CDA Institute guest contributor Tom Ring, a Senior Fellow at uOttawa’s Graduate School of Public and International Affairs, comments on some of the challenges facing the National Shipbuilding Procurement Strategy.
With some observers and pundits clamouring for the National Shipbuilding Procurement Strategy to be completely scrapped, we should take the time to examine where we are and indeed whether the program is failing to meet its objectives. In a detailed analysis recently published by the Canadian Global Affairs Institute, the conclusion reached tells a very different story. This blog post provides a short summary of the issues that I explored more fully in the above paper, and concludes with identification of some of the very real challenges involved in implementing such a complex undertaking.
In 2006, the federal Government made a bold strategic decision – it would use the renewal of the Navy and Coast Guard fleets to rebuild Canada’s shipbuilding industry. The concept became the National Shipbuilding Procurement Strategy (NSPS). The economic benefits of this construction would accrue not only to the shipyards which eventually won the bidding process. Ancillary benefits would also be received by the hundreds and thousands of suppliers in this decades-long, multibillion dollar commitment.
Rather than the well-trodden practice of shipyards bidding on a project-by-project basis, they would bid on the entire package, one for the combat package, the other for the non-combat package. There would be two winners among Canada’s five shipyards capable of doing this work, meaning that there would be three losers. This was not how shipbuilding procurement had ever been done.
Much has been written recently about the NSPS, not all of which has been favourable. To be sure, any initiative that has the goals and ambitions of the NSPS will be (and ought to be) subject to considerable scrutiny. Healthy public debate on matters of important public policy is vital to democracy. Differing points of view and outright opposition should be a welcome part of a debate on an issue as important as the NSPS. Let me briefly outline the original goals of NSPS and assess where we are in achieving them.
Goal 1 – Rebuild the Federal Vessels in Canada: This is currently being accomplished. While it has been suggested that the ships can be built cheaper elsewhere, no evidence has ever been provided to substantiate this assertion.
Goal 2 – Revitalize the Shipbuilding Industry in Canada: This has been accomplished and the resulting job creation and associated economic benefits are being felt across Canada and will continue to be for some time to come.
Goal 3 – Build The Federal Vessels in a Manner that Maximizes Value for Taxpayers and Fosters Economies of Scale: This goal is perhaps one of the more contentious elements of NSPS, in so far as it implies acceptance by the Government of a “premium” for building vessels in Canada. There is likely no counter argument to the fact that shipyards in Canada cannot match the low labour rates charged by shipyards in Asia. However, for most Canadians, it is also likely a common sense proposition that if we need to invest $30–50 billion to rebuild the Navy and the Coast Guard we should do so in Canada – as long as we do it in such a way as to maximize productivity and efficiency. This is why Canada engaged First Marine International (FMI), the recognized world leader in assessing shipbuilding processes. Measuring over 183 different processes, FMI established efficiency and productivity standards for the winning shipyards, based on leading practices world-wide. Any contract to be subsequently awarded is conditional on these standards being maintained. We are only able to assess achievement of this goal after the two shipyards achieve their “target state” as established by FMI, and subsequently verified by them as required by the Umbrella Agreement (UA). If one assumes that target state will be reached, then FMI has stated that the facilities will be a significant national strategic asset. The resulting economic impact for Canada in the long-term will not be only jobs created, but careers created that will last for decades.
Goal 4 – Establish a Long Term Strategic Relationship with Two Shipyards: The elements of this arrangement are set out in the two partnership agreements called Umbrella Agreements, and include all of the provisions needed to permit value for money assessments, open book accounting, risk sharing, cost/capability trade-offs, etc.
Goal 5 – Realization of the Shipyards Commitments on ITB’s and Value Proposition: The achievement of this goal will require continuous assessment but there is no evidence to date that this will not happen.
There are, nonetheless, some very real and problematic challenges to be addressed and, to date, real solutions have not yet been identified. The first of these is the acknowledged inadequacies of the project budgets. The second is the ongoing challenge of program management for a multi-billion dollar endeavour. Neither is new nor unexpected.
The risk that intended capabilities might not be achieved within the established project budgets was identified by officials involved in implementing NSPS even before the shipyard selection process began. Officials with the Department of National Defence (DND) and Department of Fisheries and Oceans (DFO) and well as at Public Works and Government Services Canada (now renamed Public Services and Procurement Canada) knew that most of the project budgets had been developed many years earlier and needed updating to reflect cost escalation, technology improvements, and new capability requirements. However, given the delays incurred due to the failed vessel procurement processes, and having nothing better to inform the new budget numbers before design work was well underway, it was decided to proceed with the overall program of work knowing that budgets would have to be re-visited at the design stage in any event.
In his 2013 assessment of the NSPS, the Auditor General noted that inadequate project budgets could constrain the achievement of required capabilities. No specific action was taken to address the observation. Cost estimation on projects that will be realized many years in the future is an imprecise undertaking, to say the least. Of course, every effort is made to account for inflation, currency fluctuations, and other known variables. Nevertheless, some factors cannot be fully accounted for. Innovation, advances in technology, and adjusted requirements due to new threats and changing circumstances will always have an unknown impact on a project that will only be realized in 10 years.
Still, the recent Australian Defence white paper estimated the cost of nine future frigates, to be built in the 2020 timeframe, at more than AUS$30 billion. And this number is for design and construction only, and does not include costs for weapon systems, or project management costs etc. Of course, there is no way of knowing whether Canada’s future naval vessels will be similar but the broad range of numbers provided by the Australian government should be instructive to those who are making similar estimations in Canada.
