[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 110-14]
ACQUISITION OVERSIGHT OF THE U.S. NAVY'S LITTORAL COMBAT SYSTEM
__________
HEARING
BEFORE THE
SEAPOWER AND EXPEDITIONARY FORCES SUBCOMMITTEE
OF THE
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
FEBRUARY 8, 2007
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SEAPOWER AND EXPEDITIONARY FORCES SUBCOMMITTEE
GENE TAYLOR, Mississippi, Chairman
NEIL ABERCROMBIE, Hawaii ROSCOE G. BARTLETT, Maryland
JAMES R. LANGEVIN, Rhode Island KEN CALVERT, California
RICK LARSEN, Washington TERRY EVERETT, Alabama
MADELEINE Z. BORDALLO, Guam JO ANN DAVIS, Virginia
BRAD ELLSWORTH, Indiana J. RANDY FORBES, Virginia
JOE COURTNEY, Connecticut JOE WILSON, South Carolina
JOE SESTAK, Pennsylvania
Will Ebbs, Professional Staff Member
Jenness Simler, Professional Staff Member
Jason Hagadorn, Staff Assistant
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2007
Page
Hearing:
Thursday, February 8, 2007, Acquisition Oversight of the U.S.
Navy's Littoral Combat System.................................. 1
Appendix:
Thursday, February 8, 2007....................................... 43
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THURSDAY, FEBRUARY 8, 2007
ACQUISITION OVERSIGHT OF THE U.S. NAVY'S LITTORAL COMBAT SYSTEM
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
Bartlett, Hon. Roscoe G., a Representative from Maryland, Ranking
Member, Seapower and Expeditionary Forces Subcommittee......... 3
Taylor, Hon. Gene, a Representative from Mississippi, Chairman,
Seapower and Expeditionary Forces Subcommittee................. 1
WITNESSES
Ellis, Mike, Executive Vice President and Chief Operating
Officer, Bollinger Shipyards, Inc.............................. 39
Etter, Hon. Dr. Delores M., Assistant Secretary of the Navy for
Research, Development and Acquisition; Vice Adm. Paul E.
Sullivan, Commander, Naval Sea Systems Command, U.S. Navy; Rear
Adm. Charles S. Hamilton, II, Program Executive Officer for
Ships, U.S. Navy; Rear Adm. Barry J. McCullough, Director of
Surface Warfare, U.S. Navy, beginning on page.................. 5
McCreary, Richard, Vice President and Gen. Manager, Marinette
Marine Corp.................................................... 36
Moak, Kevin, Chairman and Persident, Gibbs & Cox................. 30
Moosally, Fred P., President, Lockheed Martin MS2................ 26
APPENDIX
Prepared Statements:
Etter, Dr. Delores M. joint with Vice Adm. Paul E. Sullivan,
Rear Adm. Charles S. Hamilton, II, and Rear Adm. Barry J.
McCullough................................................. 47
Moosally, Fred P. joint with Kevin Moak, Richard McCreary,
and Mike Ellis............................................. 76
Documents Submitted for the Record:
[There were no Documents submitted.]
Questions and Answers Submitted for the Record:
Mr. Taylor................................................... 107
ACQUISITION OVERSIGHT OF THE U.S. NAVY'S LITTORAL COMBAT SYSTEM
----------
House of Representatives,
Committee on Armed Services,
Seapower and Expeditionary Forces Subcommittee,
Washington, DC, Thursday, February 8, 2007.
The subcommittee met, pursuant to call, at 3:10 p.m., in
room 2212, Rayburn House Office Building, Hon. Gene Taylor
(chairman of the subcommittee) presiding.
OPENING STATEMENT OF HON. GENE TAYLOR, A REPRESENTATIVE FROM
MISSISSIPPI, CHAIRMAN, SEAPOWER AND EXPEDITIONARY FORCES
SUBCOMMITTEE
Mr. Taylor. The committee will come to order. On January 12
of this year the Secretary of the Navy issued a stop work order
for the construction of the third vessel of the Navy's Littoral
Combat Ships (LCS). At that time the Secretary's explanation to
the committee cited escalating costs in the LCS program. He
indicated he needed to verify that the correct oversight
systems were in place and that the reason behind the price
escalation for the first ship was completely understood in
order to control cost of future ships. The Secretary
acknowledged that the stop work order would further escalate
costs associated with the LCS program, specifically in
planning; however, he was convinced that he needed to fully
comprehend the faults within the program execution before
continuing.
As many of you are aware, the Navy currently uses large
combatants to accomplish missions much more suitable to a fleet
of smaller and faster ships. It is a waste of resources to have
a modern Aegis class destroyer conducting board and search
operations. In order to remedy this misallocation of assets the
Navy advocated for a smaller, faster and cheaper ship with
reconfigurable warfighting capability, the ability to operate
in a Littoral Combat environment. In a world of asymmetrical
threats, this new ship would be capable of both protecting the
main naval force anti-submarine and anti-mine capability,
taking the fight to the enemy with a wide array of installed
weapons systems.
This committee is supportive of that vision, which is now
known as the Littoral Combat Ship. One of the key selling
points of the development, design and construction of the LCS
was affordability. The Navy has routinely advised this
committee that costs were being closely watched and that the
original estimates for affordability would be realized. In
fiscal year 2006 National Defense Authorization Act, this
subcommittee, led by my friend Representative Roscoe Bartlett,
directed the Secretary of the Navy to meet the cost target of
$220 million for the fifth ship of this class. The committee
was told that the cost target was achievable. Now it appears
this is not the case. I have been informed that Lockheed's
first ship, the Freedom, is 50 percent above the baseline at
about $270 million. We are looking at a ship that is going to
cost the American taxpayers almost $400 million.
I wish I could say that the cost overruns on defense
programs were an exception. Unfortunately, in recent years cost
overruns seem to be the rule. The American Congress has an
inherent responsibility to the American taxpayer. We are
expected and entrusted to account for how our tax dollars are
spent. I have never taken this responsibility lightly, and I am
going to make sure that this committee does due diligence on
behalf of our citizens.
If this Nation is to maintain undisputed dominance of the
oceans of the world, we need to come to terms with out-of-
control cost growth of major shipbuilding programs. Congress
will not continue to throw money away at programs that exceed
their cost projections. On behalf of the American taxpayers,
this committee will demand accountability and transparency, not
only in the case of LCS, but across the range of acquisition
programs. The bottom line is this, the Navy needs to start
budgeting with cost margins to deliver ships at a price they
promise the American people. Industry needs to understand that
a government contract does not equal a blank check from the
people of the United States. If industry can't execute a
contract at an agreed upon cost, then there will be
repercussions.
To that end this committee will endeavor to determine the
root causes of the staggering cost increases of the LCS
program. Let me acknowledge that this committee is fully aware
that the first ship of every class has learning curves in
construction. The cost differential for first ships and follow-
on ships is well documented. In the specific case of the LCS,
the committee is aware that the changes of design requirements
to the vessel were implemented a week before the contract was
awarded. However, Lockheed Martin began construction of the
Freedom nine months after the award of that contract. The
committee is also aware of construction delays caused by the
late delivery of a key piece of the propulsion machinery. While
Lockheed Martin fined its subcontractor for the late delivery,
the cost of the delay is being paid out of the pockets of the
American taxpayer.
Today's hearing will focus on the LCS contract award
method, the accelerated procurement plan, and the rationale
behind using a system integrator as a prime contractor. At an
absolute minimum, the committee expects that the two panels of
witnesses today will address the following issues: What were
the actual effects of the design change and late arrival of the
reduction gears? Were these effects accurately understood by
the contractor and by the Navy program office? Why or why not?
How did the schedule of the program affect the decision making
process of both the Navy and the contractor? Was there an
unneeded rush to complete this that is now costing the taxpayer
significantly more money? Have lessons learned been captured?
And is there a mitigation plan to assure that these problems
will not occur in follow-on ships? Does the current Navy
oversight structure need to be modified? Does the Navy have the
correct personnel in place as program managers and supervisors
of shipbuilding with skills necessary to identify potential
problems with construction?
The first panel we will hear from today is comprised of
representatives of the Department of the Navy. Testifying for
the Navy we have Dr. Delores Etter, Assistant Secretary of the
Navy for Research, Development, and Acquisition. Dr. Etter is
the senior acquisition official for the United States Navy.
Vice Admiral Paul Sullivan, the Commander of the Navy Sea
Systems Command, who issues technical authority on building
naval ships and supervises their construction. Rear Admiral
Charles Hamilton, the Program Executive Officer for Ship
Construction, who is charged with oversight for all surface
ship construction programs. Rear Admiral Barry McCullough,
Director of Surface Warfare Requirements for the Chief of Naval
Operations.
Second panel includes the following representatives of
prime contractors and major subcontractors. Mr. Fred Moosally,
President of Marine Systems at Lockheed Martin, prime
contractor and the system integrator for the LCS program. Mr.
Richard McCreary, Vice President and General Manager of
Marinette Marine Shipyard, the construction yard for the first
LCS. Mr. Mike Ellis, Vice President and Chief Operating Officer
for Bollinger Shipyards, slated to build LCS 3. Mr. Kevin Moak,
Chairman, Gibbs & Cox, Inc., the naval architecture firm that
designed the LCS built by the Lockheed Martin team.
I would now like to recognize our panel's ranking member,
Roscoe Bartlett.
STATEMENT OF HON. ROSCOE G. BARTLETT, A REPRESENTATIVE FROM
MARYLAND, RANKING MEMBER, SEAPOWER AND EXPEDITIONARY FORCES
SUBCOMMITTEE
Mr. Bartlett. Thank you, Mr. Chairman. Mr. Chairman, I
would like to thank the witnesses for being with us today. Dr.
Etter, on January 11 you announced publicly that the Navy was
aware of significant cost growth on LCS 1 and that the Navy
will be taking prompt action to investigate the matter further
to determine the exact amount of cost growth as well as root
causes. The following day Secretary Winter delivered a stop
work order to Lockheed Martin, the lead systems integrator for
LCS 3, which had not yet begun construction.
While I applaud your efforts and the efforts of your staff
to keep Members of Congress apprised of the steps being taken
by the Navy over the last four weeks, I have also expressed my
concern to you regarding our apparent inability to learn from
past lessons. Today will be the first opportunity for this
subcommittee to receive testimony on the Navy and Lockheed
Martin's preliminary findings regarding root causes of cost
growth, the LCS acquisitions strategy which was widely heralded
as a paradigm ship for shipbuilding which may have
inadvertently created challenges for the Navy and industry
team. The Navy and Lockheed Martin program management
structures for LCS, how well did these structures perform their
duties and what lessons have we learned to mitigate further
cost growth on follow-on ships and other shipbuilding programs?
The reporting mechanisms and the incentives in place to
minimize cost schedule and requirements growth, particularly
within a cost-plus contract and using a lead system integrator.
I cannot overemphasize the importance of your testimony in
this regard. This subcommittee has been committed to ensuring
that the Navy and Marine Corps receive the necessary resources
to maintain sufficient force structure to meet current and
future operational requirements. However, if LCS costs cannot
be controlled, we will meet neither the operational
requirements of our Navy nor the needs of our industrial base.
I consider this a serious threat to our national security.
In the near term, the President submitted his budget
request this week. The request includes funding for an
additional three LCS sea frames which would provide authority
for hull 7, 8, and 9. It is critical for this subcommittee to
understand what measures the Navy proposes to take and the
point at which LCS design stabilizes in order to adequately
evaluate the budget request and to make appropriate decisions.
I would ask all of our witnesses to maintain an open
dialogue with this subcommittee even after this hearing to
ensure a sensible outcome for the fiscal year 2008. Last, I
would like to remind members that while the Navy has awarded
contracts to both Lockheed Martin and General Dynamics for
Flight Zero of LCS, both contractors remain in a competitive
environment. As a result, some of the information relevant to
this hearing, such as exact cost and man-hour estimates or
engineering data that may provide a competitive advantage is
considered business sensitive. We should all respect the
proprietary nature of such information and the laws which
govern the witnesses' testimony. Both the Navy and Lockheed
Martin have done an extraordinary job of sharing such
information as may be necessary for this subcommittee to
perform its oversight function. As a result, much of that data
has been provided to committee staff and is available to
members upon request.
Again, I want to thank all of you for your distinguished
service to our country and for participating in today's
hearing. Thank you, Mr. Chairman.
Mr. Taylor. Thank you, Mr. Bartlett. I would like to ask at
this time unanimous consent that our colleague from New Jersey
be allowed to participate in the hearing. Without objection. Do
any other members wish to make an opening statement? We have
unfortunately been called to a 15-minute vote followed by five
5-minute votes. We have about seven minutes. What I would
recommend is that we go ahead and break, go ahead and make
those votes and give our witnesses--because I really--number
one, we are on a day of such a distinguished group here, and I
want this panel, those that are here, to give you our undivided
attention, to not be interrupted by votes. So if you do not
mind, we will break. Hopefully we will be back, I regret to
say, in a half-hour or so. Then we just plan to proceed until
we finish. Okay? All right.
[Recess.]
Mr. Taylor. I very much apologize for the delay. The House
has adjourned for the day so we will not anticipate--we had
tried to see if tomorrow was available but several of the
members have conflicts. So if you don't mind, we are going to
go through. I guess the good news is you probably won't be
getting as many questions as you would have. But with that, I
want to thank you again, our distinguished guests.
I guess we will begin with you, Madam Secretary.
STATEMENT OF HON. DR. DELORES M. ETTER, ASSISTANT SECRETARY OF
THE NAVY FOR RESEARCH, DEVELOPMENT AND ACQUISITION; VICE ADM.
PAUL E. SULLIVAN, COMMANDER, NAVAL SEA SYSTEMS COMMAND, U.S.
NAVY; REAR ADM. CHARLES S. HAMILTON, II, PROGRAM EXECUTIVE
OFFICER FOR SHIPS, U.S. NAVY; REAR ADM. BARRY J. MCCULLOUGH,
DIRECTOR OF SURFACE WARFARE, U.S. NAVY
STATEMENT OF HON. DR. DELORES M. ETTER
Secretary Etter. Thank you. Chairman Taylor, Mr. Bartlett,
members of the subcommittee, thank you for the opportunity to
appear before you to discuss the cost and schedule challenges
associated with the Navy's Littoral Combat Ship program, or
LCS. On behalf of myself and the others who join me I would
like to submit our written testimony for the record. As
Assistant Secretary of the Navy for Research, Development and
Acquisition, I serve as the Navy's acquisition executive. The
authority, responsibility and accountability for all Navy and
Marine Corps acquisition functions and programs rest with me. I
assure you that we moved quickly to determine the root causes
of this cost growth and we are taking corrective actions.
The Chief of Naval Operations (CNO) has reaffirmed the LCS
requirement to defeat asymmetric anti-access threats generated
by diesel submarines, mines and swarming boats. LCS is also a
key element of the Navy's requirement of 313 naval vessels. It
comprises 55 of the 313 ships in the long-range shipbuilding
plan. Because LCS is so critical to our national security, I
want to share with you some of the program challenges and the
corresponding actions that we are taking to ensure that the LCS
program is successful.
New ship designs historically face cost and schedule
pressures. LCS also incorporated many additional new
approaches. LCS has a rapid 24-month build cycle instead of 5
or more years. Naval Vessel Rules (NVR) were used for LCS for
the first time as a building code for warships, and this is the
first construction of combatants at mid-tier shipyards. The
result was an aggressive focus on schedule which increased
concurrency between design and production. Unexpected vendor
issues and design changes due to NVR were also more difficult
to accommodate. In addition, the Navy did not properly adjust
its management to accommodate for all of these first and thus
lacked sufficient oversight. Finally, there was not as much
transparency as was needed into management and cost matters.
