Navy Shipbuilding: Policy Changes Needed to Improve the Post-Delivery Process and Ship Quality
Published: 2017-07-13T00:00:00

Fast Facts:
In 2013, we found that shipbuilders regularly deliver ships to the Navy with lots of defects. Are all of the significant defects corrected before the Navy provides these ships to the fleet?
We examined 8 Navy ships and found that all either entered or will likely enter the fleet with unfinished work and quality problems.
Also, Navy reports to Congress don't indicate if ships are truly complete or actually ready for operations when they enter the fleet.
We recommended the Navy take 4 actions to improve ships' quality when they enter the fleet, and provide more detailed information to Congress on the true status of ships.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The U.S. Navy spends at least $18 billion per year on shipbuilding—a portion of which is spent after ships are delivered. During the post-delivery period—after delivery from the shipbuilder and before the ships enter the fleet—Navy ships undergo a variety of tests, trials, and construction.
GAO was asked to assess the post-delivery period, including quality and completeness of ships when they are delivered to the fleet. The Senate Report on the National Defense Authorization Act for Fiscal Year 2017 included additional questions about ship status after delivery. This report assesses the extent to which the Navy (1) provides complete and quality ships to the fleet, (2) has a ship delivery policy that supports those efforts, and (3) reports ship quality and completeness to Congress. GAO reviewed a nongeneralizable sample of eight Navy ships, six of which have entered the fleet and two that recently began the post-delivery period. GAO reviewed program documentation and interviewed Navy officials.
section_title: What GAO Found
paragraphs: GAO reviewed six ships valued at $6.3 billion that had completed the post-delivery period, and found they were provided to the fleet with varying degrees of incomplete work and quality problems. GAO used three quality assurance metrics, identified by Navy program offices, to evaluate the completeness of the six ships—LPD 25, LHA 6, DDG 112, Littoral Combat Ships (LCS) 3 and 4, and SSN 782—at delivery and also at the time each ship was provided to the fleet. Although the Navy resolved many of the defects by the end of the post-delivery period, as the table below shows, quality problems persisted and work was incomplete when the selected ships were turned over to the operational fleet.
Fleet officials reported varying levels of concern with the overall quality and completeness of the ships, such as with unreliable equipment or a need for more intense maintenance than expected. For CVN 78 and DDG 1000, the Navy plans to complete significantly more work and testing during the post-delivery period than the other six ships GAO reviewed. As such, these ships are at a greater risk of being provided to the fleet at the end of their post-delivery periods with incomplete construction work and unknowns about quality.
The Navy's ship delivery policy does not facilitate a process that provides complete and quality ships to the fleet and practices do not comport with policy. The policy emphasizes that ships should be defect-free and mission-capable, but lacks clarity regarding what defects should be corrected and by when. Without a clear policy, Navy program offices define their own standards of quality and completeness, which are not always consistent. Further, because the Navy's Board of Inspection and Survey (INSURV) does not inspect ships at the end of the post-delivery period, it is not in a position to verify each ship's readiness for the fleet, as required by Navy policy. The Navy has not assessed the costs and benefits of ensuring INSURV does this. Addressing these policy concerns would improve the likelihood of identifying and correcting deficiencies before fleet introduction and increase consistency in how the Navy defines quality.
The Navy does not use consistent definitions for key milestones in its reports to Congress—such as delivery or Initial Operational Capability (IOC)—and, therefore, these milestones are not as informative as they could be regarding ship quality and completeness. For example, the Navy has routinely declared IOC on new ship classes without having demonstrated that ships are able to perform mission operations—contrary to Department of Defense (DOD) guidance, which, for nearly all acquisition models, generally states that IOC should be declared only after successful operational testing that demonstrates performance.
section_title: What GAO Recommends
paragraphs: The Navy should revise its ship delivery policy to identify what kinds of defects should be corrected and by when and study how to best ensure that INSURV verifies ships. Also, the Navy should reflect in its reports to Congress key milestones and consistent definitions in line with DOD policy. DOD did not concur with two recommendations, partially concurred with a third, and fully agreed with a fourth. GAO stands by its recommendations, which will help ensure that complete and quality ships are provided to the fleet and that Congress is provided with meaningful information on ship status.

section_title: Letter
paragraphs: The U.S. Navy spends at least $18 billion per year on its new construction  shipbuilding programs, with a portion of this money spent after delivery on  work to prepare the ships for the fleet. Over the past several years, we  have reported on significant cost growth and quality problems facing  several Navy shipbuilding programs. In May 2009, we compared Navy  shipbuilding with commercial shipbuilding and generally found that the  Navy accepts significantly more risk when it builds ships compared to  commercial shipbuilders and buyers. In November 2013, we found  significant quality problems with Navy ships at delivery—noting that the  Navy regularly accepts ships with numerous deficiencies. In September  2014, we found that Littoral Combat Ship (LCS) 1 and 2, while legally  accepted by the government, had quality problems that persisted after  delivery. And in November 2014, we found that shifting construction work  on the CVN 78 aircraft carrier to the post-delivery period could obscure  the total cost of the ship and result in the need for additional funding to  complete the ship during post-delivery. Most recently, in March 2016, we  found that the Navy pays for the vast majority of shipbuilder-responsible  deficiencies discovered after the Navy takes delivery of its ships.
Senate Report 114-255 to accompany a bill for the National Defense  Authorization Act for Fiscal Year 2017 included a provision for us to  review the delivery process from the time the Navy takes custody of ships  until they are complete and ready for operations, particularly in light of the  Navy’s delivery strategies for the CVN 78-class of aircraft carriers and  DDG 1000-class of destroyers. In addition, you asked us to review the  period after ship delivery, including the extent to which and why the Navy  defers construction work to the post-delivery period, specifically as it  relates to aircraft carrier and lead ship construction. For this review, we  assessed: (1) the extent to which the Navy provides complete, quality  ships to the fleet that are free of government and contractor deficiencies;  (2) the extent to which the Navy’s policy governing ship delivery facilitates  efforts to deliver complete and quality ships; and (3) the extent to which  reports to Congress on the progress of shipbuilding programs consistently  define key milestones such as ship delivery and initial operational  capability.
To gain an understanding of the post-delivery period for Navy ships, we  selected eight ships for review. We identified Navy ships which were  either delivered within the last 5 years or were planned to be delivered in  2016, were constructed by a variety of shipyards, and were of different  classes or variants. To understand whether ships early in their class  experience different issues than later ships, we selected a mix of lead,  early, and late-in-class ships. We reviewed the following eight ships:
DDG 112: Arleigh Burke class guided missile destroyer
SSN 782: Virginia class submarine
LPD 25: San Antonio class amphibious transport dock
LCS 3: Littoral Combat Ship, Freedom variant
LCS 4: Littoral Combat Ship, Independence variant
LHA 6: America class amphibious assault ship
DDG 1000: Zumwalt class destroyer
CVN 78: Ford class aircraft carrier  Six of these ships (DDG 112, SSN 782, LPD 25, LCS 3, LCS 4, and LHA  6) have finished their post-delivery periods, while CVN 78 and DDG 1000  (both lead ships) have yet to complete the post-delivery period. More  information about these vessels is contained in appendix I.
We analyzed the post-delivery period, beginning when the Navy accepts  delivery of a ship from the shipbuilder, and ending when the ship is  provided to the operational fleet, which generally coincides with a  milestone called the obligation work limiting date (OWLD). In this report, we refer to OWLD as when the ship was “provided to the fleet,” noting  that the fleet has some responsibilities for operating and maintaining the  ship prior to this date but that the acquisition program office is still  managing construction-related work on the ship up until this point in time.  In some cases, we examined significant test and maintenance events that  occurred shortly after a ship was provided to the fleet. Once OWLD is  reached—which coincides with when the ship is provided to the fleet— shipbuilding construction funding can no longer be obligated and other  types of funding must be used, per Navy policy.
To assess the extent to which the Navy provides complete, quality ships  to the fleet, free of government and contractor deficiencies, we reviewed  key metrics on ship quality and completeness identified by shipbuilding  program offices by analyzing data in: the form DD-250 Material Inspection  and Receiving Report, Navy Board of Inspection and Survey (INSURV)  reports, and a document called the Transfer Book—which catalogues  deficiencies and the material condition of a ship when it is provided to the  fleet at OWLD—among other documents, for each ship in our review.  Further, we evaluated Chief of Naval Operations Instruction 4700.8K  (OPNAVINST 4700.8K)—the Navy policy covering trials, delivery and  post-delivery activities (referred to in this report as the Navy’s ship  delivery policy)—to determine the extent to which it facilitated providing  complete and quality ships to the fleet. Lastly, we reviewed the Navy’s  fiscal year 2016 and 2017 Selected Acquisition Reports to Congress for  the ship classes of the eight ships we reviewed to determine the extent to  which these reports define key milestones on the progress of ship  completion consistently. We compared these reports to our analyses of  delivery dates, test reports, and post-delivery work schedules for each  selected ship class. We also assessed the information in the Navy’s  reports against relevant statutes, Navy policy and guidance, and the  Standards for Internal Control in the Federal Government. We  supplemented all analyses by conducting interviews with Navy acquisition  and fleet officials. Additional details about our scope and methodology  can be found in appendix I.