The second issue is the ongoing management of the program. This is also a critical shortcoming. If not addressed adequately, it will continue to hamper the achievement of the overarching goals and objectives of NSPS. Much like the issue of inadequate project budgets, the ongoing management of NSPS implementation was identified as a significant vulnerability in the fall of 2011, shortly after the selection process was completed. The challenge identified at the time was how to ensure that the entire implementation of NSPS was managed as one program and not a series of related projects. PricewaterhouseCoopers (PwC) was engaged in late 2011 to conduct a review and make recommendations on the “most appropriate governance and operating model to manage the Umbrella Agreements and long term sourcing relationships that have been created by the NSPS process.” PwC’s recommendations were never fully implemented.
The major criticisms of the NSPS are well known. The various vessel construction projects are over budget and have yet to be delivered. (It should be noted that construction is well underway on vessels in both packages, and construction on the second vessel in the non-combat package began on March 29th at Seaspan in Vancouver.) Has the Government maintained sufficient control/authority in the UA for its partnership arrangement with the shipyards? Does the UA sufficiently protect the Crown’s interests? Whether such concerns are real or could now be mitigated if they are real, is a question that deserves to be continually examined given the size, scope, and complexity of the program to re-build the federal fleets. In order to contribute to the public debate, I will more fully explore the nature of the challenges outlined above and discuss options for dealing with them in a policy brief in the coming weeks.
Tom Ring is a Senior Fellow at the Graduate School of Public and International Affairs at the University of Ottawa. He retired from the Public Service in January 2015 following a 39 year career, the last five of which were as the Assistant Deputy Minister of the Acquisitions Branch at Public Works and Government Services Canada. In that role he was responsible for the implementation of the selection process for the National Shipbuilding Procurement Strategy. (Image courtesy of The Canadian Press/Andrew Vaughan.)
This article originally featured on Bharat Shakti. It may be read in its original form here.
By Vice Admiral Pradeep Chauhan, AVSM & Bar, VSM, IN (Ret.)
The year 2022 arrived as a harried harbinger of tidings of war and woe in the Indo-Pacific — a geo-strategic region central to the security calculus of both, regional and extra-regional players. From the United States of America to Japan, strategic advisers and military practitioners began reading-up their several carefully-prepared contingency plans, each focused upon the increasingly violent writhing of the Chinese dragon.
Although the danger-signs of a precipitous economic decline within the People’s Republic had appeared even before 2015, the sheer speed of contraction of the Chinese economy took the world completely by surprise. The internal repercussions within China were so extreme that news of the violent unrest within the Middle Kingdom easily transcended the efforts made by the CCP to keep matters under wraps. Widespread rioting became commonplace as socio-economic fault lines — centred upon income inequality, curbs on rural labour becoming permanent urban-dwellers, and the huge economic disparity between southern coastal cities and the hinterland — could no longer be papered over by ‘gloss’ and ‘bling.’
The CCP’s recurring nightmare of regime-collapse threatened to become a grim reality. Faced with increasingly belligerent responses from the USA, India, Vietnam, the Philippines — and even Indonesia — to its earlier attempts to convert the South China Sea into a Chinese lake through machinations such as the Nine Dash Line, the Chinese leadership turned to the oldest trick in the book to reunite the country. It pointed to a ‘malevolent’ axis of alignment between India, the USA, Japan and Australia as being responsible for a series of carefully orchestrated actions designed specifically to stunt and reverse China’s economic miracle. Indian duplicity was specifically and repeatedly referred-to and, in the ensuing vituperative polemics, much was made of teaching ‘upstart’ India a lasting lesson. Chinese media was repeatedly drawing the people’s attention to Indian adventurism along the still-unresolved border.
As a supposed ‘restrained and proportionate response’, deep incursions by Chinese troops began across the entire Sino-Indian border. Most worrying to India was the significant Chinese build-up in Demchok and in the Chumbi Valley. Paying scant regard to the protestations of Bhutan, Chinese troops had begun occupying the western extremities of Bhutan that they had been long been claiming as their own. This widened the ‘point’ of the Chumbi Valley and the danger to India’s ‘Chicken’s neck’ was seen as being clear and present.
Over the past few years, Indian mountain infrastructure had certainly improved, but was far from ideal. Nevertheless, New Delhi directed its newly raised Mountain Strike Corps (its embryonic state notwithstanding), to deploy in the Gaygong-Geegong gap. IAF Forward Air Bases in Nyoming, Daulat Beg Oldi (DBO) and several more in Arunachal Pradesh were brought up to full combat capability and ammunition pre-positioned. The roar of Su-30 aircraft became incessant at Tezpur.
Many forward-looking Indian planners had high hopes of the Indian Navy being able to achieve a ‘strategic outflanking’ of the Chinese at sea — yet, the Chinese Navy seemed to have pre-empted matters: In the Gulf of Aden, the 44th Chinese anti-piracy Escort Force, comprising two Luyang-II (Type 052C) destroyers, one Jiangkai-II (Type 054A) frigate and one Fuchi Class (Type 903A) replenishment ship, was supplemented by a significant flotilla consisting of four Luyang-III (Type 052D) destroyers led by the Changsha, six Jiangkai-II frigates, an Underway Replenishment Group (URG) comprising two Fuchi Class ships, and, oneShang Class SSN. The ships berthed at Djibouti while the SSN, having called at Karachi, was last reported at the newly-developed submarine berth at Gwadar.
