[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 111-92]
EFFORTS TO IMPROVE SHIPBUILDING EFFECTIVENESS
__________
HEARING
BEFORE THE
SEAPOWER AND EXPEDITIONARY FORCES SUBCOMMITTEE
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JULY 30, 2009
[GRAPHIC TIFF AVAILABLE IN TIFF FORMAT]
__________
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SEAPOWER AND EXPEDITIONARY FORCES SUBCOMMITTEE
GENE TAYLOR, Mississippi, Chairman
SOLOMON P. ORTIZ, Texas W. TODD AKIN, Missouri
JAMES R. LANGEVIN, Rhode Island ROB WITTMAN, Virginia
RICK LARSEN, Washington ROSCOE G. BARTLETT, Maryland
BRAD ELLSWORTH, Indiana J. RANDY FORBES, Virginia
JOE COURTNEY, Connecticut DUNCAN HUNTER, California
JOE SESTAK, Pennsylvania MIKE COFFMAN, Colorado
GLENN NYE, Virginia THOMAS J. ROONEY, Florida
CHELLIE PINGREE, Maine
ERIC J.J. MASSA, New York
Will Ebbs, Professional Staff Member
Jenness Simler, Professional Staff Member
Elizabeth Drummond, Staff Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2009
Page
Hearing:
Thursday, July 30, 2009, Efforts To Improve Shipbuilding
Effectiveness.................................................. 1
Appendix:
Thursday, July 30, 2009.......................................... 47
----------
THURSDAY, JULY 30, 2009
EFFORTS TO IMPROVE SHIPBUILDING EFFECTIVENESS
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Akin, Hon. W. Todd, a Representative from Missouri, Ranking
Member, Seapower and Expeditionary Forces Subcommittee......... 6
Taylor, Hon. Gene, a Representative from Mississippi, Chairman,
Seapower and Expeditionary Forces Subcommittee................. 1
WITNESSES
Ault, Ronald E., President, Metal Trades Department, AFL-CIO..... 40
Heebner, David K., Executive Vice President, Marine Systems,
General Dynamics Corporation................................... 18
McCoy, Vice Adm. Kevin, USN, Commander, Naval Sea Systems
Command, U.S. Navy............................................. 5
Petters, C. Michael, President, Northrop Grumman Shipbuilding.... 20
Stackley, Hon. Sean J., Assistant Secretary of the Navy,
Research, Development, and Acquisition, U.S. Navy.............. 1
APPENDIX
Prepared Statements:
Akin, Hon. W. Todd........................................... 54
Ault, Ronald E............................................... 105
Heebner, David K............................................. 66
Olson, Brett M., Executive Secretary, Puget Sound Metal
Trades Council, International Brotherhood of Electrical
Workers, Seattle Local 46.................................. 114
Petters, C. Michael.......................................... 85
Stackley, Hon. Sean J., joint with Vice Adm. Kevin McCoy..... 55
Taylor, Hon. Gene............................................ 51
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
[There were no Questions submitted during the hearing.]
Questions Submitted by Members Post Hearing:
[There were no Questions submitted post hearing.]
EFFORTS TO IMPROVE SHIPBUILDING EFFECTIVENESS
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House of Representatives,
Committee on Armed Services,
Seapower and Expeditionary Forces Subcommittee,
Washington, DC, Thursday, July 30, 2009.
The subcommittee met, pursuant to call, at 2:39 p.m., in
room HVC-210, Capitol Building, Hon. Gene Taylor (chairman of
the subcommittee) presiding.
OPENING STATEMENT OF HON. GENE TAYLOR, A REPRESENTATIVE FROM
MISSISSIPPI, CHAIRMAN, SEAPOWER AND EXPEDITIONARY FORCES
SUBCOMMITTEE
Mr. Taylor. I want to apologize to our guests for the
delay. We had a series of votes on the $650 billion defense
appropriations bill. So since many of you people are in that
line of work, you probably won't mind the delay.
For the sake of time because I have kept you so late, I am
going to waive my opening statement and submit it for the
record.
[The prepared statement of Mr. Taylor can be found in the
Appendix on page 51.]
Mr. Taylor. I also want to acknowledge that Congressman
Akin has been delayed, but he said he is more than ably
represented by two of his colleagues here. So I am going to
yield to Mr. Wittman for the opening statement on the minority
side.
Mr. Wittman. Thank you, Mr. Chairman. I will also ask for
unanimous consent to have Mr. Akin's comments entered into the
record, and I will also bypass the opening statement.
Mr. Taylor. Without objection.
[The prepared statement of Mr. Akin can be found in the
Appendix on page 54.]
Mr. Taylor. We are joined today by the Under Secretary of
the Navy for Acquisition. Secretary Stackley, Vice Admiral
McCoy, thank both of you for being here. Again, I apologize for
the delays.
Secretary Stackley, you are recognized.
STATEMENT OF HON. SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE
NAVY, RESEARCH, DEVELOPMENT, AND ACQUISITION, U.S. NAVY
Secretary Stackley. Thank you, Mr. Chairman. I think I will
follow your lead and request that my statement be submitted for
the record and leave more time for questions.
Mr. Taylor. Secretary Stackley, I think we would very much
like to hear what you have to say.
Secretary Stackley. Very good.
Mr. Taylor. Was that politely said?
Secretary Stackley. Yes, sir.
Mr. Taylor. Okay.
Secretary Stackley. Mr. Chairman, distinguished members of
the subcommittee, thank you for the opportunity to appear
before you today to address shipbuilding and, in particular, to
address Navy and industry efforts to reduce acquisition costs
of new construction ships.
If it is acceptable, I would propose to keep my opening
remarks brief and submit a formal statement for the record.
Mr. Taylor. Without objection.
Secretary Stackley. Today's Navy is a fleet of 283 battle
force ships, as many as half of which may be underway on any
given day providing security and assistance for our interests
and the interests of our friends and allies around the world.
The quality of our force, our ships, aircraft and weapons
systems is unmatched at sea. The fact is that your Navy and
Marine Corps stand ready to respond to major conflict with the
most capable naval warfare systems in the world today.
A group of senior leaders from industry, government and
retired military, known as the Business Executives for National
Security, released a report this past week titled, ``Getting to
Best: Reforming the Defense Acquisition Enterprise.'' The
report is rich in lessons, understanding and fundamental
recommendations for today's leadership regarding the challenges
before us in acquisition.
The task force clearly points out that most of the
equipment produced by the U.S. defense acquisition process
remains the equipment of choice of most of the world's military
forces and as downward pressure on resources for national
security generates a sense of urgency in making the acquisition
process as efficient and effective as our war fighters deserve
and American taxpayers expect, that we need to be careful to
focus on fixing what is broken, not what works.
As we all are well aware, ship costs are rising faster than
our top line and our ability to build that future fleet, which
will guarantee our naval superiority for the next generation
and beyond, relies in no small part on our ability to fix what
is broken, not what works.
I would like to discuss each of these considerations
briefly. At the risk of oversimplification, the causes for cost
growth in shipbuilding could be divided into a couple of
categories: the environment we are in and the way we manage
within the environment we are in.
That environment is characterized by a couple of key
factors. First, low-rate production, low rates of Navy
shipbuilding production compounded by the long loss of
commercial shipbuilding that once helped underpin our
industrial base drives many unfavorable economic factors that
impact our shipbuilding costs.
It causes overhead cost increases, slows shipyard capital
investments, weakens the underlying vendor base, stifles
opportunities for shipyards to leverage buying power with the
vendors and constantly threatens production gaps, which result
in loss of learning and harmful effects of cyclic layoffs,
subsequent hiring and retraining.
Second, reduced competition. Reduced competition is
somewhat a fallout of low-rate production in the related
industry consolidation. Today we are confronted by a
shipbuilding program with limited options for leveraging the
benefits of competition while simultaneously we seek to
preserve the unique critical skills and capabilities of our
already downsized shipbuilding industrial base. As a result, we
are continually challenged to compensate for the impacts of
reduced and, in certain cases, lack of competition.
Third is increased system complexity. The ships and weapons
systems we are delivering today are far more capable and
accordingly, far more complex than the systems they are
replacing. This increased complexity, however, has raised the
stakes regarding risks in development while also causing an
upward shift in the system costs and the skills required to
develop, build, install, integrate and test these new systems.
These challenges require changes to the way we, Navy and
industry, manage our shipbuilding portfolio. And they are
compounded when discipline and/or best practice break down in
the way we manage our shipbuilding programs.
Perhaps the most commonly cited cause for cost growth is
excessive requirements accompanied by unrealistic cost
estimates. Troubled programs are typically hamstrung at the
outset by estimates and budgets that do not adequately account
for risks inherent to the design and development associated
with meeting very stressing requirements.
We need to do a better job of informing the process with
realistic cost estimates and realistic risk assessments at the
front end of programs. This will drive the difficult
requirements decisions early when there are true choices and
true opportunities to be had.
Then we need to hold to these requirements. For it is well
understood that stability is key to the success of major
programs. Stable plans, stable budgets, stable requirements,
stable design lead to predictable performance and steady
improvement. This is perhaps best evidenced by those programs
that are performing strongly today, most notably the DDG-51
[Arleigh Burke-Class Guided Missile Destroyer], Virginia, and
T-AKE [Dry Cargo/Ammunition Ship] shipbuilding programs, each
of which is capitalizing on a long, stable production line.
It is incumbent on the government, preferably through
competition, but as is often necessary in shipbuilding, through
negotiation, to structure contract terms and conditions that
protect our interests and properly incentivize industry's
performance. And it is necessary for us to be diligent in
overseeing execution of the contracts.
And this brings me to shipyard performance. For in the end,
having arrived at a contract, we look to the shipbuilder and
systems integrators to perform to standard and to deliver a
quality product in accordance with the terms of the contract.
The reality is that we are pressing a large number of
initiatives, practices and standards across the board to
improve shipbuilding cost performance. As noted, we are
beginning with requirements and ensuring that our requirements
are informed by realistic cost estimates and balanced by our
resources. And we are seeking to impose stability.
We do not have a good track record here, but I can assure
you that from the Secretary right down to the individual
shipbuilding program managers, we understand the importance of
this stability. And we are intent on holding the line.
We look to more effectively employ competition at all
levels of shipbuilding from prime contractors to individual
equipment vendors and to continue the current trend toward
greater use of fixed price contracts. We have employed and
continue to explore indirect and direct investments to sustain
and improve upon the capabilities of our industrial base.
And we have increased our focus on design producibility.
And through initiatives employing the national shipbuilding
research program, we are making progress and driving costs out
of our specifications and standards.
Similarly, working with industry, we need to continue to
leverage our automated design and manufacturing capability to
gain the benefits that that brings to the process.
We are instilling greater discipline to ensure our designs
and production planning are mature prior to starting
construction in order to minimize the costly rework associated
with out-of-sequence work.
To meet these objectives, we must be smart buyers. The
acquisition workforce has been--over the past decade to the
extent that our professional corps has been stretched too thin
and we have outsourced too much of our core competencies.
Accordingly, we are rebuilding our Navy acquisition
workforce. For example, the Navy has conducted a comprehensive
bottom-up analysis of our on-site supervisors of shipbuilding
organization and identified shortfalls are being addressed by
augmenting the on-site waterfront capability of these
supervisors in the areas of engineering, project management and
earned value management.
These strategic moves, properly executed, will enable
necessary tactical changes in our shipbuilding processes as we
pursue multi-year procurements, block buys, greater leverage of
commonality, design, portability, more effective contract
incentives, capital improvement programs, software reuse and
other related cost-reduction initiatives.
Over the past decade we have introduced 11 new designs, 11
lead ships, each a highly complex prototype bringing its own
unique challenges.
Compounding these issues, particularly in the case of these
lead ships, where there is greater risk and uncertainty, we
fell short on our ship cost estimates or in certain cases on
our willingness and ability to fully fund the estimate.
All these factors led to inefficient ship production and
cost growth.
We have learned, or in certain cases relearned the lessons
of this experience. Accordingly, the Navy understands and
agrees with the objectives of the Weapon Systems Acquisitions
Reform Act, and we strive to meet the spirit and intent and the
ongoing initiatives I have described to raise the standards, to
improve the processes, to instill necessary discipline, and to
strengthen the professional corps that manages our major
defense acquisition programs.
All of this with the ultimate objective of delivering the
fleet the war-fighter deserves at the cost the taxpayer
expects.
So, Mr. Chairman, thank you for the opportunity to appear
before you today. I look forward to answering your questions.
[The joint prepared statement of Secretary Stackley and
Admiral McCoy can be found in the Appendix on page 55.]
Mr. Taylor. Thank you, Secretary Stackley, for a great
opening statement.
The chair now recognizes Vice Admiral Kevin McCoy,
commander of Navy Sea Systems Command.
STATEMENT OF VICE ADM. KEVIN MCCOY, USN, COMMANDER, NAVAL SEA
SYSTEMS COMMAND, U.S. NAVY
Admiral McCoy. Good afternoon, Mr. Chairman and members of
the subcommittee. Thank you for the opportunity to be here and
discuss our strategies for reducing the rising costs of
building ships in the 21st century.
My written comments are included along with those in the
joint statement that Mr. Stackley requested be submitted for
the record. I do have a short opening statement, though, sir.
Mr. Taylor. Without objection, your statement will appear
in the record. Please proceed.
Admiral McCoy. As the commander of Naval Sea Systems
Command, I am the technical authority for Navy ships, weapon
systems and infrastructure. It is critical that we hold
ourselves to the highest standards in our engineering and
decision-making as we have the responsibility to ensure we buy,
equip, build and maintain and modernize the Navy fleet now and
well into the future.
Our technical authority responsibility is about making sure
our ships and weapon systems operate safely, effectively and
reliably. Our technical responsibility is also about making
sure that ships and weapon systems are affordable and that we
specify only those requirements that support war-fighting needs
and no more.
