CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

A

P A P E R

APRIL 2007

Comparing

Working-Capital 

Funding and

Mission Funding for 

Naval Shipyards

CBO

The Congress of the United States O Congressional Budget Office

CBO

Comparing Working-Capital Funding and

Mission Funding for Naval Shipyards

April 2007

A

PAPER
Notes

Unless otherwise indicated, all years referred to in this report are federal fiscal years.

Cover photo of Puget Sound Naval Shipyard, in Bremerton, Washington, courtesy of the 

Department of the Navy.
Preface

The Navy owns and manages four shipyards that maintain, repair, overhaul, and upgrade 

surface ships and submarines—a range of services that costs the Navy over $3 billion annually. 

In recent years, the Navy has changed the funding mechanism for each of the shipyards, shifting them from the Navy Working Capital Fund to direct appropriations. That change could 

have a substantial effect on the shipyards’ operations and on the tracking of their costs and 

performance.

This Congressional Budget Office (CBO) paper—which was prepared at the request of the 

Readiness Subcommittee of the House Committee on Armed Services—outlines the advantages and disadvantages of working-capital funding versus mission funding for financing naval 

shipyards’ operations. In keeping with CBO’s mandate to provide objective, impartial analysis, the report makes no recommendations.

This paper was prepared by Daniel Frisk and R. Derek Trunkey under the supervision of 

J. Michael Gilmore and Matthew Goldberg. Research assistance was provided by Victoria 

Liu. The Department of the Navy commented on an interim version of this report, as did 

W. Brent Boning and Glenn Ackerman of the Center for Naval Analyses and Edward Keating 

and Chris Hanks of the RAND Corporation. Arlene Holen, Joseph Kile, Donald Marron, 

David Moore, and Michael Simpson of CBO and Henry L. Eskew, a private consultant, 

reviewed the current paper. (The assistance of external reviewers implies no responsibility for 

the final product, which rests solely with CBO.)

Leah Mazade edited the report, and Kate Kelly proofread it. Maureen Costantino designed 

the cover and prepared the report for publication. Lenny Skutnik printed the initial copies, 

Linda Schimmel coordinated the print distribution, and Simone Thomas prepared the electronic version for CBO’s Web site (www.cbo.gov).

Peter R. Orszag

Director

April 2007

Contents

Introduction and Summary 1

The Maintenance of Navy Ships 2

Levels of Maintenance and Maintenance Facilities 2

Naval Shipyards’ Workload 3

The Shift to Mission Funding as Part of the 

Navy’s Regional Maintenance Plan 5

Comparing Working-Capital Funding and Mission Funding 7

The Basics of Working-Capital Funding 7

The Basics of Mission Funding 10

Cost Visibility 10

Operational Flexibility 12

Operational Performance 13

Capital Replenishment 18

Incentives for Shipyards’ Customers and Managers 19

Other Issues 23

Tables

1. The Navy’s Depot- and Intermediate-Level Maintenance

Facilities 4

2. Examples of Overhead Costs No Longer Paid 

Directly by Shipyards 11

3. Performance Metrics for Shipyards 16

4. Shipyards’ Capital Expenditures 22
VI COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Figures

1. The Navy’s Planned Submarine Fleet 6

2. How Working-Capital Funding Operates 8

3. How Mission Funding Operates 9

4. Shipyards’ Use of Overtime to Increase Available Labor 14

5. Shipyards’ Schedule Adherence 17

6. Shipyards’ Total Annual Costs 18

7. Shipyards’ Burdened Labor-Day Rates 19

8. Average Costs to Perform DSRA-Type Maintenance on 

Los Angeles-Class Submarines 20

9. Shipyards’ Administrative Efficiency 21
Comparing Working-Capital Funding and

Mission Funding for Naval Shipyards

Introduction and Summary

The Navy owns and operates four shipyards: the Norfolk 

Naval Shipyard in Portsmouth, Virginia; the Portsmouth 

Naval Shipyard in Kittery, Maine; the Puget Sound Naval 

Shipyard in Bremerton, Washington; and the Pearl Harbor Naval Shipyard in Pearl Harbor, Hawaii. In recent 

years, the Navy has changed the mechanism it uses to 

fund each of the shipyards, shifting from the Navy Working Capital Fund (NWCF) to direct appropriations.1

Previously, under the NWCF’s revolving-fund approach, 

the shipyards set prices for maintenance and repair services that were intended to cover their full operating 

costs, and the Navy’s Atlantic and Pacific Fleets as well as 

its other customers paid for those services out of their 

appropriated funds. Now, under the direct appropriations 

approach, the Navy uses a portion of the money appropriated to it by the Congress to fund the shipyards 

directly, a financing mechanism known as mission 

funding.

The Navy believes that the shift to mission funding gives 

it more flexibility in allocating its resources across regions 

and types of maintenance.2

 But the change has generated 

some concern, both within the Department of Defense 

(DoD) and the Congress and among outside observers 

and organizations. Naval shipyards had been operating 

successfully under some form of revolving-fund financial 

system since the 1950s;3 as a result, some analysts have 

questioned the Navy’s rationale for the change. Critics of 

shifting to direct appropriations believe that mission 

funding makes costs and operations less transparent, 

eliminates beneficial businesslike incentives that workingcapital funds create, and potentially reduces shipyards’ 

ability to obtain capital to replace equipment and make 

improvements. The Navy, however, maintains that mission funding of shipyards “provides the best mechanism 

by which the Navy can match workforce skills with workload priorities and still meet fiduciary responsibilities.”4

The Congressional Budget Office (CBO), at the request 

of the Readiness Subcommittee of the House Committee 

on Armed Services, has studied the advantages and disadvantages of working-capital and mission funding as 

they apply to naval shipyards. This is the third CBO 

report that addresses shipyard funding; it incorporates 

information and data that CBO has collected since it 

published Comparing Working-Capital Funding and Mission Funding for Naval Shipyards: An Interim Report in 

December 2005. CBO’s Review of Proposed Congressional 

Budget Exhibits for the Navy’s Mission-Funded Shipyards, 

published in April 2006, had a narrower scope than either 

the 2005 or the present report. 

This paper provides an overview of naval ship maintenance and describes the shipyards’ transition from 

working-capital to mission funding. It also compares the 

1. Pearl Harbor shifted from working-capital funding to mission 

funding on October 1, 1998, and Puget Sound changed funding 

mechanisms on October 1, 2003. The Congress addressed the 

change of funding mechanisms for the two East Coast shipyards, 

Portsmouth and Norfolk, in section 322 of the National Defense 

Authorization Act for Fiscal Year 2006 (Public Law 109-163, 

119 Stat. 3191). Portsmouth and Norfolk switched funding 

mechanisms on October 1, 2006, the earliest transition date that 

the Congress allowed.

2. Department of the Navy, Fiscal Year (FY) 2007 Budget Estimates 

Submission: Justification of Estimates—Navy Working Capital Fund 

(February 2006).

3. General Accounting Office (now the Government Accountability 

Office), Navy Industrial Fund: U.S. Naval Shipyards, Bureau of 

Ships: Department of the Navy (December 1955), p. 1.

4. Department of the Navy, Office of Budget, Highlights of the 

Department of the Navy FY2007 Budget (February 2006), p. 4-12. 
2 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

structure, operation, reporting requirements, performance, and incentives of the two funding mechanisms.

CBO’s analysis indicates that working-capital funding 

and mission funding have both strengths and weaknesses 

as shipyard financing approaches. To the extent that the 

available data permitted comparisons, CBO found no 

aspect of either financing mechanism that strongly supported or challenged the Navy’s decision to shift all of its 

shipyards to mission funding. CBO’s findings include the 

following: 

B The working-capital funding system required shipyards to track and report their costs in order to determine operating results (profits or losses) and future 

billing rates. Mission funding has reduced the amount 

of cost data available to Navy headquarters personnel 

and the Congress, in part because appropriate reports 

of shipyards’ costs have not been requested or developed—and not because such costs cannot be tracked 

at a comparable level of detail for mission-funded 

activities. The Navy is working with the Congress to 

increase the information in its budget, cost, and performance reporting for shipyards.

B Mission funding may increase the flexibility that the 

Navy has to manage the workforce and workload of its 

shipyards, although the service has offered only anecdotal evidence of that benefit. Mission funding allows 

the Navy to shift workers among maintenance projects 

and facilities; moreover, such financing lessens the 

possibility that unexpected changes in schedules—

because of unforeseen events—will idle shipyards’ 

workers. (Although the shifting of workers was possible under the working-capital mechanism, the 

required paperwork and transfers of funds could, in 

some cases, cause delays in projects or activities.) In 

the absence of major changes in schedules, the flexibility afforded by mission funding affects relatively small 

numbers of workers at any given time because shipyards, regardless of how they are funded, primarily use 

overtime to match their workforces with changing 

workloads.

B The available data indicate no relationship—as measured by a number of metrics—between a shipyard’s 

funding system and its operational performance.

B The available data indicate no relationship between a 

shipyard’s funding system and its capital expenditures.

B Because of differences in the costs borne by the users 

of shipyards under each system, working-capital funding may lead to underutilization of shipyards’ capacity, 

whereas mission funding may lead to overutilization.

