Launching a New Navy

Shipbuilding and buying bungles beset the Navy's top officer, Adm. Michael G. Mullen, as he sets the service on a new course.

The story in Navy shipbuilding in recent years has been runaway costs, delayed deliveries and an ever shrinking battle fleet. Now, the Navy has had enough, and is looking to Congress to reform a military acquisition system that has placed far too much control in the hands of contractors, says Adm. Michael G. Mullen, chief of naval operations. "We have taken a lot of our oversight capability out of the Navy and given it to the contractor," he says. "The pendulum swung too far; we have got to swing it back."

Mullen says the Navy also is working closely with shipbuilders, whose shipyards he calls "national treasures," to rein in soaring construction costs. In recent years, construction costs have skyrocketed in part because the Navy buys fewer and fewer ships, yet wants them loaded with the latest high-tech sensors, computer networks and weapons. Mullen says the problem is endemic across the entire defense industry and other military services face similar challenges. From ships to aircraft to armored vehicles, the costs and complexities of high-tech weapons have soared, in some cases frighteningly so.

The Navy chief says contractors "know we have limits, and that the pockets are not infinitely deep." Unless the shipbuilding industry makes needed changes, Mullen says, the fleet will shrink to a dangerously small size because the Navy will be unable to afford new ships. Speaking at a May 1 Government Executive breakfast meeting at the National Press Club in Washington, Mullen defended his recently released plan, which includes buying 293 ships over the next 30 years. As soon as the ambitious plan became public, the Congressional Budget Office and others immediately questioned his assumption that construction costs would hold steady or even drop.

The near doubling in construction costs for the Navy's newest warship, the small, high-tech Littoral Combat Ship, was Exhibit A for CBO and others who criticized Mullen's assumptions. The Navy plan seeks $15.4 billion per year for new ships. CBO estimated annual costs would be closer to $20.6 billion annually. Navy shipbuilding went aground earlier this year when the Navy and Lockheed Martin Corp. were unable to contain rising costs on the LCS. The new warship is small and maneuverable so it can operate in coastal waterways. It also was supposed to be a relatively inexpensive, largely off-the-shelf job, originally pegged at $220 million per ship. The LCS was to form a significant chunk of the future Navy; the service wants to buy 55 of the nimble vessels by 2017. The ship is the linchpin of the Navy's shift in strategy from battle on the high seas to what Mullen calls the "green water and brown water," threats just offshore, such as mines, terrorists in speedboats and drug traffickers.

But when Lockheed Martin reported that the price of the first LCS had ballooned to more than $400 million, the Navy issued an immediate 90-day stop work order on a second LCS the company was building. While an investigation was under way, word came that a second LCS design, this one being built by General Dynamics Corp., also was approaching the $400 million mark.

The Navy must shoulder part of the blame, industry officials and analysts say. Speaking at the April Navy League Sea-Air-Space Exposition in Washington, Northrop Grumman Corp. executive Philip Teel said building warships costs so much more than constructing commercial ships because the Navy buys so few of each design and demands constant revisions while ships are being built.

The LCS crisis highlights the perilous state of America's shipbuilders, Mullen says. Companies have failed to invest in new equipment and more efficient manufacturing techniques, and the result is delayed delivery and costs that only go one direction: up. Mullen says the Navy has "learned a lot of lessons" from the LCS. Foremost is the need to beef up its acquisition workforce.

Experienced acquisition officers are being lured into the private sector by salaries government cannot match, creating a power imbalance at the negotiating table: The Navy's remaining procurement managers lack understanding of how shipbuilders operate. But thanks to the influx of former Navy buyers, contractors have plenty of insight into the service's processes. Mullen says rebuilding the acquisition corps will take at least a half a decade.

The troubling jump in costs is only part of the problem. The end of the Cold War diminished the prospect of battle on the high seas, leaving the Navy without a peer-competitor-an enemy with a big enough navy. While the fleet has shrunk from the Reagan era's 580 ships, none other in the world comes close in size or destructive power.

The Navy operates 275 warships with an aggregate displacement of 2.85 million tons. The next 17 largest world navies combined have an aggregate displacement of 2.66 million tons, according to a report by Robert Work from the Center for Strategic and Budgetary Assessments, a Washington-based think tank that conducts analytical work for the Pentagon.

The sheer size of the Navy, despite the lack of a potential high seas competitor, explains why Mullen has been traveling the country reminding taxpayers that America is a maritime nation, dependent on sea lanes to feed its voracious consumer appetite. With America's ground forces tied down in Iraq and Afghanistan for the foreseeable future, Mullen also asserts that the Navy has become the nation's strategic reserve, able to show the flag and respond to potential global crises.

Noting that his annual procurement budget is short about "$7 billion to $10 billion," Mullen echoed other members of the Joint Chiefs of Staff in saying the nation must increase defense spending. "We can't continue to have the strategic appetite and strategic reach that we as a country have and do it on the cheap," he said. The nation devotes 3.8 percent of gross domestic product to defense, and while Mullen refused to name a specific percentage, he hinted that defense's portion of GDP should be closer to 5 percent.

Mullen touched on everything from the Navy's new strategy and the wars in Iraq and Afghanistan to personnel issues during his discussion with Government Executive Editor and President Timothy B. Clark. An edited transcript of his remarks follows. For the full presentation, click here.

