[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 112-152]
NAVY SHIPBUILDING AND IMPACTS
ON THE DEFENSE INDUSTRIAL BASE
IN A TIME OF FISCAL UNCERTAINTY
__________
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
HEARING HELD
SEPTEMBER 11, 2012
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SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
ROB WITTMAN, Virginia, Chairman
K. MICHAEL CONAWAY, Texas JIM COOPER, Tennessee
MO BROOKS, Alabama ROBERT ANDREWS, New Jersey
TODD YOUNG, Indiana MARK S. CRITZ, Pennsylvania
TOM ROONEY, Florida COLLEEN HANABUSA, Hawaii
MIKE COFFMAN, Colorado
Michele Pearce, Professional Staff Member
Paul Lewis, Professional Staff Member
Arthur Milikh, Staff Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2012
Page
Hearing:
Tuesday, September 11, 2012, Navy Shipbuilding and Impacts on the
Defense Industrial Base in a Time of Fiscal Uncertainty........ 1
Appendix:
Tuesday, September 11, 2012...................................... 23
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TUESDAY, SEPTEMBER 11, 2012
NAVY SHIPBUILDING AND IMPACTS ON THE DEFENSE INDUSTRIAL BASE IN A TIME
OF FISCAL UNCERTAINTY
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Wittman, Hon. Rob, a Representative from Virginia, Chairman,
Subcommittee on Oversight and Investigations................... 1
WITNESSES
Stackley, Hon. Sean J., Assistant Secretary of the Navy,
Research, Development and Acquisition, and RADM Thomas J.
Eccles, USN, Chief Engineer and Deputy Commander for Naval
Systems Engineering, Naval Sea Systems Command, U.S. Navy...... 4
APPENDIX
Prepared Statements:
Stackley, Hon. Sean J., Assistant Secretary of the Navy,
Research, Development and Acquisition, joint with RADM
Thomas J. Eccles, USN, Chief Engineer and Deputy Commander
for Naval Systems Engineering, Naval Sea Systems Command,
U.S. Navy.................................................. 30
Wittman, Hon. Rob............................................ 27
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
Mr. Conaway.................................................. 45
Questions Submitted by Members Post Hearing:
Mr. Wittman.................................................. 49
NAVY SHIPBUILDING AND IMPACTS ON THE DEFENSE INDUSTRIAL BASE IN A TIME
OF FISCAL UNCERTAINTY
----------
House of Representatives,
Committee on Armed Services,
Subcommittee on Oversight and Investigations,
Washington, DC, Tuesday, September 11, 2012.
The subcommittee met, pursuant to call, at 2 p.m., in room
2212, Rayburn House Office Building, Hon. Rob Wittman (chairman
of the subcommittee) presiding.
OPENING STATEMENT OF HON. ROB WITTMAN, A REPRESENTATIVE FROM
VIRGINIA, CHAIRMAN, SUBCOMMITTEE ON OVERSIGHT AND
INVESTIGATIONS
Mr. Wittman. I call to order the House Armed Services
Committee's Subcommittee on Oversight and Investigations. We
will begin our deliberations. We do have some votes coming up,
gentlemen, so we are going to try to get under way on time
and----
Mr. Conaway. Is that a nautical term?
Mr. Wittman. We are in the spirit of the hearing.
Before I begin the hearing, I would like to note today's
importance in our Nation's history. Today is the 11th
anniversary of the terrorist attacks of September 11th. For 11
years now, our All-Volunteer Force has been engaged in combat
operations requiring cyclical deployments. Some of our sailors,
soldiers, airmen, and marines have deployed 4, 5, even 6 times;
some have even been called upon to serve on 12 or 13 combat
deployments.
We owe a debt of gratitude, thanks, and unwavering support
to the men and women of our Armed Forces and their families, a
debt that can never be repaid. These men and women and their
families epitomize the United States of America, and their
courage, bravery and commitment, work ethic, pride and
professionalism, which are characteristics that continue to
make this Nation great, are exhibited every day in what they do
for our Nation.
You need look no further than some of the names of the
newest ships in our fleet to understand the honor that is paid
to the men and women that made the ultimate sacrifice for this
country over the past 11 years, names such as the USS Jason
Dunham, DDG 109; and USS Michael Murphy, DDG 112; and USS
Rafael Peralta, DDG 115. These ships will serve this Nation for
the next 30 to 40 years, and the service, sacrifice, and legacy
of these men will never be forgotten.
Our thoughts and prayers are with all of the families who
lost loved ones on September 11, 2011, our All-Volunteer Force
and their families. Never has so much been sacrificed by so few
for so many for so long.
With that as our backdrop, I can think of no better topic
to discuss than the 30-year shipbuilding plan and concerns I
have had regarding our defense industrial base. Over the last
year this subcommittee has held two hearings, conducted
numerous briefings, and facilitated many engagements with the
Department of the Navy and industry and traveled to shipyards
across the country to learn firsthand about how effective DOD's
30-year plan is and how it impacts our national defense
industrial base. We learned that the annual plan is critical to
establishing priorities and identifying challenges that need to
be addressed in both the short and long term. We also learned
that historically the plans have played an integral role in
leading to programmatic improvements and cost savings over
time.
I would like to take this time to thank all of these yards
for their hospitality and professionalism as they shared with
us their enthusiasm for their trade and their commitment to
building the best Navy in the world.
This hearing is focused on the 30-year plan's impact on our
shipyards and closes out what I believe has been a valuable
effort in identifying challenges and concerns so that we in
Congress can make decisions based on fact rather than
speculation. Critical to this effort were oversight visits to
Electric Boat in Groton, Connecticut; Bath Iron Works in Bath,
Maine; NASSCO [General Dynamics National Steel and Shipbuilding
Company] in San Diego, California; Huntington Ingalls
Industries in Pascagoula, Mississippi; Austal in Mobile,
Alabama; and Huntington Ingalls Industries in Newport News,
Virginia. Those yards build our Navy ships and submarines and
do an absolutely fantastic job at their trade.
In my view, nothing takes the place of ``on the ground''
observations and the opportunity to speak frankly with the
people responsible for the day-to-day operations, particularly
in an industry as unique and critical to our Nation as
shipbuilding.
As we all know, warship planning, design and construction
is one of the most complex industrial endeavors a nation faces
when determining national and maritime strategy. Whether we are
building submarines, amphibious ships, destroyers, logistics
ships, or aircraft carriers, we can't get the job done without
an industrial base that has the talent and intellect to solve
unique design and engineering problems. Shipbuilding is an art
form and a perishable skill. It is done by the most highly
trained and experienced corps of engineers and tradesmen in the
world. It is supported through business and industry spanning
50 States and designed and engineered by our greatest asset:
the American people.
After conducting our oversight visits, it was clear to me
that while American ingenuity, creativity and initiative are
alive and well in our shipyards, it is also clear to me that
challenges still exist. In a constrained fiscal environment
facing the dire impacts of sequestration, many in industry are
considering forced layoffs, contract renegotiations,
disruptions to production, and poor future vendor supply
prospects.
This afternoon the subcommittee will focus on maintaining a
robust and sustainable industrial base capable of executing the
Navy's shipbuilding plan and our national strategic objectives,
particularly as the we pivot to Asia. As articulated in the
final report of the QDR Independent Panel: ``A robust U.S.
force structure, one that is largely rooted in maritime
strategy . . . will be essential.'' I look forward to hearing
your perspectives on the challenges we face, including planning
for surge capacity and recapitalization of the fleet.
The focus of this hearing is not to dive into specific
programs and the nuances and challenges of certain platforms;
this is the duty and responsibility of another subcommittee.
The goal here today is to focus on the macro level of
shipbuilding and discuss the impact on the defense industrial
base in a time of fiscal uncertainty.
The one lesson we have learned during our visits to all the
shipyards is the delicate execution and attention to detail
that must be displayed while progressing through the planning
process. A balance must be achieved in order to attain a
sustainable workload, workforce, all while producing a capable
and effective platform. The industrial capacity at these yards
and the supply chains that support them are unique. It is
imperative that as we move forward and shift to an Asia-
Pacific-centric strategy, that we effectively balance the
planning process with the industrial base capacity that is
needed to achieve maritime and national security success in the
21st century.
Secretary Stackley, Rear Admiral Eccles, thank you for
being here today. Thank you for your continued distinguished
service to our Nation. Each of you, along with Vice Admiral
Blake, who has appeared before this committee in the past,
understands ships, and you know this business. We appreciate
your expertise and insight on this very important matter. The
bottom line is this: Ships are different from many perspectives
particularly in acquisition and procurement. As you gentlemen
note, ``Shipbuilding programs do not have the opportunity to
build full-scale prototypes.'' The United States Navy is the
only service that will commission a prototype and then take it
to war.
I look forward to your testimony, and I hope that we can
have a thoughtful and meaningful dialogue on these important
issues.
[The prepared statement of Mr. Wittman can be found in the
Appendix on page 27.]
Mr. Wittman. As a matter of business, before we get
started, I have a quick administrative matter to address. I
anticipate that there will be members of other subcommittees
that will join us, and I would like to ask for unanimous
consent that they be allowed to participate.
Absent objection, it is so ordered. I will recognize these
Members at the appropriate times for 5 minutes after all
Oversight and Investigations Subcommittee members have had an
opportunity to question the witnesses.
And with that, gentlemen, I will turn to you for your
opening statements, and, Secretary Stackley, we will start with
you.
STATEMENT OF HON. SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE
NAVY, RESEARCH, DEVELOPMENT AND ACQUISITION; AND RADM THOMAS J.
ECCLES, USN, CHIEF ENGINEER AND DEPUTY COMMANDER FOR NAVAL
SYSTEMS ENGINEERING, NAVAL SEA SYSTEMS COMMAND, U.S. NAVY
Secretary Stackley. Chairman, Representative Conaway, thank
you for the opportunity to appear before you today to address
the Department of the Navy shipbuilding and the defense
industrial base. With permission of the subcommittee, I propose
to provide a brief joint oral statement and submit a separate
formal statement for the record.