The Maintenance of Navy Ships

Ship maintenance is categorized by level and type and is 

performed at both public and private facilities. The shift 

in funding that is the focus of this paper occurred at the 

public naval shipyards that perform depot-level maintenance (the most intensive level). The shift was a component of the Navy’s integration of intermediate- and 

depot-level facilities and maintenance.

Levels of Maintenance and Maintenance Facilities

The Navy classifies ship maintenance activities as organizational, intermediate, or depot level.5 Organizationallevel maintenance, the most basic, is typically performed 

as needed by a ship’s crew without external assistance and 

involves such routine tasks as replacing minor parts, performing preventive maintenance inspections, and lubricating machinery.

By comparison, intermediate-level maintenance requires 

more skilled or more extensive work on ships’ systems 

and equipment. Navy and civilian personnel generally 

perform intermediate-level maintenance at designated 

facilities (including on tender ships); the Navy operates a 

number of such facilities, mostly in the United States (see 

Table 1). The service’s intermediate facilities are mission 

funded; each is owned and operated by the Atlantic or 

the Pacific Fleet, and each tends to specialize in certain 

classes of ships. Intermediate maintenance on a ship is 

typically carried out during what the Navy calls a “fleet 

maintenance availability” (that is, when a ship is available 

for maintenance). The Navy requires such maintenance 

once per quarter for submarines and once every six 

months for surface ships; the fleet commanders coordinate intermediate-level maintenance with ships’ operational schedules.6

Depot-level maintenance involves the most comprehensive and time-consuming maintenance work, including 

ship overhauls, alterations, refits, restorations, and 

5. Department of the Navy, Office of the Chief of Naval Operations, 

OPNAV Instruction 4700.7K (July 2003).

6. Ibid., Enclosure 2, p. 4.
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 3

nuclear refuelings.7 To perform that work, the Chief of 

Naval Operations schedules depot-level availabilities and 

establishes guidance for the intervals between them.8

Depot-level maintenance is generally performed by civilians at naval or private shipyards. In addition, shipyards 

may send their employees offsite (for example, to a ship 

in its home port or to an intermediate-level facility) to 

perform maintenance and repairs when depot-level expertise or additional manpower is needed.

When shipyards were financed under the Navy Working 

Capital Fund, the facilities were owned and operated by 

the Naval Sea Systems Command (NAVSEA), which 

managed their budgets and set their operating procedures. Now, under mission funding, the Atlantic and 

Pacific Fleets manage the budgets of shipyards, although 

NAVSEA continues to manage their technical and operational procedures.

In 2005, the Navy’s four shipyards performed a total of 

4.0 million labor-days of direct work at a cost of about 

$3.1 billion, according to CBO’s estimates—or close to 

$800 per fully burdened (including all overhead) direct 

labor-day.9 In addition, private shipyards perform some 

depot-level maintenance; about $1.7 billion of the Navy’s 

depot maintenance funds went to private shipyards in 

2005.10 The private-sector shipbuilding and ship repair 

industry in the United States is dominated by the socalled Big Six shipyards, each of which is owned by 

one of two parent companies.11

Naval Shipyards’ Workload

Most of the work of naval shipyards is performed for the 

Department of the Navy and focuses on nuclear-powered 

ships and submarines.12 A very small share of shipyards’ 

work (typically 1 percent to 4 percent, in dollar terms) is 

conducted for other DoD customers, other federal agencies, commercial customers, and foreign governments.

The major customers for each shipyard are the corresponding fleet and NAVSEA. The Puget Sound and Pearl 

Harbor shipyards work primarily on ships that belong to 

the Navy’s Pacific Fleet; the Norfolk and Portsmouth 

shipyards work mainly on Atlantic Fleet ships. (The two 

pairs of shipyards do similar types of work because the 

composition, structure, and missions of the Atlantic and 

Pacific Fleets are similar.) Generally, the fleets control the 

Navy’s ship operation and maintenance (O&M) funds, 

and NAVSEA controls the service’s ship construction and 

conversion (SCN) funds. O&M funds typically pay for 

routine, preventive, and corrective maintenance, and 

SCN funds usually pay for alterations (such as conversion 

of ballistic missile submarines to cruise missile submarines), upgrades, and refueling of nuclear ships. (SCN 

funds also pay for construction of new ships.) The fleets 

fund their depot-level maintenance work through direct 

appropriations from the Congress to the shipyards. 

NAVSEA-funded work is usually performed on a reimbursable basis: The shipyard that performs the work bills 

NAVSEA for direct costs (materials and labor); the associated indirect costs are paid out of the shipyards’ or other 

offices’ appropriated budgets.

Depot-level maintenance availabilities are scheduled years 

in advance; for most submarines and aircraft carriers, 

availabilities are plotted out for the life of the ship.13 On 

the basis of those schedules, the Navy constructs an 

approximate work plan for depot-level maintenance that 

extends 25 to 35 years into the future.14 The Navy prepares a final schedule about 3 to 5 years in advance. To 

determine which shipyard should be assigned a specific 

7. Department of the Navy, Fiscal Year (FY) 2006/FY 2007 Budget 

Estimates: Justification of Estimates—Navy Working Capital Fund

(February 2005).

8. For maintenance intervals, see Department of the Navy, Office of 

the Chief of Naval Operations, OPNAV Notice 4700 (June 2005).

9. Direct work comprises tasks that are identified as components of a 

maintenance project. Indirect work, which is billed as overhead, 

involves administrative and support tasks.

10. Based on data provided to CBO by the Navy on November 18, 

2005. The $1.7 billion figure excludes public/private partnerships 

and refuelings of nuclear carriers.

11. General Dynamics owns Bath Iron Works (located in Bath, 

Maine), Electric Boat (Groton, Connecticut), and National Steel 

and Shipbuilding Company (San Diego, California). Northrop 

Grumman owns Newport News Shipyard (Newport News, Virginia), Ingalls Shipyard (Pascagoula, Mississippi), and Avondale 

Shipyard (New Orleans and Tallulah, Louisiana, and Gulfport, 

Mississippi). Newport News Shipyard is the sole U.S. facility 

capable of designing, building, and refueling nuclear-powered aircraft carriers.

12. Only six U.S. shipyards are licensed to perform nuclear work: the 

four naval shipyards, Newport News, and Electric Boat.

13. Department of the Navy, Office of the Chief of Naval Operations, 

OPNAV Notice 4700.

14. CBO staff discussion with Navy personnel, December 14, 2005.
4 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Table 1.

The Navy’s Depot- and Intermediate-Level Maintenance Facilities

Continued

availability, the Navy considers the complexity and type 

of work required, dry-dock space (each shipyard has a 

handful of dry-docks), and the assignment’s implications 

for the goal of ensuring ship maintenance capabilities in 

the public and private sectors.15 Advance scheduling is 

necessary because a single availability requires months of 

planning and a substantial amount of labor and directly 

affects the operations of the naval fleets. 

Yet despite the Navy’s advance planning, near-term 

changes in its schedule for depot-level maintenance do 

occur. Unscheduled availabilities—for example, when a 

ship sustains damage in battle or runs aground—may 

arise. In such instances, the Navy may reallocate resources 

and shift the schedule accordingly. (How shipyards 

respond to changes in availability schedules is discussed 

later.)

The Navy’s plans for shipbuilding and maintenance suggest that the demand for maintenance could decline in 

the future.16 From 2001 to 2005, midlife refueling of 

nuclear-powered submarines made up a significant portion of the workload of naval shipyards—by CBO’s estimate, an average of nearly 20 percent of the four shipyards’ total workload. But the next generation of 

submarines, the Virginia-class (the successor to the Los 

Angeles-class) and the as-yet-unnamed successor to the 

Types of Ships Personnel

Facility Location Maintained Civiliana Military

Depot-Level Maintenance

Portsmouth Naval Shipyard Kittery, Maine Nuclear attack submarines 3,958 30

Norfolk Naval Shipyard Portsmouth, Va. Any type of Navy ship 7,679 43

Puget Sound Naval Shipyardb Bremerton, Wash. Any type of Navy ship 8,879 748

Pearl Harbor Naval Shipyardc Pearl Harbor, Hawaii Nuclear submarines and 

nonnuclear surface shipsd

3,839 646

Ship Repair Facility

Ship Repair Facilitye Yokosuka, Japan Nonnuclear surface ships 2,155 112

Intermediate-Level Maintenance

Naval Ship Support Facility New London, Conn. Nuclear attack submarines 280 449

Mid-Atlantic Regional Maintenance 

Center

Norfolk, Va. Any type of Navy ship 

(Detachments in Bahrain and 

Naples, Italy)

1,007 1,563

Southeast Regional Maintenance 

Facilityf

Mayport, Fla. Surface ships and 

nonnuclear aircraft carriers 

103 739

Trident Refit Facility King’s Bay, Ga. Ballistic missile submarines 1,064 392

South Central Regional Maintenance 

Facilityg

Ingleside, Tex. Minesweepers 39 280

15. Department of the Navy, Office of the Chief of Naval Operations, 

OPNAV Instruction 4700.7K, p. 12.

