Arleigh Burke Destroyers: Delaying Procurement of DDG 51 Flight III Ships Would Allow Time to Increase Design Knowledge
Released: 2016-08-04T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: Over the next 10 years, the Navy plans to spend more than $50 billion to design and procure 22 Flight III destroyers, an upgrade from Flight IIA ships. Flight III ships will include the new SPY-6 radar system and Aegis (ballistic missile defense) combat system upgrades. The Navy's MYP approach requires the Navy to seek authority to do so from Congress.

House report 114-102 included a provision for GAO to examine the Navy's plans for the DDG 51 Flight III ships and AMDR. This report assesses (1) the status of efforts to develop, test, and integrate SPY-6 and Aegis in support of Flight III; (2) challenges, if any, associated with the Navy's plans to design and construct Flight III ships; and (3) the Flight III acquisition approach and oversight activities, among other issues. GAO reviewed key acquisition documents and met with Navy and other DOD officials and contractors.

section_title: What GAO Found
paragraphs: The Air and Missile Defense Radar (AMDR) program's SPY-6 radar is progressing largely as planned, but extensive development and testing remains. Testing of the integrated SPY-6 and full baseline Aegis combat system upgrade—beginning in late 2020—will be crucial for demonstrating readiness to deliver improved air and missile defense capabilities to the first DDG 51 Flight III ship in 2023. After a lengthy debate between the Navy and the Department of Defense's (DOD) Director of Operational Test and Evaluation, the Secretary of Defense directed the Navy to fund unmanned self-defense test ship upgrades for Flight III operational testing, but work remains to finalize a test strategy.

Flight III ship design and construction will be complex—primarily due to changes needed to incorporate SPY-6 onto the ship, as shown in the figure.

The Navy has not demonstrated sufficient acquisition and design knowledge regarding its Flight III procurement approach and opportunities exist to enhance oversight. If the Navy procures the lead Flight III ship in fiscal year (FY) 2016 as planned, limited detail design knowledge will be available to inform the procurement. In addition, the Navy's anticipated cost savings under the FY 2013-2017 Flight IIA multiyear procurement (MYP) plan do not reflect the planned addition of Flight III ships. While the Navy did not update its cost savings with Flight III information, doing so would increase transparency and could help inform expected savings under the next MYP. The Navy plans to request authority to award new Flight III MYP contracts (FY 2018-2022) in February 2017. The Navy will be asking Congress for this authority to procure nearly half of Flight III ships before being able to meet the criteria to seek this authority. For example, detail design will not be complete and costs will not be informed by any Flight III construction history. Finally, Flight III cost and schedule performance is not distinguished from that of the overall DDG 51 ship class in annual reports to Congress. Establishing Flight III as a major subprogram would improve reporting and offer greater performance insight.

section_title: What GAO Recommends
paragraphs: Congress should consider requiring an update of estimated savings for the current DDG 51 MYP to reflect the addition of Flight III ships. The Navy should delay procurement of the lead Flight III ship and refrain from seeking authority for a MYP contract until it can meet criteria required for seeking this authority. DOD should also designate Flight III as a major subprogram to improve oversight. DOD partially concurred with all three recommendations but is not planning to take any new actions to address them. GAO continues to believe the recommendations are valid.

section_title: Letter
paragraphs: Over the next 10 years, the Navy plans to spend more than $50 billion to  design and procure 22 newly-configured DDG 51 Arleigh Burke-class  destroyers—referred to as DDG 51 Flight III—to defend against air,  surface, and subsurface threats. These ships are expected to provide the  Navy’s primary large surface combatant capability for the foreseeable  future, with initial operational capability planned for 2023. Flight III ships  are expected to include the new SPY-6 radar being developed by the  Navy’s Air and Missile Defense Radar (AMDR) program. The inclusion of  SPY-6 necessitates changes to the design and the construction of the  existing DDG 51 ship. The SPY-6 radar, in conjunction with an Aegis  combat system upgrade, is expected to deliver advanced integrated air  and missile defense (IAMD) capabilities, which enable simultaneous  missile and air defense for the fleet. In 2012, we expressed concerns with  the Navy’s planned acquisition approach for Flight III, particularly as it  related to the ship procurement strategy and program oversight. The  Department of Defense (DOD) subsequently elevated oversight for Flight  III, with the Undersecretary of Defense for Acquisition, Technology, and  Logistics (USD (AT&L)) overseeing the program’s activities and working  to ensure cost and schedule baselines are established that account for  the program’s design and technical risks.

House Report 114-102, related to a bill for the National Defense  Authorization Act (NDAA) for Fiscal Year 2016, included a provision for  GAO to examine risks associated with the Navy’s planned acquisition  strategy for DDG 51-class ships and the AMDR program, including,  among other things, the development, test, and integration plans for these  programs. This report assesses (1) the status of the Navy’s efforts to  develop, test, and integrate the SPY-6 radar and Aegis combat system in  support of DDG 51 Flight III, including plans for operational testing; (2)  challenges, if any, associated with the Navy’s plans to design and  construct Flight III ships; (3) the Flight III acquisition approach and  oversight activities, including reporting on cost, schedule, and  performance; and (4) the capabilities that Flight III ships are expected to  provide and the extent to which these capabilities fulfill the Navy’s existing  and future surface combatant needs. We are also issuing a classified  annex, Arleigh Burke Destroyers: Classified Annex to GAO-16-613,  Delaying Procurement of DDG 51 Flight III Ships Would Allow Time to  Increase Design Knowledge, GAO-16-846C, which contains  supplemental information related to operational testing and the use of an  unmanned self-defense test ship to demonstrate Flight III self-defense  capabilities. The annex will be available upon request to those with the  appropriate clearance and a validated need to know.

To conduct our work, we reviewed documentation from and interviewed  DOD officials responsible for weapon systems requirements, acquisition,  and testing, as well as contractor representatives involved with DDG 51- class ship construction and major weapon systems development related  to Flight III. Our work included assessment of the design, development,  test, and procurement activities for DDG 51, AMDR, Aegis, and other  related programs, such as the Evolved Sea Sparrow Missile. We also  reviewed DOD studies and past GAO work concerning Navy  requirements and acquisition activities for its surface combatants to  assess the decision to pursue DDG 51 Flight III and how this ship  configuration is expected to address current and future threats. For more  information on our scope and methodology, see appendix I.

We conducted this performance audit from July 2015 to August 2016 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: The Navy delivered its first DDG 51 destroyer in April 1991, and 62 ships  currently operate in the fleet. Two shipbuilders (Bath Iron Works  Corporation in Bath, Maine, and Huntington Ingalls Industries in  Pascagoula, Mississippi) build DDG 51 destroyers, with four separate  configurations in the class (Flights I, II, IIA, and III) that reflect upgrades  over the last 25 years to address the growing and changing capability  demands on the Navy’s surface combatants. Table 1 provides details on  each DDG 51 configuration.
subsections: section_title: Introduction of DDG 51 Flight III
paragraphs: In 2007, the Navy determined, based on its Maritime and Missile Defense  of Joint Forces (MAMDJF) Analysis of Alternatives, that a larger, newly- designed surface combatant ship with a very large radar was needed to  address the most stressing ballistic and cruise missile threats. In  response to the MAMDJF Analysis of Alternatives results, the Navy  initiated development of a new cruiser, known as CG(X), and AMDR  (SPY-6)—an advanced, scalable radar with a physical size that can be  changed as needed to respond to future threats. Subsequently, in 2008,  the Navy expressed an increasing need for greater integrated air and  missile defense capability. Noting that DDG 51 ships demonstrated better  performance than DDG 1000 ships for ballistic missile defense, area air  defense, and some types of anti-submarine warfare, the Navy determined  to restart production of DDG 51 Flight IIA ships to combat the increasing  ballistic missile threats.

In January 2009, USD (AT&L) issued a memorandum stating that the  Navy’s plan to buy additional DDG 51 Flight IIA ships would be followed  by a procurement of either DDG 1000- or DDG 51-based destroyers that  could carry the SPY-6 radar. To fulfill this demand, the Navy conducted a  limited study in 2009, referred to as the Radar/Hull Study, which  examined existing DDG 51 and DDG 1000 designs with several different  radar concepts to determine which pairing would best address the  integrated air and missile defense needs at lower cost than the planned  CG(X). Following the Radar/Hull Study, the Navy validated the need for a  larger, newly designed surface combatant with a very large radar to  counter the most stressing threats. However, based on the analysis of the  Radar/Hull Study, the Navy decided to pursue a new DDG 51  configuration instead—now referred to as DDG 51 Flight III—that would  include a new advanced, but smaller, radar and an upgraded Aegis  combat system. The Navy also cancelled the CG(X) program.

We found in 2012 that the Navy’s decision to pursue new DDG 51  destroyers equipped with a new air and missile defense radar  represented a substantial commitment that was made without a solid  analysis and that the planned oversight and visibility into the program was  insufficient given the level of investment and potential risks. We also  found that the Navy’s plan to buy the Flight III lead ship as part of an  existing multiyear procurement of Flight IIA ships was not sound due to a  lack of design and cost knowledge about the Flight III ships. Multiyear  contracting is a special contracting method used to acquire known  requirements for up to 5 years if, among other things, a product’s design  is stable and the technical risk is not excessive. Based on our findings,  we recommended that 1) the Navy complete a thorough analysis of  alternatives for a future surface combatant program; 2) DOD increase the  level of oversight for DDG 51 Flight III by changing the program  designation to acquisition category (ACAT) 1D; and 3) the planned fiscal  year 2013 DDG 51 multiyear procurement request not include a Flight III  ship. Subsequent to our recommendations, the DDG 51 program was  elevated to ACAT 1D status—with Flight III remaining an upgrade within  the overall program—but a new analysis of alternatives was not  undertaken and the fiscal year 2013 DDG 51 multiyear procurement was  awarded as planned, with the Navy intending for the lead Flight III ship to  be part of this procurement.

section_title: Flight III Shipbuilding
paragraphs: The two existing DDG 51-class shipbuilders—Bath Iron Works and  Huntington Ingalls Industries—will complete design changes to the  existing DDG 51 hull form to support Flight III configuration needs and will  construct the ships. In February 2015, the Navy modified its existing  design contracts with the shipbuilders to begin Flight III detail design  work, with initial construction planned for 2018. The detail design process,  as shown in figure 1, begins at a high level for the overall ship. As the  needs for the ship are better defined, the granularity of the design for  individual units, or zones, of the ship comes into focus.

