Naval Shipyards: Actions Needed to Improve Poor Conditions that Affect Operations
Published: 2017-09-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Navy's four public shipyards—Norfolk Naval Shipyard, Portsmouth Naval Shipyard, Puget Sound Naval Shipyard and Intermediate Maintenance Facility, and Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility—are critical to maintaining fleet readiness and supporting ongoing operations involving the Navy's nuclear-powered aircraft carriers and submarines. The condition of these facilities affects the readiness of the aircraft carrier and submarine fleets. Senate Report 114-255, accompanying a bill for the National Defense Authorization Act for Fiscal Year 2017, included a provision for GAO to examine the capital investment in and performance of the Navy's shipyards. GAO evaluated (1) the state of the naval shipyards' capital facilities and equipment, (2) the extent to which shipyard capital facilities and equipment support the Navy's operational needs, and (3) the extent to which the Navy's capital investment plans for facilities and equipment are addressing shipyard challenges. GAO reviewed data from fiscal years 2000 through 2016 on shipyard capital investment and performance and the age and condition of facilities and equipment; reviewed Navy guidance; visited the shipyards; and interviewed Navy and shipyard officials.
section_title: What GAO Found
paragraphs: Although the Navy committed to increased capital investment and developed an improvement plan in 2013, the shipyards' facilities and equipment remain in poor condition. GAO's analysis of Navy shipyard facilities data found that their overall physical condition remains poor. Navy data show that the cost of backlogged restoration and maintenance projects at the shipyards has grown by 41 percent over five years, to a Navy-estimated $4.86 billion, and will take at least 19 years (through fiscal year 2036) to clear. Similarly, a Navy analysis shows that the average age of shipyard capital equipment now exceeds its expected useful life.
Partly as a result of their poor condition, the shipyards have not been fully meeting the Navy's operational needs. In fiscal years 2000 through 2016, inadequate facilities and equipment led to maintenance delays that contributed in part to more than 1,300 lost operational days—days when ships were unavailable for operations—for aircraft carriers and 12,500 lost operational days for submarines (see figure). The Navy estimates that it will be unable to conduct 73 of 218 maintenance periods over the next 23 fiscal years due to insufficient capacity and other deficiencies.
Though the Navy has developed detailed plans for capital investment in facilities and equipment at the shipyards that attempt to prioritize their investment strategies, this approach does not fully address the shipyards' challenges, in part because the plans are missing key elements. Missing elements include analytically-based goals and metrics, a full identification of the shipyards' resource needs, regular management reviews of progress, and reporting on progress to key decision makers and Congress. For example, the Navy estimates that it will need at least $9.0 billion in capital investment over the next 12 fiscal years, but this estimate does not account for all expected costs, such as those for planning and modernizing the shipyards' utility infrastructure. Unless it adopts a comprehensive, results-oriented approach to addressing its capital investment needs, the Navy risks continued deterioration of its shipyards, hindering its ability to efficiently and effectively support Navy readiness over the long term.T
section_title: What GAO Recommends
paragraphs: GAO recommends that the Navy develop a comprehensive plan to guide shipyard capital investment, conduct regular management reviews, and report to Congress on progress in addressing the shipyards' needs. DOD concurred with all 3 recommendations.

section_title: Letter
paragraphs: The Navy’s public shipyards are critical to maintaining the readiness of its  fleet, including nuclear aircraft carriers and submarines, and supporting  ongoing operations around the world. The four shipyards—Norfolk Naval  Shipyard in Virginia, Pearl Harbor Naval Shipyard and Intermediate  Maintenance Facility in Hawaii, Portsmouth Naval Shipyard in Maine, and  Puget Sound Naval Shipyard and Intermediate Maintenance Facility in  Washington—provide the Navy with the capability to perform depot- and  intermediate-level maintenance on ships, emergency repairs, ship  modernization, and ship deactivations. The Navy annually requests funds  from Congress for capital investment in the shipyards to maintain their  ability to support its warfighting capabilities. Over the last 5 fiscal years,  the Navy has spent about $1.9 billion on capital investment at its  shipyards. As of June 2017, the Navy operated 276 ships, including the  10 aircraft carriers and 70 submarines that are predominately maintained  by the naval shipyards.
In 2010, we reported that the Navy’s planned investment levels for its  shipyards might not be adequate to address its estimated backlog of  approximately $3 billion in facility restoration and modernization needs.  We also found that the Navy’s management processes under stated  shipyard needs, led to delays in the shipyards requesting and completing  projects, and did not track the extent to which the shipyards resolved  facility-related safety, health, and quality-of-life issues. We recommended  that the Navy develop guidance to standardize shipyard strategic  planning, improve processes for developing restoration and  modernization requirements, and document the resolution of quality-of-life  issues that have been identified. The Department of Defense (DOD)  concurred with our recommendations and addressed them by, for  example, providing guidance to the shipyards that required them to  develop strategic plans to address their future restoration and  modernization needs and improving its collection of facility data to support  restoration and modernization requirements. In 2013, in response to  congressional direction, the Navy developed a plan to improve most of its  shipyard facilities and estimated it would take 17 years (until 2030) to fully  clear the backlog of maintenance and infrastructure repair that existed at  the time. The Navy’s improvement plan sought to improve the condition  of critical shipyard facilities and utilities, mitigate seismic risks to the  drydocks, and centralize different maintenance operations in specific  areas of the naval shipyards to reduce time spent in transit between  support facilities and the waterfront where maintenance occurs on the  ship. It also sought to address failing utilities to prevent depot  maintenance operations from being degraded or disrupted.
Senate Report 114-255, accompanying a bill for the National Defense  Authorization Act for Fiscal Year 2017, included a provision for us to  examine aspects of the Navy’s planning for capital investment in its  shipyards and the shipyards’ ability to support the Navy’s operational  readiness. In this report, we assess (1) the state of the naval shipyards’  capital facilities and equipment, (2) the extent to which shipyard capital  facilities and equipment support the Navy’s operational needs, and (3) the  extent to which the Navy’s capital investment plans for facilities and  equipment are addressing shipyard challenges. We also discuss in  appendix I the Navy’s transition from the use of a working capital fund to  a direct funding mechanism to fund shipyard operations beginning in  1997, and Navy officials’ views about the effects of this transition, if any,  on capital investment planning or shipyard performance. This report  focuses on the four naval, or “public,” shipyards; these are operated by  the U.S. Navy, in contrast to the private-sector shipyards that also support  the U.S. Navy. The four naval shipyards are focused almost exclusively  on conducting repair and refueling work on the Navy’s nuclear-powered  aircraft carriers and submarines. Private shipyards contract with the  Navy to conduct the bulk of the repair work on the Navy’s surface  combatants and amphibious warfare ships.
To assess the state of the shipyards’ facilities and equipment, we  reviewed Navy data regarding the age, condition, and mission criticality of  shipyard facilities, equipment, and drydocks collected from fiscal year  2013 through fiscal year 2016. We also reviewed data on facilities  restoration and modernization backlogs from fiscal year 2011—the last  time we reviewed this matter—through fiscal year 2016, the latest year for  which data were available at the time of our review. We analyzed budget  justification data on shipyard capital investment from fiscal years 2007  through 2017 to determine overall spending trends. Throughout this  report, we present budget data in both nominal and inflation-adjusted  dollars. To adjust the dollars for inflation, we used the fiscal year gross  domestic product index with fiscal year 2016 as the base year. We also  analyzed Navy documents on capital facilities and equipment, including  budget memoranda, project proposals, and Navy capital investment  guidance. We visited the four naval shipyards to observe operations and  the condition of the facilities and equipment and to interview officials  about how the condition of the facilities and equipment was affecting  operational efficiency and performance.
To determine the extent to which shipyard capital facilities and equipment  support the Navy’s operational needs, we analyzed Navy data on  shipyard cost and schedule performance, including lost operational days  due to maintenance delays from fiscal year 2000 through fiscal year  2016. We also assessed Navy documents on the future capacity and  capability of shipyard drydocks and interviewed Navy officials on future  plans.
