From the U.S. Government Accountability Office, www.gao.gov Transcript for: Navy Shipbuilding and Sustainability Costs: Watchdog Report Deep Dig Edition Description: We talk about the rising costs for the Navy to maintain its fleet, and what can be done to bring those costs down. Related GAO Work: GAO-20-2, Navy Shipbuilding: Increasing Focus on Sustainment Early in the Acquisition Process Could Save Billions Released: March 2020 [ Music ] [Matt Oldham:] The navy has almost 300 active ships including aircraft carriers, submarines, and destroyers. Their annual budget for ship building is about $20 billion dollars, with another $20 billion dollars budgeted to maintain its fleet of ships. Those maintenance costs keep rising and will continue to do so without changes to Navy planning. Welcome to this Deep Dig addition of the Watchdog Report where we focus on larger issues. We're going to hear from the people behind the work at GAO, their efforts and their experiences, you know, things we could dig deeper on. [ Music ] And this episode is taking a look at Navy shipbuilding and sustainability costs. [ Music ] And with me to talk about how the navy ends up with 10s of billions of dollars for shipbuilding and maintenance are Shelby Oakley, Diana Moldafsky, and Larri Fish. Thanks for joining us. [Shelby Oakley:] Thanks for having us. [Diana Moldafsky:] Good to be here. [Matt Oldham:] Larry, please tell me you've had the opportunity to set on some of these ships? [Larri Fish:] Oh, absolutely. Yeah, we talked to, we visited over a dozen ships at Naval Base San Diego. We visited Norfolk Naval Base, which are two of the biggest naval bases in the world. And we got on ships and they took us around and showed us the various pieces of equipment that they've struggled to maintain and some of the reasons why really complicated software systems. And it definitely makes a difference, because you could say really complicated software system, but it makes a difference to see it and see the number of alarm bells or the things that happen onboard the ship. And that the sailors, you know, how many people they have to deal with that. [Matt Oldham:] So, tell me Shelby, how is the navy keeping their ships operational? [Shelby Oakley:] The navy is kind of in this little conundrum right now with regard to trying to do everything it needs to do to get the amount of ships that it thinks it needs, but also maintain and sustain the ships that it already has. So, it's in this kind of push and pull of trying to grow its topline budget for shipbuilding, but then also increase its budget for operating and maintaining the ships that it already has to maintain readiness until those new ships get out. [Matt Oldham:] Is there a direct link between the budget for shipbuilding and the budget for maintenance? Are those two separate pots of money? Is there overlap? [Larri Fish:] They're absolutely two separate pots of money which is one of the main findings of the current report. You know, because there's two separate pots of money that's why sustainment may not be considered as much an acquisition as it should be. However, they can link at the top level and we're seeing that this year with the navy potentially asking for less shipbuilding funds in order to make up for some maintenance backlog. [Matt Oldham:] Diana? [Diana Moldafsky:] So, those two pots of money are controlled by two different organizations which obviously have different interests. So, the construction funding is typically through the buying commands NAVSEA and the Program Executive Offices and the sustainment funding is really the fleets. [Matt Oldham:] And do these two different pots of money, the shipbuilding and the sustainability budgets, do they have any effect on how a ship gets built using the aircraft carrier USS Ford as an example? [Diana Moldafsky:] Technically, a ship is delivered, that is actually delivery from the builder, in this case for Ford, Newport News. It's really just this signing of custody over to the navy. The navy actually, it's delivery, the navy always have custody of a ship in a sense, but it's like the official date like where the builder says, here navy, it's your ship. That ship is delivered but it's not in the fleet yet. And so, then it has its commissioning date and that commissioning date is kind of a turnover to the fleet, because the fleet will be onboard, but it's not operating it technically out. The navy will say well it could, but it's not done yet. [Larri Fish:] But you bring up a great point that we have touched on in a series of our work on navy shipbuilding over the last five years which is that, one of big differences between commercial shipbuilding and navy shipbuilding is that, is that we found that commercial ships are, even large complicated commercial ships are typically ready to go out of the shipyard. And often times cruise ships onboard passengers weeks after coming out of the shipyard. Oil vessels onboard oil days after coming out of the shipyard. Navy ships that's not the case. It can be years before they're finally ready even after coming out of the shipyard. [Matt Oldham:] And is that because of just the obvious