The State of U.S. Shipbuilding

Statement of

Ronald O'Rourke

Specialist in Naval Affairs

Before

Armed Services Committee

Seapower and Projection Forces Subcommittee

U.S. House of Representatives

Hearing on

“The State of U.S. Shipbuilding”

March 11, 2025

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https://crsreports.congress.gov

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Introduction

Chairman Kelly, Ranking Member Courtney, distinguished members of the subcommittee, thank you for

the opportunity to appear before you today to testify on behalf of the Congressional Research Service

(CRS) on the state of U.S. shipbuilding.

The subcommittee stated in its invitation letter that it “is interested in having Mr. O’Rourke bring to bear

the full measure of his experience and expertise in assessing and analyzing the current situation regarding

shipbuilding and related Navy matters, and in having him present options for addressing it.” This

statement aims to do that, using my experience in tracking and analyzing Navy shipbuilding programs and

the shipbuilding industrial base for the past 41 years as the CRS specialist in naval affairs.

The subcommittee asked that I discuss, among other things, shipbuilding lessons learned, shipbuilding

cost growth, the requirements process in shipbuilding, recent inflation in shipbuilding, shipbuilding

delays and industrial base capacity constraints, and options for addressing challenges in Navy

shipbuilding and the shipbuilding industrial base. The statement is organized around these topics. The

appendices that follow the statement provide additional explanation and details. Portions of this statement

are adapted from my CRS reports on Navy shipbuilding programs, particularly my overview report on

Navy shipbuilding, CRS Report 32665, Navy Force Structure and Shipbuilding Plans: Background and

Issues for Congress. The supporting footnotes and citations for this adapted material, which are numerous

and sometimes lengthy, are included in these reports but are largely excluded from this statement so as to

reduce the statement’s total length.

Shipbuilding Lessons Learned

The success or failure of the Navy’s current and future shipbuilding efforts can be strongly impacted by

the success or failure of its shipbuilding lessons learned process, meaning its process for identifying

lessons from past shipbuilding efforts and transmitting those lessons to current and future Navy

shipbuilding program managers, acquisition officials, and leaders.

A Summary of Some Shipbuilding Lessons Learned

A summary of some shipbuilding lessons learned, taken from CRS Report 32665, is reprinted in this

testimony as Appendix A. As stated in that summary, these lessons reflect comments made by various

sources over the years. As also stated in that summary, identifying these lessons is arguably not the hard

part—most if not all have been cited for years. The hard part, arguably, is abiding by them without letting

circumstances lead program-execution efforts away from these lessons.

Noting Lessons Rather than Learning and Transmitting Them

My experience over the past 41 years is that while the term used is lessons learned, the Navy sometimes

appears to temporarily note lessons without necessarily “learning” them and transmitting them to future

shipbuilding program managers, acquisition officials, and leaders, only to have those successors

rediscover them the hard way years later in connection with subsequent shipbuilding programs. I have

witnessed what appear to be multiple such instances over my career at CRS.

A recent case in point concerns the Constellation (FFG-62) class shipbuilding program, which has

demonstrated the potential challenges and pitfalls of attempting to modify the features of an existing ship

design that is being used as a parent design (i.e., a baseline design) for a new Navy shipbuilding program.

A Navy official commenting on the FFG-62 program recently reportedly stated that “[it] turns out

modifying someone else’s design is a lot harder than it seems,” and that “sometimes, you’re just better off

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designing a new ship.”1 Another Navy official, also commenting on the FFG-62 program, reportedly

stated that “I’ll be brutally honest, I don’t think people truly understood what it meant to adapt a parent

design to Navy requirements.”2

The potential challenges and pitfalls of attempting to modify a parent design were identified and called

out years before the procurement of the first FFG-62 in FY2020. For example, a 2015 article on the

potential challenges and pitfalls of using a parent design that was published in a professional journal for

naval architects and marine engineers—an article that is block-quoted in my CRS report on the FFG-62

program3—states:

Using an existing design as the “parent” design, also referred to as “modified-repeat” design, is on

its face an attractive option. Many acquisition executives, program managers and some ship design

engineers believe that a design based on a parent has fewer technical risks than a new “clean sheet

of paper” design and therefore the time and cost to design and build it will be reduced. They assume

early in the ship acquisition program that “the design is mature” and because of that fewer problems

will be encountered in completing the design and savings will thus be accrued. Yet, a number of

naval ships based on a parent design have in fact experienced unanticipated cost and schedule

growth during construction as well as technical problems during their in-service life. The authors

will examine some of these ship designs which were based on an existing design and/or prototypes

and highlight the fallacies of such beliefs and assumptions.4

Option for a Shipbuilding Lessons Learned Center

One option for helping ensure that shipbuilding lessons are in fact learned and transmitted to future

shipbuilding program managers, acquisition officials, and leaders, would be to establish a Navy

shipbuilding lessons learned center. In 2013 testimony to this subcommittee, for example, I stated:

Given the long history of the Navy encountering and addressing challenges in Navy shipbuilding

programs, one option for identifying, recording, and transmitting to future generations the lessons

learned from past shipbuilding programs, and thereby improving the ability to fully implement the

30-year shipbuilding plan in a situation of finite resources, would be to establish a Navy shipbuilding

lessons-learned center roughly analogous to the combat operations lessons-learned centers operated

by the military services. Such a center might, for example, help prevent instances similar to the use

of design/construction concurrency in the sea frame portion of the LCS [Littoral Combat Ship]

program—something that the Navy did even though design/construction concurrency is a wellknown source of cost and schedule risk in defense acquisition programs, and that the Navy later

acknowledged was a cause of substantial cost growth on LCS sea frames. 5

1 Former Assistant Secretary of the Navy (Research, Development, and Acquisition), as quoted in John Grady, “Navy’s Plan for

Frigate Parent Design Caused Delays, Former Acquisition Chief Says,” USNI News, February 19, 2025.

2 Captain Andy Gold, program manager for the FFG-62 program within Program Executive Office (PEO) Unmanned and Small

Combatants, as quoted in Rich Abott, “Frigate Manager Says Design To Finish This Year, Delays Because Parent Design Mods

Not Understood,” Defense Daily, January 15, 2025.

3 CRS Report R44972, Navy Constellation (FFG-62) Class Frigate Program: Background and Issues for Congress, by Ronald

O'Rourke.

4 Robert G. Keane Jr. and Barry F. Tibbitts, “The Fallacy of Using a Parent Design: ‘The Design Is Mature,’” Transactions

(Society of Naval Architects and Marine Engineers [SNAME]), 2015, No. 1 (January): 91-104, with additional discussion from

the authors and other commentators on pages 105-122. The quoted passage appears at the start of the article, on page 91, where it

forms part of an abstract or summary for the article.

5 Statement of Ronald O’Rourke, Specialist in Naval Affairs, Congressional Research Service, before the House Armed Services

Committee, Subcommittee on Seapower and Projection Forces on the Navy’s FY2014 30-Year Shipbuilding Plan, October 23,

2013, p. 13.

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Such a shipbuilding lessons learned center could be as simple as a physical (i.e., shelf) collection and/or

electronic collection of documents that summarize lessons from past shipbuilding programs, and that is

made available to Navy officials preparing to embark on new shipbuilding programs.6

Cost Growth

Overview

Cost growth in Navy shipbuilding—defined here as increases in the estimated procurement costs of lead

ships in Navy shipbuilding programs that occur after those lead ships are procured (i.e., authorized and

funded)—is significant and chronic, as shown by my Congressional Budget Office (CBO) colleague Dr.

Eric Labs’ work over many years.7 Cost growth in the lead ship of a shipbuilding program tends to be

followed by commensurate cost growth for subsequent ships in the class, as the costs for the subsequent

ships are adjusted upward to bring them into alignment with the cost growth on the lead ship. (An

exception is when cost growth on a lead ship is caused by a factor that applies only to the lead ship, such

as growth in detailed design costs for the class, which are nonrecurring costs that are incorporated largely

or entirely into the procurement cost of the lead ship.)

Unrealistically Low Lead Ship Cost Estimates

After tracking and analyzing the matter for many years, Dr. Labs and I are of the view that a principal

cause of cost growth in Navy shipbuilding programs is that the Navy’s estimated procurement costs for

lead ships at the time those lead ships are procured are simply unrealistically low. The unrealistically low

nature of these cost estimates sometimes has been so apparent to Dr. Labs and me that we have been able

to quickly conclude that the lead ships in question are at risk of experiencing cost growth.

Reasons for Unrealistically Low Lead Ship Cost Estimates

The question is why the Navy’s lead ship cost estimates are unrealistically low. There has been much

discussion about this among various observers over the years. My assessment is that the chief explanation

resides not so much in disagreement over technical cost estimating factors, but rather in what might be

called the political economy or sociology of ship cost estimating. In short, I assess that Navy cost

estimates for lead ships tend to be unrealistically low chiefly for the following three reasons:

•

Selling programs. In estimating the cost of a proposed new shipbuilding program, there

is an incentive to select a lower, more optimistic cost estimate rather than a higher, less

optimistic estimate, that can come into play for shipbuilding program offices (so as to

help sell the program to Navy leadership), for Navy leadership (so as to help sell the

program to OSD, and to help the Navy remain within its budget topline), and for the

Navy and OSD (so as to help sell the program to Congress, and to help the Navy and

DOD remain within their respective budget toplines). My assessment is that this incentive

6 Navy officials preparing to embark on new shipbuilding programs also have the option of consulting past project managers

(PMs) and program executive officers (PEOs) to solicit their views regarding lessons learned. A lessons learned center can

provide lessons from past PMs and PEOs who are no longer available to consult, or who have moved on to positions (such as

those in the private sector) that could raise an issue of conflict of interest concerning the views they might provide.

7 See, for example, Congressional Budget Office, An Analysis of the Navy’s 2025 Shipbuilding Plan, January 2025, p. 34 (Figure

11). The figure shows cost growth on Navy lead ships since 1985. It has appeared in numerous CBO reports and presentations

over the years, with updates each time to include the most recent return data.

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is pervasive within Navy ship cost estimating, to the point where it has become almost

standard operating procedure within the Navy.

Unbalanced assumptions about things going right or wrong. In estimating the cost of

a lead ship, shipbuilding program offices are allowed to incorporate the estimated costreducing effects of certain shipbuilding innovations or other changes that will

differentiate that program from previous Navy shipbuilding programs, but they do not

appear to be equally allowed to incorporate the potential cost-increasing effects that can

occur if those innovations or changes do not play out as expected, or if other,

unanticipated problems (i.e., problems that by definition cannot be specified in advance)

occur in the effort to build the ship. A short way of saying this is that Navy lead ship cost

estimates tend toward being closer to a best-case view in which things go generally well,

as opposed to a less optimistic case in which certain things do not go as well as planned.

Near-term vs. longer-term consequences of lower estimates, relative to terms in

office. Shipbuilding program offices, the Navy, and OSD appear to have concluded that

the near-term benefit of unrealistically low cost estimates for Navy lead ships—winning

approval from the Navy, OSD, and Congress for starting the programs—is more salient

than the potential longer-term consequences of unrealistically low estimates, which

include increased eventual pressures on Navy and DOD budget toplines, reduced

eventual procurement quantities, the possible termination of programs (which is rare),

and facing criticism at eventual congressional oversight hearings when the cost growth

becomes apparent to Congress. Given the finite terms in office for shipbuilding program

officials, senior Navy officials, and OSD leaders, it would not be surprising for the nearterm benefit of winning approval for starting the program appear to be viewed by those

officials as more salient than the potential longer-term costs, which would become

potential problems not for those officials, but instead for their successors. Congress has

struggled for years to find a way to hold the Navy and DOD accountable for cost growth

in shipbuilding programs, in part because program officials, Navy leaders, and OSD

leaders that are in office at the time of the lead ship’s procurement have typically moved

on by the time, usually years later, when the cost growth becomes fully apparent to

Congress.

