You are given two reports by the government agency.  

Report 1:
The Federal Housing Administration (FHA) is an agency of the Department of Housing and Urban Development (HUD) that insures private mortgage lenders against the possibility of borrowers defaulting on certain mortgage loans. If a mortgage borrower defaults on a mortgage—that is, does not repay the mortgage as promised—and the home goes to foreclosure, FHA is to pay the lender the remaining amount that the borrower owes. FHA insurance protects the lender, rather than the borrower, in the event of borrower default; a borrower who defaults on an FHA-insured mortgage will still experience the consequences of foreclosure. To be eligible for FHA insurance, the mortgage must be originated by a lender that has been approved by FHA, and the mortgage and the borrower must meet certain criteria. FHA is one of three government agencies that provide insurance or guarantees on certain home mortgages made by private lenders, along with the Department of Veterans Affairs (VA) and the United States Department of Agriculture (USDA). Of these federal mortgage insurance programs, FHA is the most broadly targeted. Unlike VA- and USDA-insured mortgages, the availability of FHA-insured mortgages is not limited by factors such as veteran status, income, or whether the property is located in a rural area. However, the availability or attractiveness of FHA-insured mortgages may be limited by other factors, such as the maximum mortgage amount that FHA will insure, the fees that it charges for insurance, and its eligibility standards. This report provides background on FHA's history and market role and an overview of the basic eligibility and underwriting criteria for FHA-insured home loans. It also provides data on the number and dollar volume of mortgages that FHA insures, along with data on FHA's market share in recent years. It does not go into detail on the financial status of the FHA mortgage insurance fund. For information on FHA's financial position, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund) . The Federal Housing Administration was created by the National Housing Act of 1934, during the Great Depression, to encourage lending for housing and to stimulate the construction industry. Prior to the creation of FHA, few mortgages exceeded 50% of the property's value and most mortgages were written for terms of five years or less. Furthermore, mortgages were typically not structured to be fully repaid by the end of the loan term; rather, at the end of the five-year term, the remaining loan balance had to be paid in a lump sum or the mortgage had to be renegotiated. During the Great Depression, lenders were unable or unwilling to refinance many of the loans that became due. Thus, many borrowers lost their homes through foreclosure, and lenders lost money because property values were falling. Lenders became wary of the mortgage market. FHA institutionalized a new idea: 20-year mortgages on which the loan would be completely repaid at the end of the loan term. If borrowers defaulted, FHA insured that the lender would be fully repaid. By standardizing mortgage instruments and setting certain standards for mortgages, the creation of FHA was meant to instill confidence in the mortgage market and, in turn, help to stimulate investment in housing and the overall economy. Eventually, lenders began to make long-term mortgages without FHA insurance if borrowers made significant down payments. Over time, 15- and 30-year mortgages have become standard mortgage products. When the Department of Housing and Urban Development (HUD) was created in 1965, FHA became part of HUD. Today, FHA is intended to facilitate access to affordable mortgages for some households who otherwise might not be well-served by the private market. Furthermore, it facilitates access to mortgages during economic or mortgage market downturns by continuing to insure mortgages when the availability of mortgage credit has otherwise tightened. For this reason, it is said to play a "countercyclical" role in the mortgage market—that is, it tends to insure more mortgages when the mortgage market or overall economy is weak, and fewer mortgages when the economy is strong and other types of mortgages are more readily available. Some prospective homebuyers may have the income to sustain monthly mortgage payments but lack the funds to make a large down payment or otherwise have difficulty obtaining a mortgage. Borrowers with small down payments, weaker credit histories, or other characteristics that increase their credit risk might find it difficult to obtain a mortgage at an affordable interest rate or to qualify for a mortgage at all. This has raised a policy concern that some borrowers with the income to repay a mortgage might be unable to obtain affordable mortgages. FHA mortgage insurance is intended to make lenders more willing to offer affordable mortgages to these borrowers by insuring the lender against the possibility of borrower default. FHA-insured loans have lower down payment requirements than most conventional mortgages. (Conventional mortgages are mortgages that are not insured by FHA or guaranteed by another government agency, such as VA or USDA. ) Because saving for a down payment is often the biggest barrier to homeownership for first-time homebuyers and lower- or moderate-income homebuyers, the smaller down payment requirement for FHA-insured loans may allow some households to obtain a mortgage earlier than they otherwise could. (Borrowers with down payments of less than 20% could also obtain non-FHA mortgages with private mortgage insurance. See the nearby text box on "FHA and Private Mortgage Insurance.") FHA-insured mortgages also have less stringent requirements related to credit history than many conventional loans. This might make FHA-insured mortgages attractive to borrowers without traditional credit histories or with weaker credit histories, who would either find it difficult to take out a mortgage absent FHA insurance or may find it more expensive to do so. FHA-insured mortgages play a particularly large role for first-time homebuyers, low- and moderate-income households, and minorities. For example, 83% of FHA-insured mortgages made to purchase a home (rather than to refinance an existing mortgage) in FY2018 were obtained by first-time homebuyers. Over one-third of all FHA loans (both purchase and refinance loans) were obtained by minority households, and FHA-insured mortgages accounted for about 57% of all forward mortgages made to low- or moderate-income borrowers during the year. Since FHA-insured mortgages are often obtained by borrowers who cannot make large down payments or those with weaker credit histories, some have questioned whether FHA-insured mortgages are similar to subprime mortgages. Like subprime mortgages, FHA-insured mortgages are often obtained by borrowers with lower credit scores, though some borrowers with higher credit scores also obtain FHA-insured mortgages. However, FHA-insured mortgages are prohibited from carrying the full range of features that many subprime mortgages could carry. For example, FHA-insured loans must be fully documented, and they cannot include features such as negative amortization. (FHA mortgages can include adjustable interest rates.) Some of these types of features appear to have contributed to high default and foreclosure rates on subprime mortgages. Nevertheless, some have suggested that FHA-insured mortgages are too risky, and that they can harm borrowers by providing mortgages that often have a higher likelihood of default than other mortgages due to combinations of risk factors such as low down payments and lower credit scores. Traditionally, FHA plays a countercyclical role in the mortgage market, meaning that it tends to insure more mortgages when mortgage credit markets are tight and fewer mortgages when mortgage credit is more widely available. A major reason for this is that FHA continues to insure mortgages that meet its standards even during market downturns or in regions experiencing economic turmoil. When the economy is weak and lenders and private mortgage insurers tighten credit standards and reduce lending activity, FHA-insured mortgages may be the only mortgages available to some borrowers, or may have more favorable terms than mortgages that lenders are willing to make without FHA insurance. When the economy is strong and mortgage credit is more widely available, many borrowers may find it easier to qualify for affordable conventional mortgages. This section briefly describes some of the major features of FHA-insured mortgages for purchasing or refinancing a single-family home. Single-family homes are defined as properties with one to four separate dwelling units. FHA-insured loans are available to borrowers who intend to be owner-occupants and who can demonstrate the ability to repay the loan according to the terms of the contract. FHA-insured loans must be underwritten in accordance with accepted practices of prudent lending institutions and FHA requirements. Lenders must examine factors such as the applicant's credit, financial status, monthly shelter expenses, funds required for closing expenses, effective monthly income, and debts and obligations. In general, individuals who have previously been subject to a mortgage foreclosure are not eligible for FHA-insured loans for at least three years after the foreclosure. As a general rule, the applicant's prospective mortgage payment should not exceed 31% of gross effective monthly income. The applicant's total obligations, including the proposed housing expenses, should not exceed 43% of gross effective monthly income. If these ratios are not met, the borrower may be able to present the presence of certain compensating factors, such as cash reserves, in order to qualify for an FHA-insured loan. Since October 4, 2010, FHA has required a minimum credit score of 500, and has required higher down payments from borrowers with credit scores below 580 than from borrowers with credit scores above that threshold. See the " Down Payment " section for more information on down payment requirements for FHA-insured loans. In general, borrowers must intend to occupy the property as a principal residence. FHA-insured loans may be used to purchase one-family detached homes, townhomes, rowhouses, two- to four-unit buildings, manufactured homes and lots, and condominiums in developments approved by FHA. FHA-insured loans may also be obtained to build a home; to repair, alter, or improve a home; to refinance an existing home loan; to simultaneously purchase and improve a home; or to make certain energy efficiency or weatherization improvements in conjunction with a home purchase or mortgage refinance. FHA-insured mortgages may be obtained with loan terms of up to 30 years. The interest rate on an FHA-insured loan is negotiated between the borrower and lender. The borrower has the option of selecting a loan with an interest rate that is fixed for the life of the loan or one on which the rate may be adjusted annually. FHA requires a lower down payment than many other types of mortgages. Under changes made by the Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289 ), borrowers are required to contribute at least 3.5% in cash or its equivalent to the cost of acquiring a property with an FHA-insured mortgage. (Prior law had required borrowers to contribute at least 3% in cash or its equivalent.) Prohibited sources of the required funds include the home seller, any entity that financially benefits from the transaction, and any third party that is directly or indirectly reimbursed by the seller or by anyone that would financially benefit from the transaction. HUD has interpreted the 3.5% cash contribution as a down payment requirement and has specified that contributions toward closing costs cannot be counted toward it. Since October 4, 2010, FHA has required a 10% down payment from borrowers with credit scores between 500 and 579, while borrowers with credit scores of 580 or above are still required to make a down payment of at least 3.5%. FHA no longer insures loans made to borrowers with credit scores below 500. There is no income limit for borrowers seeking FHA-insured loans. However, FHA-insured mortgages cannot exceed a maximum mortgage amount set by law. The maximum mortgage amounts allowed for FHA-insured loans vary by area, based on a percentage of area median home prices. Different limits are in effect for one-unit, two-unit, three-unit, and four-unit properties. The limits are subject to a statutory floor and ceiling; that is, the maximum mortgage amount that FHA will insure in a given area cannot be lower than the floor, nor can it be higher than the ceiling. In 2008, Congress temporarily increased the maximum mortgage amounts in response to turmoil in the housing and mortgage markets, with the intention of allowing more households to qualify for FHA-insured mortgages during a period of tighter credit availability. New permanent maximum mortgage amounts were later established by the Housing and Economic Recovery Act of 2008. The maximum mortgage amounts established by HERA were higher than the previous permanent limits, but in many cases lower than the temporarily increased limits. However, the higher temporary limits were extended for several years, until they expired at the end of calendar year 2013. Since January 1, 2014, the maximum mortgage amounts have been set at the permanent HERA levels. For a one-unit home, HERA established the maximum mortgage amounts at 115% of area median home prices, with a floor set at 65% of the Freddie Mac conforming loan limit and a ceiling set at 150% of the Freddie Mac conforming loan limit. For calendar year 2019, the floor is $314,827 and the ceiling is $726,525. (That is, FHA will insure mortgages with principal balances up to $314,827 in all areas of the country. In higher-cost areas, it will insure mortgages with principal balances up to 115% of the area median home price, up to a cap of $726,525 in the highest-cost areas.) These maximum mortgage amounts, and the maximum mortgage amounts for 2-4 unit homes, are shown in Table 1 . Borrowers of FHA-insured loans pay an up-front mortgage insurance premium (MIP) and annual mortgage insurance premiums in exchange for FHA insurance. These premiums are set as a percentage of the loan amount. The maximum amounts that FHA is allowed to charge for the annual and the upfront premiums are set in statute. However, since these are maximum amounts, HUD has the discretion to set the premiums at lower levels. The maximum up-front premium that FHA may charge is 3% of the mortgage amount, or 2.75% of the mortgage amount for a first-time homebuyer who has received homeownership counseling. Currently, FHA is charging the same up-front premiums to first-time homebuyers who receive homeownership counseling and all other borrowers. Since April 9, 2012, HUD has set the up-front premium at 1.75% of the loan amount, whether or not the borrower is a first-time homebuyer who received homeownership counseling. This premium applies to most single-family mortgages. The amount of the maximum annual premium varies based on the loan's initial loan-to-value ratio. For most loans, (1) if the loan-to-value ratio is above 95%, the maximum annual premium is 1.55% of the loan balance, and (2) if the loan-to-value ratio is 95% or below, the maximum annual premium is 1.5% of the loan balance. FHA increased the actual annual premiums that it charges several times in recent years in order to bring more money into the FHA insurance fund and ensure that it has sufficient funds to pay for defaulted loans. However, in January 2015, FHA announced a decrease in the annual premium for most single-family loans. For most FHA case numbers assigned on or after January 26, 2015, the annual premiums are 0.85% of the outstanding loan balance if the initial loan-to-value ratio is above 95% and 0.80% of the outstanding loan balance if the initial loan-to-value ratio is 95% or below. This is a decrease from 1.35% and 1.30%, respectively, which is what FHA had been charging from April 1, 2013, until January 26, 2015. These premiums apply to most single-family mortgages; FHA charges different annual premiums in certain circumstances, including for loans with shorter loan terms or higher principal balances. Table 2 shows the up-front and annual mortgage insurance premiums that have been in effect for most loans since January 26, 2015. In the past, if borrowers prepaid their loans, they may have been due refunds of part of the up-front insurance premium that was not "earned" by FHA. The refund amount depended on when the mortgage closed and declined as the loan matured. The Consolidated Appropriations Act 2005 ( P.L. 108-447 ) amended the National Housing Act to provide that, for mortgages insured on or after December 8, 2004, borrowers are not eligible for refunds of up-front mortgage insurance premiums except when borrowers are refinancing existing FHA-insured loans with new FHA-insured loans. After three years, the entire up-front insurance premium paid by borrowers who refinance existing FHA-insured loans with new FHA-insured loans is considered "earned" by FHA, and these borrowers are not eligible for any refunds. The annual mortgage insurance premiums are not refundable. However, beginning with loans closed on or after January 1, 2001, FHA had followed a policy of automatically cancelling the annual mortgage insurance premium when, based on the initial amortization schedule, the loan balance reached 78% of the initial property value. However, for loans with FHA case numbers assigned on or after June 3, 2013, FHA will continue to charge the annual mortgage insurance premium for the life of the loan for most mortgages. This change responded to concerns about the financial status of the FHA insurance fund. FHA has stated that, since it continues to insure the entire remaining mortgage amount for the life of the loan, and since premiums were cancelled on the basis of the loan amortizing to a percentage of the initial property value rather than the current value of the home, FHA has at times had to pay insurance claims on defaulted mortgages where the borrowers were no longer paying annual mortgage insurance premiums. An FHA-insured mortgage is considered delinquent any time a payment is due and not paid. Once the borrower is 30 days late in making a payment, the mortgage is considered to be in default. In general, mortgage servicers may initiate foreclosure on an FHA-insured loan when three monthly installments are due and unpaid, and they must initiate foreclosure when six monthly installments are due and unpaid, except when prohibited by law. A program of loss mitigation strategies was authorized by Congress in 1996 to minimize the number of FHA loans entering foreclosure, and has since been revised and expanded to include additional loss mitigation options. Prior to initiating foreclosure, mortgage servicers must attempt to make contact with borrowers and evaluate whether they qualify for any of these loss mitigation options. The options must be considered in a specific order, and specific eligibility criteria apply to each option. Some loss mitigation options, referred to as home retention options, are intended to help borrowers remain in their homes. Other loss mitigation options, referred to as home disposition options, will result in the borrower losing his or her home, but avoiding some of the costs of foreclosure. The loss mitigation options that servicers are instructed to pursue on FHA-insured loans are summarized in Table 3 . Additional loss mitigation options are available for certain populations of borrowers. For example, defaulted borrowers in military service may be eligible to suspend the principal portion of monthly payments and pay only interest for the period of military service, plus three months. On resumption of payment, loan payments are adjusted so that the loan will be paid in full according to the original amortization. Certain loss mitigation options are also available in areas affected by presidentially declared major disasters. FHA's single-family mortgage insurance program is funded through FHA's Mutual Mortgage Insurance Fund (MMI Fund). Cash flows into the MMI Fund primarily from insurance premiums and proceeds from the sale of foreclosed homes. Cash flows out of the MMI Fund primarily to pay claims to lenders for mortgages that have defaulted. This section provides a brief overview of (1) how the FHA-insured mortgages insured under the MMI Fund are accounted for in the federal budget and (2) the MMI Fund's compliance with a statutory capital ratio requirement. For more detailed information on the financial status of the MMI Fund, see CRS Report R42875, FHA Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund) . The Federal Credit Reform Act of 1990 (FCRA) specifies the way in which the costs of federal loan guarantees, including FHA-insured loans, are recorded in the federal budget. The FCRA requires that the estimated lifetime cost of guaranteed loans (in net present value terms) be recorded in the federal budget in the year that the loans are insured. When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in more money coming into the account than flowing out of it, the program is said to generate negative credit subsidy. When the present value of the lifetime cash flows associated with the guaranteed loans is expected to result in less money coming into the account than flowing out of it, the program is said to generate positive credit subsidy. Programs that generate negative credit subsidy result in offsetting receipts for the federal government, while programs that generate positive credit subsidy require an appropriation to cover the cost of new loan guarantees. The MMI Fund has historically been estimated to generate negative credit subsidy in the year that the loans are insured and therefore has not required appropriations to cover the expected costs of loans to be insured. The MMI Fund does receive appropriations to cover salaries and administrative contract expenses. The amount of money that loans insured in a given year actually earn for or cost the government over the course of their lifetime is likely to be different from the original credit subsidy estimates. Therefore, each year as part of the annual budget process, each prior year's credit subsidy rates are re-estimated based on the actual performance of the loans and other factors, such as updated economic projections. These re-estimates affect the way in which funds are held in the MMI Fund's two primary accounts: the Financing Account and the Capital Reserve Account. The Financing Account holds funds to cover  expected  future costs of FHA-insured loans. The Capital Reserve Account holds additional funds to cover any additional unexpected future costs. Funds are transferred between the two accounts each year on the basis of the re-estimated credit subsidy rates to ensure that enough is held in the Financing Account to cover updated projections of expected costs of insured loans.  If FHA ever needs to transfer more funds to the Financing Account than it has in the Capital Reserve Account, it can receive funds from Treasury to make this transfer under existing authority and without any additional congressional action. This occurred for the first time at the end of FY2013, when FHA received $1.7 billion from Treasury to make a required transfer of funds between the accounts. The funds that FHA received from Treasury did not need to be spent immediately, but were to be held in the Financing Account and used to pay insurance claims, if necessary, only after the remaining funds in the Financing Account were spent. The MMI Fund has not needed any additional funds from Treasury to make required transfers of funds between the two accounts since that time. The MMI Fund is also required by statute to maintain a capital ratio of at least 2%, which is intended to ensure that the fund is able to withstand some increases in the costs of loans guaranteed under the insurance fund. The capital ratio measures the amount of funds that the MMI Fund currently has on hand, plus the net present value of the expected future cash flows associated with the mortgages that FHA currently insures (e.g., the amounts it expects to earn through premiums and lose through claims paid). It then expresses this amount as a percentage of the total dollar volume of mortgages that FHA currently insures. In other words, the capital ratio is a measure of the amount of funds that would remain in the MMI Fund after all expected future cash flows on the loans that it currently insures have been realized, assuming that FHA did not insure any more loans going forward. Beginning in FY2009, and for several years thereafter, the capital ratio was estimated to be below this mandated 2% level. The capital ratio again exceeded the 2% threshold in FY2015, when it was estimated to be 2.07%. This represented an improvement from an estimated capital ratio of 0.41% at the end of FY2014, and from negative estimated capital ratios at the ends of FY2013 and FY2012. The capital ratio has remained above 2% since that time, and was estimated to be 2.76% in FY2018. A low or negative capital ratio does not in itself trigger any special assistance from Treasury, but it raises concerns that FHA could need assistance in order to continue to hold enough funds in the Financing Account to cover expected future losses. In the years since the housing market turmoil that began around 2007, FHA has taken a number of steps designed to strengthen the insurance fund. These steps have included increasing the mortgage insurance premiums charged to borrowers; strengthening underwriting requirements, such as by instituting higher down payment requirements for borrowers with the lowest credit scores; and increasing oversight of FHA-approved lenders. The number of new mortgages insured by FHA in a given year depends on a variety of factors. In general, the number of new mortgages insured by FHA increased during the housing market turmoil (and resulting contraction of mortgage credit) that began around 2007, reaching a peak of 1.8 million mortgages in FY2009 before beginning to decrease somewhat. FY2014 was the only year since FY2007 that FHA insured fewer than 1 million new mortgages. As shown in Table 4 , FHA insured just over 1 million new single-family purchase and refinance mortgages in FY2018. Together, these mortgages had an initial loan balance of $209 billion. About 77% (776,284) of the mortgages were for home purchases, while about 23% (238,325) were for refinancing an existing mortgage. The overall number of mortgages insured by FHA in FY2018 represented a decrease from FY2017, when it insured 1.25 million mortgages. Many FHA-insured mortgages are obtained by first-time homebuyers, lower-and moderate-income homebuyers, and minority homebuyers. Of the home purchase mortgages insured by FHA in FY2018, about 83% were made to first-time homebuyers. Over a third of all mortgages (both for home purchases and refinances) insured by FHA in FY2018 were made to minority borrowers. As shown in Table 5 , at the end of FY2018 FHA was insuring a total of over 8 million single-family loans that together had an outstanding balance of nearly $1.2 trillion. Since it was first established in 1934, FHA has insured a total of over 47.5 million home loans. FHA's share of the mortgage market is the amount of mortgages that are insured by FHA compared to the total amount of mortgages originated or outstanding in a given time period. FHA's market share can be measured in a number of different ways. Therefore, when evaluating FHA's market share, it is important to recognize which of several different figures is being reported. First, FHA's share of the mortgage market can be computed as the number of FHA-insured mortgages divided by the total number of mortgages, or as the dollar volume of FHA-insured mortgages divided by the total dollar volume of mortgages. Furthermore, FHA's market share is sometimes reported as a share of all mortgages , and sometimes only as a share of home purchase mortgages (as opposed to both mortgages made to purchase a home and mortgages made to refinance an existing mortgage). A market share figure can be reported as a share of all mortgages originated within a specific time period , such as a given year, or as a share of all mortgages outstanding at a point in time , regardless of when they were originated. Finally, FHA's market share is sometimes also reported as a share of the total number of mortgages that have some kind of mortgage insurance (including mortgages with private mortgage insurance and mortgages insured by another government agency) rather than as a share of all mortgages regardless of whether or not they have mortgage insurance. FHA's market share tends to fluctuate in response to economic conditions and other factors. Between calendar years 1996 and 2002, FHA's market share averaged about 14% of the home purchase mortgage market and about 11% of the overall mortgage market (both home purchase mortgages and refinance mortgages), as measured by number of mortgages. However, by 2005 FHA's market share had fallen to less than 5% of home-purchase mortgages and about 3% of the overall mortgage market. Subsequently, as economic conditions worsened and mortgage credit tightened in response to housing market turmoil that began around 2007, FHA's market share rose sharply, peaking at over 30% of home-purchase mortgages in 2009 and 2010, and over 20% of all mortgages (including both home purchases and refinances) in 2009. In 2017, FHA insured 19.5% of new home purchase mortgages and about 16.7% of new mortgages overall, a small decrease compared to its market share in 2016. Figure 1 shows FHA's market share as a percentage of the total number of new mortgages originated for each calendar year between 1996 and 2017. As described, FHA's market share can be measured in a number of different ways. The figure shows FHA's share of (1) all newly originated mortgages, (2) just newly originated purchase mortgages, and (3) just newly originated refinance mortgages. FHA's share of home purchase mortgages tends to be the highest, largely because borrowers who refinance are more likely to have built up a greater amount of equity in their homes and, therefore, might be more likely to obtain conventional mortgages. For the number of mortgages insured by FHA in each year calendar since 1996, see the Appendix . The increase in FHA's market share after 2007 was due to a variety of factors related to the housing market turmoil and broader economic instability that was taking place at the time. Housing and economic conditions led many banks to limit their lending activities, including lending for mortgages. Similarly, private mortgage insurance companies, facing steep losses from past mortgages, began tightening the underwriting criteria for mortgages that they would insure. Furthermore, in 2008 Congress increased the maximum mortgage amounts that FHA can insure, which may have made FHA-insured mortgages a more viable option for some borrowers in certain areas. More recently, FHA's market share has decreased somewhat from its peak during the housing market turmoil, although it generally remains somewhat higher than it was in the late 1990s and early 2000s. A number of factors may have contributed to this decrease, including lower loan limits in some high-cost areas, higher mortgage insurance premiums, and greater availability of non-FHA-insured mortgages. While not the focus of this report, the appropriate market share for FHA has been a subject of ongoing debate among policymakers. It is likely to continue to be a topic of debate, both in the context of policies specifically related to FHA as well as part of broader debate about the future of the U.S. housing finance system. Table A-1 provides data on the number of mortgages insured by FHA in each calendar year since 1996, along with FHA's overall market share in each calendar year.