Lockheed Martin also experienced some challenges. They did
not fully understand the impact of NVR on the design, resulting
in more design and production concurrency. They faced increased
cost of materials such as steel. Manufacturing failures on the
main reduction gears on the lead ship created a total schedule
impact of 27 weeks, and there was also not as much transparency
as was needed into management and cost issues.
You requested a timeline for the identification of the cost
overrun. Deteriorating cost performance on LCS 1 was observed
in late summer 2006. However, cost performance did not improve
as expected following the September 23, 2006 launch. In early
November I was briefed on the negative cost trends. Following
that meeting the Program Executive Office (PEO) and the
contractor commenced in-depth cost reviews. Lockheed Martin
briefed me and the PEO team on their cost review on December
18, confirming significant LCS 1 overruns. I alerted Navy and
Office of the Secretary of Defense (OSD) leadership and
directed a Navy team to conduct a detailed analysis of the
overrun. On January 12, 2007, the Navy issued a 90-day stop
work order for LCS 3. Work on the other Lockheed Martin ship
and on the two G.D. ships have not been affected. This stop
work order was issued because the contractors' estimates of
cost to complete exceeded our budgets on LCS 1 and LCS 3. I
initiated a number of reviews to determine the root causes for
the cost overrun on LCS 1 and to determine the appropriate
courses of action. I briefed the initial results of the
independent program managers assist team, PMAT, including our
detailed actions during the 90-day stop work period to your
professional staff yesterday.
Rear Admiral Chuck Goddard is conducting a review of all
four ships currently under contract. The Navy Inspector General
is performing a review and Lockheed Martin also performed a
review of the root causes and actions to correct declining
contractor performance. Our initial assessment revealed the
following root causes: An overconstrained program. We specified
cost, schedule, and performance that together gave little room
for design trades. A design and build schedule concurrency that
was made worse by the parallel ship bid and development of NVR.
The competitive environment resulted in contractor disincentive
to raise concerns. Insufficient metrics and tools to seek
trends early and inadequate oversight of design and
construction by both the contractor and the Navy.
Our initial recommendations for actions include improving
the timing and staffing levels of onsite government oversight,
examining the ability of the program office staff to keep pace
with acquisition, matching the most experienced people to the
programs with the highest risk, and ensuring that earned value
metrics are correctly reported by shipyard. These enhancements
will help us identify and resolve program issues earlier before
they become larger problems. We are also aggressively applying
the lessons from LCS 1 across all our ship programs.
In closing, LCS will bring a critical capability to our
Nation. The Navy continues to remain committed to cost control.
Cost overruns on Navy shipbuilding programs cannot be
tolerated, and the Navy intends to remain transparent as LCS
decisions are implemented.
Thank you for this opportunity to appear before this
subcommittee to discuss the Navy's commitment to LCS and to
correcting the issues that have arisen. We look forward to
responding to your questions.
[The joint prepared statement of Secretary Etter, Admiral
Sullivan, Admiral Hamilton and Admiral McCullough can be found
in the Appendix on page 47.]
Mr. Taylor. Madam Secretary, again I do want to apologize
for keeping you and your distinguished group late. Do any of
the admirals wish to speak?
Admiral Sullivan. No, sir.
Mr. Taylor. The impression I get from your testimony and
from what I have read is that in order to build this ship, and
I believe the term that CNO used was ``with the speed of
light.'' In order to build this ship and deploy this ship at
the speed of light, it certainly appears that a lot of costly
mistakes were made that did not result in building the ship any
faster, but certainly resulted in the citizens paying well over
$100 million more for the ship than they should have. The other
thing that troubles me is, quite frankly, I am disturbed by the
whole thought of training young people at our academies, having
them spend a life at sea, having them get the knowledge of that
life at sea, and traditionally it would be those senior level
captains and admirals who would draw the specs to a ship, put
it out to industry, say give us a price on it. I am really
troubled with the whole design/build concept, not just this
program but with two Coast Guard programs that are equally
screwed up.
I would like to hear your thoughts on whether or not your
department is rethinking the entire design/build concept
because in my book, it is zero for three right now.
Secretary Etter. Congressman Taylor, we are looking closely
at all of the things that went on in the design of this program
so that we can learn lessons from the mistakes that we made
here. We are finding a number of things, as I outlined in my
initial statement, and I do think that we are learning lessons
that will apply to other ships. I do believe we have the right
processes. We understand how to do this. But we have challenges
when we try to address taking risk and getting things done
quickly. It is a balancing thing that we have to do, and that
is the challenge of making things happen quickly so that we can
get ships to the warfighter.
Mr. Taylor. In trying to work with--and believe me I want
this ship to be built. I want us to get to even better than a
313-ship Navy and this is certainly slowing things down, but I
have to tell you there will be some skepticism within the halls
of Congress and in the other body when there are other pressing
defense needs. Two screwed up Coast Guard programs. This thing,
quite frankly--I have said it, I will say it again--the
spokesperson for this program at the moment ought to be Michael
Brown. That is how disappointed I am in the program. It has got
to get better and we will never get better unless we identify
these problems, and I have word from someone in the Department
of the Navy this is not going to happen again.
Traditionally some of the people who visited me say, well,
we always have first-ship problems. When we are only going to
build seven of a kind of the DDG 1000, we can't afford to throw
away one of seven. We can't afford these kind of problems, and
what I would like to hear from you and from the admirals is
what sort of structural changes are going to take place so that
this doesn't become a habit?
I happen to have been in south Mississippi in the wake of
Hurricane Katrina. I saw an enormous amount of waste on cost-
plus contracts. I never want to see another cost-plus contract
come out of this Department as long as I live because I think
someone at a business school somewhere is telling defense
contractors if you get a cost-plus contract and if you don't
take advantage of the government you are a fool. We are not
going to have that anymore. And I want to hear from you and I
want to hear from these admirals this is never going to happen
on their watch.
I am saying this in the form of a question, Ms. Etter.
There are other pressing defense needs. There are airplanes
that need to be bought. There are other pressing defense needs.
There are a whole lot of vehicles that this committee is going
to try to get built to make this more mine resistant. There are
a lot of ways that we can pay the taxpayers' defense dollar on
programs that work.
Secretary Etter. At this point in our analysis we are
finding this ship meets all the capability requirements that we
wanted in it. So the problem is not with the ship. The
capabilities are there. The challenges are that we tried to do
it too fast. There are a number of things that we are learning
from that we are applying as we look at other ship programs.
Certainly we are all concerned about DDG 1000 being very
successful. So the things we are seeing here we are fixing not
only for LCS, but the other ships in terms of, as I mentioned,
oversight.
One of the things we have learned is that we need to have
more people, the Superintendent of Ships people that are on the
ground at the shipyards. So we are working to make sure as just
one example that we do that in a way that takes into account
the more priority programs.
Mr. Taylor. Secretary Etter, is that going to be a
structural change within the Navy to where this doesn't occur
again or is this a one-time fix and then we turn around and
find ourselves in the same boat in a couple years on the DDG
1000? Within the Navy what is going to change so that Naval Sea
Systems Command (NAVSEA) ships don't do this again, so within
the Navy the right people and the right number of people are
assigned to catch problems early on before they lead to other
problems, just as the reduction gear led to an enormous cost of
escalation on this program?
Secretary Etter. I would like to ask Admiral Sullivan to
talk to the Naval Vessel Rules because that is one of the
significant reasons for the cost growth on this ship, and this
was something that was very important to do for the ship and
something that is important for us to do for these follow-on
ships. Admiral Sullivan?
Admiral Sullivan. Yes, ma'am. Let me talk about Naval
Vessel Rules first and why we had to do them and why it was so
concurrent. We had a set of--I will call them builders' codes,
like you would do for builders' codes for the warships of the
Navy, called GENSPECS, general specifications. Those are out of
date because they hadn't been funded for a long time and the
folks that we had in house in the Navy technical authority to
write and keep those rules up to date had been cut severely. So
budget cuts to both the rules development and the people that
did them put us in a situation in 1998 that we had to cancel
those rules. With the DDG 1000 and the LCS coming down the road
quickly at us, we had to do something. So we started our
partnership with American Bureau of Shipping (ABS) in 2003 to
write a new set of rules to take the best of the old and some
of the good commercial practice from ABS and blend them
together in a set of Naval Vessel Rules for the ship. A problem
is that we did that throughout--concurrently throughout the
time when the bidders were bidding on the ship and the ship
that we bid and the ship that we costed out is not the same
ship that we are buying today because of the parallel
development of those rules, which are good rules, they are
going to keep our sailors safe. It would have been much better
had we had those rules complete, well understood before the
ship was designed, costed and tried to be built.
Mr. Taylor. Admiral, the whole concept, and again my memory
is so far from perfect, but I do remember someone appearing
before this committee and proposing that they go to ABS rules
like somehow that that was absolutely the only course to take.
And what troubles me in retrospect is I am not a professional
sailor, you are. And what troubles me is that why no one in
your profession was raising the question that ABS is fine for a
commercial vessel. It is not intended to go in harm's way. It
is not going to be sent out in the worst weather. People aren't
going to intensely try to sink it. And why the whole delay in
deciding well, we are not going to go to ABS. We are going to
go back to a naval vessel somewhere in between. But even with
that decision being made, there was still seven months before
the Navy said this is what we are going to and the contractor
beginning their work. I would think that is a heck of a lot of
time for those people to have implemented those plans without
using incredibly expensive cost delays.
Admiral Sullivan. Well, let me say first about using ABS
rules. The Naval Vessel Rules are our rules and I mean they are
the Navy's rules. The ABS rules that are used for commercial
ships would not in any way, shape or fashion be used to build a
United States warship. I am talking about a combatant ship. The
Naval Vessel Rules are designed for combatant ships. They
include the best of the Navy technical authority in every
single section of the rules. Again, the concurrency of the
design work and the build spec gave--we in the Navy had, and I
will say an impression that the ship design and construction
teams. Because they worked with us on the Naval Vessel Rules
and because we had several rounds of discussion of those rules
and several rounds of publication of those rules, we felt that
their design reflected the rules. It was only in that seven-
month period that you are talking about that we discovered we
were--the ship that was bid did not include many of the
provisions of the Naval Vessel Rules because it was based on a
commercial design and in getting the ship design from the
commercial design to meet the rules that we need to keep our
sailors safe, that is what took those seven months, and again,
because of the highly pressurized schedule, the ship
construction started before the design was complete.
Mr. Taylor. Admiral, I would think common sense would beg
that someone in the senior leadership with the Navy would have
said, this doesn't make sense. Let's don't start cutting steel,
let's not start putting the ship together until we know what
the final product will look like, where we want the stranglers
to be, where we want the pipe hangers to be, where the wiring
and the plumbing have to be, and what is particularly troubling
is not only is the ship delayed but the taxpayers are out over
a $100 million. That is a heck of a lot of money.
Admiral Sullivan. Yes, sir. The need to go stand up and say
this isn't going to make sense was not particularly visible to
Navy leadership, partly because of the cause that Dr. Etter
mentioned, which was it was a lack of transparency in the
program and also there were not enough Navy supervisors,
shipbuilding people on site early in the process. We ramped
those people up and we will be ramping them up to about double
today very shortly, but the time to catch all this was early in
the program, and we did not have eyeballs on site enough to do
that.
Mr. Taylor. Admiral, another thing that troubles me, and I
would welcome your thoughts or any member of the panel's
thoughts, and I will correct a mistake that I made. I made the
mistake of saying that the taxpayers are going to pay twice for
that reduction gear when it turns out that the contractor, even
though it was a cost-plus contract, all he billed was once and
apparently they paid a penalty for that. But the delay in that
reduction gear did throw the building of the ship out of
sequence, and it did cause the citizens to pay a heck of a lot
more for that ship because of throwing it clear out of
sequence.
This is water under the bridge. What I don't want to see is
this become the norm in shipbuilding in our country, where a
mistake of that magnitude has occurred and the only person who
pays a penalty is the taxpayer. How are we going to address
that? What would be your recommendations to address that so it
does not happen again?
Admiral Sullivan. For that specific----
Mr. Taylor. Or anything similar to that. The propulsor does
not show up, the generator, anything that has got to be there
first does not show up and causes sequential problems in the
construction.
Admiral Sullivan. The best remedy for all of those sorts of
problems are to not concurrently design and build the ship. The
schedule should not be constructed so that you are building the
ship when you don't have the design complete, and I would also
suggest that some of these major components that are arriving
late should be the source of an advanced procurement.
Now I am off my territory here because that works on the
acquisition side. Maybe Admiral Hamilton can comment. Should
there be an advanced procurement for these ships to buy water
jets, diesel engines, reduction gears, et cetera?
Mr. Taylor. All right. Seeing as how the DDG 1000 is coming
down the pike, is that advanced procurement money there? And
has the appropriate amount of advanced procurement been
requested so this does not happen on the DDX 1000?
Admiral Sullivan. I will have to pass that one down to
Admiral Hamilton.
STATEMENT OF REAR ADM. CHARLES S. HAMILTON, II
Admiral Hamilton. Chairman Taylor, good afternoon. It is
great to be with you again.
Mr. Taylor. Thank you for being here this evening. You are
quite a gentleman for sticking around this long.
Admiral Hamilton. On DDG 1000 the analogies to the LCS
program are pretty sparse in my opinion. In DDG 1000----
Mr. Taylor. Admiral Hamilton, if you could get a little bit
closer to the mic.
Admiral Hamilton. The analogies between LCS and DDG 1000
are fairly sparse. In DDG 1000 we spent a three-year period
developing engineering development models to do risk mitigation
of the technologies we were working on. In DDG 1000 we have two
and a half years of detailed design with teams that have been
in place with a design tool that has been in use for five years
with both teams. We have metrics in place that track those
design artifacts and products on DDG 1000 and those have been
reported on a quarterly basis to our leadership and the Navy
and OSD. We have those ships and DDG 1000 built in our new
construction shipyards at Bath Ironworks and North Montgomery
Ship Systems, Pascagoula, where there is a large footprint of
supervisor over ships personnel to maintain both earned value
management tracking as well as ship performance during the
production process. The program office for DDG 1000 in
headquarters is staffed at a level of about five times that of
the LCS program. The design concurrency that was deliberately
built into the LCS program because Admiral Vern Clark requested
we get this at the speed of heat is not resident in the DDG
1000 program. We invested significantly in budgetary terms for
both design and production, to include advanced procurement
money for those materials that would allow us to get those
materials and your need date satisfied to a sequence that
construction over those ships in a way that would give us
production efficiencies. Those conditions did not exist on LCS
based on our stated Navy need to get this ship in the water as
fast as possible, to respond to the global war on terror
threat. And so in that process, we elected to invoke Naval
Vessel Rules as part of both a preliminary design process, the
final systems design process, and the detailed design and
construction process. We teamed with our industry partners to
help write those rules in realtime. They participated in that
rule set in the technical committee, they were advised of their
requirement to deal with that in source selection. They
testified in both writing and in orals and source selection
that they understood those rules and were executing to those
rules. Following publication of those rules in May of 2004, the
companies had the opportunity to come back to us through the
engineering change proposal (ECP) process to deal with the NVR
changes that were required. That did occur. We did negotiate
those ECPs with the two companies and proceeded along our
production dilemmas with the reduction gear and steel frankly
followed the mitigation of the ECPs for Naval Vessel Rules and
Naval Vessel Rules is clouding this conversation.
Mr. Taylor. Now I will yield to my ranking member, Mr.
Bartlett.
Mr. Bartlett. Thank you very much. I had the privilege of
spending many hours with three of our witnesses on
Congressional Delegations (CODELs) and on each of those our
chairman was with us when we visited the shipyards in Europe
and Asia and in this country. I was impressed that the
taxpayers were getting a really good value for the salaries
that we paid you. I never traveled with people that I thought
were harder working or more knowledgeable, and I am surprised
that we are here today because you are really very bright
people and we shouldn't be here today talking about this, and
so I have been asking myself, how in the heck did we get here?