The shipbuilders use computer-aided design product models to design  the ship. The product models generate a detail design, which allows  engineers at the shipbuilders to visualize spaces and test the design. This  validates elements of the design prior to construction, thereby avoiding  potentially costly rework. During product modeling, the designers finalize  the interfaces between zones, complete the design for ship-wide cables  and pipes, and add all detail necessary to support ship construction. The  Navy reviews the progress of each zone when it is 50 and 90 percent  complete with product modeling. At these critical reviews, the Navy and  other stakeholders assess the zone design progress and provide input to  ensure that the design meets specifications. Once a zone is 50 percent  complete, more detailed design tasks are undertaken by the shipbuilders  to finalize and incorporate all outstanding data from the key systems.  When the zone is 90 percent complete, it is essentially considered to be  finished with detail design, and the shipbuilder will subsequently convert  the design into drawings to support construction.

section_title: IAMD Systems for Flight III
paragraphs: The Navy’s AMDR program, which began development in 2013, will  provide key IAMD capability for Flight III. The program includes  engineering and manufacturing development of a new S-band radar— known as SPY-6—that is being executed by the Raytheon Company to  provide volume search capability for air and ballistic missile defense. The  radar is expected to have a sensitivity for long-range detection and  engagement of advanced threats of at least “SPY+15”, referring to its  improved capability compared to the current SPY-1D(V) radar used on  existing DDG 51 ships. In addition, the contractor is developing a radar  suite controller to provide radar resource management and coordination,  and to interface with the Aegis combat system upgrades for Flight III. The  Navy is leveraging an existing X-band radar—SPQ-9B—to provide  horizon and surface search capabilities, as well as navigation and  periscope detection and discrimination functions for the majority of  currently planned Flight III ships. The Navy intends to develop a new X- band radar with improved capabilities that will be installed on later Flight  III ships. Figure 2 depicts a notional employment of the S-band and X- band radars on a Flight III ship.

Along with AMDR development, the Navy is working with the prime  contractor for the Aegis combat system—Lockheed Martin—to upgrade  the system for Flight III ships. Aegis, which integrates ship sensors and  weapons systems to engage anti-ship missile threats, has been providing  the Navy with some form of surface defense capability for decades. Over  that time, the system has been regularly upgraded, with Aegis Advanced  Capability Builds (ACB) providing new, expanded capabilities. The most  recently completed build—ACB 12—provides initial integrated air and  missile defense capability for DDG 51 Flight IIA ships. ACB 16 is  currently in development and is expected to provide, among other things,  new electronic warfare capability and expanded missile capability options.

Flight III will incorporate ACB 20, a combat system upgrade that includes  support for the SPY-6 radar.

section_title: Developmental and Operational Testing
paragraphs: As with any DOD weapon system, test and evaluation activities are an  integral part of developing and producing DDG 51 Flight III, AMDR, and  Aegis systems. Test activities provide knowledge of system capabilities  and limitations as they mature and are eventually delivered to the  warfighter.

Developmental testing is intended to provide feedback on the progress of  a system’s design process and its combat capability as it advances  toward initial production or deployment. For Flight III systems,  developmental testing occurs at contractor or government land-based test  sites, and will eventually expand to include testing of systems on board  the ship after installation—known as shipboard testing.

Operational test and evaluation is intended to assess a weapon system’s  capability in a realistic environment when employed in combat conditions  against simulated enemies. During this testing, the ship is exposed to as  many operational scenarios as practical to reveal the weapon system’s  capability under stress. The Navy’s operational test agency plans and  executes operational testing for DDG 51 and AMDR, as well as other  selected programs—such as Aegis. The Director, Operational Test and  Evaluation (DOT&E) within the Office of the Secretary of Defense  coordinates, monitors, and reviews operational test and evaluation for  major defense acquisition programs. DOT&E’s statutory responsibilities  include (1) approval of test and evaluation master plans and operational  test plans for systems subject to its oversight, (2) analyzing the results of  the operational test and evaluation conducted for such systems to  determine whether the test and evaluation performed were adequate and  whether the results confirm the operational effectiveness and suitability  for combat, and (3) reporting the evaluation results of operational testing  to the Secretary of Defense and congressional defense committees.

section_title: Radar Development Is on Schedule, with Considerable Development, Testing, and Integration with the Combat System Remaining to Meet Flight III Needs
paragraphs: The Navy’s AMDR program is progressing largely as planned toward final  developmental testing of the SPY-6 radar. An extensive technology  developmental phase for the new radar helped increase the maturity of  critical technologies, thereby reducing risk prior to beginning the program.  Barring any setbacks during final developmental testing, the Navy plans  to make an initial production decision for the SPY-6 radar in September  2017 and deliver the first radar to the shipyard for installation on the lead  Flight III ship in 2020. In contrast, the Navy is still defining requirements  for the Aegis combat system ACB 20 upgrades for Flight III and will not  begin development until 2018. The Aegis development schedule appears  ambitious when compared to previous combat system iterations and  presents risks for shipboard testing. Further, integrating the Aegis combat  system with the SPY-6 radar requires a significant amount of  development and testing in a relatively short period of time, relying on  concurrent land-based and shipboard testing; the Navy’s target date for  initial operational capability of Flight III ships is 2023. Although the Navy  is making a concerted effort to reduce risks associated with integrating  the radar and combat system, the benefits of these efforts will be largely  unknown until the start of combat system development and testing in  2018. The Navy must also complete an integrated test strategy and  receive approval from DOT&E. After a lengthy debate with DOT&E over  the need for an unmanned self-defense test ship equipped with Aegis and  SPY-6 in initial operational test and evaluation plans, the Navy has begun  to budget for the test ship at the direction of the Secretary of Defense.

Figure 3 provides an overview of planned and completed activities for  SPY-6, Aegis upgrade, and Flight III, including the anticipated time frame  for installing the radar and combat system upgrade onto the ship and  conducting operational testing.
subsections: section_title: The Navy Has Made Progress Maturing SPY-6 Radar Technologies, with Key Developmental Testing Remaining to Demonstrate Radar Capability
paragraphs: Prior to the start of the AMDR program, a 2-year technology development  phase from 2010 to 2012 helped mature critical technologies required for  the SPY-6 radar and reduce technical risk for the program. Table 2  describes the AMDR program’s four critical technologies for SPY-6 and  their development status.

In 2012, we found that two of the technologies—digital beamforming and  transmit/receive modules—had challenges to overcome in order to  achieve the required capabilities. At that time, the ability to use gallium  nitride-based semiconductors, which provide higher power and efficiency  than previously used materials, was untested on a radar the size of SPY- 6. The Navy has since demonstrated each of the critical technologies  using prototypes during the technology development phase, including a  full-scale, single-face SPY-6 radar array engineering development model  to demonstrate radar capability. According to Raytheon, performance of  this SPY-6 engineering development model has exceeded requirements,  demonstrating SPY+17 decibels (greater than 50 times the sensitivity of  the SPY-1D(V) radar currently being fielded on DDG 51 Flight IIA ships).

More recently, the prime contractor experienced some challenges with  digital beamforming and distributed receiver/exciter technologies that the  Navy, Defense Contract Management Agency, and Raytheon indicated  have been, or are being, addressed. As reported by the Defense Contract  Management Agency, Raytheon and its subcontractors significantly  underestimated the design, development, and test efforts required for  these technologies to meet their performance requirements, leading to  some cost growth but no delay to the start of the final developmental test  phase in summer 2016. Final developmental testing will include testing  the SPY-6 engineering development model in a maritime environment for  the first time at the Navy’s land-based Advanced Radar Detection  Laboratory in Hawaii, including live tracking of air, surface, and ballistic  missile targets. These tests will help validate previous modeling and  simulation tests at the prime contractor’s facilities. Final developmental  testing is expected to be completed in time to inform an AMDR program  low-rate initial production decision by USD (AT&L) in September 2017.  The first SPY-6 radar system is scheduled to be delivered to the shipyard  constructing the lead Flight III ship in 2020; this radar will be used in  shipboard testing with Aegis ACB 20 in the lead up to Flight III initial  operational capability, which is planned for 2023.

section_title: Despite Navy Efficiency Efforts, Aegis Upgrade Development Schedule Is Optimistic
paragraphs: The Aegis combat system upgrade—ACB 20—planned for DDG 51 Flight  III will require significant changes to the version of Aegis currently fielded  on DDG 51 Flight IIA ships in order to introduce new and expanded IAMD  capabilities. Requirements for ACB 20 are not expected to be fully  defined until the program completes its System Requirements Review  planned for August 2016, but the Navy has established plans to field ACB  20 capabilities in two phases. The first phase—known as Phase 0—is  intended to meet baseline anti-air, anti-surface, and anti-submarine  warfare capability requirements for Flight III initial operational capability.  The Navy has indicated that the first three Flight III ships will include  Phase 0 capabilities. Improved ballistic missile defense and electronic  warfare systems are expected to be introduced on Flight III ships as part  of ACB 20 Phase 1 beginning in fiscal year 2025.
subsections: section_title: Extensive Changes Needed to Integrate ACB 20 with the SPY-6 Radar
paragraphs: The most extensive ACB 20 changes involve the replacement of the  legacy SPY-1D(V) radar with the new SPY-6 radar. According to  Lockheed Martin, ACB 20 must include an expanded and modified  interface between the SPY-6 radar and the Aegis combat system in order  to address the significant increase in data generated by the new radar. In  general, the interface changes are intended to ensure data are packaged  to take advantage of the radar’s capabilities and effectively provide  operators with information to support IAMD needs. Table 3 outlines the  Aegis combat system changes that are needed to interface with the SPY- 6 radar.

We found in 2012 that the Navy eliminated integration of SPY-6 from ACB  16 plans, effectively deferring integration activities to the ACB 20  upgrade. We concluded that this plan would leave little margin for  addressing any problems with the radar’s ability to communicate with the  combat system before Flight III’s initial operational capability in 2023.  Since that time, the Navy and Lockheed Martin have established an  ambitious schedule for ACB 20 development. The schedule is optimistic,  particularly due to ACB 20’s interdependencies with the ACB 16  capabilities that are still being developed. For example, recent changes to  ACB 16—which will provide the base capability for ACB 20—may affect  the Navy’s ability to achieve the ACB 20 schedule. Specifically, the Navy  added requirements to ACB 16 that resulted in a 184 percent increase in  new and modified software code for ACB 16. As a result, ACB 16  software development will take longer than planned and will overlap with  ACB 20 development. This introduces the potential for software  deficiencies discovered during ACB 16 development to negatively affect  the ACB 20 development schedule.

In addition, our comparison of the ACB 20 schedule to the schedule for  the most recently fielded Aegis build—ACB 12—indicates that ACB 20  has a significantly shorter development timeline. ACB 12, which included  a significant capability upgrade to enable limited IAMD for the first time on  DDG 51-class ships, required substantially more development time than  the Navy has planned for ACB 20. We found in 2012 that the Navy  experienced several setbacks during ACB 12 development and testing,  including challenges with coordinating combat system and ballistic missile  defense development and testing, as well as an underestimation of the  time and effort required to develop and integrate the signal processor with  the radar, which led to schedule delays and cost growth.

Figure 4 compares the planned timeline from the System Requirements  Review—a review to ensure readiness to proceed into initial system  development—to certification of the build’s capabilities for ACB 12, ACB  16, and ACB 20, Phase 0.

