Navy plans to spread lead Ohio Replacement procurement cost over three years
May 09, 2016
The Navy plans to finance the putative procurement cost of the lead ship of the Ohio Replacement Program across three years -- 2021, 2022, and 2023 -- an approach that brings total procurement spending on the first boat in the new ballistic missile submarine class, when advanced procurement beginning in FY-17 is factored in, to seven years.
The Navy, in a draft version of its FY-17 long-range shipbuilding plan, details for the first time in a public document how the service plans to structure its budgets beginning in 2021 to pay for the lead boat. The service also lays out similar plans to incrementally fund the second boat in the fleet over two years.
"To minimize overall impact to other department programs, the Navy is pursuing an incremental funding profile for the lead OR SSBN over the three year period, FY-21 to FY-23, with resources aligned 41 percent (FY-21), 35 percent (FY-22), 24 percent (FY-23)," the draft report states. Inside Defense obtained a copy of the document, first reported by Politico.
In April, the Navy provided Congress a report estimating the lead Ohio replacement submarine would cost $8.8 billion -- excluding non-recurring engineering costs for detail design, the one-time cost to research, design development and test a new product. When these development costs are factored in, the total tab is estimated to be $14.5 billion, according to the Navy report.
The procurement figures in the Navy's draft report account for the lead-ship end cost without non-recurring engineering costs. The service's FY-17 budget proposal includes a $3.6 billion placeholder in FY-21 to pay for the lead boat; a sum equal to 41 percent of $8.8 billion. That would imply plans to spend $3.1 billion in FY-22, 35 percent of $8.8 billion, under a second year of incremental payments and $2.1 billion in FY-22, 24 percent of $8.8 billion, for the third year of incremental payments.
The plan to spread ship procurement cost -- normally budgeted in full the year the vessel is purchased -- over multiple fiscal years appears to have been approved by the White House Office of Management and Budget, which late last year granted the Navy an increased allowance to budget for the lead boat in FY-21, Navy acquisition executive Sean Stackley told Congress on April 6.
"We don't have a huge spike associated with the first boat in the class," Stackley told the Senate Armed Services seapower subcommittee last month. "The dollars in '21 with the lead boat -- it's about $3.6 billion in 2021. OMB has provided relief of about two-thirds of that."
The Navy, according to the draft report, plans to again employ incremental funding to finance the second Ohio Replacement boat, spreading the cost for the second submarine across FY-24 and FY-25.
"Once serial production of the OR SSBN begins in FY-26, each successive OR SSBN is planned to be fully funded in the year in which the Navy intends to contract for the vessel," the draft report states.
In addition to the lead ship procurement costs outlined in the draft report, the Ohio Replacement program requires advanced funding. The service's FY-17 budget request includes the first of four years of advanced procurement funding for the new strategic deterrence submarine, including $773 million in FY-17 and $787 million in FY-18 for detailed design work on the new boat.
In FY-19, advanced procurement costs grow to $2.7 billion that include $1.7 billion for nuclear propulsion equipment, $621 million for plans, $215 million for hull, mechanical and electrical work, and $200 million for long-lead items.
In FY-20, the total advanced procurement funding is $1.3 billion, including $514 million for hull, mechanical and electrical work, $100 million for long-lead materials and $613 million for plans.