If design/build could work anywhere, it ought to have worked
for this ship. This is not rocket science. This is a sea frame
with, I presume, relatively defined interfaces with the
modules. If design/build, Mr. Chairman, would ever work, Mr.
Chairman, it ought to have worked here because this is probably
the least complicated package that we--you know, it has got--it
is just the sea frame. It has got only interfaces for the
modules that are going to go on it. So we really need to take
another look at the design. I am not ready yet to admit that
the design/build will not work. It clearly didn't work here. I
am not sure that the reason that we are here today is because
of design, of design/build.
Dr. Etter briefed me on this program when we were on one of
the CODELs and there were several of what looked like modest
overruns, but every one of them were explainable. One of them
was I understand that somehow we got caught up with $220
million and never put in the program office cost. So we should
have been talking about $220 million plus whatever the program
office costs were. The second was that there was some inflation
that had gone about, and that is a usual thing. And always
there is inflation, unfortunately. Because we spend too darn
much money in Washington, and the input I got then was that
considering these things, we were okay, we were on schedule,
and the hull minus inflation and minus the program office was
still at $220 million. That is what I was told on that CODEL. I
have really thought about this and why we are here with such
confident, knowledgeable people running this program. Who
imposed the schedule? Because I look back on it, every one of
the cost overruns except for whatever cost increase there would
have been, a result of the Naval Vessel Rules, all the other
costs were because we were trying to build to a schedule that
was totally unrealistic.
When the reduction gears didn't get there, we started
building other modules on the ship, and that greatly increased
the cost, I understand, the final integration of those modules,
and we were doing that simply because there was a schedule that
we were trying to adhere to. Instead of taking a meaningful
pause to look at what the Naval Vessel Rules would cost us in
terms of schedule and time, we had a relatively modest increase
in schedule and a relatively modest increase in cost, both
which turned out to be very unrealistic.
Who imposed the schedule on us? Because Mr. Chairman, as I
look back at this program, I think that we can attribute almost
all of the costs except those attributable to Naval Vessel
Rules, almost all of the costs to trying to adhere to a
schedule which was just very unrealistic. Who imposed this
schedule on us? I think that was probably above your pay grade,
wasn't it?
Secretary Etter. I would like to ask Admiral McCullough to
address this in representing the requirements part of the
program.
STATEMENT OF REAR ADM. BARRY J. MCCULLOUGH
Admiral McCullough. Yes, ma'am. Chairman Taylor, Ranking
Member Bartlett, it is a pleasure to be here with you this
evening. To answer the senior member's question, the global war
games hosted by the Naval War College in both 2000 and 2001
identified a critical warfighting gap in the Littoral with
respect to quiet diesel submarines, submerged mines and small
swarming boats with anti-ship cruise missiles, specifically
directing us to build a capability to punch through and support
joint forcible entry operations. As such, the then CNO Admiral
Vernon Clark in his posture hearing for the 2004 budget in
February of 2003 said, we will capitalize on DOD initiatives,
spiral development and new acquisition methods to streamline
the acquisition process and begin construction of the first LCS
in 2005. The CNO believed this was a critical warfighting gap
and we needed this capability to the fleet soonest and we were
going to take advantage of revisions to the DOD 5000 manual
that occurred in May of 2003. Additionally, then Assistant
Secretary of the Navy for Research, Development and Acquisition
John Young directed that this be a fast track acquisition
program similar to what the U.S. Air Force does with
Pathfinder, and he said we would take this ship from
conceptualization to initial operational capability (IOC) in
five years and directed that the IOC date be 2007. That is what
drove the schedule. We had a critical warfighting gap and the
Navy leadership believed we needed to fill it.
Mr. Bartlett. Yeah, this whole thing reminds me a little
bit of General Shinseki and his berets. He wanted them by a
certain date and somehow nobody in his chain of command had the
courage to tell him the only way we are going to get those is
to have the Chinese build them, make them. And I was at the
hearing when he first learned that and I suggested that maybe
he should put an anonymous suggestion box out in front of his
office because certainly someone in that chain of command knew
he would be embarrassed when he learned that the berets that he
wanted were being made in China. And there had to be somebody
in your organization and in Lockheed Martin that realized that
this was an unrealistic schedule, that if we tried to adhere to
the schedule we were simply going to increase cost, and it just
seems to me that is very unfortunate because I think the
design/build can work. It clearly didn't work here but I am not
willing to blame design/build because if ever it could work it
should work on a ship like this probably, being a sea frame one
of the most simplest predictable things we have built in a long
time, isn't it?
Secretary Etter. Yes. Admiral Sullivan.
Mr. Bartlett. That was supposed to be the genius of this,
that it is a sea frame. And we define interfaces that interface
with the modules.
Admiral Sullivan. Yes, sir. That was our impression at the
very start of this project where we were adopting commercial
high speed ferry designs, and that was the intent when we
marched off on this project. However, when you take a design
that is for limited service, close to shore, that doesn't have
to fight wars, and translate that basic design into a ship that
has to go forward, fight wars, get out of harm's way, get hit,
have a combat system, have guns, have missiles, have Navy
computers on it, and also perform in high sea states where the
parent craft, the ferry, would come in and just not--was just
not--we don't have that choice. A myriad of changes in hull
structure, auxiliary systems and electronics take place and we
were all caught, I would say, by the increasing complexity.
Mr. Bartlett. Would you agree though if we hadn't been
constrained by a schedule that we probably could have
ultimately built it a lot cheaper with fewer false starts? My
understanding is that a lot of modules that were built before
we had final design trying to adhere to the schedule, we had a
lot of rework on those.
Admiral Sullivan. That is right.
Mr. Bartlett. Because we wanted to reach--to meet a launch
date, we didn't keep the modules in the yard upside down as
long as we could, we didn't keep them in the yard as long as we
could, we put them in the ship, hoping that we could catch up
in the most inefficient mode for building, which is once it is
in the water, as I understand, and so we kind of abbreviated
what we could have done upside down. What we could have done
when it was modules in the yard and because we wanted to meet a
launch date, we rushed these things to weld them together for
launching, we would fix it once it was in the water. Am I wrong
that that is what happened?
Secretary Etter. There were aspects of that that were true
about this problem, but what we are trying to do at this point
is understand what really occurred in the difference in price.
We have roughly $100 million that is different in the price
that we anticipated. So we are trying to understand, what part
of that really was caused by doing the concurrent design and
build? Because if it is attributable to that, then we won't see
that expense as we go on to the next ships. So that was the
reason for the stop work, so we could look at things precisely
as you are describing and understand whether it was attributed
to, for example, the Naval Vessel Rules being invoked in
parallel with this or whether it was due to the reduction gear
or whether it was due to materials or whatever. So that is the
reason for the stop work, to understand that difference in
price.
Mr. Bartlett. But doesn't this all get back to schedule? I
would think that you wouldn't build a module where you didn't
have the specifications, and apparently we went ahead and built
a lot that we had to redo, is that correct?
Secretary Etter. That is correct. Admiral Hamilton----
Mr. Bartlett. And that is because we were trying to adhere
to a schedule? And nobody waved a red flag and said, hey, you
know, you might adhere to that schedule but it is really going
to cost a lot more money.
Admiral Hamilton. Congressman Bartlett, we did several
things on the time frame based on the urgency of the need. As
we provided the drawings for ABS for certification, we triaged
and prioritized the drawings to help follow the erection
sequence of the modules for the ship, and so the modules that
were first under construction were sequenced first and the
majority of the drawing packages to support that were completed
in a timely way to execute that construction sequence.
Mr. Bartlett. How come there is so much rework then?
Admiral Hamilton. A specific piece of the rework was vendor
furnished information provided to the client by their
subcontractors which inaccurately reflected foundation points,
connections, fittings and some of that was impacted by design
and some of that was impacted by bad material ordering and
procurement.
Mr. Bartlett. We were told there was $26 million increased
cost because of the reduction gear, of course reduction gear
cost us no more. We understand now that was a fixed price item
from General Electric and they ate the extra expense of cutting
the gear wrong the first time. Isn't it true that there would
have been no increased cost from that except for trying to
adhere to a schedule and build modules out of sequence?
Admiral Hamilton. It is true we elected to build modules
out of sequence, again to meet the schedule and the urgency of
the need. At the disclosure of the reduction gear problem we
were not presented with--here is a 27-week delay in one
discrete bite which would have allowed decision making to
perhaps proceed in a different way. We were given in fact six
different disclosures over a seven-month period, the
aggregation of those disclosures got us the 27-week schedule
delay. When we started, we thought we had about a two and a
half-month schedule and thought that we could resequence around
that initially without fundamental disruption to the ship
construction.
Mr. Bartlett. If we could roll back the hands of ship and
be as smart then as we are now, what would you do differently?
Admiral Hamilton. From my perspective, I would have done
several things. I would have said to my design community, both
in the Navy and in Lockheed, the design products are not
maturing on a timeline that we really need to do, let us slow
down and get that right. Separately, I would have relooked at
the decision making we executed on the reduction gear
resequencing to see if we had enough of the requisite
information in hand to make the correct decisions about that
sequencing, but I will tell you in both cases that both the
industry team and the government were motivated by the belief
that this need was now and we needed to satisfy it it as
quickly as we could, and we tried very hard within the
constraints of the program to satisfy that need.
Mr. Bartlett. So a lot of these overruns were schedule
driven, that is what you are saying?
Admiral Hamilton. Yes, sir.
Mr. Bartlett. Which was my assessment when I looked at it.
Organizations looking over your shoulder like Congressional
Research Service (CRS), did they do some assessments of this
during this process? And if so, what did they tell you or tell
us? Because they report to us, not you.
Admiral Hamilton. CRS has examined our cost estimating
procedures and are designed in a macro sense as part of their
analysis. To the best of my knowledge, CRS has not specifically
looked at either the design/build NVR concurrency question or
the reduction gear question to date.
Mr. Bartlett. Admiral Sullivan says that there weren't
enough Navy personnel on site. How many were there? We
understand that there were 13, and now it is going up to 14.
That doesn't look like much of a ramp-up.
Admiral Sullivan. At the start of construction there was
nobody there, at the start of the contract there was nobody
there because the ship was getting built in Marinette, which is
a place we don't have a supervisor presence. So we had to
develop a plan to ramp up those--that the people onsite from
Supervisor of Shipbuilding (SUPSHIP) Gulf Coast. SUPSHIP Gulf
Coast, as you know, is in an area that just had finished a
hurricane and a third of the people who worked there lost
everything. So that office had to get stood up in stages. We
started with about three or four people. Then we ramped up to
nine. We are ramping up to this month to about 14, 15. We will
be up to over 20 in the next couple of months. So we are taking
action right now, but we should have done this months ago.
I have to say that SUPSHIP Gulf Coast is about half the
size it was about 15 years ago with a higher workload and that
has been challenging. There are other high risk programs that
are going on at SUPSHIP Gulf Coast with the small ship builders
on the Gulf Coast, the LPD 17 program, recovering the DDG that
was damaged by the storm and trying to get LHD 8 and LHA 6 on
track whilst also trying to deal with work on the DDG 1000
program. We are still working on the design piece so they are
stressed, they are half the size they used to be, and we did
not allocate enough people up to Marinette quickly enough
because of the overall picture down there.
Mr. Bartlett. Just one last question. We have to move on.
We have another whole panel. What confidence do you have that
our whole estimated completion cost will be any better than our
estimation before?
Secretary Etter. We have had a number of people looking at
our cost estimates over the past few weeks. We feel that we
have a pretty good estimate of what it will cost to complete
the ship. We are continually improving our cost-estimating
capabilities, but it is a challenge because it is forecasting
when you don't have a lot of data for similar ships. We do
believe at this point with the analysis going on now we will be
able to predict the cost of the follow-on ship for LCS.
Mr. Bartlett. Thank you very much. I hope we are not back
here with a similar hearing after the ship is finally
delivered.
Thank you, Mr. Chairman.
Mr. Taylor. The Chair now recognizes the gentleman from
Pennsylvania, Joe Sestak.
Mr. Sestak. Thanks for your time.
I am sorry, I probably missed some of what was already
said.
I want to ask a couple of questions of process because I
think the idea of LCS still is pretty darn good, the seaframe,
get it out there, modules in and out. And Admiral Clark had a
great idea. Admiral Clark really wanted to move this along but,
like with anything else, victory has a thousand fathers and
defeat is an orphan.
My question I think has to do with process. You have the
performance of the shipyard. You have the vendors' costs and
the construction standards. My understanding is that by and
large, the vendor issues and the construction costs were all
taken care of in October of 2005, so they were within the
fiscal year 2007 budget baseline, so to speak, and those were
counted right; is that right?
Secretary Etter. Yes. That is true. We did a rebaseline in
which we accounted for the Naval Vessel Rules and the reduction
gear and then some ship performance issues.
Mr. Sestak. So is it the Navy's view the shipyard
performance is causing the recent growth of the LCS?
Secretary Etter. The recent growth is partly due to
shipyard performance, but we also are concerned about
understanding that in more detail.
Mr. Sestak. Is there anything else--yards, shipyard
growth--since you rebaselined those other vendor costs and the
ABS, you know, the standards--is there anything else that
causes a recent growth, in your view, not just understanding
it, but anything else?
Secretary Etter. We know that there were some materials
cost. We know that there is performance cost, and I think that
there is also still some impact of Naval Vessel Rules that were
not completed earlier. So we think those are the three key
categories, probably.
Mr. Sestak. It was said in the papers that Lockheed Martin
had come forward as early as March 2006 and let the Navy know
about these concerns. Is that the case?
Secretary Etter. There were constant discussions with the
contractor, as we saw the performance, such that the cost was
growing and the performance was deteriorating. So there were
constant dialogues, and it was at different points in this
process where different people began to recognize that there
was something here more than just the lead cost issues.
Mr. Sestak. But should it have taken--I think it was
November that you were apprised of it.
Secretary Etter. I was aware of increasing costs, but to
point out at what time did I begin to recognize that, it was
something more than the lead ship costs for me that really
occurred into the fall.
As we look back on the data now and you pull all the pieces
together so you have it at one time, I think clearly we should
have recognized it earlier. But we did not have people that had
all the data together at one time, and that is part of what we
have to change as we look at going forward.
We also found that some of the metrics we were using were
not correctly computed and so that also caused some problems.
But I would like to also offer that question to Admiral
Hamilton, if I could.
Mr. Sestak. If I could, could I ask Admiral McCullough a
follow-up.
I am not that smart, but I never really understood quite
the relationship between NAVSEA PEO and the Secretary's Office.
Does the PEO report to you, or do you write its fitness report?
Admiral Sullivan. The PEO reports to Dr. Etter, as do I.
Mr. Sestak. And who writes the fitness report?
Admiral Sullivan. Dr. Etter.
Mr. Sestak. So you have an an-hoc relationship with PEO?
Admiral Sullivan. No. For in-service ships, if a PEO runs
in-service ships, delivered ships, not acquisition ships, he
reports to the CNO VME, because I am responsible and
accountable for delivered ships, maintenance and modernization
to the CNO VME. But in my acquisition role, it is--if you are
familiar with the support and reporting commander, the PEO is
the supported commander and the NAVSEA is the reporting
commander.
Mr. Sestak. So the three-star is supporting the one- or
two-star. Is that the best way to have this done, oversight set
up by the Navy?
Admiral Sullivan. It is the way the Navy executed
Goldwater-Nichols.
Mr. Sestak. Watching how the Chief of Materiel came into
the NAVSEA and other things, is it the best--in view of what
has happened here and other things, is it the best way to have
this oversight? I mean, you have SUBSHIPs reporting to you,
correct?
Admiral Sullivan. Yes, sir.
Mr. Sestak. And there were, according to how you talked to
the Chairman, not enough people and yet the response is giving
you an alarm about the acquisition sites, so to speak?
Admiral Sullivan. Right.
