Naval Shipyards: Key Actions Remain to Improve Infrastructure to Better Support Navy Operations

The poor condition of infrastructure at the Navy's four public shipyards—Norfolk Naval Shipyard, Virginia; Portsmouth Naval Shipyard, Maine; Puget Sound Naval Shipyard, Washington; and Pearl Harbor Naval Shipyard, Hawaii—affects the readiness of the aircraft carrier and submarine fleets they are charged with maintaining. In response to congressional direction to create a plan to address the shipyards' infrastructure deficiencies, the Navy developed the Shipyard Infrastructure Optimization Plan , which the Navy estimates will require $21 billion and 20 years to implement.

Senate Report 115-262 accompanying a bill for the National Defense Authorization Act for Fiscal Year 2019 included a provision for GAO to review the Shipyard Infrastructure Optimization Plan . GAO evaluated the extent to which the plan (1) addresses deficiencies in the infrastructure needed to support the Navy's projected needs, (2) includes reliable cost estimates to address those deficiencies, and (3) identifies clear roles and responsibilities for implementation. GAO reviewed the Navy's shipyard infrastructure plan and cost estimates; conducted site visits to shipyards selected to provide a variety of operational perspectives; and interviewed Navy and shipyard officials.

The Navy's 2018 Shipyard Infrastructure Optimization Plan includes actions to address critical deficiencies at the shipyards, but the extent to which the plan fully addresses those deficiencies remains to be seen as the proposed actions are complex and years away from being implemented. The plan includes steps to address dry dock deficiencies, which the Navy expects willl provide it with the capacity and capability to perform 67 of 68 ship maintenance periods it is currently unable to support through fiscal year 2040. Once area development plans are complete (see figure), the Navy projects it will take at least $21 billion over 20 years to fully implement the plan.

The Navy's initial cost estimate for the plan did not use certain best practices in developing the estimate, such as documenting key assumptions, accounting for inflation, and addressing risks that together could add billions to the ultimate cost. Navy officials stated that high-quality cost estimates will not be possible until they complete modeling and simulation in fiscal year 2020 and subsequently identify the most effective shipyard layouts and prioritize projects in fiscal year 2022. However, without fully following best practices in subsequent estimates, the Navy risks requesting inadequate resources to address shipyard deficiencies.

The Navy created a program management office in June 2018 to oversee the estimated 20-year-long process of optimizing the shipyards. This program office includes representatives from multiple Navy organizations. However, the office has not formally defined the role of shipyard officials. Navy officials stated that they intend to develop an agreement to address roles and responsibilities, but this has not yet been finalized. Without defining clear shipyard roles and responsibilities, the Navy risks an ineffective implementation of its plan.

GAO recommends that the Navy enhance the quality and reliability of its shipyard infrastructure plan by incorporating GAO's cost estimating best practices and determining clear shipyard roles and responsibilities for implementing the plan. The Navy concurred with these recommendations.

The Navy’s public shipyards are critical to maintaining the readiness of its  fleet of nuclear-powered aircraft carriers and submarines, and supporting  ongoing operations around the world. The four shipyards—Norfolk Naval  Shipyard in Virginia, Pearl Harbor Naval Shipyard and Intermediate  Maintenance Facility in Hawaii, Portsmouth Naval Shipyard in Maine, and  Puget Sound Naval Shipyard and Intermediate Maintenance Facility in  Washington—provide the Navy with the capability to perform depot-level  maintenance, emergency repairs, ship modernization, and ship  inactivations of the nuclear fleet.

In 2017, we reported that the shipyards had not been fully meeting the  Navy’s operational needs, partly because of the age and poor condition of  their infrastructure, including their dry docks, facilities, and capital  equipment. For example, we found that during fiscal years 2000 through  2016, inadequate facilities and equipment led to maintenance delays that  contributed in part to thousands of lost operational days—days when  ships were unavailable for operations—across the Navy’s submarine and  aircraft carrier fleets. Further, we found that the shipyards would not be  able to support almost a third of planned depot maintenance periods for  the current fleet of aircraft carriers and submarines over the next two  decades. We recommended that the Navy develop a plan to improve the  shipyards’ infrastructure and incorporate results-oriented practices in its  efforts. The Department of Defense (DOD) agreed with the  recommendations. Information on the status of DOD’s efforts to  implement the recommendations is included in appendix I.

We also estimated in 2018 that from fiscal year 2008 through fiscal year  2018, the Navy had spent more than $1.5 billion in fiscal year 2018  constant dollars to support attack submarines that provided no  operational capability—those sitting idle while waiting to enter the  shipyards, and those delayed in completing their maintenance at the  shipyards. We recommended that the Navy conduct a business-case  analysis to inform its allocation of maintenance workload across the  public and private shipyards. DOD concurred with this recommendation,  and in response, the Navy produced a 5-year workload-management plan  for the nuclear-maintenance enterprise, which we discuss in more detail  in appendix II.

Recognizing that existing shipyard facilities may not be ideally configured  to efficiently and effectively support the Navy’s readiness needs, the  Senate directed the Secretary of the Navy to submit an engineering  master plan for optimal placement and consolidation of facilities and  major equipment to support depot-level repair functions, as well as an  investment strategy addressing the facilities, major equipment, and  infrastructure requirements of the shipyards. In response, the Navy  issued the Shipyard Infrastructure Optimization Plan (the plan, also  known as the SIOP), in February 2018. The SIOP is the Navy’s  investment plan to improve the conditions of the shipyards. The plan  calls for the replacement or modernization of critical shipyard  infrastructure—including dry docks, facilities, and a portion of capital  equipment—over 20 years, at an estimated cost of $21 billion.  Recognizing the importance of this plan to improving Navy readiness, the  Senate included a provision for us to review the Navy’s plan and its efforts to limit lost operational days. This report evaluates the extent to  which the plan (1) addresses deficiencies in the infrastructure needed to  support the Navy’s current and future needs; (2) includes reliable cost  estimates to address those deficiencies; and (3) identifies clear roles and  responsibilities for implementation. Information on how the Navy’s 5-year  workload-management plan for the nuclear-maintenance enterprise, both  public- and private-sector capacities, is likely to affect submarine idle time  and maintenance delays is included in appendix II.