To execute this aggressive ACB 20 development plan, the Navy plans to  test the fully-developed ACB 20 Phase 0 for the first time after testing  begins on the lead Flight III ship at the end of 2020, adding risk to the  program. This decision stems, in part, from the Navy’s late response to  a July 2014 Navy requirements directive to redefine ACB 20 core  capabilities, contributing to a 17-month delay for the ACB 20  requirements review. Conducting initial tests of the fully-developed ACB  20 Phase 0 after ship installation introduces concurrency between the  shipboard and land-based test schedules, reducing opportunities to make  less-costly fixes to defects discovered during land-based testing prior to  installation of the system on the ship. As we have previously found with  other shipbuilding programs, concurrency introduces the potential for  additional unanticipated costs if concurrent land-based testing identifies  needed modifications to shipboard systems after installation.

The Navy’s planned approach for testing the full ACB 20 Phase 0  capability is a departure from its approach for ACB 12, which  demonstrated its final capability 4 months before installation on its first  DDG 51-class ship. ACB 12 also benefitted from installation and  extensive testing on an in-service DDG 51-class ship for an additional 30  months prior to installation on a new construction ship in September  2015, an approach which is not planned for ACB 20.

section_title: Efforts to Improve ACB 20 Development Outcomes and Address Schedule Risks
paragraphs: Navy and prime contractor officials told us that several actions have been  taken that they expect to ensure ACB 20 development can be executed  under its notably compressed timeline. For example, changes have been  made to the Aegis development approach in an effort to correct the  underlying causes for some of the past issues or to take advantage of  process efficiencies, such as:  scheduling ACB 20 to begin software development in January 2018— a few months after the initial production decision for SPY-6—to allow  time for key radar technologies to mature and for the radar design to  stabilize, minimizing the risk of beginning Aegis combat system  development with insufficient radar knowledge;  coordinating with the Missile Defense Agency—including a single  program manager at the prime contractor to oversee the Navy and  Missile Defense Agency efforts, along with joint reviews and an  integrated test strategy between the two organizations for Flight III  activities; and using some Agile software development methods—an iterative  approach that includes a series of smaller software increments that  can be developed and delivered in shorter time frames, with the goal  of improving quality, generating earlier insight on development  progress or any potential issues, and reducing defects and rework.  Navy officials emphasized that ACB 20’s schedule was not  compressed based on any projected efficiencies from Agile use,  though it may help reduce defect discovery once the Aegis combat  system is installed on the lead Flight III ship.

In addition to these programmatic changes, the Navy and the prime  contractors for SPY-6 and ACB 20 are making a concerted effort to  reduce integration risk through the use of radar and combat system  prototypes. Because the full ACB 20 Phase 0 capability and integration  with SPY-6 will not be tested until after it is installed on the ship, the Navy  and the prime contractor are counting on land-based prototype testing to  reduce risk. As previously shown in figure 3, ACB 20 land-based testing is  scheduled to begin in 2019 and will be used to verify combat system  performance. This testing will be done prior to certification of the full ACB  20 Phase 0 system in February 2023, as will integrated testing of limited  ACB 20 software, combat system hardware, and the SPY-6 engineering  development model at multiple land-based test sites, and modeling and  simulation tests.

The Aegis combat system prototype being developed for use with the  SPY-6 engineering development model is expected to reduce risk by  enabling testing that can identify the interface needs and provide  developmental test results in support of the SPY-6 initial production  decision. According to Lockheed Martin representatives, the Aegis  prototype will model approximately 44 percent of the eventual interface  between ACB 20 and SPY-6, including the most complex elements  described earlier in table 3. However, the full extent to which software  used with combat system prototype can be utilized for ACB 20 will not be  known until integration testing of the full ACB 20 Phase 0 and SPY-6 is  conducted in 2021.

section_title: Secretary of Defense Has Directed the Navy to Upgrade an Unmanned Self-Defense Test Ship for Flight III Operational Testing
paragraphs: Recent actions taken by DOD indicate that the department supports the  use of an Aegis- and SPY-6-equipped unmanned self-defense test ship.  Operational test and evaluation plans for DDG 51 Flight III, SPY-6, and  ACB 20 have been a source of disagreement between the Navy and  DOT&E since at least early 2013. Specifically, the Navy and DOT&E  disagree about the need for an unmanned self-defense test ship  equipped with SPY-6 and the Aegis combat system to demonstrate Flight  III self-defense capabilities through operational testing.

DOT&E has asserted that an upgraded unmanned self-defense test ship  is needed to help demonstrate the end-to-end performance of Flight III  systems—from initial SPY-6 radar detection of a target, such as an anti- ship cruise missile, through target interception by an Evolved Sea  Sparrow Missile launched from the ship. As statutorily required, DOT&E  assessed the Navy’s proposed test and evaluation master plan for the  AMDR and Aegis programs in May 2013 and August 2013, respectively,  determining that neither plan was adequate for operational testing  because they did not provide for operationally realistic testing of Flight  III’s self-defense capability. DOT&E continues to assert this position.  Specifically, DOT&E has stated that the Navy’s plan to use a manned  ship for testing cannot realistically demonstrate the performance of the  integrated Flight Ill combat system against anti-ship cruise missile stream  raids—a series of targets approaching the ship from the same bearing— in the self-defense zone because of range safety restrictions. According  to DOT&E, it is the practice for all other warships to use an unmanned  self-defense test ship for their operational test programs. Use of an  unmanned self-defense test ship equipped with SPY-6 and the Aegis  combat system would allow a safety offset that is much closer to the ship  (less than 400 feet) and would permit the targets to conduct realistic  maneuvers, which provides the ability to ensure operationally realistic  stream raid effects are present and make the test adequate.

The Navy has asserted that the end-to-end testing scenarios identified by  DOT&E for operationally testing Flight III self-defense capabilities can be  accomplished on a manned Flight III ship. Navy officials also stated that a  robust test approach that includes testing at land-based test sites, on the  currently-configured self-defense test ship, and on a manned Flight Ill  ship, can provide sufficient information to support their test needs and  accredit the modeling and simulation used in testing. Furthermore, the  Navy’s position is that using an unmanned self-defense test ship  equipped with Aegis and SPY-6 for Flight Ill operational testing would only  minimally increase knowledge of operational performance beyond what  can be achieved without its use. Navy officials emphasized that (1) land- based testing is expected to provide nearly all data required to accredit  the Aegis modeling and simulation capability, (2) the Evolved Sea  Sparrow Missile Block 2—a key element of Flight III’s self-defense  capabilities—will be tested on DDG Flight llA ships using ACB 16, and (3)  live-fire end-to-end testing of Flight Ill systems—within the bounds of  range safety restrictions—will be completed using a manned ship to  provide data on operational capability.

Several factors have contributed to the different conclusions reached by  the Navy and DOT&E on the need for, and value of using, a test ship  equipped with the Flight III combat system to meet operational testing  needs. Table 4 explains the key factors that we identified as having  contributed to the different assessments of the need for a test ship.

Recent actions taken by DOD indicate that the department is moving in  the direction of supporting the use of the unmanned self-defense test  ship.

First, a December 2014 DOD resource management decision  supporting the President’s budget for fiscal year 2016 directed the  Office of Cost Assessment and Program Evaluation (CAPE) within the  Office of the Secretary of Defense to conduct a study of test ship  options that would satisfy DDG 51 Flight III self-defense operational  testing, including an assessment of the risks and benefits, cost  estimates for each option, and a recommended course of action.  The study, completed by CAPE in 2015 found that the lowest risk  option was to equip the Navy’s existing USS Paul F. Foster self- defense test ship with Flight III combat systems—at an estimated cost  of about $350 million—to support operational test and evaluation. The  study recommended that the Navy and DOT&E collaborate to develop  an integrated test plan to determine the number of air targets and test  missiles needed to support developmental testing and operational  testing for key Flight III-related self-defense systems.

Second, following the study of self-defense test ship options, a  February 2016 DOD resource management decision supporting the  President’s budget for fiscal year 2017 directed the Navy to adjust  funds within existing resources—$175 million total across fiscal years  2019 through 2021—to procure long-lead items in support of an  Aegis- and SPY-6-equipped self-defense test ship. The Navy’s  subsequent fiscal year 2017 President’s budget submission includes  funding in this amount for equipment associated with the self-defense  test ship starting in 2019.

Third, as recommended in the 2015 self-defense test ship study, the  Secretary of Defense directed the Navy to work with DOT&E to  develop an integrated test strategy for the Flight III, AMDR, Aegis  Modernization, and Evolved Sea Sparrow Missile Block 2 programs,  and to document that strategy in a test and evaluation master plan or  plans by July 29, 2016.

Officials from the Navy and DOT&E both questioned whether an  integrated test strategy could be completed as directed based on the  significant differences between the two sides. However, DOT&E officials  stated in April 2016 that the Navy’s integrated warfare systems program  executive office had begun working on an integrated test strategy to  examine the ship’s anti-ship cruise missile self-defense and integrated air  and missile defense capabilities in an effort to meet the intent of the July  2016 deadline.

Although it appears progress is being made in support of the Secretary’s  direction, the Navy has not yet fully responded to it. If the integrated test  strategy being developed by the Navy does not include the use of an  unmanned self-defense test ship as directed in DOD’s recent resource  management decision, then DOT&E will not approve the Navy’s  operational test plan. If the plan is not approved, a resolution is not likely  to be achieved until fiscal year 2019 when the Navy would need to begin  buying SPY-6 and Aegis-related long-lead items for the unmanned self- defense test ship to maintain its plan for Flight III initial operational test  and evaluation and initial operational capability in 2023.

section_title: Complex Flight III Design May Pose Challenges in Maintaining Planned Ship Construction Schedule
paragraphs: Integrating the SPY-6 radar with the DDG 51 hull form will require  significant changes to the existing ship’s hull, mechanical, and electrical  systems. The Navy plans to limit the use of new technologies and  introduce some Flight III equipment on Flight IIA ships first in order to  reduce the program’s technical risk. Flight III design is complex and the  tightly-packed existing design of the DDG 51-class ship presents  additional challenges for Flight III ship design and construction. The Navy  recognizes the need to mature and complete all phases of Flight III  design before construction begins in spring 2018. However, its Flight III  design schedule is ambitious—considering the amount and complexity of  the remaining design work—and the shipbuilders will have a significant  amount of design work to complete in a relatively short amount of time.
subsections: section_title: Complexity of Changes and Ship Density Create Challenges for Flight III Design and Construction
paragraphs: Flight III configuration changes are driven primarily by the need to  integrate the SPY-6 radar with the existing DDG 51-class hull form. The  design changes that make up the Flight III configuration are complex  because of the need to integrate the SPY-6 radar and its supporting  equipment into the densely constructed DDG 51-class ship.
subsections: section_title: SPY-6 Radar Drives Flight III Design Complexity
paragraphs: According to the Navy, DDG 51-class ships were selected as the platform  for the SPY-6 radar because the hull form involves relatively low overall  risk, as it already is integrated with the Aegis weapon system architecture  and is a proven ship design. However, integrating the SPY-6 radar will  require extensive changes to the ship’s hull, mechanical, and electrical  systems. Figure 5 illustrates key changes that will be introduced to the  ship as part of the Flight III configuration in order to accommodate SPY-6.

