A  cost estimate is:  e when it accounts for all possible costs associated with  a project, is structured in sufficient detail to ensure that costs are  neither omitted nor double-counted, and the estimating teams’  composition is commensurate with the assignment;    well documented when supporting documentation is accompani narrative explaining the process, sources, and metho the estimate and contains the underlying data used to develop the  estimate;    accurate when it is based on an assessment of the costs most likely d and not overly conservative or too optimistic; and     credible when it has been cross-checked with an independent cost  estimate, the level of confidence associated with the point estim been identified through a risk and uncertainty analysis, and a  sensitivity analysis has been conducted—that is, the project has  ate has  examined the effect of changing one assumption related to eac activity while holding all other variables constant in order to iden which variable most affects the cost estimate. GAO Estimates One-Time Costs to Be Between $258.7 Million and $356.0 Million, Lower Than the Navy’s Estimate

Our independent cost estimate suggests that the total one-time cost of  homeporting a nuclear-powered aircraft carrier at Naval Station Mayport  will be between $258.7 million and $356.0 million, in base year 2010  dollars. The Navy’s estimate of the one-time costs is $537.6 million, also in  base year 2010 dollars, which is outside the upper range of our estimate. Unlike our estimate, the Navy did not conduct a risk and uncertainty  analysis on its one-time costs; as a result, its estimate does not include a  range. GAO Estimates Recurring Costs to Be Between $9.0 and $17.6 Million Per Year, and the Navy’s Estimate Falls Within This Range

Our independent cost estimate indicates that the annual recurring cost of  homeporting a nuclear-powered aircraft carrier at Naval Station Mayport  is expected to be between $9.0 million and $17.6 million each year, and the  Navy’s $15.3 million per year estimate of the annual recurring cost is  within the range of our estimate. Since the Navy determined this cost as a percentage of total  building construction costs for their estimates, the Navy’s higher cost  results from its higher estimate for construction of the controlled  industrial facility and the ship maintenance support buildings. Navy’s Estimate Does Not Fully Meet Any of the Four Characteristics for Producing a High- Quality Cost Estimate

The Navy’s estimate did not fully meet any of the four characteristics— comprehensive, accurate, well documented, and credible—for producing a  high-quality cost estimate. The Navy’s Estimate Is Partially Comprehensive

The Navy’s estimate partially meets the criteria for being comprehensive. Some elements of the estimate  are based on a historical record of cost estimating and actual experiences  from other comparable programs. The documentation contains very little step- by-step description of how the estimate was developed so that a cost  analyst unfamiliar with the program could understand what was done and  replicate it. Moreover, Navy officials had to recreate several portions of the estimate to  provide us with supporting documentation. The Navy's Estimate Does Not Meet GAO's Best Practices for a Credible Estimate

Overall, the Navy's estimate does not meet the GAO best practices’ criteria  for a credible estimate, because it does not include a sensitivity analysis  and was not compared by the Navy to an independent cost estimate  conducted by a group outside the acquiring organization. Additionally, without detailed  documentation that describes how the estimate was derived, the Navy can  neither present a convincing argument of the estimate’s affordability, nor  credibly answer decision makers’ and oversight groups’ questions about  specific details in the estimate. DOD partially concurred with our two recommendations that the  Secretary of Defense direct the Secretary of the Navy to improve the  (1) comprehensiveness of the Navy’s life-cycle cost estimate for the  planned homeporting of a nuclear-powered aircraft carrier at Naval  Station Mayport by including all potential recurring costs and clearly  describing the ground rules and assumptions underlying the estimation of  each cost element and (2) quality and transparency of the Navy’s estimate  by thoroughly documenting the life-cycle costs associated with the  planned homeporting. We therefore believe this  recommendation remains valid. To determine to what extent the estimate adheres to the characteristics of  a high-quality cost estimate, we evaluated the Navy’s life-cycle cost  estimate to determine whether it met key characteristics identified in the  GAO Cost Estimating and Assessment Guide. Appendix II: Additional Information on GAO’s Independent Cost Estimate

	Nuclear-Powered Aircraft Carrier

	Contents

		Purpose of the Estimate Program Characteristics Estimating Structure Ground Rules and Assumptions Methodology Overview Comparison of GAO’s 65 Percent Confidence Level