Today's Navy is a battle force of 286 ships, nearly half of
which are deployed or under way on any given day supporting
operations in Afghanistan; providing maritime security along
the world's vital sea lanes of communication; missile defense
in the Mediterranean and Sea of Japan; intelligence,
surveillance, and reconnaissance where needed as needed. They
are conducting antipiracy patrols, global partnership stations,
humanitarian assistance operations, providing global presence
at sea and with embarked Marine Expeditionary Forces ready to
move ashore.
They are training to ensure constant readiness in
preparation for the next deployment, next operation, and all
the while they are quietly, reliably on patrol providing
strategic deterrence.
The Navy's long-range shipbuilding plan, submitted annually
with the budget, outlines the requirements for building and
sustaining the balanced force of nuclear aircraft carriers and
submarines, surface combatants, amphibious assault ships,
auxiliary and support ships that provide our sailors and
marines the capability and the capacity needed to sustain these
operations and maintain our maritime superiority in support of
our Nation's defense strategy.
This objective is cast alongside the fiscal realities that
come with the Budget Control Act of 2011, and so when shaping
our shipbuilding plan to reflect the priorities of the
Department's strategic guidance, there is an overarching
requirement that we remain relentlessly focused on improving
affordability in our shipbuilding programs. Further, as this
committee is well aware, the strength of our shipbuilding plan
is closely coupled with the strength of our shipbuilding
industrial base.
Naval warship design and construction is arguably the
nation's most complex heavy industry. The range of capabilities
that characterize today's fleet require an industrial base with
extraordinarily diverse manufacturing capabilities underpinned
by a skilled workforce and a unique design and engineering
capability. Accordingly, in the course of balancing resources
and requirements in the formulation of the shipbuilding plan,
the effect of program decisions on the industrial base must be
carefully weighed.
This industrial base comprises nominally a dozen new
construction shipyards building our battleforce ships, and a
greater number of private and public repair shipyards
maintaining and modernizing the fleet, in total employing about
120,000 skilled workers at shipyards in our East, West and Gulf
Coasts and the Great Lakes.
To this number we must also add the skilled labor
responsible for developing and manufacturing the radar, command
and control communications and weapons systems that give each
of our ships the warfighting edge that comes with our technical
superiority.
And finally, we must add the skilled labor that stretches
virtually across the country responsible for manufacturing the
full range of critical warship components and equipments, from
heavy forgings and castings to reactor compartments and
propulsion engines, right down to shock-qualified circuit
breakers and specialty hardened steel.
Compounding the technical and manufacturing challenges
inherent to shipbuilding, ships are procured at very low annual
production rates. Their construction requires significant
capital investment and infrastructure. Competitive
opportunities are limited, and depending on ship type,
production of a single ship may require from 5 to as long as 10
years to complete, with ship unit costs measured in the
billions. And skilled trade workers take over 5 years to train
and to develop, so, if lost, they are not easily replaced.
Meanwhile, developmental risks that other major programs
are able to retire through build and test of a prototype unit
must be retired through the production of the lead ship of each
new ship class.
The Navy's shipbuilding plan must account for these unique
characteristics when considering the effect of the plan on the
industrial base. To this end, the Navy assesses the industrial
base sector by sector and tier by tier, monitoring the health
of the shipbuilders and major suppliers. In doing so, the Navy
examines not only production labor employment, but also
engineering capabilities, facility capabilities and efficiency,
overall skill and experience of the workforce, and, as
warranted, financial strength.
The objective is to arrive at a plan which provides
stability for the industrial base on meeting the Navy's
prioritized shipbuilding requirements. Stability translates
into retention of skilled labor, improved material purchasing
and workforce planning, strong learning curve performance, and
the ability for industry to invest in facility improvements,
all resulting in more efficient ship construction and a more
affordable shipbuilding program.
Through measures such as multiyear procurement of the DDG
51 [Arleigh Burke class guided missile destroyer] and Virginia
class ships, the DDG 1000 [Zumwalt class guided missile
destroyer] swap/DGG 51 Restart Agreement, the Littoral Combat
Ship dual block buy, the Mobile Landing Platform modification
for the Afloat Forward Staging Base, the ongoing effort to
develop an optimal build plan for aircraft carrier
construction, incentives for capital investment in shipbuilding
facilities, and investments in industrywide manufacturing
process improvements through the National Shipbuilding Research
Program, the Navy has worked with the shipbuilding industry to
try to maintain stability in procurement, balance workloads,
improve affordability, and induce more efficient utilization of
industrial base capacity.
In summary, the U.S. shipbuilding industrial base is a
strategic national asset, providing our Navy and Marine Corps
the highly capable warships required by the nation's defense
strategy. Accordingly, in the course of balancing resources and
requirements in the formulation of the shipbuilding plan, the
Department carefully weighs the effects of program decisions on
the industrial base to ensure our nation maintains the skills,
capabilities, and capacities critical to meeting the needs of
our national security now and for the future.
Thank you, sir.
[The prepared statement of Secretary Stackley and Admiral
Eccles can be found in the Appendix on page 30.]
Mr. Wittman. Thank you, Secretary Stackley. We have votes,
so we are going to recess until the votes are finished, and
then we will reconvene when we arrive back from votes, so thank
you so much for your patience. We will ask that you endure with
us while we walk across the street and vote, and we will be
back shortly. Thank you.
Secretary Stackley. Sure. Thank you.
[Recess.]
Mr. Wittman. We will reconvene the House Armed Services
Committee Subcommittee on Oversight and Investigations.
Admiral Eccles.
Admiral Eccles. Sir, Mr. Stackley's statement is our joint
statement, and we appreciate your interest in the matter, and
we look forward to your questions.
Mr. Wittman. Gentlemen, thank you, and thanks again for
your patience and understanding as we navigate today's
technologies.
I will begin with questions, and then we will move to the
Members. Secretary Stackley, I will start with you. If you look
at where we are today with needs within our naval fleet,
looking at the need for a surge construction capacity, looking
at from time to time national disasters that create demand for
our ships, looking at the strategic pivot to the Pacific, the
question is, is do you believe that we have the proper
strategic laydown for our new-construction shipyards in that
realm of capacity? And are you satisfied that that capacity is
sufficient on both coasts? And if you were to have a 30-year
shipyard plan, would that plan properly reflect the nation's
needs, the strategic laydown needs, not only today, but how
would you propose that it would meet those potentially in the
future, and how do those needs for the strategic laydown change
if you were to put together a 30-year shipyard plan?
Secretary Stackley. Yes, sir. Let me first draw on the 30-
year shipbuilding report, I will call it the reference
document. The effort that goes into building that plan before
it comes over as a report to Congress involves Navy, Marine
Corps, OSD [Office of the Secretary of Defense], starting with
top-tier documents regarding the defense strategy, and this
year in particular regarding the defense strategy that was
released coincident with the 2013 budget coming to the Hill,
considering the rebalance towards the Pacific.
We start by identifying not just numbers, but the force
mix, the capability by platform required to meet that defense
strategy. Then we have to overlay upon that some realization of
fiscal constraints. And near term, those definitely drive the
decisions inside the FYDP [Future Years Defense Program]. The
top line ends up becoming a very important consideration and
constraint as we build the program plan. Longer-term
uncertainty starts to take over in that regard.
So when we talk about the strategic laydown, and the
capacity, and working the two coasts, that dialogue all takes
place within I will call it fiscal realities. So we have the
overarching guidance of the strategic defense guidance, and we
have the overarching constraint associated with budget reality,
and across the two we arrive at a balanced force that we can
not just build, but we have to be able to sustain it, what the
CNO [Chief of Naval Operations] refers to as wholeness. It is
not just about platforms, it is about capabilities and about
wholeness in the fleet in service.
So we balance what we can afford to build with what we can
afford to sustain, maintain and operate across a mix of ships,
looking at the mix of missions, because we have to size
ourselves for the major combat operations that are considered,
but also to deal with the routine operations globally day in,
day out.
So a long, roundabout way to get to your question, I think
it is about balance; when we talk about optimizing, it is about
balancing requirements with resources, looking at the force
structure, looking at the industrial base, looking at the
missions. That brings with it a measure of risk. And so at the
same time, we have to deal with mitigating the risk near-term
and long-term.
In the near term we are working with the Hill on those risk
areas. In the long term we have to take advantage of the time
we have available to address whether it is a cost risk or an
operational risk that we are staring at as a result of the
force structure that we can afford.
Mr. Wittman. Thank you.
Let me ask another question. If you look and take into
consideration how unique shipbuilding is and look at the
current process of procurement, is there efficiency in
directing procurement to specific shipyards? And when you look
at the uniqueness of the classes of ships--and I ask that in
the context, and you mention it in your opening statement, that
there is essentially uniqueness in the procurement process. And
if we go to an open competition for ships, the question is if
you do that, and one of the yards wins, and then the capacity
of the other yard is so low that it can't sustain that
particular yard, and then you have that capacity that
essentially leaves because of that direct competition, does
that help us maintain the necessary capacity growing in the
future?
And we all know now as we look at the capacity across the
board, each of the yards kind of has its lanes that it operates
in. Its capability of operating outside those lanes is
constrained at least in the near term. So I wanted to get your
perspective on the efficiency in directing procurement to
specific shipyards based on their lanes of expertise or the
direct open competition, obviously all driven by, as you
pointed out in your opening statement, driving down costs.
Secretary Stackley. Yes, sir. So let us start with, again,
requirements, the balanced force. We have outlined what we
consider to be a balanced force of about 300 ships inside the
report: 11 carriers, 48 attack boats, 10 to 14 ``boomers''
[ballistic missile submarines] depending on where we are across
the 30 years, about 90 large surface combatants, 55 LCSs
[littoral combat ship], we need a 33-ship amphib [amphibious]
force to ensure 2 MEB [Marine Expeditionary Brigade] lift
capability, and then about 29 support ships. That is the
balanced force.