We conducted this performance audit from February 2016 to July 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
paragraphs: Navy ships undergo a variety of tests, trials, and construction after  delivery from the shipbuilder (when the Navy takes custody of the ship)  and before the Navy provides the ship to the fleet—a time referred to as  the post-delivery period. The Navy’s policy for ship delivery is outlined in  OPNAVINST 4700.8K, which establishes major milestones including the beginning (delivery) and end (OWLD)  of the post-delivery period,  the expected condition of ships and submarines at these milestones, procedures for executing the post-delivery period, and  the responsibilities of various Navy organizations during the post- delivery period.
Figure 1 provides a notional timeline of the delivery and post-delivery  process for new construction ships, per the Navy’s ship delivery policy.
Delivery (from shipbuilder): The Navy takes custody of a new  construction ship from the shipbuilder at preliminary acceptance, which is  also commonly known as delivery. Delivery occurs after the completion of  acceptance trials, during which INSURV evaluates the ship and identifies  deficiencies (we discuss INSURV’s role in more detail below). The Navy’s  Supervisor of Shipbuilding, responsible for ship construction quality, signs  a Material Inspection and Receiving Report (Form DD-250) at this time,  which includes a list of outstanding construction deficiencies and  incomplete work for which the contractor is responsible for completing  based upon the terms of the contract. Delivery is the beginning of the  post-delivery period.
Guaranty period: A specified period of time after delivery during which  the shipbuilder retains responsibility for correcting construction defects  that arise on the ship after the Navy accepts delivery. The specific terms  of the guaranty period, including its duration and who pays to correct  deficiencies, are established in the shipbuilding construction contract.
Final contract trials: INSURV inspectors conduct a second round of sea  trials to determine if there are any defects, failures, or deterioration other  than that due to normal wear and tear. Typically, these trials are held  prior to the post-shakedown availability.
Post-shakedown availability (PSA): A period of work toward the end of  the post-delivery period, during which the Navy’s Supervisor of  Shipbuilding and other organizations, as appropriate, oversee the  correction of deficiencies, installation of class-wide upgrades, and  completion of incomplete construction work. The duration and scope  varies from ship to ship depending on its material condition at delivery  and whether significant alterations must be implemented during the post- delivery period.
OWLD: The date when full financial responsibility for maintaining and  operating a ship is transferred from the acquisition command to the  operational fleet. In this report, we refer to OWLD as when the ship is  provided to the fleet; this date generally concludes the post-delivery  period.
In addition to these milestones and events that occur on all new Navy  ships, Department of Defense (DOD) acquisition policy also calls for  events that usually occur during the post-delivery period on one ship per  class, typically the first (or lead) ship:  Initial operational capability (IOC): A key milestone in weapon system  acquisitions that typically refers to the point in time when the warfighter (in  the Navy’s case, the operational fleet) has the ability to employ and  maintain a new system.
Operational Test and Evaluation: A period of testing to characterize the  performance of a ship under realistic operational conditions during a  discrete period of time. Testers may also use actual mission performance  data and data from fleet exercises in making their assessments. In  conducting operational testing, testers make a determination regarding  the ship’s operational effectiveness and suitability:
For operational effectiveness, testers determine whether or not a ship  can perform its missions when operated by the ship’s crew.
For operational suitability, testers determine whether or not the Navy  can logistically support the ship in the field, with consideration given to  interoperability, safety, and reliability, among other attributes.  Interoperability measures the extent to which information systems and  other equipment work with other Navy systems, and other U.S.  government agencies, such as the Coast Guard. Reliability measures  the probability that the system will perform without failure for a certain  period of time and in certain conditions.
subsections: section_title: Key Stakeholders in the Post-Delivery Process
paragraphs: The post-delivery period requires coordination between many of the  Navy’s acquisition and fleet organizations. Figure 2 provides an overview  of the organizations involved in the post-delivery period and how they fit  together within the overall structure of the Navy.
The Chief of Naval Operations (CNO) is the senior military officer of the  Department of the Navy. Among other things, the CNO is responsible for  determining when to accept delivery of ships from the shipbuilders. The  Navy’s ship delivery policy, OPNAVINST 4700.8K, was written and is  maintained by the Office of the CNO.
Program Executive Offices (PEO) are responsible for all aspects of their  assigned shipbuilding programs, including program initiation, ship design,  construction, testing, delivery, fleet introduction, and maintenance  activities. Responsibilities for managing the designing, building, and  testing of new ships are assigned to a shipbuilding program office within  the PEO. Program offices are responsible for implementing the Navy’s  delivery and post-delivery process, as prescribed in the CNO’s ship  delivery policy, OPNAVINST 4700.8K.
Naval Sea System Command (NAVSEA) is responsible for engineering,  building, buying, and maintaining ships, submarines, and combat systems  to meet the fleet’s operational requirements. NAVSEA is organized by  specialty, such as contracting, engineering, or quality assurance.
INSURV inspects newly constructed and in-service Navy ships to assess  and track the material condition of the Navy’s active fleet. For new  construction ships, INSURV inspects prior to delivery (during acceptance  trials) and again prior to the end of the guaranty period (during final  contract trials).
Commander, Operational Test and Evaluation Force conducts  operational testing and serves as an independent evaluator of a ship’s  capabilities and supportability. Its operational testing is overseen by  DOD’s Director of Operational Test and Evaluation (DOT&E), who  issues policy and procedures on operational testing, approves the  adequacy of operational test plans, monitors and reviews all operational  test and evaluation, and independently evaluates and reports test results.
U.S. Fleet Forces Command and Pacific Fleet are the operational fleet  forces of the Navy that assume full financial responsibility for operating  and maintaining ships at the end of post-delivery. Fleet officials include  port engineers, who are responsible for ship maintenance; ship  managers, who oversee all aspects of maintaining and operating the ship;  and senior crew members, such as the Commanding Officer and Chief  Engineer, who are responsible for operating the ships. During the post- delivery period, key organizations within the fleet are the Type  Commands and the ships’ crews. The Type Commands provide support  during the post-delivery process and manage ship maintenance after  ships are provided to the fleet. The ship’s crew begins operating the ship  shortly before delivery from the shipbuilder or earlier for vessels that are  nuclear-powered.
section_title: Quality Assurance Metrics
paragraphs: Quality deficiencies are identified throughout the shipbuilding construction  process. Navy program managers told us that they assess a ship’s quality  and completeness using three primary metrics: (1) trial deficiency  correction, (2) certification completion, and (3) casualty report correction.
Trial Deficiencies: During acceptance and final contract trials, INSURV  documents deficiencies, which are categorized according to their severity,  as explained in table 1.
The correction of INSURV-identified deficiencies could be the  responsibility of the government or the shipbuilder, depending on the  nature of the deficiency. If an INSURV deficiency is not resolved before  delivery, the Navy usually aims to correct it during the post-delivery  period.
Certifications: NAVSEA guidance states that the certification process is  a critical tool in the effort to ensure ship systems fully meet design  specifications and operational standards. There are many different  types of ship certifications, from potable water to combat systems. Some  certifications are common to all ships, while others apply to specific  vessels; for instance, only ships with the ability to deploy aircraft or  helicopters require aviation certifications, while submarines require  certifications to demonstrate the ability to dive safely.
An incomplete certification indicates that required tests are incomplete or  that a key system does not meet a specification or standard. The ship’s  crew cannot operate particular systems or complete certain missions until  certifications are complete, though certifications may be partially  completed. For example, a Navy ship may have an interim aviation  certification, which can mean that the ship’s crew can only conduct  daytime operations or can fly but not maintain certain aircraft.
Casualty reports: At or around delivery, the fleet begins operating the  ship and may document any mechanical issues the crew encounters in  casualty reports. These reports represent significant deficiencies to the  pieces of equipment that contribute to the ship’s ability to perform its  missions. Casualty reports demonstrate a deficiency but generally do not  identify a cause. Causes could be related to construction defects,  operator errors, or equipment malfunction.
Category 3 and 4 casualty reports indicate degradation to critical mission  capability that needs immediate repair, while category 2 reports contain  issues that are important to the fleet but do not affect the ship’s core  missions.
section_title: Types of Post-Delivery Work
paragraphs: The Navy completes a range of work during the post-delivery period that  varies from ship to ship, but generally falls into three categories:  Incomplete work is all work that was planned to be completed during  construction, but was not accomplished. There are two primary types  of incomplete work:  1.  Deferred work is construction required by the shipbuilding contract  but not completed prior to delivery. The Navy may shift completion  of this work to the post-delivery period so it can take custody of  the ship. In some cases, deferred work remains on the  shipbuilding contract; in other cases this work is de-scoped from  the original shipbuilding contract to reduce cost and schedule  before ship delivery—this work is then completed under a  separate contract during the post-delivery period.  2.  Contractor and government-responsible deficiencies that are  identified during acceptance trials, but not corrected before  delivery. These deficiencies can overlap with other incomplete  work.
Modernizations and upgrades include work to replace existing  systems and equipment either because (1) parts or tools are no  longer available to maintain the system—a condition known as  obsolescence—or (2) the Navy wants to upgrade the system to  improve capability. According to Navy officials, a modernization  replaces, but does not increase, current capability, while upgrades  replace existing systems with more capable alternatives.
