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i 

97–825 2016

[H.A.S.C. No. 114–69] 

ACQUISITION EFFICIENCY AND THE 

FUTURE NAVY FORCE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON SEAPOWER AND 

PROJECTION FORCES 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

DECEMBER 1, 2015 
(II) 

SUBCOMMITTEE ON SEAPOWER AND PROJECTION FORCES 

J. RANDY FORBES, Virginia, Chairman 

K. MICHAEL CONAWAY, Texas 

BRADLEY BYRNE, Alabama 

ROBERT J. WITTMAN, Virginia 

DUNCAN HUNTER, California, Vice Chair 

VICKY HARTZLER, Missouri 

PAUL COOK, California 

JIM BRIDENSTINE, Oklahoma 

JACKIE WALORSKI, Indiana 

RYAN K. ZINKE, Montana 

STEPHEN KNIGHT, California 

STEVE RUSSELL, Oklahoma 

JOE COURTNEY, Connecticut 

JAMES R. LANGEVIN, Rhode Island 

RICK LARSEN, Washington 

MADELEINE Z. BORDALLO, Guam 

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia 

SCOTT H. PETERS, California 

TULSI GABBARD, Hawaii 

GWEN GRAHAM, Florida 

SETH MOULTON, Massachusetts 

DAVID SIENICKI, Professional Staff Member 

PHIL MACNAUGHTON, Professional Staff Member 

KATHERINE REMBER, Clerk 
(III) 

C O N T E N T S 

Page 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Courtney, Hon. Joe, a Representative from Connecticut, Ranking Member, 

Subcommittee on Seapower and Projection Forces ........................................... 2 

Forbes, Hon. J. Randy, a Representative from Virginia, Chairman, Subcommittee on Seapower and Projection Forces ........................................................ 1 

WITNESSES 

Labs, Eric J., Senior Analyst for Naval Forces and Weapons, Congressional 

Budget Office ........................................................................................................ 3 

O’Rourke, Ronald, Specialist in Naval Affairs, Congressional Research Service .......................................................................................................................... 5

APPENDIX 

PREPARED STATEMENTS: 

Courtney, Hon. Joe ........................................................................................... 27 

Forbes, Hon. J. Randy ...................................................................................... 25 

Labs, Eric J. ...................................................................................................... 29 

O’Rourke, Ronald .............................................................................................. 71 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

[There were no Questions submitted post hearing.] 

(1) 

ACQUISITION EFFICIENCY AND THE FUTURE 

NAVY FORCE 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE ON SEAPOWER AND PROJECTION FORCES, Washington, DC, Tuesday, December 1, 2015. 

The subcommittee met, pursuant to call, at 2:25 p.m., in room 

2212, Rayburn House Office Building, Hon. J. Randy Forbes (chairman of the subcommittee) presiding. 

OPENING STATEMENT OF HON. J. RANDY FORBES, A REPRESENTATIVE FROM VIRGINIA, CHAIRMAN, SUBCOMMITTEE 

ON SEAPOWER AND PROJECTION FORCES 

Mr. FORBES. Today, the subcommittee meets to discuss Navy 

shipbuilding plans and to discuss opportunities to procure the platforms we need at lower costs to the Department [of Defense, DOD] 

and the American taxpayer. Our panel today includes two distinguished experts: Mr. Ronald O’Rourke of the Congressional Research Service [CRS]; and Dr. Eric Labs of the Congressional Budget Office [CBO]. 

Gentlemen, we thank you both for being here once again and all 

the help and advice you give to this subcommittee. We also want 

to thank you for the invaluable support you have provided to this 

subcommittee over the years. In April of 2013, the Under Secretary 

of Defense for Acquisition, Technology, and Logistics, Frank Kendall, wrote a memo to the Defense Acquisition Workforce about 

how to achieve better buying power. In this memo, he indicated 

that the first responsibility of the acquisition workforce is to think. 

When I read this memo for the first time, I must admit that I 

laughed a little. I couldn’t believe that the Department of Defense’s 

senior acquisition official was reminding the workforce to think. 

However, reflecting on this memo now, I think he may have been 

on to something. And I hope that our hearing today can stimulate 

some fresh thinking about how we pay for our national defense. 

Looking at the Armed Services acquisition reform efforts to date, 

it seems to me that they have been focused primarily on structural 

efficiencies within the Department of Defense. I believe that there 

is a significant amount of work to do in this area. And I applaud 

Chairman Thornberry for his leadership and his efforts. At the 

same time, I think it is equally plausible that we can achieve more 

efficiencies and savings if all of us in Congress work with the Department to use the legislative tools that are already available in 

our toolbox. Those tools include the authority to execute multiyear 

procurement contracts and incremental funding. These authorities 
2 

provide contract stability for the industrial base and allow the government customer to achieve economies of scale. 

On the programs within the subcommittee’s jurisdiction, I believe 

that we may be able to achieve savings of 10 percent just by changing the way we go about buying our ships. Ten percent may not 

sound like a lot. But if applied to something like the Ohio Replace- ment Program, which is projected to cost around $100 billion, that 

10 percent would equate to savings of $10 billion over the course 

of the program. Looking at all the pressures and demands on the 

shipbuilding budget, that kind of money really matters, especially 

as the Ohio Replacement Program ramps up. That is why Mr. 

Courtney and I have worked to grant those authorities to the National Sea-Based Deterrence Fund. I think it is time for the Department to take Secretary Kendall’s direction to heart and think 

hard about what acquisition vehicles will provide the most savings 

to the Department. 

As to the broader 30-year shipbuilding plan, I still fear that the 

existing plan is predicated on pixie dust and highly optimistic. 

While the Navy’s plan purports to achieve a 308-ship Navy by 

2022, it assumes that there will be a significant expansion in the 

funding for shipbuilding beyond what we have seen in recent history. I think a more plausible alternative is to increase the overall 

Department of Defense top line, ensure that a credible Navy build 

plan is accommodated within this higher top line. I think that 

CBO’s assessment of a 30-year shipbuilding plan seeks to provide 

some budget reality to the pixie dust. And I look forward to hearing 

your testimony on this issue. Ultimately, at the end of this hearing, 

I hope to have a clearer picture of both the challenges that we face 

in funding our Navy and of the opportunities that Congress can exploit to turn Navy requirements into a shipbuilding reality. 

With that, I turn to another leading proponent of American 

seapower, Ranking Member Mr. Joe Courtney of Connecticut. 

[The prepared statement of Mr. Forbes can be found in the Appendix on page 25.] 

STATEMENT OF HON. JOE COURTNEY, A REPRESENTATIVE 

FROM CONNECTICUT, RANKING MEMBER, SUBCOMMITTEE 

ON SEAPOWER AND PROJECTION FORCES 

Mr. COURTNEY. Thank you, Mr. Chairman. 

And thank you for holding these series of hearings really which 

are I think, you know, building to this afternoon’s testimony. So, 

in the interest of time, I am not going to read my whole statement. 

