American Shipbuilding Association

Legislative Priorities for 2007

Ships remain the backbone of the nation’s defense and economy.  In order to ensure that America continues to be a maritime power, the country must invest in building ships for the Navy and Merchant Marine.  The American Shipbuilding Association’s ( ASA) 2007 legislative priorities promote fleet expansion and strengthening the industrial capability to meet the nation’s economic and defense requirements.    

Increase Navy’s Shipbuilding Budget

America’s Navy presently numbers 275-ships.  This is the smallest U.S. naval fleet in 90 years.  Last year, Navy leadership set forth a plan to rebuild the fleet to 313-ships beginning in FY 2008, and stated that a minimum of $14.1 billion was needed this year to begin this long recapitalization process. However, the Administration submitted a budget request of only $12.5 billion rather than the $14.1 billion the Chief of Naval Operations stated was needed. 

Representatives Ike Skelton (D-MO), Jack Murtha (D-PA), and Gene Taylor (D-MS), the Chairmen of the House Armed Services Committee, Defense Appropriations Subcommittee, and Seapower and Expeditionary Forces Subcommittee, respectively, have stated that they intend to add more money to the shipbuilding budget to provide for the acquisition of twelve ships in FY 2008 in an effort to rebuild the fleet to 313-ships as soon as possible.    

Enforce U.S. Ship Acquisition Laws

Reps. Gene Taylor (D-MS) and Jo Ann Davis (R-VA), and Senator Susan Collins (R-ME) are sponsoring legislation in the House and Senate Defense Authorization bills to stop the Department of Defense (DOD) from using long-term leases as a de facto means of buying foreign-built ships to meet dedicated military logistics requirements. 

In 1990, in an effort to impose budgetary discipline, Congress passed the Budget Enforcement Act limiting the lease terms of a capital asset to 5 years. DOD is usurping this regulation by structuring the lease terms for old, foreign-built ships to one-month shy of five years, or 59-months.  These same ships are then leased for another 59-months.  Today, there are six ships under such long-term leases.  At the expiration of the present leases, five of these ships will have been leased for 10 consecutive years, minus 2 months.  The long-term military requirement evidenced by the length of these leases demonstrates the intentional circumvention of U.S. acquisition laws requiring that ships purchased for all branches of the Armed Forces be built in the United States. 

The legislation sponsored by Reps Taylor and Davis, and Senator Collins limits the terms of these leases to no longer than two years.  The Department of Defense will continue to have the flexibility to lease ships to satisfy short-term missions, but will be barred from fulfilling dedicated sealift missions with foreign-built ships by using lease/purchases to the detriment of the U.S. shipbuilding industrial base.    

Strengthen U.S. Manufacture Laws for Ship Components and Systems

Rep. Gene Taylor (D-MS), Chairman of the House Seapower and Expeditionary Forces Subcommittee plans to introduce legislation in the FY 2008 Defense Authorization Bill requiring that components for naval ships be manufactured in the United States. 

U.S. Navy specifications for ships and their components are the most rigorous of any country in the world.  Congress recognized the importance of maintaining domestic shipbuilding industrial capabilities when it enacted Section 7309 of Title 10 U.S. Code requiring that hulls of vessels for all branches of the Armed Forces be built in this country. All ship systems and components must meet stringent construction standards, such as shock testing, that far exceed the requirements of any foreign manufacturer.  These high standards also add costs.  Many of the major components and systems that go into ships are not currently covered by domestic manufacture laws, subjecting them to waiver in favor of a foreign component.  In the cases where a foreign company receives an order for a naval vessel component, these standards are often waived, or special concessions are given to provide time for the company to satisfy U.S. standards.  This places U.S. manufacturers at a competitive disadvantage and degrades the survivability of American naval vessels. 

In the absence of domestic manufacture laws supporting components available from domestic sources, the U.S. will become increasingly reliant on foreign sources for our defense, reduce quality standards, increase the cost of the components purchased domestically, and compromise the safety of our Sailors and Marines. 

Title XI Ship Loan Guarantee Program

Senators Mary Landrieu (D-LA) and Trent Lott (R-MS), and Representative Susan Davis (D-CA) are leading the effort to urge Congress to appropriate $60 million for the Title XI Ship Loan Guarantee Program in the FY 2008 Transportation Appropriations bill.      

