United States General Accounting Office

GAO Report to the Honorable

Owen B. Pickett

House of Representatives

February 1999 NAVY SHIP

MAINTENANCE

Allocation of Ship

Maintenance Work in

the Norfolk, Virginia,

Area

GAO/NSIAD-99-54

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-280524 

February 24, 1999

The Honorable Owen B. Pickett

House of Representatives

Dear Mr. Pickett:

Officials of private shipyards and ship repair companies in the Norfolk,

Virginia, area have expressed concern about the Department of the Navy’s

declining ship maintenance workload in recent years. As you requested,

we are providing information on the Navy’s policies and procedures for

allocating ship maintenance work to the Norfolk Naval Shipyard and

private ship repair companies in the Norfolk, Virginia, area and data

regarding funding obligated to the public and private sectors.1

 Specifically,

this report discusses (1) the Navy’s policies and procedures for allocating

ship maintenance work to public and private facilities in the Norfolk area,

(2) ship maintenance and modernization funding obligated to the Norfolk

Naval Shipyard and private ship repair companies during fiscal years 1994

through 1998, and (3) the extent the Atlantic Fleet’s ship maintenance

program has been affected by the movement of funds out of the ship depot

maintenance program since fiscal year 1994. Maintenance on

nuclear-powered ships is referred to as nuclear ship maintenance, while

maintenance on non-nuclear powered ships is referred to as conventional

ship maintenance. Our scope and methodology are described in 

appendix I.

Results in Brief The Navy’s allocation of ship maintenance workload in the Norfolk,

Virginia, area is guided by legislative requirements and established policy

objectives, such as retaining a certain level of public sector capability,

allowing sailors to remain at their home ports when shorter repairs are

being done, and achieving economic and efficient public depot

maintenance operations. During fiscal years 1994 through 1998, private

shipyards and repair companies in the Norfolk, Virginia, area received

proportionately more funding for ship maintenance work than the Navy’s

1

The Norfolk Naval Shipyard is a Navy facility that provides repair and modernization to the entire

range of naval ships. The Newport News Shipbuilding and Drydock Company is the largest privately

owned shipyard in the United States. It is the only one that can build, refuel, and maintain Nimitz-class

aircraft carriers and one of two that can build and maintain nuclear-powered submarines. Six other

private shipyards in the area do repair work on conventional ships and about 30 other private

companies do limited ship repair work at the Norfolk Naval Shipyard, other private shipyards, and

their own facilities. Newport News and several of these private shipyards frequently perform ship

maintenance work outside the Norfolk, Virginia, area.

Page 1 GAO/NSIAD-99-54 Navy Ship Maintenance
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Norfolk Naval Shipyard.2 Among the private sector activities, Newport

News Shipbuilding and Drydock Company has received the largest portion

of ship maintenance funding in the Norfolk area.3

 Funding obligated to

other smaller shipyards and repair companies has fluctuated from year to

year, with the greatest change occurring in fiscal year 1998 when these

companies received proportionately much less of the annual ship

maintenance funding than in other years and also received less than

initially scheduled by the Navy. This was largely because (1) the

conventional workload that traditionally goes to these companies is

declining, (2) scheduled maintenance and operational requirements

changed during fiscal year 1998, and (3) four conventional maintenance

projects originally scheduled to go to the private sector were reassigned to

the Norfolk Naval Shipyard to stabilize and achieve more economical and

efficient operations at that public shipyard.4

The Navy did move appropriated funds from its ship depot maintenance

account during fiscal years 1994 through 1998. However, the Atlantic Fleet

received a slight increase over the amount budgeted for its ship depot

maintenance program during this period. Consequently, the movement of

ship depot maintenance funds did not reduce the amount of funds

provided to the public and private sectors in the Norfolk, Virginia, area.

Background The objective of the Navy’s ship maintenance program is to perform all

necessary maintenance consistent with available funding and provide

reasonable assurance that ships will be available for required operations.

Ship maintenance, conducted during periods the Navy calls availabilities,

includes three types of requirements: time-directed, condition-based, and

modernization. Time-directed requirements include those that are periodic

in nature and are based on elapsed time or recurrent operations.

Condition-based requirements, which are based on the physical condition

of the ship, are usually identified by the ship’s crew or inspection teams.

2

Measured by funds obligated each fiscal year. Department of Defense (DOD) regulations define

obligations as amounts of orders placed, contracts awarded, services received, and similar

transactions during an accounting period that will require payment.

3

To provide a more meaningful analysis of workload allocation within the private sector, we separated

smaller private shipyards and ship repair companies from Newport News because Newport News,

specializing in major overhauls and nuclear ship maintenance projects, performs larger and different

types of maintenance projects than the other smaller ship repair companies in the Norfolk area. We

could not readily separate conventional ship work from nuclear ship work.

4

The Navy issued a planning report, Private Sector Depot Level Planning Report for Fiscal Years 1997

and 1998, Naval Sea Systems Command Notice 4710 (Sept. 23, 1996), containing Chief of Naval

Operations (CNO) conventional maintenance projects that were not yet funded but were tentatively

planned for allocation to the private sector in the Norfolk area. This report was not a commitment to

provide particular workload to industry but was meant more as a benchmark or informal planning tool

for industry to gauge upcoming ship maintenance requirements that might be available for contracting.

Page 2 GAO/NSIAD-99-54 Navy Ship Maintenance
B-280524 

Lastly, modernization requirements include changes that either add new

capability or improve reliability and maintainability of existing systems.

Officials of the Shipbuilders Council of America, the South Tidewater

Association of Ship Repairers, private shipyards, and ship repair

companies in the Norfolk area have expressed concern that the Navy’s

implementation of its policies and procedures favored the Norfolk Naval

Shipyard, contributing to the private sectors’ declining ship maintenance

workload in the Norfolk area during fiscal year 1998.

Navy Policies and

Procedures for

Allocating Ship

Maintenance Work in

the Norfolk Area

The Navy’s allocation of ship maintenance workload in the Norfolk,

Virginia, area is guided by legislative requirements and established Navy

policy objectives, such as (1) retaining a certain level of public sector

capability, (2) allowing sailors to remain at their home ports when shorter

repairs are being done, and (3) achieving economic and efficient public

depot maintenance operations.