Now, the way we go about procuring it, if I go directly to
your question, if you go call it class by class, start with
carriers, one builder of aircraft carriers for the Nation, we
are going to build carriers one every 5 years. That is what we
need to sustain an 11-carrier force out through the 2040
timeframe. That is single source. What we need to do is manage
the workload at that shipyard for aircraft carriers.
But there is much more than just new construction that is
taking place at Newport News. We have an RCOH [Refueling and
Complex Overhaul] about every 3 years, and they are also
involved in submarine construction. And now we start the
decommissioning of nuclear carriers. So the total workforce at
Newport News is more than just carrier new construction. So as
we look at their challenges, their workload, their skill sets,
we have to look across all that they have got under
construction and in overhaul.
Submarines. When we get to submarines, we want dual
sourcing for the nation, and this decision was made back in the
beginning of the Virginia program, and so we, in fact, do have
dual sourcing. It is not competitive, it is through a teaming
agreement with the two shipyards. At the time the teaming
agreement was struck, we were literally building less than one
submarine per year, frankly an inadequate rate of production to
support that size industrial base efficiently, but the Nation
was willing to pay that premium to keep two shipyards with that
capability.
Now we have been able to ramp up to two boats per year, a
more efficient rate of construction, across the two shipyards.
And, in fact, when you consider their workload, submarine
construction is very robust right now, particularly as we
approach the added program associated with replacing the Ohio
class within the next decade.
Moving on to surface combatants, dual-sourcing surface
combatants, so Bath Iron Works and Ingalls. This decision,
again, was made back a couple of decades ago that we are going
to keep two shipyards building surface combatants. And each
opportunity that we have to revisit that, we conclude that it
is in the Nation's best interest to keep two builders building
surface combatants, and then it is incumbent upon the Navy
working with industry to ensure there is adequate workload to
support efficiency, but also that we are no longer building
three to five destroyers per year. So the shipyards are going
to have make some adjustments in terms of their capacity, their
level of efficiency given the near- and longer-term projections
for surface combatant construction.
It gets more difficult when you start looking at amphibs
and auxiliaries, and this is where I will tell you my concern
today is greatest. On the amphibious shipbuilding side, we have
signed a contract for the final of the LPD 17 class [Landing
Platform Dock]. We have the LSD class [Landing Ship, Dock] is
in operation and in service, and they are not due for
replacement until the mid-2020s, and the big-deck amphibs are
at a build rate of about one every 4 to 5 years.
What that creates is we do not have the steady-state,
steady-flow workload that we like to put through what is today
a single amphibious shipbuilder, Ingalls, and looking at
Ingalls and Avondale as a single operation. And so there are
some challenges in the longer term, the back end of this
decade, when it comes to amphibious ships. It receives a lot of
attention inside the Department of the Navy as well as with the
Navy and industry on how do we posture ourselves for that
period after the completion of the LHA 7 [USS Tripoli large-
deck amphibious assault ship], which is now under contract, and
the completion of the LPD 17 class in the next few years.
And similarly on the auxiliary side, we have one
shipbuilder today that is building auxiliary ships, NASSCO.
NASSCO is currently completing a very successful production run
of the T-AKE program [Tanker--Dry Cargo and Ammunition], and
they are off to a great start on the Mobile Landing Platform
class of ships, which is literally we have three MLPs [mobile
landing platform] authorized and appropriated. We are going
forward with a request for a fourth. But that is the full
extent of that ship class, and it is a few years beyond MLP
before there is another auxiliary program.
So the type of challenge that we have got inside of the
Department of the Navy is wrestling with that potential gap to
our industrial base, other challenges within the shipbuilding
top line, and then the opportunities to be able to pull work to
the left to build that bridge for those critical shipbuilders.
Mr. Wittman. Very good. Thank you, Secretary Stackley.
Ms. Hanabusa.
Ms. Hanabusa. Thank you, Mr. Chair.
Along the line that you were saying, I visited NASSCO, and
I got their nice little graph about their concerns about the
dips and where the military is not building. I think this is
what you are talking about with the auxiliary base.
And in that situation, what they were hoping for was to be
sort of replaced with commercial--the commercial building so
that we would have a constant, and we would not lose really
the, for lack of a better description, the talent pool that we
would normally lose if we go beyond a certain point. So this
then brought in, of course, the discussions on the Jones Act,
which, of course, affects our cargo ships and the commercial
base.
So given the fact that the military has a strong sense
about maintaining, for example, and keeping MLPs, and keeping
everything going, keeping our first-tier shipbuilders healthy,
which is what your statement says, that they are going to be
healthy, but then we come to the second-tier level, the
auxiliaries and the amphibious, we have these potential gaps.
So do you feel that the Government itself should take a
position to strongly encourage and again maintain the Jones Act
capabilities requirements so that we would be able to see the
constant or hopefully have the commercial needs then meet those
peaks and valleys that we have?
Secretary Stackley. Yes, ma'am. Let me first, specifically
with regards to NASSCO, very clearly NASSCO needs more than
just Navy auxiliary shipbuilding to remain a viable new-
construction shipyard. And part of their business strategy,
and, frankly, part of our industrial base strategy working with
NASSCO, is that Navy shipbuilding will provide a base, but they
will need commercial shipbuilding over and above the Navy
program.
And so we have with NASSCO what is referred to a
shipbuilding capabilities preservation agreement that takes the
overhead associated with Navy shipbuilding work and provides
NASSCO the ability to bring commercial work in over and above
the Navy work without having to further adjust the overhead
except as outlined in the agreement with the Navy. That gives
them the opportunity to be more competitive for commercial
work.
You raised the question on Jones Act shipbuilding. The Navy
has been and continues to be a strong supporter for Jones Act
shipbuilding. One of the challenges that the Nation is
wrestling with right now is that a lot of the shipping where
the owners would be coming to our shipbuilders through the
Jones Act is being held up because of the economic picture.
Ms. Hanabusa. And that is exactly, I guess, the issue,
because that is where we start to have MARAD [United States
Maritime Administration] and loan guarantees, because for most
of the commercial shipbuilders, they need to be able to access
MARAD and the loan guarantees.
So has there been any consideration given to maintain the
shipbuilding capabilities as to whether some of that
responsibility, whether Congress should consider shifting it
partially or looking at it in terms of the defense strategy as
well? Because clearly to maintain our second-tier shipbuilders
and ship-repair facilities, we need to have that constant flow
and that relationship with the commercial. Has that been given
any consideration? Because I know that the loan guarantees for
the commercial building is an issue.
Secretary Stackley. I can clearly say it has been given
consideration, and that we have looked at some initiatives. But
we are limited in terms of how much the Navy can do beyond SCPA
[Shipbuilding Capabilities Preservation Agreement], beyond
support for Jones Act, and beyond direct Navy contracts, which
we do have a good number of with our second-tier shipbuilders,
but when it comes to the commercial shipping side, we are very
limited as far as how far we can go to bring that forward
particularly as I described in these economic times. Yes,
ma'am.
Ms. Hanabusa. Thank you.
Mr. Chair, I yield back the balance of my time.
Mr. Wittman. Thank you, Ms. Hanabusa.
Mr. Conaway.
Mr. Conaway. Thank you, Mr. Chairman.
Gentlemen, thanks for being here.
Secretary Stackley, you mentioned as you were talking
through your path that in addition to building ships, we also
have to sustain them across their life cycle, and it is all
about resourcing, resource shepherding and management.
Can you give us some sense as to what--between 282 ships in
the fleet now, what level of deferred maintenance each of those
ships is in place that is not--is resource-constrained as
opposed to just timing issues that, you know, we will get to it
when it is appropriate? But how much of our deferred
maintenance is a result of not having the resources to get it
done on a timely basis?
Secretary Stackley. Yes, sir. I am going to share this
response with Admiral Eccles. But I will describe this. For the
past decade effectively, we have been operating with either an
OCO [Overseas Contingency Operations] funding or a wartime
supplemental. So we have been able to leverage those funds to
address much of our maintenance backlog. And so more so than
prior, our maintenance for a surface submarine and aircraft
carrier maintenance has been either fully funded or very well
funded. One of the challenges that we have now as we emerge
from a period of OCOs is ensuring that we sustain that level of
funding.
Mr. Conaway. I don't need to know the exact numbers,
Admiral, but thank you. That is where I wanted to go to.
Admiral, Secretary Mabus and I have had a couple of
spirited conversations about spending extra operation and
maintenance money on theater, on publicity stunts like the
Great Green Fleet, the Rim of the Pacific deal this summer,
where we spent a lot of extra money on bio jet fuel at 16 to 20
bucks a gallon, which is way in excess of what commercial is.
According to reports in the newspaper, DOD is buying 1,500
Chevy Volts, I guess to help a sister agency, General Motors
department, with that issue.
Where we see those kinds of things going on, and I look at
resources, deferred maintenance, the OCO, and the warfights are
not going to be here much longer, and so we will get back to
over a period of time a situation where we were previously
where we did have, in fact, significant backlogs of deferred
maintenance. How do you look at your budgets and decide for the
American taxpayer how it makes more sense to spend money at 20
bucks a gallon for bio jet fuel versus the regular fuel when we
have got resource issues across the entire spectrum including
building and maintaining our ships?
Secretary Stackley. Sir, the answer comes down to investing
in the future. The decision to operate ships and aircraft
during the Rim of the Pacific exercises with biofuels wasn't
because of the business case of that specific exercise. It is
because the Secretary has a vision that we need to become more
energy independent.
Mr. Conaway. With that--I got it--have you looked at the
goal of by 2020 we are going to be a 50/50 blend? How much, do
you have any clue what the increased cost to the taxpayers will
be because of that at that point in time? Biofuels will not be
competitive with standard fuels by that point in time, I don't
believe.
