KEEPING MAJOR NAVAL SHIP ACQUISITIONS ON COURSE Key Considerations for Managing Australia’s SEA 5000 Future Frigate Program JOHN F. SCHANK MARK V. ARENA KRISTY N. KAMARCK GORDON T. LEE JOHN BIRKLER ROBERT E. MURPHY ROGER LOUGH C O R P O R A T I O N For more information on this publication, visit www.rand.org/t/RR767 Library of Congress Cataloging-in-Publication Data is available for this publication ISBN: 978-0-8330-8818-5 Published by the RAND Corporation, Santa Monica, Calif. © Copyright 2014 RAND Corporation R® is a registered trademark Cover design by Peter Soriano Limited Print and Electronic Distribution Rights This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited. Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial use. For information on reprint and linking permissions, please visit www.rand.org/pubs/permissions.html. The RAND Corporation is a research organization that develops solutions to public policy challenges to help make communities throughout the world safer and more secure, healthier and more prosperous. RAND is nonprofit, nonpartisan, and committed to the public interest. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. Support RAND Make a tax-deductible charitable contribution at www.rand.org/giving/contribute www.rand.org Preface The Commonwealth of Australia is pursuing options and opportunities to develop and construct the next generation of naval surface combat- ants, termed the Future Frigate. The SEA 5000 program was recently established to help decisionmakers understand the implications of vari- ous acquisition options for the new combatant program. Currently, SEA 5000 is in pre-Phase 1, focusing on setting up the essential design and construction elements that a major acquisition program needs. During this stage, it is important for the program to have a road map of various paths and steps that it could take in designing, construct- ing, testing, and supporting a naval ship. The road map should portray major milestones and decision points and the potential implications of those decisions as the program progresses. It should show options for the various potential paths through the life cycle of the program and the implications of following a particular path or paths, including the effect on other options and paths. RAND is providing materiel studies and analysis activities to support the SEA 5000 Future Frigate Design and Construction Work Package 3. The Work Package is intended to inform the continued refinement of program life-cycle options by providing a program over- view of the Naval Shipbuilding Capability Life Cycle. The desired output of the Work Package is a definition of the acquisition options available for the Future Frigate, an overview of a naval ship acquisition program (with particular attention to important considerations SEA 5000 must make early in the program), and an identification of the internal and external factors that can influence a major ship acquisition iii iv Keeping Major Naval Ship Acquisitions on Course program. This report provides that information, with the presumption that the reader has a general understanding of defense acquisition. Our work was sponsored by Australia’s SEA 5000 Future Frigate program office. This research was conducted within the Acquisition and Tech- nology Policy Center of the RAND National Security Research Divi- sion (NSRD). NSRD conducts research and analysis on defense and national security topics for the U.S. and allied defense, foreign policy, homeland security, and intelligence communities and foundations and other nongovernmental organizations that support defense and national security analysis. For more information on the Acquisition and Technology Policy Center, see http://www.rand.org/nsrd/ndri/ centers/atp.html or contact the director (contact information is pro- vided on the web page). Comments or questions on this report should be addressed to the project leader, John Schank, at [email protected] or 703.413.1100 Ext. 5304. Contents Preface ............................................................................. iii Figures ............................................................................. xi Tables .............................................................................xiii Summary ..........................................................................xv Acknowledgments ............................................................. xxv Abbreviations ..................................................................xxvii CHAPTER ONE Introduction ....................................................................... 1 Background ......................................................................... 1 Design and Build Options ........................................................ 2 Ship Acquisition Process .......................................................... 2 Factors That Contribute to Program Success ................................... 3 Organization of the Report ....................................................... 4 CHAPTER TWO Establishing and Supporting a Program ..................................... 7 Be an Intelligent and Informed Partner in the Shipbuilding Enterprise .... 8 Delineate Roles, Responsibilities, and Decisionmaking Authority .........10 Establish and Support a Program Office .......................................13 Involve All Appropriate Organizations .......................................14 Obtain and Sustain Political Support ........................................15 Develop Knowledgeable and Experienced Managers .......................15 Develop Realistic Cost and Schedule Estimates ...............................17 Understand the Effects of External Factors Beyond the Program’s Control ....................................................................... 20 v vi Keeping Major Naval Ship Acquisitions on Course Government Funding Decisions ..............................................21 Industrial Base Issues and Market Conditions ............................. 23 Economic Matters ............................................................. 24 Take a Long-Term, Strategic View ............................................. 24 Key Points in Establishing and Supporting a Program ..................... 26 CHAPTER THREE SEA 5000 Acquisition Options ............................................... 27 Pure MOTS Option ............................................................. 30 New Design, Build in Australia Option ........................................32 Evolved MOTS Options .........................................................33 Important Considerations with Different Acquisition Options .............35 Operational Requirements .....................................................35 Schedule Constraints ...........................................................35 Program Costs .................................................................. 36 Technical Risks .................................................................37 Desire for Competition.........................................................37 Industrial Base Policies ........................................................ 38 In-Service Support and Modernization ..................................... 38 Summary Comments ............................................................ 38 Important Initial Program Questions ..........................................39 CHAPTER FOUR Overview of a Naval Shipbuilding Program ............................... 43 How Are Ships Different from Other Weapon System Acquisitions? ..... 43 Ship Program Phases ..............................................................45 Design-Build Sequence .......................................................... 48 Sequential Design-Build ...................................................... 48 Concurrent Design-Build ......................................................51 Program Oversight: Major Decision Milestones ..............................55 General Timeline of the Process ............................................... 60 Ship Construction and Testing Milestones ....................................61 CHAPTER FIVE Acquisition and Contracting Strategy .......................................65 Government Interaction with Industry ........................................65 Contents vii Different Types of Contracts.................................................... 68 Allocate Contract Risk Appropriately Between Government and Industry .......................................................................71 Obtain Needed Intellectual Property and Technical Data Rights ..........73 Develop Processes for Managing Contract Changes .........................76 Establish an Agreed upon Tracking Mechanism and Payment Schedule ...................................................................... 77 Key Points with Acquisition and Contracting Strategies .....................79 CHAPTER SIX The Solutions Analysis Phase ..................................................81 Set Operational Requirements ...................................................82 Identify Important Considerations ............................................ 84