The Navy’s Constellation class frigate cost estimates were fraudulent
optimistic in the extreme and everyone except the Navy knew that (and the Navy
undoubtedly knew it also which is what makes it fraud). The Navy’s estimate for the entire initial 10
ship contract was $8.7B (2020$ [3]) or $870M per ship.
Unsurprisingly, the Congressional Budget Office (CBO) estimate was
$12.3B which is 41% higher than the Navy’s.[1]
The CBO report lists the various absurd assumptions that went into the
Navy’s lowball estimate and you can read the report if you’re interested in
digging into it. In the meantime, let’s
take a quick check and see how the actual costs are shaking out, so far.
From the FY22 Navy budget document [2, Volume 1-217], we get the following Constellation costs:
|
|
Year |
Total Obligation Authority |
|
FFG-62 |
2020 |
$1.3B |
|
FFG-63 |
2021 |
$1.0B |
|
FFG-64 |
2022 |
$1.1B |
|
FFG-64 |
2023 |
$1.2B |
Note: FY23 cost is from the FY23 Navy Budget Highlights document
Remember the Navy’s claims that the Constellation cost would drop significantly after the first one? That’s not happening! If the Navy’s estimate is to hold, the remaining 6 frigates will have to cost an average of $683M. Does anyone believe that will happen? At the moment, it appears that the CBO cost estimate is going to be just about spot on.
Note: The costs cited above do not include things like post-delivery outfitting, Government Furnished Equipment (GFE), warranty repair costs absorbed by the Navy, phased delivery costs, etc. The itemized breakdown of what is and isn’t included in the budget is unknown. The real ship construction cost is much higher but we’ll stick with the ‘official’ costs for now.
Below is the Constellation construction budget breakdown, by the way (numbers rounded to nearest million).[2, Volume 1-219] For those of you who still believe that ‘steel is cheap and air is free’ and that electronics constitute the major cost of a modern ship, you’ll note the basic hull structure is far and away the major portion of the cost, more than doubling the electronics cost which makes up only 21% of the total.
|
Constellation Budget Breakdown |
||
|
Plan Costs |
$131M |
12% |
|
Basic Construction/Conversion |
$584M |
54% |
|
Change Orders |
$23M |
2% |
|
Electronics |
$231M |
21% |
|
Hull, Mechanical, and Electrical (HM&E) |
$17M |
2% |
|
Ordnance |
$52M |
5% |
|
Other Cost |
$49M |
4% |
Just to give you a frame of reference, here’s a list of the type of items that are included in each category as they often do not make sense. Hull, Mechanical, and Electrical, for example, does not include the hull or most electronics!
Construction
Basic hull and superstructure construction
Electronics
Enterprise Air Surveillance Radar
Aegis Weapon System
SQQ-89 ASW
SLQ-32v6 SEWIP
IFF/TACAN
CEC
Inertial Navigation System
EO/IR
SLQ-25 Nixie
Exterior Communication Systems
Internal Networks
Hull, Mechanical, Electrical
Aircraft Ship Integrated Securing and Traversing System (ASIST)
Internal Communication (IC) Voice
Advanced Flight Deck Lighting System (AFDLS)
Unclassified Video System (UVS)
Interior Wireless Communication System (IWCS)
Ordnance
Mk 41 VLS, 32-cell
Mk 48 Gun Weapon System
RAM
Nulka
So, there you have it. In a 100% predictable result, the Navy is, once again, ridiculously low on its cost estimate.
When a cost estimate is ridiculously off once, it’s a mistake.
When cost estimates are ridiculously off, every time, for every program, it’s systematic and, possibly, criminal fraud.
___________________________________
[1]Defense News website, “US Navy’s cost estimate for new frigate won’t hold water, predicts government analyst”, David B. Larter, 14-Oct-2020,
[2]Department of Defense, Fiscal Year (FY) 2022 Budget Estimates, May 2021
[3]CBO, "The Cost of the Navy's New Frigate", Oct 2020
https://www.cbo.gov/system/files/2020-10/56669-New-Frigate-Program.pdf
Looking at it in the most charitable possible way for the Navy (probably not deserved), any chance that the Navy's estimate was in 2019 dollars but the budget documents are in current dollars, which will be higher because we are in a period of high inflation now?
