American Shipbuilding Association

House Defense Appropriations Committee Acts

On 22 July, the House of Representatives passed H.R. 2561, the fiscal year 2000 Defense Appropriations Bill. The House approved the Navy’s Shipbuilding and Conversion Account (SCN) requested funding levels for the construction of six new ships in FY’00, but cut $21.9 million from the advanced procurement dollars requested for the CVN-69 refueling.

Congressman Duke Cunningham (R-CA), with strong support from Chairman Jerry Lewis (R-CA), increased funding for the National Defense Sealift Fund by $320 million to procure a 20th Large Medium Speed Roll-on/Roll-off (LMSR) ship to replace an Army LMSR, which will be modified for $30 million to meet the third ship requirement of the Marine Corps Maritime Prepositioning Fleet Enhancement (MPF-E) program.

Congressman Rodney Frelinghuysen (R-NJ) provided a boost to the Navy’s Maritime Technology program (MARITECH) through an increased appropriation of $5 million above the Navy’s meager budget request of $19.7 million. Last year, the Navy and shipbuilding industry concluded that $80 million per year was required for this joint industry/government program to revolutionize the ship manufacturing process to reduce the costs of commercial and naval ships. The Navy agreed to fund the program at $40 million per year with industry investing the other $40 million.

While the American Shipbuilding Association commends the House Appropriations Committee on these programs, the industry is concerned with other actions. Section 8008 of the H.R. 2561 would preclude the Navy from entering into a new, or expanding a current, Multi-Year Procurement (MYP) contract. MYP contracting in shipbuilding is producing tremendous savings for the Navy and stability for the critical shipbuilding industrial base. The MYP contract for 12 DDG-51 destroyers, for example, is producing savings of $1.4 billion to the taxpayer. Because of these savings, the Authorization conferees have recommended extending the MYP to the last six DDG-51’s to be procured in fiscal years ’02 and ’03. It is important for section 8008 to be deleted in conference and that the conferees specifically approve extension of the MYP on DDG-51 in order that these kinds of savings continue to accrue.

The reduction of $21.9 million in FY’00 and $11.4 million in FY’99 to advanced procurement funding for the CVN-69 carrier refueling will preclude the timely nuclear and non-nuclear planning for the refueling and defer the procurement of components, hardware and other material required to execute the refueling. These cuts will only defer the need for more dollars in fiscal year 2001, delay schedule and increase cost. Similarly, the $35 million rescission in the Virginia class submarine program was based on savings achieved by the shipbuilders, but these savings have already been applied by the Navy against the program through Ship Cost Adjustments. Consequently, these cuts will adversely impact the production schedule and cost of the Virginia class submarine — which has no excess funds budgeted.

Appropriators Acknowledge Importance of NDF Program

The House Appropriations Committee did not provide needed dollars to the National Defense Features (NDF) program in the National Defense Sealift Fund, but it did include report language acknowledging the benefits of this program to meeting DOD surge sealift requirements in a cost-effective manner. The NDF program was established by Congress in 1990 to promote the design and construction in U.S. shipyards of bona fide dual-use ships. These ships would be operated in commercial trades in peacetime, but be optimally designed to meet DOD surge sealift in time of emergency. The cost of the defense features would be much less than the government’s current practice of buying and converting used, foreign-built commercial ships, and then maintaining them in an inactive status throughout their lives. The cost of the inactive reserve fleet, known as the RRF, is further exacerbated by the fact that these ships do not have a complement of a fully trained crew when an immediate activation is required as in the Persian Gulf War of 1990.

The House report language indicates some confusion concerning the dual-use design of these ships. It suggests, for example, that the shipowner should secure financing for a NDF ship prior to receiving a commitment from DOD to pay for the design and construction of the ship’s defense features. These are not features that are bought and attached to a commercial ship after the fact, but rather features that are built into the ship as an integral part of its design and operation. Therefore, there must be a commitment from DOD to pay for the design, construction, maintenance, and operating costs of the defense features up-front, before financing is secured, or else the ship owner/builder will secure financing for the cost of a purely commercial ship. The NDF program offers a tremendous opportunity for DOD to secure fully manned, dual-use ships at a very economical price. FastShip, Inc. of Pennsylvania, is prepared to offer DOD just such ships, but the window will close this year without a funding commitment. This opportunity should not be missed!

"Globalization" of the U. S. Defense Industrial Base

"The British are coming! The British are coming!" So are the French and Germans and other European countries!  And they are coveting our air, land, and sea defense industrial base.  What once was unthinkable is now being advocated by senior DOD procurement officials. The "unthinkable" is that some within DOD believe that the time has come for the U.S. to no longer rely upon its ability to self-sustain its defense capabilities. Instead, they espouse the need to ensure that a never before reliance be placed on a "globalization" of an international defense industry. To put this globalization issue in perspective, DOD supports trans-atlantic mergers because they would allow combined U.S.-European entities to compete for each nation’s defense contracts. Ironically, as a result of prior DOD support of domestic mergers in the defense industry, DOD now believes it must rely upon foreign sources to ensure competition - - a "slippery slope?"

