The RAND Corporation has been studying naval shipbuilding and related industrial bases in the United States, the United Kingdom, Europe, and Australia for the past two decades. Over that time, we have identified lessons in four strategy areas—people, facilities, enterprises, and scheduling—that, when taken together, can help the shipbuilding industry stay vital and healthy over both the short and long terms. By thinking through and acting upon these lessons, the Navy and U.S. shipbuilders can shape and drive their environment rather than have it defined by Congress, the Office of Management and Budget, or the Office of the Secretary of Defense and potentially lose in efficiency and capability.
The lessons underscore the fact that many of the skills and capabilities in the shipbuilding industrial base are critical to U.S. national security, highly perishable, and difficult to replace or reconstitute. Countries that have not paid close enough attention to these lessons have seen their shipbuilding industrial bases atrophy. It is crucially important that decision-makers inside and outside government address these industrial base challenges and develop plans to preserve vital capabilities that might otherwise be lost.
In 2011, RAND published a series of reports that examined lessons from submarine shipbuilding in the United States, the U.K., and Australia.1 One program, the U.K.’s Astute program, exemplifies a complex weapon system whose development and production problems provide an important source of industrial-base and workforce lessons.2
These lessons arose in part from a gap in submarine development and production that the U.K. experienced after naval shipbuilding budgets declined in the late 1980s with the end of the Cold War. As in the United States, the funding drops in the U.K. forced major restructuring in government and industry. Nearly a decade went by between the delivery of the last submarine of the previous class and the start of the first boat of the new Astute class. At the Barrow facility, the United Kingdom’s single nuclear submarine construction site, large layoffs and losses of experienced workers occurred. The company’s submarine design and manufacturing facility remained open only by pursuing surface ship work (and unsuccessfully trying to enter into some commercial programs).
The Ministry of Defence (MoD) also experienced personnel reductions during that period, with many technical and program-management staff exiting from the government’s submarine community. To compound the matter, the MoD pursued a new strategy in which it delegated most responsibilities for weapon-system acquisition to industry, following a more commercial-like method that was similar to the United States’ total system performance responsibility approach. The resulting gap and loss of expertise produced numerous technical, schedule, operational, and cost problems in the Astute program that persist today. These challenges were so significant that the United Kingdom had to use U.S. industry to help it get the program moving forward.
The Astute case provides many workforce lessons, but it is not the only shipbuilding program we can learn from. For example, managing personnel in the United States’ private and public shipyards poses similar challenges.3 The jobs that comprise the yard’s work can vary from a few thousand man-days to a few hundred thousand and can last from weeks to years. Allocating and scheduling projects that vary so widely in scope and duration cause “peaks” and “valleys” in the demand for skilled workers, and makes it difficult to keep fairly uniform levels of work in all trade-skills in all of the shipyards. To manage this variability, the shipyards employ a variety of workforce strategies: overtime, temporary labor, contractors, and workforces that are multi-skilled and can move between activities.
The body of our 20 years of research points to six common themes related to personnel-management:
• A core level of the workforce (technical and production) must be preserved in order to maintain an effective capability. It should represent the variety of skills required to design and build a submarine.
• Reconstituting a workforce is costly, has a long time horizon, and is inherently inefficient.
• Level-loading workload is important to maintain shipyard efficiency and must be addressed at the specific skill level.
• Domain experience matters. When U.K. submarine work restarted, engineers from the prime’s aerospace division initially supported the program. While technically competent, these engineers lacked the specific domain knowledge needed to effectively design a safe and reliable system. In addition, during the competition portion of the development, the MoD opened bidding to producers that had little experience in submarine design and manufacture. This resulted in prices that were unrealistically low.
• The government should resist cutting civilian and military personnel who oversee programs in order to achieve near-term budget savings. In the 1990s, the MoD lost much of its ability to technically oversee the Astute program and was not able to recognize problems until very late. Some critical oversight responsibilities, such as certifying that a submarine is safe to operate, are inherently governmental.
• A smaller, permanent workforce is not always more cost effective if overtime and other, more costly labor must be employed to accomplish work. For example, workload planning for maintenance personnel often has been under-resourced, resulting in costly overtime. Shipyards can sometimes reduce costs by hiring more permanent employees and using less overtime.