ReplyDeleteThe CPI inflation rate for 2020 was 1.4%. 2021 was 7.0%.
DeleteRemember that budget figures are generated in the previous year.
So, if we were quibbling over a few percent, inflation might be the explanation. However, we're talking about deviations in the range of 20%-40%. The Navy simply - and knowingly - low balled their estimates by a large margin.
The most charitable spin I can put on the Navy's actions is that they are well meaning but totally, completely incompetent with near zero IQ's and should be wearing padded helmets all day for their own safety.
IIRC the $870 million is average for the 10 ships in 2018$, as the learning curve kicks the later ships should be at lower cost, if assumed cumulative inflation ~12.5%? to date the 870 becomes $980 million so costs would appear roughly inline with Navy estimate. Would also note Congress has not funded Constellation on MYB basis as Burkes which would reduce costs.
ReplyDeleteNote on your figures eg FFG-64 $1.1 billion, the CRS report says the FY2022 $1,087.9 million includes the following (which were not in Navy estimate and you could argue should be funded from other budgets than SCN, R&D etc ) "Navy states that $85 million is for preparation and equipment procurement for a land-based engineering site (LBES) for testing and verifying the ship’s propulsion train, and $11 million is for developing options for a second source strategy (i.e., a strategy for adding a second shipyard for building FFG-62s) using the Navy’s FFG-62 technical data package" Have seen no equivalent figures for the FY2023 FFG-65 though would not be surprised if spend on LBES and tech package doubled in cost, if so your figure of $1.2 billion looks too high.
Its a mystery why post-delivery outfitting costs not included for early ships, there is a line in table for it but it only shows spend in out years, is it not required for first ships as included in Fincantieri contract, Fincantieri said when first ship delivered in 2026 it would be FOC?, need Navy explanation.
Of interest also are the Burke figures, FY2022 budget was for a single ship (as Constellation) $2,402 million (gross weapon system cost) but to me a near unbelievable drop of $372 million per ship to $2,030 million for two ship buy, in FY2023 the two ship buy costing $2,209 million each an increase of ~9%. The other stand out figure for Burke FY2023 is the TOA of $5,374 million requested from Congress which includes cost to complete and EQQ? of approx $840 million, covering overspend of Burles in current build? Need a teach in on Navy accounting finding it a murky world.
"appear roughly inline with Navy estimate."
DeleteBear in mind that when the Navy made their cost estimate, no one was predicting today's high inflation. The fact that unanticipated high inflation may render costs closer to estimates is a fortuitous artifact, not good estimating. The Navy's cost estimate was clearly way off.
Also, your 12.5% inflation rate is not correct.
2018 1.9%
2019 2.3%
2020 1.4%
2021 7.0%
2022 ?
What does this mean? For example, FFG-62, funded in 2020, was subject ONLY to a maximum of 3.7% inflation. FFG-63, funded in 2021, was subject ONLY to a maximum of 10.7%.
Also, bear in mind that funding for any year is actually developed and allocated THE YEAR BEFORE and is not, therefore, subject to that year's inflation so the inflation numbers I just cited are actually lower.
Further, a portion of each ship's funding is from previous years long lead item funding and, again, subject to much less inflation.
As a side note, it is unknown to me whether the Navy cost estimate factored in anticipated inflation or not. I assume it did (what responsible multi-year cost estimate wouldn't?) - which renders inflation adjustments on our part duplicative and moot - but I do not know for sure.
"Navy accounting finding it a murky world"
The Navy may be incompetent at ship design, acquisition, readiness, combat effectiveness, etc. but they are masters at cost obfuscation.
"Congress has not funded Constellation on MYB basis"
You're aware that it would be illegal to do so, right? Look up the legal requirements for instituting a MYB. The Navy violated it on the Ford and Burke. Yet another example of the Navy ignoring the law.
"IIRC the $870 million is average for the 10 ships in 2018$,"
DeleteI just checked and you're remembering incorrectly. From the CBO report,
"The Navy estimates that the 10 ships would cost $8.7 billion in 2020 dollars, an average of $870 million per ship."
Note the '2020 dollars' estimate basis.