For our first objective, we reviewed the Shipyard Infrastructure  Optimization Plan and other Navy documents to identify deficiencies in  shipyard infrastructure. We also interviewed Navy and shipyard officials at  the four naval shipyards and toured three of the four shipyards to identify  any challenges and improvements in shipyard infrastructure. To provide a  mix of perspectives for our site visits, we selected one shipyard that  repairs both aircraft carriers and submarines (Puget Sound), one shipyard  that repairs submarines only (Portsmouth), and the shipyard that was the  pilot for the modeling and simulation effort (Pearl Harbor). We compared  the Navy’s 2020 shipbuilding plan with the 2018 shipbuilding plan used in  developing the SIOP to identify changes to the planned carrier and  submarine force structure and how those changes may affect the number  of depot maintenance availabilities the shipyards will be expected to  support. Finally, we analyzed Navy documents and interviewed officials to  understand the SIOP implementation steps and timeline.

For our second objective, we reviewed the plan and supporting  documentation, including written responses to our data-collection request;  detailed shipyard facilities estimates; and a list of capital equipment.  Additionally, we interviewed Navy program office officials to discuss how  they had developed the plan’s cost estimate and the purpose of the  estimate. Our cost analysts compared the data received with the best  practices identified in the GAO Cost Estimating and Assessment Guide,  which we developed to establish a consistent methodology that can be  used across the federal government to develop, manage, and evaluate  cost estimates. The cost analysts tailored their methodology to reflect an  appropriate view of the criteria based on the maturity of the program,  specifically taking into account that this plan contained a first estimate.

We then shared our initial determinations with Navy officials and  incorporated their comments into our final determination, where  appropriate.

For our third objective, we reviewed the plan and other program  documents to identify stakeholder organizations and the extent to which  the Navy had identified roles and responsibilities for the plan’s  implementation. We then interviewed Navy officials about how the plan  identifies stakeholder roles and responsibilities and compared these to  Standards for Internal Control in the Federal Government. We also  spoke with officials from all four public shipyards about their perspectives  on the relationship between the shipyards and the program office.

To describe how the Navy’s 5-year workload-management plan for the  nuclear-maintenance enterprise is likely to affect submarine idle time and  maintenance delays, we reviewed the Navy’s 5-year nuclear-maintenance  workload-management plan. We also interviewed officials from both the  public and private shipyards about how the workload-management plan  will likely affect submarine idle time and maintenance delays, and any  challenges to executing it. We also compared the assumptions in the  Navy’s 5-year workload-management plan against our recent work  related to submarine maintenance, including workforce experience,  maintenance completion timeliness, and submarine idle time. Finally, we  reviewed Congressional Budget Office documentation comparing the  costs of submarine maintenance at public and private shipyards.

To address all of our objectives, we interviewed or obtained  documentation from the Office of the Chief of Naval Operations; Naval  Sea Systems Command; PMS 555 (a Naval Sea Systems Command  program office); Norfolk Naval Shipyard; Portsmouth Naval Shipyard;  Puget Sound Naval Shipyard and Intermediate Maintenance Facility;  Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility;  General Dynamics Electric Boat; and Huntington Ingalls Industries– Newport News Shipbuilding.

We conducted this performance audit from October 2018 to October 2019  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

History and Purpose of the Naval Shipyards

The naval shipyards were originally designed to build wind- and steam- powered ships and range in age from 111 years to 252 years old (see fig.  1). Over the years, the Navy has adapted them into highly industrialized,  large-scale operations that are essential to national defense and fulfill the  legal requirement for DOD to maintain a critical logistics capability that is  government owned and operated to support an effective and timely  response for mobilization, national defense contingency situations, and  other emergency requirements. However, as we have reported, the  shipyards’ age, residual configuration for the shipbuilding mission, and  poor condition reduces their efficiency for their modern-day mission of  repairing nuclear-powered ships and submarines.

The naval shipyards perform depot-level maintenance, which involves the  most comprehensive and time-consuming maintenance work, including  ship overhauls, alterations, refits, restorations, nuclear refuelings, and  inactivations—activities crucial to supporting Navy readiness. This  maintenance is performed during periods designated in the Navy’s  Optimized Fleet Response Plan, an operational schedule of maintenance,  training, and deployment periods for the entire fleet. It is designed to  maximize the fleet’s operational availability to combatant commanders  while ensuring adequate time for the training of personnel and  maintenance of ships. We reported in 2016 that successful  implementation of the Optimized Fleet Response Plan depends, in part,  on the shipyards completing maintenance on time and that maintenance  delays reduce the time that ships are available for training and  operations. As a result, successful implementation of the Optimized  Fleet Response Plan is essential to the Navy’s ability to maintain  readiness and support operational needs.

The Navy’s Shipyard Infrastructure Optimization Plan

The Navy developed the congressionally directed Shipyard Infrastructure  Optimization Plan (the plan) to mitigate infrastructure deficiencies at the  public shipyards. For some infrastructure, the Navy had preexisting  planning that it used to outline specific mitigation projects that would  address deficiencies. For other aspects of its infrastructure, the plan  outlines the Navy’s strategy for developing a more detailed mitigation  approach. The plan serves as the Navy’s engineering analysis and  strategy for the optimal placement of facilities and major equipment at  each public shipyard, including a 20-year investment plan for  infrastructure investments needed to improve shipyard performance. The  plan proposes mitigations to address limitations with three major facets of  the public shipyards’ operations: their dry docks, facilities, and capital  equipment (see fig. 2).

Navy officials said they integrated previous studies in these three areas to  create the plan. For example, Naval Sea Systems Command  (NAVSEA)—which is responsible for program management of the  shipyards—completed a dry dock study that identified gaps in capacity  and configuration, which served as the basis for the dry dock portions of  the plan. In addition, the Navy had previously developed capital  investment strategies intended to help improve the state of the shipyards’  facilities and equipment, which were also included in the plan. The Navy  estimates that the plan could eventually save 328,000 labor-days each  year and recover most of the maintenance periods it currently cannot  support.