Historically, large ship dry-dockings and nuclear ship maintenance

projects in the Norfolk, Virginia, area are usually allocated to either

Newport News or the Norfolk Naval Shipyard and maintenance projects

for conventional surface ships are usually contracted with private ship

repair companies or allocated to Norfolk Naval Shipyard.5

 In addition,

Newport News performs some medium to small conventional ship

maintenance work for the Navy.

Further, in making workload allocation decisions, Navy officials stated

they also consider:

• The statutory requirement of 10 U.S.C. 2466, more commonly called the

50-50 rule, wherein the Department of the Navy is required to contract not

more than 50 percent of funds made available for depot-level maintenance

with the private sector.6

 This requirement is for the whole Navy and

applies to all types of depot maintenance at all locations. The 50-50

requirement excludes funds obligated for the (1) procurement of major

modifications or upgrades of weapon systems that are designed to

improve performance or (2) nuclear refueling of an aircraft carrier. To

5

Nuclear attack submarines may also be assigned to the Portsmouth Naval Shipyard at Kittery, Maine,

and Electric Boat Company, at Groton, Connecticut.

6

Until fiscal year 1998, the Navy was prohibited by statute (10 U.S.C. 2466) from placing more than

40 percent of its depot-level maintenance work in the private sector. In the 1998 Defense Authorization

Act, this was amended to 50 percent.

Page 3 GAO/NSIAD-99-54 Navy Ship Maintenance
B-280524 

more fully identify all sources of funding for ship maintenance and repair

work in the Norfolk area, we included obligated funds for these activities

in our analysis for this report.

• The Navy’s home port policy is to, where possible, do ship repair and

maintenance work of 6 months or less at the ship’s home port, thus

improving the ship crew’s quality of life by reducing time away from home.

If the estimated project is to take 6 months or less, the Navy solicits

proposals for maintenance contracts from private shipyards and ship

repair companies located near the ship’s home port. If the estimate is more

than 6 months, the Navy expands the solicitation to include additional ship

repair companies operating on the coast—the Atlantic coast for the

Atlantic Fleet.

• Core work requirements, where the Navy tries to maintain the required

capabilities within organic Navy shipyards to meet readiness and

sustainability requirements of the weapon systems that support the

wartime and contingency scenarios. According to Navy documents, core

capabilities consist of the minimum facilities, equipment, and skilled

personnel necessary to meet these readiness and sustainability

requirements.

• The Navy’s guaranteed manday policy, where Navy officials try to match

the workload to Norfolk Naval Shipyard workforce because the shipyard’s

workforce and related costs have already been committed in the Navy’s

budget.7

Obligations for Ship

Maintenance and

Repair Work in the

Norfolk Area

In terms of reported obligations for ship maintenance work in the Norfolk

area during fiscal years 1994 through 1998, the largest amount of ship

maintenance funding went to the private shipyards and repair companies.8

Among the private sector activities, Newport News received the largest

portion of the obligated funds. Reported obligations for the smaller private

shipyards and repair companies fluctuated from year to year but, for a

7

The Norfolk Naval Shipyard’s workload targets are established under the Navy’s guaranteed manday

policy, where work days budgeted for Norfolk Naval Shipyard are guaranteed by its customers (fleet

and system commanders) during the budget execution year. During the budget process, Norfolk Naval

Shipyard’s workload and workforce are established and locked in the budget. Consequently, during the

budget execution year, the Navy’s guaranteed manday policy is to ensure the agreed to workload (or

equivalent) is provided to Norfolk Naval Shipyard’s workforce because the workforce figures and

related costs have already been committed in the budget. For several reasons, primarily operational

commitments, ship schedules may change. Thus, when a ship maintenance project is moved out of the

public shipyard, it may be necessary to provide the public shipyard with an equivalent workload.

8

Our audit of the federal government’s fiscal year 1997 consolidated financial statements identified

billions of dollars in DOD unreconciled cash disbursements. As a result of these accounting problems,

DOD has not recorded all obligations and expenditures to specific budgetary accounts. See Financial

Audit: 1997 Consolidated Financial Statements of the United States Government (GAO/AIMD-98-127,

Mar. 31, 1998).

Page 4 GAO/NSIAD-99-54 Navy Ship Maintenance
B-280524 

variety of reasons, were proportionately much less in fiscal year 1998 than

in other recent years and were also less than the Navy initially scheduled

for fiscal year 1998.

Amount of Funds

Obligated Between the

Public and Private Sectors

During fiscal years 1994 through 1998, the Navy reported obligating nearly

$6.9 billion for the ship maintenance work in the Norfolk area. It provided

Norfolk Naval Shipyard with about 31.1 percent of this work and private

shipyards and repair companies were allocated 68.9 percent. (See table 1.)

Table 1: Reported Obligations for Ship Maintenance Work Provided to Norfolk Naval Shipyard and Private Shipyards and

Repair Companies in the Norfolk Area During Fiscal Years 1994 Through 1998

Obligations for work provided to

Norfolk Naval Shipyarda

Obligations for work provided to the

private shipyards and repair

companies

Then-year dollars in millions

Fiscal year Amount Percent of total Amount Percent of total Total

1994 $417.5 30.7 $942.7 69.3 $1,360.2

1995 428.8 30.4 980.7 69.6 1,409.5

1996 419.3 47.6 462.2 52.4 881.5

1997 373.3 31.6 809.9 68.5 1,183.2

1998 508.4 24.6 1,554.8 75.4 2,063.2

Percent of total 31.1 68.9

Note: Obligations are for maintenance, modernization, materials, and nuclear refueling work

provided to the Norfolk Naval Shipyard, Newport News, and other smaller ship repair companies.

Dollar amounts do not include obligations for ship maintenance work performed outside the

Norfolk, Virginia, area.

aDollar amounts do not include work (approximately $63.7 million) the Norfolk Naval Shipyard

contracted out to private ship repair companies. These amounts are included in the obligations

for work provided to private shipyards and repair companies.