CBO’s Cost Estimates

CBO’s cost estimates for shipbuilding programs are not subject to the first two bullet points above—CBO

is not in the business of selling proposed shipbuilding programs, and CBO’s estimates are based primarily

on the actual results of previous Navy shipbuilding programs, which reflect not only what went right with

those programs, but what went wrong with them as well. Regarding the third bullet point above, CBO

analysts can remain in their position for many years, during which time at least some of their cost

estimates will be shown to be correct or incorrect. Dr. Labs, for example, has been in his position for 30

years. I assess that these three differences between CBO and Navy cost estimating are why, in cases

where there are differences (sometimes quite significant ones) between a Navy cost estimate for a lead

ship and a higher CBO cost estimate for a lead ship, the cost sooner or later turns out to be closer to the

CBO estimate.

A case in point concerns cost growth in the Zumwalt (DDG-1000) destroyer program. Early in that

program, Dr. Labs’ cost estimate for that ship was 55% higher than the Navy’s estimate. When asked at a

2008 hearing before this subcommittee about this difference between the Navy’s estimate and CBO’s

estimate, one of the Navy witnesses replied: “I would answer that I believe the Navy’s estimate is more

accurate. We’ve certainly had good dialogue with Dr. Labs and CBO. And some of our assumptions are

just different. And so that’s where you see the disparity. We’ve done a very hard scrub over the last

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several years to make sure that our cost estimates are more realistic.”8 Cost growth then began to manifest

in the DDG-1000 program, and as of the Navy’s FY2025 budget submission, had reached 54.1%,9 even

though the DDG-1000 design was modified after the lead ship was procured to reduce the cost of the

ship’s radar suite.

A second case in point concerned the lead ship in the Gerald. R. Ford (CVN-78) class aircraft carrier

program. As I noted for years in my report on the CVN-78 program,10 CBO (and also the Government

Accountability Office [GAO]) expressed skepticism about the Navy’s cost estimate, with Dr. Labs

pointing out, among other things, that the Navy asserted that the cost of the lead ship in this program (i.e.,

a ship that would be at the top of the production learning curve for the class)11 would be less than the cost

of building an 11th Nimitz (CVN-68) class ship (i.e., a ship that would be well down the learning curve for

that class). CBO estimated that the ship would likely experience significant cost growth, and the ship

eventually experienced 27.0% cost growth.12 Navy officials in the past have attributed the ship’s cost

growth to the new technologies that were incorporated into the ship’s design. While those technologies

contributed to the ship’s cost growth by slowing the ship’s construction and increasing the amount of

rework that was needed to fix earlier construction problems, the primary cause of cost growth on the ship

was the Navy’s unrealistic cost estimate at the time the ship was procured, which was an estimate the

Navy made with a full knowledge of the technologies that were incorporated into the ship’s design.

A third and more recent case in point concerns the program to acquire new Polar Security Cutters (or

PSCs, i.e., heavy polar icebreakers) for the Coast Guard, a program managed by a joint Coast GuardNavy program office. As discussed in my CRS report on the PSC program,13 CBO in May 2024 testimony

and an August 2024 report estimated that PSC procurement costs would be about 60% higher than the

program office’s estimate.14 A Coast Guard official testified in December 2024 that the Coast Guard is

completing negotiations with the PSC builder to modify the existing PSC contract to include a cost

increase of about 50%.15

A fourth and also recent case in point concerns the Navy’s planned Medium Landing Ship (LSM)

program. As discussed in my report on the LSM program,16 an April 2024 CBO report for the program

provided a cost estimate that was roughly 127% to 187% higher than the Navy’s estimate.17 The Navy, in

the reported words of one official, believed that its cost estimate was “bulletproof,” but in December

8 Spoken testimony of Allison Stiller, Deputy Assistant Secretary of the Navy (Ship Programs), at a March 14, 2008, hearing on

the FY2009 budget request for Navy shipbuilding, as shown in the CQ transcript for the hearing.

9 See Table A-1 in CRS Report RL32109, Navy DDG-51 and DDG-1000 Destroyer Programs: Background and Issues for

Congress, by Ronald O'Rourke.

10 CRS Report RS20643, Navy Ford (CVN-78) Class Aircraft Carrier Program: Background and Issues for Congress, by Ronald

O'Rourke.

11 For more on production learning curve effects in Navy shipbuilding, see Appendix C (pages 95-110) in CRS Report 96-785,

Navy Major Shipbuilding Programs and Shipbuilders: Issues and Options for Congress, by Ronald O'Rourke.

12 See Table 2 in Report RS20643.

13 CRS Report RL34391, Coast Guard Polar Security Cutter (Polar Icebreaker) Program: Background and Issues for Congress,

by Ronald O'Rourke.

14 Eric J. Labs, The Cost of the Coast Guard’s Polar Security Cutter, Congressional Budget Office, Testimony Before the

Subcommittee on Transportation and Maritime Security Committee on Homeland Security, U.S. House of Representatives, April

30, 2024 (for hearing of May 7, 2024), p. 2 (PDF page 3 of 4); Congressional Budget Office, The Cost of the Coast Guard’s

Polar Security Cutter, August 2024, p. 1.

15 See Cal Biesecker, “Coast Guard Seeks DHS Decision Thursday To Begin Polar Security Cutter Construction,” Defense Daily,

December 18, 2024; Malte Humpert, “U.S. Coast Guard Heavy Icebreaker Production Decision Expected This Week After

Multi-Year Delay,” gCaptain, December 20, 2025.

16 CRS Report R46374, Navy Medium Landing Ship (LSM) Program: Background and Issues for Congress, by Ronald O'Rourke.

17 See Congressional Budget Office, Acquisition Costs of the Navy’s Medium Landing Ship, April 2024, p. 1.

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2024, the Navy canceled its Request for Proposals (RFP) for the LSM program due to bid costs that were

much higher than anticipated.18

12 Ships in Navy’s FY2025 Budget Submission

In CRS Report 32665, I identify 12 ships in the Navy’s FY2025 budget submission whose estimated

procurement costs for FY2026-FY2029 appear unrealistically low compared to ships of the same types

that are programmed for procurement prior to that period (i.e., in FY2025) or after that period (i.e., after

FY2029), apparently due to the dynamic discussed in the second bullet point above (i.e., to help keep the

Navy within its budget topline, in this case, during the final four years of the FY2025-FY2029 Future

Years Defense Plan [FYDP]).19 These 12 ships include seven LSMs programmed for procurement in

FY2026-FY2029, one AS(X) submarine tender programmed for procurement in FY2027, and four

TAGOS20 ocean surveillance ships programmed for procurement in FY2026-FY2029.

Options for Congress

Options for Congress for addressing cost growth and otherwise improving Navy shipbuilding programs

include but are not limited to the following:

•

•

•

•

•

Focus oversight of shipbuilding programs in part on whether the Navy is abiding by the

shipbuilding lessons learned that are summarized in Appendix A.

Encourage or direct the Navy, if it has not done so already, to establish a shipbuilding

lessons learned center, and require Navy officials that are preparing to embark on new

shipbuilding programs to review the center’s materials as an initial step in their work.

Ensure that the Navy’s acquisition executive—the Assistant Secretary of the Navy

(Research, Development, and Acquisition) (ASN [RDA])—is familiar with Navy

shipbuilding, and establish a term in office for the ASN (RDA) similar to the eight-year

term of the Director of Naval Reactors—a term long enough so that the ASN (RDA) can

see through the implementation of reforms to Navy shipbuilding that might take several

years to implement, and be held accountable for the outcomes of decisions made in the

earlier years of the eight-year term. Under current practice, ASN RDAs often serve for

periods of four years or less. (An exception is Sean Stackley, who served as the ASN

(RDA) for about nine years—from July 2008 to August 2017.) A parallel option would be

to establish a similarly long term in office for the Commander of the Naval Sea Systems

Command (NAVSEA).

Maintain an awareness of the political economy or sociology of Navy ship cost

estimating as described above, and build that awareness into congressional oversight of

proposed Navy shipbuilding programs.

Obtain and track the confidence levels that the Navy assigns to its shipbuilding cost

estimates, with a particular eye for confidence levels that are below 50%. In connection

with this, bear in mind—although it might seem paradoxical at first glance—that there

can be a difference between avoiding cost growth and minimizing cost, and that

18 Mallory Shelbourne, “Landing Ship Medium Program Stalled Over Price, Navy Cancels Industry RFP,” USNI News,

December 17 (updated December 18), 2024; Nick Wilson, “Navy Punting LSM Award Due to Pricier-than-Expected Bids,”

Inside Defense, December 11, 2024.

19 See the section entitled “Procurement Costs of Certain Ships in Five-Year Shipbuilding Plan,” in CRS Report 32665.

20 In the designation TAGOS (also written as T-AGOS), the T means the ships are operated by the Military Sealift Command

(MSC); the A means they are auxiliary (i.e., support) ships; the G means they have a general or miscellaneous mission; and the

OS means the mission is ocean surveillance.

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confidence levels much above 50% can be associated with this apparent paradox. (For

additional discussion see Appendix B.)

Employ fixed price contracts for shipbuilding, while bearing in mind the cautionary notes

relating to fixed-price contracts that are discussed in Appendix C of this statement.

Take into account the complexity of the question of whether to employ warranties in

shipbuilding contracts as a means of attempting to reduce shipbuilding costs, including

the risk that expensive warranties might not reduce eventual procurement costs. (For

additional discussion, see Appendix D.)

Continue CBO’s role in providing independent cost estimates of Navy shipbuilding

programs, and maintain an awareness of CBO’s track record relative to the Navy’s track

record in estimating lead ship procurement costs when evaluating proposed Navy

shipbuilding programs.

Continue GAO’s role in evaluating Navy shipbuilding programs and making

recommendations for reducing cost growth, and otherwise improving Navy shipbuilding

programs.

Requirements Process and Shipbuilding

The requirements process can impact Navy shipbuilding costs in several ways, including but not

necessarily limited to the following:

•

•

The requirements process can make a ship design bigger and more expensive to

procure. The requirements process can lead, as the design for a new ship is developed, to

growth in the capabilities that the ship is to have, increasing the ship’s size and cost. A

case in point is the DDG-1000 program, which was originally called the DD-21 program.

As stated in a 2006 CRS report, “when development of the DD-21… began in 1994, the

initial unit procurement cost target was $750 million in FY1996 dollars, a target cost that

was somewhat lower than the DDG-51’s unit procurement cost at the time [implying a

design about as large as, or perhaps smaller than, the DDG-51 design]…. By 2001,

however, the DD-21 design had grown to between 16,000 tons and 18,000 tons [i.e., a

figure more than 50% greater than that of the DDG-51], and its estimated cost had grown

considerably.”21 This dynamic can occur in a shipbuilding program when affordability

considerations are de-emphasized and mission and threat considerations become

predominant.

The requirements process can undermine a parent design strategy, leading to

increased design time and design cost. A case in point is the previously mentioned

FFG-62 frigate program, in which Navy requirements led to numerous changes to the

Italian-French parent design, making the FFG-62 program appear more like what I refer

to as a PDINO (parent design in name only) approach.22 Another example of a program

that appears to have moved from a parent design approach toward a PDINO approach is

the PSC program, where significant modifications have again been made to the parent

design (a German design for a polar research ship that may not have been fully developed

as a design at the time the PSC contract was awarded). The three-year delay in the FFG62 program and the six-year delay in the PSC program are due in large part to limits on

21 CRS Report RL32109, Navy DD(X), CG(X), and LCS Ship Acquisition Programs: Oversight Issues and Options for Congress,

by Ronald O’Rourke, updated February 28, 2006, p. 34 (see also p. 12). See also CRS Report RS21059, Navy DD(X) Future

Surface Combatant Program: Background and Issues for Congress, by Ronald O’Rourke, November 9, 2001, p. 2.

22 One possible way to pronounce the acronym PDINO would be pa-DEE-no.

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the number of ship designers (i.e., naval architects and marine engineers) that have been

available to make the significant modifications to the intended parent designs.

The requirements process can lead to changes in the ship’s design as the ship is

being produced, leading to design-construction concurrency. One of the oldest lessons

in shipbuilding is to avoid design-construction concurrency (i.e., designing the ship at

same time that the ship is being built). Although the Navy is fully aware of the need to

avoid design-construction concurrency, the Navy has allowed it to happen in the past as a

result of its requirements process. A case in point is the previously discussed Littoral

Combat Ship (LCS) program, in which the Navy made changes to the ship’s design for

the purpose of increasing the ship’s survivability features as the ship was being built.23

The requirements process is mostly outward oriented, toward missions and threats.

