The Navy is in trouble.
It has too few ships to do the jobs it is expected to do and not enough money to build new vessels. But it gets worse: It is also handicapped by a civilian ship-building industry that makes promises it knows it cannot keep.
Two weeks ago, the Navy announced that all of its major shipbuilding programs would be delayed — by years. The first of ten new Columbia-class nuclear ballistic submarines is 12 to 16 months behind schedule. The aircraft carrier Enterprise is 18 to 26 months late. The Virginia attack-class submarine is two years behind. And the Navy’s newest class of ships, a guided missile frigate called the Constellation, is already a full three years behind schedule.
Such bad news is usually dribbled out piecemeal or discovered by defense watchers. Instead, Navy Secretary Carlos Del Toro decided to lance this long-festering boil. He announced that a 45-day internal investigation into warship acquisition revealed that almost all shipbuilding programs are subject to massive delays and cost overruns.
In such a target-rich environment, Del Toro should train his managerial guns on the most egregious delay — that of the 495-foot guided missile frigate Constellation. The Constellation contract was awarded in April 2020, and construction began in August 2022 — just 20 months ago, yet the ship is already three full years behind schedule.
How could a project fall so far behind schedule so quickly? One reason is that the Navy gave the OK to begin construction when the design was only 80 percent complete. This is a recurring problem for the Navy. Both the much-maligned Littoral Combat Ship and the far-over-budget and much-delayed aircraft carrier Gerald Ford were victims of this “we’ll figure it out later” approach.
What makes the frigate delay so alarming is that the Constellation was to be based on an existing design that the French and Italian navies have successfully deployed for years. In theory, that should have made construction go much more quickly and more smoothly. But apparently unable to abandon their “Americans know best” parochialism, the Navy lengthened, fattened, and up-weaponed the original design. Hence there will be no new Constellation-class frigates deployed for many years to come.
But that only accounts for part of the problem. Another part is the unhealthy co-dependence between the sea service and the defense industry. Shipbuilders’ routine excuses for delays echo Inspector Renault’s old line from “Casablanca,” “Round up the usual suspects!” They blame Congress for stop-and-go-funding of various defense initiatives; cite the difficulty in attracting and retaining a qualified work force; and point out conflicting priorities. And they repeatedly get away with it.
Those reasons may be true, but they are as unacceptable in defense work as they are in business. The Chinese aren’t waiting for us to get our act together as they enlarge and modernize their fleet to dominate the western Pacific.
The Navy needs to change course, and there are five reforms that could help break its awful tradition of delay and overrun.
First, hold people accountable — really accountable. That means both civilians and those in uniform. Neither the Navy nor the shipbuilders should sign contracts that they know can’t be fulfilled. When Naval officers do this, we should say, “Thank you for your service,” and show them the door to retirement. And such accountability should not be limited to the middle-manager program officers, either — it should go all the way up to the three-star admiral in charge.
For civilian counterparts, the currency that resonates is, well, currency. Civilian management responds to incentives. Significantly cut bonuses should a project fall behind schedule. Cynicism aside, money is a great motivator to meet deadlines.
Second, we must impose consequential damages. There is a concept in the law that imposes penalties — beyond those in a traditional breach of contract — for the harm done by failing to deliver on time or by delivering a faulty product. Every Navy shipbuilding contract should have a significant consequential damages provision.
Third, we should outsource construction to some foreign shipyards. If American shipyards are overwhelmed by the challenge of producing on-time and on-budget, the Navy should consider outsourcing ship construction. Such a shift will require tectonic changes in thinking in Congress — fueled by “Made in America” job concerns — but the reality is that there just aren’t enough American shipyards or American workers. We are already moving in that direction with the recently signed U.S.-UK-Australia nuclear submarine pact. Let’s extend cooperation with other nations, and perhaps even learn something from them.
Fourth, we must end the “80 percent go-trigger.” Repeatedly, the Navy begins construction on mostly-finished designs, only to change direction or add additional capabilities later, a major source of cost-overruns and delays. A key element of successful project management is to plan slowly and build quickly. It is a mantra the Navy needs to adopt.
Finally, civilian defense contractors need more skin in the game. Shipyards repeatedly bemoan an inadequate skilled workforce. But they need to invest more into building that workforce. One way to do that is to limit or divert a company’s stock buybacks. Instead of investing in the workforce or capital improvements, many companies defer those investments and instead buy back their own stock. Such buybacks typically reward senior managers, whose compensation packages are tied to esoteric stock-related metrics.
A creative way to align the national needs and personal goals is to put 80 percent of all stock repurchases into a “public shipbuilding trust.” As the stock goes up, the value of the trust goes up, and proceeds from it can be reinvested in building more ships.
Del Toro is to be commended for shining some sunlight on the Navy’s murky and arcane acquisition practices. But the Navy must act now, as this dangerous and expensive charade shows no sign of stopping.
Just this week, the Congressional Budget Office took issue with the Navy’s recent cost estimate of a new ship just on the design horizon. The Navy estimated that the cost of the proposed medium landing ship, designed to transport Marines, would be about $150 million per ship. CBO disagreed, putting the cost at $340 to $439 million per ship.
Such ongoing acquisition failures, both in terms of time and money, place all who serve in harm’s way, to say nothing of the nation at large. The Navy is listing badly. We need to take serious steps to right the ship.
Steve Cohen is an attorney at Pollock Cohen and a former member of the Board of Directors of the United States Naval Institute.