These technologies, along with new design features  like a new propulsion system, an enlarged flight deck, and an aft- positioned island, would improve combat capability, while simultaneously  reducing acquisition and life-cycle costs. To date,  Congress has not taken action to change the cost cap legislation;  however, the National Defense Authorization Act for Fiscal Year 2016  lowered the cost cap for all follow-on ships, to include CVN 79, from  $11.5 billion to $11.4 billion. CVN 79 Cost Estimate Is Not Reliable, with Construction Costs Likely to Exceed Cost Cap

The $11.4 billion the Navy has budgeted to construct CVN 79 is likely  insufficient, in part because the cost estimate that supports the budget is  not reliable and does not address lessons learned from the experiences  of the lead ship. Second, we question the credibility of the estimate because it does  not sufficiently account for program risks. After developing this cost estimate, the Navy negotiated an 18 percent  reduction in the labor hours to construct CVN 79 compared to CVN 78. As previously mentioned, we found the CVN 79  labor hour estimate to be optimistic. Compared to historical  aircraft carrier data, the minimum value represents a labor reduction  which is significantly more than the largest decrease that has been  observed in the past 50 years of carrier construction. Ford Class Oversight Mechanisms Provide Limited Insight into Ship Costs

Current reporting mechanisms, such as budget requests and the SAR,  provide limited insight into the overall Ford-Class program and individual  ship costs. Because the Navy has designated the entire Ford-Class  program as a single major defense acquisition program, independent cost  reviews have been infrequent and are not conducted for each ship before  the Navy must request funding for ship construction. Additionally, annual acquisition reports to  Congress provide only aggregate program cost for all three ships  currently in the class, a practice that diminishes transparency into  individual ship costs. As a result of unreliable cost estimates and limited  acquisition reporting, Congress has limited ability to oversee one of the  most expensive programs in the defense portfolio. As a result, no independent cost estimates were conducted  during the 11-year period between these milestones. In particular, there was no current independent cost estimate to  inform the Department of Navy’s President’s budget request for  construction of CVN 78 in 2007, and no independent cost estimate prior  to the budget request for construction of CVN 79 in 2012. This reported  decline is driven by a decrease in the estimated costs for CVN 80. We have  reported for many years on the program’s challenges that contributed to  nearly $2.4 billion in cost growth for the lead ship. To improve insight into cost changes for individual ships in the Ford  Class, the program office should prepare cost summary and funding  summary sections for each individual ship in the class as part of the  SAR for the overall Ford-Class program. DOD agreed that an accurate cost estimate for CVN 79 is  essential to support the Milestone C review for the program, but did not  concur with revising the cost cap should the CVN 79 cost estimate  exceed the current cost cap, stating that it will use the cost estimate to  determine whether the current cost cap is at risk and if additional cost  mitigation strategies are needed. Specifically, we assessed (1) the drivers of CVN 78 cost  growth; (2) the extent to which the CVN 79 cost estimate is reliable and  addresses known cost risks from the performance of the lead ship; and  (3) the extent to which oversight mechanisms—including annual budget  requests and selected acquisition reports—provide insight into total ship  costs and budget execution. To further corroborate documentary evidence and gather additional  information in support of our review, we conducted interviews with  relevant DOD and Navy officials responsible for developing and updating  the Ford-Class cost estimates, such as the Office of Cost Assessment  and Program Evaluation; Naval Center for Cost Analysis; Naval Sea  Systems Command’s Cost Engineering and Industrial Analysis Group;  Program Executive Office, Aircraft Carriers; CVN 78 and 79 program  offices; Aircraft Launch and Recovery program office; and the Program  Executive Office, Integrated Warfare Systems. GAO-15-22.
Why GAO Did This Study

The Navy intended for the Ford Class aircraft carrier to improve combat capability while reducing acquisition and life-cycle costs. However, as GAO has reported on extensively since 2007, the lead ship has experienced cost growth of nearly 23 percent, with a reduced capability expected at delivery. CVN 78 is estimated to cost $12.9 billion, while the next ship, CVN 79, is estimated to be $11.4 billion. The Navy plans to buy 1-2 more ships in the coming years.
The Senate Armed Services Committee Report accompanying the National Defense Authorization Act for Fiscal Year 2016 included a provision that GAO review Ford-class cost estimates, among related issues. This report assesses: (1) the extent to which the CVN 79 cost estimate is a reliable basis for meeting the cost cap and addresses known cost risks from the lead ship, and (2) the extent to which oversight mechanisms provide Congress with insight into ship costs. To do this work, GAO compared the CVN 79 cost estimate with GAO's Cost Estimating and Assessment Guide, analyzed cost reports, and interviewed relevant officials.

What GAO Found

The cost estimate for the second Ford-Class aircraft carrier, CVN 79, is not reliable and does not address lessons learned from the performance of the lead ship, CVN 78. As a result, the estimate does not demonstrate that the program can meet its $11.4 billion cost cap. Cost growth for the lead ship was driven by challenges with technology development, design, and construction, compounded by an optimistic budget estimate. Instead of learning from the mistakes of CVN 78, the Navy developed an estimate for CVN 79 that assumes a reduction in labor hours needed to construct the ship that is unprecedented in the past 50 years of aircraft carrier construction, as shown in the figure below.
After developing the program estimate, the Navy negotiated 18 percent fewer labor hours for CVN 79 than were required for CVN 78. CVN 79's estimate is optimistic compared to the labor hour reductions calculated in independent cost reviews conducted in 2015 by the Naval Center for Cost Analysis and the Office of Cost Assessment and Program Evaluation. Navy analysis shows that the CVN 79 cost estimate may not sufficiently account for program risks, with the current budget likely insufficient to complete ship construction.
The Navy's current reporting mechanisms, such as budget requests and annual acquisition reports to Congress, provide limited insight into the overall Ford Class program and individual ship costs. For example, the program requests funding for each ship before that ship obtains an independent cost estimate. During an 11-year period prior to 2015, no independent cost estimate was conducted for any of the Ford class ships; however, the program received over $15 billion in funding. In addition, the program's Selected Acquisition Reports (SAR)—annual cost, status, and performance reports to Congress—provide only aggregate program cost for all three ships currently in the class, a practice that limits transparency into individual ship costs. As a result, Congress has diminished ability to oversee one of the most expensive programs in the defense portfolio.
This is a public version of a sensitive but unclassified report that GAO issued in March 2017. Information the Department of Defense deemed sensitive has been removed. Areas where redactions occurred are noted in the body of the report.

What GAO Recommends

The Navy should develop a new, reliable cost estimate for CVN 79 validated by cost reviews and obtain an independent cost estimate before requesting funding for future ships. The Navy partially concurred with these recommendations, but did not concur with a draft recommendation to prepare a SAR for each Ford class ship. In response to comments, GAO revised the recommendation to focus on SAR cost and funding summaries.