For example, the ship’s deckhouse must be modified because the SPY-6  radar is considerably deeper and heavier than the legacy DDG 51 radar.  In particular, the positioning of the SPY-6 radar arrays high on the  deckhouse has a significant impact on the ship’s estimated weight and  center of gravity. As part of the preliminary design, the Navy introduced  plans to widen the ship’s stern by up to 4 feet on each side, allowing the  ship to carry more weight to accommodate SPY-6 and restore available  weight service life allowance. Flight III’s hull will be reinforced with steel  to lower the ship’s center of gravity and counteract the radar’s additional  weight. Significant upgrades to the ship’s electric plant and air  conditioning systems also are required to support SPY-6 radar  operations. These upgrades involve the use of generators, power  conversion modules, transformers, power distribution equipment, and  high-efficiency air conditioning units that are new to the DDG 51 class of  ships. The Navy also plans to introduce other Flight III changes that are  not related to SPY-6 integration. Table 5 describes changes related to  SPY-6 and other upgrades planned for Flight III.

The Navy has taken several steps to reduce technical risk in Flight III  design, including limiting the use of new technologies. New electric and  air conditioning plant technologies planned for Flight III ships are in use  on ships that are currently—or soon will be—in the fleet. For example,  Flight III’s higher capacity generators and power conversion modules are  derived from generators being used on the Zumwalt-class destroyers.  Additionally, the Navy plans to retain a substantial amount of the existing  electric plant design, changing the design only where necessary to  provide increased power to operate the SPY-6 radar. The Navy noted that  this approach should minimize design impacts and testing requirements  for the electric plant. Navy officials acknowledged, however, that the new  Flight III systems are evolutions of existing technologies and may require  some modifications. To further reduce risk, the Navy plans to introduce  some technologies required for Flight III on earlier Flight IIA ships. For  example, an Aegis hardware upgrade and a new power conversion  system will be introduced on DDG 51 Flight IIA ships beginning with DDG  121, which will be delivered in July 2020.

section_title: DDG 51 Density Creates Design and Construction Challenges
paragraphs: In addition, the density of the existing DDG 51-class ship design presents  challenges for Flight III ship design and construction. As we have  previously found with shipbuilding, density—the extent to which ships  have equipment, piping, and other hardware tightly packed within ship  spaces—affects design complexity and cost. Density can complicate the  design of the ship, as equipment will need to be rearranged to fit new  items. Construction costs can increase because of the inefficiencies  caused by working in spaces that are difficult to access. Although in this  case the two shipbuilders have extensive experience in building the DDG  51 hull form, Navy officials acknowledged the significant effort required to  integrate the SPY-6 radar on the ship and the space and power  constraints it poses for adding new systems. Table 6 describes how ship  density contributes to challenges in designing and constructing Flight III  ships.

The Flight III upgrade requires extensive changes to the DDG 51 design.  Navy officials estimate that approximately 45 percent of the ship’s design  drawings will need to be changed. The shipbuilders estimate that 72 of 90  ship design zones will also require revisions. At the same time, however,  Navy program officials have stated that the design work associated with  the Flight III upgrade is no more complicated than previous DDG 51  upgrades. They noted, for example, that the number of drawing changes  for Flight III is fewer than the Flight IIA upgrade. While this is true based  on current estimates, the Flight III estimate is a projection and may  increase once the final design is complete. Moreover, the Flight III design  is projected to require nearly 1 million design hours to incorporate the  changes that the Navy attributed, at least in part, to additional quality  assurance and design reviews to accommodate stricter government  oversight than with previous upgrades. The projected design hours for  Flight III are notably more than what were required on previous upgrades,  as seen in figure 6.

section_title: The Navy Is Pursuing an Aggressive Schedule to Complete Ship Design Prior to Construction
paragraphs: The Navy recognizes the need to mature and complete all phases of  Flight III design before construction begins, currently projected for spring  2018. Our prior work on shipbuilding has identified this practice as a key  factor in better ensuring that ships are delivered on time, within planned  costs and with planned capabilities. The Navy has completed most of  the two initial phases of ship design (preliminary and contract design) as  shown in Figure 7 below.

These design efforts are aimed at the production of technical data  packages, preliminary drawings, and ship specifications needed for detail  design and construction. In February 2015, the Navy modified its existing  design contracts with the two DDG 51-class shipbuilders—Bath Iron  Works and Huntington Ingalls Industries—to begin Flight III detail design  work, which includes three-dimensional product modeling of the ship’s  individual zones, also referred to as zone design.

The shipbuilders began Flight III zone design activities for their respective  ship designs in October 2015, using a computer-aided design product  model to make changes to the zones that make up the design of the ship.  Shortly before beginning zone design, the shipbuilders revised their  design approach in an effort to better manage and complete the activities.  The Navy had originally planned to split zone design between the two  shipbuilders, requiring both shipbuilders to ensure that their designs were  compatible with one another. According to the shipbuilders, a change was  made so now each shipbuilder will complete its own design for the ships  built at their respective yards.

The Navy’s design schedule is ambitious, considering the amount and  complexity of the remaining design work. For example, as of April 2016,  one shipbuilder stated that it had completed product modeling of 7  percent of the ship’s zones and had held a 50 percent milestone review  for three of the 72 zones that require design changes as part of the Flight  III upgrade. The lead shipbuilder plans to complete about 25 percent of  zone design by October 2016. Flight III detail design work is planned to  be completed by December 2017, as directed by the Navy. The  shipbuilders are scheduled to complete detail design about 3 months  earlier than they originally planned, which provides more time between  design completion and the start of ship construction. However, under the  current schedule, the shipbuilders will have a significant amount of design  work to complete in a relatively short amount of time. In addition to design  time, one shipbuilder will not begin the zone design for the five zones  requiring the most significant changes until December 2016, leaving less  time to discover and address any design problems for some of the most  complex areas of the ship. In addition, the shipbuilders will face  challenges as they enter the more difficult product modeling phases— when the details of the design must be finalized to start ship construction.

section_title: The Navy Lacks Sufficient Knowledge to Procure Flight III Ships as Planned and Oversight Opportunities Are Limited by Planned Program Reporting
paragraphs: If the Navy purchases the first Flight III ship in fiscal year 2016 as planned  by issuing a series of modifications to its existing construction contracts, it  will do so without sufficient acquisition and design knowledge. As of May  2016, the Navy was still in the process of updating key acquisition  documents with Flight III information, including a revised cost estimate,  and had not released a request for proposals for construction of the lead  Flight III ship design. In addition, because the Navy will have a significant  amount of Flight III zone design work remaining at the end of fiscal year  2016, any procurement decisions will not be informed by a complete  understanding of Flight III design. In addition, while the Navy did not  update its anticipated cost savings under the current (fiscal year 2013- 2017) multiyear procurement to reflect the addition of Flight III ships,  doing so would provide Congress a more accurate savings estimate, as  well as provide improved information to support future multiyear  procurement savings estimates. Further, in February 2017, when the  Navy plans to request authority from Congress to award new multiyear  procurement contracts for 10 Flight III ships in fiscal years 2018-2022, it  will not be positioned to meet the criteria necessary to support the  request. For example, the Navy would be required to preliminarily find by  February 2017 that the Flight III design is stable, although shipbuilders  will not complete detail design until December 2017. Finally, while the  Flight III upgrade is being managed as a continuation of the longstanding  DDG 51 program, the Navy is completing many of the activities that are  required for new acquisition programs, including the establishment of a  new acquisition program baseline. However, information on the Flight III  upgrade is not planned to be presented to Congress in Selected  Acquisition Reports as a separate major sub-program of the DDG 51  class of ships, which will reduce decision makers’ insight into its cost and  schedule performance.
subsections: section_title: Amidst Uncertainties in the Acquisition Strategy, the Navy Plans to Contract for First Flight III Ships Beginning in Fiscal Year 2016
paragraphs: To construct the lead Flight III ship and the next two follow-on ships, the  Navy intends to modify its existing DDG 51 multiyear procurement  contracts with Bath Iron Works and Huntington Ingalls Industries. In 2013,  the Navy awarded multiyear procurement contracts to these shipbuilders  to construct a total of 10 DDG 51 ships from fiscal years 2013 through  2017. The Navy plans to modify these existing contracts, which are  currently priced for Flight IIA ship construction, through a series of 17  design changes—also called engineering change proposals—to introduce  the Flight III upgrades on up to three ships. A new target cost will be  established for each Flight III ship to reflect the yet-to-be-determined cost  of design changes. Figure 8 illustrates how the Navy plans to modify the  existing multiyear procurement contracts to convert Flight IIA ships to  Flight III ships.

The Navy plans to issue the necessary modifications for the lead Flight III  ship in fiscal year 2016 and do the same for the two additional Flight III  ships in fiscal year 2017. The procurement approach for the lead ship  recently changed due to additional funding provided by Congress.  Specifically, Congress provided the Navy with an additional $1 billion in  construction funding for fiscal year 2016 to procure an additional DDG 51  ship. Of note, however, the $1 billion is not sufficient to procure a  complete ship in either the Flight IIA or Flight III configuration. The Chief  of Naval Operations included $433 million on the Navy’s fiscal year 2017  unfunded priorities list provided to Congress to fully fund the additional  ship. If the funding is approved, the total number of new ships would  increase from 10 to 11 over the multi-year contract period. The Navy  originally planned to introduce the lead Flight III ship as one of the two  ships procured under the multiyear contracts in fiscal year 2016.  However, according to the Navy, the additional ship in fiscal year 2016 is  now anticipated to become the lead Flight III ship, although the  acquisition strategy has not been determined. A procurement contract for  this additional ship has not been awarded and it is not currently included  in the existing multiyear procurement contracts.

Table 7 provides details of how the additional fiscal year 2016 funds  affect the Navy’s multiyear procurement contracting strategy.

In addition, the Navy no longer plans to introduce limited competition  between the two shipbuilders for the lead Flight III ship construction. The  Navy’s acquisition strategy for the first three Flight III ships included use  of a contracting strategy to introduce limited competition between the two  shipbuilders for the Flight III procurement. As part of this strategy, both  shipbuilders would submit proposals for the additional work associated  with Flight III changes. The shipbuilder that submitted the lowest proposal  for the work would have received a higher percentage of target profit and  would have been awarded the contract modifications to build the lead  Flight III ship in fiscal year 2016 and build one of the fiscal year 2017  ships; the other shipbuilder would build one fiscal year 2017 Flight III ship.  In April 2016, the Navy issued a pre-solicitation notice, stating that it now  intends to issue a request for proposal to Bath Iron Works for the lead  Flight III ship, which would be a sole-source award for the lead ship with  no competition between the shipbuilders for profit. The extent to which  the Navy plans to introduce limited competition into the Flight III  modifications for the two fiscal year 2017 ships and how such competition  would be structured remains uncertain.

section_title: The Navy Has Not Gained Sufficient Acquisition and Design Knowledge to Award Lead Flight III Ship in Fiscal Year 2016
paragraphs: As of May 2016, the Navy had not demonstrated sufficient knowledge  regarding its Flight III acquisition approach to modify the current multiyear  procurement contracts to introduce these upgrades. In a June 2014 Flight  III Acquisition Decision Memorandum, USD (AT&L)—the decision  authority for the DDG 51 program—approved a plan to support a fiscal  year 2016 program review of the Flight III upgrade prior to modifying ship  construction contracts. Under this plan, the Navy is required to update its  acquisition program baseline and test and evaluation master plan, among  other documents, with Flight III-specific information. According to officials  from the DDG 51 program and the Office of the Secretary of Defense, as  of May 2016, the Navy was still in the process of updating these  documents.