I will submit it for the record. 

But, again, just, you know, a couple of quick points which is that, 

you know, I think a lot of people, when they think about defense 

issues and shipbuilding issues understandably focus on the Budget 

Control Act [BCA], sequestration. And, you know, thank goodness 

we came together with a 2-year agreement that lifted at least partially those caps to give some stability in terms of planning and 

some relief in terms of the, you know, the Defense Act that we 

passed this year and the budget that we passed. But I think many 

closer observers understand that the challenge is actually in many 

respects much bigger than that. And I think the two witnesses understand that intimately. 
3 

A couple days ago, Mike McCord, who is the Defense Department 

Comptroller, gave an interview in one of the journals. And he made 

the point that I think really the uncertainty is more about beyond 

the BCA. And, again, that is where we have a lot of concern. This 

is not a problem that I think, frankly, we can do much to solve in 

this administration of what is going to happen in the 2020s. I 

mean, in one sense, he acknowledged what I think we have been 

saying in this subcommittee for a number of years which is the 

challenge to shipbuilding, frankly, is longer term and bigger than 

even the Budget Control Act. And the solution is something that 

can’t wait until the 2020s. It really requires people to focus on 

ways to stretch the dollars in an intelligent way and not a reckless 

way. 

And, again, I think our subcommittee has distinguished itself actually with the National Sea-Based Deterrence Fund, with the tools 

it created, as well as the structure of funding, which has a good, 

solid precedent, as Mr. O’Rourke can point out, and I think he does 

in his testimony here today. And the time is now, that we can’t sort 

of just sort of put this off as a 2020s issue. And, again, I think the 

two witnesses can help us amplify that message and create a good 

record so that we can continue to build on the work that we did 

in this year’s Defense Authorization Act. So, again, I will submit 

my full statement and yield back the balance of my time. 

[The prepared statement of Mr. Courtney can be found in the Appendix on page 27.] 

Mr. FORBES. Mr. Courtney yields back the balance of his time. 

With that, we are ready for our witness. 

Thank you, once again, gentlemen, for all that you do for our 

country and for being here consistently to help us and advise us. 

And, Dr. Labs, it is my understanding that you are going to go 

first. So, with that, we yield the floor to you and look forward to 

your comments. 

STATEMENT OF ERIC J. LABS, SENIOR ANALYST FOR NAVAL 

FORCES AND WEAPONS, CONGRESSIONAL BUDGET OFFICE 

Dr. LABS. Thank you. Chairman Forbes, Representative Courtney, members of the subcommittee, it is a pleasure to be here today 

to discuss the Navy’s 2016 shipbuilding plan. 

Mr. Chairman, with your permission, I would like to submit my 

statement for the record and summarize it here in a few brief remarks. 

Mr. FORBES. Without objection, both statements will be submitted for the record. 

Dr. LABS. My written testimony today focuses on the costs and 

force structure implications of the Navy’s 2016 plan, and is based 

on the recently released CBO report entitled ‘‘Analysis of the 

Navy’s Fiscal Year 2016 Shipbuilding Plan,’’ which is required 

under section 1011 of the 2012 National Defense Authorization Act 

[NDAA]. In my remarks today, I will focus on the key points of that 

report and highlight a few points on acquisition efficiency. 

First, if the Navy received the same amount of funding for ship 

construction over the next 30 years that it has over the last 30 

years, which is a little less than $16 billion for all activities related 

to ship construction, it will not be able to afford all 264 ships in 
4 

its plan. The Navy estimates that it will cost an average of $16.5 

billion per year over 30 years to implement its plan. But I want 

to stress that that amount is for new construction only. The Navy 

must fund a number of other activities from its shipbuilding accounts. CBO estimates that those other activities, such as refueling 

of nuclear-powered aircraft carriers and the outfitting and delivery 

of all new warships, would add an additional $1.9 billion per year 

to the Navy’s estimate. Thus, the Navy’s cost is actually $18.3 billion per year, or more than 15 percent higher than what the service 

has received historically. 

In contrast, CBO’s estimates of the Navy’s shipbuilding plan are $1.8 billion or about 10 percent higher than the Navy’s. CBO estimates that it would cost $18.4 billion per year for new ship construction and $20.2 billion for everything the Navy needs to fund 

in its ship accounts. That amount is about 30 percent higher than 

the historical average. 

The Navy shipbuilding plans over the last 3 years have become 

progressively more frank and direct in reporting to Congress the 

challenge the Navy faces in implementing its plan under current 

fiscal conditions. The 2016 plan does not, for example, depend on 

achieving any heroic assumptions regarding the level of spending 

in other budget accounts. And while the Navy’s cost estimates for 

new ships are, in my view, a little optimistic, they are not dramatically so. As I stated before this committee 2 years ago, the Navy’s 

shipbuilding plan is really a statement of resources required to buy 

the fleet the Navy says it needs. As a result, the Budget Control 

Act of 2011, now amended by the Bipartisan Budget Act of 2015, 

did not affect the composition of the Navy’s report. However, if the 

BCA remains in place, funding for ship construction will be well 

below the amounts required for the 2016 shipbuilding plan unless 

such funding is protected at the expense of other military activities. 

Between 2016 and 2021, which are the remaining years of the 

Budget Control Act, the Navy’s shipbuilding account would have 28 

percent less funding if the service receives the same percentage of 

DOD’s budget and devotes the same 10 percent of its budget to 

shipbuilding that it has historically. That represents a difference of 

about 15 fewer ships or $26 billion less by 2021. 

In recent years, Congress has added additional money to shipbuilding, increasing the Navy’s shipbuilding account by an average 

of 10 percent above the President’s request. But even if that were 

to continue, it would only partially alleviate the shortfalls under 

the Navy’s plan. 

Let me turn to the subject of acquisition efficiency, which Mr. 

O’Rourke will discuss in more detail. Generally, one of the most effective ways to reduce the unit price of individual ships is to buy 

them at higher rates. However, if such a strategy is pursued for all 

shipbuilding programs, the budgetary resources required annually 

would likely be higher than those already proposed in the Navy’s 

shipbuilding plan. If purchasing more ships as an acquisition strategy is pursued for different ships, ship types, and rotation, parts 

of the shipbuilding industrial base may be left barren for periods 

of time, which would result in higher start-up costs when the rotation favors the sector again or, alternatively, yards could exit the 

shipbuilding business altogether. 
5 

The cost estimates associated with the Navy’s shipbuilding plan, 

both the Navy’s and CBO’s, already incorporate in most cases acquisition efficiencies that stem from multiyear and block buy contracts, as well as competition. A notable exception is the Ohio Replacement Program. The Navy’s cost estimate for the follow-on 

Ohio replacements, boats 2 through 12, is $5.7 billion per ship. 

