Littoral Combat Ship: Actions Needed to Improve Operating Cost Estimates and Mitigate Risks in Implementing New Concepts
Released: 2010-02-02T00:00:00

Letter

Background

Program Description

The LCS is being developed to assure access to the littorals that are threatened from mines, submarines, and surface forces. The LCS program consists of two distinct parts, the ship itself—called a seaframe—and the mission package it carries and deploys to provide combat capability. In addition to the capabilities associated with the mission packages, the LCS may be expected to perform inherent capabilities such as homeland defense, search and rescue, or humanitarian assistance. The Navy is using two contractors to build differently designed seaframes. As of December 2009, the Navy had bought two ships of each design, of which the first ship of each design has been delivered. The Navy plans to select one design in fiscal year 2010 for the remainder of the class. Figure 1 shows each of the seaframes.

By the end of fiscal year 2015, the Navy plans to have bought up to 23 of the planned 55 ships. These ships represent a significant investment in the LCS program not only for procurement but also for long-term operating and support costs. A weapon system’s life-cycle costs include research and development, procurement, military construction, operations and support, and disposal. Since operating and support costs are historically the largest portion (over 70 percent) of a weapon system’s lifetime costs, these costs were the focus of our analysis of the Navy’s LCS cost estimates.

The LCS seaframe’s combat capability will be provided by one of three interchangeable mission packages. Each mission package will also include an aviation detachment of manned helicopters and unmanned aerial vehicles. Currently the Navy plans to buy 64 mission packages for three mission areas—24 for mine countermeasures, 16 for antisubmarine warfare, and 24 for surface warfare. The surface warfare mission package also includes a module for maritime security, primarily to provide capability for boarding other ships. The Navy has not yet decided how many maritime security modules it will buy. Table 1 below describes the basic mission of each mission package.

The Navy plans to incrementally add capability to these packages over time, and, according to Navy officials, may develop additional mission packages as needed.

Rotational Crewing for LCS

The Navy intends to rotationally crew LCS to enable each seaframe to remain deployed for up to 18 months. The Navy plans to have four crews for every three ships with one of the three ships being deployed at any one time. Since the LCS crew is smaller than the crews on many other surface ships, the Navy plans to rotate the core crews after about 4 months (117 days) to help reduce crew fatigue. During the 2-week turnover period, the crews and contractors will perform preventive and corrective maintenance and resupply the ship. Navy officials stated that one benefit to having more crews than ships is that the Navy is able to quickly replace a deployed crew member who becomes sick or injured with a comparably trained sailor. The primary benefit of rotational crewing will be the ability to maintain a deployed seaframe for up to 18 months continuously while allowing the crews to relieve one another and return to their homeport without undue hardship. The seaframes would be rotated every 18 months with a 30-day overlap period.

Navy Organizations Are Intended to Monitor Development of and Resolve Implementation Issues with the LCS Concept of Operations

Given the challenges in implementing new concepts for personnel, training, and maintenance, the Navy established several groups to identify and resolve challenges it faces. These groups include an Oversight Board, a Council of Captains, and two cross-functional teams. These groups are comprised of members from across the Navy and, collectively, these groups identify and review issues and barriers to implementing the LCS concepts articulated in the Wholeness Concept of Operations and work together to jointly develop solutions.

Oversight Board: The board is chaired by the Commander Naval Surface Forces and the membership includes executive-level representatives from program executive offices, program sponsors, and other major stakeholders from across the Navy. The board is supported by a senior executive-level working group called the Council of Captains. The board meets quarterly to consider key issues that require high-level decisions. For example, issues discussed this past year included the need to support development of distance support capabilities, and the need to fund aviation crews for the detachments that will support LCS operations.

Cross functional teams: Two cross functional teams support the Oversight Board—one focused on manning and training issues and the other focused on maintenance and logistics issues. For example, the manning and training team is working on issues such as upgrading the shore-based trainers and the need to determine the appropriate level of shore support personnel. Also, the maintenance and logistics team has raised issues, such as remotely monitoring the condition of ship systems and funding for distance support development.

In addition, the LCS Program Office, an office within the Naval Sea Systems Command, chairs the Risk Management Board. The board’s work is predominately contained within the LCS Program Office and focuses on identifying, measuring, and mitigating technical, schedule, and cost risks. Navy officials stated that the board differs from the other groups in that the risks it manages are almost exclusively focused on development and production—issues within the program office’s control. The few operationally related risks that the board has identified to date include: personnel operating the launch and recovery equipment, personnel transporting supplies on board, potential for increased crew fatigue caused by the ship’s motion, and crew training. According to Navy officials, the mitigation for the training issues is the ongoing study to develop a long-term LCS training plan and the mitigation for the personnel issues is to observe and learn from the ongoing test and trials period and initial deployments and then make adjustments, if needed.

The Navy’s Operating and Support Cost Estimates Do Not Fully Reflect Best Practices and May Change Due to Program Uncertainties

The Navy Estimated Operating and Support Costs for the LCS Program

The Navy has estimated operating and support costs that include most elements of the LCS program. Our analysis of the Navy’s 2009 estimates showed that the operating and support costs for the planned seaframes and mission packages could total $84.8 billion which amounts to about $61.7 million per seaframe annually to operate and support both the seaframes and mission packages.

