With nearly 300 active ships, the U.S. Navy is by far the world’s largest—larger, in fact, than the next 13 navies combined. Although the Navy does operate its own shipyards, they are not equipped to handle all of the maintenance and repair requirements to maintain a Fleet of this size. Therefore, given the oscillating requirements for ship-repair work, the Navy routinely contracts out a portion of its ship-repair work during peak workloads. This process has benefited the Navy by acquiring technology and management skills that it might not otherwise possess while maintaining a fully employed and qualified workforce. However, if the Navy fails to provide proper quality oversight and a contractor is not effectively monitored, the results can be devastating to the government.
This contracting of work, combined with some questionable quality-oversight issues, has led to numerous problems for the Navy. Over the past several years, these have escalated and have caused severe consequences ranging from ships not being able to deploy to tens of millions of additional repair dollars required to complete projects correctly. Although each situation is different, all of the problems share a common theme: specifically, a lack of consistently applied standards within the government’s quality-oversight function.
‘A Seemingly Systemic Problem’
Although contractors do make mistakes with ship-repair projects, often those mistakes are minimal and are easily corrected. Ultimately, the majority of contractors simply want to complete their contracts in a manner that will allow them to bid on future contracts. Their goal is essentially the same as the Navy’s; they want the job done correctly and as quickly as possible so that they can move on to the next one. However, some projects and contractors do not fit into this category. Regretfully there are those unique instances where the problems with the contractor, compounded with those of the Navy’s own assigned quality-oversight personnel, have been so egregious that they have caused grievous problems. Some of the Navy’s contracts for ship repair and construction in recent years indicate a seemingly systemic problem with overseeing contracts in the ship-repair industry. The following is a list of just some of the more flagrant instances of recent contract failures:
• USS Freedom (LCS-1) class, 2008—design and repair problems
• FISCSI Ship-Repair Contracts, 2010—inadequate contract oversight
• USS San Antonio (LPD-17) class, 2011—construction and diesel problems
• USS George H. W. Bush (CVN-77), 2011—toilet-system problems
• USS Gerald R. Ford (CVN-78), 2012—significant cost overruns.
Let’s analyze them one-by-one:
USS Freedom (LCS-1). In the early 2000s, Congress funded a new vessel class for the Navy, the Littoral Combat Ship (LCS), conceived as a next-generation warship that could operate in very shallow water and thus close to shore. In 2008, the Navy commissioned its first LCS, the USS Freedom. Since then, the problems with her and her sister ships have been numerous. Problematic issues began arising during the construction phase. From the outset, Navy leaders insisted that the first LCS in each of the two classes would only cost about $220 million to build. However, by 2007, the Navy had announced that the cost for LCS-1 alone would easily top $375 million dollars. That cost overrun prompted then–Secretary of the Navy Donald C. Winter to issue a 90-day stop-work order on one of the four ships under contract. The Navy said that construction on the first LCS would only resume if the contractor agreed to pay part of the overrun.1
But the troubles with the LCS didn’t stop there. Once the ships were built and commissioned, more red flags began to wave. The vessels were found to have problems with corrosion, steering, and their ability to find mines. They experienced equipment failures, and at least one had a cracked hull and a major leak. A U.S. Navy report even stated, “LCS is not expected to be survivable in a hostile combat environment.”2
In addition to construction woes, the LCS-class ships were deliberately designed to rely on contractors for repairs instead of manning crews large enough and knowledgeable enough to fix them themselves. American contractors were to travel to the ships while on deployment to perform maintenance as opposed to having the ships’ crews carry out such functions as on other U.S. Navy ships. However, the reliance on contractors to perform routine maintenance and equipment repairs proved tricky, and it was often very difficult to get the maintenance done. Defense journalist Philip Ewing reported, “The contractor teams handling maintenance duties are not performing up to snuff or being held accountable for their work. Many contractors are doing the work twice—the second time to correct problems with their initial work—avoiding penalties and billing the Navy twice for the jobs.” U.S. Navy sailors even had to occasionally fix problems caused by contractors after the contractors left the ship. The contractors were not held accountable, proper government oversight of them was not in place, and the ships’ crews were too small to properly perform the oversight themselves.3