Mr. Sestak. And yet you are not really responsible. You are
supporting someone for it. And yet you strip people on the
deckplate kind of reporting it. Is this the best way for the
Navy to have set up this system?
Admiral Sullivan. You can always do better. When the
program offices worked for the systems commands, it didn't give
us overruns. It gave us the A-12s.
Mr. Sestak. When they reported to you?
Admiral Sullivan. Yes, sir. So I could see it either way,
but fundamentally this is a pretty good organization. The
reason it was stood up this way is so that the PEO had a direct
line of accountability to the service acquisition executive,
and that is a very clear line of distinction. So me, as the
supporting guy, independent technical authority, independent
head of contracting agency, independent head of budget office,
and independent cost surveillance, we did not adequately do our
job for the PEO and in my reporting relationship to Dr. Etter.
Mr. Sestak. I am sorry. Admiral, you wanted to say
something?
Admiral Hamilton. Yes, sir, Congressman. We saw rising
costs over the summer time frame. We tracked that in the July
through September time frame. We specifically expected to see
some disruption of the earned value management metrics as a
subset of the execution of the run-up to the launching of the
ship in September. We also expected in September after the ship
was in the water that those metrics would stabilize and that
the performance would be significantly higher than the
disrupted metrics in the July-August time frame. We were
disappointed to find a fundamental drop-off in performance
after the ship was in the water.
Mr. Sestak. Were you aware of the increased costs during
the summertime? Is that when you first got notice?
Admiral Hamilton. We have been tracking estimated
completion for this ship since the inception of the ship.
Mr. Sestak. I mean, since--this particular cost group, I
thought, came to attention only by newspapers' reports, and I
know those aren't always reliable in March.
Admiral Hamilton. As we worked on the ship together and
tracked costs, the costs of the ship and our budget were
aligned through the end of September. They started to diverge
at that point based on bad reporting and the earned value
management system (EVMS) at the shipyard. We dove into that and
attempted to correct it and understand it. As we continued to
work through that and reported to our leadership, it became
increasingly clear that there was some fundamental dilemma in
the execution of the workforce and the tracking of that in the
October-November time frame.
Mr. Sestak. So up until September, what Lockheed Martin was
telling you was everything seemed to be on track?
Admiral Hamilton. We were within our budget and executing
to that budget.
Mr. Sestak. And that was about the time when you heard
about it, Admiral?
Admiral Sullivan. Well, first off, the discussions between
Lockheed Martin and the program office were ongoing. There are
plenty of numbers that have been thrown around but the
fundamental ground truth, as you know well, is EVMS system.
There were problems with that earned value management system.
My supervisor recognized them, as did the program office, and
in I would say late Spring of 2006, worked hard over the summer
with the program office and the contractor to get the
management reporting system to get good numbers. And as Admiral
Hamilton had said, had a couple of months of good numbers,
September, October; and again, that is what showed the dramatic
increase in price or in costs to the government that was going
to exceed the budget.
Mr. Sestak. So it is about the same time as Admiral
Hamilton found out that you found out?
Admiral Sullivan. Yes.
Mr. Sestak. And the other question I think I didn't pick
up, and I am sure it is in the testimony, is what is the cost
now expected to be of the fall 1-LCS, your best estimate at
this time?
Secretary Etter. At this point, it is somewhere in the
range of 350 to 375 million. We are still evaluating cost
estimates on the other ships.
Mr. Sestak. So the following ships, I guess the last time
it came across, there were roughly about 300 million, the LCS
and fiscal year 2007 when the budget was submitted----
Secretary Etter. The budget right now for the ships, the
Lockheed Martin ships in June 2006, the contract was signed for
203 million.
Mr. Sestak. I am sorry. I meant for number 5, 6, 7, and 8,
when you start laying the speculated costs for them it is still
about 300 million for them?
Secretary Etter. We don't have an estimate for that. The
original estimate had been 220. And our goal had been to get to
220 by the fifth ship. But we are now doing analysis to really
understand what is----
Mr. Sestak. So the fiscal year 2007 still had the 220
number in it?
Admiral McCullough. The 2007 budget has the ships priced at
$260 million apiece for $720 million in 2007.
Mr. Sestak. How much?
Admiral McCullough. 260 apiece for 521. I am sorry. In the
2008 budget the ships were priced at about $303.5 million.
There is $911 million in the budget, as is currently written,
for three ships in fiscal year 2008.
Mr. Sestak. The 220 ship is now about 300.
Mr. Mwangi-Kioi. Well, the 220 was unit cost, which
includes the basic construction cost that Dr. Etter says that
we now estimated at between 350 and $375 million plus the
government-furnished equipment. It wasn't the end cost of the
ship--change proposals, program management costs, and
oversight. So we had a unit cost and then we had an end cost,
and 220 was the end cost.
Mr. Sestak. Don't you include all of those costs normally
in the budget? You failed to do so in 2006.
Mr. Mwangi-Kioi. Yes. That is correct.
Mr. Sestak. So really, the original cost you just didn't
accurately depict what you should have in the 2006 budget,
correct?
Admiral McCullough. That is correct. We incorrectly priced
the ships, as we understood the program then. Yes, sir.
Mr. Sestak. Because government costs and overhead are
normally included?
Admiral McCullough. Correct.
Mr. Sestak. So when you correctly included them, it was
about 300?
Admiral McCullough. That was what we knew, when we
submitted the budget. The average cost of the modules is about
55 modules, the surface module being the cheapest--and I don't
want to give you numbers because I don't have them in front of
me--but the most expensive one is the mine module and that is
more than the $55 million average.
Mr. Sestak. So if you are buying two modules per ship, it
is about 100 million?
Admiral McCullough. If you took the average, yes, sir. It
would be about $110 million. But in the 2008 budget as we
submitted it, we have rephased the modules to support more
advanced warfighting campaign analysis so there won't be two
modules per ship.
Mr. Taylor. We have a new rule in the subcommittee. Anybody
who works past 6 o'clock can ask as many questions as they
want.
Mr. Sestak. Only changed when I got here, those working
hours.
The Navy said it is going to have 313 ships. And I gather
some of that number is based upon the Navy not anticipating any
bigger piece of the pie, kind of somewhat of a continuing line
of what it has, Operation and Maintenance (O&M) and Military
Personnel (MILPERS) kind of remaining flat and at least not
increasing, and Research and Development (R&D) going down
somewhat, maybe even staying down. But the real key of that
313, my understanding is that all ships will come in at
estimated prices.
What does something like LCS do to that number of 313
ships? I mean, if those are really what undergirds the
assumptions of 313?
Admiral McCullough. What we have looked at, Congressman, is
we have increased the shipbuilding budget from $11 billion to
about $14 billion over the past year in the 313 balance risk,
affordability, industrial-based concerns, in the 20--15 to 20--
20 time frame in accordance with the Quadrennial Defense Review
(QDR) direction to support the warfighter, and there is risk in
budget when we laid it out on a $13.4 billion 2005 dollar-
escalated line.
Mr. Sestak. On what line?
Admiral McCullough. 13.4, 2005----
Mr. Sestak. Procurement?
Admiral McCullough. Supply Chain Management (SCM) budget.
Only ship procurement. Not only the things that we use in the
SCM budget. And we understand there is risk in that, but we
believe we can make the 313 plan.
Mr. Sestak. What does something like that, when the cost of
the ship has increased so much, do to that estimate?
Admiral McCullough. I will tell you, sir, that that is
currently under review, and when we get that information, we
will gladly provide it to the committee.
Mr. Sestak. LCS cost overrun. This isn't the first time
though, right, where initial estimates have been much lower
than what finally came out on whether it is DDX or DDG 1000 or
whether it is LPD, or whatever; is that correct?
Admiral Sullivan. We typically have, if you look at the
history, lead ship costs we underestimated by an average of
about 20 percent. We try to put in the adders for all of the
first-time costs and sometimes we get it. Most of the time we
don't.
Mr. Sestak. And then the average cost of the follow-on
ships, they are usually how much above?
Admiral Sullivan. We are usually very close on follow-on
ships within 5 percent either way.
Mr. Sestak. Thanks very much.
Mr. Taylor. Last year in this bill, then-Chairman Bartlett
included very strong language that the price cap for this ship
was going to be 220 million. What I have failed to have heard
is a proper explanation of--and I will give the panel an
opportunity to address--is that as the reduction gear is late,
someone had to make the decision to continue construction of
the ship, knowing that the cost of that ship was going to rise
dramatically because of the rework that would take place when
that gear shows up later; it has to be installed.
Someone had to know it was going to cost a lot more than
$220 million. Who is the someone? Who did they seek the
approval of and at what point did they intend on notifying
Congress of those additional costs? Because the alternative is
for someone to have said to Congress, knowing the Chairman's
interest in controlling the cost of this ship, ``Mr. Chairman,
we are at a crossroads. We've got a former CNO who wants the
ship built quickly. We have got you, that told us that the cost
of this is going to be 220 million. What is it that you want?
Do you want it done quickly, or do you want it done
expensively?'' and we didn't hear that. I don't believe the
Chairman heard that on his watch. I know that no one from your
office contacted me.
I think it is a very fair question. When was that decision
made, and at the time what did you anticipate the costs to be
and how close was that anticipated cost to the real cost that
we incurred?
Secretary Etter. Mr. Taylor, we had in our budget during
the summer approximately $270 million to cover this ship, and
that was to cover the increases in the Naval Vessel Rules, the
gear issues, and ship performance. So up through the summer,
the anticipation was that we had enough dollars to cover this.
It was only as we began to understand that from the various
estimates we were getting and the errors we were finding in the
earned value metrics that we were starting to have problems.
And as those problems began to become more clear, we became
more concerned.
I agree with you, there was not sufficient transparency in
the organization. That is one of the things that we must change
and we are already in the process of doing that. But we did not
have a process that allowed the individual pieces of the
problem that people were seeing to come together and then, by
coming together, be able to bring that information up through
the organization so that we could identify the problem and go
to our leadership and go to you to explain the issues.
Mr. Taylor. Have you had a chance to look at the prepared
testimony from the Lockheed Martin team?
Secretary Etter. I have seen some of the text they have
written, yes.
Mr. Taylor. Do you agree with their statements? If there is
any point of disagreement that you have, I would like to hear
it now, because you won't have an opportunity to respond, since
they will be coming after you.
Secretary Etter. I do not agree with some of the ways in
which they explain the Naval Vessel Rules, and I think I would
offer this to Admiral Sullivan to discuss.
Admiral Sullivan. Yes, sir. As we discussed before, the
rules were, in fact, developed in parallel with the bid process
and the source selection process. Lockheed Martin was good
enough to provide me a copy of their independent analysis of
what has gone wrong here, and we agree with most of it.
I just wanted to put the point in that that analysis will
tell you there are 14,000 changes from the February version of
the rules to the May version of the rules which were invoked in
the contract. And, yes, if you do a word search of the document
by a ``shall,'' ``will,'' ``is to be,'' you get 14,000
instances of that. Again, remember it said the rules apply to
all surface combatants. If you take out the rules sections that
don't apply to LCS because they are for acoustics or shock or
something, you get--that takes out about 5,000 of those ``as to
be,'' ``will,'' ``shall'' references. And then if you take the
sections of the Naval Vessel Rules where we had a previous
document such as our old general specs or an IEEE spec, that
gets out another 8,000. And I will sign up to not 14,000
changes in the rules, I will sign up to 14,000 word changes in
the rules. But you get down to a number that is around 800 to
1,000 real changes. And that is a big number anyway. But it
isn't 14,000.
I wanted to make that clear.
Mr. Taylor. Admiral McCullough, anything to add to that?
Admiral McCullough. I reviewed portions of the testimony
that affect the requirements, and I have no disagreements with
the testimony with respect to requirements and the ship. The
operational requirements have not changed since the inception
of the LCS concept.
Mr. Taylor. How about any other part of that document? Do
you have any disagreements with----
Admiral McCullough. I concur with what Admiral Sullivan
said.
Admiral Hamilton. I believe the characterization of the
Naval Vessel Rules changes, as stated by Admiral Sullivan, as a
better characterization than that in the Lockheed Martin
prepared testimony.
Mr. Taylor. Any follow-up questions?
Mr. Sestak. When will you have the estimate of what the new
costs will be for the following LCSs based on what you heard?
Secretary Etter. At this point, I would not be able to give
you a specific date, but we are certainly working very hard to
get that because as you know, in order to look at whether or
not we--what we do with--to the stop work. That was a 90-day
stop work, so that is part of the motivation to getting to that
point to work with that.
We also need to look at what our acquisition strategy is
going to be for follow-on ships. That is another very important
piece of this.
So both of those things rely on getting a cost estimate for
the next ship. So this is very high priority for us.
Mr. Sestak. Before the budget is approved or anything, will
you have the information over here? Is it a matter of weeks or
months? This springtime?
Secretary Etter. It is a matter of weeks that we will have
this information.
Mr. Sestak. And one last question, just because I think
process is so important. How many direct reports do you have?
How many direct reports do you have?
Secretary Etter. I have 12 PEOs I have within my
organization in the Pentagon. I believe it is like 10 to 12
deputies that cover various areas.
Mr. Sestak. And they all report directly to you?
Secretary Etter. They report to me and then the Naval
Systems Command (SYSCOM) commands, such as Admiral Sullivan,
for the things that support the PEOs.
Mr. Sestak. And then there are three?
Admiral Sullivan. Five.
Mr. Sestak. So about 30 direct reports?
Secretary Etter. Yes.
Mr. Sestak. Thank you very much.
Mr. Taylor. Is that it?
The Chair recognizes the Ranking Member.
Mr. Bartlett. I didn't hear a crisp answer to our
Chairman's question. Who finally imposed this unrealistic
delivery schedule on you? I think that was your question, sir.
I didn't hear a crisp answer to it.
Secretary Etter. I believe at the time that the program was
started, it was the senior leadership of the Navy agreed that
it was important to do this to meet the threat.
Mr. Bartlett. And nobody told you, that you know of, this
is probably going to run costs up, that this isn't a realistic
schedule?
Secretary Etter. Not that I am aware of.
Mr. Sestak. If I may.
Mr. Taylor. Absolutely.
Mr. Sestak. Is it true, though, that this rapid acquisition
strategy was something--would it be wrong to say that the Navy
leadership, Admiral Clark in particular, was interested in, but
the Navy bought off on it. I mean, slides were being shown for
how long it took to build a ship in World War II and remember
all of those slides?
Admiral Sullivan. Given that we thought we were working
with a commercial derivative that would not take the complexity
and the rework needed to turn it into a military ship, and
given the fact that the entire team was leaning very far
forward to try to get this ship to the fleet as soon as
possible, yes, we were optimistic.
Mr. Sestak. So it was something where everyone seemed as
though it was going to work? I mean, I think somebody was
looking for an individual, but is it fair to say that the
individual organization as a whole was buying off on this and
it wasn't imposed? Or am I wrong?
Secretary Etter. We all thought we could do it, the Navy
and the contractors.
Mr. Sestak. Then it really comes back to how do you have a
process where someone does put up their hand and say this isn't
working?
Secretary Etter. Well, we have to have that process. And
that is a part of what we are looking to change right now
within the organization. We had a long list of things that we
are changing, and we are going to learn from these lessons.
Just one example of that is I have already scheduled
essentially acquisition standdowns, and we are going to have
meetings in three different locations to get our program
managers together and to use that time to help share with them
what we are learning from this program.
We have an E-MAG review that is being done. And the admiral
that is chairing that is going to be presenting the lessons
learned and the things that should have been flags to us about
this problem. We will be presenting that in three locations
where most of our program managers are: In San Diego, Pax
River, and then here in the Washington area.
Mr. Sestak. The PEO of the ship was an 06 not of ships. Of
the LCS program, program manager.
Admiral Sullivan. An 06?
Mr. Sestak. That is why they kept me in requirement.
