CONGRESSIONAL BUDGET OFFICE Douglas Holtz-Eakin, Director

U.S. Congress

Washington, DC 20515

www.cbo.gov

December 1, 2005

Honorable Joel Hefley

Chairman

Subcommittee on Readiness

Committee on Armed Services

U.S. House of Representatives

Washington, DC 20515

Dear Mr. Chairman:

In response to your request, the Congressional Budget Office (CBO) has assessed the two

financial mechanisms—working-capital funding and mission funding—that the Navy uses to

fund its four shipyards. CBO compared the two approaches on the basis of the operational and

financial flexibility they may provide to the Navy. CBO also compared the types of cost and

performance data that are now reported to the Congress for the working-capital-funded and

mission-funded shipyards and investigated whether the provision of more-detailed data would be

feasible and could assist Congressional oversight. In addition, CBO considered the implications

of both approaches for funding capital improvements at the Navy’s shipyards.

The enclosure describes the interim results of the ongoing analysis by CBO’s National Security

Division. CBO plans to provide a complete report to the Committee in the spring of 2006. If you

would like further details at this time, we would be pleased to provide them. The enclosed

analysis was prepared by Daniel Frisk, who can be reached at (202) 226-2761, and by R. Derek

Trunkey, who can be reached at (202) 226-2916.

Sincerely,

Douglas Holtz-Eakin

Enclosure

Identical letter sent to the Honorable Solomon Ortiz

cc: Honorable Duncan Hunter

Chairman

House Committee on Armed Services

Honorable Ike Skelton

Ranking Member

House Committee on Armed Services
Honorable Joel Hefley

Page 2

cc: Honorable John Warner

Chairman

Senate Committee on Armed Services

Honorable Carl Levin

Ranking Member

Senate Committee on Armed Services

Honorable Jim Nussle

Chairman

House Committee on the Budget

Honorable John M. Spratt, Jr.

Ranking Member

House Committee on the Budget

Honorable Judd Gregg

Chairman

Senate Committee on the Budget

Honorable Kent Conrad

Ranking Member

Senate Committee on the Budget
The Congress of the United States O Congressional Budget Office

Comparing Working-Capital Funding

and Mission Funding for Naval Shipyards:

An Interim Report

December 1, 2005
Note

Unless otherwise indicated, all years referred to in this report are federal fiscal years.
1

Introduction and Summary

The Navy currently owns and manages 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. Each of those facilities operates under one of two distinct financial systems. The Norfolk and Portsmouth shipyards are financed through 

the Navy Working Capital Fund (NWCF), a revolving-fund mechanism under which 

Navy units pay for maintenance and repair services at a shipyard out of their appropriated funds, at prices that are intended to cover the shipyard’s full operating costs. The 

Puget Sound and Pearl Harbor shipyards, which had been under the NWCF, are now 

funded through direct appropriations, an approach known as “mission funding.”

Naval shipyards have operated under some form of revolving-fund financial system 

for decades. As part of the Navy’s ongoing Regional Maintenance Plan, however, Pearl 

Harbor was shifted from working-capital funding to mission funding on October 1, 

1998, and Puget Sound on October 1, 2003.1

 The Navy intends to move the Norfolk 

and Portsmouth shipyards to mission funding “at the earliest possible date.”2

At the request of the House Committee on Armed Services, the Congressional Budget 

Office (CBO) is studying the advantages and disadvantages of working-capital funding and mission funding in general and as they apply to naval shipyards in particular. 

Critics have expressed concern that mission funding makes shipyards’ costs and operations less visible and reduces shipyards’ ability to obtain capital to replace equipment 

and make improvements. This document is an interim report on CBO’s study. The 

Navy continues to respond to requests for information and data on the costs and 

operations of the shipyards. Once CBO has that information and data, it will be able 

to more fully address all of the issues associated with shipyard funding mechanisms, 

which will be incorporated into a final report.

CBO’s preliminary findings indicate that both working-capital and mission funding, 

as currently managed, have strengths and weaknesses as shipyard funding systems. 

B Working-capital funding requires shipyards to track and report their costs in order 

to determine operating results (profits or losses) and future billing rates. Mission 

funding reduces the availability of data on shipyards’ costs to Navy headquarters 

and the Congress, in part because appropriate cost reports have not been requested 

1. The Navy’s Regional Maintenance Plan consists of three phases: 1) consolidating intermediatelevel activities to optimize intermediate-level maintenance, 2) integrating intermediate- and depotlevel activities, and 3) conducting fleet maintenance using a single maintenance process. The Pearl 

Harbor and Puget Sound transitions to mission funding are part of phase 2. For more details, see 

Department of the Navy, Report to Congress: Pearl Harbor Regional Maintenance Pilot (May 2001); 

and General Accounting Office (now the Government Accountability Office), Depot Maintenance: 

Status of the Navy’s Pearl Harbor Pilot Project, GAO/NSIAD-99-199 (September 1999). 

2. U.S. Pacific Fleet and Naval Sea Systems Command, Report on Study of Lessons Learned and Costs 

and Benefits of Mission Funding at Pearl Harbor Naval Shipyard: Discussion of Public Shipyard 

Alternatives/Effects (October 2003), p. 4.
2

or developed. There does not appear to be any reason why costs could not be 

tracked for mission-funded activities. CBO has designed a summary table 

(included at the end of this document) that could serve as a template for shipyards’ 

potential reports to the Congress, regardless of their funding mechanism.

B Mission funding can help the Navy smooth out a shipyard’s workload—thus 

reducing the probability that workers will be idle—and can make it easier to share 

workers among maintenance facilities. Although those actions are also possible 

under working-capital funding, the required paperwork and funding transfers 

could, in some cases, cause delays in their execution.

B The available data indicate no relationship between a shipyard’s funding system 

and its level of capital expenditures.

B Because of differences in the costs borne by customers under each system, workingcapital funding can lead to underuse of shipyard capacity, whereas mission funding 

can lead to overuse.

Maintenance of Navy Ships

The Navy classifies ship maintenance activities as organizational-, intermediate-, or 

depot-level.3 Organizational-level maintenance, which involves routine tasks such as 

inspection, lubrication, and assembly of minor parts, is typically conducted by a ship’s 

crew without external assistance. Intermediate-level maintenance, which is performed 

by Navy and civilian personnel at designated facilities (including on tender ships), 

requires more-specialized work on ships’ systems and equipment. Depot-level maintenance, which is usually carried out by civilians at shipyards, involves the most exhaustive work, such as ship overhauls, alterations, refits, restorations, and major repairs.4

Shipyards generally possess the equipment and skills present at intermediate-level 

facilities, but intermediate facilities cannot duplicate all of a shipyard’s capabilities.5

Individual shipyards and intermediate facilities tend to work on specific classes of 

ships (see Table 1).

The Navy also classifies maintenance work by what it calls availabilities (based on 

when a ship is available for maintenance). A “fleet maintenance activity availability” 

occurs when a ship is at its home port for short periods between operations; a “Chief 

of Naval Operations (CNO) maintenance availability” occurs when a ship is scheduled to be at a naval or private shipyard for an extended period.6 Unscheduled avail3. Department of the Navy, Naval Doctrine Publication 4: Naval Logistics (1995), p. 28.

4. Department of the Navy, Fiscal Year 2006/FY 2007 Budget Estimates: Navy Working Capital Fund 

(February 2005).

5. General Accounting Office, Depot Maintenance: Key Financial Issues for Consolidations at Pearl 

Harbor and Elsewhere Are Still Unresolved, GAO-01-19 (January 2001), p. 22.

6. Department of the Navy, Joint Fleet Maintenance Manual (October 7, 2005), pp. II-I-1B-1, 

II-I-3-3, and II-I-4-8. There are also subcategories of availabilities for types of maintenance, such 

as overhaul, refueling, or conversion.
3

Table 1.

The Navy’s Depot- and Intermediate-Level Maintenance 

Facilities

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

Note: These facilities exclude tender ships.

a. Facilities merged to become Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility.

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

c. Facilities merged to become Puget Sound Naval Shipyard and Intermediate Maintenance 

Facility.

shipsb

Facilityc

Maintenance Center and Naples, Italy)

 Maintenance Facilitya ships

Maintenance Facility

Maintenance Facility (Detachment in Pascagoula, Miss.)