First and foremost, NAVSEA [Naval Sea Systems Command] is a
technical organization and our credibility and value to the
Navy start with technical discipline and rigor.
In the written statement, we outline the challenges to
achieving our goal of 313 ships. There is no single fix, but we
are working hard with our industry partners on several fronts
to decrease the costs of new construction, improve first-pass
quality, and ensure our ships and weapon systems operate
safely, effectively and reliably.
We are working hard to address these 21st-century
challenges in order to keep America's Navy number one in the
world.
Mr. Chairman, thank you again for the opportunity to be
here with you today. I would be happy to take any questions you
may have.
[The joint prepared statement of Admiral McCoy and
Secretary Stackley can be found in the Appendix on page 55.]
Mr. Taylor. I thank the admiral.
And I would be remiss if I did not mention that towards the
goal of reaching the 313-ship Navy we are very grateful for the
Appropriations Committee. We thought we put together a good
package on the authorization side, and I am very happy to
announce that in today's package was $15.8 billion and 10
ships.
And so I want to thank Mr. Murtha, Mr. Lewis and all the
appropriators on taking a good package and I think making it
even better.
I now want to recognize my ranking member, Mr. Akin.
STATEMENT OF HON. W. TODD AKIN, A REPRESENTATIVE FROM MISSOURI,
RANKING MEMBER, SEAPOWER AND EXPEDITIONARY FORCES SUBCOMMITTEE
Mr. Akin. Thank you, Mr. Chairman.
This is the second time today I have gone to the Longworth
Building to try to get to the meeting. Some of us rats are hard
to train, but we have got three panels of witnesses so I don't
want to take too much time, but I just want to toss out
something that I am not totally satisfied or settled on.
And I appreciate both of your gentlemen's expertise. And my
own concern is around the idea of project management. And there
are many of the different things that are in our different
written testimonies that are common to manufacturing and common
sense that are all things we know that we have got to manage
and pay attention to.
The concern I have, and it is maybe because I am not
familiar with it, but I have an intuitive sense, and that is
the way the Navy is organized in terms of the idea of the
people that develop the requirements and then you move that
over to the people who do the purchasing.
I am still not comfortable that that system is as seamless
as it might be, and particularly in making it clear that there
is a very clean chain of command and that one person is
responsible for a project and that they have a team that is on
top of those things and keeping us from having problems.
And I think you gentlemen know, because of your expertise,
you could take very, very good people and put them in the wrong
system and end up with problems.
So that is something that, if you would like to comment on,
I don't want to take a lot of time on it, but it is something I
would like to look at in the future. Which it is not so much
some of the things about upgrading the size cranes or the
layout or different buildings or being smarter, making sure we
have the design done before we start building something, all
those kind of go without saying. But that organizational
structure is still something that is a little bit I am hung up
on, if you would like to comment.
Thank you.
Secretary Stackley. Yes, sir. Let me describe a few things.
One, your concerns are well placed because inside of a large
organization where you have separate requirements, budgeting
and acquisition processes, there is plenty of opportunity for
things to go wrong, and there is plenty of history to show
examples of where that has occurred.
What the Department of the Navy has done to try to make
this more seamless is take a look at the process that we use
and bring requirements, budgeting and acquisition together
inside of what we refer to as a gate review process.
The gate review process is co-chaired by myself and the CNO
[Chief of Naval Operations] or the Vice Chief on the OPNAV
[Office of the Chief of Naval Operations] side of the house,
and depending on what phase of the program, the front-end
requirements governs the process. So in that case, the CNO or
his representative chairs the gate review process. When it gets
handed over to acquisition, I would chair, but the membership
is the same regardless of where we are in the process.
And gate reviews are conducted for every major milestone
and at least once per year for every major program on top of
that where we ensure that the programs, as the requirements are
being developed, we are ensuring that the costs and technical
aspects of the requirements are being informed so that those
tough decisions that need to be made can be made.
And then the budgeting process, financial management is at
the table. When we transfer over to the budgeting process, the
burden is on the FM [Financial Management] side of the house or
the programmers, depending on where we are in the budget cycle,
to ensure that the requirements that were defined and estimated
are budgeted.
And then when we move into the acquisition process and it
gets handed over to the program manager for execution, he now
has a requirements baseline as he puts together the Request for
Proposal to go to a contract, before he goes to contract, the
RFP [Request for Proposal] is brought back to the table at the
gate review process and reviewed.
So now we have each member of the requirements, budgeting,
acquisition process in step as we move into acquisition and
execution of the contracts. And then changes to the contract
are brought back on that annual basis, or otherwise as
required, to a version of the gate review referred to as a
configuration steering board, to ensure that, again, each
voting member has insight into the decisions that need to be
made and the information is provided so that healthy decisions
can be made.
Mr. Akin. The way you describe it, it sounds very organized
and logical. Have we not done it that way in the past?
Secretary Stackley. That is correct.
Mr. Akin. Is there any help that Congress can be or do you
have all the authority you need to set that up, that process,
the way you want without us? You don't need us particularly to
pass any law or anything?
Secretary Stackley. I think we have all the authority that
we need. Yes, sir. I appreciate that. In fact, we have also
invited OSD [the Office of the Secretary of Defense] to the
table. This isn't just an internal Navy discussion because the
configuration steering board requirements, these blow down from
the Under Secretary of Defense, Acquisition, Technology and
Logistics, so we have brought his representative to the table
as well to partake in certain cases where the milestone
decision authority is AT&L [the Under Secretary of Defense for
Acquisition, Technology and Logistics] himself.
Mr. Akin. So you have everybody on board then?
Secretary Stackley. Yes, sir.
Mr. Akin. Yes. Go ahead, please.
Secretary Stackley. I was going to say, it has been in
place for just about a year, a year-plus. So on paper, it is
ideal. In practice, we continue to work out the bugs, but it is
a significant step forward in terms of elevating visibility and
basically bringing everybody to the table to address the issues
before major decisions.
Mr. Akin. So you won't bring us as many surprises that way.
Secretary Stackley. That is the intent.
Mr. Akin. Yes. Thank you very much.
Thank you, Mr. Chairman.
Mr. Taylor. The chair thanks the gentleman from Missouri.
The chair now recognizes the gentleman from Connecticut,
Mr. Langevin--Rhode Island, Mr. Langevin.
Mr. Langevin. Connecticut is a nice place, too, Mr.
Chairman. We are neighbors. [Laughter.]
Thank you, Mr. Chairman.
Gentlemen, thank you for your testimony and for your
service to our country.
Secretary Stackley, let me just start with you, if I could.
I am sure you agree that to increase schedule efficiencies and
cost-savings in major programs, it is very critical to begin
work as early as possible. However, I understand that despite
the instructions in the fiscal year 2009 budget, the Navy has
not yet contracted a third Zumwalt-class destroyer. If my
understanding is incorrect, please let me know that, but if it
is correct, why is the Navy delaying the award of the ship? And
are there any cost savings if the contract were to be awarded
now?
Secretary Stackley. Let me describe that. We are not
delaying the award of the ship. What we have done, and we
brought forward in the springtime was what I refer to as a
``swap.'' It is the business agreement between the Department
of the Navy and the two shipbuilders that are involved in the
DDG-1000 [Zumwalt-class guided missile destroyer] program.
So the third DDG-1000 is being allocated to Bath Iron Works
as a part of that business agreement. And we have been very
steadily in a focused fashion marching through the execution of
that business agreement between Bath Iron Works, the Department
of the Navy, and Northrop Grumman, who is the other shipbuilder
involved.
So as we line up contracts in terms of material procurement
and we look at work-flow at the shipyards, addressing the
concern that you raise regarding most efficient scheduling, we
believe that we are on track to support that.
Now, two weeks ago, about two weeks ago in a joint
industry-Navy DDG-1000 review, we also brought in the systems
integrators, Raytheon, and BAE, who provides the ordnance
systems for the ship. Raytheon raised the potential for savings
if we could accelerate the award of the third DDG-1000 systems.
And we are taking a hard look at that right now.
Mr. Langevin. There are some that estimate that we could
save about $120-plus million if those contracts were signed
sooner rather than later, so I hope you can take a look at
that. Do you have, you know, kind of a ballpark estimate, in
terms of timeframe, when you believe that your due diligence
would be completed and those contracts would be signed?
Secretary Stackley. Sir, I would like to take that question
for the record, if I could.
[The information referred to was not available at the time
of printing.]
Secretary Stackley. I will describe that that significant
figure you just offered was put on the table. And my first
question was: That is $120 million savings to what baseline? We
just completed negotiations for the combat system for the DDG-
1000 for the first two hulls. Perhaps two to three months ago
was when negotiations wrapped up.
So having gone through that effort, we have a pretty solid
technical baseline. We are not proposing any significant
changes to that technical baseline. So I think the 1\1/2\- to
2-year effort to complete those negotiations, we should be able
to wrap up in a fairly streamlined fashion, here, when we get
going in earnest.
Now, I have to work the--decision authority for DDG-1000 is
the under secretary of defense. And I will be working with him
to clear that package, in terms of going forward on the
negotiation process.
So we are aware of the opportunity; we are pursuing the
opportunity; and I will get you back a more specific response
in terms of notional timeline.
It is a two-party negotiation, which is why I can only
address my willingness to start, and then we will get into
negotiations accordingly.
Mr. Langevin. Fair enough. Well, I look forward to hearing
from you on that. And I know the committee will look forward to
hearing back from you on that as well.
Thank you, Mr. Chairman. I yield back.
Mr. Taylor. The chair thanks the gentleman for a great line
of questioning. Because we have three panels and because there
are other things going on on the House floor, we are going to
try, to the greatest extent possible, to adhere to the five-
minute rule.
The chair now recognizes the gentleman from Virginia, Mr.
Wittman.
Mr. Wittman. Thank you, Mr. Chairman.
Secretary Stackley, in your written testimony, you point
out a number of different points, but I want to focus on three
of them. First you say we need healthy competition. The other,
you say we need aggressive cost reduction programs; and, next,
we need to invest in facilities and training for our
shipbuilding industrial base.
In looking at those three elements of your suggestions, it
seems like, to me, that all of those are related, in some
relationship or other, to scale, and if we don't have a large
enough scale of production, that some of those things might be
hard to obtain.
And I know we always look at foreign shipbuilders and say,
``How come they can produce ships at a lower rate than we
can?''
And I think, if you look at that, these are admirable
objectives, but all of them are related to scale. Can you talk
a little bit about how you would look at achieving this within
the current scale of production?
And then, are there things that we should be doing, maybe
with Title XI and the Jones Act that could help this industrial
base be able to achieve some of these efficiencies that you
seek through competition, aggressive cost reduction programs
and investing in facilities there at these shipbuilding
facilities?
Secretary Stackley. Certainly. Let me start with
competition. We do have very limited competition in
shipbuilding. Basically, we have two large corporations that
own what we refer to as the ``big six'' shipyards. And the
competition across those two corporations is limited.
We don't have competition at the prime level on carriers.
We have teaming submarine programs. Most of our amphibious and
auxiliary programs are singled up, at least after the initial
down-select.
And then we have the DDG-51 program, where we have had very
successful competition in the past. And after this front-end
restart, we look forward to continued competition in that
program.
And then when you get to the second-tier shipbuilders and
the programs there, in fact we have more shipbuilders involved,
and so we have had competition, and we have to continue to work
some of the challenges of sustaining that competition over the
longer haul in that tier.
That is at the prime level. What we have to be more
steadfast on is driving that competition down below the prime
level. And we will be working with the shipbuilders, where they
are now the prime contractor, to leverage the competition,
whether it is major components or otherwise, and then it will
be an intellectual assessment that needs to take place between
where do you leverage competition or where do you leverage
commonality.
Because sometimes we will be going down a commonality path,
where we prior had competition. And those are going to have to
be evaluated on a case-by-case basis.
There is a separate universe that comes to the ship
associated with combat systems and C4I [Command, Control,
Communications, Computers, and Intelligence]. And again, we
find ourselves quite often in the situation where, after the
down-select for the prime contract, now we are largely in a
sole source at the prime level, and we have to continue to
drive competition below that.
On the combat system side, what we are investing heavily in
is going toward open architecture, where, in open architecture,
we do a couple things. We decouple the heavy software from the
components to allow the hardware to be competed, and then we
are going to the hard part, now, which is going inside of the
software and buffeting that up into modular construct so, in
fact, we can bring small businesses into the game and compete
for some of the software development.
Shifting over to cost reduction, I believe every program,
in effect, today, virtually every program needs to launch a
very focused cost-reduction program that is program-specific.
Let me start with the front-end design. After you have
awarded the contract, from day one we need to be focusing our
engineering efforts on producibility, on ways that we can bring
the costs down.
I turn to Admiral McCoy, who owns the technical authority
and the specifications to identify ways that, within our
specifications, we can enable the shipbuilders to design a more
affordable ship.
And then, once the ship is built, we need to continue to
identify opportunities, based on the as-built condition, to
drive down the costs.
And as I said, I think every program, right now, has some
element of a cost reduction program, and we need to keep a
focus on it.
The third area, regarding facilities and training, we have
a number of initiatives, in terms of incentives, working across
the shipbuilders, largely focused on their specific needs and
our ability, within the contracts, to provide those incentives,
as well as terms and conditions within our contracts that allow
for investment in their facilities to be borne, either in terms
of depreciation in the overhead or cost of money issues.
Training is a little bit harder, but I think it is equally
important. We do not have the ability to directly fund training
for the workforce, but I look forward to exploring
opportunities to provide similar incentives, or at least
working with the states to where, across programs, we can build
that workforce.
Mr. Taylor. The chair thanks the gentlemen.
The chair recognizes the gentlemen from Connecticut, Mr.
Courtney.
Mr. Courtney. Thank you, Mr. Chairman.
And thank the witnesses for their thoughtful testimony. The
description that Mr. Stackley was just giving about how you get
to that path toward affordability sounds familiar, because
really the Virginia class is, I think, a concrete example of
how you can actually make those efforts all come together and
get to that point.
