Seapower and Expeditionary Forces Subcommittee

Chairman Gene Taylor

Hearing on Efforts to Improve Shipbuilding Effectiveness

"The subcommittee will come to order. Good morning and welcome to our temporary hearing room here in the Capital Visitors Center. I trust everyone was able to find their way without too much trouble. As many of you are aware, the committee hearing rooms in the Rayburn building are in renovation and full committee and subcommittee hearings will be conducted in this room until at least December.

"Today we meet in open session to receive testimony on a very important issue; an issue that is threatening to cripple our national maritime power and threaten our national security. The issue of course is the cost of building Navy warships. Our ships are simply too expensive. In my time serving on this subcommittee I have heard from a stream of Navy officials explain the problems of the past, and promise better performance in the future.

"There is always some new plan or program to control requirements, growth, or stabilize the acquisition plan. Industry leaders roam the halls of Congress and explain why it’s not their fault and bemoan a system that is unstable in requirements, quantity, and schedule. And all the while, shipbuilding costs continue to skyrocket.

"This hearing is not about finding someone to blame. All parties, including the Congress, have brought about this crisis. I would hope that with hearings such as this we can discuss realistic options to control shipbuilding costs. For me, all options are on the table. I believe the Navy needs to look very hard at their requirements process to determine if marginal extra capability is worth significant construction or integration costs.

"I believe the Navy must stop changing the number and type of ships they intend to acquire and stop changing the design once the vessel is under contract. I believe the shipbuilders need to modernize and build these ships in the most efficient manner they can.

"I believe the Congress may need to reexamine the process we use to authorize and fund the construction of ships. But I firmly believe that we should not build any more ships in any shipyard that is not optimized for construction of that ship. This last belief should be obvious to all.

"Our full committee Chairman and Ranking Member are doing great work in attempting to reform the overall acquisition process, this subcommittee needs to support that work by insisting on reform at the deck-plate level of the acquisition process; the actual construction of the ships. I have been to the very efficient shipyards of the world; I have seen what can be done. Our shipyards are not even close to matching the efficiencies of the foreign yards.

"If I might, I would like to make an analogy of how we build ships compared to how the efficient shipyards in the world build ships. To make this analogy, I’ll use the example of building a house. The inefficient contractor digs the foundation by hand using shovels and picks, the efficient contractor brings in a backhoe and finishes the job in minutes. The inefficient contractor then hand builds the foundation framing and mixes cement in a wheelbarrow; the efficient contractor uses pre-fabricated and reusable foundation framing and brings in a cement truck to pour the foundation. The inefficient contractor then frames the house by hand, one stud at a time, with workers swinging framing hammers to drive nails, the efficient contractor uses pre-fabricated joists, interior and exterior walls, and roofing trusses, all made at a factory to a specific plan, quality checked for squareness and delivered to the job site exactly when needed and then assembled using pneumatic framing guns.

"Both methods build a house, the inefficient method relies on brute labor hours, the efficient method relies on advances in technology and construction methods and requires highly skilled labor. The inefficient contractor justifies his higher costs by describing the hours spent in construction. The efficient contractor is off building another house. This is precisely the difference I see in the foreign yards, efficiency of construction based on investment in automation and other infrastructure.

"We are the inefficient contractors. When I ask how much a ship should cost, no one can tell me. Why? Because it depends on how you build the ship. If you build it by hand, it will cost a lot more. If ever weld is done by hand, it takes longer and costs more money. But if you accomplish all welding robotically in the earliest stages of fabrication you reduce labor hours, improve efficiency and save costs. If you maximize outfitting in the assembly or module stage of construction, you save costs. This is because the work can be done faster and more efficiently in that stage of construction. Our yards are working to improve in these areas; some are farther along than others, but no one is at the point that I would say truly exhibits state-of-the-art for ship construction. In my analogy, the efficient contractor invested in the equipment needed to build efficiently.

"What we need to do here today is discuss how the Navy, our shipbuilders, and Congress can work together towards the goal of proper investment in the right equipment, processes, and workforce training to lower total cost. I understand the Navy is on the path to improve cost estimating, but I want the estimates to describe the cost when the ship is built efficiently, not when it is built inefficiently.

