Navy Warned to Cut Shipbuilding Costs

May 7, 2010

Government Relations Update - Defense

Navy Warned to Cut Shipbuilding Costs

Secretary of Defense Robert Gates issued a strong warning to the Navy and shipbuilding industry to reduce costs during a speech on Monday. Speaking at the Navy League Sea-Air-Space Expo, Gates argued that the U.S. should shift investments "toward systems that provide the ability to see and strike deep along the full spectrum of conflict," rather than focus on larger, traditional programs.

Secretary Gates comments were a surprise to many in the shipbuilding industry. The recently released 30 year shipbuilding plan calls for a 313 ship Navy, but Gates’ warning puts that force capability in jeopardy. The Navy plans to build about ten ships a year at an average cost of $14.7 billion per year in order to reach 313 total ships; however, the Congressional Budget Office (CBO) has estimated that it will cost upwards of $20 billion a year to maintain this size of force. Gates noted that the Department of Defense was unlikely to see any increase in the top-line shipbuilding budget beyond the current assumptions, putting the Navy’s medium and long range plans at risk.

Gates also questioned the value of expensive well respected naval platforms, stating that "we have to ask whether the nation can really afford a Navy that relies on $3 to $6 billion destroyers, $7 billion submarines, and $11 billion carriers." He also stated his uncertainty at having 11 Carrier Strike Groups (CSGs) for the next 30 years while no other country has more than one.

Navy Secretary Ray Mabus echoed Gates’ concerns on tightening Navy budgets, arguing emphatically that programs that don’t perform on time and on budget will be cut. Many people expected the SECNAV to temper Secretary Gates’ comments, but were disappointed when Mabus concurred with the assessment. He instead laid out a plan to improve Navy acquisition standards. Mabus outlined five principles that will guide Navy acquisition: clearly identify requirements, raise performance standards, rebuild the acquisition workforce, support the industrial base, and make sure every dollar is accountable. He also noted the Navy will move towards more fixed-price contracts in the future.

Counter to Secretary Gates comments on shipbuilding, the Assistant Secretary of the Navy for Research, Development and Acquisition, Sean Stackley, testified on Thursday before the Senate Armed Services Seapower Subcommittee that the U.S. does in fact need 11 carriers. At the hearing, Stackley stated the Navy is fully committed to the plan for 11 Carrier Strike Groups, as well as the Ohio-class submarine replacement slated for 2019.

DoD Lends Assistance to Gulf Coast Oil Spill

In addition to numerous Coast Guard assets working with British Petroleum and state and local governments, the Department of Defense has provided resources to assist in the clean-up of the massive oil slick in the Gulf of Mexico stemming from the Deepwater Horizon oil rig explosion last month. The Navy has already sent down 60,000 feet of inflatable boom to cut off the oil from reaching sensitive wetlands along the Louisiana coast. The oil is then collected and burned or dispersed with chemicals. Only recently have these booms been able to serve their purpose because strong winds and waves have made their placement ineffective. Calmer seas this week have allowed the Coast Guard to deploy the boom and cut off some of the oil. The Navy also sent seven oil skimming systems. These are towed behind boats to skim oil off the surface and put through a winger to remove the oil from the water. Congressman Gene Taylor (D-MS) has argued to allow the Department of the Navy to take the lead role in clean-up efforts, urging in a letter to the Secretary of Defense "to use the Navy’s resources and allow them to take a lead role in this disaster response operation.

The Secretary of Defense has also made two C-130’s from the Air Force available to assist. The C-130s are equipped with a modular aerial spray system, which disperses chemicals onto the water to disperse the oil on the surface.

Defense Department to Standardize Contract Award Process

New guidance from the Department of Defense will standardize across all services how competitive contracts are awarded. Frank Kendall, the Principal Deputy Under Secretary of Defense for Acquisition, Technology and Logistics, announced that DoD is reviewing the idea to implement department-wide standards. Shay Assad, the Assistant Secretary of Defense for Acquisition is set to brief officials on the plan next week.

Currently, the Navy, Air Force, and Army use different guidelines for source selection. Although all services must abide by Federal Acquisition Regulations (FAR), each one has a separate system for contract awards. Much of the new document will pull from the Air Force’s source-selection guide, widely viewed as the most detailed of the three services. Officials were quick to point out that the Air Force guidelines are only a starting point, and will not be the final rules.

DoD is seeking comments on the draft proposal from the service acquisition heads and agencies before May 26. The final guidelines could be out as early as June or July.

House Armed Services NDAA Mark-up Schedule for Next Week

  • Wednesday, May 12, 2010
    • Military Personnel Subcommittee – 9:00 am
  • Thursday, May 13, 2010
    • Terrorism, Unconventional Threats and Capabilities Subcommittee – 9:00 am
    • Readiness Subcommittee – 10:30 am
    • Seapower and Expeditionary Forces Subcommittee – 12:30 pm
    • Air and Land Forces Subcommittee – 2:00 pm
    • Strategic Forces Subcommittee – 3:30 pm
  • The full committee mark-up will take place Wednesday, May 19

Quote of the Week

"As we learned last year, you don't necessarily need a billion-dollar guided missile destroyer to chase down and deal with a bunch of teenage pirates wielding AK-47s."

- Secretary of Defense Robert Gates, at a Navy League speech discussing the cost of Navy shipbuilding.

Notice: The purpose of this newsletter is to review the latest developments which are of interest to clients of Blank Rome. The information contained herein is abridged from legislation, court decisions, administrative rulings, and other sources and should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.