FISCSI Ship Repair Oversight in Bahrain. The U.S. Navy has long had a need for ship-repair contracts in the Persian Gulf country of Bahrain—contracts both for voyage repairs and emergent repairs for Navy vessels deployed in the region. Each year the U.S. Navy awarded several such contracts, but in 2011 serious problems came to light. The command responsible for issuing the contracts and ensuring proper oversight was Fleet and Industrial Supply Center, Sigonella Italy (FISCSI). FISCSI would then task Norfolk Ship Support Activity (NSSA) with the quality-oversight function of monitoring those contracts for various ship-repair projects, as discussed by the Navy Inspector General Report (2011). That report specifically states that “Navy contracting officials did not provide adequate oversight of 14 contracts, valued at $35.3 million.”4
The report further states that FISCSI did not designate a contracting officer’s representative (COR) on 12 of 14 contracts. A COR is an individual appointed by the contracting officer to oversee each contract and report directly back. This person is the contracting officer’s on-site representative, providing and ensuring deckplate-level oversight of the contractual requirements. Although NSSA personnel were physically present while the work was being performed, the report states that those people did not provide sufficient surveillance of the contractors, and that no one from FISCSI verified what type of surveillance was being performed. The report further found that the NSSA personnel who oversaw the contractor did not have all the required documentation for witnessing contractor testing.
Additionally, the report noted that NSSA Detachment Bahrain did not have a written standard operating procedure for maintaining and storing contract-surveillance documentation and recommended that NSSA personnel should “maintain surveillance files on all current and future contracts and sign all surveillance reports.” Even though the NSSA personnel on site did not maintain proper documentation of work completed, the Navy’s report states that they “acted as certifying officials and relied on their unorganized and incomplete files to approve contractor invoices for payment.” As a result of this, it is impossible to determine if the U.S. Navy received the quantity or quality of the work for which the contract was paid.5
USS San Antonio (LPD-17). The San Antonio is the lead ship in the Navy’s latest amphibious-transport dock-ship class. From the start, she was plagued with problems. The San Antonio cost the Navy roughly $1.8 billion dollars, which was nearly $900 million dollars over budget. She could not even be sea-tested during initial inspection because one of her two steering systems completely failed. The Norfolk Virginian-Pilot reported that “Navy inspectors found poor construction and craftsmanship” throughout the ship, including “fluid leaks, tangled wires and broken hardware . . . the San Antonio remains an unfinished ship almost two years after it joined the fleet.”6
The San Antonio remained plagued with costly defects and was found to be unfit to deploy in 2010, just five years after commissioning. An official report determined that the Navy and the contractors who constructed the ship were both at fault for the mechanical errors. By 2010 a Navy investigation had determined that the ship’s most severe problem was a significant defect with the lube-oil system, which cools the diesel engines. Crew members had discovered contamination that caused the bearings to fail, consequently destroying the engines. The Navy’s investigation discovered that bits of metal had entered the lube oil as a result of poor workmanship by the contractors who had constructed the piping system. The contractors’ substandard workmanship had resulted in numerous pieces of welding slag, which eventually worked their way into the system. However, the Navy report laid equal blame on the government’s oversight procedures, stating that the Navy had failed to discover the imperfections while the ship was being constructed; “if the government had properly overseen and inspected the vessel during construction, the problems could have been caught early.”7
Virginian-Pilot reporter Corinne Reilly quoted Proceedings columnist and Naval Institute Guide to Combat Fleets of the World author Eric Wertheim as saying, “The Navy and the Defense Department should look at this as an example of how every step of the process can go wrong . . . . Most of the problem seems to be with the shipbuilder, but the Navy’s the one that really needs to figure how to stop this from happening again.” To correct the problems, the Navy awarded a contract worth nearly $100 million to overhaul the engines and the lube-oil piping system. A report on the contractor who overhauled the engines stated, “While conducting the repairs, the Navy discovered multiple instances of incomplete or incorrectly completed work by [the] prime contractor. . . . These failures included foreign material exclusion plugs left in the drain piping system, use of incorrect material and improper installation and sealing of gaskets.”8
