Fun with Defense Contracting

| Mon Dec. 5, 2005 1:32 PM PST

David Cloud's report in the New York Times today about the Navy's plans for future shipbuilding is interesting for two reasons. First, there's the surface reason: the Navy appears to be scaling back its plans for a war with China, and adjusting its procurement budget so that the service can play "a greater role in counterterrorism and humanitarian operations." A while back, Defense Industry Daily did a profile of the Littoral Combat Ships that seem to be the centerpiece of this new look, so that gives some of the flavor here. But Cloud's report is also of interest because you can detect undertones of the Navy's growing budgetary conflict with Congress.

The Navy has been slowly losing the battle to preserve its funding over the past few years, partly because both the Bush administration and many members of Congress don't seem to believe that ships and submarines are wholly relevant to the so-called global war on terror, and partly because shipbuilding has become hideously expensive. The Navy's FY2006 budget requested only four new ships, scaled back from the six they were planning to request the year before, and well below the eight per year that naval officials would reportedly prefer. (Figure it this way: If ships have an average life span of 35 years, then the current fleet of around 281 ships will need to buy 8 new ships every year to maintain itself.)

But Congress has had other ideas, and in March asked the Navy to provide two future shipbuilding plans: one, for 325 ships, seems to be the one the Navy is telling the Times about, for obvious reasons. The other was a much smaller plan to pare the current fleet down to 260 ships by 2035. The CBO compared the two plans here: one major difference is that the 325-ship plan has far more "surface combatants," which, for anyone less-than-convinced about the coming war with China or Russia, probably look a bit less than necessary. Judging from recent defense budget debates, Congress appears to be leaning closer to the 260 ship, with the Senate as always being more generous with spending than the House.

The main concern seems to be that shipbuilding costs are ballooning far beyond what anyone envisioned. Not surprisingly, the Soviet-style command economy hasn't worked very well for the defense industry. The Navy had earlier proposed, as a way of keeping its costs down, that two shipyards compete for the right to build all DD(X) destroyers, rather than let the two facilities "share" production, without any incentive to compete. Naturally, twenty members of Congress opposed the idea, since competition would defeat the "share the wealth" mentality that supports inefficient contracts. At least this year, the House tried to put a stop to some of these inefficiencies by imposing cost ceilings on future ships, but ultimately these debates often come down to which members of Congress need contracting jobs for their constituents, and how powerful those members are. (After all, the supposedly "budget-conscious" House also marked up an additional $2.5 billion for two DDG-51 destroyers.)

Worth noting, though: it's always a leap of faith to try to guess whether Congress is really scaling back the procurement budget, as it appears to have done for FY2006. The Center for Strategic and Budgetary Assessments has pointed out that many procurement costs may have just been shoved into the future. A favorite trick is "incremental" funding, where Congress appropriates only part of the money needed to complete a ship, figuring that the rest will get added on in later years (after all, if the Navy only needs a couple million more to finish up a nuclear submarine, who's going to say no?).

Back to Cloud's original story, though it's also not exactly clear whether the Navy really needs to build 32 new ships, at a cost of an extra $13 billion a year, by 2020. I certainly don't know, but it's a question worth asking. A June 2005 CRS report on naval transformation lays out some of the issues being debated here. On the one hand, the Navy has been trying to change in a lot of ways you'd expect, so that it can do things like operate in coastal areas and improve its response time. This certainly came in handy with the Navy's rapid response to the tsunami in Indonesia last year, a move that probably did as much for national security as anything else the military's done since 2002. On the other hand, the Navy seems to be placing a fair bit of emphasis on "strategic defense against ballistic missiles," which usually leads to some dubious spending decisions.

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