For the seaframes, the Navy’s 2009 estimate of operating and support costs projected a total of $64.1 billion based on a 25-year service life. According to Navy officials, this estimate assumed a nearly even split of the two seaframe types as the seaframes have different operating and support cost profiles. However, the Navy has announced that it will choose one of the two seaframe designs in 2010 so the associated operating and support costs will likely change depending on the design selected.

For the mission packages, operating and support costs could total $20 billion. The Navy provided us with its estimate of the average annual operating and support costs of each mission package. Therefore, to calculate the total operating and support costs, we multiplied the average annual estimates by the number of packages of each type with an expect 30-year service life. The Navy’s most recent estimates were prepared to support the fiscal year 2010 budget but did not include the antisubmarine package since its contents are under development; therefore, we used thete to calculate the operating and support costs for this prior year’s estima mission package.

Operating and Support Cost Estimates Do Not Fully Reflect Best Practices

Although the Navy has estimated operating and support costs, we found that the Navy had not fully implemented cost estimating best practices. According to DOD and GAO best practices for cost estimating, a credible cost estimate should include the following three steps: analyze the likelihood that the costs could be greater than estimate assess how the cost estimate may change in response to changes in program assumptions, and compare the estimate to an independently developed estimate.

The Navy’s estimates showed some aspects of a high-quality cost estimating process. For example, the estimates included most cost categories recommended by DOD’s cost estimating best practices— as personnel, maintenance, and sustaining support—and documented ground rules and assumptions, methodologies, and data sources. However, d our assessment of the Navy’s operating and support cost estimates showe e that the Navy did not take two of the three steps listed above to ensure th estimates’ credibility, and only partially completed the other step.

First, the Navy did not perform an analysis to assess the likelihood that t operating and support costs for either the seaframe or mission packages ysis, could be greater than estimated. This analysis, known as a risk anal estimates the likelihood that operating and support costs could ris beyond what was projected and the degree of the possible increase. We reported in 2009 that out of 10 of DOD’s largest acquisition programs, 5 had increased overall acquisition costs from their first full cost estimate. Of those that didn’t, three programs sharply reduced procurement quantities, and unit costs increased for all but one According to best practices, a credible cost estimate should include a risk analysis that shows the range of possible costs and the likelihood that costs could increase to particular levels. The results of a risk analysis are usually shown in a cumulative probability distribution or “S-curve.” Figure 2 below shows a notional example of an S-curve. of the systems.

Operating and Support Cost Estimates Are Likely to Change Due to Program Uncertainties

The Navy has not yet decided which one of the two LCS seaframes it will buy for the remainder of the program, leading to uncertainty about the effects of this program decision on the operating and support cost estimates developed to date. Also, the Navy has not yet decided what it will do over the long term with the two ships of the design that is not chosen. The Navy currently plans to deploy these two ships as they become available, according to Navy officials. Since the two designs will require separate training facilities and core crew, and since each design has unique equipment and therefore different maintenance requirements, continuing to support both designs may carry a cost premium. Likewise, deciding which one of the two LCS seaframes to buy is likely to, in turn, affect decisions on issues such as infrastructure and training requirements, with accompanying cost implications.

The Navy’s force structure analyses supporting the planned purchase quantities of mission packages are incomplete, adding to uncertainty about costs in future budget years. Our prior work has shown that a knowledge-based decision-making process can help provide a comprehensive analytic basis for an acquisition program, including determining the optimum quantities of LCS seaframes and mission packages. This information in turn can help decision makers evaluate the affordability of the LCS program and establish funding priorities. Navy officials from two divisions within the Office of the Chief of Naval Operations—the Surface Warfare Division and the Assessments Division— said they were unaware of any analysis supporting the total planned quantities for either the surface warfare package or its maritime security module. Also, Navy officials said that the Navy has not performed a force structure analysis on the antisubmarine package because the contents are under development. The Navy has not performed a complete analysis of LCS seaframe and mission package quantities because certain information needed for the analyses was not yet available, including decisions on potential changes to program operating assumptions and requirements. Further, an analysis of LCS seaframe and mission package quantities is not included in the Assessments Division’s fiscal year 2010 agenda.

The planned force structure of 55 LCS seaframes is based on a 2005 analysis of requirements for responding to possible overseas conflicts and meeting overseas presence requirements, which officials said they revalidated in 2007 and 2008. However, this analysis is based, in part, on certain assumptions that are not yet verified. For example, one assumption is that rotational crewing plans will work as expected, allowing a greater presence per ship than the traditional one crew per ship. However, rotational crewing has never been routinely conducted by the Navy for an entire class of surface combatants. If the Navy switches to a different crewing model, a different number of ships could be required to sustain the same presence, or alternatively, a different number of crews could be required. The expected purchase of 55 seaframes is also based on an assumption that some ships would be homeported overseas, according to Navy officials. If the assumed number homeported overseas changes, then the number of LCS needed to maintain the same presence requirements could also change. If these assumptions change due to program decisions or operating experience, the total number of LCS seaframes needed to meet requirements may change. It may be important for Navy and DOD decision makers to have updated and complete force structure analyses for the LCS program since any changes to the planned purchase quantities as a result of updated force structure analyses would affect the program’s total operating and support costs. Without such analyses, decision-makers may not be able to effectively evaluate the affordability of the program.

