American Shipbuilding Association

House and Senate Complete Defense Bills –
Navy Modifies Future Years Shipbuilding Plan

Returning from its month long August recess, Congress is in the process of completing work on the FY 2007 Defense Authorization and Appropriations bills. 

Reports indicate that two provisions vital to the health and stability of the shipbuilding industry have been adopted by the House and Senate Armed Services Conferees on the Defense Authorization Bill.  House and Senate Conferees on both the Defense Authorization and Appropriations Bills have agreed to the Senate version of both bills approving the Navy’s request to split-fund the first two ships of the new destroyer class, DDG-1000.  The authority to split fund DDG-1000 will permit the simultaneous construction of the first two destroyers at the nation’s two surface combatant shipyards.  Conferees have also reportedly agreed to uphold the House provision providing $400 million for the advance procurement funding in order accelerate the purchase of two submarines per year beginning in FY 2009.  Though the Navy has stated that the future force structure must include a minimum of 48 submarines, the Department of Defense has opposed accelerating submarine procurement.  DOD states that the additional advance procurement funding would obligate it to provide the additional funds for the second boat and disrupt its long-range shipbuilding plan.  However, the submarine force structure and submarine industrial base will not be maintained unless the rate of submarine construction is increased to two per year prior to 2012. 

As Congress completes the FY 2007 Defense bills, the Navy is actively involved in preparing its budget for fiscal year 2008.  According to an article that appeared in the August 28th edition of Inside the Navy, preliminary versions of the Navy budget closely mirror the future years’ defense plan for FY 2008-2013 that was submitted with the FY 2007 budget request. 

The proposed FY 2008 plan provides for the procurement of seven ships, including one aircraft carrier – the first of the CVN-21 class, one Virginia class submarine, 3 littoral combat ships, one LPD amphibious transport dock ship, and one T-AKE auxiliary ship.  While the FY 2008 plan includes few changes, it falls short of the number of ships and the $14.1 billion needed to begin rebuilding the fleet to the 313-ship level the Department of Defense outlined in the Quadrennial Defense Review and 30-year shipbuilding plan submitted earlier this year. 

House Member Urge Increased Funding for Deepwater

In a letter to House and Senate Conferees on the Homeland Security Appropriations  Subcommittee, Rep. Frank LoBiondo (R-NJ) and 47 House Members are urging the inclusion of $993.6 million, $60 million above the Administration’s budget request, for the Coast Guard’s Integrated Deepwater Program.  Signatories to the letter also asked their colleagues on the Appropriations Committee to recede to the Senate mark which includes $184 million in supplemental funding for fiscal year 2006. 

The U.S. Coast Guard operates one of the oldest coastal fleets in the world.  The Deepwater Program is the 25 year, $24 billion recapitalization plan designed to replace aging Coast Guard assets with 21st century ships and aircraft, including three new classes of cutters to meet traditional and expanding missions.  However, in order to maintain the acquisition plan, and avoid cost growth and delivery delays, the program must be funded at a minimum of $1 billion annually. 

The Administration requested $934 million in FY 2007 for Deepwater, of which $499 million is for surface ships.  The House Appropriations Committee cut $41 million from the budget request, and denied funding for the Fast Response Cutter (FRC), one of the new classes of replacement cutters.  The House and Senate also reprogrammed $79 million in prior year funds for FRC for the acquisition of patrol boats.  The Senate cut $20 million from the Administration’s request, but fully funded the budget request for surface ships.  However, the Senate rescinded $20 million in prior appropriations for the Offshore Patrol Cutter. 

Statements in the letter assert that that the increased funding in FY 2007 and replenishment funds for FY 2006 “will help put the program on track for completion over the next 20 years.  Full funding will advance deliveries and reduce the heavy financial burden of maintaining obsolete and worn-out assets that are draining away recapitalization funds.”  Though acknowledging the current climate of budget constraints, the signatories point out that each year that Deepwater is delayed because of insufficient funding, maintenance costs for existing assets will continue to rise and the Coast Guard will not have the new assets it desperately needs to meet current and expanding mission responsibilities. 

Members signing the letter include Representatives Frank LoBiondo (R-NJ), Don Young (R-AK), William Jefferson (D-LA), Peter DeFazio (D-OR), Sue Kelly (R-NY), Eliot Engel (D-NY), Barney Frank (D-MA), Elijah Cummings (D-MD), Gene Taylor (D-MS), Jim Saxton (R-NJ), Gene Green (D-TX), Bart Stupak (D-MI), Steven LaTourette (R-OH), William Delahunt (D-MA), Howard Coble (R-NC), Robert Andrews (D-NJ), C.A. Dutch Ruppersberger (D-MD), Michael Fitzpatrick (R-PA), Neil Abercrombie (D-HI), Bobby Scott (D-VA), E. Clay Shaw (R-FL), Vito Fossella (R-NY), Dave Reichert (R-WA), Timothy Johnson (R-IL), Tom Allen (D-ME), Henry Brown (R-SC), Timothy Bishop (D-NY), Charles Boustany (R-LA), Thelma Drake (R-VA), Loretta Sanchez (D-CA), Todd Platts (R-PA), Charlie Melancon (D-LA), Michael Doyle (D-PA), Walter Jones (R-NC), Madeleine Bordallo (D-GU), Brian Higgins (D-NY), James McGovern (D-MA), Stephen Lynch (D-MA), Jo Bonner (R-AL), Mario Diaz-Balart (R-FL), Mike Ross (D-AR), Robert Brady (D-PA), Robert Wexler (D-FL), Chip Pickering (R-MS), Allyson Schwartz (D-PA), Jim Langevin (D-RI), Mark Foley (R-FL), and Jo Ann Davis (R-VA).