Capital Planning and Reliable Cost Estimates

Capital planning is the process by which an organization prepares for the  acquisition of capital assets such as the facilities and equipment in the  Navy’s plan. Congress, the Office of Management and Budget, and we  have identified the need for effective capital planning, which can help  ensure that capital funds are spent productively. In the overall capital  programming process, planning is the first phase, and it drives the  remaining phases of budgeting, procurement, and management.

For decision makers to conduct effective capital planning, they must have  reliable cost estimates. A reliable cost estimate is critical to the success of  any program. Such estimates provide the basis for informed investments,  realistic budgets, meaningful measurement of progress, proactive course  correction, and accountability for results. According to the Office of  Management and Budget, cost estimates should be well-documented and  updated on a regular basis. Estimates should also encompass life-cycle  costs of the program. Without high-quality estimates, agencies are at risk  of experiencing cost overruns, missed deadlines, and performance  shortfalls.

The GAO Cost Estimating and Assessment Guide has identified a  number of best practices grouped into four “characteristics” that are the  basis of effective program cost estimating and should result in reliable  and valid cost estimates that management can use to make informed  decisions, as shown in figure 3 and discussed below.

Comprehensive: A comprehensive cost estimate includes all costs of  the program over its complete life cycle, from the start of the program  through design, development, deployment, operation and  maintenance, and retirement. It also fully defines the program, reflects  the current schedule, and is technically reasonable. Comprehensive  cost estimates provide sufficient detail to ensure that cost elements  are neither omitted nor double counted. Finally, where information is  limited and judgments must be made, the comprehensive cost  estimate documents all cost-influencing ground rules and  assumptions.

Well-documented: A well-documented cost estimate is supported by  detailed documentation that describes how it was derived and how the  funds will be spent in order to achieve a given objective. Therefore,  the documentation includes such things as the source data used, the  calculations performed and their results, and the estimating  methodology. Moreover, this information is captured in such a way  that the data used can be easily replicated and updated. The  documentation also discusses the technical baseline and how the  data were standardized. Finally, the documentation includes  evidence that the cost estimate was reviewed and accepted by  management.

Accurate: An accurate cost estimate provides results that are  unbiased, and is not overly conservative or optimistic. An estimate is  accurate when it is based on an assessment of the most likely costs,  adjusted properly for inflation, and contains few, if any, minor  mistakes. In addition, an accurate cost estimate is updated regularly  to reflect significant changes in the program—such as when  schedules or other assumptions change—and actual costs, so that it  always reflects the program’s current status. During the updating  process, differences between planned and actual costs are  documented, explained, and reviewed. Among other things, the  estimate is grounded in a historical record of cost estimating and  actual experiences on comparable programs.

Credible: A credible cost estimate discusses any limitations of the  analysis resulting from uncertainty or biases surrounding the data or  assumptions. Major assumptions should be varied and other  outcomes recomputed to determine how sensitive they are to changes  in the assumptions. Risk and uncertainty analysis are performed to  determine the level of confidence associated with the estimate.  Finally, an independent cost estimate is developed by a group outside  the organization to determine whether other estimating methods  produce similar results.

The Navy’s Plan Identifies Critical Shipyard Deficiencies, but Planning Has Not Been Completed, and Implementation Will Be Complex, Taking over 20 Years

The Shipyard Infrastructure Optimization Plan has identified a number of  infrastructure deficiencies at the Navy’s four public shipyards—including  deficiencies in dry docks, facilities, and capital equipment—that  negatively affect their ability to support the Navy’s current and future force  structure. However, the extent to which the Navy’s plan addresses these  deficiencies remains to be seen because facility planning has not been  completed and the proposed actions are complex and years away from  being implemented.

The Plan Generally Addresses Dry Dock Deficiencies, but Planned Improvements Will Not Be Complete Until 2035

The Navy’s plan outlines steps that generally address the critical dry dock  deficiencies the Navy has identified, although it does not anticipate  completing these steps until 2035. Of the shipyards’ 18 dry docks, the  plan states that eight require modernization and recapitalization projects  to meet the Navy’s operational needs, including accommodating new  classes of ships. If all of the projects are completed as planned, the Navy  anticipates that it will be able to recover 67 of the 68 maintenance periods  that it currently cannot support through fiscal year 2040. According to  the Navy, without these planned dry dock investments, the Navy would  lack sufficient capacity for about a third of its planned maintenance  periods at the shipyards and would have to defer maintenance for some  ships. This could result in ships being unavailable for use until a dry dock  is available, effectively reducing the size of the fleet available for  operational missions. However, the extent to which the plan’s actions will  address the shipyards’ dry dock deficiencies remains to be seen because  the initiation and completion of many of these projects is years away.

Built in 1919, dry dock 3 is not certified to  handle nuclear fuel, which means submarines  must be defueled elsewhere before this dock  can be used, according to Navy officials.  Additionally, because of its shallow depth, the  Navy can move Los Angeles–class  submarines into or out of the dock only during  high tides. Even then, the shipyard has to  remove portions of the submarine to decrease  weight and over-flood the dock to create  enough clearance for the boat. Shipyard  officials said dry dock 3 could be modified to  create a new multimission dry dock (M2D2)  that would provide an additional spot to dry  dock an aircraft carrier on the West Coast.  This would provide the redundancy necessary  to allow the Navy to perform significant  seismic upgrades to dry dock 6, which faces  significant seismic risks and is the only dry  dock on the West Coast capable of  accommodating an aircraft carrier. Navy  officials said the final decision regarding the  location of the M2D2 is pending a formal  Environmental Impact Study. insufficient capacity to support the longer Virginia-class submarines  with the Virginia Payload Module (see fig. 4),  lack of redundancy for a West Coast aircraft carrier, and  various other capacity and capability deficiencies that hinder the  maintenance process such as small dry docks that require time- consuming workarounds or an inability to handle nuclear fuel (see  sidebar).

Though the Navy intends to recover most of the missed maintenance  periods with these projects, according to Navy officials, the plan was  developed using then-current estimates of fleet size and shipbuilding  schedules derived from the fiscal year 2017 force structure projection.  The Navy has since revised that projection, and the fiscal year 2020  shipbuilding projection increases both the number and accelerates the  build rate of the nuclear powered ships supported by the naval shipyards  (see fig. 5).