CBO’s equivalent estimate is about a billion dollars higher. Using 

a block buy strategy or purchasing those ships through the National Sea-Based Deterrence Fund could potentially save several 

hundred million dollars per submarine under both Navy’s and the 

CBO’s estimates. 

I would like to close with a word of caution. While there may be 

other acquisition efficiencies still to be had in various programs of 

the Navy’s shipbuilding accounts, those efficiencies alone will not 

likely close the gap between the Navy’s plan and historical funding 

levels. 

Thank you, Mr. Chairman. I would be happy to respond to any 

questions you may have. 

[The prepared statement of Dr. Labs can be found in the Appendix on page 29.] 

Mr. FORBES. Thank you Dr. Labs. 

Mr. O’Rourke. 

STATEMENT OF RONALD O’ROURKE, SPECIALIST IN NAVAL 

AFFAIRS, CONGRESSIONAL RESEARCH SERVICE 

Mr. O’ROURKE. Chairman Forbes, Ranking Member Courtney, 

distinguished members of the subcommittee, thank you for the opportunity to appear before you today to testify on acquisition efficiency and the future Navy force. As requested, my testimony focuses on multiyear procurement, block buy contracting, combined 

purchases of materials and components, and incremental funding. 

Now, these are topics I have been following in my CRS reports 

since 2002. I have eight points that I would like to make. 

The first is that multiyear procurement can reduce the cost of 

ships by roughly 10 percent compared to costs under the standard 

approach of annual contracting. In recent years, savings from the 

use of multiyear procurement have helped Congress and the Navy 

to convert a 9-ship buy of DDG 51 destroyers into a 10-ship buy, 

and a 9-ship buy of Virginia-class attack submarines into a 10-ship 

buy. 

The second point is that block buy contracting can reduce costs 

by comparable amounts if the authority granted for using block buy 

contracting explicitly includes authority for making economic order 

quantity, or EOQ, purchases of components. If EOQ authority is 

not included, then the savings from block buy contracting will be 

something less. 

Third point is that block buy contracting can be used at the outset of a shipbuilding program starting with the lead ship in the 

class. Multiyear procurement, in contrast, cannot be used until the 

lead ship has completed construction. This is due to a provision in 

the law regulating multiyear procurement. 

The fourth point is that shipbuilding programs that do not use 

multiyear procurement or block buy contracting might still be able 

to reduce their procurement costs by using combined purchases of 
6 

materials and components. This is possible for ships funded 

through the National Defense Sealift Fund or the National SeaBased Deterrence Fund. 

The fifth point is that multiyear procurement contracts and block 

buy contracts can be awarded competitively, that multiyear procurement contracts by law must be fixed-price contracts, and that 

block buy contracts can also be fixed-price contracts. 

The sixth point is that incremental funding can help mitigate 

budget spikes associated with very expensive ships that are procured at a rate of less than one per year, such as aircraft carriers 

and LHA-type [Landing Helicopter Assault] amphibious assault 

ships. Mitigating budget spikes might reduce the need for the Navy 

to shift the procurement of other items to years before and after 

the spike. Since shifts of that kind can increase costs for those 

other programs, using incremental funding in a shipbuilding program might help avoid cost increases to other programs. 

The seventh point is that from a congressional perspective, making greater use of multiyear procurement and block buy contracting 

involves certain tradeoffs, such as accepting reduced congressional 

control over year-to-year spending, accepting reduced flexibility for 

making changes in Navy shipbuilding programs in response to 

changes in strategic or budgetary circumstances, and accepting the 

risk of having to make penalty payments to shipbuilders if multiyear contracts need to be terminated due to unavailability of funds 

needed for the continuation of the contracts. 

My eighth and final point is that several Navy shipbuilding programs can be viewed as candidates for using multiyear procurement, block buy contracting, or combined purchases of materials 

and components. 

My prepared statement discusses these opportunities. In considering whether to grant authority for using multiyear procurement 

or block buy contracting, Congress may weigh the potential savings 

of these measures against the tradeoffs I just mentioned. 

Mr. Chairman, this concludes my remarks. Thank you again for 

the opportunity to testify. And I look forward to the subcommittee’s 

questions. 

[The prepared statement of Mr. O’Rourke can be found in the Appendix on page 71.] 

Mr. FORBES. Thank you, Mr. O’Rourke. 

And I am going to save my questions for the end because I have 

a number of them that I want to make sure we get on the record. 

So, at this time, I will recognize Mr. Courtney for any questions 

he may have. 

Mr. COURTNEY. Thank you, Mr. Chairman. 

So, Mr. O’Rourke, I mean, your work on shipbuilding goes back 

obviously decades at this point. And when we crafted the National 

Sea-Based Deterrence Fund in the last Congress, again, there was 

some question about just, you know, the novelty or what was perceived as the novelty of that approach in terms of removing it from 

the shipbuilding account. You mentioned the Sealift Fund, and I 

just wonder if you could sort of talk a little bit more about that in 

terms of how it has operated over the years and particularly in 

terms of whether it was able to achieve efficiencies because of the 

authority that Congress gave when it was created. 
7 

Mr. O’ROURKE. That is right. When the idea of having something 

like the Sea-Based Deterrence Fund was being considered in Congress, I included in my report on the Ohio Replacement Program 

a discussion of possible precedents for that fund, and there were 

two. One was the National Defense Sealift Fund, and the other was 

mission-oriented budgeting for missile defense programs, which 

was also a way of taking funding for a certain thing and segregating it to a particular part of the budget. 

To get at your question about how the National Defense Sealift 

Fund has operated, because that fund was located outside the procurement title of the DOD Appropriation Act, the full funding policy was applied differently to the use of that fund than it would be 

to funds inside accounts that were underneath the procurement 

title of the DOD Appropriations Act. And because the full funding 

policy was applied differently, it gave the Navy the ability to, in 

effect, cash flow money across the hulls, and that in turn allowed 

the Navy to pursue batch orders of components for the ships in the 

class that they were procuring through the National Defense Sealift Fund. 

So, on two occasions, more recently with the T–AKE-class [Lewis 

and Clark-class] cargo ships and, before that, for a class of DOD 

sealift ships called the large medium-speed roll-on/roll-off ships, the 

Navy used this cash-flowing strategy to pursue batch orders, combine purchases of components for ships, several ships in the class, 

not just for the one that happened to be funded that year, and that 

allowed the Navy to reduce the cost of those ships by a few percent 

because those components happened to be purchased in a batch 

fashion, which was more efficient for the component manufacturers. 

Mr. COURTNEY. And, Mr. Labs, again, that experience is at least 

somewhat analogous if not the same as your comments regarding 

the Ohio Replacement Program. Is that right? 

Dr. LABS. Yes, Mr. Courtney. What I would envision, the way I 

envisioned the National Sea-Based Deterrence Fund to work would 

be similar to the National Defense Sealift Fund and the authorities 

that have given to that of providing for economic order quantity 

purchases of components and various materials for the ships as 

well as then being able to cash flow that money across more than 

one ship of the program. The way I look at it, that should give a 

savings of the current estimated round numbers of $6 billion per 

boat. You are going to save somewhere in the neighborhood of 5 

percent with those kinds of authorities and that kind of ability to 

cash flow an economic order of quantities of those ships. 