 

 Report 2:
This report provides background information and potential oversight issues for Congress on the Gerald R. Ford (CVN-78) class aircraft carrier program. The Navy's proposed FY2019 budget requests a total of $2,347 million (i.e., about $2.3 billion) in procurement funding for the CVN-78 program. Congress's decisions on the CVN-78 program could substantially affect Navy capabilities and funding requirements and the shipbuilding industrial base. The Navy's FY2020 budget submission also proposed to not fund the mid-life nuclear refueling overhaul (called a Refueling Complex Overhaul, or RCOH) for the aircraft carrier CVN-75 ( Harry S. Truman ), and to instead retire the ship around FY2024 and also deactivate one of the Navy's carrier air wings at about the same time. On April 30, 2019, however, the Administration announced that it was effectively withdrawing this proposal from the Navy's FY2020 budget submission. The Administration now supports funding the CVN-75 RCOH and keeping CVN-75 (and by implication its associated air wing) in service past FY2024. For additional discussion of this withdrawn budget proposal, see Appendix A . For an overview of the strategic and budgetary context in which the CVN-78 class program and other Navy shipbuilding programs may be considered, see CRS Report RL32665, Navy Force Structure and Shipbuilding Plans: Background and Issues for Congress , by Ronald O'Rourke. The Navy's current aircraft carrier force consists of 11 nuclear-powered ships, including 10 Nimitz-class ships (CVNs 68 through 77) that entered service between 1975 and 2009, and one Gerald R. Ford (CVN-78) class ship that was commissioned into service on July 22, 2017. 10 U.S.C. 8062(b) requires the Navy to maintain a force of not less than 11 operational aircraft carriers. The requirement for the Navy to maintain not less than a certain number of operational aircraft carriers was established by Section 126 of the FY2006 National Defense Authorization Act ( H.R. 1815 / P.L. 109-163 of January 6, 2006), which set the number at 12 carriers. The requirement was changed from 12 carriers to 11 carriers by Section 1011(a) of the FY2007 John Warner National Defense Authorization Act ( H.R. 5122 / P.L. 109-364 of October 17, 2006). 10 U.S.C. 8062(e), which was added by Section 1042 of the FY2017 National Defense Authorization Act ( S. 2943 / P.L. 114-328 of December 23, 2016), requires the Navy to maintain a minimum of nine carrier air wings. In December 2016, the Navy released a force-level goal for achieving and maintaining a fleet of 355 ships, including 12 aircraft carriers —one more than the minimum of 11 carriers required by 10 U.S.C. 8062(b). This was the first Navy force-level goal to call for 12 (rather than 11) carriers since a 2002-2004 Navy force-level goal for a fleet of 375 ships. Given the time needed to build a carrier and the projected retirement dates of existing carriers, increasing the carrier force from 11 ships to 12 ships on a sustained basis would take a number of years: Procuring carriers on 3-year centers—that is, procuring one carrier every three years—would achieve a 12-carrier force on a sustained basis by about 2030, unless the service lives of one or more existing carriers were substantially extended. Procuring carriers on 3.5-year centers (i.e., a combination of 3- and 4-year centers) would achieve a 12-carrier force on a sustained basis no earlier than about 2034, unless the service lives of one or more existing carriers were substantially extended. Procuring carriers on 4-year centers would achieve a 12-carrier force on a sustained basis by about 2063—almost 30 years later than under 3.5-year centers—unless the service lives of one or more existing carriers were substantially extended. Under the Navy's FY2020 30-year shipbuilding plan, as under the Navy's FY2019 30-year shipbuilding plan, carrier procurement would shift from 5-year centers to 4-year centers after the procurement of CVN-82 in FY2028, and a 12-carrier force would be achieved on a sustained basis in the 2060s. The projected size of the carrier force in the Navy's FY2020 30-year (FY2020-FY2049) shipbuilding plan reflected the Navy's now-withdrawn FY2020 budget proposal to not fund the RCOH for the aircraft carrier CVN-75 ( Harry S. Truman ), and to instead retire the ship around FY2024. With the withdrawal of this budget proposal, the projected size of the carrier force is now, for the period FY2022-FY2047, one ship higher than what is shown in the Navy's FY2020 budget submission. The newly adjusted force-level projection, reflecting the withdrawal of the proposal to retire CVN-75 around FY2024, is as follows: The force is projected to include 11 ships in FY2020-FY2021, 12 ships in FY2022-FY2024, 11 ships in FY2025-FY2026, 10 ships in FY2027, 11 ships in FY2028-FY2039, 10 ships in FY2040, 11 ships in FY2041, 10 ships in FY2042-FY2044, 11 ships in FY2045, 10 ships in FY2046-FY2047, 9 ships in FY2048, and 10 ships in FY2049. Under incremental funding, some of the funding needed to fully fund a ship is provided in one or more years after the year in which the ship is procured. In recent years, Congress has authorized DOD to use incremental funding for procuring certain Navy ships, most notably aircraft carriers: Section 121 of the FY2007 John Warner National Defense Authorization Act ( H.R. 5122 / P.L. 109-364 of October 17, 2006) granted the Navy the authority to use four-year incremental funding for CVNs 78, 79, and 80. Under this authority, the Navy could fully fund each of these ships over a four-year period that includes the ship's year of procurement and three subsequent years. Section 124 of the FY2012 National Defense Authorization Act ( H.R. 1540 / P.L. 112-81 of December 31, 2011) amended Section 121 of P.L. 109-364 to grant the Navy the authority to use five-year incremental funding for CVNs 78, 79, and 80. Since CVN-78 was fully funded in FY2008-FY2011, the provision in practice applied to CVNs 79 and 80. Section 121 of the FY2013 National Defense Authorization Act ( H.R. 4310 / P.L. 112-239 of January 2, 2013) amended Section 121 of P.L. 109-364 to grant the Navy the authority to use six-year incremental funding for CVNs 78, 79, and 80. Since CVN-78 was fully funded in FY2008-FY2011, the provision in practice applies to CVNs 79 and 80. Section 121(c) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 ( H.R. 5515 / P.L. 115-232 of August 13, 2018) authorized incremental funding to be used for making payments under the two-ship block buy contract for the construction of CVN-80 and CVN-81. This provision does not limit the total number of years across which incremental funding may be used to procure either ship. All U.S. aircraft carriers procured since FY1958 have been built by Huntington Ingalls Industries/Newport News Shipbuilding (HII/NNS), of Newport News, VA. HII/NNS is the only U.S. shipyard that can build large-deck, nuclear-powered aircraft carriers. The aircraft carrier construction industrial base also includes roughly 2,000 supplier firms in 46 states. The Gerald R. Ford (CVN-78) class carrier design ( Figure 1 ) is the successor to the Nimitz -class carrier design. The Ford -class design uses the basic Nimitz -class hull form but incorporates several improvements, including features permitting the ship to generate more aircraft sorties per day, more electrical power for supporting ship systems, and features permitting the ship to be operated by several hundred fewer sailors than a Nimitz -class ship, reducing 50-year life-cycle operating and support (O&S) costs for each ship by about $4 billion compared to the Nimitz -class design, the Navy estimates. Navy plans call for procuring at least four Ford-class carriers—CVN-78, CVN-79, CVN-80, and CVN-81. CVN-78, which was named Gerald R. Ford in 2007, was procured in FY2008. The Navy's proposed FY2020 budget estimates the ship's procurement cost at $13,084.0 million (i.e., about $13.1 billion) in then-year dollars. The ship received advance procurement (AP) funding in FY2001-FY2007 and was fully funded in FY2008-FY2011 using congressionally authorized four-year incremental funding. To help cover cost growth on the ship, the ship received an additional $1,394.9 million in FY2014-FY2016 and FY2018 cost-to-complete procurement funding. (This $1,394.9 million is included in the above-mentioned estimated procurement cost of $13,084.0 million.) The ship was delivered to the Navy on May 31, 2017, and was commissioned into service on July 22, 2017. The Navy is currently working to complete construction, testing, and certification of the ship's 11 weapons elevators. CVN-79, which was named John F. Kennedy on May 29, 2011, was procured in FY2013. The Navy's proposed FY2020 budget estimates the ship's procurement cost at $11,327.4 million (i.e., about $11.3 billion) in then-year dollars. The ship received AP funding in FY2007-FY2012, and was fully funded in FY2013-FY2018 using congressionally authorized six-year incremental funding. The ship is being built with an improved shipyard fabrication and assembly process that incorporates lessons learned from the construction of CVN-78. A key aim of this improved process is to substantially reduce the real (i.e., inflation-adjusted) construction cost of CVN-79 compared to that of CVN-78. CVN-79 is scheduled for delivery to the Navy in September 2024. CVN-80 ( Enterprise ) and CVN-81 (not yet named) are being procured under a two-ship block buy contract that was authorized by Section 121(a)(2) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 ( H.R. 5515 / P.L. 115-232 of August 13, 2018). The provision permitted the Navy to add CVN-81 to the existing contract for building CVN-80 after the Department of Defense (DOD) made certain certifications to Congress. DOD made the certifications on December 31, 2018, and the Navy announced the award of the contract on January 31, 2019. Compared to the estimated procurement costs for CVN-80 and CVN-81 in the Navy's FY2019 budget submission, the Navy estimates under its FY2020 budget submission that the two-ship block buy contract will reduce the cost of CVN-80 by $246.6 million and the cost of CVN-81 by $2,637.3 million, for a combined reduction of $2,883.9 million (i.e., about $2.9 billion). (DOD characterizes the combined reduction as "nearly $3 billion." ) Using higher estimated baseline costs for CVN-80 and CVN-81 taken from a December 2017 Navy business case analysis, the Navy estimates under its FY2020 budget submission that the two-ship contract will reduce the cost of CVN-80 by $770.9 million and the cost of CVN-81 by $3,086.3 million, for a combined reduction of $3,857.2 million (i.e., about $3.9 billion). (DOD characterizes the combined reduction as $4 billion.) These figures are all expressed in then-year dollars, meaning dollars that are not adjusted for inflation. Regarding the difference between a savings of about $2.9 billion from the figures in the Navy's FY2019 budget submission and a savings of about $3.9 billion from the December 2017 Navy business case analysis, a February 5, 2019, press report quoted a Navy spokesman as stating that the Navy's FY2019 budget submission "already accounted for at least $1B [$1 billion] of potential savings, a two-CVN buy would save an additional $3B [$3 billion]." This suggests that the Navy, in preparing its FY2019 budget submission, may have anticipated that it would receive from Congress authority for implementing some kind of combined purchase (such as, perhaps, a combined purchase of materials) for CVN-80 and CVN-81. For additional background information on the two-ship block buy contract, see Appendix B . CVN-80, which was named Enterprise on December 1, 2012, was procured in FY2018. The Navy's proposed FY2020 budget estimates the ship's procurement cost at $12,335.1 million (i.e., about $12.3 billion) in then-year dollars. The ship received AP funding in FY2016 and FY2017, and the Navy plans to fully fund the ship in FY2018-FY2025 using incremental funding authorized by Section 121(c) of P.L. 115-232 . The Navy's proposed FY2020 budget requests $1,062.0 million in procurement funding for the ship. The ship is scheduled for delivery to the Navy in March 2028. Prior to the awarding of the two-ship block buy contract, CVN-81, which has not yet been named, was scheduled to be procured in FY2023. Following the awarding of the two-ship block buy contract, the Navy has chosen to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020 (as opposed to a ship that was procured in FY2019). The Navy's FY2020 budget submission estimates the ship's procurement cost at $12,450.7 million (i.e., about $12.5 billion) in then-year dollars. The Navy plans to fully fund the ship beginning in FY2019 and extending beyond FY2026 using incremental funding authorized by Section 121(c) of P.L. 115-232 . The Navy's proposed FY2020 budget requests $1,285.0 million in procurement funding for the ship. The ship is scheduled for delivery to the Navy in February 2032. Table 1 shows procurement funding for CVNs 78, 79, 80, and 81 through FY2026+ (meaning FY2026 and some number of years after FY2026). Congress has established procurement cost caps for CVN-78 class aircraft carriers: Section 122 of the FY2007 John Warner National Defense Authorization Act ( H.R. 5122 / P.L. 109-364 of October 17, 2006) established a procurement cost cap for CVN-78 of $10.5 billion, plus adjustments for inflation and other factors, and a procurement cost cap for subsequent Ford-class carriers of $8.1 billion each, plus adjustments for inflation and other factors. The conference report ( H.Rept. 109-702 of September 29, 2006) on P.L. 109-364 discusses Section 122 on pages 551-552. Section 121 of the FY2014 National Defense Authorization Act ( H.R. 3304 / P.L. 113-66 of December 26, 2013) amended the procurement cost cap for the CVN-78 program to provide a revised cap of $12,887.0 million for CVN-78 and a revised cap of $11,498.0 million for each follow-on ship in the program, plus adjustments for inflation and other factors (including an additional factor not included in original cost cap). Section 122 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015) further amended the cost cap for the CVN-78 program to provide a revised cap of $11,398.0 million for each follow-on ship in the program, plus adjustment for inflation and other factors, and with a new provision stating that, if during construction of CVN-79, the Chief of Naval Operations determines that measures required to complete the ship within the revised cost cap shall result in an unacceptable reduction to the ship's operational capability, the Secretary of the Navy may increase the CVN-79 cost cap by up to $100 million (i.e., to $11.498 billion). If such an action is taken, the Navy is to adhere to the notification requirements specified in the cost cap legislation. Section 121(a) of the FY2018 National Defense Authorization Act ( H.R. 2810 / P.L. 115-91 of December 12, 2017) further amended the cost cap for the CVN-78 program to provide a revised cap of $12,568.0 million for CVN-80 and subsequent ships in the program, plus adjustment for inflation and other factors. (The cap for CVN-79 was kept at $11,398.0 million, plus adjustment for inflation and other factors.) The provision also amended the basis for adjusting the caps for inflation, and excluded certain costs from being counted against the caps. In an August 2, 2017, letter to the congressional defense committees, then-Acting Secretary of the Navy Sean Stackley notified the committees that under subsection (b)(7) of Section 122 of P.L. 114-92 as amended by Section 121 of P.L. 113-66 —a subsection allowing increases to the cost cap for CVN-78 for "the amounts of increases or decreases in costs of that ship that are attributable solely to an urgent and unforeseen requirement identified as a result of the shipboard test program"—he had increased the cost cap for CVN-78 by $20 million, to $12,907.0 million. In a May 8, 2018, letter to the congressional defense committees, Secretary of the Navy Richard Spencer notified the committees that under subsections (b)(6) and (b)(7) of Section 122 of P.L. 114-92 as amended by Section 121 of P.L. 113-66 —subsections allowing increases to the cost cap for CVN-78 for "the amounts of increases or decreases to cost required to correct deficiencies that may affect the safety of the ship and personnel or otherwise preclude the ship from safe operation and crew certification" and for "the amounts of increases or decreases in costs of CVN 78 that are attributable solely to an urgent and unforeseen requirement identified as a result of the shipboard test program," respectively—he had increased the cost cap for CVN-78 by $120 million, to $13,027 million. Table 2 shows changes in the estimated procurement costs of CVNs 78, 79, 80, and 81 since the budget submission for FY2008—the year of procurement for CVN-78. The Navy's FY2020 budget submission proposed to not fund the mid-life nuclear refueling overhaul (called a Refueling Complex Overhaul, or RCOH) for the aircraft carrier CVN-75 ( Harry S. Truman ), and to instead retire the ship around FY2024 and also deactivate one of the Navy's carrier air wings at about the same time. On April 30, 2019, however, the Administration announced that it was effectively withdrawing this proposal from the Navy's FY2020 budget submission. The Administration now supports funding the CVN-75 RCOH and keeping CVN-75 (and by implication its associated air wing) in service past FY2024. For additional discussion of this withdrawn budget proposal, see Appendix A . One issue for Congress concerns DOD's decision to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020, instead of a ship that was procured in FY2019. Grounds for showing CVN-81 as a ship that was procured in FY2019 would include the following: Within Section 121 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 ( H.R. 5515 / P.L. 115-232 of August 13, 2018)—the provision that authorized the two-ship block buy contract for CVN-80 and CVN-81—subsection (a)(1) specifically authorizes a contract for the procurement of CVN-81 "beginning with the fiscal year 2019 program year." The header for subsection (a)(1) is "Procurement Authorized." Consistent with Section 121(a)(1), the funding table for the Navy's shipbuilding account in the conference report ( H.Rept. 115-874 of July 25, 2018) on H.R. 5515 shows a quantity of "1" in line 002 of the FY2019 SCN (Shipbuilding and Conversion, Navy) appropriation account. Line 002 is the line item for procurement (not advance procurement [AP]) funding for the CVN-78 program. A notation in the table for line 002 states that the procurement funding authorized for this line item is for "Authorize CVN81—One ship." The funding table does not authorize any funding for line 003 of the FY2019 SCN account—the line item for AP funding for the CVN-78 program. (AP funding is funding for the procurement of a ship to be procured in a future fiscal year.) Consistent with the two above points, the paragraph in the FY2019 DOD appropriations act (Division A of H.R. 6157 / P.L. 115-245 of September 28, 2018) that makes appropriations for the SCN account makes procurement (not AP) appropriations for the CVN-78 program. This paragraph also states that "the funds made available by this Act for the Carrier Replacement Program (CVN-80) may be available to modify or enter into a new contract for the procurement of a Ford-class aircraft carrier designated CVN–81 pursuant to section 121 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019." Consistent with this bill language, the funding table for the SCN account in the joint explanatory statement for H.R. 6157 shows that this funding was provided for line 2 of the FY2019 SCN account (CVN-78 program procurement funding), not line 3 of the FY2019 SCN account (CVN-78 program AP funding). Consistent with all of the above points (and as reflected in Table 1 of this CRS report), the Navy's FY2020 budget submission shows the $618 million in FY2019 funding for CVN-81 as full funding (meaning funding for a procured ship), rather than AP funding (meaning funding for a ship to be procured in a future fiscal year). DOD's decision to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020, instead of a ship that was procured in FY2019, affects the comparison of numbers of ships procured in FY2019 and FY2020. If DOD had decided to show CVN-81 in its FY2020 budget submission as a ship that was procured in FY2019, then the total number of ships procured in FY2019 would be 14, and the total number requested for FY2020 would be 11—3 ships, or 21%, fewer than the FY2019 total of 14. Showing CVN-81 in the FY2020 budget submission as an FY2020 ship changes the FY2019 and FY2020 totals to 13 ships and 12 ships, respectively, making number FY2020 closer to the FY2019 number. DOD's decision to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020, instead of a ship that was procured in FY2019, also affects the aircraft carrier procurement profile shown in the Navy's FY2020 30-year (FY2020-FY2049) 30-year shipbuilding plan. If DOD had decided to show CVN-81 in its FY2020 budget submission as a ship that was procured in FY2019, the ship-procurement table in the 30-year plan would show the procurement of no carriers for the first eight years (FY2020-FY2027) of the 30-year period. Showing CVN-81 in the FY2020 budget submission as an FY2020 ship changes the presentation to show the procurement of an aircraft carrier in the first year of the 30-year period. Potential oversight questions for Congress include the following: Compliance with c ongressional intent . Is DOD's decision to show CVN-81 as a ship to be procured in FY2020, rather than as a ship that was procured in FY2019, consistent with congressional intent as shown in bill and report language for P.L. 115-232 and P.L. 115-245 ? Can DOD's decision be viewed as a challenge to Congress's Article 1 power to authorize and appropriate funds for the construction of Navy ships? If DOD's decision regarding the year of procurement for CVN-81 is accepted, would this set a precedent for the executive branch regarding its future compliance with Congressional decisions for authorizing and funding of other federal programs? Executability of FY2019 procurement funds for CVN-81. FY2019 SCN-account funding for the CVN-78 program was appropriated by Congress, and shows in the Navy's FY2020 budget-justification books, as procurement funding (meaning funding for one or more procured ships) rather than AP funding (meaning funding for one or more ships to be procured in a future fiscal year). If CVN-81 is accepted as a ship to be procured in FY2020, what implications, if any, might that have for the executability of the $618 million in FY2019 procurement (as opposed to AP) funds for CVN-81 shown in the Navy's FY2020 budget submission (as reflected in Table 1 of this CRS report)? Executability of CVN-81 during portion of FY2020 under a CR. Navy officials have testified that if the Navy operates under a continuing resolution (CR) for some part of FY2020, then absent a special legislative provision in the CR known as an anomaly, the Navy during that period likely would not be able to proceed with CVN-81, because CRs typically prevent year-to-year quantity increases in procurement programs, and treating CVN-81 as a ship to be procured in FY2020 would mean that the CVN-78 program would have a year-to-year quantity increase of zero ships in FY2019 followed by one ship in FY2020. If work on CVN-81 were to not proceed for some part of FY2020 because the Navy during that period were to operate under a CR, what impact would that have on the implementation and status of the two-ship contract for building CVN-80 and CVN-81? FY2019 and FY2020 numbers of ships procured and 30-year shipbuilding plan. What effect, if any, did considerations regarding the comparison of numbers of ships procured in FY2019 and FY2020 and the aircraft carrier procurement profile during the initial years of the 30-year shipbuilding plan have on DOD's decision to show CVN-81 in its FY2020 budget submission as a ship to be procured in FY2020, instead of a ship that was procured in FY2019? Treatment in FY2020 legislation. Since P.L. 115-232 shows CVN-81 as authorized in FY2019, how should the House and Senate Armed Services committees act on the request in the Navy's FY2020 budget submission to authorize an aircraft carrier in FY2020? If the FY2020 national defense authorization act authorizes the procurement of an aircraft carrier in FY2020, and the authorization for the procurement of an aircraft carrier in FY2019 were not rescinded, would that create confusion as to whether the ship being authorized in FY2020 was CVN-81 or CVN-82, the latter being a ship currently planned for procurement in FY2028? If the FY2019 authorization for CVN-81 were rescinded, what implications, if any, would that have for the implementation of Section 121 of P.L. 115-232 , including the award of the two-carrier contract on January 31, 2019 (i.e., during FY2019)? Another issue for Congress concerns the Navy's decision, as part of its FY2020 budget submission, to not accelerate the scheduled procurement of CVN-82 from FY2028 to an earlier fiscal year. The Navy's FY2020 budget submission shows that, as a result of the two-carrier contract, the scheduled delivery date for CVN-81 has been accelerated by seven months, to February 2032, compared to September 2032 in the Navy's FY2019 budget submission. The scheduled year of procurement for CVN-82 has not been changed—in the Navy's FY2020 budget submission, it shows as a ship to be procured in FY2028, as it did in the Navy's FY2019 budget submission. The accelerated delivery date for CVN-81, combined with the unchanged year of procurement for CVN-82, suggests that the interval between the construction of CVN-81 and construction of CVN-82 has been increased by something like seven months. Other things held equal, this increased interval could result in increased loss of learning in shifting from construction of CVN-81 to construction of CVN-82, and possibly in reduced spreading of shipyard fixed overhead costs during the construction of CVN-82. Both of these effects could increase the procurement cost of CVN-82. Potential oversight questions for Congress include the following: What impact, if any, will the accelerated delivery of CVN-81 under the two-carrier contract, combined with the unchanged year of procurement for CVN-82, have on the procurement cost of CVN-82? How might the procurement cost of CVN-82 change in real (i.e., inflation-adjusted) terms if its year of procurement were accelerated to an earlier year, such as FY2027? Another issue for Congress is whether to approve, reject, or modify the Navy's FY2020 procurement funding requests for CVN-78 program. In assessing this question, Congress could consider various factors, including whether the Navy has properly scheduled and accurately priced the work it is proposing to do on the CVN-78 program in FY2020, particularly in the context of implementing the two-carrier contract for CVN-80 and CVN-81. Another issue for Congress concerns the date for achieving the Navy's 12-ship force-level goal for aircraft carriers. As noted earlier, under the Navy's FY2020 30-year shipbuilding plan, carrier procurement would shift from 5-year centers to 4-year centers after the procurement of CVN-82 in FY2028, and a 12-carrier force would be achieved on a sustained basis in the 2060s. As also noted earlier, shifting carrier procurement to 3- or 3.5-year centers could achieve a 12-carrier fleet as soon as the 2030s, unless the service lives of one or more existing carriers were substantially extended. Other things held equal, procuring carriers on 3- or 3.5-year centers rather than 4-year centers would increase Navy funding requirements during the period of the 30-year shipbuilding plan for procuring aircraft carriers and for operating and supporting a 12-carrier force rather than a force of 11 or fewer carriers. For the past several years, cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program's cost caps have been continuing oversight issues for Congress on the CVN-78 program. As shown in Table 2 , the estimated procurement costs of CVN-78, CVN-79, and CVN-80 have grown 24.7%, 23.2%, and 15.1%, respectively, since the submission of the FY2008 budget. Cost growth on CVN-78 required the Navy to program $1,394.9 million in cost-to-complete procurement funding for the ship in FY2014-FY2016 and FY2018 (see Table 1 ). As also shown in Table 2 , however, cost growth on CVN-78, CVN-79, and CVN-80 more or less stopped in FY2013 and FY2014: while the estimated cost of CVN-78 grew considerably between the FY2008 budget (the budget in which CVN-78 was procured) and the FY2014 budget, since the FY2014 budget, it has grown by only a small amount (about 2%); while the estimated cost of CVN-79 grew considerably between the FY2008 budget and the FY2013 budget (in part because the procurement date for the ship was deferred by one year in the FY2010 budget), since the FY2013 budget it has declined by a small amount (less than 1%); and while the estimated cost of CVN-80 grew considerably between the FY2008 budget and the FY2013 budget (in part because the procurement date for the ship was deferred by two years in the FY2010 budget), since the FY2013 budget it has declined by about 11%. Section 128 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015) states the following: SEC. 128. Limitation on availability of funds for U.S.S. John F. Kennedy (CVN–79). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2016 for procurement for the U.S.S. John F. Kennedy (CVN–79), $100,000,000 may not be obligated or expended until the date on which the Secretary of the Navy submits to the congressional defense committees the certification under subsection (b)(1) or the notification under paragraph (2) of such subsection, as the case may be, and the reports under subsections (c) and (d).... (c) Report on costs relating to CVN–79 and CVN–80.— (1) IN GENERAL.—Not later than 90 days after the date of the enactment of this Act, the Secretary of the Navy shall submit to the congressional defense committees a report that evaluates cost issues related to the U.S.S. John F. Kennedy (CVN–79) and the U.S.S. Enterprise (CVN–80). (2) ELEMENTS.—The report under paragraph (1) shall include the following: (A) Options to achieve ship end cost of no more than $10,000,000,000. (B) Options to freeze the design of CVN–79 for CVN–80, with exceptions only for changes due to full ship shock trials or other significant test and evaluation results. (C) Options to reduce the plans cost for CVN–80 to less than 50 percent of the CVN–79 plans cost. (D) Options to transition all non-nuclear Government-furnished equipment, including launch and arresting equipment, to contractor-furnished equipment. (E) Options to build the ships at the most economic pace, such as four years between ships. (F) A business case analysis for the Enterprise Air Search Radar modification to CVN–79 and CVN–80. (G) A business case analysis for the two-phase CVN–79 delivery proposal and impact on fleet deployments. Section 126 of the FY2017 National Defense Authorization Act ( S. 2943 / P.L. 114-328 of December 23, 2016) states the following: SEC. 126. Limitation on availability of funds for procurement of U.S.S. Enterprise (CVN–80). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2017 for advance procurement or procurement for the U.S.S. Enterprise (CVN–80), not more than 25 percent may be obligated or expended until the date on which the Secretary of the Navy and the Chief of Naval Operations jointly submit to the congressional defense committees the report under subsection (b). (b) Initial report on CVN–79 and CVN–80.—Not later than December 1, 2016, the Secretary of the Navy and the Chief of Naval Operations shall jointly submit to the congressional defense committees a report that includes a description of actions that may be carried out (including de-scoping requirements, if necessary) to achieve a ship end cost of— (1) not more than $12,000,000,000 for the CVN–80; and (2) not more than $11,000,000,000 for the U.S.S. John F. Kennedy (CVN–79). (c) Annual report on CVN–79 and CVN–80.— (1) IN GENERAL.—Together with the budget of the President for each fiscal year through fiscal year 2021 (as submitted to Congress under section 1105(a) of title 31, United States Code) the Secretary of the Navy and the Chief of Naval Operations shall submit a report on the efforts of the Navy to achieve the ship end costs described in subsection (b) for the CVN–79 and CVN–80. (2) ELEMENTS.—The report under paragraph (1) shall include, with respect to the procurement of the CVN–79 and the CVN–80, the following: (A) A description of the progress made toward achieving the ship end costs described in subsection (b), including realized cost savings. (B) A description of low value-added or unnecessary elements of program cost that have been reduced or eliminated. (C) Cost savings estimates for current and planned initiatives. (D) A schedule that includes— (i) a plan for spending with phasing of key obligations and outlays; (ii) decision points describing when savings may be realized; and (iii) key events that must occur to execute initiatives and achieve savings. (E) Instances of lower Government estimates used in contract negotiations. (F) A description of risks that may result from achieving the procurement end costs specified in subsection (b). (G) A description of incentives or rewards provided or planned to be provided to prime contractors for meeting the procurement end costs specified in subsection (b). Section 121(b) of the FY2018 National Defense Authorization Act ( H.R. 2810 / P.L. 115-91 of December 12, 2017) states the following: SEC. 121. Aircraft carriers. ... (b) Waiver on limitation of availability of funds for CVN–79.—The Secretary of Defense may waive subsections (a) and (b) of section 128 of the National Defense Authorization Act for Fiscal Year 2016 (Public Law 114–92; 129 Stat. 751) after a period of 60 days has elapsed following the date on which the Secretary submits to the congressional defense committees a written notification of the intent of the Secretary to issue such a waiver. The Secretary shall include in any such notification the following: (1) The rationale of the Secretary for issuing the waiver. (2) The revised test and evaluation master plan that describes when full ship shock trials will be held on Ford-class aircraft carriers. (3) A certification that the Secretary has analyzed and accepted the operational risk of the U.S.S. Gerald R. Ford deploying without having conducted full ship shock trials, and that the Secretary has not delegated the decision to issue such waiver. Sources of risk of cost growth on CVN-78 included, among other things, certain new systems to be installed on CVN-78 whose development, if delayed, could delay the completion of the ship. These systems included a new type of aircraft catapult called the Electromagnetic Launch System (EMALS), a new aircraft arresting system called the Advanced Arresting Gear (AAG), and the ship's primary radar, called the Dual Band Radar (DBR). Congress has followed these and other sources of risk of cost growth for years. In July 2016, the DOD Inspector General issued a report critical of the Navy's management of the AAG development effort. In January 2017, it was reported that after conducting a review of potential alternative systems, the Navy had decided to continue stay with its plan to install EMALs and AAG on the first three Ford-class carriers. Section 125 of the FY2017 National Defense Authorization Act ( S. 2943 / P.L. 114-328 of December 23, 2016) limited the availability of funds for the AAG program until certain conditions are met. Navy officials have stated that they are working to control the cost of CVN-79 by equipping the ship with a less expensive primary radar, by turning down opportunities to add features to the ship that would have made the ship more capable than CVN-78 but would also have increased CVN-79's cost, and by using a build strategy for the ship that incorporates improvements over the build strategy that was used for CVN-78. These build-strategy improvements, Navy officials have said, include the following items, among others: achieving a higher percentage of outfitting of ship modules before modules are stacked together to form the ship; achieving "learning inside the ship," which means producing similar-looking ship modules in an assembly line-like series, so as to achieve improved production learning curve benefits in the production of these modules; and more economical ordering of parts and materials including greater use of batch ordering of parts and materials, as opposed to ordering parts and materials on an individual basis as each is needed. For additional background information on cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program's cost caps, see Appendix C and Appendix D . Another oversight issue for Congress concerns Navy efforts to complete the construction, testing, and certification of the weapons elevators on CVN-78. (The ship's weapons elevators transport missiles and bombs from the ship's weapon magazines to the ship's flight deck, so that they can be loaded onto aircraft that are getting ready to take off from the ship.) A November 2, 2018, press report states the following: The $13 billion Gerald R. Ford aircraft carrier, the U.S. Navy's costliest warship, was delivered last year without elevators needed to lift bombs from below deck magazines for loading on fighter jets. Previously undisclosed problems with the 11 elevators for the ship built by Huntington Ingalls Industries Inc. add to long-standing reliability and technical problems with two other core systems—the electromagnetic system to launch planes and the arresting gear to catch them when they land. The Advanced Weapons Elevators, which are moved by magnets rather than cables, were supposed to be installed by the vessel's original delivery date in May 2017. Instead, final installation was delayed by problems including four instances of unsafe "uncommanded movements" since 2015, according to the Navy. While progress was being made on the carrier's other flawed systems, the elevator is "our Achilles heel," Navy Secretary Richard Spencer told reporters in August without providing details.... The Navy says that the first carrier will be fully combat-capable, including the elevators, by July—the end of its current 12-month pier-side shakedown period in Virginia. Navy weapons buyer James Geurts cited what he called "considerable progress" on the Ford, including on the elevators, in a July 6 memo to Pentagon acquisition head Ellen Lord. The Navy in May requested permission from Congress in May to increase the Ford's cost cap by $120 million, partly to fix elevator issues "to preclude any effect on the safety of the ship and personnel." The safety issues related to the uncommanded movements, the Navy said in an email.... Beci Brenton, a spokeswoman for Newport News, Virginia-based Huntington Ingalls, said "all the elevators are installed." She said the weapons elevator is among "the most advanced technologies being incorporated into" the carrier and "its completion has been delayed due to a number of first-in-class issues," Brenton said. "We are committed to working through the remaining technical challenges," she said. William Couch, a spokesman for the Naval Sea Systems Command, said the elevators are "in varying levels of construction and testing." Six are far enough along to be operated by the shipbuilder, and testing has started on two of those, he said. All 11 "should have been completed and delivered with the ship delivery," according to Couch. He said the contractor has corrected "all issues," including the "four uncommanded movements over the last three years that were discovered during the building, operational grooming, or testing phases."... A November 2010 program on PBS's "Nova" science series extolled the "Elevator of Tomorrow" being developed by Federal Equipment Co., a Cincinnati-based subcontractor to Huntington Ingalls. Doug Ridenour, president of Federal Equipment Co., said the elevator's key technologies "have been consistently demonstrated for years" in a test unit in the company's plant and any programming or software-related issues have been fixed. But "shipboard integration involves many other technology insertions not controlled by" his company, he said. At a November 27, 2018, hearing on Navy shipbuilding programs before the Seapower subcommittee of the Senate Armed Services Committee, the following exchange occurred: SENATOR TIM KAINE (continuing): There have been challenges with the advanced weapons elevators on the CVN, some of the technical difficult[ies] seem similar to those that were experienced earlier on both the [aircraft] launch and arresting systems. I think that the Navy put together independent review teams to tackle those issues and provide solutions. Are we at a point where that may be needed on the weapons elevators or are we in a position where we think the progress on the weapons elevators is satisfactory? JAMES F. GEURTS, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH, DEVELOPMENT AND ACQUISITION: Yes, sir. So there are 11 weapons elevators [and] each one of them we have to produce, test and then certify. The first two of those have been produced, the first one's been through test and certification. The second one is about 94 percent through test. We are making progress to get through all of the elevators during this availability. I am likely to do an independent review team not on the immediate construction for CVN-78 but looking at the longer-term sustainability, resilience, reliability to make sure we are in a position to support those elevators for the long term, that we've got all of the training and all of the reliability built into those. We've done so many independent reviews for the [CVN-]78 elevator design as they are so we won't do one on the current efforts on [CVN-]78. We've got a dedicated team working our way through those issues. KAINE: And is your timing on that testing and certification on [CVN-]78—you have this 12-month period where you are testing—[do] you think you will get through the testing and certification of all of the 11 elevators in that year one? GEURTS: My current assessment is we will get through all of the production and much of the testing. We may have some of the certification issues to go. I am watching it very closely and we will keep you and your staff informed on progress there. A December 5, 2018, press report stated the following: The Navy plans to complete installation and testing of the 11 elevators before the Ford completes its post-delivery shakedown phase in July, Captain Danny Hernandez, a Navy spokesman, said in an email. Six will also be certified for use by then, but five won't be completed until after July, he said. "A dedicated team is engaged on these efforts and will accelerate this certification work and schedule where feasible," he said. Huntington spokeswoman Beci Brenton said via email that company officials had a "very productive meeting" with Inhofe that included both the elevators and benefits of a two-carrier contract. The elevator's completion "has been delayed due to a number of first-in-class issues associated with the first-time installation, integration and test of this new technology," she said. "However, we are making substantial substantial progress in resolving the remaining technical challenges." A January 6, 2019, press report stated the following: The Navy Secretary has committed that the service and its industry partners will have working weapons elevators on aircraft carrier USS Gerald R. Ford (CVN-78) by the end of the summer—and the secretary's job is now on the line over that issue. The Navy accepted delivery of the first-in-class carrier and commissioned it into the fleet without any functioning weapons elevators. The carrier is now in its post-shakedown availability at builder Newport News Shipbuilding, after spending a year at sea running the ship to discover any potential flaws. Though the Navy already said the elevators would be addressed during this PSA period, the stakes are now higher: Navy Secretary Richard V. Spencer told President Donald Trump that the elevators would be installed and working by the time the carrier returns to sea, or else the president can use his famous "you're fired" line on the service secretary. Spencer said this morning at an event hosted by the Center for a New American Security that he spoke to Trump at length last month at the Army-Navy football game in Philadelphia. "I asked him to stick his hand out; he stuck his hand out. I said, let's do this like corporate America. I shook his hand and said, the elevators will be ready to go when she pulls out or you can fire me," Spencer said, adding that someone had to take accountability over the ongoing elevator challenges. "We're going to get it done. I know I'm going to get it done. I haven't been fired yet by anyone; being fired by the president really isn't on the top of my list."... The elevator issue has plagued the carrier for years, even if it garnered less attention than other high-profile new technologies on the carrier, such as the new Electromagnetic Aircraft Launch System (EMALS) and the Advanced Arresting Gear, both of which had their own fair share of technical problems. In 2016, the late Sen. John McCain (R-Ariz.), who then chaired the Senate Armed Services Committee, railed against the Ford-class program, noting that Ford was already overdue to be delivered to the Navy and still was facing ongoing technical difficulties. "The Navy's announcement of another two-month delay in the delivery of CVN-78 further demonstrates that key systems still have not demonstrated expected performance. The advanced arresting gear (AAG) cannot recover airplanes. Advanced weapons elevators cannot lift munitions. The dual-band radar cannot integrate two radar bands. Even if everything goes according to the Navy's plan, CVN-78 will be delivered with multiple systems unproven," McCain said in a July 2016 hearing. A month later the Pentagon announced a 60-day review of the Ford program, with a specific focus on five technology areas, including the elevators. Ford ultimately delivered to the Navy in June 2017 and commissioned a month later, still without working weapons elevators. In July 2018, when Ford entered PSA, the Navy said the maintenance availability had been extended from a planned eight months to a full year, to accommodate both the typical work that arises in PSA but also deferred work such as the construction and installation of weapons elevators and an upgrade to the AAG, whose technical challenges greatly contributed to the delayed delivery and commissioning of the ship. A January 16, 2019, press report stated the following: The Navy's newest aircraft carrier, USS Gerald R. Ford (CVN 78), closed out 2018 on a high note with the acceptance of the ship's first advanced weapons elevator (AWE), setting the tone for more positive developments in the year ahead. AWE Upper Stage #1 was turned over to the ship on Dec. 21, following testing and certification by engineers at Huntington Ingalls Industries-Newport News Shipbuilding, where the ship is currently working through its post-shakedown availability (PSA). The acceptance marks a major milestone for the ship and the Ford-class of aircraft carriers to follow.... Though the first elevator has been accepted, work still remains on the remaining 10. Currently, all shipboard installation and testing activities of the AWEs are due to be completed prior to the end of Ford's PSA, scheduled for July. However, some remaining certification documentation will be performed for five of the 11 elevators after PSA completion. A March 6, 2019, press report stated the following: Nearly one month following the acceptance of its first advanced weapons elevator (AWE), the Navy's newest aircraft carrier, USS Gerald R. Ford (CVN 78), has accepted its second. AWE Upper Stage #3 was turned over to the ship February 14, following testing and certification by engineers at Huntington Ingalls Industries-Newport News Shipbuilding (NNS), where the ship is currently working through its post-shakedown availability (PSA). According to Ford's Weapons Officer, Cmdr. Joe Thompson, acceptance of the second AWE offers an opportunity for Ford Sailors to become acquainted with the equipment during the PSA. "This gives us more time to learn and become subject matter experts," explained Thompson. "All of us are learning on brand new systems and brand new concepts. This acceptance gives us the opportunity to have that 'run time' on the physical aspects of the elevator, but also in evaluating the technical manuals, and learning the maintenance required to keep them operational." With two elevators in hand, Thompson explained that Sailors training on these new systems will be able to apply the lessons learned from the first elevator, Upper Stage #1, and apply them to Upper Stage #3, thereby streamlining the learning process and lessening the learning curve. "This is going to allow us to progress faster," he explained. "As we get smarter on one, we move on to the next and apply the lessons learned not only with regard to elevator operation, but also in the testing and certification, and maintenance processes."… Acceptance of the elevator was accelerated due to a merging of the test programs between NNS and the Naval Surface Warfare Center (NSWC), which removed redundant steps and moved certification up by 10 days. The team has identified other areas where redundancy can be removed to make the acceptance timelines more efficient. Another oversight issue for Congress concerns CVN-78 program issues raised in a December 2018 report from DOD's Director, Operational Test and Evaluation (DOT&E)—DOT&E's annual report for FY2018. Regarding the CVN-78 program, the report stated the following in part: Assessment • The delays in the ship development and initial trials pushed both phases of initial operational testing until FY21 and FY22. The delay in the ship's delivery and development added approximately 2 years to the timeline. As noted in previous annual reports, the CVN 78 test schedule has been aggressive, and the development of EMALS [Electromagnetic Aircraft Launch System], AAG [Advanced Arresting gear], AWE [Advanced Weapons Elevator], DBR [Dual Band Radar], and the Integrated Warfare System delayed the ship's first deployment to FY22. Reliability • Four of CVN 78's new systems stand out as being critical to flight operations: EMALS, AAG, DBR, and AWEs. Overall, the poor reliability demonstrated by AAG and EMALS and the uncertain reliability of DBR and AWEs could delay CVN 78 IOT&E [Initial Operational Test and Evaluation]. The Navy continues to test all four of these systems in their shipboard configurations aboard CVN 78. Reliability estimates derived from test data for EMALS and AAG are discussed in following subsections. For DBR and AWE, only engineering reliability estimates have been provided. EMALS • Testing to date involved 747 shipboard launches and demonstrated EMALS capability to launch aircraft planned for the CVN 78 Air Wing. • Through the first 747 shipboard launches, EMALS suffered 10 critical failures. This is well below the requirement of 4,166 Mean Cycles Between Critical Failures, where a cycle represents the launch of one aircraft. • The reliability concerns are exacerbated by the fact that the crew cannot readily electrically isolate EMALS components during flight operations due to the shared nature of the Energy Storage Groups and Power Conversion Subsystem inverters onboard CVN 78. The process for electrically isolating equipment is time-consuming; spinning down the EMALS motor/generators takes 1.5 hours by itself. The inability to readily electrically isolate equipment precludes EMALS maintenance during flight operations. AAG • Testing to date included 763 attempted shipboard landings and demonstrated AAG capability to recover aircraft planned for the CVN 78 air wing. • The Program Office redesigned major components that did not meet system specifications during land-based testing. Through the first 763 attempted shipboard landings, AAG suffered 10 operational mission failures (which includes one failure of the barricade system). This reliability estimate falls well below the re-baselined reliability growth curve and well below the requirement of 16,500 Mean Cycles Between Operational Mission Failures, where a cycle represents the recovery of one aircraft. • The reliability concerns are magnified by the current AAG design that does not allow electrical isolation of the Power Conditioning Subsystem equipment from high power buses, limiting corrective maintenance on below-deck equipment during flight operations. Combat System • Results of SBDT [sea-based developmental testing] events indicate good SSDS [ship self-defense system] performance in scheduling and launching simulated RAMs [Rolling Airframe Missiles] and ESSMs [Evolved Sea Sparrow Missiles], as well as scheduling DBR directives for ESSM acquisition and target illumination. Insufficient interoperability testing with a CEC [Cooperative Engagement Capability] network and Link 16 prevents an estimate of performance in this area. It is unknown if the integration problems between SSDS and Surface Electronic Warfare Improvement Program (SEWIP) Block 2 identified during engineering testing at Wallops Island have been resolved because SEWIP Block 2 was not installed on the ship during these SBDT events. • CVN 78's combat system testing on the SDTS [self-defense test ship] is at risk due to schedule constraints, lack of funding, and insufficient planned developmental testing. DBR • Throughout the five CVN 78 SBDTs, DBR was plagued by extraneous false and close-in dual tracks adversely affecting its performance. • Integration of the DBR electronic protection capabilities remains incomplete and unfunded. With modern threats, a lack of electronic protection places the ship in a high-risk scenario if deployed to combat. • The Navy analysis noted that DBR performance needs to be improved to support carrier air traffic control center certification. Sortie Generation Rate • CVN 78 is unlikely to achieve its SGR [sortie generation rate] requirement. The target threshold is based on unrealistic assumptions including fair weather and unlimited visibility, and that aircraft emergencies, failures of shipboard equipment, ship maneuvers, and manning shortfalls will not affect flight operations. During the 2013 operational assessment, DOT&E conducted an analysis of past aircraft carrier operations in major conflicts. The analysis concludes that the CVN 78 SGR requirement is well above historical levels. • DOT&E plans to assess CVN 78 performance during IOT&E by comparing it to the SGR requirement as well as to the demonstrated performance of the Nimitz-class carriers. • Poor reliability of key systems that support sortie generation on CVN 78 could cause a cascading series of delays during flight operations that would affect CVN 78's ability to generate sorties. The poor or unknown reliability of these critical subsystems represents the most risk to the successful completion of CVN 78 IOT&E. Manning • Based on current expected manning, the berthing capacity for officers and enlisted will be exceeded by approximately 100 personnel with some variability in the estimates. This also leaves no room for extra personnel during inspections, exercises, or routine face-to-face turnovers. • Planned ship manning requires filling 100 percent of the billets. This is not the Navy's standard practice on other ships, and the personnel and training systems may not be able to support 100 percent manning. Additionally, workload estimates for the many new technologies such as catapults, arresting gear, radar, and weapons and aircraft elevators are not yet well understood. Electromagnetic Compatibility • Developmental testing identified significant EMI [electromagnetic interference] and radiation hazard problems. The Navy continues to characterize and develop mitigation plans for the problems, but some operational limitations and restrictions are expected to persist into IOT&E and deployment. The Navy will need to develop capability assessments at differring levels of system utilization in order for commanders to make informed decisions on system employment. Live Fire Test & Evaluation • The vulnerability of CVN 78's many new critical systems to underwater threat-induced shock is unknown. The program plans to complete shock testing on EMALS, AAG, and the AWE components during CY19, but because of a scarcity of systems, shock testing of DBR components lags and will likely not be completed before the FSSTs [full ship shock trials]. • The Vulnerability Assessment Report provides an assessment of the ship's survivability to air-delivered threat engagements. The classified findings in the report identify the specific equipment that most frequently would lead to mission capability loss. In FY19, the Navy is scheduled to deliver additional report volumes that will assess vulnerability to underwater threats and compliance with Operational Requirements Document survivability criteria. Recommendations The Navy should: 1. Provide schedule, funding, and an execution strategy for assessing SGR. This strategy should specify which testing will be accomplished live, a process for accrediting the Seabasing/Seastrike Aviation Model for operational testing, and a method for comparing CVN 78 performance with that of the Nimitz class. 2. Continue to characterize the electromagnetic environment onboard CVN 78 and develop operating procedures to maximize system effectiveness and maintain safety. As applicable, the Navy should utilize the lessons learned from CVN 78 to inform design modifications for CVN 79 and future carriers. 3. Develop and implement DBR electronic protection to enhance ship survivability against modern threats. 