Ford Class Aircraft Carrier: Poor Outcomes Are the Predictable Consequences of the Prevalent Acquisition Culture
Released: 2015-10-01T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The Navy set ambitious goals for the Ford-class program, including an array of new technologies and design features that were intended to improve combat capability and create operational efficiencies, all while reducing acquisition and life-cycle costs. The lead ship, CVN 78, has experienced significant cost growth with a reduced capability expected at delivery. More cost growth is likely. While CVN 78 is close to delivery, examining its acquisition history may provide an opportunity to improve outcomes for the other ships in the class and illustrate the dynamics of defense acquisition.

GAO has reported on the acquisition struggles facing the Ford-class, particularly in GAO-07-866 , GAO-13-396 , and GAO-15-22 . This statement discusses: (1) the Navy's initial vision for CVN 78 and where the ship stands today; (2) plans for follow-on ship cost and construction; and (3) Ford-class experiences as illustrative of acquisition decision making. This statement is largely based on the three reports as well as GAO's larger work on shipbuilding and acquisition best practices, and also incorporates updated audit work where appropriate.

section_title: What GAO Found
paragraphs: The Ford-class aircraft carrier's lead ship began construction with an unrealistic business case. A sound business case balances the necessary resources and knowledge needed to transform a chosen concept into a product. Yet in 2007, GAO found that CVN 78 costs were underestimated and critical technologies were immature—key risks that would impair delivering CVN 78 at cost, on-time, and with its planned capabilities. The ship and its business case were nonetheless approved. Over the past 8 years, the business case has predictably decayed in the form of cost growth, testing delays, and reduced capability—in essence, getting less for more. Today, CVN 78 is more than $2 billion over its initial budget. Land-based tests of key technologies have been deferred by years while the ship's construction schedule has largely held fast. The CVN 78 is unlikely to achieve promised aircraft launch and recovery rates as key systems are unreliable. The ship must complete its final, more complex, construction phase concurrent with key test events. While problems are likely to be encountered, there is no margin for the unexpected. Additional costs are likely.

Similarly, the business case for CVN 79 is not realistic. The Navy recently awarded a construction contract for CVN 79 which it believes will allow the program to achieve the current $11.5 billion legislative cost cap. Clearly, CVN 79 should cost less than CVN 78, as it will incorporate lessons learned on construction sequencing and other efficiencies. While it may cost less than its predecessor, CVN 79 is likely to cost more than estimated. As GAO found in November 2014, the Navy's strategy to achieve the cost cap relies on optimistic assumptions of construction efficiencies and cost savings—including unprecedented reductions in labor hours, shifting work until after ship delivery, and delivering the ship with the same baseline capability as CVN 78 by postponing planned mission system upgrades and modernizations until future maintenance periods.

Today, with CVN 78 over 92 percent complete as it reaches delivery in May 2016, and the CVN 79 on contract, the ability to exercise oversight and make course corrections is limited. Yet, it is not too late to examine the carrier's acquisition history to illustrate the dynamics of shipbuilding—and weapon system—acquisition and the challenges they pose to acquisition reform. The carrier's problems are by no means unique; rather, they are quite typical of weapon systems. Such outcomes persist despite acquisition reforms the Department of Defense and Congress have put forward—such as realistic estimating and “fly before buy.” Competition with other programs for funding creates pressures to overpromise performance at unrealistic costs and schedules. These incentives are more powerful than policies to follow best acquisition practices and oversight tools. Moreover, the budget process provides incentives for programs to be funded before sufficient knowledge is available to make key decisions. Complementing these incentives is a marketplace characterized by a single buyer, low volume, and limited number of major sources. The decades-old culture of undue optimism when starting programs is not the consequence of a broken process, but rather of a process in equilibrium that rewards unrealistic business cases and, thus, devalues sound practices.