Luyang III: Chinese Missile Destroyer (Picture Courtesy: Chinese Military Review)
Just north of Indonesia’s Natuna Island, a confirmed sighting was registered of a Chinese amphibious flotilla centred upon the aircraft carrier Liaoning, along with three Luyang-III destroyers, three Sovremenny Class destroyers, three Jiangwei-II and four Jiangkai-I Class frigates, apparently escorting four Yuzhao Class LPDs and accompanied by two Type 901 Fast Combat Support SHIP (FCSS). Three Zulfiquar Class frigates of the Pakistan Navy — an unusually large number — had also been deployed with the ‘Coalition Task Force 150’, while three Agosta-90B submarines (all capable of Air-Independent Propulsion) were notably absent from any of Pakistan’s naval harbours. It was manifestly clear that battle lines had been drawn….
How and under which circumstances the Government of India might realise and decide that the Union of India — in its entirety (as opposed to just the Army) — was in a state of armed conflict against the People’s Republic of China is a matter of conjecture and debate. Yet, the above scenario provides a plausible enough backdrop against which the state of advancement of Indian warships and warship-building needs to be examined.
Tonnage is a very good indicator of the ability of a warship to endure the violence of the maritime environment — something that generally increases with distance from the coast. Thus, warships of heavier displacement-tonnage are more likely to be suitable for protracted deployments in ‘blue waters’ than are those of lighter displacement-tonnage.
INS Kolkata (Picture Courtesy: Indian Defence News)
In this regard, the tonnage of the Indian Navy’s frontline surface-combatants (guided-missile destroyers and frigates) — taken individually as well as collectively over the 25-year period from 1995 to 2020 — shows a consistent and impressive increase. However, the Chinese Navy, too, has been demonstrating a nearly identical trend. This is a clear sign of the steady consolidation of the ‘Blue-water’ capacities of both navies, and may be readily discerned from the following graphs. Contemporary DDGs in both navies have displacement-tonnages in the region of 7,000 tonnes, making them eminently suitable for protracted deployments in distant waters. It may also be seen that the Indian Navy has far fewer classes of Guided Missile Destroyers (DDGs) than does its Chinese counterpart.
The reverse is true when it comes to Guided Missile Frigates (FFG). Here, the Indian Navy’s contemporary classes are certainly pushing the limits of what might reasonably be termed a ‘frigate.’ In most countries, ships of the Shivalik Class and those of ‘Project 17A’ to follow — both classes displacing 7000 tonnes or more — would be certainly categorised as ‘destroyers.’ Were this to be done, the number of ship-classes in both categories (DDGs and FFGs) would be very similar in both navies.
INS Satpura.
The past and projected growth of the Indian Navy in terms of numbers of DDGs and FFGs over the period from 1995 to 2020 may be seen through the following graphical depiction, which details the numbers of warships in each class of destroyers and frigates respectively.
It is important to note that while the tonnage of the individual warship-classes that constitute each navy has been rising, and while
there is not much to give or take between the comparative tonnages of Chinese and Indian frigates or destroyers, it is the stark disparity in the sheer numbers of Chinese and Indian warships that make the overall tonnage that each navy can put to sea so different from each other. The huge impact that these ‘numbers’ have in terms of the overall tonnage that both navies can put to sea may be readily discerned once these are plotted on the same scale.
What all this brings out quite starkly is that although Indian warship construction / induction is certainly picking-up and although the tonnage-trend is a healthy one, it is, nevertheless, very nearly a case of ‘too-little-too-late.’ Indian ship-building has to show a dramatic increase of the type shown by Chinese shipyards, most especially in the period after 2010.
This, of course, is a realisation that is somewhat more sobering than the breezy optimism that comes embedded in the official pronouncements that emanate from New Delhi. Despite the proclivity of our defence shipyards to ‘cut-off their noses to spite their faces’ by refusing to accept their capacity-limitations and encourage private players, there is an urgent need for greenfield shipyards in the country to either build relatively low-end platforms so as to free-up capacity in the more established defence shipyards, or to take up construction of major surface-combatants themselves. The latter could, perhaps, be under a ‘prime system-integrator’ model as was done for the Daring Class ‘Type 45’ guided-missile destroyers of the British Royal Navy. As such. there is, enormous scope for private players in the national effort to ratchet-up numbers in the Indian Navy’s DDG and FFG holdings.
In the interim, the Government of India and its Navy will have to rely upon nimble-footedness at the strategic level as well as at the level of operational art, so that even if a conflict with China arise, the entire numerical strength of the principal combatants of the Chinese Navy are not capable of being arrayed against it en masse. The plans and strategems for this, are, of course, subjects for a far more detailed analysis.
Yet, there is some cause for quiet satisfaction, too. For instance, the overall combat capabilities — comprising the various weapon-sensor suites, the software-intensive integration systems, the integral-air capacity, and, the propulsion and power-generation plants — of both, contemporary Indian guided-missile destroyers (DDGs) and guided-missile frigates (FFGs) compare quite favourably with those of the Chinese Navy. In a combat encounter between major surface combatants, the Indian Navy is very likely to acquit itself well. For this, the uniformed and civilian segments of the Indian Navy (they are very nearly equal in numbers), the DRDO and our ship-builders must be given much credit. That said, naval warfare is typically one in which the ‘hunter’ and the ‘hunted’ switch roles with disconcerting frequency and often operate in entirely different mediums. Thus, the capability of current and future Indian warships must also be assessed against air threats (including anti-ship missiles) and underwater threats emanating from both, conventionally and nuclear-propelled submarines.
Anti-Submarine Warfare (ASW) within most parts of the northern Indian Ocean — most especially in the Arabian Sea — is adversely impacted by a ubiquitous negative temperature-gradient. This significantly shortens the detection range of hull-mounted sonars. On the other hand, towed-array sonars and ship-mounted variable-depth sonars impose often-unaffordable operational penalties in terms of maneuverability and speed — quite apart from a host of maintenance-related technological challenges that industry needs to wrestle with.
