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Inflation in the Costs of Building Aircraft Carriers 1 (April 2016)

handle is hein.congrec/cbo2874 and id is 1 raw text is: ~APRI L2016 Inflation in the Costs of Building Aircraft Carriers The Department of Defense (DoD) submitted to the Congress the Navy's 2016 shipbuilding plan for fiscal years 2016 to 2045 in April 2015.1 As detailed in that plan, the Navy intends to purchase six CVN-78 Gerald R. Ford class aircraft carriers over the 2016-2045 period. Construction of the lead ship, the Gerald R. Ford, is nearly finished. The next carrier in the class will be the John E Kennedy (CVN-79). Funding for that ship began in 2007, the Congress officially authorized its construc- tion in 2013, and appropriations for it are expected to be complete by 2018. In 2006, the Congress placed a limitation (hereafter referred to as a cost cap) of $8.1 billion on the amount the Navy could spend on the second and following ships in the Ford class. That amount could be adjusted to account for economic inflation and other factors. (The legislation did not clearly define economic inflation, but the Navy has interpreted it to mean increases in the prices of labor and materials after 2006 for the carrier program.) As a result of such adjustments, the Navy-in 2013-raised the cost cap to $11.5 billion. Actual inflation in the prices of labor and materials was the most important contributor to the rise in the cost cap, accounting for $2.5 billion of the $3.4 billion increase, according to analyses by both the Navy and the Congressional Budget Office. From 2007 to 2013, economic inflation specific to the carrier program totaled 31 percent, an average annual rate of 3.96 percent, slightly less than the 4.18 percent rate the Navy had projected in 2006. This CBO report examines the Navy's inflation estimates, as directed by the conference report 1. Department of the Navy, Report to Congress on the Annual Long- Range Plan for Construction of Naval Vesselsfor Fiscal Year 2016 (March 2015), http://tinyurl.com/ocrqtfc. for the National Defense Authorization Act (NDAA) for Fiscal Year 2016 (S. 1356, which became Public Law 114-92). The Limitation on Costs for Follow-On Ships of the Ford Class In the John Warner National Defense Authorization Act for Fiscal Year 2007 (PL. 109-364), which was signed into law in October 2006, the Congress stated that the Navy could not spend more than $8.1 billion per ship to build Ford class aircraft carriers.2 According to the act, the cost cap could be adjusted for one or more of the following reasons: Increases or decreases in costs attributable to economic inflation after September 30, 2006; Increases or decreases in costs attributable to compli- ance with changes in federal, state, or local laws enacted after September 30, 2006; Outfitting costs and postdelivery costs incurred for a given ship; Increases or decreases in costs attributable to the installation of new technology in a given ship, as compared with the baseline technology established in the program acquisition estimate that was approved in December 2005; Increases or decreases in nonrecurring design and engineering costs attributable to achieving compliance with the cost cap; and 2. For the lead ship of the class, the Congress imposed a cost cap of $10.5 billion, which was ultimately raised to $12.9 billion.

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