These  findings led to several recommendations to DOD:  conduct a cost-benefit analysis on required CVN 78 capabilities,  namely reduced manning and the increased sortie generation rate, in  light of known and projected reliability shortfalls for critical systems; update the Ford-class program’s test and evaluation master plan to  allot sufficient time after ship delivery to complete developmental test  activities prior to beginning integration testing; adjust the planned post-delivery test schedule to ensure that system  integration testing is completed before IOT&E; defer the CVN 79 detail design and construction contract award until  land-based testing for critical systems is complete; and, update the CVN 79 cost estimate on the basis of actual costs and  labor hours needed to construct CVN 78. With Risks Remaining in CVN 78 Construction, the Navy Plans to Defer Work in an Effort to Meet Delivery Schedule and Cost Cap Goals

The extent to which CVN 78 will be delivered within the Navy’s revised  schedule and cost goals is dependent on deferring work and costs to the  ship’s post-delivery period. However, challenges with certain key technologies are likely to further  exacerbate an already compressed test schedule. With the shipbuilder  embarking on one of the most complex phases of construction with the  greatest likelihood for cost growth, cost increases beyond the current  $12.9 billion cost cap appear likely. In response, the Navy is deferring  work until after ship delivery to create a reserve to help ensure that funds  are available to pay for any additional cost growth stemming from  remaining construction risks. In essence, the Navy will have a ship that is  less complete than initially planned at ship delivery, but at a greater cost. The strategy of deferring work will result in the need for additional funding  later, which the Navy plans to request through its post-delivery and  outfitting budget account—Navy officials view this plan as an approach to  managing the cost cap. Further, cost and analyses offices within the Office of the Secretary of  Defense have tracked the ship’s costs for several years and report that  without significant improvements in the program’s overall cost  performance, CVN 78’s total costs will likely exceed the program’s $12.9  billion cost cap by approximately $300 million to $800 million.fall within this range, the Navy will need to either defer additional work to  post-delivery or request funding under the ship’s procurement budget line  above the $12.9 billion cap. At the same time, however, because the Navy considers  post-delivery and outfitting activities as “non end-cost” items—meaning  that funds from this account are not included when calculating the total  construction cost of the ship—visibility into the ship’s true construction  cost is obscured. CVN 78 Will Not Demonstrate Key Capabilities Prior to Deployment and Faces Continued Post-Delivery Testing Challenges

CVN 78 will not demonstrate its required capabilities prior to deployment  because it cannot achieve certain key requirements according to its  current test schedule. This margin  includes berths as well as support services for personnel aboard the ship,  such as food and sanitation facilities. Changes to Post-Delivery Test Plans Coupled with Key Systems’ Developmental Delays Could Result in CVN 78 Deploying Without FullyTested Systems

The Navy has further compressed post-delivery plans to test CVN 78’s  capabilities and increased concurrency between test phases since our  last report in September 2013. Navy’s Ability to Meet CVN 79 Cost Cap Predicated on Ambitious Efficiency Gains and Deferring Work until after Ship Delivery

To meet the $11.5 billion legislative cost cap for CVN 79, the Navy is  assuming the shipbuilder will make efficiency gains in construction that  are unprecedented for aircraft carriers and has proposed a revised  acquisition strategy for the ship. With shipbuilder prices for CVN 79  growing beyond the Navy’s expectations, the Navy extended the  construction preparation (CP) contract to allow additional time for the  shipbuilder to reduce cost risks prior to awarding a construction contract. Further, should construction costs grow above estimates, the Navy may  subsequently choose to use funding intended for phase II work to pay for  construction cost increases without increasing the cost cap. To understand the true cost of  each Ford-class ship, Congress should consider revising the cost cap  legislation to ensure that all work included in the initial ship cost estimate  that is deferred to post-delivery and outfitting account is counted against  the cost cap. If warranted, the Navy would be required to seek statutory  authority to increase the cap. Recommendations for Executive Action

We are not making any new recommendations, but our recommendations  from our September 2013 report remain valid. In its written  comments, which are reprinted in appendix III, DOD agreed with much of  the report but disagreed with our position on cost cap compliance. Appendix I: Scope and Methodology