Here's the CBO report link if you want to check it out:
DeleteCBO Constellation Cost Report
Its confusing in that two cost base years quoted, 2018 and 2020.
DeleteThe CBO report you ref quotes 'The Navy’s Cost Estimate to Procure the FFG(X)'
"the service estimated that the first FFG(X) would cost $1.2 billion in 2020 dollars (or $1.3 billion in nominal, or current, dollars). The average cost of the second through tenth ships, the Navy estimated, would be $835 million per ship. The total cost for the first 10 ships would be $8.7 billion (or $9.8 billion in nominal dollars) // As one of the parameters for the competition, the Navy set generic unit-procurement goals for the 2nd through 10th ships. Specifically, it wanted the FFG(X) to cost an average of $800 million to $950 million per ship in 2018 dollars (including government-furnished equipment such as combat and weapon systems). In 2020 dollars, that target cost range is $836 million to $1 billion"
Your correct in saying $8.7 billion for 10 ships with base year 2020, but think both right in that CBO says Navy quotes "$800 million to $950 million per ship in 2018 dollars" and "In 2020 dollars, that target cost range is $836 million to $1 billion"
I'll repeat my point that for the FY2022 FFG-64 $1,087.9 million less the $85 million for LBES and $11 million tech package for second shipyard gives net $991.9 million build cost for third ship. Taking the base 2020 average cost of $870 million for the 10 ships plus just 7% inflation you quote for 2021 and adding in none for 2022 gives ~$930 million, so at $990 million only ~$60 million above budget and to be remembered that shipyard will not have reached its minimum hours/learning curve to minimise cost till 8th to 10th ships to bring average cost down to target of $870 million plus inflation.
As previously mentioned need breakout of the costs included for the LBES etc included in FY2023 ship to confirm costs still on budget.
If no unforeseen future price increases my contention which think supported by above shows Constellation on track and not 40% over budget as CBO forecast.
I'm sticking with the $8.7 billion for 10 ships with base year 2020. That's official. The rest is various Navy hopes and dreams. A 'parameter for competition', as you noted in the quote, is NOT a cost estimate. I would also reiterate that you're using the historically high current inflation to try to make the case that the Navy had a correct estimate and that is patently misleading. Had inflation continued at the usual 2% or so that was seen through 2020, the Navy's estimates would be even further off. The 2021 inflation impact has only just begun to be felt. As I pointed out, much of the lead items were purchased with 'uninflated' dollars.
DeleteYou can try to spin and twist the figures to make the Navy's estimate look good but it's a futile effort.
Finally, everything I'm reading suggests that the Navy's estimate ALREADY INCLUDES INFLATION. Thus, trying to apply 'discounts' for inflation is double dipping.
"Its confusing in that two cost base years quoted, 2018 and 2020."
DeleteIt's not confusing. One is an official cost estimate and the other is a wish list 'parameter for competition' in the bidding process. The Navy could have equally wished for free ships as a 'parameter for competition'. It's not a cost estimate.
Thx. FWIW the CBO report which was published October 2020 shows Navy cost estimate as "$8.7 billion (or $9.8 billion in nominal dollars [current, dollars]", not sure if the $9.8 billion is a CBO or Navy figure, would be at an inflation rate of 12.6%, how they calculated the figure haven't the faintest if the base year is 2020, must be missing something.
DeleteI have no idea what a 'nominal' dollar is especially since it often refers to the same year and does not match the actual inflation rate.
DeleteRead carefully the following statement from the CBO report:
"As one of the parameters for the competition, the Navy set generic unit-procurement goals for the 2nd through 10th ships. Specifically, it wanted the FFG(X) to cost an average of $800 million to $950 million per ship in 2018 dollars (including government-furnished equipment such as combat and weapon systems). In 2020 dollars, that target cost range is $836 million to $1 billion. Thus, the cost estimates in the Navy’s 2021 budget for the additional FFG(X)s are at the very low end of the range the Navy established at the outset of the competition. In information provided to CBO, the Navy stated that there was a 50 percent chance the cost of the first two ships would exceed its estimates and a 60 percent chance that the cost of the third through tenth ships would be higher than its estimates."
Thus, the Navy was not only lowballing its own estimate range (!), it was simultaneously acknowledging that it was unlikely to meet that estimate !!!!!!