Maintenance Facility

Types of Ships Maintained

Depot-Level Maintenance

Intermediate-Level Maintenance

Trident Refit Facility Kings Bay, Ga. Ballistic missile submarines

Any type of Navy ship

Nuclear submarines and nonnuclear surface 

Nuclear attack submarines

Any type of Navy ship

Southeast Regional Mayport, Fla. Surface ships and nonnuclear aircraft carriers

Southwest Regional San Diego, Calif. Any type of Navy ship

Ship Repair Facility Yokosuka, Japan Nonnuclear surface ships

South Central Regional Ingleside, Tex. Minesweepers

Ballistic missile submarines

Pearl Harbor Intermediate Pearl Harbor, Hawaii

Nuclear attack submarines

Nuclear submarines and nonnuclear surface 

Mid-Atlantic Regional Norfolk, Va. Any type of Navy ship (Detachments in Bahrain

Naval Ship Support Facility New London, Conn.

Puget Sound Naval Shipyardc Bremerton, Wash.

Intermediate Maintenance Bangor, Wash.

Facility

Norfolk Naval Shipyard

Pearl Harbor Naval Shipyarda

Portsmouth Naval Shipyard

Portsmouth, Va.

Pearl Harbor, Hawaii

Kittery, Maine

Location
4

abilities—such as when a ship sustains battle damage or runs aground—can also arise. 

CNO availabilities typically involve depot-level maintenance performed at shipyards, 

whereas fleet availabilities generally involve organizational- and intermediate-level 

maintenance conducted at the ship’s home port. However, any backlog of maintenance—regardless of level—is likely to be taken care of while a ship is at a shipyard. 

Also, shipyards send their employees to support fleet availabilities when necessary.

Navy Maintenance Facilities

The Navy’s four shipyards performed a total of 4.0 million labor-days of direct work 

in fiscal year 2005.7

 That work cost a total of about $3.1 billion, according to CBO’s 

preliminary estimates—or close to $800 per fully burdened (including all overhead) 

direct labor-day. Most of the naval shipyards’ work is for the Department of the Navy, 

with a focus on nuclear ships. A very small share of their work—typically 1 percent to 

4 percent in all—is conducted for other Department of Defense (DoD) customers, 

other federal agencies, commercial customers, and foreign governments. 

The Puget Sound and Pearl Harbor shipyards work primarily on ships belonging to 

the Navy’s Pacific Fleet, and the Norfolk and Portsmouth shipyards work mainly on 

ships of the Atlantic Fleet. (The two pairs of shipyards do similar types of work 

because the composition, structure, and missions of the Atlantic and Pacific Fleets are 

similar.) Under the Navy Working Capital Fund, shipyards are owned and operated 

by the Naval Sea Systems Command (NAVSEA), which manages their budgets and 

sets their operating procedures. Under mission funding, the Atlantic or Pacific Fleet 

assumes budgeting responsibility for shipyards, although NAVSEA continues to manage their technical and operational procedures.

The Navy also operates a number of intermediate-level maintenance facilities located 

in the United States and overseas. All intermediate facilities are mission funded and 

are owned and operated by the Atlantic or Pacific Fleet. CBO does not currently have 

data on costs, workload, or labor for all of those facilities.

Merging Navy Shipyards and Intermediate Facilities 

The Navy is in the process of reorganizing maintenance facilities under its Regional 

Maintenance Plan, which aims to eliminate duplication and overlap of maintenance 

resources by integrating the depot- and intermediate-level maintenance facilities in a 

region under one command.8 To test that concept, the Navy selected the Pearl Harbor 

Naval Shipyard and the Pearl Harbor Intermediate Maintenance Facility for an integration pilot program in 1997. The service concluded that full integration required a 

common funding system (at the time, the Pearl Harbor shipyard was working-capital 

funded and the intermediate facility was mission funded), and it selected mission

7. Direct work involves tasks directly identifiable to a maintenance project. Indirect work involves 

administrative and support tasks.

8. Department of the Navy, Report to Congress: Pearl Harbor Regional Maintenance Pilot, p. 1.
5

funding over working-capital funding.9 Thus, the Navy considers the mission funding of shipyards to be a vital step in regional maintenance integration. In 2003, the 

service conducted a similar pilot project to integrate Puget Sound Naval Shipyard and 

intermediate facilities located on the West Coast.

According to the Navy, the Pearl Harbor and Puget Sound pilot programs have 

improved the shipyards’ workforce and financial flexibility and have facilitated implementation of the Regional Maintenance Plan. The Navy plans to continue using mission funding for those shipyards and intends to switch the Norfolk and Portsmouth 

shipyards to mission funding as soon as possible. 

Some observers, however, have questioned the applicability of the Navy’s experience 

with Pearl Harbor and Puget Sound to the Portsmouth and Norfolk shipyards. They 

note, for example, that the distance between the shipyards and their nearest associated 

intermediate maintenance facilities varies considerably. According to the Government 

Accountability Office (GAO), the time required to travel between the intermediate 

maintenance facilities and shipyards is five to 10 minutes for Pearl Harbor, 20 to 30 

minutes for Puget Sound, 30 to 45 minutes for Norfolk, and two to three hours for 

Portsmouth.10 The type of intermediate maintenance facility being integrated and the 

extent and nature of the integration also varies among shipyards. The intermediate 

maintenance 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 maintenance facility works exclusively on submarines (primarily Trident class strategic ballistic missile submarines). There is no plan to integrate 

the Portsmouth shipyard with any intermediate maintenance facility (including the 

East Coast’s Trident submarine facility in Kings Bay, Georgia).

Private-Sector Shipyards

Private shipyards also provide depot maintenance for the Navy, primarily on nonnuclear surface ships. In 2005, $1.7 billion, or about 40 percent, of depot maintenance 

funds for Navy vessels went to private shipyards.11 The U.S. private-sector shipbuilding and repair industry is dominated by the so-called Big Six shipyards, which are 

owned by two parent companies:

9. The Navy chose mission funding over working-capital funding for several reasons, including the 

fact that the mission-funded Pacific Fleet is Pearl Harbor’s largest customer and the Navy expected 

that it would have to deal with fewer financial hurdles by relying on direct appropriations. See 

General Accounting Office, Depot Maintenance: Key Financial Issues for Consolidations at Pearl 

Harbor and Elsewhere Are Still Unresolved, p. 25.

10. General Accounting Office (now the Government Accountability Office), Depot Maintenance: 

Status of the Navy’s Pearl Harbor Pilot Project, p. 15.

11. 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 (performed only at Newport News 

Shipyard). 
6

B General Dynamics (Marine Systems business segment):

• Bath Iron Works in Bath, Maine (the lead designer and builder of the Arleigh 

Burke class guided-missile destroyer)

• Electric Boat in Groton, Connecticut (delivered the lead Virginia class attack 

submarine and the final Seawolf class submarine)

• National Steel and Shipbuilding Company in San Diego (specializes in auxiliary 

and support ships for the Navy and oil tankers and dry-cargo carriers for commercial markets)

B Northrop Grumman (Newport News and Ship Systems business segments):

• Newport News Shipyard in Newport News, Virginia (the sole U.S. shipyard 

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

also capable of designing and building nuclear-powered submarines)

• Ingalls Shipyard in Pascagoula, Mississippi (the sole builder of the WASP class 

of large-deck multipurpose amphibious assault ships; a second source of the 

Arleigh Burke class guided-missile destroyer; and the lead design agent for the 

Navy’s next-generation destroyer)

• Avondale Shipyard in New Orleans and Tallulah, Louisiana, and Gulfport, Mississippi (the prime contractor for the San Antonio class of amphibious assault 

ships; has also built seven T-AKR strategic sealift ships for the Navy)

The Big Six shipyards accounted for two-thirds of the more than $6.7 billion in total 

revenue of U.S. private-sector shipyards in 1998 and nearly 90 percent of private shipyards’ work for the U.S. military. (Ninety-five percent of the six shipyards’ revenues 

derived from the U.S. military.) The Big Six also accounted for 11 percent of U.S. 

private-sector shipyards’ commercial revenues over the 1996-2000 period.12 Ship 

repair is a significant part of private shipyards’ workload: as of 2001, it generated 

between 30 percent and 40 percent of total revenues at all private-sector U.S. shipyards (not just the Big Six).13

In the past 20 years, the vast majority of ships delivered by U.S. shipyards have been 

purchased by the Navy. U.S. shipyards have a negligible share of the international 

market for commercial vessels (less than 0.25 percent of the gross tonnage delivered

12. Department of Commerce, National Security Assessment of the U.S. Shipbuilding and Repair Industry (May 2001).

13. Ibid.
7

worldwide in 2000). The world market for commercial ships is dominated by South 

Korea (with 35 percent of the market in 2000) and Japan (with 33 percent).14

The U.S. industry’s share of the world commercial market might be even smaller 

except for two laws that encourage U.S. ship construction. The Merchant Marine Act 

of 1920 requires that all shipping between ports in the United States occur on vessels 

that were built in the United States, are owned and operated by U.S. citizens, and are 

registered in the United States. For example, tankers that transport oil from Alaska to 

ports elsewhere in the United States must satisfy all of those conditions. The Oil Pollution Act of 1990 requires that all bulk oil tankers entering U.S. ports be doublehulled by 2015. In response to that law, Avondale Shipyard is building five doublehulled crude-oil tankers (the first ever constructed in the United States) for Polar 

Tankers, a subsidiary of ConocoPhillips. Avondale delivered the first of those tankers, 

the Polar Endeavour, in early 2001.

