American Shipbuilding Association

(Washington, D.C.) – Today, The House Armed Services Seapower and Expeditionary Forces Subcommittee received testimony on shipyard modernization initiatives and ship cost reduction. Cynthia L. Brown, President of the American Shipbuilding Association; Mr. Philip A. Teel, President, Northrop Grumman Ship Systems; and Mr. Michael W. Toner, Executive Vice President, General Dynamics Marine Systems, testified on actions Congress could take to incentivize capital investments and boost ship production.

Members of the subcommittee in attendance were Chairman Gene Taylor (D-MS), Ranking Member Roscoe Bartlett (R-MD), Representatives Madeleine Bordallo (D-Guam), Rep. Joe Courtney (D-CT) and Joe Sestak (D-PA). Taylor and Bartlett stressed the need for open dialogue between industry and the Navy. Mr. Taylor stated the government should assist shipyards in certain government furnished equipment such as laser cutters, laser welders and computer added design (C.A.D.) Taylor also emphasized the need for “special incentive fee” contracts citing the lack of incentives to invest in modernization given low rates of production.

            Ms. Brown stated the Navy’s fleet has reached a 90-year low of 276 ships, and that “production rates of five capital ships a year, combined with ever changing program schedules and profiles, have presented U.S. shipyards with tremendous challenges.” She reiterated that “more capital investment in processes and facilities would increase efficiency and further reduce cost, but the ability to do so depends on cash flow, work projections, and profits to demonstrate a return on such investments to the shipyard corporate parents - - a case which is difficult to make in low rates of production.” She recommended that Congress could incentivize greater capital investment by requiring the Navy to include in all naval ship programs “special incentive fees” for capital investment where such investment would result in a very favorable return on investment for the Navy in lower cost ships.

            Mr. Teel reemphasized that “best practice commercial shipbuilding is characterized by an intense focus on design for production, which includes elements such as standard designs, proven systems and subsystems, standard parts and components, limited customization, minimal to no change vessel to vessel, and large production runs.” Mr. Toner stated that a commitment to program and funding stability and increased volume “will achieve greater labor efficiency, reduced labor rates through increased overhead absorption, and reduced material costs through more economic quantity purchases.”

             The American Shipbuilding Association is the national trade association of the shipbuilding industry. ASA members include the nation’s six largest shipyards and more than 70 companies engaged in the manufacture of ship systems and components.