The U.S. Navy isn’t making enough new vessels. Here’s what to do about it.
The U.S. Navy isn’t making enough new vessels. Here’s what to do about it.
T he U.S. Navy’s shipbuilding seems stuck in a new-construction and delayed-repair “doom loop” from which it can’t recover. Each year — despite steadily rising budgets for shipbuilding — the fleet shrinks and ages. Navy leaders blame the industry that builds ships; the industry points to long-term contracts that don’t flex with wages, inflation, and budgetary uncertainty.
But we don’t have time for finger-pointing. We must reverse this decline as soon as possible. China now boasts a globally present blue-water navy that is bigger than that of the U.S., with competitive tonnage and firepower. Its grey-hulled fleets are wreaking havoc in the Western Pacific. The U.S. Navy can’t keep the peace if it doesn’t have a comparable fleet.
Submarines highlight the problems across all types of ships. As the U.S. struggles to build new subs, existing ones are being stretched to their limit. 40 percent are out of commission, in Navy-operated yards for repairs needed to extend their service lives.
New construction is no better. According to the Navy’s shipbuilding review earlier this year, construction of Virginia and Columbia-class subs is as much as 36 months behind schedule. According to Eric Labs at the Congressional Budget Office the current state of shipbuilding is “terrible” — the worst in a quarter century.
Amid construction delays, an egregious backlog, and maintenance shortages, the Navy’s attack-submarine fleet is in disarray. Despite affirmations from many administrations that the Navy’s 66-attack-sub fleet is an absolute requirement, the fleet stands at just 49 subs today. According to the Navy’s long-range plans, it doesn’t expect to have 66 boats for 30 more years.
The Navy’s other submarine program, Columbia, is faring little better. The first ships in this new class — the Navy’s top acquisition priority — are similarly mired in delays and cost overruns.
Navy planners have long emphasized the need for a “1+2” build schedule to maintain the size and strength of the submarine fleet and offset planned retirements. This requires one Columbia plus two Virginia boats to be built each year. The progression of AUKUS, the trilateral security pact to supply Australia with U.K. and U.S. nuclear-submarine capabilities, only increases pressure on sub construction for the U.S. Navy. The initial expected transfer of existing attack subs to Australia — before that nation’s navy begins constructing its own — means that, to replace those subs in the U.S. fleet, the build rate must go up even higher, to one Columbia plus 2.33 Virginias each year.
And the U.S. is currently falling far short of these benchmarks. The first Columbia-class submarine is delayed. The Navy recently reported a build rate of just 1.2 Virginia-class boats per year, a full submarine short of the annual requirement to support AUKUS. This has created a multi-year backlog of orders worth “tens of billions of dollars,” according to the service’s comptroller.
The result is a shortage of submarines at sea, which raises the question: Can the Navy keep its promise of transferring submarines to Australia within the decade, in support of U.S. security interests in the Indo-Pacific, when China’s submarine fleet will outnumber the U.S. Navy as early as 2030?
While recent injections of much-needed investment from Congress have started to reverse this trend, the shipbuilding industry still faces significant roadblocks. The current contracts for the latest batch of Virginia and Columbia submarines were signed in 2017 and 2019. These multi-billion-dollar contracts, which fund construction, long-lead procurement, and service costs, are standard operating procedure.
But this contracting structure did not account for the unforeseen economic effects of the Covid-19 pandemic. Unsurprisingly, contractors are finding it difficult to meet the demands of 2017 in the economy of 2024. Throw in record-breaking and sustained inflation, major supply-chain disruptions, and workforce shortages, and prices have skyrocketed. None of these incurred costs are covered by construction contracts. Since their signing, the Consumer Price Index has increased 21.8 percent, while other inputs, like hourly manufacturing wages, have risen 17 percent. Key raw materials, like steel and iron, are up 28 percent.
These added costs mean that the shipbuilding industry cannot make significant investments without making current contracts untenable. For example, any wage investments companies make will have a direct cost impact on current contracts, which carry a period of performance well into the 2030s. Because labor accounts for nearly half of a submarine’s build cost, paying out the necessary wage increases to keep shipbuilding jobs competitive is not viable. The result has been, in some locations, a doubling of attrition compared with pre-Covid rates, and a significantly greener workforce.
The Navy and its industry partners can’t keep doing the same things and expecting different results. Innovative ideas are required to change how boats are bought, before the Navy buys more.
The Navy has historically been a pioneer in purchasing creativity. It was the first service to widely implement advanced procurement, a strategy that allocates funds upfront for long-lead production items essential to building complex warships. This approach allows the Navy to secure critical components — such as propulsion systems and specialized materials — well in advance of full program funding, minimizing production delays.
The result is that most warships, especially submarines and destroyers, rely on block buys, a contracting method in which a single agreement purchases multiple ships, locking in lower prices and providing stability to shipyards and suppliers.
Current sub agreements have two broad categories of labor costs, largely split 50/50 over the contract. The first is end-use labor (think wrench turning). The other half of costs goes towards service and support, which includes supervision, engineering, planning, supply-chain management, quality control, and system testing.
As currently structured, the full amount of funding for all the end-use and support costs required per submarine is allocated at one time and expended over the ensuing six to seven years. This method results in large amounts of available funding sitting idle each year.
The Navy differs from commercial industry in that it funds service and support costs for each submarine under construction in an upfront allocation which is consumed over the entire build span of an in-process ship. For example, that $25.3 billion contract for the Block IV Virginia-class subs was awarded in 2017, but has been consumed over the course of the last seven years.
To get out of the shipbuilding rut, the Navy should take two important steps. First, it should immediately change its submarine-contracting strategy to an annualized procurement of service and support costs for all nuclear-powered ships under construction, instead of procuring these costs per hull. Additionally, the Navy should work with industry to use already-awarded funds for workforce and infrastructure investments all agree are needed. This would transform existing funding that is waiting to be spent in the later years of the contract into an asset available for investment now. In what would be a positive change for Washington, this contract structure requires no new money to be authorized or appropriated.
Bringing the Navy’s sclerotic contracting practices more in line with commercial practices is overdue. It will allow immediate investment inside the yards, alongside pay raises for workers. Previous government-driven investments provided cash for initiatives largely outside shipyards, such as bolstering recruitment, workforce development, and supplier infrastructure.
If Navy bosses agree on this new construct and amend existing contracts, industry can work quickly to address issues such as higher wages, stronger retention, and new training, technology, and infrastructure. Similarly, the Navy benefits through increased buying power and a faster ramp to meeting current demand and improving laggard delivery rates.
This method doesn’t change how submarines are bought but rather how the shipbuilding industry can put awarded money to use. This means the end price for subs is unchanged. Ideally, smarter investments up front would increase economies of scale and decrease the final price tag for the Navy and the taxpayer.
Without innovative changes, it is unlikely America’s submarine fleet will reach its mandated size. Reform efforts that require no new dollars and free up funds now for investments and more efficient production later should be a no-brainer for everyone.