section_title: What GAO Recommends
paragraphs: GAO is not making any new recommendations in this statement but has made numerous recommendations to the Department of Defense in the past on Ford-class acquisition, including strengthening the program's business case before proceeding with acquisition decisions. While the Department has, at times, agreed with GAO's recommendations it has taken little to no action to implement them.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Department of the Navy’s  Ford-class nuclear-powered aircraft carrier, the successor to the Nimitz- class aircraft carrier designed in the 1960s. The Navy set ambitious goals  for the Ford-class program, designing the carrier with an array of cutting  edge technologies, including an aircraft launch system that would use  electromagnetics—versus steam—to propel aircraft off of the ship  (EMALS), an advanced arresting gear (AAG) with an electric motor to  recover aircraft, and a dual band radar (DBR) that would use two planar  (stationary) radars to provide air traffic control, ship self-defense, and  other capabilities. These technologies, along with new design features,  like an enlarged flight deck and aft positioned island, would improve  combat capability and create operational efficiencies by increasing the  ship’s sortie generation rate and reducing manpower—with a $4.4 billion  investment needed to research and develop these improvements for the  class. The Navy expected to achieve these improvements while  simultaneously reducing acquisition and life cycle costs. From the outset  there was inherent tension between these goals. Budgets set early in the  Ford-class program were not realistically achievable and included  optimistic delivery dates to the fleet. The consequences of this tension  have been realized today. The costs to construct the lead ship, CVN 78,  have increased by over $2 billion, with promised levels of capability  potentially compromised.

Today, with CVN 78 over 92 percent complete, the ability to make course  corrections is limited. Yet, it is not too late to examine the lead ship’s  acquisition history not only in an effort to improve the outcomes for the  other ships in the class, but to illustrate the dynamics of shipbuilding— and weapon system—acquisition. Accordingly, I will discuss: (1) the initial  vision for CVN 78 and where we are today; (2) plans for follow-on ship  cost and construction; and (3) Ford-class experiences as illustrative of  acquisition decision making.

This testimony largely leverages our past Ford-class program reports  from August 2007, September 2013, and November 2014. Details of the  scope and methodology are available in these reports. This statement  also includes updates to this information as appropriate based on  program documentation and discussions with Navy officials. We also  draw on some conclusions from our broader work on Navy shipbuilding  and acquisition reform initiatives. We conducted this work in accordance  with generally accepted government auditing standards. Those standards  required that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions.
subsections: section_title: Weaknesses in CVN 78’s Business Case Manifested by Less Capability at Higher Cost
paragraphs: In July 2007, we reported on weaknesses in the Navy’s business case for  the Ford-class aircraft carrier and focused mainly on the lead ship, CVN  78. We noted that costs and labor hours were underestimated and  critical technologies were immature. Today, all of this has come to pass in  the form of cost growth, testing delays, and reduced capability—in other  words, less for more. In August 2007, we also observed that in  consequence of its optimistic business case, the Navy would likely face  the choice of (1) keeping the ship’s construction schedule intact while  deferring key knowledge-building events—such as land-based tests of  technologies—until later, or (2) slipping the ship’s construction schedule  to accommodate technology and other delays. Today, those choices have  been made—the ship’s construction schedule has been delayed slightly  by a few months, while other events, like land-based tests for critical  technologies, have slid by years. The result is a final acquisition phase in  which construction and key test events are occurring concurrently, with no  margin for error without giving something else up.

In its simplest form, a business case requires a balance between the  concept selected to satisfy warfighter needs and the resources— technologies, design knowledge, funding, and time—needed to transform  the concept into a product, in this case a ship. In a number of reports and  assessments since 2007, we have consistently reported on concerns  related to technology development, ship cost, construction issues, and  overall ship capabilities. Absent a strong business case, the CVN 78  program deviated from its initial promises of cost and capability, which we  discuss below.

In August 2007, before the Navy awarded a contract to construct the lead  ship, we reported on key risks in the program that would impair the  Navy’s ability to deliver CVN 78 at cost, on time, and with its planned  capabilities (as seen in table 1 below).

