Sunday, July 27, 2014

LCS Operating Costs and Lessons Learned

GAO just issued a report on the operating costs of the LCS and some operational lessons learned from the Freedom’s Singapore deployment (1).  Here are some of the main points.

The Singapore deployment gave the Navy an opportunity to collect operating cost and methodology data for the Freedom variant in a real world setting.  In contrast, the Navy still has no data on the Independence variant.

The report addressed maintenance problems as they impacted time at sea.

“… mechanical issues reduced time at sea with 55 total mission days lost, limiting the operational lessons learned. The operational effect of these lost mission days was that the ship had to cut short its participation in two joint exercises and did not complete at least two of its planned presence operations.  … mechanical failures contributed to limiting the ship’s underway time to 35 percent of its deployment …”

That’s 65% of the deployment spent in port!  In comparison,

“… other ships deployed to the 7th Fleet area of responsibility typically spend about 20 percent of their time in port.”

The maintenance problems resulted in Freedom being limited to 93 underway days out of 265 days deployed.  The underway figure includes the transition time to and from the Singapore area.  Subtracting out the transit times, Freedom was only able to spend 53 days underway on assigned missions.

The report noted Navy official’s partial explanation for the low underway figures,

“LCS program officials explained that the unique LCS maintenance concept—USS Freedom returned to port every 25 days to undergo a 5-day preventative maintenance availability and every 120 days for more-intensive 2-week intermediate maintenance—resulted in a rigid deployment schedule with more port time than other deployed Navy ships.”

The report also noted the Independence variant’s underway figures.

“While the Navy deployed a Freedom variant LCS to Singapore for nearly all of 2013, our analysis found that, over the same period, USS Independence spent about 8 months, or 65 percent, of 2013 in port or dry dock maintenance periods, limiting any operational data that the Navy could obtain when operating the ship out of its homeport in California. In addition, according to Navy officials, from October 2012 to December 2013, USS Independence spent only 44 days under way.”

The report addressed the manning level issue.  Sailors averaged six hours of sleep or less per day.  Further, the ASuW module crew and onboard contractors were co-opted into routine watchstanding in order to meet operational requirements, contrary to the manning concept.  The core crew manning was inadequate for routine daily operations and will, undoubtedly, be increased over time.

The Navy calculated LCS lifetime operational costs at around $49M per ship per year (FY2010 dollars).  The GAO report now puts the costs at $79M per ship per year.  Of course, this number is subject to change as the class settles in to routine operations.  By comparison, the GAO offers the following operational costs for other ship classes,

Cyclone PC-1             $8M
Avenger MCM-1        $24M
Perry FFG-7             $54M
Burke DDG-51 (IIa)    $88M
Ticonderoga CG-47  $126M

So, the LCS costs are greater than the Perry and approaching the Burke costs despite being a smaller ship with a significantly smaller crew.  This is disturbing in that the LCS was intended as a lower operational cost (mainly due to decreased manning) vessel of the future.

Regarding maintenance and manning,

“Flyaway maintenance teams of about 30 contractors were flown to Singapore for the 5-day maintenance periods, and about 60-70 contractors for the 2-week periods.”

Further,

“The number of shore personnel to support the ship has more than tripled—from 271 to 862—since the estimate was developed in 2011.”

The impact of the frequent maintenance was noted,

“Because of the regular returns to Singapore for maintenance availabilities, the USS Freedom had a somewhat limited range in theater, and Navy officials noted that this rigid maintenance periodicity limited operational flexibility.”

The report noted that a lack of host nation shore support facilities and capabilities caused issues including lack of Internet support, substandard routine cleaning services, and inadequate warehousing of tools and parts.  Additional, expanded permanent facilities will have to be constructed to support the planned four LCS basing in Singapore.

Well, now we have some real world data and lessons learned.  The Navy has long claimed that the LCS would be cheap to operate, flexible, forward, and max deployed.  As with every other LCS claim, that appears to have been incorrect.


