Navy Struggles To Get A Handle On Skyrocketing Shipyard Upgrade Costs, Watchdog Finds

Navy Struggles To Get A Handle On Skyrocketing Shipyard Upgrade Costs, Watchdog Finds

Micaela Burrow on June 28, 2023

The U.S. Navy is struggling to nail down an estimate for the cost of two major shipyard upgrades as the expense of modernizing a Portsmouth, Maine, installation shot from $500 million to more than $2 million, a government watchdog found in a report published Wednesday.

The Navy says it can’t finalize a full cost and schedule estimate for the wide-ranging infrastructure program until 2025 because each of the two shipyards hasn’t submitted the specific projects for completion, the Government Accountability Office (GAO) report said. In addition, because the Navy did not conduct a risk assessment after plans for the first project at Portsmouth Naval Shipyard underwent a major revamp, it could find itself unable to maintain U.S. ships, the report stated.

Portsmouth was the only project underway as of January 2023, according to the report.

When the Navy originally established the “Shipyard Infrastructure Optimization Program” (SIOP) in 2018, it estimated the Portsmouth modernization project — encompassing repairs and upgrades on dry docks, equipment and construction facilities — would cost about $423 million, according to the report. By March 2020 the estimate ticked up to $715 million, and the Secretary of Defense approved funding.

But unexpected factors, including reduced competition between Navy contractors, fluctuating costs of labor and materials and a “lack of expertise” in dry dock projects, further inflated the cost to $1.7 billion by June 2021 and $2.2 billion the month after, according to GAO.

While the Navy conducted a cost and risk analyses for the early design approved in 2018, it did not run a new analysis after the design was revised in 2020 or get an independent cost estimate, according to GAO.

“The costs of the project changed significantly after that date as the scope of the project grew,” GAO wrote. “For example, the Navy acknowledged different construction approaches but did not model them as a risk, which the Navy later cited as a leading driver in the subsequent cost increase.

The Navy operates four public shipyards to maintain the U.S.’ entire fleet of aircraft carriers and submarines, but has allowed conditions at those shipyards to deteriorate, according to GAO. Failure to upgrade the Navy’s shipyards would further delay maintenance schedules for America’s major strategic vessels and submarines, allowing them to fall into disrepair.

Newer, more advanced craft are “vulnerable to flooding and seismic risks,” the report said. “Absent improvements, the shipyards will be unable to support about a third of the Navy’s planned maintenance availabilities for aircraft carriers and submarines through 2040.”

Aircraft carriers and nuclear-powered submarines form a cornerstone of U.S. deterrence strategy, reining in aggressive actions of hostile powers like China.

Portsmouth Naval Shipyard plays a critical role in the repair, maintenance and modernization of our @USNavy’s submarines. I enjoyed touring the facility and learning more about its support of the Shipyard Infrastructure Optimization Program. pic.twitter.com/RIzl2ic97P

— Deputy Secretary of Defense Kathleen Hicks (@DepSecDef) July 9, 2021

The Navy submitted a plan for upgrades at the Pearl Harbor Naval Shipyard in July 2022 at $16 billion, “an increase of $9.9 billion or 162% above the 2018 estimate,” according to GAO.

The Navy agreed with GAO’s recommendations in a response to the report’s findings but noted that the initial $21 billion estimate for the full SIOP deliberately excluded some factors and was intended to set a “rough” threshold.