This report examines remaining risks in the CVN 78 program since  September 2013 by assessing: (1) the extent to which CVN 78 will be  delivered to the Navy within its revised cost and schedule goals; (2) if,  after delivery, CVN 78 will demonstrate its required capabilities through  testing before the ship is deployment ready; and (3) the steps the Navy is  taking to achieve CVN 79 cost goals.
Why GAO Did This Study

Ford-class aircraft carriers will feature new technologies designed to reduce life-cycle costs. The lead ship, CVN 78, has been under construction since 2008, and early construction on CVN 79 is underway. In 2007 Congress established a cap for procurement costs—which has been adjusted over time. In September 2013, GAO reported on a $2.3 billion increase in CVN 78 construction costs.
GAO was mandated to examine risks in the CVN 78 program since its September 2013 report. This report assesses (1) the extent to which CVN 78 will be delivered within revised cost and schedule goals; (2) if CVN 78 will demonstrate its required capabilities before ship deployment; and (3) the steps the Navy is taking to achieve CVN 79 cost goals. To perform this work, GAO analyzed Navy and contractor data, and scheduling best practices.

What GAO Found

The extent to which the lead Ford-class ship, CVN 78, will be delivered by its current March 2016 delivery date and within the Navy's $12.9 billion estimate is dependent on the Navy's plan to defer work and costs to the post-delivery period. Lagging construction progress as well as ongoing issues with key technologies further exacerbate an already compressed schedule and create further cost and schedule risks. With the shipbuilder embarking on one of the most complex phases of construction with the greatest likelihood for cost growth, cost increases beyond the current $12.9 billion cost cap appear likely. In response, the Navy is deferring some work until after ship delivery to create a funding reserve to pay for any additional cost growth stemming from remaining construction risks. This strategy will result in the need for additional funding later, which the Navy plans to request through its post-delivery and outfitting budget account. However, this approach obscures visibility into the true cost of the ship and results in delivering a ship that is less complete than initially planned.
CVN 78 will deploy without demonstrating full operational capabilities because it cannot achieve certain key requirements according to its current test schedule. Key requirements—such as increasing aircraft launch and recovery rates—will likely not be met before the ship is deployment ready and could limit ship operations. Further, CVN 78 will not meet a requirement that allows for increases to the size of the crew over the service life of the ship. In fact, the ship may not even be able to accommodate the likely need for additional crew to operate the ship without operational tradeoffs. Since GAO's last report in September 2013, post-delivery plans to test CVN 78's capabilities have become more compressed, further increasing the likelihood that CVN 78 will not deploy as scheduled or will deploy without fully tested systems.
The Navy is implementing steps to achieve the $11.5 billion congressional cost cap for the second ship, CVN 79, but these are largely based on ambitious efficiency gains and reducing a significant amount of construction, installation, and testing—work traditionally completed prior to ship delivery. Since GAO last reported in September 2013, the Navy extended CVN 79's construction preparation contract to allow additional time for the shipbuilder to reduce cost risks and incorporate lessons learned from construction of CVN 78. At the same time, the Navy continues to revise its acquisition strategy for CVN 79 in an effort to ensure that costs do not exceed the cost cap, by postponing installation of some systems until after ship delivery, and deferring an estimated $200 million - $250 million in previously planned capability upgrades of the ship's combat systems to be completed well after the ship is operational. Further, if CVN 79 construction costs should grow above the legislated cost cap, the Navy may choose to use funding intended for work to complete the ship after delivery to cover construction cost increases. As with CVN 78, the Navy could choose to request additional funding through post-delivery budget accounts not included in calculating the ship's end cost. Navy officials view this as an approach to managing the cost cap. However, doing so impairs accountability for actual ship costs.

What GAO Recommends

Congress should consider revising the cost cap legislation to improve accountability of Ford-class construction costs, by requiring that all work included in the initial ship cost estimate is counted against the cost cap. If warranted, the Navy would be required to seek statutory authority to increase the cap. GAO is not making new recommendations, but believes previous recommendations, including a re-examination of requirements and improvements to the test plan, remain valid. DOD agreed with much of the report, but disagreed with GAO's position on the cost caps. GAO believes that changes to the legislation are warranted to improve cost accountability.