To determine the extent to which the Navy’s capital investment plans and  management approach for facilities and equipment are addressing  shipyard challenges, we analyzed plans issued from fiscal year 2010— the last time we reviewed this matter—through March of fiscal year 2017  from each shipyard and from Naval Sea Systems Command (NAVSEA).  We compared the plans and management of shipyard capital investment  to key elements of a results-oriented management approach that had  been identified from our prior work as critical to successful strategic  planning, and we determined whether these plans and the Navy’s  management approach included those key elements. We reviewed  Office of the Secretary of Defense and Navy guidance on sustainment,  investment spending, and facilities planning, as well as documentation on  shipyard capital investment challenges, facilities planning projects, and  equipment usage.
To describe the Navy’s transition from funding shipyards through a  working capital mechanism to direct funding during fiscal years 1998  through 2007, we reviewed Navy documentation on the transition,  including after-action reports on lessons learned from pilot efforts. We  analyzed annual Navy budget justification data on capital investment  spending from fiscal year 2007—the first year all shipyards were under  the direct funding mechanism—through fiscal year 2017. We also  interviewed Navy shipyard officials who had operated under both funding  mechanisms, to learn about the different incentives and operating  procedures under each.
To address all of our objectives, we interviewed or obtained  documentation from the Office of the Under Secretary of Defense,  Comptroller; the Office of the Under Secretary of Defense for Personnel  and Readiness; Headquarters, the Department of the Navy; U.S. Fleet  Forces Command; the Commander, Navy Installations Command (CNIC);  Naval Facilities Engineering Command (NAVFAC); Naval Sea Systems  Command, Logistics, Maintenance and Industrial Operations; Naval Sea  Systems Command, Nuclear Propulsion; Norfolk Naval Shipyard;  Portsmouth Naval Shipyard; Puget Sound Naval Shipyard and  Intermediate Maintenance Facility; and Pearl Harbor Naval Shipyard and  Intermediate Maintenance Facility.
To assess the reliability of the data to address the objectives in this  report, we reviewed systems documentation and interviewed officials to  understand system operating procedures, organizational roles and  responsibilities, and error checking mechanisms. We also conducted our  own error checks to look for inaccurate or questionable data and  discussed with officials any data irregularities we found. We conducted  these assessments on the following systems: the Facility Readiness  Evaluation System (for data on the Navy’s restoration and modernization  backlog from fiscal year 2011 through fiscal year 2016), the internet Navy  Facility Asset Data Score (for data on facility condition, criticality, and  replacement cost from fiscal year 2013 through fiscal year 2016), the  electronic Facilities and Equipment Management system (for data on  equipment repair requests from fiscal year 2008 through fiscal year  2016), the Defense Property Accountability System (for data on the age  of capital equipment), and the Navy Modernization Process (for data on  maintenance timeliness and lost operational days from fiscal year 2000  through fiscal year 2016). We found the data that we used from these  systems to be sufficiently reliable for the purposes of summarizing trends  in the selected shipyard and facility metrics reported.
We conducted this performance audit from June 2016 to September 2017  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: History and Purpose of the Naval Shipyards
paragraphs: The naval shipyards are highly industrialized, large-scale operations that  provide maintenance for ships and submarines. The naval shipyards are  essential to national defense and fulfill the legal requirement for the  Department of Defense to maintain a critical logistics capability that is  government owned and operated to support an effective and timely  response for mobilization, national defense contingency situations, and  other emergency requirements. The naval shipyards were designed to  build wind- and steam-powered ships, which reduces their efficiency in  repairing today’s modern nuclear-powered ships. They range in age from  109 years to 250 years (see figure 1).
The naval shipyards provide depot-level maintenance, which involves the  most comprehensive and time-consuming maintenance work, including  ship overhauls, alterations, refits, restorations, nuclear refuelings, and  deactivations—activities crucial to supporting Navy readiness. This  maintenance is performed during periods designated in the Navy’s  Optimized Fleet Response Plan, a carefully orchestrated operational  schedule of maintenance, training, and deployment periods for the entire  fleet. It is designed to maximize the fleet’s operational availability to  combatant commanders while ensuring adequate time for training and  maintenance. We reported in 2016 that successful implementation of the  Optimized Fleet Response Plan depends, in part, on the shipyards  completing maintenance on time and that maintenance delays reduce the  time that ships are available for training and operations. This means it is  essential to the Navy’s ability to maintain readiness and support  operational needs that the shipyards be as efficient as possible.
section_title: Capital Investment at the Shipyards
paragraphs: Capital investment refers to expenditures for shipyard facilities and  equipment, including the repair, construction, and maintenance of real  property, among other activities. Capital investment projects at Navy  facilities are funded primarily through Military Construction and Operation  and Maintenance appropriations.
Military Construction projects are construction, development,  conversion, or extension projects of any kind, including repair work.  Military Construction appropriations are used to fund projects costing  more than $1 million, while Operation and Maintenance funds are  used for projects costing less than $1 million.
Special projects are restoration and modernization projects with  funded costs exceeding $750,000 in which the portion of work that is  classified as construction is under $1 million. Operation and  Maintenance funds are used for special projects.
Equipment projects are those associated with the installation of  equipment in facilities. Where non-structural work—including the  provision of the equipment—is required on real property, the project is  financed with funds supporting the procurement of the equipment.  Where structural changes are required, those costs are classified and  funded as construction.
The Navy acknowledges that there has been a history of under- investment in shipyard restoration and modernization needs.  Recognizing this issue, Congress passed a law in fiscal year 2007 that  requires the Secretary of the Navy to invest in the capital budgets of the  Navy depots a total amount equal to not less than 6 percent of the  average total combined maintenance, repair, and overhaul workload  funded at all the Navy depots for the preceding three fiscal years. In  fiscal year 2008, the Navy committed to increased capital investment to  comply with the law and to improve the overall material condition of these  facilities. In 2013, pursuant to a statutory mandate, the Navy developed a  plan to improve its shipyard facilities and estimated that it would take 17  years (until fiscal year 2030) to resolve the backlog of maintenance and  infrastructure repair that existed at the time. Since fiscal year 2007, total  shipyard capital investment has increased by about 35 percent in  inflation-adjusted 2016 dollars, as shown in figure 2. Capital investment at  the shipyards has increased at a pace similar to that of overall shipyard  funding, which has increased by about 34 percent over the same period,  after adjusting for inflation.
section_title: Management of Capital Investment in the Shipyards
paragraphs: A number of Navy organizations have a role in determining the level of  capital investment to be made in the shipyards (see figure 3). The Office  of the Chief of Naval Operations (OPNAV) allocates the funding for  overall capital investment in the shipyards. Naval Sea Systems Command  (NAVSEA) determines which capital investment projects are most critical  to enable the shipyards to continue operations. Those projects are  planned by personnel from Naval Facilities Engineering Command  (NAVFAC), using funds provided by the Commander, Navy Installations  Command (CNIC). The projects then go through the Shore Mission  Integration Group process, led by CNIC, where they compete against  other Navy priorities for funding. The group reviews proposed shipyard  projects to determine whether they are necessary and appropriate and  then prioritizes them. After all the proposed projects have gone through  this process, the result is a ranked list of approved projects; the Navy  then allocates funds for those projects in priority order until it reaches the  funding level set by OPNAV.
section_title: Shipyard Facilities and Equipment Are in Poor Condition
paragraphs: Although the Navy has committed to increasing shipyard capital  investment and implementing improvement plans, the physical condition  of the shipyards’ facilities remains poor according to Navy data, and the  cost to address restoration and modernization backlogs is increasing.  For example, we estimate that it will take at least 19 years to clear the  backlog (through fiscal year 2036), 6 years longer than the Navy  estimated in 2013. Meanwhile, the shipyards’ drydocks also require  restoration and modernization. The average age of capital equipment at  the shipyards exceeds its expected useful life, and the overall condition of  this equipment may be deteriorating.
subsections: section_title: Shipyard Facilities Are in Poor Condition
paragraphs: GAO’s analysis of data on Navy facilities found that the average rating for  the overall condition of facilities at the Navy’s four shipyards remains  poor. Specifically, the shipyards’ average condition rating—which  measures the physical condition of a facility—has remained essentially  flat and in the “poor” category, with an average rating of 71 in fiscal year  2013 and an average rating of 72 at the end of fiscal year 2016 on the  100 point scale used by the Navy (see figure 4). Moreover, in fiscal year  2016 the Navy rated about 25 percent of all shipyard facilities below 60,  and therefore categorized them as being in failing condition. Furthermore,  as of fiscal year 2016, the Navy categorized one in every five failing naval  shipyard facilities as a facility that was critical to accomplishing the  shipyard’s repair mission.