Indian FFG and DDG ship-designs have long featured the carriage of two 10-13 tonne multi-role / ASW helicopters aboard every such platform. An ASW helicopter, equipped with a variable-depth sonar with high-end processing capabilities, sonobuoys, and a good EW suite, is the optimum platform for seaborne ASW and the Navy requires these in adequate numbers so as to take advantage of the potential offered by excellent ship-design. For the present, the absence of multi-role helicopters has rendered this design-advantage null and void. Much promise was initially held out by the indigenous ‘Advanced Light Helicopter’ (ALH) Dhruv. However, the technological challenges of folding rotor-blades and minimising the downwash while the helicopter is in hover continue to frustrate efforts to embed this helicopter within the integral-air capacity of the Indian Navy.
As and when our otherwise very-capable surface-combatants need to operate in a combat-environment characterised by a substantive subsurface threat, this lack of integral ASW helicopters might well prove decisive. In contrast, Chinese ships have a carrying-capacity of just a single helicopter, but successful reverse-engineering of the French Dauphin has resulted in the Harbin-Z that is integral to Chinese warships.
Perhaps the most telling factor weighing in favour of the ‘reach’ of the Chinese Navy is its impressive holding of refuelling-tankers and stores/ammunition-supply ships, particularly those capable of ‘underway replenishment.’
Qiandaohu Ship (Picture Courtesy: en.people.cn)
The six Qiandaohu Class (Type 903A) replenishment vessels displace 23,000 tonnes, compared with the two 19500-tonne replenishment-tankers of the Indian Navy’s Deepak Class. Although the five Dayun Class (Type 904) stores-supply ships of the Chinese Navy are incapable of underway replenishment, they do add significantly to their Navy’s amphibious follow-on capacity. Seeking to catch-up, the Government of India had floated a global Request for Information (RFI) for the construction of five large 40,000-tonne ‘Fleet Support Ships’ for the Indian Navy. Although the delivery of the first ship has been specified as 36 months (with subsequent ships being delivered at six-monthly intervals), there is little evidence as yet of any significant progress. This notwithstanding, opportunities for Indian industry in terms of the equipment-fit of these ships is, once again, enormous.
In conclusion, if India is to be able to handle the fictitious 2022-scenario that this brief piece began with, there is an urgent need to address the shortfall in numbers of major-combatants and fleet-support ships. It is true that over 45 warships are currently building in Indian shipyards, but the rate of production is painfully slow and as a consequence, the numbers may not be enough in the available time before such a scenario shifts from absorbing fiction into frightening fact.
Vice Admiral Pradeep Chauhan(ret.) retired as Commandant of the Indian Naval Academy at Ezhimala. An alumnus of the prestigious National Defence College.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of BharatShakti.in)
This piece was originally published by the US Naval Institute. It is republished here with permission. Read it in its original form here.
By Eric J. Labs
The Navy released its latest 30-year shipbuilding plan to Congress in April 2015. 1 The document (hereinafter referred to as the 2016 plan) described the purchases, retirements, costs, and projected inventory of the fleet the Navy says it will need from now through 2045. Critically, the plan outlines the fact that the Navy will need substantially more money than what Congress has allocated to shipbuilding in recent decades. The tyranny of time, the stubbornness of high shipbuilding costs, and competing fiscal priorities will put pressure on the size and capability of the future fleet. In short, over the next 30 years the Navy faces a slowly unfolding fiscal Pearl Harbor.
In recent years, the Navy has changed the tone of the annual shipbuilding report it sends to the Congress. It used to be that those documents were full of bureaucratic optimism and rosy scenarios. But over the last three years in particular, the Navy has offered a frank discussion of the challenges it faces in implementing its shipbuilding plan. In my view, a document that was once disregarded by many on Capitol Hill has now become one of the more valuable reports that is sent to the Congress. It warns that hard choices are coming and the Congress and the nation must be prepared to make them.
U.S. Navy – The future USS Zumwalt (DDG-1000) conducts sea trials in December. Such a revolutionary vessel reflects both the aspirations and the daunting challenges of tomorrow’s fleet, for such “alternative ship designs and fleet architecture take a long time to implement,” notes the author, pointing out that the DDG-1000 “has been in development, design, and construction for 20 years. . . .”
Between now and 2045, the Navy proposes buying 264 ships and retiring 244 ships in order to maintain a fleet of 300 ships or more. Officially, the Navy’s goal is 308 ships but under the 2016 plan, the schedule of commissioning new ships and decommissioning old ones yields a fleet of 300 or more beyond 2019 and 308 or more for 12 of the next 30 years. (If 12 littoral combat ships are cut from the program as directed by Secretary of Defense Ashton Carter, then the Navy’s fleet will exceed 300 ships only between 2019 and 2030.) The Navy states directly that without a large increase in its shipbuilding budget, it cannot afford to buy the 264 ships in its shipbuilding plan and would not be able to sustain a fleet of 308 or more ships for very long, if it is reached at all.