Source: Our analysis of obligation data provided by the Navy Comptroller, CNO, the Atlantic

Fleet, and Military Sealift Command (MSC).

Table 1 also shows that reported obligations for fiscal year 1998 were

much higher than previous years, with the largest percentage obligated to

private shipyards and repair companies. Most of the 1998 obligations went

to Newport News to fund a complex overhaul and nuclear refueling of the

U.S.S. Nimitz. In the years in which Newport News has such a large

workload, major funding spikes occur. In contrast, there was no similar

workload assigned to Newport News in fiscal year 1996. Navy officials told

us that funding to Newport News was smaller in 1996 because (1) there

Page 5 GAO/NSIAD-99-54 Navy Ship Maintenance
B-280524 

was less nuclear ship maintenance work—work historically allocated to

either Newport News or Norfolk Naval Shipyard and (2) Newport News

was already operating near full capacity.

Distribution of Reported

Obligations Among Private

Shipyards and Repair

Companies

Newport News is a large nuclear-capable yard and is capable of doing ship

repair work that other smaller shipyards and repair companies in the

Norfolk area are not. Smaller private shipyards and repair companies in

the area do repair work on conventional ships and are not qualified to do

nuclear-related work. Therefore, to make our private sector analysis more

meaningful, we separated the Navy’s reported obligations according to

whether they were provided to Norfolk Naval Shipyard, Newport News, or

other smaller shipyards and repair companies. As shown in table 2,

Newport News received the largest obligations in all but 1 year between

fiscal year 1994 and 1998.

Table 2: Reported Obligations for Ship Maintenance Work Provided to Norfolk Naval Shipyard, Newport News, and Smaller

Private Shipyards and Repair Companies in the Norfolk Area During Fiscal Years 1994 Through 1998

Obligations for work provided

to the Norfolk Naval Shipyarda Newport News Smaller ship repair companiesb

Obligations for work provided to the private sector

Then-year dollars in millions

Fiscal year Amount Percent of total Amount Percent of total Amount Percent of total

1994 $417.5 30.7 $681.6 50.1 $261.1 19.2

1995 428.8 30.4 552.1 39.2 428.6 30.4

1996 419.3 47.6 230.8 26.2 231.4 26.3

1997 373.3 31.6 546.6 46.2 263.3 22.3

1998 508.4 24.6 1,345.1 65.2 209.7 10.2

Percent of total 31.1 48.7 20.2

Note: Obligations are for maintenance, modernization, materials, and nuclear refueling work

provided to the Norfolk Naval Shipyard, Newport News, and other smaller private ship repair

companies. Dollar amounts do not include obligations for ship maintenance work performed

outside the Norfolk, Virginia, area.

aDollar amounts do not include work (approximately $63.7 million) the Norfolk Naval Shipyard

contracted out to private ship repair companies. These amounts are included in the obligations

for work provided to private shipyards and repair companies.

bSmaller private shipyards and repair companies do repair work on conventional ships and are

not qualified to do nuclear-related work.

Source: Our analysis of obligation data provided by the Navy Comptroller, CNO, the Atlantic

Fleet, and MSC.

Page 6 GAO/NSIAD-99-54 Navy Ship Maintenance
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Table 2 also shows that the smaller private shipyards and repair

companies received a much lower percentage of the total obligations in

fiscal year 1998 than in other years. There was less conventional ship

maintenance work—work historically allocated to smaller shipyards and

repair companies or to the Norfolk Naval Shipyard. For example, the Navy

reported that the total number of ships in the Atlantic Fleet decreased

from 191 in fiscal year 1994 to 165 in fiscal year 1998. Similarly, the

reported number of conventional steam-powered ships,

maintenance-intensive ships that smaller ship repair companies have

historically worked on, decreased in the Atlantic Fleet from 38 to 26

between fiscal year 1994 and 1997, and was projected to decrease to 

23 ships during fiscal year 1998. According to Navy officials, conventional

steam-powered ships require more maintenance than other ships because

they are older and contain more mechanical parts than newer ships, which

have more reliable component systems that are easier to remove, replace

with new component systems, and repair elsewhere.

Private Shipyards and

Repair Companies

Received Less CNO

Maintenance Work Than

Initially Scheduled in

Fiscal Year 1998

During fiscal year 1998, the Navy provided the smaller private shipyards

and repair companies in the Norfolk area less conventional maintenance

work than initially scheduled in its private sector planning report dated

September 23, 1996.9

 This change occurred largely for operational reasons

and requirement changes and because four conventional maintenance

projects originally scheduled to go to the private sector were reassigned to

the Norfolk Naval Shipyard to meet workload targets established for the

public shipyard under the Navy’s guaranteed manday policy. Appendix III

details the final distribution of the CNO projects scheduled for fiscal year

1998.

In September 1996, Naval Sea Systems Command (NAVSEA) issued the

Navy’s private sector depot-level planning report for fiscal years 1997 and

1998.10 The report contained CNO conventional maintenance projects that

were not yet funded but were tentatively planned for allocation to the

private shipyards and repair companies in the Norfolk area in fiscal

9

Historically, the Navy has issued such a planning report projecting its requirements for the upcoming

2 fiscal years in the spring prior to initial year, thus providing the ship repair companies more than

15 months to plan for the later fiscal year. The Navy eliminated the report in 1997 because it was

misinterpreted by the private sector as representing the Navy’s approved and funded CNO ship

maintenance schedule. Instead, the Navy now issues a 1-year CNO ship maintenance and emergent

mandays schedule that has been approved and funded, and posts the schedule on the Navy’s web site

at the beginning of each fiscal year. Officials of ship repair companies told us that the schedule is

posted too late under the Navy’s current process to be used in their planning cycle.

10Private Sector Depot Level Planning Report for Fiscal Years 1997 and 1998, NAVSEA Notice 4710

(Sept. 23, 1996).

Page 7 GAO/NSIAD-99-54 Navy Ship Maintenance
B-280524 

years 1997 and 1998. Navy officials told us that the unfunded schedule was

recognized as being subject to change and changes did subsequently

occur. Nonetheless, some private shipyards and repair companies

expected to receive larger amounts of work than they ultimately obtained

because of the information in the report.