Finally, the LCS cost estimates could change as actual operating data become available and operational concepts are refined. Since little actual LCS operating and support data are available to date, the estimates are currently based on data from other systems, and the estimates could change as actual cost data become available. The cost estimates are also based on new operational concepts for personnel, training, and maintenance. These new concepts are not fully developed, tested, and implemented, and, if these concepts change, the estimates could change. For example, the Navy has not yet fully developed or implemented a comprehensive training plan, and it is possible that the plan could cost more or less than the training costs accounted for in the current estimates.

Upcoming Program Decisions Would Benefit from Further Analysis of Long-Term Operating and Support Costs

Decision makers could benefit from further analysis of the program’s long- term operating and support costs before making key program and investment decisions. Since operating and support costs constitute a major portion of system life-cycle costs—over 70 percent—they are critical to the evaluation of acquisition alternatives. Navy officials told us that they are developing criteria for selecting one seaframe for the remainder of the program; however, at this time it is not clear that the criteria will include a comparison of the operating and support costs of each seaframe or whether the estimates will be developed according to all three steps for ensuring credibility and the results presented to decision makers in the Navy and DOD.

According to DOD and GAO best practices for cost estimating, decision makers should consider affordability at major decision points, and a comparative analysis should be done to identify costs and benefits of competing alternatives, including an operating and support estimate of each alternative. The lack of cost estimates that fully meet best practices, such as including an analysis to assess the likelihood that costs will be greater than estimated, raises questions about the credibility of the estimates that have been produced to date and limits the ability of decision makers to make fully informed program and investment decisions, such as: accurately assessing the affordability of LCS within the broader portfolio of Navy and DOD programs, identifying the resources needed over the long term to support the planned investment in the LCS force structure, assessing the long-term cost implications of alternative acquisition strategies such as which seaframe the Navy will buy for the remainder of the 55-ship class, and analyzing the costs of options for what to do with the two seaframes of the design that is not selected.

According to DOD acquisition guidance, at the Milestone B decision point lead and initial follow-on ships are normally approved and an independent life-cycle cost estimate for the program, including operating and support costs, is required. The Milestone B decision point for the LCS program has been delayed several times. Originally scheduled for January 2007, Navy officials now say they plan to hold the milestone in May or June 2010.

According to Naval Sea Systems Command officials, the Navy plans to develop a life-cycle cost estimate including operating and support costs and have an independent cost estimate prepared by CAPE to support the program’s Milestone B decision in May or June 2010. Navy officials told us they plan to complete the other two steps for a credible estimate— analyzing the likelihood that costs will increase over time, and fully assessing the effects of changing key program assumptions—at Milestone B. However, Navy officials said that this information may not be presented to top decision makers in the Navy and DOD, and therefore may not inform key program decisions such as the decision of which seaframe to buy for the remainder of the program. Further, congressional decision makers may not be fully aware of the LCS program’s operating and support costs since, to date, the LCS Selected Acquisition Reports submitted to Congress have not included operating and support cost estimates. Operating and support costs are required to be included in such reports for programs that have passed Milestone B and, as previously noted, the LCS program has not yet passed that point. Without the benefit of current, credible estimates of the long-term operating and support costs, congressional decision makers may not be fully aware of the resources that will be needed over time to support the ships for which DOD requests funds to buy each year.

The Navy Has Made Progress but Faces Risks in Implementing Its Plans to Operate and Support LCS

The Navy Faces Risks in Implementing Its Personnel Plans over the Long Term

Although the Navy is conducting studies to determine personnel requirements for LCS, it has not fully identified the number of ship and shore support personnel required to support LCS over the long term and faces risks in its ability to identify and assign personnel over the long term. Additionally, the Navy has not routinely rotationally crewed an entire class of surface combatants; therefore, the concept being planned for the LCS class is unproven. Although the Navy rotationally crews some small ships, such as the mine countermeasure ships, the Navy has only experimented with rotationally crewing surface combatants such as destroyers and only did so for a short time.

The current Navy plan for a 40-person core crew has not yet been validated by an analysis of the crew’s expected workload. Early Navy estimates indicated that the core crew might need to be more than 40 to mitigate a concern that a crew this small could experience fatigue. For example, one study raised the issue that crew fatigue could affect missions which could be mitigated by temporarily augmenting the crew or modifying how missions are conducted. The 40-person core crew size was based upon the results of a 2005 conference to explore options for reducing the size of the core crew, which was not the typical workload analysis. The Navy’s Manpower Analysis Center typically conducts analyses of a ship’s workload to determine the number and type of personnel required to complete all operational and maintenance tasks. However, this analysis for the LCS core crew and the three mission packages is not scheduled to be complete until after the first full deployment, around fiscal year 2014.

The Navy’s initial analysis to identify shore personnel requirements is due by the end of 2009; however, the full requirements for shore personnel may not be known for several years. Due to the limited crew size, many administrative and maintenance duties will have to be performed ashore rather than on board as on other surface ships and will be managed by LCS squadrons. Navy officials estimated that the number of people needed in a squadron organization to manage and support 12 to 15 LCSs might be about 170. The LCS squadrons are likely to be larger than squadrons for other surface ships since their responsibilities for the level of shore-based support required for the small core crew will be greater. However, Navy officials said that they will not know how large the LCS squadrons should be until they have experience with supporting deployed ships. In addition, the shore support personnel required will be affected by outstanding decisions, such as where to homeport the ships and the long- term maintenance strategy. Since the Navy has not yet completed its studies to identify the LCS personnel requirement, we compiled Navy estimates of the personnel that may be required to support LCS over the long term. Specifically, we added Navy estimates of the personnel that may be required for the ship crews, mission package crews, and the LCS squadrons to derive a total number of personnel that may be required for the program. Table 2 below shows that the total personnel required for the LCS program over the long term might be approximately 4,600 people.