Secretary Stackley. Let me take that question for the
record.
[The information referred to can be found in the Appendix
on page 45.]
Mr. Conaway. We can't not talk about sequestration. And can
you give us some sense of what--and I know Secretary Panetta
said not much is being done with respect to planning, but can
you, both of you, give us your thoughts as to what you think
the disruption will be to all of this grand plan that we have
in place if sequestration does occur and lasts a significant
amount of time? What does it mechanically do to you in the
shipbuilding capacity that we are trying to maintain?
Secretary Stackley. Yes, sir. I am going to draw a
distinction between planning and understanding.
Mr. Conaway. Exactly. I was trying to get you to that
latter point.
Secretary Stackley. We are spending a lot of time trying to
understand what all of the implications are associated with a
sequestration. It was established very mechanical, so we are
using nominally a 10-percent number. When you set aside MILPERS
[Military Personnel] for fiscal year 2013, second of January,
barring action by Congress to preclude it, then there would
be--at a project and activity level, there would be a 10-
percent reduction across the board.
And in the shipbuilding, specifically with regards to
shipbuilding, then we are going to be challenged program by
program to determine how can we execute a program of record.
And so there are three questions that I put forward. First is,
well, what is the 2013 baseline that we are going to sequester
from? So we will not, in fact, have a 2013 authorization and
appropriation act by the second of January per current plans;
we will be under a CR [continuing resolution]. So right there
we start with a CR baseline for a sequestration.
And then the second challenge is, what comes next? So if we
are only dealing with a 10-percent impact to 2013, that is one
set of problems, but if that is compounded each year subsequent
with additional 10-percent reductions, we have to understand
that before we talk about the impacts to 2013.
So inside of shipbuilding, if I take a 10-percent cut, can
I get my ships under contract in 2013? Some definitely; some
definitely, definitely not unless there are other budget
actions that supplement the budget requirement. And that is the
part that is too difficult to plan right now because there are
too many unknowns and uncertainties to be able to make those
decisions.
Mr. Conaway. So what I heard you say was that in 2013, it
could mean we would not start some new ships that we anticipate
doing based on these plans if sequestration stands as it is
currently understood?
Secretary Stackley. Until there is other budget action
either through a reprogramming, or in certain cases we could
defer work into 2014, but then we would have to backfill those
requirements with the 2014 budget, and we would have to be
doing this with Congress so that we are collectively agreeing
that we are not fully funding these ships in 2013, we are going
to pick up the balance of funding in 2014 in that particular
case.
Mr. Conaway. Thank you, Mr. Secretary. I appreciate it.
Mr. Wittman. Thank you, Mr. Conaway.
Now we will go, Mr. Young is one of the committee members,
I think he stepped out momentarily. We do want to get to all
the O&I subcommittee members first, but with that we will now
go to Mr. Courtney.
Mr. Courtney. Thank you, Mr. Chairman, for the invitation
to join you here today and for your leadership on this issue.
Secretary Stackley, I mean, again, your comments just again
show why sequestration should not happen. And as Senator Levin
said earlier today, since 90 percent of the Members in both
Chambers oppose sequestration, we should roll up our sleeves
and avoid it and defuse it from going forward. And again, the
scenario you described is just one of many reasons why that
should happen.
Earlier today the language of the CR was released, and that
is going to, again, fund the government through March to avoid
a shutdown. My office has reviewed the text, and the language
appears to support moving forward with two submarines planned
for in 2013 since the CR from fiscal year 2012 was for two a
year. But I just was wondering if you could comment on your
interpretation of the CR as it pertains to the Virginia class.
Secretary Stackley. Yes, sir, so it will be two pieces of
this. So we have two boats have been requested with the 2013
budget. Those have been supported by all the committees, and so
when we look at how does the CR impact the program, we have to
look at what each of the committees did.
We also have to look at 2012. So when we look at 2012 high
water mark, we impose the CR impact on 2012, we look at what
the four committees did, we think we are in pretty good shape,
the 2013 execution for the Virginia multiyear. So we don't need
further. For example, in the 51 multiyear we don't have
authorization, so we are not hamstrung in that regard.
Mr. Courtney. So I guess so the concern, though, that is
already starting to percolate out there is regarding other
programs such as carriers and cruisers. I just wonder again if
you could give your sort of initial take on the impact of the
language that was released today as far as those programs are
concerned.
Secretary Stackley. Yes, sir. With regard to carriers, that
is, frankly, where our concern is greatest. Today the CVN-71
[Nimitz class supercarrier USS Theodore Roosevelt] is in her
fourth year of her RCOH. She will be entering her fourth year
of her RCOH. She is due to complete in June, and we had
requested funding in 2013 to complete that RCOH; $135 million
was included in the request.
Without that provision in the CR, current estimates are
funding will not take us to completion. We are going to need
subsequent budget action to pick up the balance of the RCOH. So
our concern is that we will disrupt the completion of that
RCOH, which would impact that ship's schedule and ultimately
cause cost increases.
Separately and distinctly, the CVN-72 [Nimitz class
supercarrier USS Abraham Lincoln] will be entering her RCOH.
She is due to enter the shipyard in February of 2013. That is a
new start, and so we will need Congress to basically give us
the new start authority that goes with CVN-72 RCOH as well as
the funding that would not be included with the CR.
So we have one carrier that is in execution, another one
that we need to bring in to start the RCOH. The absence of what
we are referring to as an anomaly in the CR to address these,
it poses havoc for our carrier, not just the RCOH process, but
the workload at Newport News is heel to toe. So if you impact
the CVN-71's completion, you are going to impact the other work
at the shipyard, if you impact the start of CVN-72, you are
going to be impacting operations on the far end of 72 as well.
So there is an operational impact, there is a cost impact,
there is disruption at the shipyard impact, and that is why it
was such a higher priority for the Department to get some
consideration in the CR.
Mr. Courtney. For an anomaly.
Secretary Stackley. Yes, sir.
Mr. Courtney. Right. So assuming it is enacted as written,
that carries us through March, will there be time for a future
Congress to be able to rescue that need for an anomaly of some
form either through another CR or through a real budget?
Secretary Stackley. Two things. We are going to do
everything we can to take the dollars that we have in hand for
the CVN-71 and get as far into the execution as possible, but
we can't do anything for a CVN-72 other than the limited
funding that we have available for advanced planning to prepare
for the RCOH. This exact scenario occurred for the CVN-70
[Nimitz class supercarrier USS Carl Vinson] RCOH in 2005, and
that required standalone legislation by the Congress to allow
us to go ahead and start the CVN-70 RCOH inside of the terms of
a CR.
Mr. Courtney. Thank you, Mr. Chairman. I yield back.
Mr. Wittman. Thank you, Mr. Courtney.
Now we will go to Mr. Young.
Mr. Young. Thank you, Mr. Chairman, and thank you,
gentlemen, for being here today.
Admiral Eccles, I represent a district in south central and
southern Indiana. It is adjacent to Naval Surface Warfare
Center Crane, and I recently visited Crane for a ribbon
cutting. There is, as you know, a new strategic weapon systems
engineering facility that recently opened there. We discussed,
of course, while I was there the excellent support that Crane
provides to the Navy, including engineering support for the
Ohio replacement program.
As we look into increasing program efficiencies in this
particular program, what sort of design improvements and
technologies might be incorporated as we provide 12 additional
SSBNs [Ship, Submersible, Ballistic, Nuclear]?
Admiral Eccles. Sir, thank you for the question. In the
Ohio replacement program, we are in the early stages now of
working through the translation of concept to design. And as we
look at some of the major features that will characterize that
submarine and its affordability for the Navy and the nation,
one example would be reactor core fuel for life, avoiding the
need for refueling in future. Another would be stability in the
strategic weapons system in that the submarine is built around
the same features that today are hosted in Ohio with the latest
Trident missile, a missile system well proved and reliable.
There are many, many details of the design that are still
being worked through, but the maximum ability to leverage
technologies developed for Virginia, including at the component
level, making sure that systems and components within the
Virginia class can be leveraged to the Ohio replacement, will
give us the greatest opportunity to have a common base for
submarine parts, submarine supply support for predictable
maintenance and the like, which I think all feature very well
in creating an environment where not only is the procurement a
predictable outcome, but so, too, is the sustainment through
the life of the class.
Mr. Young. Thank you.
Secretary Stackley, I would like to briefly discuss the
importance of our sea-based deterrent and strategic
capabilities provided for our Nation and our allies. As you
know, the sea-based deterrent and ballistic missile submarines
provide the most reliable and survivable leg of our nuclear
triad. Under this fiscal environment I am sure we recognize the
significant impacts the Ohio replacement program has to the
Navy shipbuilding budget. I know that you and Admiral McCoy are
working toward the cost-effective approaches with the Ohio
replacement program, and perhaps looking to consolidate
strategic systems funding outside of the Navy shipbuilding
budget.
Could you please speak to your cost-effective
recapitalization of our Nation's sea-based strategic deterrent
and the joint cost-sharing approaches of our strategic weapons
systems?
Secretary Stackley. Yes, sir. There are two aspects to
that. First is the actual design and development phase for the
Ohio replacement program, which we are in today, so there is a
very concerted effort across the Navy comprising naval
reactors, the strategic systems program, and the PEO [Program
Executive Office] submarines program to attack, frankly, the
design and development costs for the program during this
period. But they have to do that in concert with the United
Kingdom, because while we are recapitalizing the Ohio program's
capability and the Ohio replacement program, at the same time
the United Kingdom is recapitalizing their strategic deterrent
vanguard with the successor program.
So there is a close collaborative effort between the U.S.
and the U.K. through the development of a significant portion
of our respective boats referred to as the common missile
compartment. So we actually have a joint U.S.-U.K. development
of a common missile compartment that is predominantly our
strategic weapons system with the PEO submarines, the submarine
portion of that compartment, while in parallel we have
development for the new reactor plant. So there is effort on
the development side leading into the procurement side.