Specifically, we noted that the Navy’s cost estimate of $10.5 billion and 2  million fewer labor hours made the unprecedented assumption that the  CVN 78 would take fewer labor hours than its more mature  predecessor—the CVN 77. The shipbuilder’s estimate—22 percent higher  in cost was more in line with actual historical experience. Moreover, key  technologies, not part of the shipbuilder’s estimates because they would  be furnished by the government, were already behind and had absorbed  much of their schedule margin.

Congress expressed similar concerns about Ford-class carrier costs. The  John Warner National Defense Authorization Act for Fiscal Year 2007  included a provision that established (1) a procurement cost cap for CVN  78 of $10.5 billion, plus adjustments for inflation and other factors, and (2)  a procurement cost cap for subsequent Ford-class carriers of $8.1 billion  each, plus adjustments for inflation and other factors. The legislation in  effect required the Navy to seek statutory authority from Congress in the  event it determined that adjustments to the cost cap were necessary, and  the reason for the adjustments was not one of six factors permitted in the  law.

The risks we assessed in 2007 have been realized, compounded by  additional construction and technical challenges. Several critical  technologies, in particular, EMALS, AAG, and DBR, encountered  problems in development, which resulted in delays to land-based testing.  It was important for these technologies to be thoroughly tested on land so  that problems could be discovered and fixes made before installing  production systems on the ship. In an effort to meet required installation  dates aboard CVN 78, the Navy elected to largely preserve the  construction schedule and produce some of these systems prior to  demonstrating their maturity in land-based testing. This strategy resulted  in significant concurrency between developmental testing and  construction, as shown in figure 1 below.

The burden of completing technology development now falls during the  most expensive phase of ship construction. I view this situation as latent  concurrency in that the overlap between technology development, testing,  and construction was not planned for or debated when the program was  started. Rather, it emerged as a consequence of optimistic planning.  Concurrency has been made more acute as the Navy has begun testing  the key technologies that are already installed on the ship, even as land  based testing continues. Moreover, the timeframes for post-delivery  testing, i.e. the period when the ship would demonstrate many of its  capabilities, are being compressed by ongoing system delays. This tight  test schedule could result in deploying without fully tested systems if the  Navy maintains the ship’s ready-to-deploy date in 2020.

The issues described above, along with material shortfalls, engineering  challenges, and delays developing and installing critical systems, drove  inefficient out-of-sequence work, which resulted in significant cost  increases. This, in turn, required the Navy to seek approval from  Congress to raise the legislative cost cap, which it attributed to  construction cost overruns and economic inflation (as shown in figure 2  below).

Along with costs, the Navy’s estimates of the number of labor hours  required to construct the ship have also increased (see table 2).

Recalling that in 2007, the Navy’s estimate was 2 million hours lower than  the shipbuilder’s, the current estimate is a big increase. On the other  hand, it is more in line with a first-in-class ship like CVN 78; that is to say,  it was predictable. To manage remaining program risks, the Navy  deferred some construction work and installation of mission-related  systems until after ship delivery. Although this strategy may provide a  funding reserve in the near term, it still may not be sufficient to cover all  potential cost risks. In particular, as we reported in November 2014, the  schedule for completing testing of the equipment and systems aboard the  ship had become increasingly compressed and continues to lag behind  expectations. This is a particularly risky period for CVN 78 as the Navy  will need to resolve technical deficiencies discovered through testing—for  critical technologies or the ship—concurrent with latter stage ship  construction activities, which is generally more complex than much of the  work occurring in the earlier stages of construction.

Risks to the ship’s capability we identified in our August 2007 report have  also been realized. We subsequently found in September 2013 and  November 2014 that challenges with technology development are now  affecting planned operational capability beyond the ship’s delivery (as  shown in table 3).

