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[H.A.S.C. No. 109–30]








JULY 19, 20, 2005

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ROSCOE G. BARTLETT, Maryland, Chairman
ROB SIMMONS, Connecticut
JO ANN DAVIS, Virginia
CURT WELDON, Pennsylvania
JIM SAXTON, New Jersey
KEN CALVERT, California

GENE TAYLOR, Mississippi
DAN BOREN, Oklahoma

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Robert Lautrup, Professional Staff Member
Jean D. Reed, Professional Staff Member
John Sullivan, Professional Staff Member
William Natter, Professional Staff Member
Andrew Hunter, Professional Staff Member
Claire E. Dunne, Staff Assistant




    Wednesday, July 20, 2005, The Department of the Navy Plans and Programs for the DD(X) Next-Generation Multi-Mission Surface Combatant Ship (Part II)


    Wednesday, July 20, 2005


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    Bartlett, Hon. Roscoe, a Representative from Maryland, Chairman, Projection Forces Subcommittee

    Taylor, Hon. Gene, a Representative from Mississippi, Ranking Member, Projection Forces Subcommittee


    Francis, Paul L., Director for Acquisition and Sourcing Management, Government Accountability Office

    Gilmore, J. Michael, Assistant Director, National Security Division, Congressional Budget Office

    Hoeffler, Michael M., Vice President, Program Manager, DD(X) Future Surface Combatant Program, Raytheon Company

    Labs, Eric J., Principal Analyst, National Security Division, Congressional Budget Office

    Moosally, Fred P., President, Lockheed Martin Maritime Systems & Sensors, Lockkheed Martin Corporation
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    O'Rourke, Ronald, Specialist in National Defense, Congressional Research Service, Library of Congress

Schoppenhorst, James W., Director, DD(X) Program, BAE Systems/Armaments Systems Division

Teel, Philip A., President, Northrop Grumman Ship Systems

Toner, Michael W., Executive Vice President, Marine Systems, General Dynamics Corporation

    Work, Robert O., Senior Analyst, Center for Strategic and Budgetary Assessments

[The Prepared Statements can be viewed in the hard copy.]

Francis, Paul L.

Gilmore, J. Michael

Hoeffler, Michael M.

Moosally, Fred P.

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O'Rourke, Ronald

Schoppenhorst, James W.

Teel, Philip A.

Toner, Michael W.

Work, Robert O.

[The Documents submitted can be viewed in the hard copy.]
Cost Distribution Chart submitted by Philip A. Teel
Table 1: Technology Readiness Levels for DD(X) Critical Technologies submitted by Paul L. Francis
Table 1: Comparison of Prior Navy and CBO Estimates with Current Estimates or Actual Costs (in 2007 Dollars) submitted by Ronald O'Rourke

[The Questions and Answers can be viewed in the hard copy.]
Mr. Bartlett
Mr. Taylor


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House of Representatives,
Committee on Armed Services,
Projection Forces Subcommittee,
Washington, DC, Wednesday, July 20, 2005.

    The subcommittee met, pursuant to call, at 2 p.m., in room 2212, Rayburn House Office Building, Hon. Roscoe Bartlett (chairman of the subcommittee) presiding.


    Mr. BARTLETT. The subcommittee will come to order.

    Today the Projection Forces Subcommittee resumes its consideration of the Navy's DD(X) Next-Generation Multi-mission Surface Combat Ship.

    As I indicated in my opening statement at yesterday's hearing, there are supporters and critics of the DD(X) program. The purpose of this hearing is to provide an opportunity on behalf of the Congress and the public to gather the facts from multiple perspectives about this program.

    It is important that we do so at this time because the program is approaching several key decision points. Yesterday witnesses from the Department of the Navy and the Office of the Secretary of Defense (OSD) discussed the operational requirements for the DD(X), program status, schedule and cost, technology and design maturity, acquisition strategy, industrial base considerations, and potential cost reduction alternatives.
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    Today we will pick up where we left off. We will hear from two panels. The first panel consists of the Government Accountability Office (GAO) and defense analysts who have been watching the DD(X) program for a number of years.

    The second panel includes members of the DD(X) industrial team whom we have asked to provide their views on program status, schedule and cost, technology and design maturity, the acquisition strategies being considered by the Navy and their impact on the defense, shipbuilding and industrial base and potential cost reduction measures that could be applied to the program.

    The DD(X) program is approaching two key decision points. One is a major defense acquisition program Milestone B review in which the undersecretary of defense for acquisition, technology and logistics will decide whether to authorize the award of a detailed design and construction contract for production of the lead ship or ships.

    The program is also scheduled to complete a critical design review by August 2005 that is intended to demonstrate the design maturity of the ship and its readiness to proceed to the next phase of the program.

    Coincident with this milestone decision, issues have been raised about significant growth in the cost of the DD(X) and whether or not the DD(X) is both cost-effective and affordable in the context of the Navy's operational requirements and overall ship procurement program.

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    Implications to the Navy's shipbuilding industrial base or proposed changes in the DD(X) acquisition strategy and reduced procurement rate are also of concern.

    Those of you who were here yesterday will remember that I asked our witnesses from the Navy and OSD to give us estimates of at what cost per ship, lead ship and follow on, would the DD(X) become unaffordable. The estimates from the panel ranged from $4 billion to $4.5 billion for the lead ship and $2.5 billion to $2.9 billion for the fifth ship.

    Some of the cost estimates that have been made for the DD(X) by others approach these estimates, and I note that $4.5 billion is the approximate cost of the lead Virginia-class submarine, and $2.5 billion the cost of the fifth Virginia.

    To address the issues facing the DD(X) program today, we are pleased to welcome our first panel, Mr. Paul Francis, Director for Acquisition and Sourcing Management, Government Accountability Office; Mr. Ronald O'Rourke, Specialist in National Defense, Foreign Affairs Defense and Trade Division, Congressional Research Service; Dr. J. Michael Gilmore, Assistant Director, National Security Division, Congressional Budget Office; Dr. Eric J. Labs, Principal Analyst, National Security Division, Congressional Budget Office; and Mr. Robert O. Work, Senior Analyst, Center for Strategic and Budgetary Assessment.

    Gentlemen, welcome, and thank you very much for your cooperation yesterday in postponing this part of the hearing to today. We did not return from our votes until six o'clock last evening, so it would have been a very long evening had we held this part of the hearing schedule then.

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    We thank you for agreeing to return today.

    Before you begin your testimony, I would like to yield to my good friend, the ranking member of the subcommittee, Congressman Gene Taylor from Mississippi, for any remarks he might wish to make.

    And when he is here, he can make those remarks. [Laughter.]

    In the meantime, let's just begin with the testimony. Thank you all very much for coming. And let's begin at the left-hand end of the table and proceed, gentlemen.


    Mr. FRANCIS. Thank you, Mr. Chairman and members of the subcommittee, for giving me the opportunity this afternoon to talk about the DD(X) program. I will make some summary remarks and ask that my statement be submitted for the record.

    Mr. BARTLETT. Without objection, all of your complete statements will be a part of the record.

    Mr. FRANCIS. Thank you. I will not focus in my testimony on the need for the system—that, I think, was so passionately expressed yesterday—but will focus on the prospects for executing the program.
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    The DD(X) challenge is framed by several competing demands. It has to perform multiple missions while remaining stealthy. It must do so with about half the manpower of the DDG.

    The time frames for the program are driven by industrial base considerations, and the program has to break past patterns of cost overrun on lead ships. To succeed, the DD(X) has to deliver a lot of scope without a lot of time.

    It has to develop 12 advanced technologies. I think virtually every major subsystem on the ship involves an advanced technology. It has a revolutionary hull design. It has an unprecedented level of automation and software. And it has a concurrent development and construction schedule.

    I would like to turn a little bit and talk about the approach to managing risk on the program. We look at risk as a function of demonstrated knowledge. And, simply put, the more you know about the system you are developing, the less risk you have.

    And an important marker for us is to have mature technology at the beginning of program development. And we have benchmarked quite a few successful commercial and the Department of Defense (DOD) product developments, and one of the hallmarks is they separate technology development from product development.

    In the case of the DD(X), the engineering development models (EDMs) are the main vehicle for managing technological risk, and there are ten of them on the program, and basically these involve building and testing ten prototype subsystems which embody all the key technologies.
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    It is a good approach. The EDMs are progressing and they are reducing risk. Now, there are some problems and some work is extending, but overall progress is being made. In our view, this is the type of progress that should have been made at the beginning of system design about a year ago.

    Under the current EDM, some work is going to continue into detailed design and construction, and some of the subsystems will not come together as a whole until ship installation. Even after the EDMs are tested, they are going to require more engineering to get into their final design. And then beyond that, you have to bring all the subsystems together on the ship as a system and see how it performs at that level.

    So the bottom line is there is much discovery ahead yet for the DD(X) program, and much potential for work to travel to the later stages of design and construction, where it is really very expensive to do work, and you do not have much time to get the work done without delaying schedule. And unfortunately, this has been kind of a historical pattern on lead ships, so it is quite a challenge there.

    The last point I will make is on risk and the consequences of risk, and I believe the consequences of risk on the DD(X) really has to be considered before beginning this last phase of the program. I think everyone would like to see the program succeed.

    I think the program office has done really a terrific job trying to get the program to this point and trying to devise a strategy that delivers the scope that the program wants to deliver within the tight schedule.
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    Still, DD(X) will have to be a very well-placed arrow to hit all of its goals. And I think we have to face the possibility that the competing goals may not be simultaneously achievable, regardless of how good the strategy is or how diligent the program office staff is.

    I think given the risk in the program we have to think about how palatable tradeoffs might be as we progress and think about them before we actually need to make them. So for example, if technologies do not mature, are we going to put time and money into the technologies, or are we going to accept lower performance?