(1) Government Accountability Office , “Littoral Combat Ship - Deployment of USS Revealed Risks in Implementing Operational Concepts and Uncertain Costs”,  GAO-14-447, July 2014

33 comments:

  1. Hmmmm, I’m not claiming to be an expert on USN kit, but I would imagine you get more use out of a Perry ?
    It seem to me that if you could just get 21st century “Perry’s” by the truck load you would probably be a bit happier.
    I don’t think you can just restart the production line, as advancements in acoustic hull design, RCS and the like should probably be taking into account, but they don’t seem a bad place to start. In some respects they might be a bit over complex. But a direct modern replacement concentrating on the $54M per year figure can’t be bad right?
    Just have a BIG mallet ready for the first couple of people who point at the design and say “it need 96 VLS with Tomahawk and SM6 right there !” CRACK !

    Was there a break down on that cost BTW, it seems High ?
    Im going to assume the figure is accounting for the vapourware modules and module related crew ?

    Beno

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    1. Ben, no detailed breakdown of costs but I got the impression it was just actual, demonstrated costs. I believe module crew is included since the LCS is non-functional without one.

      Delete
  2. We should reserve judgement. There are many factors resulting from Freedom being first-in-class, and differing accounting methods mentioned at the end of the document, which mask an apples-to-apples comparison of operating costs with other classes.

    I agree, though, this certainly isn't encouraging.

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    1. B.Smitty, when would you suggest it would be appropriate to pass judgement? If we wait until all 55 (or 32 or whatever) have been built, operated for years, and completely retired, then, yes, we can render a fully informed judgement but it would be pointless since the opportunity to act on the judgement would have passed.

      At what point would you like to pass judgement so that we still have an opportunity to act on our judgement?

      The famous Jack Welch (CEO of GE) once said that the mark of leadership was to make decisions without all the facts. If we wait until absolutely every possible fact is known, we don't need leaders - any child can make the right decision at that point.

      We have multiple LCSs in service now. When do you want to pass judgement?

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  3. Maybe they could fit out one of the Tarawa class as a dedicated LCS tender? Another use I've been pondering would be to transfer one to the Maritime Prepositioning Force as a dedicated Heavy Helicopter lift and maintenance ship, since most of the MPF ships only have landing pads, no hangers or maintenance. A conversion of its Marine berthing areas into an expanded hospital facility could also be useful.

    Randall Rapp

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    1. Randall, use of an LCS as a heavy helo ship is a good concept, however, the Freedom variant's flight deck is not rated for anything heavier than a -60 helo. The flight deck structural support was reduced early in development as a cost/weight savings measure. I believe the Independence variant can handle a heavier helo but I've heard that it can only stage one or two helos at a time but I've been unable to verify that one way or the other.

      The LCS flight decks are large and impressive looking but are understrength and that limits their helo operations. They would be good for operating multiple UAVs but so far that's not been a significant part of any concept of operations.

      You're right that the LCS would benefit from a mothership.

      Delete
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  5. I just got done reading two articles. One outlined how the Navy is going to have an issue because the FFG's are still some of the highest deployed assets in the fleet; and they aren't sure how the LCS' are going to be able to cover that load after the FFG's are retired in '15.

    The other from War is Boring talked about how the real price of the F-35C was going to be $347 million/copy (!).

    Its like the Navy is trying to wreck itself one acquisition at a time.

    *sigh*.

    What would be the implications of cancelling the F-35 and the LCS? The nay sayers tell me that LockMart would fail and we'd be in a world of hurt. I just don't see how the Navy can go ahead with these two acquisitions and have enough money to be able to fulfill its missions.

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    1. Jim,

      First would be to conduct a serious strategic review of our national strategic requirements, and *rank them* in order of priority.

      Second, we should review all of our strategic alliances: those that do not directly affect our national strategic situation should be axed. Alliances with allies who contribute small percentages of their GDP to their national defense either have no serious threats, or are unwilling to face those threats and are relying on the USA to sacrifice its sons for their safety. I am starring specifically at NATO on this, but there are others. It is absolutely asinine that we are in a tiff with another nuclear armed state over the Ukraine and while the EU, who have a higher GDP per capita than anyone else on the planet, are spending about one percent of their GDP for defense. This is outrageous.