Specifically, CVN 78 will not demonstrate its increased sortie generation  rate due to low reliability levels of key aircraft launch and recovery  systems before it is ready to deploy to the fleet. Further, required  reductions in personnel remain at risk, as immature systems may require  more manpower to operate and maintain than expected. Ultimately, these  limitations signal a significant compromise to the initially promised  capability. The Navy believes that, despite these pressures, it will still be  able to achieve the current $12.9 billion congressional cost cap. While  this remains to be seen, the Navy’s approach, nevertheless, results in a  more expensive, yet less complete and capable ship at delivery than  initially planned. Even if the cost cap is met, it will not alter the ultimate  cost of the ship. Additional costs will be borne later—outside of CVN 78’s  acquisition costs—to account for, for example, reliability shortfalls of key  systems. In such cases, the Navy will need to take costly actions to  maintain operational performance by adding maintenance personnel and  spare parts. Reliability shortfalls, in turn, will drive ship life cycle cost  increases related to manning, repairs, and parts sparing. Deferred  systems and equipment will at some point be retrofitted back onto the  ship.

section_title: Business Case for Follow-On Ship Assumes Ambitious Efficiency Gains
paragraphs: Although increases have already been made to the CVN 79’s cost cap  and tradeoffs made to the ship’s scope, it still has an unrealistic business  case. In 2013, the Navy requested congressional approval to increase  CVN 79’s cost cap from $8.1 billion to $11.5 billion, citing inflation as well  as cost increases based on CVN 78’s performance. Since the Ford-class  program’s formal system development start in 2004, CVN 79’s planned  delivery has been delayed by 4 years and the ship will be ready for  deployment 15 months later than expected in 2013.

The Navy recently awarded a construction contract for CVN 79 which it  believes will allow the program to achieve the current $11.5 billion  legislative cost cap. Similar to the lead ship, the business case for CVN  79 is not commensurate with the costs needed to produce an operational  ship. By any measure, CVN 79 should cost less than CVN 78, as it will  incorporate important lessons learned on construction sequencing and  other efficiencies. While it may cost less than its predecessor, CVN 79 is  likely to cost more than estimated. As we reported in November 2014, the  Navy’s strategy to achieve the cost cap: 1) relies on optimistic  assumptions of construction efficiencies and cost savings; (2) shifts  work—including installation of mission systems—needed to make the  ship fully operational until after ship delivery; and (3) delivers the ship with  the same baseline capability as CVN 78, with the costs of a number of  planned mission system upgrades and modernizations postponed until  future maintenance periods. Even with ambitious assumptions and  planned improvements, the Navy’s current estimate for the CVN 79  stands at $11.5 billion—already at the cost cap. For perspective, the  Director of the Department of Defense’s (DOD) Cost Assessment and  Program Evaluation office projects that the Navy will exceed the  congressional cost cap by about $235 million. The Congressional Budget  Office estimates for CVN 79 are even higher; at a total cost of over $12.5  billion—which, if realized, would be over $1 billion above the current  congressional cost cap.

Similar to CVN 78, the Navy is assuming the shipbuilder will achieve  efficiency gains that are unprecedented in aircraft carrier construction.  While the shipbuilder has initiated significant revisions in its processes for  building the ship that are expected to reduce labor hours, the Navy’s cost  estimate for CVN 79 is predicated on an over 9 million labor hour  reduction compared to CVN 78. For perspective, this estimate is not only  lower than the 42.7 million hours originally estimated for CVN 78, it is 10  percent lower than what was achieved on CVN 77, the last Nimitz-class  carrier. Previous aircraft carrier constructions have reduced labor hours  by 3.2 million hours at most. Further, the Navy estimates that it will save  over $180 million by replacing the dual band radar in favor of an  alternative radar system, which it expects will provide a better  technological solution at a lower cost. Cost savings are assumed, in part,  because the Navy expects the radar to work within the current design  parameters of the ship’s island. However, the Navy has not yet awarded a  contract to develop the new radar solution. If design modifications are  needed to the ship’s island, CVN 79 costs will increase, offsetting the  Navy’s estimate of savings. Again for perspective, the Navy initially  planned to install DBR on CVN 77 and it has taken the Navy over 10  years to develop the DBR, which is still not yet through testing.