This is the point of the post ... that the Navy systematically, intentionally, and fraudulently produces and provides lowball estimates and those estimates are low not by a few percent but by huge amounts. The Constellation is just the latest example of the ongoing string of fraudulent cost estimates by the Navy.
Thank God USN is buying an "off the shelf" design! LOL! Don't want to know cost of what a clean sheet design would be....double at least! Plus years late and over runs....sad what we have become!
ReplyDeleteThere was a time USN could execute this easy....now USN has become expert at accounting tricks.
So, add GFE/etc. and we're looking at what, 1.5B for a "frigate"?
ReplyDeleteAt a certain point, firing solid gold at the enemy will become the cheaper option.
Here is my question about the Constellations. Why not just build FREMMs? The FREMMs were decent GP frigates that could have filled a pretty big ASW/ASuW hole in the USN's current capability.
ReplyDeleteBut no, the USN had to remake them as AEGIS platforms. Why? Only reason I can think of is that they plan to slide them in as (far less capable) numerical replacements for the Ticos. "See, we replaced 22 Ticos with 20 Constellations, so we only lost 2 AEGIS platforms, net." But how many missile tubes did you lose?
Why didn't the USN build Type 23s ?
DeleteOr the ASW variant of the FREMM.
The USN seems to believe the bad guys have no submarines. Or the USN believes that open ocean escort is no longer a mission ?
The Burke is the official hammer of the Navy,
all problems can be solved with it, or a slightly
lighter weight version.
To your closing point about being consistently (optimistically) wrong; Upton Sinclair said it best. "It is difficult to get a man to understand something when his salary depends upon his not understanding it."
ReplyDeleteUntil we make the salary of officials dependent on stating reality we will continue to get lowball program estimates that get the program started and almost impossible to terminate.
This is what happens when your military is primarily a jobs program and not a warfighting machine.
ReplyDeleteOkay ... that's a platitude and a worn one, at that. There is an element of truth to it but it is not setting prices, determining delivery schedules, producing ship designs, failing to develop CONOPS, or any of the other problems plaguing Navy ship programs. So, give me and the readers something a bit more specific and helpful to contemplate.
DeleteWhy are ship designs - even a 'small' frigate - so expensive? What can be done about it? Is it even wise to build a billion+ dollar frigate? What's the alternative? What good will just 10 or 20 frigates do? Is a multi-role frigate a good idea? Why or why not?
Give us something meaty to chew on!
I'd disagree that my statement is merely a platitude. I wish it was just that.
DeleteThis attitude seems to be pervasive among the ruling class (my term for decision makers in Congress, DOD, flag officers, etc.). Maintaining a hold of their slice of the federal budget is paramount. You don't get a bigger budget by becoming more disciplined and efficient. The military becomes just another bargaining chip in electoral politics, a way to placate voters. Whether the military is actually effective is of secondary importance.
Frigates cost a billion dollars because you need to keep your defense contractors fat and happy. You don't get to that number if you make simple and specialized vessels. But, you do if you try to make a vessel that has every toy that you can imagine on it. Plus, the more stuff you have on the vessel, the more they can rake in when you inevitably have to repair and replace the overly complicated systems. If you don't make your defense contractors happy, you won't get to move onto their board or into a consulting gig when you retire.
What can be done about it? If voters demanded it, maybe something would happen. The problem is that the information most of them end up with is incredibly filtered. And, most operate under the assumption that if we spend as much as we do on defense we must have an effective military. I think the solution is a serious and focused president who is willing to make some enemies and fire people.
While the factors you mention do exist, to a degree, I'm afraid you're simplifying the situation to the point of unreality. I urge you to thoroughly peruse the archives and come up to speed on the various factors that contribute, in a much more significant way, to the current problems.
Delete@Husker95
Delete"This is what happens when your military is primarily a jobs program and not a warfighting machine."
Care to elaborate? What does that even mean. Hey the Russians produce inexpensive gear that looks good in Putin videos and haze recruits brutally and likely don't wast time on training or nice bathrooms... how is that working out.
Let's make our points constructively, as best we can.
Delete"Why are ship designs - even a 'small' frigate - so expensive? What can be done about it? Is it even wise to build a billion+ dollar frigate? What's the alternative? What good will just 10 or 20 frigates do? Is a multi-role frigate a good idea? Why or why not?"