16. For more information on the future of the naval fleets, see Congressional Budget Office, Resource Implications of the Navy’s Fiscal 

Year 2008 Shipbuilding Plan (March 23, 2007), Long-Term Implications of Current Defense Plans: Summary Update for Fiscal Year 

2007 (October 2006), and Options for the Navy’s Future Fleet

(May 2006). 
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 5

Table 1.

Continued

Source: Congressional Budget Office based on information from the Department of the Navy.

Note: These facilities exclude tender ships.

a. Includes contractors.

b. Merged with the Puget Sound Shipyard to become the Puget Sound Naval Shipyard and Intermediate Maintenance Facility. Personnel for 

the intermediate facility are included in the shipyard personnel totals.

c. Merged with the Pearl Harbor Shipyard to become the Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility. Personnel for 

the intermediate facility are included in the shipyard personnel totals.

d. Pearl Harbor is also capable of performing emergency depot work on nuclear aircraft carriers.

e. This facility, the only remaining ship repair facility (SRF), can perform depot-level work on nonnuclear surface ships. The Japanese government currently provides some of the SRF’s workforce at a negotiated reduced rate.

f. The Southeastern Regional Maintenance Facility had a detachment in Pascagoula, Mississippi, that was closed as a result of the 2005 

BRAC (base realignment and closure) round.

g. This facility will be relocated to the Southwest Regional Maintenance Facility in San Diego, California, as a result of the 2005 BRAC round.

Ohio-class, will not require refueling. Instead, the Navy 

plans to retire those submarines when their reactors’ fuel 

is spent (see Figure 1). The Navy has “inducted” its last 

Los Angeles-class attack submarine for refueling; the last 

refueling of an Ohio-class submarine is scheduled for 

2018. As the amount of that kind of work declines, the 

Navy will have to find new work for its shipyards or 

reduce its depot-level maintenance capacity.17

The Shift to Mission Funding as Part of the 

Navy’s Regional Maintenance Plan

The implementation of the Navy’s Regional Maintenance 

Plan prompted the service to change the funding mechanism for its shipyards from the Navy Working Capital 

Fund to direct appropriations. According to the Navy, 

that ongoing plan has three phases: consolidating 

intermediate-level activities to increase efficiency, integrating intermediate- and depot-level activities, and conducting fleet maintenance by using a single, standardized

Types of Ships Personnel

Facility Location Maintained Civiliana Military

Intermediate-Level Maintenance (Continued)

Southwest Regional Maintenance 

Facility

San Diego, Calif. Any type of Navy ship 609 1,388

Everett Intermediate Maintenance 

Facilityb

Everett, Wash. Aircraft carriers and surface 

ships

Included above

in depot-level

total

Included above

in depot-level 

total

Intermediate Maintenance Facilityb Bangor, Wash. Ballistic missile submarines Included above

in depot-level

total

Included above

in depot-level 

total

Pearl Harbor Intermediate 

Maintenance Facilityc

Pearl Harbor, Hawaii Nuclear submarines and 

nonnuclear surface ships

Included above

in depot-level

total

Included above

in depot-level

total

17. In part because of excess shipyard capacity, the Navy recommended that the Portsmouth shipyard be closed as part of the 

2005 BRAC (base realignment and closure) round. However, the 

BRAC Commission recommended that Portsmouth remain open, 

and the Congress allowed its recommendations to pass into law.
6 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Figure 1.

The Navy’s Planned Submarine Fleet

(Number of submarines)

Source: Congressional Budget Office based on data from the Department of the Navy.

maintenance process.18 In reorganizing maintenance 

facilities under its regional plan, the Navy aims to eliminate duplication and overlapping of maintenance 

resources by placing the depot- and intermediate-level 

maintenance facilities in a region under one command.19

To test its concept of regional maintenance, the Navy in 

1997 selected the Pearl Harbor Naval Shipyard and the 

Pearl Harbor Intermediate Maintenance Facility for an 

integration pilot program. At the time, the Pearl Harbor 

shipyard was financed through the working-capital mechanism and the intermediate facility by mission funding. 

The Navy concluded that fully integrating the facilities 

required a common funding system, and it selected mission funding over working-capital funding for several reasons, including the fact that the mission-funded Pacific 

Fleet was (and continues to be) Pearl Harbor’s largest customer and the Navy expected fewer financial hurdles in 

integrating the consolidated maintenance facility with the 

fleet’s existing funding structure.20 The Navy initiated a 

similar pilot project in 2003 to integrate Puget Sound 

Naval Shipyard with intermediate-level facilities on the 

West Coast.

According to the Navy, the transition to a common funding mechanism facilitated consolidation of intermediateand depot-level facilities at Pearl Harbor and Puget 

Sound and improved the flexibility and responsiveness of 

the shipyards’ workforces.21 Some observers, however, 

have questioned whether the Navy’s experience with Pearl 

Harbor and Puget Sound is applicable to the Portsmouth 

and Norfolk shipyards because of differences in the type 

2000 2005 2010 2015 2020 2025 2030 2035

0

10

20

30

40

50

60

70

80

Seawolf

Ohio Successor

Ohio

Los Angeles

Virginia

Virginia Successor

18. For more details, see Department of the Navy, Report to Congress: 

Pearl Harbor Regional Maintenance Pilot (May 2001); and General 

Accounting Office, Depot Maintenance: Status of the Navy’s Pearl 

Harbor Pilot Project, GAO/NSIAD-99-199 (September 1999).

19. Department of the Navy, Report to Congress: Pearl Harbor Regional 

Maintenance Pilot, p. 1.

20. General Accounting Office, Depot Maintenance: Key Financial 

Issues for Consolidations at Pearl Harbor and Elsewhere Are Still 

Unresolved, GAO-01-19 (January 2001), p. 25.

21. Statement of Vice Admiral Justin D. McCarthy, U.S. Navy, before 

the Readiness Subcommittee of the House Armed Services Committee, April 4, 2006.
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 7

of intermediate-level maintenance facility that would be 

integrated and the extent and nature of the integration. 

The intermediate facilities near the Norfolk and Pearl 

Harbor shipyards work on submarines and surface ships 

(including carriers, in the case of Norfolk). At Puget 

Sound, the nearest intermediate facility works exclusively 

on submarines (primarily Ohio-class ballistic missile submarines). Furthermore, the Navy has no plans to integrate the Portsmouth shipyard with any intermediate 

maintenance facility (including the East Coast’s Trident 

submarine facility in Kings Bay, Georgia), nor is that 

shipyard located near the home ports of any ships. 

(Home-ported ships may request impromptu support 

from nearby shipyards.) 

Comparing Working-Capital Funding 

and Mission Funding 

The Navy believes that mission funding is more effective 

than working-capital funding for financing the operations of shipyards. Specifically, the service maintains that 

mission funding provides operational flexibility and 

allows a fleet to align the shipyards’ work priorities with 

its own requirements. However, observers outside the 

Navy have argued that the move to mission funding eliminates some of the advantages of working-capital funding, 

such as the visibility of total costs. The Office of the Secretary of Defense (OSD), DoD’s Inspector General, and 

the Government Accountability Office (GAO) have 

expressed concern that the Navy has not documented the 

performance of the Pearl Harbor and Puget Sound pilot 

programs well enough and has not developed appropriate 

metrics to objectively compare the shipyards’ performance before and after the transition to mission funding.22 Some critics also argue that the reduction in cost 

reporting associated with those pilot projects may limit 

the amount of information available to the Congress for 

its decisions about appropriations for ship maintenance.

Using the available information and data, CBO examined 

the potential advantages and disadvantages associated 

with aspects of working-capital and mission-funded shipyards, including cost visibility, operational and financial 

flexibility, shipyard performance, capital replenishment 

(the ability to secure enough funds to replace equipment), and economic and performance incentives. CBO 

found no evidence that would definitively favor the use of 

one financing mechanism over the other.

The Basics of Working-Capital Funding

Before the transition to mission funding, all naval shipyards operated under some type of revolving-fund financial system, supporting their continuing operations 

through the income from sales of goods and services to 

their customers.23 The National Security Act Amendments of 1949 first established working-capital funds to 

finance “industrial-type activities.” In 1991, the Secretary 

of Defense created the Defense Business Operations 

Fund, consolidating individual industrial and stock funds 

(which financed parts and goods, such as petroleum) into 

a single revolving fund.24 In December 1996, to more 

clearly establish functional and financial management 

responsibilities across the services, DoD split the Defense 

Business Operations Fund into individual workingcapital funds for the Army, Navy, Air Force, and DoDwide activities.25 The Navy Working Capital Fund consists of “activity groups” (similar to accounts) for depot 

maintenance (aircraft depots still operate under workingcapital funding), supply management, research and development, base support, transportation, and information 

services.

When the shipyards were financed through the Navy 

Working Capital Fund, the Congress annually appropriated funds to the Atlantic and Pacific Fleets for ship 

maintenance and to NAVSEA for modifications and 

conversions. As customers of the working-capital-funded 

shipyards, operational units (primarily the Atlantic and 

Pacific Fleets) “purchased” maintenance services, and 

NAVSEA “purchased” modification and conversion 

services (see Figure 2). The income that each shipyard 

received for the work it performed paid for its operations, including labor, materials, overhead, and capital 

22. General Accounting Office, Depot Maintenance: Status of the 

Navy’s Pearl Harbor Pilot Project, and Depot Maintenance: Key 

Financial Issues; Government Accountability Office, Improvements 

Needed to Achieve Benefits from Consolidations and Funding 

Changes at Naval Shipyards (September 2006); and meetings 

between CBO staff and officials from OSD and the DoD Inspector General’s office, October 2005.

