Partial Delivery - Total Obfuscation

Over the years of this blog, we’ve noted the rise in accounting games that the Navy has been playing to hide the true costs of weapon systems and the failures of quality and scheduling.  This trend has been accelerating with the Navy coming up with more and more schemes as Congress has attempted to exercise oversight.

One of the most egregious is the recent practice of accepting – and commissioning! – incomplete ships. 

The ship is contracted, delivery is made with substantial incomplete compartments, weapon systems, sensors, etc. and then the ship is completed during post-delivery availabilities.  Thus, the original construction contract only actually covered a partial ship.  Some or all of the additional funding needed to complete the ship comes from various non-construction account lines and, therefore, does not show up in the final ship cost.  This leads Congress and observers to believe that the ship is cheaper than it really is.

For example, the USS San Antonio (LPD-17), was delivered substantially incomplete.

The Navy accepted delivery of LPD-17 with about 1.1 million hours of construction work remaining to be done on the ship. This equated to about 8.7% of the total hours needed to build the ship, and (with material costs included) about 7% of the total cost to build the ship. (3)

Lest you think this was just a first of class issue,

The Navy accepted delivery of LPD-18 with about 400,000 hours of construction work remaining to be done on the ship. (3)

The carrier Ford was delivered with 367 unfinished compartments, among many other deficiencies. (5)

LCSes have routinely been delivered incomplete (see, “LCS Waiver Trials”).

This partial delivery practice started as a means to cover up delivery schedule failures and was used as needed.  However, the practice has proven so effective in misleading observers that the Navy has now formalized it as “phased delivery”. 

The first phase is the initial delivery of the incomplete ship.  The Navy has taken to referring to this as the Hull, Mechanical, and Electrical (HM&E) delivery.  That partial delivery is accompanied, in short order, by “hugely successful trials” (how can a trial be successful when the ship isn’t complete?) and then commissioning (how can a ship be commissioned when it is incomplete?). 

The second phase consists of one or more post-delivery / post-commissioning availabilities where the weapons, sensors, combat system, and whatnot are added and incomplete compartments are finished (well, some of them – there are reports that LHD-17, LCS, and Ford ships still have unfinished compartments).

For example, the Navy accepted delivery of the Zumwalt (DDG-1000) in May 2016 and commissioned the ship in Oct 2016.  Zumwalt was then transferred to San Diego for completion.  Among other work needing to be completed, BAE Systems received a contract to install Mk 57 peripheral launch cells (VLS), “combat systems”, sensors, combat system programming, and perform post-construction hull, mechanical, and electrical enhancements. (1,2)

Zumwalt - Good Enough, Call It Delivered - We'll Finish It Later

This practice has not gone unnoticed by Congress and they are not very happy with it.  Congress included language in the Fiscal Year 2019 National Defense Authorization Act which prevents the Navy from claiming delivery of incomplete ships as battle force ships in the Naval Vessel Register.  Thus, the first two Zumwalts which the Navy has claimed count towards the battle force numbers have now been removed from the count.

The 2019 defense authorization bill clarifies what lawmakers tried to do two years ago related to Navy ship-counting, making clear that a ship cannot be included in the Naval Vessel Register’s list of battle force ships until it has been fully delivered to the Navy – and in the case of ships with a phased delivery, where the Navy takes custody of the hull but adds in the combat system or electronics later, that means the final delivery date.

So, upon passage of the bill, Zumwalt-class destroyers USS Zumwalt (DDG-1000) and yet-to-be commissioned Michael Monsoor (DDG-1001) were taken off the battle force ship count and will not be added back on until they complete a combat system activation in San Diego. (4)

Congress had earlier attempted to put an end to the practice of counting incomplete ships from partial deliveries.

In the FY 2017 NDAA, lawmakers stated that the Navy should “deem ship delivery to occur at the completion of the final phase of construction,” and that all materials submitted to congressional committees should use that format, rather than including an earlier partial-delivery date. (4)

That should have ended the practice but, in typical fashion, the Navy ignored Congress’ wishes.

After the 2017 language became law, the Navy was required to use the full delivery date when reporting to Congress, but it was still entering ships – namely Zumwalt and Michael Monsoor – into the Naval Vessel Register upon HM&E delivery rather than final delivery. (4)

Hopefully, Congress has now gotten the message across to a Navy that believes itself above and beyond Congressional oversight and legislative authority.

Why does partial delivery and battle force counting matter to Congress?

The committee is concerned the variance in the Navy’s definition of ship delivery may obscure oversight of the program’s schedule, including whether or not a project has breached its threshold delivery date. … CVN-79 and the Zumwalt-class programs illustrate this practice. (4)

For lawmakers, the need to use a final delivery date instead of a partial delivery date also contributes to program oversight and accountability. (4)

The difference in time frame between the Navy’s attempt to include partial delivery ships in the battle force count and the final delivery is substantial.  For example, Zumwalt was accepted by the Navy in May 2016 and is not yet complete, 2 yrs and 3 months later and counting.

The Navy cites construction costs for the Zumwalt but those are only partial costs.  Over two years after delivery and commissioning, the Zumwalt’s construction costs continue to mount up but we’ll never see those costs cited.

Let’s be crystal clear about the practice of partial delivery.  It’s all about hiding costs from Congress, hiding schedule delays, hiding inept program management, and keeping funding flowing. 

_________________________________________ 

(1)https://www.baesystems.com/en-us/article/u-s--navy-awards-bae-systems--192-million-contract-for-work-on-new-ddg-1000-ships

(2)http://usszumwalt.org/author/zumwalt1000/

(3)Congressional Research Service, “Navy LPD-17 Amphibious Ship Procurement:

Background, Issues, and Options for Congress”, Ronald O'Rourke, March 16, 2011, RL34476,

https://fas.org/sgp/crs/weapons/RL34476.pdf

(4)USNI News website, “Navy Battle Force Tally Dips By 2, After New Ship-Counting Rules Postpone Zumwalt Destroyers”, Megan Eckstein, 21-Aug-2018,

https://news.usni.org/2018/08/21/navy-battle-force-tally-dips-2-new-ship-counting-rules-postpone-zumwalt-destroyers

(5)Government Accounting Office, “Navy Shipbuilding”, July 2017, GAO-17-418, p.22

https://www.gao.gov/assets/690/685799.pdf