The 2014 plan also requires the Navy to ensure that the Flight III program  is fully funded in the Future Years Defense Plan and that CAPE assess  the Navy’s Flight III cost estimate. A prior Navy cost estimate completed  in 2014 lacked knowledge on the current Flight III baseline, making it  difficult to use the estimate as support for construction award decisions.  CAPE officials stated they began working with the Navy Center for Cost  Analysis in November 2015 to ensure the Navy cost estimate being  developed in response to the 2014 direction incorporates data on all of  the relevant factors that will influence the cost of Flight III ships. These  factors include historical DDG 51 ship construction hours, maintenance  cost trends, and shipyard labor cost trends, among others. According to a  CAPE official, as of May 2016, the Navy had yet to provide a revised cost  estimate to be assessed, thus the estimate was not expected to be  completed until the summer of 2016 at the earliest. Until this estimate is  finalized and assessed by CAPE, the Navy will not have an independent  perspective on its Flight III costs and, pursuant to USD (AT&L)’s 2014  requirements, cannot move forward with a contract for Flight III ships.

The Navy originally scheduled a program review in March 2016 to  approve its plans to award the lead Flight III ship, but the review was  postponed because key contract-related activities had not been  accomplished. Specifically, the Navy is required to release requests for  proposals to modify the fiscal years 2016 and 2017 Flight III multiyear  procurement and to evaluate the shipbuilders’ proposals prior to this  review. As of May 2016, the Navy had yet to release these requests for  proposals. Until the Navy complies with the documentation requirements  established by USD (AT&L) in June 2014, releases the requests for  proposals, and receives and evaluates shipbuilder proposals, it will not  have achieved sufficient knowledge about its acquisition approach to  make an informed decision to proceed with the Flight III modifications to  the existing multiyear procurement contracts.

Even if the Navy fulfills its documentation requirements, procuring the  lead Flight III ship in fiscal year 2016 as currently planned increases the  cost risk with the lead ship because cost estimates will be based on  limited detail design knowledge. The lead shipbuilder expects to have  about 75 percent of zone design work remaining at the end of fiscal year  2016 and, as a result, procurement activities—including the shipbuilder  proposal development, Navy completion of construction cost estimates,  and finalization of the target cost for constructing the lead Flight III ship— will not be informed by a more complete understanding of Flight III  design. Our prior work has found that over time, cost estimates become  more certain as a program progresses—as costs are better understood  and program risks identified. According to both shipbuilders, waiting  until fiscal year 2017 to procure the lead Flight III ship would allow Flight  III design to further mature, which would provide greater confidence in  their understanding of the Flight III design changes and how these  changes will affect ship construction costs. By completing more detail  design activities prior to procuring a Flight III ship, the Navy—and both  shipbuilders—will be better positioned for Flight III procurement and  construction. One shipbuilder also noted that waiting until fiscal year 2017  to procure the lead Flight III ship would enable the Navy to coordinate  government furnished equipment delivery schedules with suppliers that  support the shipyard production need dates.

section_title: Flight III Ships Will Offset Navy’s Estimated Cost Savings for Its Current Contracts and Meeting Criteria for New Multiyear Procurement Will Be Challenging
paragraphs: Congress authorized procurement of up to 10 DDG 51 ships under the  Navy’s current multiyear procurement for fiscal years 2013 through 2017;  the Navy’s estimated cost savings of $1.54 billion did not take into  account the differing costs between Flight IIA and Flight III ships. With the  Navy planning for up to three of the ships to be in the Flight III  configuration, some of the projected cost savings will be offset by the  additional costs associated with Flight III ship construction. The Navy  updated the estimated savings to $2.35 billion in September 2014 for 10  Flight IIA ships based on (1) additional savings achieved through DOD’s  Better Buying Power principles, (2) exercising the option for a tenth DDG  51 ship, and (3) lower cost estimates for the purchase of ship  equipment. According to DDG 51 program officials, the Navy did not  provide a revised estimate of savings based on the Flight III changes.  While it is not known at this point whether or not the Navy may still  achieve cost savings with the addition of Flight III ships in the fiscal year  2013-2017 multiyear procurement, the cost increases associated with the  modifications for the Flight III upgrade will reduce the extent of the  savings. The multiyear procurement statute does not require that existing  savings estimates be updated to include costs associated with design  changes, but doing so for Flight III changes would provide improved  transparency of costs for Congress and the taxpayers. It would also help  inform a more realistic basis for estimating future multiyear procurement  savings.

Once the current DDG 51 multiyear procurement ends in 2017, the Navy  plans to award new multiyear procurement contracts to both shipyards,  covering fiscal years 2018-2022, for the construction of the next 10 Flight  III ships. In order to request authority from Congress to use a multiyear  procurement contract to procure Flight III ships, the Navy must  preliminarily find that several criteria will be met. However, based on our  analysis, the Navy is not likely to be positioned to meet all of the criteria  for requesting multiyear procurement authority in time to seek authority to  award the Flight III multiyear contracts in fiscal year 2018. This request  for multiyear contracting authority would have to be submitted with the  fiscal year 2018 President’s budget request, scheduled to be released in  February 2017.

Table 8 shows the statutory criteria for requesting authority to use a  multiyear procurement contract and the extent to which the Navy will be  positioned to preliminarily find they would be met by February 2017.

To highlight one aspect, to request authority to use a multiyear contract,  the Navy will have to preliminarily find that the design of the Flight III  ships is stable. As we previously stated, the most complicated aspects of  Flight III design work are ongoing, and detail design will not be complete  until December 2017—well after the President’s budget request is  submitted to Congress. In addition, the Navy plans to begin construction  of the lead Flight III ship in spring 2018. Until the Navy begins  construction of the lead Flight III ship, it will not have sufficient knowledge  to demonstrate a realistic construction estimate or cost savings because  there will be no prior cost or construction history on the Flight III  upgrade. Another example is that technical risk for Flight III systems— such as with Aegis upgrades—will remain and ship design stability will not  yet be achieved if new multiyear procurement contracts are awarded at  the start of fiscal year 2018, because software coding for the Aegis  combat system upgrade will only have just begun.

Although the Navy has previously used multiyear procurement contracts  for DDG 51 ships, it has typically first demonstrated production  confidence by building ships in the corresponding configuration before  employing a multiyear procurement approach. For example, the Navy  built 10 Flight IIA ships before entering into a multiyear procurement for  them. If the Navy proceeds with a multiyear procurement strategy for  Flight III ships beginning in fiscal year 2018, it will be asking Congress to  commit to procuring nearly half of the planned Flight III ships with an  incomplete understanding of cost, and effectively, no Flight III  construction history to support the decision.

section_title: DDG 51 Acquisition Approach Limits Opportunities for Insight into Flight III Cost and Schedule
paragraphs: The Flight III upgrade represents a significant resource investment for the  Navy, with more than $50 billion over the next 10 years devoted to  designing and constructing 22 Flight III ships. Despite the magnitude of  these costs and the degree of changes to the ship, DOD is not treating it  as a new acquisition program. Instead, as permitted under law and  regulation, the Flight III upgrade is being managed as a continuation of  the existing DDG 51 program, which is currently designated as an ACAT  1D program. Two key decision reviews have been held or are planned for  Flight III: one in June 2014 to approve the beginning of detail design, and  one to review the readiness of the program to proceed with Flight III ship  construction, which was originally scheduled for March 2016, but has not  yet occurred.

The Navy is still conducting some activities for the Flight III upgrade that  are commensurate with what is required of a new acquisition program,  even though the upgrade is being managed as part of the existing DDG  51 program. Milestone B is normally the formal initiation of a DOD  acquisition program at which, for example, the acquisition program  baseline—a document which establishes a program’s business case—is  approved by the program’s decision authority. As part of the tailored  plan for Flight III approved by USD (AT&L) in June 2014, the Navy is  completing some, but not all, of the fundamental activities that are  required at Milestone B. This includes development of a Flight III cost  estimate that will be assessed by CAPE, which is being done in lieu of an  independent cost estimate that would be typical for a new major defense  acquisition program. Table 9 shows the degree to which the Navy is  completing the fundamental activities for the Flight III upgrade that are  required for new programs at Milestone B.

Further, while the Navy held a Milestone B-like review for Flight III and is  going to establish a new acquisition program baseline, Flight III is not a  distinct acquisition program or major subprogram, which has implications  for reporting requirements related to cost and schedule performance. In  particular, since the Flight III upgrade is part of the existing DDG 51  program, certain oversight mechanisms that are generally set in motion  after passing through Milestone B—such as reporting Nunn-McCurdy  breaches of unit cost growth thresholds and periodic reporting of the  program’s cost, schedule, and performance progress—do not apply to  Flight III separately from the overall program. Flight III performance  measures do not have to be broken out for the DDG 51 program Selected  Acquisition Report—a report submitted by DOD that provides Congress  with information that is used to perform oversight functions—which  diminishes transparency and encumbers oversight efforts. For example,  the DDG 51 program’s December 2015 Selected Acquisition Report did  not include schedule estimates for any Flight III events with the SPY-6  radar. Additionally, the average procurement unit cost of approximately  $1.19 billion per DDG 51 ship reported in 2015 is significantly less than  the average procurement unit cost currently anticipated for Flight III ships  because it represents the unit cost for DDG 51 ships as a whole. Without  distinct Flight III information, decision makers will not be able to  distinguish cost growth associated with the overall DDG 51 program  baseline from Flight III cost growth, which may limit the effectiveness of  oversight mechanisms, such as Nunn-McCurdy unit cost thresholds.  Further, since the Navy is not reporting key events for Flight III as part of  the overall DDG 51 program, Congress and the Office of the Secretary of  Defense will not be made aware of any changes to Flight III’s schedule  via this standard reporting mechanism for acquisition programs.

