By Emelie Rutherford
The Navy, in response to criticism from government auditors, said it plans to issue guidance regarding the incentives it uses to spur shipbuilders to spend their own money on equipment and facilities to lower the cost of naval vessels.
The Government Accountability Office (GAO) in a report issued yesterday said the Navy needs to clarify its objectives and priorities for doling out investment incentives to shipyards. The Navy provides such support to all large ship contractors to motivate them to make improvements.
The GAO says the “absence of (a Navy) policy (on the investment incentives) leaves the overall goals and intended outcomes of this support unclear. Decisions about when a particular incentive should be chosen, what returns are acceptable across programs, and what types of investments the Navy should support are made on a case-by-case basis without guidance.”
The GAO report, titled “Guidance Needed on Navy’s Use of Investment Incentives at Private Shipyards,” also says now it is unclear if contractors should be reimbursed for indirect costs related to their investments. The auditors further note inconsistencies regarding how the Navy validates whether projects achieved their desired outcomes.
The Pentagon agreed with the GAO’s recommendation that Defense Secretary Robert Gates direct the Navy to develop a policy for identifying the intended goals and objectives of investments incentives, along with criteria for using those incentives and methods for validating the outcomes.
Brett Lambert, the Pentagon’s director of industrial policy, in a July 9 letter said the Navy agrees to issue guidance on these topics that will be included in a “Navy best practices guidebook.”
“When shipyard investment is considered, it is done as part of a holistic approach to negotiating a contract,” Lambert said. “Recognizing that there is no one-size-fits-all approach for contract incentives, the Navy’s guidance will provide direction to the program managers and contracting officers while preserving their flexibility to tailor investment incentives appropriate to their particular program needs.”
The GAO report looked at the privately owned shipyards that make Navy ships: General Dynamics [GD] Bath Iron Works, General Dynamics NASSCO, General Dynamics Electric Boat, Northrop Grumman [NOC] Shipbuilding–Gulf Coast, Northrop Grumman Shipbuilding–Newport News, Austal USA, and Marinette Marine shipyard.
Lawmakers on Capitol Hill have been raising concerns about the viability of the major shipyards. House Armed Services Committee member Rep. Roscoe Bartlett (R-Md.), for one, has noted that current Navy plans call for building just enough ships to sustain the industrial base, leaving little wiggle room if the price of the currently planned ships rise.
Northrop Grumman announced two weeks ago it will consolidate its Gulf Coast shipyards at its Mississippi facilities and explore selling off its entire shipbuilding business.
In general, industry executives have questioned if the Navy’s current shipbuilding plan can sustain their shipyards, saying they hesitate to make capital investments because the service keeps changing its longterm ship-constructing plans.
Navy acquisition chief Sean Stackley said in March the service was kicking off a shipbuilding industrial base study to review the capabilities and capacities at U.S. shipyards. The study was intended to review the shipyards’ design and production work, health of the vendor base, and trends in overhead, productivity, and investment strategies.