    If costs overrun, again, will we put more resources in the program, or will we reduce scope to keep the costs under control? If schedule overruns, will we reduce scope to save schedule, or will we accept the industrial base implication of not delivering on time?

    And if we need a larger crew than they are planning, will the Navy devote those resources or will it reduce the mission workload of the ship to meet the resources it has for the ship?

    I will just conclude by saying if the DD(X) is to be acquired, and I think there is going to be some debate as to whether it is the right solution, but if it is the right one, we need to know what the limits are of the business case. In other words, at what point is it not a good acquisition?

    And I think, Mr. Chairman, the question you raised yesterday and the answers you are provided today I think are the types of things that have to be asked. At what point does the business case not work, and can we kind of establish that up front to guide the decisions we are making?
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    I think in the best case, DD(X) would deliver on all of its goals. I think a worst case is DD(X) at any cost. And I think when we think about DD(X) we have to think kind of beyond the context of the program itself, think about all of the acquisitions that are vying for funds at this point.

    I have been in this business for over 20 years, and I can remember the systems that existed a generation or so ago I think were smaller in terms of their concept and their reach. And if you look at systems today, we have a lot of megasystems, future combat systems, joint strike fighter, transformational satellite—really big systems of systems.

    And if these systems have trouble, I think they send a ripple effect through the defense budget. So you can not just think of the one program and its own merits, but if that program does demand more, we have to be thinking about the impact on the other programs.

    Mr. Chairman, that concludes my remarks, and I would be glad to answer any questions.

    [The prepared statement of Mr. Francis can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you very much.

    Mr. O'Rourke.

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    Mr. O'ROURKE. Chairman Bartlett, distinguished members of the subcommittee, it is an honor to be here today. Perhaps the most important issue currently facing the DD(X) program—and we heard a lot about it yesterday—is the procurement affordability of the DD(X).

    In discussing the DD(X) yesterday the Navy noted the ship's reduced operating cost. As I have detailed in my statement, this reduced operating cost only partially offsets the ship's higher initial procurement cost.

    The Navy said yesterday that 10 DD(X)s would save $4.5 billion in operating costs over 35 years compared to 10 DDGs. As the Navy knows, however, Federal guidelines and standard business case analysis call for calculations like this to be made on a present value basis, so as to capture the investment value of money over time. And when you do that, the 35-year savings drops by more than half, to about $2.1 billion.

    Regardless, the point remains that reducing a ship's future operating cost does not make it any more affordable to procure in the budget that funds its procurement.

    The Navy said yesterday that procurement cost is roughly proportional to light ship displacement. I was happy to hear the Navy note this, because I was making that point last year to show why the last year's estimated DD(X) procurement costs might be too low.

    But if procurement cost is roughly proportional to light ship displacement, like the Navy said, and if the DD(X)'s light ship displacement is about 75 percent greater than the DDG's, which it is, then the difference in cost between the DDG and DD(X) would be a lot bigger than what the Navy said yesterday it was.
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    On this basis, if a DDG would cost $1.8 billion, as the Navy said, then a follow-on DD(X) would cost not $2.1 billion like the Navy said yesterday, but $3.1 billion. If cost is roughly proportional to size and weight, then either the Navy's estimate for the DDG is too high, or the Navy's estimate for the DD(X) is too low, or both.

    The reduction in DD(X) procurement to one per year in the Future Years Defense Plan (FYDP) is an indication that unless budget conditions change, DD(X) and CG(X) procurement might never rise above one per year.

    Nothing that the witnesses said yesterday showed how the Navy could procure more than one DD(X) or CG(X) per year under something like today's funding conditions while also meeting other Navy procurement needs. Indeed, the witnesses did not seem interested in even trying to make this argument.

    So if the DD(X)-CG(X) program would be limited to one per year, this raises three important questions for Congress. First, could a one-per-year program introduce desired DD(X) and CG(X) technologies into the fleet in a timely manner?

    In other words, if the Navy needs these new technologies as much as it says it does, would it be sufficient to field them at a rate of one platform per year? At one per year, procuring 23 to 30 DD(X)s and CG(X)s, which is the figure called for in the Navy's recent 30-year shipbuilding report to Congress, would take 23 to 30 years.

    By the time that force was fielded, the Navy's fleet of larger surface combatants will have been reduced to a total of 42 to 57 ships. I am going to say that again. At one per year, by the time you field the Navy's desired force of 23 to 30 DD(X)s and CG(X)s, the total number of larger surface combatants will have been reduced to a total of 42 to 57 ships.
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    The Navy did not tell you that yesterday, and these figures assume that Aegis cruisers and destroyers remain in service for 35 years or 50 years. If they do not last that long, then the total number of larger combatants will be reduced even further by that time.

    The second question is whether a one-per-year program would be cost-effective in terms of resulting average acquisition cost, meaning the combined development and procurement cost for each ship.

    Although DD(X)s and CG(X)s would be quite capable, whether it would be cost-effective to field that capability for a potential average acquisition cost of $3 billion per ship would be an issue.

    The third question concerns industrial base impact. Dividing one ship per year between two yards would not provide each yard with very much work. And if DD(X) production at some point is consolidated into one yard, as the Navy seems to want, the consequences for the losing yard could be very serious.

    If that yard were Bath, it could result in Bath's eventual withdrawal from Navy shipbuilding. The Navy does not appear overly troubled by this prospect and said nothing about it yesterday.

    If a one-per-year DD(X)-CG(X) program would be unsatisfactory in terms of introducing new technologies in a timely way or constraining average acquisition cost, or supporting the industrial base, then alternative strategies might be considered.
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    One option would be to terminate or reduce LCS procurement and use some of the savings for additional DD(X) or CG(X) procurement. The Navy currently plans to spend almost $2 billion a year to procure LCS ships and mission modules. That funding could go a long way toward procuring a second DD(X) or CG(X) each year. But of course, this option would also deprive the Navy of capabilities that the LCS is to bring to the fleet.

    A second option would be to procure modified DDG–51s instead of DD(X)s and CG(X)s. Now, as far as I can tell, the people who are spending the most time talking about this option are the Navy. Your committee has not recommended this option nor has any other committee. So why is the Navy spending so much time talking about it?

    Well, the downsides of this option make it pretty easy to shoot down, so you can use this option as a straw man to distract people from other options that might make more sense. And one of those other options would be for the Navy to take the DD(X) and CG(X) capabilities that it most wants and wrap them into a new designed ship that is smaller and more affordable than the DD(X).

    The Chief of Naval Operations (CNO) said yesterday that somebody today would be talking to you about this option. That somebody would be me. Under this option, development of DD(X) and CG(X) technologies would continue, and somewhere between zero and a few DD(X)s would be procured.

    Although the new designed ship would be less capable than the DD(X) and CG(X), it would still be quite capable, and it could be more easily procured within available resources at two per year, which would introduce key DD(X) and CG(X) technologies into the fleet more quickly and be easier to divide between two yards.
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    The Navy has been careful to say that DD(X) and CG(X) systems could not be accommodated on a DDG–51 hull. That may be true, but it is also not relevant to this option which would involve a new hull design that would be sized for the systems it would carry.

    The Navy could indeed get to a smaller and less expensive new designed ship by making some choices about what it most wants on the ship. Those choices would not be easy, but that is always the case in warship design.

    In the late 1970's, the Navy faced a similar situation, had a new technology called the Aegis system. And the question for the Navy was what kind of ship to deploy it on. One option was to put it on a 17,000-ton nuclear-powered cruiser. Another was to put it on a 12,000-ton nuclear cruiser.

    Those were very capable designs, but the Navy decided they were unaffordable, so the Navy decided to put the Aegis system on an existing 9,000-ton destroyer hull, and that is the ship we know today as the Aegis cruiser.

    The Navy had to make some hard choices to get to a 9,000-ton Aegis cruiser design. But in return for making those choices, the Navy was able to procure three Aegis cruisers a year.

    Moving from the 14,000-ton DD(X) design to a smaller and more affordable design would be a roughly analogous approach. Whether the resulting ship would happen to be the same size as today's Aegis ships or some other size is not important.
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    The committee did recommend a cost target for the next destroyer-type ship. And setting a cost target that takes into account the expected size of the shipbuilding budget would follow the Navy's own practice in the successful DDG–51 program.

    The Navy had to make some design tradeoffs to stay within its DDG cost target, but the Navy in return was able to procure three to five DDGs per year. For a smaller alternative to the DD(X), a potential target cost might be a cost that could permit two of the new design ships be procured for the same cost as three DDGs.

    And the Navy could follow its own recent example in the LCS program by holding a competition between the two surface yards to design the most capable ship that could meet such a target.

    I am not recommending the option of a smaller new design ship, because I can not make recommendations, and because I honestly do not know whether it would be better than the Navy's plan. It is quite possible that you could look at the smaller ship and decide that you prefer the DD(X) instead, even with its potential force level and industrial base consequences.

    It is also possible you could look at that smaller ship and, all things considered, prefer it to the DD(X). My point is simply that this option exists, that the choices are not limited to the straw man alternative of getting more DDGs, and that the 14,000-ton version of the DD(X) is not a take-it-or-leave-it option.

    Mr. Chairman, this concludes my statement, and I will be happy to respond to any questions the subcommittee might have.
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    [The prepared statement of Mr. O'Rourke can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you very much.

    Dr. Gilmore.


    Dr. GILMORE. Mr. Chairman, members of the committee, my colleague Eric Labs and I appreciate the opportunity to appear before you this afternoon to discuss DD(X).

    You requested that the Congressional Budget Office compare the costs of the DDG–51 destroyer with those estimated for DD(X), examine the realism of DOD's current cost estimates for the DD(X) program, and examine the affordability of DD(X) in the context of the Navy's overall shipbuilding budget.

    So given those requests, you will find that what Eric and I are going to do here in the next minute or so is follow up, in a little bit more detail and from a little bit different perspective, some of the comments that Ron O'Rourke just made.