My question is just very simple. At the opening part of
your statement, you again cited the 313-ship Navy target that
CNO has emphasized. And the last time I had heard, the Navy was
projecting 2019 to get to that number. And I--where are we with
that? I mean, what is your best take in terms of when are we
going to reach that floor, that the CNO calls it?
Secretary Stackley. The honest answer, sir, is we are
going--we are right now in the midst of building the 30-year
shipbuilding report. That did not come with the 2010 budget. We
are building that report, commensurate with the QDR
[Quadrennial Defense Review] that is being worked with the OSD.
So for me to give you a better time frame than your
reference 2019, which is going back to the 2009 submission of
the 30-year report, I cannot give you a better estimate. And I
am not likely to be back here six months from now and
explaining why the estimate I gave you today has changed.
The numbers you have are from the 2009 report. That is
probably a good starting point. That is our starting point as
we work the QDR and the 2011 submission of that report.
Mr. Taylor. The chair thanks the gentleman.
The chair now recognizes the former chairman of this
committee, the gentleman from Maryland, Mr. Bartlett.
Mr. Bartlett. Thank you very much.
Mr. Secretary, you mentioned very early that the
fundamental problem here is a lack of competition. And this
reality is reflected in a number of things.
One is the problem of modernizing. The officers that run
our shipyards have a fiduciary responsibility to the
stockholders. We understand that in this country. It is not the
responsibility to us; it is not the responsibility to the
taxpayer.
And the reality is that because the volume is so low and
because it is--these contracts are largely cost-plus contracts,
there is little--essentially no--business incentive--there may
be a patriotic incentive, but no business incentive to
modernize.
Now, we could--the government could provide this new
equipment, like laser cutting and welding and so forth, but if
we did that, then we would make sure there would never, ever be
any competition in the commercial world, because then they
couldn't use that equipment for building commercial ships, so
there would certainly be a WTO [World Trade Organization] suit
for that.
There are two solutions to the problem of competition. One
is to reduce the infrastructure. If we have half the
infrastructure building the same amount of the ships, then we
would have some competition. I don't think we are going to do
that. I don't think I would want to do that, because there may
be a time when we would need this infrastructure so we would
build more ships.
So then the only other way to increase our competition is
to build commercial ships, so that we have more throughputs for
the yards. But we are just not competitive, and we cannot build
commercial ships.
We are kind of like in the situation of a power production
plant which can only do a--where they can't do a black start.
And that is kind of where we are. I don't know how to get from
where we are, in a essentially noncompetitive position for
commercial shipbuilding. We represent 25 percent of the world's
economy, and we build essentially 0 percent of the world's
large commercial ships.
And it is clear, if we are ever going to get shipbuilding
costs down for our military ships, we have to do that on the
back of a big commercial shipbuilding program.
How do we get there?
Now, you guys are doing the best you can. The yards are
doing the best they can under these circumstances.
You know, once you get around the problems of being overly
optimistic and requirements creep--and we have got to solve
those problems. Everybody understands that. But how do we get
from where we are to commercial shipbuilding, so we have real
competition?
Secretary Stackley. Yes, sir, let me--I have been working
on that for 25 years. And I don't say that in jest.
Let me first say that commercial shipbuilding in this
country is virtually 100 percent associated with Jones Act
shipbuilding.
Mr. Bartlett. And that--they are not really competitive,
sir, because the only place they can be built is in this
country. No matter what they cost, we are going to build them
here, because that is what the law says, right?
Secretary Stackley. Yes, sir. And it is--what I am
providing for you is what the base work looks like in terms of
commercial shipbuilding in the country today. And even in Jones
Act shipbuilding, the downturn in the economy has virtually
dried that up. There are minimal Jones Act shipbuilding orders
coming our way, in terms of shipbuilding.
The last of U.S. Navy--or, I am sorry, U.S. commercial
shipbuilding virtually ended with the elimination of the
differential subsidies that went away during the 1980s. During
the 1980s, the build-up of naval ship construction, the
administration determined that we are going to invest in Navy
warships. We are going to remove the differential subsidies for
commercial shipbuilding. The U.S. industry moved to naval
warship construction.
After the Wall comes down, naval warship construction drops
off. Differential subsidies are gone. And we haven't been
competitive in the international commercial market since.
So in considering what would we need to do to get back into
that business, I can tell you that we have done benchmarking.
We had a company by the name of FMI that came in and
benchmarked our shipbuilding industry.
Mr. Bartlett. If I might, my time has run out. We have a
few more panels, and this is a huge subject. And you can't in
the one second remaining do justice to it. But thank you for
your concern about it.
And I hope that we can have a dialogue in the future. This
is a really, really challenging problem. And it is not going to
be easy. But unless we do that, I think we are forever going to
be stuck with huge costs for our ships, and the 313-ship Navy
is going to be a real challenge.
So thank you for your testimony.
And I yield back, Mr. Chairman.
Mr. Taylor. Thank you, Mr. Bartlett.
And I would like to remind all the members of this
subcommittee that there will be a tour of what I consider to be
some of the best shipyards in the world beginning a week from
Saturday. It will end up on the West Coast at the yard in San
Diego. But we want to encourage those of you who can find the
time, to please do so.
Mr. Bartlett got this program started when he was the
chairman, and we have learned a lot from it. This one is going
to be a little bit different in that we are inviting both
Northrop Grumman and General Dynamics to meet us there--
obviously, they can't travel with us on the government's
nickel--because we want to reinforce the point that we do build
the world's greatest ships. I am not so sure we have the
world's best tools to build those ships, but I think we can get
better.
Having said that, I want to recognize the gentleman from
California, Mr. Hunter.
Mr. Hunter. Thank you, Mr. Chairman.
And to play on Mr. Bartlett's theme, could you really quick
go into when it comes to competition, the way that NASSCO's
been partnering with Daewoo in South Korea? I believe that the
CODEL [congressional delegation] is going there to look at
South Korean shipbuilding and NASSCO is trying to get into that
commercial market to be competitive for non-Jones Act ships.
Secretary Stackley. Yes, sir. You are looking for a
comment?
Mr. Hunter. Yes, please.
Secretary Stackley. I will comment, and the second panel, I
think Mr. Heebner would probably be able to outdo me on this.
But from the Navy's perspective, we are very impressed with the
efforts by NASSCO to team with Daewoo. That has helped them in
terms of not just competing for and winning the PC [Product
Carrier] contract, but in terms of their success in building
the PC class.
That is interesting to the Navy, but what is more important
to the Navy is that the lessons that they have learned from the
Koreans and that they are applying to that commercial contract
we are getting equal benefit on the T-AKE program. They are
being very aggressive about it. It is yielding strong results
in terms of sustained learning on the T-AKE program that we are
both getting the benefit from.
Mr. Hunter. Playing on the T-AKE program, which you just
mentioned, the last two are going to be built in fiscal year
2010. And I was wondering if you could comment on what the Navy
is looking at. Another specific question, maybe the only
specific question that has been asked so far regarding the
company, but what are you looking at regarding keeping a
production gap out of there, out of NASSCO, which is the only
kind of shipbuilding company like it on the West Coast? What
are you looking at there as those two get built? The last one
got pushed off indefinitely. MLP [the Mobile Landing Platform]
is 2012, and that is still iffy. Is the Navy looking at that?
Secretary Stackley. Let me start with the T-AKE program. As
you are aware, the 14th ship of the program is under
consideration right now in the department as we put together
both the QDR and the 2011 budget. And when you look beyond that
at Navy shipbuilding programs, the MLP, there was advanced
procurement in the prior year, and the MLP is a part of that
QDR discussion and debate. We recognize, frankly, the value and
strength of NASSCO as a part of our industrial base.
So as we debate the future force structure, size and shape,
and the impact on shipbuilding, NASSCO's role in that debate is
very prominent. And that is--I can't give you much details
beyond the fact that the debate is taking place, but that
characterization of not just NASSCO, but the industrial base
centerpiece of that discussion is matter-of-fact.
Mr. Hunter. Thank you, Mr. Secretary.
Mr. Chairman, I yield back the balance of my time.
Mr. Taylor. I thank the gentleman.
Secretary Stackley, there was a line of what I hope were
well-intended amendments to the defense bill today, and several
of the proponents of those amendments were making a point that
it felt like how do we know if we are getting a fair value for
something, particularly if it is a single-source.
And one of the things that we know--we hope have corrected
in this year's defense authorization bill was the language we
included for the Littoral Combat Program--ship program--that
offered the vendor, which you at the amount that you determined
was a fair price, gave them a take-it-or-leave-it offer, but
also specified that if they chose not to build the ship for
that price, that approximately $80 million of that money would
be taken out so the nation would have the technical data
package, in effect the specifications for that ship so we could
put it out for bid and see if someone else would build it for
that price.
Using that analogy and using the frustration of some of our
colleagues that we weren't getting a good price on some things,
is it going to be now as you reconstitute your acquisition
force, is it going to be one of the goals of your group to see
to it that, in clear language, that every time we buy something
as a part of that contract, we let it be known that we are--
``we,'' the United States of America--are going to own that
technical data package, so that for follow-on purposes--we want
to respect the right of the inventor to have his investment
rewarded--but for follow-on purposes, for follow-on purchases,
that we are going to own that technical data package in order
to get the best price we can for the taxpayers, and hopefully
the best ship for the Navy as we do so.
Secretary Stackley. Sir, that is a straightforward
question, but it is a difficult question because of the number
of variations on that theme.
Mr. Taylor. Okay.
Secretary Stackley. Our intent is to pursue the technical
data package for future competitions, but there will be cases
and examples whether either components or specific system
designs or elements of that technical data package are owned by
the bidder, either because they were developed separately for
some other purpose, some other competition that didn't involve
the government, and then we would have to choose between paying
what is often a very high price for that technical data
package, or taking government purpose rights that gives us
significant amount of liberty in terms of how we employ that
technical data package for future competition.
And, sir, what I could commit to you today is when we run
into those exceptions, we will ensure that Congress is aware of
them before we go to contract, so that there are no surprises
on the back end of such a contract award.
Mr. Taylor. I appreciate that, Secretary Stackley. But I
want to give you, you know, a for instance. Without owning the
technical data package for the LCS [Littoral Combat Ship], one
is off of Somalia. It is a very crude mine in the water, and is
significantly damaged. I would think without the technical data
package, that would preclude you from taking that ship to the
nearest shipyard and having it repaired to the original spec.
Again, that is just one for instance, and I realized that
is a larger than average package, but I think for a lot of
reasons, again I am very grateful the appropriators upped our
budget to $15.8 billion, but we still have 313 ships to build
with that, hopefully, 10 to 12 of them a year with this amount
of money.
And we have just got to do better, and I would think that--
I understand where you are coming from, but to the greatest
extent possible, we have got to own the rights to those things
we bought.
Secretary Stackley. Yes, sir. For that example, let me
start by saying that we do own the technical data package for
the LCS to the extent that we either own outright or we have
government purpose rights. So for the example you just
described, we absolutely have what we need to conduct any
repair on that ship.
When it comes to structural details, system details, I
cannot envision a scenario where we don't own the technical
data package unless we were buying--right now, I can envision
that. Where you start to get into some difficulty are
commercial items that might be a part of a ship design, reuse
of software that is commercial. These elements that were
developed for a commercial market that we are bringing to bear
inside of the ship design, we typically would not pursue those
data rights.
Mr. Taylor. Okay. Again, I am going to ask of the Navy's
legal team for them to draft language so we can spell this out
either in this year's defense authorization bill or at the very
latest, next year's, that that is what we as a nation want to
make our standard practice.
Secretary Stackley. We will work with your staff on that,
sir.
Mr. Taylor. Thank you, sir.
Admiral McCoy, we didn't need to--we did not mean to leave
you out. If there is anything you wish to say, again this is
more working on the acquisition side and so that is why we have
kind of spoken to the civilian end of it, rather than the folks
who follow up on it.
I--again, as we reconstitute that force, we are counting on
the people that work for you to see to it that, on a day-to-day
basis, we get the best bargain for the nation, best--more ship
for the money. And I would also hope that you would empower
those people who work for you on a day-to-day basis, if they
see a better way to do something, that they would get back--
they would feel like they could speak freely to this committee
as to what we are missing, what opportunities are we missing,
to get a better bargain for the taxpayer.
I don't fault the people in corporate America for trying to
get the most money for the ship. That is their job. It is our
job to get the most ship for the money. And so I would
encourage you to encourage your people, to whatever extent you
can do so, to encourage them to keep us aware and to try to
find a better way in everything we do.
Admiral McCoy. Yes, sir. As we work to rebuild that
acquisition workforce, and it is in many areas, it is--we have
hired over 200 new supervisors of shipbuilding folks in the
last year-and-a-half. And I am not sure that that is the end-
state. We are taking a pause right now. We just added another
30 because we weren't happy with the lay-down, and we may add
some more. But it is also contracts people. I am trying to do a
50 percent increase in my contracts expert because we have had
a pretty good drain.
And cost estimators--we are re-growing that part. But also
in my engineering staff, and Mr. Stackley probably said it
best, you know, we want every engineer to be a cost engineer
and a cost estimator. And one of the things we are doing across
our engineering codes is trying to drive that mentality, and in
fact forcing them, you know, every one of the technical warrant
holders, to do what I call put things in the hopper, that are
teed up in terms of what our specs currently require and what
is out there in terms of best practice anywhere around the
world--commercial, foreign--and tee that up for Is that a
possible inclusion for incorporation in the contract?
So on both littoral combat ships right now we have got
numerous items in that hopper that we are working with on with
the shipbuilders that really take a different look at how we
are doing business. And we have a big part, along with the
shipbuilders, in taking costs out of our ship and that is a
mentality as we rebuild the acquisition workforce that is going
into that rebuilding.