USD (AT&L) has the authority to designate major subprograms within  major defense acquisition programs, like the DDG 51 program. DOD’s  guidance states that establishing a major subprogram may be advisable  when increments or blocks of capability are acquired in a sequential  manner. In the case of the DDG 51 program, designating the Flight III  upgrade as a major subprogram would allow for oversight of the upgrade  separate from the overall DDG 51 program. For example, Nunn-McCurdy  breaches could be tracked and reported separately. Treating the upgrade  as a major subprogram would also offer the ability to separately baseline  and track cost (including unit cost), schedule, and performance for Flight  III within the overall DDG 51 Selected Acquisition Report. This more  granular level of reporting would provide Congress and the Office of the  Secretary of Defense with greater visibility into the cost, schedule, and  performance of the Flight III upgrade.

section_title: Flight III Ships Will Provide Improved Air and Missile Defense Capabilities to the Fleet, but Physical Constraints Limit Potential for Future Upgrades
paragraphs: In the future, as the Navy begins assessing solutions for the next surface  combatant ship, it will need to make important decisions about evolving  threats and the IAMD capabilities necessary to combat those threats. The  Navy expects Flight III ships to meet key operational performance  requirements in 2023, with full Flight III capabilities delivered in 2027.  While Flight III ships will increase the fleet’s IAMD capabilities, they will  not provide the level of capability that the Navy previously identified as  necessary to address the more stressing IAMD threats. The limited  weight and stability service life allowance of the ship due to Flight III’s  design changes will also affect the Navy’s ability to add capabilities to the  ship in the future without removing existing equipment or making  significant structural changes to the ship. The Navy is also considering  the extent to which Flight III destroyers may be used instead of Navy  cruisers to provide air and missile defense for carrier strike groups. In  2016, the Navy began a capabilities-based assessment to identify  capability gaps and potential solutions for the next surface combatant  ship which, according to the Navy’s annual long-range shipbuilding plan,  will be introduced in 2030.
subsections: section_title: The Navy Is Using an Incremental Approach to Achieve Full Flight III Capability
paragraphs: The Navy plans to meet key operational performance requirements for  Flight III initial operational capability in 2023, as outlined in the Navy’s  DDG 51 Flight III Capability Development Document, but is using an  incremental approach to deliver the full capability planned for the ships.  The first three Flight III ships will not include all of the Navy’s planned  capabilities, and full capability for a Flight III ship is expected in 2027. The  incremental approach is tied to the delivery of X-band radar and Aegis  combat system capabilities. For the X-band radar, the Navy changed its  original Flight III plans. Specifically, the Navy intended to develop two  new radars—an X-band and an S-band—under the AMDR program to  support Flight III ships. However, in 2012 the Navy altered its plans, with  the AMDR program reduced to a new S-band radar development effort  that would be paired with the existing SPQ-9B X-band radar for the first  12 Flight III ships. This decision helped reduce the risk associated with  conducting parallel radar development efforts, but also delayed the  timeline for the improved X-band capability planned for Flight III until the  13th ship, anticipated to be delivered in 2027. According to Navy officials,  there are no plans to retrofit the first 12 Flight III ships with the new radar  once it is available. The Navy has not yet begun planning for the new X- band radar program and initial budgeting activities are not expected until  at least 2018, with the new radar expected to be part of the Flight III  baseline in fiscal year 2022. The first three Flight III ships will include ACB  20 core capabilities, with a second phase of capability improvements  intended to be provided beginning with the fourth ship. Figure 9 illustrates  the Navy’s planned approach for introducing additional capability to Flight  III ships.

section_title: Flight III Cannot Provide Needed Capability to Address the Most Stressing Anticipated Threats to Surface Combatants
paragraphs: Ultimately, the DDG 51 Flight III cannot provide the SPY+30 capability  needed to address the threats identified in the 2007 MAMDJF analysis  because the SPY-6 radar, which is as large as can be accommodated by  the Flight III configuration, is not able to achieve this capability. MAMDJF  stated that a large radar was needed on a surface combatant to counter  the most stressing ballistic and cruise missile threats expected in the  2024 to 2030 time frame. In 2009, the Navy’s Radar/Hull Study looked at  ways to leverage existing Navy destroyer designs to address less  stressing threats in the near-term at less cost. Raytheon representatives  stated that the SPY-6 radar’s performance in testing shows it provides  SPY+17 capability, exceeding the SPY+15 requirement for Flight III and  providing greater performance than existing radars.

DDG 51 Flight III ships with the SPY-6 radar are expected to deliver the  capability necessary to counter the near-term threats identified in the  Radar/Hull Study. Navy officials affirmed that the SPY-6 radar, if already  available to the fleet, would help combat current threats. Navy officials  also agreed that the threats identified in the 2007 Analysis of Alternatives  remain valid. The actual threat environment when the first Flight III ships  are delivered is more likely to reflect the threats outlined in the MAMDJF  Analysis of Alternatives, as opposed to the less stressful threats outlined  in the Radar/Hull Study. As shown in figure 10, the time frame for the  threat environment assumed by the Radar/Hull Study will have passed by  the time the lead Flight III ship is delivered to the fleet; at that point, the  more stressing threat environment outlined in the MAMDJF Analysis of  Alternatives timeframe will be imminent. Under the Navy’s acquisition  approach, six of the Flight III ships planned for the fiscal year 2018-2022  multiyear procurement, and over three-fourths of the 22 total planned  ships, will be outpaced by the threat environment identified in the  MAMDJF Analysis of Alternatives.

To account for the gap between the anticipated radar capability need and  what SPY-6 can provide, the Navy may consider other maritime platforms  that can accommodate a larger-scale version of SPY-6 or the use of  radars on multiple ships. For example, as we found in 2012, the Navy  altered its concept on the number of ships that will be operating in an  IAMD environment in an effort to address the gap that exists between the  2007 Analysis of Alternatives’ stated need and the expected SPY-6  capability. Specifically, rather than one or a small number of ships  conducting IAMD alone and independently managing the most taxing  threat environments without support, the Navy has envisioned multiple  ships that can operate in concert with different ground- and space-based  sensor assets to provide cueing for SPY-6 when targets are in the  battlespace. The cueing would mean that the ship could be told by the off- board sensors where to look for a target, allowing for earlier detection and  increased size of the area that can be covered. According to Navy  requirements officers, the Navy is examining this concept—referred to as  sensor netting—to augment radar capability, but the viability of this  operational concept has yet to be proven.

section_title: Physical Constraints of the Hull Form Limit Flight III’s Future Upgrade Potential
paragraphs: The MAMDJF Analysis of Alternatives had originally excluded DDG 51- class ships from consideration as the platform for the SPY-6 radar due, in  part, to minimal opportunity for growth and limited service life. Weight and  center of gravity service life allowance limitations, in particular, affected  the Navy’s decisions about Flight III capabilities from the outset.  Specifically, the SPY-6 radar was sized to provide the largest radar  feasible for the Flight III configuration without requiring major structural  changes to the hull form and design. A larger ship could have taken  advantage of the scalability of the SPY-6 radar by installing a larger radar  that would provide the Navy with increased capability. Thus, for any future  capability upgrades to Flight III related to the radar or other systems, the  Navy will have to consider significant changes to the DDG 51 hull form.  Navy officials stated that adding a new section (called a plug) to the  middle of the existing hull form is one option by which the Navy could  achieve the additional square footage necessary to accommodate a  larger radar. However, the Navy has never executed a plug for a  complex, large surface combatant ship and the associated design effort  would likely be complicated and costly.

The Navy’s weight estimate for Flight III ships has remained relatively  stable throughout design, with an overall weight growth of 159 tons since  2012. Navy officials acknowledged that the addition of the SPY-6 radar  consumed a significant amount of the ship’s vertical center of gravity  service life allowance. Navy weight and vertical center of gravity  allowances enable future changes to the ships, such as adding  equipment, and reasonable growth during the ship’s service life without  unacceptable impacts on the ship. Ten percent of weight and a 1-foot  vertical center of gravity are the Naval Sea Systems Command’s  architecture standards for surface combatants. According to program  officials, the Navy accepts that Flight III will have less of an available  service life allowance margin because DDG 51-class ships are inherently  dense by design. As figure 11 shows, according to Navy estimates, Flight  III ships will essentially be right at the service life allowance standard for  weight and well below the vertical center of gravity standard, even with  the planned service life allowance improvements included as part of Flight  III design.

According to Navy requirements officers, Flight III’s upgrade potential will  require trade-offs with the currently planned systems and the Navy has  already identified several other Flight III capability limitations as a result of  DDG 51’s hull size. For example, the Navy is unsure how the addition of  the future X-band radar would impact the Flight III ship’s center of gravity.  In 2012, a Navy technical study on Flight III found that the addition of a  new X-band radar would most likely require additional electric and cooling  capacity beyond what is being introduced as part of Flight III  configuration, which would necessitate the addition of another generator  and air conditioning plant and subsequent equipment arrangement  challenges. Navy officials stated that based on their improved  understanding of Flight III design, they now expect that there may be  enough electric capacity to forgo the need for an additional generator.  Similarly, the Navy is planning to begin a study to determine if an  upgraded electronic warfare system— included in the initial Flight III  concept—can be included within the ship’s existing constraints.

section_title: Flight III’s Ability to Fulfill Some Cruiser Responsibilities Is Being Considered as Navy Begins Planning for New Surface Combatant
paragraphs: With the pending retirement of the CG 47 Ticonderoga-class of cruisers  and no new cruiser currently being developed, the Navy has expressed  concern about a destroyer supporting the Navy commander’s role in  providing air and missile defense for a carrier strike group. Specifically, an  air warfare commander (AWC), who is typically the commanding officer of  a Navy cruiser within a carrier strike group, is responsible for defense  against air and missile threats and requires crew and command, control,  communications, and computer resources to fulfill this role. While  destroyers and cruisers both utilize the Aegis combat system and can  accommodate AWC staff, the Navy has noted that the cruisers were built  to support an AWC and are the most capable ships for fulfilling this role.  Further, the Navy found through analysis of a Flight III technical feasibility  study that the Flight III design does not have an increased capacity to  readily enable the functionality required by a major warfare commander.  A former Commander of Naval Surface Forces identified some notable  differences for meeting AWC responsibilities on the different ships,  including:

The cruisers are commanded by a captain and have a more senior  staff on the ship, with more individuals dedicated to the planning and  execution of the air defense mission for the carrier strike group. By  contrast, the destroyers are commanded by a commander with a less  experienced, though capable, staff that will typically operate in a  support role. If the AWC role were to transition permanently to the  destroyers, additional training and expertise would be required for the  staff. In the second year of its analysis of DDG 51 Flight III technical  feasibility, the Navy estimated that for the AWC role to be executed on  a Flight III, personnel would need to be increased to fill 15-18  additional positions. The total amount needed is dependent on  ballistic missile defense capability requirements.

Unlike destroyers, the cruisers have radar array and transmitter  redundancies that help avoid losing radar capability if the ship is  damaged in combat. The cruisers also have a greater capacity— about 25 percent more than a Flight IIA—for launching surface-to-air  missiles in support of the air defense mission. The cruisers have  increased command-and-control capability over the guided-missile  destroyers. This includes greater radio and satellite communication  suites than a destroyer, as well as extra space for AWC staff—20  consoles in the combat information center compared to 16 on a DDG  51.