23. See Office of the Secretary of Defense, “Revolving Fund Concept” 

(undated), available at www.dod.mil/comptroller/icenter/dwcf/

revolvingfund.htm.

24. General Accounting Office, Defense Depot Maintenance: 

Challenges Facing DoD in Managing Working Capital Funds, 

GAO/T-NSIAD/AIMD-97-152 (June 1997), p. 6.

25. Ibid.
8 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Figure 2.

How Working-Capital Funding Operates

Source: Congressional Budget Office based on information from the Web site of the Office of the Under Secretary of Defense (Comptroller), 

available at www.dod.mil/comptroller/icenter/dwcf/revolvingfund.htm.

Note: WCF = working-capital funding.

$

$

Department of Defense

Sets budgets for operational

forces to pay for expected

goods and services needed

(such as ship maintenance)

The Congress

Appropriates money to the

Department of the Navy, a

portion of which is earmarked

via line item for operational

forces

Project Order and

Operational Forces and Other

Customers

Send funded orders to Navy

maintenance providers; those

orders are essentially fixed-price

contracts based on the work to be

performed and the WCF rates for 

goods and services

Goods/Services and Bill

Navy WCF Maintenance Provider

• Incurs costs

• Produces goods or services

• Buys parts or services

• Bills the customer at the

 WCF rates

$
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 9

Figure 3.

How Mission Funding Operates

Source: Congressional Budget Office.

depreciation. (Military construction is handled directly 

through military construction appropriations.) 

The shipyards set the rates they charged on the basis of 

their planned workloads and to cover all of their expected 

costs for performing that work (except the direct costs of 

materials, which were billed to customers separately). 

Rates were tailored to particular classes of ships because 

certain classes (most notably nuclear-powered vessels) 

require more maintenance, have higher overhead costs, 

and demand different skills on the part of workers than 

do other classes. The budgets of the shipyards’ customers 

were set to cover the amount of depot-level work they 

expected to purchase at the rates in effect at the shipyards 

for that year. Customers obligated funds to the NWCF to 

cover a project order, fully funding a ship’s maintenance 

before any work began.

The Congress

Appropriates money to the

Department of the Navy, a

portion of which is earmarked

via line item for mission-funded

support units (such as shipyards)

Operational Forces

Request work from Navy

maintenance providers and

negotiate priorities to use the

full resources of those providers

Department of Defense

Sets the budgets for support units

sufficient to pay for the expected

amount of work to be performed

$

Navy Maintenance Provider

Provides maintenance services

for free to the supported

operational forces and does

additional reimbursable work

for other Navy, DoD, federal, and

private parties

$

Requests

Goods/Services
10 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Rates typically remained fixed during a fiscal year, although they could be changed during the year if specific 

financial criteria were met—a relatively rare occurrence.26 Any differences between expected and actual 

demand, or differences between expected and actual costs 

per labor-day, could cause the shipyard to experience a 

net profit or loss. Annual net profits or losses (that is, the 

shipyard’s net operating results) were incorporated into 

its next rate-setting cycle in an attempt to make its future 

accumulated operating result (a cumulative measure of 

net operating results) equal to zero.27 Because shipyards’ 

rates under the working-capital approach included past 

gains and losses, they could change significantly from one 

year to the next.

According to DoD, a primary purpose of its workingcapital funds is to focus attention on the total costs of 

providing a good or service. The revolving funds are 

designed to enable DoD’s activities to operate more like 

businesses, with customers and providers acutely aware of 

the full costs of what they buy and sell and how well they 

are allocating their resources.28 If rates are set correctly, 

customers know the cost consequences of their decisions 

about purchases and will allocate their funds in the most 

effective way to serve their needs.29

The Basics of Mission Funding

Under mission funding, by contrast with the workingcapital fund approach, direct appropriations authorize 

DoD to incur obligations for such designated purposes as 

ship maintenance or modifications.30 The Congress 

appropriates money to the Department of the Navy, a 

portion of which is earmarked (through line items) for 

operating mission-funded support units, such as shipyards. The budgets of those units are set at a level sufficient to pay for the amount of work that the unit is 

expected to perform (see Figure 3 on page 9).

Mission-funded shipyards provide maintenance services 

to the Atlantic and Pacific Fleets at no charge, but they 

receive reimbursement from NAVSEA for the cost of 

modifications and conversions. (Separate direct appropriations fund both capital expenditures and military construction at mission-funded shipyards.) However, the 

NWCF’s procedures no longer govern the rates shipyards 

charge for that reimbursable work. When NAVSEA 

requests a modification or conversion, the shipyard 

charges it only for direct civilian labor and materials, a 

policy consistent with the guidance of the DoD Financial 

Management Regulation (DoDFMR).31 For non-DoD 

customers (such as other federal agencies and private entities), the DoDFMR instructs shipyards to charge a fully 

burdened rate (that is, including all overhead costs). As of 

this writing, the Navy was still developing a method for 

calculating a fully burdened rate for the shipyards’ nonDoD customers.

Cost Visibility

The ability to calculate such financial metrics as a fully 

burdened rate hinges on accurate tallies of shipyards’ 

costs. Moving a shipyard from working-capital to mission 

funding makes cost data less available, CBO finds. 

Because they are not required to do so, most of DoD’s 

mission-funded activities, including shipyards, do not 

track the costs they incur to perform work. DoD’s financial accounting systems track revenues and spending, but 

if shipyards have no need to set rates for customers that 

request work, they make little or no effort to link their 

income and expenditures to the specific work that is 

26. The budget calendar necessitates that shipyards begin calculating 

their rates 18 to 24 months before the fiscal year in which the rates 

will go into effect. For detailed information about the rate-setting 

process, see General Accounting Office, Foreign Military Sales: 

DoD’s Stabilized Rate Can Recover Full Cost, GAO/AIMD-97-134 

(September 1997).

27. The Congress and the Office of the Secretary of Defense have regularly added money to the NWCF or removed it. When such 

transfers occur, the NWCF must adjust its net operating result 

accordingly.

28. For more details about revolving funds, see R. Derek Trunkey and 

Jino Choi, The Defense Business Operations Fund: Problems and 

Possible Solutions, CRM 95-196 (Alexandria, Va.: CNA Corporation, March 1996); W. Brent Boning and Alan J. Marcus, An 

Analysis of the Navy Working Capital Fund (Alexandria, Va.: CNA 

Corporation, June 1999); and Christopher H. Hanks, Will H. 

Horn, and John F. Olio, Stock Fund Operations in the Department 

of Defense, ML 420 (McLean, Va.: Logistics Management Institute, April 1985).

29. Charles J. Hitch and Roland N. McKean, The Economics of 

Defense in the Nuclear Age (Santa Monica, Calif.: RAND Corporation, 1960), p. 225.

30. General Accounting Office, Depot Maintenance: Status of the 

Navy’s Pearl Harbor Pilot Project, p. 5.

31. See Department of Defense, Under Secretary of Defense (Comptroller), Financial Management Regulation, DoD 7000.14-R, vol. 

11A, Chapter 1 (March 1997).
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 11

Table 2.

Examples of Overhead Costs No Longer 

Paid Directly by Shipyards

Source: Congressional Budget Office based on information from 

the Department of the Navy.

performed. (For example, a maintenance facility may 

know the total amount it spends each year on travel but 

not the amount it spends for the travel associated with 

each repair.) In addition, mission-funded activities often 

manage costs separately, according to the type of appropriation (military personnel, operations and maintenance, procurement, and so forth) used to pay for them. 

As a result, calculating the total costs of shipyards’ operations requires identifying and aggregating funds that have 

been appropriated to different accounts.

For example, shipyards do not track costs for overhead as 

closely under mission funding as they did under workingcapital funding. The latter approach required that all 

overhead costs (except those for military construction) be 

accounted for and incorporated into the shipyards’ rates 

for services. Under mission funding, overhead costs are 

paid by a number of commands, and shipyards account 

only for the overhead costs that they pay directly (see 

Table 2).

Working-capital funding, by design, required shipyards 

to identify and track costs in detail, allocating them to the 

work that was performed. Shipyards calculated a cost per 

repair and a cost per labor-day that were then published 

in official reports; currently, mission-funded shipyards do 

not regularly calculate such unit costs because no official 

cost reports are required.32 The Navy maintains that 

costs are still visible after a shipyard moves to mission 

funding, but GAO, OSD, and DoD’s Inspector General 

have reported difficulty in obtaining reliable cost data 

from mission-funded shipyards.33

CBO also experienced problems in obtaining historical 

data from the Navy on its shipyards, especially for Pearl 

Harbor and Puget Sound after their transition to mission 

funding. Initially, CBO requested 10 years’ of detailed 

data (covering the 1996–2005 period), including information on various direct and indirect costs, revenues, 

military and civilian labor-days and number of personnel, 

and capital expenditures and depreciation. (Analysis of 

Pearl Harbor’s operations under working-capital funding 

required data for years prior to 1999.) The Navy provided such data for 2001 through 2005; following 

repeated requests by CBO, it provided data for 1996 to 

2000 but only on each shipyard’s direct and indirect 

costs, number of civilian and military personnel, and 

direct and indirect labor-days. Thus, for its analysis, 

CBO lacked the information to perform detailed comparisons of funding mechanisms over time or to calculate 

all of the desired metrics for evaluating the shipyards’ performance.