"The ability to meet a cost estimate that is inefficient is not a victory, a victory is being able to estimate how much a ship should cost if built efficiently and then not pay a penny more. This may require an upfront investment for every class of ships, but that might just be in the best interest of the taxpayer and the Navy.

"Two years ago, this House passed a provision that would have granted the Secretary of the Navy significant authority to use government funds to improve infrastructure and workforce training at our shipyards. We included that provision after testimony from both government and industry officials that investment was essential to overall cost reduction. Unfortunately, we were unable to clear that provision through conference with the Senate and the final bill signed by the President only required the Navy to report back to the Congress on potential shipbuilding efficiency improvements. That report is before the Members today, including in the briefing material prepared by staff. It is a good report, but shipbuilding costs are still going up.

"Today I want to hear some ideas. I want to work with the Navy, I want to work with the industry, and I want to work with the labor force. This is important to our national security. If we cannot get these ship construction costs under control we will never again have the number of ships the CNO needs to perform all the tasks that we as a nation ask.

"The total cost of a ship can be divided into three broad areas, I am interested in discussing with each of our panels which area we can invest to receive the greatest payback in lowered costs.

"The three areas to which I refer are: 1) the cost of materiel—this includes everything from the steel plate to the computers which run the ships weapons systems, 2) the number of man-hours it takes to construct the vessel, and finally 3) the rate the shipyard charges for each man-hour—it goes to reason that if a shipyard is building only one ship, then the rate must include the overhead for the entire shipyard on the man-hour rate of that one ship, but if the shipyard was building ten ships they would be able to spread the overhead across the rate for all the ships. So quantity matters in more ways than one. So the question of ‘what should the ship cost?’ also must take into account ‘how many ships are you building?’

"As I look across our ship construction programs, I see significant differences in meeting cost and schedule. Our T-AKE program and our submarine program are meeting or exceeding cost and schedule targets, but I wonder if we could do even better. The final ships of the original run of DDG 51 destroyers are also doing well, helped in part by capital improvements at the shipyards which were aimed for the DDG 1000 class. Our Amphibious ships are running over cost and behind schedule. Some of that is still attributable to the effects of Katrina, but some is not.

"We have a new aircraft carrier program that has bet the future on an unproven technology for electromagnetic launch. The Navy is not sure, or at least not telling the Congress, what the future has in store for surface combatants after the re-start of the DDG 51 program. The LCS program is still a disaster, there is no way to sugar coat it, the program is still a disaster. Those first vessels were constructed in the most inefficient manner possible, just like my house construction analogy, and now we are being told by both the contractors that the cost of these ships really is in excess of a half a billion dollars. I am not sure the Congress is willing to go forward with that program unless significant progress is made on cost control, and I do mean significant.

"With the challenges being faced by all the Services in trying to reset from the wars in Iraq and Afghanistan the Navy cannot count on additional funding for ship construction. We all need to figure how to rebuild our Fleet with the procurement dollars available. To do that all costs must come under control. Hard decisions need to be made. Soon.

"I look forward to the testimony. I look forward to an honest and open dialogue both today and in the future, because the days of throwing more money at the problem are gone. I am not sure everyone understands that hard reality, but it is true.

"We have the right witnesses to discuss this issue, I thank them all for coming and I look forward to both their testimony and the question and answer period. Our first panel is composed of the two gentlemen in charge of buying ships and overseeing the construction of ships. We are honored to have the Assistant Secretary of the Navy for Research, Development, and Acquisition, the Honorable Sean Stackley, along with the Navy’s Commander of the Naval Sea Systems Command, which has technical and oversight authority over ship construction, VADM Kevin McCoy.

"Our second panel is composed of the two gentlemen who run our major shipyards: Mr. Mike Petters is the President of the Northrop Grumman Corporation shipbuilding sector and Mr. David Heeber is an Executive Vice President of the General Dynamics Corporation and is in charge of the Marine Systems division of that company.

"Our final panel is composed of representatives from the trade unions whose membership actually does the construction of these ships. From the International Brotherhood of Electrical Workers we welcome Mr. Brett Olson, and from the Metal Trades Department of the AFL/CIO we welcome Mr. Ronald Ault.

"I thank all our witnesses, I trust we will have a free exchange of ideas today, and I now turn to my friend from Missouri, our Ranking Member for any comments he may wish to make."

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