Navy requirements and DDG 51 program officials stated there are no  current plans to have Flight III ships permanently replace the cruisers with  respect to AWC operations. The Navy included a requirement for AWC  equipment and crew accommodations in the Flight III upgrade. According  to Navy officials, the equipment and accommodations will provide  enhanced ballistic missile defense capability and can provide temporary  AWC capability; however, Flight III ships do not meet the longevity  requirement for AWC operations, making their use as a one-for-one  replacement for the cruiser less viable. The AWC requirement for Flight III  ultimately is an effort to reduce—but not eliminate—the capability gap  created by the upcoming cruiser retirements.

The Navy is currently conducting a capabilities-based assessment for  future surface combatants, which will assess capability shortfalls and  risks in the mid-21st century for surface combatant forces. According to  Navy officials, this assessment will take into account the findings and  gaps identified in the MAMDJF Analysis of Alternatives. The assessment  is intended to provide a better understanding of the capability challenges  that will result from the retirements of cruiser, littoral combat, and DDG 51  Flight IIA ships in the coming decades, but will not identify potential  solutions to address those challenges. In addition to this ongoing  assessment, the Navy identified plans in its fiscal year 2016 annual long- range shipbuilding plan, submitted to Congress, for a future surface  combatant ship, referred to as DDG(X), with the procurement of 37 ships  to begin in 2030. This was a change from the Navy’s 2012 annual long- range plan, which included a future DDG 51 Flight IV, with the  procurement of 22 ships to begin in 2032.

section_title: Conclusions
paragraphs: The Navy is in the early stages of its planned investment of more than  $50 billion over the next 10 years to design and construct 22 DDG 51  Flight III destroyers. While the Navy has made some good decisions in  support of DDG 51 Flight III, including taking an incremental approach to  developing and delivering new radar and Aegis combat system  capabilities, several challenges in design, development, integration and  testing of the radar, upgraded combat system, and the ship itself will need  to be overcome going forward. The Navy has implemented a number of  practices to reduce program risk. However, the Navy is still defining  requirements for an upgraded Aegis combat system, which must be  successfully developed, integrated, and tested with the SPY-6 radar  under a relatively compressed schedule that includes increased risk in  order to meet Flight III’s schedule needs. Further, substantial design  changes remain before the Navy will have a sufficient understanding of  the resources required to support ship construction. Nevertheless, the  Navy intends to ask Congress to commit to the initial ships and the  succeeding multiyear procurement beginning in fiscal year 2018 with  limited design and cost information in hand. This approach portends risk  in the future, which amplifies the need for improved oversight  mechanisms to facilitate greater transparency of the cost, schedule, and  performance for Flight III.

The considerable cost of the Flight III, AMDR, and Aegis programs, as  well as the challenges the Navy faces in working to effectively  synchronize their schedules, emphasizes the need to ensure a  knowledge-based contracting approach and adequate program oversight.  Many unknowns remain with regards to cost and the design of Flight III. In  particular, the Navy’s plan to issue the lead Flight III ship construction  modifications with limited design knowledge puts the government at  greater risk that the contract modifications may not represent the true cost  to implement the changes during construction. A realistic assessment of  Flight III costs gained through completing more of the ship design prior to  procuring the lead ship would put the government in a better negotiating  position—which is particularly important given that the lead ship is  anticipated to be awarded on a sole source basis. Further, the Navy’s  estimate of $2.35 billion in cost savings that it expects to achieve through  the fiscal year 2013-2017 multiyear procurement has not been updated to  reflect the additional costs to design and construct the Flight IIIs. A more  accurate assessment of the estimated cost savings for this current  multiyear procurement would increase transparency into the expected  cost savings. It would also provide valuable insight into expected savings  for the next planned multiyear procurement of Flight III ships. The timing  of the Navy’s request for authority for the next procurement is also a  matter of concern. The Navy’s plan to request, in February 2017,  multiyear procurement authority for fiscal years 2018-2022, means it  would ask Congress to commit to procuring nearly half of the planned  Flight III ships with an incomplete understanding of cost and, effectively,  no Flight III construction history to support the decision.

Although the department responded to our 2012 recommendation to  improve program oversight by elevating the program’s milestone decision  authority, Flight III’s status as a new configuration within the existing DDG  51 program, as opposed to its own acquisition program or a major  subprogram, reduces congressional insight into cost and schedule plans  and performance. Greater transparency of Flight III performance against  cost and schedule goals, for example, in standard Selected Acquisition  Reports to Congress on the DDG 51 class, would assist DOD and  Congress in performing their oversight responsibilities. This oversight  continues to be important, as the Navy still has risks to overcome in  achieving the intended capabilities of Flight III ships. Greater  transparency could also increase awareness of how any future Navy  decisions to add capabilities to Flight III will affect the program, such as  those related to the cost and schedule plans for the future X-band radar  or plans to upgrade electronic warfare systems for later ships.

section_title: Matter for Congressional Consideration
paragraphs: To ensure a more accurate estimate of the expected cost savings under  the fiscal year 2013-2017 multiyear procurement, Congress should  consider requiring the Navy to update its estimate of savings, which  currently reflects only Flight IIA ships, to increase transparency for costs  and savings for Congress and the taxpayers, as well as provide improved  information to support future multiyear procurement savings estimates.

section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Defense take the following three  actions:  To ensure the department and the shipbuilder have sufficient knowledge  of the Flight III design and anticipated costs when making decisions on  the award of the lead ship, we recommend that the Secretary of Defense  direct the Secretary of the Navy to:

Delay the procurement of the lead Flight III ship until detail design is  sufficiently complete to allow the government to have a more thorough  understanding of the costs and risks associated with Flight III ship  construction.

To ensure sufficient knowledge of Flight III design and enable some Flight  III construction history to inform cost expectations for future multiyear  procurement decisions, we also recommend that the Secretary of  Defense direct the Secretary of the Navy to:

Refrain from seeking authority from Congress for multiyear authority  for the procurement of Flight III ships, as currently planned for 2018,  until the Navy is able to preliminarily find, relying on DDG 51 Flight III  data, that the Flight III configuration will meet criteria for seeking  multiyear procurement authority, such as a stable design and realistic  cost estimates.

To better support DDG 51 Flight III oversight, we recommend that the  Secretary of Defense:

Designate the Flight III configuration as a major subprogram of the  DDG 51 program in order to increase the transparency, via Selected  Acquisition Reports, of Flight III cost, schedule, and performance  baselines within the broader context of the DDG 51 program.

section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD for review and comment. Its  written comments are reprinted in appendix II of this report. DOD partially  concurred with our three recommendations.

In regards to our recommendation to delay procurement of the lead Flight  III ship until more detail design information will be available, DOD  acknowledged the importance of a thorough understanding of the costs  and risks prior to making procurement decisions but does not believe the  procurement should be delayed. We continue to believe that waiting until  at least fiscal year 2017 to procure the lead Flight III ship would result in  additional time to develop the detail design for Flight III and would in turn  support a more refined understanding of design changes and their  implications on ship construction and costs prior to making significant  contractual commitments. As noted in our report, both shipbuilders  support this delay. Additionally, the Flight III program has yet to finalize its  request for proposal for the lead ship and receive a shipbuilder response,  both of which are required prior to the planned Defense Acquisition Board  review—which was postponed indefinitely earlier this year—and are  needed in order to proceed with the procurement of the lead Flight III  ship. The positive aspects of delaying the lead ship procurement, when  combined with the reality that the department will be challenged to  accomplish all of its requisite activities to procure the first Flight III ship  before the end of fiscal year 2016, support lead ship procurement based  on improved design knowledge in fiscal year 2017.

Regarding our recommendation on the next planned multiyear  procurement for DDG 51 Flight III ships, the department agrees that the  criteria for seeking multiyear procurement authority must be met but  disagreed that it should refrain from seeking multiyear procurement  authority based on the current state of information available on the Flight  III configuration. As we have emphasized, the Navy is unlikely to meet all  of the criteria for requesting multiyear procurement authority using data  from Flight III—particularly as they relate to cost and design stability—in  time to seek authority to award the Flight III multiyear contracts planned  for fiscal year 2018. Flight III detail design will be nearly a year away from  completion when the President’s budget request for fiscal year 2018  would need to be submitted for such a procurement. Further, construction  of the first Flight III ship will be about to begin, meaning there will be no  Flight III construction history to inform any estimates of ship costs or the  savings from use of multiyear procurement. We believe the Navy’s Flight  III multiyear procurement strategy lacks sufficient knowledge on design  and cost, and poses significant risk to the government. This includes the  risk of Congress committing to procure nearly half of the planned Flight III  ships without adequate information to support such a decision.

Finally, while the department agreed that visibility into Flight III cost,  schedule, and performance is important for oversight, and noted planned  activities to provide such visibility, DOD does not plan to designate Flight  III as a major subprogram. Instead, the department intends to continue  reporting on DDG 51-class ships as a single major program in the  Selected Acquisition Reports as it has done through previous Flight  upgrades. DOD stated that the major impediment to implementing our  recommendation is the difficulty in allocating research, development, test,  and evaluation costs for the Aegis weapon system. Although the Flight III  information that the department stated it intends to provide in next fiscal  year’s budget documentation and future Selected Acquisition Reports  may help support oversight activities, we believe that designating Flight III  as a major subprogram would enhance Flight III oversight efforts and is  befitting for an acquisition that is expected to cost more than $50 billion  over the next decade. We acknowledge the challenge noted by the  department regarding the allocation of costs for the Aegis weapon  system. However, the Navy has demonstrated the ability to provide  sufficient Aegis funding information to support reporting on specific Aegis  advanced capability builds that are designated to specific DDG 51 ships.  For example, the fiscal year 2016 President’s budget submission outlines  funding for different builds, including ACB 20 that is being developed for  Flight III. We understand that some elements of Aegis cost may be more  difficult to associate with Flight III because of software components  shared across different baselines of the system. The Navy could  communicate any limitations to the information as part of reporting Aegis  cost information for Flight III. We continue to believe that the improved  transparency that would be achieved by formally recognizing Flight III as  a major subprogram would be beneficial to Congress and to the  taxpayers.

DOD also separately provided technical comments on our draft report.  We incorporated the comments as appropriate, such as to provide  additional context in the report. In doing so, we found that the findings  and message of our report remained the same. In a few cases, the  department’s suggestions or deletions were not supported by the  preponderance of evidence or were based on a difference of opinion,  rather than fact. In those instances, we did not make the suggested  changes.

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. In addition, this report is available at no charge  on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or mackinm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report evaluates the Navy’s planned acquisition strategies for the  DDG 51-class Flight III ships and the Air and Missile Defense Radar  (AMDR) programs. Specifically, we assessed (1) the status of the Navy’s  efforts to develop, test, and integrate the SPY-6 radar and Aegis combat  system in support of DDG 51 Flight III, including plans for operational  testing; (2) challenges, if any, associated with the Navy’s plans to design  and construct Flight III ships; (3) the Flight III acquisition approach and  oversight activities, including reporting on cost, schedule, and  performance; and (4) the capabilities that Flight III ships are expected to  provide and the extent to which these capabilities fulfill the Navy’s existing  and future surface combatant needs.