Finally, achieving the legislative cost cap of $11.5 billion is predicated on  executing a two-phased delivery strategy for CVN 79, which will shift  some construction work and installation of the warfare and  communications systems to after ship delivery. By design, this strategy  will result in a less capable and less complete ship at delivery—the end of  the first phase—as shown in figure 3 below:  According to the Navy, delaying procurement and installation of warfare  and communications systems will prevent obsolescence before the ship’s  first deployment in 2027 and allow the Navy to introduce competition for  the ship’s systems and installation work after delivery.

As we reported in November 2014, the Navy’s two-phased approach  transfers the costs of a number of known capability upgrades, including  decoy launching systems, torpedo defense enhancements, and Joint  Strike Fighter aircraft related modifications, previously in the CVN 79  baseline to other (non-CVN 79 shipbuilding) accounts, by deferring  installation to future maintenance periods. While such revisions reduce  the end cost of CVN 79 in the near term, they do not reduce the ultimate  cost of the ship, as the costs for these upgrades will eventually need to be  paid—just at a later point in the ship’s life cycle.

section_title: Ford Class Program Emblematic of Incentives Which Discourage Implementing Sound Acquisition Practices
paragraphs: That CVN 78 will deliver at higher cost and less capability, while  disconcerting, was predictable. Unfortunately, it is also unremarkable, as  it is a typical outcome of the weapon system acquisition process. Along  these lines, what does the CVN 78’s experience say about the acquisition  process and what lessons can be learned from it? In many ways, CVN 78  represents a familiar outcome in Navy shipbuilding programs. Across the  shipbuilding portfolio, cost growth for recent lead ships has been on the  order of 28 percent (see figure 4).

Figure 4 above further illustrates the similarity between CVN 78 and other  shipbuilding programs authorized to start construction around the same  time. Lead ships with the highest percentages of cost growth, such as the  Littoral Combat Ships and DDG 1000, were framed by steep  programmatic challenges. Similar to the CVN 78, these programs have  been structured around unexecutable business cases in which ship  construction begins prior to demonstrating key knowledge, resulting in  costly, time-consuming, and out-of-sequence work during construction  and undesired capability tradeoffs.

Such outcomes persist even though DOD and Congress have taken  steps to address long-standing problems with DOD acquisitions. These  reforms emphasize sound management practices—such as realistic  estimating, thorough testing, and accurate reporting—and were  implemented to enhance DOD’s acquisition policy, which already  provided a framework for managers to successfully develop and execute  acquisition programs. Today these practices are well known. However,  outcomes of the Ford-class program illustrate the limits of focusing on  policy-and-practice related aspects of weapon system development  without understanding incentives to sacrifice realism to win support for a  program.

Strong incentives encourage deviations from sound acquisition practices.  In the commercial marketplace, investment in a new product represents  an expense. Company funds must be expended and will not provide a  return until the product is developed, produced, and sold. In DOD, new  products represent a revenue, in the form of a budget line. A program’s  return on investment occurs as soon as the funding is initiated. The  budget process results in funding major program commitments before  knowledge is available to support such decisions. Competition with other  programs vying for funding puts pressure on program sponsors to project  unprecedented levels of performance (often by counting on unproven  technologies) while promising low cost and short schedules. These  incentives, coupled with a marketplace that is characterized by a single  buyer (DOD), low volume and limited number of major sources, create a  culture in weapon system acquisition that encourages undue optimism  about program risks and costs. To the extent Congress funds such  programs as requested, it sanctions—and thus rewards—optimism and  unexecutable business cases. To be sure, this is not to suggest that the  acquisition process is foiled by bad actors. Rather, program sponsors and  other participants act rationally within the system to achieve goals they  believe in. Competitive pressures for funding simply favor optimism in  setting cost, schedule, technical, and other estimates.