The current estimate for the recurring costs for the higher
program for boats 2 through 12 is about $5.7 billion, and that
is in 2011 fiscal year dollars. And that is a strict parametric
estimate based on the capabilities of the platform.
We went through significant effort to tailor the
requirements to ensure we can meet the mission, but we do not
go to the exquisite level of capability, tailor the
requirements to bring earlier cost estimates, which were in the
$6 to $7 billion, down to that range.
Now we are in the more getting into the more detailed
design phase. We are attacking design details to go from a $5
to $6 billion estimate to a target of a $4.9 billion recurring
cost for the higher program.
We have a disciplined approach with literally hundreds of
initiatives ongoing where it is using advanced design tools, it
is leveraging ongoing activities on Virginia so we get to reuse
as much of the technology design and manufacturing as possible
from the Virginia into the higher replacement program, and then
also challenging not the higher-level requirements, but some of
the lower-level requirements and the specifications that go
into the design of the boat to see if is there a more
affordable, more produceable way of coming forward with a
program.
So we are marching forward in this what we are referring to
as a design for affordability effort, and frankly we would
welcome the opportunity to come and brief interested Members of
the Hill on the methodology and the progress. And this is going
to be a long road from now until the 2021 contract award, but
it is absolutely critical that we get this right, because
during the period of construction of the Ohio replacement
program, it will dominate not just our shipbuilding program,
but much of our procurement, and we have to ensure that we get
it at the right price, and this is the time when we make those
critical decisions that 10, 15 years from now our successors
will be living with.
Mr. Young. Thank you, and thank you for your service, both
of you.
I yield back.
Mr. Wittman. Thank you, Mr. Young.
We now go to Mr. Rigell.
Mr. Rigell. Thank you, Mr. Chairman.
I appreciate you gentlemen being here today and your
service to our country.
Secretary Stackley, I would like to pivot back to your
point with respect to this current CR. And our office is
working through this. I just want to make sure that I have got
the facts straight, because it has been a busy day, and our
staff is working on a lot of things, but it does appear and I
believe your testimony here today is that in the CR there is
absent, noticeably absent, any RCOH funding for a CVN-71 for
fiscal year 2013. Is that correct?
Secretary Stackley. That is correct, because under the CR
rules we had no funding in 2012 for CVN-71. So under CR rules,
you go back to 2012, and if there is zero dollars in 2012, then
you are not allowed to spend dollars in 2013.
Mr. Rigell. Well, this is that hidden layer of inefficiency
that is built into this terrible system that we are under right
now whether one is Republican or Democrat serving our country.
What is the ripple effect of that? You touched on it
briefly, but I would like for us to fully understand to the
extent that we can today in the time available if that stays as
is if it does actually ripple through and become law.
Secretary Stackley. Yes, sir. Well, let me start with
current estimates, and we are refining these. Current estimates
are the funding that we have on hand will support continued
execution of the CVN-71 until the January-February timeframe.
And we will continue to refine that. But that is the point at
which we absolutely have to have continued funding.
Mr. Rigell. That is right around the corner.
Secretary Stackley. Yes, sir. And we cannot wait until a
couple weeks before we run out of money to have assurance that
there is continuation of funding.
Mr. Rigell. Understood and agreed.
So I don't want to put words in your mouth here, but I
think it is your testimony this is just really bad policy; this
is bad for our country and needs to be addressed in prompt
order. And again, I don't want to characterize your testimony,
but it seems to be along those lines.
Secretary Stackley. Let me just describe that we have to
have budget action to continue execution of CVN-71 continuous
through this period. The CR would have been the first
opportunity. Absent an anomaly in the CR, we are going to have
to pursue some other way of getting continued funding to the
CVN-71. That will come with its own challenges.
Mr. Rigell. Because of the high priority of just the
overall program and just as it ripples through.
Secretary Stackley. Yes, sir.
Mr. Rigell. I would like to pivot back again also to the
statement that was made earlier, Mr. Secretary, concerning--
and, Admiral, it might have been you, sir--that OCO funds
embedded in those I think are some maintenance work being done
on our ships; that I have some concern that if we go to
absolute zero in OCO funds, that really it is going to put some
heavier burden on the regular defense budget for maintenance
and repair.
Admiral Eccles. If I can jump on that, the OCO funding in
years recent has accounted for about 20 percent of maintenance
in the surface Navy, for example. And if that OCO were to go
away, it doesn't mean the maintenance goes away, so, of course,
there is a budget burden.
The question in my mind has a lot to do with whether or not
we have got surface maintenance sized right, and in the 2013
proposal we sent forth dollars and maintenance, which, while
accounting for that OCO, would for the first time in a long
time get this as squared away as we could for a full, wholesome
surface maintenance program, and that is based on looking at
covering backlog with OCO over a number of years, also
resetting ourselves with respect to the way maintenance
discipline in the surface Navy has been working. We have been
getting better and better over the last few years instilling a
process of understanding better what our ship condition is and
then documenting the necessary engineering and maintenance to
improve and hold that for the wholeness of expected service
life for those ships.
Mr. Rigell. Is it true, then, that OCO funds are doing more
than just paying for the marginal costs, if you will, maybe to
use an accounting term, the marginal costs of the war, for
example, in Afghanistan; that they are not only paying for
that, but they are also paying for things that otherwise would
have been paid for through the regular defense budget?
Secretary Stackley. Let me offer----
Mr. Rigell. Very short, but you will get the last word.
Secretary Stackley. Yes, sir. In my opening statement I
describe that half of our ships have been underwater deployed
pretty constant through this period. And so what the OCO is
doing is that is funding, it is an accounting for the funding
that goes with sustaining that OPTEMPO [Operational Tempo] and
keeping the ships up to the level of the maintenance
requirements to support current operations.
So I don't think this is simply a matter of we are
augmenting our base funding to account for other shortfalls. I
think we are driving the fleet--it is not just the ships, but
the aircraft as well--at a very high OPTEMPO during the period,
and we have been relying on the OCO to be able to keep up that
pace.
And so the challenge is now as we back away from it is to
ensure that our base budget does, in fact, appropriately fund
our maintenance requirements.
Mr. Rigell. I thank you for your testimony.
Mr. Wittman. Thank you, Mr. Rigell.
We will pursue a second round of questions, so if the panel
members would like to stay around. I am going to begin with one
question for both you gentlemen. You have heard some questions
about the looming additional massive defense cuts to our
defense budget potentially in 2013, and then lower budget caps
from fiscal year 2014 through fiscal year 2021.
I wanted to ask you in that particular scenario, and
obviously at this point I am sure you all in some way, shape,
or form are looking forward about what that means. And
certainly on the outside with our contracting community, our
vendors, there is some uncertainty that is building out there
both from their planning aspects, and looking what they are
planning for, and also understanding, going forward, how they
make investments in people, and equipment and infrastructure
there in their businesses.
The question then becomes if they look at the uncertainty
there, they will make those investments, pull things back. How
does that affect the industrial base? How does it affect our
vendor base? And then, in turn, what is the Navy doing now to
plan for that potential scenario?
We all hope that it doesn't happen. We are all working hard
to make sure that it doesn't happen. As we heard earlier, there
is lots of agreement that it shouldn't happen. The question is,
how does it come about to make sure that it doesn't happen? But
in the meantime the question is from your standpoint what are
you going to plan for that? What are you doing in your
conversations with the shipbuilders and vendors to say, in
case, this is what we will do?
Secretary Stackley. Yes, sir. Thanks for that question.
Let me first describe when we talk about the top line
coming down, that is at a macro level. Inside the top line,
rules of sequestration aside, inside the top line it becomes a
matter of prioritizing your resources, and clearly shipbuilding
is a top priority for the Department of the Navy. That will be
point number one.
When we look ahead at least within the FYDP at those types
of challenges, we have been very careful to look at long-term
agreements with our shipbuilders through our contracts to
provide the degree of stability that will weather that type of
budget downturn. And so going program by program, carriers, we
are locked in at a carrier every 5 years, and the work that we
are doing at Newport News on this optimal build plan, that is
to bolster that plan against an economic, a budget adjustment.
Submarines. We are marching into the next multiyear. As you
are well familiar, we have requested 9, but we are working with
Congress to get that 10th boat, and that will lock in the 2014-
2018 window, a nice, stable, two-boat-per-year run not just for
the shipbuilders, but the vendor base that supports them.
Destroyers. As soon as we get an authorization
appropriation bill for 2013, we will be ready to award fiscal
year 2013 through fiscal year 2017 multiyear. Again, we have
requested 9, but we will work with Congress to get a 10th,
providing that long-term stability for our large surface
combatant industrial base.
LCS. We worked with Congress to get the dual block buy
award, 20 ships over 5 years.
Each one of these actions is going after the stability that
not just the shipbuilders, but the industrial base requires so
that they can plan, so that they can invest, so that they can
train and retain that skilled workforce that we rely upon for
affordability and, frankly, reliable operational and schedule
performance when the ships deliver.
We are, again, challenged on the amphib and the auxiliary
side because we are looking at the end of programs, we are at
the end of the LPD program. We have a very short run on the MLP
program. And so we are looking ahead at the replacement to the
LSD and as well to the next big-deck amphib. Those are
challenges towards the back end of this FYDP. We have to start
planning for today so that we don't go down some irreversible
path in the meantime that would harm our industrial base at the
shipyard or the vendor base.
Mr. Wittman. Very good. So what I understand, then, is
those efforts to make sure the long-term elements both within
the FYDP and outside the FYDP are going to continue even in the
face of what potentially happens with sequestration?
Secretary Stackley. Yes, sir.
Mr. Wittman. Okay. Very good. Thank you.
We will then move back to Mrs. Hanabusa.