To assess the status of the Navy’s effort to develop, test, and integrate  the SPY-6 radar and Aegis combat system in support of DDG 51 Flight III,  we reviewed program briefings and schedules, results from recent test  and design reviews, and other Navy, Department of Defense (DOD), and  contractor documentation to assess the cost, schedule, and performance  risks of the AMDR and Aegis combat system programs. We assessed the  maturity of the technologies that make up AMDR to determine remaining  risks to their development. We reviewed the acquisition program baseline,  selected acquisition reports, and Defense Contract Management Agency  assessments to determine the cost risk that exists within the program. We  assessed the progress and existing risks for the SPY-6 radar and  identified integration challenges with Aegis. We reviewed the results of  the current Aegis testing and schedules for software development,  including the Navy’s plans for the Aegis iteration that will support DDG 51  Flight III. To corroborate documentary evidence and gather additional  information in support of our review, we met with officials from the Navy’s  Program Executive Office (PEO) Integrated Warfare Systems (IWS) 1.0  and 2.0, which manage the Aegis and AMDR programs, respectively, and  the Missile Defense Agency. Additionally, we met with representatives  from Raytheon and Lockheed Martin, the prime contractors for the SPY-6  radar and Aegis combat system, respectively, to discuss the development  efforts, test plans, and initial integration efforts for each capability. We  met with officials from the Defense Contract Management Agency to  discuss Raytheon’s SPY-6 radar development activities and performance.  We also met with officials from the Navy’s office of the Deputy Assistant  Secretary of the Navy (Test and Evaluation) and relevant PEOs, as well  as DOD’s offices of the Director, Operational Test and Evaluation, Deputy  Assistant Secretary of Defense for Developmental Test and Evaluation,  and Cost Assessment and Program Evaluation (CAPE) to discuss the use  of a self-defense test ship for operational testing. This included discussion  of how the Flight III integrated air and missile defense systems— particularly the SPY-6 radar, Aegis, and Evolved Sea Sparrow Missile  systems—could be effectively tested to demonstrate the ship’s self- defense capabilities. We reviewed the Navy’s planned test approach and  the technical aspects of the approach that have been the subject of  disagreement between the Navy and DOT&E regarding the use of an  unmanned self-defense test ship. We assessed the fundamental  differences between the two positions, including the costs associated with  use of a self-defense test ship for operational testing. In addition to the  contents within this report, we are also issuing a classified annex, Arleigh  Burke Destroyers: Classified Annex to GAO-16-613, Delaying  Procurement of DDG 51 Flight III Ships Would Allow Time to Increase  Design Knowledge, GAO-16-846C,  which contains supplemental  information on the self-defense test ship issue for Flight III.

To determine what challenges, if any, are associated with the Navy’s  approach to design and construct Flight III ships, we reviewed Navy and  contractor documents that address the technologies being introduced as  part of Flight III, including program schedules and briefings, test reports,  and design progress reports. We compared Flight III design changes— including number, type, and location of those changes—to Navy and  contractor estimates and to previous DDG 51-class upgrades to assess  the complexity of Flight III design. We evaluated Navy and contractor  documents outlining schedule parameters for DDG 51 Flight III ships,  including budget submissions, contracts, cost estimates, reports to  Congress, and program schedules and briefings. We analyzed the extent  to which these parameters have changed over time for Flight III and  compared them with our prior work on shipbuilding best practices.

To assess the Flight III acquisition approach and oversight activities,  including reporting on cost, schedule, and performance, we reviewed the  acquisition strategy and other key documents, including DOD  memorandums and reports to Congress, which outlined the Navy’s  acquisition approach for Flight III. We compared the Navy’s acquisition  strategy against the documentation and requirements typically necessary  for a new acquisition program based on DOD acquisition guidance. We  reviewed Navy program briefings, reports to Congress, and testimony  statements to identify how the Flight III acquisition strategy has changed  over time and the extent to which the Navy has completed key activities  that are part of its acquisition approach, including updating documents  and holding program reviews. We also assessed the Flight III contracting  strategy by comparing the Navy’s knowledge of Flight III design and  construction to statutory criteria required for requesting authorization to  use a multiyear contract. To further corroborate documentary evidence  and gather additional information in support of our review, we conducted  interviews with relevant Navy officials responsible for managing the  design and construction of DDG 51 Flight III ships, such as those within  PEO Ships, DDG 51 program office, Electric Ships program office, PEO  IWS, Naval Sea Systems Command’s Naval Systems Engineering, and  Supervisor of Shipbuilding, Conversion, and Repair. We also met with  representatives from the lead and follow shipyards—Bath Iron Works  Corporation and Huntington Ingalls Industries—to understand their role in  Flight III design and development. To understand Flight III cost  considerations, we interviewed CAPE about cost estimation activities for  the program.

To assess what capabilities Flight III ships are expected to provide and  the extent to which these capabilities fulfill the Navy’s existing and future  surface combatant needs, we compared the Navy’s 2009 Radar/Hull  Study—which was the main tool the Navy used to identify the DDG 51  Flight III as the platform for AMDR—with the Navy’s Maritime Air and  Missile Defense of Joint Forces (MAMDJF) Analysis of Alternatives, a  2007 Navy study related to ballistic missile defense and integrated air and  missile defense. We reviewed the Capability Development Documents for  both DDG 51 Flight III and AMDR and other Navy documentation to  determine the capabilities that the Navy had originally planned to include  as part of the Flight III configuration. We compared these capabilities  against those that are currently expected to be delivered as part of the  first three Flight III ships. We assessed the extent to which Flight III and  AMDR planned capabilities fulfill requirements for surface combatants  based on MAMDJF stated requirements. We also reviewed the potential  for Flight III to fulfill air and missile defense requirements that are  currently the responsibility of the Navy’s cruiser fleet. We examined ship  weight reports and other Navy, DOD, and contractor documentation to  analyze Fight III’s service life allowance and determine the extent to  which future upgrades can be introduced onto the ship. To further  corroborate documentary evidence and gather additional information to  support our review, we met with officials from the office of the Chief of  Naval Operations to discuss the status Navy’s current and any future  studies related to surface combatants and integrated air and missile  defense capabilities. We also met with officials from the PEO Ships, PEO  IWS, and the Joint Staff.

We conducted this performance audit from July 2015 to August 2016 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: Comments from the Department of Defense

section_title: Appendix III: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Michele Mackin, 202-512-4841 or mackinm@gao.gov.

section_title: Acknowledgments
paragraphs: In addition to the contact above, Diana Moldafsky, Assistant Director;  Pedro Almoguera; Laura Greifner; Laura Jezewski; C. James Madar;  Sean Merrill; Garrett Riba; Roxanna Sun; James Tallon; Hai Tran; and  Alyssa Weir made key contributions to this report.


Question-summary annotations: questions: question: How is AMDR's SPY-6 radar progressing?
answer: The Air and Missile Defense Radar (AMDR) program's SPY-6 radar is progressing largely as planned, but extensive development and testing remains.
child_questions: question: In what ways will testing be important?
answer: Testing of the integrated SPY-6 and full baseline Aegis combat system upgrade—beginning in late 2020—will be crucial for demonstrating readiness to deliver improved air and missile defense capabilities to the first DDG 51 Flight III ship in 2023.
child_questions: question: What is the status of this testing?
answer: After a lengthy debate between the Navy and the Department of Defense's (DOD) Director of Operational Test and Evaluation, the Secretary of Defense directed the Navy to fund unmanned self-defense test ship upgrades for Flight III operational testing, but work remains to finalize a test strategy.

questions: question: What weaknesses exist in the Navy's Flight III process?
answer: The Navy has not demonstrated sufficient acquisition and design knowledge regarding its Flight III procurement approach and opportunities exist to enhance oversight.
child_questions: question: What specific limitations are at play?
answer: If the Navy procures the lead Flight III ship in fiscal year (FY) 2016 as planned, limited detail design knowledge will be available to inform the procurement. In addition, the Navy's anticipated cost savings under the FY 2013-2017 Flight IIA multiyear procurement (MYP) plan do not reflect the planned addition of Flight III ships. While the Navy did not update its cost savings with Flight III information, doing so would increase transparency and could help inform expected savings under the next MYP.

question: What is the Navy's timeline for Flight III contracts?
answer: The Navy plans to request authority to award new Flight III MYP contracts (FY 2018-2022) in February 2017.
child_questions: question: What problems exist with this timeline?
answer: The Navy will be asking Congress for this authority to procure nearly half of Flight III ships before being able to meet the criteria to seek this authority. For example, detail design will not be complete and costs will not be informed by any Flight III construction history. Finally, Flight III cost and schedule performance is not distinguished from that of the overall DDG 51 ship class in annual reports to Congress.

question: How could establishing Flight III as a major subprogram be beneficial?
answer: Establishing Flight III as a major subprogram would improve reporting and offer greater performance insight.

questions: question: What are the Navy's plans regarding Flight III destroyers?
answer: Over the next 10 years, the Navy plans to spend more than $50 billion to design and procure 22 Flight III destroyers, an upgrade from Flight IIA ships.
child_questions: question: What role will Congress play in this spending plan?
answer: The Navy's MYP approach requires the Navy to seek authority to do so from Congress.

question: What new technologies will Flight III ships include?
answer: Flight III ships will include the new SPY-6 radar system and Aegis (ballistic missile defense) combat system upgrades.

questions: question: Why did GAO examine the Navy's plans for Flight III ships?
answer: House report 114-102 included a provision for GAO to examine the Navy's plans for the DDG 51 Flight III ships and AMDR.
child_questions: question: What does GAO's report assess?
answer: This report assesses (1) the status of efforts to develop, test, and integrate SPY-6 and Aegis in support of Flight III; (2) challenges, if any, associated with the Navy's plans to design and construct Flight III ships; and (3) the Flight III acquisition approach and oversight activities, among other issues.

question: How did GAO make these assessments?
answer: :GAO reviewed key acquisition documents and met with Navy and other DOD officials and contractors.

questions: question: In what ways should Congress adjust to reflect the addition of the Flight III ships?
answer: Congress should consider requiring an update of estimated savings for the current DDG 51 MYP to reflect the addition of Flight III ships.
child_questions: question: How should the Navy respond to this process?
answer: The Navy should delay procurement of the lead Flight III ship and refrain from seeking authority for a MYP contract until it can meet criteria required for seeking this authority.

question: How should DOD respond?
answer: DOD should also designate Flight III as a major subprogram to improve oversight.
child_questions: question: How did DOD respond to this recommendation?
answer: DOD partially concurred with all three recommendations but is not planning to take any new actions to address them.
child_questions: question: What is GAO's stance on the matter?
answer: GAO continues to believe the recommendations are valid.