Navy Strategy for Buying New Sub Wastes $Millions

Issue Brief

Here’s a quick quiz to test how much you know about the Navy’s role in the war on terrorism. Which category of warship — aircraft carriers, destroyers or submarines — has seen the greatest surge in operational requirements since 9/11? Probably carriers, right? Wrong. The answer is submarines. Demands on their time have increased by a third since the attacks. The reason you don’t know that is the same reason Al Qaeda doesn’t: the subs are engaged in clandestine intelligence gathering for the CIA and regional commanders.

You don’t need to know the details of what the subs are doing in the shallow waters of Southwest Asia to recognize this represents a problem. Two years ago, sub commanders had to decline 365 days of intelligence taskings from national agencies because they were stretched too thin. Now the demand is up by a third. The Navy is trying all sorts of measures from more forward basing to increased optempo to a 25% increase in transit speeds (which uses up nuclear fuel faster) to cover demand, but it’s a losing battle for man and machine. The service doesn’t have enough subs, and most of the ones it has are based on a 30-year-old design.

Which raises an obvious question. Why is the Navy squandering hundreds of millions of dollars by delaying the use of multiyear contracts in buying its next-generation Virginia class of submarine? Making a multiyear commitment for several boats could save over $100 million per vessel by facilitating efficient planning and ordering of material. The Navy says it wants to wait until the lead ship is delivered, but that’s kind of dumb: it’s still ordering a new ship every year, it just isn’t getting the benefit of doing so efficiently.

When you do multiyear funding of several ships, the money is pooled rather than segregated (or “stovepiped”) for each individual ship. So contractors can order ahead, in quantity, to achieve huge savings. The Navy’s current approach is a windfall for contractors at taxpayers’ expense, because it guarantees each sub will be built and outfitted at maximum cost. There’s no reason for such waste. Virginia-class construction has been a model of success compared with the earlier Seawolf and Los Angeles classes, and there are no alternative sub programs waiting in the wings.

The Navy needs to learn a lesson that Air Force Secretary James Roche never tires to citing about the importance of cultural change in the way the government does business. He points out that the government had $40 billion to buy the B-2 bomber. For that amount it could have had 132 planes. It got 21 because it did such a lousy job of running the program. If the Navy makes a multiyear commitment to buy five subs over five years, it can save $90 million per boat. If it commits to seven, it can save $115 million. And if it commits to eight, the eighth boat is free. So why is the Navy waiting?

-Loren B. Thompson is Chief Operating Officer of the Lexington Institute and teaches in Georgetown University’s Strategic Studies Program, where among other things he has taught nuclear strategy.