I will focus more of this discussion on the first 20 years of the Navy’s plan, covering the years 2016 through 2035, because the third decade of the Navy’s plan is necessarily quite speculative. Nevertheless, keeping an eye on the longer, 30-year perspective is important. While it is true that the nature of warfare, technology, and costs cannot be predicted decades into the future, it is today’s decisions that are most important for the long-run perspective. The President proposes a budget and Congress makes appropriations year-to-year. The Department of Defense provides Congress with a five-year Future Years Defense Program (FYDP), but without the presence of the 30-year plan, the long-range effect on the Navy of the incremental decisions made in each year’s budget cycle would not be understood. For example, in the 1990s, the service built an average of one submarine every other year, and that low rate of construction had no effect on the existing inventory, because coming off the boon years of the 1980s, the attack submarine force was young. Submarine procurement could be reduced during the 1990s without affecting the existing force structure at all. But in the next decade those decisions would manifest themselves in a declining SSN force in a world that today looks like it will get more dangerous and more competitive, not less, and for which some observers of international and naval affairs think having more submarines would be a valuable asset for the Navy.
What to Buy and at What Cost?
Between 2016 and 2035, the Navy plans to buy 178 ships, including 12 expensive Ohio -class replacement ballistic-missile submarines. The rest of those purchases comprise 4 aircraft carriers, 28 attack submarines, 40 large surface combatants, 35 littoral combat ships (LCSs) and frigates, 16 amphibious ships, and 43 combat logistics and support ships.
J. M. Caiella – The Ohio-class sub replacement (SSBN – X) is “the 800-pound gorilla in the room” when it comes to the Navy’s shipbuilding ledger. “At around $6 billion apiece, buying those new boomers poses a substantial fiscal and budgetary challenge to the Navy.”
The Congressional Budget Office, in a report that I authored, estimates the cost of building those ships at an average $18.7 billion per year in Fiscal Year 2015 dollars. 2 But that amount is for new construction only. It does not include all of the other activities that the Navy must fund from its shipbuilding account, such as refueling aircraft carriers, outfitting and post-delivery, and other items. They add another $2 billion to the Navy’s funding requirements, resulting in an average shipbuilding budget of $20.8 billion per year for the next two decades.
The dilemma the Navy faces is that in recent decades shipbuilding budgets have been much lower. Since 1986, the Navy has received an average of only $15.8 billion per year, after adjusting for inflation, for all of its shipbuilding activities. And in the most recent decade, 2006–2015, it was even less—$15 billion. Thus, in order to fund the Navy’s plan, the shipbuilding budget will need to increase by an average of 40 percent compared to the past ten years, or about $6 billion per year.
As readers of Proceedings will know, the 800-pound gorilla in the room is the Ohio Replacement Program. The Navy plans to replace its aging force of 14 Ohio -class ballistic-missile submarines with a new, as-yet unnamed class of 12 boats, with procurement funding starting in 2017 and continuing through 2035. At around $6 billion apiece, buying those new boomers poses a substantial fiscal and budgetary challenge to the Navy. Declared to be the Navy’s top budgetary priority, the question, in the view of some members of Congress, is not whether the Ohio replacements will be funded, but rather how they will be funded. Will the Navy receive increases in its shipbuilding budget to pay for the new submarines, or will the Navy have to buy those submarines from a budget that is not increasing? If so, what happens to the rest of the fleet?
Future Fleet, Historical Funding Level
In the 2014 National Defense Authorization Act, Congress directed the Navy to assess what would happen to its shipbuilding plan if, on average, future shipbuilding budgets matched historical budgets. So far, the Navy has not responded to that congressional directive.
The CBO’s analysis shows that constraining future shipbuilding budgets to an average of $16 billion per year results in a much smaller fleet over time. The assumptions that were made in doing such an assessment were as follows:
• The Navy builds all 12 Ohio replacement submarines.
• Production of aircraft carriers is not cut, because Congress mandates the 11-ship force level in law.
• All other ship programs are cut roughly proportionately.
With those assumptions and applying the budgetary constraint, the Navy would purchase 131 ships over the next 20 years, instead of the 178 in the 2016 shipbuilding plan. Specifically, those purchases would include:
• 4 aircraft carriers
• 12 ballistic-missile submarines
• 18 attack submarines
• 25 destroyers
• 25 LCSs and frigates
• 12 amphibious-warfare ships
• 35 combat logistics and support ships.
Reducing the shipbuilding program by 47 ships over 20 years results in a fleet no larger than today’s by 2035. Over the entire 30 years of the Navy’s plan, the fleet would drift down to 237 ships if the historical funding level does not budge much from $16 billion. (See the accompanying table). That is a reduction of 13 percent compared to today’s Navy and 22 percent compared to the fleet of 2045 projected under the 2016 plan.
Our future fleet.
Is There a Solution?
What are the alternatives to a decline of the Navy’s fleet? Are the alternatives viable? Let us consider each one in turn.
Increase the shipbuilding budget. The first and immediately obvious solution would be to increase the size of the Navy’s shipbuilding budget. Shipbuilding represents about 3 percent of the overall defense budget, a relatively small fraction. As my counterpart at the Congressional Research Service, Ron O’Rourke, has noted in his work, increasing ship construction by $5 billion per year would represent less than 1 percent of defense spending. Yet, even such a small increase faces three powerful headwinds—one short-term, one long-term, and one that is a constant—that are political and budgetary in nature. In the near term, any increase in the defense budget faces the caps imposed by the Budget Control Act (BCA) of 2011 and the various amendments, including the Bipartisan Budget Act of 2015. While the BCA says nothing about how much of the DOD budget may be spent on any particular account, the fact that the BCA caps defense spending below the President’s 2016 FYDP makes it extremely difficult to find the money to increase any category of spending, including shipbuilding. The 2016 FYDP allocated $121 billion more for defense spending over the years 2016 to 2020 than the amounts allowed under the revised caps of the BCA. Thus, widespread cuts are the order of the day, not funding increases.