The above estimate of the total personnel required does not include aviation crews, which could total an additional 1,656 people. We did not include aviation crew personnel in the table because these crews are not totally dedicated to LCS and may be tasked to support other ship types, according to Navy officials. The Navy has the core and mission package crews in its personnel plans, but to date has not funded all the aviation crews. According to Navy officials, if the aviation crews are not funded in the Navy’s fiscal year 2012 budget, then the Navy may begin to experience shortfalls in aviation crews beginning in fiscal year 2014.

The Navy also faces risks in its ability to identify and assign personnel to LCS over the long term due to the requirement for relatively senior, highly trained personnel. Specifically: LCS sailors must be experienced sailors and positions must be filled by a person of the exact pay grade required, which could limit the pool of personnel available. Sailors must also commit to serving on an LCS crew for 36 months after completing their LCS training. Considering the concept for rotational crewing, a sailor might serve two or three 4-month deployments during their 36-month LCS tour for a total of 8 to 12 months of LCS deployment time.

The number of requirements that potential sailors must meet in order to qualify for an LCS assignment is rigorous. For example, potential LCS sailors must meet current physical fitness standards as well as have passed the previous 18 months of physical fitness assessments. In contrast, sailors are considered qualified for assignment on other surface ships if they passed the most recent physical fitness test. Also, sailors will not be considered for assignment to LCS if they are color blind or have a pending application for the officer commissioning program.

Due to the longer training time required to prepare LCS sailors, the Navy’s Personnel Command must identify personnel 18 to 24 months prior to when they need them to report to the LCS crew. For other surface ships, the Personnel Command needs to identify personnel only 5 to 9 months ahead of time. Personnel Command officials stated that they must manually identify the personnel for LCS since the computer system normally used to identify personnel can only identify personnel up to12 months in advance. Due to the increased workload resulting from the manual process, the Navy Personnel Command has set up a separate office specifically to handle LCS personnel assignments and added eight positions. Officials stated that they will likely need more personnel as more ships and mission packages enter service. Since the average annual turnover rate is about one-third, according to Navy officials, the Personnel Command will have to manually identify a significant number of replacement sailors each year to support the LCS program.

The Navy Faces Risks in Achieving the Extensive LCS Training Requirements

The Navy has made progress in identifying LCS-unique training requirements, but faces risks in implementing its training concept. According to the Navy’s concept for LCS, sailors must be ready to perform their duties when they arrive on board without additional supervised, on-the-job training that is typical of other surface ships. The Navy calls this the “train to qualify” standard. In contrast, it is typical on other ships for a sailor to complete his or her training on board via supervised, on-the-job training. According to Navy officials, it may take about 6 months of onboard on-the-job training for a sailor on other surface ships to reach the same level of proficiency as that described in the concept for LCS sailors. The Navy’s approach to LCS training is different than for other surface ships since the small LCS crew size means that there is little capacity on board for supervised training and no training group on board the ship as is typical of other surface ships. LCS sailors will also be required to be trained in several skill areas outside their primary specialty. For example, an LCS Damage Control Assistant will also have to train in an engineering skill area and an Electronics Technician will also have to train in a Fire Controlman skill area. In addition, LCS sailors will be expected to perform various collateral duties, such as serving as the crew’s barber and running the ship’s store.

The Navy expects to complete a study of LCS training by the end of 2009 but may not fully implement the results for several years. The Navy began this study to fully identify LCS training requirements and to recommend alternatives for providing training over the life of the LCS program. This is a complex process since training requirements for the core crew are unique for each position on the two seaframes. Although the Navy has identified LCS-specific training requirements for both seaframes and the three mission packages, the Navy has not yet completed plans for how to provide this training over the long term. Further, the training plan resulting from the Navy’s LCS training study may not be fully implemented until about 2013 or after, largely due to the need to develop and buy simulators and virtual training facilities. Depending on homeporting decisions, the Navy may need to build comparable simulators on the east coast as well as the west coast. Although the Navy has built one shore-based trainer for each seaframe, the trainers will need to be upgraded in accordance with the training study results and to meet the train-to-qualify standard. Until the results of the training analysis are implemented, the Navy has developed an interim solution, called the LCS Academy, to provide LCS- specific training and fill training gaps.

Another reason the training required prior to the sailor coming on board the LCS is longer and more extensive than for other surface ships is that the training requirements include courses outside of the sailor’s primary specialty. To assess the training requirements for LCS versus other surface ships, we compared the training days required before a sailor reports to an LCS crew to the training days required before a sailor reports to other types of surface ships. Our analysis of a sample of LCS positions showed that the number of training days required before an LCS sailor reports to the crew is significantly longer than for sailors in comparable positions on other ships—an average of 484 days versus 126 days for an amphibious transport docking ship and 103 days for a destroyer. The lowest number of training days required for an LCS position in our sample was 264 and the highest was 832. Figure 3 below shows the average number of training days for the positions in our sample on a typical destroyer, amphibious transport docking ship, and the LCS.