And in fact, one of the things I am doing here in two weeks
with my executive director is we are going to be approving next
year's national security personnel system objectives for our
engineers, along this line of How do we systematically take
costs out of our ships? We have had a number of projects this
year that have shown huge benefit, and that when we really look
at our specs and our standards in a systematic way, there is
stuff in there that we don't need and that we can work with the
shipbuilders to take costs out.
So as we follow your line of questioning, sir, yes, sir,
we, as we rebuild this acquisition workforce, it is a great
opportunity for us to inject that culture in there to get the
most bang for the American dollar.
Mr. Taylor. Admiral, with the--Secretary Stackley was very
patient to walk us through a couple of things last week, one of
which was the loss within your acquisition force of those
people who tell us what something should cost, those experts.
And that is incredibly important for everything we purchase.
When do you feel like it is a reasonable amount of time
that you can at least for major programs, like EMALS [the
Electromagnetic Aircraft Launch System], like an LPD [Landing
Platform Dock Amphibious Warfare Ship], like an LCS, when do
you feel like you are going to have the expertise in-house to
say what something should cost so that we know we are getting a
good deal for the taxpayer?
Admiral McCoy. I think there is probably two parts to the
answer. The first thing, I will tell you we started this year
with about 40 people in our cost estimating branch. We
concluded we need 100. I am going to be at 62 by the end of
this year. And as you probably know, you don't just find these
people out there. You have to grow them. And in fact, because
of the complexity of what we do, our cost estimators are in
high demand throughout the government--Homeland, Defense--and
so we have suffered losses.
I would tell you on our major acquisition programs, we are
not perfect, but we are pretty good, but we have got some more
work to do there. Where we are not hitting it, in my opinion
right now, where we really have the deep rebuilding to do is
more on the weapons system side, unmanned vehicles--those new
technologies. And right now, I am going to hit about 100 by
about 2012.
So I think we are--I still think we are about three years
away from being able to tell you across our portfolio that we
are where we need to be. We are much better on the major
programs because that is where we have put our people, but
again there we still have lots of work to do because, as you
know, periodically we get a surprise that we shouldn't get.
So I think we are on a path. Unfortunately, I can't go
anyplace. I will tell you, we have gone to Detroit and we are
actually hiring some cost estimators that have been laid off
from the auto companies. And they are particularly good at
things like unmanned vehicles and things like that.
So we are trying to get some mid-career professionals, as
well as, as we build from the bottom up with new graduates.
So I think, sir, we are about three years off, and we are
on a plan to get there.
Mr. Taylor. Okay.
Gentlemen, I thank you. I hate to--I hope I have given you
the opportunity to say what you wish to say. We have two other
great panels. I would like to at least let the second panel
have their say before we break for the votes.
So without--hopefully without objection from the committee,
the first panel is dismissed.
The chair now recognizes Lieutenant General Dave Heebner,
executive vice president of the Marine Systems group with
General Dynamics.
And I believe Admiral--or is it--and Mike Petters,
president of Northrop Grumman Shipbuilding. Okay.
Gentlemen, thank you for coming. Again, we apologize for
the delays. If you wish, you may submit your statement for the
record and feel free. Who would like to go first?
Mr. Heebner. Mr. Chairman?
Mr. Taylor. General Heebner.
Mr. Heebner. Mr. Chairman, Congressman Akin, members of the
subcommittee, thank you for the opportunity to participate in
this hearing and for your committee's support of United States
shipbuilding.
I would like to ask that my statement be added for the
record, and I will make a brief opening statement.
Mr. Taylor. Without objection.
STATEMENT OF DAVID K. HEEBNER, EXECUTIVE VICE PRESIDENT, MARINE
SYSTEMS, GENERAL DYNAMICS CORPORATION
Mr. Heebner. My name is Dave Heebner, and I am the
executive vice president of General Dynamics Marine Systems. My
business segment includes Bath Iron Works, Bath, Maine;
Electric Boat in Groton, Connecticut, and Quonset Point, Rhode
Island; and NASSCO in San Diego, California.
Our shipyards employ nearly 22,000 people who design, build
and support submarines, surface combatants, and auxiliary ship
for the U.S. Navy and commercial ships for U.S. flag customers.
In line with the committee's interest, we in General
Dynamics are continually focused on improving shipbuilding
efficiency and affordability. Three key factors that have
direct and substantial impact in our shipyards are volume,
stability requirements and predictability in funding and
scheduling.
Volume is the most obvious factor. The more ships we build,
the more we can learn and improve our processes, leading to
greater efficiency and lower cost.
Just as important, increased volume affects thousands of
suppliers who provide the components and commodities that
comprise over half of ship construction costs. Economic order
quantities improve vendor performance and lower shipbuilding
costs.
Stability of requirements is the second factor. Setting
requirements early facilitates a more mature design before
construction begins and enables more effective production
planning, design for producibility, risk reduction and improved
maintainability for reduced total ownership costs.
The third factor is predictability in funding and
scheduling. Ships are large, complex capital assets, requiring
years to design and build. Frequently, production plans must
adapt to changing external factors. Minimizing these changes
allows more effective cost control.
Your committee's support of advanced funding and multi-year
procurement has been extremely helpful in this regard.
We shipbuilders are responsible for the efficiency of our
shipyards. We know that we must sustain our culture of
continuous process improvement. I will briefly address four
areas that have significant impact on shipyard efficiency:
early collaboration, capital investment, workforce training,
and applying lessons learned.
First, by early collaboration, I mean conduct an open and
crisp selection process, either through direct competition or
negotiation, then down-select and immediately begin
collaboration between industry and Navy stakeholders.
We support the fact that the government must preserve the
benefits of competition, but we urge acceleration of the
selection process, because early and continuous collaboration
is where substantial efficiency benefits can be gained.
Second, capital investment and facility improvements lead
to cost reductions. These investments are more justifiable when
there is reasonable assurance of a sustained and predictable
workload that supports the business case for return on invested
capital.
Third, workforce training and knowledge transfer highlight
our most important asset, that is, our people.
Many family generations have proudly worked in the same
shipyard. Worker skills are learned and honed, often through
deck plate interaction and passed on to the next generation of
shipbuilders. We also transfer knowledge using formal training,
like our strong apprenticeship programs.
Fourth, once we apply lessons learned from each ship we
build, a continual process of improvement is now engrained in
our shipyard cultures.
We encourage our workers to look for safer, better, faster,
and less costly ways to build ships. And they take pride in the
fact that their good ideas are valued and applied.
We share lessons learned across General Dynamics' business
units and work closely with our partners to promote improvement
across all classes of ships.
We also seek best practices through interaction with
foreign shipyards, like high-volume shipyards in South Korea
that Mr. Chairman mentioned earlier.
A few examples may be helpful to illustrate our commitment
to process improvement, increased efficiency and reduced
shipbuilding costs. For the Virginia-class submarine, the Navy
invested $600 million in the design for affordability program
to develop design changes essential to price reduction.
Congress provided advance funding and accelerated the
production to two submarines per year. These collaborative
efforts improved the design, increased the build rate and
reduced the total ownership costs of the program by nearly $4
billion.
At Bath Iron Works, investment in the Land Level facility
and the Ultra Hull outfitting building reduced direct labor
hours by more than 20 percent compared to the last DDG-51 built
on the old inclined ways.
And at NASSCO facility investments, workforce training and
lessons learned reduced T-AKE's labor hours by over 50 percent.
Additionally, our partnership with South Korea's Daewoo
Shipbuilding increased efficiency and reduced costs in our
commercial ships. And many of those improvements have carried
over to our Navy programs.
Mr. Chairman, your subcommittee's initiatives have also
contributed to more efficient and affordable shipbuilding. Your
support of multiyear procurement, advance procurement and
advance construction authority will continue to reduce costs
for both the government and for shipbuilders.
And thank you for your efforts with regard to Title XI loan
guarantees. Your support will help revitalize the U.S.
commercial shipbuilding, sustain a modern U.S.-flagged merchant
fleet, and lower the cost of Navy shipbuilding.
Mr. Chairman, as you know, shipbuilding is a complex and
dynamic process. Much has been done to improve efficiency, yet
more can be done.
We will work together with the Congress and the Navy to
achieve this common objective. I am proud of the high-quality
ships General Dynamics shipbuilders are delivering to our Navy,
and I invite the committee to visit our shipyards, so that our
workers can show you the magnificent ships that they build.
Thank you for the opportunity to testify. I look forward to
your questions.
[The prepared statement of Mr. Heebner can be found in the
Appendix on page 66.]
Mr. Taylor. The chair thanks the gentleman.
The chair now recognizes Mr. Mike Petters.
I would remind the members that there are approximately
five minutes to the vote. Out of respect for these gentlemen,
who have waited all day for us, I am probably going to miss
that first vote.
But I would encourage you to try to make the votes and get
back. It is a total of four votes.
I would like to ask unanimous consent, given that Secretary
Gates is also coming over to speak to some members of Congress,
I would like to ask unanimous consent that after these votes,
we go ahead and continue the briefing with those members who
are here.
Without objection.
Mr. Mike Petters.
STATEMENT OF C. MICHAEL PETTERS, PRESIDENT, NORTHROP GRUMMAN
SHIPBUILDING
Mr. Petters. Thank you, Chairman Taylor, Ranking Member
Akin, distinguished members of the Seapower and Expeditionary
Forces Subcommittee. Thank you for this opportunity to appear
before you today to discuss what I believe will enable the
shipbuilding industry to become even more efficient.
Mr. Chairman, your invitation to testify asked me to
address challenges in maximizing the efficiency of
shipbuilding. And I will limit my oral remarks to a brief
summary of my written testimony, which I ask to be submitted
for the record.
Mr. Taylor. Without objection.
Mr. Petters. For the next few minutes, I would like to
emphasize a few key points. First, I think it is important to
note that the shipbuilding industry is not broken, but it is
also not as healthy as it should be. And the healthier we are
as an industry, the better we can serve the needs of our Navy
and the American people.
At the heart of our difficulties in shipbuilding, in my
view, is that most of the time the Navy must buy ships one at a
time, and it must pay for each of them up front. These funding
and procurement requirements result in significant challenges
in creating a healthy and efficient shipbuilding industry.
I define a healthy shipbuilding industry as one that
attracts capital investment, talent and technology. Buying one
ship at a time stifles that investment and forces us to
struggle as we try to capture the talent, the technology and
the capital that we need to remain healthy.
And if the shipbuilders who build for the U.S. Navy choose
to invest in equipment or processes that benefit the Navy, they
must break even with that investment on the first ship where it
is applied.
This discourages investment in machinery, tools, designs
and people. Even when we believe that making an investment is
the right business decision, most of the time the return on
investment does not support our shareholders' requirements for
the use of their capital.
Now, all is not lost. There are a few examples of things
that have been done to encourage this kind of investment, and I
would like to briefly highlight one of those.
It has been discussed some today, but in the Virginia-class
submarine program, the Navy is buying more than one submarine
at a time, using multi-year and multi-ship contracts. The Navy
also has incentivized both Northrop Grumman and General
Dynamics to make capital investments neither of us might
otherwise be able to make if we looked at it on a one-ship
basis.
They have done that by taking a look at how the investment
would play out over the entire class of the ships. And these
would be ships that are not even in the appropriations yet.
These incentives do require an up-front use of the
shipyard's capital, with an opportunity to earn back an
incentive if the anticipated improvements result.
This program has been a very important part of delivering
on the ``Two for $4 billion'' goal we have discussed in this
chamber on previous occasions and even earlier today.
But it is just one part of a broader effort. So as
mentioned, the Virginia-class program has benefited greatly
from multiyear procurements the Congress and this subcommittee
in particular has supported and funded. And that is a very
critical point.
Now, I have been in this industry for more than two
decades, and I am often asked why American shipbuilders are not
as efficient as foreign shipyards.
I have visited many of these yards, and I am always struck
by the size and the nature of their order books. You know, one
yard I visited last fall had orders for over 300 ships.
In that environment, the shipbuilder has a lot of incentive
to be innovative and to invest capital to lower their costs.
And this is in stark contrast to the environment in which U.S.
shipyards must operate where ships are procured at low rates of
production.
Now, one ship at a time clearly runs counter to this idea
of serial production, which is the most efficient way to build
ships.
Shipbuilding, although it is a technologically complex
industry, still relies heavily on our talented craftsman. Labor
cost savings are achieved when craftsmen move down a learning
curve by working a task frequently enough so they improve their
performance ship over ship.
Once again, we can look to Virginia class for a glimpse of
what the future could hold. This program is now in serial
production and is benefitting from solid learning curve
improvements both in cost and schedule.
And achieving learning curve savings on ships which have
longer construction times, such as aircraft carriers, is tough.
And the longer the gap between the start of construction of one
of these complex ships and the completion of the preceding
ship, the more difficult it is to achieve those savings.
Now, I am well aware that these problems are not easy to
solve. The industry is doing much to become more efficient,
including modernizing our facilities with whatever capital we
are able to find and investing heavily in our workforce. But we
can't do it alone, and we need to work together, all of us.
And by ``we,'' I mean shipbuilders as well as the
acquisition professionals, Navy program managers, fleet
customers and Congress. We need to continue to work on changing
the funding of procurement practices if we ever hope to break
the cycle of buying one ship at a time.
And until then, however, we must focus on negotiating good
contracts that are based upon realistic cost estimates and more
complete understanding of the risks within each program and
true recognition of the difficulties the shipbuilding industry
faces as a result of the processes we have in place today.
I welcome the attention of the Congress and this
subcommittee in particular to the needs of our industry.
Shipbuilders are skilled men and women who choose this
difficult occupation because of their strong belief in America
and a desire to contribute to the nation's security.
All of us are working hard to build the most cost-efficient
and highly capable ships for the world's greatest Navy. It is
work that we are very privileged to perform. And I look forward
to your questions.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Petters can be found in the
Appendix on page 85.]