There appears to be no inherent reason that prevents 

the Navy from tracking unit costs for mission-funded 

Overhead Type

New Payor Under 

Mission Funding

Navy Marine Corps Intranet Navy fleets

Utilities Chief of Naval Installations

Sustainment, Restoration, and 

Modernization

Chief of Naval Installations

Military Labor Bureau of Naval Personnel

Other Procurement, Navy Naval Sea Systems Command 

or Navy fleets

32. Shipyards funded through the working-capital method were 

required to produce a number of different reports, including an 

annual report to the Congress and quarterly reports to Navy management personnel that contained more than 30 pages of detailed 

data on revenues, costs, hulls in progress, hulls completed, unit 

costs, and labor. No such comprehensive reports exist for missionfunded shipyards, although the Navy provides some data in its 

annual budget justification submissions and in informal, nonstandardized briefings. Some users of the reports produced under 

the working-capital funding system have questioned the value of 

some of the mechanism’s financial metrics. For example, the inclusion of fixed and sunk (nonrecoverable) costs in rates set under the 

working-capital funding method and the double counting of some 

revenue (when a working-capital-funded activity makes purchases 

from another such activity) made it difficult to interpret those 

metrics correctly. See Chris Hanks, “A Critical Examination of the 

DoD’s Business Management Modernization Program,” Proceedings of the 2nd Annual Acquisition Research Symposium, Naval Postgraduate School, Graduate School of Business and Public Policy, 

Monterey, California, May 1, 2005, pp. 393–423.

33. U.S. Pacific Fleet and NAVSEA, Report on Study of Lessons Learned 

and Costs and Benefits of Mission Funding at Pearl Harbor Naval 

Shipyard (October 2003); General Accounting Office, Depot 

Maintenance: Status of the Navy’s Pearl Harbor Pilot Project, and 

Depot Maintenance: Key Financial Issues; and meetings between 

CBO staff and officials from OSD, the DoD Inspector General’s 

office, and Puget Sound shipyard, October 2005.
12 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

activities, but the Navy has no reporting system in place 

to record those expenditures.34 Although implementing 

such a system would involve some expense for administration and training, it would provide information to the 

Navy, OSD, and the Congress that all have found useful 

in assessing the health and performance of an operation 

costing several billion dollars per year and that formerly 

was available when all shipyards were funded through the 

working-capital mechanism. CBO and the Navy have 

identified new shipyard budget reports to improve Congressional monitoring of mission-funded shipyards that, 

if implemented, would force shipyards to track costs 

more closely. Those reports appear in CBO’s Review of 

Proposed Congressional Budget Exhibits for the Navy’s 

Mission-Funded Shipyards (April 14, 2006), which 

includes the Navy’s Report on Proposed Congressional Budget Exhibits for Navy Mission-Funded Shipyards (March 

2006).

Operational Flexibility 

Another important area of comparison between workingcapital funding and mission funding is the flexibility each 

system provides for managing shipyards’ workforces and 

workloads—that is, the ability to move resources (particularly workers) between projects within a shipyard as well 

as between facilities. The Navy believes that mission 

funding is superior to working-capital funding in terms 

of sharing resources, matching the skills of workers with 

the priorities of the fleets, and reallocating funding as 

necessary. 

Sharing resources between maintenance facilities is a critical element of the Navy’s Regional Maintenance Plan. 

Shifting workers between projects, as dictated by the 

Navy’s ship maintenance workload at any given time, can 

mitigate the possibility of labor shortages or surpluses and 

of schedule delays. Under mission funding, labor costs are 

already fully funded, so transferring workers requires a 

minimal amount of paperwork and no exchange of funding documents between the customer and the shipyard. 

By contrast, under the working-capital approach, labor 

costs had to be funded through customer obligations 

before workers could start on a project; consequently, 

sharing resources between projects required more paperwork, and in some cases, the ensuing delay could lead to 

idled workers and delayed maintenance. (One way the 

fleets circumvented that problem under the workingcapital approach was to “buy” a planned number of 

labor-days at the beginning of a fiscal year. Through such 

an arrangement, the Norfolk shipyard, for example, provided about 100 civilian workers to support the nearby 

intermediate-level maintenance facility.)

The need to shift resources is most pronounced when a 

major change in the schedule of availabilities occurs. An 

unscheduled availability for a ship, such as might occur 

after a collision or as a result of an unexpected surge in 

ship deployments because of an armed conflict, could 

generate significant shortages or surpluses of workers.35

Shipyard officials say that under mission funding, they 

have improved their ability to respond to unexpected 

changes in scheduled availabilities. If a ship is damaged, 

mission-funded shipyards can shift resources to that ship 

quickly and easily (most likely by delaying other, less 

urgent availabilities). If a shipyard is scheduled for an 

availability that does not occur, that shipyard can quickly 

direct its resources toward another of its ongoing projects 

or toward projects at other facilities (such as the nearest 

intermediate-level facility).

Yet for decades, shipyards that operated under the 

working-capital funding system responded to similar 

changes in availability schedules—although the requirement to fully obligate funding before work was begun 

sometimes caused inefficiencies. According to the Navy, 

as many as 1,000 skilled workers were left idle at the Norfolk shipyard following the unscheduled deployments of 

ships during Operation Desert Storm. The maintenance 

funds that had been budgeted for the deployed ships were 

not used to finance other work for the fleet because the 

Navy still expected to “induct” the scheduled work into 

the yard before the end of the year. The excess personnel created operating losses that had to be recovered 

through higher rates for services in subsequent years. 

Emergency maintenance needs could be addressed under 

the working-capital approach: A shipyard’s commander 

could establish an unfunded cost order to begin work 

immediately (though at some financial risk to the shipyard), with the expectation that the damaged ship’s fleet 

would soon arrange to reimburse those costs. 34. Naval Postgraduate School, Unit Cost Handbook (undated), available at www.nps.navy.mil/drmi/98handbooks.htm; and Kent 

Miller, “Unit Costing Outside DBOF,” Resource Management 

(May 1992), p. 12.

35. However, depot-level availabilities are not shifted between facilities once the work has been programmed for a particular shipyard.
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 13

Although major shifts in depot-level maintenance schedules can be significant, they seldom occur. Submarines, 

for example, typically do not deviate from their maintenance schedules because they have strict safety requirements. Schedule deviation as a result of extensive damage 

to a ship is infrequent as well. According to data provided 

by the Navy Safety Center, from 1997 to 2006, only 

eight accidents to a ship or submarine generated more 

than $10 million of damage to DoD property. (That 

amount represents the smallest work package typically 

performed at a shipyard.)

The advantage of sharing workers, CBO finds, probably 

affects only a small fraction of a shipyard’s total workforce 

at any given time. According to data provided by the 

Navy and conversations with some of its personnel, the 

use of overtime is the primary means of matching a shipyard’s workload with its workforce—regardless of how the 

facility is being funded. Shipyards typically take on a 

slightly larger workload than they can handle during regular hours, and they make up the difference through 

overtime (see Figure 4). At times, however, shipyards may 

experience shortages or surpluses of specific skills that 

overtime alone will not resolve. Those instances may call 

for sharing workers between facilities.

A potential drawback under mission funding of freely 

shifting workers between shipyards and intermediatelevel facilities is that it may interfere with the Navy’s ability to verify its compliance with the “50-50 rule.” Under 

title 10, section 2466, of the U.S. Code, no more than 

50 percent of the Navy’s annual depot-level maintenance 

may be provided by private contractors.36 Because the 

rule does not apply to intermediate-level maintenance, 

the Navy must distinguish in its recordkeeping between 

the two kinds of work, which may become more difficult 

if resources are shifted between maintenance levels on a 

regular basis. According to the Navy, however, sharing 

resources does not hinder its 50-50 reporting because 

labor costs are assigned to specific maintenance jobs—

which are known as customer order account records, or 

COARs—that are categorized as intermediate- or depotlevel work. (A shipyard generally creates hundreds of 

COARs in a year.)

Operational Performance

To address concerns about whether the Navy has developed appropriate metrics to objectively compare a shipyard’s performance before and after the shift from 

working-capital to mission funding, CBO analyzed a set 

of factors designed to measure performance over time (see 

Table 3). Although no single metric is an accurate gauge 

of the success of shipyards’ operations, CBO chose several 

measures that, when considered together, would provide 

some indication of how well a shipyard is operating. The 

Navy, however, was unable to provide data to support 

analysis of all of those metrics, or the data that it did supply in some cases appeared inconsistent and potentially 

unreliable. CBO thus was able to calculate only the following measures of shipyard operations: schedule adherence, total annual costs, cost per ship availability, burdened labor rate, and administrative efficiency. CBO 

found no link between a shipyard’s funding mechanism 

and its operational performance as indicated by those 

metrics.