New work is new ship construction to implement a requirements  change or add something to the ship.
section_title: Types of Funding
paragraphs: As many Navy organizations are involved in the post-delivery period, so  are different appropriations accounts. Table 2 provides a list of  appropriations accounts used during the post-delivery period.
section_title: Incomplete Construction Work and Quality Issues Persisted Even after Selected Ships Were Provided to the Fleet, with Lead Ships Particularly at Risk
paragraphs: All six ships we reviewed that had completed the post-delivery period— LPD 25, LHA 6, DDG 112, LCS 3, LCS 4, and SSN 782—were provided  to the fleet with varying degrees of incomplete work and quality problems.  Although the Navy resolved the majority of construction deficiencies by  the end of the post-delivery period, these ships were not fully complete or  free from deficiencies when provided to the fleet. Fleet officials  responsible for operating and maintaining these ships reported varying  degrees of concern about the overall quality of these six ships, noting that  two were ready for operations upon being provided to them but that there  were particular quality concerns with the other four. We also reviewed two  additional ships that had yet to finish the post-delivery period—CVN 78  and DDG 1000—which are lead ships of a new class of carriers and  destroyers, respectively. These ships are also at risk of being delivered to  the Navy and, eventually, provided to the fleet with incomplete work and  quality problems.
subsections: section_title: Most Selected Ships Had Incomplete Work and Quality Concerns When Provided to the Fleet
paragraphs: We assessed six selected ships that had been provided to the fleet  against metrics that Navy program managers identified as indicators of  completeness and quality for new ships at the end of the post-delivery  period: numbers of (1) uncorrected deficiencies, (2) incomplete  certifications, and (3) open casualty reports. These metrics indicated that  DDG 112 was largely complete and had few outstanding quality issues  when provided to the fleet. Similarly, fleet maintenance officials stated the  fleet was generally satisfied with the ship’s condition. Despite some  outstanding quality deficiencies, fleet maintenance officials were also  satisfied with SSN 782 because the submarine was ready to deploy when  it was provided to the fleet and its incomplete work did not hamper the  submarine’s operations. In contrast, fleet officials expressed concerns  about the quality of LPD 25, LHA 6, LCS 3, and LCS 4, which had  significant deficiencies when provided to the fleet. Further, fleet engineers  and other officials highlighted additional quality issues beyond the scope  of these metrics that may have a long-term impact on the maintenance of  the ships.
subsections: section_title: Construction Completeness and Quality Metrics
paragraphs: Construction deficiencies: While the Navy corrected many  construction-related deficiencies during the post-delivery period, all six  selected ships still had unresolved construction deficiencies to varying  degrees when they were provided to the fleet. INSURV identified these  construction deficiencies during sea trials before delivery and categorized  them by severity—with starred and Part 1 deficiencies being the most  serious. Table 3 shows the quantity and severity of uncorrected INSURV- identified deficiencies at the time the ships were delivered to the Navy  and at the end of the post-delivery period when the ships were provided  to the fleet.
As reflected in table 3, two ships were provided to the fleet at OWLD with  starred deficiencies that had previously been waived by the CNO at  delivery—LCS 4 and SSN 782. LCS 4 was provided with two open  starred deficiencies. One of these concerned a radar system that did not  work properly; this problem could have resulted in unintended  countermeasure launches. This deficiency was not corrected until nearly  4 months after the ship was provided to the fleet. The other starred  deficiency concerned a system planned to help LCS 4 identify friendly  and enemy ships, aircraft, and other platforms. Though this system is  used across the Navy, LCS 4 has a unique installation which requires  additional testing to determine its capabilities and limitations. This  deficiency remained unresolved nearly 1 year after the Navy accepted  delivery of the ship. The second ship, SSN 782, was provided to the fleet  with one open starred deficiency regarding a mast that is only used in  certain operations; the CNO’s waiver allowed the fleet to install this mast  rather than having the program office complete this task.
Also as reflected in table 3, five of the six ships had Part I deficiencies  when they were provided to the fleet. Examples of the Part 1 deficiencies  that were not resolved when these ships were provided to the fleet  included a deficiency with a system used for refueling at sea on LHA 6,  incomplete testing on LCS 3’s unmanned aerial vehicle (used for  surveillance and minehunting), and a discrepancy with the refrigerant leak monitors on LPD 25.
DDG 112 was the only ship among the six that had no significant  deficiencies when the ship was provided to the fleet. It had also corrected  nearly all of its minor deficiencies.
Certifications: All six of the ships we reviewed had incomplete shipboard  system certifications when provided to the fleet. Table 4 provides a  summary of incomplete certifications for the six ships we reviewed.
Navy officials identified several reasons why ship certifications may occur  during the post-delivery period—or even after a ship is provided to the  fleet—including incomplete installation of critical equipment needed to  conduct certifications or challenges in scheduling certification activities,  among other things. Among the six selected ships we reviewed, a  majority of the required shipboard system certifications were incomplete  at delivery, and a large number of these were completed during the post- delivery period. However, in some cases, certifications were not  completed before these ships were provided to the fleet, which could  have restricted the conduct of certain mission-critical functions. In some  cases in which the ship was provided to the fleet with incomplete  certifications, the program office continued to oversee the completion of  this work shortly after OWLD; in other cases, however, the fleet was  responsible for the certifications. For instance, three ships—LCS 3, LCS  4, and LHA 6—were provided to the fleet without full aviation  certifications, restricting these ships’ aviation operations until the  certification requirements were met. In the case of LHA 6, the ship was  not authorized to fully operate the Joint Strike Fighter when the ship was  provided to the fleet, even though the Navy spent $60 million during the  post-delivery period modifying it for Joint Strike Fighter operations. One of  the items preventing a full aviation certification on LHA 6 was incomplete  work on a lithium-ion battery shop, which charges and stores batteries  used by the Joint Strike Fighter for a variety of purposes, including  starting the aircraft’s integrated power system. According to a senior fleet  official, work on the lithium-ion battery shop was not scheduled for  completion until December 2016, 9 months after the ship was provided to  the fleet. This work is now complete.
Casualty reports: According to officials with two of the program offices,  ships should not be provided to the fleet with open category 3 or 4  casualty reports, and some officials stated there should be very few in the  less severe categories by the end of the post-delivery period. While the  fleet submits casualty reports starting at delivery, the program office is  responsible for correcting construction-related problems prior to providing  a ship to the fleet. Fleet officials stated that casualty reports submitted  within the first 3 months of fleet operations are generally indicative of the  ship’s quality, since the crew will begin more fully operating the ship’s  systems and equipment and submitting casualty reports when they  identify problems. However, officials from several program offices  disagreed with this assessment and stated that some deficiencies after  the ship is provided to the fleet are due to operator error and are not  related to construction quality. Table 5 summarizes the open casualty  reports at the time these six selected ships were provided to the fleet and  after their initial 3 months of operation.
Two of the selected ships had open category 3 casualty reports when the  program offices provided the ships to the fleet, and more than half of the  ships had casualty reports within the first 3 months of fleet operations. For  example, on LHA 6, the program office did not repair an electronic  warfare system before the end of the post-delivery period, resulting in a  casualty report when the ship was provided to the fleet. In addition, four  ships had equipment that failed during the post-delivery period and failed  again within 3 months—requiring the fleet to pay for at least a portion of  the repair. Furthermore, DOT&E reports confirm that these same pieces  of equipment were found to be unreliable during testing, except for the  equipment on LHA 6 because this ship has yet to be tested. Examples of  equipment that broke during the post-delivery period, after the ship was  provided to the fleet, and had issues during testing include anchor system and air search radar (LCS 3); water jet, radar and propulsion systems (LCS 4); and  steering system, including steering oil migration (LPD 25).
section_title: Fleet Impressions of Overall Ship Quality
paragraphs: Fleet officials, including engineers, maintenance officials, managers, and  crew, identified additional issues beyond the ship completeness and  quality metrics discussed above that significantly degraded the quality of  four of the six ships we reviewed. Fleet officials told us they were  generally satisfied with DDG 112 and SSN 782, as these ships were  largely complete and ready to deploy when provided to the fleet, did not  require significant work, and could be maintained within the fleet’s budget  and schedule. For example, while SSN 782 and DDG 112 were provided  to the fleet with incomplete certifications, fleet officials reported that the  program offices paid for the work to complete these certifications and  there were no other major outstanding construction deficiencies that  affected the ships’ ability to deploy. In contrast, we found that fleet  engineers, operators, and other officials had some quality concerns about  LPD 25 and another ship, and significant concerns about the quality of  LCS 3 and LCS 4 after these ships were provided to the fleet. Table 6  provides examples of the quality issues identified by fleet officials on  these ships.
