B-133170 Management of Ship Overhaul and Repair Programs

.--...---. ,,. -<_. - . ,‘“. : “_ . i ._ ,I . Department of the Navy _ ,_,_- _ . - - -.. -. ~ _ * ._ ._*__ ___“.. __ _. .1~ ..-. * I , . COMPTROLLER GENERAL OF THE UN ITED STATES WL~~~~NGT~N, 0-c. 20548 The Honorable George H. Mahon Chairman, Committee on Appropriations ‘: -,-~ * . -1 House of Representatives Dear Mr. Chairman: , 5 In accordance with the request contained in your Committee Report on.the Defense Appropriation Bill, 1973 (Report 92-1389) I dated September 11, 1972, we have reviewed the Navy‘s ship overhaul and repair programs for 1972 and 1973. Our work on the 1973 programs shows the status of those programs as of March 1973. This report points out that in both 1972 and 1973, the Navy did not overhaul as many ships as it said it was going to overhaul when it testified before your Committee. This occurred primarily because the Navy did not foresee and therefore did not budget for the substantial increase in the cost of overhaul and repair work in Navy shipyards during 1972 and 1973. The increased cost was caused by a combination of (1) more direct labor man-days required for overhauling than was planned and (2) higher man-day rates charged by the shipyards than was anticipated. Currently the 10 Navy shipyards are not being fully used. They have an unused capacity which is causing an increase in their operating cost. Although the recent announcement of the planned closures of two shipyards should help this situation, we believe there are other options available to the Navy for reduc- ing ship overhaul costs. These are discussed in the report. During 1972 and 1973, the Navy transferred funds between the overhaul and repair programs involving several years. Further work is being done to determine whether these uses of funds were proper. We will advise you later of the results of our determina- tion. Our findings and conclusions were discussed with officials of the Department of the Navy, but we did not request written comments from them, in accordance with agreements made with your office. As further agreed, a copy of this report is being sent to the Secretary of Defense and to the Secretary of the Navy for internal use only. We do not plan to distribute this report further unless you agree or publicly announce its contents0 Sincerely yours3 Comptroller General of the United States -x%.--------- ---- - -- - ------_-Contents -Page DIGEST 1 CHAPTER 1 INTRODUCTION 5 2 THE EFFECT OF INCREASED COSTS ON THE 1972 AND 1973 OVERHAULPROGRAMS 7 The 1972 overhaul program 7 Execution of the 1972 program 8 Reprograming in 1972 9 The 1973 overhaul program 10 Supplemental appropriation for overhaul 11 Supplemental appropriation for repairs 12 Funds status of the 1973 program 13 Reasons for ship deletions 14 Changes in the 1972 program 14 Changes in the 1973 program 15 Major alterations 17 3 INCREASED MAN-DAYS REQUIRED FOR OVERHAULS 19 Increased overhaul costs at Navy shipyards . 19 Work not included in original estimate 22 Arbitrary allocation of labor and material costs 23 Incomplete prior overhauls used as a cost base 23 4 INCREASED COST PER MAN-DAY AT NAVY SHIPYARDS 25 Wage and salary increases 26 Overhead costs 28 Mare Island Shipyard 29 Norfolk Shipyard 29 Charleston Shipyard 30 Pearl Harbor Shipyard 31 5 COST-ESTIMATING PROCEDURES 33 Fiscal year 1972 33 Fiscal year 1973 35 Fiscal year 1974 35 Page CHAPTER Overhaul interval and duration and theI relationship to repair I 36 Unanticipated repairs -. 37 6 CONCLUSIONS AND T\IATTERSFOR CONSIDERATION BY THE COKHITTEE 39 Matters for consideration by the commit tee 40 7 SCOPE OF REVIEW 41 APPENDIX I Ship classifications 43 II Illustration of estimating method (fiscal year 1974) 48 ABBREVIATIONS CINCPACFLT Commander in Chief, Pacific Fleet COMSUBPAC Commander, Submarine Forces, Pacific CONUS Continental United States - FMP Fleet Modernization Program GAO General Accounting Office OSD Office of the Secretary of Defense SUBLANT Submarine Forces, Atlantic i ‘. 1 . COX?TROLLERGEQERAL'S REPORT TO MANAGEMENT OF SHIP I THZ COI@UTTEEON-APPROPRIATIOUS OVERHAUL AND REPAIR PROGRAMS ,YOUSEOF REPRESENTATIVES Fiscal Years 1972 and 1973 B-133170 i I i -seDIGEST --- . L WHYTHE REVIEbIWAS MADE Budget reque:ts for fiscal years 1972 and 1'973 were based on-overhaul Fiscal years 1972 and 1973 were experience in fiscal years 1969 and characterized by substantial changes 1970. Cost estimates were developed Alin thougkthe Navy's'i~~~~~aijjl"~~~~~~xe‘b'~~l ship overhaul program.l‘='the from (1) forecasts of the amount of repair that ships would need when funds it requested in these years, they entered overhaul in 1972 and fewer ships were overhauled than 1973, expressed as direct labor man- originally planned. Because of this, days, and (2) projections of man-day the House