In fiscal year 1998, the Navy reduced the size of the maintenance package

for seven CNO maintenance projects and deferred one CNO project to fiscal

year 1999 because several ships scheduled for maintenance needed less

maintenance than expected and other Atlantic Fleet ships needed more

maintenance than scheduled, requiring the Navy to transfer additional ship

maintenance funds to those projects. In addition, the Navy canceled three

scheduled projects: the U.S.S. Roberts project was canceled because the

ship needed less maintenance than expected, the U.S.S. Radford project

was canceled because the ship had operational commitments, and the

U.S.S. Guam project was canceled because the ship was decommissioned

in August 1998.11

During fiscal year 1998, the Navy also assigned the Norfolk Naval Shipyard

four CNO maintenance projects, initially scheduled for competition in the

private sector. This was done to meet workload targets established for

Norfolk Naval Shipyard under the Navy’s guaranteed manday policy. The

objective of the Navy’s guaranteed manday policy is to match the

workload to Norfolk Naval Shipyard’s workforce during the budget

execution year since the shipyard’s workforce figures and related costs

have already been committed in the Navy’s budget and workload

reductions would result in losses.12 Based on previous work, we believe

that the guaranteed manday policy is generally sound from a cost and

operational standpoint because, without it, the Norfolk Naval Shipyard

would lose money as a result of having work below the level required to

support its budgeted workforce.13

11In addition to the Norfolk area, other geographic regions experience descoped, deferred, and

canceled CNO maintenance projects.

12Guidance for the Execution of Program Funds at Naval Shipyards, CNO Instruction 7130.8 

(Apr. 5, 1996).

13Navy Ship Maintenance: Temporary Duty Assignments of Temporarily Excess Shipyard Personnel

Are Reasonable (GAO/NSIAD-98-93, Apr. 21, 1998).

Page 8 GAO/NSIAD-99-54 Navy Ship Maintenance
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Prior to fiscal year 1995, the Navy’s shipyards reported significant

operating losses.14 These losses were partly due to (1) fleet and system

commanders’ operational and administrative decisions that resulted in less

work being assigned to the public shipyards than was projected and

budgeted for and (2) the Navy’s lack of flexibility to quickly deviate from

the budgeted workforce because of Federal Civil Service requirements

that require workers be notified before they can be separated. To minimize

future departures from the budgeted workload, the Navy implemented the

guaranteed manday program. When it is determined that the number of

mandays originally budgeted for the Norfolk Naval Shipyard will not be

utilized, officials of CNO, NAVSEA, the Atlantic Fleet, and Norfolk Naval

Shipyard work together to identify alternatives for realigning the

maintenance workload to better utilize the Norfolk Naval Shipyard

budgeted workforce. These alternatives include adjusting the scope of

work for selected maintenance projects, shifting funding from other Navy

programs to ship maintenance, and moving planned workload from private

shipyards and repair companies to Norfolk Naval Shipyard. We believe

these initiatives are consistent with Navy policies and without them the

Norfolk Naval Shipyard would lose money as a result of having work

below the level required to support its budgeted workforce.

Movement of Funds

Had Relatively Little

Effect on the Atlantic

Fleet’s Ship Depot

Maintenance Program

During fiscal years 1994 through 1998, the Navy transferred or

reprogrammed appropriated funds into and out of its ship depot

maintenance program.15 However, the amounts transferred or

reprogrammed out of the Navy-wide ship depot maintenance program

generally did not adversely affect the Atlantic Fleet’s ship depot

maintenance program, where more funds were transferred or

reprogrammed into the program than were moved out.

During fiscal years 1994 through 1998, the Navy transferred or

reprogrammed about $1.2 billion (about 10 percent of the total)

appropriated for its ship depot maintenance program to other Navy

programs. The majority of the transfers or reprogrammings were due to

one-time adjustments—changes that reflected the Navy’s decisions to

14Repair activities at public shipyards are financed through the Navy’s Working Capital Fund. Under

the working capital fund concept, activities sustain their operations by charging their customers for

goods and services based on predetermined rates designed to recover the costs of operations. These

rates are often established up to 18 months in advance of their use for a given year as part of an

agency’s budget planning process. Working capital fund activities are not expected to incur profits or

losses, but to break even.

15Transfers are when funds are moved from one budget account to another and reprogrammings are

when funds are switched from one activity to another within the same account.

Page 9 GAO/NSIAD-99-54 Navy Ship Maintenance
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move funds to and from various Navy accounts based on emerging or

unforeseen requirements. The Navy made these adjustments because of

(1) force structure reductions, (2) operations tempo increases,

(3) increased recruiting goals, and (4) administrative support needs.16

Although there was a Navy-wide reduction in appropriated ship depot

maintenance funds due to program transfers or reprogrammings, the

reverse occurred in the Atlantic Fleet. During fiscal years 1994 through

1998, these transfers produced a net increase in the Atlantic Fleet’s ship

maintenance funding. An analysis of the Fleet’s data by fiscal year shows

only 1 year where a net decrease to the program occurred—during fiscal

year 1998 when the Navy moved $7.1 million (less than 1 percent) of the

Atlantic Fleet’s ship maintenance funds to other programs. (See table 3.)

Table 3: Status of Annual

Appropriations Allocated for Ship

Depot Maintenance in the Atlantic

Fleet for Fiscal Years 1994 Through

1998

Then-year dollars in millions

Fiscal year

Appropriations

allocated for Atlantic

Fleet ship depot

maintenancea

Obligation authority

transferred to and

from Atlantic Fleet

ship depot

maintenanceb

Final obligation

authority for Atlantic

Fleet ship depot

maintenance

1994 $930.6 +$20.1 $950.7

1995 1,237.3 +89.3 1,326.6

1996 971.0 +27.1 998.1

1997 997.4 +15.0 1,012.4

1998 913.7 –7.1 906.6

Total $5,050.0 +$158.6 $5,194.4

aAppropriated amount is the dollar amount appropriated, adjusted by congressional actions in the

applicable appropriation laws.

bThe “+” indicates a transfer into the Atlantic Fleet’s ship depot maintenance program; “-”

indicates a transfer out of the Atlantic Fleet’s ship depot maintenance program.