	Purpose of the Estimate

		Satisfy the direction in House Report 111-491, accompanying

a proposed bill for the Fiscal Year 2011 National Defense  Authorization Act (H.R. 5136), to develop an independent  estimate of the total direct and indirect costs to be incurred by  the federal government for the proposed homeporting of a  nuclear-powered aircraft carrier at Naval Station Mayport.
Why GAO Did This Study

The 2001 Quadrennial Defense Review called for the Navy to provide more warfighting assets more quickly to multiple locations. Subsequently, the Navy made a preliminary decision to homeport a nuclear-powered aircraft carrier at Naval Station Mayport, Florida, which was affirmed by the 2010 Quadrennial Defense Review. In House Report 111-491, accompanying a proposed bill for the Fiscal Year 2011 National Defense Authorization Act (H.R. 5136), GAO was directed to develop an independent estimate of the total federal costs for the proposed homeporting. GAO's objectives were to (1) develop an independent estimate of the full life-cycle costs to homeport a nuclear aircraft carrier at Mayport and (2) determine to what extent the Navy's estimate meets the characteristics of a high-quality cost estimate. To do this, GAO worked with a firm experienced in preparing life-cycle cost estimates for major federal acquisitions and compared the Navy's cost estimating practices with the best practices in GAO's "Cost Estimating and Assessment Guide."

What GAO Found

GAO's independent cost estimate suggests that the total one-time cost of homeporting a nuclear-powered aircraft carrier at Naval Station Mayport is expected to be between $258.7 million and $356.0 million, in base year 2010 dollars. The Navy's estimate of the one-time cost is $537.6 million--also in base year 2010 dollars--which is outside the upper range of GAO's estimate. Unlike GAO's estimate, the Navy did not conduct a risk and uncertainty analysis on its one-time costs; as a result, its estimate does not include a range. The largest difference between GAO's estimate of one-time costs and the Navy's estimate is the cost of constructing new facilities at Mayport. Based on the historical costs of constructing similar facilities, GAO estimates at the 65 percent confidence level that the cost for constructing the controlled industrial facility will be $70.5 million, and the cost for constructing the ship maintenance support facilities will be $45.6 million. The Navy estimates the construction costs to be much higher at $139.1 million and $157.2 million, respectively. Navy officials told GAO the difference is due to the increased cost involved in protecting the buildings from a potential storm surge associated with a Category 4 hurricane. GAO included a hurricane factor in its estimate to account for this increase, but GAO and the Navy used different estimating methods in developing the estimates for the construction costs. GAO used adjusted actual costs from similar construction projects, while the Navy used a detailed engineering estimate. For recurring costs, GAO's independent cost estimate suggests that the total is expected to be between $9.0 million and $17.6 million per year. The Navy's estimate of $15.3 million per year is within GAO's estimated range. The Navy's estimate did not fully meet any of the four characteristics-- comprehensive, accurate, well documented, and credible--for producing a high-quality cost estimate. Specifically, although the estimate included almost all of the life-cycle costs related to homeporting a nuclear aircraft carrier at Mayport, it partially met the criteria for being comprehensive because it does not fully describe the cost-influencing ground rules and assumptions. The estimate was only minimally accurate and well documented in that although many elements of the estimate are based on actual experiences from other comparable programs, it is difficult to say if the cost estimates are the most likely costs since the Navy did not conduct a risk and uncertainty analysis. Further, the estimate contains very little step-by-step description of how the estimate was developed so that a cost analyst unfamiliar with the program could independently replicate it. The Navy had to recreate several portions of the estimate in order to provide GAO with supporting documentation. Further, the Navy's estimate does not meet the GAO best practice for a credible estimate because it does not include a sensitivity analysis and was not compared by the Navy to an independent cost estimate conducted by a group outside the Navy. Without fully meeting the characteristics of a high-quality estimate, the Navy's ability to present a convincing argument of the estimate's affordability and credibly answer decision makers' and oversight groups' questions about the estimate is hampered.

What GAO Recommends

GAO recommends DOD take several actions to improve the quality of its Mayport cost estimate. DOD partially concurred with two recommendations and disagreed with one, generally stating that additional direction or change is not required. GAO believes the recommendations remain valid as discussed in the report.