Mr. Taylor. The chair thanks the gentleman.
I am going to declare a recess, subject to the call of the
chair. This should take approximately 20 to 25 minutes.
Thank you very much.
[Recess.]
Mr. Taylor. The meeting will come to order.
The chair recognizes the gentleman from Virginia for five
minutes.
Mr. Wittman. Thank you, Mr. Chairman.
I want to thank both Mr. Heebner and Mr. Petters for
joining us today.
I wanted to follow with Mr. Petters and talk about the idea
of building ships in series and the earlier question I asked
about the scaling of our ship manufacturing and the impact that
that has on us being able to control costs. And I just wanted
to get a little more, I guess into depth about your thoughts
about where we are and what we can do to help with that whole
aspect of shipbuilding.
How can we get better at it? Is it merely a matter of doing
more than purchasing one ship at a time? Are there things that
we can do in decisionmaking here that makes the issue of
scaling better for the shipbuilders?
Mr. Petters. Thank you, Congressman, for the question. I
highlighted the idea that we are building one ship at a time as
a principle that we should try to assault. And I don't think
that it is necessarily going to happen by ordering more ships.
But I think we have to create mechanisms that will allow us to
behave in the same way that we would behave if we were ordering
more ships.
And so I highlighted the extraordinary capital investment
program, the CAPEX [Capital Expenditure] program. That is a
recognition that these are investments that probably could not
be justified if you had to break even on the very first ship.
On the other hand, if you think you know you are going to
have a class of ships that is going to extend to 30 ships, and
we can find a way to incentivize and capture and calculate the
return on an investment over the whole class of 30 ships, then
we can create these outside of the normal course of business
kinds of incentives that allow the investments to be made.
I have seen a few different approaches to this. I have seen
the CAPEX program, the Virginia-class program. I saw this in
the design program for the carriers and, I mean, you talk about
a ship that is built one at a time, an aircraft carrier is
built one at time.
But we were able to refacilitize or create some facilities
in our facility in Newport News by looking at the value of
upgrading a crane, for instance. Upgrading our crane allows us
to lift bigger modules.
By putting incentives in our design and planning contracts,
we were able to make that investment pay for itself, even
inside of the one ship.
And so there are ways to do that, but you have to be very
deliberate about saying, ``I am going to think about this in
terms of--I am going to think about this mechanism as being a
mechanism that is going to overcome the fact that we are
building one ship at a time.''
Mr. Wittman. Mr. Heebner, I know you had referred to your
partnering with Daewoo. And when I was out there to visit the
yard I was very impressed about the whole process that you are
undertaking with the T-AKEs.
Can you maybe shed a little more light about what you have
learned from Daewoo and maybe those applications on the defense
shipbuilding side, maybe lessons we could learn or things that
we could do better based on your lessons from Daewoo?
Mr. Heebner. Yes, thank you, Congressman Wittman.
It has been a very productive relationship for us right
from the beginning. I think the first concession I have to make
to the South Koreans in this case was that they would not
provide us with the design for the ship until they were
completed with it.
And that simple fact that we had a completed design when we
began the construction of the ship reduced the rework
requirements throughout the production of the ship
substantially.
So there is certainly a significant element in something
like that.
A second point is the point I made in my opening statement,
and others have echoed here today, and that is volume matters.
When you look at what NASSCO as a shipyard will deliver this
year, five ships, that is a good year. Our partners, Daewoo,
will deliver 85 ships this year.
That differential allows them to make significant
investments in their yard that not just shave off tens of
thousands of production hours, but down into the single-digit
hours. They pay attention to that level of detail.
And we have noted that in our processes, and we have looked
at it ourselves, and we pass that down to the deck plate level,
empowering our workers to identify those types of things to
improve shipbuilding.
So our productivity has increased dramatically from that
perspective. And a third aspect of it is the benefits of large
production runs where you can get supply chain economies of
scale, and we have been able to tag onto some of their buyers
in that sense to be able to reduce the cost of U.S. ships
substantially because of it.
Mr. Wittman. Thank you, Mr. Chair.
Mr. Taylor. The chair recognizes the ranking member, Mr.
Akin, five minutes.
Mr. Akin. Thank you, Mr. Chairman.
I just wanted to kind of jump on that same talk that you
were on and that theme of volume being very critical in terms
of being able to reduce costs and all.
And knowing, Dave, of the fact that you have some excellent
engineering background under your belt as you come to us here
today, I was just wondering in the area of hull design and
architecture, particularly just the way it works in the water,
is it possible to basically sort of design small, medium and
large size hulls that you could just exchange, or are the
missions of the different Navy ships so different that you
almost have to have specialized hulls, or are there some ways
that we could basically do something for the Coast Guard and
maybe do something for the Marines and do something for the
Navy all on the same basic platform?
Mr. Petters, I am going to give you a shot at the same
thing, too, so you both get fair treatment.
Mr. Heebner. Thank you, Congressman Akin.
I would like to have sitting here with me on the panel
today a marine draftsman like the president of Bath Iron Works,
Mr. Jeff Geiger, who could give you a more detailed answer to
that, and we could certainly discuss it or provide that to you
later.
But the basic issue is that ship performance depends on the
hull design, and different mission ships have different
requirements, so you end up getting, or having an interest in
producing different designs. I think in the context of what
this hearing is about, looking at the importance of taking
costs out of shipbuilding, that identifying hulls that serve
multiple purposes over the course of their lives helped to
continue this notion of serial production that Mr. Petters and
others have mentioned in their comments.
And we see, for example, in the T-AKE hull that NASSCO
builds, that hull has multiple purposes. It could build the LCS
ship. It could build the T-AOs [Fleet Replenishment Oilers].
This is a platform that has great flexibility and proven design
and efficiency in the building process now. So let's look at
every opportunity that we have to be able to continue those
runs and gain the efficiencies that are possible from that.
Mr. Akin. So I think what you are saying is, yes, there are
tradeoffs in design, but yes, probably there are some
commonalities so we could do some piggybacking.
Mr. Heebner. Well, there certainly are differences, and
there are those commonalities. For instance, with the new DDG-
1000 program, the tumblehome hull that is associated with that
serves the purposes of that ship very well, and the significant
topside radar capability that you want to put on that ship
helps by having more of the ship underwater.
So those are things that you have to consider--the ultimate
missions of the ship and how the rest of the geometry of the
ship will be designed. But we may find, in the future, as we
look at future surface combatants, that the DDG-1000 hull has
certain advantages over some other hull types. We find that the
DDG-51 hull type is advantageous, and so on.
But it is important that the green architects take a good,
hard look at that, based on the overall mission of the ship and
how its mission packages have to be loaded onto the ship.
Mr. Akin. Thank you very much.
Mr. Petters, too?
Mr. Petters. Congressman, I think your question actually
gets at a very, very important point that I think we have to
wrestle with, and that is, can we, as we sit down to design the
ship, can we move from an environment where we try to optimize
every aspect of the ship design and move to an environment
where we decide on what are the critical aspects that we need,
and make sure we optimize those, and then where else can we
live with ``good enough''?
And I will be the first one to tell you that ``good
enough'' is not something that the war fighter wants to hear a
lot about. And so that is, I am not going to argue what ``good
enough'' might be, but what I do see is I see some recognition
of this issue in the Navy.
The Navy leadership, now, is talking about a common hull
design to go from the LPDs all the way through into the LSDs
[Dock Landing Ships], as a potential way to do some of what you
are talking about there.
And I think that, whether it is hull design or system
design, piping design or electrical design, I think the real
test is going to be how do we start to think our way through
not optimizing this particular part of this system in this
particular part of this ship but how do we optimize the mission
of the ship and then accept some pieces that may not be optimal
in that particular aspect?
I think that is a tough challenge for engineering, our
technical community to come through. And I think it is going to
take some pretty strong leadership to do that.
Mr. Akin. Would it be helpful--I would think that where you
would want to start with that would be when you are actually
coming up with your initial design, and you nail down--these
particular parameters are what we are very concerned with. And
the other ones, we are going to give you a bracket that you can
hit anywhere.
Does that make sense that you would start that way?
Mr. Petters. Sir, I would argue that it actually goes back
to the mission of the ship.
Mr. Akin. That is what I meant. You start with the mission
of the ship and say, rather than that, though, these ranges of
speed are okay and this maneuverability is okay.
Mr. Petters. Precisely what was done on Virginia class. At
the very beginning the idea was, okay, we are not going to try
to build the fastest submarine we can build. We are going to
build a submarine that is fast enough. And then that allowed us
to make some decisions on the hull design that we then went
forward with. And so we have done that.
Mr. Akin. Thank you very much. I think I would turn into a
pumpkin if I talk any longer here.
Mr. Taylor. The chair thanks the gentleman.
The chair recognizes the gentleman from Virginia, Mr. Nye,
for five minutes.
Mr. Nye. Well, thank you, Mr. Chairman.
Mr. Petters, I have had an opportunity to visit Northrop
Grumman's facility at Newport News a number of times.
Mr. Heebner, hope to have the same chance to visit your
facilities.
But, Mr. Petters, we recognize obviously the value in
shipbuilding efficiency of having a good skilled labor force.
And I was wondering if you could just comment please on the
status of your apprenticeship program and the challenges in
maintaining that skilled workforce and things that we could
keep in mind, a way to be helpful in helping you maintain that
labor force.
And then, Mr. Heebner, I will give you an opportunity to
comment on the same thing.
Mr. Petters. Thank you, Congressman.
We are very proud of the apprentice program that we have in
Virginia. The apprentice school at Newport News was founded in
1919. It is a four-year program--or five years now--where we
have some design, even some design apprentices.
We have linked that with our community college system in
the state of Virginia, and we are heavily invested in the
entire workforce development pipeline that runs from the
governor's office all the way down to our waterfront. We have
representation at every level of that activity in Virginia.
We have been making the same kind of commitment and
investment in the state of Mississippi and in the state of
Louisiana, to the point where the governor of Mississippi has
taken the lead on helping to create an apprentice training
program, basically a shipbuilding school located outside of the
shipyard in Pascagoula, which would be not just for the
shipbuilders of Northrop Grumman, but for all of the
shipbuilders on the Gulf Coast, again, connected to the
community college system and connected to the entire workforce
development pipeline.
I think that is a tremendous understanding by Governor
Barbour, how important that workforce development pipeline is
to our future success.
You know, this is a business where we can't just go grab
people off the street. Nobody graduates from high school with a
degree in shipbuilding. I mean we have to make our own
shipbuilders. And the programs that we have, we are very proud
of and we continue to invest in them.
Mr. Nye. Mr. Heebner.
Mr. Heebner. Thank you, Congressman Nye.
We also have apprenticeship journeymen and supervisory
training programs as well in General Dynamics. For example, at
Electric Boat, I just recently visited a graduation ceremony
where a class that had been in session for literally years was
graduating. And while I was impressed with the curriculum, I
was more impressed with the commitment of the workers to the
program.
This is their red badge of courage, it is a demonstration
of the competence of the company and them as shipbuilders. And
it is also a recognition for them among their peers that they
have done the rites of passage to become qualified in whatever
their trades are.
So we have these programs where we partner with community
colleges in the area, that we provide degree-producing courses
for them. And I was just out visiting National Steel and
Shipbuilding in San Diego, and while visiting them, I learned
that we have just completed a journeyman program for over 800
of their shipyard workers.
It involved more than 700 hours of committed training for
each one of those employees. That yard is one example that
commits to over 300,000 training hours a year for its
workforce, and it is paying off in the productivity
improvements within the yard.
Mr. Nye. I appreciate your responses. Obviously, we
recognize and we are proud of the work that our skilled
shipbuilders are doing in keeping our Navy strong and
recognizing that it is helpful, I think, if we can give you as
far as possible a good way to plan ahead of time on what is
coming up.
If there are any other ways that you think we could be
helpful or things that we ought to think about, I would be
happy to hear it, or of course we would be happy to have you
follow up in writing with us.
Thank you very much.
I yield back, Mr. Chairman.
Mr. Taylor. The chair thanks the gentleman.
The chair now recognizes the former chairman, Mr. Bartlett,
for five minutes.
Mr. Bartlett. Thank you very much.
There are three classes of actors in this drama. One is the
Industry, second is the Navy, and the third is the Congress.
And none of the present cast of actors is responsible for how
we got to where we are today, so we can talk very frankly
because none of the present actors are to be faulted for how we
got here.
But here we are, undercapitalized, too few ships to build,
and so you have employment gaps. So now you are faced with
retraining. You have too few subcontractors. That means too
little competition there, and therefore the costs go up there.
And so that makes us even more non-competitive. And since we
are more non-competitive, we build fewer ships. Now, we are
building no commercial ships except the Jones Act ships.
And of course this now is a vicious cycle because when you
are in that position where you are building fewer ships, then
there is little incentive to capitalize, and you have more
employment gaps. So we are in a vicious cycle. We have been in
that down spiral for quite a while now.
What do you do to reverse that thing, because we have got
to do it?
Mr. Heebner. Chairman Bartlett, thank you for the question.
It is an appropriate one. It is a difficult one to answer
in a short time, but I will make a few observations on it. One
is that we have to demonstrate that within the resources we
have been given that we can become as efficient as we can
possibly be. Now, we have that obligation as shipyard
management, and that is a central issue to our day-to-day
operations within the shipyards.
That can be facilitated, though, by what I referred to
earlier as collaboration. We found, for example, in our
collaboration with the Congress and with the Navy on the
Virginia-class program, that we have been able to find money to
invest in design for affordability, design for producibility
and design for maintainability.
Now, in the course of doing that, we established the
procedures that allowed us to improve the efficiency of our
shipbuilding.
Armed with that kind of incentive, the Congress has
elevated production to two Virginia-class submarines a year.
That has further rippling effects on the cost efficiency of
building these ships.
So what is the lesson in that?