These additional fleet concerns about quality can stem from differences in  how the fleet and the shipbuilding program offices assess the quality of  new ships. The program offices generally define quality as the degree to  which the ship is constructed according to its contract specifications—that  is, the design of the ship. In contrast, according to fleet managers and  maintenance officials, the fleet’s assessment of quality is based on a  ship’s operational capability and maintenance considerations. For  example, program officials stated that the contractor-furnished  communications system on LCS 3 and LCS 4, discussed in table 6,  meets quality expectations because it was installed in accordance with  the contractor’s specifications. However, fleet officials have found this  system to be of poor quality because it is unreliable and difficult to  maintain. According to fleet officials, not addressing these types of quality  issues by the end of the post-delivery period results in shifting costs to the  fleet’s operations and maintenance funding and contributes to a  maintenance backlog from the first day the fleet is responsible for the  ship. Our recent work has found that maintenance shortfalls generally  increase throughout the life of a ship, which increase costs and consume  time that is needed for training and operations.
section_title: Delivery Strategies for CVN 78 and DDG 1000 Mean Navy Will Accept Ships with Incomplete Construction Work and Unknown Quality
paragraphs: DDG 1000 and CVN 78 are technologically complex, first-in-class ships  for which the Navy is pursuing delivery and post-delivery plans that  deviate significantly from the Navy’s process for constructing more typical  surface ships. For these two programs, the Navy plans to rely on waivers  or exceptions to its policy, allowing it to accept delivery of these ships  from the shipbuilder in incomplete condition. This will, in turn, lead to the  Navy conducting more work during the post-delivery period than the other  ships we reviewed, including deferring a substantial amount of  construction work to the post-delivery period to save money, reach  delivery more quickly, or incorporate later versions of technology, among  other reasons.
For CVN 78, cost growth and delays led the Navy to accept delivery of  the aircraft carrier with a substantial amount of incomplete work. In the  case of DDG 1000, the Navy has planned a two-phase construction  approach in which the hull, mechanical, and electrical systems were  delivered first, prior to the combat systems. The Navy is now planning a  delivery approach for CVN 79, the second ship in the Ford class, which  is similar to that of DDG 1000. For CVN 78 and DDG 1000, the Navy  plans to complete significantly more work and testing during the post- delivery period than the other six ships we reviewed. As such, CVN 78  and DDG 1000 are at greater risk of being provided to the fleet at the  end of their post-delivery periods with incomplete construction work and  unknown quality.
The Navy took delivery of CVN 78 with a significant amount of work  scheduled for completion during the post-delivery period, including  completing construction and executing a number of tests and trials. Some  of this work, particularly several tests and trials, is not scheduled until  after the ship will have been provided to the fleet (following OWLD). For  example, at delivery, the ship will have yet to complete its navigation  certification and cybersecurity inspection; in addition, as planned, the  carrier will not yet have all of the certifications necessary to conduct  aviation operations, among other things. The magnitude of construction  work that has been deferred to the post-delivery period has also  contributed to the Navy’s decision to schedule combat and warfare  systems certification after the ship is provided to the fleet. For this reason,  CVN 78 will not be ready for deployment until fiscal year 2021 at the  earliest, even though the Navy accepted delivery of the ship in May 2017  and plans to provide it to the fleet in fiscal year 2019, as shown in figure  3.
The completion of the aircraft carrier’s outstanding tests and trials,  deferred construction, and other work is planned to cost nearly $780  million and take more than 4 years to complete. For example, the Navy  plans to spend over $400 million to conduct several years of testing,  including full ship shock trials, total ship survivability trial, and operational  testing, with associated maintenance to correct deficiencies from these  tests and trials. As we have previously found, construction challenges and  continuing work on maturing technologies—combined with a $12.9 billion  construction cost cap, which the program office is actively managing to— have resulted in the Navy’s decision to accept delivery of CVN 78 with  incomplete work.
The timely and successful execution of tests and trials during the post- delivery period remains dependent on the maturity of key technologies,  including the advanced arresting gear (used to stop aircraft on the flight  deck), dual band radar (used to track aircraft among other tasks), and  advanced weapons elevators (used to move ordnance). For instance,  program officials reported that only 2 of the 11 advanced weapons  elevators will be installed prior to delivery; the installation, testing, and  certification of the other 9 elevators have been deferred to the post- delivery period. Additionally, while installation of the advanced arresting  gear and dual band radar is complete on CVN 78, the Navy plans to  continue testing these systems during the post-delivery period to verify  they will perform as intended. It is likely that significant work will be  required on all three of these systems during CVN 78’s post-delivery  period, particularly because DOD’s Director of Operational Test and  Evaluation found in June 2016 that each system continues to have poor  or unknown reliability. According to DOT&E’s report, these reliability  issues are the most significant risk facing the program.
Beyond the completion of these tests and trials, in November 2014, we  found that CVN 78 will have significant incomplete construction work at  delivery, which is being deferred to the post-delivery period. This  deferred work included building 367 compartments that were de-scoped  from the shipbuilding contract, installing 12 government furnished  systems not completed during construction, installing 10 modernized  systems, and completing at least 147 other work deferral requests. The  CVN 78 program office estimates that this deferred work will cost at least  $65 million. Table 7 provides examples of construction work on CVN 78  that has been deferred to the post-delivery period.
Due to the magnitude of deferred work planned for the CVN 78 post- delivery period, PEO Aircraft Carriers has determined that a final contract  trial, which typically occurs before the post-shakedown availability per the  Navy’s ship delivery policy, would be of limited utility for CVN 78. Instead,  the Navy’s senior aircraft carrier acquisition official has requested the  CNO waive the requirement for a final contract trial and grant permission  for the program to conduct a special trial after the post-shakedown  availability, when the deferred work will be complete and the crew will  have completed training on the aircraft carrier’s new systems. When  requesting this permission, the official provided the CNO with advance  notice that the program would require a waiver at delivery for the work  that will be deferred to the post-delivery period.
By design, the Navy planned to deliver DDG 1000 in two phases—the  first phase included only the hull, mechanical, and electrical systems of  the ship, followed by a second phase to activate the combat systems. In  May 2016, the Navy accepted delivery of the hull, mechanical, and  electrical portion of the ship and is now beginning post-delivery efforts,  including combat systems activation and the installation of several  shipboard systems, such as the navigation system, the close-in gun  system, the communications system, and advanced flight deck lighting.  Following combat systems delivery planned for fiscal year 2018, DDG  1000 will begin 2 years of tests and trials, during which time the ship will  complete various certifications and an operational evaluation.
As a result of delays during construction of the hull and the two-phased  approach, 24 required shipboard system certifications were incomplete at  delivery, including the certifications for aviation and navigation. For  example, testing of the advanced stabilized glide slope indicator, which is  a helicopter landing system that previously encountered challenges and  delays on LCS 3 and 4, was deferred to the post-delivery period. Given  the scope of deferred work and testing, DDG 1000 will not be provided to  the fleet until fiscal year 2020 (potentially a delay of more than a year  from the Navy’s estimates in 2016), making this the longest post-delivery  period of the eight ships we reviewed. Figure 4 provides an overview of  the post-delivery schedule for DDG 1000, with hull, mechanical, and  electrical delivery occurring approximately 5 years before the ship will be  deployment-ready.
When the hull, mechanical, and electrical systems were delivered, DDG  1000 had 32 unresolved starred deficiencies that required CNO waivers  and 291 uncorrected Part I deficiencies, out of an overall total of 3,457  trial deficiencies on these systems. For example, INSURV issued a  starred card on DDG 1000’s navigation system, which the CNO had to  waive before the Navy could accept delivery. At the time of the  acceptance trial, the ship was equipped with a temporary navigation  system; its planned navigation system will be installed during the post- delivery period.
INSURV and the DDG 1000 program office plan to hold a second  acceptance trial for the ship’s combat systems during the post-delivery  period. During this second acceptance trial, the program plans to have  INSURV re-inspect the hull, mechanical, and electrical deficiencies that  have been corrected. Currently, the Navy’s program office is not planning  on conducting a final contract trial because the two-phased delivery  approach calls for post-delivery work well beyond that of the original  shipbuilding contract.
section_title: The Navy’s Ship Delivery Policy Does Not Facilitate a Process That Provides Complete and Quality Ships to the Fleet
paragraphs: The Navy’s ship delivery policy emphasizes the importance of ensuring  that defect-free and mission capable ships are provided to the fleet. But  the policy does not elaborate on which defects it is referring to or when  they should be corrected. All Navy program offices we spoke with said  that, in general, delivering a ship free from all government and contractor  deficiencies is not realistic—for instance, some deficiencies require a  disproportionate amount of time or money to correct that do not merit the  costs of delaying ship delivery. In addition, while the policy states that  ships will be fully mission-capable, it does not define what levels and  aspects of performance would meet that objective. Further, the policy  identifies INSURV as the independent entity responsible for verifying the  quality of Navy ships and making a recommendation for fleet introduction.  However, we found that INSURV does not make a recommendation for  fleet introduction because its inspections occur well before ships are  provided to the fleet. As a result, INSURV does not assess the condition  of the ships after the majority of post-delivery work is completed, and  therefore cannot ensure that all defects have been corrected prior to  ships being provided to the fleet at OWLD.
subsections: section_title: Delivery Policy Lacks Specificity Regarding Its Goal of Providing Complete and Defect-Free Ships
paragraphs: The Navy’s ship delivery policy does not provide sufficient guidance or  specificity on (1) what constitutes a defect-free ship, (2) what constitutes  a mission-capable ship, and (3) the timing of when newly constructed  ships are to be free from deficiencies and mission-capable. In the  absence of clarity, we found that Navy program officials have different  interpretations regarding how to meet the policy’s goals and by when,  resulting in variations in quality among ships provided to the fleet— including deficient and incomplete ships.
subsections: section_title: Lack of Definition of a Defect- Free Ship
paragraphs: Although the Navy’s policy asserts a goal of providing defect-free ships to  the fleet, it does not define what types of deficiencies must be corrected  in order for a ship to be considered free of deficiencies. Specifically, the  policy requires that Navy shipbuilding programs deliver to the  Commander of U.S. Fleet Forces Command “complete ships, free from  both contractor and government responsible deficiencies.” However, the  policy does not explain what constitutes a defect-free ship with respect to  providing ships to the fleet.