Program office representatives told us that the plan, if implemented, will  support the higher numbers and accelerated schedule of the Navy’s 2020  shipbuilding plan. Officials also stated that they plan to stay aware of  further changes to depot maintenance requirements by attending annual  fleet scheduling conferences in the future. These conferences are  intended to reach a Navy-wide consensus on, among other things,  changes to shipbuilding plans and the schedules for various ships to  undergo their dry dock maintenance. Program officials noted that their  presence at the conference allows them to update the SIOP in the event  that there are additional changes to the shipbuilding schedule in the  future. We have previously recommended that the Navy assess the risks  to implementing shipyard infrastructure improvements; changes to the  shipbuilding schedule are one such risk. Because of our previous  recommendation and the Navy’s process for reviewing changes, we are  not making an additional recommendation on this matter.

Planning to Fully Address Shipyard Facility Deficiencies Is Ongoing, with Improvements Expected to Take at Least 20 Years to Implement

It is too soon to determine whether the Navy’s plan will fully address the  shipyards’ facility deficiencies as the Navy has not yet completed the  complex effort necessary to develop detailed facility optimization plans for  each shipyard. Implementing the plan will be a complex, multiyear effort  to redesign the workflows at each shipyard and will involve several steps  (see fig. 6).

As part of the facility optimization effort, the Navy will seek to address  several critical facility deficiencies it has identified at the public shipyards  that negatively affect the Navy’s ability to complete maintenance on time.  These include  the average age of shipyard production shop facilities is 76 years,  exceeding DOD’s expected average service life of 67 years for  facilities;  the average condition rating of shipyard production shop facilities is  66, which is considered poor, falling below the Navy standard of 80;   and  inefficient facility layout at the shipyards that has not been optimized  to support the maintenance, repair, and disposal of nuclear-powered  Navy ships and submarines.

According to the Navy, the shipyards were originally designed to support  the construction of ships and submarines and not the maintenance  mission for the nuclear fleet that they perform today. Because the  shipyards were designed for a different mission, key facilities such as  maintenance shops may be located at significant distances from where  the majority of work is performed. As a result, it is not uncommon for  workers to walk several miles each day because of the inefficient layout  of the shipyards, according to shipyard officials. For example, building  155 at Pearl Harbor Naval Shipyard, which is actively involved in  submarine maintenance, is about 1/3 mile away from the nearest dry  dock. This distance creates additional travel time for both personnel and  material, resulting in maintenance inefficiencies. We have noted  previously that waterfront locations are often ideally located to support the  shipyards’ maintenance mission, but that the challenges of dilapidated  structures, historical designations, and other issues can make it difficult  for the shipyards to make full use of the locations (see sidebar).

Building 6 at Pearl Harbor Naval Shipyard is a  former foundry that has not been used since  the 1980s. The building’s distinctive 3-tier roof  architectural style make it a historic facility  and therefore difficult to restore and  modernize, according to shipyard officials.  Because of its size and close proximity to the  waterfront, shipyard officials would like to use  the facility to support the maintenance  mission, rather than let it sit empty. However,  the building has extensive health and safety  issues and also requires environmental  remediation.

The Navy’s plan estimates that the implementation of facility optimization  will take at least 20 years and require increased spending for facility  construction and modernization over that time. In addition, this will be a  highly complex effort to redesign four large operational industrial  installations, and the time frame for its completion remains uncertain at  this stage. The modeling and simulation of shipyard production facilities  began in February 2019 and will not be completed until 2020. According  to program office representatives, Pearl Harbor’s “current state” facility  model is scheduled to be completed near the end of fiscal year 2019, and  the optimal facility model is scheduled to be completed in the 2nd quarter  of fiscal year 2020 (see fig. 7). Modeling and simulation at the Norfolk,  Portsmouth, and Puget Sound shipyards are not scheduled to be  completed until the end of fiscal year 2020. However, some shipyard  officials have expressed doubt about this timeline, stating that the  modeling and simulations may take more effort to complete. For example,  officials from Puget Sound Naval Shipyard told us they have done some  degree of industrial modeling and simulation since 2007, but never at this  magnitude and with this many variables. Because the modeling and  simulation effort is so complicated, officials said it may be necessary to  use the model to optimize the most critical parts of the industrial process  first before gradually adding others. Shipyard officials also said that  running the models will require a highly skilled and interdisciplinary team  due to the complexity of the effort.

If the simulations are completed as planned, the Navy expects to use  them to complete the shipyard Area Development Plans in fiscal year  2021 and a prioritized list of facility development projects by fiscal year  2022. Navy officials said the list would likely inform facility investments for  the following 5 years. Navy officials told us that they are suspending work  on many facilities’ projects in order to avoid funding projects that do not  serve the larger optimization goal, although some critical projects have  been allowed to continue because they provide improvements needed to  meet immediate operational needs, such as dry dock improvements.  However, according to Navy officials, some projects have been deferred  until 2022 when the prioritized list of projects to support shipyard  optimization is expected to be complete.

In addition, specific actions to address other infrastructure deficiencies at  the shipyards are not addressed in the current plan, adding additional  uncertainty. Navy officials explained that the optimized layout of shipyard  facilities, which is still in early development, will drive the future efforts  that address deficiencies associated with roads, utilities, sidewalks, and  information-technology systems, which are not addressed in the plan.  These officials explained that it will likely be several years before they can  incorporate specific actions into the plan to address these deficiencies.

Planning to Fully Address Equipment Deficiencies Awaits Completion of Facility Optimization Effort, with Improvements Expected to Take at Least 20 Years

The Navy plans to mitigate equipment deficiencies at the shipyards  through increased funding to replace aged shipyard equipment.  Specifically, the Navy’s plan states that funding levels for shipyard capital  equipment will need to increase from historical levels to about $150  million annually and be sustained for at least 20 years to bring the  average age of shipyard equipment to within industry standards.  However, it is not clear whether this will fully address shipyard equipment  deficiencies, because the Navy officials stated that they will not be able to  create a more detailed goal until after the facility modeling and simulation  effort is complete.