difference between a navy ship and a commercial ship? This thing is, it has weapons systems on it, it needs to be crewed for very specific missions? [Diana Moldafsky:] Some of that, but some of it honestly is because they have, it's correcting defects -- [Matt Oldham:] Okay. [Diana Moldafsky:] --and deficiencies that occurred during the construction time frame. In commercial ship building they also have deficiencies, but those deficiencies are consistently corrected prior to that delivery date. [Shelby Oakley:] And that issue is one of the reasons why we did the current work that we're doing, because we've did this body of work where we were beginning to see kind of these issues that occurred during the acquisition process that were then continuing with the ship when it was delivered to the navy and then on to the fleet. And so, we wanted to take a look at, you know, what's going on during the acquisition process, or that's causing this to be able to happen, that's facilitating this process? And I think that's what really the focus of this most recent report that we did on, you know, how acquisitions decisions can have an impact on sustainment, and the fleet really came about. And I think you know, we uncovered a lot of really significant causes for why that's occurring, and you know, we can get into them especially, but I mean, it really calls for a more integrated approach to sustainment planning throughout the acquisition process to maybe take care of some of these challenges that we've been seeing in our work over the past decade. [Larri Fish:] And the navy is, and to bring it back to the fore, the navy is consistently willing to accept risk at key milestones to keep ships moving forward. And the, see the advanced elevators on the Ford I think is a great example, where the navy chose to accept delivery of the ship with none of the elevators completed. [Shelby Oakley:] And these are the elevators that are needed to bring the weapons to -- [Diana Moldafsky:] To the flight dock. [Shelby Oakley:] --to the flight dock. [Larri Fish:] To the flight dock, yeah. And they're big, they're not -- [Diana Moldafsky:] To do its mission-- [Shelby Oakley:] Mission. [Diana Moldafsky:] --for an aircraft carrier. No, these are -- [Larri Fish:] -- don't think of a normal elevator in a building. [Matt Oldham:] Right. [Diana Moldafsky:] --weapons. [Larri Fish:] These are massive, complicated elevators. Yeah, so don't' think of an elevator in a building, these are huge holes through the ship. [Matt Oldham:] Crucial I assume to the operations of an aircraft carrier? [Diana Moldafsky:] Yeah. [Larri Fish:] Yes! [Diana Moldafsky:] You need to fly -- an aircraft carrier has to fly an aircraft -- [Larri Fish:] With bombs. [Diana Moldafsky:] --with bombs. They can only get two of them halfway there -- [Matt Oldham:] Okay. [Diana Moldafsky:] --at this point. [Larri Fish:] So, they said, "Well, we'll fix it in this period called post-delivery," which is this, you know, workmanship period after the delivery of the ship. They are now passing that risk even further into the future. They finish post-delivery, the biggest most complicated elevators are still not done. And so, now that risk gets passed forward, and that's kind of, goes back to our report here where we're finding that, you know, at the end of the day, some of that risk gets passed to the fleet, who then has to catch some of that risk in these elevators. For example, even if they are completed and working, and have done a couple test runs, there won't be any reliability data, there won't be any spare parts revolutions, things like that. Things that you'd have confidence that this thing can be maintained in a brief, quick manner and up and running again. And so, the fleet's going to have to figure that out as it goes most likely. [Diana Moldafsky:] So, our point is, you're delivering, in some cases brand new ships to the fleet that already have maintenance backlogs, that are adding to the maintenance burden that those operators have to turn their attention to in addition to all the other things that they're having to, the fleet has to do on a daily basis. [Matt Oldham:] This almost sounds like also an operational issue or maybe even a national security issue? [Shelby Oakley:] Yeah, I mean, I think that this is where we're trying to make that type of connection between these types of decisions that the navy's making and the readiness of the fleet as a whole. Obviously there's a lot of other things that go into affecting the readiness of the navy's fleet like training and how you know, much they're running these ships. But, this is another thing that adds to that burden that the sailors have to deal with from the minute that they are on these ships. And I think that it's, it really can't be underestimated what that impact is. And so, getting a handle on these things from a navy perspective and kind of diminishing the occurrence with which these things occur would is a -- is steps that we think the navy can take to really you know, become more efficient and save money in the process. [Larri Fish:] And what struck us in our audit work in talking with the sailors and