As discussed later in this statement, the Navy’s requirements process is mostly outward

oriented, toward missions and threats, and not very much inward oriented, toward the

U.S. society that will be called on to design, build, crew, and maintain the ship. This can

lead to ship designs that look good on paper for performing missions and meeting threats,

but which can lead to design, construction, crewing, and maintenance challenges.

Recent Inflation in Shipbuilding Costs24

Shipbuilding, like other sectors of defense procurement and the U.S. economy in general, experienced

significant inflation following the start of the COVID-19 pandemic due to supply chain disruptions and

other impacts. The Department of the Navy states in its FY2025 budget highlights book that “the residual

effects of inflationary pressures of the past few years, workforce challenges, plus increased labor and

supply costs across the defense enterprise, all drove costs associated with our shipbuilding account up

roughly 20% over the past couple of years.”

This inflation has increased the estimated procurement costs of multiple Navy shipbuilding programs,

reducing the purchasing power of the Navy’s shipbuilding budget. For an annual Navy shipbuilding

account of about $32 billion, 20% inflation applied across the account could reduce the purchasing power

of the account to a pre-inflation equivalent of about $26.7 billion, or about $5.3 billion less. Stated

differently, 20% inflation applied across the new-construction portion of the Navy’s shipbuilding account

could reduce the number of ships that could be procured for a certain amount of funding from 12 ships to

10 ships.

Inflation can also affect shipyards and their associated supplier firms, particularly those operating under

fixed-price contracts. Contracts for building Navy ships sometimes include Economic Price Adjustment

(EPA) clauses that permit costs within the contract to be adjusted upward to account for inflation. EPA

clauses may cover some of the ships being built at a shipyard but not others, might cover changes in costs

for labor but not materials (or vice versa), and cover inflation-related increases in costs up to a certain

percentage increase, but not beyond.

In addition to EPA clauses, firms have the option of filing Requests for Equitable Adjustment (REAs) to

cover inflation-related cost increases not fully covered by EPAs clauses.

In addition to EPA clauses and REAs, a third option for responding to inflation-related cost increases is

P.L. 85-804 as amended (50 U.S.C. 1431-1432), a law originally enacted in 1958 that authorizes certain

23 See also the earlier-quoted passage from my 2013 testimony to this subcommittee, which appears in the section of this

statement entitled “Option for a Shipbuilding Lessons Learned Center.”

24 This section is adapted from CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background and Issues for

Congress, by Ronald O'Rourke.

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federal agencies to provide certain types of extraordinary relief to contractors who are encountering

difficulties in the performance of federal contracts or subcontracts relating to national defense. P.L. 85804 has amended by the FY2023, FY2024, and FY2025 NDAAs to, among other things, include a

temporary authority to modify certain contracts and contract options based on the impacts of inflation.25

Shipbuilding Delays and Capacity Constraints

Overview Observations

Overview observations that can be made about shipbuilding delays and capacity constraints, taken from

CRS Report 32665, include the following:

•

•

•

•

•

On April 2, 2024, the Navy revealed projected delays in a number of its shipbuilding

programs. The projected delays were revealed in the form of a one-page a summary of

findings from a 45-day review of Navy shipbuilding programs that the Navy conducted in

early 2024. The one-page summary is reprinted in CRS Report 32665. The projected

delays are quite significant and extend across several shipbuilding programs, amounting

to an unusual and arguably extraordinary situation in the post-World War II history of the

Navy.

Some observers, commenting on both these projected delays and the comparative

shipbuilding capacities of the United States and China, have characterized the situation as

a strategic liability or major cause for concern for the United States in competing

militarily with China.

Industrial base capacity constraints for building Navy ships are present at both shipyards

and supplier firms. The most prominent constraints are those for building submarines.

Capacity constraints are also affecting construction rates for certain surface combatants.

Workforce challenges appear to be a central factor in projected delays and capacity

constraints. These challenges include difficulties in recruiting and retaining sufficient

numbers of production workers at shipyards and supplier firms, lower productivity of

newly hired workers compared with that of more experienced workers, and limited

numbers of ship designers (i.e., naval architects and marine engineers).

The Navy’s challenges in designing ships and building ships can be viewed as part of a

larger situation in which the Navy additionally faces challenges in crewing ships (due to

recruiting shortfalls that the Navy is working to overcome) and maintaining ships

(particularly nuclear-powered attack submarines, but also certain conventionally powered

surface ships). Stated differently, the Navy is currently facing challenges in designing,

building, crewing, and maintaining ships. This combination of challenges is the most

significant I have seen in my aforementioned 41-year career at CRS. One might need to

go back to the post-Vietnam war era of the 1970s to find a time when the Navy faced a

combination of challenges as daunting or more daunting than the one it faces today. The

Navy today can certainly show its capability and effectiveness in focused operations,

such as those the Navy has conducted for countering anti-ship threats in the Red Sea. But

the Navy as a whole nevertheless faces the combination of challenges described here.

25 Section 822 of the FY2023 NDAA (H.R. 7776/P.L. 117-263 of December 23, 2022) amended P.L. 85-804 to, among other

things, add a temporary authority, ending on December 31, 2023, to modify certain contracts and contract option based on the

impacts of inflation. Section 824 of the FY2024 NDAA (H.R. 2670/P.L. 118-31 of December 22, 2023) extended this authority

to December 31, 2024, and Section 824 of the FY2025 NDAA (H.R. 5009/P.L. 118-159 of December 23, 2024) extended it

further, to December 31, 2025.

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Navy and Industry Response

As discussed in CRS Report 32665, the Navy and industry have responded to shipbuilding delays and

capacity constraints by taking a number of actions, including but not limited to the following:

•

•

•

•

In August 2024, the Navy stood up a new Maritime Industrial Base (MIB) office to track

and address industrial base challenges for building ships, aircraft, and munitions.

Carlos Del Toro, who was the Secretary of the Navy during the Biden Administration,

encouraged foreign shipbuilders, particularly those in Japan and South Korea, to invest in

shipbuilding facilities in the United States, and to share their world-class shipyard

management best practices with U.S. shipbuilders.

The Navy is spending billions of dollars in submarine industrial base (SIB) funding that

has been appropriated since FY2018 to increase submarine construction capacity at the

country’s two submarine-construction shipyards and their supplier firms, as well as

smaller amounts of funding that have been appropriated for increasing surface ship

industrial base capacity.

The Navy and industry are employing, to some degree at least, several of the options for

expanding shipbuilding capacity that are listed in the next section of this statement, such

as nationwide worker advertising (for submarine construction), increased worker pipeline

efforts, increased worker wages and benefits, worker quality of work and quality of life

projects, and federated shipbuilding (which the submarine community refers to as

strategic outsourcing).

Ten Options for Increasing Shipbuilding Capacity

As discussed in CRS Report 32665, in addition to using strategic outsourcing for building submarines and

providing industrial base funding for shipyards and supplier firms, other options for addressing industrial

base capacity constraints for building Navy ships (i.e., for increasing available shipbuilding capacity)

include but are not limited to the ten options that are listed below, which are not mutually exclusive and

not listed in any particular order. Eight of these ten options are already being pursued to some degree by

the Navy and industry, but could be pursued more intensively and/or at broader scale. Two of the ten

options—those relating to worker immigration and foreign shipyards—are not currently being used by the

Navy and industry. The ten options are as follows:

•

•

•

•

•

•

•

•

•

•

Worker nationwide advertising for building all types of ships, not just submarines;

Increased worker pipeline efforts;

Worker immigration;

Increased worker wages and benefits;

Projects for improving worker quality of work and quality of life;

Increased use of robotics and automation at shipyards and supplier firms;

Increased use of federated shipbuilding (aka nation as a shipyard);

Building additional shipyard facilities—new shipyards and/or additions to existing

shipyards;

Increasing the number of smaller ships, including unmanned ships, in the Navy’s

planned mix of ships; and

Employing foreign shipyards to build U.S. Navy ships or modules of U.S. Navy ships.

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The worker immigration option was suggested by Carlos Del Toro, who as I noted earlier was the

Secretary of the Navy during the Biden Administration. One issue that might arise in connection with this

option would concern the citizenship of such workers, since contracts for building all U.S. Navy ships

require that workers building the ships be U.S. citizens.

Substantially increasing worker wages and benefits could begin producing results in recruiting and

retaining new workers almost immediately. It could substantially increase ship procurement costs, since

shipyard labor can account for roughly 40% of a military ship’s total procurement cost.

The aim of federated shipbuilding (aka nation as a shipyard) would be to gain access to production

facilities and (perhaps more important) regional labor markets in parts of the country that currently are not

significantly involved in Navy shipbuilding. Federated shipbuilding could require altering ship designs to

facilitate the production of ship modules in locations other than final assembly yards, and could make

shipbuilding programs more complex to manage.

Building a shipyard facility capable of producing large ships for the Navy could require hundreds of

millions or billions of dollars of investment and years of construction time.

Changing the Navy’s planned mix of ships to include a larger number of smaller ships could expand

shipbuilding capacity by bringing into the Navy’s shipbuilding effort smaller shipyards that are not large

enough to build the Navy’s larger ships. This option would produce a fleet mix that might be less optimal

for performing missions than the Navy’s currently preferred mix. (Smaller shipyards could also form part

of a federated shipbuilding effort by building modules of larger Navy ships that are then sent to larger

shipyards where ships undergo final assembly.)

One issue that would arise in connection with the option of using foreign shipyards are U.S. laws that

prohibit U.S. Navy ships or major components of Navy ships from being built in foreign shipyards. These

laws include, among others, 10 U.S.C. 8679, which includes a presidential waiver for national security

interest, and a recurring provision in the annual DOD Appropriations Act that has not included such a

waiver.

In general, many of the ten options listed above could be very expensive, could take years to produce

results, or both. For more on these ten options, see Appendix E.

Five Options for Using Shipbuilding Capacity

In addition to the above options for addressing shipbuilding capacity constraints (i.e., for increasing

available shipbuilding capacity), additional options for using available ship-design and shipbuilding

capacity include but are not limited to the five discussed briefly below, which are not mutually exclusive

and not listed in any particular order. Four of these five options are already being pursued to some degree

by the Navy and industry, but could be pursued more intensively and/or at broader scale. The fifth option,

relating to up-front fleet design, is not currently being used by the Navy and industry to a significant

degree. The five options are as follows:

•

•

•

Taking actions to ensure that U.S. shipyards use world-standard shipbuilding practices

and methods;

Shifting Navy shipbuilding toward a more comprehensive and systematic kit of parts

approach, in which standard components parts go into standard systems that are installed

on ships with standard internal features;

Adopting the South Korean approach to design for producibility, which includes a focus

on developing ship designs requiring fewer labor hours to build;

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•

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Employing continuous production—a notion that has several elements that are

discussed further in Appendix F; and

Employing up-front fleet design, as well as a related vetting question in reviewing

proposed shipbuilding programs.

When incorporating world-standard shipbuilding practices and methods into Navy shipbuilding,

significant differences between commercial and naval ships need to be taken into account. Examples of

such differences include ship production quantities; interior density and complexity; commercial vs.

military construction standards; specialty steels and welding techniques (particularly for submarines);

propulsion systems (including nuclear propulsion); ship design and construction for reduced detectability

and high survivability; the installation, integration, and testing of complex combat systems; and intended

service lives. For additional discussion of the differences between commercial shipbuilding and naval

shipbuilding, see Appendix H.

Shifting the Navy more toward a kit-of-parts approach could involve de-optimizing individual ship

designs (when those designs are viewed individually) in exchange for better optimizing Navy ship design

at the collective (i.e., fleet-wide) level.

Pursuing the continuous production option could involve, among other things, a change in how the future

Navy is described and discussed. Instead of describing and discussing the future Navy as a fleet that is to

consist of a certain precise number of ships (e.g., 381 ships) by a certain future year, the future Navy

might instead be described and discussed as a fleet of a certain general size range that will be produced by

building a certain number of attack submarines each year, a certain number of destroyers per year, and so

on, with the precise number of ships in the future fleet to be determined in the future, through end-of-life

(i.e., end of service life) retirement decisions. This might be described as a rate-centered or productioncentered way of describing and discussing the future Navy (as opposed to the current target end pointcentered approach).

