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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
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