4. Submit an updated TEMP. Another oversight issue for Congress concerns CVN-78 program issues raised in the 2019 edition of the Government Accountability Office's (GAO's) annual report surveying selected DOD weapon acquisition programs. Some of these issues raised by GAO overlap with issues discussed in previous sections of this CRS report. Regarding the CVN-78 program, the report stated the following: Technology Maturity, Design Stability, and Production Readiness The Navy accepted delivery of the lead ship, CVN 78, in May 2017 despite challenges related to immature technologies and struggles to demonstrate the reliability of mature systems. The Navy reports that 10 of the Ford Class's 12 critical technologies are fully mature—the advanced arresting gear (AAG) and one of the ship's missile systems are not yet mature. The advanced weapons elevators are among the systems deemed mature by the Navy; however, according to Navy officials, only 2 of the 11 elevators installed on the ship can bring munitions to the flight deck—a key element of operational flights. The shipbuilder is working to correct the system during its first post-delivery maintenance period, now scheduled to end in October 2019, and the Navy plans to create a land-based site to test the elevators, which will come at an additional cost. Shipboard testing is ongoing for several critical systems and could delay future operational testing. Those systems include the electromagnetic aircraft launch system (EMALS), AAG, and dual band radar (DBR). Although the Navy is testing EMALS and AAG on the ship with aircraft, the reliability of those systems remains a concern. If these systems cannot function safely, CVN 78 will not demonstrate it can rapidly deploy aircraft—a key requirement for these carriers. Recent shipboard testing revealed that the Navy is struggling to get DBR to operate as planned. Moreover, DBR poses a greater radiation hazard to personnel and systems on an aircraft carrier than the Navy anticipated, which could restrict certain types of flight operations. The remaining challenges the Navy faces in maturing CVN 78's critical technologies could lead to their redesign or replacement on later ships. This would include CVN 79, which is currently 55 percent complete, as well as the third and fourth ships, CVNs 80 and 81. CVN 79 repeats the CVN 78 design with some modifications and replaces DBR with the Enterprise Air Surveillance Radar (EASR), which is in development. The Navy does not identify this new system as a critical technology in the Ford Class program because it derives from the pre-existing Air and Missile Defense Radar (AMDR) program. However, EASR is a different size and performs a different mission than the AMDR systems, which are designed for destroyers. Therefore, EASR may still require design and development efforts to function on the carrier. The Navy plans to procure two EASR units for CVNs 79 and 80 and install the CVN 79 unit during that ship's second phase of delivery. CVNs 80 and 81 will repeat the design of CVN 79. Other Program Issues CVN 78's procurement costs increased by 23 percent over its initial cost cap and as a result of continuing technical deficiencies, the Navy may still require more funding to complete this ship. The Navy increased the current $12.9 billion cost cap for CVN 78 by $120 million in May 2018 to account for additional post-delivery work, but added work and cost changes may result in an additional cost increase. Costs for CVN 79 are also likely to increase as a result of optimistic cost and labor targets, putting the ship at risk of exceeding its $11.4 billion cost cap. The CVN 79 cost estimate assumes unprecedented construction efficiency—labor hours will be 18 percent lower than CVN 78. However, our analysis shows the shipbuilder is not meeting this goal and is unlikely to improve performance enough to meet cost and labor targets. Congress raised the cost cap for CVN 80 and later ships to $12.6 billion and approved the Navy's plans to buy two carriers—CVNs 80 and 81—at the same time, based on the shipbuilder's estimate that this strategy will save the Navy over $2 billion. However, it is unclear whether the Navy can meet this cost cap, even with the estimated savings from a two-ship buy, because it assumes further reductions in subsystem costs, construction change orders, and labor hours. The Navy projects a further reduction in labor hours compared to CVN 79—about 25 percent fewer labor hours than CVN 78—will contribute to cost savings for these ships. The program office indicated that it does not separately track or report information on software development to integrate the various subsystems of the ship. These subsystems include CVN 78's combat control systems, which rely on integrating systems through software intensive development. Program Office Comments We provided a draft of this assessment to the program office for review and comment. The program office provided technical comments, which we incorporated where appropriate. The program office stated that, in July 2018, CVN 78 entered a year-long maintenance period. It also said that, as of February 2019, two advanced weapons elevators are operating, and it continues to improve developmental system reliability. The program also stated that, with CVN 79 construction 55 percent complete, shipbuilder cost performance remains stable, but slightly below the level needed to achieve production labor hour reduction targets. The program stated that the shipbuilder continues to work through the effects of material shortfalls that disrupted performance. The program said that the Navy plans to deliver a complete, deployable ship as scheduled and within the cost cap to maintain an 11-carrier fleet. The program office also stated that the Navy awarded the CVN 80/81 procurement contract in January 2019 and expects to save $4 billion, compared to if it had purchased each ship individually. According to the program, the contract limits the Navy's liability and incentivizes the shipyard's best performance. Another oversight issue for Congress is whether the Navy should shift at some point from procuring large-deck, nuclear-powered carriers like the CVN-78 class to procuring smaller aircraft carriers. The issue has been studied periodically by the Navy and other observers over the years. To cite one example, the Navy studied the question in deciding on the aircraft carrier design that would follow the Nimitz (CVN-68) class. Advocates of smaller carriers argue that they are individually less expensive to procure, that the Navy might be able to employ competition between shipyards in their procurement (something that the Navy cannot do with large-deck, nuclear-powered carriers like the CVN-78 class, because only one U.S. shipyard, HII/NNS, can build aircraft carriers of that size), and that today's aircraft carriers concentrate much of the Navy's striking power into a relatively small number of expensive platforms that adversaries could focus on attacking in time of war. Supporters of large-deck, nuclear-powered carriers argue that smaller carriers, though individually less expensive to procure, are less cost-effective in terms of dollars spent per aircraft embarked or aircraft sorties that can be generated, that it might be possible to use competition in procuring certain materials and components for large-deck, nuclear-powered aircraft carriers, and that smaller carriers, though perhaps affordable in larger numbers, would be individually less survivable in time of war than large-deck, nuclear-powered carriers. At a March 18, 2015, hearing on Navy shipbuilding programs before the Seapower subcommittee of the Senate Armed Services Committee, the Navy testified that it had initiated a new study on the question. At the hearing, the following exchange occurred: SENATOR JOHN MCCAIN, CHAIRMAN, SENATE ARMED SERVICES COMMITTEE, ATTENDING EX OFFICIO: And you are looking at additional options to the large aircraft carrier as we know it. SEAN STACKLEY, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH, DEVELOPMENT,AND ACQUISITION: We've initiated a study and I think you've discussed this with the CNO [Chief of Naval Operations] and that's with the frontend of that study. Yes, sir. Later in the hearing, the following exchange occurred: SENATOR ROGER WICKER, CHAIRMAN, SEAPOWER SUBCOMMITTEE: Well, Senator McCain expressed concern about competition [in Navy shipbuilding programs]. And I think that was with, in regard to aircraft carriers. SEAN J. STACKLEY, ASSISTANT SECRETARY OF THE NAVY FOR RESEARCH, DEVELOPMENT,AND ACQUISITION: Yes, Sir. WICKER: Would you care to respond to that? STACKLEY: He made a generic comment that we need competition to help control cost in our programs and we are absolutely in agreement there. With specific regards to the aircraft carrier, we have been asked and we are following suit to conduct a study to look at alternatives to the Nimitz and Ford class size and type of aircraft carriers, to see if it make sense. We've done this in the past. We're not going to simply break out prior studies, dust them off and resubmit it. We're taking a hard look to see is there—is there a sweet spot, something different other than today's 100,000 ton carrier that would make sense to provide the power projection that we need, that we get today from our aircraft carriers, but at the same time put us in a more affordable position for providing that capability. WICKER: OK. But right now, he's—he's made a correct factual statement with regard to the lack of competition. STACKLEY: Yes, Sir. There is—yes, there is no other shipyard in the world that has the ability to construct a Ford or a Nimitz nuclear aircraft carrier other than what we have in Newport News and the capital investment to do that is prohibitive to set up a second source, so obviously we are—we are content, not with the lack of competition, but we are content with knowing that we're only going to have one builder for our aircraft carriers. On March 20, 2015, the Navy provided the following additional statement to the press: As indicated in testimony, the Navy has an ongoing study to explore the possible composition of our future large deck aviation ship force, including carriers. There is a historical precedent for these type[s] of exploratory studies as we look for efficiencies and ways to improve our war fighting capabilities. This study will reflect our continued commitment to reducing costs across all platforms by matching capabilities to projected threats and Also [sic] seeks to identify acquisition strategies that promote competition in naval ship construction. While I can't comment on an ongoing study, what I can tell you is that the results will be used to inform future shipbuilding budget submissions and efforts, beyond what is currently planned. Section 128 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015) states the following: SEC. 128. Limitation on availability of funds for U.S.S. John F. Kennedy (CVN–79). (a) Limitation.—Of the funds authorized to be appropriated by this Act or otherwise made available for fiscal year 2016 for procurement for the U.S.S. John F. Kennedy (CVN–79), $100,000,000 may not be obligated or expended until the date on which the Secretary of the Navy submits to the congressional defense committees the certification under subsection (b)(1) or the notification under paragraph (2) of such subsection, as the case may be, and the reports under subsections (c) and (d).... (d) Report on future development.— (1) IN GENERAL.—Not later than April 1, 2016, the Secretary of the Navy shall submit to the congressional defense committees a report on potential requirements, capabilities, and alternatives for the future development of aircraft carriers that would replace or supplement the CVN–78 class aircraft carrier. (2) ELEMENTS.—The report under paragraph (1) shall include the following: (A) A description of fleet, sea-based tactical aviation capability requirements for a range of operational scenarios beginning in the 2025 timeframe. (B) A description of alternative aircraft carrier designs that meet the requirements described under subparagraph (A). (C) A description of nuclear and non-nuclear propulsion options. (D) A description of tonnage options ranging from less than 20,000 tons to greater than 100,000 tons. (E) Requirements for unmanned systems integration from inception. (F) Developmental, procurement, and lifecycle cost assessment of alternatives. (G) A notional acquisition strategy for the development and construction of alternatives. (H) A description of shipbuilding industrial base considerations and a plan to ensure opportunity for competition among alternatives. (I) A description of funding and timing considerations related to developing the Annual Long-Range Plan for Construction of Naval Vessels required under section 231 of title 10, United States Code. The report required by Section 128(d) of P.L. 114-92 , which was conducted for the Navy by the RAND Corporation, was delivered to the congressional defense committees in classified form in July 2016. An unclassified version of the report was then prepared and issued in 2017 as a publicly released RAND report. The executive summary of that report states the following (emphasis as in original): We analyzed the feasibility of adopting four aircraft carrier concept variants as follow-ons to the Ford-class carrier following USS Enterprise (CVN 80) or the as-yet-unnamed CVN 81. Among these options are two large-deck carrier platforms that would retain the capability to launch and recover fixed-wing aircraft using an on-deck catapult and arresting gear system and two smaller carrier platforms capable of supporting only short takeoff and vertical landing (STVOL) aircraft. Specifically, the four concept variants are as follows: • a follow-on variant continuing the current 100,000-ton Ford-class carrier but with two life-of-the-ship reactors and other equipment and system changes to reduce cost (we refer to this design concept as CVN 8X) • a 70,000-ton USS Forrestal–size carrier with an updated flight deck and hybrid nuclear-powered integrated propulsion plant with capability to embark the current large integrated air wing but with reduced sortie generation capability, survivability, and endurance compared with the Ford class (we refer to this design concept as CVN LX) • a 43,000-ton variant of the USS America–class, fossil fuel–powered and arranged to support only STOVL operations but at a higher tempo than the current LHA 6 (USS America) (we refer to this design concept as CV LX). This variant would incorporate the larger ship's beam excursion the Navy examined in the LHA 8–class flight 1 studies. • a 20,000-ton variant that will resemble escort carriers that some allied navies currently operate (we refer to this design concept as CV EX). Similar to the 43,000-ton variant, it will be conventionally powered and will operate STOVL aircraft.... Our analyses of the carrier variants illuminated capability shortfalls in some instances. Our overall findings are as follows: • The CVN 8X, the descoped Ford-class carrier, offers similar warfighting capability to that of the Ford-class carrier today. There might be opportunities to reduce costs by eliminating costly features that only marginally improve capability, but similar tradeoffs are likely to be made in the current program as well. • The CVN LX concept variant offers an integrated, current air wing with capabilities near current levels but with less organic mission endurance for weapons and aviation fuel. It will not generate the same SGR as the Ford-class carrier, but this is not a significant limitation for stressing warfighting scenarios. It will be less survivable in some environments and have less redundancy than the Ford program-of-record ship, and these factors might drive different operation concepts. Although we do not characterize the impact of decreased survivability, this is an important limitation that will have to be weighed against the potential cost savings. The major means of reducing cost is through engineering redundancy, speed, and air wing fuel capacity, and these could affect mobility and theater closure. • The concept variant CV LX, which is a version of the LHA 6 platforms, might be a low-risk, alternative pathway for the Navy to reduce carrier costs if such a variant were procured in greater numbers than the current carrier shipbuilding plan; our analysis suggests a two-to-one replacement. Over the long term, however, as the current carrier force is retired, the CV LX would not be a viable option for the eventual carrier force unless displaced capabilities were reassigned to new aircraft or platforms in the joint force, which would be costly. This platform would be feasible for a subset of carrier missions but, even for those missions, could require an increase in the number of platforms. This concept variant might, if procured in sufficient numbers, eventually enable the Navy to reduce the number of Ford-class carriers in the overall force structure, but more-extensive analysis of missions, operations, and basing of such a variant and the supported air combat element is required. • The smallest concept variants reviewed, the CV EX 20,000-ton sea-based platforms, do not provide either a significant capacity or an integrated air wing and, thus, force reliance on other legacy platforms or land-based assets to provide key elements of capability—in particular, AEW. As a result, this concept variant is not really a replacement for current aircraft carrier capability and would require other platforms, aircraft, weapons, and capabilities in the joint force. These platforms would be a viable pathway only in broad fleet architecture transformation providing a narrow mission set, perhaps regionally, and would require extensive analysis. Given that such a concept variant is not a viable replacement for an aircraft carrier, such analysis would be required to see whether any adjustment on the current aircraft carrier program would be feasible.... The overall results of our cost comparison are as follows: • The descoped Ford-class carrier, the CVN 8X, might generate fewer sorties than the current key performance parameter values for the Ford class and might have only incremental reduction in overall platform cost . The analysis examining cost reduction with transition to a life-of-the-ship reactor, such that being done on submarine programs, does not appear to be cost effective. Between the developmental costs and a reduced service life, there is little cost advantage in this variant. • The CVN LX concept would allow considerable savings across the ship's service life and appears to be a viable alternative to consider for further concept exploration . Construction costs would be lower; design changes and life-cycle costs would reflect the lessons already applied in the Ford class. The reliance on hybrid drive with fewer mechanical parts than legacy platforms is likely to further reduce maintenance cost. However, CVN LX would be a new design that would require a significant investment in nonrecurring engineering in the near term to allow timely delivery in the 2030s. • CV LX, although it requires a larger force structure to maintain air capabilities, might still reduce overall construction costs if large carrier numbers were reduced. But, as described in the report, reducing carrier numbers with the resulting loss of capability should not be pursued without extensive further analysis for all displaced missions in the joint force execution of warfighting scenarios and, potentially, regional basing and narrowly focused missions for these platforms. Any cost savings would likely be offset to an unknown degree by requirements for additional systems to mitigate loss of capability associated with this variant. • CV EX, the smallest variant, is not a practical variant at all without considerable revision of the Navy warfighting concept of operations. Although the same is to a degree true with CV LX, the impact of an even larger number of low-sortie ships with small and limited air wings is even more pronounced with this variant. CV EX has all of the shortfalls of CV LX and will pose even greater issues of mutual support and logistics sustainment.... Conclusions Our analysis points to potential options for replacing the Nimitz-class carrier as these ships reach expected service life that have lower procurement costs than the Ford-class carriers. However, most of these options come with reduced capability that might require changes in the concept of operations to deliver sea-based aircraft capability comparable to that of carriers in the fleet today. If a new platform is introduced in the mid-2030s, the Navy's force structure will still contain a large legacy force of Nimitz- and Ford-class carriers, at least until the mid-2050 time frame, which might lower the risks of introducing a new carrier for some period of time. But, ultimately, if a new carrier variant is selected, it will define the carrier force and constitute the supported capability available to the Navy. Capability shortfalls can be mitigated, to some degree, with changes in operational concepts or by adding additional platforms to the force structure—which introduces additional cost that might offset anticipated cost savings. In addition, if the Navy stops procuring large-deck nuclear carriers, the ability to reconstitute the industrial base at some time in the future comes with substantial risk. Although SGR [sortie generation rate] was a central variable in comparing the carrier variants, our analysis suggests that there is room to make trade-offs in aircraft sortie rate capacity between the Ford-class carrier and a lower-cost platform. However, it is important to consider that, whatever threats complicate carrier operations, they might even more significantly affect land-based tactical air operations. Carriers can move; have defensive support from escorts; can readily replenish; and might, in fact, be more survivable than their land-based counterparts. This is an important factor for Congress and the Department of Defense to consider before a trade-off is made to give up the supported air wing sortie generation capacity in the overall sea-based force. The question of whether to shift to smaller aircraft carriers was also addressed in three studies on future fleet architecture that were required by Section 1067 of the FY2016 National Defense Authorization Act ( S. 1356 / P.L. 114-92 of November 25, 2015). These three studies are discussed in more detail in another CRS report. A February 15, 2019, press report stated the following: Under Secretary of the Navy Thomas Modly said now that the Navy found a way to build two new Gerald R. Ford-class aircraft carriers while saving money it is starting to look at future carrier procurement, which might be very different.… Modly said Secretary of the Navy Richard Spencer sees $13 billion carriers as not sustainable going forward and the service will be looking at ways to further reduce costs or keep the carrier capabilities more affordable in future ship procurements. "There was general conclusion that those two for sure would be built" and once that was determined "that was going to happen," Modly said during the AFCEA West 2019 conference here [in San Diego].… After the CVN-80 and -81 [procurement] decision was made, "I think a lot of derivative decisions still need to be made. So the secretary [Spencer] would like to take a look at 'O.K. now that we made that decision, and that second one that comes will be in quite a few years from now, we need to start thinking now about what's the next one look like.'" Modly told reporters they are asking questions like "Is it going to be advanced as this one? Or is it going to be smaller or are we going to buy two smaller ones or maybe shift air power to other forms of delivery. And we don't know the answers of that but we're looking at this." An earlier oversight issue for Congress for the CVN-78 program was whether to conduct the shock trial for the CVN-78 class in the near term, on the lead ship in the class, or years later, on the second ship in the class. For background information on that issue, see Appendix E . Table 3 summarizes congressional action on the FY2020 procurement funding request for the CVN-78 program. As shown in Table 1 , of the $2,347.0 million requested for FY2020, $1,062 million is for CVN-80 and $1,285 million is for CVN-81. Appendix A. Withdrawn Proposal to Not Fund CVN-75 RCOH The Navy's FY2020 budget submission proposed to not fund the mid-life nuclear refueling overhaul (called a Refueling Complex Overhaul, or RCOH) for the aircraft carrier CVN-75 ( Harry S. Truman ), and to instead retire the ship around FY2024 and also deactivate one of the Navy's carrier air wings at about the same time. On April 30, 2019, however, the Administration announced that it was effectively withdrawing this proposal from the Navy's FY2020 budget submission. The Administration now supports funding the CVN-75 RCOH and keeping CVN-75 (and by implication its associated air wing) in service past FY2024. This appendix presents, for reference purposes, additional background information on this withdrawn budget proposal. Following the Administration's April 30 withdrawal of its proposal to not fund the CVN-75 RCOH, the Navy states that the CVN-75 RCOH can no longer begin in FY2024, as planned prior to the Navy's FY2020 budget submission, because the Navy spent the months prior to April 30 planning for the ship's deactivation rather than for giving it an RCOH. As a result, the Navy states, the CVN-75 will now begin a year later, in FY2025. As a consequence of this one-year shift in the schedule for the RCOH, the Navy states, the funding stream for the CVN-75 shown in Table A-1 will also now shift one year to the right, and the CVN-75 RCOH can be reinstated without any funding in FY2020, because FY2020 is now effectively the same as FY2019 in Table A-1 . Performing an RCOH on a carrier is needed for the carrier to be able to operate for the second half of its intended 50-year service life. Not performing an RCOH on CVN-75 would mean that, instead of remaining in service for the second half of its intended 50-year service life, the ship would be decommissioned, permanently removed from service, and eventually dismantled. (CVN-75 was commissioned into service on July 25, 1998, and will be 26 years old in 2024.) The Navy's FY2020 budget submission shows that, for the period FY2022-FY2047, this would have reduced the size of the carrier force by one ship compared to what it would otherwise be. More specifically, the Navy's FY2020 30-year (FY2020-FY2049) shipbuilding plan, reflecting the proposal to not fund the CVN-75 RCOH, projected that the carrier force would remain at 11 ships through FY2024, decline to 10 ships in FY2025, and remain at 10 ships for the remainder of the 30-year period, except for a few years (FY2027, FY2040, FY2042-FY2044, and FY2046-FY2048) when it would temporarily decline to 9 ships. Consequently, beginning in FY2025 and extending through the end of the 30-year period, the carrier force would not be in compliance with the requirement under 10 U.S.C. 8062(b) for the Navy to maintain a force of not less than 11 operational aircraft carriers. As an associated action, the Navy's FY2020 budget submission also proposed deactivating one of the Navy's carrier air wings around FY2024. This would reduce the number of carrier air wings from nine to eight, meaning that the Navy beginning around FY2024 would no longer be in compliance with the requirement under 10 U.S.C. 8062(e) to maintain a minimum of nine carrier air wings. Table A-1 shows funding for the CVN-75 RCOH in the Navy's FY2019 budget submission. As shown in the table, the estimated total cost of the CVN-75 RCOH in the FY2019 budget submission was $5,578 million (i.e., about $5.6 billion). The figure of about $5.6 billion shown in Table A-1 does not include the cost of the two nuclear fuel cores that would be installed as part of the RCOH. (CVN-75, like all Nimitz-class carriers, has two nuclear reactors, each of which would receive a new fuel core as part of an RCOH.) Fuel cores for aircraft carrier RCOHs are procured through the Other Procurement, Navy (OPN) appropriation account. The Navy states that it procured the cores for the CVN-75 RCOH—one of them in FY2008 and the other in FY2011—for a total cost of about $538 million. Adding this $538 million cost to the total cost shown in Table A-1 would increase the total estimated cost of the CVN-75 RCOH to about $6.1 billion. The fuel cores for the planned future RCOHs for CVN-76 and CVN-77 (the final two Nimitz-class carriers) have also been procured—the CVN-76 RCOH cores were funded in FY2012 and FY2013, and the CVN-77 RCOH cores were funded in FY2015 and FY2019. Thus, if CVN-75 were to not receive an RCOH, and if it were not possible or cost effective to rescind the funding for the core funded in FY2019, then two of the six Nimitz-class fuel cores that have been procured since FY2008 for anticipated use in RCOHs would not in the end be used in an RCOH and would in effect become surplus to the RCOH effort. The Navy indicated that if that were to occur, these two cores would be placed in storage for potential future use as emergency replacement cores for a Nimitz-class ship until all Nimitz-class ships complete their service lives. If CVN-75 were to not receive an RCOH and is instead be decommissioned, the savings from not funding the RCOH would be partially offset by the cost to deactivate and dismantle CVN-75. The Navy estimated the cost to deactivate and dismantle CVN-75 at about $1.5 billion. The initial increments of this approximate $1.5-billion cost would have occurred in FY2023 ($130.3 million) and FY2024 ($247.2 million). The estimated net savings from not funding the RCOH and instead deactivating and dismantling the ship would thus have been about $4.1 billion (i.e., about $5.6 billion less about $1.5 billion). The Navy stated that there would also be 20 to 25 years of additional annual savings of about $1 billion per year in the form of avoided annual operation and support (O&S) costs for CVN-75 and the