Source: Our analysis of Navy’s justification of budget estimates for fiscal years 1994 through 1999

and funding data provided by the Navy Comptroller’s Office, CNO, and the Atlantic Fleet.

Conclusions The allocation of ship maintenance workload in the Norfolk, Virginia, area

is guided by legislative requirements and established Navy policy

objectives. During fiscal years 1994 through 1998, the majority of ship

maintenance funding allocated in the Norfolk area went to the private

sector. While Newport News received the largest portion of that private

16Operations tempo increases included the costs of increasing fuel requirements and deploying four

additional aircraft carriers to the Arabian Gulf. Increased recruiting goals included costs to support

increased infrastructure for accession, retention, and training goals.

Page 10 GAO/NSIAD-99-54 Navy Ship Maintenance
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funding, obligations to other smaller shipyards and repair companies have

fluctuated from year to year. The greatest change occurred in fiscal

year 1998, when these smaller companies received less than in other years

and less than the Navy initially scheduled. This was largely because the

conventional workload that traditionally goes to these companies is

declining, scheduled maintenance and operational requirements changed

during fiscal year 1998, and four conventional maintenance projects

originally scheduled to go to the private sector were reassigned to the

Norfolk Naval Shipyard to stabilize and achieve more efficient operations

at the public shipyard. Lastly, while the Navy did reprogram ship depot

maintenance funds to meet other priorities, the Atlantic Fleet’s ship depot

maintenance program was not adversely affected because it received a

slight increase over the amount budgeted during fiscal years 1994 through

1998.

Agency Comments We requested comments on a draft of this report from the Secretary of

Defense. On January 21, 1999, DOD and NAVSEA officials said that they

concurred with the report. Additionally, on February 1, 1999, Atlantic Fleet

officials stated that the Fleet concurred with the report.

We are sending copies of this report to the Chairmen and Ranking

Members, Senate Committees on Armed Services and on Appropriations,

and the House Committees on National Security and on Appropriations;

the Secretaries of Defense and the Navy; and Director, Office of

Management and Budget. We will also make copies available to others

upon request.

Please contact me on (202) 512-8412 if you or your staff have any

questions concerning the report. Major contributors to this report are

listed in appendix IV.

Sincerely yours,

David R. Warren, Director

Defense Management Issues

Page 11 GAO/NSIAD-99-54 Navy Ship Maintenance
Contents

Letter 1

Appendix I 

Scope and

Methodology

14

Appendix II 

Reported Obligations

for Ship Maintenance

Work Provided to

Norfolk Naval

Shipyard, Newport

News, and Other

Smaller Private

Shipyards and Repair

Companies

17

Appendix III 

Distribution of CNO

Maintenance Projects

Scheduled for the

Private Sector in

Fiscal Year 1998

21

Appendix IV 

Major Contributors to

This Report

22

Related GAO Products 23

Tables

Page 12 GAO/NSIAD-99-54 Navy Ship Maintenance
Contents

Table 1: Reported Obligations for Ship Maintenance Work

Provided to Norfolk Naval Shipyard and Private Shipyards and

Repair Companies in the Norfolk Area During Fiscal Years 1994

Through 1998

5

Table 2: Reported Obligations for Ship Maintenance Work

Provided to Norfolk Naval Shipyard, Newport News, and Smaller

Private Shipyards and Repair Companies in the Norfolk Area

During Fiscal Years 1994 Through 1998

6

Table 3: Status of Annual Appropriations Allocated for Ship

Depot Maintenance in the Atlantic Fleet for Fiscal Years 1994

Through 1998

10

Table I.1: Listing of Master Ship Repair and Boat Repair

Companies We Visited

14

Table II.1: Reported Obligations for Ship Maintenance Work

Provided to the Norfolk Naval Shipyard for Fiscal Years 1994

Through 1998

17

Table II.2: Reported Obligations for Ship Maintenance Work

Provided to Newport News for Fiscal Years 1994 Through 1998

18

Table II.3: Reported Obligations for Ship Maintenance Work

Provided to Smaller Private Shipyards and Repair Companies,

Excluding Newport News, for Fiscal Years 1994 Through 1998

18

Abbreviations

CNO Chief of Naval Operations

DOD Department of Defense

MSC Military Sealift Command

NAVSEA Naval Sea Systems Command

SUPSHIP Supervisor of Shipbuilding, Conversion, and Repair

Page 13 GAO/NSIAD-99-54 Navy Ship Maintenance
Appendix I 

Scope and Methodology

During our review, we interviewed and obtained data from Department of

Navy officials, including from the Office of the Assistant Secretary of the

Navy for Research, Development, and Acquisition; Office of the Assistant

Secretary of Navy for Financial Management and Comptroller; Office of

the Deputy Chief of Naval Operations for Logistics; the Naval Sea Systems

Command (NAVSEA); the Supervisor of Shipbuilding (SUPSHIP) Portsmouth;

SUPSHIP-Newport News; the Atlantic Fleet; the Military Sealift Command

(MSC); and the Norfolk Naval Shipyard. We also obtained data from the

Department of Defense (DOD) Inspector General. In the private

shipbuilding and repair industry, we interviewed industry officials of the

Shipbuilders Council of America; the South Tidewater Association of Ship

Repairers; Master Ship Repair Agreement (Master Ship Repair) shipyards;1

 and Agreement for Boat Repair (Boat Repair) companies2 in the Norfolk

area. Table I.1 lists the master ship repair and boat repair companies we

visited.

Table I.1: Listing of Master Ship Repair

and Boat Repair Companies We

Visited

Master Ship Repair companies Boat Repair companies

Colonna’s Shipyard, Inc. Associated Naval Architect

Earl Industries, Inc. Atlantic Ordnance and Gyro, Inc.

Marine Hydraulics International, Inc. Davis Boat Works, Inc.

Metro Machine Holmes Brothers Enterprises, Inc.

Moon Engineering Lyon Shipyard, Inc.

