Page 12: of Maritime Reporter Magazine (November 15, 1984)

Navy Overhaul — Update (continued from page 15) continue to operate, but manning requirements at these two yards would be substantially reduced • no reduction in workforce is scheduled for naval shipyards in FY 1985 • review of return costs of over- hauls performed on DD-963, FF- 1052, DDG-2, and DDG-37 class ships in the FY 1981-83 programs indicate naval shipyards had a cost advantage over commercial yards (Navy noted there were not many ships involved) • Navy is reevaluating the small business set aside situation as it rec- ognizes the impact of this policy on larger yards • the small business criterion of 1,000 employees is probably too large—something like 500 em- ployees would be more appropriate • $1.56 billion, or 34.1 percent of total FY 1984 depot level program funding was channelled to the pri- vate sector - 4 percent was for carrier work - 26.7 percent was for work on submarines and nuclear cruisers - 69.3 percent was for surface ship work • 58.7 percent of ship mainte- nance performed by commercial shipyards in FY 1984 was accom- plished in homeport areas • 54.1 percent of FY 1984 ship maintenance performed by private shipyards was awarded to yards in

Norfolk and San Diego • Newport News accounted for nearly 20 percent of ship repair business assigned to the private sec- tor • there is a bow wave in nuclear ship overhauls over the next several years

Public/Private Test

Competition

Navy plans to conduct a competi- tion between naval and commercial shipyards. The purpose of the com- petition is to have an apples-to- apples comparison of cost, quality, schedule and other measures of per- formance. Two similar ships will be overhauled—one in a naval yard, the other in a commercial yard.

Navy will monitor the work while in progress. An independent group will be established to review the post overhaul results.

By 1 March 1985 the ships se- lected for this pilot competition will be designated. Probably two LPD's will be chosen and competition will be on the West Coast. Presumably it will be Long Beach Naval shipyard vs. the successful commercial bid- der. In FY 1987 a similar competi- tion will be held on the East Coast.

It will most likely involve FF-1052 class frigates.

The Senate Appropriations Com- mittee in its report of the FY 1985 defense appropriations bill provided ground rules for this test competi- tion. "Overhaul competition—The

Committee recommends bill lan- guage to permit the competition of two or more ship overhauls between the private and Govern- ment-owned Navy shipyards.

Traditional practice has been to establish a funding limitation on the value of overhauls to be ac- complished in naval shipyards.

This procedure bears little rela- tionship to industrial planning, nor does it provide an incentive for cost efficiency. The proposed test program would examine the prospect of balancing public and private industrial base concerns while yielding economy through competition. The Committee does not intend for the test program to be a permanent conversion of work to the private sector. Conse- quently, the test should not be subject to the reporting require- ments of section 502 of the Fiscal

Year 1981 DOD Authorization

Act, as amended, or the cost com- parison procedures of OMB Cir- cular A-76. Changes in the indus- trial fund rate structure in the past few years permit an initial baseline for comparison of public to private shipyard costs. Con- gressional relief from civilian work force ceilings at industrial activities places public shipyards on comparable footing with pri- vate sector work force practices.

The recent inclusion of shipyard capital equipment replacement costs in the industrial fund rates conforms to normal business ac- counting procedures. With some modest adjustments, the naval shipyard cost accounting stan- dards permit the formulation of overhaul price quotations in ac- cordance with competitive bid- ding procedures.

Bill language provides that the

Secretary of the Navy must certi- fy prior to contract award, that the successful bid incorporates comparable estimates of direct and indirect costs for public and private shipyards.

The Secretary of the Navy should report to the Committee on the results of the test and provide an assessment of competition on the public and private shipyard in- dustrial base."

Victory Ship Reactivation

The House Appropriation Com- mittee added $4.2 million to the defense budget to reactivate and test two Victory ships now in re- serve fleet lay-up. "In testimony before the Commit- tee, the Navy agreed that there is merit in bringing some victory ships out of lay-up and determin- ing their complete status. The

Committee believes that the Navy and MarAd would then be better able to tell if the Victory ships are still a viable asset, and, if so, what the mobilization costs and re- quirements would be. The Navy has estimated that the cost to bring out a single victory ship and restore it to operational test capa- bility is only $2.1 million.

The Committee is therefore rec- ommending the addition of $4.2 million for the Navy to sponsor restoration of two victory ships to operational test capability. The

Committee believes that these two ships should be from two dif- ferent NDRF sites, one on each coast, with the work being bid on a coastwide basis for both ships for completion in private ship- yards. Due to the technical exper- tise which should be required in this restoration, the Navy should use RFP rather than IFB proce- dures in order to insure technical qualifications as well as cost real- ism in the bidding process."

Ready Reserve Fleet

The House Appropriations Com- mittee added $10 million to fund additional costs to operate and maintain ready reserve fleet (RRF) ships. In preparing its budget Navy anticipated that the ready reserve fleet would consist of 47 ships. The size of the fleet is now expected to be 66 ships within this year.

Navy was also directed by the

House appropriations Committee to prepare a plan for dispersing 40 to 50 of the 77 RRF ships projected to be in inventory by 1988. This plan is to be submitted along with the FY 1986 budget request. Additionally, by the end of this year a minimum of six to ten RRF ships are to be relocated to major commercial ports "such as Portland, Mobile and New

York City." (continued on page 20)

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