Problems In Budgeting For Navy Ship Construction

A General Accounting Office study cites problems by the Navy in budgeting for ship construction that could affect Maine and Mississippi shipyards that are in line to build the Navy´s next-generation destroyer. The new report by the investigative arm of Congress found that cost overruns could hinder efforts to modernize the fleet as money for new ships is earmarked to pay for vessels approved years earlier. "From fiscal years 2001 to 2005, 5 to 14 percent of the Navy´s ship construction budget, which totalled about $52 billion over the five-year period, went to pay for cost growth for ships funded in prior years," the report said. "This reduces the buying power of the budget for current construction and can slow the pace of modernization. "The Navy is in the early stages of buying a number of advanced ships, including the Virginia class submarine, DD(X) destroyer, CVN 21 aircraft carrier and Littoral Combat Ship," the report added. "The Navy´s ability to buy these ships as scheduled will depend on its ability to control cost growth." Maine´s Bath Iron Works and Ingalls Shipyard in Mississippi are scheduled to build the DD(X). The Navy has drastically scaled back construction of the new ship and has announced plans to save money by having the yards take part in a winner-take-all competition for the program. In its study, the GAO assessed eight ships under construction or just completed, including a destroyer built at Ingalls and one built at BIW. It found that Congress has appropriated $2.1 billion so far to cover cost overruns on the eight ships, and estimated that the number could exceed $3 billion. A major issue, said the GAO, was that the Navy doesn´t accurately estimate the costs for the ships, so extra funds must be appropriated in following years. A spokeswoman for Sen. Olympia Snowe, R-Maine, said her office would be talking with the Navy about the GAO´s recommendations that it establish realistic estimates, prices and budgets. "When we´re looking, however, at cost overruns, we need to understand, as this GAO report rightly points out," Antonia Ferrier said, "that these overruns sometimes have nothing to do with the yards themselves. They have to do with the process the Navy uses in calculating what a naval vessel might cost. Budget increases on the various ships were greater for new programs, less for established ones like the DDG destroyers made at BIW and Ingalls. But costs did increase for the $1 billion destroyers, according to the GAO. The DDG 91 and DDG 92, built at Ingalls and Bath, respectively, saw a budget increase of $80 million and $55 million. Overall, increases in labor-hour and material costs account for 78 percent of the cost growth, while overhead and labor-rate increases account for 17 percent. Navy-furnished equipment accounts for 5 percent of the growth. Aerial looking over The Bath Iron Works Ship Facility.