Navy data also suggest that the shipyards may have about 1.2 million  square feet of condemned, uninhabitable, or otherwise unusable facility  space. According to Navy data, four dozen shipyard buildings across  the four shipyards have been condemned or are unusable for ship repair  activities, including some in prime waterfront locations that shipyard  officials said could be used to improve the efficiency of ship repair  processes. Navy shipyard officials noted that the shipyards were not  designed for their current mission and that the layout, size of facilities,  pier space, utilities, and safety systems contribute to reducing the  efficiency of the shipyards for repair work. The Navy has reported that the  inefficiencies of the current layout limit the yards’ abilities to improve their  cost and schedule performance. For example, shipyard officials at Puget  Sound stated that workers conducting ship repair work cannot traverse  one shop building end-to-end without changing floors.
The Navy has other measures it uses to assess facilities, in particular the  facility configuration rating. This rating measures the facility’s suitability to  function as intended or required for its mission. However, we did not  assess the average configuration of the shipyard facilities, because the  Navy had not resolved an issue concerning the reliability of the  configuration data that we identified in 2011. Specifically, the  configuration rating in the Navy’s database defaults to 100 when no rating  has been entered into the system. Our analysis of the Navy’s fiscal year  2016 configuration data showed that 928 of 1300, or 71 percent, of the  facilities had ratings of 100. Shipyard officials told us that most of these  ratings were likely the result of a default rating and did not represent  actual assessments. As we previously described, this use of a default  rating creates a false result that suggests these facilities are perfectly  configured, when in reality their status has not been assessed or  recorded in the Navy’s database. This false result also has the effect of  underestimating shipyard restoration and modernization costs, since the  configuration ratings are used to inform these estimates. Given these  concerns about the reliability of the configuration ratings, we did not  determine trends in the average configuration of shipyard facilities since  the Navy began implementing its 2013 facilities plan. We recommended  in 2011 that the Navy develop a plan to ensure the accuracy of its  condition and configuration data, but as of July 2017 the Navy’s plan had  not corrected the issue with the configuration data. We believe our earlier  recommendation remains valid.
section_title: Facility Maintenance Backlogs Are Increasing
paragraphs: The shipyard facilities’ restoration and modernization backlog has  continued to grow over the past 5 fiscal years. The Navy defines its  restoration and modernization backlog as the estimated costs to restore  facilities degraded by inadequate sustainment, excessive age, natural  disaster, fire, or accident, among other things; to renovate or replace  existing facilities to implement new or higher standards or accommodate  new functions; or to replace building components that typically last more  than 50 years. According to CNIC estimates, the funding required to  eliminate the facilities restoration and modernization backlog at the four  shipyards increased by 41 percent between fiscal year 2011 and fiscal  year 2016, from a $3.45 billion backlog to a $4.86 billion backlog. For  comparison, CNIC officials told us that the entire Navy facilities  restoration and modernization backlog over the same period increased at  a slower pace of about 14 percent, from a backlog of $37.45 billion in  fiscal year 2011 to a backlog of $42.87 billion in fiscal year 2016.
Given the current average funding levels for capital facilities that the  shipyards have received from the Navy of approximately $260 million per  year, we calculated that it would take the Navy at least 19 years (through  fiscal year 2036) to eliminate the $4.86 billion backlog of facilities  restoration and modernization that the shipyards faced at the end of fiscal  year 2016. This contrasts with the estimated 17 years (through fiscal  year 2030) that the Navy estimated it would take to eliminate the shipyards’ restoration and maintenance backlog at the time it published  its shipyard improvement plan in 2013. Further, NAVSEA officials told us  that addressing this restoration and modernization backlog does not build  additional shipyard capacity and capability—it only allows the shipyards to  remain at their present levels of capacity and capability. Any new or  emergent mission requirements would further increase the time required  to clear the shipyards’ facilities restoration and maintenance backlog,  according to NAVSEA officials.
section_title: Drydocks Require Restoration and Modernization
paragraphs: We found that the shipyards’ drydocks have a number of unaddressed  restoration and modernization needs. Maintenance personnel use  drydocks to safely access the underside of ships and submarines, and  drydocks are among the most critical facilities at the shipyards. The  shipyards rely on 18 aged drydocks to perform maintenance on the  Navy’s current fleet of aircraft carriers and submarines. Our analysis of  Navy data shows that the average age of Navy drydocks is about 89  years. The oldest drydock in current use was completed in 1891 and the  newest was completed in 1962. Aging drydocks pose risks to the  shipyards’ ability to perform their depot repair mission uninterrupted and  ultimately to the Navy’s ability to provide required aircraft carrier and  submarine presence to combatant commanders. These risks result from  flooding and seismic vulnerabilities and the potential for aging drydocks to  deteriorate, among other things. Examples of key drydock shortcomings  identified by the Navy include obsolescence, flooding vulnerabilities, and  seismic vulnerabilities.
Workarounds for Drydock Obsolescence   Three of Puget Sound’s six drydocks and one  of Norfolk’s five drydocks require the use of  superflooding as a workaround to service the  Navy’s current fleet of submarines.  Superflooding forces water into the drydock to  raise the water level higher than the tides to  obtain the necessary clearance for the  submarine to move into the dock. According  to shipyard officials at Puget Sound,  superflooding can result in the flooding of  drydocks’ electrical and service galleries  (shown below), which were not designed to be  flooded and therefore have to be repaired  because of rust and seawater corrosion.
Drydock obsolescence. Several of the shipyards’ drydocks are not able  to support existing submarine classes, including the Los Angeles-class  attack submarine. Other drydocks can support vessels only when  assisted by particular equipment or environmental conditions such as tidal  schedules (see sidebar). Our analysis shows that as the Navy retires  existing aircraft carriers and submarines and replaces them with newer  classes, the shipyards will become increasingly constrained in scheduling  and performing maintenance using their existing drydocks. Only 11 of the  18 drydocks in use are configured to perform maintenance on the newer  ship and submarine classes being procured by the Navy, such as the  larger Ford-class aircraft carrier and the Virginia-class submarine (see  figure 5). According to a June 2017 draft drydock study from the Navy,  without making new investments in drydocks, the shipyards will  increasingly encounter scheduling delays waiting for access to the 11  drydocks that are configured for the newer classes.
Additionally, Drydock 1 at Portsmouth Naval  Shipyard and Drydock 3 at Pearl Harbor  require buoyancy assistance equipment to  provide additional lift to reduce the  submarine’s waterborne draft to move it into  the drydock. In its 2017 draft drydock study,  the Navy reports that, without the use of  buoyancy assistance equipment, these two  drydocks could no longer dock any of the  Navy’s current submarines. While this  workaround allows the shipyards to repair  some current classes of submarines, the  Navy’s study says it will not be sufficient in the  future for newer classes. Additionally,  shipyard officials said that Drydock 3 at Puget  Sound can move Los Angeles class  submarines in or out only after they have had  several tons of weight removed and only  during a high tide. This drydock is primarily  used for submarine reactor compartment  disposal.