      Third, we should immediately review our foreign basing for consistency with one and two above; axe those bases (and SFAs) that do not align.

      Fourth, renegotiate every cost-plus acquisition project as a fixed-price or fixed price incentive fee contract with capped profit margin of 12% (which is quite generous), and a target profit of 9-10%.

      Fifth, pass a law, that no official or officer responsible for approving acquisitions can work for a defense contractor until seven years have passed following separation from government. No SES or flag officer should be allowed to work for a defense contractor for a period of ten years.

      Sixth, now begin a review of weapon systems for consistency with one and two.

      Seventh, no major weapon program should be approved unless it can meet PDR within two years and IOC within four years. Any program that is delayed in meeting PDR or IOC by more than one year should be cancelled. This should severely curtail multi-year fiascos like FCS, EFV, F-35, LCS, and so forth.

      Done with rigor, a lot of nonsense will immediately be squashed.

      GAB

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    2. GAB, I'm with you on everything except that last item about IOC within four years. I'm with you in concept on that one but the reality is that it would manifest as the law of unintended consequences. Specifically, companies would take shortcuts and falsify results and testing in order to meet deadlines. The Navy would actively go along with this to avoid having their programs terminated. We've already seen this play out with the Navy accepting physically incomplete and substandard LPD-17s and LCSs. DOT&E reports are filled with examples of inadequately tested weapons and systems as it is.

      The Veteran's Admin scandal was an example of this phenomenon. Bonuses were paid on the basis of meeting criteria that could not realistically be met and so reporting was falsified or manipulated.

      As I said, I'm with you in concept but the actual implementation would be problematic. Unfortunately, I don't have a viable alternative to offer.

      The rest of your points are outstanding.

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    3. CNO,

      The only way to enforce standards in the face of widespread falsification and cheating is to hammer the offenders.

      Bring in the FBI once, or twice to really shake up the entire rotten
      mess...

      GAB
      GAB

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    4. "Fifth, pass a law, that no official or officer responsible for approving acquisitions can work for a defense contractor until seven years have passed following separation from government. No SES or flag officer should be allowed to work for a defense contractor for a period of ten years."

      I would actually go even further on this. For SES or flag officer, I would make their pension contingent of not working for a defense contractor or lobbyist, period. To compensate I would provide a slight bump to salary/pension.

      As far as acquisitions personnel, I'm generally in favor of the same.

      There is no justification for the revolving door bribery that currently goes on.

      Delete
    5. "GAB, I'm with you on everything except that last item about IOC within four years. I'm with you in concept on that one but the reality is that it would manifest as the law of unintended consequences. Specifically, companies would take shortcuts and falsify results and testing in order to meet deadlines. The Navy would actively go along with this to avoid having their programs terminated. We've already seen this play out with the Navy accepting physically incomplete and substandard LPD-17s and LCSs. DOT&E reports are filled with examples of inadequately tested weapons and systems as it is. "

      This is rather easy to fix though. Its gross malfeasance and dereliction of duty, plain and simple and for the companies, it is flat out fraud. If we actually treated them as such, the incidence of them occurring would all but disappear.

      The simple problem is that we've accepted this for far too long so it has become common place and normal. Its time to right the ship. Start doing some court marshal proceedings against senior leadership responsible for signing off on this stuff, and it will stop extremely fast. Start suing companies and use existing but unused clawback laws against companies.

      Delete
    6. ATS,

      Interesting points.

      In the end, Congress, or the services could stamp out 80-90% of the nonsense today.

      The tools are in place, the fortitude to use them is not. Where are the "Give 'em hell" Trumans?

      GAB

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  7. CNO,
    You make a great point about the unintended consequences. I like the rest of what he says though. I particularly like the idea that you can't go to work for a government contractor until 7 years after your separation from service.