The Ford-class program illustrates the pitfalls of operating in this  environment. Optimism has pervaded the program from the start. Initially,  the program sought to introduce technology improvements gradually over  a number of successive carriers. However, in 2002, DOD opted to forgo  the program’s evolutionary acquisition strategy, in favor of achieving  revolutionary technological achievements on the lead ship. Expectations  of a more capable ship were promised, with cost and schedule goals that  were out of balance with the technical risks. Further, the dynamics of  weapon system budgeting—and in particular, shipbuilding—resulted in  significant commitments made well in advance of critical acquisition  decisions, most notably, the authorization to start construction. Beginning  in 2001, the Ford Class program began receiving advanced procurement  funding to initiate design activities, procure long-lead materials, and  prepare for construction, as shown in figure 5 below.

By the time the Navy requested funding for construction of CVN 78 in  2007 it had already received $3.7 billion in advance procurement. It used  some of these funds to build 13 percent of the ship’s construction units.  Yet, at that time the program had considerable unknowns—technologies  were immature and cost estimates unreliable. Similarly, in 2013,  Congress had already appropriated nearly $3.3 billion in funding for CVN  79 construction. This decision was made even though the Navy’s  understanding of the cost required to construct and deliver the lead ship  was incomplete. A similar scenario exists today, as the Navy is requesting  funding for advanced procurement of CVN 80, while also constructing  CVN 78 and CVN 79. While these specifics relate to the Ford-class  carrier, the principles apply to all major weapon system acquisitions. That  is, commitments to provide funding in the form of budget requests,  Congressional authorizations, and Congressional appropriations are  made well in advance of major program commitments, such as the  decision to approve the start of a program. At the time the funding  commitments are made, less verifiable knowledge is available about a  program’s cost, schedule, and technical challenges. This creates a  vacuum for optimism to fill. When the programmatic decision point  arrives, money is already on the table, which creates pressure to make a  “go” decision, regardless of the risks now known to be at hand.

The environment of Navy shipbuilding is unique as it is characterized by a  symbiotic relationship between buyer (Navy) and builder. This is  particularly true in the case of aircraft carriers, where there is only one  domestic entity capable of constructing, testing, and delivering nuclear- powered aircraft carriers. Consequently, the buyer has a strong interest in  sustaining the shipbuilder despite shortfalls in performance. Under such a  scenario, the government has a limited ability to negotiate favorable  contract terms in light of construction challenges and virtually no ability to  walk away from the investment once it is underway.

section_title: Concluding Remarks
paragraphs: The experiences of the Ford-class program are not unique—rather, they  represent a typical acquisition outcome. The cost growth and other  problems seen today were known to be likely in 2007—before a contract  was signed to construct the lead ship. Yet CVN 78 was funded and  approved despite a knowingly deficient business case; in fact, the ship  has been funded for nearly 15 years. It is too simplistic to look at the  program as a product of a broken acquisition process; rather it is  indicative of a process that is in equilibrium. It has worked this way for  decades with similar outcomes: weapon systems that are the best in the  world, but cost significantly more, take longer, and perform less than  advertised. The rules and policies are clear about what to do, but other  incentives force compromises of good judgment. The persistence of  undesirable outcomes such as cost growth and schedule delays suggests  that these are consequences that participants in the process have been  willing to accept. It is not broken in the sense that it is rational; that is,  program sponsors must promise more for less in order to win funding  approval. This naturally leads to an unexecutable business case. Once  funded and approved, reality sets in and the program must then offer less  for more.

Where do we go from here? Under consideration this year are a number  of acquisition reforms. While these aim to change the policies that govern  weapon system acquisition, they do not sufficiently address the incentives  that drive the behavior. As I described above, the acquisition culture in  general rewards programs for moving forward with unrealistic business  cases. Early on, it was clear that the Ford-class program faced significant  risks due to the development, installation and integration of numerous  technologies. Yet, these risks were taken on the unfounded hope that  they were manageable and that risk mitigation plans were in place. The  budget and schedule did not account for these risks. Funding approval— authorizing programs and appropriating funds are some of the most  powerful oversight tools Congress has. The reality is once funding starts,  other tools of oversight are relatively weak—they are no match for the  incentives to over-promise. Consequently, the key is to ensure that new  programs exhibit desirable principles before they are approved and  funded. There is little that can be done from an oversight standpoint on  the CVN 78. In fact, there is little that can be done on the CVN 79, either.  Regardless of how costs will be measured against cost caps, the full cost  of the ships—as yet unknown—will ultimately be borne. For example,  while the Joint Precision Approach and Landing System has been  deferred from the first two ships, eventually it will have to be installed on  them to accept the F-35 fighter. The next real oversight opportunity is on  the CVN 80, which begins funding in fiscal year 2016.