The five options listed here for using available ship-design and shipbuilding capacity could take years to

produce results. They could require significant changes in Navy fleet design practices, ship acquisition

practices, and Navy organization. They could also have potentially significant impacts for maintaining

congressional oversight of Navy shipbuilding programs and maintaining year-to-year congressional

flexibility for determining shipbuilding-related spending. For more on these five options, see Appendix

F. For additional discussion of capacity for conducting maintenance, repair, and overhaul (MRO) work on

Navy ships, and on commercial shipbuilding in relation to Navy shipbuilding, see Appendix G and

Appendix H.

Current American Naval System, and a Potential

Alternative

Current American Naval System

The Navy’s current overall approach to ship acquisition, which might be referred to as the current

American naval system, includes three general elements that I assess are inherently contributing to the

Navy’s challenges in designing, building, crewing, and maintaining ships. If not addressed, these three

general elements could continue creating challenges, possibly putting the Navy in an endless cycle of

discovering problems and addressing them in a reactive, ad hoc, and costly manner. That is, the Navy

could remain in a situation of seeing a light at the end of the tunnel with regard to resolving challenges,

but never getting there as new challenges continue to appear. The three general elements are as follows:

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•

•

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First, the Navy treats its force-level goals for various ship types as more precise and

durable than they really are, and then chases those force-level goals by continually

tinkering with ship procurement profiles, leading to production inefficiencies and

industrial base challenges that are incurred in the pursuit of something that the Navy is

unlikely to ever achieve—a close match between the Navy’s ship inventories and most or

all of those force levels goals.

Second, the Navy is suboptimizing ship design efforts at the individual-ship level, instead

of optimizing them at the fleet-wide level, producing challenges throughout the ship

design, build, crew, and maintain life cycle. In other words, the Navy puts a priority on

fine tuning the design of each ship for its intended missions and places less priority on

looking for opportunities to coordinate the design of that ship with the designs of its other

ships for the purpose of increasing cross-class advantages in design, construction,

crewing, and maintenance—a process sometimes called production engineering.

Third, the Navy is developing shipbuilding programs without adequately taking into

account the features of the U.S. society (e.g., numbers of potential workers in the

economy, and the education, training, and interests of potential workers) that will be

called on to design, build, crew, and maintain those ships, producing further challenges

throughout the design, build, crew, and maintain life cycle. The Navy in the past has not

had to look inward to the features of U.S. society more than a certain amount, but my

assessment is that the complexity of what the Navy is attempting to do with individual

ship designs and how its platforms are to work together has now grown to the point

where the Navy will need to do this much more than it has in the past (while continuing

its practice of also looking outward, to missions and threats).

A Potential New American Naval System

Proceeding on the basis of the previous section, and drawing from the 15 options listed earlier, a potential

option for a revised overall approach to ship acquisition, which might be referred to as a potential new

American naval system, might look something like the following, with the individual components of the

approach constituting severable options in themselves:

•

•

The goal of a new approach could be to prevent at least some of the challenges the Navy

is experiencing in designing, building, crewing, and maintaining ships from arising in the

first place by taking actions to make the fleet, by design, intrinsically easier to design,

build, crew, and maintain, while still delivering the needed capacity and capability for

performing current and projected missions. Among others things, the aim could be to

design a fleet that would require fewer people, and place less-complex demands on

people, to design, build, crew, and maintain.

In support of the above goal, the approach could essentially reverse the three general

elements discussed in the previous section:

• Force-level goals could be treated as not so precise, and more subject to change

over time. Diseconomies from tinkering with procurement plans in an attempt to

chase precisely stated force-level goals that will change multiple times between now

and the target year would be avoided.

• Ship design could be optimized more at the fleet level, and less at the individualclass level, with the aim of avoiding the diseconomies of having a fleet that is an

assemblage of individually developed, bespoke designs. In short, the Navy could

design and build a fleet, rather than designing and building a collection of individual

ship classes.

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•

•

The Navy could examine, understand, and take better advantage of the features

of the U.S. society that will be called on to design, build, crew, and maintain the

fleet, including both the strengths and limitations of U.S. society for meeting the

Navy’s needs, and areas of U.S. society whose capacity for meeting the Navy’s needs

might be increased by the Navy’s own actions.

As a consequence of the overall goal and the reversal of the three general elements of the

existing approach, the potential new approach could include the following five elements:

• Federated shipbuilding/nation as a shipyard, to gain access to production facilities

and (perhaps more important) regional labor markets in parts of the country that

currently are not significantly involved in Navy shipbuilding;

• Navy as a kit of parts, to make the eventual fleet easier to design, build, crew, and

maintain;

• Ship designs that take fewer labor hours to build, following the South Korean

approach to design for producibility;

• Continuous production, including

• Multiyear contracting (i.e., MYP and block buy contracting) where possible

and cost effective;

• Holding production rates steady and managing changes in force size not through

changes in procurement rates, but instead through end-of-life decisions, which is

Japan’s approach to submarine procurement rates and force levels;

• Condition-based, minimal-loss procurement transitions in classes, which is

discussed further in Appendix F; and

• Characterizing the future fleet more in terms of steady procurement rates than

precisely stated force-level targets—a production-centered or rate-centered

approach (as opposed to the current end point-centered approach) to thinking

about and discussing the future fleet; and

• Up-front fleet design—a generalized fleet design framework that incorporates

federated shipbuilding, Navy as a kit of parts, the South Korean approach to design

for producibility, and continuous production in its various aspects—and vetting of

proposed shipbuilding programs in relation to this generalized framework.

The above potential alternative approach (with its severable sub-element options) is by no means the only

possible approach for addressing the Navy’s challenges in designing, building, crewing, and maintaining

ships, and it would by no means solve all of the Navy’s challenges in these areas. Continuing the Navy’s

current approach, however, is likely to lead to a continuation of these challenges.

Conclusion

Chairman Kelly, Ranking Member Courtney, thank you again for the opportunity to appear before you

today, and I will be pleased to respond to any questions the subcommittee may have.

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Appendix A. A Summary of Some Shipbuilding Lessons

Learned26

This appendix presents a general summary of some shipbuilding lessons learned, reflecting comments

made by various sources over the years. These lessons learned include the following:

•

•

•

•

•

•

•

•

•

At the outset, get the operational requirements for the program right. Properly

identify the program’s operational requirements at the outset. Manage risk by not trying

to do too much in terms of the program’s operational requirements, and perhaps seek a

so-called 70%-to-80% solution (i.e., a design that is intended to provide 70%-80% of

desired or ideal capabilities). Achieve a realistic balance up front between operational

requirements, risks, and estimated costs.

Use mature technologies. Use land-based prototyping and testing to bring new

technologies to a high state of maturity before incorporating them into ship designs, and

limit the number of major new technologies to be incorporated into a new ship design.

Impose cost discipline up front. Use realistic price estimates, and consider not only

development and procurement costs, but life-cycle operation and support (O&S) costs.

Employ competition where possible in the awarding of design and construction

contracts.

Use a contract type that is appropriate for the amount of risk involved, and structure

its terms to align incentives with desired outcomes.

Minimize design/construction concurrency by developing the design to a high level of

completion before starting construction and by resisting changes in requirements (and

consequent design changes) during construction.

Properly supervise construction work. Maintain an adequate number of properly

trained Supervisor of Shipbuilding (SUPSHIP) personnel.

Provide stability for industry, in part by using, where possible, multiyear procurement

(MYP) or block buy contracting.

Maintain a capable government acquisition workforce that understands what it is

buying, as well as the above points.

Identifying these lessons is arguably not the hard part—most if not all have been cited for years. The hard

part, arguably, is abiding by them without letting circumstances lead program-execution efforts away

from these lessons.

26 This section is adapted from Appendix D of CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background

and Issues for Congress, by Ronald O'Rourke.

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Appendix B. Avoiding Procurement Cost Growth vs.

Minimizing Procurement Costs27

The affordability challenge posed by the Navy’s shipbuilding plans can reinforce the strong oversight

focus on preventing or minimizing procurement cost growth in Navy shipbuilding programs, which is one

expression of a strong oversight focus on preventing or minimizing cost growth in DOD acquisition

programs in general. This oversight focus may reflect in part an assumption that avoiding or minimizing

procurement cost growth is always synonymous with minimizing procurement cost. It is important to

note, however, that as paradoxical as it may seem, avoiding or minimizing procurement cost growth is not

always synonymous with minimizing procurement cost, and that a sustained, singular focus on avoiding

or minimizing procurement cost growth might sometimes lead to higher procurement costs for the

government.

How could this be? Consider the example of a design for the lead ship of a new class of Navy ships. The

construction cost of this new design is uncertain, but is estimated to be likely somewhere between Point A

(a minimum possible figure) and Point D (a maximum possible figure). (Point D, in other words, would

represent a cost estimate with a 100% confidence factor, meaning there is a 100% chance that the cost

would come in at or below that level.) If the Navy wanted to avoid cost growth on this ship, it could

simply set the ship’s procurement cost at Point D. Industry would likely be happy with this arrangement,

and there likely would be no cost growth on the ship.

The alternative strategy open to the Navy is to set the ship’s target procurement cost at some figure

between Points A and D—call it Point B—and then use that more challenging target cost to place pressure

on industry to sharpen its pencils so as to find ways to produce the ship at that lower cost. (Navy officials

sometimes refer to this as “pressurizing” industry.) In this example, it might turn out that industry efforts

to reduce production costs are not successful enough to build the ship at the Point B cost. As a result, the

ship experiences one or more rounds of procurement cost growth, and the ship’s procurement cost rises

over time from Point B to some higher figure—call it Point C.

Here is the rub: Point C, in spite of incorporating one or more rounds of cost growth, might nevertheless

turn out to be lower than Point D, because Point C reflected efforts by the shipbuilder to find ways to

reduce production costs that the shipbuilder might have put less energy into pursuing if the Navy had

simply set the ship’s procurement cost initially at Point D.

Setting the ship’s cost at Point D, in other words, may eliminate the risk of cost growth on the ship, but

does so at the expense of creating a risk of the government paying more for the ship than was actually

necessary. DOD could avoid cost growth on new procurement programs starting tomorrow by simply

setting costs for those programs at each program’s equivalent of Point D. But as a result of this strategy,

DOD could well wind up leaving money on the table in some instances—of not, in other words,

minimizing procurement costs.

DOD does not have to set a cost precisely at Point D to create a potential risk in this regard. A risk of

leaving money on the table, for example, is a possible downside of requiring DOD to budget for its

acquisition programs at something like an 80% confidence factor—an approach that some observers have

recommended—because a cost at the 80% confidence factor is a cost that is likely fairly close to Point D.

Procurement cost growth is often embarrassing for DOD and industry, and can damage their credibility in

connection with future procurement efforts. Procurement cost growth can also disrupt congressional

budgeting by requiring additional appropriations to pay for something Congress thought it had fully

27 This section is adapted from Appendix F of CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background

and Issues for Congress, by Ronald O'Rourke.

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funded in a prior year. For this reason, there is a legitimate public policy value to pursuing a goal of

having less rather than more procurement cost growth.

Procurement cost growth, however, can sometimes be in part the result of DOD efforts to use lower initial

cost targets as a means of pressuring industry to reduce production costs—efforts that, notwithstanding

the cost growth, might be partially successful. A sustained, singular focus on avoiding or minimizing cost

growth, and of punishing DOD for all instances of cost growth, could discourage DOD from using lower

initial cost targets as a means of pressurizing industry, which could deprive DOD of a tool for controlling

procurement costs.