Newport News Shipbuilding and Drydock

Company (Newport News)

Pure Water Technologies, Inc.

Norfolk Shipbuilding and Drydock

Corporation

Technico Corporation

Xenotechnix Corporation

We identified and reviewed DOD and Navy policies and instructions that

influence the allocation of ship maintenance work to public and private

ship repair facilities. Additionally, we interviewed Navy officials to identify

how the Navy actually implemented its policies and procedures in the

Norfolk area during fiscal years 1997 and 1998. We interviewed also Navy

and industry officials to determine the reason for any variances, and

concerns that may exist with the Navy’s current policies and procedures.

1

Master Ship Repair companies perform complex ship repair and overhaul work similar to the type of

work performed by Norfolk Naval Shipyard, usually at their own facilities.

2

Boat Repair companies perform boat and craft repair work and noncomplex work on Navy ships,

usually at Norfolk Naval Shipyard rather than their own facilities.

Page 14 GAO/NSIAD-99-54 Navy Ship Maintenance
Appendix I 

Scope and Methodology

To identify the level of ship maintenance work allocated to the Norfolk

Naval Shipyard and the private sector during fiscal years 1994 through

1998, we focused on identifying all sources of funding for ship

maintenance work in the Norfolk area, including CNO maintenance

projects, emergent and miscellaneous availabilities, modernization

projects, and MSC projects. To identify obligations for these funding

sources, we used funding data from Navy budget documents, program

plans, and ship maintenance schedules.

Using reported obligations to measure completed ship maintenance work,

we performed two data analyses to provide a more effective comparison

of the maintenance work done by Norfolk Naval Shipyard and private ship

repair companies. First, we determined and analyzed reported obligations

for ship maintenance work allocated to Norfolk Naval Shipyard and the

private sector during fiscal years 1994 through 1998. Second, we separated

reported obligations for Newport News from the other smaller shipyards

and repair companies in the Norfolk area because Newport News,

specializing in nuclear refueling and major overhauls, performs larger and

different types of maintenance projects than the other shipyards and

repair companies. For the purposes of this review, this separation

provided a more meaningful comparison of maintenance workloads

allocated to Norfolk Naval Shipyard, Newport News, and other smaller

private shipyards and repair companies during fiscal years 1994 through

1998. We could not readily separate conventional ship work from nuclear

ship work. We did not verify the validity of the Navy’s ship maintenance

and repair requirements in the Norfolk area.

To contrast the level of scheduled and actual ship maintenance work

completed by private shipyards and repair companies in the Norfolk area

during fiscal year 1998, we focused on comparing the Navy’s schedule of

CNO maintenance projects with actual projects provided to the private

sector. We examined Navy planning documents, including the Navy’s

schedule of CNO maintenance projects and the NAVSEA Notice 4710, entitled

Private Sector Depot Level Planning Report for Fiscal Years 1997 and 1998.

The 4710 notice contained the CNO availabilities scheduled for the private

sector and specified solicitation area, contract type, solicitation method,

and milestones for 1998 maintenance projects. We examined NAVSEA and

Atlantic Fleet data that identified completed CNO maintenance projects

during fiscal year 1998 and where the work was performed. We compared

and analyzed the Navy’s schedules of CNO maintenance projects with

actual projects completed by the private shipyards and repair companies

in the Norfolk area during this year to identify variances. We discussed

Page 15 GAO/NSIAD-99-54 Navy Ship Maintenance
Appendix I 

Scope and Methodology

variances with NAVSEA and Atlantic Fleet officials to determine the reasons

some of these scheduled maintenance projects were descoped, canceled,

or transferred.

To identify the extent to which ship maintenance workloads in the Norfolk

area were affected by the migration of funding from the ship depot

maintenance program since fiscal year 1994, we examined a variety of

Navy budget documents. We examined and analyzed the budget request,

appropriated, current estimate, and actual obligated funding levels during

fiscal years 1994 through 1998, for Navy-wide and Atlantic Fleet ship depot

maintenance programs. We identified and analyzed the differences

between the annual appropriated, current estimate, and actual obligated

funding levels for ship depot maintenance. We interviewed Navy officials

and examined Navy documents to determine the reasons for differences

and their impact on the ship depot maintenance program in the Norfolk

area.

In performing this review, we used the same budget and accounting

systems, reports, and statistics DOD and the Navy use to manage and

monitor their ship depot maintenance program. Dollars amounts shown in

the report are the Navy’s reported obligations to ship repair and

maintenance facilities in the Norfolk area and do not reflect actual

distribution of funds. We did not independently determine the reliability of

the reported obligation information. However, our recent audit of the

federal government’s financial statements, including DOD’s and the Navy’s

statements, questioned the reliability of reported obligation information

because not all obligations and expenditures are recorded to specific

budgetary accounts.

We conducted our review from June 1998 to January 1999 in accordance

with generally accepted government auditing standards.

Page 16 GAO/NSIAD-99-54 Navy Ship Maintenance
Appendix II 

Reported Obligations for Ship Maintenance

Work Provided to Norfolk Naval Shipyard,

Newport News, and Other Smaller Private

Shipyards and Repair Companies

Reported obligations for ship maintenance work provided to the Norfolk

Naval Shipyard, Newport News, and other smaller private shipyards and

repair facilities during fiscal years 1994 and 1998 are presented in the

following tables.

Table II.1: Reported Obligations for Ship Maintenance Work Provided to the Norfolk Naval Shipyard for Fiscal Years 1994

Through 1998

Dollars in millions

Fiscal year

CNO

maintenance work

Fleet

maintenance work

Other Navy

maintenance work

Less Norfolk Naval

Shipyard work

contracted to private

ship repair

companiesa

Total

obligations

1994 $194.3 $59.0 $168.7 ($4.5) $417.5

1995 208.3 96.7 131.5 (7.7) 428.8

1996 244.7 111.8 73.0 (10.2) 419.3

1997 183.3 122.7 78.6 (11.4) 373.3

1998 267.9 119.1 151.3 (29.9) 508.4

Note: Obligations are for maintenance, modernization, materials, and nuclear refueling work

provided to the Norfolk Naval Shipyard.

aTotal funding for Norfolk Naval Shipyard work contracted to Newport News and other smaller

private ship repair companies.