Mr. COURTNEY. Well, thank you. That is a point we probably 

want to highlight in the transcript when we are done here today. 

And my last question is that, you know, during the discussion 

about the Ohio Replacement Program, you know, a lot of our military witnesses have talked about the fact that the New START 

[Strategic Arms Reduction Treaty] Treaty is going to shift a greater 

burden on sea-based deterrence in terms of the, you know, the 

three-legged stool of nuclear deterrence. Given the fact that, again, 

there is that shift that is going to take some of the burden away 

from the Air Force and the Army, you know, in terms of trying to, 

you know, justify the special treatment, if you want to call it that, 
8 

of the National Sea-Based Deterrence Fund, again, it sort of aligns 

with the strategic policy of this country in terms of nuclear deterrence because of the way that, you know, the system is going to be 

designed after New START. I mean, and I guess, well, that is sort 

of a statement. I guess the question is, in the past, has Congress, 

because of those kinds of, you know, rationales, shifted greater 

budget dollars to one branch versus another? I mean, there is no 

sort of precast pie chart for how the different branches get their 

money. And given the fact that we may have different priorities 

from one year to the next, I mean, we are free to make that choice. 

Is that a safe statement, Mr. O’Rourke? 

Mr. O’ROURKE. I would agree with that. I think both Eric and 

I have testified in the past and will do so again today, that the idea 

that the distribution of funding within the DOD top line is fixed 

in stone or sacrosanct is not correct. If you look at the historical 

record, you will see that there was a period of rather stable division of resources between 1973 and 2003. And I think it was during 

that 30-year period that many people got the idea that that division was fixed or set in stone. But in the years before that period, 

and in the years after the end of that period, in fact, there have 

been fairly significant swings in the division of resources among 

the services within the DOD top line. But to build a little bit more 

on what Eric was saying, and I think to get at part of what your 

question was about in terms of the value of the fund in relation to 

this program, now that the National Defense Authorization Act has 

been enacted, there is a new enhanced authority within the SeaBased Deterrence Fund that is unique and goes beyond what is in 

the permanent statute for multiyear procurement or what by precedent you might also write into a block buy authorizing provision. 

And that is a new authority to pursue joint procurement of materials and components across shipbuilding classes, specifically across 

the nuclear-powered ships. So there is three programs there, not 

just Ohio replacement, but also Virginia and the Ford class, that 

can now have as an option the idea of procuring materials and 

components across all three programs. That authority does not 

exist in the statute for multiyear procurement. So in terms of making a dollars-and-cents argument for saving money and achieving 

efficiency during a time of constrained defense resources, there is 

now a mechanism within the National Sea-Based Deterrence Fund 

that does not exist under multiyear procurement or by extensions 

doing something similar under block buy contracting, and that is 

the ability to do these cross-class combined purchases of materials 

and components. That can achieve savings that would not be possible under multiyear procurement alone or under a similar provision that might be written into a block buy contract. 

Mr. COURTNEY. Well, thank you both for your testimony. 

Yield back, Mr. Chairman. 

Mr. FORBES. Before we go to Mr. Conaway, I just want to make 

sure we have got a good picture of what Mr. Courtney has just 

said. As we are looking right now, Mr. O’Rourke, as we put in the 

new authorities that we have in the National Sea-Based Deterrence 

Fund, we have had some individuals indicate to us that we could 

have savings anywhere between 5 percent or as much as 10 per-
9 

cent or so. And would you think that those estimates would be unreasonable to project? 

Dr. Labs. 

Dr. LABS. Mr. Chairman, yes. I agree with the 5 to 10 percent 

range. And the way that works and the way the CBO sort of does 

the estimating process sort of economic order quantity authority, 

which has been put into the National Sea-Based Deterrence Fund, 

is going to give you somewhere in the neighborhood of a 5 percent 

savings because of the ability to sort of, as Mr. O’Rourke said, to 

buy components either jointly with other programs or just within 

the Ohio-class replacement itself. 

Further authorities that would allow it to sort of do a block buy 

contract over, you know, several ships of the class could get you another 5 percent and upwards in the 10 percent range. So if you are 

talking about a $6 billion submarine in round numbers, you know, 

you are looking at a $300 million to $600 million savings, you 

know, per boat. 

Mr. FORBES. And if you are looking at $100 billion program and you could save 10 percent, you are talking about roughly $10 billion. 

Dr. LABS. That’s fair. 

Mr. FORBES. So at a time when we are making enormous cuts 

in Army brigades, in readiness, in strike fighter shortfalls, in munition shortfalls, all taking real pain to the warfighter, this is an opportunity for us to have a substantial savings without having to 

take that pain to the warfighter simply by setting up this fund. 

Would that be a fair statement to make? 

Dr. LABS. Yes, Mr. Chairman. 

Mr. FORBES. And the last part on that before we go to Mr. 

Conaway, is one of the downsides to that normally is the fear that 

we may not ultimately purchase all of those boats, but in this particular case, it is also another difference because we know we are 

going to be acquiring and building those 12 boats. Is that a fair 

statement? 

Dr. LABS. The Navy has stated that the Ohio-class replacement 

is their number one priority, and the assumption is, is that that 

will be funded before all other acquisition programs will be in the 

Department of the Navy. 

Mr. FORBES. Okay. 

Mr. Conaway is recognized for 5 minutes. 

Mr. CONAWAY. Thanks, Chairman. 

As I listen to both of you on multiple occasions, it seems like we 

are constantly stuffing square pegs in round holes. If you could be 

dictator or king for a week and could eliminate all of this morass 

that you know so well, how would a proper acquisition program 

look like? I mean, we have got all this multiyear block and all this 

other kind of stuff that you talk about. All of that has been cobbled 

together over a number of years in responses to struggles and everything else. Cutting through all of that, and maybe this is a 

waste of time, but cutting through all of that, is there a better way 

to build this mousetrap than the current Rubik’s Cube we currently 

put ourselves through? 

Mr. O’ROURKE. Well, as you know, Eric and I can’t make policy 

recommendations. That is prohibited by our agencies. But your 
10 

question gets at the issues of lessons learned in shipbuilding and 

what are good ways of conducting shipbuilding programs and, to 

some degree, acquisition programs in general. It is my view that 

the lessons in shipbuilding have been identified quite thoroughly 

over the years. And the question has not been to identify those lessons; it has been to live up to them and to continue to implement 

them and not stray from them. And if I could give you a short list 

of what those lessons are, they have been mentioned over the years 

by many people, and I think they would be echoed to a large degree 

within the acquisition directorate of the Department of the Navy, 

it would be the following. There are eight or nine points here. 