USS George H. W. Bush (CVN-77). Commissioned in 2009, the George H. W. Bush is the U.S Navy’s second-newest aircraft carrier. Unfortunately, almost immediately after commissioning, reports began to surface that she had severe issues with the entire toilet-flushing system. The ship had been designed and constructed with a vacuum-toilet system, like the ones used in many airplanes, using fresh water instead of sea water to flush through. The intent of such a design was to lower maintenance on the system by reducing the pipe-corrosion problems that sea water would create. However, despite the $6.2 billion the Navy spent for the ship, she has experienced chronic plumbing problems that have led to repeated toilet outages both in port and at sea. Because of breakdowns in the system, crew members often had to walk around the ship for up to an hour looking for a functioning toilet. The outages were reported an average of 25 times a week while the ship was on her initial deployment, sometimes affecting all 493 toilets on board at the same time. The Washington Post quoted the ship’s commanding officer, Captain Brian Luther, saying his “engineers have logged 10,000 hours on the current deployment to the Persian Gulf trying to address toilet issues.” The ship’s internal newsletter published an article confirming that the outages were a result of failures with the vacuum system. The problem was so severe that it had to be addressed and corrected by the Norfolk Naval Shipyard in a planned maintenance availability in 2012.9
Although the problem might sound trivial, it was not. Without a healthy crew with good morale, a ship cannot properly perform her mission. Some male crew members on the George H. W. Bush resorted to relieving themselves in sinks, showers, and plastic bottles, while some female crew members held in their bodily functions so long that they developed infections and other related health problems. Some sailors limited their food and fluid intake, risking dehydration, in order to reduce their need to use a toilet.10
USS Gerald R. Ford (CVN-78). The Navy’s most recent addition to its carrier fleet is the Gerald R. Ford, which was christened and launched in November 2013. Cost-overrun estimates for the construction of the carrier put the ship’s total cost at $12.9 billion; that equates to a price 22 percent greater than originally planned. Additionally, the carrier was built on a cost-plus, incentive-fee contract. With such an arrangement, a contractor is not limited in the amount that can be charged the government. The Navy, which will eat most of the Ford’s cost overruns, has reported that some of them are tied to construction inefficiencies springing from late delivery of materials the contractor was required to provide. The Ford’s inflated price tag drew criticism at the highest levels. Bloomberg News quoted Senator John McCain (R-AZ), the senior Republican serving on the Senate Armed Services Committee, saying, “It’s outrageous, it’s a national disgrace. . . . They try all these experiments and all these different ideas that they have in the new class of carrier and obviously disregard the cost.” The fact the construction of the carrier stayed on schedule makes the overruns even more perplexing. Typically, ship-cost overruns occur because engineers need to stop work to make a change to either completed work or future work, causing delays and adding costs. In the Ford’s case, many of the cost overruns seem without merit.11
Wanted: Quality Oversight
Many, if not all, of the problems listed here could have been either significantly reduced or eliminated if proper quality-oversight policies had been followed. U.S. Navy officials responsible for overseeing these contracts were provided the necessary guidance to properly ensure contractor accountability. The criteria to properly oversee government contracts is straightforward. The requirements are delineated in both the Federal Acquisition Regulation (FAR) and the Defense Federal Acquisition Regulation Supplement (DFARS):
• FAR Subpart 46.4, “Government Contract Quality Assurance,” section 46.401 (a): “Government contract quality assurance shall be performed at such times (including any stage of manufacture or performance of services) and places (including subcontractors’ plants) as may be necessary to determine that the supplies or services conform to contract requirements.”
• FAR Subpart 46.501, “General,” states that “Acceptance constitutes acknowledgment that the supplies or services conform with applicable contract quality and quantity requirements and that acceptance is evidenced by execution of an acceptance certificate on an inspection or receiving report form.”12
In addition to the FAR, the DFARS provides further guidance on how to properly perform quality oversight:
• DFARS Section 201.602, “Contracting Officers—201.602-2 Responsibilities,” states that for a service contract, contracting officers will “designate” a “Contracting Officer’s Representative (COR).” That COR must be “qualified by training and experience commensurate with the responsibilities to be delegated,” The section further states that the appointing of the qualified COR “must be designated in writing.”13
Demonstrably, then, the government already has a system in place to provide quality oversight. The problem is that the government’s own employees did not follow the established oversight process.