A clear and comprehensive definition is important because it provides a  framework for measuring performance. According to the Standards for  Internal Control in the Federal Government, government agencies must  create policies that are clear and measureable, and use performance  measures to assess whether or not the designed policy objective is being  achieved. In the absence of a clear definition, ship program offices do  not have a consistent view regarding what standards constitute a defect- free ship. We asked each of the seven program offices responsible for  constructing the eight ships we reviewed to define what constitutes a  complete and quality ship when provided to the fleet. Table 8 illustrates  the varying responses we received.
In addition, officials from every program office we spoke with stated that  providing a ship free from all government and contractor deficiencies is  simply not realistic. In particular, several of these officials stated that the  Navy may decide to leave some deficiencies uncorrected if the repair  would be cost-prohibitive or if the deficiency has minimal impact on the  capability of the ship. The current ship delivery policy does not account  for these situations. In practice, ship program offices balance risk and  cost when choosing what deficiencies to correct during the post-delivery  period. For example, low-cost items with a high impact on capability or  quality will be fixed first, while high-cost items with low impact on quality  will be prioritized much lower.
Officials from the Office of the CNO (responsible for the ship delivery  policy) reported a similar caveat to the stated goal of providing deficiency- free ships to the fleet. According to these officials, ships are considered to  be free from deficiencies as long as all defects have been “adjudicated”— in other words, the deficiencies have been identified and there is a plan to  fix them. However, the ship delivery policy does not include this caveat  and provides no guidance for how to prioritize deficiencies. In the  absence of clear and comprehensive guidance that realistically  establishes what it means to provide a defect-free ship to the fleet,  including the types of deficiencies that must be corrected, program offices  and fleet representatives will continue to have a conflicting understanding  of the policy’s goal of providing complete and quality ships to the fleet.
section_title: Mission Capability Definition Excludes Ship Performance
paragraphs: While the Navy’s ship delivery policy states that ships should be mission- capable, the policy does not define what levels and aspects of  performance would meet that objective. The policy states that ships  should be “capable of supporting the Navy’s mission” and “fully mission  capable, in the sense that all contractual responsibilities shall be  resolved, prior to delivery, except for crew certification, outfitting, or  special Navy range requirements which cannot be met until after  delivery.” However, the policy does not define full mission capability in  terms of the ship’s operational effectiveness and suitability in general— metrics typically associated with determining mission capability in DOD  acquisition guidance. Operational suitability assesses the reliability,  maintainability, and availability of a ship, which inform the Navy’s  assessment of the probability that the ship will perform without failure for  a certain period of time and in certain conditions. While the Navy  conducts testing to determine the operational suitability of new ship  classes, program offices do not factor these tests into their assessment of  full mission capability and therefore do not consider the results of these  tests prior to providing new ships to the fleet. For example, the Navy  decided to provide LHA 6 to the fleet before it had completed these tests.  In addition, CVN 78, also a lead ship, is planned to be provided to the  fleet prior to undergoing an operational suitability assessment during  testing. The policy does not address the role of operational suitability in a  ship’s ability to be mission-capable or whether a ship should be provided  to the fleet that has yet to be operationally tested.
Furthermore, the ship delivery policy makes no distinction between early- in-class ships and later-in-class ships, which Navy program and fleet  officials identify as a key predictor of completeness and quality, with  earlier ships being more likely to experience problems. For example,  three of the six ships we reviewed (LCS 3, LCS 4, and LHA 6), all earlier  in class, were provided to the fleet either without being tested or after  being found unsuitable for fleet operations due to unresolved concerns  regarding the equipment reliability, maintainability, crew training, or other  aspects crucial to successfully demonstrating adequate mission  performance.
Table 9 illustrates the status of operational suitability of the classes of  ships at the time the six ships we reviewed were provided to the fleet.
One reason later-in-class ships are generally better quality than earlier-in- class ships is that the Navy makes corrections based on tests and  feedback from operational missions that may be factored into the design  and construction of future ships. However, the policy does not articulate  mission capability in terms of operational effectiveness and suitability  metrics and does not make any distinctions for early or first-in-class ships.  The Standards for Internal Control in the Federal Government emphasize  the importance of clearly defined and specific objectives. Incorporating a  mission capability definition that includes levels and aspects of ship  performance into the Navy’s policy would provide program offices and  fleet representatives more clarity about the expected level of capability of  ships when they are provided to the fleet.
section_title: Unclear Timing for Resolving Defects and Achieving Mission Capability
paragraphs: In addition to a lack of definitional clarity, the Navy’s ship delivery policy  does not specify when a ship should be defect-free and mission-capable.  The Navy’s ship delivery policy and officials with the Office of the CNO,  who are responsible for the policy, identify two different time frames  regarding when ships should be complete, defect-free, and mission  capable:  1.  at delivery, when the Navy accepts custody of the ships, and 2.  at OWLD, when the Navy provides the ship to the fleet.
Consequently, we found confusion among policy makers and program  offices as to when a defect-free and mission-capable ship is expected to  be achieved. We have identified this issue in our previous work and made  recommendations, which have not been addressed to date. Specifically,  in November 2013, we found that CNO officials stated that the intention of  the ship delivery policy was for ships to be defect-free and fully mission- capable when delivered from the shipbuilder; that is, at the beginning of  the post-delivery period. At the same time, however, we also found that  program officials believed a ship did not need to be free from deficiencies  and fully mission-capable until it was provided to the fleet, that is, at the  end of the post-delivery period. We recommended in our November 2013  report that the Navy clarify the policy with regard to the point at which  deficiencies are to be fully corrected. DOD partially concurred with this  recommendation and stated that the Navy’s goal is to reduce the number  of deficiencies at delivery to zero “when practical,” although the ship  delivery policy itself includes no such caveat. The Navy revised its ship  delivery policy in October 2014 to clarify roles and responsibilities, among  other things, but the timing of defect correction and mission capability was  neither clarified nor addressed. Office of the CNO officials stated that they  were not aware of our recommendation when revising the policy.
Similarly, in speaking with a range of officials across the Navy for this  review, we continued to find conflicting views on when ships are to be  deficiency-free and mission-capable. CNO officials responsible for the  policy told us that ships should be free of all deficiencies by the time they  are provided to the fleet, meaning at the end of the post-delivery period at  OWLD, which is a change from their previous interpretation of the ship  delivery policy that they authored. However, the policy does not include  this clarification on the timing. In contrast, INSURV officials told us they  believe the policy states that the shipbuilder should deliver defect-free  ships at the beginning of the post-delivery period, with a few exceptions  for items that can only be accomplished during the post-delivery period.  However, as noted above, the Navy often delivers ships with open starred  deficiencies, INSURV’s most severe category of ship deficiency. For the  eight ships we reviewed, INSURV identified a total of 117 starred cards  before delivery during acceptance trials. Twelve starred cards were  corrected prior to delivery while the remaining 105 were waived by the  CNO. Despite these deficiencies, INSURV recommended that the CNO  accept the ships. In fact, INSURV officials stated that they have only  recommended against delivery one time in 18 years. Standards for  Internal Control in the Federal Government require objectives to be clear  and measureable. Without clarifying when ships should achieve a certain  level of completeness and quality, the Navy does not have a clear  standard or objective against which it can measure the condition of its  ships and ensure quality.
section_title: INSURV Does Not Verify Ship Quality When Ships Are Provided to Fleet, as Required by Policy
paragraphs: The Navy’s ship delivery policy identifies INSURV as the independent  entity charged with verifying the quality of ships at delivery and  recommending introduction to the fleet. But we found a disconnect  between the Navy’s policy and INSURV’s practice. While INSURV makes  a recommendation for ship delivery, officials stated that they do not make  a recommendation for provision to the fleet because ship trials are not  well-timed to independently verify the completeness and quality of ships  at the point when they are provided to the fleet. As figure 5 illustrates,  INSURV currently conducts acceptance trials and final contract trials prior  to delivery and the post-shakedown availability, respectively, but does not  conduct a trial between the post-shakedown availability and the end of  the post-delivery period (at OWLD)—the point at which ships are provided  to the fleet.
Significant work is conducted during the post-shakedown availability. For  the six ships we reviewed that have completed the post-delivery period,  post-shakedown availability costs ranged from approximately $30 million  to $83 million per ship and ranged in duration from 3 months to 16  months. According to INSURV officials, the post-shakedown availability  used to be a minor availability but, increasingly, ships are undergoing  higher intensity and more complex activities during this period, including  correcting starred INSURV deficiencies, finishing construction, installing  new systems, and modernizing equipment. For instance, of the four ships  we reviewed that had starred deficiencies waived at delivery, all four had  starred cards that remained open during INSURV’s final contract trials  because the program office planned to fix these deficiencies during the  post-shakedown availability. The correction of these starred deficiencies  was therefore not inspected by INSURV. According to INSURV officials,  because a significant amount of work is conducted during the post- shakedown availability, the ship’s condition at final contract trials is not  indicative of the ship’s condition when it is provided to the fleet following  this availability. Therefore, INSURV cannot make a recommendation for  fleet introduction based on the final contract trial—INSURV’s last  inspection before ships are provided to the fleet.
