Navy Fleets Unable To Fix $500M Ship Maintenance Shortfall On Their Own
The Navy fleets have a $500-million ship maintenance budget shortfall leftover from last year that they cannot pay for on their own. Any existing budget slack is already stretched too tight – meaning that $500-million shortfall will likely be pushed into the next year, U.S. Fleet Forces Command officials told USNI News.
The Pentagon budgeting process forces Navy leaders to predict their spending needs two years out – and a lot can change in two years. Previously, though, there was enough margin in U.S. Fleet Forces’ other accounts – ship operations, air operations and combat operations – to help cover unexpected cost increases in the ship maintenance account. Now, USFF executive director and chief of staff Mark Honecker said, there is little to no slack in the fleet’s budget – so the combined $500-million shortfall in ship maintenance funding U.S. Fleet Forces Command and U.S. Pacific Fleet faced at the beginning of Fiscal Year 2016 has barely shrunk, forcing the two organizations to search higher up the chain of command for money or continue the cycle of postponing maintenance work.
“What’s happened this year that made it a little more challenging is, we’ve gotten much better at pricing out our flying hours account, models have gotten better on the ship ops account, and so those margins that we had, they’re gone,” he said. “And so in previous years we would have been able to address these shortfalls and not defer these (maintenance) availabilities within our own account, but this year’s been a little bit different because we got better at models and then we also took a couple-hundred-million-dollar hit in our flying hour account. So those margins are gone now to solve our own problems.”
“Each year we do have a shortfall, each year we do manage the shortfall,” he continued, but “as budgets get tighter and margins go away, we’re unable to do that just within the fleet accounts, and we have to raise it up a few levels and see where we get resources elsewhere. But even Navy overall, there’s very limited resources and flexibility because there’s shortfalls in other accounts too.”
This year, it appears that without assistance from the Defense Department or Congress, Fleet Forces and PACFLEET will have to push that shortfall forward by deferring the maintenance availabilities of four surface ships and an attack submarine into FY 2017.
Rear Adm. Richard Berkey, U.S. Fleet Forces Command’s director of fleet maintenance, told USNI News that this fiscal year has played out very differently than the original plan called for. Planning for FY 2016 started in the fall of 2013, and several kinds of assumptions – on operational needs, the shipyard workforce, work package scopes and more – have proven wrong.
For starters, Fleet Forces and PACFLEET started the year at a combined $520 million in the hole in the ship maintenance accounts – $76 million and $444 million, respectively, Berkey said.
Fleet Forces’ shortfall was due to one simple event: the attack submarine USS Montpelier’s (SSN-765) interim dry docking period was moved from a public yard, Norfolk Naval Shipyard, to a private yard.
“[General Dynamics] Electric Boat won that contract, and when they won that contract their bid was $76 million higher than what we had anticipated,” Berkey said, noting that it wasn’t unusual for the private yard bid to be higher than the original government estimate. However, the contract was awarded after the program objective memorandum (POM) planning two years ahead of the start of the fiscal year, and also after the detailed budgeting process that starts one year out, creating a FY 2016 bill that wasn’t budgeted for.
The $444-million shortfall at PACFLEET, on the other hand, was much more complex.
The biggest factor was that many availabilities took much longer than anticipated, not due to unexpected maintenance work but rather because modernization work suddenly started driving schedules. “Modernization, in the past, has generally not been a driver for schedule in availabilities – they would have been specific to particular parts of the ship, or particular machinery, or some capability like that. We’re now getting into modernization that really takes the ship apart completely,” Berkey said, citing the Consolidated Afloat Networks and Enterprise Services (CANES) as an example. The scope and duration of a CANES installation is now well understood, he said, but “they didn’t know until between that budget process and the beginning of the year.”
Additionally, three submarine availabilities were moved from public shipyards into private yards, which costs more. A fourth submarine was moved from the Pearl Harbor Naval Shipyard and Intermediate Maintenance Facility to the Portsmouth Naval Shipyard San Diego Detachment, which was more expensive but was necessary due to workforce imbalance issues, Berkey said.
The Littoral Combat Ship class has proven more expensive to operate and maintain than was predicted a couple years ago, Berkey said. “I don’t think that’s a secret, that’s a new class of ship and we generally have that for every new class of ship. It’s a little bit more particular on the LCS because of the sustainment model that we have, where we minimize the manning on the LCS with the idea that we would sustain it from the shore with contractors and those types of things. We continue to mature that model and to understand what those real costs are going to be. So we’ve done that with the LCSs out of San Diego, and now moving them to Singapore adds a little bit of complexity to that that we’re still getting our arms wrapped around.”
Workforce challenges at Puget Sound Naval Shipyard and Intermediate Maintenance Facility that “go back to the sequestration back in FY ‘13” led to delays in an availability for USS Nimitz (CVN-68) and pushed work from FY 2015 into 2016.
And finally, three maintenance availabilities were intentionally moved from FY 2015 to 2016 to deal with a budget shortfall at the time.
