A new Congressional Budget Office (CBO) report found that submarine maintenance has tended to be 31 percent less expensive at private shipyards over public shipyards, but that gap has been narrowing in recent years.
CBO looked at 146 Docking Selected Restricted Availability (DSRA) overhauls for Los Angeles-class attack submarines (SSN-688s) from 1993 to 2017. DSRAs are medium-sized maintenance events that put a submarine in a dry dock for maintenance, repair, and upgrades. The overhauls last several months and occur every four to six years over the 33-year life of an SSN-688.
CBO said the Navy could have sent more submarines to private shipyards for overhauls in recent years, but “the Navy has stated that it prefers using public shipyards because it believes that they cost less.”
Over the period CBO looked at, 117 DSRAs occurred at public shipyards and 29 went to private shipyards. They cost on average $31.6 million each in 2018 dollars and adjusted for inflation.
“But the costs varied by type of shipyard. The 117 overhauls performed at public shipyards averaged $33.6 million each, and the 29 overhauls performed at private shipyards averaged $23.3 million each—or 31 percent less,” the report said.
While the private yard work was 31 percent less expensive over the 24-year period, after CBO accounted for submarine age and different in maintenance plans, the gap grew to 35 percent less expensive.
The public shipyards owned and operated by the Navy include Norfolk Naval Shipyard in Portsmouth, Va.; the Portsmouth Naval Shipyard in Kittery, Maine; the Puget Sound Naval Shipyard in Bremerton, Wash.; and the Pearl Harbor Naval Shipyard in Pearl Harbor, Hawaii
Private yards that can maintain Navy ships include Huntington Ingalls Industries’ [HII] Newport News Shipbuilding in Newport News, Va., and General Dynamics’ [GD] Electric Boat in Groton, Conn. They primarily build nuclear-powered submarines “but have the necessary skills and facilities to maintain them as well,” the report said.
The report divided findings into three periods: from 1993-1998 when the Navy used working capital funds (WCF) to fund public yard work, DSRAs at private yards cost about half as much as public shipyards. From 1996-2006, the Navy funded the public yard DSRAs with mission funding and private yards cost about 21 percent less, and most recently, since 2007, the two shipyard types cost about the same.
CBO noted its data “include only one overhaul at a private shipyard after 2010, which makes a comparison of costs for overhauls after 2010 not meaningful.”
The report underscored these averages obscure changing costs over the period. These were due to the aging submarines, changes to the maintenance plans, and when the overhauls were performed.
“Private shipyards conducted relatively more of their overhauls in the 1990s, when overhauls cost less, skewing their average cost downward. In contrast, public shipyards conducted most of their overhauls since 1999, when costs have been higher, which skewed their costs upward in the latter part of the period,” the report said.
CBO said the lower cost for private submarine maintenance work in the 1990s and early 2000s could be because the Navy had just finished a public-private ship maintenance initiative, “which drove down costs because of increased competition.”
Work may have been cheaper then because private shipyards had more experience maintaining submarines the early 1990s “and thus could perform the overhauls more quickly and efficiently,” the report noted.
Then by the mid-2000s the Navy started only giving work to private shipyards when the public yards were full. CBO said during this period the private shipyards had less experience maintaining submarines and public yards had less competition. At the same time, the submarines were getting older and maintenance plans added more planned hours of labor per overhaul.
“As a result, the costs for all shipyards started rising through the 2000s and 2010s, from about $20 million per DSRA, on average, in the 1990s to more than $50 million after the Navy switched to mission funding in 2007.”
CBO also noted costs can vary widely between individual overhauls in the same year and at the same shipyard. This is mostly due to material condition of the particular submarine and the amount of modernization the Navy decided to incorporate into a particular DSRA.
The report noted limitation of the study in that CBO only analyzed the cost of DSRA overhauls of Los Angeles-class submarines, while other kinds of overhauls and ship classes “could yield different results”.
CBO also said cost is not the only factor to consider when selecting where to conduct overhauls. Other factors include wait times, excess capacity, workforce issues, and balancing the industrial base.