What we have is a mature program that we have collaborated
on. We have a steady run going now, and we will become even
more efficient in that. The Virginia-class program, first ship,
started out as an 86-month construction project. The most
recently delivered ship, the USS New Hampshire, earlier this
year, was delivered with 71 months of production.
And in the Block-3 contract that we just were able to
build, based on this collaboration that we have gone through
with the government and the Navy, we will build these ships out
at an average of 66 months. And the workers in Electric Boat in
Groton, Connecticut and Quonset Point have told me that their
objective is to get it to 60.
So we can tee up the issue for these shipyard workers. They
understand their contribution to national defense, but they
also understand that, by giving them work, we are entrusting
the national treasure to them and they have to perform.
And I am happy to report that we are seeing that the
workers on the deck plates have accepted that task and they are
responding to it.
Mr. Bartlett. Sir, I have been there, and I was very
impressed with the commitment that your people had to do it
better, in spite of the fact they didn't have to because we are
going to build those submarines whether they are doing better
or not, and I was very impressed with that.
But nobody is buying commercial submarines. How do we
transfer this to where people are buying something commercial,
and that is ships?
Mr. Heebner. Well, if I can continue, I will go back to my
first point, and that is finding ways to become the most
efficient producers of ships in the world. If you look at the
rates, at the labor rates for building ships today in the
United States, we are cheaper for labor rates than any of the
developed nations building ships in the world today, labor
rates.
The equation for the cost of ships are those labor rates
times production hours, so it is incumbent on us to be more
efficient and bring down the number of labor hours it takes to
build those ships.
And as we demonstrate that facility to do it, which we are
doing today on the long runs that Secretary Stackley mentioned
today the Virginia-class ship, the DDG-51, the T-AKE program,
we are hitting terrific strides in efficiency of those
programs. And there are lessons in those shipbuilding programs
that will carry over to the rest of our industry.
Now, as far as the commercial ship business, we build
commercial ships at NASSCO. The product carrier today is our
ship in residence. We partnered with a Korean shipyard to build
this ship. We were able to use a Korean design to start with,
modified somewhat for our customer's needs. What we
demonstrated through that process is that we can build the
first ship of the class six months sooner than the plan and
under budget.
Who has ever heard of doing that in a shipbuilding program?
Why did it happen? It happened because we had the design
completed and instruction. We locked it in and we held it. We
wait for the next block improvement before we make a lot of
change for the program. And we encouraged the workforce to go
out and find ways to be more efficient, and they are doing that
for us.
Mr. Bartlett. Thank you very much, Mr. Chairman. Obviously,
in the few minutes we have, we can't pursue this, but you know,
how we get out of this downward spiral which we have been in
for years and start back up again is a huge challenge.
Thank you.
Mr. Taylor. The chair thanks the gentleman.
The chair now recognizes the gentleman from Rhode Island,
Mr. Langevin, for five minutes.
Mr. Langevin. Thank you, Mr. Chairman.
Gentlemen, I want to thank you for being here today. It is
good to see you both again, and I appreciate your patience as
well with all our votes and all that, trying to get this
hearing done at the same time.
My question is for you, Mr. Heebner, if I could start with
you.
The Navy has programmed funds starting this year for the
Ohio Replacement Program, which is obviously very important for
our national security to start thinking about that now. But can
you, for the committee would you talk about some of the details
of why it is so important that this funding be included this
year when construction isn't scheduled to commence until 2019?
And along with that, what would be the impact on the
shipyards in the program if the funding was reduced below the
president's request?
Mr. Heebner. Thank you, Congressman Langevin.
It is an important issue and a timely topic. Thank you for
raising the issue. The first point I would make is that the
Ohio-class submarine program, sometimes referred to as the
``boomers,'' is a national security treasure. It is a terrific
program, but its first ships are now almost 30 years old.
It has a useful lifetime that has to be addressed, and this
program has been approached in a disciplined way that
recognizes that we want to take the appropriate amount of time
to do it right, to build the requirements, to take time to
iterate the design to make sure we get that right, do the
collaboration between the shipbuilder and the Navy customer,
not just the acquisition community, but also the user to make
sure that we get that design exactly right.
We do the tradeoffs to control the costs in the proper way
and make that ship all it can be. It takes time to go through
that process. In that program, happily, we have a partner in
the United Kingdom which also is at a stage where they are
replacing their nuclear deterrent force submarine in the
Vanguard Program. And it is a convenient time for both of us to
be proceeding so that we can share costs in building this next
line of ships.
If you look at the recent RAND study on nuclear deterrence
and that make reference to their comments on the strength of
the United States nuclear submarine capability, design
capability, what they say in that is that this program, the
Ohio Replacement Program, is essential to retaining the skills
that are necessary to maintain our nuclear submarine capability
and to be able to respond in all the ways that are necessary to
be able to make that next program a success.
It is a critically important program, and I can't say
enough about the engineers and designers in residence who have
been working on this program. It is already under way. And the
committee has strongly supported this program, and I thank you
for that. I commend you for your attention to that detail in
this important program.
Mr. Langevin. I agree. Well, obviously the Ohio program has
been vital to, as you point out, our national security in
keeping that leg of the triad, nuclear triad robust. And I
think it is very important that we do now think about how we
get to the replacement, and we do so while we have the time to
do this the right way.
In your testimony, you outlined a number of measures to
increase efficiencies in cost and production. I know we have
had some of those discussions here already, such as adopting
the multiyear contracts with sufficiently mature programs.
What are some of the measures that can be enacted at the
supplier and the customer level? And what opportunities are
there for the yards to work more closely with their customers?
Mr. Heebner. Would you like me to----
Mr. Langevin. For either, for either. Mr. Petters, you want
to take a crack at that?
Mr. Petters. Well, obviously, at the supplier level, one of
the challenges that we face today is that, as the rates of
production have gone down, the competition in the supplier base
has gone down as well.
And so if we are able to work through the issue we talked
about a little bit earlier, which is not trying to optimize
every aspect of every ship, but trying to figure out what we
really need to get the mission done, that leads to
commonalities across hulls. And if you can get commonality of
systems or piping or valves or pumps across hulls, you can
create more opportunity for competition in the supplier base.
And I think that that is probably the biggest challenge
that we have, is trying to find a way to create more of that
kind of competition in the supplier base.
In the Virginia-class program that we share, the supplier
base is 80 percent sole source or noncompetitive. And so it
creates a real--we have to put people in shops to make sure we
get our money's worth when we go to them, in the same way that
the Navy does that with us.
And so finding ways to create common systems, common
components across the different classes of ships I think would
be a way to create more leverage in the supplier base.
Mr. Heebner. Congressman Langevin, if I could add to Mr.
Petters' comments on that, if you were to dissect the Virginia-
class program today, I suspect that you would find that 70 to
80 percent of the suppliers are sole-source suppliers for
components of that ship.
And going to two Virginia-class submarines a year has been
a critically important step for many, many reasons, but not the
least of which is sustaining that supplier base.
We need to make sure that we are looking for ways to
provide incentives to our suppliers to stay in the defense
business and to be there when we need them. And seeing a
program like the Ohio class coming down the pike is an
incentive for them to understand that there is more work out
there and making their investment to maintain their workforce
and their capability with these supply requirements is an
important signal that we can send from the Congress as well as
from us in industry.
Mr. Langevin. Mr. Heebner, Mr. Petters, thank you for your
answers, for your testimony here today. And I look forward to
having you back again.
Thank you, Mr. Chairman. I yield back.
Mr. Taylor. The chair thanks the gentleman.
The chair now recognizes the gentleman from California, Mr.
Hunter, five minutes.
Mr. Hunter. Gentlemen, the same question for both of you.
We have talked about how we can make our own yards more
efficient and productive. What gives the other guys the edge?
Why are they more efficient? Why do they have less
production hours?
Because this almost sounds like when the Japanese came back
and started competing with our big three automakers, they were
more efficient; they were more productive; they had better
processes, and they whipped up on us for awhile; then we, kind
of, caught back up, and some would say that they are whipping
up on us again, here, but we are going to catch back up again.
But what do you see the other guys doing much better than
us and around the world?
Why aren't we as productive as they are?
Mr. Petters. Well, sir, Congressman, thank you.
My view of that is what they have done is not unlike what
happened in the automotive industry 25 years ago when my wife
and I went to buy our first car. We looked at an American car.
You could pick out the seats, the covers, the windshields, the
mirrors, but you had to pick them all out, and the
manufacturing process was so tailored that every car that came
off that assembly line was a different kind of car.
The competition from overseas basically had the standard
model and a deluxe model, and they had an assembly line that
basically made standard models, and they put a few things on it
to make it deluxe. And those were your choices.
I would liken the same situation we have today between
naval shipbuilding and commercial shipbuilding. I think it does
American naval shipbuilders a disservice to talk about the
efficiencies of commercial shipbuilders around the world,
because we are not doing the same thing.
It would be like comparing English football with American
football. If you go to the foreign shipyards, what you see is
they might have four or five welding processes that everybody
learns to use, and they do single pass welding on very thin
plate.
The welders in Northrop Grumman shipbuilding master several
hundred welding processes, and we handle all thicknesses of
plate, from thin plate to plate in excess of five inches. We
spend a lot of time training our craftsmen to go do those
things.
And so they have very different businesses. I think that
the challenge is----
Mr. Hunter. Let me interject really quick. If you are that
good at the complex processes, why aren't we just as good then
at the simple ones?
Mr. Petters. What we found, sir, is that the technologies
and investments that have been made in foreign shipyards to do
like assembly lines and panel lines and things like that, when
we bring those here we use them for the small stuff. We don't
do a lot of small stuff.
For the big stuff, it usually breaks. It is not able to
handle the big stuff.
And so from my view, the challenges there are things that
we can learn from this, and I think that getting at the issue
of what is good enough in the design, I think a robust
commercial design process to balance against the technical
requirements that we put in our warships would be very healthy
for our industry today.
From the manufacturing side of this, you are starting from
a place where people have order books that are, as we talked
about, you know, one order book that I saw was in excess of 300
ships on order, and they were all exactly the same.
So the question is, how do I go and capitalize myself to
not get to the point where my price point is--I mean, how do I
get 300 ships on my order book so I can compete on the 301st
ship?
That has gotten away from us. And I don't know that I have
a really good answer for how I make up 300 ships of learning in
one fell swoop.
I will hand it to my partner here, I do think that what
NASSCO did with the partners, with Daewoo, and what Fred Harris
and his team did there stands out as one of the most
significant things that American shipbuilding has done in the
last 20 years. It is a testament to the builders at NASSCO that
they were able to make that work.
And I think what we can all learn in the industry is the
things that they learned. Completeness of design. Discipline in
the process. Making sure that you don't have a plethora of
crafts practices to go work through.
And I think those are all things that we can work with.
Mr. Hunter. Mr. Heebner, I think you have, like, 30
seconds.
Mr. Petters. Yes, I am sorry for that.
Mr. Heebner. The first and foremost issue is--remember the
beginning of the discussion: volume, stability, predictability.
Those are all significant factors for shipyards. And to the
degree that we can support each of these notions, we can have a
dramatic effect on shipbuilding.
As I mentioned before, though, remember that the labor
rates in the United States shipbuilding business are less than
they are in those developed countries. That is an important
point to recognize initially.
You do get significant hours advantages on long production
runs. And so we are seeing that benefit.
But I would suggest that Chairman Taylor and the delegation
he will lead to South Korea next month will have an opportunity
to see and discuss with some of the Koreans their military
shipbuilding as well.
And you might find, in that discussion, that their learning
curve--it looks a lot like our learning curve for military
ships. And again, it is because of the complexity of those
ships and the time it takes to complete the military ship.
Mr. Hunter. Thank you, gentlemen. Thank you, Mr. Chairman.
Mr. Taylor. The chair thanks the gentleman. The chair now
recognizes the gentleman from Connecticut, Mr. Courtney.
Mr. Courtney. Thank you, Mr. Chairman.
Mr. Heebner, when you were describing the steady progress
in terms of the reduced number of man hours on the Virginia
class, it reminded me, I was at a briefing back home in
Connecticut where, again, that tremendous progress was being
described, and there was a state legislator in the room who
raised her hand and said, ``Don't you think you guys ought to
slow down a little bit, because you are going too fast and
because people are worried that you are getting too good at it
and you are going to have--you know, we are going to be the
victim of our own success, which obviously is not in the genes,
now, of the workforce.''
I mean, they really have got the culture of class
containment now, just in every aspect.
Back in January, when the stimulus bill was being
discussed, there was a lot of talk, certainly amongst some
circles, about FDR in the 1930s, when they came out with the
National Industrial Recovery Act, actually focused on
shipbuilding as a way of trying to revive the economy at that
time.
It was one of the areas that got resources in that measure.
And after it was ruled unconstitutional by the Supreme Court,
the Vinson-Trammel Act was enacted, which, again, was not tied
to NIRA [the National Industrial Recovery Act] and was focused,
again, on industrial strategy that was based on spending more
in shipbuilding.
We have a situation right now where the fleet is 283. We
have a target of 313. God knows when we are going to get to
that, based on the sort of patterns that we are looking at
right now.
But I was just curious. If there was a change of heart in
the administration and that there really was a willingness to
try and accelerate toward that goal and do it, frankly, as not
just a national security strategy, but also as an industrial
policy, would the yards be capable of absorbing or handling a
more aggressive schedule to get to 313?
And I am not talking about one type of vessel versus
another, but it is probably an easy question to ask you, but,
obviously that was something that people were talking about
back in January as part of a stimulus plan.
Mr. Heebner. Well, that is the best softball I have seen in
a long time. And frankly, absolutely bring it on. The point I
would make is that we have capacity in our yards. Each one of
our yards has the capacity to build more ships and build them,
you know, even more efficiently as we get that volume.
We have been encouraged by the discussion of the
possibility of doing that, but we have to take it in pieces. My
compliments to the committee for supporting Title XI. That is a
start for us in the commercial world, by making funding
available in these difficult times for shipowners and buyers to
have the money to buy funds, you get a 20-times return on that
money. So it is an important thing to do to put up front to
make commercial shipbuilding viable again in the United States.