    First of all, regarding DDG–51 versus DD(X) and the realism of the current cost estimates, as Ron noted and I will note again, Secretary Young indicated yesterday that historical data on cost per ton of light load displacement are used both by the Navy and OSD's Cost Analysis Improvement Group (CAIG) to estimate and compare costs between previous ships and new ship classes such as the DDG–51 and the DD(X).
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    And we agree that this metric is a useful one to consider. And so the Navy's current cost estimate for the lead DD(X) implies that it will be about 30 percent less expensive in terms of cost per ton than was the lead DDG–51.

    And if the lead DD(X) turns out to be as expensive on a cost-per-ton basis as was the DDG–51, then the cost of the lead ship will be $4.7 billion, not the $3.3 billion that the Navy currently estimates or the $4.1 billion that the CAIG purportedly estimates for the cost of the lead ship.

    And that assumes that, on balance, the construction of the lead DD(X) would be no more complex or problematic than was the construction of the lead DDG–51. And there are some arguments why you might consider that construction of the lead DD(X) would be even more complex than that of the lead DDG–51.

    On a net present value basis, which Ron noted is the proper way to account for the time value of money, which is to say that a dollar saved 35 years from now is not worth as much as a dollar spent today. Our calculations indicate that the life cycle costs, which include the up-front construction costs and the operating costs over 35 years, of a DD(X) are unlikely to be less than those of a DDG–51 purchased today. And they could be about double those of a DDG–51 because of the more expensive construction costs of the DD(X).

    Now, regarding affordability, the first DD(X) will consume 19 percent to 30 percent—that upper percentage is associated with our estimate of $4.7 billion for the lead ship—of the prospective $12.5 billion ship construction budget in fiscal year 2007.
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    By comparison, the first DDG–51 consumed about 11 percent of the $24 billion—now, that is converting $12 billion in 1985 dollars to $24 billion in 2007 dollars—ship construction budget in 1985.

    So the lead DD(X) might consume almost three times as much on a percentage basis of the ship construction budget compared to the lead DDG–51.

    Now, annual average shipbuilding budgets through 2035, according to our projections, the ones that we transmitted to you a couple of months ago at your request, would have to increase by 60 percent to more than 90 percent relative to the current shipbuilding budget in order to support the Navy's current long-range shipbuilding plans. That is for all their ships, not just the DD(X), but including in particular the purchase of 8 to 12 DD(X)s.

    That is 60 percent to 90 percent more than the $11-plus billion that has been the average over the period from 2000 to 2005. And you would have to sustain those levels for the next many years in order to buy everything that the Navy is currently contemplating buying in its 260 and 325-ship plan.

    Regrading that buy of 8 to 12 DD(X)s, I would note that the number of DD(X)s and its predecessor, the DD–21, that the Navy has thought it might need has changed over the years. According to documentation that we have from the Department, in 1996 the original DD–21 program contemplated 32 ships.

    In early 2003, the Navy published a global concept of operations that contained the need for 16 DD(X)s. In May 2003, the Navy submitted to the Congress a 375-ship 30-year shipbuilding plan that contained 24 DD(X)s.
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    There are ten DD(X)s in the 2006 president's budget. That is basically a placeholder. It is the average between the 8 and 12 that are in the Navy's March 2005 260 to 325-ship plans, and those plans were submitted after the submission of the president's budget.

    Now my colleague Eric Labs will briefly provide you with some additional detail regarding the points I have just made.

    [The prepared statement of Dr. Gilmore can be viewed in the hard copy.]


    Mr. LABS. Mr. Chairman, members of the subcommittee, I appreciate the opportunity to be here today. I am going to walk you through the numbers that——

    Mr. BARTLETT. Could you hold the mike a little closer?

    Mr. LABS. Certainly, sir.

    Mr. BARTLETT. Thank you.

    Mr. LABS. I am going to walk you through the numbers that underlie the central themes that Dr. Gilmore just discussed.
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    The Navy currently estimates that the lead DD(X) will cost about $3.3 billion in 2007 dollars, or about $275 million per thousand tons. However, based on a cost-per-ton analogy with the lead DDG–51, CBO estimates the potential cost for the lead DD(X), as Dr. Gilmore indicated, at $4.7 billion.

    That works out to $385 million per thousand tons, which is the same as the DDG–51. It is worth noting at this point that the DDG–51 lead ship cost per ton is 20 percent higher than the lead ship of CG–47 class cruiser, the previous generation service combatant.

    So what you have seen from the cruiser to the destroyer is an increase in the per-ton basis of the lead ship costs. We are just going to make the DD(X) equal to the DDG–51.

    In addition, the history of the DD(X) program, as you can see right here on the board put up, has shown rising cost estimates of its potential cost. The original DD–21, which was a larger ship than today's design by several thousand tons, had a cost objective for the fifth ship of $1.06 billion in 2007 dollars.

    The cost threshold, which is the point where if costs exceeded the Department should reconsider the program, was $1.23 billion. By fiscal year 2004 the president's budget submission expected the fifth DD(X) to cost $1.4 billion.

    By the 2006 budget submission, the cost of the fifth DD(X) rose from $2 billion to $2.4 billion, depending on whether you assume that the first CG(X) is purchased in 2011, hence the lower number of $2 billion, or if it is pushed off, and you would a higher number of $2.4 billion.
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    The CAIG and the Office of the Secretary of Defense reportedly estimate the fifth ship at about $3 billion, or 25 percent more than the Navy's current estimate. CBO estimates that the fifth ship would cost $3.4 billion, if the cost per ton of light load displacement for the DD(X) ends up equaling that of the DDG–51.

    CBO also compared the life cycle costs of buying additional DDG–51s versus DD(X)s. The calculation was a function of construction costs plus discounted total 35-year operating costs. Based on information from the Navy's database on operating costs, the average DDG–51 cost $34 million a year to operate in 2007 dollars.

    Using that as a basis to develop an estimate for the DD(X), CBO estimated that the DD(X) could cost $22 million to $32 million a year to operate. Both figures in the range address the military personnel costs of the DDG–51 down by 63 percent to account for the reduction and the smaller crew for the DD(X).

    The lower end of the range, the $22 million figure, assumes that the Navy achieves efficiencies in operating costs that negate the effect of the DD(X)'s greater displacement.

    The higher end of the range is based on increasing the operating costs not associated with paying military personnel by 55 percent to account for the DD(X)'s greater displacement.

    The construction costs for the DDG–51 used in the life cycle calculation was $1.4 billion, the cost if they are bought at a rate of two per year today. The construction cost for the DD(X) was $2.2 billion to $3.3 billion, the average cost per ships three through ten under both the Navy and CBO estimates, respectively.
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    Adding both operating and construction costs together shows a 35-year life cycle cost for a DDG–51 to be $2.1 billion versus $2.7 to $4 billion for the DD(X) in discounted dollars.

    The $2.7 billion reflects the Navy's construction estimate as well as the achievement of efficiencies in operating costs unrelated to the size of the ship's company. The $4 billion figure reflects CBO's construction estimate and less efficient operation.

    Finally, with respect to the issue of affordability in the context of the Navy's ship construction budget, the $2.6 billion lead DDG–51 consumed 11 percent of the $24 billion 1985 shipbuilding budget.

    The $3.3 billion to $4.7 billion cost of the lead DD(X), the Navy versus CBO estimates, will consume, as Dr. Gilmore indicated, 19 percent to 30 percent of the prospective $12.5 billion 2007 shipbuilding budget. Those percentages are calculated using only the amount that would be actually budgeted for the lead ship in 2007.

    Future shipbuilding budgets remain about the same as the average for 2000 to 2005, $11.8 billion. Producing the DD(X) at a rate of one per year would consume a similar percentage of the shipbuilding budget on an ongoing basis.

    Based on the Navy's data on shipbuilding inflation, CBO now projects that sustaining the Navy's 260 to 325-ship plans would require average annual shipbuilding budgets of about $19 billion to $23 billion in 2007 dollars over the 2006 to 2035 period.
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    Those figures are 58 percent to 94 percent larger than the $11.8 billion average since 2000. Large surface combatants, which would include in this case the DD(X), the CG(X) and eventual replacement for the DDG–51s, consume 20 percent of those prospective budgets. That is the dark-shaded area at the bottom of that graph.

    The DD(X) alone would consume 9 percent to 13 percent of those annual budgets over just the 8 to 12 a year period in which the Navy plans to buy it.

    Mr. Chairman, that concludes my prepared statement. I am happy to entertain any questions you may have.

    Mr. BARTLETT. Thank you very much.

    Mr. Work.


    Mr. WORK. Mr. Chairman, Congressman Taylor, distinguished members of the subcommittee, thank you very much for inviting me to be here today to talk about the DD(X).

    As my colleagues have done, I would like to briefly summarize my statement for the record. My view of the issue is not whether the DD(X) would be the ideal combatant for its stated mission. I think it most likely would be.
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    Instead, the question is whether the ship makes sense within the context of the overall state of the global military and naval competition, the Navy's own evolving 21st century total force naval battle network and likely shipbuilding budgets.

    Accordingly, the decision to buy the DD(X) should not be based on comparing it with the DDG–51 or viewing its technologies in isolation. Instead, I believe the debate should center on the answers to four key questions.

    First, given the U.S. lead in the global naval competition, is this the right time to building 8 to 12 powerful surface strike combatants? No, it is not. By 2011 when the last Arleigh Burke DDG now under construction is commissioned, the battle force will operate 84 Aegis combatants, the best, most powerful and toughest surface combatants in the world by a wide margin.

    These combatants will carry among them nearly 8,500 vertical launch system cells and carry 9,000 large battle force missiles. This is a missile capacity that is greater than that found on the 366 major surface combatants operated by the next largest 17 navies combined.

    It represents 84 percent of the 600-ship Navy's requirement for guided missile cruisers and destroyers and 90 percent of its requirement for Aegis ships. The average age of this fleet will only be 12.5 years old. Non-officials admit these ships will be able to handle most threats out through 2030.