As noted above, a sailor on ships other than LCS may spend an additional 6 months completing training on board via supervised, on-the-job training. Therefore, even accounting for this time, the LCS training time required is significantly higher. Implementing the LCS concept of train-to-qualify has two important effects. First, the costs to train sailors before they report to an LCS crew are likely to be significantly higher than for other surface ships due to the longer training time required before the sailors report to a crew and due to the costs to build and sustain the shore-based training facilities. Second, the longer training time before reporting to a crew is the major reason that the Personnel Command has to identify people 18 to 24 months before they report to an LCS crew, which Navy documents have indicated may be unsustainable using the current personnel distribution system.

The Navy Faces Risks in Implementing Its Maintenance Concept

The Navy also faces risks in implementing the maintenance concept being developed to allow for a small assigned crew. Performing preventive maintenance is an important factor in maintaining the material condition of the ship. According to the Navy’s Board of Inspection and Survey, deferred maintenance was a key factor in some surface ships having significant material problems identified during recent inspections. The risks for LCS are in preventive maintenance—periodic tasks to keep equipment in good condition—and distance support—moving work from the ship to the shore. Regarding preventive maintenance, the Navy is still assessing how much preventive maintenance the core crew can accomplish. Due to the small core crew size, a significant amount of maintenance has to be moved off ship. The initial analysis was that 20 to 30 man-years of preventive maintenance would have to be moved off of the ship. According to the Navy’s LCS concept, the core crew is expected to do little or no corrective maintenance and minimal preventive and facilities maintenance. The rest would be done during in-port periods— by the crew or contractors—or by teams that fly out to the ship to perform maintenance during crew turnover periods. As of October 2009, Navy officials stated that well over 50 percent of the preventive maintenance had been transferred from the ship to the shore and is being accomplished by contractors under the interim support plan agreement. In contrast, on other surface ships, the crew performs all preventive maintenance and much corrective maintenance that involves diagnosing problems and completing somewhat complex repairs. During fiscal year 2009, the Navy spent $6.0 million on the interim support plan for seaframe preventive and facilities maintenance. The Navy is also still working to resolve issues in the system developed for LCS to schedule and track accomplishment of preventive maintenance.

The Navy also faces risks in implementing its plans for distance support. Distance support is a key enabler for supporting LCS and requires the capability to move information to and from the ship. Although other ships in the Navy rely to some extent on distance support, Navy officials stated that distance support is critical to enabling LCS to operate as envisioned in the operational concept due to the small crew size. According to the concept, many administrative functions are also planned to be moved ashore such as postal, administrative records, logistic support, and maintenance and fuel records. Commander, Naval Surface Forces established LCS distance support requirements in April 2009, which included developing the capability to move the workload for 120 processes from the ship to the shore. Navy officials stated that they are still evaluating what work to move ashore and how to do so. The processes identified to date include identifying corrective maintenance, monitoring crew qualifications, fuel reporting, and remote monitoring of the condition of some ship systems. However, the Navy has not yet provided funding for the development, implementation, and long-term sustainment of these distance support capabilities. If these capabilities are not fully developed and maintained, then the crew’s workload could increase or the crew size might need to be increased.

In addition, the Navy does not yet have a long-term maintenance strategy for the LCS seaframes and mission packages. Currently, the Navy has interim support plans for both the seaframes and mission packages that include contractor-provided maintenance. The Navy intends to develop and implement a long-term maintenance strategy by about 2015 for the mission packages and by the end of 2011 for the seaframes. The long-term strategy may continue to employ mostly contractor-provided maintenance or could consist of a combination of contractor- and service-provided maintenance in a Navy shipyard. According to Navy officials, the Navy has not yet analyzed core logistics capabilities for the LCS program but plans to do so as part of its analysis to identify a long-term maintenance strategy. Under section 2464 of Title 10 U.S. Code, DOD is required to maintain a “core logistics capability” that is government owned, government operated, and that uses government personnel, equipment, and facilities. However, we reported in May 2009 that DOD has neither identified nor established core capabilities in a timely manner for certain new systems that were included in the May 2009 report. Consequently, among other things, we recommended that DOD require an initial core assessment early in the acquisition process, preferably before Milestone B, and that acquisition strategies for new or modified systems include either a plan for establishing core capability within 4 years of initial operational capability, or a statement that no core capability requirements were identified.

A Risk Assessment Could Inform Key Procurement Decisions

Despite risks in implementing its new LCS operational concepts, the Navy has not specified the potential operational effects or identified alternative approaches if its concepts cannot be implemented as envisioned. The 2008 National Defense Strategy describes the need to assess and mitigate risk in the execution of defense programs critical to national security, including risks relating to the department’s capacity to execute future missions and manage personnel, training, and maintenance. Our prior work also showed that a risk assessment is a best practice that informs an organization’s decision making and includes identifying potential risks and identifying countermeasures to reduce the risks.