Although the BCA is set to expire in 2021, presumably making it easier to increase the defense budget in the long term, the large fiscal challenges facing the United States will not. Between now and 2040, the CBO projects that the demands by a growing older population and rising medical costs will increase spending on Social Security and Medicare by 27 percent and 80 percent respectively. But the dedicated revenues that support those programs will remain nearly flat. 3 Because federal deficits over that period will persist and increase the national debt, the CBO also projects that spending on interest will increase by 230 percent; at the same time, revenues from federal income taxes will increase by only 25 percent. Stiff competition for federal resources will remain a fact of our budget debates for decades to come, and the Navy will not be immune.
Finally, within the defense budget itself are the competing demands and priorities of the services and their supporters. If the military branches were unified in the perspective that naval shipbuilding, including the Ohio replacement, should be the nation’s first military priority—or at least the first acquisition priority—it might be a relatively simple thing to shift 1 percent of the defense budget in its favor. But that is not a universally held view. As the threats to U.S. national security become more varied in this emerging new strategic era, the competing demands of all parts of the military for more resources make shifting even a small amount of the defense budget a difficult proposition, especially with the demands on federal resources continuing to grow. 4
Adopt alternative ship designs and fleet architecture. If more money does not flow into the Navy’s shipbuilding accounts, what are the other alternatives? Are there ways to squeeze more out of the current budget? Can you keep ships around longer and modernize them? Does the Navy really need to buy the fleet it is proposing, or would an alternative be better? These are large, wide-ranging questions that deserve serious attention and debate. My purpose in raising and discussing them briefly in this article is to show that even if such suggestions were adopted, they would have little effect on the fleet over the next 10 years and only a marginal effect over the next 20 years.
Let us very briefly consider two examples of alternative fleet architectures proposed by two knowledgeable and experienced men in the business of fleet design: Captain Arthur “Trip” Barber and Captain Wayne Hughes. 5Both are retired Navy officers who then spent many more years thinking about alternative fleet architectures and ship designs. They still do.
In a 2014 Proceedings article, Captain Barber recommends that the Navy do a number of things differently in what he sees as an unending period of federal fiscal constraint. He suggests changing the capabilities of existing ship platforms as well as changing the ways the Navy deploys or stations ships in order to get more deployed time out of these expensive capital assets. However, he also recommends exploring several alternative ship designs that, he argues, would reduce shipbuilding costs, including using a single new ship design for both aircraft carriers and large-deck amphibious-assault ships, developing several classes of surface combatant that perform different missions but share a common hull, and repeating that common-hull approach for various support-ship missions.
U.S. Navy (Sam Shavers) – Secretary of the Navy Ray Mabus delivers remarks at the christening of the USS Jackson (LCS-6) in December. The Secretary of Defense recently called for cuts to the LCS shipbuilding program, which might be said to have experienced its share of setbacks and controversy.
Captain Hughes equally reimagines the future fleet, although he believes his plan is affordable within existing shipbuilding budgets. The New Navy Fighting Machine, as Captain Hughes describes it, would develop even more new ship types than would Captain Barber’s. Specifically, Captain Hughes envisions new conventionally powered submarines, light aircraft carriers, small land-attack arsenal ships, and a substantial green-water force, as well as continuing to build numerous ship types that are already part of the Navy’s 2016 plan.
Nevertheless, however thought-provoking the suggestions offered by both men, making such major changes to the fleet will not be easy or quick. Alternative ship designs and fleet architectures take a long time to implement. For example, the LCS was first proposed in 2001. Fifteen years later the Navy has commissioned six of those small, relatively inexpensive 3,000-ton ships. A large all-new ship design, such as the DDG-1000 Zumwalt -class destroyer, has been in development, design, and construction for 20 years and won’t commission into the fleet until later this year. The same is true for the new Ford -class aircraft carrier. Under the Navy’s shipbuilding plan, in 15 years—2031—the Navy will have only eight new combat ships of entirely new design: three Ford -class carriers, three Zumwalt -class destroyers, and two Ohio replacement ballistic-missile submarines. Another 48 combat ships will be commissioned that have a modified design of existing warships: 21 Arleigh Burke –class Flight III destroyers, 20 frigates based on the LCS (or just 12 under Secretary Carter’s directive), and seven LX-R amphibious ships based on the existing LPD-17 hull. The Navy will also have another 28 combat logistics and support ships of some new type. Overall, in 2031 at least three-quarters of the fleet will still be composed of ships with designs that are in service today.
Thus, unless the ship-acquisition process can be changed such that it dramatically speeds up the introduction of new ship designs into the fleet, most of the suggestions by Captains Barber and Hughes would not have a meaningful effect on the composition of the fleet until, coincidentally, the Ohio Replacement Program is essentially completed in 2035. This is a point that Captain Hughes explicitly acknowledges and addresses (and one that Captain Barber recognizes but does not address), but, based on the Navy’s acquisition history, the former may be optimistic about what is achievable in 10–20 years. 6
Huntington Ingalls – A rigger oversees a small-unit flip during construction currently underway on the second Gerald R. Ford-class aircraft carrier, the future USS John F. Kennedy (CVN-79) at Newport News Shipbuilding. “In 15 years – 2031 – the Navy will only have eight new combat ships of an entirely new design,” including three Fords.
Keep older ships in the fleet. A less time-intensive alternative to new ship designs or fleet architectures would be to modernize older ships and keep them in the fleet. But this approach has its own problems. Paradoxically, the Navy is already doing this to a large extent, so it is not clear that more can be done, but also historical experience suggests that the service dislikes doing so. Over the past 20 years, senior Navy leaders have extended the service lives of more than 100 submarines, destroyers, and amphibious ships relative to their original design lives. At the same time, the Navy retired dozens of ships that had many years of useful service life remaining, rather than purchasing slightly fewer new ships to pay for keeping the older ships in the fleet.