the engineers, and the spare parts logisticians, and various other members of the fleet maintenance operations community is just how frustrated they are with the condition of some of the new ships that they're asked to operate. And that frustration was very palpable to us and something that struck us as key through this review. [Matt Oldham:] Did you talk to sailors directly? [Shelby Oakley:] So, we did. We talked to a lot of these sailors, and you know, it' kind of an unusual condition for us when people actually want to talk to us at GAO. [Matt Oldham:] Right. [Shelby Oakley:] And so, it was really interesting, and they were pulling us aside and filling us in on their challenges and issues. But, I want to make very clear that we traced those issues. We didn't just take what the sailors were saying, because everybody has complaints about their job and you know, that kind of thing. But, we took the things that were raised to us and we traced it back through documentation and decisions, and milestone, you know, memos, things like that, that would provide us with support for what was or wasn't considered that would contribute to the outcomes that these sailors are seeing. And so, it was really a nice kind of well-rounded approach for us to trace back those issues. [Matt Oldham:] So, we've talked about aircraft carriers, is that the only class of ship that is seeing some of these maintenance issues? Are there any others that stood out? [Larri Fish:] I think we'd be remiss if we didn't talk about the Littoral Combat Ship. I, the Littoral Combat Ship was one of the ships that had the whole maintenance revolution idea, you know, we're going to lower manning, we're going to have contractors take care, we're going to use commercial office equipment, which we're going to be able to have these great life cycle benefits from that and just -- it failed to pan out in full stop, I mean, it, every aspect of it. They're adding sailors back on the ships, they're trying to convert the commercial equipment back to more government standard equipment. And they're not using a full-service contractor anymore for a variety of reasons. And I think that's that disconnect between acquisition and sustainment that kind of permeated the findings of our review. [Diana Moldafsky:] Yeah, I mean, I think our point on the Littoral Combat Ship is that, they had this idea, and when you're, you have the initial idea they're not -- they never stopped and looked at well, what are the risk factors to actually taking so many sailors off the of the ship. And what do -- have we fully thought out the concept of using contractors and taking the maintenance offboard? And I think we're not -- We don't necessarily say that the navy should have known all these things would happen. What we're saying is, perhaps to look at this, identify what could have been risk. Because, obviously at the time they could have, they would have known that it was going to be very challenging and unlikely to have been fully successful. [Matt Oldham:] Diana, if I hear what you're saying, it's not so much that the expectation is the navy can look into a crystal ball and see what's going to come. [Diana Moldafsky:] never going to happen. [Matt Oldham:] But they should, maybe broaden the net for things that are risk factors? [Diana Moldafsky:] Yeah. So, like in the, they have these planning documents that are the, like sustainment planning documents. The sustainment planning documents said, we're going to use this performance based logistics concept. Which means using contractors to do maintenance versus using sailors. But they didn't take the seconds step of, well, what would those --? For example, thinking about, what would those costs potentially be? How would they be different than the way we typically maintain a ship? And I think they may not have gotten the answer 100% correct, but it would have allowed them to think about the risks, and where they really wanted to put maybe additional dollars to test those concepts. [Matt Oldham:] These sustainment problems that you've been talking about, are they currently getting larger? Or is there hope that the navy is getting this? [Larri Fish:] I think there's some validity to the fact that, the navy did go through a series of attempts at sustainment reforms that were poorly executed and poorly thought out, that have just had ramifications for many years. And they've gone away from that, which is good, and I think some improvement should be seen based on going away from some of those initiatives like optimal manning and performance based logistics using contractors for logistics. However, the disconnect between acquisition and sustainment is still very real. [Shelby Oakley:] And, you know, the navy has taken a lot of steps over the past couple of years to increase its focus on sustainment. And I think, we think that's encouraging, you know, such as by adding the sustainment gate that they've added to their review process. And then, also including a Deputy for Sustainment within the navy. But what we're kind of seeing is that it's still geared toward issues that have already kind of, surfaced in sustainment, versus that kind