President Trump’s nominee for Secretary of the Navy promised legislators Thursday he would evaluate contracts and improve the shipbuilding industrial base, while justifying his utility as an outsider businessman with no military or government experience.
“Every shipbuilding delay, every maintenance backlog and every inefficiency is an opening for our adversaries to challenge our dominance. We cannot allow that to happen. Naval innovation must also extend beyond hulls and keels, strengthening relationships with the defense industrial base, incorporating lessons from recent conflicts and integrating emerging technologies are essential to maintaining our competitive advantage. This requires more than just funding. It requires a relentless focus on execution, innovation and accountability,” John Phelan, the financier and Trump donor tapped to be Navy Secretary, told the Senate Armed Services Committee on Thursday.
Trump announced Phelan for the Navy position on Nov. 27. Phelan is the founder and chairman of Rugger Management LLC, having previously served as managing partner and co-founder of MSD Capital, LP, a private investment firm that works for Michael Dell and family, the founder of Dell Technologies [DELL] (Defense Daily, Nov. 27, 2024).
During his confirmation hearing, Phelan emphasized the Navy and Marine Corps need to focus on their historically embodied resilience, ingenuity and adaptability.
“I’ve analyzed thousands of organizations. A common refrain among those that are failing is this is how we’ve always done it. Yes, there is great value in stability and tradition, which I will respect and do appreciate. But when it suffocates adaptability, innovation, collaboration and trust, it erodes an organization’s ability to win,” he continued.
Phelan said Trump is already pushing him to focus on shipbuilding, which he intends to do by working to reinvigorate the defense industrial base from several angles, namechecking the SHIPS Act first introduced last year and opportunity zones announced in September.
“I think the SHIPS Act, I know, is something that’s being considered. I think there’s some very good ideas in the SHIPS Act in terms of trying to reinvigorate the industrial base, such as opportunity zones for ship building. And I think that if we can incentivize the private sector in the right way, and I think that’s by telegraphing demand, then you will get the private sector to actually invest in these yards. And I think that that’s an important thing.”
Last year the Navy announced the first new public-private partnership for an opportunity zone meant to spur an increase in submarine manufacturing facilities in Mobile, Ala. (Defense Daily, Sept. 20, 2024).
When Sen. Dan Sullivan (R-Alaska) pressed how he will help the U.S. Navy increase shipbuilding capacity and working with allies, Phelan said industrial base improvement should continue to involve partner countries and companies, like Hanwha buying the Philadelphia Shipyard, but that could also include component production outside the U.S.
“Look, this is a critical issue. I think all options have to be on the table. We cannot fall behind. We’re already too far behind. So I think that we have to definitely look at expertise and skill that foreign partners have, whether that means they build components – we need to look at that or, as you know, Hanwha recently bought the Philadelphia shipyard, so they’re going to look at enhancing that and making that better. So bringing their capital and skill sets here, I think will be important. I think this is a very, very critical thing…”
Last month, Trump suggested the U.S. might use allies to build ships to match China’s naval production (Defense Daily, Jan. 7).
Phelan also noted he plans to look at existing contracts to see where they can be modified or changed going forward to address current production timeline deficiencies and better share risk between government and vendor.
While discussing submarine production, Phelan said, “I’ve not reviewed contracts, from what I can see, I’m candidly fearful of what I’m going to find when I read some of these contracts and get in there in terms of their [provisions for the private sector side]…If they need to be restructured, then we’re going to have to do that, but we have to get back to more of a concept of shared risk.”
“I think it’s fine for the private sector to earn a profit. They should make a profit based on the risk that they’re taking, and that’s what we need to really get back to and look at,” he continued.
When Sen. Elizabeth Warren (D-Mass.) pressed Phelan on contracts that limit the Navy’s ability on right to repair for regular maintenance and repairs of its systems without flying in contractors, he agreed that kind of thing sounds like it puts readiness at risk.
“As I mentioned earlier, these contracts are something that really need to be reviewed and better understood. And I think that if confirmed, that’s something I intend to do is focus on that.”
After Sen. Gary Peters (D-Mich.) noted the Constellation-class frigate program is delayed at least three years, Phelan characterized it as “a mess” and he plans to dig into it quickly upon confirmation to understand the issues and tell the committee the root cause of the problem.
He added that from news reports it seems to be requirements creep as the parent design was modified from keeping 80 percent to only 20 percent of the original design.
Last week, former Assistant Secretary of the Navy for Research, Development, and Acquisition Nickolas Guertin said the modified parent design choice for the frigate ended up being more difficult than the Navy thought it would be and the service can only really go fast on a program like that with enough upfront modeling, prototyping and risk reduction analysis (Defense Daily, Feb. 20).
Last year, previous Secretary of the Navy Carlos Del Toro argued before this committee that part of the frigate problems were that the first Trump administration underbid for the ship (Defense Daily, May 24).
“I think we now have a frigate that potentially looks more like a carrier or a battleship, actually, or a destroyer, I would say. Again, I don’t know, until I get in there and go take a look at it. There are a number of issues, and there’s a lot of pointing fingers at one another. If confirmed, I pledge to work with you on this and get our arms around this and get this resolved quickly and understand what we need to do,” Phelan said Thursday.
In December, Program Executive Officer for Unmanned and Small Combatants (PEO USC) Rear Adm. Kevin Smith said the Navy is looking to distribute frigate production the way it has on submarine production to improve production rates (Defense Daily, Dec. 12, 2024).
Separately, Phelan argued his outside business perspective would be a good fit to manage the Navy and Marine Corps.
“If confirmed, I will use my business and military charitable work experience to ensure that our Navy and Marine Corps are prepared to meet the moment. The U.S. Navy and Marine Corps remain the most formidable expeditionary force in the world, but the U.S. Navy is at a crossroads, extended deployments, inadequate maintenance, huge cost overruns, delayed shipbuilding, failed audits, subpar housing and sadly, record high suicide rates are systemic failures that have gone unaddressed for far too long. And, frankly, this is unacceptable.”
He understands that some might question his background as a businessman without uniform experience.
“The Navy and the Marine Corps already possess extraordinary operational expertise within their ranks. My role is to utilize that expertise and strengthen it to step outside the status quo and take decisive action with a results oriented approach.”