Facility Closure Protocol
In 2001, RAND conducted a case study of the closure and re-opening of the Philadelphia Naval Shipyard.4 The objective of the study was to identify the costs and economic consequences of closing and reusing the public shipyard. The shipyard has struggled to be a commercial success, and there are some interesting parallels to cases where the government may need to consider closing public or private shipyards during a downturn. The key lesson was that it is relatively inexpensive to preserve and maintain equipment and buildings during a closure—on the order of tens of millions of dollars (not counting remediation costs). Although more should have been spent on preserving the dry docks and other heavy equipment (such as cranes), the costs connected with restarting production—mostly to refurbish and modernize the facility—were much more significant, on the order of hundreds of millions of dollars. So, the government can hedge in anticipation of expanded production in the future at a low initial cost for preservation and maintenance.
Improving Production Schedules
In 1996, RAND examined U.S. aircraft carrier production schedules.5 At that time, the plan to build CVN-77, the USS George H. W. Bush, would have resulted in a seven-year gap between new carrier starts–longer than any previous gap. This gap was imposed to fit other priorities in the Navy’s budget.
We found that it would be less expensive to start the construction of CVN-77 at Newport News two years earlier and stretch the build out to eight years rather than keep to the original plan for a seven-year gap between builds. Even though it was lengthier, this strategy was less expensive because it allowed Newport News to better utilize its existing facilities and personnel and avoid having to hire and train new workers.
In another series of reports looking at submarine design and production in the United Kingdom, we examined how to sustain capability over the long term.6 Gaps in design and production work in the 1990s led to the departure of experienced technical personnel and managers, leading to the erosion of skills to produce naval systems. A consistent and regular “drum-beat” production cycle would optimize the use of manufacturing facilities and help to maintain design and production skills.
These findings informed another study that we embarked on in 2003 for the U.K. MoD that examined the feasibility of its long-range shipbuilding plans.7 At that time, the United Kingdom had announced an ambitious program to design and build aircraft carriers, surface combatants, and submarines, much of which would have tapped the industrial base at roughly the same time. The discrete shipbuilding efforts may each have had a reasonable acquisition path, but when taken together they resulted in peak demands that industry could not sustain efficiently. Moreover, the plans’ total costs exceeded the funding made available to MoD. As a result, many programs had to be truncated, making it difficult for industry to right size. This led to a great deal of churn in the ownership of the firms rather than to the much-needed consolidation that happened later. We recommended that the MoD adjust the timing of the programs such that the demand on shipbuilders’ facilities and personnel better match the capacities offered by U.K. industries.
The important scheduling themes from our U.S. and U.K. studies include the following:
• Timing and duration of new builds is an important tool in managing the industrial base.
• Individual ship acquisition programs need to be scheduled in light of total demands on the industrial base. On the one hand, the sum of individual program demands should not exceed the industrial base’s capacity; on the other hand, the sum should not fall significantly short, leaving facilities underutilized.
• Plans must be based on realistic budget expectations or industry will not be able to correctly size itself.
• Schedules are interdependent. Changes in the schedules of one platform or of a class of platforms have implications for other ongoing shipyard projects.
Our initial research in naval shipbuilding began, coincidentally, at the time of the last budget downturn.8 In the early 1990s, the end of the Cold War left the United States with a large and capable submarine fleet but no real adversary to keep pace with. The Department of Defense was truncating production of the Seawolf-class attack submarines due to affordability challenges and other, more pressing budget priorities. The central industrial base issue was what, if any, capability should be preserved at Electric Boat and Newport News Shipbuilding (NNS). One school of thought argued that production and design capabilities at General Dynamics Electric Boat should be mothballed and reconstituted when the next generation of attack submarines would be built (which later turned out to be the Virginia class). The production capability could be maintained at NNS through commonality in the aircraft carrier program. Another school of thought argued that capability should be preserved (particularly at Electric Boat), given that reconstituting nuclear submarine design and production capability would be challenging both financially and technically.
Our analysis revealed that it was essentially a wash (from a cost perspective) in terms of reconstituting capability later or bridging the gap to the next class of attack submarines. This approach of consolidating to a single-source was quickly eliminated as it would mean that future submarine production would be uncompetitive, and result in a potential single point of failure for a critical national capability. However, there were enormous risks involved with having a gap production. So, our recommendation was to bridge the gap and not take the risk. That strategy was, in fact, implemented and the third Seawolf was authorized and built. This approach was a challenge in the budget environment of the time in that money had to be spent in the near-term to preserve capability and reduce long-term cost. The budget process is not friendly to approaches where spending money sooner to save more money later is readily accepted.
