I took my 2001 Jeep Cherokee to the dealer recently for a 60,000-mile check-up. There was the standard package of items-brakes and coolant checked, engine inspected, basic stuff. The car was delivered to the shop and I waited for the inevitable call that would tell me that some things needed doing that I had not anticipated. Some of this work was safety related-worn brake pads and the like. I said fine, do it. However, I did not okay work falling into the category of potential problems downstream. I measured the risk, cost, and how long I would continue to operate that Jeep (my reputation is that I keep cars forever) and made the decision that the rest of the work could be deferred to a future date, hopefully a very distant future date.
This is not unlike what occurs when we repair ships here at BAE Systems Ship Repair. Ships, like cars, require maintenance check-ups and repairs, but on a schedule based on time, not (nautical) miles traveled. As with cars, there is a package of work planned in advance. And, yes . . . there are the phone calls.
Not long ago, one of our yards was well into its repair work on an aging, but still serviceable, amphibious ship when we received a call from the Navy.
"We are scaling back funding for ship repair," the voice on the other end of the line informed us. "Cut the following items from the work package . . ."
We were not happy. We had contracted to do a job, were doing it efficiently, as promised, and now we were being told there wasn 't enough money to finish the work.
One thought, not our first as it happens, was that the payment we were expecting was not going to materialize, at least not at the level we had anticipated.
Our first thought, though, was this: That ship shouldn't be going back to sea in the shape it's in.
What is to blame for this funding shortfall for maintaining ships of the line-in time of war no less?
Ship repair is in fierce competition with shipbuilding for scarce dollars. CNO Admiral Mike Mullen late last year set the goal of increasing the size of the Navy from 281 ships to 313 ships by 2020. To reach this goal, the New York Times reported, the Navy budget for shipbuilding would need to increase to $13 billion-about $5 billion more than the Bush administration requested for 2006. While the Navy will clearly work for increased funding for shipbuilding, there will also be internal efforts to close the gap between the money needed to achieve 313 ships and the administration's budget number. Costs in other accounts will have to be reduced. Two accounts widely mentioned are personnel (manpower) and readiness (ship and aviation repair, steaming and flying hours). Readiness, that means us.
The trade-off between and among these accounts can be risky business. Current year readiness must support the ongoing wars in Iraq and Afghanistan, while future threats must be assessed and dealt with in real terms with real equipment. Shifting readiness funds is usually a one-time event not repeatable year after year. That was the lesson learned from the 1970s, which led to the "hollow force" not corrected until the Reagan build-up of the 1980s. Are we poised to repeat this mistake?
The shifting of funds from the readiness account to the ship construction account is sometimes referred to as a "tax" on the former. The revenue "raised" is used to help pay for new ships. It is my belief that the tax makes no sense. It is large enough to create inefficiencies in the repair process, but too small to appreciably help the ship construction account. Also at issue is how to best manage the ship material readiness piece-specifically surface ship repair. What needs to be done so that both the condition and operational availability of the ship are maximized while cost is contained? Also, what inefficiencies to the ship repair process does a ship repair tax introduce?
It is important to explain the differences between ship repair and ship construction as background for answering these questions. It's more than they build 'em, we fix 'em. Shipbuilding is capital intensive. The physical plant is very large. The production process starts with the assembly of material and equipment. Critical to the process is the efficient fabrication and assembly of hull sections, followed by the outfitting of the ship. For maximum efficiency the shipyard is designed to, one, rapidly move the steel from receipt through the fabrication of hull sections and, two, ensure easy access to the spaces needed to install equipment and piping.
For repair, shipyards start with an operational ship. Drawings and work specifications are generally provided by the customer, meaning, almost invariably these days, the Navy. While shipbuilding entails production line methods and numerous repeatable processes, ship repair for the most part involves what we call "onesies." In other words, most repairs are unique to a specific ship.
Major differences between shipbuilding and ship repair are cost, complexity, engineering/design, and project duration. These are some of the reasons the size of the Navy's shipbuilding account is much larger than that for repair-and that the initial cost of building the ship is far greater than the annual cost of maintaining it.
The cost for repair is primarily a function of schedule, quality of work, and the adequacy and timelines of the job that needs to be done-the work package, as we call it. A major goal is to meet schedule and quality at minimal cost. Even when the initial work package is accurate, and sufficient money is on hand for the project, considerable skill is required to meet schedule and quality targets. These days, moreover, repair work packages are increasingly complex and schedules increasingly aggressive. This means work must be carefully sequenced, parallel production paths identified and pursued, and material available when needed. Invariably, however, you must be prepared for growth and/or new work to be added to the project.
Growth? New Work?