And I am not stating that simply on behalf of the big six.
It certainly could have some effect on us, but it has an effect
throughout the country on all of our coasts for the little
shipyards that make important things happen in the maritime
business. So our merchant fleets need to have that kind of
access to capital to be able to keep their programs alive and
keep their shipyards going.
From the perspective, though, of being able to build more
ships, our workers have always been skilled. Our workers have
always built quality ships. But our workers may not have always
understood the business equation, but they get it today. They
understand that they have to build ships affordably to be
competitive. And if we don't show that we can build affordable
ships, then you here in Congress are not going to be inclined
to go to us to build more ships.
We have to demonstrate that efficiency. And one of my
messages here today is that we have had a great run on several
ship programs that demonstrate in each one of our yards that we
know what efficiency is.
We know how to do it. We are building it. We have a great
workforce up there in Groton and up there in Quonset Point
building submarines. And we need to load them up, give them the
opportunity to show what they are capable of doing.
The comment I made earlier that said not--we have a
contract that says 66 months average in the Block-3 Virginia-
class ships. I didn't ask the question. They came to me and
said, ``We are going to build that ship in 60 months.''
Okay, so they have got a program in place in their own
minds that looks for ways from the bottom up to be able to
build that efficiency.
Mr. Taylor. The chair thanks the gentleman.
A couple quick questions. I am curious to what extent do
either of you gentlemen ever approach the Navy and say, ``My
economic order quantity on'' fill in the blank, whether it is
engine shafts, propellers, steel, ``My economic order quantity
is this. Why don't you let me make you a price on a buy of 3 or
5 or 10 in a multiyear?''
And I know we did it for DDG-51, but if I am not mistaken,
it was the Congress and the Navy that said go do this.
We are hoping at some point we will be able to do that on
the LCS program.
But to what extent do you interface with either Secretary
Stackley, Secretary Mabus, his predecessor, Secretary Winter,
and say, ``You know what? I can get you a better price if you
will just let me guarantee that I will have this much work.''
You want to start, General?
Mr. Heebner. Thank you, Mr. Chairman.
First of all, my compliments to Secretary Mabus, who on
almost his first day in office visited us at Bath Iron Works.
And in that he made clear to us that he is committed to making
shipbuilding in the United States a stable, productive
environment, and he is looking through his staff and from us
for ways to do that.
Now, we are in discussions with the Navy today on a number
of different programs that help to do that. The CNO [Chief of
Naval Operations], CNO Roughead, has made it clear that the
cost of building ships is only one component of operating our
naval security forces. Total ownership costs really matter. He
has established five IPTs [Integrated Product Teams]. We have
joined those IPTs to assist from the industry's perspective on
identifying ways to make the total ownership costs more
effective.
We can design that operational efficiency into the ships.
We have to collaborate with the Navy at both the acquisition
level and at the operational level to make sure they understand
that if we trade two knots in a ship's speed, we can gain a
significant advantage in the price of the engines that power
that ship.
And it is important that we keep that dialogue open. And it
is one of the reasons that in my own testimony that I submitted
to you, I make the point on how important this collaboration is
and getting to it early in the process to make sure that we can
continue to find ways to make shipbuilding more efficient.
Mr. Taylor. Mr. Petters.
Mr. Petters. Mr. Chairman, thank you.
I would say, echoing all of my colleague's comments here,
but I would go on to say that we have done it at a couple of
levels. One is at a ship program level, and on virtually every
class of ship that Northrop Grumman is involved in, we have had
robust discussion with the Navy about does a multi-year make
sense, or are there ways to phase it, and we have talked a lot
about how do you take most advantage of the things, the
mechanisms that have been put out there to improve the
efficiency in the buy program of the ship.
But at another level, we have gone even further. We go into
the design and we have, in several cases, we have come back and
pushed back on requirements in the design, and said, here is a
requirement that, you know, we understand that it is a
requirement. We will build to that, but you could actually
relax that particular requirement and it would not affect, in
our opinion, would not affect the overall capability of the
ship and would significantly change the acquisition cost of the
platform.
We did that in a pretty robust way on the CVN-78, where we
had a very, very steady dialogue of here are some things that
we can actually not change the mission functionality of the
ship, but change some of the local requirements inside the ship
that would save some acquisition costs.
We talked earlier about the design for affordability that
was done on the Virginia-class program, which was a very, very
close contact sport, if you will, on what are the things that
are really driving the costs of this ship, and how can we apply
a little bit of design and planning to go and take some costs
out of the ship.
I still fundamentally believe that the things that we have
to do are the things that will attack the problems created by
low-rate production, whether it is capital investment or design
commonality.
Those are ways to attack the problem that we have when we
are buying ships at such low rates.
Mr. Taylor. To that point, Mr. Petters, we have got the
world's largest navy. We are on track again, thanks to some
action that took place in the House today, to get back to that
313-ship fleet that the CNO says we need.
And so I think it is fair, in anyone's mind that, if you
are going to get your numbers back, part of it has got to come
from commercial shipbuilding, to get the volume put through
your yard, as folks out in San Diego are doing.
To what extent are the folks at Northrop looking at some
private-sector opportunities?
And I will give you one example. I happen to have been here
when we passed the Oil Pollution Act in 1990. One of the many
benefits of that was we thought we would see significant action
in the building of double hulls, first for the coast-wide
trade, the Jones Act, but also for--if there was some serious
production at a yard, then the opportunities might be there to
be competitive worldwide.
And one of the things that really struck me, going to
Hyundai, I went over there thinking a bunch of guys, filthy
dirty, being paid low money and making up for it by low wages,
building a ship competitively.
I was awestruck that I saw an extremely well-financed yard,
people walking around in virtually spotless uniforms, being
paid very well, extremely low turnover of their staff, and yet
they are kicking out a 1,000-foot ship every week.
So the question is, if they can do it, what are we as a
nation doing wrong that is not allowing you to do it?
And what suggestions would you have for this committee--
and, again, I don't want to limit this to Northrop Grumman--
what suggestions would you have so we take advantage of some of
those opportunities?
And I realize that the world economy is temporarily down,
but at some point it is going to recover. At some point, I
think 2015 is the target date where every single hull tanker
that calls on the United States of America has to be double-
hulled. So there are opportunities right out there.
What steps, if any, should we be taking to help you and you
and anyone else who wants to participate in this go after that
business?
Mr. Petters. Well, Mr. Chairman, we have talked about this
a few times.
Our excursions into trying to restart the commercial
business in our shipyards, and this is both Virginia and on the
Gulf Coast, in addition to be financially challenging, I think
that the piece that strikes me the most is that in each of
those cases when we stepped back and looked at the cost to
build the ship in our shipyard and the market price on the
international market space, what we found, and this was about
10 years ago when we were going through this, what we found at
that point in time was that the cost of the material in the
ship itself, international material, we were using
international buyers to buy that material, the cost of that
material was higher than the price.
And so there was some discussion earlier today about the--
Secretary Stackley talked about the cancellation of the
subsidies in the early 1980s. I believe that there are a lot of
those hidden subsidies around the world that help those
shipbuilders around the world, that help make it tougher for us
to be competitive with them.
I will grant that the situation has changed in the last 10
years in terms of the value of the dollar and some of those
things, and so I can't say with certainty that that would be
exactly the case today.
But then what I would tell you is that what we have come
through is a period of time where we have been focused on
building--I believe the number was 11 lead ships for the U.S.
Navy. Those have been exceptionally challenging across all of
our shipyards.
And as we have come through that, the focus that we have at
Northrop Grumman is to get ourselves narrowly focused in on
series production of ships.
Now, if there is an opportunity to take what I learn in
series production of the ships that we have, if we have an
opportunity to translate that capability to another
marketplace, then I am in favor of doing that.
An example of where I have done that and where my
corporation has done that is that we have entered into a
partnership to do nuclear power modules for the Areva French
nuclear power company, and we are going to build a factory in
Virginia right next to the shipyard where we will use the skill
base of the shipbuilders to manufacture heavy components, 500-
ton components, because we have to be very careful about what
are we good at. We are really good at high rate--high weight,
high pressures, high voltage kinds of systems. Those are things
that American shipbuilders are really, really good at.
And so where marketplaces are able to take advantage of
those particular skills, I am interested in taking a look at
those marketplaces.
The operational stability that I am in pursuit of on the
Gulf Coast, though, is all about getting to series production
in the programs that I have.
And so the swap arrangement that was talked about earlier
was a way for us to help the Navy with their destroyer program,
but also was a way for us to make sure that we were able to
focus on getting into series production.
Mr. Taylor. General, would you like to comment on that?
Mr. Heebner. I believe the issue that we are addressing
here is what can be done to make us competitive in commercial
ship production for worldwide markets? When I first looked at
the relationship between NASSCO and Daewoo Shipbuilding in
Korea, the question that I had the most difficulty with is:
What is motivating them? Why are they being so forthcoming in
showing us ways to be more efficient in our shipbuilding?
And it became apparent fairly soon thereafter that the
reason is that, A, they don't compete in the Jones Act market;
and B, that they don't produce U.S. warships. But importantly,
C is they don't see us as a threat anytime in the foreseeable
future in the commercial market worldwide. That is just the way
it is.
Now, do I believe that I can solve that problem as a
shipbuilder? The answer is no. I don't think I can solve it. I
can contribute to the solution and I am an optimist. I think
there is a way in the future to do it. In part, it is a
financial equation that Mr. Petters alluded to here, that there
are things that are going to have to be done from the
government perspective.
Mr. Taylor. For example?
Mr. Heebner. Well, look for ways to--perhaps one way is to
subsidize the shipbuilding, or to provide attractive loan
guarantees, or to do something that makes the financing on the
part of U.S. commercial shipowners more attractive. That is not
something that I can help them with.
The second part of it, though, the thing that----
Mr. Taylor. I hate to interrupt, but since you are speaking
specifics, has anyone--has a potential shipowner or a shipowner
approached you and said this is the problem? I mean, let's face
it. Whether you like the president or not, he has been very
aggressive in a number of fields. And a lot of other industries
are saying, hey, we need some help. Why has there been a
reluctance on the part of shipbuilders? And I think that is a
fair question.
Mr. Heebner. First is I don't know that there has been a
reluctance, number one. We have made statements, for instance,
in the economic stimulus, that, in shipbuilding, we believe
that we can, with money available, we can build ships quickly;
we can add that money to the economic equation in this country
fairly quickly, because we have established yards and we have
established workforces.
And if there is a need for ships, we can build them and we
can start immediately.
So we have made that capability known. But the things that
we control, the variables that are our input are becoming more
efficient. We simply have to do that.
It contributes, certainly, to our Navy ships and our Coast
Guard ships, as we make those. And we are motivated to become
more efficient. Our workers are motivated to do that.
But you have to have that part of the equation in place
when the financial equation fits together.
The simple fact is, though, that I cannot build a ship
competitively today--the next ship that I build will not
compete competitively, price-rise, with a ship that is built in
a Daewoo shipyard. I just cannot do that. And it is going to
take some time before we are able to do that.
Mr. Bartlett. Mr. Chairman?
Mr. Taylor. Yes, sir?
Mr. Bartlett. If I might, we have a catch-22 when it comes
to the subsidy thing. You certainly could be more efficient if
you had better equipment, but then you couldn't build--my
understanding is you couldn't build ships competitively on the
world market because you would be sued by WTO because we are
subsidizing you, so we have kind of a catch-22 here that we
have got to get around, do we not?
Mr. Heebner. Well, Chairman Bartlett, I have to defer at
this stage, because it is beyond my knowledge base, at this
point in time. My focus has been on efficient shipbuilding, and
I have not looked at these issues. I know some people have and
there are others who would be more effective in responding to
that.
Mr. Petters. Congressman, I guess what I would--what I
would offer is that I think you are probably right.
I think that you can look to the Boeing-Airbus situation
and the WTO and those--that situation where there are charges
going both ways in terms of what is subsidized and what isn't.
I don't know where the subsidies are in the international
marketplace. Could be in health care. Could be in pension. It
could on any number of things, and it may not be in tooling.
But as I said, our experience has been that they are real
and that it is a big challenge. And the order book that I saw
last fall was for 300 ships. If we started today, you could say
we are 300 ships behind that particular shipyard, but we are
really 10 years of 300 ships behind that shipyard, so trying--
one of the questions that I ask my guys all the time when they
bring ideas to me is, what is it that would distinguish us from
any of the other commodity kinds of producers that are out
there that would give us an opportunity to compete in this
marketplace?
In the commercial shipbuilding business, the kinds of
things that are important to that business is not something
that is terribly distinguishable to American shipbuilding. It
is prevalent everywhere. When you go to Korea you will see
anybody who has half a parking lot, they will be building a
unit in that half of a parking lot to be selling to the
shipbuilder down the road, because it is a commodity kind of
business. And that is not the businesses that we have created
to support the United States Navy.
Mr. Taylor. Mr. Petters, just as a matter of curiosity,
when was the last time the board of Northrop Grumman
contemplated building a commercial ship other than the two
cruise ships with the Alaska trade--I mean, does the subject
ever come up?
Mr. Petters. Well, I am not always at the board meeting, so
I don't know that I could say that it comes up or doesn't come
up. I know that I am not----
Mr. Taylor. When was the last time you were aware of it?
Mr. Petters. I haven't been.
Mr. Taylor. Okay.
Gentlemen, we are a few minutes out from a vote on the food
safety bill, and so unless anyone--if we could get everyone to
agree that if there are any further questions, if you would
submit them for the record.
We do have one last panel, and we would at least like to
give that gentleman an opportunity to say his piece.
We do want to thank both of you gentlemen for being with us
today, and we are--I know that committee is always open to
suggestions as to ways we can help build a better ship for our
Navy for a better price.