DeleteMy thoughts, in no particular order. I think there is a place for a small number of larger multi-purpose ships, but they can't all be that way. You need a larger number of smaller, single-purpose ships to flesh out the numbers.
So I would have big nuke carriers and smaller conventional carriers. I would have a small number of multi-purpose battleships and cruisers, but fill out the numbers with 40 or so single-purpose AAW destroyers, 60 GP escorts (ASuw/ASW), 80 ASW frigates, and green/brown water ASW corvettes and gun/missile patrol boats. I would have an amphibious force of much smaller and cheaper and more versatile ships that could be risked close enough to shore to conduct a viable amphib operation. And I would have SSBNs, more SSGNs than the Navy proposes (primary strike platform), and flesh out the numbers of SSNs with some SSKs that could take on littoral and choke point missions to free the SSNs for blue water.
CBO estimates that the Navy's proposed shipbuilding plan will cost $2.8B per ship. With a high/low mix that could be cut in half, to $1.4B/ship, enabling a return to the 600-ship navy, or a 450-500 ship navy for a lot less than the Navy is proposing to spend.
"80 ASW frigates"
DeleteOne man's cheap is another man's expensive. Just because a ship is a 'frigate' doesn't mean it's cheap (the Constellation at $1B+, for example). What do you see your ASW frigates costing? [apologies if you've stated it before; I see/read so many things that they all run together after awhile]
A $200M frigate is easy to risk playing tag with a sub. A $1B+ frigate is risk averse.
Remember, it's not enough to be able to eventually build a fleet of 80 ASW frigates over a couple of decades. You need to be able to afford to build 80 per year in a peer war. They're going to be sinking right and left!
We need to design not just a fleet that looks good on a spreadsheet during peacetime, but a fleet that can be RAPIDLY and AFFORDABLY replaced and expanded during a peer war.
My concept for an ASW frigate is pretty close to your ASW escort in your proposed fleet. I would like to get them for $500 million each, but I'm not sure how realistic that is. They would not be FRENNs, and they sure as heck would not be Constellations.
DeleteRight now we don't have a war going on, so I really don't have any basis for analysis except spreadsheet. One thing that does jump out is the we need a major expansion of shipyard capacity if we are to replace wartime attrition.
Delete"I would like to get them for $500 million each"
DeleteYou get the idea that even a ship that is reasonably priced in peacetime when purchased one a year (say, a $500M ASW ship) is likely unaffordable during war when we'll need thirty or so each year, right?
"You get the idea that even a ship that is reasonably priced in peacetime when purchased one a year (say, a $500M ASW ship) is likely unaffordable during war when we'll need thirty or so each year, right?"
DeleteAbsolutely.
So what does that suggest to you?
DeletePost answering your question somehow got deleted, so I will post again. My ASW frigate concept would be pretty much your ASW escort concept from your proposed fleet structure. So I will ask you what you think that ship should cost. I you can build yours for $200MM, then I would say maybe $250MM for mine. I would think $400MM-500MM would be more realistic, at least until we could have more shipyards competing for the work,
Delete"So what does that suggest to you?"
DeleteWell, the first thing it suggests is that we can't have a wartime fleet of ships that cost $2,8B a pop and take 3-5 years to build. We need cheaper ships that are quicker to build.
The second thing it suggests is that we need a bunch more shipyards up and running and building Navy ships. We need both more capacity and more competition.
I don't know if we can win WWIII with more "Kaiser coffins," but that may be model we need to emulate--cheap ships that we can build in a hurry.
"So I will ask you what you think that ship should cost."
DeleteI'm not focused on cost. My focus is on combat effectiveness, simplicity of design, and ease of manufacturing. With a focus on those factors, the cost will take care of itself.
"So what does that suggest to you?"
DeleteWhat it suggests is that we need to de-emphasize our focus on high end ships (your ultra, mega, multi-function high end ships). It should be highly instructive that we only delivered 10 battleships during WWII AND NONE OF THEM WERE LAID DOWN DURING THE WAR!!!!! We didn't commission a single BB that was started during the war!