deactivated carrier air wing. DOD officials reportedly wanted to redirect the estimated net RCOH-related savings of about $4.1 billion and the estimated recurring savings of about $1 billion per year to Navy investments for technologies that will add to future Navy capabilities. RCOHs are done primarily by Huntington Ingalls Industries/Newport News Shipbuilding (HII/NNS) in Newport News, VA, and form a significant part of HII/NNS's business base, along with construction of new nuclear-powered aircraft carriers and construction of new nuclear-powered submarines. RCOHs in recent years have been scheduled in a more-or-less heel-to-toe fashion at HII/NNS—when one RCOH is done, the next one is scheduled to begin soon thereafter. RCOHs are done in a particular dry dock at HII/NNS, so a carrier undergoing an RCOH in that dry dock must be ready to depart the dry dock before the following carrier can be moved into the dry dock for its RCOH. Until it was withdrawn, the proposal in the Navy's FY2020 budget submission to not fund CVN-75's RCOH and instead decommission the ship (and a carrier air wing) raised a number of potential oversight issues for Congress, including the following: Compliance with congressional direction. The central purposes of 10 U.S.C. 8062(b) and 8062(e) are to act as mandates to the executive branch to support a force of not less than 11 carriers and a minimum of 9 carrier air wings in executive branch planning. They represent directions from Congress for the Navy to provide the funding needed to maintain an 11-carrier, 9-carrier-air-wing force, regardless of limitations on the Navy's overall budget or other considerations. A proposed budget from the Navy that is inconsistent with these provisions might thus be viewed as a challenge to Congress's Article 1 power to set policy and to determine the composition of federal spending (i.e., Congress's constitutional power of the purse). If DOD were to treat the requirements in 10 U.S.C. 8062(b) and 8062(e) as optional matters rather than mandates, would this create a precedent for the executive branch to treat similar provisions in the U.S. Code as optional matters rather than mandates? For example, would it create a precedent for DOD, if it so desired, to begin treating as an optional matter the long-standing requirement in 10 U.S.C. 8063(a) that the Marine Corps "shall be so organized as to include not less than three combat divisions and three air wings, and such other land combat, aviation, and other services as may be organic therein?" If the executive branch were to begin treating statutory provisions like 10 U.S.C. 8062(b) and 8062(e) as optional matters rather than mandates, what implications might this have for policy and program execution, for Congress's power to legislatively establish policy and program goals, and for Congress's power of the purse? Alternative capabilities to be funded ; net impact on Navy capabilities . What were OSD's plans for redirecting the savings associated with deactivating CVN-75 and a carrier air wing around FY2024? What types of capabilities would have been created or maintained by these redirected funds? How would these capabilities compare in nature and timing to the capabilities that are to be provided by the continued operation of CVN-75 and the carrier air wing? Taking these factors into account, what would have been the net operational impact for the Navy of deactivating CVN-75 and a carrier air wing around FY2024 and redirecting the resulting savings toward these other investments? Requirement for 12-carrier force. The Navy's 2016 Force Structure Assessment (FSA) led to a Navy force-level requirement for a fleet of 355 ships that includes 12 aircraft carriers. OSD allowed the Navy to present that FSA to the Congress, and to program shipbuilding and other actions in support of achieving the 355-ship force-level goal. OSD did not publicly object to the FSA's 12-carrier requirement (or any other part of the 355-ship force-level goal). What was the analytical basis for an action that would reduce the size of the carrier from 11 to 10, instead of helping it to eventually increase from 11 to 12? Next Force Structure Assessment (FSA). The Navy states that it is currently conducting a new FSA as the successor to the 2016 FSA, and that this new FSA is to be completed by the end of 2019. This new FSA could change the 355-ship figure, the planned mix of ships, or both. Did the Navy's proposal to not fund the CVN-75 RCOH, and thereby reduce the carrier force from 11 ships to 10 ships, prejudge the outcome of the new FSA? Would the new FSA be tainted by the knowledge that the Navy had already proposed reducing the carrier force to 10 ships? How well could the analysts performing the new FSA have avoided being influenced by the Navy's proposed action? Was the Navy prepared to go ahead with the CVN-75 RCOH if the new FSA concludes that there is a requirement for 11 or more carriers? Likelihood of need for emergency replacement cores. How likely was it that the Nimitz-class program would need to use an emergency replacement set of fuel cores during the remainder of the Nimitz-class life cycle? What set of circumstances might lead to a need for an emergency replacement set of fuel cores? How often have such circumstances previously arisen for a nuclear-powered U.S. Navy ship whose fuel cores are intended to be sufficient for powering the ship for at least one-half of its expected service life? Given the assessed likelihood of the Nimitz-class program needing to use an emergency replacement set of fuel cores during the remainder of the Nimitz-class life cycle, what would have been the government's resulting return on investment of the several hundred million dollars used to procure the two fuel cores that would be placed in storage? Acting Secretary of Defense. The proposal to not fund the CVN-75 RCOH and to deactivate a carrier air wing represented a notable change from prior DOD force-structure planning and budgeting. Was it appropriate for such a change to be proposed by DOD during a time when DOD has an acting Secretary of Defense rather than a Secretary who was confirmed specifically for that position? Impact on industrial base and cost of other work. What would have been the impact on HII/NNS and the other parts of the aircraft carrier industrial base if CVN-75 were inactivated rather than given an RCOH? What impact, if any, would this have had on the cost of other work performed at HII/NNS and other parts of the aircraft carrier industrial base during these years, and on the eventual cost of the CVN-76 RCOH? For further reference, it can be noted that the Navy's FY2015 budget submission proposed not funding the RCOH for the aircraft carrier CVN-73 ( George Washington ). The proposal raised oversight issues for Congress broadly similar to those listed above. Congress, in acting on the Navy's proposed FY2015 budget, rejected the proposal to not fund CVN-73's RCOH. The RCOH was funded and is currently underway. Appendix B. Background Information on Two-Ship Block Buy for CVN-80 and CVN-81 This appendix presents additional background information on the two-ship block buy contract for CVN-80 and CVN-81. The option for procuring two CVN-78 class carriers under a two-ship block buy contract had been discussed in this CRS report since April 2012. In earlier years, the discussion focused on the option of using a block buy contract for procuring CVN-79 and CVN-80. In more recent years, interest among policymakers focused on the option of using a block buy contract for procuring CVN-80 and CVN-81. On March 19, 2018, the Navy released a request for proposal (RFP) to Huntington Ingalls Industries/Newport News Shipbuilding (HII/NNS) regarding a two-ship buy of some kind for CVN-80 and CVN-81. A March 20, 2018, Navy News Service report stated the following: The Navy released a CVN 80/81 two-ship buy Request for Proposal (RFP) to Huntington Ingalls Industries—Newport News Shipbuilding (HII-NNS) March 19 to further define the cost savings achievable with a two-ship buy. With lethality and affordability a top priority, the Navy has been working with HII-NNS over the last several months to estimate the total savings associated with procuring CVN 80 and CVN 81 as a two-ship buy. "In keeping with the National Defense Strategy, the Navy developed an acquisition strategy to combine the CVN 80 and CVN 81 procurements to better achieve the Department's objectives of building a more lethal force with greater performance and affordability," said James F. Geurts, Assistant Secretary of the Navy, Research Development and Acquisition. "This opportunity for a two-ship contract is dependent on significant savings that the shipbuilding industry and government must demonstrate. The Navy is requesting a proposal from HII-NNS in order to evaluate whether we can achieve significant savings." The two-ship buy is a contracting strategy the Navy has effectively used in the 1980s to procure Nimitz-class aircraft carriers and achieved significant acquisition cost savings compared to contracting for the ships individually. While the CVN 80/81 two-ship buy negotiations transpire, the Navy is pursuing contracting actions necessary to continue CVN 80 fabrication in fiscal year (FY) 2018 and preserve the current schedule. The Navy plans to award the CVN 80 construction contract in early FY 2019 as a two-ship buy pending Congressional approval and achieving significant savings. Section 121(a)(2) of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 ( H.R. 5515 / P.L. 115-232 of August 13, 2018) permitted the Navy, after the Department of Defense (DOD) made certain certifications to Congress, to add CVN-81 to the existing contract for building CVN-80. DOD provided the required certification on December 31, 2018. On January 31, 2019, the Navy announced that it had awarded a two-ship fixed-price incentive (firm target) (FPIF) contract for CVN-80 and CVN-81 to HII/NNS. The two-ship contract for CVN-80 and CVN-81 can be viewed as a block buy contract because the two ships are being procured in different fiscal years (CVN-80 was procured in FY2018 and CVN-81 is shown in the Navy's FY2020 budget submission as a ship procured in FY2020). The Navy's previous two-ship aircraft carrier procurements occurred in FY1983 (for CVN-72 and CVN-73) and FY1988 (for CVN-74 and CVN-75). In each of those two earlier cases, however, the two ships were fully funded within a single fiscal year, making each of these cases a simple two-ship purchase (akin, for example, to procuring two Virginia-class attack submarines or two DDG-51 class destroyers in a given fiscal year) rather than a two-ship block buy (i.e., a contract spanning the procurement of end items procured across more than one fiscal year). Compared to DOD's estimate that the two-ship block buy contract for CVN-80 and CVN-81 would produce savings of $3.9 billion (as measured from estimated costs for the two ships in the December 2017 Navy business case analysis), DOD states that "the Department of Defense's Office of Cost Assessment and Program Evaluation (CAPE) developed an Independent Estimate of Savings for the two-ship procurement and forecast savings of $3.1 billion ([in] Then-Year [dollars]), or approximately 11 percent.... The primary differences between [the] CAPE and Navy estimates of savings are in Government Furnished Equipment and production change orders." Within the total estimated combined reduction in cost, HII/NNS reportedly expects to save up to $1.6 billion in contractor-furnished equipment. A November 2018 DOD report to Congress that was submitted as an attachment to DOD's December 31, 2018, certification stated the following regarding the sources of cost reduction for the two-ship contract: The CVN 80 and CVN 81 two-ship buy expands and improves upon the affordability initiatives identified in the Annual Report on Cost Reduction Efforts for JOHN F. KENNEDY (CVN 79) and ENTERPRISE (CVN 80) as required by section 126(c) of the National Defense Authorization Act for Fiscal Year 2017 ( P.L. 114-328 ). Production saving initiatives for single-ship buys included use of unit families in construction, pre-outfitting and complex assemblies which move work to a more efficient workspace environment, reduction in the number of superlifts, and facility investments which improve the shipbuilder trade effectiveness. A two-ship buy assumes four years between ship deliveries which allows more schedule overlap, and therefore more shop-level and assembly-level production efficiencies than two single-ship buys. Procuring two ships to a single technical baseline reduces the requirement for engineering labor hours when compared to single-ship estimates. The ability to rollover production support engineering and planning products maximizes savings while recognizing the minimum amount of engineering labor necessary to address obsolescence and regulatory changes on CVN 81. The two-ship agreement with the shipbuilder achieves a 55 percent reduction in construction support engineering hours on CVN 81 and greater than 18 percent reduction in production support and planning hours compared to single ship procurements. The two-ship procurement strategy allows for serial production opportunities that promote tangible learning and reduced shop and machine set-up times. It allows for efficient use of production facilities, re-use of production jigs and fixtures, and level loading of key trades. The continuity of work allows for reductions in supervision, services and support costs. The result of these efficiencies is a production man-hours step down that is equivalent to an 82 percent learning curve since CVN 79. Key to achieving these production efficiencies is Integrated Digital Shipbuilding (iDS). The Navy's Research, Development, Test, and Evaluation (RDT&E) and the shipbuilder's investment in iDS, totaling $631 million, will reduce the amount of production effort required to build FORD Class carriers. The two-ship buy will accelerate the benefits of this approach. The ability to immediately use the capability on CVN 81 would lead to a further reduction in touch labor and services in affected value streams. The two-ship agreement with the shipbuilder represents a production man-hours reduction of over seven percent based on iDS efficiencies. Contractual authority for two ships allows the shipbuilder to maximize economic order quantity material procurement. This allows more efficient ordering and scheduling of material deliveries and will promote efficiencies through earlier ordering, single negotiations, vendor quotes, and cross program purchase orders. These efficiencies are expected to reduce material costs by about six percent more when compared to single-ship estimates. Improved material management and flexibility will prevent costly production delays. Furthermore, this provides stability within the nuclear industrial base, de-risking the COLUMBIA and VIRGINIA Class programs. The two-ship buy would provide economic stability to approximately 130,000 workers across 46 States within the industrial base. Change order requirements are likewise reduced as Government Furnished Equipment (GFE) providers will employ planning and procurement strategies based on the common technical baseline that minimize configuration changes that must be incorporated on the follow ship. Change order budget allocations have been reduced over 25 percent based on two-ship strategies. In addition to the discrete savings achieved with the shipbuilder, the two-ship procurement authority provides our partner GFE providers a similar opportunity to negotiate economic order quantity savings and achieve cross program savings when compared to single-ship estimates. An April 16, 2018, press report stated the following: If the Navy decides to buy aircraft carriers CVN-80 and 81 together, Newport News Shipbuilding will be able to maintain a steady workload that supports between 23,000 and 25,000 workers at the Virginia yard for the next decade or so, the shipyard president told reporters last week. Part of the appeal of buying the two carriers together is that the Navy would also buy them a bit closer together: the ships would be centered about three-and-a-half or four years apart, instead of the five-year centers for recent carrier acquisition, Newport News Shipbuilding President Jennifer Boykin told reporters. Boykin said the closer ship construction centers would allow her to avoid a "labor valley" where the workforce levels would dip down after one ship and then have to come back up, which is disruptive for employees and costly for the company. If this two-carrier buy goes through, the company would avoid the labor valley altogether and ensure stability in its workforce, Boykin said in a company media briefing at the Navy League's Sea Air Space 2018 symposium. That workforce stability contributes to an expected $1.6 billion in savings on the two-carrier buy from Newport News Shipbuilding's portion of the work alone, not including government-furnished equipment.... Boykin said four main things contribute to the expected $1.6 billion in savings from the two-carrier buy. First, "if you don't have the workforce valley, there's a labor efficiency that represents savings." Second, "if you buy two at once, my engineering team doesn't have to produce two technical baselines, two sets of technical products; they only have to produce one, and the applicability is to both, so there's savings there. When we come through the planning, the build plan of how we plan to build the ship, the planning organization only has to put out one plan and the applicability is to both, so there's savings there." The third savings is a value of money over time issue, she said, and fourth is economic order quantity savings throughout the entire supply chain. Discussions of the option of using a block buy contract for procuring carriers have focused on using it to procure two carriers in part because carriers have been procured on five-year centers, meaning that two carriers could be included in a block-buy contract spanning six years—the same number of years originally planned for the two block buy contracts that were used to procure mnay of the Navy's Littoral Combat Ships. It can be noted, however, that there is no statutory limit on the number of years that a block buy contract can cover, and that the LCS block buy contracts were subsequently amended to cover LCSs procured in a seventh year. This, and the possibility of procuring carriers on 3- or 3.5-year centers, raises the possibility of using a block buy contract to procure three aircraft carriers: For example, if procurement of aircraft carriers were shifted to 3- or 3.5-year centers, a block buy contract for procuring CVN-80, CVN-81, and CVN-82 could span seven years (with the first ship procured in FY2018, and the third ship procured in FY2024) or eight years (with the first ship procured in FY2018 and the third ship procured in FY2025). The percentage cost reduction possible under a three-ship block buy contract could be greater than that possible under a two-ship block buy contract, but the offsetting issue of reducing congressional flexibility for changing aircraft carrier procurement plans in coming years in response to changing strategic or budgetary circumstances could also be greater. Appendix C. Cost Growth and Managing Costs Within Program Cost Caps This appendix presents additional background information on cost growth in the CVN-78 program, Navy efforts to stem that growth, and Navy efforts to manage costs so as to stay within the program's cost caps. October 2018 CBO Report An October 2018 CBO report on the potential cost of the Navy's 30-year shipbuilding plan states the following regarding the CVN-78 program: The Navy's current estimate of the total cost of the Gerald R. Ford , the lead ship of the CVN-78 class, is $13.0 billion in nominal dollars appropriated over the period from 2001 to 2018, an amount that is equal to the cost cap set in law. CBO used the Navy's inflation index for naval shipbuilding to convert that figure to $15.5 billion in 2018 dollars, or 23 percent more than the corresponding estimate when the ship was first authorized in 2008. Neither the Navy's nor CBO's estimate includes the $5 billion in research and development costs that apply to the entire class. Because construction of the lead ship is finished, CBO used the Navy's estimate for that ship to estimate the cost of successive ships in the class. But not all of the cost risk has been eliminated; in particular, the ship's power systems and advanced arresting gear (the system used to recover fixed-wing aircraft landing on the ship) are not yet working properly. It is not clear how much those problems will cost to fix, but current Navy estimates suggest that it will be several tens of millions of dollars or more. CBO does not have enough information to estimate those final repair costs. The next carrier after the CVN-78 will be the CVN-79, the John F. Kennedy . Funding for that ship began in 2007, the Congress officially authorized its construction in 2013, and the planned appropriations for it were completed in 2018. The shipbuilder expects to complete construction of the CVN-79 in 2024 and deploy it for the first time in 2026. The Navy estimates that the ship will cost $11.3 billion in nominal dollars (or $11.6 billion in 2018 dollars). The Navy's selected acquisition report on the CVN-79 states that "the Navy and shipbuilder have made fundamental changes in the manner in which the CVN 79 will be built to incorporate lessons learned from CVN 78 and eliminate the key contributors to cost performance challenges realized in the construction of CVN 78." Nevertheless, the Navy informed CBO that there is a greater than 60 percent chance that the ship's final cost will be more than the current estimate. Although CBO expects the Navy to achieve a considerable cost reduction in the CVN-79 compared with the CVN-78, as is typical with the second ship of a class, CBO's estimate is higher than the Navy's. Specifically, CBO estimates that the ship will cost $11.7 billion in nominal dollars (or $12.0 billion in 2018 dollars), about 4 percent more than the Navy's estimate. In 2018, the Congress authorized the third carrier of the class, the Enterprise (CVN-80). Appropriations for that ship began in 2016 and are expected to be complete by 2023. The Navy estimates that the ship will cost $12.6 billion in nominal dollars (or $11.5 billion in 2018 dollars). However, as with CVN-79, the Navy told CBO that there is a greater than 60 percent chance that the ship's final cost will be more than the current estimate. CBO estimates that the ship will cost $13.0 billion in nominal dollars (or $11.8 billion in 2018 dollars), about 3 percent more than the Navy's estimate. The Navy estimates an average cost of $12.4 billion (in 2018 dollars) for the 7 carriers (CVN-81 through CVN-87) in the 2019 shipbuilding plan. CBO's estimate is $12.8 billion per ship.... The gap between the estimates has narrowed since the 2017 plan: The Navy's has increased by $500 million per ship, and CBO's has dropped by $200 million per ship. It is not clear why the Navy's estimates increased, but CBO's estimates fell mainly because the agency projects somewhat less growth in real costs of the shipbuilding industry in future years. August 2018 Press Report An August 17, 2018, press report states the following: Huntington Ingalls Industries Inc., the sole U.S. builder of aircraft carriers, continues to fall short of the Navy's demand to cut labor expenses to stay within an $11.39 billion cost cap mandated by Congress on the second in a new class of warships. With about 47 percent of construction complete on the USS John F. Kennedy, Navy figures show the contractor isn't yet meeting the goal it negotiated with the service: reducing labor hours by 18 percent from the first carrier, the USS Gerald Ford.... It took about 49 million hours of labor to build the Ford, according to the U.S. Government Accountability Office. The Navy's goal for the Kennedy is to reduce that to about 40 million hours. Huntington Ingalls's performance "remains stable at approximately 16 percent" less, William Couch, spokesman for the Naval Sea Systems Command, said in an email. He said "key production milestones and the ship's preliminary acceptance date remain on track" and there are "ample opportunities" for improvement "with nearly four years until contract delivery and over 70 percent of assembly work" remaining on the vessel's superstructure. But the Pentagon's naval warfare division, which reports to Ellen Lord, the Defense Department's chief weapons buyer, is less sanguine. It said in a July assessment that Huntington Ingalls "is unlikely to fully recover the needed 18 percent" reduction.... On the effort to meet the 18 percent labor-hour reduction for the Kennedy, the Navy's program manager "assesses that although difficult, the shipbuilder can still attain" it, Couch said. Beci Brenton, a spokeswoman for Newport News, Virginia-based Huntington Ingalls, said "we are seeing the benefits associated with significant build strategy changes and incorporation of lessons learned" from the first vessel. Brenton said "the current production performance" is 16 percent less than the Ford's estimate at the time of contract award for the second vessel but the reduction is 17 percent when compared with the first vessel's current cost.... But Shelby Oakley, a director with the GAO who monitors Navy shipbuilding, said "with so much of the program underway, it is unlikely that the Navy will regain efficiency." In later phases of a shipbuilding contract, she said, "performance typically degrades, not improves." It's also "unclear how the lessons learned" from the first ship "could help regain efficiency when they are already baked in to the Navy's overly optimistic estimate for the program," she said. June 2018 Press Report A June 19, 2018, press report stated the following: Huntington Ingalls Industries Inc. is asking General Electric Co. to compensate it for damage caused by flawed workmanship during installation of propulsion system components on the U.S. Navy's $13 billion aircraft carrier Gerald R. Ford. The problem, which forced the most expensive U.S. warship back to port in January, has yet to be fully resolved although the carrier is once again at sea.... Huntington Ingalls, a shipbuilder based in Newport News, Virginia, "has notified the original manufacturer of the shipyard's intent to seek compensation," Naval Sea Systems Command spokesman William Couch said in an email. Beci Brenton, a spokeswoman for Huntington said, "We continue to work with appropriate stakeholders to support resolution of this situation." Perry Bradley, a spokesman for Boston-based GE, said "we're not going to comment on specifics other than to say" that "GE is working closely with" Huntington's Newport News Shipyard unit and "the U.S. Navy to resolve the issue."