Bloomberg the Company & Products

Bloomberg Anywhere Login

Bloomberg

Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.

Company

Financial Products

Enterprise Products

Media

Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000

Communications

Industry Products

Media Services

Follow Us

Aircraft Carrier’s Rising Cost Prompts Lawmakers to Seek Audit

USS Gerald R. Ford
Photograph: U.S. Navy

Feb. 17 (Bloomberg) -- Leaders of the Senate Armed Services Committee asked Congress’s auditing agency to investigate the rising cost of the aircraft carrier USS Gerald R. Ford, the Navy’s most expensive warship.

Committee Chairman Carl Levin and Senator John McCain, the panel’s senior Republican, asked the Government Accountability Office in a letter yesterday to review the $40.3 billion program to build three carriers. They cited increasing cost overruns for the Ford, or CVN-78, the first of the ships.

“Despite a significant upfront investment in research and development as well as design and construction preparation, the cost of the CVN-78 construction has grown to over $12.3 billion -- an increase of more than 10 percent compared with initial estimates for the ship,” Levin, a Michigan Democrat, and McCain of Arizona wrote in the letter seeking the inquiry.

The estimated cost increase exceeds by about $500 million a congressionally imposed cap on the initial carrier, which “should force the Navy to terminate the contract, modify the ship’s planned capabilities or ask for legislative relief” from the cap, they wrote.

The Ford is scheduled for delivery in September 2015.

“Cost increases of this magnitude may have far-reaching consequences” on the Navy’s ability “to execute the rest of its shipbuilding plan,” the senators wrote. The GAO published its last full report on the CVN-78 in August 2007.

Navy spokeswoman Captain Cate Mueller declined to comment on the letter.

Huntington Ingalls

The Ford is being built by Huntington Ingalls Industries Inc. under a “cost-plus, incentive-fee” contract in which the Navy pays for most of the overruns.

Even so, the service’s efforts to control costs are putting the company’s $579.2 million profit at risk, according to the Navy. The Navy said Huntington Ingalls of Newport News, Virginia, is being docked millions of dollars in profit because of the cost overrun. It didn’t disclose Huntington’s share.

Huntington Ingalls is continuing “to see improvements in our performance” on the carrier, Beci Brenton, a spokeswoman for the company, said in an e-mail this week.

Documents submitted this week with the Pentagon’s fiscal 2013 budget proposal indicate that the Navy’s cost estimate for the second carrier in the group, the John F. Kennedy, has also grown about 12 percent in the last year to $11.4 billion from $10.2 billion.

Kennedy Delay

The Navy has stretched construction of the Kennedy by two years, with a design and construction contract to be awarded in 2013.

“It would be helpful to know what portion” of the JFK cost growth “is due to added inflation being incorporated into the ship’s cost as a consequence of the apparent two-year stretch-out in the ship’s construction schedule, and what portion is due to other causes,” said Ronald O’Rourke, naval analyst for the non-partisan Congressional Research Service, said in an e-mail.

Separately, the development contract held by General Atomics for the electro-magnetic aircraft launch system to be used on all three carriers has risen at least $289 million, to $435 million, in three cost increases since the initial contract award in 2004, according to Navy figures.

The Navy received a fourth cost overrun estimate from San Diego-based General Atomics in May that the service continues to assess, Naval Air Systems Command spokesman Rob Koon said in an e-mail.

General Atomics spokeswoman Nancy Hitchcox didn’t immediately return an e-mail requesting comment.

$811 Million Increase

The Navy said this week that it increased the cost of the Huntington Ingalls design and construction contract for the Ford by $811 million, or about 16 percent, over its $5.16 billion target price.

The Navy said in budget documents that it will add $449 million in fiscal 2014 and $362 million in 2015 to cover the overrun.

In addition to the Huntington Ingalls design and construction contract, the ship’s cost includes assembly, the electro-magnetic aircraft launch system, government-furnished equipment such as its nuclear reactor and Raytheon Co.’s dual-band radar for aircraft search and tracking.

An additional $3.7 billion is for research that applies to all three vessels in the class, the Navy said.

Levin and McCain asked the GAO to assess the likelihood for the discovery of deficiencies requiring critical redesigns.

The Congressional Budget Office wrote in a June report that the greatest cost increases typically occur when a ship is more than half-finished. The Ford design contract is about 42 percent complete.

Huntington Ingalls became a separate company last year when Northrop Grumman Corp. spun off its shipbuilding unit.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.