Working-Capital Funding

Before the transition of Pearl Harbor and Puget Sound to mission funding, all naval 

shipyards operated under some type of revolving-fund financial system. The National 

Security Act Amendments of 1949 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.15 In 1996, 

to more clearly establish functional and financial management responsibilities, DoD 

split the Defense Business Operations Fund into four Defense Working Capital 

Funds: for the Army, Navy, Air Force, and DoD-wide.16

Under the Navy Working Capital Fund, as under the previous revolving funds, “providers of goods and services finance their continuing operations with income derived 

from sales to customers.”17 Each year, the Congress appropriates funds to the Pacific 

and Atlantic Fleets for ship maintenance and to NAVSEA for ship modifications and 

conversions. As customers of the working-capital-funded (WCF) shipyards, operational units (primarily the Atlantic and Pacific Fleets) “purchase” maintenance services, and NAVSEA “purchases” modification and conversion services (see Figure 1). 

The income that each shipyard receives for the work it performs is used to pay for the 

shipyard’s operations, including labor, materials, overhead, and capital depreciation. 

(Military construction is handled directly through military construction appropriations.)

14. R. LaVar Huntzinger and others, Competition, Innovation, and Productivity in the Ship Industry

(Alexandria, Va.: CNA Corporation, 2001).

15. General Accounting Office, Defense Depot Maintenance: Challenges Facing DoD in Managing 

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

16. Ibid., p. 6.

17. Office of the Secretary of Defense, “Revolving Fund Concept,” Comptroller’s Web site (www.dod. 

mil/comptroller/icenter/dwcf/revolvingfund.htm).
8

Figure 1.

How Working-Capital Funding Operates

Source: Congressional Budget Office based on the Office of the Secretary of Defense Comptroller’s 

Web site (www.dod.mil/comptroller/icenter/dwcf/revolvingfund.htm).

Note: WCF = working-capital funding.

The Congress

Appropriates money to the

Department of the Navy, a

portion of which is earmarked

via line item for operational

forces

Navy WCF Maintenance Provider

• Incurs costs

• Produces goods or services

• Buys parts or services

• Bills the customer at the

WCF rates

Project Order and $

Goods/Services

and Bill

Department of Defense

Sets budgets for operational

forces to pay for expected

goods and services needed

(such as ship maintenance)

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

$

$
9

The shipyards set the rates they charge to cover all of their costs (except direct materials, which are billed to customers separately), and those rates remain fixed during a fiscal year.18 The budgets of the shipyards’ customers are set to cover the expected level 

of work they will purchase at the rates in effect at the shipyards for that year. Customers obligate funds to the NWCF for a project order, fully funding a ship’s maintenance 

before work begins. Differences between the expected demand for customer orders 

used to set a shipyard’s rates and actual customer demand, or differences between a 

shipyard’s expected and actual costs per labor-day, can cause the shipyard to experience a net profit or loss. Annual net profits or losses (net operating results) are incorporated into the next rate-setting cycle in an attempt to make the shipyard’s future 

accumulated operating result (a cumulative measure of net operating results) equal to 

zero.

According to DoD, a primary purpose of its working-capital funds is to focus attention on the total costs of providing a good or service. The revolving funds are 

designed to enable DoD activities to operate more like businesses, in that the funds 

are structured to make customers and providers acutely aware of full costs and performance.19 If rates are set correctly, customers will know the true cost consequences of 

their decisions about ship maintenance, and they will allocate their funds to serve 

their needs most effectively.20 Cost visibility also gives a shipyard’s managers an incentive to operate the shipyard as efficiently as possible in order to lower their billing rates 

and avoid customer dissatisfaction.21 Inefficiencies will be reflected in net operating 

losses and higher future rates.

18. The budget calendar necessitates that shipyards begin calculating their rates about 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).

19. 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).

20. Charles J. Hitch and Roland N. McKean, The Economics of Defense in the Nuclear Age (Santa Monica, Calif.: RAND Corporation, 1960), p. 225.

21. Navy shipyards do not face the same profit motives as private firms, which may reduce their incentive to control costs. Also, in a truly free market, customers would be able to shop around among 

service providers and select the best value. However, because both Navy and private shipyards tend 

to specialize in certain types of ships and maintenance work, and because the Navy often assigns 

ship maintenance to a specific facility, competition among providers is limited. See Trunkey and 

Choi, The Defense Business Operations Fund, pp. 24-25.
10

Mission Funding

Under mission funding, by contrast, direct appropriations authorize DoD to incur 

obligations for designated purposes, such as ship maintenance or modifications.22

The Congress appropriates money to the Department of the Navy, a portion of which 

is earmarked through line items for mission-funded support units, such as shipyards. 

The budgets of those support units are set at a sufficient level to pay for the expected 

amount of work to be performed by each unit (see Figure 2). 

Mission-funded shipyards provide maintenance services to the Atlantic and Pacific 

Fleets for free, but they are still reimbursed by NAVSEA for modifications and conversions. (Both capital expenditures and military construction at mission-funded 

shipyards are funded through separate direct appropriations.) The rates for that 

reimbursable work are no longer set under WCF procedures, however. Currently, only 

costs for direct labor and materials are charged to NAVSEA when it requests a modification or conversion. Non-DoD customers will be charged a fully burdened rate, but 

that rate will also differ from the WCF rate since it will be set in the current fiscal year 

(rather than 18 to 24 months in advance) and will not necessarily include the same 

cost categories used to set rates under working-capital funding.23

Comparing Working-Capital and Mission Funding 

of Shipyards

The Navy’s view is that mission funding is a more effective financing mechanism for 

shipyards than is working-capital funding. Specifically, the Navy believes that mission 

funding provides advantages in terms of operational and financial flexibility and 

responsiveness. Outside the Navy, however, observers have expressed concern that 

moving to mission funding will eliminate some of the advantages of working-capital 

funding, especially cost visibility and accountability. The Office of the Secretary of 

Defense (OSD), GAO, and DoD’s Inspector General have expressed concern that the 

performance of the Pearl Harbor and Puget Sound pilot programs has not been well 

documented and that appropriate metrics have not been developed to objectively 

compare shipyards’ performance before and after the funding transition.24 Some 

argue that the reduction in cost reporting associated with the Pearl Harbor and Puget 

Sound pilots may inhibit the Congress’s ability to make informed decisions about 

shipyard funding.

In this interim report, CBO examines several of the potential advantages and disadvantages associated with mission- and working-capital-funded shipyards, including

22. General Accounting Office, Depot Maintenance: Status of the Navy’s Pearl Harbor Pilot Project, p. 5.

23. The Navy is still developing a method for calculating a rate for non-DoD customers at missionfunded shipyards.

24. General Accounting Office, Depot Maintenance: Status of the Navy’s Pearl Harbor Pilot Project; 

General Accounting Office, Depot Maintenance: Key Financial Issues for Consolidations at Pearl 

Harbor and Elsewhere Are Still Unresolved; and meetings between CBO and officials from OSD 

and the DoD Inspector General’s office, October 2005.
11

Figure 2.

How Mission Funding Operates

Source: Congressional Budget Office.

Goods/Services

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

Operational Forces

Request work from Navy

maintenance providers and

negotiate priorities to use the

full resources of those providers

Requests

$

Department of Defense

Sets budgets for support units

sufficient to pay for the

expected amount of work to be

performed

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)

$
12

cost visibility, operational and financial flexibility, shipyard performance, capital 

replenishment (the ability to get enough funds to replace equipment), and economic 

and performance incentives. CBO’s final report, to be published later, will include 

more data and information on those topics and will address several additional issues as 

information allows: 

B The costs that the Navy should reimburse to the NWCF, when the Navy moves a 

shipyard to mission funding, to pay for assets whose value the NWCF has not yet 

recovered;25

B Concerns that delays in direct appropriations could harm a mission-funded shipyard’s continuity of operations between fiscal years; and 

B The financial impact that transferring shipyards to mission funding has on activities remaining in the NWCF.