The Navy’s plan states that most shipyard capital equipment is beyond its  effective service life, obsolete, unsupported by the original manufacturers,  or at risk of failure. According to the plan, the average age for industrial  equipment in the private sector is 7 to 10 years, while the average age of  equipment at the four shipyards is 24 years. According to the Navy’s plan,  aged equipment can increase the costs of depot maintenance for  submarines and aircraft carriers and place schedules at risk. Modernizing  the capital equipment at naval shipyards is essential to improving their  efficiency, reducing maintenance costs, and supporting fleet readiness,  according to the plan. The capital equipment deficiencies identified by the  Navy’s plan are consistent with our recent work, which found that the  equipment at the shipyards was, on average, past its expected service life  (see table 1).

However, it is too early to determine whether the Navy’s plan to increase  equipment funding will fully address the shipyards’ equipment  deficiencies. Navy officials told us that they have not yet established a  specific improvement goal for shipyard capital equipment, because  developing this metric will not be possible until after the modeling and  simulation phase to develop optimized facilities is complete. For  example, during the modeling and simulation phase to optimize shipyard  operations, the Navy will likely make decisions that will affect the amount  and cost of capital equipment, such as concentrating some specialized  equipment at certain yards, standardizing equipment items and  purchasing them in bulk at lower cost, or purchasing more efficient items  that may reduce the quantity needed. Officials stated that they developed  a rough order-of-magnitude estimate of the cost to replace aging  equipment. The Navy has, in the past, spent about $50 million to $60  million annually to invest in capital equipment at the shipyards. However,  the Navy estimates that it will require average annual funding of $150  million over the course of 20 years at a total cost of $3 billion in order to  modernize capital equipment to within private industry standards. If this  effort is sustained over the 20 years identified in the plan, the capital  equipment deficiencies at the shipyards will not be fully addressed until  fiscal year 2040. However, this estimate is based off an earlier Navy  study that identified a need for annual average funding of $150 million  over a longer, 30-year period. According to this earlier equipment study,  the 10 additional years of investment would total $1.5 billion. Navy  officials have stated that they will attempt to address the shipyards’  equipment deficiencies over the 20-year time frame by taking advantage  of different equipment purchasing strategies and gaining efficiencies from  the facility optimization effort that will allow the Navy to recapitalize  equipment more effectively than was possible with its previous strategies.  However, the efficacy of these strategies cannot be assessed until the  Navy completes its modeling and simulation phase in fiscal year 2020  and develops more detailed plans for recapitalizing its shipyard  equipment.

The Navy’s Initial Cost Estimate of $21 Billion to Implement Its Plan Is Preliminary and Does Not Identify All Required Resources

The Navy estimates the Shipyard Infrastructure Optimization Plan will  cost about $21 billion to implement; however, the estimate is preliminary  and therefore is not complete or reliable. To develop the plan, the Navy  first identified deficiencies in three major categories—dry docks, facilities,  and equipment—and then developed a cost estimate to understand the  resources it would need to mitigate those deficiencies. For the dry dock  and equipment portions of the estimate, the Navy was able to build on  previous cost estimates that had investigated additional investments in  those areas. For the facilities portion of the estimate, the Navy assumed  total reconstruction of most current facilities based on current processes,  using notional square-footage facility requirements in the absence of a  more detailed engineering assessment. The initial estimated cost to  implement this plan over 20 years includes $4 billion for improvements to  the dry docks, $14 billion for facilities, and $3 billion for capital equipment.

Navy officials stated that they wanted to provide Navy leadership and  congressional decision makers with a rough order-of-magnitude estimate,  not a budget-ready cost estimate. That is why the estimate was released  in its 2018 report to Congress, instead of after the Navy completes its  shipyard modeling and simulation effort, which they believe will give them  a more accurate picture of the necessary investments. For example, the  Navy acknowledges that several expected costs are not included in its  plan, such as those for utilities, roads, and environmental remediation.  Officials with the Navy agree that including these will likely add hundreds  of millions of dollars to the plan’s cost. However, they decided that it was  not useful to calculate these costs before the facility optimization process  was complete, since the facility layout is going to have an effect on the  placement of roads and utilities, for example. Navy officials stated that the  initial cost estimate was prepared using applicable Navy guidance and  that they plan to develop a more detailed cost estimate after the Navy has  finished creating digital models of the shipyards and they start prioritizing  specific projects, which they estimate will be in fiscal year 2021.

We found that the Navy’s initial cost estimate minimally met two  characteristics of a reliable cost estimate, partially met one, and did not meet one, as shown in table 2. The GAO Cost Estimating and  Assessment Guide identifies four “characteristics” of a reliable cost  estimate as well as associated cost estimating best practices as  previously discussed.

Specifically, we found that the initial cost estimate was not reliable  because it was not developed using the following best practices:

Program Baseline: The Navy’s plan includes some pieces of a  program baseline, such as a schedule and goals, but does not fully  establish a common definition of the program from which all cost  estimates could be derived. A program baseline for cost and schedule  may be established prior to contract award or funding work and allows  decision makers to track and report on cost and schedule deviations  above certain thresholds from initial estimates throughout the life of  the project, to facilitate oversight. Navy officials stated that the plan’s  first phase is meant to serve as the program baseline, containing all  relevant data to address systemic issues across all four shipyards.  However, only the facilities estimate was developed specifically for the  plan; the dry dock and equipment estimates came from previous Navy  efforts, conducted under different conditions. Without a program  baseline, a cost estimate will not be based on a complete program  description and will lack specific information regarding technical and  program risks.

Work breakdown structure: The Navy’s plan includes a broad list of  high-level goals, such as timelines for completing major lines of effort,  but the estimate does not include a more detailed work breakdown  structure. Including a work breakdown structure 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. This allows program office and shipyard  personnel to accurately track and closely monitor the progress of  efforts to meet the SIOP’s goals. In addition, including this structure  would ensure consistency across the various cost estimating  contributors, the shipyards, and NAVSEA, and would ensure that  there were no omissions from the analysis and that costs are not  double counted. Navy personnel stated that a more detailed work  breakdown structure would not be possible until after the modeling  and simulation of the shipyards is complete, after fiscal year 2020.

