. The Ford aircraft carrier is actually a program that we've done a lot of work on over the years and it takes about 5 years to build an aircraft carrier. And the Ford is actually a really perfect example of a program proceeding without an executable business case. Obviously this is a big complex ship and -- but at the beginning of construction like when the metal was starting to be bent, the non -- almost all of the technologies for the program, critical things like being able to launch and recover aircraft off of the carrier weren't mature. The Navy didn't know how it was going to work. And they began construction with only one-third of the design complete. So you might imagine that as the Navy began to understand how the technologies work, it required design changes. Then design changes leads to rework because you've already begun construction and out-of-sequence work which tends to be more expensive. So the aircraft carrier has had about $2.5 billion in cost overruns just for construction alone and has been delivered 2 years late and it's not even ready for operations yet. [ Matt Oldham: ] Okay. So it sounds like there is some work to be done when we're dealing with the lead ships. [ Shelby Oakley: ] Yeah. [ Matt Oldham: ] And making sure that we can stay on budget and we can deliver it on time. That was great a question. Thank you very much. This is Facebook Live and this is Cuppa GAO, coffee with our experts. Our expert today is Shelby Oakley. She's a director who led a report that looked at the last 10 years of Navy shipbuilding. Shelby, we have another question here and that is what can Congress do to help the Navy improve its shipbuilding?-- [ Shelby Oakley: ] That’s a really great question. Because we work for Congress, you know. So a lot of what we do is aimed at helping them understand these programs. And one of the things that we have talked about on our reports is that Congress can demand that the Navy put forth executable business cases for its programs. Make sure that the Navy is demonstrating that it has the technologies to a place where they understand and design to the place where they know what it's going to look like and what it's going to do. And also the requirements in check. And when the Congress begins to demand the Navy to do that kind of thing, I think that'll be a really good first step to holding the Navy accountable for putting forth these more executable business cases. [ Matt Oldham: ] We've talked about cost overruns a bit. I think it was $11 billion over the past 10 years. Who pays for those costs overruns? [ Shelby Oakley: ] Ultimately the Navy bears the majority of the risk, cost risk on these programs but it varies. The cost overruns and the responsibility for the cost overruns varies on a contract-by-contract basis. When the Navy structures its contracts for these programs, it's proceeding in doing that with a limited set of knowledge about the technologies and the design. All of the things that I mentioned before. And when it does that, that heightens the risk on the program and it leaves the Navy in the position of having to bear more of that cost risk for the program because the builder's not going to sign up for it, you know for our costs and the builder doesn't even know what he's building and for what price. [ Matt Oldham: ] Sure. [ Shelby Oakley: ] And so we've found that the Navy has really structured its contracts for it to bear the majority of cost risk. In fact, we've also found instances in our work where the Navy has paid the builder to do work and then paid the builder again to fix it. [ Matt Oldham: ] Right. [ Shelby Oakley: ] When it was wrong. A really good example of this is LPD25. This is a—this is a ship that the builder painted the hull exterior of the ship and it began peeling. And the Navy determined that the builder didn't do enough prep work on the hull of the ship before painting it and had to ask the builder to repaint it but the Navy paid for that work. [ Matt Oldham: ] Okay. So that's not an ideal situation, [ Shelby Oakley: ] No. [ Matt Oldham: ] I'm sure. Were there examples in this report of ships that came in on time and on budget? [ Shelby Oakley: ] There were. That we did -- we do identify a few examples of ships that came in on cost and schedule. The key difference is is that these are less technically complex ships doing less complex missions. So these aren't the warships. These aren't the aircraft carriers and the destroyers. These are more of the support ship kind of things. The key for the Navy is to really -- for these bigger, more complex ships is to make sure it has that knowledge before it gets going because then it could have outcomes like it does with the less complex ships. [ Matt Oldham: ] Sounds great. You're joining us on Facebook Live, Cuppa GAO, coffee with our experts. We're here with Shelby Oakley. She's a director at GAO with the Contracting and National Security Acquisitions team. And she led a report that looked at the last 10 years of Navy shipbuilding. Shelby, we have another question from one of our viewers. It's from Sarah and she asks, how much would you say it costs on average to build a ship? I know that's probably a difficult thing to answer but talking about the ships that we're looked at in this report from the largest, most expensive to the smallest. What sort of frame of reference is there? [ Shelby Oakley: ] Yeah, I mean I think like a destroyer would cost like $1.5 billion, an aircraft carrier's about like $11 to $12 billion. So they really, really range and I think the other thing is is that they don't always cost what you expect them to cost. And a lot of times decisions have been made about programs because they had cut to programs, the quantities of