As a result, the Navy is providing ships to the fleet with systems and  equipment that were repaired or changed during the post-shakedown  availability and have not been verified by INSURV, creating a greater  potential for breakdowns or failures that would be the responsibility of the  fleet to repair. For example, INSURV identified leaking couplings during  LPD 25’s acceptance trial in October 2013. The LPD 17 program repaired  the couplings during the ship’s post-shakedown availability in June  2015—after INSURV had conducted the final contract trial in November  2014. The ship was then provided to the fleet in July 2015. Shortly after  the ship was provided to the fleet, according to fleet engineers and  operators, the new couplings—designed to last the life of the ship—failed  again, requiring the fleet to pay approximately $600,000 every 3 months  to replace them each time they failed. The root cause remains under  investigation, according to fleet engineers, although program officials  stated that the leaks were due to a manufacturing defect that has now  been corrected. In another example, INSURV identified several issues  with LCS 3’s anchor that precluded the crew from retrieving it. The LCS  program office repaired the anchor during the post-shakedown  availability, following final contract trials. Following fleet introduction, the  anchor failed again, and the fleet was required to fix it.
Under the current practices, INSURV also does not have an opportunity  to inspect ship changes that are implemented during post-shakedown  availability. LHA 6, for example, was modified so it can operate with the  Joint Strike Fighter—these changes totaled approximately $60 million— but INSURV did not inspect the changes. Resolving complications from  this work, such as issues with the lithium-ion batteries we noted above,  will be the fleet’s responsibility. Lastly, several programs install new  equipment during the post-shakedown availability, such as aviation and  information technology systems. In the absence of an INSURV fleet  introduction recommendation, the Navy’s current practice does not align  with its ship delivery policy, and uninspected equipment is provided to the  fleet.
There are some rare cases in which INSURV and the program office have  agreed to inspect specific issues after the post-shakedown availability  and before the ship is provided to the fleet. For instance, INSURV  conducted a limited post-repair trial on LCS 3 that looked at a few specific  issues, such as the anchor, and it plans to conduct a special trial on CVN  78 following the aircraft carrier’s post-shakedown availability.
Navy program office and INSURV officials cited two factors that influence  the timing of final contract trials. First, the final contract trial occurs just  prior to the end of the guaranty period, which enables INSURV to identify  deficiencies the contractor may be responsible for correcting prior to the  expiration of the guaranty period. Second, INSURV and program  officials stated that final contract trials inform the program office’s  prioritization of deficiency correction during the post-shakedown  availability. Program officials stated that this ensures that construction  funding (SCN) is obligated for the highest-priority post-delivery work  before OWLD—the final point at which the Navy can obligate shipbuilding  and conversion funds before providing the ship to the fleet. While the  timing of final contract trials facilitates the prioritization and funding of  post-delivery work, it is not optimally aligned to verify that the work  completed during post-shakedown availability meets quality standards  before a ship is provided to the fleet.
INSURV officials stated that there could be benefits to conducting an  additional trial before providing a ship to the fleet. For example, they  could re-inspect deficiencies, like the ones noted above, that the program  office corrects during the post-shakedown availability. These inspections  could, in turn, reduce the likelihood that systems and equipment break  down shortly after ships are provided to the fleet. However, INSURV and  Navy program officials also pointed out that conducting another trial after  the post-shakedown availability would require additional funding. The  Navy has not evaluated the cost or quality risks associated with providing  the fleet with unverified repairs and equipment—such as the fleet’s costs  to repair construction defects—against the costs of conducting an  additional INSURV trial after the post-shakedown availability. Until the  Navy studies this problem and develops a solution that reconciles current  practices with its ship delivery policy, the Navy will not know whether the  benefits of conducting an additional inspection outweigh the costs.
section_title: Ship Delivery and Initial Operational Capability Milestones in Navy Reports to Congress Do Not Provide Accurate Indicators of Ship Progress
paragraphs: The Navy’s Selected Acquisition Reports to Congress do not clearly  communicate ship progress toward completeness and capability, which  can inhibit oversight, particularly in terms of measuring results.  Specifically, the Navy’s reported delivery dates are not accurate  indicators of ship completion because the delivery date for one ship can  reflect a much different level of completion than for another ship. Even  after ships are reported as delivered, it will still be several years before  the ship is fully complete. No other ship completeness milestones—such  as when the ship is provided to the fleet (OWLD) or is deemed ready to  deploy—are included in the Selected Acquisition Reports to Congress.  Recently, Congress has enacted legislation that may better align ship  delivery dates with ship completion in these reports by establishing  criteria that must be met in order for a ship to be deemed delivered,  specifically a determination by the Secretary of the Navy that a vessel is  assembled and complete and that custody of the vessel and all systems  has been transferred to the Navy. Further, the Navy’s criteria for IOC—a  milestone associated with ship progress—vary from ship class to ship  class and its assessments of IOC do not comport with DOD’s guidance.  In addition, the IOC milestones for most of the ship classes we reviewed  do not reflect demonstrated capability or performance. According to  Standards for Internal Control in the Federal Government, government  managers should externally communicate the necessary quality  information to achieve the entity’s objectives. Without using consistently  defined measures in its reporting, such as for delivery or IOC, the Navy is  not accurately conveying the completeness and quality of its ships to  Congress.
subsections: section_title: Delivery Dates Reported by the Navy Do Not Denote Ship Completeness
paragraphs: The Navy, in its Selected Acquisition Reports, typically reports delivery as  the date that the lead ship in a class or flight is delivered from the  shipyard to the Navy. However, the delivery milestone is not an  accurate indicator of ship completeness. As discussed previously, ships  vary in their level of completeness at delivery. In many cases, several  years will pass between delivery and provision to the fleet, and even at  that point, more time may be required before a ship is ready to deploy.  Figure 6 shows, for the eight ships we reviewed, the length of time  between the delivery of each ship, when each ship was provided to the  fleet (at OWLD), and the ship’s first deployment after all planned  construction work, tests, and trials were completed.
For example, after CVN 78 is provided to the fleet, it will need to undergo  shock trials, operational testing, and combat certifications, among other  things, before it is ready for its first deployment. Recipients of the  Selected Acquisition Reports would not have insight into this situation  because the Navy reports the date of delivery but does not include  additional important milestones about ship completeness, such as when  ships are provided to the fleet at OWLD and when ships are ready for  deployment. Without including this additional information, decision  makers will not have a clear understanding of when ships are ready for  fleet operations.
Current Selected Acquisition Reports on the DDG 1000 and CVN 78 ship  classes also illustrate the inconsistency in the Navy’s definition of  “delivery.” As discussed earlier, the Navy will complete the construction of  DDG 1000 in two phases. In the December 2015 Selected Acquisition  Report, the Navy indicated lead ship delivery would be April 2016, and  the ship was subsequently delivered in May 2016. Though the report  noted that this delivery was focused on hull, mechanical, and electrical  systems, it did not provide an additional indication of when all ship  construction—including activation of the combat systems—is planned to  be fully complete. It also did not note that the ship is not planned to  deploy until fiscal year 2021, 5 years after the reported delivery date.  DDG 1001 and 1002, which are later ships in the same class, are  planning to use the same approach. The Selected Acquisition Report for  the CVN 78-class was clearer about its key milestones. For CVN 79, the  December 2015 report reflected the delay in deployment after delivery.  The Navy reported the carrier’s delivery date as June 2022 in its schedule  of events, but stated in the executive summary that the carrier will not be  deployable until 2027, after it goes through a second phase of  construction. Because policy makers and others rely on the Navy’s  reports to understand ship progress and review reported ship schedules  as an indicator of a potential breach of the agreed-to program baseline, it  is important that the information be clearly and consistently  communicated.
Congress included a provision in the National Defense Authorization Act  for Fiscal Year 2017 that may address this lack of clarity and consistency  in reported delivery dates by establishing criteria that must be met in  order for a ship to be deemed delivered. According to this legislation, the  delivery of a ship shall occur when (1) the Secretary of the Navy  determines the ship is assembled and complete and (2) custody of the  ship and all of its systems are transferred to the Navy. The legislation  further requires the Navy to review the planned delivery dates for ships  under construction and adjust them, if the planned dates did not reflect a  level of construction completeness in line with the new criteria. In  particular, the legislation directed the Navy to realign the delivery dates  for ships with phased delivery strategies—CVN 79, DDG 1000, DDG  1001, and DDG 1002—so that delivery will occur when the Secretary of  the Navy determines that each vessel is assembled and complete (that is,  when all phases of construction are complete), rather than when the first  phase is complete as was previously the case. Congress directed the  Navy to certify adjusted delivery dates for all ships under construction to  the congressional defense committees by January 1, 2017, and to include  these revised dates in the next Selected Acquisition Reports and budget  documents sent to Congress. In February 2017, the Navy adjusted the  delivery dates for these four ships to coincide with the completion of  significant construction events following preliminary acceptance, such as  the activation of DDG 1000’s combat systems. As noted above,  however, Navy ships are not fully complete until at least OWLD—when a  ship is provided to the fleet.
section_title: Navy Reports Do Not Use Consistent Criteria to Assess Ship Initial Operational Capability
paragraphs: The Navy’s Selected Acquisition Reports to Congress also state when  ship classes achieve IOC; however, the reports generally do not state the  criteria the Navy used to make these capability determinations, and the  criteria used are not consistent with DOD guidance. In January 2015,  DOD updated its acquisition guidance to include a number of program  models that DOD agencies and military services can use to structure  programs for the purpose of attaining knowledge prior to committing to  more purchases. In nearly all acquisition program models, DOD guidance  states that IOC occurs toward the end of operational testing. Even the  most aggressive model of delivering programs, the accelerated  acquisition program—which by design accepts significant risk to add  capability in a compressed time frame (such as during a time of war)— defines IOC as occurring simultaneously with operational testing, not  before testing. DOD acquisition guidance and GAO best practices state  that testing provides critical information to make informed production and  other acquisition decisions.