Cost Visibility 

Moving a shipyard from working-capital to mission funding reduces the availability of 

cost data. Because they are not required to do so, most mission-funded DoD activities 

do not track their costs to perform work. DoD’s financial accounting systems track 

revenues and spending, but in the absence of a need to set rates for customers requesting work, no effort is made to link that flow of money to specific work performed. For 

example, an intermediate maintenance facility may know the total amount it spends 

each year on travel but not the amount 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). 

As a result, calculating the total costs of shipyard operations would require identifying 

and aggregating funds appropriated in different accounts. Overhead, for example, has 

not been tracked as closely under mission funding as it has been under workingcapital funding. Overhead costs are paid by a number of commands and funding 

streams, including the Atlantic and Pacific Fleets and the Commander of Naval Installations. Under working-capital funding, all overhead costs are accounted for and 

incorporated into the WCF rate. Under mission funding, shipyards account only for 

the overhead costs they pay directly.

Working-capital funding, by design, requires detailed awareness of costs. Shipyards 

must track all costs and allocate them to the work performed. WCF shipyards calculate a cost per repair and a cost per labor-day that are available in official reports; 

mission-funded shipyards currently do not calculate such unit costs on a regular basis 

because no official cost reports are required. The Navy maintains that costs are still 

visible after a shipyard moves to mission funding, but GAO, OSD, and DoD’s In25. Those “buyout costs” include undepreciated capital assets, accrued employee leave, liabilities, and 

accumulated operating results. Estimates of the costs to buy out all four Navy shipyards range 

widely, from about $50 million to $500 million.
13

spector General have reported difficulty in obtaining reliable cost data from missionfunded shipyards.26

There appears to be no inherent reason why unit costs cannot be tracked for missionfunded activities, but no reporting system is now in place to capture those costs.27

Implementing such a system would have the advantage of providing cost 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. (Such information was available when all shipyards were working-capital funded.) Of course, 

operating such an accounting system would involve some administrative and training 

costs.

Operational and Financial Flexibility and Responsiveness

The Navy considers increased flexibility and responsiveness to be major advantages of 

mission funding over working-capital funding. In the context of shipyards, flexibility 

is defined as the ability to move resources (particularly workers) between projects 

within a shipyard as well as between facilities. According to the Navy, the ability to 

share resources between maintenance facilities is an important aspect of its Regional 

Maintenance Plan. For example, the Puget Sound shipyard regularly sends employees 

to work at the Bangor Intermediate Maintenance Facility. Under mission funding, 

those resources are already paid for, so the transfer requires a minimal amount of 

paperwork. That flexibility can help smooth out the peaks and valleys in a workload 

associated with ship maintenance.28 In a WCF shipyard, by contrast, the workers 

must be funded though customer obligations before they can work on a project. As a 

result, sharing resources between projects requires more paperwork, and in some 

cases, the ensuing delay could result in idle workers.29 (One way to reduce problems 

associated with sharing WCF resources is for a fleet to “buy” a planned number of 

labor-days at the beginning of a fiscal year. The Norfolk shipyard currently provides 

about 100 civilian workers to support the nearby intermediate maintenance facility 

through such an arrangement.)

26. U.S. Pacific Fleet and NAVSEA, Report on Study of Lessons Learned and Costs and Benefits of Mission Funding at Pearl Harbor Naval Shipyard; General Accounting Office, Depot Maintenance: Status of the Navy’s Pearl Harbor Pilot Project; General Accounting Office, Depot Maintenance: Key 

Financial Issues for Consolidations at Pearl Harbor and Elsewhere Are Still Unresolved; and meetings 

between CBO and officials from OSD, the DoD Inspector General’s office, and Puget Sound 

shipyard, October 2005.

27. Naval Postgraduate School, Unit Cost Handbook, available at www.nps.navy.mil/drmi/

98handbooks.htm; and Kent Miller, “Unit Costing Outside DBOF,” Resource Management (May 

1992), p. 12.

28. Both the shipyards and fleets also say that more discussion and joint decisionmaking about maintenance schedules occur under mission funding than under working-capital funding.

29. CBO is attempting to determine the exact administrative procedures necessary to share resources 

under each funding mechanism.
14

Shipyards also say they have improved their ability to respond to unscheduled availabilities—such as ship collisions—under mission funding. 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). However, WCF shipyards have 

responded to similar situations for decades. CBO has not yet determined whether 

mission-funded shipyards have a distinct advantage in responsiveness over WCF shipyards when unscheduled availabilities arise. Quantitatively measuring such responsiveness may be difficult, moreover, because each case can have unique aspects.

A potential drawback of freely sharing workers between shipyards and intermediate 

facilities under mission funding is the Navy’s ability to verify compliance with the 

“50-50 rule.” Under title 10, section 2466 of the U.S. Code, no more than 50 percent 

of annual depot maintenance can be provided by private contractors.30 Intermediatelevel maintenance is not included in that restriction. Distinguishing between depot 

and intermediate maintenance costs may become more difficult if resources are shifted 

between maintenance levels on a regular basis. According to the Navy, however, workforce flexibility does not affect 50-50 reporting because labor costs are assigned to specific maintenance jobs, which are categorized as intermediate- or depot-level.

Operational Performance 

As noted above, OSD, GAO, and DoD’s Inspector General are concerned about 

whether appropriate metrics have been developed to objectively compare a shipyard’s 

performance before and after the shift from working-capital to mission funding. To 

address that issue, CBO selected seven metrics to measure a shipyard’s performance 

over time (see Table 2). Although no single metric can accurately gauge the success of 

shipyard operations, CBO chose metrics that, considered together, demonstrate shipyard performance. CBO is continuing to gather relevant data and will present an analysis in its final report.

Capital Replenishment

Some observers worry that mission-funded shipyards will have difficulty getting 

appropriations for their capital expenses, such as dock cranes and machining equipment. WCF shipyards make their own plans for capital replacement and include the 

cost of needed equipment in their rates, but mission-funded shipyards must compete 

with other Navy needs within the “Other Procurement, Navy” (OPN) accounts. 

Judging from the data on shipyards’ capital spending available to CBO (which cover 

only aggregate expenditures over the past 10 years), the level of capital-expense funding appears to be independent of a shipyard’s funding system (see Table 3). However, 

some people might argue that the data on capital expenditures undertaken at the Pearl 

Harbor and Puget Sound shipyards under mission funding cover a period that is less 

than the average lifetime of those shipyards’ equipment and thus are not conclusive.

30. 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).
15

Table 2.

Possible Metrics of Shipyard Performance

Source: Congressional Budget Office.

Metric Calculation Potential Weaknesses of Metric

Deviation from Actual starting or • Limited sample size

Planned Schedule ending dates minus • Factors outside shipyard's control may cause

scheduled starting or deviation from schedule

ending dates • Planned schedule could be inflated to influence

metric

Rework Required to Rework labor-days • Reliable historical data may not be available

Correct Work divided by total

Deficiencies direct labor-days

Ship Readiness To be determined • Changes in ship readiness may result from 

factors other than shipyard performance

• Reliable historical data may not be available

Total Annual Costs Sum of direct and • Shipyards must include the same cost categories

indirect military • Mission-funded yards may have difficulty 

and civilian labor, calculating overhead costs

direct materials, 

and overhead costs

Cost per Ship Direct labor-days • Availabilities, even within a ship class, have 

Availability worked on a ship varying work requirements

multiplied by fully • Mission-funded yards may have difficulty 

burdened rate per calculating fully burdened rates and distinguishing

labor-day between intermediate-level and shipyard costs

Burdened Labor Rate Total annual costs • Shipyards must include the same cost categories

divided by total annual • Mission-funded yards may have difficulty 

direct labor-days calculating overhead costs

Ratio Between Direct labor-days • Mission-funded yards may have difficulty 

Direct and Indirect divided by total distinguishing between intermediate-level and 

Labor-Days labor-days shipyard labor-days

Cost Management

Administrative Efficiency

Schedule Adherence

Quality of Work
16

Table 3.

Capital Expenditures at Naval Shipyards

(Millions of 2006 dollars)

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

Note: WCF = working-capital funding; * = not applicable.

a. The Portsmouth shipyard’s large increase in capital expenditures in 2002 resulted largely from a 

$62 million purchase of Enterprise Resource Planning software and hardware to be used at all 

naval shipyards.