Schedule Adherence. Shipyards must complete availabilities on schedule to avoid disrupting the Navy’s operational plans. Availabilities that are delivered late can 

reduce the service’s readiness as well as delay the induction of future availabilities, as incoming ships wait for 

docking space at the shipyard. 

The Navy provided CBO with various data, including 

scheduled and actual completion dates, on individual 

availabilities completed between 1995 and 2005.37 CBO 

calculated the schedule adherence metric by dividing the 

sum of the total amount of time that availabilities at a 

shipyard were late in a given year (determined by comparing actual with scheduled completion dates) by the 

total amount of time worked on availabilities that year 

(see Figure 5 on page 17). (CBO considered early deliveries equivalent to on-time deliveries, because early completion of an availability is probably no more beneficial to 

the Navy’s operational schedule than on-time delivery.) 

According to CBO’s analysis, a shipyard’s funding mechanism does not appear to affect its ability to adhere to its 

schedule.

36. For more information about the 50-50 rule and reporting, see 

General Accounting Office, Depot Maintenance: DOD’s 50-50 

Reporting Should Be Streamlined, GAO-03-1023 (September 

2003).

37. The Navy’s data for some availabilities lacked either the scheduled 

or actual completion dates. CBO thus omitted those availabilities, 

which occurred primarily during the 2004–2005 period, from its 

metric calculation.
14 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Figure 4.

Shipyards’ Use of Overtime to Increase Available Labor

(Available workforce, in thousands)

Continued

Caution regarding that finding is warranted, however, 

because the data on availabilities may be inconsistent. 

The Navy provided the data in two separate sets and at 

different times; one set covered availabilities between 

1995 and 2001, and the other, those between 2001 and 

2005. Data on availabilities in 2001 (the overlapping 

year) in one data set did not always match data for 2001 

in the other set. Consequently, CBO cannot determine 

whether the apparent Navy-wide improvement in schedule adherence that began in 2002 is due to a genuine 

reduction in the number of availabilities completed late 

or whether it reflects other factors, such as late availabilities that went unreported, planned schedules that were 

inflated, or inconsistencies in the data. 

Quality of Work. Another significant metric of shipyard 

performance is the quality of the work performed. Maintenance and repair work done right the first time prevents 

duplication of effort during an availability and after its 

delivery, eliminating reworking that can cause delays and 

generate additional labor and material costs. The Navy 

did not provide CBO with the kind of data needed to 

consistently measure the quality of work across all shipyards and over time. (Such data probably do not exist for

Oct.

2000

Jan.

2001

Apr.

2001

Jul.

2001

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Jan.

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Apr.

2002

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2

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8

Straight-Time Direct Labor

All Direct Labor with Overtime

Oct.

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Norfolk

Puget Sound

All Direct Labor with Overtime

Straight-Time Direct Labor
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 15

Figure 4.

Continued

(Available workforce, in thousands)

Source: Congressional Budget Office based on data from the Department of the Navy.

a. Workforce data for 2003 are missing.

mission-funded shipyards.) Both the Navy and CBO 

have proposed metrics that could be used in the future to 

assess quality, including the amount of labor required to 

correct deficiencies in work, the readiness levels of ships 

and submarines serviced at the shipyards, and the percentage of sea trials that are successfully completed on the 

first attempt following the maintenance work.38

Cost Management. Several metrics indicate how well a 

shipyard is controlling costs. An overall cost metric, total 

annual costs, measures all direct and indirect costs of 

operating a shipyard (see Figure 6). Such a metric 

requires the consistent inclusion of costs across shipyards 

and over time, and CBO is uncertain whether the data 

that the Navy provided meet that requirement. As 

Oct.

2000

Jan.

2001

Apr.

2001

Jul.

2001

Oct.

2001

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2002

Apr.

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Portsmoutha

All Direct Labor with Overtime

Straight-Time Direct Labor

38. See Congressional Budget Office, Review of Proposed Congressional 

Budget Exhibits for the Navy’s Mission-Funded Shipyards (April 

2006); and (included in CBO’s report) Department of the Navy, 

Report on Direct Funding for Puget Sound Naval Shipyard and 

Report on Proposed Congressional Budget Exhibits for Navy MissionFunded Shipyards (March 2006).
16 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Table 3.

Performance Metrics for Shipyards

Source: Congressional Budget Office. 

Metric Calculation Potential Weaknesses of Metric Result

Schedule Adherence

Deviation from 

Planned Schedule

Total weeks late divided 

by total scheduled 

weeks

• Sample is small

• Factors outside of shipyards’ control may 

cause deviation from schedule

• Planned schedule could be inflated to 

influence metric

Funding mechanism does not 

appear to affect performance

Quality of Work

Rework Required to 

Correct Work 

Deficiencies

Rework labor-days 

divided by total direct 

labor-days

• Reliable historical data may not be available No consistent data available 

across shipyards or over time

Ship Readiness No agreed-upon metric 

that links maintenance 

to readiness

• Changes in ship readiness may be due to 

factors other than shipyards’ performance

• Reliable historical data may not be available

No consistent data available 

across shipyards or over time

Cost Management

Total Annual Costs Sum of direct and 

indirect military and 

civilian labor, direct 

materials, and overhead 

costs

• Shipyards must include the same cost 

categories over time

• Mission-funded shipyards may have difficulty 

calculating overhead costs

Funding mechanism does not 

appear to affect performance; 

CBO cannot verify that the 

Navy’s data are consistent 

across shipyards or over time

Burdened Labor 

Rate

Total annual costs 

divided by total annual 

direct labor-days

• Shipyards must include the same cost 

categories

• Mission-funded shipyards may have difficulty 

calculating overhead costs

CBO cannot separate the effect 

of merging intermediate- and 

depot-level facilities from the 

funding mechanism’s effect

Cost per Ship 

Availability

Direct labor-days 

worked on a ship 

multiplied by the 

burdened labor-day rate

• Sample is small

• Availabilities, even within a ship class, have 

varying work requirements

• Mission-funded shipyards may have difficulty 

calculating a burdened rate

• Mission-funded shipyards may have difficulty 

distinguishing between intermediate- and 

depot-level costs

Funding mechanism does not 

appear to affect performance 

Administrative Efficiency

Ratio Between 

Direct and Total 

Labor-Days

Direct labor-days 

divided by total labordays

• Mission-funded shipyards may have difficulty 

distinguishing between intermediate- and 

depot-level labor-days

• Metric may encourage shipyards to 

categorize most costs as direct

Funding mechanism does not 

appear to affect performance
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 17

Figure 5.

Shipyards’ Schedule Adherence

(Ratio of total weeks late to total weeks scheduled)

Source: Congressional Budget Office based on data from the Department of the Navy.

Notes: Breaks in the data for Puget Sound and Pearl Harbor Shipyards indicate the facilities’ transition to mission funding.

WCF = working-capital funding.

previously discussed, the transition to mission funding 

shifted the responsibility for some of the shipyards’ overhead costs to other offices; the data that CBO received 

may not uniformly account for those costs. Also, the total 

cost data for the Puget Sound and Pearl Harbor shipyards 

include intermediate-level costs incurred in the years following the two shipyards’ switch to mission funding. 

Nevertheless, under the assumption that the data are reasonably accurate, the metric indicates that total annual 

costs have generally increased for all shipyards and have 

not been noticeably affected by the shift to mission 

funding.

A second metric that can help indicate how well shipyards are controlling costs is the fully burdened labor-day 

rate, calculated by dividing total costs by total direct 

labor-days (see Figure 7). Essentially, the fully burdened 

labor rate of a shipyard is its total costs adjusted for the 

amount of work performed. (Because of their smaller size, 

Portsmouth and Pearl Harbor shipyards generally have 

higher labor rates than the other two shipyards because 

the smaller yards’ fixed overhead costs are distributed 

across fewer labor-days.) Pearl Harbor and Puget Sound, 

after their transition to mission funding and their integration with intermediate-level facilities, experienced a 

decrease in their burdened rates. CBO believes, however, 

that those drops can be explained by changes in the types 

of labor and costs included in the metric. (Specifically, 

the fully burdened labor rate of integrated maintenance 

facilities includes intermediate-level labor-days, but some 

of the intermediate-level indirect costs may have been 

omitted, thus inflating the metric’s results.)

The final cost metric that CBO analyzed was a calculation of costs per availability. To compare costs across shipyards, CBO controlled for the type of availability and the 

class of the ship. For only one combination of those classifiers—DSRA maintenance on Los Angeles-class submarines—did CBO have adequate data for a comparison 

(see Figure 8).39 Those data show considerable variability 

in costs per availability, which is probably the result of 

differences in the specific maintenance needed for each

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0

5

10

15

20

25

30

Puget Sound

(Mission funding)

Portsmouth

Pearl Harbor

(WCF)

Pearl Harbor

(Mission funding)

Norfolk

Puget Sound

(WCF)

39. DSRAs (docking selected restricted availabilities) are regularly 

scheduled depot-level maintenance for submarines. Types of availabilities are described in Department of the Navy, Office of the 

Chief of Naval Operations, OPNAV Instruction 4700.7K
18 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Figure 6.

Shipyards’ Total Annual Costs

(Billions of 2006 dollars)

Source: Congressional Budget Office based on data from the Department of the Navy.

