A new Congressional Budget Office (CBO) report released April 22 estimates the Navy’s latest long-term shipbuilding plan would cost 10 percent more than the service expects.

The Navy submitted the annual 30-year shipbuilding plans to Congress 10 months late in December, rather than as normal with the annual Defense Department budget request in early 2020. Beyond being late, it mapped out a plan to drastically increase the size of the fleet, reaching 355 manned ships within a decade and reaching about 400 by 2038 (Defense Daily, Dec. 10, 2020).

According to the plan, by FY ‘45 the Navy would have a 11 aircraft carriers, nine large deck amphibious ships, 57 other amphibious warfare ships, 74 large surface combatants, 66 small surface combatants, 72 attack submarines/large payload submarines, 12 ballistic missile submarines, 69 combat logistics force ships, 33 support vessels, 119 unmanned surface vehicles (USVs) and 24 unmanned undersea vehicles (UVVs).

Average Annual Costs of All Shipbuilding Activities Under the December 2020 Plan, as Estimated by CBO and the Navy; from an April 2021 CBO report: An Analysis of the Navy’s December 2020 Shipbuilding Plan. (Graph: Congressional Budget Office)
Average Annual Costs of All Shipbuilding Activities Under the December 2020 Plan, as Estimated by CBO and the Navy; from an April 2021 CBO report: An Analysis of the Navy’s December 2020 Shipbuilding Plan. (Graph: Congressional Budget Office)

The 30-year plan aims to achieve the goals laid out in the Navy’s Future Naval Force Study (FNFS), which was produced with the office of the Secretary of Defense. Those goals were aligned with former Secretary of Defense Mark Esper’s Battle Force 2045 plans, unveiled last October (Defense Daily, Oct. 6, 2020).

In the new report, An Analysis of the Navy’s December 2020 Shipbuilding Plan, CBO compared the December plan to the previous FY ‘20 shipbuilding plan submitted to Congress in 2019. It determined the average cost of buying the new ships and unmanned systems under the new plan would cost about $34 billion per year, in 2021 dollars. This is $2 billion more annually than under the previous plan, CBO said.

According to CBO’s analysis, the Navy would spend over $1 trillion in 2021 dollars over the next 30 years under the December plan, an average of $34.1 billion per year. This includes plans to purchase 404 new ships between 2022 and 2051: 300 combat ships; 104 combat logistics and support ships; and 223 unmanned undersea and surface vehicles.

“That amount of funding, each year for 30 years, would be unprecedented since World War II. Half of the funding would be for submarines, about one-third would be for aircraft carriers and surface combatants, and the remainder would go toward amphibious ships, combat logistics and support ships, and other items,” the report said.

CBO noted while the plan calls for a significant increase in unmanned vessels, “they represent a small fraction of the overall costs of the plan—an average of about $1.2 billion per year, or 4 percent of all shipbuilding costs.”

The report noted the Navy is still developing concepts of operations for unmanned systems, “which increases the risk for both cost growth and delays in their construction and operations.”

CBO estimated ship construction costs using cost per thousand tons of lightship displacement, meaning the weight of the water a ship displaces without the crew, stores, ammunition, fuel and other liquids. The office then adjusted its estimate to incorporate the effects of both the reduction in average overhead costs as a shipyard builds multiple ships of the same type at the same time as well as the efficiencies shipyards gain as they produce additional units of a given type of ship.

CBO’s estimates include a projection that labor and materials costs would keep growing 1.2 percent faster in the naval shipbuilding industry than the economy overall, “as they have for the past several decades.”

However, CBO does not have a model to estimate unmanned system construction costs so it used the Navy’s estimates but applied a growth factor based on growth in costs for similar procurement programs in the past.

CBO said under the latest plan, the fleet would grow from about 300 manned ships currently to over 400 by 2051. Purchasing, operating and maintaining that larger fleet would therefore increase the Navy’s total annual budget by about 40 percent by 2051, in 2020 dollars, the report said.

The Navy’s Estimates of Average Annual Costs for New-Ship Construction Under Its FY 2020 and December 2020 Plans; from an April 2021 CBO report: An Analysis of the Navy’s December 2020 Shipbuilding Plan. (Graph: Congressional Budget Office)
The Navy’s Estimates of Average Annual Costs for New-Ship Construction Under Its FY 2020 and December 2020 Plans; from an April 2021 CBO report: An Analysis of the Navy’s December 2020 Shipbuilding Plan. (Graph: Congressional Budget Office)

The report noted its estimate is “almost 50 percent larger than the Navy’s average annual appropriations for shipbuilding over the past five years.”

CBO said the Navy’s estimates do not include costs it would have to cover using the shipbuilding account to fully implement the plan like refueling nuclear-powered carriers. Likewise, CBO is unsure if the Navy would fund the planned unmanned vessels in the shipbuilding account but their analysis included them. These kinds of additional costs add $2.2 billion to the Navy’s plan, averaging $31.3 billion annually over 30 years.

CBO also noted the Navy’s December plan expects new ship construction costs would be higher than previously estimated in past plans. The Navy estimates new ship construction would cost about $29 billion per year, $6.3 billion more than under the FY ‘20 plan and $9 billion more per year than what has on average been appropriated over the last five years.

The report estimated operations and support costs of the fleet plan using information from the president’s FY ‘21 budget request. Direct costs like crew salaries, fuel and supplies currently stand at $32 billion per year, but would rise to $49 billion per year by 2051, partly due to the larger fleet. However, operation and support costs would not be much higher since the December plan increased ships but also shifted away from more larger ships to more smaller ships, which are less expensive to operate.