The Title XI Program provides small and medium sized ship owners with a federal guarantee of 87.5 percent of commercial bank loans for a period of 25 years for the construction of commercial cargo ships in the United States. This program is essential to making affordable financing available for ship owners to replace and expand their existing fleets to meet the nation’s energy transportation needs, domestic commerce needs, and to serve as a military auxiliary fleet in times of emergency.  The Jones Act fleet of large oceangoing ships, which carry oil and dry cargo between U.S. ports, is at or past the age of retirement. These ships need to be replaced, and the owners of these ships need Title XI loan guarantees to facilitate their replacement. 

Shipyard Capital Investment

Reps. Gene Taylor (D-MS) and Roscoe Bartlett (R-MD) are sponsoring legislation to encourage the Navy to expand the use of incentive fees in all Navy shipbuilding contracts for the purpose of capital investment to reduce the cost of naval ships.  While shipyards make huge capital investments, the ability to do more is precluded because of persistently anemic shipbuilding budgets. 

The Taylor-Bartlett legislation directs the Navy to budget for incentive fees in all Navy shipbuilding contracts for shipyards that present a strong business case demonstrating that a capital investment will reduce the price of a shipbuilding program.  Specifically, if a shipyard makes a business case to the Navy that either a direct facility investment or a design or process change will save the Navy money on a class of ships, the Navy may award incentive fees to the shipyard for capital investment.  The legislation requires the Navy to set aside money in shipbuilding programs for such purposes.  While not obligated to award incentive fees to a shipyard, the Navy would have to examine each business case and provide a written evaluation whether a proposal is accepted or rejected.  In the event the promised cost savings are not achieved, the Navy may recoup the cost of its investment from the shipyard.  The expanded use of incentive fees for capital investment will improve efficiencies and competitiveness in the nation’s shipyards and help reduce the cost of all Navy shipbuilding programs.

Withholdings and Retentions

Reps. Madeleine Bordallo (D-GU) and Jo Ann Davis (R-VA) are sponsoring legislation requiring the Navy to abide by the payment terms of Navy shipbuilding and overhaul contracts by not withholding or retaining earned payments beyond the agreed upon contractual time period.      

Each shipbuilding and overhaul contract contains terms specifying a payment percentage of the value of the contract and schedule for those payments. Despite the payment terms agreed upon in individual shipbuilding contracts, the Navy has been engaging in a consistent practice of not paying the negotiated/contracted amount during the course of the ship’s construction or overhaul, and of not releasing final payment owed to the contractor long after the guaranty period has expired. This practice places a cash flow burden on the shipyards, which inhibits their ability to pay subcontractors in a timely fashion and have cash on hand for day-to-day business operations. 

In order to ease this cash flow constraint, legislation is needed to require the Navy to abide by the payment terms in shipbuilding and overhaul contracts. 

House Defense Appropriations Chairman Vows More Submarines

After touring Electric Boat’s Groton, Connecticut, facility in early April, Rep. Jack Murtha (D-PA), Chairman of the House Defense Appropriations Subcommittee, reaffirmed his commitment to add more money to the FY 2008 defense budget to accelerate the procurement of submarines to two per year.  Rep. Murtha stated that he intends to increase the Navy’s shipbuilding budget to provide for the procurement of twelve new ships - - five ships above the Administration’s request. 

According to the Navy’s acquisition plans, two Virginia class submarines are scheduled to be procured beginning in FY 2012.  DOD has been protesting that Congress must not alter the 30-year shipbuilding plan the Navy provided to Congress last year, arguing that any change could destabilize shipbuilding programs and the industrial base.  However, in testimony before the House Seapower and Expeditionary Forces Subcommittee in March, the Navy acknowledged that the best way to stabilize the industrial base would be to increase procurement.  Following his tour, Murtha reiterated his position that more submarines are needed in the fleet sooner rather than later. 

New Partner

Dorn Equipment Corporation of Melrose, Massachusetts, has joined the American Shipbuilding Association.  Founded in 1940, the company is a leading developer and manufacturer of lightweight electrical marine fittings and connectors for naval and commercial ships.

You Can Make A Difference!

The country needs your help to rebuild its naval fleet.  Members of Congress are working to add ships to the Navy’s budget and to enact legislation to strengthen the shipbuilding industry. These Representatives and Senators need support from their fellow Members of Congress. 

One way to help these Members get the support of their colleagues is by you asking your elected officials through the Sea Power Ambassador Program to support rebuilding the Fleet.  Join today at www.seapowerambassador.org.

Well Said!

“We’re 276 ships today… We are a maritime nation underpinned by commerce, incredibly dependent on secure sea lines of communication, a secure maritime environment, and a Navy that is supportive of that…”

“I indicated we’re 276 today. That’s too small.”
Chief of Naval Operations Admiral Michael Mullen
Remarks before The Brookings Institution
April 3, 2007