Friday, July 27, 2012

CBO on 2013 Shipbuilding Plan: Snort, Giggle, Harumph


Our friends at the Congressional Budget Office have done it again.

Their analysis of the Navy's shipbuilding plan came out this week. You can get your copy here, or read at the bottom of the post.

You need to read it all, there is a lot here - but here is what I found the most interesting at second reading.

They lay it all out in the summary; we have garbage in and garbage out. Once you read the cold, hard, facts given by the CBO and then look at DoN's numbers, it almost seems like the two organizations are living in parallel universes.

We'll get to the numbers in a bit - but one thing that kept coming to mind as CBO sliced off each of its thousand cuts was that the Navy continues to be undermined by the intellectual cancer of happy-talk and best-case COAs/CONOPS, leavened by the intellectual terrarium that is the Beltway.

As a result, we prevent ourselves from even starting an informed discussion by intentionally injecting inaccurate, ahistorical, and deeply flawed assumptions in to our entering arguments. We do this over and over, yet wonder why we have so little credibility. Over promise and under deliver is no way to run a business.

Anyway .... let's go!
The latest plan—submitted to the Congress in late March 2012 and covering fiscal years 2013 to 2042—contains some significant changes in the Navy’s long-term goals for shipbuilding. In particular, the Navy’s latest plan would:
- Reduce the goal for the inventory of ships,
- Reduce the number of ships to be purchased, and
- Alter the composition of ships to be purchased, buying fewer less-expensive support ships and more high-end combat ships.

The total costs of carrying out the 2013 plan—an average of about $22 billion per
year in 2012 dollars over the next 30 years—would be much higher than the funding
amounts that the Navy has received in recent years and higher than the costs for the
2012 plan, the Congressional Budget Office (CBO) estimates.
Out of the block, CBO puts USN on report; "Your numbers are bogus."

Remember since the end of last decade the discussions we've had about the funky numbers? Well it hasn't gotten any better and in may ways if drifting further from reality.
The Navy assumes that most of its destroyers will serve for 40 years. In the past, the Navy’s large surface combatants have typically served for 30 years or less. If the destroyers serve for only 35 or 30 years, the shortfall in large surface combatants could be more than twice as large as projected under the Navy’s plan, unless more ships were purchased.
...
The assumptions about the service life of large surface combatants remain the same
under the 2013 plan. The 2012 plan assumed that all Arleigh Burke class destroyers
commissioned after 2000 would have a service life of 40 years; earlier versions of the
ship would remain in the fleet for 35 years.
...
The Navy assumed it would keep its LHD class amphibious assault ships for 43 to 45 years (up from 40 years under the 2012 plan).
Have we shown any success in either INSURV or OPTEMPO that leads us to believe that we will be able to make these ships last that long in an economic manner? No. So ...

Speaking of ignoring present facts and creating your own,
CBO accounted for the fact that costs of labor and materials have traditionally grown faster in the shipbuilding industry than in the economy as a whole, whereas the Navy does not appear to have done so; that factor produces a widening gap between the estimates over time.
...
If the Navy receives the same amount of funding for new-ship construction in each of
the next 30 years as it has on average over the past three decades—$14.3 billion
annually—it will not be able to afford all of the purchases in the 2013 plan.
Given the budgetary crisis that is only starting, does anyone here think that the USN will be able to keep shipbuilding at steady-state? Ask the Royal Navy.

Looking for Fords out in the parking lot?
The number of support ships was lowered from 45 to approximately 33. Specifically,

the planned number of joint high-speed vessels (JHSVs)—small, fast ferries for transporting small numbers of personnel or equipment within a theater of operations was reduced from 21 to 10 ships.
...
Altogether, the Navy would buy almost the same number of ships over 30 years
under the 2013 plan as it would have bought under the previous plan.11 However, the
composition of ship purchases—particularly the mix of combat ships and logistics and support vessels—is quite different under the 2012 and 2013 plans.
No. Ferraris it will be then.

Wait ... there is a little goodness here we should smile about. I wish it were earlier, but take what you can get.
Unlike the Navy’s 2012 plan, the 2013 plan also included the purchase of replacements for its 2 command ships in the early 2030s. Those ships are scheduled to retire in 2039.
Whoever made that happen, send me an email - I owe you a beer.

Back to the green eye-shade:
The full annual cost of the 2013 shipbuilding plan, in CBO’s estimation, would average $21.9 billion over the 2013–2042 period—about 17 percent more than the Navy’s estimate of $18.8 billion and about 37 percent more than the average funding the Navy has received in the past three decades.
With this budgetary head wind, really?