The Navy acknowledges that there are risks in implementing its new LCS operational concepts for personnel, training, and maintenance, and has established some groups to manage the details of how to implement the concepts, such as the cross-functional teams and the Oversight Board. These groups identify and review issues and barriers to implementing the LCS concepts and work together to jointly develop solutions. In addition, the LCS program office has established a Risk Management Board, which monitors issues primarily related to development and production of the seaframe and mission packages and focuses on technical, schedule, and cost risks. In general, this board does not focus on personnel, training, and maintenance risks. Although the work these groups perform is important, their scope does not include a thorough risk assessment as described in DOD’s Strategy and GAO best practices. These groups are focused on how to make the operational concepts work and, as yet, have not fully identified operational risks and assessed alternatives to mitigate the risks if these new concepts for personnel, training, and maintenance cannot be implemented as intended. In the case of LCS, a thorough risk assessment could be used, for example, to: identify the operational limitations if a 40- person core crew experiences undue fatigue and assess alternatives to the 40-person core crew or to identify the operational limitations if the distance support does not work as intended and assess alternatives for supporting a small crew. Without such a risk assessment to inform decision makers, the Navy faces unspecified operational and program risks at the same time that it plans to buy a total of 23 ships by the end of fiscal year 2015. Although the LCS operational testing is expected to provide some insights into the effectiveness of the new operational concepts, according to Navy officials, the tests are not scheduled to be completed until about fiscal year 2014. As shown in figure 4 below, the Navy plans to make a significant investment in LCS force structure before it has information indicating whether the operational concepts are likely to be successful.

LCS“Fleet Redy” (Jne)

Complete implementtion of trining dy result Complete ly of peronnel requirement Opertionl tet event chedled throgh Although Navy officials expect to gather useful information about how to operate and support LCS during this limited deployment, the deployment will not fully reflect how the Navy intends to deploy LCS as described in the Wholeness Concept of Operations, according to Navy officials. For example, the ship will not be deployed for 1 months, may not rotate crews, and will have more than 7 people on board such as contractors to provide additional support and assistance. “Fleet Ready” means that a specific LCS and mission package combination has completed some testing and certification and is ready for a deployment tasking, according to a Navy official.

If the operational concepts for personnel, training, and maintenance cannot be implemented as desired, then, according to Navy officials, the Navy may face operational limitations, may have to reengineer its operational concept, or may have to make significant design changes to the ship after committing to building 23 ships which represents a significant portion (42 percent) of the class. Further, without an assessment identifying the operational effects and without exploring alternatives, if the Navy’s approach to personnel, training, and maintaining LCS ships does not work as planned the Navy risks continuing to buy ships without the assurance that its plans for personnel, training, and maintenance can be implemented as envisioned. In contrast, having a thorough risk assessment of the new operational approaches to personnel, training, and maintenance would provide decision makers with information to link the effectiveness of these new operational concepts with decisions on program investment, specifically the pace of procurement.

Conclusions

Given the Navy’s major investment in the LCS program, it is critical that DOD and congressional decision makers have a complete cost estimate that fully reflects best practices—including analyses of how costs may increase with time and vary with changing program assumptions, as well as comparison with an independently developed estimate. Such estimates are needed to enable decision makers to assess the program’s affordability, including the long-term, recurring operating and support costs, and assess the long-term operating and support costs of all the acquisition alternatives before a decision is made. Specifically, having complete estimates of the long-term operating and support costs that are periodically updated and based on results of complete and current force structure analyses could be an important factor for decision makers to consider when weighing program investment alternatives such as which seaframe to buy or options for what to do with the two seaframes of the design that is not selected. Although the Navy’s operating and support cost estimates showed some qualities of a sound estimating process, the Navy did not follow best practices, such as requesting an independent estimate and comparing it to the program estimate, analyzing the likelihood that costs will increase, and analyzing the effects on the estimate of key cost drivers. Further, the Navy’s force structure analyses of the quantities of required seaframes and mission packages are incomplete and based on assumptions, such as how many ships may be homeported overseas, which, if changed, could change the quantities required. Changes in the quantities of required seaframes and mission packages could affect estimates of the program’s total operating and support costs. Cost estimates that fully reflect best practices and are based on complete and current force structure analyses of required quantities could enhance the ability of decision makers to identify the resources needed over the long term to support the seaframes and mission packages and assess the affordability of the LCS program. Further, decision makers in both DOD and Congress lack a complete picture of the likely long-term operating and support costs that will be incurred when buying an increasing number of LCS ships, hampering their ability to make sound program and investment decisions.

At the beginning of the LCS program, the Navy stated that reducing the number of ship personnel would be a major factor in lowering operating and support costs. As a result, the Navy’s decision to operate the LCS with a core crew of only 40 sailors drove the need to develop new operational concepts. Currently, these concepts are broadly stated and the Navy has not fully developed the details to implement its vision for identifying personnel, providing LCS-unique training over the long term, or shifting maintenance from the ship to shore. Although the Navy acknowledges its approach entails risk, the Navy has not specified what the potential operational effects might be if its concept cannot be fully implemented as envisioned. For example, the Navy has not specified potential negative consequences to LCS missions or identified mitigating strategies if there are not enough or insufficiently trained personnel on board or if the distance support concepts cannot be fully implemented. The Navy’s LCS plans represent a significant investment to achieve its force structure goals at a time when there are competing demands for limited resources. However, without a thorough risk analysis including an assessment of alternatives, the Navy faces undefined and, potentially significant operational and program risks. If the operational concepts for personnel, training, and maintenance cannot be implemented as desired, the Navy may face operational limitations, may have to reengineer its operational concept, or may have to make significant design changes to the ship after committing to building almost half of the class. For example, a thorough risk assessment could help the Navy identify the operational risks of a 40- person core crew, such as whether the crew can operate continuously for a 30-day mission without undue fatigue. A risk assessment could assess the alternatives such as the pros and cons of conducting shorter missions or increasing the size of the crew. Having such a risk assessment would enable decision makers to identify and assess: the operational effects if these concepts cannot be implemented as envisioned; alternatives to mitigate these risks; and information to link the effectiveness of these new operational concepts with decisions on program investment, specifically how many ships the Navy should buy each year. Moreover, doing so could help the Navy avoid costly retrofits if ship design changes are needed in order to implement its new concepts.