of early involvement. And so, we really think that this new Assistant Secretary for Sustainment within the navy has a good opportunity to really bring leadership to pulling that consideration of sustainment back earlier in the process. And not just dealing with, now that we are experiencing $130 billion dollars of cost growth in sustainment, what do we do about the issues we're already having? How about, what do we do about preventing those issues going forward and what kind of leadership can we bring to that? [Diana Moldafsky:] And in fact, I mean, when -- part of our, what we looked at was, what kind of requirements do you have for sustainment? And, because those requirements will help to inform how you do your systems, engineering, and design to make sure that the ship that you design is going to meet your needs, sustainment needs. And we found one of the big issues is our, the newest class of guided missile frigate, frigates, the navy's currently trying to award a contract to and start building. The requirements set that we saw would result in a ship with, that would be absolutely not available the amount of time that the navy needs it. [Shelby Oakley:] But in another case we're also seeing with the new Columbia-class submarine, that the navy is taking some steps to test out some of their sustainment assumptions earlier on, because the whole concept of the Columbia-class replacing the Ohio-class is really predicated on being able to quickly perform your maintenance and get your subs back out into operations. And so, we are seeing, you know, some different approaches on the Columbia-class submarine from that perspective. [Matt Oldham:] So, this sustainability issue really starts with shipbuilding plans, because if the navy doesn't' spend enough time thinking about how much it will cost to maintain a ship at the planning stage, those maintenance costs could grow throughout that ship's life. And this could even affect their ability to build more ships. When we come back from the break we'll talk about what that means for the nation. [Shelby Oakley:] I think that you run the risk of affecting overall readiness. [ Music ] >> Interested in learning more from the US Government Accountability Office? Be our friend and like us on Facebook. Our Facebook page has the latest information on our reports, blog posts, podcasts, videos, photos, interactive graphics and much, much more. That's facebook.com/usgao. That's facebook.com/usgao. [ Music ] [Shelby Oakley:] And you know there's a lot of conversation about the number of ships that are needed, whether it's 355 or whatever the new number's going to be with the new ship plan that's going to be coming out. But it's not good for the country in many different ways. You know, when we were out at Naval Base San Diego like Larri mentioned, it was a parking lot of LCS not doing anything at this point, because they're still being fixed essentially. I don't know how many ships it was, but it was a huge number of ships sitting there not doing what they're supposed to be doing. So, there's taxpayer dollars being wasted there from that perspective, also but there's a whole chunk of readiness, right? Those ships should be out there on missions. And you also think about the burden that this puts on the, the sailors on the other ships as well too, right, is that if there's not the new ship coming in to replace you, you're having to go out on deployment more than you maybe should be because of the lack of ships. And so, overall, it just tends to you know, kind of spiral, have compounding effects on our nation's readiness. [Larri Fish:] And it's not just LCS, and we found in general that of the ships, all the navy warship classes over the last 10 years, they've spent over 5,000 more days in maintenance than was otherwise planned. And that adds to cost and that's 5,000 days you're not operating and training. [Matt Oldham:] What about the sailors who are attached to the ship? Are they losing out on training? Are they losing out on experience? [Larri Fish:] So, that is a difficulty of some of these feedback loops. There can be very negative feedback loops when, that happen when ships are out of service for too long. I think one of the critical examples is actually on an older ship, but it's a Los Angeles-class submarine where they're having problems getting them in for maintenance. And the ship, the a sailors, you know, you attach a crew, you have to attach a crew to a ship or submarine, and they start to lose qualifications. You have to spend money to send them to these other training facilities, so that they maintain their qualifications. The equipment itself then becomes obsolete which is a big problem we found and that we talk about directly in one part of our view, but also permeates I think much of our review is the navy's battle with obsolescence in software changing and equipment changing. And it's an incredibly difficult problem particularly for the navy because ships only come into port so often. So, getting the ships up to date with different codes is so that you -- [Diana Moldafsky:] Well, and because they take so long to build. [Larri Fish:] --yeah, and