On maritime strategy:

When the last maritime strategy was written, 20 years ago, we were a 600-ship Navy focused then on the Soviet Union. We're now less than half that size. We're not in as many places, yet we're a much more capable Navy now. My plan is to get us above 300 ships, to 313 ships. We're at 275 active-duty ships today. But the makeup of the fleet is also changing. In addition to the high-end capabilities the United States Navy brings-our aircraft carriers, our submarines, our cruisers, destroyers and those capabilities-the mission set is expanding into what I call the green water and the brown water. We're developing capabilities that relate to the challenges that we face here in the 21st century. We're also going to different places than we've been in the past. An emphasis right now is South America, and off both coasts of Africa-the Gulf of Guinea, which is an important area for maritime security; energy security, because of the amount of oil transported there; and also off the Horn of Africa.

On the 1,000-ship navy:

The 1,000-ship navy is a fleet-in-being of nations willing to participate in global maritime partnerships. To face the challenges we do today, nobody can do it alone. The concept has resonated extremely well around the world with chiefs of navies and the chiefs of various militaries throughout the world. There's a great deal of activity going to get at maritime security and the challenges of drugs, weapons trafficking, weapons of mass destruction, illegal immigration, fisheries violation and other criminal activities. Many countries are looking for ways to help create security through an international navy. The barriers to entry here are very low. You don't have to join; you don't have to sign a treaty. An example is the Strait of Malacca, where there were a significant number of piracy incidents. Indonesia, Malaysia and Singapore agreed to come together and provide security for that area. And since that time, about a year ago now, the number of incidents went down, and Lloyd's of London dropped the wartime insurance rates, which had been in effect since the late '90s. So it had an economic impact.

On the wars in Iraq and Afghanistan:

Iraq and Afghanistan are the leading edge of what is a generational war on radical Islamists that's going to last a long, long time. Ground forces are tied down right now. Because of that, our strategic risk is up and the Navy and the Air Force, those two services that are not as heavily engaged, are really the strategic reserve for potential challenges in other parts of the world. We also contribute to the war on the ground. I've got over 13,000 sailors who are on the ground in the Central Command area today and over 5,000 in Iraq. Whether it's our electronic warfare officers, our Seabees, who support the Marines, our SEALs, our explosive ordnance disposal personnel, Navy personnel are on the leading edge and part of that is to relieve as much pressure on the ground forces as we possibly can.

We deployed our first riverine squadron in March to Haditha Dam [in Iraq] to relieve the Marines, but also as part of this idea of a 1,000-ship Navy because I believe there'll be riverine squadron requirements around the world. I've got officers who command provincial reconstruction teams in Afghanistan. They'll come back and command a submarine, a ship, an aircraft squadron, and I believe their views of the world will dramatically shift in how they teach and train their people and what they talk about. The future Navy will be seeded with this kind of exceptional talent.

On the need for federal agency support in Iraq and Afghanistan:

There clearly is a need for more people. We talk about the three-legged stool: It's the economy, security and the rule of law or the government. Clearly, there is a need for a greater capacity coming from our government across some of these other capabilities. Should we have a Civil Engineering Corps? I'm not sure. But clearly for the kind of stabilization actions that we're involved in and we've been involved in and it looks like we will continue to be involved in, we're going to have to incentivize to get people with that kind of capability to deploy to these kinds of places.

On the strategic threats the Navy might face in the future:

The idea of a blue-water Navy, or the big sea battles, I don't expect that to happen, although I think we need to be very mindful of the buildup of the Chinese navy, and security in that part of the world. I don't see any kind of positive outcome if we were to get into a fight with China. That said, they're very actively investing in high-end technology; they're building more ships each year. Their building rate is much higher than ours right now. They've got a huge economic engine, they're focused on providing security to their people, and I see them strategically shifting from land-centric to air- and sea-centric. So we have to be mindful of that.

We've also got Iran, which is both from a rhetorical standpoint and from an action standpoint destabilizing that part of the world. They're developing nuclear weapons, or clearly they're headed in that direction. I just was most recently on a trip out to India and Pakistan; I met with the leaders of their navies. And the Indian Ocean is a big part of the world, and they've got developing naval capability that we need to continue be engaged with. So the challenges for our Navy now are not just the high-end capability and to have that as a hedge long term, but also this broader capability through green water and brown water, which is why I'm going to 313 ships.

On personnel changes and rising personnel costs:

The Navy has come down about 10,000 to 12,000 people a year. We're requesting another 10,000 or 12,000 reduction in the 2008 project. Our target number is about 322,000 active duty. We have also had a tremendous reduction in our reserves. When we get there, we will be not a smaller Navy, but a different Navy. And we're focusing on the fleet, so that it is fully manned, getting the right skills in the right billets, the right individuals. When we steady out, my personnel costs are going to start going up at 6 percent to 8 percent a year just like it is happening in every other service. It's the No. 1 problem in the [Defense Department].

In this all-volunteer force, the overall compensation package is spectacular. The health care plan that we have, both for members and families, is the gold standard in the country. That said, there are affordability limits in everybody's budget, and we're going to have to come to grips with how we're going to deal with that. We are increasing the ground forces another 90,000. That is a multibillion add to the top line. That creates increased competition for those that we're recruiting; we're all recruiting from the same pool. Somewhere between 60 percent to 70 percent of my $115 billion annual budget goes to personnel costs.

And we're making reductions on the civilian side as it doesn't make a lot of sense to me that I would come down almost 15 percent on the uniform side and not come down on the civilian side. We have 175,000 civilians who are very critical to our current capability and our future. We're looking at what's the right mix; what's the right skill set? How do we refresh our force? The average age on the civilian side is 46, 47 years old. We're going to lose a lot of them in the next 10 years. How do we bring in the young people to make sure we're OK? Those are the challenges that face us.