Flooding vulnerabilities. Four of Norfolk’s 5 drydocks face flooding  threats from extreme high tides and storm swells and average one major  flooding event per year. According to officials, drydock flooding during  certain delicate depot maintenance tasks risks personnel safety,  catastrophic damage to the ships being repaired, and potential  environmental impacts. For example, the Navy reported in 2009 that a  drydock at Norfolk required emergency repairs to prevent flooding while  the USS Tennessee (SSBN-734) was undergoing maintenance.  According to a 2009 Navy incident report, several days of high tides and  winds, coupled with multiple leaks in the drydock’s granite block joints,  resulted in the drydock flooding at an estimated rate of 3,000 gallons per  minute before workers could repair it.
Seismic vulnerabilities. The Navy’s drydocks were not designed to  accommodate the risks posed by seismic events. For example, at Puget  Sound Naval Shipyard—located in an area identified by the U. S.  Geological Survey as a “High Seismic Hazard Zone”—a 7.0 magnitude or  greater earthquake could damage or ruin the only drydock on the west  coast that is capable of performing maintenance on aircraft carriers. As  recently as 2001, the Puget Sound region experienced a 6.8 magnitude  earthquake.
section_title: Capital Equipment is Aging
paragraphs: According to Navy documentation, shipyards’ capital equipment is aging  beyond its expected service life and its overall condition appears to be  deteriorating, negatively affecting ship and submarine repair work. Capital  equipment includes items such as shipyard cranes, sheet metal rollers,  plasma cutters, and furnaces. In September 2016, an internal NAVSEA  analysis showed that the average age of capital equipment at the four  shipyards had risen to 22 years, which is beyond the 15-year average  expected useful life that the Navy has calculated for capital equipment.  We also observed aging equipment at all four shipyards, including  submarine shaft lathes at Puget Sound that had entered service in the  1930s and a plate roller at Portsmouth that was built in the 1950s. This  equipment was still being used to support maintenance on modern  nuclear submarines and at times has created impediments to efficiently  and effectively completing repair work, according to shipyard officials.
Equipment that is beyond its useful life can be inefficient and unreliable,  affecting the shipyards’ ability to conduct repair work. Our analysis of data  on the repair of Navy equipment found that the number of requests for  repair of shipyard equipment is trending upward, from about 13,400 in  fiscal year 2008 to about 17,100 in fiscal year 2016, an increase of about  28 percent. This indicates that the shipyards may be incurring costs— such as additional labor hours and repair materials—associated with  aging equipment. Moreover, the actual need for repairs may be greater  than the number of repair requests indicates, according to shipyard  officials, because shop level employees are reluctant to submit repair  requests when there is little hope of obtaining funding for a repair.  Unreliable equipment can also result in increased costs and re-work. For  example, after it was discovered in 2015 that the analog controls on a  furnace used to heat-treat submarine parts to withstand deep sea  pressure were reading inaccurately, Norfolk officials were required to re- inspect 10 years’ worth of parts made in that furnace to ensure that they  met stringent submarine safety requirements.
section_title: Shipyard Capital Facilities and Equipment Are Not Fully Meeting the Navy’s Operational Needs and Will Likely Not Support Projected Operational Needs
paragraphs: The shipyards’ capital facilities and equipment are not fully meeting the  Navy’s operational needs, in part due to their condition. Maintenance  delays partially attributable to inadequate facilities and equipment at the  shipyards have led to thousands of lost operational days for submarines  and aircraft carriers over the last 16 fiscal years. In addition, the Navy  estimates that its future needs will be increasingly affected by the  capacity and capability limitations of the drydocks, even without factoring  in the increase in fleet size—18 additional attack submarines and 1  additional aircraft carrier—called for in the Navy’s 2016 Force Structure  Assessment.
subsections: section_title: The Shipyards Are Not Fully Meeting the Navy’s Current Operational Needs
paragraphs: We found that the naval shipyards are not fully meeting the Navy’s  current operational needs, in part due to the condition of their facilities  and equipment. The shipyards’ ability to meet operational needs is  measured by their ability to complete maintenance on time and adhere to  the maintenance schedule laid out in the Navy’s Optimized Fleet  Response Plan. As we previously reported, completing ship and  submarine maintenance on time is essential to the Navy’s readiness.  Maintenance availabilities that last longer than planned reduce the  number of days ships are available for training or operations. When  ships stay in the shipyards longer than anticipated, it can lead to a  negative cyclic effect that affects other vessels in the fleet (see figure 6).  Our analysis shows that facilities and equipment in poor condition can  contribute to maintenance delays. Navy shipyard officials noted that there  are numerous reasons why the maintenance on ships may be delayed— factors such as parts shortages, labor difficulties, changes in the planned  maintenance work, and weather—but agreed that the condition of  facilities and equipment is one of those reasons.
Our analysis of Navy data shows that, in fiscal years 2000 through 2016,  the shipyards completed maintenance periods on schedule only 47  percent of the time for aircraft carriers and 24 percent of the time for  submarines (see figure 7). These overruns in maintenance periods  resulted in at least 1,300 lost operational days—days that a ship is not  available for operations—for aircraft carriers and about 12,500 days for  submarines during fiscal years 2000 through 2016 (see figure 7). Our  analysis of Navy maintenance data shows that delays in maintenance  periods that began in fiscal year 2015 caused more than a year’s worth of  lost operational days for aircraft carriers—the equivalent of losing the use  of an aircraft carrier for more than a year.
In addition to hindering efficient ship repair, inadequate facilities cost the  Navy in other ways. The Navy reports that it has purchased or rented a  large number of temporary facilities at every shipyard to provide them  enough space to complete their mission, and the need for such temporary  facilities is growing, according to shipyard officials. In its 2013 facilities  improvement plan, the Navy identified 650 temporary shipyard structures  across the four shipyards, comprising 561,466 square feet. As recently  as February of 2017, Puget Sound Naval Shipyard alone reported that it  had over 224,000 square feet of relocatable facilities onsite, including  approximately 300 temporary trailers. Some “temporary” facilities at the  shipyards have been used for decades, and others are double stacked  because of a lack of space (see figure 8 for an example).
We observed at Pearl Harbor and Puget Sound that the piers used for  repair work can also be crowded, and personnel told us that they leave  equipment outside because there is no covered storage space available.  For example, shipyard officials at Puget Sound told us they currently have  a storage space deficit of approximately 400,000 square feet. They  reported that, as a result, they store millions of dollars’ worth of  equipment and material outside around the shipyard, sometimes  uncovered and exposed to the elements. Shipyard officials said this can  reduce the lifespan of the equipment, particularly when it is exposed to  the saltwater air, which increases the rate of corrosion.
section_title: The Navy Estimates That the Shipyards’ Drydocks Will Not Support Projected Operational Needs
paragraphs: According to a 2017 draft Navy study, the current capacity and capability  of the shipyards’ drydocks will not support future operational needs. The  Navy projects that the shipyards will be unable to support 73—or about  one-third—of 218 maintenance periods planned for the shipyards over the  next 23 years, including 5 aircraft carrier and 50 submarine maintenance  periods. However, this estimate identifies only maintenance periods  missed as a result of drydock capacity and capability issues for the  planned fleet of 11 carriers and 70 submarines through fiscal year 2040.  NAVSEA officials said that other factors that contribute to missed  maintenance periods, such as shipyard workload, workforce, or  requirements growth, were not accounted for in this estimate.
In its 2017 draft drydock study, the Navy reports that it currently has very  little drydock capacity to surge depot-level work or deal with national  security contingencies or unanticipated accidents, such as the USS  Greeneville’s (SSN-772) collision with a Japanese fishing ship. This is  because of the high demand for drydock space, which leaves the Navy  with little time between scheduled maintenance periods to do other work.  In its 2016 Force Structure Assessment, the Navy released a new force  structure goal that called for achieving and maintaining a fleet of 355  ships—up from the previous goal of 308 ships in its 2015 assessment and  the current inventory of 276. This assessment calls for increasing the  number of planned aircraft carriers from 11 to 12 and the number of  attack submarines from 48 to 66 (a 38 percent increase). This proposed  increase in fleet size will aggravate shortfalls in drydock capacity, since  an increase in the number of ships will lead to an increase in the volume  of maintenance the shipyards must perform.