The point here is not to excuse away cost growth, because cost growth can occur in a program for reasons

other than DOD’s attempt to pressurize industry. Nor is the point to abandon the goal of seeking lower

rather than higher procurement cost growth, because, as noted above, there is a legitimate public policy

value in pursuing this goal. The point, rather, is to recognize that this goal is not always synonymous with

minimizing procurement cost, and that a possibility of some amount of cost growth might be expected as

part of an optimal government strategy for minimizing procurement cost. Recognizing that the goals of

seeking lower rather than higher cost growth and of minimizing procurement cost can sometimes be in

tension with one another can lead to an approach that takes both goals into consideration. In contrast, an

approach that is instead characterized by a sustained, singular focus on avoiding and minimizing cost

growth may appear virtuous, but in the end may wind up costing the government more.

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Appendix C. Fixed-Price Contracts28

Fixed-price contracts help shift the risk of cost growth from the government to the contractor, and are an

important tool for constraining procurement costs. At the same time, there are some cautionary notes

regarding fixed-price contracts that are worth bearing in mind:

•

•

•

•

In writing the terms of a fixed-price contract, the devil can be in the details, particularly

as there are multiple sub-categories of fixed-price contracts. A fixed-price contract can

include provisions for adjusting the total price in response to various developments.

The contractor, in fulfilling the terms of a fixed-price contract, may choose to do the

work exactly as described in the contract, and not a single thing more—even if doing that

single thing more would have made sense in terms of value delivered to the government.

In writing fixed-price contracts, DOD needs to understand its requirements well, so as to

avoid instances in which it would have benefited from having the contractor perform

work items that were not included in the terms of the contract.

Depending on the bargaining leverage available to DOD in its negotiation with the

contractor, the contractor, in return for agreeing to the use of a fixed-price contract

(particularly a Firm Fixed Price contract), might demand a high price for the item to be

built (a price close to what I refer to in Appendix B as Point D), which would mean that

the contract, while avoiding cost growth, could create an increased risk for DOD of

paying more for the item than was necessary.

When the government is to a significant degree in a closed relationship with the

contractor—that is, when the contractor is to a significant degree dependent on the

government for its business, and the government in turn must rely on that contractor as

the source for at least some of what that contractor provides to the government—then it is

not clear what fixed-price contracts are accomplishing in the long run in terms of

insulating the government from the risk of cost growth. Use of fixed-price contracts can

translate cost growth into losses for the contractor. In a relationship between the

government and the contractor that is to a significant degree a closed relationship, the

contractor could seek to recover those losses by charging higher prices for future work it

does for the government. Alternatively, the contractor could simply absorb the losses,

which could weaken the contractor financially, reducing its ability invest in its work force

and modernize its capital plant, which in turn could increase the cost of work that the

contractor performs for the government in the future.29 Either way, the cost growth on the

earlier contract could, in the long run, be effectively shifted back to the government.

The points above are made not to argue against using fixed-price contracts—as mentioned above, fixedprice contracts are an important tool for constraining procurement costs. Even in a situation where the

government is in a largely closed relationship with the contractor, fixed-price contracts can, at a

minimum, help make cost developments in a program more immediately visible to policymakers, which

can be of value in maintaining oversight of the program. The point, rather, is to provide some perspective

on what can be accomplished through the use of fixed-price contracts.

28 This section is adapted from Statement of Ronald O’Rourke, Specialist in Naval Affairs, Congressional Research Service,

before the House Armed Services Committee on Case Studies In DOD Acquisition: Finding What Works, June 24, 2014, pp. 1415.

29 Another option for the contractor, at least in theory, would be to stop (or threaten to stop) work on the contract unless the

government agrees to renegotiate the terms of the contract or agrees to provide a payment to cover the contractor’s losses.

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Appendix D. Some Considerations Relating to

Warranties in Shipbuilding Contracts30

In discussions of Navy (and also Coast Guard) shipbuilding, one question that sometimes arises is

whether including a warranty in a shipbuilding contract is preferable to not including one. The question

can arise, for example, in connection with a past GAO finding that “the Navy structures shipbuilding

contracts so that it pays shipbuilders to build ships as part of the construction process and then pays the

same shipbuilders a second time to repair the ship when construction defects are discovered.”31

Including a warranty in a shipbuilding contract (or a contract for building some other kind of defense end

item), while potentially valuable, might not always be preferable to not including one—it depends on the

circumstances of the acquisition, and it is not necessarily a valid criticism of an acquisition program to

state that it is using a contract that does not include a warranty (or a weaker form of a warranty rather than

a stronger one).

Including a warranty generally shifts to the contractor the risk of having to pay for fixing problems with

earlier work. Although that in itself could be deemed desirable from the government’s standpoint, a

contractor negotiating a contract that will have a warranty will incorporate that risk into its price, and

depending on how much the contractor might charge for doing that, it is possible that the government

could wind up paying more in total for acquiring the item (including fixing problems with earlier work on

that item) than it would have under a contract without a warranty.

When a warranty is not included in the contract and the government pays later on to fix problems with

earlier work, those payments can be very visible, which can invite critical comments from observers. But

that does not mean that including a warranty in the contract somehow frees the government from paying

to fix problems with earlier work. In a contract that includes a warranty, the government will indeed pay

something to fix problems with earlier work—but it will make the payment in the less-visible (but still

very real) form of the up-front charge for including the warranty, and that charge might be more than what

it would have cost the government, under a contract without a warranty, to pay later on for fixing those

problems.

From a cost standpoint, including a warranty in the contract might or might not be preferable, depending

on the risk that there will be problems with earlier work that need fixing, the potential cost of fixing such

problems, and the cost of including the warranty in the contract. The point is that the goal of avoiding

highly visible payments for fixing problems with earlier work and the goal of minimizing the cost to the

government of fixing problems with earlier work are separate and different goals, and that pursuing the

first goal can sometimes work against achieving the second goal.32

30 This section is adapted from Appendix E of CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background

and Issues for Congress, by Ronald O'Rourke.

31 See Government Accountability Office, Navy Shipbuilding[:] Past Performance Provides Valuable Lessons for Future

Investments, GAO-18-238SP, June 2018, p. 21. A graphic on page 21 shows a GAO finding that the government was financially

responsible for shipbuilder deficiencies in 96% of the cases examined by GAO, and that the shipbuilder was financially

responsible for shipbuilder deficiencies in 4% of the cases.

32 It can also be noted that the country’s two largest builders of Navy ships—General Dynamics (GD) and Huntington Ingalls

Industries (HII)—derive much of their revenues from U.S. government work. These two shipbuilders operate the only U.S.

shipyards currently capable of building several major types of Navy ships, including submarines, aircraft carriers, large surface

combatants, and amphibious ships. Thus, even if a warranty in a shipbuilding contract with one of these firms were to somehow

mean that the government did not have pay under the terms of that contract—either up front or later on—for fixing problems with

earlier work done under that contract, there would still be a question as to whether the government would nevertheless wind up

eventually paying much of that cost as part of the price of one or more future contracts the government may have that firm.

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The Department of Defense’s guide on the use of warranties states the following:

Federal Acquisition Regulation (FAR) 46.703 states that “the use of warranties is not mandatory.”

However, if the benefits to be derived from the warranty are commensurate with the cost of the

warranty, the CO [contracting officer] should consider placing it in the contract. In determining

whether a warranty is appropriate for a specific acquisition, FAR Subpart 46.703 requires the CO

to consider the nature and use of the supplies and services, the cost, the administration and

enforcement, trade practices, and reduced requirements. The rationale for using a warranty should

be documented in the contract file….

In determining the value of a warranty, a CBA [cost-benefit analysis] is used to measure the life

cycle costs of the system with and without the warranty. A CBA is required to determine if the

warranty will be cost beneficial. CBA is an economic analysis, which basically compares the Life

Cycle Costs (LCC) of the system with and without the warranty to determine if warranty coverage

will improve the LCCs. In general, five key factors will drive the results of the CBA: cost of the

warranty + cost of warranty administration + compatibility with total program efforts + cost of

overlap with Contractor support + intangible savings. Effective warranties integrate reliability,

maintainability, supportability, availability, and life-cycle costs. Decision factors that must be

evaluated include the state of the weapon system technology, the size of the warranted population,

the likelihood that performance requirements can be achieved, and the warranty period of

performance.33

33 Department of Defense, Warranty Guide, Version 2.0, October 30, 2020, accessed February 25, 2025, at

https://www.dau.edu/sites/default/files/Migrated/CopDocuments/Warranty_Guide_Version_2.0.pdf, pp. 5, 14.

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Appendix E. Ten Options for Addressing Shipbuilding

Capacity Constraints34

In addition to using strategic outsourcing for building submarines and providing industrial base funding

for shipyards and supplier firms, other options for addressing industrial base capacity constraints for

building Navy ships (i.e., for increasing available shipbuilding capacity) include but are not limited to the

ten options discussed briefly below, which are not mutually exclusive and not listed in any particular

order. Eight of these ten options are already being pursued to some degree by the Navy and industry, but

could be pursued more intensively and/or at broader scale. Two of the ten options—those relating to

worker immigration and foreign shipyards—are not currently being used by the Navy and industry.

Worker Nationwide Advertising

As one workforce development effort funded in part with Navy-provided submarine industrial base

funding, the submarine construction industry has raised awareness across the country of openings for

submarine construction jobs through nationwide advertising efforts such as the Build Submarines

advertising campaign and its associated website, buildsubmarines.com. Similar efforts could be used to

more widely advertise job openings for building surface ships. This option could raise awareness of

shipbuilding jobs in regional U.S. labor markets that are distant from the shipyards that build Navy ships.

Worker Pipeline

Worker pipeline efforts involve shipyards and supplier firms working with state and local governments,

state and local school systems, labor unions, and other organizations to not only increase awareness

within regional labor markets surrounding shipbuilding firms of shipbuilding as a potential line of work

or career option, but also to encourage or provide instruction of students in basic trade skills that could

help prepare them for potential future work in shipbuilding. Such efforts have been underway for years

and have been expanded in part with Navy-provided industrial base funding. This effort could be

expanded further, to other parts of the country not currently involved in Navy shipbuilding.

Worker Immigration

Carlos Del Toro, who, as previously noted, was Secretary of the Navy during the Biden Administration,

suggested worker immigration as an option for providing more workers for shipyards building Navy

ships. One issue that might arise in connection with this option would concern the citizenship of such

workers, as contracts for building all U.S. Navy ships require that workers building the ships be U.S.

citizens.

Worker Wages and Benefits

Shipyards and associated supplier firms face challenges in recruiting and retaining new workers in part

because wages and benefits in service and retail jobs have grown more in recent years than have wages

and benefits at shipbuilders and supplier firms. As a result, the differential in wages and benefits between

shipbuilding jobs and service and retail jobs has narrowed, and workers consequently might now more

likely to choose service and retail jobs, where the work, while still paying less than shipbuilding work, is

more likely to be done in air-conditioned and cleaner indoor settings, involve less heavy lifting or risk of

34 This section is adapted from the similarly titled section of CRS Report RL32665, Navy Force Structure and Shipbuilding

Plans: Background and Issues for Congress, by Ronald O'Rourke.

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serious injury, take place in locations offering easier daily commutes, and in other respects offer better

quality-of-work and/or quality-of-life features. Reestablishing a larger differential in wages and benefits

between shipbuilding jobs and service and retail jobs could require substantially increasing total wages

and benefits for shipbuilding workers. Such a change could, in turn, substantially increase ship

procurement costs, since shipyard labor can account for roughly 40% of a military ship’s total

procurement cost.

Worker Quality of Work and Quality of Life

Related to the discussion in the previous section, efforts to improve recruiting and retention of

shipbuilding workers can also involve various initiatives to improve their quality of work or quality of

life, such as providing affordable housing within certain commuting times of shipyards, ensuring

sufficient parking at shipyards for workers arriving by car, building recreational or other support facilities

for shipyard workers and their families at or close to shipyards, providing child care for workers, or

paying retention bonuses to workers.

Robotics and Automation

Increasing where possible the use of robotics and automation for accomplishing manufacturing work at

both shipyards and supplier firms could increase production capacity beyond what might otherwise be

possible with a production workforce of a given size. Shipyards and supplier firms are already making use

of robotics and automation; under this option, use of robotics and automation would be increased to take

advantage of new advances in robotics and automation, or to perform work that in theory could be done

more cost effectively by people, but that cannot be done by people due to insufficient numbers of

production workers.