We thank you very much for coming. We especially thank you
for the long delays that you had to put up with in order to
give your testimony.
With that, this panel is relieved.
Chair now recognizes Mr. Ronald Ault, the president of the
Metal Trades Department of the AFL-CIO.
Mr. Ault, if you don't mind, because of the lateness of the
hour and the fact that there will be other votes, we are going
to allow you to make your statement.
When the vote is called, we will probably have to call it
for a day, but we will give every member the opportunity to
submit questions to you for the record, and hopefully you will
respond.
The gentleman is recognized.
STATEMENT OF RONALD E. AULT, PRESIDENT, METAL TRADES
DEPARTMENT, AFL-CIO
Mr. Ault. I will defer and ask that my statement be entered
into the record; also, a statement of Brett Olson, who had to
leave to go back to the West Coast.
Mr. Taylor. Without objection.
[The prepared statement of Mr. Olson can be found in the
Appendix on page 114.]
Mr. Ault. I would like to address just a couple of issues
that have come up today, particularly the Jones Act and
commercial shipbuilding. We at one time in the metal trades
department had contracts that had 1.7 million American
shipbuilding workers building the ships that plied the seas. We
were the largest shipbuilding nation on Earth, but we are no
longer.
And, Mr. Bartlett, we also represent the Coast Guard's only
shipyard in Baltimore, Maryland, and we represent the four
naval shipyards, including the shipyard in Portsmouth,
Virginia. And Admiral McCoy spoke earlier today, we represent
all the Naval Sea Systems Command workers at all of those four
shipyards where we do overhaul and conversions of naval ships
and submarines.
One of the things that strikes me is our experience at Aker
Philadelphia Shipyard with our unit there that builds
commercial ships, the product tankers. Those ships are flagged
as Jones Act ships. However, we have sued the Coast Guard for
their interpretation of that because they are mostly South
Korean HMD [Hyundai Mipo Dockyard]-built ships brought over in
320 containers per ship. We build a barge and on that barge,
the bow is built in South Korea and the stern is built in South
Korea and everything inside that ship is built in South Korea.
So we have about 580 workers in our bargaining unit there.
Had we built that ship American, we would have over 4,000
American workers working there. So we would adamantly say that
we are not really supportive of that type of build American
Jones Act ship. However, that experience has been limited
exclusive to Aker and hopefully it won't go anywhere else.
Gentlemen, the best thing that we can do for lowering the
cost is build commercial ships. And I think everybody here
agrees. We also agree and the Metal Trades Department. You can
lower the cost per ship enormously with the ability to build
commercial ships.
One of our problems has been the subsidies. When we lost
the subsidies, we lost the commercial shipbuilding. And I keep
hearing folks complain about the number of suppliers going out
of business, but we put them out of business. We have lost 200
American suppliers in the last 10 years that is gone under
because they cannot make a profit making the few products they
make for the American shipbuilding industry.
So we are in a death spiral. And unless we do something to
revive the American shipbuilding industry, we are dying. And I
can tell you that no major seapower in the world can exist as a
major power without shipbuilding. And our Russian counterparts
know that. Our Chinese counterparts know that. Everybody knows
that and they subsidize their--their shipbuilding. We don't.
Unless we get a national maritime policy that subsidizes or
otherwise supports the American shipbuilding industry, you
know, we are just fooling ourselves. It is not going to happen.
Petters said it, everybody said it up here, if they can't make
a profit they are not interested in doing it. And I understand
how that works.
So we can keep talking a good game, but unless we are
willing to pony up and make it work, it is not going to happen.
We would love to build ships. We know how to build ships.
Our people build ships that nobody else's does. We had the USS
San Francisco at flank speed hit a mountaintop, lost 30 foot of
its bow, and came to the surface because of American
shipbuilders. They built such a ship that nobody else builds.
So we know how to build ships. We know how to build them
right. We build them under cost.
You heard that we don't make the kind of wages they make in
South Korea. We don't make the kind of wages they make in
Japan. But we also don't have the monopoly loss that they have
in South Korea and Japan. We don't have health care that they
have in South Korea and Japan.
Congressman Taylor, we were on a 4-week strike over health
care costs at Northrop Grumman in Pascagoula, Mississippi. If
we could get a national health care product we would cut
approximately 40 percent of the cost of doing business in
America. So we could be more competitive.
There are lots of things we have got to do, but it is going
to take a national policy. And the shipbuilders can't do it
alone, and neither can the shipbuilding labor. It is going to
require a national consensus to do these kinds of things, and
it is a very difficult thing to do. And nobody is saying it is
easy.
But the other thing is, is that Admiral McCoy and the Metal
Trades Department has a wonderful cooperative relationship in
our apprenticeship programs.
And by the way, apprenticeships are a trade union product,
and I am glad to see that the commercial interests have taken
off with our apprenticeship programs. But in everyone you heard
today, those are joint labor-management apprenticeship programs
that we designed and we helped build. So we know how to train
folks, too.
So with that, I will hush and take any kind of question
anybody has got on the panel. So thank you very much for
inviting me today.
[The prepared statement of Mr. Ault can be found in the
Appendix on page 105.]
Mr. Taylor. Mr. Ranking Member, do you have a question?
Mr. Akin. I appreciate your comments, and understand the
tensions.
And you are right about it. This is one of those national
priorities.
If you are going to do it, you are going to have to get
into it in a whole--it is going to affect all kinds of policies
everywhere, and I don't think it is a simple kind of thing. So
I agree with you entirely. But I don't have any questions, but
I think you are right.
Thank you.
Mr. Taylor. Mr. Nye of Virginia.
Mr. Nye. Thank you, Mr. Ault, for your comments. I just
wanted to ask if you wouldn't mind elaborating a little bit on
the apprenticeship program. And I ask the two gentlemen from
the shipbuilding management to talk a little bit about it, and
I would like to have--give you at least a minute or two to
expand a little bit on your role and talk about what you think
the challenges are from your perspective, and do you think it
is working well, or where we need to be, or what we need to be
doing better.
Mr. Ault. I am an apprentice graduate from the Norfolk
Naval Shipyard in Portsmouth, Virginia. I wouldn't be here
today if it wasn't for the apprentice program. I owe everything
I am to being an apprentice. So I take it very seriously.
Brett Olson from Puget Sound works at the--at the IBEW
[International Brotherhood of Electrical Workers] at Puget
Sound--brought a very wonderful new program that is taken off
like wildfire with the IBEW for returning veterans, where they
are bringing the veterans in and they are working them into an
apprentice utilization program, and I would ask that his
remarks also be entered into the record.
Mr. Taylor. Without objection.
Mr. Ault. No, we are nowhere near where we need to be in
the apprenticeship program. The problem we have got is catch-
22. We have more people my age still employed. I am 63 years
old. We have people still at my age employed in the
shipbuilding industry that are not retired and allowing new
people to come in.
And we lost an entire generation in the 1970s where we
had--the young people didn't come in and the shipyards stayed
where they were. We have mostly mechanics and we don't have the
apprentices to put with the mechanics. The 30-year veterans are
mostly in the shipyards today. They are in their 50s, late 40s,
early 50s, and we are getting ready to see a tidal wave of
retirements, and we don't have the people to replace them in
the pipeline.
The problem we have, Congressman Nye, is that we don't have
the orders and we don't have the work to support the number of
apprentices that we need to bring on. So it is another catch-
22. We are going to see a massive number of retirees in the
next 10 years in the shipbuilding industry, and we do not have
the people in line to replace them.
Mr. Taylor. Mr. Wittman.
Mr. Wittman. Thank you, Mr. Chairman.
Mr. Ault, I think you bring up some good points. I am
curious, and we talked today with a number of folks in the
industry about where do you think we need to be as far as the
magnitude of shipbuilding? In other words, how many commercial
ships do you think we ought to be building to get to the point
where we have maximum capability for both building naval ships
and commercial ships?
And I think we are missing out on some opportunities. We
see what is going on in South Korea. It would be nice if we
could capture some of that business.
What do you think the magnitude of that business could be
if we utilized the capacity that we have existing, right now,
in the people that you talk about that we could bring in, could
train, and could put to work?
Mr. Ault. Thank you very much for that question. We are
missing opportunities in replacing the Jones Act fleet. The
Jones Act fleet will give us about 50 hulls, just to replace
what is out there with the Jones Act fleet.
One of the problems we are having is with the DOD
[Department of Defense]. The DOD is not buying Jones Act ships
or American-built ships under Title 10. They are leasing
foreign ships. So we are missing opportunities to do
commercial-type work there.
We are also missing a lot of commercial work on the double-
hull product tankers. We could--if we could get just the ones
in the Jones Act to begin the American shipbuilding in the
commercial vein, I believe that we could start the program back
up and start training the next generation of American
shipbuilders.
We have the facilities. You heard Mr. Petters talk, a
little bit, about the--building the Areva reactors. There is
nothing that cannot be built in an American shipyard. We are
the arsenal of defense.
Whether it is bridges or whatever, we could build it--
anything heavy. One of the things that I spoke about earlier
this year, at the right-sizing reactor technology at MIT
[Massachusetts Institute of Technology], was using the modular
construction techniques at Electric Boat to build modular
nuclear reactors for the power industry.
And there is a lot of discussion right now in the green
power industry, of using the smaller nuclear reactors and build
them in our commercial shipyards.
That would be another way of bringing people in and
training them, because those skills are readily transferable to
shipbuilding. So there are lots of opportunities. We just have
to have the jobs to place the people in to get the training to
start.
Mr. Wittman. So what you are saying is we need to make sure
that the Jones Act is in force for those ships that are aging
out of the Jones Act fleet?
Mr. Ault. Absolutely.
Mr. Wittman. Okay.
Mr. Chairman, one additional question, and that is, it
appears as though more and more components that go into the
commercial ships--just as you point out, I think it is a great,
great point, where you talk about the containers coming in from
components built elsewhere, and then the ship is constructed
here.
Of the few domestic ships that are produced here, you tell
me what portion of those are manufactured from foreign
components, and what do you think we need to do to make sure
that the component element of those ships--or that we encourage
or--let's see--incentivize those components to be built here so
that we can broaden the base of domestic shipbuilding?
Mr. Ault. Well, all of the low-speed diesel engines are
imported. We don't have any in the United States at all. So all
of the engines are imported from either Spain or other--South
Korea or Japan or, now, China. China is going to be the next
world shipbuilder. Nobody else is going to be close.
If you are going to South Korea, I would go to China.
Because they are going to be the world's shipbuilders.
But to make the point is most of those components are now
foreign-sourced, almost all. We have very few. One of the
things to bring them back is to have customers. The BWXT and a
lot of the other manufacturers have approached me and pretty
much told us that, if we had the customer, if we had the
orders, we would open those factories.
Most of those factories are still in the United States and
could be reopened with just the promise of a definite quantity
order. And we see that across the board, in all the
shipbuilding, whether it is Navy shipbuilding or other.
Every year we lose more and more ship component
manufacturers, even in the Navy realm. And one of the things
those ship component manufacturers are asking us to give them
is a definite quantity order.
If they could get three pumps ordered instead of a bit on
one pump and maybe you will get two more, you would get a
substantial savings on those three pumps over the fact that
they may get three. A bird in the hand is worth two in the
bush.
Mr. Wittman. Thank you, Mr. Chairman.
Mr. Taylor. Thank you. There is a vote on the floor. There
are approximately 12 minutes remaining on that vote, and most
of us have not had an opportunity to see the motion of recommit
that we are going to be voting on.
So if someone has a question that they definitely want to
ask, we will make that available.
Mr. Bartlett. Mr. Chairman, if I could make one comment.
When we toured those shipyards--you went to all of them with
me--we specifically asked them if they were subsidized. They
all denied it.
Now, they either are or they aren't. And who do we go to to
find out who is telling the truth here?
Mr. Ault. One thing for sure, when we can't buy the
components for what they are selling the ship for and buy the
components from them for what they are selling the ship for, we
can't buy the steel to build a ship that they are building in
China for the price the Chinese are charging for the ship.
Mr. Bartlett. But if they were subsidized, Mr. Chairman, I
think there would be WTO suits, and I don't see any WTO suits,
so I am skeptical that they are--or else they are doing it in
such a clever way that nobody can find it out.
And if that is true, then we ought to send some spies over
there to find out how they do it so we can do it.
Mr. Taylor. Okay. I appreciate the gentleman's
observations, and he knows that I am in total agreement.
Mr. Courtney.
Mr. Courtney. Well, one place we do know that there is a
competitive disadvantage--and you mentioned it, Mr. Ault--is in
the area of health care costs.
Mr. Ault. Absolutely.
Mr. Courtney. And, I mean, you know, that is not a WTO
violation for a country to have a national health plan that
doesn't put the burden on employers to pay for it and that
obviously, not just in shipbuilding, but a whole array of
manufacturing has really hurt this country.
We are obviously in the middle of health care mania, right
now, but I think your words are something that people really
should think about when we talk about trying to revive
manufacturing in this country.
And quickly, I mean, loan guarantees, though, is that--I
mean, there was a mention, maybe, that that becomes a WTO
violation, but that is--it would seem like that is a pretty
safe area for public policy.
Mr. Ault. Well, under Title XI, it is the loan guarantees
under Title XI are for domestic shipbuilding. So I don't know
about export in the worldwide commercial market.
So I am not one of those persons that would be qualified to
really speak on that.
Mr. Taylor. Again, we want to thank all of our witnesses.
We, again, apologize for the delays. All of your time is
valuable. We have had a series of votes on the floor today,
some of which we did not anticipate.
All members will have five working days, since we are
wrapping up tomorrow, five working days to submit questions for
the record. And again, we want to thank all of our witnesses.
Mr. Ault. Thank you.
Mr. Taylor. The panel is adjourned.
[Whereupon, at 5:33 p.m., the subcommittee was adjourned.]
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A P P E N D I X
July 30, 2009
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
July 30, 2009
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