    The DD(X) will simply pad an already eye-watering U.S. lead in strike capabilities. If there is one thing that this Navy is not lacking, it is strike. There are other more pressing battle network needs now, like smaller surface combatants to fight the Global War on Terrorism, submarines and amphibious landing and sea base ships that demand greater attention.
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    The second question is given likely constrained shipbuilding budgets, are the DD(X) and the CG(X) a good competitive choice for recapitalizing the surface combatant fleet? I think this was the thrust of Ron O'Rourke's statement. Again, I believe the answer to that question is no.

    As Dr. Labs and Dr. Gilmore have said, the first DD(X) will consume at least 20 percent of the likely shipbuilding budget, and even the fifth ship in the class could probably consume between 10 percent and 15 percent to 20 percent. CG(X)s are likely to cost more.

    This would likely mean that the surface combatant program will face the exact same problem that confounds the submarine program; namely, that only one ship per year can be built, and this, as Ron O'Rourke stated, would probably force a major yard out of business.

    The third question is are the DD(X)'s individual war-fighting capabilities—could they be pursued at a more reasonable cost? Of course. Comparing the DD(X) to the DDG–51 is therefore a false comparison. Instead, as Ron O'Rourke suggested, it should be compared against alternative ships that use many of the DD(X) technologies but in different mixes and scales.

    Like the LCS program has shown, designing a sea frame to cost is a prudent approach, and a new large battle network combatant with different combat system modules is one way we might be able to drive the cost of future combatants down.

    Finally, are there viable near-term alternatives that would maintain U.S. combat capabilities until lower-price alternatives could be pursued? Yes. The 84-ship Aegis Verticle Launch System (VLS) fleet has a lot of life left in it. The new Aegis open architecture, cooperative engagement capability open architecture and VLS open architecture programs, all funded in the DDG CG modernization programs, would make them even more powerful than they are today.
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    Additional combat capabilities such as new missile interceptors to fight against maneuvering ballistic missiles could be added to this very fleet.

    Before closing, I would like to compare the DD(X) with a ship that was authorized and built over 50 years ago, the USS Norfolk. The story contains very important lessons that I think are directly applicable to the debate today.

    Like the DD(X), the Norfolk was designed right after World War II for a brand new battle force mission, combating 25-knot Soviet submarines, which were then about to be procured.

    Able planners believed that the mission called for a very large hull, the thinking being that the ship had to be able to maintain 30 knots in a sea wake and in rough weather. A deep draft would help sonar efficiency.

    To protect the ship against the nuclear fallout that the planners then considered likely, particular attention was paid to shaping the hull. The mission called for a large battery of guided weapons and for volume precision firers against the threat.

    The former was provided by large numbers of high-speed, deep diving homing torpedoes, and the latter were provided by these large Weapon Alphas, which were anti-submarine warfare (ASW) guns, rocket guns. Both required large magazine spaces, which caused the ship to grow even larger.

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    The ship was to have an elaborate dual-band sonar installation. They were going to have a sonar and ASW control that was centralized that would allow better discrimination of stealthy underwater targets.

    As designed, it was the ultimate submarine killer imaginable. However, to get all of these wonderful technological and operational improvements in the ship, the ship grew to a full load displacement of 7,000 tons, which was nearly over twice that of any previous destroyer built.

    The ship became so large she was built to light cruiser standards and had a new name, CLK–1, for light cruiser submarine killer one. Of course, the cost of the ship rose commensurately, and the ship's then year cost of $61.9 million, which was real money in 1948, was too much for expected budgets and would severely limit the numbers of ships that could be built.

    Therefore, reluctantly, Department of the Navy (DON) planners decided to build only one of the ships, and it spent its entire service life as a technology demonstrator and ASW test platform.

    I submit that the DD(X) is the contemporary equivalent to the USS Norfolk. It is a technological and operational marvel and would be, without question, the most technologically advanced and most powerful surface combatant on the planet.

    However, just like the Norfolk, it is not really matched with expected budgets, can be built only in small numbers, and would likely cause dramatic perturbations in the shipbuilding industry.
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    Just as planners reluctantly concluded in 1948 bigger and better is always bigger and better but not always better than good enough, there are other ways enabled by emerging naval battle network technologies to accomplish the DD(X) mission at a lower price.

    Accordingly, I think the prudent way forward would be to build one DD(X) as a technology demonstrator, just like we did with the USS Norfolk, to simultaneously freeze the size of the surface combatant fleet at or near the 84 ships now planned in program, maintain the industrial base by building additional DDG–79s and retiring early DDG–51s, modernizing the legacy destroyer fleet through the programs already budgeted for, and to design a new competition for a large battle network combatant with an emphasis on theater air and missile defense, not strike.

    This approach would limit near to mid term procurement costs, operations and support (O&S) costs, weapon procurement costs, increase fleet capabilities, maintain the industrial base and maintain U.S. design expertise. In the long term it would result in a new large battle network combatant that was better matched to expected budgets and allow us to build more than one per year.

    Mr. Chairman, that concludes my statement. I will be happy to respond to any questions you and your colleagues may have.

    [The prepared statement of Mr. Work can be viewed in the hard copy.]

    Mr. BARTLETT. Thank you very much.
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    Thank all of you very much for your testimony.

    Let me turn now to my ranking member for his comments and questions.

    Mr. Taylor.


    Mr. TAYLOR. Thank you, Mr. Chairman. I do want to apologize for having two meetings scheduled at once. I am sorry I missed Mr. O'Rourke's testimony.

    Mr. O'Rourke, the questions that you and the other panelists have on this platform—would it be fair to say that when the Aegis class destroyer was first proposed to Congress that much of the same things that is being said today about the unaffordability of the platform could have been said then?

    Couldn't the same things have been said about the cruiser then, that you are replacing many ships with fewer ships that are more expensive, maybe we ought to just keep building the Spruance class instead of the Aegis class, which was a fairly economical platform?

    Educate me on this. Is this something that occurs every time a new platform comes along?
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    Mr. O'ROURKE. I was there for a time at that debate, and the debate was of a different character at that time. You may remember that the DDG was designed——

    Mr. TAYLOR. I obviously do not remember. That is why I am asking.

    Mr. O'ROURKE. Well, unfortunately for me, I do remember.

    Mr. TAYLOR. Okay.

    Mr. O'ROURKE. I am getting a little long in the tooth. And the DDG was deliberately designed to be a less expensive complement to the Aegis cruiser. And in fact, Congress even legislated that it not be more than a certain percentage of the cost of the Aegis cruiser.

    And at that time, the question was not is this ship too expensive to be afforded in numbers, because, in fact, it was designed to meet a certain cost target, and it met that cost target by the Navy's estimates, which then proved to be correct when the ship went into production.

    The debate, rather, was whether it made sense to switch to a new destroyer design when we were already building cruisers and you could simply move further down the cruiser learning curve.
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    And the Navy argued at the time that, for a couple of reasons, at least, that it did make sense to switch from cruiser construction to destroyer construction. One was that the DDG ultimately was going to be less expensive on a unit basis, so you could get more, and the Navy needed to have a larger number of Aegis ships in the force than they could get simply with the cruisers.

    And the second was that the DDG would have some technology advancements or ship design advancements, rather, I should say, over the Aegis cruiser, one of which was an all-steel superstructure and better survivability. The Aegis cruiser had an aluminum superstructure and there was some concern about the ship's survivability as a result of that.

    So the debate over the DDG–51 at the time was not one about the ship is too expensive or we can not afford that many. It was oh, this ship is inexpensive, we probably can afford a lot, but would it make sense to build that ship when we are already building cruisers and we have the option to keep building them anyway.

    It was a different debate at the time.

    Mr. TAYLOR. So back to my question. How much more, since you were here, did the first DDG–51 cost as opposed to one of the last of the Spruance class?

    If I am not mistaken, we built a heck of a lot of Spruances, so therefore you have got a pretty good economy of scale going there.

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    Mr. O'ROURKE. That is right. And the DDG had a much bigger combat system than the Spruances did. The Spruance class destroyers had a reduced combat system because they were optimized for ASW only. But if you want a parallel with——

    Mr. TAYLOR. So going to your memory, what was the cost difference?

    Mr. O'ROURKE. The cost target for the lead DDG——

    Mr. TAYLOR. Not cost target. What is the cost difference between building more Spruances, which we have gotten really good at, or the first of the DDGs?

    Mr. O'ROURKE. I would have to go back and check that for the record.

    Mr. TAYLOR. Would you? Because I would like to see that comparison compared to this comparison.

    Mr. O'ROURKE. The parallel between then and now that I think is potentially of interest, and which I mentioned in my statement, had to do not with the Aegis destroyer but with the Aegis cruiser, because in the late 1970's, the Navy had a new technology called the Aegis system, and the question was what kind of ship to put it on.

    Mr. TAYLOR. Right.

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    Mr. O'ROURKE. And there were three design options available, a 17,000-ton nuclear cruiser, a 12,000-ton nuclear cruiser, and the option of putting it on the existing Spruance class hull, which is the ship that became the Aegis cruiser.

    Now, those bigger, nuclear-powered cruisers would have been a lot more capable because they were nuclear-powered and they had a larger total payload. The Navy decided they could not afford those ships, and so they went with the smaller design even though, from an individual ship capability point of view, it was not the preferred design.

    And to fit the Aegis system onto the Spruance class hull, they had to work at it. They had to kind of jam it in there. And that is sort of the reason why the Aegis cruiser looks the way it does, with a very tall, boxy superstructure, because they put a cruiser combat system onto a destroyer hull.

    But they did it, and they arrived at a 9,000-ton solution for an Aegis ship. And having made those hard design choices, they were able to procure three Aegis cruisers per year. With the same budgets, they would not have been able to procure nearly that many Aegis cruisers if they were doing a larger design.

