Navy's $11 billion carrier falling short on reducing labor costs
By TONY CAPACCIO | Bloomberg | Published: August 17, 2018
Huntington Ingalls Industries, the sole U.S. builder of aircraft carriers, continues to fall short of the Navy's demand to cut labor expenses to stay within an $11.39 billion cost cap mandated by Congress on the second in a new class of warships.
With about 47 percent of construction complete on the USS John F. Kennedy, Navy figures show the contractor isn't yet meeting the goal it negotiated with the service: reducing labor hours by 18 percent from the first carrier, the USS Gerald Ford, which at $13 billion has become the costliest warship ever. They're the first two of a planned, four-vessel, $55 billion program.
It took about 49 million hours of labor to build the Ford, according to the U.S. Government Accountability Office. The Navy's goal for the Kennedy is to reduce that to about 40 million hours.
Huntington Ingalls's performance "remains stable at approximately 16 percent" less, William Couch, spokesman for the Naval Sea Systems Command, said in an email. He said "key production milestones and the ship's preliminary acceptance date remain on track" and there are "ample opportunities" for improvement "with nearly four years until contract delivery and over 70 percent of assembly work" remaining on the vessel's superstructure.
But the Pentagon's naval warfare division, which reports to Ellen Lord, the Defense Department's chief weapons buyer, is less sanguine. It said in a July assessment that Huntington Ingalls "is unlikely to fully recover the needed 18 percent" reduction.
Meeting the labor goal is key to building the carrier within the congressional cap. It also would help demonstrate that the Navy can be trusted to keep costs in line as it seeks public support to increase its fleet to 355 vessels from the 282 that can be deployed today. The Kennedy, which is to replace the four-decade-old USS Nimitz, remains on track for delivery in September 2024.
Navy officials have cited what they describe as progress on the Kennedy as one justification for buying the third and fourth Ford-class carriers under a single contract, a move endorsed in the annual defense policy bill that President Donald Trump signed this week.
The Navy's program manager for the carrier "assesses that although difficult, the shipbuilder can still attain the 18 percent reduction goal," Couch said.
Beci Brenton, a spokeswoman for Newport News, Virginia-based Huntington Ingalls, said "we are seeing the benefits associated with significant build strategy changes and incorporation of lessons learned" from the first vessel.
Brenton said "the current production performance" is 16 percent less than the Ford's estimate at the time of contract award for the second vessel but the reduction is 17 percent when compared with the first vessel's current cost.
Navy Secretary Richard Spencer, who's been closely monitoring the carrier program, told reporters this month that Huntington Ingalls has been on "an impressive learning curve" in reducing labor costs.
But Shelby Oakley, a director with the GAO who monitors Navy shipbuilding, said "with so much of the program underway, it is unlikely that the Navy will regain efficiency." In later phases of a shipbuilding contract, she said, "performance typically degrades, not improves."
It's also "unclear how the lessons learned" from the first ship "could help regain efficiency when they are already baked in to the Navy's overly optimistic estimate for the program," she said.
Asked to comment on the 16 percent reduction in labor costs, Rep. Rob Wittman, a Virginia Republican who heads the House Armed Services seapower panel, said the Navy signed a fixed-price contract "at a cost savings of almost $1.5 billion from the previous aircraft carrier" as they "continue to track toward substantial cost savings."