A new Government Accountability Office (GAO) audit found the Navy needs to stick to cost and schedule best practices to maintain accurate estimates for the ballooning costs of its decades-long shipyard upgrade plan.
The Navy’s initial cost and schedule estimate for the Shipyard Infrastructure Optimization Program (SIOP), issued in February 2018, was a 20-year effort set to cost $21 billion. However, by March 2023 the Navy told GAO auditors that estimate was not accurate.
This new report, published June 28, noted the Navy has not developed a full cost and schedule estimate for the Shipyard Infrastructure Optimization Program (SIOP) and does not plan to have a cost estimate for the full effort ready until 2025, after each of the four government owned shipyards completes their own detailed infrastructure plans that identify specific projects for each facility.
The four shipyards include the Norfolk Naval Shipyard, Va.; Portsmouth Naval Shipyard, Maine; Puget Sound Naval Shipyard and Intermediate Maintenance Facility, Wash.; and Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility, Hawaii.
The service expects the plans for each federal government shipyard to identify new facilities, facilities and equipment requiring upgrades, and any modifications to lay out to improve efficiency. The Navy originally expected to finish all four plans by fiscal year 2022, but only the Pearl Harbor one has been finished by early 2023.
Until the 2025 program estimate is finished, the Navy plans to provide annual updates of the estimated costs of SIOP projects it plans to undertake over the next five years. The report said the Navy’s plan to use yard-specific plans is not without merit.
“The Navy intends to use the shipyard-specific plans to help generate cost savings and maximize maintenance speed. Preliminary analysis conducted by Pearl Harbor officials suggests that this may be possible. For instance, the Navy’s shipyard plan for Pearl Harbor estimated a potential savings of 85 days per maintenance period if the Navy implements all planned projects,” GAO said.
The audit also said the service reported optimization efforts at Pearl Harbor could end up with about $7 billion worth of efficiencies over time, once the decades-long optimization work is complete.
“The Navy’s preferred course of action presented in the Pearl Harbor shipyard-specific plan estimates it will take over 20 years and cost about $16 billion to conduct the necessary dry dock, facility, and capital equipment improvements at this one shipyard.”
The Pearl Harbor-specific plan led to increased costs overall due to expanding the scope of individual projects and finding projects left out of the initial cost estimate.
The $16 billion Pearl Harbor plan is $9.9 billion more than the initial 2018 estimate.
The report underscored the Navy’s estimated costs for Pearl Harbor alone increased “significantly—from an estimated $6.1 billion in 2018 to $16 billion in 2022.”
Facility infrastructure improvement costs at Pearl Harbor also increased by 122 percent from $5.4 billion to nearly $12 billion by 2022.
GAO said this indicates the “Navy faces challenges developing a reliable cost and schedule estimate for the full SIOP and its associated efforts.”
The Navy released the most recent five-year SIOP plan covering FY ‘24 – ‘28 in March, which estimated it will cost the service about $9.9 billion over the next five years to finish necessary planning and start construction on the initial SIOP projects. Over 40 percent of that work, $4.2 billion, is dedicated to just dry dock projects at Portsmouth Naval Shipyard and Pearl Harbor Naval Shipyard.
The Navy said project uncertainty, volatile commodity prices, and obtaining expertise in challenging project areas is complicating its ability to create the complete and accurate cost and schedule estimate.
GAO noted the price index growth from January 2018 to July 2022 increased by 29 percent for concrete, 148 percent for diesel and 116 percent for steel.
Navy officials also told GAO they do not have enough professional staff experienced in developing and executing dry dock projects, which are a large portion of the SIOP efforts.
“According to Navy officials, dry dock projects are unique due to their size, complexity, environmental challenges, and their location in working shipyards. The U.S. Navy last built a dry dock over 40 years ago. As a result, Navy officials have told us that they rely mostly on external designers, vendors, and construction contractors to provide the skills to execute these projects.”
Officials told GAO that SIOP now overall requires 14 dry dock projects at an initially estimated cost of about $4.5 billion to ensure enough capacity for future aircraft carrier and submarine repairs. The April 2022 five-year SIOP update estimates the first two projects at Portsmouth Naval Shipyard and Pearl Harbor alone would cost over $5 billion.
Navy officials told GAO they are not yet sure which specific facility projects they will include in the overall SIOP because the Navy is still developing the shipyard-specific plans.
“Until the Navy completes the shipyard specific plans, Navy officials told us they will have gaps in the data they say the Navy needs to provide a complete and accurate cost and schedule estimate for the entire SIOP,” the report said.
While Navy officials told GAO they expect the overall SIOP plans to be ready by the end of FY ‘25, they also told auditors these will only be “rough estimates” until the individual project-specific plans are done, too.
The report underscored how despite using many elements of GAO best practices the shipyard upgrade project is still encountering cost overrun issues.
Specifically, the Portsmouth Naval Shipyard dry dock project, the first and only key SIOP project underway as of January 2023, has had two major cost estimate issues because the Navy “did not adopt best practices that are designed to ensure the cost estimate is credible.”
GAO said the Navy’s cost sensitivity, risk and uncertainty analyses were based only on the preliminary design, without updates to reflect final design. Therefore, cost estimates increased from $528 million to $2.2 billion, “in part due to a lack of competition.”
The Navy’s schedule also did not accurately determine key tasks or document the available flexibility in its activities “without affecting the program’s finish date.”
The service told GAO it identified lessons learned from the Portsmouth example to improve future SIOP projects: increase contractor competition, improve coordination with subject matter experts in the early stages of planning and improvements to streamline construction.
Ultimately, GAO concluded that “by ensuring the Navy follows best practices for cost and schedule estimating for all key SIOP projects, the Navy could reduce the risk that it might request too little funding to achieve its desired outcomes or experience schedule slippages that could adversely affect its ongoing maintenance mission.”
The report made three recommendations that the service concurred with: the Navy Secretary should ensure SIOP Program Management Office update the cost sensitivity, risk and uncertainty analyses of key SIOP projects throughout the design process, the program office should document its use of different methods to cross-check high-value cost elements of future key SIOP projects and the office use best practices for well-constructed schedules when developing schedules for key SIOP projects.