    So the parallel, really, between then and now is with the issue of what kind of ship to put the new technology of the day, which was the Aegis system, into the fleet. And the Navy at that time went with the smaller design.

    A smaller design this time, if you were to entertain that option, would not necessarily have to be a 9,000-ton design. It could be something intermediate between 9,000 and 14,000 tons. But the idea would be to at least examine the option to see what you could get.
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    Mr. TAYLOR. Looking back over the 20 years, though, this has occurred, would we have been better off taking the least-expensive option, which was to build more Spruances, or to introduce the new technology? How would those Spruances have been able to stand up to what could be the Chinese threat that is emerging——

    Mr. O'ROURKE. Well, the Spruances——

    Mr. TAYLOR [continuing]. Or to the Soviet——

    Mr. O'ROURKE [continuing]. Would not have had—they would not have had the Aegis system. In fact, they only have a point defense air defense system. They were not even area defense capable, so they would not have met the mission requirements.

    Mr. TAYLOR. So the leap in technology was worth the increase in cost, in your opinion.

    Mr. O'ROURKE. Because it was more aligned with mission requirements. The mission requirement for the DDG was to build a less expensive complement to the Aegis——

    Mr. TAYLOR. But the leap in technology——

    Mr. O'ROURKE [continuing]. Cruiser that still had the Aegis——
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    Mr. TAYLOR [continuing]. Was worth the increase in cost that you attained, in your opinion. That would be a yes or no answer in my book.

    Mr. O'ROURKE. Yes, for a different mission orientation, sure.

    Mr. TAYLOR. Is it fair to say that there was also a different budget environment then? I would presume that the Aegis class was first proposed during the Reagan years.

    Mr. O'ROURKE. The first Aegis ship was funded in fiscal 1978.

    Mr. TAYLOR. Okay. So that is during the Carter administration. Then, I presume, during the Reagan years with the talk of the 600-ship Navy, there really were not the kind of budget constraints that Dr. Labs and Mr. Work were talking about, where they are comparing this lead ship as a percentage of a smaller shipbuilding budget.

    Mr. O'ROURKE. Budgets did go up——

    Mr. TAYLOR. And apparently budgets just kind of went through the ceiling back then, right?

    Mr. O'ROURKE. Budgets did go up in the early 1980's, and as you may remember, the budget peaked in real terms, budget authority, in fiscal 1985 before it turned back down. That is for the DOD top line as a whole.
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    Mr. TAYLOR. So, again, when comparing the first ship as a percentage of the budget that is available, it is really not a fair comparison, because back then the budgets that were available were enormous, apparently without end.

    I mean, I have people tell me, who worked at the Pentagon then, at the end of the year people literally walked the hallways saying does anybody need a billion. So that is not quite the situation we find ourselves in now with this administration.

    Mr. O'ROURKE. Well, I think shipbuilding budgets now, in real terms, are more constrained than they were in the 1980's. That is right.

    Mr. TAYLOR. I would have to agree with you on that.

    Mr. Chairman.

    Mr. BARTLETT. Mr. Marshall.

    Mr. MARSHALL. Thank you, Mr. Chairman.

    The figures that were given to us by our witnesses yesterday—and we will attest that the chairman gave at the end of the hearing—$4 billion to $4.5 billion for the first ship, $2.5 billion to $2.9 billion for the fifth ship, were figures given by proponents of the system that were the uppermost amount of money that they thought we should spend.

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    Am I correct, Mr. Chairman? That was your question to them.

    Mr. BARTLETT. Yes, that is correct. The question was at what cost would they be unaffordable. If the gentleman at GAO—it is very interesting that three of our panel members gave their projected costs, all of which were higher than what the panel yesterday said would be the highest possible cost before they would be unaffordable.

    And I am wondering to what adjudicator do we go to determine whether or not your estimates, gentlemen, of what the costs will be are realistic. If, in fact, they are realistic, then the witnesses yesterday said that the ships were unaffordable at those costs.

    Thank you for yielding.

    Mr. MARSHALL. Well, you just finished my question. Exactly what I was going to ask.

    Mr. SIMMONS. That is why he is the chairman.

    Mr. MARSHALL. It seems to me we have got a bit of a dilemma here, since at least three of you have estimated that the amount these will cost exceeds the uppermost number given by any of the four who answered the quiz.

    You know, who do we go to to find out what a fair estimate of what the costs will be actually is? Or would you each claim to be the ultimate expert on that subject?

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    Mr. O'ROURKE. There is one other source you can turn to, and that is the Cost Analysis Improvement Group within OSD. That is C-A-I-G, or CAIG. And they are not necessarily the ultimate arbiter from a congressional perspective, but they are another party that could play into that debate.

    But ultimately, I think, policy makers are going to be confronted with different and conflicting estimates for what this first ship might be, and they are going to have to apply their own individual judgment as to what number they think makes the most sense.

    Mr. MARSHALL. Admiral Clark yesterday—I would be interested in any follow-up thoughts that any of you had on that particular subject. Are there other sources for us to go to?

    Mr. LABS. I will defer to my boss——

    Mr. MARSHALL. Good idea.

    Mr. LABS [continuing]. For better or worse.

    Mr. MARSHALL. I defer to the chairman.

    Dr. GILMORE. The CAIG's estimate reportedly for the lead ship is $4.1 billion.

    Mr. MARSHALL. Pardon me?
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    Dr. GILMORE. The CAIG, the Cost Analysis Improvement Group with the Office of the Secretary of Defense—it has been reported that their estimate for the lead ship is $4.1 billion. I can not vouch for the accuracy of that report, because I have not seen the original source material upon which it is based.

    I can also point out that as a former member of the CAIG—I used to work in the Office of the Secretary of Defense before I worked for the Congressional Budget Office—I have yet to underestimate any ship or any other major program of which I have been responsible for doing a cost estimate.

    The independent cost estimators in the Cost Analysis Improvement Group and elsewhere generally are coming in higher than the service estimate. It is not surprisingly because they are not constrained the way the service cost estimators are, who are all quite competent, but they also always come in lower, generally speaking, than the ultimate costs that are realized.

    That is the history of independent cost estimating: higher than the services but usually somewhat——

    Mr. MARSHALL. Still lower.

    Dr. GILMORE [continuing]. Still lower than the ultimate costs of the system.

    Mr. LABS. I was essentially going to add and make the same point. I and my colleagues in the budget analysis division of CBO—Ray Hall, who is sitting right behind me, works very hard on these issues as well.
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    We have produced a number of cost estimates for individual ships and ships programs as a whole over the last few years, and if we look at sort of how our track record has done over the last—looking at it today, we have been low in every case if you look at what current estimates are right now.

    We have always been higher than the services when those reports were published, but reality catches up with the services first, and then it catches up with our estimates, and we end up being a little bit low, too.

    Mr. MARSHALL. Mr. Work, you said that—if I heard you correctly, toward the end of your remarks, that we should not focus on the strike capability of this system. And I was struck by Admiral Clark's testimony yesterday when he talked about the DD(X) being able to put four rounds into this room from 80 miles away.

    And you are suggesting that we really do not need that, given the threats that we are likely to face?

    Mr. WORK. Well, sir, the strike capability of the fleet—I mean, just the 9,000 missiles that the surface combatant fleet would carry would be augmented once the four SSGNs, the converted Trident ballistic missile boats that are being converted into the Tomahawk carriers, and all of the VLS cells on the submarine fleet would add another 1,000 missiles.

    Each of the carrier air wings by 2010, 2011 would be able to strike about 1,000 targets per day. So the overall strike capacity of the fleet is astounding. The advanced gun system (AGS) in itself represents a new and potentially very intriguing capability for the fleet. It is a gun missile system that would provide volume fires.
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    The question is could that AGS, which is a quite capable—could it be placed on a cheaper hull. And the answer, of course, is yes, I think.

    Mr. MARSHALL. The answer is yes, you think.

    Mr. WORK. I am sorry. The answer is it could definitely be placed on a cheaper hull, one that does not have all of the other technological capabilities.

    So for example, my colleague Ron O'Rourke has said if you wanted to go for a purpose built naval gun fire platform with three or four of the AGSs on it, you could build it for much cheaper than the DD(X), which has the high stealth that the CNO talked about yesterday and the other high order combat systems.

    Mr. MARSHALL. Well, lots of people are anticipating where I am going next.

    I guess I was going to Mr. O'Rourke next, and asking him whether or not that capability could be put on a smaller—you know for a certainty that that capability could be put on a less expensive hull.

    Mr. O'ROURKE. It would require that you give up some of the other things on the ship. The total payload of the ship is a certain total weight. If you go to a smaller ship, you have a smaller total payload to work with. The guns and their shells will still take up a certain fixed amount of that, so there is less room for other things.
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    I do not want to mislead people into thinking——

    Mr. TAYLOR. Would the gentleman yield?

    Mr. MARSHALL. Absolutely.

    Mr. TAYLOR. Would you detail those things that you have to give up?

    Mr. MARSHALL. Well, that is what I was going to ask.

    Mr. O'ROURKE. Well, you would essentially have——

    Mr. MARSHALL. Why am I here? [Laughter.]

    Mr. O'ROURKE. I will give you some examples. As I point out in my statement, the size and cost of the DD(X) is not really driven by any one technology or any one system but rather by the combination of many different capabilities that are built into the ship.

    And there is a list of those capabilities in my written statement, but to pick a couple examples off the top of my head, you could start at the end of the ship.

    This ship has a very large helicopter landing platform and a hangar that is suitable for embarking and maintaining either two helicopters or one helicopter and three unmanned aerial vehicles (UAVs). You could reduce that aspect of the ship to something more equivalent to DDG Flight II or DDG Flight I capability.
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    The ship has an internal space for accommodating a flag-level command officer and his command staff, so that the ship could act as a command ship for an entire group of ships. That is something that has never been on a destroyer before. It is one of the few things that used to distinguish cruisers from destroyers in this fleet. You could think about not putting that in there.