Federated Shipbuilding/Nation as a Shipyard

Another option—one that might be called federated shipbuilding or nation as a shipyard—would involve

expanding the use of strategic outsourcing, which as discussed earlier is currently used for building

submarines, to the construction to surface ships as well, so as to apply strategic outsourcing to Navy

shipbuilding programs in a more systematic and comprehensive manner. This option could also involve

designing Navy ships and their production strategies with this approach in mind. Under this approach,

ship modules would be built at facilities that are some distance from the final assembly shipyard, and the

modules would then be transported by truck, train, or barge to that shipyard for incorporation into the

ship. The aim of this option would be to gain access to production facilities and (perhaps more important)

regional labor markets in parts of the country that currently are not significantly involved in Navy

shipbuilding. The manufacturing facilities that are some distance from the final assembly shipyard can be

owned and operated by an owner of a final assembly shipyard or by an owner other than the owner of a

final assembly shipyard.

Navy ships that have been built with modules produced at locations distant from the final assembly yard

include certain submarines built by General Dynamics/Electric Boat (GD/EB) since 1975, every Virginiaclass submarine procured since the start of Virginia-class procurement in FY1998, and several LPD-17

Flight I class amphibious ships that were built using this approach as a way of responding to damage to

shipyards building San Antonio (LPD-17) Flight I class amphibious ships that was caused by Hurricane

Katrina in 2005. Philly Shipyard in Philadelphia, PA, reportedly is considering building ship modules for

the Navy as part of its targeted future work. A Navy official reportedly stated in December 2024 that the

Navy is looking at using federated shipbuilding as part of its effort to expand production of FFG-62 class

frigates.

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Implementing federated shipbuilding/nation as a shipyard could require altering ship designs to facilitate

the production of ship modules in locations other than final assembly yards, and could make shipbuilding

programs more complex to manage.

Additional Shipyard Facilities

Another option would be to construct new shipyard facilities for building Navy ships at waterfront sites

other than those currently used for building Navy ships. One version of this option would be to establish

such facilities at sites that were once used to build Navy ships, such as—to name only three notional

possibilities as examples, one each from the West Coast, Gulf Coast, and East Coast—the former Todd

Seattle shipyard (now operated by Vigor Industrial), which once built surface combatants, including

Oliver Hazard Perry (FFG-7) class frigates; the East Bank site of Huntington Ingalls Industries/Ingalls

Shipbuilding (HII/Ingalls) in Pascagoula, MS, which was once used to build nuclear-powered

submarines;35 and the site of the former Philadelphia Naval Shipyard (a portion of which is currently

operated by Philly Shipyard). As stated, these are only three notional possibilities, one each from the West

Coast, Gulf Coast, and East Coast. Other waterfront locations around the country offer additional possible

sites for building new shipyard facilities.36 Constructing a shipyard facility capable of building large ships

for the Navy could require hundreds of millions or billions of dollars of investment and years to build.

Smaller Ships

Another option would be to change the Navy’s planned mix of ships (i.e., the Navy’s planned fleet

architecture) to include a larger number of smaller ships (such as missile-armed corvettes) that can be

built by smaller shipyards that are not able to build larger Navy ships. This could increase the number of

shipyards that participate in Navy shipbuilding.37 Changing the Navy’s planned mix of ships to include a

larger number of smaller ships would produce a fleet mix that might be less optimal for performing

missions than the Navy’s currently preferred mix.

Foreign Shipyards

Another option would be to build Navy ships or parts of such ships in foreign shipyards, such as

shipyards in Japan, South Korea, or allied countries in Europe. Former Navy Secretary Carlos Del Toro

stated that he would be open to having foreign shipyards assemble modules for certain US Navy ships.

One issue that would arise in connection with this option are U.S. laws that prohibit U.S. Navy ships or

major components of Navy ships from being built in foreign shipyards. These laws include, among others,

35 For a press report discussing the East Bank site, see Justin Katz, “At Ingalls, Plenty of Space for Shipbuilding but Ramping Up

Workforce Will Be the Challenge,” Breaking Defense, August 23, 2024.

36 For press reports about a new facility at the Austal USA shipyard of Mobile, Alabama, see, for example, Rojoef Manuel,

“Austal to Build Module Factory for US Navy Submarine Programs,” Defense Post, October 29, 2024; Sam LaGrone, “Austal

USA Awarded $450M to Build a Submarine Construction Facility in Mobile,” USNI News, September 16, 2024.

37 See, for example, Congressional Budget Office, Perspectives on the Navy’s 2025 Shipbuilding Plan, Presentation at the

National Defense Industrial Association’s 26th Annual Expeditionary Warfare Conference, Eric J. Labs, National Security

Division, October 22, 2024, briefing slide 20 (PDF page 21 of 23); Collin Fox, “Distributed Manufacturing for Distributed

Lethality,” Center for International Maritime Security (CIMSEC), February 26, 2021; Frederick “Andy” Cichon, “Rebooting the

High-Low Mix of Ships,” U.S. Naval Institute Proceedings, February 2024. See also Megan Eckstein, “Small Shipyards

Consolidate amid Navy Program Delays,” Defense News, November 8, 2022; Bryan Clark, Timothy A. Walton, and Seth

Cropsey, American Sea Power at a Crossroads: A Plan to Restore the US Navy’s Maritime Advantage, Hudson Institute, October

2020, p. 50.

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10 U.S.C. 8679, which includes a presidential waiver for national security interest,38 and a recurring

provision in the annual DOD Appropriations Act that has not included such a waiver.39

Another issue that would arise in connection with this option would concern the ability to safeguard

sensitive U.S. naval technology and ship-design know-how in foreign shipyards and supplier firms whose

employees would not be U.S. citizens. This issue currently arises in connection with repairing and

maintaining certain U.S. Navy ships at shipyards in locations such as Japan; one question would be how

this issue might differ for a situation of building (rather than repairing and maintaining) U.S. Navy ships.

Challenges and Limitations of These Options

In addition to challenges and limitations noted for certain individual options discussed above, many of the

above options could be very expensive, could take years to produce results, or both.

38 The text of 10 U.S.C. 8679 as of February 25, 2025, is as follows:

§8679. Construction of vessels in foreign shipyards: prohibition

(a) Prohibition.-Except as provided in subsection (b), no vessel to be constructed for any of the armed forces,

and no major component of the hull or superstructure of any such vessel, may be constructed in a foreign

shipyard.

(b) Presidential Waiver for National Security Interest.-(1) The President may authorize exceptions to the

prohibition in subsection (a) when the President determines that it is in the national security interest of the

United States to do so.

(2) The President shall transmit notice to Congress of any such determination, and no contract may be made

pursuant to the exception authorized until the end of the 30-day period beginning on the date on which the

notice of the determination is received by Congress.

(c) Exception for Inflatable Boats.-An inflatable boat or a rigid inflatable boat, as defined by the Secretary of

the Navy, is not a vessel for the purpose of the restriction in subsection (a).

39 The provision, which has been included each year in the paragraph of the annual DOD Appropriations Act that makes

appropriations for the Navy’s shipbuilding account (i.e., the Shipbuilding and Conversion, or SCN, account), states

… Provided further, That none of the funds provided under this heading for the construction or conversion of

any naval vessel to be constructed in shipyards in the United States shall be expended in foreign facilities for

the construction of major components of such vessel: Provided further, That none of the funds provided

under this heading shall be used for the construction of any naval vessel in foreign shipyards:…

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Appendix F. Five Options for Using Available

Shipbuilding Capacity

In addition to the ten options discussed in Appendix E for addressing shipbuilding capacity constraints

(i.e., for increasing available shipbuilding capacity), five additional options for using available shipdesign and shipbuilding capacity include but are not limited to the five discussed briefly below, which are

not mutually exclusive and not listed in any particular order. Four of these five options are already being

pursued to some degree by the Navy and industry, but could be pursued more intensively and/or at

broader scale. The fifth option, relating to up-front fleet design, is not currently being used by the Navy

and industry to a significant degree.

World-Standard Shipbuilding Practices and Methods

One option for maximizing the use of available shipbuilding capacity is to incorporate world-standard

shipbuilding practices and methods—including those used by leading shipbuilders in Japan and South

Korea—into the operations of U.S. shipyards that build Navy ships. Some of these practices and methods

relate to in-house worker training methods; others relate to shipyard operations management and

materials management (such as, for example, monitoring and managing the flow of work through the

shipyard on a continuous basis); and still others relate to the design and fabrication of ship sections and

components.

DOD and Navy interest in this option dates back to at least 2005. GAO has focused on this option in

multiple reports since at least 2009. Other observers have also focused on this option. Former Navy

Secretary Carlos Del Toro encouraged Japanese and South Korean shipbuilders to consider investing in

U.S. shipyards and transferring their shipbuilding practices and methods to U.S. shipyards. Some builders

of Navy ships have pursued this option. For example, General Dynamics’ National Steel and Shipbuilding

Company (GD/NASSCO) of San Diego, a builder of both Navy auxiliary ships and commercial cargo

ships, has done so since at least 1990.

In adopting commercial world-standard shipbuilding practices and methods into naval shipbuilding,

significant differences between commercial and naval ships need to be taken into account. Examples of

such differences include ship production quantities; interior density and complexity; commercial vs.

military construction standards; specialty steels and welding techniques (particularly for submarines);

propulsion systems (including nuclear propulsion); ship design and construction for reduced detectability

and high survivability; the installation, integration, and testing of complex combat systems; and intended

service lives. For additional discussion of the differences between commercial shipbuilding and naval

shipbuilding, see Appendix H.

Navy as a Kit of Parts

Under an option that might be called Navy as a kit of parts, the design of the Navy would be modified

over time toward one in which, more fully than is now the case, standardized components would go into

standardized weapon systems that would be incorporated into a collection of hull designs with

standardized features, with the aim of making the Navy easier to design and build (and also easier to crew

and maintain). Such an approach has been proposed and considered since the 1970s, and the Navy since

the 1970s has taken some steps in this direction, particularly in terms of pursuing commonality in its ship

propulsion and ship combat system equipment. This option would expand the effort into one that is more

systematic and comprehensive, so as to optimize the Navy more fully for ship design and ship

construction (and also ship crewing and ship maintenance) at the fleet-wide level rather than optimizing

the design of individual ship classes at the potential cost of reducing or missing opportunities for

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optimizing at the fleet-wide level. This option could involve de-optimizing individual ship designs (when

those designs are viewed individually) in exchange for better optimizing the Navy at the fleet-wide level.

Ship Designs Requiring Fewer Labor Hours to Build

Another option—one used by South Korean warship designers—would be to design ship sections with a

strong focus on reducing the labor hours needed to produce them. This option—which can be viewed as

an example of the world-standard shipbuilding practices and methods discussed above—can involve

enlarging ship sections somewhat so as to improve worker access to spaces in the ship sections and allow

the sections to be filled with things like straighter pipe runs that take up more space but require less labor

to produce and install, rather than space-saving but more convoluted pipe runs that require more labor to

produce and install. In such cases, the aim is for the reduction in labor costs to be greater than the increase

in material costs that would result from making the ship section larger. Some observers argue, based on

South Korea’s experience, that this can result in ship designs that are somewhat larger—but nevertheless

easier and less expensive to build, maintain, and modernize over their life cycles.

Continuous Production

Another option, which can be referred to as continuous production, would be to construct Navy

shipbuilding plans that

•

•

•

•

•

•

emphasize continuous steady, production rates;

employ multiyear contracting where cost-effective;40

avoid year-to-year changes in near-term procurement profiles (i.e., programmed annual

procurement quantities) that are made in an attempt to precisely match targeted

downstream force levels;

as a part of the previous point, manage the size of the Navy not at “the front end,” though

changes in near-term procurement profiles, but at “the back end,” through end-of-life

retirement decisions;

manage transitions from procuring one class of ship (such as the Navy’s DDG-51

destroyer) to procuring the next class of ship of the same general kind (such as the Navy’s

planned DDG(X) next-generation destroyer) in a manner that avoids or minimizes

reductions in the numbers of ships of that general kind that are procured during the

transitional period; and

conceive and talk about the future Navy more in terms of steady production rates and a

broadly defined future size than in terms of a precise targeted downstream force-level.