Incentives for Shipyard Customers and Managers 

Working-capital and mission funding introduce different economic and performance 

incentives, both for shipyard customers and for shipyard managers.31 In terms of customers’ choices, working-capital funding can lead to underutilization of shipyards, 

whereas mission funding can lead to overutilization. 

One criticism of working-capital funds is that they use expected-average-cost pricing 

rather than marginal-cost pricing to set rates. The rate that a WCF shipyard charges 

customers is based on total projected costs (including the accumulated results of prior 

years) and projected workload for a given year. Total costs thus include fixed costs and 

sunk costs that are independent of the amount of work performed as well as costs that 

vary according to workload. Consequently, the prices that shipyards charge customers 

for a specific task exceed the marginal (additional) cost of the work performed. If customers view those rates as too high, they may defer maintenance, reduce the scope of 

work to be performed at the shipyard, or (if possible) shift to a new maintenance pro31. 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); and Trunkey and Choi, The Defense Business Operations Fund.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

WCF 4.2 14.0 7.9 * * * * * * *

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

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

WCF 18.0 10.7 20.7 16.5 10.8 15.8 18.0 11.4 * *

Mission funding * * * * * * * * 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

Norfolk (WCF)

Portsmouth (WCF)a

Shipyard

Pearl Harbor

Puget Sound
17

vider—such as an intermediate maintenance facility—that is mission funded or does 

not include fixed costs in its prices.32

Despite a customer’s perception that mission-funded maintenance providers are less 

expensive than WCF shipyards, the total cost to the Navy as a whole of performing a 

maintenance task (including all fixed costs) may either be higher or lower at a mission-funded facility. Thus, if customers avoid WCF shipyard rates, they may inadvertently be selecting a less cost-effective maintenance provider. Lost business can create 

unexpected dips in workload and excess labor capacity at WCF shipyards—and, when 

a net operating loss occurs, surcharges in future rates to recoup losses. 33 Analysts have 

proposed several changes to alleviate issues resulting from WCF pricing, such as introducing “membership dues” to cover fixed costs, allowing regular rate adjustments during a fiscal year, and returning profits (or charging losses) directly to the fleet or 

CNO. So far, the Department of Defense has declined to make such changes.

Mission funding, by contrast, may encourage customers to overuse a shipyard. Once a 

mission-funded shipyard receives its annual appropriation, the cost to the fleet of 

repairing a ship there is zero (other than waiting time). For reimbursable work, the 

shipyard currently charges a customer only for direct labor and materials, not a fully 

burdened rate.34 Low prices encourage customers to send as much work to missionfunded shipyards as possible and virtually guarantee that the shipyards will always be 

busy. However, customers may requisition work that they would not request if they 

were directly responsible for paying the full cost of that work, resulting in an inefficient use of the Navy’s resources.

Working-capital and mission funding also provide incentives for improvements in 

shipyard performance through different mechanisms. Under working-capital funding, 

both shipyard customers and managers can instigate improvements in a shipyard’s 

productivity. If prices are too high, customers will complain to the shipyard, defer 

maintenance, or reduce the scope of work. Because all costs are identified and tallied 

to determine WCF rates, shipyard managers have access to a variety of cost measures 

as performance metrics. At the Department of the Navy and DoD levels, managers 

can keep tabs on the total costs of operating the shipyard in the context of the overall 

Navy and DoD budgets. At the facility level, managers can identify abnormally high 

costs to perform particular kinds of work and seek efficiencies. Also, examining a 

shipyard’s rates over time offers an indication of whether performance is improving or 

32. A customer will be able to switch maintenance providers only if competition exists. Because both 

Navy and private ship facilities tend to specialize in certain types of naval vessels and maintenance 

work, competition among providers is limited. 

33. Another criticism of WCF activities is that prices are the same for different types of work. Since 

some types of work are inherently more expensive to perform than others, working-capital funding 

may result in some customers’ subsidizing others. However, the fact that Navy shipyards tailor 

their rates on the basis of ship class reduces customer cross-subsidization.

34. Direct labor and materials may be an approximation of the marginal cost of a maintenance job.
18

worsening. If a shipyard consistently operates over or under capacity, it may be incorrectly sized.

Under mission funding, the Atlantic or Pacific Fleet, as the shipyard’s owner and primary customer, is largely responsible for driving improvements in shipyard performance. If a shipyard’s productivity improves, the fleet (as the customer) can direct 

additional work to it, or the fleet (as the owner) can reprogram the savings for other 

uses. Yet the absence of established and detailed cost accounting under mission funding may make it difficult for the fleet to determine the full cost of operating the shipyard, the costs of specific maintenance tasks, and the areas most in need of improvement. Furthermore, poor shipyard performance may be considered a minor issue in 

the context of the fleet’s total operations and budget. As noted above, a missionfunded shipyard is always busy because once it is funded, the incentive for the fleet is 

to get as much work as possible out of it. Thus, there is no workload indicator to 

determine whether the shipyard is appropriately sized. Properly sizing a shipyard 

requires additional analysis, whereby the fleet (or the Navy) compares the value of the 

work being performed with its cost, which may not be visible under mission funding.

Shipyards’ Reporting to the Congress

Having appropriately structured annual summary reports for each shipyard could 

enable the Congress to monitor shipyards’ finances and performance regardless of the 

type of funding used to pay for their operations. Presently, the Congress receives a separate budget exhibit on WCF activities for each of the services. The Navy’s WCF 

exhibit includes a section on shipyards that contains information about revenues, 

costs, workload, end strength, and rates.35 Because the Pearl Harbor and Puget Sound 

shipyards are mission funded, they are no longer included in that exhibit. Although 

the Congress still receives separate budget exhibits on appropriations for missionfunded shipyards and their customers, the WCF budget exhibit is the only source of 

information about shipyards’ cost and performance. Consequently, the Congress now 

lacks such information for half of the Navy’s shipyards. This section addresses what 

shipyard data might be helpful to the Congress as part of a consolidated shipyard 

report, either instead of or in addition to existing budget exhibits.36

CBO designed a summary table, containing high-level cost and performance metrics, 

to serve as a template for shipyards’ potential reporting to the Congress. Table 4 on 

page 20 shows an example of that table for the Norfolk Naval Shipyard. (Analogous 

tables for the Portsmouth, Puget Sound, and Pearl Harbor shipyards and an aggregate 

table covering all four naval shipyards appear in the appendix.) The template is applicable for both WCF and mission-funded shipyards. In addition to the current fiscal 

35. For an example, see Department of the Navy, Fiscal Year 2006/FY 2007 Budget Estimates: Justification of Estimates—Navy Working Capital Fund (February 2005).

36. Data for intermediate maintenance facilities could also be included in the shipyard report to the 

Congress since those facilities are being integrated with depots under the Regional Maintenance 

Plan. 
19

year, it includes space for five years of past data and two years of projected data to provide historical context and reveal potential trends. The tables included in this document are set up for a 2006 annual report, but they contain only historical data because 

fiscal year 2006 is still in progress. Other missing data are either not applicable—such 

as the WCF rate, net operating result, or accumulated operating result for a missionfunded shipyard—or are not yet available (in the case of past numbers, because the 

Navy or CBO has not yet been able to assemble them). A narrative describing the primary capabilities of and major events affecting each shipyard could also be included 

in the table. 

The first two sections of the table show revenues and costs. The purpose of those sections is to provide information about the overall financial condition of the shipyards 

as well as their primary sources of revenues and costs. Revenues are categorized by 

source and type of appropriation. For mission-funded shipyards, revenues include the 

operation and maintenance funds appropriated directly to the shipyard and the conversion and procurement money appropriated to NAVSEA. For working-capitalfunded shipyards, revenues include the funds obligated by the shipyard’s customers, 

also sorted by appropriation. Costs are listed by major category, including direct labor, 

direct materials, contract, and overhead costs. Any other important categories could 

also be listed separately. Overhead would be defined consistently among shipyards to 

include costs for all base operating support; indirect labor, materials, contracts, and 

travel; support services (such as the Defense Finance and Accounting Service or the 

Defense Information Systems Agency); and headquarters support. The table also 

shows net and accumulated operating results (applicable only to WCF shipyards), 

which indicate whether a shipyard’s rates are too high or too low compared with its 

costs.