The first would be to get the operational requirements for the 

program right, up front, so that you don’t get into a situation of 

changing the requirements in the midst of the program. 

You would impose cost discipline up front by using realistic price 

estimates and consider not only development and procurement 

costs but lifecycle operation and support costs as well. 

Third point would be to employ competition where possible in the 

awarding of design and construction contracts. 

A fourth would be to use a contract type that is appropriate for 

the amount of risk involved and structure its terms to align incentives with desired outcomes. 

A fifth is to minimize design/construction concurrency by developing the design to a high level of completion before starting construction and by resisting changes in requirements during construction. 

Next one is to properly supervise construction work by maintaining an adequate number of properly trained Supervisor of Shipbuilding, or SUPSHIP, personnel. 

And the final two are to provide stability for industry in part by 

using, where possible, multiyear procurement or block buy contracting. 

And then, lastly, to maintain a capable government acquisition 

workforce that understands what it is buying, as well as the points 

that I have just gone through. Again, these are points that people 

who have worked a long time in shipbuilding have mentioned over 

and over again over the years. The challenge is not identifying 

those points. It is living up to them. 

Mr. CONAWAY. Well, it is one thing to—and, by the way, I am 

impressed that you had that list handy like that because I just 

made up my question sitting here. It wasn’t like you got any headsup. 

So, all right, the question about living up to it. What about the 

current legal structure, all the vast, you know, number of NDAAs 

that have been signed over the years, what about the current system that does not allow that. Does that mechanically keep you 

from being able to—or the system from being able to implement 

those best practices? Are there things that we should do differently 

or laws we should change to make that happen? 

Mr. O’ROURKE. I think in connection with that, I will refer back 

to something that the Navy’s own acquisition executive, Sean 

Stackley, I think has said, which is that the first thing is to have 

good people in your acquisition workforce. And if they know what 

they are doing and they are knowledgeable and skilled in what 
11 

they are doing, they can make the system work, even if there are 

imperfections in that system; whereas the opposite or the obverse 

is much more problematic. You can have a perfect system—— 

Mr. CONAWAY. Yeah, but we intend to have both—— 

Mr. O’ROURKE. Right, and you want to strive toward—— 

Mr. CONAWAY [continuing]. And a system that works for them. 

So to your first point, if we put great people in place, they can 

make any system work. Well, that may be great as an exercise, but 

wouldn’t it be better to have both really good people in place as 

well as a scheme that makes the most sense? And I know you can’t 

make policy recommendations, but we don’t do—every time we go 

through some sort of acquisition reform process, we never let it fix 

and bake enough before we start on the next round. But all your 

conversation you guys both went through, it seems incredibly difficult to get through all of those hoops and get the ships we need. 

So—— 

Dr. LABS. The one thing I would add to Ron’s answers, which 

were excellent, was that—and he touched on it. I am going to put 

a term on it, which is organizational culture. The culture of your 

acquisition organizations have got to be incentivized in a way that 

they are interested in getting things right. In other words, you 

don’t sort of do unrealistic cost estimates which are going to create 

any number of problems as the program evolves. And if they are 

interested in sort of getting all the requirements right and the design right ahead of time, and to the extent that there is legislation—I don’t know if there is; I am not a lawyer, and I am not an 

expert on acquisition reform—to the extent that you can sort of encourage those kinds of organizational imperatives within your acquisition directorates, I think that is all to the good. 

Mr. CONAWAY. I guess the frustration I have is that there is no 

way to—there seems to be no upside to folks in that business to 

take risks. And taking risks, if it works, great. If it doesn’t work, 

you just get punished and beat to death. And so there is no upside 

to do that. 

And, anyway, I yield back. 

Mr. FORBES. Thank you, Mr. Conaway. 

Mr. Langevin is recognized for 5 minutes. 

Mr. LANGEVIN. Thank you, Mr. Chairman. 

I want to thank both of our witnesses for your testimony and the 

extraordinary work and contributions you are making to the committee in helping us to understand these challenges. I want to continue on the line of questioning Mr. Courtney had raised with the 

National Sea-Based Deterrence. In your statements, you both noted 

that the Ohio Replacement Program is the Nation’s number one 

strategic priority and will have a significant impact on the Navy’s 

30-year shipbuilding plan if its effects aren’t mitigated. So obviously to help answer this, the Congress created the National SeaBased Deterrence Fund, and I would like to give you an opportunity to further explain how cost savings from this method of implementation would perhaps indirectly benefit other programs of 

interest to the Navy at risk due to the budgetary strain from recapitalizing our strategic deterrent. 

Mr. O’ROURKE. In terms of the benefits of the mechanism and 

how they can help other programs as a result, there are two things 
12 

that I would say. The first would be to reiterate my point earlier 

that there is now an authority within the National Sea-Based Deterrence Fund that does not exist in the standard statute that governs multiyear procurement. And that is an authority to do—combine purchases of materials and components across classes. So that 

legislation, which has just been enacted into law, provides a unique 

mechanism of savings that would be on top of the savings that you 

would get from using a block buy contract with EOQ authority or 

a multiyear procurement contract with its automatic EOQ authority. How much more, I don’t know exactly what the additional savings would be, but we are in a situation with a constrained defense 

top line where additional savings are, in general, a welcome thing 

because it can free up money for use in other programs. 

The other way in which you can mitigate the impact of this program on other Navy programs or on other DOD programs generally 

is by mitigating the budget spikes associated with the funding of 

each ship in the program. That is something that can be done 

through incremental funding if the Congress and the executive 

branch agree to do that. And this is something that is already used 

with aircraft carriers and LHA-type amphibious assault ships, and 

very much for that reason: so that you don’t have to push programs 

to either side of that budget spike. When you do that to those other 

programs and you move them to the years before and after the 

spike, you can disrupt their procurement schedules, which can 

drive up their costs by causing instability in their production timelines. 

So if you can mitigate the spike that would otherwise force you 

to move those other programs to the side, you can preserve the production timelines a little better for those other programs and avoid 

the cost increases that would result from those disruptions. 

Dr. LABS. To put the specific Ohio-class replacement example on that, in 2021, the Navy would currently plan to spend $7 billion 

in 1 year buying the bulk of the lead Ohio replacement ship. There 

is, you know, procurement funding that occurs before that period 

starting in 2017, but the plan is $7 billion in 2021. That is a big 

hunk of money to swallow in 1 year. So to the extent that the authorities, as Mr. O’Rourke said, can sort of help spread that out a 

little bit, it would make sort of planning and going back to the 

issue of stability something that helps other shipbuilding programs 

or certainly the avoidance of higher costs in other shipbuilding programs. 

Mr. O’ROURKE. If you wanted to do that in a very forward leaning or even aggressive manner, it would be to pursue the revised 

procurement schedule that I laid out in notional form in my testimony for starting the procurement boats—the procurement of the 

12 boats earlier and maybe stretching it out at the end a little bit 

later. That would put more open years into the total procurement 

profile, into which the incremental funding for those individual 

boats could be transferred and would provide more opportunities 

for avoiding budget spikes than you have in the current schedule 

for the program. 