Ms. Hanabusa. Thank you, Mr. Chair.
In one of the hearings we had regarding a discussion about
how sequestration may affect especially shipbuilding, I think
the person testifying said that shipbuilding was somewhat
different in that you are, for lack of a better description,
almost line-itemed per ship. So, for example, if there was an
8-percent or 10-percent cut across the board, which is what
will be in total sequestration could be or may be, that that
would then cancel out, for example, the second ship. The
exception, as we were told, were carriers, because carriers are
permitted to be funded over a period of time.
Is that correct as to how the impact could be, so if you
get 10 percent, and you have two or three, say, MLPs, just
hypothetically, and it would cut the third one completely out?
Is that the correct understanding of what the impact of
sequestration could be?
Secretary Stackley. Not quite. It is correct that
shipbuilding is different. The programs are effectively line-
item projects, and so they will separately incur nominally a
10-percent impact associated with if sequestration occurs.
And so when you go down to the program level--you mentioned
MLP is not a good example because fiscal year 2013 is not a--we
are not requesting a ship in 2013--but when you go down to the
program level, if you take a 10-percent cut, the challenge that
we, the Navy, are going to deal with is how can we take a 10-
percent cut and minimize the impact to the shipbuilding
program?
And there is more than just the shipbuilding contract. We
have a number of activities inside of that program. So there is
a shipbuilder piece, there is a Government-furnished equipment
piece, there are technical services. So the challenge is if we
took a 10-percent hit in the shipbuilding program, what can we
deliver within the remaining budget, and then how do we
backfill either through a reprogramming action or through a
subsequent budget, a fiscal year 2013 budget, so that we don't
lose what we have got in terms of efficiency and good pricing
in our contracts?
But the challenges are extremely hard, because there is
going to be a cumulative impact, and we will be very limited in
terms of places where we can go to augment the funding in those
programs, and we do not today know what we are going to be
staring at in 2014. We will not know that when it is time to
make those decisions.
So this is a good example of why you are hearing such
strong reaction from the Department on the impacts of
sequestration.
Ms. Hanabusa. So, in essence, you don't quite know what you
would do. It wouldn't just be a matter of just saying, if it is
a 10-percent cut, that we can't fund the third ship; just
hypothetically, if there were three ships, you can't fund the
third ship. That would then result in the elimination of the
third ship. It may be you may have more flexibility if you can
cut something else within that program.
Secretary Stackley. Well, first we would need to know what
comes across the line in the 2013 budget, and, second, we are
going to need to know what happens in 2014. And so when you
bound the problem in that way, then we are going to be looking
at what do we have left in terms of resources to execute? And I
hesitate to give you a hypothetical response, but if across the
board each of our shipbuilding programs took a 10-percent cut
in 2013, and there is a subsequent type action in 2014, I can't
quickly arrive at a scenario that says we are going to be able
to put all the ships that we had requested under contract in
2013.
Ms. Hanabusa. So you haven't even gotten to the point as to
what or how, under the Budget Control Act, which we now shift
to caps after the sequestration issue, so we are talking about
caps--you haven't even looked at how those caps may then affect
shipbuilding?
Secretary Stackley. Our energy and focus has been on
building a 2014 budget that we plan to execute building on top
of the 2013 budget that we requested with Congress. We haven't
looked at the alternatives associated with 2000--a
sequestration taking place starting the 2nd of January carrying
out into subsequent years.
Ms. Hanabusa. But you do know that under the BCA [Budget
Control Act], there are going to be caps, and the caps are
not--well, they don't look like you are going to be able to
recoup any of this. So there has got to be some understanding
or analysis done as to what those caps are going to mean and
how it is going to effect, for example, shipbuilding.
Secretary Stackley. Yes, ma'am.
Ms. Hanabusa. So as you work through the 2014 budget, you
have already looked at the impact of the caps with the caps in
place? Or are you hoping that Congress is going to do something
so that those caps are not going to affect you?
Secretary Stackley. It has taken all of our efforts to
build the 2014, the budget that we plan to execute. We don't
have added bandwidth to then build a separate budget that
brings the Budget Control Act impacts in across the FYDP. We
have not done that.
Ms. Hanabusa. That is the answer I was interested in.
Thank you, Mr. Chairman.
Secretary Stackley. I started by describing the way we
build our shipbuilding program as an example, and it is very
similar to our other capabilities, is we start with the defense
guidance, we overlay on top of that our resource constraints,
and then we put together the best program possible to meet our
national security needs. When you take a look at the impact
associated with the Budget Control Act, we are going to have to
go back and arrive at a new defense strategy. The impact is
significant enough that we will not be able to put together the
force that we need, maintain the wholeness that the CNO
demands, and operate at the pace that we are operating with
those types of budget adjustments.
Ms. Hanabusa. Thank you very much.
Thank you, Mr. Chairman.
Mr. Wittman. Very good. Thank you, Ms. Hanabusa.
Mr. Rigell.
Mr. Rigell. Thank you, Mr. Chairman.
And, Secretary Stackley, I just want to make sure I have
this right. If we do find ourselves in really the most
unfortunate situation where sequestration becomes a reality, is
it true that the budget cuts would be allocated not over four
quarters, but three, in some ways making them even more
problematic?
Secretary Stackley. Absolutely. In fact, I think it is
going to be worse than that, because sequestration would hit
inside of a CR. So we are already somewhat constrained in terms
of our execution in the CR. The sequestration would hit in the
second quarter, and so we have very limited flexibility and a
very limited amount of time to adjust to the full impacts.
Mr. Rigell. Thank you.
Given the complexity of the Department of Defense budget
and certainly within the Navy's budget there, it is difficult
enough to try to get a handle over what is being spent and
making sure it is being spent wisely.
Given that, have you allocated or reallocated some
resources, some accounting resources and planning resources,
for the contingency plan of if sequestration becomes a reality?
To what extent have you developed a real plan to adapt to it
and deal with it?
Secretary Stackley. I had described earlier that we haven't
planned for sequestration, but we are spending time
understanding what the impacts would be. You can't solve
individual program issues, you can't deal with any of this in
isolation. Since it impacts the entire budget, you really have
to take a look at the entire budget.
And so if we are unable to halt--``we'' being the
collective Administration and Congress--halt sequestration, we
are probably looking at building a new budget inside of a
budget, that being 2013 execution. And at the same time we are
going to have to revisit the 2014 budget because the 2014
budget is built upon 2013.
Mr. Rigell. Going back for just a moment to CVN-71 and the
current CR, and I know engineers don't like to maybe comments
on things like that, but I will ask anyway, were you surprised
that that funding was not there? Was it on the process side
that the funding did not appear in this new CR, or did you
fully expect it because it can only just bring forward what has
been brought forward?
Secretary Stackley. It was at the top of our priority list
as an anomaly for the CR.
Mr. Rigell. And that was expressed, I am certain, to the
contacts here?
Secretary Stackley. Yes, sir.
Mr. Rigell. Okay. Maybe beyond the scope of what we should
cover here, but, I mean, was there a basis for someone not
acting on that information?
Secretary Stackley. I am probably not the right person to
answer that question.
Mr. Rigell. I thought we would get to a full halt on that,
but that is okay. I wanted to press this as far as I could just
to understand where we broke down in the whole process.
Mr. Chairman, I really appreciate your holding this hearing
today and just the opportunity to inquire about that from
really the good leaders within our country who are right at the
tip of the spear in trying to help us do the right thing. So
again, I appreciate your service, Mr. Chairman. I yield back.
Mr. Wittman. Thank you, Mr. Rigell.
If there are no other questions from the panel members, we
will move to adjourn. And I want to thank our panelists today,
Rear Admiral Eccles, Secretary Stackley, for your testimony
today. Obviously this is a challenging issue for us here in
Congress. I think it is interesting to know what is lacking in
the CR, especially since it affects the RCOH on CVN-71. We know
that that is absolutely critical. That is a problem, I think a
significant problem, obviously, going forward in the budgeting
process.
Also, I think what we took from this hearing, too, is the
need to make sure that planning takes place from the
congressional side, and obviously some direction on SSBN(X)
[Ohio class replacement ballistic submarine] as far as their
continued efforts, and I know there has been some definition
and some resources there, but obviously continuing that; and
then also the future decisions occurring not too far outside
the FYDP for the amphib ships and auxiliary ships and making
sure that we maintain not only this nation's needs, but also
the industrial capability there.
So I deeply appreciate your testimony today. It gave us
some great information as to how the planning process ought to
take place going forward, and how we, as a committee, as a full
committee, have an obligation to make sure that we include
those planning aspects in what we do as a full committee.
So again, gentlemen, thank you so much for your testimony
today, and if there are any further questions, I would ask that
the panel members submit them in writing to our panelists
today. And, again, with that, this subcommittee is adjourned.
[Whereupon, at 3:54 p.m., the subcommittee was adjourned.]
=======================================================================
A P P E N D I X
September 11, 2012
=======================================================================
PREPARED STATEMENTS SUBMITTED FOR THE RECORD
September 11, 2012
=======================================================================
Statement of Hon. Rob Wittman
Chairman, House Subcommittee on Oversight and Investigations
Hearing on
Navy Shipbuilding and Impacts on the Defense
Industrial Base in a Time of Fiscal Uncertainty
September 11, 2012
Before we begin this hearing, I would like to note today's
importance in our Nation's history, the 11th anniversary of the
terrorist attacks of September 11th. For 11 years now, our All-
Volunteer Force has been engaged in combat operations requiring
cyclical deployments. Some of our sailors, soldiers, airmen,
and marines have deployed 4, 5, 6 times . . . some have even
been called upon to serve on 12 or 13 combat deployments. We
owe a debt of gratitude, thanks, and unwavering support to the
men and women of our armed forces and their families--a debt
that can never be repaid. These men and women and their
families epitomize the United States of America and their
courage, bravery, commitment, work ethic, pride, and
professionalism which are the characteristics that continue to
make this country great. You need look no further than some of
the names of the newest ships in our Fleet to understand the
honor that is paid to the men and women who made the ultimate
sacrifice fighting for this country over the last 11 years:
names such as the USS Jason Dunham (DDG 109), USS Michael
Murphy (DDG 112), and USS Rafael Peralta (DDG 115). These ships
will serve this Nation for the next 30-40 years and the
service, sacrifice, and legacy of these men will never be
forgotten. Our thoughts and prayers are with all the families
who lost loved ones on September 11th, 2001, our All-Volunteer
Force and their families. Never has so much been sacrificed by
so few for so many for so long.