In its 2017 draft drydock study, the Navy identified several key drydock  shortfalls that hinder the shipyards’ ability to support future operational  needs, as previously discussed. For example, none of the existing  drydocks can support repairs for the new Ford-class aircraft carrier as the  drydocks are currently configured. Specifically, Drydock 8 at Norfolk  Naval Shipyard and Drydock 6 at Puget Sound Naval Shipyard—the two  drydocks currently capable of supporting existing Nimitz-class aircraft  carriers—require upgrades in salt water cooling utilities to support  maintenance on the new Ford-class aircraft carriers, because the Ford- class carriers are larger and have different equipment. The Navy has  plans to begin addressing this issue at Norfolk in fiscal year 2022 and at  Puget Sound in fiscal year 2023. Navy officials told us that the Navy has  not yet defined its needs for drydocks capable of supporting Ford-class  aircraft carriers, but it will need at least one on each coast.
Newer versions of the Virginia-class submarines will limit the number of  drydocks able to perform maintenance in the future, thereby reducing the  capacity available to the fleet. According to the 2017 draft Navy analysis,  17 of the shipyards’ 18 existing drydocks can support maintenance on the  current Los Angeles-class attack submarine, and 14 of the 18 can  accommodate the current versions of the Virginia-class attack submarine.  However, only 11 of the 18 drydocks, in their current state, will be able to  accommodate future versions of the Virginia-class submarine with the  Virginia Payload Module because of its increased length and loading  size. This drydock shortfall caused by the addition of this module is  exacerbated at Pearl Harbor Naval Shipyard, where there is a drydock  that can be divided in two to support simultaneous maintenance of either  two Los Angeles-class or two current Virginia-class submarines. Future  Virginia-class submarines with the module are so long that they require  the full length of the drydock, thereby reducing the space available for  maintenance at Pearl Harbor. Shipyard officials noted that this capability  is regularly used to respond to immediate, short-term notice events, such  as ships in need of emergency repairs.
section_title: The Navy’s Capital Investment Approach Is Not Fully Addressing the Shipyards’ Challenges
paragraphs: Though the Navy has developed detailed plans for capital investment in  facilities and equipment at the shipyards that attempt to prioritize their  investment strategies, this approach does not fully address the shipyards’  challenges, in part because the plans are missing key elements.  Specifically, the Navy’s plans are missing capital investment goals that  would help guide long-term planning, an accounting of all relevant costs,  metrics that would allow an assessment of the effectiveness of capital  investment spending, and regular management reviews to assess  progress. Our previous work has shown that a comprehensive, results- oriented management approach that includes these elements can help  organizations remain operationally effective, efficient, and capable of  meeting future requirements. DOD has previously used approaches of  this kind to address complex, long-standing management challenges, and  the Navy’s plans have already incorporated some elements of this  approach, such as a well-defined mission statement and a detailed  discussion of the issues the plans are intended to address. However,  without adopting a management approach for its capital investment needs  that includes key results-oriented elements, the Navy risks continued  deterioration at its shipyards, hindering its ability to efficiently and  effectively support Navy readiness over the long term.
subsections: section_title: The Navy Has Developed Capital Investment Plans for Facilities, Equipment, and Drydocks
paragraphs: Over the last several years, the Navy has developed three capital  investment plans intended to help improve the state of the facilities and  equipment at the shipyards. In 2013, the Navy released a plan to guide its  capital investment for shipyard facilities. The plan discusses eliminating  the restoration and modernization backlog of facilities projects and  centralizing maintenance operations, among other things. Similarly, the  Navy issued a plan to guide its investment in capital equipment in 2015.
This plan was intended to identify and address all capital equipment  needs. Finally, the Navy is currently working on a draft drydock plan that  is intended to help prioritize the drydocks projects the Navy feels are  necessary to meet upcoming scheduling challenges. That plan is still in  draft form, though officials have told us that they expect it to be released  this year.
section_title: The Navy’s Capital Investment Plans Lack Key Elements of a Results-Oriented Approach
paragraphs: Though the Navy’s capital investment approach has resulted in the  development of three capital investment plans, those plans are missing  key elements, including the development of analytically-based goals that  would help guide long-term planning, a full identification of the shipyards’  resource needs, metrics that would allow the Navy to assess the  effectiveness of its capital investment spending in supporting the ability of  the shipyards to meet operational needs, regular management reviews of  progress, and reporting on progress to key Navy decision makers and  Congress. Without incorporating these key results-oriented elements into  their approach, the Navy may not be able to address the shipyards’  challenges, namely their poor condition, aging equipment, and mounting  facility maintenance backlogs.
subsections: section_title: Capital Investment Plans for the Shipyards Lack Goals That Would Help Guide Long-Term Planning
paragraphs: The Navy’s capital investment plans for shipyard facilities and equipment  do not include analytically-based results-oriented goals sufficient to  support long-term planning. For example, the 2013 facilities improvement  plan stated that it was designed to bring the condition of shipyard facilities  up to an average condition rating of 75, to match the average Navy  condition rating for facilities. However, the Navy chose this goal based on  budget expectations rather than an engineering or operational analysis to  determine the condition and configuration the shipyards needed to  efficiently and effectively address current and future operational needs.  Navy officials also told us that there are no Navy or DOD criteria for  determining what constitutes effective and efficient shipyard facilities,  although such criteria are available for more typical installation facilities,  such as barracks or dining facilities.
The Navy’s 2015 capital investment plan for equipment identified a  desired outcome—to address “all” shipyard equipment requirements—but  this desired outcome was not based on an analysis of what the shipyards  needed to support the Navy’s operational goals. Navy officials stated that  the goal of the plan was to reduce the average age of capital equipment  by replacing older equipment with newer, modern versions. Over time,  this would reduce the average age of capital equipment to better reflect  the average expected service life of about 15 years. However, this goal  was not provided in the plan, and there was no mention of alternate  methods of assessing equipment condition to determine when it would  require replacement. Similar to the 2013 facilities plan, the 2015  equipment plan focuses on financial inputs necessary to achieve  improvements, instead of relying on an analytically-based objective, and  does not specify when the objective of the plan will be fulfilled.
We found no analytical basis to suggest that attaining the goals in the  2013 facilities plan and the 2015 equipment plan would allow the  shipyards to efficiently and effectively support current or future  operational needs. A results-oriented management approach calls for  goals in order for the organization and any additional stakeholders to  know what end-state they are trying to reach. These goals also inform  other elements, such as the development of metrics to assess progress  and the identification of necessary resources. Shipyard officials told us  that the plans in place could be characterized as lists of projects desired,  rather than effective end-state goals. In a results-oriented management  approach, identifying a specific analytically-based goal or end state is  essential for accurately determining the costs of achieving that goal,  because different end-states could require different shipyard  configurations—which in turn would require different facilities and  equipment. These differing end states would also likely require different  funding levels and timelines. According to the Navy, completing the  projects identified to date would allow it to maintain current shipyard  capabilities in a steady state. However, completion of these projects  would not add to existing shipyard capacity or capability, aside from  improvements identified as needed to accommodate new hull types in  drydocks. Absent analytically-based goals defining the desired end state,  there is no support that the current plan goals will efficiently and  effectively meet the Navy’s operational needs.
section_title: The Navy’s Plans Do Not Fully Identify the Shipyards’ Capital Investment Needs
paragraphs: The Navy has not fully identified the resources necessary to achieve even  the desired results expressed in its 2013 facilities plan and 2015  equipment plan. The Navy estimated funding needs for shipyard facilities,  equipment, and drydocks in its 2013 facility plan, its 2015 equipment plan,  and its 2017 draft drydock study. Altogether, these plans estimate that the  Navy will need a total of at least $9.0 billion over the next 12 years—fiscal  years 2018 through 2029—to improve the average condition of its  shipyard facilities, address drydock needs, and begin to recapitalize its  equipment (see figure 9). However, as we have discussed, these  estimates are not derived from an analysis of what the shipyards require  to efficiently and effectively meet current and future operational needs.  We also found that the Navy’s estimates of its shipyard capital investment  needs do not account for several potentially costly items, including  planning costs and utilities modernization. In addition, the limited  resources devoted to planning for shipyard improvements, combined with  the generally poor condition and historic status of the shipyards, mean  that even the existing estimates may be under stated. Identifying the  necessary resources is essential in order to acquire and prioritize the use  of those resources. Without identifying the full resources required to  address the shipyard’s relevant needs and reach analytically-based  goals, decision makers will lack the information needed to support  deliberations and determine an appropriate level of resources to allocate  to the naval shipyards.