Mr. LANGEVIN. Thank you. That was helpful. 

So let me look at it the other way. Conversely, if we fail to take 

advantage of the National Sea-Based Deterrence Fund and force 
13 

these costs on the Ohio Replacement Program to come out of the 

shipbuilding account, what would that mean for the Navy’s ability 

to project power and remain technologically superior in the future? 

Dr. LABS. Mr. Langevin, I have a section in the CBO report that 

discusses if the Navy is still constrained with a historical level of 

shipbuilding, $16 billion a year, and they must pay for the Ohio replacement—and I also include the aircraft carrier program in 

that—out of that first and there is no cuts to those programs to 

sort of get the Navy shipbuilding top lines down into that historical 

level, the result would be buying 192 ships over the 30-year period 

instead of 264. And that would lead you to a 237-ship Navy by 

2045 instead of the 305-ship Navy that the Navy envisions in the 

plan. So cutting that many ships out of the shipbuilding program 

is going to substantially affect the amount of forward presence that 

the Navy can provide at any given time. It is going to substantially 

affect the number of ships that can be brought to bear in a conflict 

situation through the surge process that normally that the Navy 

would go through in those kinds of scenarios. 

Mr. O’ROURKE. Another way of looking at it is this. We had a discussion earlier about what the savings would be just inside the 

Ohio Replacement Program if you could get a 10 percent savings. 

And the figure was in the billions of dollars. Another way I have 

of characterizing that is to say that if you get a 10 percent reduction in the cost of each ship in a 12-boat program, then you are getting a little bit more than one of the 12 boats in that program for, 

quote, unquote, ‘‘free.’’ But the obverse, which is what you are asking about, is what did you have to pay for that boat? Well, that 

boat is like a $6 billion boat in then-year dollars when you are out 

in those years. And that is money that could pay for two or three 

other kinds of major combatants. So to get at your bottom line 

question, what would you lose? You could lose another two or three 

major combatants. 

Mr. LANGEVIN. Thank you. Great. Very powerful scenario. Thank 

you. 

And I yield back, Mr. Chairman. 

Mr. FORBES. The gentleman yields back. 

Mr. Hunter is recognized for 5 minutes. 

Mr. HUNTER. Thanks, Mr. Chairman. 

Thank you, gentlemen, for being here and answering questions. 

I guess my question is on testing. So you have talked about buying 

the stuff to build the ships, the steel, all the cable and everything 

you need to build the ships. What about the integration portion 

and the testing portion? 

Mr. O’ROURKE. That is the phase in construction where a lot of 

the cost growth in shipbuilding programs has been experienced in 

trying to bring everything together during the final stages. The 

testing can then discover further problems, but the history of cost 

growth in lead ship construction is one in which quite often a lot 

of that cost growth has occurred in the final stages, when you are 

trying to integrate. And that is why the question of design stability 

becomes important potentially as a requirement, for example, for 

multiyear procurement or, more generally, for the philosophy in 

shipbuilding making sure that you get the design right and not trying to do too much with any one new design for a new class. 
14 

Mr. HUNTER. You wouldn’t possibly have any numbers, would 

you, on what you think you could save if you could—have you 

heard of the thing called automatic test retest, ATRT? Okay. It is 

a way that they test Aegis ships right now, and it is very simple. 

It takes a day versus 6 months. But, anyway, so do you not have 

a number on how much savings it would be compared to the buying 

stuff savings? I mean, the integration savings, the not changing 

things midway through? I mean, if you could save 5 percent or 5 

to 10 percent talking about what you are talking about now, what 

could you save on—— 

Mr. O’ROURKE. I guess what I would say is that changing the design, design/construction concurrency, finding problems with the 

design because you did not bring it to a high state of completion 

before you started building it is a significant part of—significant 

contributor of the overall amount of cost growth that historically 

has been experienced on lead ships. I don’t know what the fraction 

is, but it is probably a substantial fraction. And Eric has actually 

calculated historically what that total amount of cost growth has 

been for lead ships in recent decades. 

Dr. LABS. Yeah. What we have seen for cost growth in lead ships 

in recent decades is about a 45 percent growth average overall over 

the last 30 years or a 27 percent growth as a weighted average. 

But our data does not break it down to that level of detail. And I 

am not even sure, as I sit here thinking, contemplating your question, how I would go about doing that calculation because there is 

so much potential for idiosyncrasies and variability among the different shipbuilding programs, it just—there are so many potential 

unknowns there. But I agree with the general thrust of your point 

that to the—and what Mr. O’Rourke said—that to the extent that 

we can make the design stable and that things can be tested and 

avoid any changes at the last minute and so forth, you are going 

to have a more stable and less cost growth, if any at all. 

Mr. HUNTER. Thank you. 

I yield back, Mr. Chairman. 

Mr. FORBES. Ms. Graham is recognized for 5 minutes. 

Ms. GRAHAM. Thank you, Mr. Chairman. 

Thank you, gentlemen. Listening to you all, I hear the issues associated with contracts. And the structure of contracts can diminish 

options, obviously, that we have with our shipbuilding plans. What 

other options—you mentioned extending—within the contractual 

language—extending the timeline for the building of the ships as 

one potential for driving—being able to drive down cost. What are 

some other options where we could put in place a more flexible contracts approach that would help with driving down some of the cost 

of shipbuilding, taking advantage of opportunities to help our shipbuilding program be more efficient and effective? And I have one 

more question. It deals with flexibility as well, but totally different 

subject. 

Mr. O’ROURKE. In terms of contracting options, the Federal Acquisition Regulations give you two broad families of contracts that 

you can pursue. You can do cost-reimbursement-type contracts or 

you can do fixed-price contracts of one kind or another. And then 

there are variations that some people look at and say: Well, they 

fall somewhere in between those two. Cost-reimbursement con-
15 

tracts are kinds of contracts that, for shipbuilding, we try to get 

away from historically and to move as much as possible toward 

fixed-price contracts. Within fixed-price contracts, there is firm 

fixed-price, and there is fixed-price incentive. And a lot of the shipbuilding programs have been done with fixed-price incentive, where 

there is a target cost, a ceiling cost, and a line in between the two 

that determines how the government and the contractor will share 

the costs as you run from target up toward ceiling. And above ceiling, the contractor takes responsibility for everything. I think, 

within that framework, there are innumerable specific combinations about what the slope of that share line looks like or what allowable adjustments might be for the target cost or the ceiling cost. 

And there is actually a lot of flexibility that you have for building 

in the specific terms of the contract within that overall framework. 

I think what the Navy would say, what DOD would say, is that you 

should use that flexibility to wind up with a contract that aligns 

the incentives that the contract provides with your desired outcomes so that you are not rewarding something that is not important to you but that you are rewarding something that is important 

to you, like making a certain cost or meeting a certain schedule or 

quality or capability. So aligning the incentives that are bound into 

the contract with what you truly have as your desired outcome becomes the goal. And then, after that, the devil is in the details. And 

there are innumerable permutations for what the guts of the contract can look like. 