Recommendations for Executive Action

We recommend that the Secretary of Defense take the following six actions: In order to assess the long-term affordability of the LCS program and enhance decision making ability for the LCS program, we recommend that the Secretary of Defense direct the Secretary of the Navy to take the following actions: before deciding which seaframe to buy, produce a complete estimate of the long-term operating and support costs which fully reflects cost estimating best practices for each seaframe and use these updated estimates in deciding which seaframe to buy for the remainder of the program; use an updated estimate as a basis for analyzing the costs and benefits of options regarding the two seaframes built but not selected for long-term production, and use the results of this analysis in making the decision of how to use, or whether to retire, these seaframes; annually update the cost estimate for the long-term operating and support costs of the seaframe and each mission package using cost estimating best practices and submit the results to DOD as well as to Congress as part of the LCS Selected Acquisition Report; perform complete and updated force structure analyses on the LCS mission packages to help determine the appropriate purchase quantities over the life of the program, and use these updated quantities for the mission package cost estimate; and perform an updated seaframe force structure analysis when key underlying assumptions affecting seaframe quantities change, such as crewing policy, overseas homeports, or presence requirements, and use this updated analysis to adjust quantities and to update the seaframe cost estimate.

To improve the Navy’s ability to make better informed LCS program and investment decisions, we recommend that the Secretary of Defense direct the Secretary of the Navy to perform a risk assessment and consider the results before committing to buy LCS ships each year in order to link procurement with evidence that the Navy is progressing in its ability to implement its new personnel, training, and maintenance concepts and has taken actions to mitigate the operational effects if these concepts cannot be implemented as intended. Specifically, this analysis should identify and assess the: operational limitations the Navy may face if the Navy’s approach to personnel, training, and maintenance cannot be implemented as envisioned; possible alternatives, such as changes to the concepts or the ship design, and the related costs of those alternatives if the Navy’s approach to LCS personnel, training, and maintenance cannot be implemented as envisioned in its concept of operations; and personnel policies and processes to reduce the risks to the LCS program.

Such a holistic review could include the processes for identifying and assigning personnel, requirements LCS personnel must meet to qualify for assignment to an LCS crew, and identifying the total ship and shore LCS personnel required steady state to support the program over the long term.

Agency Comments and Our Evaluation

In written comments on a draft of this report, DOD agreed with four recommendations and partially agreed with two of our six recommended actions. The department’s comments are reprinted in their entirety in appendix II. DOD also provided technical comments, which we have incorporated as appropriate.

DOD partially agreed with our first recommendation that the Navy produce an estimate of the long-term operating and support costs and use these estimates in deciding which seaframe to buy. DOD stated that the Navy will prepare two cost estimates, one for each seaframe design, that will include estimates of the total operating and support costs for the entire class of LCS ships. However, DOD stated that, since the Navy has not released the solicitation for the fiscal year 2010-2014 buy, it is premature to discuss the down-select criteria included in the solicitation. While we appreciate the sensitivity of discussing criteria for the down- select prior to the release of the solicitation, we noted in the report that operating and support costs are critical to any evaluation of acquisition alternatives since these costs constitute over 70 percent of system life- cycle costs. We continue to believe that decision makers should consider long-term operating and support costs when deciding which of the two seaframes to buy for the remainder of the program. DOD also stated that the LCS seaframe estimate we reviewed for the report was developed solely to support trade study analysis and was not intended as a budget quality estimate. We understand this was the case, but the seaframe estimate we analyzed was the only estimate available even though the Navy has bought four LCS ships. The intent of our recommendation is to encourage DOD to develop a comprehensive cost estimate to assist decision makers as the program moves forward.

DOD agreed with our recommendation to use updated operating and support cost estimates to analyze the costs and benefits of options regarding the two seaframes built but not selected for long-term production. However, DOD stated that the Navy intends to operate and maintain the two non-selected LCS ships as part of the total LCS force structure but will continue to explore options to keep, sell, or retire the two non-selected ships during annual budget reviews. DOD’s response implies that, for the present, the department has decided to keep the two non-selected LCS ships without considering the results of a complete analysis of the costs and benefits of keeping the ships compared to other alternatives. As we point out in the report, it is important that estimates of long-term operating and support costs are available to decision makers to assess alternatives before a decision is made. However, if the department’s intent is to do such a cost analysis of alternatives and consider the results as part of the annual budget process, then their actions would meet the intent of our recommendation. DOD also agreed with our recommendations to include an annual update to the operating and support costs for the LCS program in the Selected Acquisition Report, and our recommendations to update both the seaframe and mission package force structure analyses and use these results in updating operating and support cost estimates.

DOD partially agreed with our sixth recommended action that DOD perform a risk assessment and consider the results before committing to buy LCS ships each year in order to link procurement with evidence that the Navy is progressing in its ability to implement its new personnel, training, and maintenance concepts. DOD stated that it agrees such risk assessments are appropriate and should be conducted. However, DOD disagreed that the risk assessment results should be linked to annual procurement decisions since the acquisition strategy is now to buy LCS in blocks—that is multiple ships—in fiscal years 2010, 2012, and 2015. DOD stated that, as an alternative, it will consider reviewing the risk assessments for personnel policies, training, and maintenance planning at the start of each new block buy. At the time of our review, the acquisition strategy involving the block buys was not yet approved by DOD. We believe that DOD’s proposed alternative approach would meet the intent of our recommendation. However, we also believe that, given the new acquisition approach, it is even more important that DOD conduct the risk assessment and consider the results before making a procurement decision for each block buy since the department will be committing to several ships with each block and there will be a gap of several years between each block buy. As we point out in our report, without such a risk assessment to inform each procurement decision, the Navy risks buying ships without the assurance that its plans for personnel, training, and maintenance can be implemented as envisioned.