Methodology and key assumptions: The Navy’s plan describes  assumptions, but not the methodology used to develop the initial cost  estimate. For example, the plan states that the size and configuration  of existing facilities make it difficult to increase capacity without a  significant investment, but does not describe how the Navy intends to  address the issue of a larger fleet. Cost estimates are often built  around assumptions—such as the rate of inflation or material costs— because they are attempting to predict future costs. However, the plan  must include a clearly identified methodology to be considered well- documented according to GAO best practices. 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.

Inflation: The estimate did not account for inflation, which is an  important component of an accurate cost estimate. If an estimate  does not include adjustments for 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. If a mistake is made or the inflation  amount is not correct, cost overruns can result.

Navy officials noted that they are currently  evaluating the use of a covered dry dock  model at the shipyards, which could result in  significant maintenance efficiencies. A  covered dry dock is a dry dock with an area  built over it, which allows the shipyard to  develop production space that can minimize  personnel and materiel movement. However,  the Navy is still investigating the cost benefit  of the covered dry dock, which means that  there could be additional costs or  complications not included in the current plan. not include a cost risk or uncertainty analysis. A comprehensive  analysis of risk and uncertainty in the estimate is an important  component of an accurate cost estimate. Navy officials have identified  a number of risks to implementing the plan, such as the costs of  complying with historical preservation requirements, environmental  remediation, and the acquisition or adaptation of alternative  workspace for shipyards to use while facility upgrades are performed.  Officials have stated that these factors could add hundreds of millions  of dollars more to the total cost of the plan. For example, an official  from Norfolk Naval Shipyard said that environmental remediation of  certain sites at Norfolk alone could easily cost millions of dollars to  execute. Furthermore, the plan excluded certain costs that the Navy  will necessarily incur in implementing it, such as those related to  utilities or roads. Because cost estimates predict future program  costs—sometimes for projects that have never been built before— Navy officials always associate uncertainty with them (see sidebar).  Lacking risk and uncertainty analysis, management cannot determine  a defensible level of contingency reserves that is necessary to cover  increased costs resulting from unexpected design complexity,  incomplete requirements, technology uncertainty, and other  uncertainties. While the Navy did not initially include mitigation  strategies for these risks in the plan, Navy officials have stated that  they are involved in a number of efforts to address them.

Sensitivity: Our analysis showed that the Navy’s estimate does not  include a sensitivity analysis, which evaluates the effect that individual  elements or assumptions can have on the estimate. Without a  sensitivity analysis, cost estimators and management will not have a  full understanding of the implications that changes in ground rules and  assumptions can have. Officials have stated that they plan to include  a sensitivity analysis in their more detailed cost estimate in 2021.

Independent Cost Estimate: Our analysis showed that the Navy’s  plan does not include an independent cost estimate. An independent  cost estimate provides an evaluation of the quality, accuracy, and  reasonableness of a program’s cost estimate by a neutral third-party,  with emphasis on specific cost and technical risks. It also helps to  identify risks associated with budget shortfalls or excesses. Navy  officials noted that an independent cost estimate was likely not  feasible at this point, considering that the effort was still in its very  early stages. However, the officials stated that given the size and  projected cost of the plan, they anticipate they will likely seek out an  independent cost estimate in the future.

Navy officials said they plan to develop a more detailed cost estimate  after the Navy has finished creating digital models of the naval shipyards  and identifying their optimized layouts, which they estimate will be in fiscal  year 2021. However, 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. For example, as we noted previously, not adjusting for inflation is  likely to underestimate the cost of the program. Navy officials have  expressed openness to the best practices as they prepare the more  detailed cost estimate. However, without incorporating these cost  estimating best practices that inform Navy decision makers and Congress  of the full costs of shipyard optimization, the Navy is at risk of not  identifying the resources it needs to fully implement its optimization plan.  In addition, without fully accounting for all costs, management will have  difficulty successfully planning program resource requirements.

The Navy Has Created a Management Structure to Oversee the Shipyard Optimization Effort, but Has Not Yet Identified Clear Roles and Responsibilities for Shipyards

The Navy created a management structure—a program management  office (referred to as PMS 555)—to oversee the estimated 20-year-long  process of optimizing the shipyards in June 2018. Shortly thereafter, in  September 2018, the Assistant Secretary of the Navy for Research,  Development, and Acquisition stated that, though the shipyard  optimization effort did not fit all the characteristics of a formal acquisition  program, its size and importance required the Navy to treat it as one. As a  result, the newly created program office was designated as the  acquisition lead for all efforts related to shipyard optimization. The  program office was also required to report on its progress quarterly to an  executive oversight council consisting of leadership representatives from  a number of Navy organizations.

This program office includes representatives from Navy organizations that  would necessarily be involved in shipyard construction, including Navy  Installations Command and Naval Facilities Engineering Command.  Navy officials explained that NAVSEA is managing the implementation of  the plan through the program office; Navy Installations Command  provides installation support through management of shipyard land and  facilities; Naval Facilities Engineering Command provides acquisition and  technical expertise for real estate, facilities, and related environmental  studies; and the shipyards implement the plan’s activities (see fig. 8).

In the year since its creation, the program office told us they have begun  taking steps to prioritize shipyard projects and complete the modeling and  simulation of the existing shipyards. The office has also developed its  internal organizational structure, which includes describing its  relationships to essential stakeholders such as Navy Installations  Command and Naval Facilities Engineering Command.

However, the program office has not yet formally clarified the extent to  which it will interact with the shipyards or its expectations of support from  the shipyards. For example, officials with the program office have stated  that they plan to locate new staff both in Washington, D.C., and at field  offices at each of the shipyards. However, neither the program office nor  the shipyards yet know where the field offices will fall in the shipyards’  reporting structures—including the chain of command—or precisely what  their roles will be. According to program office representatives, the Navy  is in the process of developing documentation, including a memorandum  of agreement, to formally codify roles and responsibilities for executing  the plan among the program office and its field offices, the shipyards, and  other Navy organizations to accomplish these tasks, but did not provide  an estimated time frame for when these roles and responsibilities would  be determined. Officials said their current plan is for field offices to serve  as extensions of the program office and that they will help the shipyards  to oversee the execution of the plan. Program office representatives  intend for shipyard personnel to help define project requirements, collect  data, provide input on the digital shipyard models, and communicate the  plan among the entire shipyard workforce. However, the development of  the memorandum of agreement has been extended.