... The episode in January was the second failure in less than a year with a "main thrust bearing" that's part of the carrier's propulsion system. The first occurred in April 2017, during sea trials a month before the vessel's delivery. The ship has been sailing in a shakedown period to test systems and work out bugs. It's now scheduled to be ready for initial combat duty in 2022. The Navy's carrier program office said in an assessment that an inspection of the carrier's four main thrust bearings after the January failure revealed "machining errors" by GE workers at a Lynn, Massachusetts, facility during the original manufacturing as "the actual root cause." The bearing overheated, the Navy said in a March 8 memo to Congress, and "after securing the equipment to prevent damage, the ship safely returned to port." A failure review board is identifying "modifications required to preclude recurrence," it said. The bearing is one of four that transfers thrust from the ship's four propeller shafts. "The costs associated with repairing" the thrust bearings "are currently being assessed" and "this will include recovery of costs from the manufacturer of the Main Reduction Gear, General Electric (Lynn), as appropriate," the Navy said in the memo. Couch said the Navy doesn't expect similar propulsion problems with the next vessel in the class, the John F. Kennedy, because a different manufacturer made that carrier's propulsion train components. "Any propulsion train deficiencies identified" with the Ford "will be corrected and implemented" in "future ships of the class as necessary," he said. May 2018 Press Report A May 11, 2018, press report stated the following: The Navy's costliest vessel ever just got pricer, breaching a $12.9 billion cap set by Congress by $120 million, the service told lawmakers this week. The extra money for the U.S.S. Gerald R. Ford built by Huntington Ingalls Industries Inc. is needed to replace faulty propulsion components damaged in a January failure, extend the vessel's post-delivery repair phase to 12 months from the original eight months and correct deficiencies with the "Advanced Weapons Elevators" used to move munitions from deep in the ship to the deck. The elevators on the ship, designated CVN 78, need to be fixed "to preclude any effect on the safety of the ship and personnel," the Naval Sea Systems Command said in a statement to Bloomberg News on Friday. "Once the adjustment is executed, the cost for CVN 78 will stand at $13.027" billion, the Navy said. In addition to informing Congress that the spending lid has been breached, the Navy will have to let lawmakers know how it will shift funds to make up the difference. Navy officials didn't disclose the propulsion failure or elevator problems during budget hearings before Congress in recent weeks, and House and Senate lawmakers didn't ask about it.... The Ford's propulsion system and elevator flaws are separate from reliability issues on its troubled aircraft launch and recovery systems. After its delivery last May, the ship operated for 70 days and completed 747 shipboard aircraft launches and recoveries, exceeding the goal of about 400, the Navy said. None of the 11 weapons elevators are operational but at least two are being used for testing "to identify many of the remaining developmental issues for this first-of-class system," the Navy has said. The command said all 11 elevators "should have been complete and delivered with the ship delivery" in May 2017. April 2018 Press Report An April 16, 2018, press report stated the following: Huntington Ingalls Industries' Newport News Shipbuilding President Jennifer Boykin provided an update on the various stages of construction on several major Navy shipbuilding programs during the Navy League's Sea Air Space Expo last week. The future USS John F. Kennedy (CVN-79) is about 43 percent complete, with launch planned for the fourth quarter of 2019 and delivery set for 2022. Boykin said the company has achieved about 75 percent of the ship erected and they are on track for an 18 percent man-hour budget reduction. Boykin provided these updates during a press briefing at the conference. Boykin revealed that undocking of CVN-79 in the fourth quarter of 2019 will occur three months earlier than originally planned. September 2017 Press Report A September 26, 2017, press report states the following: Huntington Ingalls Industries Inc. is falling short of a U.S. Navy goal to reduce hours of labor on the second ship in the new Ford class of aircraft carriers in a drive to reduce costs, according to service documents. With 34 percent of construction complete on the USS John F. Kennedy, Huntington Ingalls estimates it will be able to reduce labor hours by 16 percent from the hours needed to construct the first vessel, the Gerald R. Ford. That's less than the 17 percent reduction reported at the end of last year and the 18 percent goal the Navy negotiated in the primary construction contract for the carrier. The "recent degradation in cost performance stems largely from the delayed availability of certain categories of material," such as pipe fittings, controllers, actuators and valves, according to the Navy's annual report on the program and updated figures obtained by Bloomberg News.... "We acknowledge that the cost reduction target for CVN-79," relative to the first carrier, "is challenging," Huntington Ingalls spokeswoman Beci Brenton said in an email, referring to the Kennedy by its Navy designation. "While it is still early in the ship's schedule, we are seeing positive results from" new initiatives to keep costs in check, she said.... Navy Secretary Richard Spencer told reporters last week that he will stay involved in monitoring the CVN-79's construction trends. "This is my personal approach—the CEO has to be involved." A close watch is required "because there are so many moving parts and so many opportunities to do things in a more efficient manner," Spencer said. The Navy has been working with the contractors "to mitigate technical risks and impacts of late material," Navy spokesman Victor Chen in an email. "The overall volume of late material items and associated impact to construction performance is declining. The Navy has hired third-party experts who are working collaboratively with the shipbuilder to identify manufacturing opportunities for efficiency gains" and to assist in implementing improvements.... The 18 percent reduction in labor hours was "quite optimistic" from the start, Michele Mackin, a Government Accountability Office director who oversees its shipbuilding assessments, said in an email. "Even based on that assumption, the $11.4 billion cost cap was unlikely to be met," she said. "If those labor-hour efficiencies are in fact not materializing, costs will go higher. Also, "with the ship being over 30 percent complete, it's unlikely the shipbuilder can get back enough efficiencies to further reduce labor hours—the more complicated work is yet to come," she said. June 2017 Navy Testimony At a June 15, 2017, hearing before the Senate Armed Services Committee on the Department of the Navy's proposed FY2018 budget, the following exchange occurred: SENATOR JOHN MCCAIN (CHAIRMAN) (continuing): Secretary Stackley, the Navy broached a cost cap for CVN-78. Do you believe that it has? SEAN STACKLEY, ACTING SECRETARY OF THE NAVY: Sir, right now our estimate for CVN-78, we're trying to hold it within the $12.887 billion number that was established several years ago. We have included a $20 million [procurement funding] request in this budget pending our determination regarding repairs that required for the... MCCAIN: Is that a breach of Nunn-McCurdy? STACKLEY: Not at this point in time, sir, we're continuing to evaluate whether that additional funding will be required. We're doing everything we can to stay within the existing cap and we'll keep Congress informed as we complete our post-delivery assessment. MCCAIN: Problem is we haven't been informed. So either you bust the cap and breach Nunn-McCurdy—Nunn-McCurdy or you notify us. You haven't done either one. STACKLEY: Sir, we've been submitting monthly reports regarding the carrier, we've alerted the concern regarding the repairs that are being required for the motor turbine generator set and we've acknowledged the risk associated with those repairs. However, what we're trying to do is not incur those costs, avoid cost by other means, and as of right now we're not ready to trip that cost cap. MCCAIN: Well, it's either not allowable or it's allowable. It's not allowable, then you take a certain course of action. If it's allowable then you're required to notify Congress. You have done neither. STACKLEY: If we need to incur those costs, they will be allowable costs. We're trying to avoid that at this stage of time, sir. MCCAIN: I agree, but we were supposed to be notified—OK. I can tell you that you are either in violation of Nunn-McCurdy or you are in violation of the requirement that we be notified. You have done neither. There's two scenarios. STACKLEY: Sir, we have not broached the cost cap. If it becomes apparent that we'll need to go above the cost cap, we will notify Congress within—within the terms that you all have established. MCCAIN: OK. Well, I'll get it to you in writing but you still haven't answered the question because when there's a $20 million cost overrun, it's either allowable and then we have to be notified in one way. If it's not allowable, Nunn-McCurdy is—is reached. But anyway, maybe you can give us a more satisfactory explanation in writing, Mr. Secretary. June 2017 GAO Report A June 2017 GAO report states the following: The cost estimate for the second Ford-Class aircraft carrier, CVN 79, is not reliable and does not address lessons learned from the performance of the lead ship, CVN 78. As a result, the estimate does not demonstrate that the program can meet its $11.4 billion cost cap. Cost growth for the lead ship was driven by challenges with technology development, design, and construction, compounded by an optimistic budget estimate. Instead of learning from the mistakes of CVN 78, the Navy developed an estimate for CVN 79 that assumes a reduction in labor hours needed to construct the ship that is unprecedented in the past 50 years of aircraft carrier construction.... After developing the program estimate, the Navy negotiated 18 percent fewer labor hours for CVN 79 than were required for CVN 78. CVN 79's estimate is optimistic compared to the labor hour reductions calculated in independent cost reviews conducted in 2015 by the Naval Center for Cost Analysis and the Office of Cost Assessment and Program Evaluation. Navy analysis shows that the CVN 79 cost estimate may not sufficiently account for program risks, with the current budget likely insufficient to complete ship construction. The Navy's current reporting mechanisms, such as budget requests and annual acquisition reports to Congress, provide limited insight into the overall Ford Class program and individual ship costs. For example, the program requests funding for each ship before that ship obtains an independent cost estimate. During an 11-year period prior to 2015, no independent cost estimate was conducted for any of the Ford class ships; however, the program received over $15 billion in funding. In addition, the program's Selected Acquisition Reports (SAR)—annual cost, status, and performance reports to Congress—provide only aggregate program cost for all three ships currently in the class, a practice that limits transparency into individual ship costs. As a result, Congress has diminished ability to oversee one of the most expensive programs in the defense portfolio. February 2016 Navy Testimony The Navy testified in 2016 that The Navy is committed to delivering the lead ship of the class, Gerald R Ford (CVN 78) within the $12.887 billion congressional cost cap. Sustained efforts to identify cost reductions and drive improved cost and schedule performance on this first-of-class aircraft carrier have resulted in highly stable cost performance since 2011. Based on lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review and the Navy and the shipbuilder have made significant changes on CVN 79 to reduce the cost to build the ship. The benefits of these changes in build strategy and resolution of first-of-class impacts experienced on CVN 78 are evident in early production labor metrics on CVN 79. These efforts are ongoing and additional process improvements continue to be identified. Alongside the Navy's efforts to reduce the cost to build CVN 79, the FY 2016 National Defense Authorization Act reduced the cost cap for follow ships in the CVN 78 class from $11,498 million to $11,398 million. To this end, the Navy has further emphasized stability in requirements, design, schedule, and budget, in order to drive further improvement to CVN 79 cost. The FY 2017 President's Budget requests funding for the most efficient build strategy for this ship and we look for Congress' full support of this request to enable CVN 79 procurement at the lowest possible cost.... ... The Navy will deliver the CVN 79 within the cost cap using a two-phased strategy wherein select ship systems and compartments that are more efficiently completed at a later stage of construction - to avoid obsolescence or to leverage competition or the use of experienced installation teams - will be scheduled for completion in the ship's second phase of production and test. Enterprise (CVN 80) began construction planning and long lead time material procurement in January 2016 and construction is scheduled to begin in 2018. The FY 2017 President's Budget request re-phases CVN 80 funding to support a more efficient production profile, critical to performance, below the cost cap. CVN 80 planning and construction will continue to leverage class lessons learned to achieve cost and risk reduction, including efforts to accelerate production work to earlier phases of construction, where work is more cost efficient. October 2015 Senate Armed Services Committee Hearing Cost growth and other issues in the CVN-78 program were reviewed at an October 1, 2015, hearing before the Senate Armed Services Committee. Below are excerpts from the prepared statements of the witnesses at the hearing. OSD ASD Testimony The prepared statement of the Assistant Secretary of Defense (Acquisition) within the Office of the Secretary of Defense (OSD) states the following in part: By 2000, the CVN(X) Acquisition Strategy that had been proposed by the Navy was an evolutionary, three-step development of the capabilities planned for the CVN. This evolutionary strategy intending to mature technology and align risk with affordability originally involved using the last ship of the CVN 68 NIMITZ Class, USS GEORGE H. W. BUSH (CVN 77), as the starting point for insertion of some near term technology improvements including information network technology and the new Dual Band Radar (DBR) system from the DD(X) (now DDG 1000) program, to create an integrated warfare system that combined the ship's combat system and air wing mission planning functions. However, the then incoming Secretary of Defense Donald Rumsfeld in 2002 directed re-examination of the CVN program, among others, to reduce the overall spend of the department and increase the speed of delivery to the warfighters. As a result of the SECDEF's direction, the Navy proposed to remove the evolutionary approach and included a new and enlarged flight deck, an increased allowance for future technologies (including electric weapons), and an additional manpower reduction of 500 to 800 fewer sailors to operate. On December 12, 2002, a Program Decision Memorandum approved by then Deputy Secretary of Defense Paul Wolfowitz codified this Navy proposal and gave this direction back to the DOD enterprise. The ship was renamed the CVN-21 to highlight these changes. By Milestone B in April 2004, the Navy had evaluated the technologies intended for three ships, removed some of them, and consolidated the remaining ones into a single step of capability improvement on the lead ship. The new plan acknowledged technological, cost, and schedule challenges were being put on a single ship, but assessed this was achievable. The Acting USD AT&L (Michael Wynne) at that milestone also directed the Navy to use a hybrid of the Service Cost Position and Independent Cost Estimate (ICE) to baseline the program funding in lieu of the ICE, (although one can easily argue even the ICE was optimistic given these imposed circumstances). By 2004, DOD and Congressional leadership had lost confidence in the acquisition system, and Deputy Secretary of Defense Gordon England established the Defense Acquisition Performance Assessment (DAPA) panel to conduct a sweeping and integrated assessment of "every aspect" of acquisition. The result was the discovery that the Industrial Base had consolidated, that excessive oversight and complex acquisition processes were cost and schedule drivers, and a focus on requirements stability was key to containing costs. From this, a review of the requirements of the CVN resulted in a revised and solidified "single ship" Operational Requirements Document (ORD) for the FORD Class as defined today, with the CVN 78 as lead ship. On the heels of a delay because of the budgetary constraints in 2006, the start of the construction of CVN 78 was delayed until 2008, but the schedule for delivery was held constant, further compounding risks and costs. The Navy's testimony covers these technical and schedule risks and concurrency challenges well. By 2009, this Committee had issued a floor statement in support of the Weapon Systems Acquisition Reform Act (WSARA). Congress was now united in its pursuit of acquisition reform and, in concert, USD AT&L re-issued and updated the Department of Defense's acquisition instruction (DoDI 5000.2) in 2008. WSARA included strengthening of the 'Nunn-McCurdy" process with requires DOD to report to Congress when cost growth on a major program breaches a critical cost growth threshold. This legislation required a root-cause assessment of the program and assumed program termination within 60 days of notification unless DOD certified in writing that the program remained essential to national security. WSARA had real impact on the CVN 78, as by 2008 and 2009 the results of all the previous decisions were instantiated in growth of cost and schedule. Then USD AT&L John Young required the Navy to provide a list of descoping efforts and directed the Navy to have an off-ramp back to steam catapults if the Electromagnetic Aircraft Launching System (EMALS) remained a problem for the program. He also directed an independent review of all of the CVN 78 technologies by a Defense Support Team (DST). Prior to the DST, the Navy had chartered a Program Assessment Review (PAR) with USD (AT&L) participation of EMALS/Advanced Arresting Gear (AAG) versus steam. One of the key PAR findings was converting the EMALS and AAG production contracts to firm, fixed price contracts to cap cost growth and imposed negative incentives for late delivery. The Dual Band Radar (DBR) cost and risk growth was a decision by-product of the DDG 1000 program Nunn-McCurdy critical unit cost breach in 2010. Faced with a need to reduce cost on the DDG 1000 program and the resultant curtailment of the program, the expectation of development costs being borne by the DDG 1000 program was no longer the case and all of the costs associated with the S-band element development and a higher share of the X-band element then had to be supported by the CVN 78 program. The design problems encountered with AAG development have had the most deleterious effects on CVN 78 construction of any of the three major advanced technologies including EMALS and DBR. Our view of AAG is that these engineering design problems are now in the past and although delivery of several critical components have been delayed, the system will achieve its needed capabilities before undergoing final operational testing prior to deployment of the ship. Again, reliability growth is a concern, but this cannot be improved until a fully functional system is installed and operating at the Lakehurst, New Jersey land based test site, and on board CVN 78. With the 2010 introduction by then USD AT&L Ashton Carter (now in its third iteration by under USD AT&L Frank Kendall) of the continuous process improvement initiative that was founded in best business practices and WSARA called "Better Buying Power," the CVN underwent affordability, "Should Cost," and requirements assessment. Navy's use of the "Gate" process has stabilized the cost growth and reset good business practices. However, there is still much to do. We are in the testing phase of program execution prior to deployment and we had been concerned about the timing of the Full Ship Shock Trial (FSST). After balancing the operational and technical risks, the Department decided to execute FSST on CVN 78 prior to deployment. EMALS and AAG are also a concern with regard to final operational testing stemming from the development difficulties that each experienced. The Navy still needs to complete a significant amount of land-based testing to enable certification of the systems to launch and recover the full range of aircraft that it is required to operate under both normal and emergency conditions. This land-based testing is planned to complete before the final at-sea operational testing for these systems begins.... USD AT&L continues to work with Navy to tailor the program and ensure appropriate oversight at both the Navy Staff level as well as OSD. Our review of the Navy's plan for maintaining control of the cost for CVN 79 included an understanding of the application of lessons learned from the construction of CVN 78 along with the application of a more efficient construction plan for the ship including introduction of competition where possible. We have established an excellent relationship with the Navy to work together to change process and policies that have impacted the ability of the program to succeed, to include revitalizing the acquisition workforce and their skills. We are confident in the Navy's plan for CVN 79 and CVN 80 and, as such, Under Secretary Kendall recently authorized the Navy to enter into the detail design and construction phase for CVN 79 and to enter into advanced procurement for long lead time materials for CVN 80 construction. OSD and the Navy are committed to delivering CVN 79 within the limits of the cost cap legislated for this ship. OSD DOT&E Testimony The prepared statement of the Director, Operational Test & Evaluation (DOT&E), within OSD states the following in part: The Navy intends to deliver CVN 78 early in calendar year 2016, and to begin initial operational test and evaluation (IOT&E) in late calendar year 2017. However, the Navy is in the process of developing a new schedule, so some dates may change. Based on the current schedule, between now and the beginning of IOT&E, the CVN 78 program is proceeding on an aggressive schedule to finish development, testing, troubleshooting, and correction of deficiencies for a number of new, complex systems critical to the warfighting capabilities of the ship. Low or unknown reliability and performance of the Advanced Arresting Gear (AAG), the Electromagnetic Aircraft Launch System (EMALS), the Dual Band Radar (DBR), and the Advanced Weapons Elevators (AWE) are significant risks to a successful IOT&E and first deployment, as well as to achieving the life-cycle cost reductions the Navy has estimated will accrue for the Ford-class carriers. The maturity of these systems is generally not at the level that would be desired at this stage in the program; for example, the CVN 78 test program is revealing problems with the DBR typical of discoveries in early developmental testing. Nonetheless, AAG, EMALS, DBR, and AWE equipment is being installed on CVN 78, and in some cases, is undergoing shipboard checkout. Consequently, any significant issues that testing discovers before CVN 78's schedule-driven IOT&E and deployment will be difficult, or perhaps impossible, to address. Resolving the uncertainties in the reliability and performance of these systems is critical to CVN 78's primary function of conducting combat operations. CVN 78 has design features intended to enhance its ability to launch, recover, and service aircraft. EMALS and AAG are key systems planned to provide new capabilities for launching and recovering aircraft that are heavier and lighter than typically operated on Nimitz-class carriers. DBR is intended to enhance radar coverage on CVN 78 in support of air traffic control and ship self-defense. DBR is planned to reduce some of the known sensor limitations on Nimitz-class carriers that utilize legacy radars. The data currently available to my office indicate EMALS is unlikely to achieve the Navy's reliability requirements. (The Navy indicates EMALS reliability is above its current growth curve, which is true; however, that growth curve was revised in 2013, based on poor demonstrated performance, to achieve EMALS reliability on CVN 78 a factor of 15 below the Navy's goal.) I have no current data regarding DBR or AWE reliability, and data regarding the reliability of the re-designed AAG are also not available. (Poor AAG reliability in developmental testing led to the need to re-design components of that system.) In addition, performance problems with these systems are continuing to be discovered. If the current schedule for conducting the ship's IOT&E and first deployment remain unchanged, reliability and performance shortfalls could degrade CVN 78's ability to conduct flight operations. Due to known problems with current aircraft carrier combat systems, there is significant risk CVN 78 will not achieve its self-defense requirements. Although the CVN 78 design incorporates several combat system improvements relative to the Nimitz-class, these improvements (if achieved) are unlikely to correct all of the known shortfalls. Testing on other ships with similar combat systems has highlighted deficiencies in weapon employment timelines, sensor coverage, system track management, and deficiencies with the recommended engagement tactics. Most of these limitations are likely to affect CVN 78 and I continue to view this as a significant risk to the CVN 78's ability to defend itself against attacks by the challenging anti-ship cruise missile and other threats proliferating worldwide. The Navy's previous decision to renege on its original commitment to conduct the Full Ship Shock Trial (FSST) on CVN 78 before her first deployment would have put CVN 78 at risk in combat operations. This decision was reversed in August 2015 by the Deputy Secretary of Defense. Historically, FSSTs for new ship classes have identified for the first time numerous mission-critical failures the Navy had to address to ensure the new ships were survivable in combat. We can expect that CVN 78's FSST results will have significant and substantial implications on future carriers in the Ford-class and any subsequent new class of carriers. I also have concerns with manning and berthing on CVN 78. The Navy designed CVN 78 to have reduced manning to reduce life-cycle costs, but Navy analyses of manning on CVN 78 have identified problems in manning and berthing. These problems are similar to those seen on other recent ship classes such as DDG 1000 and the Littoral Combat Ship (LCS).... There are significant risks to the successful completion of the CVN 78 IOT&E and the ship's subsequent deployment due to known performance problems and the low or unknown reliability of key systems. For AAG, EMALS, AWE and DBR, systems that are essential to the primary missions of the ship, these problems, if uncorrected, are likely to affect CVN 78's ability to conduct effective flight operations and to defend itself in combat. The CVN 78 test schedule leaves little or no time to fix problems discovered in developmental testing before IOT&E begins that could cause program delays. In the current program schedule, major developmental test events overlap IOT&E. This overlap increases the likelihood problems will be discovered during CVN 78's IOT&E, with the attendant risk to the successful completion of that testing and to the ship's first deployment. The inevitable lessons we will learn from the CVN 78 FSST will have significant implications for CVN 78 combat operations, as well as for the construction of future carriers incorporating the ship's advanced systems; therefore, the FSST should be conducted on CVN 78 as soon as it is feasible to do so. Navy Testimony The prepared statement of the Navy witnesses at the hearing states the following in part: In June 2000, the Department of Defense (DOD) approved a three-ship evolutionary acquisition approach starting with the last NIMITZ Class carrier (CVN 77) and the next two carriers CVNX1 (later CVN 78) and CVNX2 (later CVN 79). This approach recognized the significant risk of concurrently developing and integrating new technologies into a new ship design incrementally as follows: • The design focus for the evolutionary CVN 77 was to combine information network technology with a new suite of multifunction radars from the DDG 1000 program to transform the ship's combat systems and the air wing's mission planning process into an integrated warfare system. • The design focus for the evolutionary CVNX1 (future CVN 78) was a new Hull, Mechanical and Electrical (HM&E) architecture within a NIMITZ Class hull that included a new reactor plant design, increased electrical generating capacity, new zonal electrical distribution, and new electrical systems to replace steam auxiliaries under a redesigned flight deck employing new Electromagnetic Aircraft Launch System (EMALS) catapults together with aircraft ordnance and fueling "pit-stops". Design goals for achieving reduced manning and improved maintainability were also defined. • The design focus for the evolutionary CVNX2 (future CVN 79) was a potential "clean-sheet" design to "open the aperture" for capturing new but immature technologies such as the Advanced Arresting Gear (AAG) and Advanced Weapons Elevators (AWE) that would be ready in time for the third ship in the series; and thereby permit the experience gained from design and construction of the first two ships (CVN 77 and CVN 78) to be applied to the third ship (CVN 79). Early in the last decade, however, a significant push was made within DOD for a more transformational approach to delivering warfighting capability. As a result, in 2002, DOD altered the program acquisition strategy by transitioning to the new aircraft carrier class in a single transformational leap vice an incremental three ship strategy. Under the revised strategy, CVN 77 reverted back to a "modified-repeat" NIMITZ Class design to minimize risk and construction costs, while delaying the integrated warfare system to CVN 78. Further, due to budget constraints, CVN 78 would start construction a year later (in 2007) with a NIMITZ Class hull form but would entail a major re-design to accommodate all the new technologies from the three ship evolutionary technology insertion plan. This leap ahead in a single ship was captured in a revised Operational Requirements Document (ORD) in 2004, which defined a new baseline that is the FORD Class today, with CVN 78 as the lead ship. The program entered system development and demonstration, containing the shift to a single ship acquisition strategy. The start of CVN 78 construction was then delayed by an additional year until 2008 due to budget constraints. As a result, the traditional serial evolution of technology development, ship concept design, detail design, and construction – including a total of 23 developmental systems incorporating new technologies originally planned across CVN 77, CVNX1, CVNX2 - were compressed and overlapped within the program baseline for the CVN 78. Today, the Navy is confronting the