With this as our backdrop, I can think of no better topic
to discuss than the 30-Year Shipbuilding Plan and concerns I've
had regarding our defense industrial base. Over the last year,
this subcommittee has held two hearings, conducted numerous
briefings and facilitated many engagements with the Department
of the Navy and industry, and traveled to shipyards across the
country to learn firsthand about how effective DOD's 30-year
plan is and how it impacts our defense industrial base. We
learned that the annual plan is critical to establishing
priorities and identifying challenges that need to be addressed
in both the short and long-term. We also learned that
historically the plans have played an integral role in leading
to programmatic improvements and cost savings over time. I
would like to take this time to thank all of these yards for
their hospitality and professionalism as they shared with us
their enthusiasm for their trade and their commitment to
building the best Navy in the world.
This hearing is focused on the 30-year plan's impact on our
shipyards and closes out what I believe has been a valuable
effort in identifying challenges and concerns so that we in
Congress can make decisions based on fact rather than
speculation. Critical to this effort were oversight visits to
Electric Boat in Groton, Connecticut; Bath Iron Works in Bath,
Maine; NASSCO in San Diego, California; Huntington Ingalls
Industries in Pascagoula, Mississippi; Austal in Mobile,
Alabama; and Huntington Ingalls Industries in Newport News,
Virginia, where we build our Navy's ships and submarines. In my
view, nothing takes the place of ``on the ground'' observations
and the opportunity to speak frankly with the people
responsible for day-to-day operations, particularly in an
industry as unique and critical to our Nation as shipbuilding.
As we all know, warship planning, design, and construction
is one of the most complex industrial endeavors a nation faces
when determining national and maritime strategy. Whether we're
building submarines, amphibious ships, destroyers, logistic
ships, or aircraft carriers, we can't get the job done without
an industrial base that has the talent and intellect to solve
unique design and engineering problems. Shipbuilding is an art
form and a perishable skill. It is done by the most highly
trained and experienced corps of engineers and tradesmen in the
world. It is supported through business and industry spanning
50 States and designed and engineered by our greatest asset:
the American people.
After conducting our oversight visits, it was clear to me
that while American ingenuity, creativity, and initiative are
alive and well in our shipyards, it is also clear to me that
challenges exist. In a constrained fiscal environment facing
the dire impacts of sequestration, many in industry are
considering forced layoffs, contract renegotiations,
disruptions to production, and poor future vendor supply
prospects.
This afternoon the subcommittee will focus on maintaining a
robust and sustainable industrial base capable of executing the
Navy's shipbuilding plan and our national strategic objectives,
particularly as we pivot to Asia. As articulated in the final
report of the QDR Independent Panel: ``A robust U.S. force
structure, one that is largely rooted in maritime strategy . .
. will be essential.'' I look forward to hearing your
perspectives on the challenges we face, including planning for
surge capacity and recapitalization of the fleet.
The focus of this hearing is not to dive into specific
programs and the nuances and challenges of certain platforms;
this is the duty and responsibility of another subcommittee.
The goal here today is to focus on the macro level of
shipbuilding and discuss the impact on the defense industrial
base in a time of fiscal uncertainty. The one lesson we learned
during our visits to all the shipyards is the delicate
execution and attention to detail that must be displayed while
progressing through the planning process. A balance must be
achieved in order to attain a sustainable workload, workforce,
all while producing a capable and effective platform. The
industrial capacity at these yards and the supply chains that
support them is unique. It is imperative that as we move
forward and shift to an Asia-Pacific-centric strategy that we
effectively balance the planning process with the industrial
base capacity that is needed to achieve maritime and national
security success in the 21st century.
Secretary Stackley, Rear Admiral Eccles, thank you for
being here today and thank you for your continued distinguished
service to this Nation. Each of you, along with VADM Blake, who
has appeared before the committee in the past, understands
ships and you know this business. We appreciate your expertise
and insight on this very important matter. The bottom line is:
ships are different from many perspectives, particularly in
acquisition and procurement. As you gentlemen note,
``shipbuilding programs do not have the opportunity to build
full-scale prototypes.'' The United States Navy essentially is
the only service that will commission a prototype and then take
it to war.
I look forward to your testimony and I hope that we can
have a thoughtful and meaningful dialogue on these important
issues.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
=======================================================================
WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
September 11, 2012
=======================================================================
RESPONSE TO QUESTION SUBMITTED BY MR. CONAWAY
Secretary Stackley. The July 5, 2012 Department of Defense
Alternative Fuels Policy for Operational Platforms stipulates that:
``. . . alternative drop-in replacement fuel procured for
DOD-wide use and distribution within the Class III (Bulk)
supply chain will compete with petroleum products under the DLA
Bulk Purchase and Direct Delivery Purchase Programs. Awards
will be based on the ability to meet requirements at the best
value to the government, including cost.''
In order to comply with the policy, the Navy and/or its purchasing
agent, DLA Energy, are required to purchase biofuels or any alternative
fuels for drop-in replacements in operational quantities (i.e., not
research, development, test, and evaluation) that are cost-competitive
with the conventional petroleum-derived fuels that they replace. [See
page 11.]
?
=======================================================================
QUESTIONS SUBMITTED BY MEMBERS POST HEARING
September 11, 2012
=======================================================================
QUESTIONS SUBMITTED BY MR. WITTMAN
Mr. Wittman. How can the workload at the public and private
shipyards be balanced efficiently and effectively to align with future
shipbuilding plans? a. What challenges exist? b. How are they being
addressed? c. How important is a stable, proven, fully researched
design and workload when executing shipbuilding plans?
Secretary Stackley. The Navy's FY2013 Long Range Shipbuilding
Report to Congress contains the shipbuilding plan that balances
workload stability given fiscal constraints while aligning with
retirements and future shipbuilding plans. The goal of this plan is to
provide a stable long-term shipbuilding forecast for private shipyards
that reduces industrial base volatility and allows the industry to
better match investments to meet Navy capabilities. The Navy believes
that stability in the shipbuilding program is a key ingredient in
sustaining a cost effective and capable capacity in the shipbuilding
industry.
The Long Range Shipbuilding Plan is integral to the planning of
maintenance and modernization in both the public and private sector.
Typically the public sector is responsible for the maintenance and
modernization of the Navy's nuclear ships, while the private sector is
responsible for maintenance and modernization of non-nuclear ships.
Based on the projected ship inventory and strategic laydown, the Class
Maintenance Plan requirements for all ships in service are translated
into projected public and private sector workloads. These workloads are
compared to existing capacities, which can be adjusted as required.
These long range workload forecasts are provided to Congress on an
annual basis.
Challenges exist in balancing ship retirements with future
shipbuilding plans and efficient shipyard production given fiscal
constraints. In determining the shipbuilding plan, the Navy works to
achieve the following:
Stabilizing production workload across product lines
and within individual shipyards.
Building ships at affordable yet efficient levels.
Avoiding gaps in ship production which can result in
shipyard closure or costly production line start-up costs.
Minimizing major design workload fluctuations.
Addressing the rapid retirements of ships procured in
the 1980s. The ships brought into service during the 1980s,
some procured at a yearly rate of four to five ships of a
single class, are projected to retire during the next 20 years.
With today's need for capable, multi-mission platforms, the
Navy cannot recapitalize its legacy ships at the same rate at
which they were originally procured and maintain an affordable,
balanced procurement plan.
Solutions:
Because Navy ships can only be constructed at a
limited number of U.S. shipyards, the timing of ship
procurement is a critical matter to the shipbuilding and combat
system industries. As a result the Navy is moving toward longer
production runs based on common hull-forms across like-
platforms.
Navy is working with its industry partners to
consider several factors to control costs and improve
stability:
Level loading shipyards to sustain employment levels
and skills retention, and stabilize workloads through work
share opportunities and regional outsourcing.
Greater use of contract incentives, such as multi-
year procurement, fixed price contracts and increased
competition.
Reducing ship types, maximizing reuse of ship designs
and common components, and implementing open architecture.
In addition to efforts described above, a stable design with a
focus on both acquisition and operational affordability is very
important and is directly related to the controlling of costs.
Mr. Wittman. Given the possible implementation of sequestration in
FY2013 and the lower budget caps in the BCA for FY14-FY21, this
shipbuilding industrial base is currently facing uncertainty about the
FY2013 shipbuilding programs and the outlook for subsequent years. The
uncertainty causes planning difficulties for shipbuilders and
supporting vendors, and could discourage them from making investments
in people and infrastructure that could help reduce the cost of Navy
ships. How is the Navy addressing these concerns and what plans are
currently in place if cuts occur?
Secretary Stackley. If sequestration occurs, automatic percentage
cuts are required to be applied without regard to strategy, importance,
or priorities, resulting in adverse impact to almost every contract and
procurement effort within the Department. Sequestration would adversely
impact the Navy's ability to procure the shipbuilding programs
programmed in the FY13 Department of the Navy President's Budget
request. Potential reductions to the number of ships procured or
stretch-outs to the programs of record will cause cost increases and
create shortfalls or delays to ship deliveries, thus impacting the
operating forces ability to meet its requirements. These adverse
impacts would apply to both planned FY13 contract awards and
shipbuilding contracts under execution that depend on Completion of
Prior Year Shipbuilding Programs funds or other incremental funding. In
addition, sequestration could result in percentage reductions of FY12
and prior year unobligated balances, affecting remaining efforts to
complete shipbuilding programs under construction.
