GAO: Navy paid high ship overruns

The Navy paid for the majority of cost overruns on contracts for its major shipbuilding programs over the last decade, according to a Government Accountability Office (GAO) report released last week. It examined six fixed-price incentive (FPI) contracts awarded by the Navy over the last 10 years on a total of 40 ships. The audit report analyzed contract(s) for two Arleigh Burke-class guided missile destroyers; two Expeditionary Transfer Dock and two Expeditionary Mobile Base ships; 10 Littoral Combat Ships (LCS); six San Antonio-class amphibious transport docks; and eight Virginia-class submarines. On FPIs, the government and the shipbuilder share cost overruns above the target price ratio called “share line.” Shipbuilders are responsible for all costs above the ceiling price. The share line is established for profits, when costs fall below the target. FPIs notionally incentivize shipbuilders, since profit is determined by how well they perform under contracts. DOD’s ‘Better Buying Power’ initiative suggests contracting officers start with a 50-50 share line. The report found the Navy paid $549 million in cost growth for ships delivered under contracts analyzed. Shipbuilders paid about $430 million in cost growth. GAO also found required documentation missing from three of the six contract files. GAO recommended DOD conduct a “portfolio-wide assessment” of the Navy's use of additional incentives and include a “mechanism to share proven incentive strategies for achieving intended cost, schedule, and quality outcomes among contracting and program office officials,” the report states. DOD agreed, and said the Navy would complete such an assessment by Dec. 15. (Source: Inside Defense 03/07/17) Gulf Coast Note: Although the report does not specifically ID contractors, Austal USA of Mobile, Ala., has had contracts for one of the two variants of the Littoral Combat Ship. Ingalls Shipbuilding is the sole provider of the San Antonio (LPD 17) class of amphibious transport dock ships for the Navy, according to HII's website.