impacts of this compression and concurrency, as well as changes to assumptions made in the program planning more than a decade ago.... Given the lengthy design, development, and build span associated with major warships, there is a certain amount of overlap or concurrency that occurs between the development of new systems to be delivered with the first ship, the design information for those new systems, and actual construction. Since this overlap poses cost and schedule risk for the lead ship of the class, program management activities are directed at mitigating this overlap to the maximum extent practicable. In the case of the FORD Class, the incorporation of 23 developmental systems at various levels of technical maturity (including EMALS, AAG, DBR, AWE, new propulsion plant, integrated control systems) significantly compounded the inherent challenges associated with accomplishing the first new aircraft carrier design in 40-years. The cumulative impact of this high degree of concurrency significantly exceeded the risk attributed to any single new system or risk issue and ultimately manifested itself in terms of delay and cost growth in each element of program execution; development, design, material procurement (government and contractor), and construction.... Shipbuilder actions to resolve first-of-class issues retired much of the schedule risks to launch, but at an unstable cost. First-of-class construction and material delays led the Navy to revise the launch date in March 2013 from July 2013 to November 2013. Nevertheless, the four-month delay in launch allowed increased outfitting and ship construction that were most economically done prior to ship launch, such as completion of blasting and coating operations for all tanks and voids, installation of the six DBR arrays, and increased installations of cable piping, ventilation, electrical boxes, bulkheads and equipment foundations. As a result, CVN 78 launched at 70 percent complete and 77,000 tons displacement – the highest levels yet achieved in aircraft carrier construction. This high state of completion at launch enabled improved outfitting, compartment completion, an efficient transition into the shipboard test program, and the on-time completion of key milestones such as crew move aboard. With the advent of the shipboard test program, first time energization and grooming of new systems have required more time than originally planned. As a result, the Navy expects the sea trial schedule to be delayed about six to eight weeks. The exact impact on ship delivery will be determined based on the results of these trials. The Navy expects no schedule delays to CVN 78 operational testing and deployability due to the sea trials delay and is managing schedule delays within the $12.887 billion cost cap. Additionally, at delivery, AAG will not have completed its shipboard test program. The program has not been able to fully mitigate the effect of a two-year delay in AAG equipment deliveries to the ship. All AAG equipment has been delivered to the ship and will be fully installed on CVN 78 at delivery. The AAG shipboard test and certification program will complete in time to support aircraft launch and recovery operations in summer 2016.... The Navy, in coordination with the shipbuilder and major component providers, implemented a series of actions and initiatives in the management and oversight of CVN 78 that crossed the full span of contracting, design, material procurement, GFE, production planning, production management and oversight. The Secretary of the Navy directed a detailed review of the CVN 78 program build plan to improve end-to-end aircraft carrier design, material procurement, production planning, build and test, the results of which are providing benefit across all carriers. These corrective measures include: • CVN 78 design was converted from a 'level of effort, fixed fee' contract to a completion contract with a firm target and incentive fee. Shipbuilder cost performance has been on-target or better since this contract change. • CVN 78 construction fee was reduced, consistent with contract provisions. However, the shipbuilder remains incentivized by the contract shareline to improve upon current cost performance. • Contract design changes are under strict control; authorized only for safety, damage control, and mission-degrading deficiencies. • Following a detailed "Nunn-McCurdy-like" review in 2008-2009, the Navy converted the EMALS and AAG production contract to a firm, fixed price contract, capping cost growth to each system. • In 2011, Naval Sea Systems Command completed a review of carrier specifications with the shipbuilder, removing or improving upon overly burdensome or unneeded specifications that impose unnecessary cost on the program. Periodic reviews continue. Much of the impact to cost performance was attributable to shipbuilder and government material cost overruns. The Navy and shipbuilder have made significant improvements upon material ordering and delivery to the shipyard to mitigate the significant impact of material delays on production performance. These actions include: • The Navy and shipbuilder instituted optimal material procurement strategies and best practices (structuring procurements to achieve quantity discounts, dual-sourcing to improve schedule performance and leveraging competitive opportunities) from outside supply chain management experts. • The shipbuilder assigned engineering and material sourcing personnel to each of their key vendors to expedite component qualifications and delivery to the shipyard. • The shipbuilder inventoried all excess material procured on CVN 78 for transfer to CVN 79. • The Program Executive Officer (Carriers) has conducted quarterly Flag-level GFE summits to drive cost reduction opportunities and ensure on-time delivery of required equipment and design information to the shipbuilder. The CVN 78 build plan, consistent with the NIMITZ Class, had focused foremost on completion of structural and critical path work to support launching the ship on-schedule. Achieving the program's cost improvement targets required that CVN 78 increase its level of completion at launch, from 60 percent to 70 percent. To achieve this and drive greater focus on system completion: • The Navy fostered a collaborative build process review by the shipbuilder with other Tier 1 private shipyards in order to benchmark its performance and identify fundamental changes that are yielding marked improvement. • The shipbuilder established specific launch metrics by system and increased staffing for waterfront engineering and material expediters to support meeting those metrics. This ultimately delayed launch, but drove up pre-outfitting to the highest levels for CVN new construction which has helped stabilize cost and improve test program and compartment completion performance relative to CVN 77. • The shipbuilder linked all of these processes within a detailed integrated master schedule that has provided greater visibility to performance and greater ability to control cost and schedule performance across the shipbuilding disciplines. These initiatives, which summarize a more detailed list of actions being implemented and tracked as a result of the end-to-end review, were accompanied by important management changes. • In 2011, the Navy assigned a second tour Flag Officer with considerable carrier operations, construction, and program management experience as the new Program Executive Officer (PEO). • The new PEO established a separate Program Office, PMS 379, to focus exclusively on CVN 79 and CVN 80, which enables the lead ship Program Office, PMS 378, to focus on cost control, schedule performance and the delivery of CVN 78. • In 2012, the shipbuilder assigned a new Vice President in charge of CVN 78, a new Vice President in charge of material management and purchasing, and a number of new general ship foremen to strengthen CVN 78 performance. • The new PEO and shipyard president began conducting bi-weekly launch readiness reviews focused on cost performance, critical path issues and accomplishment of the targets for launch completion. These bi-weekly reviews will continue through delivery. • Assistant Secretary of the Navy (Research, Development, and Acquisition) (ASN (RD&A)) conducts quarterly reviews of program progress and performance with the PEO and shipbuilder to ensure that all that can be done to improve on cost performance is being done. The series of actions taken by the Navy and the shipbuilder are achieving the desired effect of arresting cost growth, establishing stability, and have resulted in no changes in the Government's estimate at completion over the past four years. The Department of the Navy is continuing efforts to identify cost reductions, drive improved cost and schedule performance, and manage change. The Navy has established a rigorous process with the shipbuilder that analyzes each contract change request to approve only those change categories allowed within the 2010 ASN(RD&A) change order management guidance. This guidance only allows changes for safety, contractual defects, testing and trial deficiencies, statutory and regulatory changes that are accompanied by funding and value engineering change proposals with instant contract savings. While the historical average for contractual change level is approximately 10 percent of the construction cost for the lead ship of a new class, CVN 78 has maintained a change order budget of less than four percent to date despite the high degree of concurrent design and development. Finally, the Navy has identified certain areas of the ship whose completion is not required for delivery, such as berthing spaces for the aviation detachment, and has removed this work from the shipbuilder's contract. This deferred work will be completed within the ship's budgeted end cost and is included within the $12,887 million cost estimate. By performing this deferred work in the post-delivery period using CVN 78 end cost funding, it can be competed and accomplished at lower cost and risk to the overall ship delivery schedule.... The CVN 79 cost cap was established in 2006 and adjusted by the Secretary of the Navy in 2013, primarily to address inflation between 2006 and 2013 plus $325 million of the allowed increase for non-recurring engineering to incorporate design improvements for the CVN 78 Class construction. The Navy and the shipbuilder conducted an extensive affordability review of carrier construction and made significant changes to deliver CVN 79 at the lowest possible cost. These changes are focused on eliminating the largest impacts to cost performance identified during the construction of CVN 78 as well as furthering improvements in future carrier construction. The Navy outlined cost savings initiatives in its Report to Congress in May, 2013, and is executing according to plan. Stability in requirements, design, schedule, and budget, are essential to controlling and improving CVN 79 cost, and therefore is of highest priority for the program. Requirements for CVN 79 were "locked down" prior to the commencement of CVN 79 construction. The technical baseline and allocated budget for these requirements were agreed to by the Chief of Naval Operations and ASN(RD&A) and further changes to the baseline require their approval, which ensures design stability and increases effectiveness during production. At the time of construction contract award, CVN 79 has 100 percent of the design product model complete (compared to 65 percent for CVN 78) and 80 percent of initial drawings released. Further, CVN 79 construction benefits from the maturation of virtually all new technologies inserted on CVN 78. In the case of EMALS and AAG, the system design and procurement costs are understood, and CVN 79 leverages CVN 78 lessons learned.... A completed FORD Class design enabled the shipbuilder to fully understand the "whole ship" bill of materials for CVN 79 construction and to more effectively manage the procurement of those materials with the knowledge of material lead times and qualified sources accrued from CVN 78 construction. The shipbuilder is able to order ship-set quantities of material, with attendant cost benefits, and to ensure CVN 79 material will arrive on time to support construction need. Extensive improvements have been put in place for CVN 79 material procurement to drive both cost reductions associated with more efficient procurement strategies and production labor improvements associated with improved material availability. Improved material availability is also a critical enabler to many construction efficiency improvements in CVN 79. The shipbuilder has developed an entirely new material procurement and management strategy for CVN 79. This new strategy consists of eight separate initiatives.... The shipbuilder and the Navy have performed a comprehensive review of the build strategy and processes used in construction of CVN 78 Class aircraft carriers as well as consulted with other Navy shipbuilders on best practices. As a result, the shipbuilder has identified and implemented a number of changes in the way they build aircraft carriers, with a dedicated focus on executing construction activities where they can most efficiently be performed. The CVN 79 build sequence installs 20 percent more parts in shop, and 30 percent more parts on the final assembly platen, as compared to CVN 78. This work will result in an increase in pre-outfitting and work being pulled to earlier stages in the construction process where it is most efficiently accomplished.... In conjunction with the Navy and the shipbuilder's comprehensive review of the build strategy and processes used in construction of CVN 78 Class aircraft carriers, a number of design changes were identified that would result in more affordable construction. Some of these design changes were derived from lessons learned in the construction of CVN 78 and others seek to further simplify the construction process and drive cost down.... In addition to the major focus discussed above, the shipbuilder continues to implement capital improvements to facilities that serve to reduce risk and improve productivity.... To enhance CVN 79 build efficiency and affordability, the Navy is implementing a two-phase delivery plan. The two-phase strategy will allow the basic ship to be constructed and tested in the most efficient manner by the shipbuilder (Phase I) while enabling select ship systems and compartments to be completed in Phase II, where the work can be completed more affordably through competition or the use of skilled installation teams.... The CVN 80 planning and construction will continue to leverage class lessons learned in the effort to achieve cost and risk reduction for remaining FORD Class ships. The CVN 80 strategy seeks to improve on CVN 79 efforts to frontload as much work as possible to the earliest phases of construction, where work is both predictable and more cost efficient.... While delivery of the first-of-class FORD has involved challenges, those challenges are being addressed and this aircraft carrier class will provide great value to our Nation with unprecedented and greatly needed warfighting capability at overall lower total ownership cost than a NIMITZ Class CVN. The Navy has taken major steps to stem the tide of increasing costs and drive affordability into carrier acquisition. GAO Testimony The prepared statement of the GAO witness at the hearing states the following in part: The Ford-class aircraft carrier's lead ship began construction with an unrealistic business case. A sound business case balances the necessary resources and knowledge needed to transform a chosen concept into a product. Yet in 2007, GAO found that CVN 78 costs were underestimated and critical technologies were immature—key risks that would impair delivering CVN 78 at cost, on-time, and with its planned capabilities. The ship and its business case were nonetheless approved. Over the past 8 years, the business case has predictably decayed in the form of cost growth, testing delays, and reduced capability—in essence, getting less for more. Today, CVN 78 is more than $2 billion over its initial budget. Land-based tests of key technologies have been deferred by years while the ship's construction schedule has largely held fast. The CVN 78 is unlikely to achieve promised aircraft launch and recovery rates as key systems are unreliable. The ship must complete its final, more complex, construction phase concurrent with key test events. While problems are likely to be encountered, there is no margin for the unexpected. Additional costs are likely. Similarly, the business case for CVN 79 is not realistic. The Navy recently awarded a construction contract for CVN 79 which it believes will allow the program to achieve the current $11.5 billion legislative cost cap. Clearly, CVN 79 should cost less than CVN 78, as it will incorporate lessons learned on construction sequencing and other efficiencies. While it may cost less than its predecessor, CVN 79 is likely to cost more than estimated. As GAO found in November 2014, the Navy's strategy to achieve the cost cap relies on optimistic assumptions of construction efficiencies and cost savings—including unprecedented reductions in labor hours, shifting work until after ship delivery, and delivering the ship with the same baseline capability as CVN 78 by postponing planned mission system upgrades and modernizations until future maintenance periods. Today, with CVN 78 over 92 percent complete as it reaches delivery in May 2016, and the CVN 79 on contract, the ability to exercise oversight and make course corrections is limited. Yet, it is not too late to examine the carrier's acquisition history to illustrate the dynamics of shipbuilding—and weapon system—acquisition and the challenges they pose to acquisition reform. The carrier's problems are by no means unique; rather, they are quite typical of weapon systems. Such outcomes persist despite acquisition reforms the Department of Defense and Congress have put forward—such as realistic estimating and "fly before buy." Competition with other programs for funding creates pressures to overpromise performance at unrealistic costs and schedules. These incentives are more powerful than policies to follow best acquisition practices and oversight tools. Moreover, the budget process provides incentives for programs to be funded before sufficient knowledge is available to make key decisions. Complementing these incentives is a marketplace characterized by a single buyer, low volume, and limited number of major sources. The decades-old culture of undue optimism when starting programs is not the consequence of a broken process, but rather of a process in equilibrium that rewards unrealistic business cases and, thus, devalues sound practices. July 2015 Press Report A July 2, 2015, press report states the following: The Navy plans to spend $25 million per year beginning in 2017 as a way to invest in lowering the cost of building the services' new Ford-class aircraft carriers, service officials said. "We will use this design for affordability to make new improvements in cost cutting technologies that will go into our ships," said Rear Adm. Michael Manazir, Director, Air Warfare.... "We just awarded a contract to buy long lead item materials [for CVN-79] and lay out an allocated budget for each of the components of that ship. We want to build the ship in the most efficient manner possible," Rear Adm. Thomas Moore, Program Executive Officer, Carriers, said. Navy leaders say the service is making positive strides regarding the cost of construction for the USS Kennedy and plans to stay within the congressional cost cap of $11.498 billion.... The $25 million design for affordability initiative is aimed at helping to uncover innovative shipbuilding techniques and strategies that will accomplish this and lower costs. Moore said the goal of the program is to, among other things, remove $500 million from the cost of the third Ford-class carrier, the USS Enterprise, CVN 80. "It is finding a million here and a million there and eventually that is how you get a billion dollars out of the ship from (CVN) 78 to (CVN) 79. The goal is to get another $500 million out of CVN 80. The $25 million dollars is a pretty prudent investment if we can continue to drive the cost of this class of ship down," Moore told reporters recently. Moore explained that part of the goal is to get to the point where a Ford-class carrier can be built for the same amount of man-hours it took to build their predecessor ships, the Nimitz-class carriers. "We want to get back to the goal of being able to build it for historical Nimitz class levels in terms of man hours for a ship that is significantly more capable and more complex to build," Moore added. The money will invest in new approaches and explore the processes that a shipyard can use to build the ship, Moore added. "They've made a significant investment in these new welding machines. These new welding machines allow the welder to use different configurations. This has significantly improved the throughput that the shipyard has," Moore said, citing an example of the kind of thing the funds would be used for. The funds will also look into whether new coatings for the ship or welding techniques can be used and whether millions of feet of electrical cabling can be installed in a more efficient manner, Moore added. Other cost saving efforts assisted by the funding include the increased use of complex assemblies, common integrated work packages, automated plate marking, weapons elevator door re-design and vertical build strategies, Navy officials said. Shipbuilders could also use a new strategy of having work crews stay on the same kind of work for several weeks at a time in order to increase efficiency, Moore said. Also, some of the construction work done on the USS Ford while it was in dry dock is now being done in workshops and other areas to improve the building process, he added. June 2015 Press Reports A June 29, 2015, press report states the following: Newport News Shipbuilding will see cost reduction on the order of 18 percent fewer man hours overall from the first Ford-class aircraft carrier to the second, according to a company representative. Ken Mahler, Newport News vice president of Navy programs, touted the shipyard's cost savings on the John F. Kennedy (CVN-79) during a June 15 interview with Inside the Navy . This reduction was facilitated by the investments the shipyard is making in carrier construction, as well as lessons learned from the first ship, the Gerald R. Ford (CVN-78), which will deliver next year. A June 23, 2015, press report states the following: The Pentagon's cost-assessment office now says the Navy's second aircraft carrier in a new class will exceed a congressionally mandated cost cap by $235 million. That's down from an April estimate that the USS John F. Kennedy, the second warship in the new Ford class, would bust a $11.498 billion cap set by lawmakers by $370 million. The Navy maintains that it can deliver the ship within the congressional limit. "The original figure was a draft based on preliminary information," Navy Commander Bill Urban, a spokesman for the Pentagon's Cost Assessment and Program Evaluation office, said in an e-mail. As better information, such as updated labor rates, became available, the office "revised its estimate to a more accurate number," he said. A June 15, 2015, press report states the following: [Rear Admiral Tom] Moore [program executive officer for aircraft carriers]. said the program would save a billion dollars by decreasing the man hours needed to construct the ship by 18 percent from CVN-78 to 79—down to about 44 million manhours. He said this reduction is only a first step in taking cost ouot of the carrier program. The future Enterprise (CVN-80) will take about 4 million manhours out, or another 10 percent reduction, for a savings of about $500 million. But beyond seeking ways to take cost out, the contract itself reduces the risk to the government, Moore said. "The main construction of the ship is now in a fixed price environment, so that switchover really limits the government's liability," he said. Without getting into specific dollar amounts due to business sensitivities, Moore explained that "this is the lowest target fee we've ever had on any CVN new construction. Look at tghe shape of the share [government-contractor cost] share lines, because the share lines at the end of the day are a measure of risk. So where we'd like to get quickly to [a] 50/50 [share line], in past carrier contracts we've been out at 85/15, 90/10—which basically means for every dollar over [the target cost figure, up to the ceiling cost figure], the government picks up 85 cents on the dollar. And this contract very quickly gets to 50/50. The other thing is ceiling price—on a fixed-price contract, the ceiling price is the government's maximum liability. And on this particular contract, again, it is the lowest ceiling price we've ever had [for a CVN]." February 2015 Navy Testimony At a February 25, 2015, hearing on Department of the Navy acquisition programs, Department of the Navy officials testified the following: The Navy is committed to delivering CVN 78 within the $12.887 billion Congressional cost cap. Sustained efforts to identify cost reductions and drive improved cost and schedule on this first-of-class aircraft carrier have resulted in highly stable performance since 2011. Parallel efforts by the Navy and shipbuilder are driving down and stabilizing aircraft carrier construction costs for the future John F Kennedy (CVN 79) and estimates for the future Enterprise (CVN 80). As a result of the lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review. The Navy and the shipbuilder have made significant changes on CVN 79 to reduce the cost to build the ship as detailed in the 2013 CVN 79 report to Congress. The benefits of these changes in build strategy and resolution of first-of-class impacts on CVN 79 are evident in metrics showing significantly reduced man-hours for completed work from CVN 78. These efforts are ongoing and additional process improvements continue to be identified. The Navy extended the CVN 79 construction preparation contract into 2015 to enable continuation of ongoing planning, construction, and material procurement while capturing lessons learned associated with lead ship construction and early test results. The continued negotiations of the detail design and construction (DD&C) contract afford an opportunity to incorporate further construction process improvements and cost reduction efforts. Award of the DD&C contract is expected in third quarter FY 2015. This will be a fixed price-type contract. Additionally, the Navy will deliver the CVN 79 using a two-phased strategy. This enables select ship systems and compartments to be completed in a second phase, wherein the work can be completed more efficiently through competition or the use of skilled installation teams responsible for these activities. This approach, key to delivering CVN 79 at the lowest cost, also enables the Navy to procure and install shipboard electronic systems at the latest date possible. The FY 2014 NDAA adjusted the CVN 79 and follow ships cost cap to $11,498 million to account for economic inflation and non-recurring engineering for incorporation of lead ship lessons learned and design changes to improve affordability. In transitioning from first-of-class to first follow ships, the Navy has maintained Ford class requirements and the design is highly stable. Similarly, we have imposed strict interval controls to drive changes to the way we do business in order to ensure CVN 79 is delivered below the cost cap. To this same end, the FY 2016 President's Budget request aligns funding to the most efficient build strategy for this ship and we look for Congress' full support of this request to enable CVN 79 to be procured at the lowest possible cost. Enterprise (CVN 80) will begin long lead time material procurement in FY 2016. The FY 2016 request re-phases CVN 80 closer to the optimal profile, therefore reducing the overall ship cost. The Navy will continue to investigate and will incorporate further cost reduction initiatives, engineering efficiencies, and lessons learned from CVN 78 and CVN 79. Future cost estimates for CVN 80 will be updated for these future efficiencies as they are identified. May 2013 Navy Testimony In its prepared statement for a May 8, 2013, hearing on Navy shipbuilding programs before the Seapower subcommittee of the Senate Armed Services Committee, the Navy stated that In 2011, the Navy identified spiraling cost growth [on CVN-78] associated with first of class non-recurring design, contractor and government furnished equipment, and ship production issues on the lead ship. The Navy completed an end-to-end review of CVN 78 construction in December 2011 and, with the shipbuilder, implemented a series of corrective actions to stem, and to the extent possible, reverse these trends. While cost performance has stabilized, incurred cost growth is irreversible.... As a result of lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review; and the Navy and the shipbuilder have made significant changes on CVN 79 that will reduce the cost to build the ship. CVN 79 construction will start with a complete design, firm requirements, and material economically procured and on