"Globalization" is based on the belief that a new world order exists, and that future conflicts will be based on allied force coalitions that are totally dependent upon interoperability of military weapon systems and equipment that will be procured from a world class of international suppliers. However, the concept of globalization is flawed for five basic reasons.

First, if the U.S. becomes dependent upon allied coalitions, there is no assurance that allied countries will always be supportive of initiatives that are determined to be in the national interests of the U.S.

Second, allied countries have never paid their "fare share" for support of allied coalitions. For example, the U.S. defense systems performed 90% of the operations in Kosovo. Furthermore, allied countries historically have not spent sufficient resources on defense. Instead, they have relied upon the U.S. to fund and provide an umbrella of defense for the free world.

Third, allied countries have placed ever increasing pressure on the U.S. to buy more of their defense products to offset a purported "defense trade deficit," and are demanding offsets of up to 150% from U.S. defense contractors. The major fallacy of the defense trade deficit fiction is that it totally ignores the enormous overall trade deficit that the U.S. has with these same countries.

Fourth, many of these same countries have exacerbated the overall U.S. trade deficit by subsidizing their own commercial industries, and these practices are eroding the U.S. defense industrial base. The subsidy practices caused the U.S. shipbuilding industry to lose significant market share for commercial ship orders, and have allowed European countries to increase their market share to over 50% of commercial aircraft orders.

Fifth, even though American Sea Power has played a vital role in each of the regional conflicts of the last 10 years, European countries and some in DOD are seeking the repeal of the U.S. build requirements for ships for the U.S. Navy under the theory that "free trade" will save DOD money. However, the subsidy practices of the European countries are inconsistent with the theory of free trade; they distort the trade balances of all countries; they are adversely affecting the defense shipbuilding industrial base; and they are apparently ignored in discussions involving interoperability and coalition forces.

The haunting question that has yet to be adequately addressed is to what extent will DOD support the further erosion of the U.S. defense industrial base? Should that base be forsaken for globalization and interoperability? Shouldn't the U.S. insist instead that our allies buy U.S. made defense systems to achieve interoperability?

Our founding fathers, who were smarting from a British invasion over 200 years ago, considered defense to be of such importance that they highlighted its importance by including in the Preamble of the U. S. Constitution the need to "provide for the common defence." Today the foreign invasions are economic, and "free trade" is being shrouded under the mantel of "interoperability" and "coalition." However, the adage of "penny wise and pound foolish" is just as valid today as it was when Adam Smith, the acknowledged father of "free trade," stated that an exception to the tenets of free trade were the laws that protected the shipbuilding industry that was essential to the preservation of the national "defence" of England. Perhaps it is time to revisit and reaffirm the wisdom of Adam Smith and our forefathers as we approach the next millennium.

Proposed "Blacklisting" Rule Ignites Widespread Opposition
Throughout Entire Defense Industry

A proposed change to the Federal Acquisition Regulation (FAR) would permit the Government to exclude a contractor from bidding on future government contracts if it determines that the contractor has a record of non-compliance with tax laws, or "substantial" non-compliance with labor laws, employment laws, environmental laws, antitrust laws or consumer protection laws.

In anticipation of a significant number of public comments being submitted, the Government extended the normal comment period to 120 days rather than 30 or 60 days. Although the comment period does not expire until November 8, 1999, a groundswell of opposition to the proposed rule has already developed throughout the entire defense industry. The defense industry supports full compliance with all of the referenced laws in the proposed rule. However, the focus of its concern is on the fact that the proposed rule uses a subjective rather than an objective standard for determining whether full compliance with the law has occurred. In this regard, the Council of Defense and Space Industries Association (CODSIA), which is comprised of eight defense related associations, including the American Shipbuilding Association, is expected to submit written comments in opposition to the proposed rule. Other groups that have indicated that they will submit written comments in opposition to the proposed rule include the U. S. Chamber of Commerce, the National Association of Manufacturers, the Business Roundtable, and the Public Contract Law Section of the American Bar Association.

Industry News

BIW is honored at Smithsonian Award banquet

Congratulations to Bath Iron Works (BIW), Bath, ME, for recently being honored as a finalist in the manufacturing category at the Computerworld Smithsonian Awards gala dinner. BIW was nominated for its work in precise electronic photographing of assembled ship sections. BIW implemented the world’s first portable digital close-range photogrammetry measurement system, a process that involves using digital photographs to determine precise 3-D locations on an object. BIW has been employing photogrammetry since 1994, which is significantly reducing shipbuilding costs and eliminating excess steel between joining parts.

NNS Reaches Tentative Agreement With Union

On 23 July, Newport News Shipbuilding (NNS), Newport News, VA, reached a tentative agreement with United Steelworkers of American Local 8888 on a new 58-month contract.