Committee on Appropriations rates and material costs in those directed that GAO review the Navy's years. ship overhaul and repair programs for 1972 and 1973. The procedures used to forecast the number of man-days needed for over- As agreed, GAO did not request writ- haul were not accurate because: ten comments from the Navy. However, GAO discussed the findings and conclusions in this report with Navy --Generally, the man-days required representatives and included their for overhaul work were understated. comments where pertinent. --Some planned work was not included FINDIflGS AND CONCLUSIONS in the estimates. The Navy did not anticipate, and --Labor and material costs were al- therefore did not budget for, the located arbitrariiy. substantial increase in the cost of overhaul work in Navy shipyards dur- --Prior overhaul costs, which were ing fiscal years 1972 and 1973. Ac- incomplete, were used to estimate tual ship overhaul costs were 27 per- future work. (See p. 19.) t cent higher in 1972 than original estimates. As of March 1973 the Also, projections of man-day rates 1973 ship overhaul costs were about in Navy shipyards were substantially 20 percent higher than the original understated. Shipyard repair costs, estimates. (See p. 7.) expressed as a cost per man-day, increased from $69 in 1969 to $109 in Because overhaul costs were higher 1973--an increase of almost 60 per- than available funds, the Navy had cent. Most of the $40 increase, to defer overhaul work planned for about $28 a man-day, is attributable 1972 and 1973. The original 1972 to wage and salary increases for overhaul schedule of 139 ships was direct and indirect employees. The reduced to 102 ships, and the 1973 remainder, about $12 a man-day, is overhaul schedule of 95 ships was re- attributable to increased overhead duced to 84. (See p. 7.) costs. (See p. 25.) TkLSg.& Upon removal, the report cover date should be noted hereon. Various factors contributed to the ments, were used to prepare the 1974 overhead coit increase, but the most overhaul program. (See pp. 33 and 39.1 significant factor was reduced employment at the shipyards. Employ- The Navy continues to be faced with ment dropped from about 90,000 in high costs for repair work in its 1969 to an estimated 67,000 at the shipyards. Additional pay raises end of 1973--a decrease of about can be expected in the future as well 25 percent. (See p. 26.) as increased material costs. (See p. 39.) The increased cost for overhauls in 1972 and 1973 revised the outlook The most significant cost influence for ship maintenance. Although the is the low use of the Navy shipyards Navy originally anticipated that in terms of their capacity. If ship- only 1 ship's overhaul would be over- yard capacity is expressed as a due at the end of 1972, 21 ships function of shipyard employment with overhaul costs of $87 million levels, the 10 existing shipyards were overdue by June 30, 1972. Be- are operating at about 75 percent of cause this backlog carried over into their 1969 levels. Since overhead 1973 and because overhaul costs in- costs have not dropped proportion- creased, the number of ships overdue ately to the use, the overhead cost for overhaul has further increased. per unit of production has increased. The Navy projects that 33 ships, with an estimated overhaul cost of The Navy has several options to con- $233.4 million, wil-1 be overdue at trol costs. the end of 1973. (See pp. 16 and 39.) --Close selected shipyards and in- This undoubtedly will affect the crease use of the remaining yards. plans for ship overhauls in 1974 and future years. Furthermore, the full --Emphasize improving efficiency and impact of the Vietnam operation on cost effectiveness of its shipyards. overhaul costs may not have been totally realized or provided for in --Reduce fleet siie by inactivating the 1974 overhaul program. (See older ships with less reliability p. 39.) and high maintenance costs. (See p. 40.) Because of the increased costs for overhaul in 1972 and 1973, the Navy The recent announcements of closures made numerous schedule changes and of two shipyards should help this transferred funds between the over- situation. Although we did not haul and repair programs involving specifically review the effect of several years. Further work is being these closures, ship overhaul and done now to determine whether these repairs workloads at those yards can uses of funds were proper. If found eventually be redistributed, to in- to be improper this will be reported crease the level of use of other separately to the Secretary of the shipyards. (See p. 40.) Navy. (See pp. 9 and 39.) MATTERS FOR CONSIDERATION The Navy has changed its procedures BY THE COMMITTEE for estimating the work needed when ships are overhauled.

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