because they take so long to build. So, yeah, so there's often ships delivered with obsolete equipment for that very reason as well. So, it's a difficult problem for the navy and if they get behind the eight ball it can spiral out of control. And that's something we heard directly from a lot of fleet maintainers and engineers. [Matt Oldham:] So, then what's the message here for policymakers? [Diana Moldafsky:] They have some of the policies and processes already in place. We have seen legislation, we have seen navy policy, Department of Defense policy that specifically states to have sustain be a focus in your acquisition program and early on. The problem was the navy hasn't consistently used those tools to their benefit, you know, made sure that there is a strong voice for when you design requirements for sustainment early on, that you have the operators, the users involved in understanding those requirements. So, I think that was one of our key pieces is, you have a good framework, use it more effectively. [Shelby Oakley:] And like I mentioned, when you're basing whole concepts on things that you don't necessarily know are actually going to pan out, understanding what that risk factor is when you are basing your cost estimate, right, when you're doing your cost estimate. Running a, what if this doesn't pan out? What is the impact? Would give you a sense of, well, maybe we need to put a little bit more money into doing some analysis or risk reduction early on, so that it will pan out, right? And so, that's really where we're trying to key in on is, you can't know everything, but you can buy down risk early in the process for the sustainment outcomes as just as much as the, you know, mission outcomes, you know meeting your mission requirements. We point out that the navy has essentially, for the programs that we reviewed, the nine programs that we reviewed, $130 billion dollars underestimated for sustainment costs. That's $130 billion dollars, I mean, that's a whole Columbia-class submarine program. [Diana Moldafsky:] Including the life cycle. [Shelby Oakley:] Including the life cycle, you know, and so, the impact is real when you're not, when your focus is on the near-term and maintaining your acquisition cost and schedule at the expense of the long-term. [Matt Oldham:] Beside aircraft carriers, what other ships have you guys visited? [Diana Moldafsky:] Wow, we went on the DDG-1000 Zumwalt-class, which is the navy's brand new class of, three ship class of destroyer. [Larri Fish:] I think one of the most notable things too about walking around DDG-1000 with the ship's crew is some of the, also the things where if you don't involve the fleet potentially in ship designs, some of things that at times can get overlooked. And I think one of the things, as we went on the bridge, which is where you'd steer the ship, on the DDG-1000, and they said, "Look at the bridge, what don't you see?" And I looked out, you could not see the front of the ship. And so, how can you, it's very difficult to steer the ship if you can't see the front. [Shelby Oakley:] We went on an inspection on the USS Spruance, which is a destroyer and one of the things that they showed us was the computer and the engine room, is a commercial off the shelf product. Well, it shuts down when it gets too hot. You're in an engine room, right, so it's like those kind of considerations are just simple examples of things that just didn't, you know, didn't kind of, weren't really fully considered when making these decisions. [Larri Fish:] Another thing that was interesting was that, the fleet really had issues with also too many contractors maintaining equipment from the perspective of, on a ship like DDG-1000 that has a lot of sensitive equipment, they have to monitor those contractors at all times. And so, that was one of the things that they felt wasn't considered in approaching the sort of minimal crew, is if you're going to have a sailor escort a contractor, at that point you might as well teach the sailor to do the work. [Matt Oldham:] Last question. What's the bottom line here? [Diana Moldafsky:] I think the bottom line for our report is really, you know, the navy has a significant opportunity to save a ton of money, billions we say in our report, and to bring more efficiency to fleet and fleet operations and maintenance to just really considering these sustainment risks earlier in the acquisition process. And meaningfully considering them, not checkbox considering them. [ Music ] [Matt Oldham:] So, sustainability costs are growing. This is a readiness issue, which means it is a national security issue. And if the navy is going to bring those costs down, they have to tackle the issue well before their ships get underway and join the fleet. Thank you to Shelby Oakley, Diana Moldafsky, and Larry Fish for their work in this area. And thank you for listening to this Deep Dig edition of the Watchdog Report. To hear more podcasts, subscribe to us on Apple Podcasts. Leave a review while you're there to let people know about the work we're doing. Follow us on Twitter, Facebook, and LinkedIn. And for all things GAO visit us at gao.gov. [ Music ]