The Navy has estimated $3.6 billion in funding needs, or an average  of $304 million per year, to address shipyard facility needs and bring  shipyard facilities up to an average condition rating of 75, which is still  considered “poor.” This amount exceeds the shipyards’ average  yearly allotment for facilities of about $260 million by $44 million (a 17  percent increase).
The Navy also estimates that it will need $2.0 billion over the next 12  years (or an average of $167 million per year) for capital equipment.  This exceeds the average yearly capital equipment funding of about  $50 million by about $117 million (a 234 percent increase).
Finally, the Navy has estimated $3.4 billion in needs over the next 12  years ($4.1 billion total over 15 fiscal years) to begin mitigating its  drydock shortfalls, but the amounts needed per year vary because of  the need to accommodate ship maintenance schedules and complete  large amounts of work in specific fiscal years.
However, these estimates may under state some potentially costly  elements.
Planning costs have not been fully identified: The Navy has  accounted for planning costs for some of its largest projects—those  involving its drydocks—but has not calculated similar costs for the  remainder of its future capital investment needs. According to Navy  officials, in-depth planning and engineering are required to repair and  modernize industrial facilities while allowing ongoing shipyard  operations to proceed, ensuring that adequate preparations are made  to support facility improvements and that the necessary utilities are in  place, addressing potential historic or regulatory considerations, and  ensuring that the location can support the project. The Navy projects  that the planning costs associated with its drydock improvements will  be at least $284 million over the 12 years—roughly 8 percent of the  total project costs—although shipyard officials have noted that  planning costs can easily exceed 10 percent of a project’s total cost.  This suggests that the planning costs for the $3.6 billion in facilities  projects identified by the Navy could increase the total cost of these  projects by several hundred million dollars.
Utilities modernization costs have not been not fully identified:  NAVFAC has identified about $190 million in additional utilities  projects through fiscal year 2023 that are not already in one of the  other Navy plans, but it has not identified the improvements needed  beyond fiscal year 2023. The Navy’s 2013 plan did not include the  cost of modernizing utilities, though it noted that efforts were under  way to develop cost estimates for their recapitalization. The Navy  previously reported in its 2013 facilities plan that shipyards  experienced unscheduled utility outages that can disrupt maintenance  schedules and lead to increased fuel and labor costs. Navy officials  acknowledge the ongoing need to modernize utilities and other wired  systems at the shipyards. For example, the fire alarm systems at the  shipyards continue to rely on the same bare-wire telegraph  technology that was used in the 1800’s and early 1900’s, which is  easily damaged and regularly elicits false alarms. However, according  to officials, they have not determined the full amount of investment  that would be required to modernize utilities at the shipyards to  provide a stable electrical supply at the proper voltages with fewer  unplanned outages.
Regulatory compliance costs may be under stated: Shipyard  facilities are subject to a variety of regulatory requirements, stemming  from both DOD and statutory sources. Like other military installations,  shipyards must comply with anti-terrorism, force protection, seismic,  and building code requirements. However, given the limited resources  devoted to planning, current plans to improve shipyard facilities,  equipment, and drydocks do not address the effect of some of these  statutory and regulatory requirements. Anti-terror and force protection,  seismic, building codes, and other requirements to improve the health  and safety of shipyard personnel can increase the amount of funding  required to complete capital investment projects, particularly when  compliance efforts overlap. For example, DOD regulations require that  when the cost of a project reaches 30 percent of the replacement  value of the facility, seismic assessments must be conducted, and if a  project’s cost exceeds 50 percent of the facility’s replacement value,  anti-terror and force protection measures must be included in the  project. According to shipyard officials, the DOD requirements that  must be met after a project exceeds the 30 percent threshold are  sometimes costly enough to make it exceed the 50 percent threshold,  and the results of overlapping requirements can be difficult to predict.  This can result in the cost of relatively simple projects increasing  significantly, as indicated by the example in figure 10, illustrating an  actual project at Norfolk Naval Shipyard developed between fiscal  years 2010 and 2015.
Building 30 at Norfolk Naval Shipyard is used for engineering, and is over  120 years old. The costs to bring it up to modern building code were  significant. This example may not be representative of the potential  growth of project costs, but the age of shipyard facilities, the extent of  historic designations, and the Navy’s acknowledged history of under  investment at the shipyards highlight the potential for other shipyard  facilities to encounter similar issues. This suggests that the Navy’s  estimated restoration and modernization backlog of $4.86 billion may  actually be under stated.
Historic preservation costs may be under stated: Our analysis and  Navy documents show that dealing with historic facilities also adds  cost and complexity to planning for their restoration. The preservation,  restoration, or demolition of historic buildings requires additional time  and cost to plan, gain necessary approvals, and execute. In its 2013  facility plan, the Navy reported that approximately 70 percent of the  shipyard infrastructure was designated as historic; all four shipyards  have historic facilities, some because of the age of the facilities and  some because of events that took place there. For example, the  attack on Pearl Harbor during World War II has resulted in the  designation of approximately 3 million square feet of its facilities as  historic; this means that the footprint of the historic part of the  shipyard exceeds that of its non-historic facilities. Shipyard officials  told us that there are several facilities that might be used to more  effectively support shipyard operations but that either they cannot be  altered because they have been designated as historic or that  alterations would require lengthy negotiations over the facilities’  historic designation. For example, officials at Pearl Harbor Naval  Shipyard discussed a number of modernization efforts that might be  undertaken to improve Navy capabilities in the Pacific but that cannot  be completed because the facilities have been designated as historic.
section_title: The Navy’s Approach Lacks Metrics to Gauge the Effectiveness of Its Capital Investment Plans
paragraphs: The Navy lacks metrics that would help determine the effectiveness of its  capital investment plans to help guide long-term planning. With a  comprehensive, results-oriented management approach, relevant metrics  allow an organization to assess whether it is making progress toward  meeting its goals. Our previous work has shown that a suite of metrics  can help organizations to assess complicated issues, where one metric  may be insufficient or may not capture all relevant information. Our work  shows that the Navy tracks the performance of its shipyards in completing  ship maintenance on budget and on time but not how facilities and  equipment are supporting the shipyards’ performance. Specifically, we  found that the shipyards’ primary performance metrics are tied to ship  maintenance—for example, how quickly a ship is repaired, how much  overtime is used, and cost and schedule overruns—and do not provide a  sufficient basis for measuring the effect of capital investments on shipyard  performance. The Navy also collects data on its facilities, including the  aforementioned configuration and condition assessments, along with data  on repairs, utilities outages, and maintenance response times. However,  this information is not used to assess the efficacy of the capital  investment program. For example, according to NAVSEA officials, the  Navy does not monitor when facility or equipment issues contribute to  schedule delays or increase maintenance costs (such as when equipment  failures prevent work) or the costs associated with deferring investment  (e.g., foregone efficiencies, costs to repair obsolete equipment, costs of  workarounds, or temporary facility costs). However, we found that  deferring investment can lead to decreased efficiency in other areas. For  example, our analysis of equipment repair data found that equipment  repair requests have been increasing and that this increase could reflect  the effect of deferred maintenance. Alternatively, investments in modern  equipment or facilities can increase efficiency, reduce costs, and improve  morale (see sidebar). Until the Navy establishes appropriate metrics and  other measures of progress for the shipyards, it will not know if it is  reaching its previously developed goals.
section_title: The Navy Does Not Conduct Regular Management Reviews of its Plans or Report to Key Decision Makers and Congress on Capital Investment at the Shipyards
paragraphs: We found that the Navy does not conduct regular management reviews of  activities and metrics that would measure progress toward meeting the  goals of its various capital investment plans and encourage accountability  and coordination among the stakeholders involved in planning for these  capital investments. The Navy conducts annual assessments of capital  investment projects as part of its normal budgeting and prioritization  processes. However, officials state that they do not regularly review the  implementation status of the 2013 facilities plan or the 2015 equipment  plan. NAVSEA is responsible for identifying and prioritizing capital  investment projects and overseeing the implementation of the 2013  facilities plan. However, according to NAVSEA officials, there is no formal  requirement or system to actively manage the implementation of the 2013  facilities plan or to coordinate with shipyard stakeholders such as CNIC or  NAVFAC.