    The ship has berthing and equipment storage spaces and mission planning spaces for a platoon of 20 special operations forces. That is a capability that I do not think the Navy even talked about yesterday, but it takes up some space on the ship, and you can think about eliminating that.

    The ship has 920 shells on it. You can think about having 600, although the Navy gets uncomfortable with numbers that low and certainly lower, although the Navy——

    Mr. MARSHALL. Let me——

    Mr. O'ROURKE [continuing]. Also testified——

    Mr. MARSHALL. Let me——

    Mr. O'ROURKE [continuing]. That they have an ability to reload that ship while it is shooting to provide an infinite magazine.

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    Well, if you have an infinite magazine, is there a tension between that and the idea that you need to have preferably at least 600——

    Mr. MARSHALL. Let me interrupt you if I could.

    Mr. O'ROURKE [continuing]. If not 900 shells. But these are some examples——

    Mr. MARSHALL. Let me tell you, I understand. Okay. Gotcha.

    Mr. O'ROURKE. I do not want to——

    Mr. MARSHALL. So there is a laundry list of possibilities here.

    Mr. O'ROURKE. Exactly. And I do not want to give people the impression that you can get an equal capability in a smaller ship for surface combatants——

    Mr. MARSHALL. Well, let me——

    Mr. O'ROURKE [continuing]. Because that is not possible. But you——

    Mr. MARSHALL. All right, so——
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    Mr. O'ROURKE [continuing]. Should at least, I think, know what the tradeoffs might be so that you would understand the option. And right now, Congress does not understand what that option looks like.

    Mr. MARSHALL. All right. Let me ask you this. We are struggling here with—well, these gentlemen have yesterday put caps on the amount of money that they thought ought to be spent on this particular weapon system.

    You all have made reference to the CAIG, which is the first time I have heard of that group, and that their estimates typically, while more than the services' estimates, wind up being less than what the ultimate price tag winds up being.

    Would you suggest that we, Congress, go through a process of saying okay, fellows—I do not know how you do this, since everybody has different estimates of how much these things are actually going to cost, but here is how much money we are willing to spend in the future on this weapons system, you figure out what you are going to put in the system.

    And so, for example, if we have concluded that we do have to do two ships per year, and that we would like to have this certain number ultimately, the amount of money that we can spend to do that is X, you go design this thing and come back and give us a product that is going to stay within that cost parameter, and you make up your minds what you are going to sacrifice. Is it going to be the AGS, is it going to be the helicopter pad, is it going to be the berthings?

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    Mr. O'ROURKE. That is exactly the path the Navy adopted in the DDG–51 program. When it was time to design the Aegis destroyer, they bounded that problem by projecting the future size of the shipbuilding budget.

    And then they applied to that projection the fraction of shipbuilding funds that normally went to surface combatants. Then they said we need to build five of these per year to meet our force structure requirements, so they divided that money by five, and that implied a unit procurement cost of $650 million a ship.

    And at that point, the design looked like a $750 million ship, and they did not think they could close all $100 million of that gap. So they went to the secretary of the Navy and said we think we can close about half of it, can you give us relief on the other half.

    And the secretary of the Navy at the time, John Lehman, said yes, I will give you the other half. So the $650 million was turned into $700 million. That became——

    Mr. MARSHALL. Did it stay that way?

    Mr. O'ROURKE. And that was the target cost, and the Navy met it and, in fact, the early ships in the program were contracted under that cost. So the Navy adopted exactly that strategy, and the design was estimated to meet it, and in reality it was met and the Navy wound up getting those five ships per year as they hoped to.

    But if you want to pick a more recent example of where the Navy adopted a similar strategy, it is in the LCS program. The Navy told industry that the LCS was not to cost, as a basic ship, more than $220 million a ship.
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    And industry went off and designed the best ships that they could for that price, and now there are two designs that are estimated to meet that target which are now competing for that program. So this is a well-established way for the Navy to go about an acquisition project that takes into account projected limits on future shipbuilding funds.

    Mr. MARSHALL. Thank you, Mr. Chairman.

    Thank you, Mr. O'Rourke, all of you gentlemen.

    Mr. BARTLETT. Thank you very much.

    Mr. Calvert?

    Mr. CALVERT. I apologize, Mr. Chairman. I was not here yesterday, but maybe this was asked.

    And somebody asked me this question earlier today, so I am going to ask you, Mr. Work, I think. The old hulls—I understand that some of the older ships that are being retired that the hulls are in pretty good shape.

    Is there any reason why we could not reconfigure those ships to modernize them, put new electronics on them, new weapons systems? Would that be a reasonable way of going about adding additional platforms or keeping additional ships in the fleet?

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    Mr. O'ROURKE. You would want to do something like that to make sure——

    Mr. CALVERT. I asked Mr. Work first, but go ahead——

    Mr. O'ROURKE. I am sorry.

    Mr. CALVERT [continuing]. After Mr. Work answers.

    Mr. O'ROURKE. Oh, that is the way I used to say my name when I was very young, so I heard it differently.

    Mr. WORK. Sir, the big difference between the 1980's and now, of course, is the state of the naval competition. We were in a really hard competition with the Soviet Navy in the mid 1980's.

    And therefore we took hulls that were not very good, hulls that were built in the 1960's, and put $100 million in them to put in a new threat upgrade. It made them quite capable ships because the nature of the competition called for taking older hulls and making them really, really good.

    Right now, the state of the competition is that we are so far ahead of any other navy in the world that I think the Navy made the prudent decision to retire Spruance class destroyers and FIGs.

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    But they have a very, very good hull in production right now, the DDG–79, which is—the only ships like it that compare with it in the world are people who are copying it. The Japanese essentially are copying the DDG–51 with their Kongo class. They built four of them. And they are building two improved Kongo class which are essentially a DDG–79.

    So the hull that is in place right now, the DDG–79, is the best combatant in the world. There is nothing like it.

    And rather than keeping Spruance class hulls and updating them, it might be prudent just to continue to build the DDG–79, retiring the earlier—in other words, on a one-for-one basis, keeping the fleet at 84, and you would be able to continually upgrade the fleet.

    Mr. CALVERT. All right.

    Mr. O'Rourke?

    Mr. O'ROURKE. The Navy has a long history of doing modernization efforts on its existing surface combatants to keep them mission-effective through what was hoped to be their full life, and so there are many precedents for that.

    Whether you can change or alter the mission orientation of the ship—that is harder to do, and more expensive and not usually that cost-effective, which is why you might want to think about a strategy that did try and design a new ship with DD(X) and CG(X) technologies that were better aligned for the somewhat different missions that you have in mind for the future.
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    But that is certainly a viable option for maintaining the mission effectiveness and the cost-effectiveness within those missions of your existing ships.

    Mr. CALVERT. Thank you, Mr. Chairman.

    Mr. SIMMONS [presiding]. The chair recognizes Mrs. Drake.

    Mrs. DRAKE. Thank you, Mr. Chairman.

    And I also apologize for missing yesterday's meeting and being a little bit late for this one. It is one of the challenges of Congress, how to be three places at once.

    But I appreciate all of you being here, and just a couple questions that I have.

    Mr. Work, I came in just before you started. Do you think, though, that with DDG and the technologies that are produced for that ship that there would be future cost savings for us on some of the future ships that are coming that would use these same types of new technologies? Is that something we could expect?

    Mr. WORK. Well, yes, ma'am. As part of the DDG and cruiser modernization programs, as the witnesses testified yesterday, many of the open architecture advances are being applied to those very ships, and they are going to have an Aegis open architecture program, which will go back into all of these 84 ships.
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    They are going to establish an open architecture program for the VLSs, the vertical launch systems, and they are going to make their cooperative engagement capability an open architecture, which would mean all of those ships would be easily upgradable.

    And they are also going to put in manpower-saving innovations, and the Navy's own estimates are that the life cycle costing for the cruisers and destroyers could be reduced by 30 percent.

    So there is a lot of life left in this fleet, and there is a lot more savings to be brought out of it. By building one DD(X) technology demonstrator, you would in essence be able to bring all the technologies forward which the witnesses have testified are so important to the future Navy. But in the meantime, you would start designing a new ship that is potentially cheaper to put them in.

    So as a dual strategy, I think the Navy has many, many, many options to go about pursuing this based on the shipbuilding budgets that they might have.

    Mrs. DRAKE. I also wonder, from any of you, when you do your analysis—and I certainly do not know, because I did not hear enough of it—whether you look at it simply from a budget type of analysis or if factored into what you are doing is also sort of a national security component and what you might anticipate to be our needs from a national security standpoint.

    Or does the Navy do that and you simply do the budget part, and we are supposed to bring it all together? And I think what really generates that question is Mr. Taylor asking about mission requirements.
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    And if the Navy's identified these are mission requirements for very specific purposes, and you build a ship that does not meet those mission requirements, in my mind, that is money that is not well spent and probably money that is wasted if you are not meeting the requirement of the mission.

    And then that takes us to what we have been talking about ever since I have been in Congress, which is, are we allowing the budget to drive our military decisions, or are we budgeting for what our best military decisions are.

    So I just did not know how you look at things, whether it is strictly budgetary or if you put it in the context of what our military needs are.

    Mr. WORK. Ma'am, we just completed a very wide-ranging naval platform architecture study, which looked at the national security environment over the next 10 to 20 years as well as the missions that the Navy has said they will need. So we very much do believe that we take into account both the projected future environment as well as the overall capabilities of the network.

    That is the key thing. The Navy is building this network of combatants. So, for example, the LCS, the littoral combat ship, it has nowhere near the stealth that the DD(X) has. But as part of a network, it will be able to survive.