NASSCO to Build Nine Double-Hull Tankers

In early August, National Steel and Shipbuilding Company (NASSCO) of San Diego, California, announced finalization of a $1 billion contract with U.S. Shipping Partners to build nine double-hull product tankers for the U.S. coastwise trade.  The deal also includes an option for the construction of five additional ships.  NASSCO President Fred Harris stated that “this contract is the largest commercial shipbuilding contract in NASSCO’s history and positions [the] shipyard to remain the premier builder of Jones Act ships.”

At the end of August, NASSCO delivered the last of four tankers to BP Shipping Company of Alaska.  The company is currently building the T-AKE combat logistics force ships for the U.S. Navy.  NASSCO is the only shipyard on the West Coast capable of building and repairing large ocean-going ships. 

Proposed Coast Guard Regulations Would Add Non-Value Added Cost to Naval Ships

The U.S. shipbuilding industry, which is arguably one of the most highly controlled defense industries when it comes to ensuring the national security of shipyard facilities and the shipbuilding workforce, is subject to existing and proposed Coast Guard security regulations.  These regulations are redundant when compared to security requirements already imposed by the Department of Defense (DOD), and would result in non-value added security costs which would increase construction costs of Navy and Coast Guard ships. 

The Coast Guard, under the authority of the Maritime Transportation Security Act of 2002, has published regulations requiring maritime related facilities, including U.S. shipyards, to develop security plans and require all individuals who have access to these facilities to possess special identification credentials  - - specifically, a proposed biometric fingerprint information card called a Transportation Worker Identification Credential (TWIC) card.  DOD has already developed a biometric card called the Common Access Card, which is currently in limited use and in the process of being expanded to all facilities and vessels that must meet DOD security requirements, including shipyards.  While intended as a prudent execution of its statutory authority to ensure the safety and security of America’s sensitive maritime infrastructure, the Coast Guard did not coordinate its regulations with DOD or the Department of Energy, as it was required to do by Congress and a Presidential Directive.  Both agencies have stringent security access and identification card requirements, some of which exceed Coast Guard requirements.    

 In addition to being redundant, the proposed Coast Guard security requirements are conservatively projected to add tens of millions of dollars of non-value added costs to the construction costs of ships in its first year of implementation.  The major cost drivers include the cost to issue approximately 200,000 TWIC ID cards; the cost to perform background checks on employees who already have DOD security clearances; and the costs associated with administering the program.  For example, the costs of the TWIC cards alone will be at least $20 million in the first year.  Furthermore, the ten-year cost of the program is expected to exceed $200 million.

Congress, while supportive of a biometric card, does not support redundant security requirements and expressly so stated in the Maritime Transportation Security Act’s originating bill and accompanying report language.  At a time when shipyards are diligently working to reduce the unit cost of naval ships, the proposed Coast Guard regulations would force the shipyards to expend hundreds of millions dollars, resulting in increased costs of ships.   

The American Shipbuilding Association (ASA) is actively seeking a specific exemption from the Coast Guard’s new redundant regulatory requirements for shipyard facilities and vessels already in compliance with the more stringent DOD security plan and identification requirements.  ASA has been working with the Navy, Coast Guard, and the White House’s Office of Management and Budget (OMB) in an ongoing effort to resolve the redundancy issue.  Also, the Senate recently passed its version of major port security legislation, H.R. 4954, on September 14, 2006.  Prior to its passage, Senator Olympia Snowe (R-ME) successfully amended the measure to require the General Accounting Office (GAO) to identify and report to Congress on redundancies and inefficiencies in connection with federal background checks. 

Industry News

New Address for US Joiner

US Joiner LLC has moved its headquarters from Waynesboro, Virginia to Crozet, Virginia.  The company’s new address is:
US Joiner LLC
Crozet Commons
Ste. 200
5690 Three Notched Road
Crozet, VA 22932-3109
Tel: 434.220.8500

US Joiner, a woman-owned business, designs and engineers marine interiors, and is presently outfitting interior spaces for the LPD, T-AKE, and LCS programs.

Well Said!

“`…If you’re not there, you don’t count… People understand, now, the credible, powerful, decisive, deterrent message that ships can send, because it is impressive to see [ships] off your coast.  It makes people pause.  Sometimes that pause is very valuable because it makes people act more conservatively.  You’re also sending a strong signal about your commitment…’”

Admiral John Nathman
Commander, U.S. Fleet Forces Command
Excerpt Interview with Defense News
August 15, 2006