ships because they've been more expensive than expected. DDG-1000 is a perfect example of that. [ Matt Oldham: ] And DDG-1000 is the Zumwalt class. [ Shelby Oakley: ] Yes, the Zumwalt class. Thank you for keeping me accountable. [ Matt Oldham: ] No problem. [Multiple speakers] I know it's easy to fall into the Navy loves its jargon and they love their acronyms. [ Shelby Oakley: ] Yeah. [ Matt Oldham: ] So we kind of check ourselves and talk about these things. We have another question, Shelby, and that is did GAO find areas for improvement that focus on meeting the overall Navy audit requirements? [ Shelby Oakley: ] That's a really good question. I mean I think that really what we focused on is those kind of cost, schedule, and performance accountability metrics that we look at on our programs and again, we’ve made 67 recommendations that related to that, related to contracting issues, related to ensuring that we're not committing to the government to billions and billions dollars of investments without the knowledge that we need to do that. [ Matt Oldham: ] So there were 67 recommendations from the reports that we looked at again for this report. There weren't any recommendations for this report. Was there a sort of reminder to the Navy about the recommendations from the past? [ Shelby Oakley: ] Thanks, I like that you asked me that because that's the whole point of this report. [ Matt Oldham: ] All right, great. [ Shelby Oakley: ] Was to take our work over the past decade and really take a look back at what are those lessons learned that the Navy could employ as it's beginning to build some of these new advanced ship classes over the next 10, 20 years. And so we really were focused on what can we identify for the Navy that were the root causes for why things went off course for these programs over the past decade. And this is going to be really important because the Navy has some big programs coming down the pike. The Columbia class submarine which is the new nuclear ballistic missile submarine that's coming is going to cost just $128 billion for construction. So that's a huge investment coming down the pike and we want to make sure that the Navy is going to get it right. [ Matt Oldham: ] And there's also an idea, I imagine, that the Navy does have to keep on the technology -- you know, be leaders in this technology. [ Shelby Oakley: ] Yeah. [ Matt Oldham: ] They have to make this lead ships in order to meet the needs of our national security. [ Shelby Oakley: ] Absolutely. [ Matt Oldham: ] So I imagine this report would -- should -- the ideas help them move on to the next decade, right? [ Shelby Oakley: ] Right. Yeah. [ Matt Oldham: ] And look at how they can improve their shipbuilding practices. This is Facebook Live, Cuppa GAO, talking with our experts. I'm here with Shelby Oakley. She's a director on our Contracting and National Security Acquisitions team. And we're here to talk to you and take your questions about a report she led on Navy shipbuilding over the past decade. So I've got another question for you, Shelby, and that is from Brendon. And he asks what kind of tradeoffs does the Navy have to make for its ships when program resources and requirements don't match? [ Shelby Oakley: ] That's a really good question, Brendon, thank you very much. The Navy really has to -- has three things it can work on, right? Like three levers it can pull. It has cost, schedule, and performance which is like capabilities that it's going to provide to the war fighter. And so those are the three things that the Navy has to move around to be able to address short comings in any one area. And so often times, what we find as costs and schedule get off course that capabilities are cut. And the war fighter, the sailor is not provided what they were promised at the inception of the program. [ Matt Oldham: ] There is another question and this is an interesting one. This is from Rick and he asks, if this type of analysis can have any application to Coast Guard and their programs? [ Shelby Oakley: ] Absolutely. In fact, we have a whole team that does a body of work looking at Coast Guard programs where we've found similar performance with those Coast Guard acquisitions. [ Matt Oldham: ] That's great. Well it sounds like some of the lessons were not -- they're not specific to Navy ships. [ Shelby Oakley: ] No. [ Matt Oldham: ] These big programs. [ Shelby Oakley: ] Yeah, you know absolutely and our team looks at everything from aircraft carriers to tanks to satellites. Anything you can imagine and these fundamental principles that we're talking about, about achieving a good business case and having the knowledge that you need when you need it are lessons that can be applied across all of those programs. [ Matt Oldham: ] Sounds great. This is Facebook Live. We're here taking our questions. I've got another one for you here, Shelby, from one of our viewers. And that's from Rebecca and she wanted to know -- she wants to know if moving forward does GAO have any recommendations for the Navy or any other military branch when outlining a 10-year goal or plan? This might be an interesting one because we took it -- we did the report over the last 10 years but do we have any recommendations about how the Navy can look at programs like this in a 10-year period? [ Shelby Oakley: ] That's a really great question, Rebecca. I appreciate that. I think the biggest thing that we would say to the Navy is: be realistic. Be realistic in saying what you can do, what capabilities that you're going to be able to provide, and what funding and time you need to be able to provide those capabilities. I think that if there is a business case in place that supports a program that's executable, that's exactly what