Notes: Data on total costs for the Puget Sound and Pearl Harbor Shipyards, as provided by the Navy, include intermediate-level maintenance 

costs in the years following the shipyards’ switch to mission funding. Breaks in the data for those shipyards indicate the facilities’ transition to mission funding.

WCF = working-capital funding.

ship (no two availabilities are exactly the same). However, 

the data indicate no relationship between a shipyard’s 

funding mechanism and its cost performance on a peravailability basis.

Administrative Efficiency. The ratio between direct labordays and total (direct plus indirect) labor-days can indicate a shipyard’s administrative efficiency—that is, how 

efficient it is in using its workforce (see Figure 9 on 

page 21). Direct labor-days are those used in performing 

actual maintenance, either on specific availabilities or on 

more-general equipment maintenance. Indirect labordays are those used on any tasks other than maintenance, 

such as management, office support, and administration.

The data show that the share of direct labor-days generally increased at all shipyards between 1996 and 2005. An 

increase in the total direct labor-days (the numerator in 

the metric) was the primary cause of the measured 

improvements in administrative efficiency, although in 

the case of Puget Sound, another contributor may have 

been a sharp decline in indirect labor-days, which the 

shipyard experienced between the years 1996 and 2000. 

The shift to mission funding has not noticeably affected 

this metric.40

Capital Replenishment

Some observers worry that mission-funded shipyards will 

find it difficult to secure appropriations for their capital 

expenses (purchases for such items as dock cranes and 

machining equipment). Shipyards that operated under 

working-capital funding made their own plans for replacing capital items and included the cost of needed equip1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Norfolk

Pearl Harbor (WCF)

Pearl Harbor

(Mission funding)

Portsmouth

Puget Sound

(Mission funding)

Puget Sound (WCF)

0

40. Performance metrics generally indicate that Pearl Harbor’s operations are not as efficient as those of the other naval shipyards. 

Officials at Pearl Harbor speculate that its worse-than-average performance may arise from a number of factors, including the shipyard’s smaller size (leading to fewer economies of scale), a smaller 

local workforce from which to hire, a large number of homeported submarines that require rapid turnaround maintenance 

(possibly at the expense of other availabilities), and more repairs 

resulting from corrosion (because of the warmer water). According 

to the Navy, those problems predate Pearl Harbor’s transition to 

mission funding.
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 19

Figure 7.

Shipyards’ Burdened Labor-Day Rates

(2006 dollars)

Source: Congressional Budget Office based on data from the Department of the Navy.

Notes: The burdened labor-day rate equals total costs divided by total direct labor-days.

Breaks in the data for Puget Sound and Pearl Harbor Shipyards indicate the facilities’ transition to mission funding.

WCF = working-capital funding.

ment in their rates. By contrast, under mission funding, 

shipyards must compete with other components of the 

Navy for money from within the “Other Procurement, 

Navy” accounts. On the basis of the data available on 

shipyards’ capital spending (which cover only aggregate 

expenditures over the past 10 years), CBO found that the 

level of capital-expense funding appears to be independent of a shipyard’s financing system (see Table 4). However, it could be argued that the data for the Pearl Harbor 

and Puget Sound shipyards under mission funding are 

inconclusive, because they cover a period that is less than 

the average service life of those shipyards’ equipment.

Incentives for Shipyards’ Customers and Managers

Working-capital funding and mission funding introduce 

different economic and performance incentives for shipyards’ customers and managers.41 Either financing mechanism may encourage customers to make inefficient decisions: Working-capital funding may lead to the underutilization of shipyards, whereas mission funding may 

lead to their overutilization. Additionally, the fleets have 

increased their influence under mission funding, in terms 

of planning and prioritizing work at the shipyards.

One criticism of working-capital funding has been that, 

in an effort to focus attention on total costs, shipyards 

under such systems set rates for their services by using 

expected-average-cost pricing rather than marginal-cost 

pricing.42 The rates shipyards charged customers under 

working-capital funding were based on total projected 

costs—including the accumulated results of prior years—

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0

200

400

600

800

1,000

1,200

Norfolk

Pearl Harbor (WCF) Pearl Harbor

(Mission funding)

Portsmouth

Puget Sound

(Mission funding)

Puget Sound (WCF)

41. A number of papers have thoroughly addressed the economics of 

revolving funds, including Boning and Marcus, An Analysis of the 

Navy Working Capital Fund; Edward G. Keating, RAND Research 

Suggests Changes in Department of Defense Internal Pricing, IP-216-

DFAS (Santa Monica, Calif.: RAND, 2001); Edward G. Keating 

and others, Challenges in Defense Working Capital Fund Pricing: 

Analysis of the Defense Finance and Accounting Service (Santa Monica, Calif.: RAND, 2003); William P. Rogerson, On the Use of 

Transfer Prices Within DoD (McLean, Va.: Logistics Management 

Institute, 1995); and Trunkey and Choi, The Defense Business 

Operations Fund.

42. In general, basing prices on marginal costs will lead to efficient 

decisions. See Jack Hirshleifer, “On the Economics of Transfer 

Pricing,” Journal of Business, vol. 29, no. 3 (July 1956), p. 172. 
20 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Figure 8.

Average Costs to Perform DSRA-Type Maintenance on 

Los Angeles-Class Submarines

(Millions of 2006 dollars)

Source: Congressional Budget Office based on data from the Department of the Navy.

Notes: No data were available for the Puget Sound Shipyard under mission funding.

DSRA = docking selected restricted availability; WCF = working-capital funding.

and projected workloads for a given year.43 Total costs 

thus included fixed and sunk costs that were independent 

of the amount of work the shipyards performed, as well as 

costs that varied according to shipyards’ workloads. Consequently, the prices that shipyards charged customers for 

a specific task exceeded the marginal (additional) cost of 

the work performed. If customers viewed those rates as 

too high, they might have reduced the scope of work they 

wanted performed at the shipyard, deferred maintenance, 

or (if possible) shifted to a new maintenance provider 

(such as an intermediate-level maintenance facility) that 

operated under mission funding and did not include 

fixed costs in its prices.44

Despite some customers’ perception that mission-funded 

maintenance providers are less expensive than shipyards 

operating under a working-capital system, the total cost 

to the Navy of performing a maintenance task (including 

all fixed costs) might be higher or lower at a missionfunded facility. Thus, if customers had avoided shipyards 

whose rates were set under a working-capital system, they 

might inadvertently have selected a more costly maintenance provider. For shipyards operating under workingcapital funding, lost business might have created dips in 

workload and excess labor capacity—and, when a net 

operating loss occurred, surcharges that would be 

included in future rates to recoup losses. Analysts proposed several changes to mitigate those problems, such as 

introducing “membership dues” to cover fixed costs, 

allowing regular adjustments to rates during a fiscal year, 

and returning profits (or charging losses) directly to the 

fleet or to the Chief of Naval Operations. Those suggested changes, however, were not implemented at the 

naval shipyards.

There are some characteristics of naval ship maintenance 

that weaken the pricing incentives of working-capital 

funds. Because the Navy’s ship facilities as well as those in 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0

5

10

15

20

25

30

35

Norfolk

Pearl Harbor (WCF)

Pearl Harbor (Mission funding)

Portsmouth

Puget Sound (WCF)

43. Because rates under the working-capital system were set more 

than a year in advance, they did not necessarily reflect current 

costs.

44. Another general criticism of activities that operate under workingcapital funding is that their prices are the same for different types 

of work. As a result, because some types of work are inherently 

more expensive than others to perform, working-capital funding 

may lead to the subsidization of some customers by others. However, the fact that the Navy’s shipyards tailor their rates on the 

basis of a ship’s class reduces customer cross-subsidization.
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 21

Figure 9.

Shipyards’ Administrative Efficiency

(Ratio of direct labor-days to total labor-days)

Source: Congressional Budget Office based on data from the Department of the Navy.

Notes: Breaks in the data for Puget Sound and Pearl Harbor Shipyards indicate the facilities’ transition to mission funding.

WCF = working-capital funding.

the private sector tend to specialize in certain types of vessels and maintenance work, and because the fleets tend to 

align themselves with shipyards on one coast or the other, 

competition among providers is limited. Also, work is 

assigned to shipyards years in advance, and the Navy 

actively spreads work across the shipyards to maintain 

their capabilities. Consequently, shipyard assignments are 

primarily driven by a facility’s location and docking 

space, not by price. 

Pricing under mission funding, by contrast, may encourage customers to overutilize a shipyard. Once a missionfunded shipyard receives its annual appropriation, the 

cost to the fleet of repairing a ship there is zero (other 

than waiting time). For reimbursable work, shipyards 

currently charge customers only for direct labor and 

materials—they do not charge a fully burdened rate.45

Low prices encourage customers to send as much work to 

mission-funded shipyards as possible and virtually guarantee that the shipyards’ available labor will always be 

busy. However, in that case, customers may requisition 

work that they would not request if they were directly 

responsible for paying for its full cost, leading to inefficient use of the Navy’s resources. 