    Another thing I've batted around is an idea that is very unlike me, but that I think is necessary: Create a new bureacracy.

    There is so much playing with numbers by the Navy and the contractors. The war is boring article mentioned how the Navy can give different numbers to different people depending on what they want to hear.

    Would it be possible, or feasible, to create a small(ish) core of security cleared auditors of the military, who are independant of the military or OSD. They'd report to Congress directly, and have the power to put a project on hold pending cancellation if its a mess, until major points are cleared.

    I know GAO does something like this, but they seem more of an 'advise and consent' group that Congress can blather over when trying to defend a key weapons system whose vendor is paying for their re-election.

    I realize this would be a hugely powerful group, open to corruption eventually. I also realize that this is a dangerous step with lots of opportunity for unintended consequences. But Great Googily Moogily! I look at our defense department expenditures and I see China's, and it looks like they are completely revamping their military on a shoestring, while we spend hundreds of billions and get the LCS and lots of non IOC F-35's while our core stuff slowly rots or falls into obsolescence. Its getting to the point where our acquisition process and politics are now a national security threat.

    Okay. I'm ready to be picked apart. I'm just think we have to start thinking about taking drastic steps to fix this.

    Oh, and GAB, I totally agree on our allies. RIght now, IIRC, the German army is smaller than it was during the Weimar republic. France and England are both falling under 2% of GDP for defense spending.

    When I was in Korea, on the other hand, you got the impression that the South Koreans were more than capable of handling the North in any sort of conventional military struggle. We had troops there, but they were a tripwire force, not the whole enchilada.

    Now, alot of those countries (England in particular) did help us when we went into Afghanistan, and I'm grateful for that. But its getting to the point that I do think we need to start reconsidering our alliances. Its fine if they want to gut their militaries, but we can't be expected to take up the slack entirely.

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    1. Jim,

      There are many mechanisms in place, but the will to enforce the law is lacking both within the service, and also in Congress.

      There is a presidence for Congress using the FBI to do what I have advocated, and it goes back to J. Edgar Hoover, but it has generally not used as I am proposing.

      Believe me, nothing would cut through the bullshit like having an FBI task force seize all documents from the F-35 Program office, LockMart, et al., and start mass Miranda on all concerned including the everyone who ever worked on the program. Then prosecutions for negligence, perhaps even fraud, seizure of assets, even breakup of companies.

      People would crap ice cream, but it would get the attention of the defense industry and program offices like nothing else.

      GAB

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    2. GAO is generally pretty reliable on their reports. Historically, any time any member of congress has pressured them for anything, except get the report done, it has leaked to the press extremely fast. AKA, GAO pretty much stays above board by outing anyone who would corrupt the process.

      Now the one problem with GAO is that it is primarily an after action group and as such can't really provide real time info.

      And I'm with GAB, lockmart really needs a good FBI investigation thrown their way. This whole quagmire of the F35 shouldn't be at ALL shocking to anyone who either followed the X32/X35 competition or anyone who has studied the history of it. Lockmart had no clue what they were doing and couldn't account for hundreds of millions of dollars, *FOR THE PROTOTYPES!* How in the world can you trust them to manage the actual program when they can't manage a very small prototype program.

      If Boeing had won the contract, the F-32 would be in full rate production and all the numbers would add up. Maybe its just me, but I tend to have a little more faith in a company that actually has to also survive in a highly competitive commercial sector.

      Delete
    3. ATS, while I agree with your thoughts re the GAO and Lockheed, your assumption that everything would have been fine with the project was handled by Boeing is hard to support. Boeing has shown on many occasions it can be just as bad.

      The issue is with programs with actually encourage this kind of behavior. You cannot just blame Lockheed, it is pretty obvious that the joint project office was missing in action!

      It is human nature, if you say here is a open ended honey pot, it is not realistic to expect the bear to exercise self control and resist temptation.

      Mark





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    4. IIRC, Lockheed prototype was significantly further along than the Boeing variant.