Source: Our analysis of obligation data provided by the Navy Comptroller, the Chief of Naval

Operations (CNO), the Atlantic Fleet, and MSC.

Page 17 GAO/NSIAD-99-54 Navy Ship Maintenance
Appendix II 

Reported Obligations for Ship Maintenance

Work Provided to Norfolk Naval Shipyard,

Newport News, and Other Smaller Private

Shipyards and Repair Companies

Table II.2: Reported Obligations for Ship Maintenance Work Provided to Newport News for Fiscal Years 1994 Through 1998

Dollars in millions

Fiscal year

CNO

maintenance work

Fleet

maintenance work

MSC

maintenance work

Norfolk Naval

Shipyard

maintenance work

Other Navy

maintenance work

Total

obligations

1994 $55.0 $26.4 $570.0 $1.4 $28.8 $681.6

1995 495.1 8.5 0 0.8 47.7 552.1

1996a 27.9 28.4 0 0.1 174.4 230.8

1997 247.6 3.8 0 0.1 295.1 546.6

1998b 7.0 47.3 0 1.8 1,289.0 1,345.1

Note: Obligations are for maintenance, modernization, materials, and nuclear refueling work

provided to Newport News. Dollar amounts do not include obligations for ship maintenance work

performed outside the Norfolk, Virginia, area.

aAccording to Navy officials, the Navy obligated Newport News less of the ship maintenance

program in fiscal year 1996 than any other year during this period because there was less nuclear

ship maintenance work, historically allocated to Newport News or Norfolk Naval Shipyard.

bMost of the reported obligations for ship maintenance work provided to Newport News in fiscal

year 1998, nearly $1.3 billion, was for a complex overhaul and nuclear refueling of the U.S.S.

Nimitz.

Source: Our analysis of obligation data provided by the Navy Comptroller, CNO, the Atlantic

Fleet, and MSC.

Table II.3: Reported Obligations for Ship Maintenance Work Provided to Smaller Private Shipyards and Repair Companies,

Excluding Newport News, for Fiscal Years 1994 Through 1998

Dollars in millions

Fiscal year

CNO

maintenance work

Fleet

maintenance work

MSC

maintenance work

Norfolk Naval

Shipyard

maintenance work

Other Navy

maintenance work

Total

obligations

1994 $73.1 $50.0 $75.1 $3.1 $59.8 $261.1

1995 132.1 72.5 116.0 6.9 101.1 428.6

1996 101.5 36.7 35.8 10.1 47.3 231.4

1997 74.3 55.9 70.9 11.3 50.9 263.3

1998 44.5 86.5 33.8 28.1 16.8 209.7

Note 1: Obligations are for maintenance, modernization, and materials work provided to the

smaller private ship repair companies in the Norfolk area. Dollar amounts do not include

obligations for ship maintenance work performed outside the Norfolk, Virginia, area.

Note 2: Smaller private shipyards and repair companies do repair work on conventional ships and

are not qualified to do nuclear-related work.

Source: Our analysis of obligation data provided by the Navy Comptroller, CNO, the Atlantic

Fleet, and MSC.

Page 18 GAO/NSIAD-99-54 Navy Ship Maintenance
Appendix II 

Reported Obligations for Ship Maintenance

Work Provided to Norfolk Naval Shipyard,

Newport News, and Other Smaller Private

Shipyards and Repair Companies

In discussing the previous data with Navy officials, we were told that:

• CNO maintenance projects declined significantly after peaking in fiscal

year 1995.1

 According to Navy officials, obligations for CNO maintenance

projects provided to smaller ship repair companies declined significantly.

They said that the decline in requirements since 1995 was due primarily to

the decreasing numbers of ships in the Atlantic Fleet, including

steam-powered ships, which have historically been allocated to smaller

ship repair companies. The Navy also reduced the size of 19 CNO

maintenance projects scheduled for private shipyards and repair

companies in fiscal years 1997 and 1998. Further, during fiscal year 1998,

the Navy deferred one and canceled three scheduled CNO projects due to

changing maintenance requirements and priorities and transferred four

projects to Norfolk Naval Shipyard to meet workload targets established

under its guaranteed manday policy.

• According to Navy officials, obligations for ship maintenance projects

fluctuated during the period because their requirements historically vary

from year-to-year.2

 Additionally, reported obligations for Fleet

maintenance projects peaked in fiscal year 1998 because the Navy reduced

the size of the maintenance package for several CNO projects that were

reclassified as Fleet maintenance projects, thus increasing the number of

Fleet projects and related obligations.

• Historically, maintenance workload requirements for MSC ships fluctuate

from year-to-year and the variances between 1994 and 1998 were typical.

• Norfolk Naval Shipyard work contracted to ship repair companies

increased steadily during fiscal years 1994 through 1998. Likewise, during

this period, the Norfolk Naval Shipyard gradually increased its use of

temporary contract workers to complete ship maintenance projects.

According to Navy officials, in selected cases it is cost-effective for

Norfolk Naval Shipyard to contract with private shipyards and repair

companies for skilled workers during periods of need rather than

employing them full-time as Norfolk Naval Shipyard employees.

Additionally, decreased personnel ceilings in the Navy have limited the

naval shipyards’ workforce.

• Obligations for other ship maintenance work, which includes ship

modernization projects, fluctuated during the period because the Navy

contracted with smaller private shipyards and repair companies for

1

CNO maintenance projects include depot-level maintenance that require skills or facilities beyond

those of the Navy’s organizational and intermediate maintenance levels and is performed by public and

private shipyards and repair activities.

2

Fleet maintenance projects include emergent, restricted, technical, and miscellaneous maintenance

projects to complete specific items of work during a short, labor-intensive time frame.