The Navy’s criteria for declaring IOC differs across ship classes, and  none of them require achieving favorable results from operational testing.  Of the eight ships we reviewed, program offices had used two sets of  criteria for IOC, both of which were schedule-driven rather than capability- driven milestones; that is, they did not take into account the successful  completion of operational testing. Table 10 shows the ship classes for the  eight ships we reviewed, how the programs defined IOC, and the status  of operational testing at the time the Navy declared IOC for the class.
For several of the ships we reviewed, the Navy defined and declared IOC  for the ship class without ever testing the operational capabilities of, or  deploying, the lead ship. As a result, achieving IOC did not provide an  indication that the ships could conduct operations as intended, which can  provide a false sense of the ships’ capabilities. For instance, after the  Navy declared IOC for the LPD 17 class, the lead ship suffered a severe  engineering casualty during its first deployment that limited its availability  for several years. After this incident, the Navy’s Commander of  Operational Test and Evaluation reported that the LPD 17 class of ships  was not operationally suitable and was operationally effective with the  exception of the combat system. After nearly 3 years of follow-on tests  and a considerable number of design changes to correct problems, the  Navy’s testers determined in December 2012 that the LPD 17 class was  operationally suitable and operationally effective—4 years after the Navy  originally declared IOC for the class, with 10 ships completed or under  construction.
section_title: Conclusions
paragraphs: Shipbuilding is a complex endeavor, and a certain amount of deficiencies  can be expected. However, all of the Navy ships we reviewed were, or  likely will be, provided to the fleet with outstanding deficiencies,  incomplete certifications, or open casualty reports, among other quality  issues—resulting in additional costs that the fleet will have to bear.  Moreover, the Navy has made liberal use of the various exceptions to its  process for some of its most expensive and technologically sophisticated  ships—namely, the CVN 78 and DDG 1000 classes—to allow these ships  to be delivered in a substantially incomplete state, placing the fleet at  even greater risk of absorbing excessive costs and having to face  unknowns about ship quality. While Navy officials offered some reasons  that ships are accepted in incomplete states, the ship delivery policy  makes no reference to these reasons. The policy states that ships should  be defect-free and mission-capable, but these objectives are not defined.  Further, INSURV’s only post-delivery trial is not well-timed to  independently verify the completeness and quality of ships before they  are provided to the fleet. As a result, key quality control measures in the  Navy’s ship delivery policy are not implemented, resulting in uninspected  systems and equipment being provided to the fleet, with no verification of  completeness and quality at this key milestone.
The Navy’s Selected Acquisition Reports to Congress do not clearly  communicate its ships’ progress and completion, which can inhibit  oversight, particularly for measuring results. Simply reporting delivery  dates does not signify a ship’s completeness or readiness to deploy, as  there is considerable variation in the level of completeness of ships at  delivery, and it will still be several additional years before ships are ready  to deploy. Recent legislation has established criteria for ship delivery  dates that, depending on its implementation, may help improve the  consistency and clarity of the Navy’s reporting to Congress on this  milestone. Similarly, IOC is reported but does not signify that ships have  successfully demonstrated capability. Without consistent and meaningful  capability and schedule milestones, decision makers may not be able to  understand the progress toward ship completion or may be surprised to  learn of complications after the ship appeared to be delivered or  completed, which may require additional funding.
section_title: Recommendations for Executive Action
paragraphs: The Secretary of Defense should direct the Secretary of the Navy to take  the following four actions:  1.  Revise the Navy’s ship delivery policy to clarify what types of  deficiencies need to be corrected and what mission capability  (including the levels of quality and capability) must be achieved at (1)  delivery and (2) when the ship is provided to the fleet (at OWLD). In  doing so, the Navy should clearly define what constitutes a complete  ship and when that should be achieved.  2.  Reconcile policy with practice to support INSURV’s role in making a  recommendation for fleet introduction. Accomplishing this may require  a study of the current timing of ship trials, and the costs and benefits  associated with adding an INSURV assessment prior to providing  ships to the fleet.  3.  Reflect additional ship milestones in Selected Acquisition Reports to  Congress, including OWLD and readiness to deploy.  4.  In Selected Acquisition Reports to Congress, ensure that the criteria  used to declare IOC aligns with DOD guidance, and reflect the  definition of this milestone in the reports.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of our report to DOD for review and comment. In its  written comments, which are reprinted in appendix III of this report, DOD  did not concur with two recommendations, partially concurred with a third  recommendation, and fully concurred with a fourth recommendation. DOD  provided technical comments that we incorporated as appropriate.
With regard to our first recommendation, DOD disagreed with our focus  on OPNAVINST 4700.8K as the primary criteria for assessing Navy ship  quality and completeness when ships are provided to the fleet, stating  that multiple instructions govern this process. This response was  puzzling, as we reviewed relevant Navy policies and confirmed with  acquisition officials within the Department of the Navy that OPNAVINST  4700.8K is the primary policy governing the quality standards for Navy  ships at delivery. The statute and two policies that other policies DOD  references in its response are not focused on construction and the post- delivery period and do not provide guidance on the level of quality and  completeness expected when ships are provided to the fleet. Therefore,  we focused on OPNAVINST 4700.8K because it is the only Navy  instruction that attempts to set a quality standard for Navy ships rather  than provide guidance on managing the inspection process. As such we  maintain that OPNAVINST 4700.8K should be clarified regarding the level  of quality and completeness required of Navy ships at key points in the  shipbuilding process. By not acknowledging the importance of  OPNAVINST 4700.8K and establishing a clear and comprehensive  quality standard, the Department of the Navy is missing an opportunity to  improve the quality of its ships and risks continuing to provide ships to the  fleet with significant quality problems.
With regard to the second recommendation, DOD did not agree to study  the current timing of ship trials or the costs and benefits of conducting an  additional INSURV assessment prior to providing ships to the fleet. In  particular, DOD stated that the current timing of Navy inspections is  deliberate because it enables INSURV to inspect the ship and identify any  additional deficiencies for correction during the post-shakedown  availability. However, while the timing of final contract trials facilitates the  prioritization of post-delivery work, as our report points out, it is not  optimally aligned to verify that the work completed during post- shakedown availability meets quality standards before a ship is provided  to the fleet. For example, for the eight ships we reviewed, 90 percent of  the 117 starred cards identified during acceptance trials were waived by  the CNO prior to delivery and we found that many of these cards are  corrected during the post-shakedown availability, which is after final  contract trials—INSURV’s final review before a ship is provided to the  fleet. As a result, INSURV does not have an opportunity to verify that  even the Navy’s most significant issues have been corrected before ships  are provided to the fleet at the time of OWLD. By refusing to even  consider changes to the status quo, the Navy may be missing an  opportunity to improve the quality of ships delivered to the operational  fleet.
With regard to the third recommendation, DOD agreed to report OWLD in  its Selected Acquisition Reports to Congress but disagreed with reporting  the ready-to-deploy date for its ships, noting that operational factors  outside of acquisition concerns can affect the timing of this milestone. We  acknowledge that ready-to-deploy decisions reside with fleet  commanders and are independent of acquisition milestones. However,  we maintain that this date is important for Congressional oversight  because it remains the best milestone for determining when a ship has  achieved a sufficient level of completeness to operate, under the Navy’s  current framework for ship delivery.
DOD agreed with our fourth recommendation, stating that the criteria for  IOC are defined in each ship class’ Capability Development Document or  Operational Requirements Document and that, for ships that have not  achieved IOC, it will include that definition in the Selected Acquisition  Reports. The response, however, did not indicate that DOD will ensure  that the criteria used to declare IOC aligns with DOD guidance. We  continue to believe that such an action would result in more meaningful  and consistent information provided to Congress.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Secretary of the Navy, and  other interested parties. This report will also be available at no charge on  GAO’s website at http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-4841 or by e-mail at mackinm@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. Key contributors to this report are  listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report assesses: (1) the extent to which the Navy provides complete,  quality ships to the fleet that are free of government and contractor  deficiencies; (2) the extent to which the Navy’s policy governing ship  delivery facilitates efforts to deliver complete and quality ships; and (3)  the extent to which Navy reports to Congress on the progress of  shipbuilding programs consistently define key milestones such as ship  delivery and initial operational capability.