Another important shaping decision around the submarine industrial base occurred in the late 1990s. At that time, Congress directed that production of the Virginia class be initially alternated between Electric Boat and NNS for the first four boats and subsequently competed. Industry leaders recognized the importance of the Virginia program for the sustainment of the industrial base and proposed a novel teaming strategy.9 Since cost control was important for the program, the two companies would each build specific sections of the Virginia submarines to take advantage of learning during the production process. To ensure each company had the ability to integrate all the sections and test and deliver the final product, each would alternate in that role. Finally, shared knowledge and learning was encouraged through an equal share of profits.
Given the low-rate of production for the Virginia class (compared with the Los Angeles class), having each firm produce entire ships would have been inefficient and unaffordable. The teaming approach was accepted by Congress and served to preserve the capability of two submarine builders and to inject some degree of cooperation between them. Profit was equally shared such that both firms were incentivized to ensure that the other performed well. The other important implication for the industrial base was that this decision led to a building approach that relied on module, in which each firm specialized in building certain section of the ships. The theory was that each firm would become proficient at its hull sections, leading to great production efficiencies.
In hindsight, given the success of the Virginia program, it is hard to argue that the path of bridging and teaming was incorrect. Whether this “good” outcome was through luck or excellent strategic planning is debatable. But from an industrial base perspective, the important lessons are:
• Government should not assume that industry will maintain capabilities during a gap.
• Industry has an important role in shaping the industrial base path; government may not come up with the most effective approach without industry participation and buy-in.
• Facilities and talented personnel (managerial, design, and production staff in particular) in industry and government have finite useful life spans; they need to be regularly and productively exercised so as not to atrophy.
• Regaining lost or atrophied capabilities in industry or government is difficult and expensive.
• Teaming and modularization can be an efficient way to maintain low-rate production across two shipbuilders and to preserve the possibility of competition in the future.
Naval shipbuilding is a complex enterprise that is highly labor intensive and requires unique facilities. In both the United Kingdom and United States, the industry is fragile and needs to be sustained at a core level. Such a core sustainment will require industry and government to pay attention to these lessons in people, facilities, scheduling, and enterprise. But they have to do more than that: They need to focus on the intersection of themes and lessons from these four areas. One intersecting theme relates to the problematic nature of atrophy. It affects all the areas and can hamstring, if not sideline, the industrial base for decades. Another intersecting theme has to do with creating shipbuilding schedules that are well paced and that balance workloads across talents and facilities. Without well thought-out schedules, shipbuilders and government can get themselves into maelstroms of competing commitments and production gaps, as was the case with the United Kingdom’s overly ambitious shipbuilding plan in the mid-1990s.
The nuclear shipbuilding industry in the United States appears to understand the systemic nature of its industrial base fairly well. In the previous downturn, the U.S. government took active steps to preserve its nuclear shipyard capabilities. This segment has gone through previous budget cycles and has managed to structure itself to an effective equilibrium though teaming, modularization, and specialization. Given continued efforts to build and design nuclear ships, it should be able to sustain itself. However, if there are significant cuts to nuclear shipbuilding, this stability will be jeopardized.
The surface ship industrial base, on the other hand, has not gone through the same process as its nuclear counterpart and as a result is not as comfortable conceiving itself as a system. While there has been some consolidation in ownership, the littoral combat ship program has expanded the number of shipyards that must be sustained. After truncating DDG-1000 production, we are back to producing DDG-51s. Can surface combatant design capabilities be sustained through the coming downturn? Would a teaming/modularization approach work for surface combatants as it did for submarine building? How should the United States maintain capabilities to produce auxiliary and amphibious ships? How much capacity is needed? These are some of the next difficult decisions for the United States with respect to naval shipbuilding.
Holistic planning and targeted spending can help to preserve industrial capability. Targeted spending to sustain a capability was very effective in the case of the submarine industrial base. However, with a constrained budget such action may come at the expense of force structure or capability/requirements. In essence, industrial preservation becomes another and explicit dimension of acquisition decision-making.