The requirements to provide proper oversight for ship construction and repair contracts are clearly delineated, yet chronic problems still persist. Despite the fact that each situation described here occurred independently, there does appear to be a common theme. Specifically, with both contractors and their government oversight, there appears to be a lack of duty and obligation to ensure a quality product is delivered on time and within budget.
With these seemingly entrenched problems, one has to wonder if lapses in ethics might be partly to blame for the oversight failures. Webster’s Dictionary defines ethics as “the discipline dealing with what is good and bad and with moral duty and obligation.” Members of a society must be able to trust professionals who work within their society. In the words of Caroline Whitbeck, a scholar of ethics as they relate to science, technology, and medicine, “Understanding the ethical significance of problems is the first step in responding well to them.” Charles E. Harris, who writes about ethics in engineering, argues that personal ethics include the belief that one should work in a dedicated and faithful manner. With all of the Navy’s failures in oversight, perhaps it’s worth asking ourselves whether or not the quaility-control process has truly been carried out in just such a “dedicated and faithful manner.”14
Enough Blame to Go Around
Clearly some of the contract-related shortcomings belong to the contractors themselves. In fact, ethics (or lack thereof) among contractors is not a new issue. Because of the ongoing problems of ethics with contractors, the federal government revised the FAR in late 2007 to add Subpart 3.101-1: “Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none. Transactions relating to the expenditure of public funds require the highest degree of public trust and an impeccable standard of conduct.” With the update to the FAR, organizations with large government contracts must have a written code of business ethics and must maintain a comprehensive ethics-training program in addition to other requirements.15
However, the contractors are not entirely to blame for all of the problems. Ultimately, the bulk of the shortcomings with contractor-related issues must lie with the government employees who were responsible for overseeing those contracts.
Ensuring a successful construction project starts in the contract pre-award phase with the selection of a contractor. Accordingly, selecting a substandard contractor could lead to having the entire project behind schedule, price changes, and substandard work. The contractor’s abilities and past performance have to be assessed prior to award of the contract. After the contractor has completed work and the contract has closed, the final piece of the oversight puzzle takes place during the evaluation phase. During this phase, it is incumbent on Navy oversight personnel to properly document contractor performance assessments as required by the FAR, Part 42. This will allow those issues to be readily available to any contracting officer who will be evaluating that contractor on future projects. However, the bulk of the government oversight occurs during the all-important performance phase, when it is critical for the Navy to ensure that properly qualified people are assigned to oversee contracts, and that they perform all of their required duties. It is the responsibility of these assigned oversight personnel to help keep the contractor on schedule and within budget and to directly monitor the contractor’s performance.16
Due to the financial crisis in the country, now more than ever, taxpayers expect the government to be efficient and innovative, not wasteful. While it may be legitimate to blame the contractors for some of the problems, the Navy shares responsibility as well. It is, after all, the Navy that draws up the contracts and supplies the oversight personnel for these contracts. Although the contractor’s objective is to maximize its profit, the Navy must provide appropriate quality oversight to counterbalance that objective. In order to do that, the Navy must assign qualified people, with the proper mindset, to monitor all aspects of a contractor’s work, from materials to workmanship. If the Navy follows its own internal procedures for proper contract oversight, then the contractor will inevitably control costs and deliver a product more in line with the Navy’s plans.
1. Cristina Silva, “Navy Council to Focus on Problems with Littoral Combat Ships,” Stars and Stripes, 23 August 2012, www.stripes.com/news/navy-council-to-focus-on-problems-with-littoral-combat-ships-1.186722. Dale Eisman, “Navy to Restructure Troubled Littoral Combat Ship Program,” Norfolk Virginian-Pilot, 16 March 2007, http://hamptonroads.com/node/237391.
2. Spencer Ackerman, “Navy’s New Minehunter Can’t See or Stop Mines,” Wired, 18 January 2012, www.wired.com/dangerroom/2012/01/mines-littoral-combat-ship/. Silva, “Navy Council to Focus . . . .” Elisabeth Bumiller, “Smaller Navy Ship Has a Rocky Past and Key Support,” The New York Times, 5 April 2012, www.nytimes.com/2012/04/06/us/politics/a-smaller-navy-ship-with-troubles-but-presidents-backing.html?pagewanted=all&_r=0.
