A Government Accountability Office (GAO) report released Monday said the Navy’s estimate that Columbia-class submarine procurement will cost $115 billion is overly optimistic about labor hour assumptions.
The Navy plans to start replacing the Ohio-class ballistic missile submarines (SSBNs) with 12 Columbias in 2027. In creating the new vessel, the Navy is developing several new technologies related to propulsion, missile tubes, and survivability.
The nuclear submarines are built by General Dynamics Electric Boat [GD] (GDEB) and Huntington Ingalls Industries [HII] with GD serving as prime and HII as a subcontractor. Each company will build different parts of the vessel, but GDEB will complete the final outfitting and deliver the submarines to the Navy.
The report, “Columbia Class Submarine Overly Optimistic Cost Estimate Will Likely Lead to Budget Increases,” said the $115 billion estimate “is not reliable partly because it is based on overly optimistic assumptions about the labor hours needed to construct the submarines.”
“While the Navy analyzed cost risks, it did not include margin in its estimate for likely cost overruns,” the report continued.
The GAO noted the Navy told the office it will continue to update its lead vessel cost estimate, but an independent assessment of the estimate might not be finished in time to inform the Navy’s FY 2021 budget request to Congress to buy the lead submarine.
Therefore, without the reviews, the GAO said the cost estimate and thus the whole budget may be unrealistic.
“A reliable cost estimate is especially important for a program of this size and complexity to help ensure that its budget is sufficient to execute the program as planned,” the report said.
The Navy expects it will need 12 million touch labor hours to direct build the lead submarine. However, GAO pointed out this is 17 percent fewer labor hours than what was needed for the lead Virginia-class attack submarine, when adjusted for weight differences.
The report said Naval Sea Systems Command (NAVSEA) got to 12 million labor hours by calculating a weight-adjusted estimate of the Virginia-class labor hours. Since the Columbia is heavier, it estimated it would take about 14.5 million touch labor hours.
Then NAVSEA “made numerous adjustments in the cost estimate” that reduced expected labor hours based on assumptions that differences in the design and construction process would lead to a more efficient construction. This lowered the number to 12 million touch hours.
NAVSEA then used that Columbia estimate to calculate labor hours on follow-on submarines, which it estimated will take 8.9 million touch labor hours.
However, GAO argued the touch labor hour estimate is “overly optimistic-with assumptions on construction efficiencies that are either unsubstantiated or unprecedented compared to Virginia class and other shipbuilding historical data.”
The Navy is using the National Sea-Based Deterrence Fund to build the submarines, which allows the service to buy material and start construction early on multiple submarines before getting congressional authorization and funding for submarine construction. The Navy plans to start lead submarine construction in October 2020.
The Navy is trying to mitigate its aggressive schedule for lead vessel construction by aiming to mature a significant amount of submarine design before construction starts and beginning advance construction of modules before October 2020.
The report said the Navy expects to achieve savings like buying certain components early and in bulk under this fund, but did not include those savings in its cost estimate. Therefore, GAO determined “the Navy may have overestimated its savings as higher than those historically achieved by other such programs.”
The shipbuilder is also trying to improve design performance and maintain a higher pace of work but “this may prove challenging as it must complete an increasingly higher volume and complexity of design products.”
Without an updated cost estimate and cost risk analysis that includes a “realistic estimate of savings,” GAO said the FY 2021 budget request may not reflect the actual funding needed to build the first Columbia.
The report recommended three actions for Secretary of the Navy Richard Spencer to take. Spencer should direct Naval Sea Systems Command (NAVSEA) to incorporate current cost and program data and an updated risk analysis in its planned update of lead Columbia-class submarine cost estimate.
GAO also recommended the secretary direct NAVSEA to develop a “realistic and well-documented estimate of savings from use of the authorities associated with the Fund” and incorporate savings related to the lead submarine into the Columbia lead submarine cost estimate. It also recommended Spencer direct the Columbia-class program office to update its lead Columbia vessel cost estimates and cost risk analysis before requesting funds from Congress for its construction.
The GAO undertook this report because the FY 2018 National Defense Authorization Act directed it to review the Columbia program. The office said it examined the progress and challenges in meeting design goals and preparing for lead vessel construction, reliability of the Navy’s cost estimate, and how the Navy is implementing a special fund and associated authorities to build the submarines.
GAO said it reviewed service and shipbuilder progress reports, program schedules, and construction plans. It also reviewed the Navy’s cost estimate in comparison to best practices.