Officials state that they coordinate with stakeholders as necessary when  projects associated with the capital investment plans experience  problems but do not report to higher-level Navy decision makers and  Congress on the progress in achieving specific objectives in capital  investment plans, such as reducing the facilities restoration and  modernization backlog, improving the condition and configuration of the  shipyards, recapitalizing capital equipment, and reducing the effect that  unimproved facilities and equipment have on maintenance delays.  Progress is assessed annually during the programming and budgeting  process, with emphasis on ensuring that the Navy meets its minimum  capital investment requirements (the “6 Percent Rule”) under 10 U.S.C. §  2476. According to officials, lack of coordination between the shipyards  and local NAVFAC personnel also can delay equipment upgrades if the  utilities or facilities infrastructure fails to support the equipment (e.g., if  equipment requires reinforced flooring or increased electrical supply).  Some of the equipment being installed at shipyards can require extensive  modifications to the facilities. For example, we observed a foundation  being prepared for a new piece of equipment at Norfolk Naval Shipyard,  shown in figure 11.
We have found that, with a results-oriented management approach,  regular management review allows an organization to assess progress by  reviewing metrics, ensure that all stakeholders are working together  effectively, and respond to implementation challenges. Given the need  to coordinate stakeholders such as NAVSEA, CNIC, NAVFAC, Navy  Regional Installation Commanders, utility providers, State Historic  Preservation Offices, regulatory entities, and Navy leadership, regular  management reviews of activities and metrics could help the Navy to  measure progress toward attaining its capital investment goals for the  shipyards.
In addition, the Navy does not regularly provide information to its key  DOD decision makers or to Congress on the progress it is making to  reduce its facilities restoration and modernization backlog, improve the  condition and configuration of the shipyards, recapitalize its capital  equipment or reduce the effect that the condition of facilities and  equipment have on maintenance delays. It is also not providing  information on the challenges that prevent the shipyards from making  such progress. Standards for Internal Control in the Federal Government  notes that management should communicate quality information to  external parties to help the agency achieve its goals and address risk.  As a result, key decision makers and Congress lack the information they  would need to assess the effectiveness of the Navy’s capital investment  program at the shipyards. Regular management review and reporting on  progress to decision makers is critical to ensure that all stakeholders are  represented and held accountable for results, and that opportunities for  adjustment are identified and used.
section_title: Recent Actions May Begin to Add Results-Oriented Elements to Managing Shipyard Capital Investment
paragraphs: Over the last few months, Navy officials and Congress have both taken  steps to help address some of the problems outlined in this report. For  example, Navy officials have said that they are beginning a more  comprehensive review of the shipyards that will involve, among other  things, improving cooperation among various stakeholders, developing  capital investment metrics that are tied to shipyard performance, and  changing the expectations around capital investment. However, this  process is still in a very early stage and its timeframes are not yet  developed. Until the Navy develops an approach that addresses these  missing elements, the result will be a continuation of the same processes  that have led the shipyards to their current state, which have already  proved to be inadequate.
To help address the naval shipyards’ capital investment challenges,  House Report 115-200 accompanying a bill for the Fiscal Year 2018  National Defense Authorization Act directed the Secretary of the Navy to  provide a report to the congressional defense committees, by March 1,  2018, on a comprehensive plan to address shortfalls in the public  shipyard enterprise. Specifically, the House Report directs the Navy to,  among other things, identify current infrastructure deficiencies at U.S.  naval shipyards and prepare a detailed master plan for each shipyard that  includes a list of specific infrastructure projects, scope of work, cost  estimates, and schedule associated with the current and 30-year force  structure projections. The Secretary of the Navy is also directed to identify  the additional funding and any legislative authority needed to achieve an  end state, as quickly as practicable, of the elimination of all ship  maintenance backlogs and a return to predictable, sustainable, and  affordable ship maintenance availabilities, including for the anticipated  growth in Navy force structure.
section_title: Conclusions
paragraphs: The shipyards are critical to maintaining the Navy’s readiness, but they  are struggling to meet the Navy’s current needs with inadequate facilities,  aging equipment, poorly configured drydocks, a growing restoration and  modernization backlog, and an incomplete management approach for  addressing these issues. The Navy recognizes these challenges, but to  date the plans it has developed to address them have failed to gain  ground against the poor condition of the facilities or the backlog of  restoration and modernization needs. Continuing the current approach to  capital investment seems unlikely to address the Navy’s struggles with  lost operational days and drydock availability. Without the key  characteristics of a results-oriented management approach for guiding,  measuring, and tracking the progress of its capital investment program,  the Navy cannot be certain that its capital investment efforts are providing  the facilities and equipment needed to support the nuclear depot repair  mission or that it is providing Congress with adequate information on  which to base decisions about appropriations. The lack of a results- oriented management approach could lead to ineffective investment,  resulting in missed opportunities for improvement that could affect  shipyard cost and schedule performance. Further, if the shipyards are  unable to maintain their facilities and equipment, they risk not being able  to support Navy readiness over the long term. Because the shipyards are  essential to maintaining readiness for the fleet of U.S. aircraft carriers and  submarines and providing emergent repairs on an as-needed basis,  ineffective management of capital investment in the shipyards can put  Navy readiness at risk.
On July 6, 2017, the House Armed Services Committee released report  115-200 accompanying a bill for the National Defense Authorization Act  for Fiscal Year 2018. The committee’s report directs the Secretary of the  Navy to report to congressional defense committees on a comprehensive  plan to address shortfalls in the public shipyards. Identified elements to  be included in the plan include aspects of a results-oriented management  approach—namely a comprehensive plan to address shortfalls in the  public shipyard enterprise, end-state goals for the shipyards, and the  funding needed to achieve this end-state—that we’ve identified as  missing from the shipyard development plans we analyzed. We believe,  however, that the Navy’s implementation of the House direction could be  further strengthened. The Navy’s prior planning efforts have not fully  established metrics for assessing progress, held regular management  reviews with all relevant stakeholders to oversee the plans’  implementation and coordinate efforts, or reported on progress to key  decision makers and Congress to inform resource decisions and provide  accountability. Without fully incorporating these key elements, the Navy  will not be positioned to guide the continued improvement of the condition  and ability of the shipyards to meet the operational needs of the Navy.
section_title: Recommendations for Executive Action
paragraphs: We are making the following three recommendations to the Navy. The  Secretary of the Navy should do the following:  Develop a comprehensive plan for shipyard capital investment that  establishes  the desired goal for the shipyards’ condition and capabilities; an estimate of the full costs to implement the plan, addressing all  relevant requirements, external risk factors, and associated planning  costs; and metrics for assessing progress toward meeting the goal that include  measuring the effectiveness of capital investments.   (Recommendation 1)
Conduct regular management reviews that include all relevant  stakeholders to oversee implementation of the plan, review metrics,  assess the progress made toward the goal, and make adjustments, as  necessary, to ensure that the goal is attained. (Recommendation 2)
Provide regular reporting to key decision makers and Congress on the  progress the shipyards are making to meet the goal of the comprehensive  plan, along with any challenges that hinder that progress, such as cost.  This may include reporting on progress to reduce their facilities  restoration and modernization backlogs, improve the condition and  configuration of the shipyards, and recapitalize capital equipment.  (Recommendation 3)
section_title: Agency Comments
paragraphs: We provided a draft of this report to DOD for review and comment. In  written comments on behalf of DOD provided by the Navy (reproduced in  appendix III), DOD concurred with our recommendations and noted  planned actions to address each recommendation. The Navy also  provided technical comments, which we incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, and the Secretary of the Navy. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have questions about this report, please contact me at  merrittz@gao.gov or (202) 512-5257. GAO staff who made key  contributions to this report are listed in appendix IV.