Specifically, in the early 2000s, the Navy increased the service life of the Ohio -class ballistic-missile submarines from 30 years to 42. If that had not been done, we would have debated the merits and means to pay for the Ohio replacement more than a decade ago, when the United States was fully engaged in two wars in Afghanistan and Iraq. Similarly, the service life of Los Angeles –class attack submarines was increased from 30 years to 33. The Navy now assumes its large-deck amphibious-assault ships will serve for 43 to 45 years, which is up from 40 years. And since the release of the 2009 shipbuilding plan, the Navy has assumed its Arleigh Burke –class destroyers would serve in the fleet for 40 years, rather than 35 years in earlier plans, which is up from the original design life of 30.
Extending the service lives of these ships further is impossible in some cases and questionable in others. The submarines will be at the limit for the number of cyclings (submerging and surfacing) that their pressure hulls can tolerate, and the energy in their reactors will be exhausted. Conventionally powered surface ships, however, could in theory be upgraded if the Navy chose to do so. Properly maintained, conventional hulls can last for many decades. Ships that were retired from the U.S. Navy and sold or transferred to other countries often serve for decades longer as a result. But at a certain point, a ship that is still useful in a South American or Asian navy would no longer be valuable to the U.S. Navy, because physical limitations may prevent a modernization of her combat systems to perform high-end missions. Further, keeping older ships in the fleet even longer would require the Navy to modernize combat systems and fully fund maintenance programs. But budgetary constraints and long, frequent deployments have made it hard for the service to do so. Thus, if it is not clear that Burkes can serve for 40 years, it seems even less likely they could serve for 45 to 50 years performing missions the Navy would find valuable.
At the same time the Navy was extending the service lives of some ships, it was retiring others well before the end of their design lives. In the late 1990s through the mid-2000s, the Navy retired the entire class of Spruance destroyers. To keep those ships in the fleet the Navy would have had to spend money on improving their material condition as well as upgrading their combat systems. It also would have cost money to continue to operate those ships. But a decade later, the surface-combatant force is overworked with long deployments because there are insufficient ships to meet the demand. In addition, the original plan was to retire the Oliver Hazard Perry –class frigates sooner and keep the Spruances around, but that decision was reversed because it was cheaper to operate the smaller ships. Relative capabilities apparently did not figure strongly in the decision.
Similarly, the Navy retired 17 Los Angeles –class attack submarines at an average age of 22 years, rather than pay to refuel those boats and keep them in the fleet. Paying for all 17 refuelings would have cost less than the price of two new Virginia -class submarines. Again, the Navy would have had to budget resources to operate those ships, but at about $40 million per submarine per year, that was not an insurmountable obstacle.
And more recently, the Navy proposed to retire seven Ticonderoga -class cruisers and two amphibious ships to help conform to the budgetary caps of the Budget Control Act, rather than reduce new ship purchases further. Congress intervened, however, directing the Navy to keep those ships in the fleet and provided additional appropriations to do so. But if the Navy had had its way two years ago, the fleet today would number 264 ships. In that event, the strain on large surface combatants and amphibious ships, which now routinely deploy for seven to ten months, would be even greater.
Size? Capabilities? Both?
One way for a policymaker or anyone interested in naval matters to think about these issues is to figure out what your objective is. Do you care most about the size of the fleet? Or are the capabilities of the fleet more important? Of course, both are important. But the tension between size and capabilities is in many ways a proxy for the tension between the Navy’s day-to-day responsibilities and its high-end warfighting requirements. In an unendingly tight fiscal environment, a larger Navy is one that is better able to provide overseas presence and perform the many, varied peacetime missions that our naval forces are routinely called on to conduct—without overly stressing the ships and crews. 7However, ships with the high-end warfighting capabilities that would be needed in an unlikely, but far from impossible, future conflict with a peer or near-peer competitor are expensive. The Navy cannot afford to build as many of them as it would like under historical funding levels.
If this seems like a daunting set of challenges for shipbuilding, that’s because it is. Yet, it may be possible that a little bit of everything could close the gap. If the Congress can shift a fraction of 1 percent of the defense budget toward shipbuilding, if improving acquisition can squeeze a fraction of 1 percent of the defense budget toward more shipbuilding, and if the Navy invests in some of its older ships to keep them in service, then perhaps it can step off the path toward a fleet of 237 ships that history says it is on. But that combination of outcomes would be difficult to achieve.
Dr. Labs, writing here as a private citizen, is Senior Analyst for Naval Forces and Weapons at the Congressional Budget Office. He specializes in issues related to the procurement, budgeting, and sizing of the forces for the Department of the Navy. Dr. Labs has testified before Congress several times and published numerous studies under the auspices of the CBO as well as a number of articles and papers in academic journals and conferences.
1. Report to Congress on the Annual Long-Range Plan for Construction of Naval Vessels for Fiscal Year 2016 (Washington, DC: Department of the Navy, March 2015), http://tinyurl.com/ocrqtfc [8] .
2. Congressional Budget Office, An Analysis of the Navy’s Fiscal Year 2016 Shipbuilding Plan , October 2015, www.cbo.gov/publication/50926[9] .
4. Ronald O’Rourke, A Shift in the International Security Environment: Potential Implications for Defense—Issues for Congress , Congressional Research Service, 20 November 2015,www.hsdl.org/?view&did=788858 [11] .