Moreover, the other important industrial base lesson is that planning must be done at an enterprise level. Industrial capacity in shipbuilding cannot be effectively managed at the program level. Effective action must be driven from the service acquisition level of the Navy. If public or private shipyards need to close, the government should consider preserving and mothballing capability for future use. From a facilities point of view, this action is relatively inexpensive. The costs come, however, with reopening and modernizing the facilities and with addressing workforce and management issues.
Fundamentally, the issue comes down to whether the government will have a clearly articulated policy and plan to preserve the shipbuilding industrial base. As we have seen with other nations, doing nothing and letting commercial forces sort things out is not an effective policy with respect to naval shipbuilding. And while we have helped others who have let capabilities lapse, there is no ally to bail us out.
1. John F. Schank, et. al., Learning from Experience (Santa Monica, CA: RAND, 2011); Schank, et. al., Learning from Experience, Vol. 1: Lessons from the Submarine Programs of the United States, United Kingdom, and Australia (Santa Monica, CA: RAND, 2011); Schank, et. al., Learning from Experience, Vol. 2: Lessons from the U.S. Navy’s Ohio, Seawolf, and Virginia Submarine Programs (Santa Monica, CA: RAND, 2011); Schank, et. al., Learning from Experience, Vol. 3: Lessons from the Submarine Programs of the United Kingdom’s Astute Submarine Program (Santa Monica, CA: RAND, 2011); Schank, et. al., Learning from Experience, Vol. 4: Lessons from Australia’s Collins Submarine Programs (Santa Monica, CA: RAND, 2011).
2. Schank, et. al., Learning from Experience, Vol. 3: Lessons from the Submarine Programs of the United Kingdom’s Astute Submarine Program (Santa Monica, CA: RAND, 2011).
3. Jessie Riposo, et. al., U.S. Navy Shipyards: An Evaluation of Workload—and Workforce—Management Practices (Santa Monica, CA: RAND, 2008).
4. Ronald Wayne Hess, et. al., The Closing and Reuse of the Philadelphia Naval Shipyard (Santa Monica, CA: RAND, 2001).
5. J. L. Birkler, et. al., The U.S. Aircraft Carrier Industrial Base: Force Structure, Cost, Schedule, and Technology Issues for CVN 77 (Santa Monica, CA: RAND, 1998).
6. Raj Raman, et. al., The United Kingdom’s Nuclear Submarine Industrial Base, Vol. 3: Options for Initial Fueling (Santa Monica, CA: RAND, 2005); John F. Schank, et. al., The United Kingdom’s Nuclear Submarine Industrial Base, Vol. 2: Ministry of Defence Roles and Required Technical Resources (Santa Monica, CA: RAND, 2005); Schank, et. al., The United Kingdom’s Nuclear Submarine Industrial Base, Vol. 1: Sustaining Design and Production Resources (Santa Monica, CA: RAND, 2005).
7. Mark V. Arena, et. al., The United Kingdom’s Naval Shipbuilding Industrial Base: The Next Fifteen Years (Santa Monica, CA: RAND, 2005).
8. Birkler, et. al., The U.S. Submarine Production Base: An Analysis of Cost, Schedule, and Risk for Selected Force Structures, Santa Monica, CA: RAND, 1994).
9. Schank, et. al., Learning from Experience, Vol. 2: Lessons from the U.S. Navy’s Ohio, Seawolf, and Virginia Submarine Programs (Santa Monica, CA: RAND, 2011).
Captain Birkler (Retired) currently manages RAND Corporation’s maritime program and oversees research for the U.S. Navy, Office of the Secretary of Defense, combatant commands, U.S. Coast Guard, the Australian Department of Defence, and the UK Ministry of Defence.
Mr. Schank has been a senior analyst with RAND for over 40 years and specializes in naval industrial base issues. He has led a number of studies for U.S. defense organizations, the U.K. Ministry of Defence, and Australia’s Department of Defence.
Mr. Arena specializes in technology evaluations, cost analysis, risk analysis, and industrial base simulations for acquisition programs at RAND.
Ms. Riposo is a senior operations research analyst at RAND and has over a decade of experience in research and analysis with a specialty in defense acquisition and industrial-base evaluations.
Mr. Lee has served as a communications analyst at RAND since 1995, concentrating on defense, intelligence, and homeland-security questions.