hand in support of production need. The ship's build schedule also provides for increased completion levels at each stage of construction with resulting improved production efficiencies.... Inarguably, this new class of aircraft carrier brings forward tremendous capability and life-cycle cost advantages compared to the NIMITZ-class it will replace. However, the design, development and construction efforts required to overcome the technical challenges inherent to these advanced capabilities have significantly impacted cost performance on the lead ship. The Navy continues implementing actions from the 2012 detailed review of the FORD-Class build plan to control cost and improve performance across lead and follow ship contracts. This effort, taken in conjunction with a series of corrective actions with the shipbuilder on the lead ship, will not recover costs to original targets for GERALD R. FORD [CVN-78], but should improve performance on the lead ship while fully benefitting CVN 79 and following ships of the class. In the discussion portion of the hearing, Sean Stackley, the Assistant Secretary of the Navy for Research, Development and Acquisition (i.e., the Navy's acquisition executive), testified that First, the cost growth on the CVN-78 is unacceptable. The cost growth dates back in time to the very basic concepts that went into take in the Nimitz-class and doing a total redesign of the Nimitz class to get to a level of capability and to reduce operating and support cost for the future carrier. Far too much risk was carried into the design of the first of the Ford-class. Cost growth stems to the design was moving at the time production started. The vendor base that was responsible for delivering new components and material to support the ship production was (inaudible) with new developments in the vendor base and production plan do not account for the material ordering difficulties, the material delivery difficulties and some of the challenges associated with building a whole new design compared to the Nimitz.... Sir, for CVN-79, we have—we have held up the expenditures on CVN-79 as we go through the details of—one, ensuring that the design of the 78 is complete and repeated for the 79s [sic] that we start with a clean design. Two, we're going through the material procurement. We brought a third party into assessment material-buying practices at Newport News to bring down the cost of material. And we're metering out the dollars for buying material until it hits the objectives that we're setting for CVN-79 through rewriting the build plan on CVN-79. If you take a look at how the 78 is being constructed, far too much work is being accomplished late in the build cycle. So we are rewriting the build plan for CVN-79, do more work in the shops where it's more efficient, more work in the buildings where it's more efficient, less work in the dry dock, less work on the water. And then we're going after the rates—the labor rates and the investments needed by the shipbuilder to achieve these efficiencies. Later in the hearing, Stackley testified that the history in shipbuilding is since you don't have a prototype for a new ship, the first of class referred to as the lead ship is your prototype. And so you carry a lot of risk into the construction of that first of class. Also, given the nature that there's a lengthy design development and build span associated with ships, so there is a certain amount of overlap or concurrency that occurs between the development of new systems that need to be delivered with the first ship, the incorporation of the design of those new systems and the actual construction. And so to the extent that there is change in a new ship class then the risk goes up accordingly. In the case of the CVN-78, the degree of change compared to the Nimitz was fairly extraordinary all for good reasons, good intentions, increased capability, increased survivability, significant reduction in operating and support costs. So there was a determination that will take on this risk in order to get those benefits, and the case of the CVN-78, those risks are driving a lot of the cost growth on the lead ship. When you think about the follow ships, now you've got a stable design, now your vendor base has got a production line going to support the production. Now you've got a build plan and a workforce that has climbed up on the learning curve to drive cost down. So you can look at—you can look at virtually every shipbuilding program and you'll see a significant drop-off in cost from that first of class to the follow ships. And then you look for a stable learning curve to take over in the longer term production of a ship class. Carriers are unique for a number of reasons, one of which we don't have an annual procurement of carriers. They're spread out over a five and, in fact, in the case of 78 as much as seven-year period. So in order to achieve that learning, there are additional challenges associated with achieving that learning. And so we're going at it very deliberately on the CVN-79 through the build plan with the shipbuilder to hit the line that we've got to have—the cost reductions that we've got to have on the follow ships of the class. March 2013 Navy Report A March 2013 report to Congress on the Navy's plan for building CVN-79 that was released to the public on May 16, 2013, states the following in its executive summary: As a result of the lessons learned on CVN 78, the approach to carrier construction has undergone an extensive affordability review and the Navy and the shipbuilder have made significant changes on CVN 79 that will significantly reduce the cost to build the ship. These include four key construction areas: —CVN 79 construction will start with a complete design and a complete bill of material —CVN 79 construction will start with a firm set of stable requirements —CVN 79 construction will start with the development complete on a host of new technologies inserted on CVN 78 ranging from the Electromagnetic Aircraft Launch System (EMALS), the Dual Band Radar, and the reactor plant, to key valves in systems throughout the ship —CVN 79 construction will start with an 'optimal build' plan that emphasizes the completion of work and ship outfitting as early as possible in the construction process to optimize cost and ultimately schedule performance. In addition to these fundamentals, the Navy and the shipbuilder are tackling cost through a series of other changes that when taken over the entire carrier will have a significant impact on construction costs. The Navy has also imposed cost targets and is aggressively pursuing cost reduction initiatives in its government furnished systems. A detailed accounting of these actions is included in this report. The actions discussed in this report are expected to reduce the material cost of CVN 79 by 10-20% in real terms from CVN 78, to reduce the number of man-hours required to build the CVN 79 by 15-25% from CVN 78, and to reduce the cost of government furnished systems by 5-10% in real terms from CVN 78. For the full text of the Navy's report, see the Appendix D . March 2012 Navy Letter to Senator McCain Secretary of the Navy Ray Mabus, in a letter with attachment sent in late March 2012 to Senator John McCain on controlling cost growth in CVN-78, stated the following: Dear Senator McCain: Thank you for your letter of March 21, 2012, regarding the first-of-class aircraft carrier, GERALD R. FORD (CVN 78). Few major programs carry greater importance or greater impact on national security, and no other major program comprises greater scale and complexity than the Navy's nuclear aircraft carrier program. Accordingly, successful execution of this program carries the highest priority within the Department of the Navy. I have shared in the past my concern when I took office and learned the full magnitude of new technologies and design change being brought to the FORD. Requirements drawn up more than a decade prior for this capital ship drove development of a new reactor plant, propulsion system, electric plant and power distribution system, first of kind electromagnetic aircraft launching system, advanced arresting gear, integrated warfare system including a new radar and communications suite, air conditioning plant, weapons elevators, topside design, survivability improvements, and all new interior arrangements. CVN 78 is a near-total redesign of the NIMITZ Class she replaces. Further, these major developments, which were to be incrementally introduced in the program, were directed in 2002 to be integrated into CVN 78 in a single step. Today we are confronting the cost impacts of these decisions made more than a decade ago. In my August 29, 2011 letter, I provided details regarding these cost impacts. At that time, I reported the current estimate for the Navy's share of the shipbuilder's construction overrun, $690 million, and described that I had directed an end-to-end review to identify the changes necessary to improve cost for carrier design, material procurement, planning, build and test. The attached white paper provides the findings of that review and the steps we are taking to drive affordability into the remaining CVN 78 construction effort. Pending the results of these efforts, the Navy has included the 'fact of life' portion of the stated overrun in the Fiscal Year 2013 President's Budget request. The review also highlighted the compounding effects of applying traditional carrier build planning to a radically new design; the challenges inherent to low-rate, sole-source carrier procurement; and the impact of external economic factors accrued over 15 years of CVN 78 procurement—all within the framework of cost-plus contracts. The outlined approach for ensuring CVN 79 and follow ship affordability focuses equally upon tackling these issues while applying the many lessons learned in the course of CVN 78 procurement. As always, if I may be of further assistance, please let me know. Sincerely, [signed] Ray Mabus Attachment: As stated Copy to: The Honorable Carl Levin, Chairman [Attachment] Improving Cost Performance on CVN 78 CVN 78 is nearing 40 percent completion. Cost growth to-date is attributable to increases in design, contractor furnished material, government furnished material (notably, the Electromagnetic Aircraft Launching System (EMALS), Advanced Arresting Gear (AAG), and the Dual Band Radar (DBR)), and production labor performance. To achieve the best case outcome, the program must execute with zero additional cost growth in design and material procurement, and must improve production performance. The Navy and the shipbuilder have implemented a series of actions and initiatives in the management and oversight of CVN 78 that cross the full span of contracting, design, material procurement, government furnished equipment, production planning, production, management and oversight. CVN 78 is being procured within a framework of cost-plus contracts. Within this framework, however, the recent series of action taken by the Navy to improve contract effectiveness are achieving the desired effect of incentivizing improved cost performance and reducing government exposure to further cost growth. CVN 78 design has been converted from a 'level of effort, fixed fee' contract to a completion contract with a firm target and incentive fee. Shipbuilder cost performance has been on-target or better since this contract was changed. CVN 78 construction fee has been retracted, consistent with contract performance. However, the shipbuilder is incentivized by the contract shareline to improve upon current performance to meet agreed-to cost goals. Contract design changes are under strict control; authorized only for safety, damage control, mission-degrading deficiencies, or similar. Adjudicated changes have been contained to less than 1 percent of contract target price. The Navy converted the EMALS and AAG production contract to a firm, fixed price contract, capping cost growth to that system and imposing negative incentives for late delivery. Naval Sea Systems Command is performing a review of carrier specifications with the shipbuilder, removing or improving upon overly burdensome or unneeded specifications that impose unnecessary cost on the program. The single largest impact to cost performance to-date has been contractor and government material cost overruns. These issues trace to lead ship complexity and CVN 78 concurrency, but they also point to inadequate accountability for carrier material procurement, primarily during the ship's advance procurement period (2002-2008). These effects cannot be reversed on CVN 78, but it is essential to improve upon material delivery to the shipyard to mitigate the significant impact of material delays on production performance. Equally important, the systemic material procurement deficiencies must be corrected for CVN 79. To this end, the Navy and shipbuilder have taken the following actions. The Navy has employed outside supply chain management experts to develop optimal material procurement strategies. The Navy and the shipbuilder are reviewing remaining material requirements to employ these best practices (structuring procurements to achieve quantity discounts, dual-sourcing to improve schedule performance and leverage competitive opportunities, etc.). The shipbuilder has assigned engineering and material sourcing personnel to each of their key vendors to expedite component qualifications and delivery to the shipyard. The shipbuilder is inventorying all excess material procured on CVN 78 for transfer to CVN 79 (cost reduction to CVN 78), as applicable. The Program Executive Officer (Carriers) is conducting quarterly flag-level government furnished equipment summits to drive cost reduction opportunities and ensure on-time delivery of required equipment and design information to the shipbuilder. The most important finding regarding CVN 78 remaining cost is that the CVN 78 build plan, consistent with the NIMITZ class, focuses foremost on completion of structural and critical path work to support launching the ship on-schedule. This emphasis on structure comes at the expense of completing ship systems, outfitting, and furnishing early in the build process and results in costly, labor-intensive system completion activity during later; more costly stages of production. Achieving the program's cost improvement targets will require that CVN 78 increase its level of completion at launch, from current estimate of 60 percent to no less than 65 percent. To achieve this goal and drive greater focus on system completion: the Navy fostered a collaborative build process review by the shipbuilder with other Tier 1 private shipyards in order to benchmark its performance arid identify fundamental changes that would yield marked improvement; the shipbuilder has established specific launch metrics by system (foundations, machinery, piping, power panels, vent duct, lighting, etc.) and increased staffing for waterfront engineering and material expediters to support meeting these metrics; the shipbuilder has linked all of these processes within a detailed integrated master schedule, providing greater visibility to current performance and greater ability to control future cost and schedule performance across the shipbuilding disciplines; the Navy and shipbuilder are conducting Unit Readiness Reviews of CVN 78 erection units to ensure that the outfitted condition of each hull unit being lifted into the dry-dock contains the proper level of outfitting. These initiatives, which summarize a more detailed list of actions being implemented and tracked as result of the end-to-end review, are accompanied by important management changes. The shipbuilder has assigned a new Vice President in charge of CVN 78, a new Vice President in charge of material management and purchasing, and a number of new general shop foreman to strengthen CVN 78 performance. The Navy has assigned a second tour Flag Officer with considerable carrier operations, construction, and program management experience as the new Program-Executive Officer (PEO). The PEO and shipyard president conduct bi-weekly launch readiness reviews focusing on cost performance, critical path issues and accomplishment of the target for launch completion. The Assistant Secretary of the Navy (Research, Development, and Acquisition) conducts a monthly review of program progress and performance with the PEO and shipbuilder, bringing to bear the full weight of the Department, as needed, to ensure that all that can be done to improve on cost performance is being done. Early production performance improvements can be traced directly to these actions, however, significant further improvement is required. To this end, the Navy is conducting a line-by-line review of all 'cost to-go' on CVN 78 to identify further opportunity to reduce cost and to mitigate risk. Improving Cost Performance on CVN 79 CVN 79 Advance Procurement commenced in 2007 with early construction activities following in 2011. Authorization for CVN 79 procurement is requested in Fiscal Year 2013 President's Budget request with the first year of incremental funding. Two years have been added to the CVN 79 production schedule in this budget request, afforded by the fact that CVN 79 will replace CVN 68 when she inactivates. To improve affordability for CVN 79, the Navy plans to leverage this added time by introducing a fundamental change to the carrier procurement approach and a corresponding shift to the carrier build plan, while incorporating CVN 78 lessons learned. The two principal 'documents' which the Navy and shipbuilder must ensure are correct and complete at the outset of CVN 79 procurement are the design and the build plan. Design is governed by rules in place that no changes will be considered for the follow ship except changes necessary to correct design deficiencies on the lead ship, fact of life changes to correct obsolescence issues, or changes that will result in reduced cost for the follow ship. Exceptions to these rules must be approved by the JROC, or designee. Accordingly, the Navy is requesting procurement authority for CVN 79 with the Design Product Model complete and construction drawings approximately 95 percent complete (compared to approximately 30 percent complete at time of lead ship authorization). As well, first article testing and certification will be complete for virtually all major new equipments introduced in the FORD Class. At this point in time, the shipbuilder has developed a complete bill of material for CVN 79. The Navy is working with the shipbuilder to ensure that the contractor's material estimates are in-line with Navy 'should cost' estimates; eliminating non-recurring costs embedded in lead ship material, validating quantities, validating escalation indices, incorporating lead ship lessons learned. The Navy has increased its oversight of contractor furnished material procurement, ensuring that material procurement is competed (where competition is available); that it is fixed priced; that commodities are bundled to leverage economic order quantity opportunities; and that the vendor base capacity and schedule for receipt supports the optimal build plan being developed for production. In total, the high level of design maturity and material certification provides a stable technical baseline for material procurement cost and schedule performance, which are critical to developing and executing an improved, reliable build plan. In order to significantly improve production labor performance, based on timely receipt of design and material, the Navy and shipbuilder are reviewing and implementing changes to the CVN 79 build plan and affected facilities. The guiding principles are: maximize planned work in the shops and early stages of construction; revise sequence of structural unit construction to maximize learning curve performance through 'families of units' and work cells; incorporate design changes to improve FORD Class producibility; increase the size of erection units to eliminate disruptive unit breaks and improve unit alignment and fairness; increase outfitting levels for assembled units prior to erection in the dry-dock; increase overall ship completion levels at each key event. The shipbuilder is working on detailed plans for facility improvements that will improve productivity, and the Navy will consider incentives for capital improvements that would provide targeted return on investment, such as: increasing the amount of temporary and permanent covered work areas; adding ramps and service towers for improved access to work sites and the dry-dock; increasing lift capacity to enable construction of larger, more fully outfitted super-lifts: An incremental improvement to carrier construction cost will fall short of the improvement necessary to ensure affordability for CVN 79 and follow ships. Accordingly, the shipbuilder has established aggressive targets for CVN 79 to drive the game-changing improvements needed for carrier construction. These targets include: 75 percent Complete at Launch (15 percent> [i.e., 15 percent greater than] FORD); 85-90 percent of cable pulled prior to Launch (25-30 percent> FORD); 30 percent increase in front-end shop work (piping details, foundations, etc); All structural unit hot work complete prior to blast and paint; 25 percent increase to work package throughput; 100 percent of material available for all work packages in accordance with the integrated master schedule; zero delinquent engineering and planning products; resolution of engineering problems in < 8 [i.e., less than 8] hours. In parallel with efforts to improve shipbuilder costs, the PEO is establishing equally aggressive targets to reduce the cost of government furnished equipment for CVN 79; working equipment item by equipment item with an objective to reduce overall GFE costs by ~$500 million. Likewise, the Naval Sea Systems Command is committed to continuing its ongoing effort to identify specification changes that could significantly reduce cost without compromising safety and technical rigor. The output of these efforts comprises the optimal build plan for CVN 79 and follow, and will be incorporated in the detail design and construction baseline for CVN 79. CVN 79 will be procured using a fixed price incentive contract. Appendix D. March 2013 Navy Report to Congress on Construction Plan for CVN-79 This appendix reprints a March 2013 Navy report to Congress on the Navy's construction plan for CVN-79. Appendix E. Shock Trial An earlier oversight issue for Congress for the CVN-78 program was whether to conduct the shock trial for the CVN-78 class in the near term, on the lead ship in the class, or years later, on the second ship in the class. This appendix presents background information on that issue. A shock trial, known formally as a full ship shock trial (FSST) and sometimes called a shock test, is a test of the combat survivability of the design of a new class of ships. A shock trial involves setting off one or more controlled underwater charges near the ship being tested, and then measuring the ship's response to the underwater shock caused by the explosions. The test is intended to verify the ability of the ship's structure and internal systems to withstand shocks caused by enemy weapons, and to reveal any changes that need to be made to the design of the ship's structure or its internal systems to meet the ship's intended survivability standard. Shock trials are nominally to be performed on the lead ship in a new class of ships, but there have also been cases where the shock trial for a new class was done on one of the subsequent ships in the class. The question of whether to conduct the shock trial for the CVN-78 class in the near term, on the lead ship in the class, or years later, on the second ship in the class, has been a matter of disagreement at times between the Navy and the office of the Secretary of Defense (OSD). The Navy has wanted to perform the shock trial on the second ship in the class, because performing it on the lead ship in the class, the Navy has argued, will cause a significant delay in the first deployment of the lead ship, effectively delaying the return of the carrier force to an 11-ship force level and increasing the operational strain on the other 10 carriers. The Navy has argued that the risks of delaying the shock trial on the CVN-78 to the second ship in the class are acceptable, because the CVN-78 class hull design is based on the Nimitz (CVN-68) class aircraft carrier hull design, whose survivability against shocks is understood, because systems incorporated into the CVN-78 design have been shock tested at the individual component level, and because computer modeling can simulate how the CVN-78 design as a whole will respond to shocks. OSD has argued that the risks of delaying the CVN-78 class shock trial to the second ship in the class are not acceptable, because the CVN-78 design is the first new U.S. aircraft carrier design in four decades; because the CVN-78 design has many internal design differences compared to the CVN-68 design, including new systems not present in the CVN-68 class design; and because computer modeling can only do so much to confirm how a complex new platform, such as an aircraft carrier and all its internal systems, will respond to shocks. The risk of delaying the shock trial, OSD has argued, outweighs the desire to avoid a delay in the first deployment of the lead ship in the class. OSD in 2015 directed the Navy to plan for conducting a shock trial on the lead ship. The Navy complied with this direction but has also sought to revisit the issue with OSD. The issue of the shock trial for the CVN-78 class has been a matter of legislative activity—see the provisions shown earlier in " Recent Related Legislative Provisions ," particularly the most recent such provision, Section 121(b) of the FY2018 National Defense Authorization Act ( H.R. 2810 / P.L. 115-91 of December 12, 2017). An April 5, 2018, press report states the following: The Pentagon's No. 2 civilian has said the Navy should perform shock-testing soon to determine how well its new $12.9 billion aircraft carrier—the costliest warship ever—could withstand an attack, affirming the service's recent decision to back down from a plan for delay. "We agree with your view that a test in normal sequence is more prudent and pragmatic," Deputy Defense Secretary Patrick Shanahan said in a newly released March 26 letter to Senate Armed Services Committee Chairman John McCain. The Arizona Republican and Senator Jack Reed, the panel's top Democrat, pressed for the shock-testing to go ahead as originally planned. James Guerts, the Navy's chiefs weapons buyer, told reporters last month that the Navy was acquiescing to the testing after initially asking Defense Secretary James Mattis to delay it for at least six years. In its push to maintain an 11-carrier fleet, the Navy wanted to wait and perform the test on a second carrier in the class rather than on the USS Gerald Ford.

Question: Write a one-page summary of the report 1.

Answer: The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban Development (HUD), was created by the National Housing Act of 1934. FHA insures private lenders against the possibility of borrowers defaulting on mortgages that meet certain criteria, thereby expanding the availability of mortgage credit beyond what may be available otherwise. If the borrower defaults on the mortgage, FHA is to repay the lender the remaining amount owed. A household that obtains an FHA-insured mortgage must meet FHA's eligibility and underwriting standards, including showing that it has sufficient income to repay a mortgage. FHA requires a minimum down payment of 3.5% from most borrowers, which is lower than the down payment required for many other types of mortgages. FHA-insured mortgages cannot exceed a statutory maximum mortgage amount, which varies by area and is based on area median house prices but cannot exceed a specified ceiling in high-cost areas. (The ceiling is set at $726,525 in high-cost areas in calendar year 2019.) Borrowers are charged fees, called mortgage insurance premiums, in exchange for the insurance. In FY2018, FHA insured over 1 million new mortgages (including both home purchase and refinance mortgages) with a combined principal balance of $209 billion. FHA's share of the mortgage market tends to vary with economic conditions and other factors. In the aftermath of the housing market turmoil that began around 2007 and a related contraction of mortgage lending, FHA insured a larger share of mortgages than it had in the preceding years. Its overall share of the mortgage market increased from about 3% in calendar year 2005 to a peak of 21% in 2009. Since that time, FHA's share of the mortgage market has decreased somewhat, though it remains higher than it was in the early 2000s. In calendar year 2017, FHA's overall share of the mortgage market was about 17%. FHA-insured mortgages, like all mortgages, experienced increased default rates during the housing downturn that began around 2007, leading to concerns about the stability of the FHA insurance fund for single-family mortgages, the Mutual Mortgage Insurance Fund (MMI Fund). In response to these concerns, FHA adopted a number of policy changes in an attempt to limit risk to the MMI Fund. These changes have included raising the fees that it charges and making changes to certain eligibility criteria for FHA-insured loans.