Ms. GRAHAM. So are they form contracts, or are they modified for 

each, or are they individually drafted for the particular project? 

Mr. O’ROURKE. The contracts tend to be negotiated program by 

program, and if the program is being pursued through annual contracting, then you have an annual contract for each year’s—or more 

than one annual contract for each year’s worth of procurement 

within that program. 

Dr. LABS. I am not sure I can improve upon what Mr. O’Rourke 

said. 

Ms. GRAHAM. Yeah. I agree. He did an excellent job. Excellent. 

Thank you very much. My contract law is kind of coming back into 

my head a little bit. Scary. Long time ago. Law school was a long 

time ago. 

Second question on flexibility issues. If you have one major piece 

of a ship, let’s say a hull, for example, could you use that hull as 

the basis for a ship that performs multiple functions? 

Dr. LABS. Yes. And the Navy has already been pursuing those 

types of strategies in the past. One of the things that the Navy has 

done is they have been evolving the DDG 51 program, for example, 

from the Flight I, IIs, to the Flight IIA, and then the Flight IIIs, 

with the prospect that they may pursue that in their shipbuilding 

program, you know, later on down the road. 

In the world of amphibious shipping, the LPD 17 hull form is 

something that we are completing the process of building 11 of 

those ships with a 12th still to be started. And then we are now 

going to adapt that hull form for the LXR program, taking capability off that ship to reduce its cost but still the basic hull is there. 

And, conceivably, if the Navy chose to do so, that hull form could 

be used for other types of missions, whether you want to replace 
16 

hospital ships or command ships or something else. You can reuse 

hulls for different purposes. 

Mr. O’ROURKE. Yeah. There is actually a fair amount of history 

behind this. The Spruance-class destroyer became the basis for the 

Kidd-class destroyer and also the Aegis cruiser that we have today. 

And the Mobile Landing Platform Ship more recently became the 

basis for the Afloat Forward Staging Base. The latter is essentially 

a modified version of the former. So there are multiple examples 

you can point to of hulls being reused and adapted to create specific new designs for ships that have slightly different mission orientations. 

Dr. LABS. And to the extent you can do more of that is going to 

be—on average, should be more cost-effective than designing something new and fresh. 

Ms. GRAHAM. Thank you. I am out of time, but, again, I so appreciate you coming here today and helping us to understand in a 

more specifically, you know, information-driven way the issues that 

we face with funding these incredibly huge contracts and important 

projects for our military. So thank you very much. Appreciate it. 

I know I am way out of time. I am sorry, Mr. Chairman. 

Mr. FORBES. Well, that is okay, Ms. Graham. Good questions. 

And as we look at all the questions that have been asked today 

and we try to get an aerial view of them because each one of them 

are important, Mr. Conaway’s question about what legally we can 

do to change the language we certainly want to explore because if 

we can do that, it is important. Mr. Hunter said about testing and 

those kinds of things: If we can save dollars, we want to do it. 

Ms. Graham, your question is very important for us to look at. 

And, of course, Mr. Courtney and Mr. Langevin looked at the SeaBased Deterrence Fund. 

Let me put it in a picture maybe that we can give to our other 

policymakers in Congress. We have had testimony that if we reach 

about a level of 260 ships, we cease to be a superpower, and we 

become a regional power. That is what some of our admirals have 

testified to. How many ships—and this is not a quiz for you; like 

Mr. Conaway, I know we haven’t given you the questions before— 

but how many ships do we currently have in the Navy today if we 

started with just a number? Best estimates you have. 

Dr. LABS. 273 today, sir. 

Mr. FORBES. So if we have 273 ships today and we look at our 

30-year—we are basically 13 ships above that magical 260-ship line 

that would cause us significant problems. If we take the 30-year 

shipbuilding plan and we follow that plan to what the Navy would 

propose would be its conclusion, how many ships would we have at 

the end of that period of time? 

Dr. LABS. 305 ships in 2045. 

Mr. FORBES. So we would have 305 ships. 

Now, Dr. Labs, CBO has said roughly that there is a $4 billion 

delta between what they looked at as the average amount that the 

Navy had for shipbuilding over the last 30 years and between what 

it would take to do the shipbuilding plan that they have given to 

Congress. Is that a fair—— 

Dr. LABS. Yes, sir. 

Mr. FORBES [continuing]. Representation? 
17 

Dr. LABS. About 4.5 billion would be the CBO number. 

Mr. FORBES. So to fill that $4.5 billion a year, I haven’t seen any 

proposals being put on the table from anybody where they are 

going to fill that for the Navy. So if that delta remains, based on 

what we have done over the last 30 years, can you tell me where 

we would be in terms of our ship count at the end of the 30-year 

period of time? 

Dr. LABS. There is a variety of ways that you can do that calculation. 

Mr. FORBES. I understand. 

Dr. LABS. The way the CBO report did it is it made two starting 

assumptions that the Ohio Replacement Program would be fully 

funded because that is our number one acquisition priority and 

that the Ford-class carrier program would also be fully funded because that is something that Congress has mandated in law, that 

they want an 11-carrier force. After that, I did sort of basically 

roughly proportionate reductions, and then the result is that, in 

2045, you have a fleet of 237 ships, not 305. 

Mr. FORBES. So then if we let things go just the way they are 

and with the proposals that have been put in there, we will go in 

30 years from 273 ships to 237 ships. And the shortfall between 

what even the Navy says, which we all recognize is lower than 

what a lot of analysts say we need, but you would have the difference between 305 and 237 ships as the shortfall we would have 

in terms of ships, ship count. Fair? 

Dr. LABS. Yes, sir, based on those assumptions, correct. 

Mr. FORBES. Now, one of the ways we can begin to close that 

gap—Mr. Courtney alluded to this earlier with the Sea-Based Deterrence Fund, and, Mr. O’Rourke, you said it very properly—one 

of the things that we are doing with that fund is if those numbers 

hold, instead of paying for 12, we would get 12, but we would pay 

for 11, and that could save us a substantial amount of money. 

The other thing, Mr. O’Rourke, you have at some time talked 

about the ability we could have—would be to shift a small portion 

of the overall budget of the Department of Defense to build some 

of these ships. If we did that, what percentage would we be talking 

about that we would need to shift to be able to build the ships that 

we need over that 30-year period of time? 

Mr. O’ROURKE. Shifting that $4.5 billion would equate to shifting 

less than 1 percent of the DOD base budget. 

Mr. FORBES. So if we shifted approximately 1 percent or less, 

then we could build all the ships that the Navy says that they need 

over that 30-year period of time. So the options, it seems to us, is 

to end up at the end of 30 years with 237 ships. One shift of about 

1 percent of the current Department of Defense budget or adding 

additional dollars to the top line of the Navy for doing that shipbuilding if we want to build those ships. Fair argument on that? 