We are sending copies of this report to the Secretary of Defense; the Secretary of the Navy; Naval Sea Systems Command; and Fleet Forces Command. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions, please call me at (404) 679-1816. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Staff members who made key contributions to this report are listed in appendix III.

Appendix I: Scope and Methodology

To assess the extent to which the Navy estimated the long-term operating and support costs for the Littoral Combat Ship (LCS) seaframes and mission packages, we reviewed documentation of seaframes and mission package cost estimates prepared by the cost-estimating division of the Naval Sea Systems Command. We met with officials from Naval Sea System Command’s cost-estimating division, as well as the program offices responsible for developing both seaframes and mission packages, to discuss and document the methodologies employed in the estimates. We also met with the Office of the Secretary of Defense’s office of the Director of Cost Assessment and Program Evaluation (CAPE) to determine the extent to which CAPE had reviewed Navy cost estimates for LCS and produced an independent estimate. We compared the estimates to cost estimating best practices identified by the CAPE and in the GAO Cost Estimating and Assessment Guide, and reviewed Department of Defense (DOD) and Navy acquisition regulations. To assess the extent to which the Navy analyzed the force structure requirements underlying the planned purchase quantities of LCS seaframes and mission packages, we met with officials of the Assessments and Surface Warfare divisions of the Office of the Chief of Naval Operations. We also reviewed documents reflecting the force structure analyses the Navy performed on LCS seaframes and mission packages.

Although the Navy’s estimates did not fully reflect best practices, they were based on a cost-estimating process that we deemed sufficient for reporting, with appropriate limitations. To calculate an average annual seaframe operating and support cost estimate, we divided the Navy’s estimate of total operating and support costs of LCS seaframes by the planned purchase quantity of seaframes and by their expected service life. We multiplied the average annual estimated mission package operating and support cost for each mission package by the planned purchase quantity of that mission package and the assumed service life. We then added together the seaframe and mission package totals. To obtain an average annual seaframe cost that included the cost of mission packages, we divided this total program operating and support estimate by the number of seaframe service years (seaframe quantity times assumed service life). We validated the methodology and results of our analysis with relevant officials from the Naval Sea Systems Command. However, our analysis of the Navy estimates is approximate and does not fully reflect cost estimating best practices as described in the report.

To assess the extent to which the Navy has developed and implemented plans to operate and support LCS, particularly in the areas of personnel, training, and maintenance, we reviewed and analyzed DOD and Navy guidance, the LCS Wholeness Concept of Operations, and instructions on personnel, training, and maintenance as well as key studies and planning documents. We also reviewed prior GAO products and DOD guidance on risk management to assess the extent that Navy plans included assessments of program risk. In addition, we interviewed officials at Headquarters, Department of the Navy and Navy Sea Systems Command for personnel, training, and maintenance as well as Fleet Forces Command, Commander, Naval Surface Forces, Navy Personnel Command, Bureau of Naval Personnel, and Navy Manpower Analysis Center.

To estimate long-term LCS personnel requirements, we analyzed Navy documentation, including personnel estimate documentation and the concept of operations, and validated the results with Navy officials at the offices listed above. To compare LCS training days to training days for other surface ships, we first identified a non-probability sample of LCS positions from both seaframes which were for critical positions such as the most senior enlisted personnel (E-8 or above), or those that generally met three of the following four criteria: a position that required training in several areas outside the sailor’s a position for a specialty that was on a list of 14 specialties which the Commander, Naval Surface Forces determined to have “unique cross rate training”; a position for a specialty which, at the time, was filled at less than 100 percent or a position for a specialty which, at the time, was filled at less than 100 percent at the lower levels, which might lead to less availability in the future; and a position in the unplanned loss pool.

To identify the training days required prior to reporting to an LCS crew, we obtained the training days required for the positions in our sample based on the Navy’s study of training requirements for LCS. We reviewed the process of how the Navy study team developed the course time requirements by speaking with knowledgeable officials and found the process was reasonable. To identify the training days required before reporting to a destroyer and amphibious transport docking ship, we obtained the training days required for comparable positions in our sample. We validated these data in meetings with Naval Sea Systems Command and Bureau of Naval Personnel officials. Finally, we compared the training days for LCS with the training days for the destroyer and amphibious transport docking ship. We reviewed the results of this comparison with Bureau of Naval Personnel, Fleet Forces Command, Naval Sea Systems Command, and several offices within the Office of the Chief of Naval Operations who generally agreed with the data, methodology, and results. Based on the work described above we concluded that the data were sufficiently reliable for our purposes.

We conducted this performance audit from October 2008 through February 2010 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.

Appendix II: Comments from the Department of Defense

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Acknowledgments

In addition to the contact named above, Patricia W. Lentini, Assistant Director; Brenda M. Waterfield; James R. Bancroft; Simon J. Hirschfeld; Linda S. Keefer; and Grace Coleman made key contributions to this report.