Was he given an undue task when he had really two different
class ships here? He is not here today. I gather he is not on
the job any longer. An 06. And yet he had two very different
class ships, but he doesn't have a job anymore. Is that the
right way to approach it?
Secretary Etter. He did not have sufficient support that he
needed for this program.
Mr. Sestak. But he doesn't have his job anymore; is that
correct?
Secretary Etter. That is correct.
Mr. Sestak. He is the accountability?
Secretary Etter. I am not sure what you are implying.
Mr. Sestak. He was removed because of performance.
Secretary Etter. He was put on administrative leave. The
PEO recommended to me that he be put on administrative leave
and that is what we have done. We are in the process of----
Mr. Sestak. So he was held accountable. Would you, looking
back on it, do you think it was fair to him to have two very
different class ships that he was responsible for?
Admiral Hamilton. There are several program offices that
work for me and PEO SHIP, and several of those program managers
have a multitude of ship classes that they are producing within
their program offices. The complexity of those tasks are
different, program office to program office.
The challenge in the LCS program office was to manage to a
common interface. Inspire two different designs and production
teams to conduct their work in a constrained timeline with a
constrained budget and very constrained supporting resources.
And that program office team moved heaven and earth to try to
make this happen on the timeline it was given. And in large
part I believe they did very well.
Mr. Sestak. I would agree. I mean no one--Admiral
Sullivan--well, nobody, as Mr. Bartlett said, who works harder
or anything. I was curious that something happened in the
process that wasn't accountable this time. I didn't know if it
all came to this 06 or not. One guy.
Thank you very much. I hope it doesn't.
Mr. Taylor. Again, I want to thank our panel. There are a
number of members who have submitted questions for the record.
I have a very long number of questions for the record, but
given that the hour is late and we still have another panel.
Last, I want to say starting with our uniformed personnel
how grateful we are for your government service, and I know
tonight hasn't been pleasant for anyone, starting with myself.
But the bottom line is we have some fundamental changes that
have to take place. We have other naval weapons programs coming
down the pike. This cannot be the norm. And if you thought
tonight was unpleasant, this is nothing if we see this type of
behavior with the DDX program or any other program, now that we
see these sorts of changes.
The other part is, in fairness, we are going to write a
defense authorization bill over the next 90 days. If there are
portions of your budget that are inadequate to do the duties
that are required of you, we need to know about it. If there
aren't enough people at the academy or anywhere else in the
Navy to properly supervise programs like this, now is the time
to tell us. We welcome that testimony.
But the bottom line is what would happen with this program
cannot become the norm. And when I look at the two Coast Guard
programs that are simultaneously going on in some of the same
yards, or some of the same contractors, it sure looks like it
is the norm to me. And we have got to put a stop to it.
So thank you collectively for years of service, for
military personnel; Secretary Etter, for putting your life on
hold for choosing to serve our Nation. But we want to fix this.
And I want to tell you, just a few minutes ago on the House
floor, Congressman Murtha, Chairman of Defense Appropriations,
stopped me. It is fully his intention and my intention to try
to fund two ships this year. We want to reverse that trend, and
we want to reverse that trend this year. But without the
cooperation of the uniformed personnel and without your
cooperation, without solving these problems, we are not going
to get this. And I want to let you know I want to get there. I
hope you do as well.
So thank you very much.
The Chair now welcomes our second panel: Mr. Fred Moosally,
the President of Marine Systems Division in the Lockheed Martin
Company; Mr. Richard McCreary, the Vice President and General
Manager of the Marinette Marine Corporation; Mr. Mike Ellis,
Executive Vice President and Chief Operating Officer of
Bollinger Shipyards; Mr. Kevin Moak, the Chairman of Gibbs &
Cox, Incorporated, naval architects.
Thank you, gentlemen. You may proceed.
STATEMENT OF FRED P. MOOSALLY, PRESIDENT, LOCKHEED MARTIN MS2
Mr. Moosally. Thank you for the invitation to appear here
today. We have submitted a formal and detailed written
statement for the record, and I have a brief remark to move
along here because of the time.
You have introduced our partners here on the Lockheed
Martin LCS team. I think what we have covered a lot here in the
previous panel was part of my remarks about senior leaders in
the Navy, senior leaders in the Navy commenting on the LCS. So
I won't discuss that further.
As I mentioned earlier, Lockheed Martin's team includes
Naval architects Gibbs & Cox, shipbuilders Marinette Marine and
Bollinger, and we are the prime contractor for this program,
with the overall responsibility for program performance, and it
is a responsibility that we take very seriously. We have made
significant financial investments and used the talent of our
team to build the first in this class of revolutionary warship.
It has not been without challenges, as you have pointed out,
and as typical in first-of-class warship construction.
FREEDOM is a prototype vessel set in a new acquisition
paradigm using R&D funding, as you point out, in a cost-plus
contract structure. LCS has gone from concept to first ship in
the water in just over 4 years, 60 percent faster than
historical shipbuilding norms.
In addition, LCS 1 is the first combatant designed to the
Navy's new Naval Vessel Rules and the first surface combatant
classified by the American Bureau of Shipping.
As such, we are paving the way in learning countless
lessons for the design of future U.S. Navy surface combatants
such as DDG 1000 that are also being designed to the same
standards. Once industry has removed the unique challenges of
early learning, we are confident of achieving a smooth
production process at both of our builders' yards and providing
the U.S. Navy with its most affordable surface combatant ever.
We have faced four major challenges in building FREEDOM.
First, a desire by the Navy to get this ship to the fleet
yesterday, allowing the warfighter to use its capabilities as
quickly as possible. While completely understandable, this
aggressive schedule contained risk, some of which is now
clearly seen as causing cost growth.
Second, there was significant design changes within the
implementation of the Naval Vessel Rules shortly after our
contract was awarded in 2004, which caused significant overlap
between design and construction and resulted in a high degree
of risk and cost challenges.
There were over 14,000 new technical requirements, and I
heard what Admiral Sullivan said. We have translated those
14,000 into about 12,690 of the LCS 1 that we are building.
These changes require significant review and adjudication to
determine which of these rules apply to Lockheed Martin LCS
design.
This in turn drove many of our over 600 engineering change
proposals on the lead ship. Make no mistake about it, FREEDOM
and her sister ships will be better warships because of this
change, to the great advantage of the sailors who will sail her
into harm's way, and the ship is being built to tougher
standards than originally required and bid by industry.
These improvements came with a major impact on cost and
schedule. There were a variety of external factors: the
availability of the right steel at the right time; the
miscutting of the ship's reduction gears that affected FREEDOM
in unique ways. Fourth, there were first-of-class discovery
issues associated with the process of transitioning a new ship
design into production.
Collectively, these four issues forced a less-than-
efficient construction sequence, adding risk and cost to the
effort. These first-of-class issues are regrettable. However,
the U.S. Navy and the Lockheed Martin team thoroughly
understand these issues and have procedures and suppliers in
place so that future ships will not face these same challenges.
FREEDOM is a warship, not a commercial ship. She is the
first surface combatant designed to meet the rigors of high
speed, extreme ocean conditions, and extended service life. The
whole structure is built of high-strength steel that provides
resistance to fatigue and weapons effects and will exceed a 30-
year service life. By way of comparison FREEDOM's structural
scattlings in many cases exceed that of the FFG-7 class which
are of similar size and displacement, and are battle-proven in
terms of survivability. She also has the survivability and
damage control that will enable the ship and crew to survive
battle damage and return safely to port.
We have learned much in building FREEDOM, and we will
undoubtedly learn other lessons when we build our first LCS in
Bollinger shipyards, but we have done our best to flatten the
learning curve by having Bollinger people present at Marinette
at every phase of construction, observing and assisting with
the process and taking those lessons learned toward our second
ship.
Indeed, Bollinger has built the largest and one of the most
complex modules for FREEDOM. So there is the beginning of LCS
building experience at our second shipyard.
Mr. Chairman, FREEDOM and her sister ships will be superior
warships. Sailors will take them to sea, will be proud to sail
them, and pleased with their capabilities. The Lockheed Martin
LCS team will take lessons learned from building FREEDOM and
apply them in an efficient and rapid way to our future vessels
in this class, to the standard our sailors deserve and our
taxpayers expect. As a former sailor myself, you have my word
on that.
Thank you again for this opportunity, Mr. Chairman. I look
forward to your questions.
Mr. Taylor. Thank you.
[The joint prepared statement of Mr. Moosally, Mr. Moak,
Mr. McCreary and Mr. Ellis can be found in the Appendix on page
76.]
Mr. Taylor. Anyone else on the panel wish to speak?
Mr. Ranking Member.
Mr. Bartlett. Thank you very much for being here. Clearly,
in hindsight, you all were complicit in agreeing to the
schedule which was almost certain to increase costs. Do you
have any documentation that you told the Navy that if they
insisted on the schedule that we were going to monstrously
overrun the budget?
Mr. Moosally. No, we do not. And I don't think we ever
believed that--you know, this is hindsight--when we look back
on what the effect of the Naval Vessel Rules--and we certainly
at the time didn't know it when we learned of the reduction
gears. As he said, I will say there was a sequence of
disclosures on the reduction gears that went from 2 months and
we thought we could work around the 2 months' delay that ended
up being 6 months. So there was a series of three delays on the
reduction gear.
I must say we thought we understood the Naval Vessel Rule
impacts and when you give, as Admiral Sullivan indicated, when
you are handed the Naval Vessel Rules--we are given that 2 days
after contract award--the Naval Vessel Rules require
interpretation to each class of ship, and that took a period of
time. I have heard 9 months. You have got a contract and start
building a ship 9 months later.
During that time, we were involved in taking the Naval
Vessel Rules, seeing how they applied to our ship, an
interpretation of how they applied to our ship, working with
the Navy technical authority and ABS. That took a period of
time to see how that was applied, and we thought we had
characterized that. But in fact, as we went through that
process--and it took longer than we thought--we didn't capture
all of the costs within the ECPs that we had submitted with
regard to NVR.
And I think you have characterized that very well,
Congressman Bartlett, that we didn't capture that. And in
hindsight, we could say, well, maybe we should have said hey,
let's stop. Let's make sure we have complete understanding
between ourselves and ABM technical authority and the program
manager of how do we, in fact, interpret the Naval Vessel
Rules, and have mature drawings that we would have to build
this ship.
But we were kind of looking, just like I said here, we
were--we had the task of trying to get this program out on a
schedule, because it was needed by the warfighter, and that is
how we behaved.
Mr. Bartlett. There was a rebaselining dialogue, was there
not? How long were you engaged in that before you agreed with
the Navy that this was a realistic schedule?
Mr. Moosally. We had a rebaselining of the schedule in
September in 2005. The original delivery of the ship was
December 2006. We had an overtarget baseline discussion with
the Navy in September of 2005, and in fact, got the schedule
rebaselined to June of 2007. We did not rebaseline the cost at
that time. And we are still working with the Navy to rebaseline
the cost of the ship, but we rebaselined the schedule in
September or October of 2006.
Mr. Bartlett. It seems fairly apparent from everybody's
answers that the primary problem for the overrun here was an
unrealistic schedule. I am just amazed that there was nobody
that waved a red flag and said hey, this is not going to work.
We had three different organizations involved here. We had the
shipyards who were building them, who have experience in
building ships of this size; we had the prime contractor,
Lockheed Martin, watching; and we had the Navy people. And
nobody apparently waved a red flag.
Do we have a mechanism for people to anonymously tell us
that what we are doing is probably not going to work? I
understand the chain of command, and I understand whistle-
blowers which--and what happens to whistle-blowers discourages
people from being whistle-blowers. But it is inconceivable to
me, Mr. Chairman, that somebody in one of these three
organizations didn't understand this wasn't going to work.
What I would like to see as a result of this is some kind
of thing here: We sit, everything is going just fine, and
nobody is coming and whispering in our ear, hey, you better
take a look at that. This all comes pretty much as a big
surprise to us. I would like to have some mechanism for us, Mr.
Chairman, that, you know, some e-mail address or something with
an e-mail traffic that is untraceable, that you know, gee, you
better look at this because all is not going well. Every one of
your workers are taxpayers and their dollars could have bought
more ships if this hadn't----
Mr. Taylor. Will the gentleman yield?
Mr. Bartlett. Yes, sir.
Mr. Taylor. Captain Ebbs is going to make that happen.
Mr. Bartlett. I appreciate that very much.
Last question. What questions should have been asked by us
of the former panel that we didn't ask, that we would be wiser
having asked them?
Mr. Moosally. I can't think of any. I think that, you know,
in my view, the Navy was pretty straightforward on what
happened on this program, why we were focused on schedule.
We're a ``can do'' outfit. We tend to think ``can do.'' we tend
to think we can overcome obstacles that were thrown at us. This
didn't happen all at one time. It was sequential over a period
of time, going from two months to six months.
And you know, a lot of the stuff, if you look in 20/20
hindsight, yes, if we had done something different to slow the
thing down, to readdress the schedule, till we had all of the
drawings, I would say yes. But our mentality, the way we
thought was hey, the Navy needs this ship, schedule is king,
and we are going to work to get this workaround here, start out
with steel, get in the right steel--because the steel, as it
turns out, there is only one manufacturer of the kind of steel
in the country, and that is going to Humvee.
So we worked very hard to workaround so we could get steel
from everywhere we could to build this ship. And then we had
the reduction gear problem. We were told initially that the
gear was cut wrong. It would be about a two-month delay. Then
the tooling broke down and that extended it again.
But it is all sequential. And as we look back, had we known
a lot of the stuff was going to happen, would we have behaved
differently? Yes, probably. I think you framed that very well
when you were talking about schedule. And I think the Navy, we
would agree with the Navy. We were all focused on we have got
to get the ship out here, the fleet needs this ship. It is a
new paradigm. We were kind of breaking ground here. We are the
first ship to go through the NVR rules and clearly it is not a
fact of well, here is the NVR rules, go put this disk in a
computer and fix your drawing. It requires months of
interpretation and discussion with the Navy authorities to
understand how those rules apply to the ship that we were
building.
And then I could ask Mr. Moak at Gibbs & Cox how that
affects the drawing approval process.
STATEMENT OF KEVIN MOAK, CHAIRMAN AND PRESIDENT, GIBBS & COX
Mr. Moak. Thank you for allowing us to be here tonight.
We did work closely with ABS early on to develop a
schedule. As these changes came in, we actually had to take
products that we had previously developed and sent to ABS for
approval, and withdraw them in some cases and redo them as a
result of the rules changes. We did not understand as well as
we probably should have--I am not sure anyone could have--but
we did not understand all of the downstream impacts until we
got further and further into it. In fact, it took a process of
over 3 months of working directly with the United States Navy
and ABS in development of the build spec based on the NVR
rules. During that time, there was a lot of discovery on all
parties' parts on things that we are going to need to change.
And all of those impacted the schedule of delivery of product,
not only to ABS for approval, but also to the shipyard to start
construction.
Mr. Bartlett. Thank you.
That is all the questions I have right now, Mr. Chairman.
Mr. Taylor. Admiral Sestak.
Mr. Sestak. Thank you, sir.
Hi, sirs. Good to see you.
One thing I may have just missed. When they did what they
call the rebaselining in September-October time frame, that was
not all-inclusive of the moneys that were discussed on the
vendor issues and the construction standards?
Mr. Moosally. Well, you are talking about the NVR.
Mr. Sestak. Yes, the NVR.
Mr. Moosally. We were on a fast timeline, so one of the
things that we obviously did not do correctly was to estimate
the impact of the NVR rules when we put the ECPs together, the
600 ECPs together for more money as a result of the NVR
invocation on this ship. So we didn't estimate that properly.
Mr. Sestak. I didn't mean that. I am sorry. What I was
trying to get to is you did come together with the Navy and
what you knew at that time for NVR, what you knew at that time
for the reduction in gear, all that was, by and large,
accounted for what you knew at the time.