Growth refers to expansion of a job already authorized. As an example, consider a job that initially calls for opening and inspecting a pump or tank. If the inspection reveals the need to replace parts or rotted steel, this becomes growth work. New work means repairs not contained in the original work package. For example, a ship is preparing to go to sea after a maintenance period when a critical piece of equipment fails to operate. You have to fix it. Assuming this equipment was not part of the original work package, this is new work. Growth and new work introduce the so-called "mischief factors-such as unforeseen impact on other aspects of the job, cost overruns, schedule overruns, and poor quality, to name a few.
The need to limit growth and new work was a prime mover in the Navy's recent ship maintenance process improvement initiative. This initiative, in part, created maintenance teams to more precisely assess a ship's material condition and generate accurate work packages that would limit growth and new work and thus reduce the mischief factors.
If, however, a work package is sized to only the money available rather than what's really needed to put the ship in full operational condition, then growth and new work cannot be avoided. The amount of money "really needed" to ensure the safe and proper operation of a ship is determined by the Navy. When funding is not available for a given ship, then growth, new work, and associated inefficiencies will result.
The single most important method for limiting growth and new work is establishing a stable maintenance budget-one that funds all required maintenance while permitting a minimal, risk managed backlog. Again, the Navy defines "required maintenance." If funding is not available for work that needs to be done when the work package is first generated, then part or none of what is needed for a given job is authorized. This creates a maintenance backlog that must be managed in terms of risk. The risk is that work that has not been authorized will lie dormant in a benign state only to become malignant at the worst possible moment, as work that must be done before the ship can get safely underway. Naturally the cost to excise the malignancy well into the maintenance period far exceeds what the cost would have been had the work been authorized in the beginning.
The Navy's internal ship depot maintenance policy documents provide for a manageable backlog. A manageable backlog is one that contains low risk deferred maintenance items that do not directly support mission critical equipment. By its own calculation, the Navy has a depot maintenance backlog of approximately $400 million. This backlog is a result of prior year funding shortfalls and does, in fact, contain many items that do support mission critical equipment.
By fully funding its internal repair requirement the surface Navy could greatly reduce inefficiency in the process and its existing maintenance backlog. This, of course, argues against taxing surface ship repair funds to build new ships. Recall the magnitude of ship construction cost versus cost for repair. The cost of a new DDG-51 guided missile destroyer is $1.2 billion; the cost to repair/maintain it is approximately $5 million per year. A cumulative shift of $100 million from the surface ship maintenance account to the shipbuilding account buys 10% of a DDG-51 or perhaps half of one littoral combat ship (LCS) sea frame. Is one LCS sea frame worth introducing widespread inefficiency, and possibly unsafe material conditions, into the entire surface ship maintenance program?
If taxing readiness accounts to augment the shipbuilding account in time of war is too risky, what is the Navy's alternative? How can we build the additional ships needed to address emerging threats such as China's blue water naval force while maintaining a ready, forward deployed U.S. Navy?
Leaders Must Lead
Consider the following chart as a starting point for answering these questions.
The chart chronicles the percent of Gross Domestic Product (GDP) that the United States allotted to defense from 1940 to 2006. The deadly attack on Pearl Harbor on 7 December 1941 is the sharpest spike on the chart. Much more modest increases are shown for the Korean and Vietnam wars. The Reagan buildup of the 1980s barely registers as an increase, a mere blip above the five percent mark. Notice the absence of any significant hike following the September 2001 attack on the World Trade Center and Pentagon. We claim to be at war; this chart says otherwise.
Even more telling are projections through 2024 by the federal Office of Management and Budget. OMB projects the smallest percentage of GDP for defense at any time in our history, which bodes ill for increasing the Navy's ship inventory to 313. All this while we face real threats from North Korea, China, possibly others. Such a small expenditure to preserve our freedoms is insufficient and undermines the sacrifices made to win and protect those freedoms. Providing adequate funding for national defense is akin to the fundamentals of football. A team that cannot block or tackle loses games; a country that cannot adequately fund its national defense loses its freedoms.
Simply put, this is not a time to "do more with less." The result will be marginal readiness for current wars and too few ships to meet future threats. It is a time for the Navy to take the lead, in conjunction with our political leadership, in shaping a national consensus to spend a greater percentage of our resources on defense, starting with a robust shipbuilding program-and to do so before it is too late. An additional two percent of GDP for national defense is a small sacrifice, particularly when weighed against the high price paid by so many Americans to preserve our freedoms over more than two centuries. This is no easy task, but it's a challenge worthy of our current Navy leadership.
Vice Admiral Krekich is president of BAE Systems Ship Repair, the nation's largest non-nuclear ship repair operation. As a flag officer he served on the Joint Staff, as a battle group commander, and as Director, Surface Warfare on the CNO's staff. His final Navy assignment was Commander of Naval Surface Forces, U.S. Pacific Fleet, in San Diego.
Captain Henning is the director of Government Business Development for BAE Systems Ship Repair. He spent 26 years in the Navy where his assignments included tours as chief engineer in a conventional aircraft carrier during the first Gulf War and in a pressure-fired frigate during the Vietnam War.