To gain an understanding of the condition in which shipbuilding programs  deliver newly constructed ships to the fleet after accepting these ships  from construction shipyards, we reviewed eight case studies. To select  case studies for this review, we identified Navy ships which were either  delivered within the last 5 years or are likely to be delivered within the  next year, and were constructed by a variety of shipyards. We also  avoided using multiple ships from the same class or variant, and selected  a mix of early- and late-in-class ships. These parameters resulted in  reviewing the following ships as a non-generalizable sample: DDG 112,  SSN 782, LPD 25, LCS 3, LCS 4, LHA 6, DDG 1000, and CVN 78. Six of  these ships (DDG 112, SSN 782, LPD 25, LCS 3, LCS 4, and LHA 6) had  finished their post-delivery periods at the time of our review, while CVN  78 and DDG 1000 had not. For the purposes of this review, the delivery  date marks the beginning of the post-delivery period and the obligation  work limiting date (OWLD) is the end of the post-delivery period. Table 11  provides additional information on the 8 ships selected as case studies for  this review.
To assess the extent to which the Navy provides quality, complete ships  to the fleet, free of government and contractor deficiencies, we reviewed  Navy documentation related to the delivery and subsequent post-delivery  period for selected new construction ships. For each case study, we  reviewed such documentation as Chief of Naval Operations waivers for  delivery, readiness briefings for Navy Board of Inspection and Survey  (INSURV) trials, trial cards and reports, the form DD-250 Material  Inspection and Receiving Report, operational assessments, and the  Transfer Book, among others. Through our review of this documentation,  we assessed what construction work was incomplete or deficient when  each case study ship was delivered to the Navy from the shipbuilder; the  availabilities, tests, and trials each ship completed during the post- delivery period; and the condition of each ship when it was provided to  the fleet following the post-delivery period. In particular, for the selected  ships that have already completed the post-delivery period, we assessed  the number and type of INSURV-identified deficiencies at the time of ship  delivery and tracked these through the post-delivery period to determine  whether they were passed to the fleet. Additionally, we identified which  shipboard system certifications were required for these ships and  evaluated Navy documentation and supplementary program office  information to determine when these certifications were completed. We  also reviewed Navy casualty report data at the time ships were passed to  the fleet. Senior fleet personnel told us that the first 3 months after a ship  is passed to the fleet are indicative of the condition the ship was passed  to the fleet as crewmembers gain an understanding and operate these  systems. Thus, we aggregated the open category 2 and 3 casualty  reports during the three months following OWLD to understand the status  of the ship at this time. For CVN 78 and DDG 1000, the two ships which  have not yet completed the post-delivery period, we reviewed the Navy’s  post-delivery plans for these two ships, including proposed schedules and  plans to complete deferred construction. To gain additional understanding  of how and why the Navy decides to accept delivery from the shipbuilder  and provide to the fleet ships that are not free of deficiencies, we  interviewed officials from several Navy entities, including the shipbuilding  program office for each case study ship, the Supervisor of Shipbuilding,  Conversion, and Repair (SUPSHIP), INSURV, Naval Air Systems  Command, Space and Naval Warfare Systems Command, and  representatives from the fleet, among others. The fleet officials we met  with were senior leaders of the Navy commands responsible for operating  and maintaining these vessels, as well as port engineers, senior crew  members (such as the commanding officer and chief engineer), and other  individuals with management and technical responsibilities for maintaining  the ships. We generally reported statements that were widely agreed  upon.
To evaluate the extent to which the Navy’s policy governing ship delivery  facilitates efforts to deliver complete and quality ships, we reviewed the  Navy’s ship delivery policy covering trials, delivery, and post-delivery  activities (referred to as the Navy’s ship delivery policy)— Office of the  Chief of Naval Operations Instruction (OPNAVINST) 4700.8K—and  identified the key terms, roles, responsibilities, and processes associated  with post-delivery. Through our review of Navy shipbuilding and quality  assurance guidance—such as OPNAVINST 4730.5R (Trials and Material  Inspections of Ships Conducted by the Board Of Inspection And  Survey)—and through interviews with acquisition officials, we determined  that OPNAVINST 4700.8K was the primary policy governing ship quality  and completeness and the Navy’s program offices verified this  conclusion. We further examined this policy to determine the objectives,  processes, and definitions of key terms that were relevant to the scope of  our engagement, and assessed these elements of the policy for both  internal consistency and consistency with other Navy and DOD guidance.  We conducted interviews with the Office of the Chief of Naval Operations,  Navy program officials, Naval Sea System Command directorates,  SUPSHIP, INSURV, Navy general counsel, fleet maintenance officials,  and other entities to determine how organizations across the Navy  interpret the Navy’s ship delivery policy. We also reviewed Standards for  Internal Control in the Federal Government and determined which  standards were relevant to the Navy’s post-delivery process. In reviewing  the Navy’s quality practices, we focused on INSURV and SUPSHIP’s  respective roles in ensuring quality ships are built. We assessed INSURV  and SUPSHIP reports, talked to inspectors, and read the guidance  governing these organizations to look at how these organizations improve  ship quality. In addition, we evaluated the results against the Standards  for Internal Control in the Federal Government to assess the extent to  which the Navy controls ship quality as an outcome or objective.
To determine the extent to which reports to Congress on the progress of  shipbuilding programs consistently define key milestones, we obtained  and reviewed the Selected Acquisition Reports and budget justification  documents for the ship classes of each of the eight ships we reviewed  going back at least two fiscal years. We reviewed the milestones and  dates reported in these documents, such as delivery and initial  operational capability, and used our other analyses of the completeness  and performance of ships to determine the condition and capability of the  selected ships at the relevant milestone dates. We obtained and reviewed  the high-level requirements documents for the ships in our review, as well  as Navy and DOD policies and guidance that define and describe key  milestones to determine whether (1) the Navy reported these milestones  in accordance with relevant guidance and definitions, and (2) whether the  Navy’s guidance and definitions were consistent with DOD guidance and  meaningful to congressional overseers. We supplemented these analyses  with interviews and other data from Navy program offices, where needed.
We conducted this performance audit from February 2016 to July 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.
section_title: Appendix II: Total Planned Cost for CVN 78 Post-Delivery Activities
paragraphs: The Navy accepted delivery of CVN 78 with a significant amount of  outstanding construction, tests, and trials. According to the Navy’s plans,  this incomplete work will be completed over the course of more than 4  years and is expected to cost nearly $780 million. As is typical for most  shipbuilding programs, the program office requested post-delivery and  outfitting funding for CVN 78, totaling $216 million; however, the program  office’s total planned cost for CVN 78’s post-delivery activities also  includes funding to complete deferred work (end cost), prepare training  materials (other procurement and operations and maintenance), and  execute an extended testing phase (research, development, test, and  evaluation)–for a total of at least $779 million. Table 12 shows the Navy’s  planned cost for CVN 78 post-delivery activities.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition the contact named above, the following staff members made  key contributions to this report: Diana Moldafsky, Assistant Director;  Laurier Fish; Laura Greifner; Samuel Harris; Kristine Hassinger; Chad  Johnson; Jillian Schofield; and Robin Wilson.
section_title: Related GAO Products
paragraphs: Navy Shipbuilding: Need to Document Rationale for the Use of Fixed- Price Incentive Contracts and Study Effectiveness of Added Incentives.  GAO-17-211. Washington, D.C.: March 1, 2017.
Littoral Combat Ship and Frigate: Slowing Planned Frigate Acquisition  Would Enable Better-Informed Decisions. GAO-17-279T. Washington,  D.C.: December 8, 2016.
Littoral Combat Ship and Frigate: Congress Faced with Critical  Acquisition Decisions. GAO-17-262T. Washington, D.C.: December 1,  2016.
Navy Ship Maintenance: Action Needed to Maximize New Contracting  Strategy’s Potential Benefits. GAO-17-54. Washington, D.C.: November  21, 2016.
Military Readiness: Progress and Challenges in Implementing the Navy’s  Optimized Fleet Response Plan. GAO-16-466R. Washington, D.C.: May  2, 2016.
Navy and Coast Guard Shipbuilding: Navy Should Reconsider Approach  to Warranties for Correcting Construction Defects. GAO-16-71.  Washington, D.C.: March 3, 2016.
DOD Operational Testing: Oversight Has Resulted in Few Significant  Disputes and Limited Program Cost and Schedule Increases.  GAO-15-503. Washington, D.C.: June 2, 2015.
Ford-Class Carrier: Congress Should Consider Revising Cost Cap  Legislation to Include All Construction Costs. GAO-15-22. Washington,  D.C.: November 20, 2014.
Weapon Systems Management: DOD Has Taken Steps to Implement  Product Support Managers but Needs to Evaluate Their Effects.  GAO-14-326. Washington, D.C.: April 29, 2014.
Littoral Combat Ship: Navy Complied with Regulations in Accepting Two  Lead Ships, but Quality Problems Persisted after Delivery. GAO-14-827.  Washington, D.C.: September 25, 2014.
Navy Shipbuilding: Opportunities Exist to Improve Practices Affecting  Quality. GAO-14-122. Washington, D.C.: November 19, 2013.
Best Practices: High Levels of Knowledge at Key Points Differentiate  Commercial Shipbuilding from Navy Shipbuilding, GAO-09-322.  Washington, D.C.: May 13, 2009.
Defense Acquisitions: DOD Has Paid Billions in Award and Incentive  Fees Regardless of Acquisition Outcomes. GAO-06-66. Washington,  D.C.: December 19, 2005.