Mr. Moosally. What we knew at the time, I would say not all
the reduction because the reduction gear, like I said, was
sequence. I would say about a third of what we believed the
impact--what ended up being the total impact on reduction gears
was in the October 2005 rebaseline. The rest of it flowed to
later on.
Mr. Sestak. So that gets to the Secretary's point, is I had
a thought from listening to everything and some reading that,
by and large, the Navy felt that since that period of time, the
primary cause of the increasing cost had been shipyard
performance. They then came back and said no, there was some
other NVRs, some other costs. But it still left in the
impression that she discussed it that in the Navy's mind, the
continuing increase in cost was shipyard performance. Do you
agree with that?
Mr. Moosally. I think if you relate shipyard performance to
production efficiency, then it has been affected by, you know,
further disclosure of the impact or ripple effect of the NVR
rules. And I am not going to sit up here and say we have done
things 100 percent correct. We haven't. We have learned a lot
on this program ourselves, and we have made some mistakes. But
we didn't understand. And I would say a lot of the inefficiency
is the fact that we are still, in some cases, going through
rework, because we either discovered a first-of-class ship
where the drawings don't exactly match when you get down there
and physically put something together, or the ripple effect of
NVR rules.
For example, I will just give an example. If there is a
pump that has to be turned around because the vendor
furnished--the material was different and we got a new pump
because of an NVR change, then that affects understanding how
that affects a piping or piping hangers or so forth, then we
didn't take all of that into account into some cases. So there
is this ripple effect that was not accounted for, and Dr. Etter
said is still having an effect somewhat, although that is
leveling out and we are getting it behind us as we continue to
build the ship and we are 75 percent complete now.
Mr. Sestak. What does that say about the rapid acquisition
strategy that the Navy was trying to undertake in view that the
next rapid acquisition strategy would be for a new class of
ships or would be for a new type of platform?
Mr. Moosally. I would say that the big lesson learned here
is, stay out of overlap in design and build, especially when
you have a two-year build cycle. This ship was going to be
built in no two years, but four, because of the issues. I think
we could build it in two years but you have to have a mature
design package. You can't be changing drawings on the run.
And unfortunately, we bid, as Admiral Sullivan said, a
commercial ship. ABS class ship was our bid. The Navy decided,
for good reasons, to make this ship a surface combatant which
would be very survivable, which it is. And that caused a lot of
change.
And I would say, looking back on this stuff, that if you
are going to have a two-year shipbuilding cycle, then you have
to have a mature design that we all agree on. We all sit in the
room: This is the ship we are going to build. This is the
characteristics of the ship. And I believe if you give that--
and this is one of the reasons we went with our mid-tier
shipyards--if you give them a design that is mature, that they
can get the job done,and they can do it cheaper, I believe,
than anybody else.
And one of the reasons we went with the yard is because
they do a lot of commercial work. And a good example is during
the stop-work order where Bollinger didn't have the ship down
there to do work on, they were able to bring in a commercial
job so they wouldn't have to lay off their workforce. This is
the beauty of mid-tier yards who have commercial work as well
as government work, so they are not totally relying on a
government contract.
Mr. Sestak. Admiral Sullivan said that normally the cost
for the initial ship of a class is about 20 percent more and
the cost of classes of ship after that are about 5 percent. I
was surprised at those figures. I thought they were much more
than that and I think----
Mr. Moosally. Some are. I think some are. If you look at
the data, I think there are first-in-class ships that are much
more than 20 percent.
Mr. Sestak. If you look at DDG 1000 or SEAWOLF or a number
of others, or LOS ANGELES or others, and I will ask--I will go
back to that.
My question has to do with the Navy, understandably,
wanting 313 ships, but historically these costs keep coming up.
What is the right industrial base strategy that has to be
undertaken and how can it be undertaken? You have talked about
competition, you know, by the mid-tiers. We have watched this
time and again. I mean, there is really nothing new here. What
is it that we can try to arrest this cost growth to get the
Navy to the requisite number of ships?
Mr. Moosally. I think what we have to do is all sit down in
a room together--and I am talking about the decision-makers in
the Navy, the requirements section, the technical authority,
the acquisition authority, and the contractor--and decide, once
you have a contractor, or even before you get a contractor, put
up for bid and decide what we are going to build. What are the
requirements both from an operational standpoint and a
technical standpoint? And then draw the line in the sand and
say we are not going to change any requirements unless we all
sit in a room and decide we are going to do that together. And
therefore you don't have the last-minute requirements that come
in that now you have got to deal with that are going to raise
costs.
And there has got to be a way to get--I will call it a
cosigned check--where everybody is in a room saying what are we
going to build.
Mr. Sestak. Of those thousands of changes that came across
in requirements--they were all requirements, right, sir?
Mr. Moosally. They are technical requirements, not
operational requirements.
Mr. Sestak. Were they all born in the PEO shop?
Mr. Moosally. No. I think they were, the Navy--when they
looked--when I talked about the NVR rules the Navy decided--I
think Admiral Sullivan said they were going to make this a
tough warship, not a commercially based, ABS-based ship. So
when that happens, then the NVR rules became the replacement, I
will call it, for Gen Specs or Mil Specs.
Mr. Sestak. So that was unique to this case?
Mr. Moosally. This was the first ship that those NVR rules
have been invoked. And then what happened is you have to sit
down out of all of those changes and decide which ones are
going to be applicable to this ship, and that takes time. That
takes----
Mr. Sestak. To go back to your case of how to address
shipbuilding at large, let us throw away the NVR because it was
a unique situation here. Do these changes still come about at
all times--because that seemed to be what you focused most on,
is that everyone in a room so the requirement doesn't change.
Mr. Moosally. Right. We all have to understand--we all have
the same----
Mr. Sestak. So the cost that really comes out is on the
Navy side that they keep changing requirements. Is that what
you are saying?
Mr. Moosally. I don't want to say that. Obviously, there
are costs that would happen on things like the reduction gear
that we are responsible for.
Mr. Sestak. Not in this case. But the value of getting
everybody in a room to sit around, I mean, it sounds good, but
is the only purpose of that to keep requirements suppressed?
Mr. Moosally. I think to understand--we have to obviously--
I think there has to be. And we have control boards that are
set up, the Navy does. We have as industry to make sure that
we, in fact, when you have a requirement----
And if you look at this, the ship class was based on the
$22 million K process. So what you have to do if you are going
to keep it--if you are going to have a cost gap, then you have
to do trades. If you are going to add things, then okay, am I
going to take something off? If you are going to be trading
cost and requirements, then you have to do that across the
board.
Mr. Sestak. The only reason I am asking is that it just
seems that almost every class I can think of with the exception
of one, the cost has been significantly different than what was
the initial estimate. And if you get everybody in a room and if
it is just the requirement suppression, then that means the
industrial base is fine, correct?
Mr. Moosally. Well, you are going to have--as I said, you
are going to have--any first of class ship you are going to
have discovery because of, you know, when you start building a
ship--and I think all ships are complex to some degree, you are
going to have first the class discovery and it is going to be
probably more than you had budgeted for.
Mr. Sestak. All right. Thanks very much.
Mr. Taylor. Mr. Moosally, in listening to your description
of some of the troubles, it really does cause me to ask the
question, is the person responsible for that contract or for
building the ship? What would be your personal professional
preference? Would you prefer to have the United States Navy or
the United States Coast Guard put a set of specifications out
for bid and bid on their thoughts? Or would you prefer the
design/build concept? Speaking from the industrial side.
Mr. Moosally. Yes, sir. I understand. I think that either
one can build. I think the design/build concept can work, as I
said, if we do that in such a way that there is not huge
overlap and if we all decide--and in this case NVR rules--that
we are going to interpret the NVR rules together and come to a
common understanding of the technical implications and the
technical requirements that the NVR rules give us, and I think
if we have a common understanding and adjudication of that up
front and then have that design, mature design to go forward
with, I think that would do it. We would be able then to
together decide this is what we are going to build, this is the
schedule to build what we are going to--what we have decided to
build, and I think it will work. I think that what--the model
that we set up on LCS can work going forward with a mature
design, and the problem that we have had, as everybody points
out, we had a lot of churn, design churn caused by the NVR
rules coming to us basically almost simultaneously with us
getting a contract, and that caused a lot of churn on the
program as we went on to decide, okay, here is the NVR rules,
how do we interpret all this change and lay that out in our
design and get approval on it. So that is kind of what
happened. So if you are going to go that route, there has to be
some sequencing here that you don't have a lot of, I will say,
overlap between design and construction.
Mr. Taylor. Going to the National Security Cutter, which
your company has also.
Mr. Moosally. Well, sir, I would have to take a little
exception. We are not the prime contractor on the National
Security Cutter.
Mr. Taylor. Okay. Your company is involved in.
Mr. Moosally. We are providing the C4ISR system on the
National Security Cutter.
Mr. Taylor. One of the things that came out in the Coast
Guard hearing was a very senior admiral, I want to say he is
the deputy commandant, looked at the design and said, if we
build a ship like this, and it was just way down in the build,
just the most difficult place to get to after the fact, if we
build a ship like this, we will be back in within two to three
years fixing things, and we have significantly shortened the
life of this ship as far as its durability. I am using that as
a for instance because my question is, when your folks looked
at the changes that were made because the reduction gear got
there late, things being built out of sequence, things having
to be torn apart and rewelded, replaced, is there anyone in
your organization who is saying we are creating a problem that
this ship's life expectancy is going to be less than it should
have been, that this ship is on track to fail in two or three
years and we will be right back in here fixing something?
Mr. Moosally. Yes, sir. I would like to answer a little bit
of that and I would like to turn it over to Gibbs & Cox, who is
a naval architect, who has had a lot of experience starting
with DDG-51s and FFG-7. We believe we have a very tough ship
here with a 30-year life and don't believe that what we have
done in terms of out of sequence work has affected that. And
all the model testing done independently by Carderock has shown
that even in hurricane winds this ship really rides well, is
very survivable. So I don't feel that is the case Mr. Chairman,
but would you like to comment on that?
Mr. Moak. Sure. I would be happy to. In terms of the types
of things you are talking about that would affect the service
life of the ship, sir, I believe primarily we would be
interested in talking about the structural adequacy of the
ship. The fact that the shipbuilder had to build out of
sequence did not affect in any way, shape, or form the actual
service life effectiveness of the ship. That is based on the
actual structural design. The design itself did not change
based on out-of-sequence work. The problem was that there
were--it was never the structure that was causing the problems,
it was quite frankly the distributive systems that caused them
difficulty in the out-of-sequence work because we were unable
to provide that information to them once we went out of
sequence in as rapid a fashion as we had hoped, and therefore
there were situations where they did, in fact, as they built
out of sequence, they had problems where they--we didn't give
them enough information early enough based on all sorts of
reasons, which I am happy to go into, that caused them in many
cases to have to go in later and change things that were
already there, but that did not affect the basic structure of
the ship. So the sequencing of the build doesn't affect the
service life of the ship.
Mr. Taylor. So if frames were cut and rewelded, if plates
were cut and rewelded, if piping had to be cut and rewelded,
that none of those things in your professional opinion would
lead to a situation where in 5 years someone coming before this
committee and says----
Mr. Moak. That is correct, sir. I do not believe in my
professional opinion that that is going to happen.
Mr. Taylor. Okay. Mr. Moosally, and again we are trying to
do two things. This committee wants to deliver the message that
the sort of mistakes that were made on the LCS are not
acceptable to the American taxpayer and not acceptable to this
committee. The second thing, we are trying to prevent it from
happening again. Part of trying to prevent it from happening
again is to understand how it happened. And what continues to
trouble me, as the gears were delivered late, as the ship is
being built out of sequence, as timelines keep getting
extended, trying to walk through the construction of this
vessel in my mind, I can see that some things could happen
early on and some would say, not that big a deal, not that
expensive. But as the gear takes longer and longer to be
delivered you are getting farther and farther into the ship and
someone has to be saying, this is getting serious, this is
getting expensive. And at what point did someone in your
organization or at what point did someone in the Navy say, we
would save a lot of money, we would actually save time if we
just stopped where we are?
Mr. Moosally. Well, I will say in working with the Navy,
and we have obviously kept them informed what was going on, we
talked to the Navy about how we were going to do that, that we
are on a can-do mission that we are going to deliver the ship
as soon as we could because the requirement was, it was a
schedule-driven requirement, schedule is king, and we worked
very hard. Like I said, we look back on this now with hindsight
and I can tell you, our team worked very hard to overcome every
obstacle, the steel, the reduction gears the bad vendor
furnished information (VFI), the workarounds to do our very
best to deliver this ship as fast as we could. In hindsight,
was that a mistake? I guess maybe we could say--we could have
slowed down and stopped work. We would have had to lay off a
lot of people up at Marinette because of the kind of work they
were doing and there certainly would have been a cost
associated with that, like there would be with any stop work
order. So there was a trade. In hindsight, we may want to look
at it. We didn't do it. I will be very honest with you, Mr.
Chairman. We didn't do it. We had the mindset and the mentality
that we can do and we are going to build this ship for the U.S.
Navy as fast as we can, and we are going to work obstacles like
gears and steel and out-of-sequence work.
Mr. Taylor. So you never at any time raised in effect the
red flag to the Navy of saying, we are going to be way over
budget?
Mr. Moosally. We by contract are required to give the Navy
a cost report every month. So this is not like we didn't--we
have to do that every month, okay, so they--it is not--we
didn't hide any costs or schedule--and plus, we supplemented
that with a number of meetings that took place with the program
manager and the PEO. So we were there hand in glove, teammates
and partners with the Navy all the way on this. And there was
constant transparency or continuous transparency between our
cost and our schedule, performance entities.
Mr. Taylor. If there is constant transparency, why is it in
the past three weeks I get a call saying a certain naval
officer is being transferred from his job but it has nothing to
do with LCS. A day later I get a call, another naval officer
has been relieved of his position overseeing LCS. Two days
later I get a call from Under Secretary of Defense saying I am
putting a stop work order on. Obviously there wasn't
transparency. For that scenario to have occurred, something is
wrong, sir.
Mr. Moosally. I can't answer that question. As I said
earlier, we are required by contract to send a cost performance
report to the Navy every month and we certainly did that, and I
have no idea why those things happened.
Mr. Taylor. I have a question Mr. O'Rourke would like to
know, how do you feel like your shipyard is performing now?
Mr. Moosally. I think they have worked very hard. They have
overcome a lot of, I will say, overlap between design and build
here. I think we have worked very hard to overcome a lot of
obstacles. I think they are performing well. We haven't been
rebaselined with our new costs we are projecting. We are on a
path. We have laid out a plan to have our cost performance
index approved on a curve and I think we are kind of working on
that, but if you want to comment.
STATEMENT OF RICHARD MCCREARY, VICE PRESIDENT AND GEN. MANAGER,
MARINETTE MARINE CORP.
Mr. McCreary. Mr. Chairman, members of the committee, thank
you for the opportunity to give you testimony today. From the
aspect of cost preformance index (CPI) performance on the ship,
at this point in time in Marinette we are by no means satisfied
with the performance, but the big cost drivers in that CPI
performance are out-of-sequence work, which costs a multiple of
what it costs to do it in the right sequence and new work; that
is, discovered work that is unbudgeted, that has been driven by
the Naval Vessel Rules and other issues that we are still
uncovering on the ship. And it is those kinds of drivers that
have created such a large problem for us. From a productivity
standpoint we believe overall we have done reasonably well
despite all of these things and have done a root cause analysis
on the productivity, and our overall root cause analysis would
indicate that our own productivity problems--and by no means do
I take pleasure in telling you this--are around an eight
percent problem, and we have been taking steps to address that.
Some of that has been because of the churn, but nonetheless,
the other portions of this are really very much attributable to
the other aspects that I gave you.