Going forward, there are two acquisition reform challenges I would like to  put on the table. The first is what to do about funding. Today, DOD and  Congress must approve and fund programs ahead of major decision  points and key information. With money in hand, it is virtually impossible  to disapprove going forward with the program. There are sound financial  reasons for making sure money is available to execute programs before  they are approved. But they are also a cause of oversold business cases.  Second, in the numerous acquisition reform proposals made recently,  there is much for DOD to do. But, Congress, too, has a role in demanding  realistic business cases through the selection and timing of the programs  it chooses to authorize and fund. What it does with funding sets the tone  for what acquisition practices are acceptable.

Mr. Chairman and Members of the Committee, this completes my  prepared statement. I would be pleased to respond to any questions that  you may have at this time.

section_title: GAO Contact and Staff Acknowledgments
paragraphs: If you or your staff has any questions about this statement, please contact  Paul L. Francis at (202) 512-4841 or FrancisP@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this statement. GAO staff who made key  contributions to this testimony are Diana Moldafsky, Assistant Director;  Charlie Shivers; Burns C. Eckert; Laura Greifner; Kelsey Hawley; Jenny  Shinn; Ozzy Trevino; Abby Volk; and Alyssa Weir.

section_title: Appendix I: Prior GAO Recommendations for Ford Class Carriers and Department of Defense (DOD) Responses and Subsequent Actions
paragraphs: Improve the realism of CVN 78’s budget estimate.  Improve Navy’s cost surveillance capability.

DOD Response and actions

While the department agreed with our  recommendations in concept, it has not fully taken  action to implement them. The CVN 78 cost  estimate continues to reflect undue optimism.

Conduct a cost-benefit analysis on required CVN 78

DOD agreed with the need for a cost-benefit  capabilities, namely reduced manning and the  increased sortie generation rate prior to ship delivery. analysis, but did not plan to fully assess CVN 78  capabilities until the completion of operational  testing after ship delivery.

Update the CVN 78 test plan before ship delivery to  allot sufficient time after ship delivery for land based  testing to complete prior to shipboard testing.  Adjust the CVN 78 planned post-delivery test schedule  to ensure that system integration testing is completed  before IOT&E.

DOD agreed with our recommendation to update

Defer the CVN 79 detail design and construction  the CVN 78 test plan before delivery and has  since updated the test and evaluation master plan  (TEMP). However, it did not directly address our  recommendation related to ensuring that sufficient  time is allotted to complete land-based testing  prior to beginning integrated testing. contract until land-based testing for critical systems was  complete and update the CVN 79 cost estimate on the  basis of actual costs and labor hours needed to  construct CVN 78 during the recommended contract  deferral period of CVN 79.

DOD partially agreed with our recommendation to  adjust the CVN 78 planned post-delivery schedule  but current test plans still show significant overlap  between integrated test events and operational  testing.

DOD disagreed with our recommendation to defer  the award of the CVN 79’s detail design and  construction contract. However, shortly after we  issued our report, the Navy postponed the  contract award citing the need to continue contract  negotiations. While DOD did not agree to defer the  CVN 79 contract as recommended, it did agree to  update the CVN 79 cost estimate on the basis of  CVN 78’s actual costs and labor hours. DOD has  updated CVN 79’s budget estimate which we note  is based on optimistic assumptions.