The mechanism used to fund a shipyard’s operations may 

also affect the relative influence of customers and shipyards on its prioritization of work. Under working-capital 

funding, shipyards made most of the decisions about how 

to prioritize the work that was currently at the yards, 

decisions that emphasized schedule deadlines and net 

operating results. Under mission funding, the fleets are 

more involved in decisions about shipyards’ workloads, 

and the priorities of the shipyards align more closely with 

those of the fleet. According to the shipyards and the 

fleets, more joint decisionmaking about maintenance 

schedules occurs under the mission funding system than 

occurred under the working-capital approach. The way 

work is prioritized and the influence of customers under 

mission funding have led to a few cases of shipyards’ 

moving a substantial number of workers from one availability to another to complete the former availability early 

at the expense of the latter’s being late. That situation seldom occurred in shipyards operating under a working1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

0.0

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Norfolk

Pearl Harbor (WCF)

Pearl Harbor

(Mission funding) Portsmouth

Puget Sound

(Mission funding) Puget Sound (WCF)

0

45. The cost of direct labor and materials may approximate the marginal cost of a maintenance job.
22 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

Table 4.

Shipyards’ Capital Expenditures

(Millions of 2006 dollars)

Source: Congressional Budget Office based on data from the Department of the Navy.

Note: * = not applicable.

a. The Portsmouth Shipyard experienced a substantial increase in capital expenditures in 2002, largely as a result of a $57 million purchase 

of Enterprise Resource Planning software and hardware for use at all naval shipyards. 

capital funding system.46 Because the fleets’ priorities are 

more likely to reflect current operational needs, mission 

funding may lead to better use of the Navy’s resources.

However, dividing a mission-funded shipyard’s workload 

along financial lines—between work from the fleet and 

reimbursable work from NAVSEA—may cause work to 

be prioritized according to its funding rather than its 

urgency or importance. The funds allocated by the fleet 

for operation of the shipyard are generally fixed for the 

fiscal year. If some work for the fleet that was planned for 

a certain year cannot be performed during that time, the 

work is simply carried over to the next year. But the funds 

that the shipyard receives from NAVSEA for work done 

on a reimbursable basis are only due when the work is 

finished—although generally, funds are paid out periodically, as milestones are reached. If a shipyard plans to perform a certain amount of reimbursable work but is not 

able to actually perform that work and collect payment 

for it, the shipyard may expend more funds than it has 

available, a potential violation of the Antideficiency 

Act.47 Thus, mission-funded shipyards may prioritize 

work on the basis of its funding (reimbursable versus mission funding) rather than on the operational needs of the 

fleet or the shipyard. When shipyards operated under 

working-capital funding, there was no such distinction 

between carrying over work from the fleets or from 

NAVSEA.

Working-capital funding and mission funding also provide incentives to shipyards to improve their performance—but through different mechanisms. Under 

working-capital funding, a shipyard’s customers and 

managers might have instigated improvements. If customers considered prices too high, they might have complained to the shipyard, deferred maintenance, or 

reduced the scope of work. Moreover, because all costs 

under working-capital funding were identified and tallied 

to determine rates for work, managers had access to a 

variety of cost measures for use as performance metrics. 

At the Department of the Navy and DoD levels, managers could keep tabs on the total costs of operating the 

shipyard in the context of overall budgets. At the facility 

level, managers could identify abnormally high costs for 

performing particular kinds of work and in turn seek efficiencies.48 Examining a shipyard’s rates over time offered 

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Working-capital funding 4.2 14.0 7.9 * * * * * * *

Transition year * * * 12.0 * * * * * *

Mission funding * * * * 6.4 22.0 25.2 25.7 16.9 9.2

18.0 10.7 20.7 16.5 10.8 15.8 18.0 11.4 * *

* * * * * * * * 23.5 9.7

19.0 23.4 22.4 21.6 44.7 17.2 35.6 17.3 16.5 21.6

13.4 10.6 4.1 8.5 5.5 34.7 84.1 16.5 5.6 3.6

Shipyard

Portsmouth (Working-capital funding)a

Pearl Harbor

Puget Sound

Working-capital funding

Mission funding

Norfolk (Working-capital funding)

46. Statement of Vice Admiral Justin D. McCarthy, April 4, 2006.

47. An overview of the provisions of the Antideficiency Act is provided in Government Accountability Office, A Glossary of Terms 

Used in the Federal Budget Process, GAO-05-734SP (September 

2005). The law itself can be found at 31 U.S.C. 1341.

48. The Navy’s shipyards do not face the same profit motives as do 

private firms, which may reduce the shipyards’ incentive to control costs. See Trunkey and Choi, The Defense Business Operations 

Fund, p. 25.
COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS 23

an indication of whether performance was improving or 

worsening. If a shipyard consistently operated over or 

under its capacity, such information might have signaled 

that the shipyard was incorrectly sized.

Under mission funding, the Atlantic or Pacific Fleet, as 

the shipyard’s owner and primary customer, is largely 

responsible for instituting improvements in a facility’s 

performance. If a shipyard’s productivity improves, the 

fleet as the customer can direct additional work to it. 

Alternatively, the fleet as the owner can reprogram the 

savings from that improvement for other uses. Yet the 

absence under mission funding of established, detailed 

cost accounting may make it difficult for the fleet to 

determine the full cost of operating the shipyard, the 

costs of specific maintenance tasks, and the operational 

areas most in need of improvement. Furthermore, a shipyard’s poor performance may be considered a minor issue 

in the context of the fleet’s total operations and budget. 

As noted earlier, a mission-funded shipyard is always busy 

because once it has been funded, the incentive for the 

fleet is to get as much work as possible from it. Thus, no 

workload indicator is available to determine whether the 

shipyard is appropriately sized. Properly sizing a shipyard 

requires additional analysis, whereby the fleet (or the 

Navy) weighs the value of the work being performed 

against its cost, a comparison that is not as readily visible 

under mission funding as under the working-capital 

approach.

Other Issues

CBO examined several other issues associated with the 

Navy’s shift from working-capital funding to mission 

funding of its shipyards. When a shipyard switches to 

mission funding, the Navy must pay for assets whose 

value the Navy Working Capital Fund has not yet recovered. Those costs, known as buyout costs, include undepreciated capital assets, accrued employee leave, accounts 

payable less accounts receivable, and accumulated operating results. Buyout costs arise because costs under the 

working-capital funding system and reimbursements 

from customers may occur at different times, which 

means that at any given moment, the NWCF’s balance 

could be high or low relative to the final cost of and reimbursement for any given work. Initial estimates of the 

total costs to buy out all four of the Navy’s shipyards 

ranged widely, from about $50 million to $500 million. 

Since CBO’s interim report in December 2005, however, 

the Navy has stated that it will work closely with the 

Defense Finance and Accounting Service to “close out the 

NWCF shipyard accounting records and determine the 

final exit costs to transfer the shipyards from the 

NWCF.”49 The Navy’s Report on Direct Funding for Puget 

Sound Naval Shipyard contained estimated buyout costs 

for the Norfolk and Portsmouth shipyards.

Another concern associated with mission-funded shipyards has been that delays in direct appropriations could 

harm the continuity of their operations between fiscal 

years. Such a scenario could arise in several circumstances: if the Congress failed to appropriate money at 

the beginning of a year (and also failed to pass a continuing resolution that continued the prior year’s funding 

until a specified date), if a shipyard exhausted its appropriations because its expenses for work were greater than 

it expected, or if money that was initially appropriated for 

a shipyard was reprogrammed to pay for other needs. 

Under working-capital financing systems, funds usually 

carry over to the next year (subject to certain limitations).50 However, the Navy claims that working-capitalfunded shipyards only had enough cash to operate for a 

short period after their customers’ appropriated dollars 

ran out.51 Furthermore, the Navy believes that funding 

gaps do not present more of a problem for missionfunded shipyards than for working-capital facilities, 

because at mission-funded shipyards, as much as 30 percent of the workload will be financed on a reimbursable 

basis rather than by direct annual appropriations and neither the Pearl Harbor nor the Puget Sound shipyard has 

experienced a funding gap during its years of mission 

funding.52

A last issue is that working-capital and mission funding 

approaches differ in their methods for addressing shortfalls in funding. If a shipyard funded under the working49. Department of the Navy, Report on Direct Funding for Puget Sound 

Naval Shipyard, p. 7, which is included in Congressional Budget 

Office, Review of Proposed Congressional Budget Exhibits for the 

Navy’s Mission-Funded Shipyards.

50. Department of Defense, Under Secretary of Defense (Comptroller), Financial Management Regulation, vol. 2B, Chapter 9, p. 9-32 

(June 2006).

51. Department of the Navy, Report on Direct Funding for Puget Sound 

Naval Shipyard, pp. 7–8.

52. Ibid.
24 COMPARING WORKING-CAPITAL FUNDING AND MISSION FUNDING FOR NAVAL SHIPYARDS

capital method received less work than expected (and 

consequently less funding), that shortfall would be 

reflected in future years in the form of higher labor rates. 

If a mission-funded shipyard experiences an unexpected 

drop in funding, the facility must reduce costs during the 

current year to keep from violating the Antideficiency 

Act. In contrast, working-capital funding allowed shipyards to soften the blow of shortfalls by recouping them 

across multiple years. However, that seeming advantage 

may also have inhibited the implementation of near-term 

financial or operational improvements.