A new Government Accountability Office (GAO) report said the Navy’s estimates for its shipyard infrastructure plan could create risks that may add billions to the total cost.
The GAO Report published Monday, Naval Shipyards: Key Actions Remain to Improve Infrastructure to Better Support Navy Operations, said that while the service projects it will take at least $21 billion over 20 years to implement its plan to address critical deficiencies at national shipyards, it did not use best practices in developing the dollar estimate.
It did not include best practices like documenting key assumptions, accounting for inflation, and “addressing risks that together could add billions to the ultimate cost,” GAO said.
The Navy developed its Shipyard Infrastructure Optimization Plan (SIO) to mitigate deficiencies in the infrastructure at the four public shipyards that conduct maintenance and repair work on nuclear-powered vessels: Norfolk Naval Shipyard in Portsmouth, Va.; Portsmouth Naval Shipyard in Kittery, Maine; Puget Sound Naval Shipyard and Intermediate Maintenance Facility in Bremerton, Wash.; and Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility at Pearl Harbor, Hawaii.
The SIOP has a 20-year investment plan for infrastructure investments the Navy needs to improve shipyard performance, focusing on dry docks, facilities like production shops and piers, and capital equipment like cranes and plasma cutters.
The Navy announced the SIOP project last year, vowing to initially focus on repairing and upgrading drydocks (Defense Daily, April 18, 2018).
Then, in April, the Navy announced it established a program office to manage the SIOP plan in June 2018, the Shipyard Infrastructure Optimization Plan (SIOP) Program Office or PMS-555 (Defense Daily, April 3).
While GAO said the SIOP has identified deficiencies at the four public shipyards, “the extent to which the Navy’s plan addresses these deficiencies remains to be seen because complex planning has not been completed and proposed actions are complex and years away from being implemented.”
The report said the $21 billion estimate to implement the SIOP “is preliminary and therefore is not complete or reliable.”
“Because the Navy will be required to request funding from Congress over 20 years in order to implement this plan, the lack of a reliable cost estimate places the effort at risk. By developing a more complete cost estimate, the Navy could reduce the risk that it might request too little funding to achieve its desired outcome,” GAO said.
“Without high-quality estimates, agencies are at risk of experiencing cost overruns, missed deadlines, and performance shortfalls. In addition, determining the roles and responsibilities of the organizations involved in implementing the plan would enhance the Navy’s ability to successfully complete the effort by ensuring that all stakeholders clearly understand their roles and expectations,” the office continued.
The Navy assumed what was necessary once identifying the three main category deficiencies, with costs at $4 billion for dry sock improvements, $14 billion for facilities, and $3 billion for capital equipment.
The report said officials explained they wanted to provide Navy leaders and Congress with a “rough order-of-magnitude estimate, not a budget-ready cost estimate,” which is why it was released in a 2018 report to Congress, instead of after the Navy finished its shipyard modeling and simulation effort.
The planners believe that effort will give a more accurate view of the necessary investments needed for the SIOP, GAO said.
The report noted specific pieces of planning the Navy has not yet conducted.
While the SIOP includes some pieces of a program baseline like schedule and goals, it does not fully establish a common definition of the program, from which all cost estimates can be derived. Moreover, only the facilities estimate was developed for the plan specifically while dry dock and equipment estimates come form earlier Navy efforts conducted under different conditions.
The plan also includes a list of high-level goals, like timelines for major lines of effort, but does not include a more detailed work breakdown structure.
GAO said that “is an important part of a comprehensive plan. A work breakdown structure deconstructs a program’s end product into successive levels with smaller specific elements until the work is subdivided to a level suitable for management control.”
Navy personnel told GAO a more detailed work breakdown schedule will not be possible until after the modeling and simulation of shipyards is finished after fiscal year 2020.
The report underscored the SIOP describes assumptions but not the methodology used to develop the initial cost estimate. “Unless methodology and assumptions are clearly documented, it will be impossible to reproduce the estimate, and decision makers will lack information on which costs are concrete and which are best guesses.”
Notably, GAO said the Navy’s estimate does not account for inflation. Without considering inflation, “cost overruns can result. Inflation costs on a $21 billion program over 20 years could reach 45 percent or more. Applying inflation is an important step in cost estimating because, in the development of an estimate, cost data must be expressed in like terms.”
The Navy did not include a cost risk or uncertainty analysis, but a comprehensive analysis is an important part of an accurate cost estimate. GAO said Navy officials named various risks to implementing the plan, like complying with historical preservation requirements, environmental remediation, and acquiring or adapting alternative workspaces while upgrades are performed.
“Officials have stated that these factors could add hundreds of millions of dollars more to the total cost of the plan,” the report said.
GAO said the Navy did not include a sensitivity analysis to evaluate the effect of individual elements or assumptions may have on the plan, nor an independent cost estimate by a neutral third-party that helps identify risks associated with budget shortfalls or excesses.
The Navy told GAO they plan to develop a more detailed cost estimate after the service finishes creating digital models of the shipyards and identifying their optimized layouts, which is expected in fiscal year 2021.
GAO argued that “even in the context of a preliminary estimate, the best practices associated with the four characteristics are foundational and should be the building blocks upon which any sound program is based. The importance of best practices is only magnified by the size of the program, which means ignoring best practices can have meaningful effects.”
The report recommends the Secretary of the Navy ensure PMS-555 include all costs when developing its more detailed second cost analysis. This includes costs for program office activities, roads, utilities, environmental remediation, historical preservation, and alternative workspace.
GAO also recommends PMS-555 use cost estimating best practices in the second effort while the Secretary ensure the office obtains an independent cost analysis before starting its project prioritization effort.
Lastly, GAO recommends the Secretary ensure PKMS-555 establishes clear roles and responsibilities for the shipyards involved in the SIOP.
The Defense Department concurred on all four recommendations.