Page 19 GAO/NSIAD-99-54 Navy Ship Maintenance
Appendix II 

Reported Obligations for Ship Maintenance

Work Provided to Norfolk Naval Shipyard,

Newport News, and Other Smaller Private

Shipyards and Repair Companies

installation of vertical launch systems in fiscal years 1994 and 1995 and

pollution abatement systems in fiscal year 1997. Further, Navy officials

said that funding requirements for the Navy’s modernization program have

gradually declined as older ships were decommissioned and newer ships

deployed.

Page 20 GAO/NSIAD-99-54 Navy Ship Maintenance
Appendix III 

Distribution of CNO Maintenance Projects

Scheduled for the Private Sector in Fiscal

Year 1998

Provided to the private ship repair

companies

Ship

No significant

change in scope Descoped Deferred Canceled

Diverted to the

Norfolk Naval

Shipyard

U.S.S. Thorn Yes

U.S.S. Nicholas Yes

U.S.S. Shreveport Yes

U.S.S. Ponce Yes

U.S.S. Whidbey Island Yes

U.S.S. Grasp Yes

U.S.S. Ashlanda Yes

U.S.S. Halyburton Yes

U.S.S. Oak Hill Yes

U.S.S. Carter Hill Yes

U.S.S. Arctic Yes

U.S.S. Vella Gulf Yes

U.S.S. Barry Yes

U.S.S. Stout Yes

U.S.S. Lamoure Cityb Yes

U.S.S. Roberts Yes

U.S.S. Radford Yes

U.S.S. Guam Yes

U.S.S. Anzioc Yes

U.S.S. Cape St Georgec Yes

U.S.S. Nicholson Yes

U.S.S. Elrod Yes

Total count 7 7 1 3 4

Note: In addition to the Norfolk area, other geographic regions experience descoped, deferred,

and canceled CNO maintenance projects.

aNewport News won the maintenance contract for the U.S.S. Ashland.

bRescheduled for fiscal year 1999.

cMaintenance projects for these ships were descoped before the Atlantic Fleet sent them to

Norfolk Naval Shipyard.

Source: Our analysis of the Navy’s Private Sector Depot Level Planning Report for Fiscal 

Year 1997 and 1998, NAVSEA Notice 4710 (Sept. 23, 1996) and execution data provided by

CNO, NAVSEA, and the Atlantic Fleet.

Page 21 GAO/NSIAD-99-54 Navy Ship Maintenance
Appendix IV 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Barry W. Holman, Associate Director

Julia C. Denman, Assistant Director

Mark A. Little, Evaluator-in-Charge

Claudia J. Dickey, Senior Evaluator

Raymond C. Cooksey, Senior Evaluator

Office of the General

Council

John G. Brosnan, Assistant General Council

Stephanie J. May, Senior Attorney

Norfolk Field Office Tracy M. Whitaker, Evaluator

Page 22 GAO/NSIAD-99-54 Navy Ship Maintenance
Related GAO Products

Defense Depot Maintenance: Public and Private Sector Workload

Distribution Reporting Can Be Further Improved (GAO/NSIAD-98-175, July 23,

1998).

Defense Depot Maintenance: Contracting Approaches Should Address

Workload Characteristics (GAO/NSIAD-98-130, June 15, 1998).

Defense Depot Maintenance: Use of Public-Private Partnership

Arrangements (GAO/NSIAD-98-91, May 7, 1998).

Navy Ship Maintenance: Temporary Duty Assignments of Temporarily

Excess Shipyard Personnel Are Reasonable (GAO/NSIAD-98-93, Apr. 21, 1998).

Public-Private Competitions: DOD’s Additional Support for Combining

Depot Workloads Contains Weaknesses (GAO/NSIAD-98-143, Apr. 17, 1998).

Defense Depot Maintenance: DOD Shifting More Workload for New

Weapon Systems to the Private Sector (GAO/NSIAD-98-8, Mar. 31, 1998).

Public-Private Competitions: DOD’s Determination to Combine Depot

Workloads Is Not Adequately Supported (GAO/NSIAD-98-76, Jan. 20, 1998).

Defense Depot Maintenance: Information on Public and Private Sector

Workload Allocations (GAO/NSIAD-98-41, Jan. 20, 1998).

Navy Regional Maintenance: Substantial Opportunities Exist to Build on

Infrastructure Streamlining Progress (GAO/NSIAD-98-4, Nov. 13, 1997).

Navy Depot Maintenance: Privatizing Louisville Operations in Place Is Not

Cost-Effective (GAO/NSIAD-97-52, July 31, 1997).

Defense Depot Maintenance: Challenges Facing DOD in Managing Working

Capital Funds (GAO/T-NSIAD/AIMD-97-152, May 7, 1997).

Depot Maintenance: Uncertainties and Challenges DOD Faces in

Restructuring Its Depot Maintenance Program (GAO/T-NSIAD-97-112, May 1,

1997) and (GAO/T-NSIAD-97-111, Mar. 18, 1997).

Navy Depot Maintenance: Cost and Savings Issues Related to

Privatizing-in-Place at the Louisville, Kentucky, Depot (GAO/NSIAD-96-202,

Sept. 18, 1996).

Page 23 GAO/NSIAD-99-54 Navy Ship Maintenance
Related GAO Products

Defense Depot Maintenance: More Comprehensive and Consistent

Workload Data Needed for Decisionmakers (GAO/NSIAD-96-166, May 21, 1996).

Defense Depot Maintenance: Privatization and the Debate Over the

Public-Private Mix (GAO/T-NSIAD-96-148, Apr. 17, 1996) and (GAO/T-NSIAD-96-146,

Apr. 16, 1996).

Depot Maintenance: Opportunities to Privatize Repair of Military Engines

(GAO/NSIAD-96-33, Mar. 5, 1996).

Closing Maintenance Depots: Savings, Personnel, and Workload,

Redistribution Issues (GAO/NSIAD-96-29, Mar. 4, 1996).

Navy Maintenance: Assessment of the Public and Private Shipyard

Competition Program (GAO/NSIAD-94-184, May 25, 1994).

Depot Maintenance: Issues in Allocating Workload Between the Public and

Private Sectors (GAO/T-NSIAD-94-161, Apr. 12, 1994).

(709355) Page 24 GAO/NSIAD-99-54 Navy Ship Maintenance
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