The fourth and fifth sections list capital and military construction expenses, which 

provide a measure of the amount that a shipyard is spending to replace or upgrade its 

equipment and physical plant. Comparing annual expenses with the total value of 

capital and facilities would allow lawmakers to roughly gauge the reasonableness of 

those expenses. For example, if capital has an average life of 20 years, annual capital 

expenditures should be about 5 percent of the total value of capital and facilities.

The sixth and seventh sections list the number of shipyard employees, the number of 

days worked, and the shipyard’s labor rates. The purpose of those sections is to give 

the Congress the information necessary to assess a shipyard’s performance. The ratio 

of direct to indirect labor-days reveals the administrative efficiency of the shipyard. Its 

labor rates indicate how well the shipyard is controlling costs and enable comparisons 

between Navy and private maintenance facilities. The current burdened rate is total 

costs divided by direct labor-days. The Navy reimbursable rate is the rate that shipyards charge NAVSEA, which currently includes only direct labor and materials costs. 

The non-Navy reimbursable rate (still under consideration by the Navy) would also 

include some overhead and would equal the fully burdened rate if all overhead and 

indirect expenses were incorporated. The WCF rate is similar to the fully burdened
20

Table 4.

Operations Summary for the Norfolk Naval Shipyard

(In the dollars of each fiscal year)

Continued

2001 2002 2003 2004 2005 2006a 2007 2008

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA ____ ____ ____ ____ ____

Total NYA NYA NYA NYA NYA

00000

276.6 335.7 346.7 419.5 408.0

81.1 108.2 102.2 100.0 82.1

169.2 164.2 185.5 272.7 138.8

NYA NYA NYA NYA NYA

293.0 338.1 344.3 337.1 333.8

____ ____ ____ ______ ____

Total 828.0 957.9 994.9 1,139.5 988.0

-17.3 19.5 67.3 -28.1 8.0

-6.9 -22.0 34.8 5.3 12.9

NYA NYA NYA NYA NYA

15.6 32.9 16.3 15.8 21.1

NYA NYA NYA NYA NYA

211 221 208 210 NYA

0 14.8 36.5 17.8 0

NYA NYA NYA NYA NYA

NYA NYA NYA NYA 1,095

51 51 51 43 43

6,809 7,425 7,667 7,778 7,679

00000

12,873 12,750 11,679 10,621 10,793

1,084,816 1,254,766 1,236,735 1,430,143 1,316,920

521,802 559,364 581,696 520,930 558,319

Direct Civilian Labor-Days

Indirect Civilian Labor-Days

Military End Strength

Civilian End Strength

Direct Military Labor-Days

Indirect Military Labor-Days

Military Construction

Base Operating Support

Facilities Replacement Value

Labor

Capital Expenditure

Capital Depreciation

Capital Replacement Value

Facilities (Millions of dollars)

Net Operating Result

Accumulated Operating Result

End of Fiscal Year Carryover

Capital (Millions of dollars)

Overheade

Revenue (Millions of dollars)

Costs (Millions of dollars)c

WCF Operating Results (Millions of dollars)

Operation and Maintenance

Atlantic Fleet 

Pacific Fleet

NAVSEA

Direct Civilian Labor

Direct Materials

Other Department of Defense

Direct Contract

Other Direct Costsd

Foreign Military Sales

Other Federal Government

Otherb

Direct Military Labor

Actual Projected

Conversion

Navy Procurement

Navy Shipbuilding and 

Other Department of Navy
21

Table 4.

Continued

Source: Congressional Budget Office.

Notes: This table is intended to serve as a template that shipyards could use in reporting to the 

Congress. As such, it includes space for data from the current fiscal year, five years of past 

data, and two years of projected data to provide historical context and show potential trends. 

Additional detail and backup information should be available, in a standard format, for all 

categories. Similar reports for intermediate-level maintenance facilities may be useful.

NYA = not yet available; NAVSEA = Naval Sea Systems Command; WCF = working-capital 

funding.

a. The current fiscal year.

b. The categories included in other revenue should be defined.

c. The totals in this section do not match the sums of the categories (all of which were provided 

separately by the Navy) because they include some costs not in the individual categories.

d. Other direct costs include travel and transportation related to a specific repair.

e. Overhead should include costs for base operating support; indirect labor, materials, contracts, 

and travel; training; support services (such as the Defense Finance and Accounting Service); and 

headquarters support (NAVSEA).

f. Equals total costs divided by direct labor-days. Capital depreciation is included in WCF rates, but 

capital expenditure is not included in the current burdened rate. Direct material expense is 

included in the current burdened rate but not in WCF rates. The table should also provide a definition or reference for other rates.

g. Early completions count as zero percent late.

2001 2002 2003 2004 2005 2006a 2007 2008

763 763 804 797 750

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

516 589 589 505 602

59844

451,820 702,075 847,136 417,859 569,146

424,100 716,900 845,700 414,100 540,800

0.94 1.02 1.00 0.99 0.95

159 392 267 134 122

159 332 267 134 122

0 2.0 0 0 0

0 11.4 0.2 0 0

47 46 99 97 116

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

Percentage of Work Remaining NYA NYA NYA NYA NYA

Average Labor Cost per Hull 

(Millions of dollars)

Hulls in Progress at End of Fiscal Year

Number

Remaining

Actual Labor-Days

Ratio of Actual Labor-Days 

Budgeted Labor-Days 

to Budgeted Labor-Days 

Scheduled Weeks

Actual Weeks

Average Percentage Lateg

Maximum Percentage Late

Working Capital Fund Rate

Hulls Completed This Fiscal Year

Number

Budgeted Labor-Days

Rates (Dollars)

Current Burdened Ratef

Navy Reimbursable Rate

Non-Navy Reimbursable Rate

Actual Projected
22

rate but does not include direct materials costs, is set 18 to 24 months in advance, and 

incorporates past profits or losses.

The last two sections of the table show performance and schedule metrics based on 

hulls (ship availabilities) completed and in progress. Those sections illustrate how well 

a shipyard meets productivity and schedule expectations. A ratio of actual to budgeted 

labor-days greater than 1 indicates that the shipyard took longer to perform its work 

than anticipated. The budgeted number of labor-days remaining for hulls in progress 

denotes how much work carries over to the next fiscal year. Further detail may be 

needed in that section because there are wide variances between types of ships (such as 

aircraft carriers or submarines) and between maintenance actions (such as refueling or 

conversion).
23

Appendix

As described in the main text, the Congressional Budget Office (CBO) has developed 

a summary table that might serve as a model for naval shipyards’ reporting to the 

Congress. The table includes various measures of cost and performance that could 

improve lawmakers’ understanding and oversight of shipyard operations. Tables A-1 

to A-3 in this appendix apply that model to the Portsmouth, Puget Sound, and Pearl 

Harbor Naval Shipyards. (A version for the Norfolk Naval Shipyard appears as Table 

4 on page 20.) Table A-4 is an aggregate table covering all four of the Navy’s shipyards.

The numbers in the tables come from the Navy. Some data for the past five fiscal years 

and the current year are not yet available to CBO. In addition, the tables include 

space for two years of projections to show possible trends.
24

Table A-1.

Operations Summary for the Portsmouth Naval Shipyard

(In the dollars of each fiscal year)

Continued

2001 2002 2003 2004 2005 2006a 2007 2008

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA ____ ____ ____ ____ ____

Total NYA NYA NYA NYA NYA

00000

141.3 170.0 180.5 212.8 226.3

31.7 36.1 35.9 39.8 44.9

108.2 125.2 147.8 165.8 128.4

NYA NYA NYA NYA NYA

173.3 189.0 192.9 193.2 193.5

____ ______ ______ ______ ______

Total 458.9 524.8 565.1 620.8 599.5

-1.0 14.8 25.8 -10.1 -29.3

1.7 10.2 35.3 25.3 -4.1

NYA NYA NYA NYA NYA

31.4 77.5 15.5 5.4 3.5

NYA NYA NYA NYA NYA

164 166 173 166 NYA

5.0 14.6 15.2 0 0

NYA NYA NYA NYA NYA

NYA NYA NYA NYA 484

36 36 34 36 30

3,548 3,680 3,819 3,925 3,958

00000

9,248 9,789 8,962 7,776 7,584

516,040 588,819 601,913 671,435 694,686

297,760 285,241 301,067 290,829 287,652

Actual Projected

Conversion

Navy Procurement

Navy Shipbuilding and 

Other Department of Navy

Other Department of Defense

Direct Contract

Other Direct Costsd

Foreign Military Sales

Other Federal Government

Otherb

Direct Military Labor

Overheade

Revenue (Millions of dollars)

Costs (Millions of dollars)c

WCF Operating Results (Millions of dollars)

Operation and Maintenance

Atlantic Fleet 

Pacific Fleet

NAVSEA

Direct Civilian Labor

Direct Materials

Net Operating Result

Accumulated Operating Result

End of Fiscal Year Carryover

Capital (Millions of dollars)

Capital Expenditure

Capital Depreciation

Capital Replacement Value

Facilities (Millions of dollars)

Military Construction

Base Operating Support

Facilities Replacement Value

Labor

Military End Strength

Civilian End Strength

Direct Military Labor-Days

Indirect Military Labor-Days

Direct Civilian Labor-Days

Indirect Civilian Labor-Days
25

Table A-1.