    So when comparing the DD(X) to the DDG–51, the question really is, what does the DD(X) bring to the network?
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    And by the Navy's own testimony, the CEC program, cooperative engagement capability—once the airborne radars are brought into it, it will increase the detection volume of the network by 250 percent. So the question is, what would the 8 to 12 destroyers with the new radar add to that already enormous capability?

    So we have tried to look at that, and the DD(X), from our perspective, is not the right ship at this time. The missions that the CNO and the witnesses said yesterday we fully agree with. We just think there are better ways to go about achieving it, at a cheaper price.

    Mrs. DRAKE. Mr. O'Rourke?

    Mr. O'ROURKE. Just a couple points.

    First, I think the Navy takes both budget and mission into consideration and arrives at what they believe to be the best solution.

    And in our work, what we do is, again, take both budget and mission into consideration, to ask questions about whether that is the case or not, so that you, the policymakers, have a basis for deciding whether the Navy's way of balancing these two things is the right way or whether it needs to be adjusted in some manner.

    The Navy talked yesterday about campaign analyses perhaps in a conflict of some kind, but as I mentioned in my testimony, if you build this ship at one per year out to the number that the Navy wants to build, then the surface force will be driven down to roughly 50 ships.
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    And another requirement for this Navy is maintaining global presence in several spots around the world at one time. And so, you can do a campaign analysis of global presence and rapid response in multiple locations, and I am not sure you would have the same answer to that campaign analysis as you would to a war-fighting analysis where a very small number of DD(X)s might be able to do a whole lot for you.

    But the short answer to your question is yes, the Navy tries to take both into account. We in our work try to take both into account to assess the Navy and raise questions for you as policymakers. And then it is up to you to decide whether you think the Navy has arrived at the right solution or not, hopefully having been informed by our work.

    Mrs. DRAKE. Thank you very much.

    Mr. Chairman, I yield back.

    Mr. BARTLETT [presiding]. Thank you.

    Mr. Langevin.

    Mr. LANGEVIN. Thank you, Mr. Chairman.

    Gentlemen, thank you for your testimony today. I would like to further explore this issue of the technology being developed and piling that into being used on other platforms.
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    Mr. Gilmore, you have noted your concerns about potential cost overruns in DD(X) by using past experience from DDG–51 as an example. Yesterday we heard from Admiral Clark that DD(X) differs DDG because it serves as a platform from which it will spiral combat systems and other technology onto other surface ships.

    So when you prepared your analysis, did you assess the possible cost impact of delaying developing of systems that will be used in other platforms, such as CG(X) or CVN–21 and, if so, what would those impacts be?

    Dr. GILMORE. No, we have not done that.

    Now, it is possible that delays in the DD(X) program would inevitably result in delays in the other programs such as CVN–21, as the admiral mentioned. I do not think that is inevitable.

    But the short answer to your question is no, we have not considered that in the figures that we presented here.

    Mr. LANGEVIN. And so potentially those potential delays could be significant and costly.

    Dr. GILMORE. Delays could lead to cost growth for a variety of reasons, not the least of which is there is a pool of engineers and other people who are sitting there as what we call fixed overhead that have to be paid for, and so that would lead to increases in the DD(X) program costs, and the same thing is true if you delay the CVN–21 program.
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    But I can not give you figures because we have not done that analysis.

    Mr. LANGEVIN. Anyone else care to comment?

    Mr. WORK. Sir, as the witnesses testified yesterday, the mission that is really concerning the Navy right now is the theater air and ballistic missile threat to the fleet. And that is why they have brought the CG(X) forward.

    And as they testified yesterday, the combat mission on that ship will be different than the DD(X). As Mr. Young testified yesterday, they are going to take out the MFR, the multifunction radar, and the volume search radar (VSR), on the DD(X) and put in an entirely new radar and combat system on the CG(X).

    So one technology demonstrator should be able to get the MFR and VSR radars so that they can go on the CVN–21 and other platforms that require that system.

    But in any event, the Navy is going to have to design an entirely new combat system for the CG(X).

    Mr. LANGEVIN. Thank you.

    Mr. Francis, if I could turn to you, in your analysis you focused on the readiness of the engineering development models that will eventually be incorporated into DD(X).

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    From what I understand, tests and improvements to these models are done on an ongoing basis with enhancements done to address concerns from the prior tests.

    So my question is, how frequently does GAO update its analysis with data results from ongoing testing? And are you given new data from the program office after each test, or do you need to wait until there is a series of tests and improvement on a particular model is completed?

    Mr. FRANCIS. Yes, sir, we have been pretty much continuously involved on the DD(X) for about two years now, so we have not had any break in work. So we are in pretty constant contact with the program office, and we get emerging results as they become available.

    And so we are fairly current on the status of all the engineering development models. And in addition, we do make visits to several key ones to see things for ourselves. So I do not think we are much more than a couple of weeks from any result.

    Mr. LANGEVIN. So it is basically test complete, you get the data, evaluate it, and not getting test data from a series?

    Mr. FRANCIS. Correct. For example, if there is a test, say, on the integrated power system, we will get those results, so we will get those individually. Then, if you have a review like a preliminary design review or critical design review, where all those results are brought together, we will also get those assessed as a group as well. So we do get them both ways.
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    And we are also involved in understanding the test plans and the criteria, so we know what is coming and what is to be tested well before we even get the results.

    Mr. LANGEVIN. Thank you, Mr. Chairman. I yield back.

    Mr. BARTLETT. Thank you.

    Mr. Simmons?

    Mr. SIMMONS. Thank you, Mr. Chairman.

    I will take my lead after Mr. O'Rourke, who referred to thinking back many years to some of the issues that have challenged us in bringing these new systems into place.

    I will go back to the late 1970's and early 1980's when problems at Electric Boat were affecting our delivery of submarines to the U.S. Navy, problems that, in my opinion, reflected an environment of competition among shipyards and that created what I call a feast and famine environment where one shipyard would get a contract to build and the other would lay off.

    And then the second shipyard would win, and the first shipyard would end up laying off. You had uneven performance in both yards. You had faulty welds for a period of time there in the early 1980's that had to be redone. Your work force was in constant disruption.

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    And that eventually led to a relationship between Electric Boat and the Newport News shipyard of teaming, where both yards began working together to produce the very best product they could under limited budgets and with reduced numbers of submarines.

    Teaming has worked well, in my opinion, over the last decade or so, and it is a relationship that I value, and I think others believe is the right way to go when you are basically dealing with one customer.

    Now I read that the Navy has decided recently to go for the winner-take-all strategy, which I believe this Congress has opposed, and so they are coming up with a deferred winner-take-all strategy.

    This really bothers me, because it seems to me important to our national security to maintain our industrial base in more than one location, to the best of our ability.

    And I guess I would ask you and any other members of the panel to what extent do you feel that future procurement activities are going to support a winner-take-all strategy where essentially you force another shipyard out of business, as opposed to dividing the pie in a fair and equitable fashion to ensure that two yards stay viable on producing the best surface ships that we can produce?

    Mr. O'ROURKE. I guess the short answer would be that you can only do a winner-take-all strategy so many times before you risk driving a number of shipyards out of the Navy shipbuilding business that is high enough that you can not even entertain the competition any more of that kind.
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    I mean, if the number gets down too low because you have used that strategy on a certain number of occasions, then you may reach a steady state where, well, you can not do it anymore.

    Teaming for the submarine program was proposed by industry and the Navy and approved by Congress in 1997 when they were acting on the fiscal 1998 defense budget, and it was the resolution of a debate that had been going on for three years about how to produce those submarines.

    And it represented a compromise, if you will, between the idea of trying to keep the cost of the ship down and the competing interest in maintaining the involvement of two shipyards rather than simply singling out.

    Now, is that an option here? Yes, it would be an option for this program as well, especially if this program were limited to one per year, which I think is a very real possibility under the kind of budget conditions that we are looking at.

    So, yes, that is an alternative acquisition strategy for this program. It would be more expensive than going with a single yard as the Navy would calculate it, but it would be less expensive than producing entire ships at each of the two individual yards, and that was essentially the same calculus that was involved in the submarine debate in 1997.

    Mr. SIMMONS. Would any of the other panelists wish to comment on that?
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    I know, Mr. Work, in your testimony you mentioned this issue. Do you have thoughts on the subject?

    Mr. WORK. Yes, sir. As the number one naval power constantly looks around the world and looks at potential naval competitors—and the naval competitor that is looming large in the Navy's sights right now is the Chinese threat.

    They have an industrial capacity—this would be the first time that I think since 1890 that we would potentially face a naval competitor with an industrial capacity pretty close to our own and could really press us in a competition.

    So it is a very key decision on how much shipbuilding capacity to give up now, because the competition will probably evolve over the next decade or so, before we really know whether or not the direction of that competition.

    So maintaining surface combatant yards right now, in my mind, is probably a prudent strategy. But it is a very difficult one because of the extra costs of doing so in these very tight budgets.

    So for me, it is more the Congress, the Department of the Navy, and the Department of Defense getting together and making a hedging strategy on this competition and determining whether maintaining a second combatant yard is in the best interests of the nation.

    And if it is, then the shipbuilding program should be adjusted to reflect that.
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    Mr. SIMMONS. Would you say that the Chinese industrial capacity to build ships is increasing over the last ten years?

    Mr. WORK. Absolutely, sir. The Chinese want to be the number one commercial shipbuilder in the world. Right now, the Japanese and the Koreans are ahead of them, but they would like to knock those two off no later than the end of this decade or by mid next decade.

    They are developing the largest shipyard in history in the Shanghai Estuary. They are building eight different ships right now. Their capacity is quite good. The quality of their ships are nowhere near U.S. ships yet, but their capacity is such that, over time, the competition could be very stressing for the United States.

    So the question really becomes would we need a second shipyard today based—probably not, but would we need a second shipyard ten years from now, possibly yes. So the question of whether or not you are going to shut down that second shipyard is a very important one for the Congress to consider.