Mr. Conaway, did you have another question? 

Mr. CONAWAY. No, just the math is 30 years times 4.5, so $135 

billion shortfall. And so where did this come from? You know, you 

were talking about the $10 billion here, the $3 billion there, $5 billion there, but 135, you know, you don’t get there. You can’t save 

your way into fixing this. 

Mr. FORBES. You can’t save your way into—— 
18 

Mr. CONAWAY. In terms of, you know, you ought to do those 

things, but at the end of the day, building all these ships we plan 

to at less than what we thought they were going to cost still doesn’t 

get you 135 you need to make—— 

Mr. FORBES. That is exactly—and that is why we have to have 

a combination of these things if we want to get there. 

Mr. O’Rourke, the one last question I have for you, when we look 

at different services, they have different acquisition schemes, approaches, that they use. For example, the Navy seems to make 

great use of multiyear procurement contracts and block buys while 

the Air Force currently has no multiyear procurements. Can you 

give us any idea from your analysis why there is such a significant 

difference between the approaches of various military services and 

what do you believe drives those services toward different acquisition approaches? 

Mr. O’ROURKE. I don’t track the Air Force or the Army, so I really can’t speak to detail about the other two services. But in terms 

of why the Navy makes extensive use of multiyear procurement 

and block buy contracting, I think a primary reason has to do with 

program stability. When you ask both the Navy and industry, what 

is a foundation for success in shipbuilding, they will tell you that 

a big part of that foundation is stability. And so I know that the 

idea of program stability in all dimensions, funding stability, design stability, and so on, appears to be fairly central to their thinking. It is a starting point for them in thinking about how to have 

success in ship acquisition. And if that is a big part of their starting point, then it seems to me that it would only be natural for 

them to then think about multiyear procurement and block buy 

contracting for two reasons. One is that if you have a stable program, then the risks of using multiyear procurement and block buy 

contracting are less. And, conversely, using those programs can 

then become a new and added dimension of stability in shipbuilding. 

So if the Navy is using multiyear procurement and block buy 

contracting a lot, which it is—it is using it for all—currently for all 

three of its year-to-year shipbuilding programs, they account for almost three-quarters of all the ships in the Navy’s 5-year shipbuilding plan. That is extraordinary, the amount of commitment that 

the Navy has to these contracting mechanisms. And I believe, as 

I look at the situation, that this is a reflection in both of those 

ways of how the Navy puts stability at the heart of its formula for 

how to achieve success in ship acquisition. 

Mr. FORBES. Thank you, Mr. O’Rourke. 

Mr. Courtney had one final question. 

Mr. COURTNEY. Yeah, actually, just to follow up on that last line 

of thought, and certainly the Navy has embraced multiyear procurement and incremental funding, but it has done it somewhat in 

tandem with Congress. I mean, when we acted in 2012 in the Virginia-class program to, you know, create incremental funding, I 

mean, that 10-for-the-price-of-9 block for a contract became possible. And so I just think that it is also good to underscore the fact 

that, you know, we gave the Navy the tools, and they have demonstrated that it works. And I think we have done it again with 

the Sea-Based Deterrence Fund. 
19 

And, you know, Mr. Conaway’s point is well taken that that by 

itself is not going to fix this problem, but certainly in terms of making the case to our colleagues and to the country that we are being 

smart buyers here, you know, these approaches are definitely 

showing real tangible results that we can point to historically and 

empirically, and your reports did that. I don’t know if you want to 

comment on that. I just wanted to, again, remind people that it 

was partly because of the 2012 NDAA that we got to some of those 

savings. 

Mr. O’ROURKE. To underscore that, I think it is worth reiterating 

that every single use of multiyear procurement, every single use of 

block buy contracting, was done with the approval, the positive approval, of the Congress. The Navy, the services cannot do this except with congressional approval. And it was Congress that legislated the creation of the National Defense Sealift Fund back in the 

early 1990s. And it was also Congress just within the recent past, 

within the last year or two, that did not agree with the idea of 

eliminating the National Defense Sealift Fund when that was a 

proposal that was part of the executive branch’s budget submission 

for that year. 

Mr. FORBES. Gentlemen, you have both done incredible work to 

do this analysis. We thank you. I would like to give you at this 

time an opportunity if you need it to do any kind of wrap-up to 

make sure you get on the record what we need to get on the record 

based on your work. 

So why don’t we start with you, Mr. O’Rourke, and we will end 

as we started with Dr. Labs. 

Mr. O’ROURKE. I have one wrap-up point, as it were, which is 

that even though we have talked a lot today about the Ohio Replacement Program and the ability to use contracting mechanisms 

and incremental funding to save money in that program, that program is not the only Navy shipbuilding program where there are 

opportunities of this kind. My testimony goes through all of the opportunities that I can identify in one form or another. And, indeed, 

the list I come up with encompasses every one of the Navy’s principal shipbuilding programs, either as a continuation of what you 

are already doing or as a new opportunity because it is a new start 

program. So it is important to understand what these mechanisms 

can do for the Ohio Replacement Program, but you don’t want to 

assume that that is the only place where you can do these things. 

You can do block buys and eventually multiyears on things like the 

TAO(X) program and the LXR program. You can even think about 

doing a two-ship block buy on the LHA program. So I would underscore going through the list of opportunities and candidate programs that forms the back half of my testimony because it certainly includes the Ohio program and talks about more about that 

program than any other, but it talks about virtually all of the other 

principal Navy shipbuilding programs as well. 

Mr. FORBES. And that is a good point because as Mr. Conaway 

said, the math is the math, and as Mr. Courtney pointed out, you 

are going to have to get there with a combination of means. But 

$10 billion here and $10 billion there starts adding up to real dollars. And also when you start shifting some of the top line of De-
20 

partment of Defense and maybe adding a little bit more, it helps 

get us closer to home. 

So, Dr. Labs, we are going to let you have the last word. 

Dr. LABS. Well, the only thing I would add to what both Mr. 

O’Rourke said and what I have said earlier is that going back to 

this question of sort of stability under the Budget Control Act, the 

Budget Control Act and the Bipartisan Budget Act of 2015 has provided a fair amount of stability for the Department of Defense top 

line. But that is at the top line. Underneath that top line there is 

no stability guaranteed to the shipbuilding accounts or any other 

number of accounts. That is something that is a choice that is 

made underneath that line by the administration or ultimately by 

the Congress. 

So to the extent that the stability that is provided by the BCA 

with the Bipartisan Budget Act does not ensure that shipbuilding 

is going to be funded to levels that maybe you might desire, that 

is something that is still going to have to be actively done by the 

policymakers. 

Mr. FORBES. Okay. 

Well, thank you all. If we have nothing else, then we are adjourned. 

[Whereupon, at 3:23 p.m., the subcommittee was adjourned.] 
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