5. CAPT Arthur H. Barber, USN (Ret.), “Rethinking the Future Fleet,” U.S. Naval Institute Proceedings , vol. 140, no. 5 (May 2014), 48–52. CAPT Wayne P. Hughes, USN (Ret.), The New Navy Fighting Machine: A Study of the Connections Between Contemporary Policy, Strategy, Sea Power, Naval Operations, and the Composition of the United States Fleet , (Monterey, CA: Naval Postgraduate School, 2009). See also his “A Bimodal Force for the National Maritime Strategy,” Naval War College Review , vol. 60, no. 7 (Spring 2007), 29–47.
This post originally featured on theCDA Institute, and is republished with permission. You can read it in its original form here.
CDA Institute guest contributor Ryan Dean, a PhD candidate at the University of Calgary, offers a reminder on the dangers of inflation in Canada’s defence procurement efforts.
A good portion of our future navy has been sunk on the drawing board by inflation.
Inflation is an economic term that encompasses all the variables that lead to a general price increase in a good or service. In the case of warships, inflation includes everything from technical issues related to the design of the ships to increases in the wages of the shipyard workers who build the ships. The longer a budget takes to be spent, the less that budget can buy.
Military inflation rates have a voracious appetite and can eat through capital budgets far faster than their civilian counterparts. American warships have historically inflated at an annual rate of 9 to 11 percent. The National Shipbuilding Procurement Strategy (NSPS), modeled on American shipbuilding practices, could suffer from even higher inflation rates as we are dealing with the additional time and costs of resurrecting a shipbuilding industry and we do not enjoy the same economies of scale as our southern neighbour in sustaining this strategic industry.
Long delays between the allocation of budgets for a class of warship and their actual construction allows for high inflation rates to halve these budgets. This has already happened with the Joint Support Ship (JSS) and the Arctic Offshore Patrol Ship (AOPS) procurements. It is now happening with the Canadian Surface Combatant (CSC) Project.
The time invested in designing the JSS to be a highly capable platform backfired. $2.9 billion was budgeted in 2006 to build three replenishment vessels by 2012. Internal pressure for a very ambitious ship led to sealift and command-and-control ashore capabilities being added to the original refueling and resupplies tasks of the proposed vessels. Three “big honking ships,” to borrow the term introduced by General Rick Hillier, with those capabilities could not be delivered within budget and the government rejected bids in 2008. The NSPS effectively pushed things back until 2011, at which time the procurement resumed. In 2013 the “off the shelf” German designed Berlin-class, capable of refueling and resupplying but not sealift and command-and-control, was selected as Canada’s next replenishment vessels with construction beginning in 2016 and deliveries scheduled for 2019 and 2020. Instead of three of these vessels, now only two Queenston-class ships are promised. The negative effects of inflation resulting from years of delays have sunk one of our replenishment vessels on the drawing board.
The AOPS was announced in 2007. $3.1 billion was budgeted to build six to eight ships with deliveries starting in 2013. Based on the Norwegian Svalbard-class, much time and money was invested in attempting to increase the capabilities of the design, though it appears these efforts have largely failed. Time spent on this and the development of the NPSPpushed the AOPS delivery date back to 2018. As with the JSS, the years of delay allowed inflation to hollow out theAOPS budget. A report issued late 2014 by the Parliamentary Budget Officer (PBO) found that the AOPS budget could only afford four vessels at that point. In response, the government added an additional $400 million to the project and revised their official number of ships delivered down to five or six, though these numbers remain optimistic. Inflation has sunk nearly half the proposed AOPS.
$26.2 billion is budgeted to build up to 15 CSCs, at best a one-for-one warship recapitalization program to replace the Royal Canadian Navy’s destroyers and frigate fleet. Given that the AOPS was placed first in the NSPS construction queue, the first CSC will not be delivered for another 10 years with the rest following over a 20–30 year period. This affords inflation plenty of time and opportunity to do its worst. A2013PBO report and recent news reports draw attention to this fact, with inflation placing nearly half the future CSC fleet in jeopardy. The financial situation is so grim that, as a cost saving measure, there has even been a proposal to start cannibalizing systems from our current fleet with which to outfit our future fleet.
The thrust of this short piece is that we must stay aware of the negative effects of inflation in our military procurements. Delays come with significant costs. In the cases of the JSS and AOPS, the costs are fewer and less capable ships.
How can inflation be addressed, aside from cutting numbers or capabilities to stay within eroded budgets? The best way is speed, something to keep in mind regarding the CF-18 Replacement Project and proposals by the Opposition parties to restart an open bidding process. Would any benefits that could result from pressing the reset button on that procurement program again outweigh the high costs of additional time and inflation? Similarly, robbing the CF-18 Replacement Project to pay for the CSC Project would only magnify the problems of the Royal Canadian Air Force’s recapitalization due to inflation. However, in the case of the CSC, speed is not an option due its place in the NSPS shipbuilding queue.
The other way to address inflation is to simply buy back time by increasing capital budgets. The Trudeau-era’s Defence Structural Review did this, increasing the military’s capital budgets which led to the purchases of the CF-18s and the Halifax-class frigates in the 1980s. This has historically been something that Canada has been adverse to do but times could be changing. As noted above, the AOPS budget was increased late last year by $400 million despite constraints on across the board federal spending. Additional monies will preserve not just CSC numbers, but their capabilities as well.
Ryan Dean is the winner of the 2015 Canadian Naval Memorial Trust Essay Competition and is a PhD candidate in the Department of Political Science, University of Calgary. (Image courtesy of the Royal Canadian Navy.)