Compared with current practice, this option would place more emphasis on avoiding the potential costs

and inefficiencies of irregular or changing procurement profiles, and recognize the likelihood that targeted

downstream force levels could change, perhaps multiple times, between now and the year that the

targeted downstream force levels are to be achieved.41

Managing the size of the Navy not at “the front end,” though changes in near-term procurement profiles,

but at “the back end,” through end-of-life retirement decisions, would be similar to the approach that

Japan uses for building its submarines and managing the size of its submarine fleet: to provide stability

for its submarine construction industrial base and maximize efficiency in the production of its

40 For more on multiyear contracting, see CRS Report R41909, Multiyear Procurement (MYP) and Block Buy Contracting in

Defense Acquisition: Background and Issues for Congress, by Ronald O'Rourke.

41 For examples of past changes in U.S. Navy force-level goals, which tend to occur once every few years, see TableA-1 in CRS

Report RL32665, Navy Force Structure and Shipbuilding Plans: Background and Issues for Congress, by Ronald O'Rourke.

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submarines, Japan aims to maintain a steady submarine production rate of one boat per year. When Japan

planned to maintain a force of 18 submarines, it did so with the one-per-year build rate by keeping its

submarines in service to about age 18. When Japan increased its submarine force-level goal to 22 boats, it

maintained the one-per-year build rate and started keeping its submarines in service to about age 22. If

Japan were to decide to further increase its submarine fleet to 30 boats, it could again maintain the oneper-year build rate and start keeping its boats in service to age 30. Under this approach, the one-per-year

build rate is held constant even while the planned force size changes, because the size of the force is

managed through end-of-life retirement decisions.

Figure F-1 presents a graphic on managing procurement transitions between classes. In the graphic,

approach Number 1, in which there is a gap of one or more years between the procurement of the final

ship of a class and the procurement of the lead ship of the next class, is widely recognized as one that can

lead to significant losses of ship procurement opportunities and also cause damage to the shipbuilding

industrial base for that type of ship.

Figure F-1. Condition-based, minimal-loss procurement transition between classes

Source: Graphic prepared by CRS.

Approach Number 2 closes up the gap shown in approach Number 1, but does not account for the risk of

problems occurring in the effort to get production of the successor class underway. Approach Number 2 is

the one that the Navy used in transitioning from procurement of LCSs to procurement of FFG-62s, and

the result, given the delays in the FFG-62 program, is that the Navy is currently losing numerous small

surface combatant ship procurement opportunities.

Approach Number 3 provides a cushion against the risk problems occurring in the effort to get production

of the successor class underway. The Navy successfully used this approach in transitioning from the

procurement of CG-47 class Aegis cruisers to DDG-51 class Aegis destroyers. During that transition, the

effort to get DDG-51 production underway encountered a delay, and the Navy was able to use the overlap

between CG-47 procurement and DDG-51 procurement to shift some large surface combatant

procurement opportunities back to the CG-47 program while the DDG-51 program recovered from its

delay.

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Given the complexity of today’s ships and industry conditions, my assessment is that Approach Number 3

may no longer provide the desired amount of protection against avoiding losses in procurement

opportunities in transitioning procurement from one class to the next, and that a new approach—Number

4—may now be required. This approach would treat lead ships more fully like the prototypes that they

are. Under this approach, the date for lead ship procurement is kept flexible until the design is truly done,

the date for starting the second ship is kept flexible until challenges in building the lead ship are fully

worked out, and in the meantime, procurement of the previous class is continued.

Pursuing the option of continuous production for the U.S. Navy could lead to a change in how the future

Navy is described and discussed. Instead of describing and discussing the future Navy as a fleet that is to

consist of a certain precise number of ships (e.g., 381 ships), the future Navy might instead be described

and discussed as a fleet of a certain general size range that will be produced by building a certain number

of attack submarines each year, a certain number of destroyers per year, and so on, with the precise

number of ships in the future fleet to be determined in the future, through end-of-life retirement decisions.

Up-Front Fleet Design, and a Related Vetting Question

Another option would be for the Navy to engage more substantially in up-front fleet design (aka up-front,

broad-scale, end-to-end design), with an eye toward designing a fleet that as a whole would be

intrinsically easier to design, build, crew, and maintain, particularly in terms of the numbers of people

needed and the complexity of demands placed on people for designing, building, crewing, and

maintaining ships. Under this option, instead of designing the Navy incrementally, one ship class at a

time, and producing a future Navy through the accretion over time of separately considered, bespoke ship

designs, the Navy would place more up-front emphasis on how its ship acquisition programs collectively

place demands on U.S. ship design, production, crewing, and maintenance capabilities, and on how upfront Navy decisions regarding its ship acquisition programs could shape those capabilities over time so

as to better support future Navy needs.42

42 One observer—the Navy’s chief analyst of future force structure and capability requirements within the Office of the Chief of

Naval Operations from 2002 to 2014—stated

It is time to rethink how we will design the future Fleet in a way that rebalances affordability, platform

capability, and deployment processes. We must build it as a whole instead of continuing to “let it happen”

one platform requirements decision at a time….

Today the Navy operates about 50 different types of ships and aircraft with individual design-service lives of

20 to 50 years. On average, about two classes of ship or aircraft annually come up for a decision on

replacement at the end of their service lives. Each of these decisions, a multi-year joint bureaucratic process

with dozens of participating organizations, is made individually….

The future Fleet is being designed ad hoc, one platform at a time, and we cannot afford this. How can we

change the trend toward an ever-smaller Fleet of ever-better platforms while maintaining the capability

superiority needed to execute our missions? It will take a top-down design to provide a structure in which

individual platform requirements can be shaped and disciplined despite all of the pressures….

Developing an overall fleet design to structure and discipline individual platform requirements is no small

task. Simply constraining platform cost without dealing with how capabilities might be delivered differently

is not sufficient. This is not a once-and-done process, as changes in threat and in our own technology options

will never stop. But neither can it be a process that changes the design in some fundamental way every year

or two—it will have to influence platform requirements for a long period of time to affect a significant

number of new platform designs.

We cannot afford to retire legacy platforms prematurely simply because they are not optimized within our

new Fleet design, which will take time to implement and have to be done incrementally. Real and

fundamental change in the roles, missions, and interdependencies among platform types, and in the balance

between manned and unmanned and between platform and payload, is an inevitable outcome of a Fleet

design process. That is the point. Change is hard, and it will have to be authorized and directed by the Navy’s

(continued...)

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This option could also involve the use of a new up-front vetting question for proposed shipbuilding

programs that would require those proposing a new program to show how the proposed program reflects

the results of an up-front fleet design and how the proposed program would make the Navy inherently

easier to design, build, crew, and maintain by doing one or more of the things discussed in the previous

three sections (i.e., Navy as a kit of parts, ship designs requiring fewer labor hours to build, and

continuous production), by doing other things, or both.

Challenges and Limitations of These Options

The above options for using available ship-design and shipbuilding capacity could take years to produce

results. They could require significant changes in Navy fleet design practices, ship acquisition practices,

and Navy organization. They could also have potentially significant impacts for maintaining

congressional oversight of Navy shipbuilding programs and maintaining year-to-year congressional

flexibility for determining shipbuilding-related spending.

leadership or risk not happening….

The only way to meet these demands within available resources is to develop a design that provides a

structure within which the capabilities of future platforms can be shaped to meet the Fleet’s missions

efficiently as an overall force. Doing this will require a systems-level approach to defining what it must be

able to do, and will mean abandoning some cherished traditions of what each type of platform should do. The

alternative is a Navy no longer large or capable enough to do the nation’s business.

(Arthur H. Barber III, “Rethinking the Future Fleet, The U.S. Navy Has No Overall Requirements Process for

Designing a Fleet, and It Needs One—Desperately,” U.S. Naval Institute Proceedings, May 2014.)

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Appendix G. Capacity for Conducting Ship Repair Work

This appendix discusses capacity for conducting maintenance, repair, and overhaul (MRO) work on Navy

ships, and commercial shipbuilding in relation to Navy shipbuilding, which is a topic that sometimes

arises in connection with discussions of Navy shipbuilding.

Since challenges in building new Navy ships and in conducting MRO work on SSNs are both due in large

part to capacity constraints, it can be reasonable for an observer to conclude that challenges in conducting

MRO work on the Navy’s conventionally powered surface ships are similarly due chiefly to capacity

constraints. Some observers may have made this conclusion, because they have suggested that the

challenges of conducting MRO work on the Navy’s conventionally powered surface ships can be

addressed by adding additional capacity for conducting this work in the form of foreign shipyards.

Dr. Labs and I have asked the Navy on more than one occasion whether the Navy’s challenges in

conducting MRO work on the Navy’s conventionally powered surface ships are due to capacity

constraints, and the Navy has consistently replied that this is not the case—that the Navy’s challenges in

conducting this work are chiefly due not to capacity constraints, but to inadequate Navy planning,

scheduling, and funding of this work, which the Navy is now focusing on improving.43 The Navy has

explained to Dr. Labs and me that while there was a shortage of drydocks on the West Coast for

conducting this work, that shortage has since been reduced.

Based on the Navy’s explanations to Dr. Labs and me, it would appear that proposals to address the

challenges in performing MRO work on the Navy’s conventionally powered surface ships by adding

capacity in the form of foreign shipyards would miss the mark, since the problem is not inadequate

capacity, but inadequate planning, scheduling, and funding of the work.

43 See also, for example, Meghann Myers, “Stop Treating Shipyards Like the ‘Corner Garage’: Former Navy Acquisitions

Chief,” Defense One, February 19, 2025.

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Appendix H. Commercial Shipbuilding in Relation to

Navy Shipbuilding

This appendix discusses commercial shipbuilding in relation to Navy shipbuilding, which is a topic that

sometimes arises in connection with discussions of Navy shipbuilding.

Some observers are interested in expanding commercial ship construction in the United States, which fell

to very low levels in the 1980s—in part due to the Reagan Administration’s cancellation in the early

1980s of the Construction Differential Subsidy (CDS), which had previously supported commercial ship

construction in the United States—and has remained at those very low levels since.

There are various potential reasons for supporting actions to increase commercial ship construction in the

United States, including but not limited to a desire to create jobs (which was a major consideration in

connection with shipbuilding initiatives in the Depression years of the 1930s, when there were high levels

of unemployment), or a sense that major world powers should (or need to) be major maritime powers, and

that being a major maritime power includes being a significant builder of commercial ships.

Given the comparative costs of building commercial ships in the United States and other countries, some

of which is due to national differences in labor costs, significantly increasing commercial ship

construction in the United States on a sustained basis by increasing the U.S. share of the international

market for commercial ships could require reinstating the CDS or something like the CDS. Current world

market prices for commercial ships vary considerably by ship type, but to keep the notional math fairly

simple, a smaller commercial cargo ship might be said to have a current world market price of roughly

$50 million, while a larger commercial cargo ship might be said to have a current market price of roughly

$100 million.44 The cost to build such ships in U.S. shipyards might start out at about four times those

figures (i.e., $200 million and $400 million, respectively),45 meaning that the subsidy amount needed

under a reinstated CDS or something like the CDS might start out at something like $150 million to $300

million per ship. These figures might come down somewhat over time as the U.S. shipyards building

these ships progress down the production learning curve for building the ships and achieve other

production economies of scale, but given differences in national labor costs, a significant per-ship subsidy

would likely be required indefinitely.

Increasing commercial ship construction activity in the United States would create a new competitor for

the same potential shipyard production workers for which the Navy’s shipbuilders are already challenged

in recruiting. This could lead to upward pressures on shipyard worker wages and benefits as commercial

and Navy shipbuilders compete for workers. A similar situation reportedly is occurring among shipyards

on the Gulf Coast due to additional Navy work being awarded to those shipyards.46

44 Source: BRS Group, Shipping and Shipbuilding Markets, Annual Review 2024, table on page 39 showing prices for new-

construction commercial cargo ships in 2023.

45 See, for example, CRS In Focus IF12534, U.S. Commercial Shipbuilding in a Global Context, by John Frittelli, which states:

“No overseas purchase of large U.S.-built ships has occurred in decades because U.S.-built ships can be four or more times the

world price. Differences in wage rates, particularly for welders, and currency exchange rate policy are factors leading to higher

prices in the United States. The lack of exports prevents U.S. shipyards from achieving economies of scale.”