We need to re-orient towards smaller, single function ships with simple designs and ease of construction. We need to recognize that multi-function equals unaffordable and unbuildable during war. High end, highly capable, SINGLE FUNCTION ships are fine but cannot be counted on for production during war. You might want to re-evaluate some of your ship designs in light of this.
Will the Constellation be subjected to shock trials by the Navy since it is a new class of ship? Unfortunately, I think higher costs for ship construction (everything for that matter) are going to be around for the foreseeable future. So, if we get past that, is this class of warship worth the investment? (Hopefully this made sense and not jiberish).
ReplyDelete"Will the Constellation be subjected to shock trials"
DeleteNot if the Navy has anything to say about it!
"is this class of warship worth the investment?"
I know you follow this blog so you know my answer. What do you think? Is there a purpose (a CONOPS) for a billion dollar frigate? If so, what?
Before you're tempted to answer ASW, are you really willing to risk a billion dollar vessel playing tag with submarines when the subs have almost all the advantages?
But, if not ASW then what?
Absolutely not(I did ask some individuals the same thing about the Burkes). I would say let the S-3's play pin the MK48 on the hull but they are ancient history. Given the choice between using a Burke DDG or a Constellation FFG to go find and whack submarines, I would go with the "cheaper" option of using the FFG.
DeleteDo we even have enough SSN's to go play hunter-killer?
"Do we even have enough SSN's to go play hunter-killer?"
DeleteAs you know, the Navy has allowed the SSN fleet to decrease from 60+ subs to a projected low of around 40 over the next several years. So, the answer would appear to be 'no'.
Figure 1 and Table 2 from "The Cost of the Navy's New Frigate" are both rather disconcerting; I hadn't realized that even something like the OHP was so expensive in current dollars.
ReplyDelete"I hadn't realized that even something like the OHP was so expensive in current dollars."
DeleteYou've got to be real careful interpreting that data. It's some kind of average cost over a decade, as best I can tell, and does not represent the cost of every ship of the class. For example, the first Perrys were around $120M or so which is around $980M today versus the $1.5B cited in the report tables. Later Perrys were, of course, more expensive and this drives the average cost up.
In the top line budget they do break under 1 billion in FY 24 and 26 with 2 ship buys. Will be interesting to see if those prived stay under billion by the time they are bought.
ReplyDeletePossibly useful in illustrating why warships are so expensive to build in a Western economy, Think Defence has an article on why the Batch 2 River Class ended up costing so much more than the Batch 1s at
ReplyDeletehttps://www.thinkdefence.co.uk/2016/06/thoughts-batch-2-river-class/
The article illustrates where much of the money goes when constructing a warship. All of the changes between the two versions of the River Class require workers who are skilful because they are well educated and trained so their labour is not cheap.
I think the RN are getting rid of the Batch 1s. They certainly make heavy use of the Batch 2s so perhaps the money was wisely spent.
Apologies if this is not relevant to the Constellations. To compensate, here is a story idea for you, ComNavOps. I recently re-read your Return of the Broadside. Perhaps you could entertain and educate us by writing the story of the construction of the battleships described in that story, first describing how the USN would build these ships and, second, how you would organise their construction.
High cost is a common problem. Way too many in the food chain. People are fooled with "high tech weapons must be expensive".
ReplyDeleteIt’s been suggested that the constellation class will essentially replace the Ticos. I wonder if they will actually replace the Burkes. Once the Ticos are gone, the Burkes are going to be said to be too old, too expensive to upgrade, too labor intensive etc. The Large surface combatant will be another failed program. Ultimately, what was Burkes and Ticos will become Constellations and Burkes (flt3).
ReplyDeleteHi CNO,
ReplyDeleteAs oftens happens, this comment section has moved along to this- what happens when all the expensive ships and missiles run out.
I don't know how quicky electronic sensor arrays, computers and software can be built and uploaded, so it would appear things will go back to WW2, using guns and Mk1 eyeballs
In that case, what type of warship can be built which only has guns?
Should there be a department which is focusing on a modern design with , say, 8 inch guns as main armament. which can be used to escort duties, bombardment, anti ship roles, just like WW2?
I only choose 8 inch because it's what G2 wrote about in his blog and I know have rudimentary knowledge about.
Andrew