Navy Needs To Consider ‘Ownership’ Costs, Yard Official Says
By Grace V. Jean
National Defense Magazine
For every dollar the Navy spends on buying a new ship, it pays an average of two dollars to operate and maintain the vessel throughout its 35-year service life.
Those resulting “life cycle costs” are breaking the bank, say Navy officials.
At the root lies a perennial problem: officials who acquire naval weapon systems usually do not collaborate much, if at all, with those who service the platform during its lifecycle. When they buy a ship, they do so without giving much consideration to how much the service will have to pay to keep it running.
Shipbuilders say that bridging that disconnect could eliminate the problem and help them design better ships that ultimately require less maintenance down the road.
“We haven’t cracked the code on that one, but we’re working it,” said Kevin Graney, vice president of programs at General Dynamics NASSCO in San Diego.
The Navy in recent years has been grappling with how to fix the total ownership cost problem. It is caught between a rock and hard place because the way it encourages competition in an acquisition program is to close off dialogue with the shipyards. That means the shipbuilder is often left with making crucial choices about subsystems and components.
“A lot of those decisions made by the shipbuilder may not be the right decisions, but because they can’t communicate with the government customer during the competition phase, it becomes embedded in the design and is very difficult to reverse in later stages,” said Graney.
He proposed that government officials follow what’s done in the commercial sector, where owners and operators are picky about selecting equipment and subsystems that have proven their longevity and reliability. They are willing to foot higher up-front costs for those technologies with the knowledge that they will reap savings in the long term.
“He can be very specific about what it is he wants in that ship,” said Graney. “The reason he does that is because he knows he’s going to operate the ship for 30 years, and he knows that the brand-x diesel engine that he wants is going to stand the test of time. It’s going to be a low-maintenance engine. It’s going to be high quality. So he goes out and specifies that very early on in the process.”
The government, however, tends to leave that critical decision up to the shipbuilder, who is motivated by profit. “I’ll provide you the best engine you can afford, but it may not be the best choice for you long term. It may break down; it may not be a reliable engine ultimately. But unfortunately, that’s the best we can afford based on the budget that we’ve been provided,” said Graney.
He added: “It would be advantageous for the government and industry to get together early on to decide what specific equipment has the biggest impact to total ownership cost, and make informed decisions about that, rather than being forced by budgetary constraints to make poor choices and then pay over the life of a ship — 30 years in some cases — over and over again for that bad decision that was made early on.”
Shipbuilders rarely have insight into what parts break down on the vessels they design and construct.
“Having access to that data and understanding where the Navy is spending their money on maintenance is somewhat eye opening for us as shipbuilders,” he said.
Sometimes yard officials do hear an anecdote from operators about how the ships and subsystems are performing.
“They’ll come back and say, ‘You gave me a hardened mild-steel piping system that rusts a lot and wears out. If you went with a copper-nickel system, it would’ve lasted longer and reduced my maintenance time over the life of the ship.’ But unfortunately, the acquisition budget is such that the Navy cannot afford that higher costing system, even if they know it will save in long run,” said Graney. More dialogue between all parties, and especially with industry, would go a long way in helping to control total ownership costs.
“Tell us what you want. We’ll provide you an option, A or B. ‘A’ may cost $2, ‘B’ may cost $4, but option B, although it costs twice as much to acquire, will be half the cost to maintain over the 35-year ship life,” said Graney.
Shipbuilders do not want to forgo competition; in fact they think it can be advantageous for industry and government alike.
“Compete like hell early, but once that competition is over, open up the floodgates of communication between the government and industry to make a big impact on cost. It can be done,” Graney said. That open communication took place on the Mobile Landing Platform program, a contract that NASSCO won in 2009 after Northrop Grumman Corp. withdrew from the competition. Shipyard officials interacted with the Navy often.
“Having the ability to do that was hugely beneficial,” said Graney, who previously worked on submarines at General Dynamics Electric Boat in Groton, Conn. “We moved much faster on that design more completely than any other design I’ve ever experienced.”
The Mobile Landing Platform is expected to begin construction this spring.