Continued

Source: Congressional Budget Office.

Notes: This table is intended to serve as a template that shipyards could use in reporting to the 

Congress. As such, it includes space for data from the current fiscal year, five years of past 

data, and two years of projected data to provide historical context and show potential trends. 

Additional detail and backup information should be available, in a standard format, for all 

categories. Similar reports for intermediate-level maintenance facilities may be useful.

NYA = not yet available; NAVSEA = Naval Sea Systems Command; WCF = working-capital 

funding.

a. The current fiscal year.

b. The categories included in other revenue should be defined.

c. The totals in this section do not match the sums of the categories (all of which were provided 

separately by the Navy) because they include some costs not in the individual categories.

d. Other direct costs include travel and transportation related to a specific repair.

e. Overhead should include costs for base operating support; indirect labor, materials, contracts, 

and travel; training; support services (such as the Defense Finance and Accounting Service); and 

headquarters support (NAVSEA).

f. Equals total costs divided by direct labor-days. Capital depreciation is included in WCF rates, but 

capital expenditure is not included in the current burdened rate. Direct material expense is 

included in the current burdened rate but not in WCF rates. The table should also provide a definition or reference for other rates.

g. Early completions count as zero percent late.

2001 2002 2003 2004 2005 2006a 2007 2008

863 891 939 925 863

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

615 660 640 527.0 572.0

42542

514,482 488,915 567,693 572,634 447,073

552,300 488,800 561,600 554,900 439,800

1.07 1.00 0.99 0.97 0.98

204 157 213 204 149

205 157 213 204 143

3.7 0 0.2 0 0

14.8 0 0.9 0 0

98 182 82 107 169

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

Navy Reimbursable Rate

Non-Navy Reimbursable Rate

Actual Projected

Rates (Dollars)

Current Burdened Ratef

Working Capital Fund Rate

Hulls Completed This Fiscal Year

Number

Budgeted Labor-Days

to Budgeted Labor-Days 

Budgeted Labor-Days 

Scheduled Weeks

Actual Weeks

Average Percentage Lateg

Maximum Percentage Late

Percentage of Work Remaining

Average Labor Cost per Hull 

(Millions of dollars)

Hulls in Progress at End of Fiscal Year

Number

Remaining

Actual Labor-Days

Ratio of Actual Labor-Days 
26

Table A-2.

Operations Summary for the Puget Sound Naval Shipyard

(In the dollars of each fiscal year)

Continued

2001 2002 2003 2004 2005 2006a 2007 2008

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA ____ ____ ____ ____ ____

Total NYA NYA NYA NYA NYA

0 0 0 3.9 4.9

390.2 475.4 467.8 485.9 495.3

66.3 79.2 78.8 144.8 95.8

73.2 103.7 139.5 68.0 101.2

NYA NYA NYA NYA NYA

327.4 346.3 356.7 258.0 304.3

____ ______ ______ ______ ______

Total 874.8 1,029.2 1,064.5 1,060.2 1,077.7

11.2 9.8 -9.0 n.a. n.a.

11.8 -9.5 -24.6 n.a. n.a.

NYA NYA NYA n.a. n.a.

14.3 16.6 10.7 22.5 9.5

NYA NYA NYA n.a. n.a.

178 NYA NYA NYA NYA

26.0 14.0 57.1 6.0 20.3

NYA NYA NYA NYA NYA

NYA NYA NYA NYA 1,971

25 25 26 81 82

8,079 8,445 8,428 8,642 9,092

0 0 0 4,489 4,489

6,922 6,764 6,854 4,601 4,714

1,323,237 1,532,929 1,453,381 1,467,807 1,495,044

527,676 553,609 565,322 542,455 531,722

Direct Civilian Labor-Days

Indirect Civilian Labor-Days

Military End Strength

Civilian End Strength

Direct Military Labor-Days

Indirect Military Labor-Days

Military Construction

Base Operating Support

Facilities Replacement Value

Labor

Capital Expenditure

Capital Depreciation

Capital Replacement Value

Facilities (Millions of dollars)

Net Operating Result

Accumulated Operating Result

End of Fiscal Year Carryover

Capital (Millions of dollars)

Overheade

Revenue (Millions of dollars)

Costs (Millions of dollars)c

WCF Operating Results (Millions of dollars)

Operation and Maintenance

Atlantic Fleet 

Pacific Fleet

NAVSEA

Direct Civilian Labor

Direct Materials

Other Department of Defense

Direct Contract

Other Direct Costsd

Foreign Military Sales

Other Federal Government

Otherb

Direct Military Labor

Actual Projected

Conversion

Navy Procurement

Navy Shipbuilding and 

Other Department of Navy
27

Table A-2.

Continued

Source: Congressional Budget Office.

Notes: This table is intended to serve as a template that shipyards could use in reporting to the 

Congress. As such, it includes space for data from the current fiscal year, five years of past 

data, and two years of projected data to provide historical context and show potential trends. 

Additional detail and backup information should be available, in a standard format, for all 

categories. Similar reports for intermediate-level maintenance facilities may be useful.

NYA = not yet available; NAVSEA = Naval Sea Systems Command; WCF = working-capital 

funding; n.a. = not applicable.

a. The current fiscal year.

b. The categories included in other revenue should be defined.

c. The totals in this section do not match the sums of the categories (all of which were provided 

separately by the Navy) because they include some costs not in the individual categories.

d. Other direct costs include travel and transportation related to a specific repair.

e. Overhead should include costs for base operating support; indirect labor, materials, contracts, 

and travel; training; support services (such as the Defense Finance and Accounting Service); and 

headquarters support (NAVSEA). Mission-funded yards do not now include all those categories.

f. Equals total costs divided by direct labor-days. Capital depreciation is included in WCF rates, but 

capital expenditure is not included in the current burdened rate. Direct material expense is 

included in the current burdened rate but not in WCF rates. The table should also provide a definition or reference for other rates.

g. Early completions count as zero percent late.

2001 2002 2003 2004 2005 2006a 2007 2008

661 671 732 720 719

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

572 554 573 n.a. n.a.

5 17 8 8 3

376,833 1,739,958 582,860 1,432,451 106,449

377,300 1,461,385 515,500 1,319,073 103,700

1.00 0.84 0.88 0.92 0.97

338 941 395 530 242

337 942 393 531 242

0 0.7 3.1 0.1 0.2

0 7.9 23.7 0.6 0.5

28 45 31 128 19

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

Percentage of Work Remaining NYA NYA NYA NYA NYA

Average Labor Cost per Hull 

(Millions of dollars)

Hulls in Progress at End of Fiscal Year

Number

Remaining

Actual Labor-Days

Ratio of Actual Labor-Days 

to Budgeted Labor-Days 

Budgeted Labor-Days 

Scheduled Weeks

Actual Weeks

Average Percentage Lateg

Maximum Percentage Late

Working Capital Fund Rate

Hulls Completed This Fiscal Year

Number

Budgeted Labor-Days

Rates (Dollars)

Current Burdened Ratef

Navy Reimbursable Rate

Non-Navy Reimbursable Rate

Actual Projected
28

Table A-3.

Operations Summary for the Pearl Harbor Naval Shipyard

(In the dollars of each fiscal year)

Continued

2001 2002 2003 2004 2005 2006a 2007 2008

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA ____ ____ ____ ____ ____

Total NYA NYA NYA NYA NYA

15.1 16.5 21.7 28.8 31.1

110.7 125.0 145.2 157.0 176.8

32.5 24.2 29.4 29.6 39.6

31.1 36.0 23.6 23.3 39.5

NYA NYA NYA NYA NYA

121.3 146.9 172.2 155.9 169.6

____ ____ ____ ____ ____

Total 306.5 337.8 371.2 374.3 439.3

n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a.

19.9 23.2 24.2 16.1 9.0

n.a. n.a. n.a. n.a. n.a.

