Navy To HASC: We’re About To Sign Sub Deals We Can’t Pay For | Breaking Defense


CAPITOL HILL: The United States Navy is negotiating to buy 10 nuclear submarines that it probably can’t pay for. But the service is going ahead regardless, counting on the Pentagon and Congress to make up the money as long as the budget cuts known as sequestration continue.

The sequester doesn’t mean the Navy can’t afford to pay the contractors building the subs, General Dynamics’ Electric Boat Division and Huntington-Ingalls Industries’ Newport News shipyard, the Navy’s Program Executive Officer for Submarines assured me when I buttonholed him this morning after a hearing of the House Armed Services seapower subcommittee. But “the shipbuilder piece is only about two-thirds of the price,” Rear Adm. David Johnson went on. The remaining third is what’s called “government-furnished equipment,” and that’s what sequestration puts in doubt.

“GFE are things like the combat weapons system,” Johnson explained. Without them, he said, “you can’t deliver the ship, you can’t test the ship” – and you can’t actually use it for any military purpose.

“The way we dealt with [sequestration in fiscal] ’13 is, we essentially said we’d buy the government-furnished equipment part later and fully fund the shipbuilding part,” Johnson told me. “That would be the same strategy for the multi-year [procurement contract]” now under negotiation. Normally the Navy pays for the entire ship up front, but that’s increasingly difficult under sequestration, which is what compels the use of budget gimmicks and delaying tactics.

But the Navy can’t put off buying the government-furnished equipment indefinitely. There’s a time limit. The Navy can’t pay the shipyards to build their part of the submarine, accept delivery, and then park the unfinished sub somewhere for a few years until there’s money to stick in, say, the weapons. GFE includes core components that have to be built into the sub in the first place.

“It’s not like I can deliver 86 percent of a ship and later finish it,” Johnson told me. (The Navy estimates sequester will take out 14 percent of every program). “Within the time period of building that ship, it has to be fully funded.” That time period? For the Virginia class, about five years.

There’s actually another deadline, though, that may be just weeks away. Before Johnson’s PEO-Submarine contracting staff can finalize the 10-sub, 5-year deal they’re now negotiating with the builders, it has to be approved by both Sean Stackley, the Navy’s own assistant secretary for research, development, and acquisition, and Robert Hale, Pentagon comptroller. But Hale and Stackley can’t officially approve the contract without confidence that full funding will be available in time – the very thing sequestration puts in doubt.

“You have to have it certified that there’s the money there before you award the contract,” Johnson told me. “That step will be a little more difficult with the fact that we have a sequester in ’14 that’s removed some of the budget that’s in the multi-year.”

“It’s a bit of pressure on the ability to sign it,” the admiral said. So how will the Navy make up the money in time?

First of all, Johnson said, sequestration took $492 million out of the Virginia-class submarine program in 2013 alone. The House restored the funding, he noted gratefully (although the Senate has not, so we’ll have to wait for conference). “That type of behavior has to continue in ’14 and on,” he told legislators, as long as sequestration continues.

As for the 10-ship, 5-year deal now being negotiated, Johnson went on, “our tack right now though is to try to preserve that 10-ship buy, but then have the department fund cost-to-complete bills for the cuts that we’ve taken in the intervening years.”

But the Navy’s not sure exactly how (or whether) the Department of Defense will do that, or if Congress will let it.

Because sequestration cuts every account by the same percentage across the board, it “leaves the department no room to actually prioritize,” Johnson told me after the hearing. The Pentagon has some limited authority to move money between accounts, but any substantial “reprogramming” of existing funds, let alone the addition of new money, requires action by Congress. In the final analysis, Johnson said, “it depends on how the department implements and what kinds of authorities Congress gives us to reprogram.”

This is the kind of complicated mess the sequestration has got us into. But subs are a top priority for the Chief of Naval Operations (a submariner himself), said the other witness at this morning’s hearing, Rear Adm. Richard Breckenridge, director of the undersea warfare section on the CNO’s staff.

“Even in the face of the budgetary pressures of things like sequestration,” Breckenridge told the subcommittee, “the Navy is committed to providing as much stable funding as we can… to keep rolling with the Virginia-class and the Ohio-class replacement.” (To replace the Ohio ballistic-missile subs with a future “SSBN-X,” the Navy needs an additional $60 billion over 15 years, but since the first of those years is 2021 the issue isn’t quite as urgent as the Virginia contract being negotiated right now).

“We’re going to do our best within the naval service to hold the line,” Breckenridge said, “and to make sure that we don’t….”

“Well,” interrupted seapower chairman Randy Forbes, “I don’t think anyone of us on the committee questions that you’re doing your best. We just want to make sure we’re doing our best, and I’m afraid we’re not.”

via Navy To HASC: We’re About To Sign Sub Deals We Can’t Pay For | Breaking Defense.