Mr. Taylor. If you were asked or directed by the Navy to
build a second vessel starting tomorrow, do you feel like you
have a clear understanding now of the Naval Vessel Rules or are
there still some things in your mind where you are not
completely sure whether you are building it according to the
regulations as far as the Navy is concerned?
Mr. McCreary. We are still on FREEDOM because the drawing
package is not fully developed as far as the change paper
getting incorporated into the drawing package. Still finding
some things in distributive systems where we are making changes
to make the systems work properly. We believe that we are very
near to the tail end of that because we are almost to the point
where distributive systems are largely completed. Once we get
to that point, the only real risk factor going forward for
FREEDOM in our eye is in the whole test and trials mode because
it is a prototype and very complex propulsion system. So that
is the one other factor as we go forward, but that has nothing
to do with a build process per se. That has to do with working
out whatever the issues might be in the propulsion train.
Mr. Taylor. Mr. Moosally, last question. And again I
appreciate you staying so late.
Mr. Moosally. Yes, sir.
Mr. Taylor. We as a Congress are simultaneously--well, I
think it is fair to say that my ranking member, every member of
this committee very much wants to reverse the downward trend in
shipbuilding. None of us are happy that in the past six years
the fleet has shrunk by approximately 60 ships. The only way we
are ever going to turn this around is by putting more ships in
the budget, but also for those ships to operate for 30 years.
One of the things that has come off in many of the
conversations that I have had regarding this problem is a sort
of acceptance that the first ship of every class, you make your
mistakes and I think some people--I am not faulting anyone.
Well, your first ship is a throwaway ship. I don't think we can
afford a throwaway ship, not at these kinds of prices. We
certainly can't on DDX or anything. What assurances can you
give this committee that when the Navy approaches us for a
ship, it is going to be a viable weapon in the inventory for 30
years?
Mr. Moosally. Well, Mr. Chairman, I will say this, I have
been retired from the Navy now for about 16 years but I still
have blue and gold running through my veins and I want to make
sure--because I love the Navy and I still feel like a big part
of it, and I certainly personally and I know our company and my
teammates want to deliver the best ship possible and we believe
today that this is a 30-year ship, and we hope that that is
proved out. I mean, we have--as Mr. McCreary said, we have
testing evaluation to go through, but we feel very strongly
about the survivability, the toughness of the ship. We have
seen the model testing we have done at Carderock, the ship
looks superb in hurricane winds. We certainly want to make sure
that those sailors, the men and women who man that ship are
safe, and hopefully as comfortable as they can be in rough
seas. So I feel comfortable that we will have a 30-year ship on
this first ship.
Mr. Taylor. And you know--and again not to belabor the
point but to make a point, you know the first five of the AEGIS
cruisers were retired at 20 years old. An incredible waste of
taxpayers money, an incredible waste of their capability. Do
you see anything in this ship, either in the modular concept,
in the drive train, in the hull design, anything in this ship
where five years later someone is going to be coming before
this committee and say, we saw that coming, we didn't address
it because there was a need to get this ship built on time?
Mr. Moosally. I believe that--and my experience in the Navy
and in ships is there is always, just like your home, there is
room for improvement, and we have--I believe the Navy probably
still has a ship alteration (SHIPALT) program. We go and look
at things. Things when you run the ship that probably ought to
be changed for more efficiency, better maintenance, and so
forth. I am sure there will be changes on this ship but I think
the beauty of these ships in particular, you have this modular
concept and a lot of volume there that is not basically taken
up with permanent installations of weapons, and the whole idea
of LCS is you can change out modules and reconfigure the ship
for whatever threat you are facing with Littorals. I also
believe because the work we are doing in the area for a lot of
people, foreign nations are interested in this ship, the work
we have done to look at how you could adapt this ship to the
needs of other countries, there is a lot of volume in this ship
that allows you to do that. So I think there is a lot of room
for spiraling this ship up as the Navy gets out there and
operates a number of these LCSs, and through operations finds
out that they want to change things, either through things like
maintenance, the whole maintenance philosophy that we can build
into the ship or new flights of the ship or how you operate the
ship.
Mr. Taylor. Mr. Bartlett.
Mr. Bartlett. Thank you very much. You now have had a lot
of experience with these new Naval Vessel Rules and you are now
very much wiser for the experience of this program. Are you now
ready with this increased wisdom and knowledge to enter into
a--well, let me ask it this way. At what ship are you able--are
you willing to enter into a fixed price contract that is not
going to blow up? That you are going to deliver on time and if
you can't do that, at least at the cost that you--how soon will
you be ready? This, sir, is not rocket science, as I said
before. This is a sea frame. It is, you know, it is a
battleworthy fast ferry. At what point will you be able to
enter into a fixed price contract and we would be comfortable
that you are going to perform?
Mr. Moosally. Well, let me say that I understand the
complexity issue. I believe that this--first of all, I know it
is not complex from a combat system standpoint compared to the
Aegis system we built for the Navy, but I would say the
engineering propulsion system on this ship is very complex in
comparison with the ships that are out there today and we think
that is the long pole in the tent as far as the technical
complexity of the ship. So I would agree with the rest of the
ship--the combat system isn't as complex certainly as a lot of
other ships we have out there. We are under contract for cost-
plus contracts on the first ship. The first ship is an
Research, Development, Test and Evaluation (RDT&E) ship, the
second ship is Shipbuilding Conversion (SCN). And certainly we
would feel comfortable in talking to the Navy about fixed price
after we get through the testing evaluation phase on the first
ship. As part of the stop work order we are relooking at the
pricing of the ship with the Navy, the first ship, the second
ship, and I am sure we will be talking to the Navy after the
first ship just the answer to the very question you asked of
what kind of contract terms and conditions would we accept on
the--I would say on the third ship going forward, and I am sure
we are going to be asked on the second ship that we haven't
started building yet. We will be answering those questions with
the Navy and certainly we have to feel comfortable that I would
say, first of all, we are not going to start a second ship
without a complete drawing package because we are not going to
go through the concurrent overlap, concurrent design/build
overlap we have had here on the first ship. And at some point
when we get those mature drawings and have that experience
behind us I am sure we will be talking to the Navy about some
fixed price contract of some kind.
Mr. Bartlett. Mr. Moak, are we not going to have mature
drawings when we accept delivery of this first ship?
Mr. Moak. I am sorry. Accept delivery of which one?
Mr. Bartlett. Will we not have mature drawings?
Mr. Moak. Of LCS 1, you are asking?
Mr. Bartlett. Yes, sir.
Mr. Moak. Yes, I believe we will. In fact, that is the
process which will be in place.
Mr. Bartlett. So they will certainly be mature. Are you
readier when you build the third one?
Mr. Moosally. Ready or not, I think that is what we will be
looking at is a fixed price contract.
Mr. Bartlett. Let me ask the representative from Bollinger,
are you comfortable, sir, that from the experience of the other
yard and information that is now available to you that you are
going to be comfortable with the delivery date and the cost
that you are going to be agreeing to?
STATEMENT OF MIKE ELLIS, EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING OFFICER, BOLLINGER SHIPYARDS, INC.
Mr. Ellis. Mr. Chairman, members of the committee, thank
you for allowing us to testify. To answer your question,
Congressman, we are comfortable with the schedule. We are
comfortable with the delivery date and the cost that we have
submitted to the Navy at this point. As Mr. Moosally said, we
have a design that is scheduled to mature as we build this, our
second vessel, and we are comfortable with that. Our engineers
working with Gibbs & Cox have met all their timelines to date
on this schedule. So materials, schedule, those are the things
that we look forward to being able to answer your questions and
based on what we have seen so far, the answer to your question
is yes.
Mr. Bartlett. So the next time you appear before this
subcommittee there will be a celebration, you delivered the
ship on time and on budget rather than another hearing like
this?
Mr. Ellis. We certainly hope so, sir. Yes, sir.
Mr. Bartlett. Thank you. I certainly hope so, too. Thank
you, Mr. Chairman.
Mr. Sestak. Thank you, Mr. Chairman. Just two comments.
Admiral Hamilton said it was about September that they began to
hear about the--he used some technical term or acquisition term
where it appeared as though the budget was differing from
schedule or whatever.
Mr. Moosally. I think he used the word ``separate.''
Mr. Sestak. When did you, Lockheed Martin, first tell the
Navy that these are some real issues we have here, something
the papers said it was about March or so.
Mr. Moosally. Like I said, every month. If you got a copy--
--
Mr. Sestak. When did that begin?
Mr. Moosally. Cost performance report, it is a monthly
report, you give the most likely, best case, worst case, there
are three columns on it.
Mr. Sestak. Yes, sir, I know that. But when did you see at
Lockheed Martin the cost going awry?
Mr. Moosally. It was on a monthly basis.
Mr. Sestak. When did that month begin? What month was that?
Mr. Moosally. It was probably somewhere in the summer of
2005.
Mr. Sestak. Summer of 2005. You said it was September of
2006--I meant after the 2005.
Mr. Moosally. Summer of 2006, yeah. I am sorry.
Mr. Sestak. I guess my only comment is I guess--there is
two things as I look at it all, not just LCS, but because I
think this really is--this has happened before. I find on the
one hand there is a conspiracy of optimism where we have this
overconfidence in our ability to produce on the industrial
side, and on the uniform side we believe, and we believe at
times because it fits, and it makes the budget come out. The
problem is the second point is, is what are the consequences? I
mean, is it an O-16 removed? I don't think that is it. I don't
think it is the people. They are trying their best. But in this
conspiracy of optimism, the programs--despite this annual
perennial cost growth, the programs continue. There really
aren't consequences, and I just don't know as we go into the
future and as the Navy is trying to get the requisite number of
ships with the war at $14 billion a year, the Expeditionary
Fighting Vehicle, as you saw on the front page of The
Washington Post, Coast Guard cutter, of course that is not in
the Defense Department although Navy does pay portions of what
goes on it, Army modernization program, 92,000 more troops that
we need they say, GPS, you know, I am concerned. It gets back
to my question about how do you approach this so it doesn't
happen? Because the consequences may not be where Congress
stops it and says, maybe it should have at other times, you
know, this is unacceptable. We don't want this national
treasure--you know, this positive degree of optimism just keeps
rolling on but truly it becomes that--boy, there are all these
other competitions, these other issues that are competing for
the marginal dollar, and the Navy doesn't get its requisite
number of ships. What is the process again? To somehow come to
grips with, is there a better way when you look at shipyards
around the world and other places, is there a better way to
bring the parties together to somehow in addition to
requirements, suppression once they are stated, to truly bring
it in on what they are saying they are going to bring it in
upon? Is there anything else to be done?
Mr. Moosally. I think there is always room for improvement.
You know, we talk about a lot of Lean 6 Sigma things and I
think there is a lot of things we can learn how we are going to
do things differently. The full circle is government and
industry working together.
Mr. Sestak. Lean 6 was throughout the Navy, as you know,
the last sigma was the last few years. I mean is there any
process?
Mr. Moosally. I think there is a way to improve process but
as I say, you have to look at the entire process from beginning
to end and it just can't be the government or just can't be
industry. It has to be us working together to improve the way
we do things and I think there is certainly an opportunity to
do that.
Just the two things that I learned in the Navy is invest
correctly in people and in systems, but be accountable. It just
seems as though this conspiracy of optimism, somehow we have to
come to grips with it because it isn't permitting us to plan
well in what I think 77 million baby boomers retired and all
that, it is not going to permit us to get the kind of
capability we want out there in the future. And somehow some
accountability in this process isn't brought out, and it is
just not relenting in 2006.
Mr. Sestak. Thank you.
Mr. Moosally. Thank you.
Mr. Taylor. Last question for Mr. McCreary. When did the
CPI decrease to an unacceptable level? And did you work with
the Navy immediately to correct that? What was the timeline?
Mr. McCreary. In general, sir, I would tell you our CPI was
never acceptable to us virtually from the beginning as we
started dealing with a lot of the change, and that was probably
after--that was probably after the first quarter of 2005, and I
mean, compared to our usual experience on other government and
commercial programs, because of the rate of change and so on,
we never were at a point where we thought that we were
performing overall in the program the way we would want to. And
the real issue there was we were trying every work-around and
every strategy to try and improve that at a time when we were
finding more and more and more new work and change work. And
unfortunately we never caught up, and never--I don't honestly
believe had any real way to catch up because it was a constant
process of discovery.
Mr. Taylor. So if it was never acceptable, when did it get
so bad that an Under Secretary of Defense had to stop the
program?
Mr. McCreary. Well, I believe that it was a steady decline
in the summer of 2006 prior to launch, and you heard, I believe
the Navy testified that the expectation was that post-launch we
would start to see an improving CPI, and in fact I believe that
we will start to see an improving CPI as we get through the
majority of this change, and the rate of change has been
decreasing, but it was not immediately upon launch, and we
still are dealing with a lot of that change. But as I say, the
change--the rate of change is decreasing, and we are--because
of the maturity as far as the percentage of completion, roughly
75 percent complete, getting to the time when distributive
systems will be complete, and once we get there, we then move
into the phase of doing work on the ship that we originally had
intended to do on the ship.
Mr. Moosally. In the water?
Mr. McCreary. In the water, correct, as opposed to in the
module stage or in the erection stage. And those have been the
effects that have just compounded the problem.
Mr. Taylor. How many of these problems were you aware of
when you were gracious to host the committee to your shipyard
in late August, early September? Because my recollection is
everything was fine, everything was on budget. I don't recall
the presentation made by your yard as being anywhere near----
Mr. Moosally. I don't believe we would have covered that.
We would not--certainly would not have provided information
that wasn't accurate. And I don't believe that we discussed CPI
during that tour, but like I said, the Navy has been aware, we
have worked with the Navy and I believe the Navy testified that
they have insight into our CPI every month.
Mr. Taylor. Well, we will have some additional questions
for the record. And again I very much appreciate you being
here. Mr. Ranking Member, do you have any questions?
Mr. Bartlett. Thank you all very much for your service and
apologies that it took so long. Thank you for being so patient.
If questions come to you that we should have asked the prior
panel, we have several days in which we can submit questions
for the record to them. Would you please indicate to us
questions that you think you and us would be the wiser for
having asked them? If you will do that, we will ask those
questions for the record.
Mr. Moosally. Yes, sir.
Mr. Bartlett. Thank you very much.
Mr. Taylor. Committee stands adjourned.
[Whereupon, at 8 p.m., the subcommittee was adjourned.]
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A P P E N D I X
February 8, 2007
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
February 8, 2007
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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QUESTIONS AND ANSWERS SUBMITTED FOR THE RECORD
February 8, 2007
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QUESTIONS SUBMITTED BY MR. TAYLOR
Mr. Taylor. Were Navy Acquisition personnel receptive to your
concerns, did they provide the necessary resources and guidance to
overcome the challenges, and were you ever disconcerted about the way
the Navy Acquisition personnel were addressing your concerns?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. The Lockheed
Martin Team maintained constant dialogue with the LCS Program Office
and the Navy's program manager listened to our program concerns. Early
in the program, we established bi-weekly Program Manager-to-Program
Manager meetings to discuss key issues and identify solutions to
problems as they arose. Each issue was thoroughly vetted and decisions
were made to accept or reject each potential solution. In addition,
Lockheed Martin provided the Navy LCS Program Office regular production
status and cost data including Contract Performance Reports (CPR) which
have been submitted monthly since the program began. As design changes
were made and costs continued to grow we moved to weekly status
meetings where we discussed cost reduction opportunities. When the
Lockheed Martin Team presented alternatives to reduce costs the Navy
Program Manager provided guidance on whether these alternatives could
be implemented.