Berkey said Fleet Forces ultimately shifted some of its money over to PACFLEET to help address all those challenges – though ultimately the shortfall is about the same size now as it was at the beginning of the fiscal year in October, with Fleet Forces facing a $330 million deficit and PACFLEET a $160 million deficit. That combined total equates to about 6 percent of the total ship maintenance budget for the two fleets.
That the deficit hasn’t shrunk much over the last nine months isn’t for lack of trying, though. Berkey said the Navy had begun awarding firm fixed-priced contracts for surface ships on the East Coast in FY 2016 instead of the old multi-ship/multi-option (MSMO) setup. Preliminary data shows that costs are coming down, freeing up money for the Navy to spend on other emerging ship maintenance work. Fleet Forces was also on track to save in FY 2016 due to the aircraft carrier Gerald R. Ford (CVN-78) delivering in October instead of March 2016 and therefore pushing its selected restricted availability into FY 2017 – though that potentially creates a larger shortfall going into FY 2017.
However, the Navy will be facing a big unplanned bill this fiscal year when carrier USS Harry S. Truman (CVN-75) returns home from a deployment that was not only extended a month but was also essentially the second in a back-to-back deployment with only bare-bones maintenance work in between.
“What we’re seeing now with the actual testing of equipment prior to the availability, the additional steaming time Truman has, we’re seeing a lot more work now coming into that package,” Berkey said.
“That availability will be much bigger than we anticipated, starting in September.”
So despite an effort to dig out of the funding shortfall, Fleet Forces and PACFLEET find themselves having to push that deficit into the next year – via deferring the five ship availabilities – unless the Department of the Navy, Department of Defense or Congress step in and find the money to pay for that work in this current year.
“We’re still hoping that money can come in, and the beauty of the contract strategy that we use is that if we get money in time we can put money back on contract using FY ‘16 funds, but if we don’t then that requirement then moves over into FY ’17,” Berkey said.
“And when we go into that year, similar to what I said about PACFLEET where they had three availabilities that went from ‘15 to ‘16, there will be five availabilities that move from ‘16 into ‘17 in aggregate between the two fleets.”
Asked if money was the limiting factor or if other reasons may preclude the Navy from carrying out those availabilities this year, Berkey said, “if we were resourced this year, we could award the contracts for those maintenance availabilities, if we got it early enough.
“If we got a check written to us tomorrow, we could award those contracts and not bow wave that work into ’17,” he continued.
“It is executable if resources are provided early enough.”
Budgeting In The Future
Berkey said there are two reasons to be optimistic that, even as planning for air operations and ship operations has gotten more accurate over the years, planning for ship maintenance will become more accurate too to avoid some of the problems PACFLEET saw going into this fiscal year.
First, the Surface Maintenance Engineering Planning Program (SURFMEPP) is already doing a better job of predicting the maintenance needs of specific ship hulls and should continue getting more accurate over the next few years.
SURFMEPP, which was stood up in 2010, has technical foundation papers that look at each class of ship and, based on where a hull is in its lifecycle and what type of maintenance availability it is approaching, outlines what type of work the ship is likely to need. SURFMEPP also maintains ship sheets for each individual hull, monitoring deferred maintenance and other things the engineering community knows about that particular warship.
Berkey said the Navy is about four years into using the technical foundation papers and ship sheets, so most of the ships have come in for an availability but not all have been in for a docking availability – which occurs every eight years or so. Once all the ships have been through a docking availability, where they are more thoroughly taken apart and inspected, SURFMEPP should have a very clear idea of the state of each ship and what to expect for future maintenance periods.
“I see the problem (of work package growth) reducing,” Berkey said, but “I don’t see it ever going away. There is always something that will surprise us when you take a pump off of a foundation that you couldn’t see before and then that foundation is eroding.”
The good news is that the Navy plans for 20-percent work growth when drafting the POM two years out, and they generally can stay within that margin.
“Where we see growth today is still on ships that have not gone through that process, that docking process that I was talking about before, and really getting into the tanks and understanding what those conditions are,” Berkey said, and within the next four or so years the Navy should have cycled all its ships through at least one docking period. He praised SURFMEPP as a “constantly improving process with the goal … to know exactly what the condition of the ship is so we can properly plan for it, order the material and be able to do the work on schedule and on time.”
A second positive for the future is that, after furloughs and hiring freezes in 2013, the workforce size has stabled out, though training continues to be a challenge.
“You can go back to the sequestration back in FY ‘13 where we stopped hiring for a while at the naval shipyards. We had pretty much recovered from the pure numbers of people we need back into the naval shipyards by the end of FY ‘15, but now there’s a training period,” Berkey said, noting that 20 percent of the shipyard workforce was hired within the last year and 50 percent within the last five years.
But the yards have created learning centers to help new hires become proficient at their trades faster, and Berkey said he was confident that cases of schedule delays and therefore cost increases due to workforce challenges – particularly like the case if Nimitz – will be less of a budgeting problem going forward.