By way of comparison, in the Coast Guard’s proposed FY2025 budget, the estimated procurement cost of a Fast Response Cutter

(FRC)—a 154-foot patrol boat built in a U.S. shipyard—is $100 million. This figure includes costs for military systems not

present on a commercial cargo ship, as well as government (Coast Guard) program management costs. After subtracting out those

costs, the remaining procurement cost of an FRC might be comparable to the above-stated current world market cost (roughly

$50 million) of a smaller commercial cargo ship.

46 See Sam LaGrone, “‘It’s Never Going to Be Easy,’ Gulf Coast Shipyards Have Plenty of Orders, But Workforce Challenges

Persist,” USNI News, October 14, 2024.

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An increase in worker wages and benefits would be a welcome development for shipyard workers. It

would increase construction costs for commercial ships (and thus the per-ship subsidy amount needed for

commercial ships intended for sale in the international market) and Navy ships. Shipyards building

commercial ships might have less-stringent security-related standards for vetting potential employees.

Other things held equal, this could give shipyards building commercial ships an advantage over those

building Navy ships in recruiting workers. Over time, the total number of workers engaged in

shipbuilding in the United States would increase, eventually reaching a new equilibrium reflecting the

expansion of commercial ship construction work. The additional workers would be engaged in

commercial shipbuilding, and the net impact on the number of workers available for Navy shipbuilding

could be essentially neutral. In short, increasing commercial shipbuilding in the United States could add

to challenges facing Navy shipbuilders in recruiting new workers in the short term, and could produce no

significant net gain in the number of workers available for Navy shipbuilding over the longer term.

Some observers who support expanding commercial ship construction in the United States may do so in

part due to a belief that shipyards can easily shift from building commercial ships to building Navy ships,

or vice versa. This notion is highly problematic, as shipyards that build commercial ships differ from

shipyards that build naval ships in several important ways, including but not limited to the following:

•

Workforce ratio of steel trades to outfitting trades. Building commercial ships in

general requires much less interior outfitting than building complex Navy combatant

ships, which have significant amounts of interior outfitting for their combat systems and

crew-related spaces. Compared to shipyards that build naval ships, shipyards that build

commercial ships consequently tend to have workforces with fewer workers in the

outfitting trades relative to the number in the steel trades that build the ship’s hull. A

shipyard attempting to shift from commercial shipbuilding to Navy shipbuilding could

thus face a significant shortage of outfitting workers, while a shipyard attempting to shift

from Navy shipbuilding to commercial shipbuilding could face a need to lay off a large

number of outfitting workers. This issue arose in the early 1990s, when the end of the

Cold War led to a reduction in Navy shipbuilding and a consequent interest in exploring

the potential for shifting shipyards from building Navy ships to building commercial

ships. As a part of that discussion, the CEO of Bath Iron Works (BIW) testified in 1992 to

a House Armed Services Committee panel on the defense industrial base that shifting

BIW’s work from building Navy ships to building commercial ships would reduce the

number of people employed at BIW from 10,000 (the size of its workforce at that time) to

about 3,500.47 Workers who are laid off from a shipyard shifting from Navy work to

commercial work might find work in other industries, and might be reluctant to return to

the shipyard at a later point due to concerns about job stability at a shipyard that has a

business model of shifting back and forth between Navy and commercial work.

47 Spoken testimony of Duane D. “Buzz” Fitzgerald, President and Chief Executive Officer, Bath Iron Works Corporation, at a

February 19, 1992, hearing on shipbuilding and ship repair before the House Armed Services Committee’s Structure of U.S.

Defense Industrial Base Panel. Fitzgerald stated:

Now, I think there is one more point I would like to make on the conversion issue [i.e., converting a shipyard

from producing Navy ships to producing commercial ships], Mr. Chairman. We have built commercial ships

of all types, as I have said, [and] in the early 1980s we built our last merchant ship and it was an oil tanker,

the Falcon Champion. So we know we could build ships like that starting tomorrow. But if we devoted our

three building ways and our entire steel capacity to building ships like that, and if we had a tanker on our

building ways all the time, as soon as we launched one, lay another one down, we would employ about 3,500

people rather than the 10,000 we employ today.

(U.S. Congress, House, 102nd Congress, Defense Industrial Base, Hearings before the Structure of U.S.

Industrial Base Panel of the Committee on Armed Services, House of Representatives, U.S. Government

Printing Office, 1992, p. 536.)

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Worker security and citizenship requirements. Workers in shipyards that build

commercial ships may have been hired under less-stringent security and citizenship

requirements than workers in shipyards that build Navy ships. As noted earlier, all Navy

shipbuilding contracts require that the shipyard workers building the ships be U.S.

citizens. For shipyards that build commercial ships, this can pose a potentially significant

impediment to being able to shift to production of Navy ships.

Worker techniques and skills. Construction standards for building commercial ships are

in some respects less stringent than those for building Navy ships, which incorporate

higher engineering tolerances, features for ship survivability in combat situations, and

longer intended service lives. This can lead to differences in techniques and skills

between workers who build commercial ships and workers who build Navy ships. These

differences in skills and techniques, as well as the differing security requirements noted

in the previous bullet point, pose impediments to shifting workers back and forth between

commercial ship construction and naval ship construction. At one South Korean

shipbuilding firm that builds both commercial ships and naval ships, there is a fence with

barb wire on top to keep the commercial shipbuilding workers separate from the naval

shipbuilding workers.48

Equipment (and associated fixed overhead costs) for installing, integrating, and

testing combat system equipment. Shipyards that build complex Navy combatants have

equipment (and associated fixed overhead costs) for installing, integrating, and testing

ship combat systems. Shipyards that build commercial ships do not have such equipment

and associated fixed overhead costs. This can pose an impediment for shipyards

attempting to shift from building commercial ships to building complex Navy

combatants, and a cost-competitiveness issue for shipyards attempting to shift from

building complex Navy combatant ships to building commercial ships.49

Satellite photographs of shipyards in China where both commercial and naval ships are being built can

raise a question among observers about whether this might be an approach for the United States to

emulate. It is not clear, however, that the naval ships in those shipyards in China are being built

efficiently. China might decide to build some of its naval ships in yards that also build commercial ships,

even if the naval ships are not built very efficiently, as a means of preserving its commercial shipbuilding

industry during periodic downturns in the global commercial shipbuilding market, or to top off its naval

production at the margin without having to make the large investment that would be needed to establish

an additional specialist naval construction yard. An August 2024 RAND report on China’s naval and

commercial shipbuilding states:

Findings

This paper comes to two conclusions about the relationship between Chinese naval and commercial

shipbuilding:

First, historically, increases in [China’s] naval shipbuilding were accompanied by declines in

[China’s] commercial shipbuilding and vice versa.… The data does not reveal the underlying

motivations for these movements but does emphasize two industries with related movements.

48 Source: Information provided by a RAND analyst who visited shipyards in South Korea and Japan in support of RAND’s

research on shipbuilding issues, provided at a meeting with CRS and CBO on October 1, 2024.

49 For additional discussion of the differences between commercial shipbuilding and naval shipbuilding, see John Birkler et al.,

Differences Between Military and Commercial Shipbuilding, Implications for the United Kingdom’s Ministry of Defence, RAND,

Report MG-236, 2005, 111 pp. The report’s preface states: “This report should be of special interest not only to the [UK’s] DPA

[Defence Procurement Agency] but also to service and defence agency managers and policymakers involved in shipbuilding on

both sides of the Atlantic.”

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Second, commercial and naval shipbuilding [in China] may now be growing more independent. This

is supported by the following observations:

Shipyards [in China] have grown more specialized, focusing either on naval or commercial

shipbuilding building, but not both. The two yards examined, Dalian and Jiangnan Changxingdao,

are the only facilities that produce some of the latest PLAN 50 warship classes and these yards are

now primarily dedicated to naval production. As Dalian and Jiangnan Changxingdao began to build

modern surface combatants and aircraft carriers, the number of commercial ships under construction

in those yards declined precipitously, even though there was not a similar drop in commercial

production nationwide.… While naval production surged in the aftermath of the Great Recession

and the accompanying dip in commercial demand, it remained elevated and even expanded after the

commercial sector recovered. This suggests the PRC developed new capacity for naval shipbuilding

rather than merely backfilling unused capacity in times of low commercial demand….

Implications

This divergence is likely a reflection of the increasingly modern PLAN. Modern warships are far

more complex than commercial vessels and demand more specialized labor and the latest PLAN

vessels appear to be increasingly equal to their American counterparts in some respects. US Navy

officers who have been on PLAN vessels have described them as “built to commercial standards,”

yet these testimonials are based off of visits that occurred over a decade ago. The divergence

between naval and commercial shipbuilding suggests that the latest PLAN warships may no longer

be built to commercial standards….

However, the cost of the divergence is that the PRC will not necessarily be able to convert its

enormous commercial shipbuilding capacity into naval production, at least without a significant

investment in time and resources. Previous analysis concluded that there was a there was a high

degree of military and commercial overlap in PRC shipbuilding facilities and the PRC’s most

modern shipyards have the infrastructure and expertise to engage in advanced naval production even

if their primary purpose is civilian. More recent data suggests this may no longer be the case, at least

for certain classes of PLAN warships. As the PLAN becomes more composed of increasingly

specialized warships requiring increasingly specialized yards, the significant gap between US and

PRC commercial shipbuilding should not be thought of as easily translating into a major advantage

for the PLAN.

PLAN shipbuilding over the past decade is formidable and the PRC is able to construct modern

warships at a rapid pace. Yet going forward comparisons between US and PRC naval production

should be made on a like-for-like basis rather than looking at shipbuilding totals in aggregate. The

PLAN may be a much more modern and high-quality force now, but that also means it will likely

be less able to draw from the PRC’s vast commercial shipbuilding capacity.51

Of the seven shipyards that currently build the Navy’s larger ships, one of them—GD/NASSCO—also

builds commercial ships. GD/NASSCO is able to build both Navy ships and commercial ships without

encountering significant difficulties with the issues discussed above because the ships that GD/NASSCO

builds for the Navy—auxiliary ships such as oilers—are not very different from commercial ships. In this

sense, GD/NASSCO can be viewed as the exception that proves the rule regarding the challenges of

building both commercial ships and Navy ships efficiently at a single shipyard. In the 1990s, one of the

50 China’s military is called the People’s Liberation Army, or PLA. China’s navy is called the PLA Navy, or PLAN.

51 Joel B. Predd, William Kim, and Jay Carroll, “PRC Shipbuilding: Naval and Commercial, A Working Paper Exploring the

Relationship Between China's Naval and Commercial Shipbuilding,” RAND, WR-A2852-1, August 2024, pp. 7-8.

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other six yards that currently build the Navy’s larger ships—Huntington Ingalls Industries Newport News

Shipbuilding (HII/NNS) of Newport News, Virginia, which builds submarines and aircraft carriers (i.e.,

complex Navy combatant ships)—attempted to enter the commercial shipbuilding market through a

program to build oil tankers that it called Double Eagle tankers. In March 1998, the shipyard announced

that it was ending the Double Eagle shipbuilding effort after losing $300 million, and a shipyard official

stated in June 1999 that he would not have the shipyard attempt something like that again.52

As noted earlier, there are various potential reasons for supporting actions to increase commercial ship

construction in the United States, including but not limited to a desire to create jobs or a sense that major

world powers should (or need to) be major maritime powers, and that being a major maritime power

includes being a significant builder of commercial ships. If increasing commercial shipbuilding is not cost

effective as a means for increasing Navy shipbuilding capacity, policymakers may nevertheless decide to

take actions to increase commercial shipbuilding for other reasons. The main part of this statement, along

with Appendix E and Appendix F, present 15 other options for expanding and using Navy shipbuilding

capacity.

Disclaimer

This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff

to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of

Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of

information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.

CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United

States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,

as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the

permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

52 Dennis O’Brien, “Yard Christens Last Double Eagle,” Daily Press (Newport News, VA), June 19, 1999.

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