Mr. Taylor. Did anyone on the Lockheed Martin team make a request
to PEO Ships, Admiral Hamilton, or the LCS Program Manager, Captain
Babcock, to convey cost growth concerns to Dr. Etter prior to December
18, 2006?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. The monthly
Contract Performance Reports that Lockheed Martin submitted since the
start of the program highlighted the Best Case, Worst Case, and Most
Likely cost estimates based on actual costs experienced and estimates
to complete construction. In addition to these mandatory, regular cost
reports, our team provided multiple in-depth presentations that
included cost updates to the program office and also briefed PEO Ships
on LCS costs on 15 September 2005, 25 April 2006, 16 August 2006, 31
October 2006, 29 November 2006, and 18 December 2006. Our expectation
was that the data would be reviewed at the appropriate Government
levels. We were surprised to learn, in December 2006, that senior Navy
leaders were surprised by cost growth on LCS given all the
communication we had with the Program Office and PEO.
Mr. Taylor. Was construction ever conducted on LCS 1 using designs
that were not approved?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. No, the entire
functional design was approved at the December 2005 Final Critical
Design Review (FCDR) and the Build Specification was approved in
January 2006 prior to construction start in February 2006.
Subsequently, ongoing interpretation of sub-tier specification
references and ABS analysis and modeling resulted in changes to these
designs. Final adjudication of the Build Specification with Naval
Vessel Rule (NVR) implementation also caused changes to designs that
impacted construction by creating significant design-construction
overlap.
Mr. Taylor. If so, who was the approval authority within Industry
and the Navy to proceed with Construction, and what consequences did
you experience by using unapproved designs?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. N/A
Mr. Taylor. Did you fully understand the design approval process
and the identity of all approval authorities? Did this process or those
individuals change due to the incorporation of NVR?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. The design
approval authorities were identified from the beginning as the American
Bureau of Shipping (ABS), Naval Technical Authority (NTA), and the
Navy's Supervisor of Shipbuilding (SUPSHIPS). However, the approval
processes, roles, and responsibilities were not clear. LCS 1 is the
first warship designed to NVR and classed by ABS and, as a result, this
was the first time that all three of these organizations were required
to coordinate design review and approval.
Mr. Taylor. What incentives do you have, under a cost-plus
contract, to minimize costs to the taxpayers?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. Cost plus
contracts are appropriate for the LCS lead ship as it is an RDT&E
funded ``prototype'' vessel with significant development risk. Cost
plus vehicles are an effective way of balancing the significant risk
between Industry and Government when there is no effective way to
accurately estimate costs due to the uncertainty of contract
performance.
A number of factors motivate the Lockheed Martin Team to minimize
costs on LCS. First, the LCS acquisition plan placed a $220M (FY05
dollars) cost cap on ship price. Failure to meet this price in the
initial proposal submission would prevent award and this cap is still
in place for follow-on LCS ships. Second, the LCS program has remained
competitive with two primary suppliers, Lockheed Martin and General
Dynamics, working to provide the best LCS solution at the minimum price
to maximize the number of ships awarded to their teams. Third, the
current LCS contracts are Cost-Plus Incentive/Award Fee (CPIF/AF)
structures. There are two components of the fee available for
contractors to earn. The incentive fees are earned only if the contract
cost does not exceed a certain threshold. The award fees are earned
through the Government's evaluation of the contractor's ability to
control, adjust, and accurately project costs using the award fee
criteria stated in the contract. The evaluation results in an award fee
payment if the contractor has met the minimum criteria. Lockheed
Martin's Incentive/Award Fee has been significantly impacted as a
result of the cost growth on LCS 1.
Evidence of Lockheed Martin's commitment to minimizing the cost and
risk in the program includes our corporate investment to mature the
ship design prior to contract award to ensure we could meet production
schedules with minimum risk. We have continued to make significant
investments in the program to help offset cost increases and to ensure
we can produce affordable LCS platforms.
Mr. Taylor. In what ways was it communicated to you that schedule
was the primary priority for the LCS program?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. From the
beginning of the program the emphasis was placed on producing LCS ``at
the speed of heat'' in accordance with direction by the CNO Admiral
Clark. In fact, the FY03 President's Budget identified a seven month
Final Design Phase and 24 month Build Cycle, unprecedented in Naval
surface combatant programs. Senior Navy leadership continued to
emphasize an accelerated schedule to meet urgent fleet needs. Lockheed
Martin's LCS contract award fee criteria also reflected the schedule
priority with the majority of the criteria emphasizing meeting program
schedules and timely milestone completion. The priority for this event
driven criteria was:
Schedule
Technical
Cost
Examples of schedule driven milestones tied to award fee include
start construction, keel laying, landing of gas turbines, water jet
installation, and launch.
Mr. Taylor. Lockheed testified that it sends monthly reports with
LCS cost information to the Navy. In which of these monthly reports did
Lockheed first attempt to alert the Navy regarding the potential for
significant cost growth on LCS-1?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. The Contract
Performance Report (CPR) is a mandatory management report submitted
monthly starting from contract award. Each report shows Best Case,
Worst Case, and Most Likely cost estimates and describes the risk
associated with each number. Specific cost drivers were highlighted and
discussed in each report. We began to recognize and report cost
increases as early as September 2005 and costs increased steadily
throughout 2006. As challenges such as material delays continued to
impact cost we continued to report growing cost estimates in the
monthly reports.
Mr. Taylor. Does Lockheed believe that its representations to Navy
officials in 2006 about cost growth on LCS-1 were being transmitted to
senior Navy leadership-meaning the Secretary of the Navy, the Chief of
Naval Operations, and the Navy Acquisition executive-in a sufficiently
full and timely manner?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. Lockheed Martin
is not aware of who or when ``senior Navy leadership'' was notified.
However, we were surprised to learn in December 2006 that senior Navy
leaders were surprised by cost growth on LCS.
Mr. Taylor. How would you characterize the performance of the
shipyard in building LCS-1 in the months since that ship was launched?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. Neither
Lockheed Martin nor Marinette Marine Corporation (shipyard) is
satisfied with the performance since the LCS-1 launch; however, there
are many factors driving this performance including.
High degree of out of sequence work
Significant Navy directed design changes which are
driving higher than expected rework on the ship
Two primary drivers are negatively impacting performance. The first
is the amount and type of work that is being done post-launch, pier-
side, that was originally planned to be completed more efficiently
within the construction/erection facilities pre-launch. This work was
delayed until after launch in order to meet the launch schedule as
agreed to between the U.S. Navy and Lockheed Martin. The second is the
unanticipated amount of re-work we are still experiencing as a result
of NVR-related design changes. While not as rapid as we had predicted,
the performance trend has been positive for four of the last five
months.
Mr. Taylor. Is there any concurrency in design and construction on
LCS-3? If so, how much of an adjustment in the construction schedule
for this ship would be needed to eliminate this concurrency? If this
adjustment is made, how would it affect Lockheed's ability to execute
in a timely way any additional LCSs that are authorized for FY 2008?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. No, as a result
of lessons learned on LCS-1, we have developed a plan to complete the
LCS-3 design updates and changes prior to the start of construction of
the associated item. This effort was on schedule before the stop work
order was issued. Given this plan to eliminate concurrency, Lockheed
Martin expects to be able to execute any ships awarded in FY 2008 on
schedule.
Mr. Taylor. Do the estimated costs of LCS-1 or LCS-3 reflect
systems, components, or materials provided by vendors at reduced
prices, as part of an effort by those vendors to secure a role in the
55-ship LCS program? If so, how much more expensive might these
systems, components or materials become on later LCSs? Is this a source
of concern regarding the potential for cost growth on follow-on LCSs?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. Lockheed
Martin's sub-contractors do not disclose this information. However, the
sub-contractor cost increases we have experienced from LCS-1 to LCS-3,
appear to be primarily due to economic inflation.
Mr. Taylor. If one of the two yards building Lockheed's version of
the LCS proves to be consistently superior to the other in building
LCSs, is Lockheed prepared to consolidate production of its LCSs at the
superior yard?
Mr. Moosally, Mr. Moak, Mr. McCreary and Mr. Ellis. The Lockheed
Martin team has two shipyards to ensure that we can meet the U.S.
Navy's maximum production rate planned for LCS. These two shipyards
provide the added benefit of being able to share design, material
procurement, and production resources as necessary to ensure each ship
is delivered on schedule and within budget. Lockheed Martin
continuously evaluates the performance of all subcontractors, including
the shipyards. We will consider all alternatives and take appropriate
action in the event a subcontractor is not performing in accordance
with expectations. Our objective is to provide the most cost effective,
highly capable LCS platforms to the U.S. Navy and the taxpayers.
Mr. Taylor. What added value do you believe Lockheed Martin
provides as the lead systems integrator?
Mr. Moosally. Lockheed Martin is not a lead Systems Integrator on
the LCS program. Our role on LCS is the prime contractor and Mission
System provider. As the prime contractor we are establishing a new
shipbuilding paradigm by enabling cost efficient mid-tier shipyards
like Marinette Marine and Bollinger Shipyards to participate in a
complex shipbuilding program like LCS. Lockheed Martin brings
significant experience in managing large, complex defense programs. Our
shipbuilding experience includes the design and prime contract
management of the Sea Shadow, SLICE, AGOR 26, and E-Craft vessels. We
have over 30 years of combat system integration experience on 7 ship
classes for 6 different navies. We designed numerous electronics spaces
on DDG-51 Class ships as well as the entire topside spaces on CG-47,
DDG-51, the Spanish F100 Class Aegis Frigate, and the Norwegian F 310
Class Aegis Frigates. This experience includes the detailed design and
integration of all combat system related ship compartments. Lockheed
Martin also brings the ability to surge capabilities only when needed,
so the Customer does not have to pay for significant management
overhead when the specific capability is no longer needed. On LCS-1 we
have provided significant program management, master planning, material
procurement and quality assurance personnel to augment the shipyard's
indigenous resources. As the Mission System provider, we are
responsible for the design, development, production and support of the
LCS Core Mission System including command & control, sensors, weapons,
communications, etc.
Mr. Taylor. When you submitted your proposal in response to the
Request for Proposal for Preliminary Design, you were aware that the
Navy had established an objective and threshold cost targets. At any
time, did you believe that Lockheed Martin could not deliver LCS
Seaframes that could not meet the threshold target?
Mr. Moosally. No, when we submitted our proposal we showed that we
could meet the $220M cost cap. After contract award, the Navy directed
the implementation of the Naval Vessel Rules (NVR) which resulted in
significant design changes and greater than planned design-build
concurrency. Coupled with material delays for steel and reduction
gears, these issues caused cost growth resulting in a price above
$220M. As stated by VADM Sullivan during his testimony to the HASC on 8
February 2008 ``. . . the ship that we bid and the ship that we costed
out is not the same ship that we're buying today . . .''
Mr. Taylor. Which cost drivers do you believe will result in re-
occurring cost for LCS?
Mr. Moosally. Inflation as well as additional labor and material
costs associated with engineering changes implemented on LCS-1.
Mr. Taylor. You have built many other ships for the government,
Coast Guard Ice-Breakers, Barges, Tug Boats; did you ever start those
ships without final design plans?
Mr. McCreary. Yes. MMC has constructed ships for commercial and
government customers and has started construction without some of the
final (detail) design plans being completed. MMC's process is a modular
construction process. The Detail Design is partitioned by zone and
completed in support of the zone construction schedule. Our approach
includes the following prior to construction start:
a. The Functional Design (diagrams, calculations, scantlings) is
complete and submitted to ABS for approval
b. Long Lead Equipment specifications are complete and equipment
is placed on order
c. Detail Design is started and completed for each construction
zone 2 to 4 months prior to the construction start for that zone.
Mr. Taylor. Did you ever ``push back'' to the Lead System
Integrator when you were directed to proceed with construction even
though the final plans were not available?
Mr. McCreary. Our team planned to construct the LCS vessels in a
manner similar to MMC's and Bollinger's experience utilizing the
modular construction process. In using that process, Functional Design
as well as the Detail Design for the Zone under construction is
completed 2 to 4 months prior to construction start. On the LCS, our
team completed the Preliminary Design and had ``invested'' in
furthering that design prior to contract award in order to mitigate the
risk associated with developing the Detail Design. Upon contract award,
design specifications were changed due to Naval Vessel Rule
implementation. After construction start, when many design plans were
arriving incomplete, MMC, on multiple occasions, made the Prime
Contractor (Lockheed Martin) aware of that fact and the resulting
impact it was having, and was going to have, on construction cost and
schedule. MMC and the Prime Contractor made the customer aware of the
situation and worked to minimize the impact.
Mr. Taylor. What steps have you taken to transfer learning curve
efficiencies to Bollinger shipyards?
Mr. Ellis. Bollinger engineers and production supervisors were
involved with Marinette Marine in major construction planning decisions
on LCS-1 and established a formal lessons learned capture process at
the beginning of the LCS program to accelerate Bollinger's learning.
Our Team is executing LCS-3 in an environment unlike that of LCS-1.
LCS-3 has a more mature design, with 80% of detailed design unchanged
from LCS-1 and 70% of LCS-3 design already approved by ABS. In
addition, we are utilizing the existing vendor base to stabilize Vendor
Furnished Information (VFI). Our Team conducted a comprehensive
assessment of risks from LCS-1 for applicability on LCS-3 and is
proactively putting in place corrective actions on LCS-3. The following
are factors that are mitigating risks experienced on LCS-1:
All purchase orders have been placed for LCS-3 material
in advance of the required dates and 63% of all required material is
already on order, all with delivery commitments in advance of in yard
need dates.
A dedicated LM LCS-3 Team was established five months
in advance of contract award, containing key personnel with extensive
program management experience on U.S. Navy ACAT I programs.
A comprehensive set of metrics has been established to
track performance on LCS-3. The metrics are reviewed on a weekly basis,
at the performing area level and with executive management.
A path finder approach has been implemented for LCS-3
to closely watch and measure performance the first time a process is
executed (e.g. design release process). This vigorous process allows us
to identify issues and take corrective actions before repeating the
same mistake numerous times. The approach has yielded a 48% reduction
in the average time for review of drawings.
A negotiated Memorandum of Understanding with ABS that
establishes timelines for ABS review and approval of design changes.
The work performed by Bollinger on LCS-1 to construct
the largest and one of the most complex ship modules has given our
production staff first hand experience in building from LCS design
products in advance of construction start on LCS-3. This early exposure
has allowed the Team to accelerate the LCS-3 production learning curve
and demonstrate design producibility at both shipyards
Mr. Taylor. At which of your shipyards, do you plan to build LCS?
Mr. Ellis. LCS-3 will be constructed at our Lockport, LA facility.
We will draw upon the resources of over 3000 employees from 14
Bollinger shipyards to ensure the success of LCS-3.
Mr. Taylor. As Lockheed Martin became aware of the implications of
NVR and the delay in delivery of the reduction gear, did you keep the
Navy fully informed of all these issues?
Mr. Ellis. Yes, as we assessed the impact of NVR and the
significant number of resulting design changes, and experienced issues
such as the material delays, we communicated with the Navy through
numerous methods including day-to-day programmatic communications, our
bi-weekly Program Manager-to-Program Manager meetings, monthly Contract
Performance Reports (CPR), and periodic briefings and site visits with
PEO Ships throughout 2005 and 2006.
Mr. Taylor. What process does Lockheed Martin have in place to
ensure that if additional specifications and/or requirements were added
to the program from this point forward they would be thoroughly
reviewed to ensure we understand the full cost and schedule impact
BEFORE we move forward?
Mr. Ellis. Now that the LCS ship design is nearing completion and
LCS-1 is over 75% constructed we have a true baseline from which we can
assess material and labor changes with much greater accuracy. Together
with the Navy as we move to LCS-3, we have implemented changes in the
Configuration Management (CM) process to better track design changes
and effectively asses change impact to cost and schedule. Specifically:
LCS Team made the decision that no change will be
implemented until all design impacts are thoroughly reviewed and
approved by ABS and the Navy Technical Authority and cost and schedule
impacts have been assessed and agreed with Lockheed Martin Team and the
Navy.
Established strict schedules with ABS and Naval
Technical Authority to ensure potential changes and issues are
highlighted early.