3. Philip Ewing, “ How Could the Navy Begin to Remake LCS?” DoD Buzz Online Defense and Acquisition Journal, 24 July 2012, www.dodbuzz.com/2012/07/24/how-could-the-navy-begin-to-remake-lcs/.
4. M. Ryan, “FISC Sigonella–Bahrain” (2011 PowerPoint Presentation). Inspector General, U.S. Department of Defense, Report No. D-2011-043, “Improvements Needed on the Fleet and Industrial Supply Center, Sigonella, Ship Maintenance Contracts in Southwest Asia (Washington, DC: Department of Defense, 2011).
5. DOD Report No. D-2011-043.
6. Louis Hansen, “Navy Ship $840 Million Over Budget and Still Unfinished,” Norfolk Virginian-Pilot, 30 June 2007, http://hamptonroads.com/node/290241.
7. Corinne Reilly, “Report: Navy Shares Blame for San Antonio’s Woes,” Norfolk Virginian-Pilot, 3 July 2010, http://hamptonroads.com/2010/07/report-navy-shares-blame-san-antonios-woes.
8. Ibid.
9. Michael Welles Shapiro, “Naval Shipyard Tackles Toilet Clogs on the Bush While Ship Is in for Repairs, Newport News Daily Press, 29 September 2012, http://articles.dailypress.com/2012-09-29/business/dp-nws-bush-toilet-repairs-20120929_1_toilets-brian-lex-luther-norfolk-naval-shipyard. Jason Ukman, “Naval Ship Faces Chronic Toilet Outages at Sea,” The Washington Post, 16 November 2011, www.washingtonpost.com/blogs/checkpoint-washington/post/naval-ship-faces-chronic-toilet-outages-at-sea/2011/11/15/gIQALCZ3QN_blog.html. Joshua Stewart, “Carrier Bush Suffers Widespread Toilet Outages. Navy Times, 14 November 2011, www.navytimes.com/article/20111114/NEWS/111140326/Carrier-Bush-suffers-widespread-toilet-outages. Corinne Reilly, “Toilet Troubles Add to Sailors’ Deployment Stress on Carrier,” Norfolk Virginian-Pilot, 15 November 2011, http://hamptonroads.com/2011/11/toilet-troubles-add-sailors-deployment-stress-carrier.
10. Stewart, “Carrier Bush Suffers . . .”
11. Tony Capaccio, “Navy’s Worst-Case Cost Overrun Tops $1 Billion for Aircraft Carrier Gerald Ford,” The Washington Post, 1 January 2012, http://articles.washingtonpost.com/2012-01-01/business/35440069_1_aircraft-carrier-ford-class-sean-stackley. Roxana Tiron, “U.S. Navy Bets $42 Billion on Carriers in China’s Sights,” Bloomberg News, 19 June 2012, www.bloomberg.com/news/2012-06-19/u-s-navy-bets-42-billion-on-carriers-in-china-s-sights.html. Philip Ewing, “Navy Confirms Cost overrun on CVN 78,” DoD Buzz Online Defense and Acquisition Journal, 15 March 2012, www.dodbuzz.com/2012/03/15/navy-confirms-cost-overrun-on-cvn-78/.
12. Federal Acquisition Regulation, www.acquisition.gov/far/html.
13. Defense Federal Acquisition Regulations System, www.acq.osd.mil.
14. Caroline Whitbeck, Ethics in Engineering Practice and Research (New York: Cambridge University Press, 2011), 4. Charles E. Harris Jr., Michael S. Pritchard, and Michael J. Rabins, Engineering Ethics: Concepts & Cases (Belmont, CA: Wadsworth Cengage Learning, 2009).
15. R. N. Roberts, “Mandatory Contractor Codes of Ethics and Defense Procurement Integrity,” Journal of Public Procurement, vol. 10, no. 2 (2010) 247–74. Federal Acquisition Regulation.
16. O. M. Ajayi and O. E. Ogunsanmi, “Decision Maker’s Perceptions on Contractor Prequalification Criteria,” Interdisciplinary Journal of Contemporary Research in Business, vol. 4, no. 6 (October 2012), 174–203.