Standards for Internal Control in the Federal Government states that  management should establish an organizational structure, assign  responsibility, and delegate authority to achieve the entity’s objectives.  Shipyard officials told us that the current lack of clarity has created  concerns and confusion about what their roles should be during  implementation. For example, shipyard officials were uncertain in what  fiscal years certain positions would be needed for implementing the plan,  and shipyard officials were not always involved with planning efforts. In  addition, according to NAVSEA officials, the lack of clear roles and  responsibilities has hampered several long-term planning efforts,  including identifying and tracking performance metrics. According to Navy  officials, the program office has since received funding that it intends to  use to hire additional staff, and they intend to embed some of those staff  members at the shipyards to coordinate with shipyard personnel.  However, at present, shipyard personnel have stated that they are  generally left to interpret and enact implementation activities, which could  lead to inefficient or duplicative efforts. Given the time frames of the plan,  even minor delays due to inefficiency could result in projects being  postponed and critical ship maintenance being deferred. Establishing  clear roles and responsibilities for the shipyards would better position the  Navy to effectively implement the plan.

The Navy’s four public shipyards are critical for repairing and maintaining  the Navy’s nuclear fleet, and the Navy spends millions of dollars annually  on facilities and equipment in order to sustain shipyard performance.

Inefficient shipyards can lead to longer maintenance times, increased  costs, and reduced readiness. Lack of adequate capacity can also result  in critical parts of the fleet sitting idle awaiting maintenance, incurring  hundreds of millions of dollars in operating and support costs without  providing any operational benefit. We note that the shipyards are  struggling to meet the Navy’s current needs with inadequate facilities,  aging equipment, poorly configured dry docks, and an ineffective  management approach for addressing these issues. The Navy is  attempting to address these concerns with its Shipyard Infrastructure  Optimization Plan. However, the cost estimate for implementing this plan  is preliminary and therefore likely under states the costs of what will be a  decades-long effort. 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. 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.

We are making the following four recommendations to the Department of  Defense:  The Secretary of the Navy should ensure that the shipyard optimization  program office (PMS 555) include all costs—such as costs for program  office activities, utilities, roads, environmental remediation, historical  preservation, and alternative workspace—when developing its second,  more detailed, cost estimate. (Recommendation 1)

The Secretary of the Navy should ensure that the shipyard optimization  program office (PMS 555) use cost estimating best practices—as outlined  in the GAO Cost Estimating and Assessment Guide—in developing its  second cost estimate, including a program baseline, work breakdown  structure, a description of the methodology and key assumptions,  inflation, fully addressing risk and uncertainty, and a sensitivity analysis.  (Recommendation 2)

The Secretary of the Navy should ensure that the shipyard optimization  program office (PMS 555) obtain an independent cost estimate of the  program prior to the start of its project prioritization effort.  (Recommendation 3)

The Secretary of the Navy should ensure that the shipyard optimization  program office (PMS 555), in coordination with relevant stakeholders,  establish clear roles and responsibilities for the shipyards involved in the  Shipyard Infrastructure Optimization Plan. (Recommendation 4)

We provided a draft of this report to DOD for review and comment. In  written comments provided by the Navy (reproduced in appendix III),  DOD concurred with our recommendations. The Navy also provided  technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Secretary of the Navy, and  other interested parties. In addition, the report is available at no charge on  the GAO website at http://www.gao.gov.

If you or your staff have questions about this report, please contact me at  maurerd@gao.gov or (202) 512-9627. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made key contributions to this report are  listed in appendix IV.

Appendix I: Status of Recommendations from Naval Shipyards: Actions Needed to Improve Poor Conditions that Affect Operations (GAO-17-548) as of August 2019

Appendix II: The Navy’s Workload Management Plan Identifies Efforts to Address Shipyard Capacity Issues, but Success Depends on Optimistic Assumptions

The Navy’s Workload Management Plan Includes Efforts to Address Capacity Issues at the Public Shipyards That Have Contributed to Maintenance Delays and Lost Operational Days

The Navy released a 5-year plan for depot maintenance on submarines in  December 2018, for fiscal years 2020 through 2024. The workload plan  identifies efforts to address shipyard capacity issues across the nuclear- maintenance enterprise. According to the workload plan, the root cause of  submarine idle time and associated loss of operational availability is  largely that public shipyard capacity is not keeping pace with growing  maintenance requirements. As a result, the public shipyards have  historically struggled to complete maintenance on time, as shown in table  4.

As we have previously reported, maintenance on ships and submarines  may be delayed as a result of a number of factors, such as workforce  gaps and inexperience, the poor condition of facilities and equipment,  parts shortages, changes in planned maintenance work, and weather.

The Navy’s workload plan discusses several efforts to improve  maintenance performance at the public shipyards.

Increasing hiring for the public shipyards. The Navy hired over  20,600 workers during fiscal years 2013 through 2018. After  accounting for attrition, these hires increased total end strength from  29,400 to 36,700.

Accelerating training for new employees. The effect of significant  attrition and hiring resulted in approximately 56 percent of the  shipyard production workforce having fewer than 5 years’ experience.  The public shipyards implemented new approaches for accelerating  training to develop skills in a relatively inexperienced workforce.

Accounting for new employees’ lower proficiency and  productivity. Shipyard officials have noted that employees with less  than 5 years’ experience are generally not as skilled or productive as  more experienced personnel. The Navy has established more realistic  maintenance planning parameters to account for the lower proficiency  and productivity of recently hired, less experienced workers.

Improving the definition of workload requirements. Naval Sea  Systems Command (NAVSEA) evaluated technical and program  maintenance requirements with stakeholders in the maintenance  community to identify and address barriers to on-time completion.  Among the areas evaluated were time and condition-based  maintenance strategies; logistic strategies; work estimating  processes; shipyard overtime levels; and technology strategies.