      If you specify fixed price on a brand-new aircraft with variants that can takeoff and land vertically, fly off of carriers and meet challenging performance criteria, the contractor is going to laugh their head off as they show you the door.

      The only way you're going to get any contractor to agree to fixed-price programs everywhere is if you specify systems that have virtually no risk. This means MUCH more extensive pre-production prototyping and other risk reduction efforts as well as insurance against Congressional futzing with program funding.

      Delete
    5. IMHO, the right place to limit contractors is with their marketing and lobbying departments who come up with wildly optimistic projections for future programs.

      "F-15E-sized fighter that can takeoff and land vertically, and cost as much as an F-16!" Umm yeah, right.

      If we can inject sober, conservative engineering and accounting estimates into the process, we can have a more rational, up-front discussion.

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    6. Smitty,

      The corporate world runs on fixed price contracts, and profit margins of 10% or less. Indeed most DoD contracts are fixed price - but these are for mundane items like diesel fuel or pencils. The risks associated with opening a new semiconductor fabrication facility are very much in line with major weapon systems.

      The issue with major weapon system procurement is the evil of cost plus contracts, fixed price incentive fee structures with impossible cost share lines that allow for gross profits that are frequently double that of the civilian world.

      The only way to inject realistic cost and engineering controls is to hold people accountable through fixed price contracts. When industry returns a ridiculous price in response to ridiculous specifications; DoD will have to face reason.

      GAB

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    7. The flip side of fixed price contracts is fixed requirements. If the price can't change then neither can the requirments and this falls totally on DoD. To be fair to industry, the practice of concurrent design and production is driving huge increases in costs. If want to operate with fixed price contracts then we have to issue a set of requirements and leave them untouched. If we want to make changes then every change, even swapping a Phillips head screw for a slot head screw has to have an approved Change Order. Of course, when you start issuing an endless series of Change Orders you no longer have a fixed price contract, in a sense.

      Fixed price is great but only if DoD has the discipline to issue a set of requirments up front and leave them alone. History suggests that's unlikely.

      Delete
    8. Another aspect of fixed price contracts is the quantity of product. The number of items to be manufactured and delivered has to remain fixed as well as the price. Our current practice of offering industry a contract for 2000 "things" and then pecking away at the quantity so that the final production run is actually only 180 is an issue. Of course, the reason we peck away is spiraling costs which gets back to changing requirements and so on.

      Delete
    9. "The risks associated with opening a new semiconductor fabrication facility are very much in line with major weapon systems."

      GAB, you're making a point, I get it, and it's conceptually valid. To be fair, though, there is a major difference between a new industrial facility and a weapon program and it's the lifetime of each as it relates to profitability. An industrial facility will operate for twenty or thirty years and make profit producing products the entire time. The facility could, conceptually, be built for free (and in a sense is) knowing that it will generate profit for decades to come. In contrast, a weapons program is a very short time effort as regards profit. A few years of production and the line is shut down. All of the profits, risk, and losses must be compressed and borne in those few years. Toss in the constant tinkering by DoD with actual production quantities, requirement changes, etc. and it's no wonder that industry builds in bigger profit margins. History tells them that the contracted quantity will be reduced, requirements will change, and their pricing will be squeezed. They allow for that by factoring in higher profit margins.

      I'm not defending industry. They have plenty of blame on their side. I'm just offering the other side of the issue which is DoD failures.

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    10. Raytheon, Lockheed Martin and Northrop Grumman profit margins are all in the 7-10% range,

      http://ycharts.com/companies/RTN/profit_margin
      http://ycharts.com/companies/LMT/profit_margin
      http://ycharts.com/companies/NOC/profit_margin

      Cost plus may be evil, but the company has to have a way to manage risk. Commercial companies don't enter into risky production cycles. They retire all major risk before signing a production contract.

      http://www.gao.gov/assets/290/289531.pdf



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    11. CNO, FAB has as much if not more risk than a weapons program for a company. The base build costs are significantly higher and the R&D is as high if not higher. The lifetime of a FAB is also significantly less than you assume. A FAB has a lifetime of about 8-10 years before it basically needs to be completely rebuilt. In fact most FABs have a production lifecycle LESS than a major weapons system. In addition to the initial build costs, a fab needs major refurbishing and replacement of equipment roughly every 3-4 years at significant cost. Then there is all the R&D cost on top of it. And each new process has monumental risk associated with it. In some cases the fab will be idle for *years* while the process is continuously tweaked to actually get it working. This is a rather common occurance in the Semi industry and right now is plaguing both Intel and TSMC on their leading edge processes.