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Question-summary annotations: questions: question: How did the Ford-class aircraft carrier's lead ship begin construction?
answer: The Ford-class aircraft carrier's lead ship began construction with an unrealistic business case.
child_questions: question: How does a sound business case benefit construction?
answer: A sound business case balances the necessary resources and knowledge needed to transform a chosen concept into a product.

question: How was the business case unrealistic?
answer: Yet in 2007, GAO found that CVN 78 costs were underestimated and critical technologies were immature—key risks that would impair delivering CVN 78 at cost, on-time, and with its planned capabilities.
child_questions: question: How has the business case since worsened?
answer: Over the past 8 years, the business case has predictably decayed in the form of cost growth, testing delays, and reduced capability—in essence, getting less for more. Today, CVN 78 is more than $2 billion over its initial budget. Land-based tests of key technologies have been deferred by years while the ship's construction schedule has largely held fast.

question: What are the current estimates for the CVN 78's performance?
answer: The CVN 78 is unlikely to achieve promised aircraft launch and recovery rates as key systems are unreliable. The ship must complete its final, more complex, construction phase concurrent with key test events. While problems are likely to be encountered, there is no margin for the unexpected. Additional costs are likely.

questions: question: Why is the business case for CVN 79 not realistic?
answer: Similarly, the business case for CVN 79 is not realistic. The Navy recently awarded a construction contract for CVN 79 which it believes will allow the program to achieve the current $11.5 billion legislative cost cap. Clearly, CVN 79 should cost less than CVN 78, as it will incorporate lessons learned on construction sequencing and other efficiencies.
child_questions: question: What are the predictions for the cost of CVN 79?
answer: While it may cost less than its predecessor, CVN 79 is likely to cost more than estimated.

question: How does the Navy plan to achieve the cost cap?
answer: As GAO found in November 2014, the Navy's strategy to achieve the cost cap relies on optimistic assumptions of construction efficiencies and cost savings—including unprecedented reductions in labor hours, shifting work until after ship delivery, and delivering the ship with the same baseline capability as CVN 78 by postponing planned mission system upgrades and modernizations until future maintenance periods.

questions: question: What effect does the near-completeness of CVN 78 have?
answer: Today, with CVN 78 over 92 percent complete as it reaches delivery in May 2016, and the CVN 79 on contract, the ability to exercise oversight and make course corrections is limited.

question: What concept does the carrier's acquisition history illustrate?
answer: Yet, it is not too late to examine the carrier's acquisition history to illustrate the dynamics of shipbuilding—and weapon system—acquisition and the challenges they pose to acquisition reform.
child_questions: question: How do these problems persist for other projects?
answer: The carrier's problems are by no means unique; rather, they are quite typical of weapon systems. Such outcomes persist despite acquisition reforms the Department of Defense and Congress have put forward—such as realistic estimating and “fly before buy.”

question: How does the budget and funding for programs affect their acquisitions?
answer: Competition with other programs for funding creates pressures to overpromise performance at unrealistic costs and schedules. These incentives are more powerful than policies to follow best acquisition practices and oversight tools. Moreover, the budget process provides incentives for programs to be funded before sufficient knowledge is available to make key decisions.

question: What else can affect acquisition?
answer: Complementing these incentives is a marketplace characterized by a single buyer, low volume, and limited number of major sources. The decades-old culture of undue optimism when starting programs is not the consequence of a broken process, but rather of a process in equilibrium that rewards unrealistic business cases and, thus, devalues sound practices.

questions: question: How were the Navy's goals for the Ford-class program ambitious?
answer: The Navy set ambitious goals for the Ford-class program, including an array of new technologies and design features that were intended to improve combat capability and create operational efficiencies, all while reducing acquisition and life-cycle costs.
child_questions: question: How has the program's output differed from expected?
answer: The lead ship, CVN 78, has experienced significant cost growth with a reduced capability expected at delivery. More cost growth is likely.
child_questions: question: How can the program prevent further disappointment?
answer: While CVN 78 is close to delivery, examining its acquisition history may provide an opportunity to improve outcomes for the other ships in the class and illustrate the dynamics of defense acquisition.