Like your humble blogg'r, CBO likes to repeat the very important items. NB:
In addition to the ship purchases, a critical element of the Navy’s plan to achieve its projected inventory levels is the assumption that all DDG-51 Flight IIA and subsequent destroyers would serve in the fleet for 40 years. The class was originally designed to serve for 30 years, but the Navy has subsequently increased the planned service life first to 35 years and then, for Flight IIA ships and beyond, to 40 years in the 2009 shipbuilding plan. Historically, 12 of the last 13 classes of destroyers and cruisers were retired after having served 30 years or less, and many ships (including, in recent years, Spruance class destroyers and some Ticonderoga class cruisers) have been retired after 25 years of service or less (the only exception was the CGN-9 Long Beach, a class of one). The Navy retired those ships because they reached the end of their service life, because they became too expensive to maintain in the waning years of their service life, or because improving their combat capabilities to meet existing threats was not cost- effective.20 If the DDG-51 class met the same fate, the shortfall in meeting the Navy’s inventory goal for destroyers and cruisers would grow substantially (see Figure 7, which illustrates the effect on the force level for large surface combatants if the service life of those ships is only 35 or 30 years and the Navy does not increase the number of such ships it plans to purchase).
I'm sorry - but all this does is set up future leaders for failure in order to make your own PCS cycle easier. Ungh. Is that what you worked so hard to be promoted for? Really?

Of course - no post like this would be complete with out the required Salamander swipe at the Little Crappy Ship.
CBO estimates the average per-ship cost of the 43 LCSs in the plan at about $500 million.
Of course, that does not count all the Mission Module and logistic/enabling etc in order to make it actually anything more than a helo pad with a 57mm and smaller caliber weapons.
The Navy would also buy 27 next-generation littoral combat ships—called LCS(X)s—
beginning in 2030.
Hey - I have an idea; let's call them "frigates."

Oh, we don't need frigates, right? Really ... then why is LCS defined on page 29 as,
More routinely, they will also patrol sea lanes, provide an overseas presence, and conduct exercises with allies.
Ummm .... that's a frigate.

Words are nice, but I really like the graphs and numbers starting on page 31. As I like to toot my own horn more than anything else and to beat home my cute little catch phrases - you know our "Terrible 20s" that I keep bringing up? Well- here it is in a picture. No further discussion needed on my part.


Somethings got to give - and will have to give. Pick your poison.

At the beginning of the post I made a comment about over-promising and under-performing. This is how CBO puts it.
An important factor affecting the Navy’s and the Congressional Budget Office’s (CBO’s) estimates is assumptions about future increases in the cost of building naval ships. The Department of Defense (DoD) has an overall estimate of future inflation (known as an inflator) that it uses to project increases in the costs of its procurement programs. However, according to the Navy, DoD’s inflator is lower than the actual inflation that occurred in the naval shipbuilding industry in the past decade.
Again - you need a picture.

I, ahem, know the Navy sends officers off to get their PhD in Economics - aren't we getting their input on our planning? On the team? I hope? Maybe they were told to shut up and color or their slides went in to backup? Harumph.

Well - on the official Navy blog at least we are firing back at the CBO. About as accurate as Admiral Nebogatov's 3rd Division at the Battle of Tsushima - but firing we are;

Based on a report issued by the Congressional Budget Office (CBO), there has been media reporting and discussion about the cost estimating methodology used by the Navy to forecast over the 30-year shipbuilding plan.

The Navy’s 30-year plan assesses DoN investments in battle force ships in three 10-year periods, called near, mid, and far-term. The near-term 10-year period (FY13-FY22) comprises the FY13-FY17 Future Years Defense Program (FYDP) and the next FYDP. The mid-term planning period covers the two FYDPs between FY23-FY32, and the far-term planning period covers the two FYDPs between FY33-FY42. Confidence in cost estimates over these time periods inevitably declines over time. Unsurprisingly, then, the difference in Navy and CBO forecasts for new ship construction increases over time. Depending on the costs being considered, CBO’s numbers are 9-11 percent higher in the near-term planning period, 11-13 percent higher in the mid-term planning period, and 30-33 percent in the far-term.

The Navy’s confidence in our cost estimates in the FYDP (i.e, the current budget window) is extremely high.
Yes, as high as our "all children are above average" self-esteem, I am sure. I just wish the response was as fact based as the CBOs. Too much feeling, hoping, believing, and not enough knowing.

Sigh. That is what I got out of it. Over to you!


UPDATE: Undersecretary of the Navy Bob Work offers up a long response in comments that is worth the read.

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