the Navy wants to have happen over the next 10 years and that's what we have been advocating for the last 10 years. [ Matt Oldham: ] And we're talking about risks in Navy shipbuilding. Is this something that is unforeseen or is this par for the course when you're building these huge ships? [ Shelby Oakley: ] Well I wouldn't say it's par for the course when building these ships. I mean these ships are inherently risky to build, right? They're huge. They're technically complex. There's a lot of factors that play that could affect the performance of the program. But we -- but what we've seen is that the Navy takes this already inherently risky endeavor and adds risks to it. [ Matt Oldham: ] Okay. [ Shelby Oakley: ] By not achieving that balance between the resources that it has and the requirements that it's trying to provide to the sailor. [ Matt Oldham: ] Well that sounds great. When we talk about these ships. Would you have an answer to a critic would say look, these are inherently expensive. We need them. Why are we looking at how the Navy builds ships and looking for efficiencies? [ Shelby Oakley: ] I agree. I would say I agree to that listener. We do need them and we need to provide the capabilities that we've promised to the sailor. I think the entire point of our report is is that doing business the way the Navy has done business over the past 10 years isn't going to achieve that goal. And so it diminishes the Navy's buying power to be able to increase its fleet and take some of the pressure off of the sailors when it proceeds with unexecutable business cases. So fundamentally, it's an approach that would help them to do this quicker and cheaper and with the capabilities promised. [ Matt Oldham: ] I mean that sounds great. It's on budget. It's on time with capabilities that we need for our national defense. I don't see a down side to this at all. [ Shelby Oakley: ] Yeah. [ Matt Oldham: ] So we are doing Facebook Live, Cuppa GAO, coffee with our experts. I'm here with Shelby Oakley. She's a director in our Contracting and National Security Acquisitions team. We're talking about a report that she led on Navy shipbuilding over the past decade. And Shelby, you were talking about a little recap here. What the report is, what it looked at, and why it's important. [ Shelby Oakley: ] Okay. Well, our report really took a look back at the past 10 years of Navy shipbuilding programs and our reports on those programs over the past 10 years. These were all the ships under construction over the past 10 years. And what we were really trying to do is take a look back to be able to look forward. So we're taking a look back to identify the lessons learned that have set these programs not on the right course in the past so that the Navy can take different steps as it begins some of these new big acquisitions in the future and as it begins to work up to its 355-ship Navy. I mean right now you mentioned at the beginning of your monologue that the Navy wanted to have 330 ships by 2018. They don't have 330 ships right now. It's -- in fact, they have less ships now than they did in 2007 when they met that -- made that goal. So our goal is for them to actually achieve this 355-ship Navy that they need to support their war fighter. [ Matt Oldham: ] And it seems like one of the themes is looking at the risks and sort of where there are rooms for improvement. And a couple of those are dealing with scheduling delays and cost overruns. Did the report find any prevailing trends in what might have caused those cost overruns and delays? [ Shelby Oakley: ] I think it's exactly what we've been talking about, you know, during this conversation. When you don't understand what you're building, when you don't understand the technologies and how they're going to work or when you begin building a ship before you've even designed it. I mean you wouldn't build a house before you've designed it, would you? [ Matt Oldham: ] Certainly not. [ Shelby Oakley: ] Right? So those are the kind of fundamental things that have led the Navy to cost overruns and schedule delays. Now there's a lot of factors that play that cause the Navy to make decisions. They're balancing a lot of priorities with their Navy shipbuilding program. And sometimes these priorities are competing. You know, they have a very limited industrial base that they're trying to keep healthy. They're trying to get capabilities to the war fighters faster and affordably. They're trying to push the technological edge. So they're trying to balance all of these things in making these decisions for these programs. And sometimes when they're in competition it leads them to make decisions that result in an unexecutable business case. [ Matt Oldham: ] Shelby, I think our time is running out. Is there one last message or one last point you'd like to highlight before we say goodbye to our viewers? [ Shelby Oakley: ] Yeah, I mean I think fundamentally I'd encourage folks to check out the report because it's certainly something that's we don't always do in GAO, a capstone of all of a decade of work but fundamentally what I want people to take away from this is there is a path forward for the Navy to achieve its goals over the next, you know, 10, 20 years and that path is really based on attaining knowledge at the right time to ensure it has an executable business case for its shipbuilding programs. [ Matt Oldham: ] Shelby, this has been excellent information. I hope we got to everybody's questions. I know I certainly come out this smarter than when we started. Thank you for watching our Cuppa GAO, coffee with our experts. Stay tuned to GAO.gov. Keep an eye out for our next round and Shelby, again, thank you very much. [ Shelby Oakley: ] Thanks for having me.