      In contrast, a government weapons contract has much much much lower risk, it also has much much much lower capital outlay. Capital outlay is provided by the contract, R&D is provided by the contract, and the government basically eats all the costs overruns. There is little to no risk with the prime contractor, esp given their sizes these days. Lets look at a tale of two aircraft projects: 787 vs F35. Boeing had to invest significantly more capital in 787 than lockhead did the the F35, the risks were significantly larger in the 787 than in the F35. The 787 was basically a bet the company project, if the 787 failed, Boeing as a corporation would be mortally wounded. If the F35 failed, Lockhead would just keep chugging alone because it has very little exposure, all the exposure is on the US gov. If the F35 sells less than expected, Lockhead doesn't take a bloodbath, they are fully protected. If the 787 bombed, boeing would of eaten billions in costs. And technology risk is actually pretty comparable between the two, the 787 is pretty revolutionary as far as aircraft manufacture is concerned, pioneering many many new systems and ways of making the aircraft.

      In short, current USG weapons systems contracts are basically sweatheart deals which are all profit for the manufacturers.

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    12. B.Smitty, looking at net reported profit to determine actual profit is incredibly misleading given current accounting practices. There are so many ways to bury profit or hide profit so it isn't reported without any effect on stockprice.

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    13. ats,

      It's certainly not an end-all, be-all number, but compared to some other US companies, the net profit margin of big defense companies is fairly tame,

      Pfizer - 22%
      http://ycharts.com/companies/PFE/profit_margin

      Wells Fargo - 27%
      http://ycharts.com/companies/WFC/profit_margin

      Disney - 16%
      http://ycharts.com/companies/DIS/profit_margin

      Verizon - 13%
      http://ycharts.com/companies/VZ/profit_margin

      Those companies don't seem to mind showing off their profit margins.

      Take a look at this paper from the OSD,

      http://www.acq.osd.mil/mibp/docs/ida_paper_p-4391_revised.pdf

      It describes in some detail how profit margins are determined an looks a profitability of prime contractors. Take a look at the chart on page 5 and the appendix for details.

      Defense contractor profits appear to be in line with other capital-intensive sectors.

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  8. Smitty,

    For publicly traded companies on the Standard & Poor's 500, the average net profit margin is 8.5 percent.

    You are cherry picking examples and to be sure, here is a fair amount of variability, but tell me what the shareline is on the VIrgina class submarine or F-35?

    GAB

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    1. Take a look at the paper I posted.

      http://www.acq.osd.mil/mibp/docs/ida_paper_p-4391_revised.pdf

      specifically the appendix.

      It shows the defense industry sector does not appear to make inordinate margins compared to other sectors, at least not for the past 15+ years.

      That's hardly cherry picking.

      I don't have any numbers on margins made specifically on the Virginia or F-35. Do you?

      General Dynamics (parent to GD Electric Boat) made a profit margin of 7.24% last quarter.

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  9. @CNO

    "Fixed price is great but only if DoD has the discipline to issue a set of requirments up front and leave them alone. History suggests that's unlikely."

    zzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

    This is the key problem.

    And it is exacerbated by long program development cycles, which are in turn negatively impacted by the gold platting driven by the need to produce "game changing" weapons" to retain dominance because the weapons take so long to develop, and have to last so long in service.

    Nonetheless, this busisness model is unsustainable. The costs are unsustainable. The performance gains have proven illusory.

    GAB

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