Improving material reliability and availability. The Navy is taking  actions such as updating class maintenance plans; identifying and  tracking frequently needed parts to determine appropriate acquisition  strategies; creating an improved material forecasting tool; and moving  material closer to the user.

Balancing the submarine maintenance workload across the  public and private shipyards. The Navy identified two submarines  for which maintenance could be outsourced to Electric Boat or  Huntington Ingalls over the next 5 years, in addition to the four  submarines for which maintenance is currently outsourced.

The Success of the Navy’s Submarine Workload Management Plan Depends on Optimistic Assumptions

The workload plan contains some optimistic assumptions which may  jeopardize achieving the intended benefits. According to the Navy’s  workload plan, the Navy’s efforts identified above are intended to  eliminate all submarine idle time and fully address the submarine  maintenance backlog by fiscal year 2023. However, success of the plan  depends on the public and private shipyards and the Navy realizing  improvements in their performance that they have not yet demonstrated.  For example:

On-time completion of submarine maintenance, at both the  public and private shipyards. The workload plan states that on-time  completion of submarine maintenance, at both the public and private  shipyards, is critical to eliminating submarine idle time and the  submarine maintenance backlog. However, this assumption may not  be realistic in light of recent performance at public and private  shipyards. As discussed above, on average the public shipyards have  completed maintenance on time only about 26 percent of the time  between fiscal years 2007 and 2017. Of the three submarine  maintenance periods that were allocated to the private shipyards  between fiscal years 2015 and 2018, all three are projected to be  completed about a year late, according to Navy reports. Officials with  both Electric Boat and Huntington Ingalls have acknowledged the  delays, which they attribute to an inexperienced workforce, lack of  capital investment, and the submarines being in worse condition than  expected. These officials also stated that if the Navy were to provide  them with regular submarine repair work, they would expect their  repair times to improve as their planning process matures and their  workforce gains experience.

Timely implementation of the Navy’s Shipyard Infrastructure  Optimization Plan. Dry dock projects outlined in the Shipyard  Infrastructure Optimization Plan must be completed on schedule, or  else the Navy will not have the capacity to conduct some of its  anticipated maintenance. This would in turn result in additional idle  time and backlog. Some projects, such as the multimission dry dock  project in Portsmouth, require the completion of earlier projects in  order to proceed. Anything that disrupts the schedule of the earlier  project could also affect the schedule of the later project. Given that  the Shipyard Infrastructure Optimization Plan describes a 20-year- long effort that, at present, does not have clear organizational roles  and responsibilities or a complete accounting of all the costs, it is  possible that the gains it is intended to produce will take longer than  expected to materialize.

Appendix III: Comments from the Department of Defense

Appendix IV: GAO Contact and Staff Acknowledgments

In addition to the individual named above, key contributors to this report  are Suzanne Wren, (Assistant Director), James Lackey and Cody  Raysinger (Analysts-in-Charge), A. Steven Bagley, Anna Irvine, Jennifer  Leotta, Amie Lesser, Felicia Lopez, Carol Petersen, Michael Silver, and  William Tedrick.

Military Depots: Actions Needed to Improve Poor Conditions of Facilities  and Equipment That Affect Maintenance Timeliness and Efficiency.   GAO-19-242. Washington, D.C.: April 29, 2019.

DOD Depot Workforce: Services Need to Assess the Effectiveness of  Their Initiatives to Maintain Critical Skills. GAO-19-51. Washington, D.C.:  December 14, 2018.

Navy and Marine Corps: Rebuilding Ship, Submarine, and Aviation  Readiness Will Require Time and Sustained Management Attention.  GAO-19-225T. Washington, D.C.: December 12, 2018.

Navy Readiness: Actions Needed to Address Costly Maintenance Delays  Facing the Attack Submarine Fleet. GAO-19-229. Washington, D.C.:  November 19, 2018.

Navy Shipbuilding: Past Performance Provides Valuable Lessons for  Future Investments. GAO-18-238SP. Washington, D.C.: June 6, 2018.

Navy Readiness: Actions Needed to Address Persistent Maintenance,  Training, and Other Challenges Affecting the Fleet. GAO-17-809T.  Washington, D.C.: September 19, 2017.

Naval Shipyards: Actions Needed to Improve Poor Conditions that Affect  Operations. GAO-17-548. Washington, D.C.: September 12, 2017.

Navy Shipbuilding: Policy Changes Needed to Improve the Post-Delivery  Process and Ship Quality. GAO-17-418. Washington, D.C.: July 13, 2017.

Department of Defense: Actions Needed to Address Five Key Mission  Challenges. GAO-17-369. Washington, D.C.: June 13, 2017.

Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk  without a Comprehensive Plan. GAO-16-841. Washington, D.C.:  September 7, 2016.

Defense Inventory: Further Analysis and Enhanced Metrics Could  Improve Service Supply and Depot Operations. GAO-16-450.  Washington, D.C.: June 9, 2016.

Military Readiness: Progress and Challenges in Implementing the Navy’s  Optimized Fleet Response Plan. GAO-16-466R. Washington, D.C.: May  2, 2016.

Defense Inventory: Actions Needed to Improve the Defense Logistics  Agency’s Inventory Management. GAO-14-495. Washington, D.C.: June  19, 2014.

DOD’s 2010 Comprehensive Inventory Management Improvement Plan  Addressed Statutory Requirements, But Faces Implementation  Challenges. GAO-11-240R. Washington, D.C.: January 7, 2011.

The Navy’s public shipyards are critical to maintaining its nuclear-powered aircraft carriers and submarines, as well as supporting its operations around the world. In 2017, we found the shipyards were in poor condition and not meeting the Navy’s needs. In response, the Navy developed a 20-year, $21 billion plan to fix them.

However, we found the preliminary plan’s cost estimate is likely understated by billions of dollars. It is missing key elements such as adjustments for inflation, environmental remediation, and utility upgrades.

We recommended that the Navy include these missing elements when it produces its more detailed cost estimate.