U.S. Nuclear-Armed Sub May Cost More Than Navy Says, GAO Warns

(Bloomberg) -- The U.S. Navy may have to ask Congress to boost funding in fiscal 2021 to buy the first in its new 12-ship fleet of nuclear-armed submarines because of unreliable cost estimates, according to congressional auditors.

The service’s current procurement cost estimate and design goal are suspect and require updates before those dollars are approved, the Government Accountability Office said in a report issued Monday. The submarine also continues to have problems first identified in 2017 with the vessel’s power system.

The Columbia-class program is estimated at $128 billion including research and development, with $115 billion for procurement. That makes it the Pentagon’s third-costliest system. But the cost estimate “is not accurate because it relies on overly optimistic” reductions in labor costs, the audit found.

The new report is the latest to raise red flags about the affordability of the Navy’s accelerated push to reach a 355-ship inventory by 2034, up from 289 today.

‘Aggressive Schedule’

In two years, the Navy plans to request funds to buy the first of the new subs. The Navy’s goal is to have 83 percent of its design complete before it begins construction in October 2020. General Dynamics Corp. is the lead contractor, with Huntington Ingalls Industries Inc. as the top subcontractor.

“Despite some of the positive steps that the program has taken to avoid the mistakes of past programs, the Columbia class program’s cost estimate -- when combined with an aggressive schedule, no cost margin and unyielding requirements -- is more likely than not to be insufficient for a program of this size,” Shelby Oakley, the GAO’s ship programs director, said in an email.

Although the Navy said it will continue to update its cost estimate for the initial submarine, “an independent assessment” may “not be complete in time to inform a congressional decision,” the GAO said.

“Without these reviews, the cost estimate -- and consequently the budget -- may be unrealistic,” it said. “Without an updated cost estimate with more realistic assumptions, Congress will be asked to commit billions of dollars for the lead submarine without knowing the full potential cost of construction and the possible effect on other shipbuilding programs,” it said.

Navy Priority

The 12-ship Columbia-class submarine is the Navy’s highest-priority program, ranking in cost behind the $406 billion F-35 jet program and the $153 billion missile-defense program that includes Army, Navy and Missile Defense Agency programs.

Navy Secretary Richard Spencer and Admiral John Richardson, the chief of naval operations, are likely to be asked about the GAO’s conclusions during fiscal 2020 hearings Tuesday and Wednesday before the Senate and House Armed Services committees.

Kevin Fahey, a senior Pentagon acquisition official, said in remarks included in the GAO report that the Navy will update the program’s cost estimate this year to support its request for production funding for the first ship. The Navy’s standard cost-estimating practices “should satisfy GAO’s recommendation to update the program’s cost estimate, risk analysis” and potential savings “with current cost data,” he said.

Power System Flaws

Aside from concerns over cost, “we found that the Navy continues to experience problems with the electric drive of the integrated power system that could potentially affect” initial ship construction, noting that an early manufacturing defect “required extensive repair” that took nine months.

Fahey wrote that the service “does not agreed with the GAO’s characterization” that problems persist.

Separately, General Dynamics has “generally met its overall” design goals but recently “has failed to achieve its planned rates” because it’s “hampered by implementation of a new design software tool and an insufficient numbers of designers to meet monthly design completion rates,” according to the GAO.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Larry Liebert

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