NYA NYA NYA NYA NYA

0 20.0 18.5 7.0 5.1

NYA NYA NYA NYA NYA

NYA NYA NYA NYA 1,373

607 641 684 758 757

3,742 3,985 4,072 4,330 4,302

17,312 18,391 22,273 22,586 24,782

48,384 46,254 52,275 70,253 71,150

365,798 381,842 401,032 441,782 476,373

279,544 270,016 244,578 292,011 303,400

Direct Civilian Labor-Days

Indirect Civilian Labor-Days

Military End Strengthf

Civilian End Strengthf

Direct Military Labor-Days

Indirect Military Labor-Days

Military Construction

Base Operating Support

Facilities Replacement Value

Labor

Capital Expenditure

Capital Depreciation

Capital Replacement Value

Facilities (Millions of dollars)

Net Operating Result

Accumulated Operating Result

End of Fiscal Year Carryover

Capital (Millions of dollars)

Overheade

Revenue (Millions of dollars)

Costs (Millions of dollars)c

WCF Operating Results (Millions of dollars)

Operation and Maintenance

Atlantic Fleet 

Pacific Fleet

NAVSEA

Direct Civilian Labor

Direct Materials

Other Department of Defense

Direct Contract

Other Direct Costsd

Foreign Military Sales

Other Federal Government

Otherb

Direct Military Labor

Actual Projected

Conversion

Navy Procurement

Navy Shipbuilding and 

Other Department of Navy
29

Table A-3.

Continued

Source: Congressional Budget Office.

Notes: This table is intended to serve as a template that shipyards could use in reporting to the 

Congress. As such, it includes space for data from the current fiscal year, five years of past 

data, and two years of projected data to provide historical context and show potential trends. 

Additional detail and backup information should be available, in a standard format, for all 

categories. Similar reports for intermediate-level maintenance facilities may be useful.

NYA = not yet available; NAVSEA = Naval Sea Systems Command; WCF = working-capital 

funding; n.a. = not applicable.

a. The current fiscal year.

b. The categories included in other revenue should be defined.

c. The totals in this section do not match the sums of the categories (all of which were provided 

separately by the Navy) because they include some costs not in the individual categories.

d. Other direct costs include travel and transportation related to a specific repair.

e. Overhead should include costs for base operating support; indirect labor, materials, contracts, 

and travel; training; support services (such as the Defense Finance and Accounting Service); and 

headquarters support (NAVSEA). Mission-funded yards do not now include all those categories.

f. Equals total costs divided by direct labor-days. Capital depreciation is included in WCF rates, but 

capital expenditure is not included in the current burdened rate. Direct material expense is 

included in the current burdened rate but not in WCF rates. The table should also provide a definition or reference for other rates.

g. Early completions count as zero percent late.

2001 2002 2003 2004 2005 2006a 2007 2008

800 844 877 806 876

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

n.a. n.a. n.a. n.a. n.a.

86323

338,851 309,128 94,289 94,957 529,770

353,600 255,200 100,000 63,100 536,400

1.04 0.83 1.06 0.67 1.01

153 123 43 49 182

152 129 45 49 187

0 6.3 5.0 0.3 4.3

0 23.4 14.9 0.5 12.8

13 13 11 13 68

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

Percentage of Work Remaining NYA NYA NYA NYA NYA

Average Labor Cost per Hull 

(Millions of dollars)

Hulls in Progress at End of Fiscal Year

Number

Remaining

Actual Labor-Days

Ratio of Actual Labor-Days 

to Budgeted Labor-Days 

Budgeted Labor-Days 

Scheduled Weeks

Actual Weeks

Average Percentage Lateh

Maximum Percentage Late

Working Capital Fund Rate

Hulls Completed This Fiscal Year

Number

Budgeted Labor-Days

Rates (Dollars)

Current Burdened Rateg

Navy Reimbursable Rate

Non-Navy Reimbursable Rate

Actual Projected
30

Table A-4.

Operations Summary for All Naval Shipyards

(In the dollars of each fiscal year)

Continued

2001 2002 2003 2004 2005 2006a 2007 2008

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA ____ ____ ____ ____ ____

Total NYA NYA NYA NYA NYA

15.1 16.5 21.7 32.7 36.0

918.7 1,106.1 1,140.2 1,275.2 1,306.4

211.6 247.7 246.3 314.2 262.4

381.7 429.1 496.4 529.8 407.9

NYA NYA NYA NYA NYA

915.0 1,020.3 1,066.1 944.2 1,001.2 ______ ______ ______ ______ ______

Total 2,468.2 2,849.7 2,995.7 3,194.8 3,104.5

n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a.

81.2 150.2 66.7 59.8 43.1

n.a. n.a. n.a. n.a. n.a.

553.0 387.0 381.0 376.0 NYA

31.0 63.4 127.3 30.8 25.4

NYA NYA NYA NYA NYA

NYA NYA NYA NYA 4,984

719 753 795 918 912

22,178 23,535 23,986 24,675 25,031

17,312 18,391 22,273 27,075 29,271

77,427 75,557 79,770 93,251 94,241

3,289,891 3,758,356 3,693,061 4,011,167 3,983,023

1,626,782 1,668,230 1,692,663 1,646,225 1,681,093

Actual Projected

Conversion

Navy Procurement

Navy Shipbuilding and 

Other Department of Navy

Other Department of Defense

Direct Contract

Other Direct Costsd

Foreign Military Sales

Other Federal Government

Otherb

Direct Military Labor

Overheade

Revenue (Millions of dollars)

Costs (Millions of dollars)c

WCF Operating Results (Millions of dollars)

Operation and Maintenance

Atlantic Fleet 

Pacific Fleet

NAVSEA

Direct Civilian Labor

Direct Materials

Net Operating Result

Accumulated Operating Result

End of Fiscal Year Carryover

Capital (Millions of dollars)

Capital Expenditure

Capital Depreciation

Capital Replacement Value

Facilities (Millions of dollars)

Military Construction

Base Operating Support

Facilities Replacement Value

Labor

Military End Strength

Civilian End Strength

Direct Military Labor-Days

Indirect Military Labor-Days

Direct Civilian Labor-Days

Indirect Civilian Labor-Days
31

Table A-4.

Continued

Source: Congressional Budget Office.

Notes: This table is intended to serve as a template that shipyards could use in reporting to the 

Congress. As such, it includes space for data from the current fiscal year, five years of past 

data, and two years of projected data to provide historical context and show potential trends. 

Additional detail and backup information should be available, in a standard format, for all 

categories. Similar reports for intermediate-level maintenance facilities may be useful.

NYA = not yet available; NAVSEA = Naval Sea Systems Command; WCF = working-capital 

funding; n.a. = not applicable.

a. The current fiscal year.

b. The categories included in other revenue should be defined.

c. The totals in this section do not match the sums of the categories (all of which were provided 

separately by the Navy) because they include some costs not in the individual categories.

d. Other direct costs include travel and transportation related to a specific repair.

e. Overhead should include costs for base operating support; indirect labor, materials, contracts, 

and travel; training; support services (such as the Defense Finance and Accounting Service); and 

headquarters support (NAVSEA). Mission-funded yards do not now include all those categories.

f. Equals total costs divided by direct labor-days. Capital depreciation is included in WCF rates, but 

capital expenditure is not included in the current burdened rate. Direct material expense is 

included in the current burdened rate but not in WCF rates. The table should also provide a definition or reference for other rates.

g. Early completions count as zero percent late.

2001 2002 2003 2004 2005 2006a 2007 2008

746 755 806 791 774

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

n.a. n.a. n.a. n.a. n.a.

22 34 24 18 12

1,681,986 3,240,076 2,091,978 2,517,901 1,652,438

1,707,300 2,922,285 2,022,800 2,351,173 1,620,700

1.02 0.90 0.97 0.93 0.98

854 1,614 918 917 695

853 1,560 918 918 694

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

NYA NYA NYA NYA NYA

Navy Reimbursable Rate

Non-Navy Reimbursable Rate

Actual Projected

Rates (Dollars)

Current Burdened Ratef

Working Capital Fund Rate

Hulls Completed This Fiscal Year

Number

Budgeted Labor-Days

Actual Labor-Days

Ratio of Actual Labor-Days 

to Budgeted Labor-Days 

Budgeted Labor-Days 

Scheduled Weeks

Actual Weeks

Average Percentage Lateg

Maximum Percentage Late

Percentage of Work Remaining

Average Labor Cost per Hull 

(Millions of dollars)

Hulls in Progress at End of Fiscal Year

Number

Remaining