Depending on available transfer authority to consolidate these
cuts, sequestration would severely limit the ability to preserve major
acquisition programs, resulting in significant impacts to our defense
industrial base. However, a detailed review directed by OMB would be
required to determine the specific impacts to national security from
sequestration.
Mr. Wittman. Secretary Stackley, is there a benefit to the Nation
and the taxpayer with directed procurement? Taking into consideration
that shipbuilding is unique and unlike any other acquisition and
procurement process, is there efficiency in directing procurement to
specific shipyards? (logistics ships and amphibious ships in order to
provide a constant and efficient workload and stable vendor base and
supply chain?) My concern is that if we openly compete large capital
ships we could compete a yard out of business and essentially cause a
massive decline in shipyard capability, strategic lay down, and surge
capacity.
Secretary Stackley. The Navy uses directed procurement for a few of
our ship classes. There is one builder of aircraft carriers for the
Nation. As a result of Congressionally-directed teaming for attack
submarine new construction, the Navy contracts with General Dynamics
Electric Boat who subcontracts with Huntington Ingalls Industries
(HII). The Navy has also been dual sourcing surface combatant
construction since the mid-1990's, and each time that decision is
revisited, the Navy has concluded that it is in the nation's best
interest to keep two shipbuilders building surface combatants. In these
cases, the Navy working with Congress, attempts to stabilize the
procurement quantities in order to maintain adequate workload to
support planning and achieve efficiencies. Industry has been doing
their part too, making adjustments in terms of capacity and with
respect to their future planning.
However, the Navy and the nation pays a price for programmatic
decisions that set us on a path to acquire goods or services from a set
of directed suppliers or from a single source. Competition is a
critical driver in innovation and performance. While shipbuilding is
different than many other acquisition and procurement processes, the
value achieved through competition is unmatched. With respect to the
procurement of Amphibious and Auxiliary ships, the Navy has
historically employed competition within its acquisition strategy. In
more recent years, the viability of the Amphibious and Auxiliary ships'
industrial base has become a growing concern. HII's business decision
to close their Avondale, Louisiana facility in 2013 (after the delivery
of LPD 25) and consolidate their shipbuilding efforts at their shipyard
in Pascagoula, Mississippi reflects the current imbalance between
capacity and demand in the Amphibious/Auxiliary shipbuilding sector.
Even then, current projections for Amphibious shipbuilding pose
challenges for Ingalls shipbuilding in this next five year period. The
next amphibious ship program, LX-R, is not required to replace the LSD
41/49 class ships until the mid-2020s (lead ship to be competitively
awarded in 2018). The only first tier shipbuilder constructing
auxiliary ships is General Dynamics NASSCO in San Diego, California.
NASSCO has historically relied upon both Navy and commercial
shipbuilding to remain viable, however the protracted downturn in
commercial new construction has significantly impacted NASSCO's
business base. The Navy has signed a Shipbuilding Capability Prevention
Agreement with the intent of strengthening NASSCO's position for
pending commercial awards. With regards to Navy ship construction,
NASSCO recently delivered the last ship of the T-AKE program, and is
currently constructing the Mobile Landing Platform (MLP) class of
ships. NASSCO is under contract to build three MLPs, which will deliver
in 2013, 2014 and 2015 respectively. To satisfy an operational
requirement, the Navy requested in PB13 that Congress authorize and
appropriate funding to modify MLP 3 and build it as an Afloat Forward
Staging Base (AFSB) variant, and to authorize and appropriate funding
for a fourth MLP/AFSB variant in Fiscal Year 2014 (FY14). The MLP AFSB
variant satisfies a Combatant Commander requirement and addresses a
significant industrial base issue. The next auxiliary ship acquisition
will not occur until 2016, when the Navy plans to competitively award
the T-AO(X) lead ship, targeting replacement of the Navy's fleet
oilers. Given the sum of these challenges and projections for future
Amphibious and Auxiliary shipbuilding programs, the Navy and industry
must work towards increasing efficiency at low rate production and too,
to the extent budget and requirements afford, increasing the rate of
production; if we are to sustain the current Amphibious/Auxiliary
shipbuilders (less Avondale). The current overarching strategy employs
competition for these future programs as the most effective means of
driving affordability and innovation. Directed procurement may become
necessary based on future events and program budget decisions; however
such a procurement strategy comes at the expense of affordability and
innovation and therefore is not the procurement strategy of choice.
Mr. Wittman. Considering the ever-present potential for the need of
surge construction capacity, the ever-present threat of national
disasters or other unforeseen events, and the strategic pivot toward
the Pacific; are you satisfied with the current strategic laydown of
our new construction capable shipyards? Are you satisfied with the
construction capacities on both coasts? If there was a 30-Year Shipyard
Plan, how do you see the strategic laydown of our national shipyards
changing in the next 30 years?
Secretary Stackley. Currently, there are five large shipbuilding
facilities on the East and Gulf Coasts, and one shipbuilding facility
on the West Coast, in addition to other second tier and smaller
shipyards constructing ships for the Navy. The current strategic
physical location and laydown of our new construction shipyards is
sufficient to support the Navy's long-range shipbuilding plan even with
the potential of unforeseen events occurring and a pivot in our
strategic focus toward the Pacific.
The current shipbuilding industrial base is not a legacy of the
1980's-era 600-ship goal. The structure of the industrial base and the
companies and shipyard facilities building battle force ships has
changed considerably, in a dynamic process of corporate adaptation and
adjustment to the level and nature of Navy and Jones Act shipbuilding
activity. Three shipyards left naval construction in the 1980s and one
is slated to close in 2013. Two yards have entered--one is new and one
is reentering.
Exiting: the Lockheed shipyard in Seattle and the
Todd shipyard in Los Angeles were closed down. The Todd
shipyard in Seattle left the naval shipbuilding business. The
Huntington Ingalls Industries Avondale shipyard near New
Orleans, is scheduled to be closed in 2013.
Entering: Austal USA in Mobile, Alabama, and
Fincantieri's Marinette Marine in Marinette, Wisconsin.
Marinette, who built mine countermeasure ships in the 1980s and
later focused on Coast Guard ships, is now building Littoral
Combat Ships (LCS) after about 15 years without naval
construction in its portfolio. Austal USA is a relative
newcomer and has expanded its facilities to build LCS and Joint
High Speed Vessel (JHSV) ships for the Navy.
It is hard to predict how the future Navy will adapt over the next
30-years given operational needs and economic realities. With our
current geographically dispersed shipbuilding footprint, the Navy and
our shipbuilding industry are poised to adapt and flex to meet the
Nation's needs for naval assets.
Mr. Wittman. Significant infrastructure and manpower investments
recently implemented at shipyards across the country have resulted in
increased workforce capacity. If changes in procurement occur as a
result of a lack of funding, reallocation of resources, contract
renegotiations, or other fiscal disruptions, how will this affect the
long-term sustainability of not just the industrial base, but the
classes of ships being built in the shipyards as well?
Secretary Stackley. The strength of our Navy's seapower is closely
aligned with the strength of our shipbuilding industrial base. The
critical skills, capabilities, and capacities inherent within our new
construction shipyards and weapon systems developers inarguably
underpin the U.S. Navy's dominant maritime position. Accordingly, in
the course of balancing resources and requirements in the formulation
of future shipbuilding plans, the Navy will continue to closely weigh
the effect of program decisions on the industrial base. A priority will
continue to be placed on providing stability for the shipbuilding
industrial base and incentivizing facility investment. Stability
translates into retention of skilled labor, improved material
purchasing and workforce planning, and strong, sustained learning curve
performance. Stability coupled with capital improvements translates
into more efficient ship construction and a more affordable
shipbuilding program. Affordability is the key to achieving and
sustaining the shipbuilding plan.
Mr. Wittman. If prime contractors cut back on production due to
fiscal constraints, demand for goods and services from their
subcontractors and suppliers goes down. Many of these suppliers will
likely leave the shipbuilding business never to return, creating a
deficit in required trades and skill sets that may never be regained.
How does the Navy plan on protecting and sustaining the supplier
community when their livelihood depends largely on business from prime
contractors?
Secretary Stackley. The Navy assesses the shipbuilding industrial
base sector by sector and tier by tier, monitoring the health of the
shipbuilders and major suppliers. In doing so, the Navy examines not
only production labor employment, but also engineering capabilities,
facility capabilities and efficiency, overall skill and experience of
the workforce, and as warranted, financial strength. The Navy meets
periodically with our prime contractors, as well as professional
associations such as the Shipbuilders Council of America (SCA) and the
American Shipbuilding Suppliers Association (ASSA), and one of the key
focus areas is the health of their supply base, which products have
sole source or limited suppliers, and where there are vulnerabilities
or potential opportunities.
The Navy is limited in terms of how much can be done beyond our
direct contracts with our shipbuilders and our combat system suppliers.
Additionally, perhaps the greatest tool available for protecting and
sustaining the supplier community, one used to good effect in
shipbuilding, is the use of long-term contracts; multi-years, multiple
years, and Advance Procurement contracts. Currently, every major
shipbuilding program is employing such a strategy, which provides for
stable production while level-loading the vendor base. The Navy can and
has entered into Shipyard Capability Preservation Agreements (SCPA) to
assist in making shipyards more competitive commercially, and continues
to support the Jones Act. In addition, the Navy is committed to using
small businesses in support of its Sailors and Marines, and actively
works to ensure that a fair proportion of business is provided by small
business enterprises. Each one of these actions is aimed toward the
stability of not just the shipbuilders, but of the entire supply chain.
Stability is required to facilitate planning, investment, training and
the retention of a skilled workforce that is necessary for the high
performance, high quality, on schedule and affordable ships that our
Sailors deserve.
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