section_title: Appendix I: Observations on the Navy’s Public Shipyards after the Transition to Direct Funding
subsections: section_title: History of the Transition from the Working Capital Fund to Direct Funding
paragraphs: Prior to 1998, the Navy used two different funding mechanisms to fund its  maintenance activities, depending on the level of maintenance a ship was  receiving. The shipyards, which provided depot-level maintenance, were  managed through a working capital fund. The working capital fund relied  on payments from Navy forces—such as a ship—for services at a  shipyard. This funding approach was intended to (1) generate sufficient  resources to cover the full costs of the shipyards’ operations and (2)  operate on a break-even basis over time—that is, neither make a gain nor  incur a loss. The Department of Defense (DOD) directed Navy funds to  the Navy forces seeking the repairs, and those forces acted as customers  and paid for the maintenance they received from the shipyards (see figure  12). The Navy’s intermediate maintenance facilities, which provided  intermediate-level maintenance, were funded via direct funding. Under  the direct funding mechanism, the Navy allotted a portion of the money  appropriated to it by Congress to fund the shipyards (see figure 12).
In 1997, the Navy began to integrate its intermediate maintenance  facilities with its shipyards in an attempt to improve workforce flexibility  and reduce maintenance infrastructure. To achieve this, the Navy decided  to standardize the funding mechanism. The Navy moved the shipyards to  a direct funding mechanism, in part because the shipyard’s largest  customer—the Pacific Fleet—was already funded in that manner and  Navy officials believed that adopting a direct funding approach for  shipyard maintenance would be simpler than changing the Fleet’s funding  mechanism. Pearl Harbor Naval Shipyard shifted from working capital  funding to direct funding on October 1, 1998 as a pilot program. The Navy  conducted this pilot for two years and concluded that shipyard metrics  generally either improved or stayed the same over that time. As a result,  Puget Sound Naval Shipyard followed and changed funding mechanisms  on October 1, 2003. Congress briefly paused the funding transition  process for the East Coast shipyards in order to have the Navy provide a  report on the effectiveness of the transition at Puget Sound. After the  Navy submitted its report, the transition continued, and Portsmouth Naval  Shipyard and Norfolk Naval Shipyard transitioned to the direct funding  mechanism on October 1, 2006, the earliest transition date that Congress  had allowed.
In previous reports, both we and the Congressional Budget Office noted  that there were potential advantages and disadvantages to both funding  mechanisms. However, we did not suggest that the Navy should prefer  one method over the other; rather, we recommended that the Navy take  steps to ensure financial transparency at the shipyards after the transition  to direct funding.
section_title: Shipyards after the Transition to Direct Funding
paragraphs: Since the two remaining shipyards transitioned to a direct funding  mechanism at the beginning of fiscal year 2007, capital investment at the  shipyards has been higher than the 6 percent minimum mandated by  Congress and has increased at about the same pace as overall shipyard  funding. Shipyard officials have not identified any persistent problems as  a result of the funding transition and were generally unable to identify any  potential benefits of returning to a working capital fund mechanism.
subsections: section_title: Shipyard Spending and Capital Investment since Fiscal Year 2007
paragraphs: Between fiscal year 2007—the first year that all shipyards were  completely supported by direct funding—and fiscal year 2017, total  shipyard spending has increased by about 34 percent, in fiscal year 2016  constant dollars (see figure 13).
Over that same time period, capital investment at the shipyards, in fiscal  year 2016 constant dollars, has increased at about the same rate—35  percent—and has remained over the 6 percent minimum mandated by  Congress (see figure 14).
Navy officials at all four shipyards stated that they had not identified any  significant concerns about the change from working capital to direct  funding. For example, although the CBO report suggested that financial  accountability might decrease under a direct funding mechanism, officials  stated that working within the annual allotment of appropriated funds—as  opposed to a constantly replenishing working capital fund—has forced  shipyard officials to pay greater attention to costs than they had  previously. In addition, officials at all four shipyards stated that after the  initial transition was complete, the change in funding mechanisms had  little effect on either the quality or the cost of the work being performed.
Officials also noted that, under each funding mechanism, there are  reasons that capital investment may remain relatively low. Shipyard  capital investment (not including military construction) under the working  capital mechanism was previously re-captured by the shipyards in the  form of increased labor costs. They stated that, as a result, there was an  incentive to keep capital investment low, so that the fleet would not defer  maintenance and repair work in response to higher daily rates for labor.  Under the direct funding mechanism, shipyard capital investment must  compete with other projects Navy wide, which may also result in  restraining investment.
section_title: Appendix II: Condition and Performance of the Individual Naval Shipyards
paragraphs: There are four Navy-operated shipyards: Norfolk Naval Shipyard,  Portsmouth Naval Shipyard, Puget Sound Naval Shipyard and  Intermediate Maintenance Facility, and Pearl Harbor Naval Shipyard and  Intermediate Maintenance Facility. This appendix provides detailed  information about each of these shipyards’ missions, issues, maintenance  timeliness, facilities condition, capital investment, and facilities restoration  and modernization backlog.
subsections: section_title: History/Mission
section_title: Unique Issues
section_title: Unique Issues
subsections: section_title: Performance In fiscal years 2000 through 2016, 29 of 44 maintenance availabilities were delayed, resulting in 2,066 lost operational days for nuclear- powered submarines.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, key contributors to this report  were Suzanne Wren (Assistant Director); Pat Donahue; Steve Donahue;  Jaci Evans; James Lackey; Joanne Landesman; Amie Lesser; Felicia  Lopez; Marc Molino; Leah Nash; Carol Petersen; Cody Raysinger; and  John E. “Jet” Trubey.
section_title: Related GAO Products
paragraphs: Agency Performance Plans: Examples of Practices That Can Improve  Usefulness to Decisionmakers, GAO/GGD/AIMD-99-69 (Washington,  D.C.: Feb. 26, 1999).
Managing For Results: Enhancing Agency Use of Performance  Information for Management Decision Making, GAO-05-927 (Washington,  D.C.: Sept. 9, 2005).
Depot Maintenance: Improvements Needed to Achieve Benefits from  Consolidations and Funding Changes at Naval Shipyards, GAO-06-989  (Washington, D.C.: September 14, 2006).
Results-Oriented Management: Strengthening Key Practices at FEMA  and Interior Could Promote Greater Use of Performance Information,  GAO-09-676 (Washington, D.C.: Aug. 17, 2009).
Defense Infrastructure: Actions Needed to Improve the Navy’s Processes  for Managing Public Shipyards’ Restoration and Modernization Needs,  GAO-11-7 (Washington, D.C.: November 16, 2010).
DOD’s 2010 Comprehensive Inventory Management Improvement Plan  Addressed Statutory Requirements, But Faces Implementation  Challenges, GAO-11-240R (Washington, D.C.: January 7, 2011).
Managing For Results: Data-Driven Performance Reviews Show Promise  But Agencies Should Explore How to Involve Other Relevant Agencies,  GAO-13-228 (Washington, D.C.: Feb. 27, 2013).
Standards for Internal Control in the Federal Government, GAO-14-704G.  (Washington, D.C.: September 2014).
Military Readiness: Progress and Challenges in Implementing the Navy’s  Optimized Fleet Response Plan, GAO-16-466R (Washington, D.C.: May  2, 2016).
Military Readiness: DOD’s Readiness Rebuilding Efforts May Be at Risk  without a Comprehensive Plan, GAO-16-841 (Washington, D.C.:  September 7, 2016).
Department of Defense: Actions to Address Five Key Mission Challenges,  GAO-17-369 (Washington, D.C.: June 15, 2017).