    Mr. SIMMONS. And I think it is correct to say that while the quality of American shipyards is very high, the capacity or the quantity has been diminishing over the last 25 years.

    Mr. WORK. That is correct, sir. The shipbuilding capacity for the shipbuilding budgets we have right now is probably over. The question is is it the right—do you want to maintain a hedge for a competitive strategy.
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    I would like to say I do not believe—I have never talked with any navy officer in any navy anywhere who, off the record, said I would rather sail on my ship rather than a U.S. ship. U.S. shipyards build the best surface combatant, submarines, aircraft carriers in the world and they are the envy of every single navy.

    So maintaining that capacity, I think, is vital to the nation, and it is a very difficult problem based on the budget environment we are in.

    Mr. SIMMONS. Well, I thank you for that. I agree with what you are saying. I know we are focusing on a particular system, but it is a system that is produced by a larger system called our industrial base which also is a matter for discussion, I think, in this conversation.

    Anybody else have any thoughts on that issue?

    Hearing none, I yield back, Mr. Chairman.

    Mr. BARTLETT. Thank you very much.

    Let me turn to my ranking member, Mr. Taylor, for any additional questions he has.

    Mr. TAYLOR. Thank you. And I would open this up to the panel.

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    Mr. O'Rourke, I found your conversation with my colleague from Georgia, my friend from Georgia, very interesting. I guess my question would be given the automotive analogy of paying for options, and looking at your statement on page seven, which of these options would you be willing to give up for that ship?

    Would you take away their air defense capabilities? You would.

    Mr. O'ROURKE. No, I am just acknowledging your question. I am just tracking your question.

    Mr. TAYLOR. Okay. If you are sending an American destroyer three years from now into the Taiwan Strait or the Straits of Hormuz—four years or five years from now, or seven years from now, when this ship is theoretically built, would you be willing to send it there without an air defense capability?

    Mr. O'ROURKE. I guess my answer would be that I would ask the Navy which of the things on that ship they most want to have. They do want to have everything. But what are the things they most want to have?

    And there was a time a few years ago when I am not sure the Navy could give you such a clear answer to that question. They were facing a lot of uncertainty about what their future mission demands would be.

    And in that kind of environment, a lot of capabilities that you would like to have could be turned into capital R requirements. But I get the sense now, within the past year, that the Navy has a clearer and more focused sense of what is most critical to have in the Navy's capabilities in the future to plug projected gaps.
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    And I would ask them what those things were, and those would be the things I would concentrate on in the design. And we have made choices like that in ship design in the past.

    You mentioned the Spruance class destroyer. And the reason it was optimized for ASW and not anti-air warfare (AAW) is because ASW was the most pressing need at the time, and they wanted to keep the cost of the ship down.

    Mr. TAYLOR. Okay. That was then. Again, so since apparently you are saying—and obviously, all these things do contribute to the cost of the ship. Is it fair to say that if you are going to send a ship into a dangerous situation, that ship or ship traveling with it is going to possess some sort of air defense system?

    Mr. O'ROURKE. The fleet as a whole——

    Mr. TAYLOR. So whether——

    Mr. O'ROURKE [continuing]. Needs to have a certain amount of air defense.

    Mr. TAYLOR. If I may, so whether it is on this ship or a ship traveling with it, you are going to pay for an air defense. So to build a ship without air defense, you are not really getting the full savings because you are building another one that is going to escort it, is that correct?
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    So it would make sense that if we are going to invest a certain amount of America's young people and a certain amount of America's treasury that it would have air defense.

    Mr. O'ROURKE. Some amount of air defense, that is right.

    Mr. TAYLOR. That is one of the options you would leave on there.

    Mr. O'ROURKE. But it is not a yes or no question.

    Mr. TAYLOR. Okay.

    Mr. O'ROURKE. It is how much air defense capability you build into the ship. We call this ship a destroyer. It has got more air defense capability in some respects than ships today that we call cruisers.

    Mr. TAYLOR. Okay. Now, this is quoting from you. You said that the AAW capability in some respects is greater than a DDG–51.

    Mr. O'ROURKE. Yes, that is right. That is straight from the Navy.

    Mr. TAYLOR. Is that a good thing or a bad thing?

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    Mr. O'ROURKE. I am sorry?

    Mr. TAYLOR. Is that a good thing or a bad thing?

    Mr. O'ROURKE. Depends on what your mission requirements are.

    Mr. TAYLOR. In a world where lots of people have good airplanes, is that a good thing or a bad thing?

    Mr. O'ROURKE. It is good to have air defense in your fleet.

    Mr. TAYLOR. A vertical launch system, weapon storage and volume, weapon weight capacity of between that of a DDG–51 and Aegis cruiser. Again, is that a good thing or a bad thing?

    Mr. O'ROURKE. I do not know, because, as Mr. Work pointed out——

    Mr. TAYLOR [continuing]. Cost associated with that——

    Mr. O'ROURKE [continuing]. We have got 8,500 cells in the fleet already.

    Mr. TAYLOR. Okay. But in the overall scheme of things, if you were a sailor on that ship, or if you were responsible for the lives of the sailors——
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    Mr. O'ROURKE. Well, I think any——

    Mr. TAYLOR [continuing]. On that ship——

    Mr. O'ROURKE [continuing]. Sailor or any commander would say more is better.

    Mr. TAYLOR. Okay. Is there a cost associated with that?

    Mr. O'ROURKE. But there is always a cost associated with more.

    Mr. TAYLOR [continuing]. Cost of this ship.

    Mr. O'ROURKE. Ten percent of the ship can be payload, okay? So if you have a 14,000-ton ship, you have a 1,400 ton payload. That is what you work with with that size, and you make tradeoffs about what you can fit into that.

    Mr. TAYLOR. Gunfire capability greater than any cruiser the Navy's built since World War II—if you are a Marine on a beach 70 miles inland, on a rainy day, thunderstorms there, where planes can not see very well, close fire support, is that a good thing or a bad thing?

    Mr. O'ROURKE. It is a good thing if the DD(X) is close enough.

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    Mr. TAYLOR. What percentage of this ship or any ship is in the price of steel?

    Mr. O'ROURKE. Is——

    Mr. TAYLOR. Basic commodity called steel. What percentage of this ship or a DDG that we ordered this year——

    Mr. O'ROURKE. Is basic steel?

    Mr. TAYLOR [continuing]. Is steel?

    Mr. O'ROURKE. For the DDG, I can tell you that the shipyard cost of the ship is a relatively small fraction of the ship. It may be roughly one-third. Most of the cost of a DDG is wrapped up in the combat system of the ship.

    Mr. TAYLOR. Okay, so one-third of—and a DDG right now is going for $1.2 billion?

    Mr. O'ROURKE. Something like that, yes, so $450 million of that ship——

    Mr. TAYLOR. Okay.

    Mr. O'ROURKE [continuing]. Last time I saw the number, was the portion of the cost that went to the shipyard.
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    Mr. TAYLOR. What was the price of steel, the kind of steel—this hot-rolled plate that goes into our destroyers—what was the price per ton of steel in January of 2003?

    Mr. O'ROURKE. I do not know. I will have to get that for you.

    Mr. TAYLOR. Would you like to know? $327 a ton. What do you think it was in April of 2005?

    Mr. O'ROURKE. Oh, I do not know, maybe $600 or more per ton.

    Mr. TAYLOR. How about this very distinguished panel? Could any of you tell me if you ordered steel in April of this year, how much was it per ton?

    Mr. WORK. I do not know, sir.

    Mr. TAYLOR. I mean, you are here telling me that the ship is overpriced. One-third of the cost of a ship, according to Mr. O'Rourke, is steel. You would think you would take the time to see if maybe that was a factor.

    Dr. GILMORE. In the estimates that we have given you, we have used the Navy's latest inflation indices for ship construction costs, including price of steel——

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    Mr. TAYLOR. Okay, so what is the price of steel, Dr. Gilmore?

    Dr. GILMORE. I do not know. I honestly do not know what the component of those inflation indices is that is directly associated with the cost of steel——

    Mr. TAYLOR. $744 a ton, more than double. Would you say that that is a fair observation this is one of the things that is driving the cost of this ship? Since this ship is now twice as big as the one it is going to replace, my hunch is it is going to have close to twice as much steel in it.

    The price of steel has doubled. Would it be fair to say that that is an unavoidable cost increase?

    Mr. O'ROURKE. That price that you mention came after the Navy's own budget submission, so it is not reflected in the budget submission cost estimates for the DD(X). Those things came in February.

    Mr. TAYLOR. Mr. O'Rourke, are you telling me the Navy's been low-balling this Congress as to the price of steel acquisitions for the——

    Mr. O'ROURKE. No. I am just saying that when you submit a budget in February, you do not have access to steel prices that might occur in April or May. And that, yes, the prices were driven up by the Chinese demand for steel on the worldwide market, and the prices spiked in that time frame.
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    Mr. TAYLOR. I thought your observations on the special forces on the ship were interesting. What do you think, in either percentage of total cost or in real dollars, that adds to the cost of the ship?

    Mr. O'ROURKE. Relatively small, but it is one of the things on the menu.

    Mr. TAYLOR. One percent?

    Mr. O'ROURKE. I do not know.

    Mr. TAYLOR. Anyone want to venture a guess?

    Again, I think a fair question—because we have an administration that is certainly emphasizing the additional use of special forces as opposed to conventional forces, so if you are going to have an administration that thinks that way, wouldn't it be logical to build ships that support——

    Mr. O'ROURKE. And we are. We are building four Trident SSGNs that each have a capacity for doing 66 or more special operations forces, so there will be ships in the fleet, ships that are stealthy, and can get close to the shore and can deliver even more special operations forces than that ship.

    Mr. TAYLOR. Sonar and other antisubmarine warfare systems that are roughly equivalent to that of DDG–51—I realize that the number of submarines out there is obviously diminished with the demise of the Soviet Union. Has the quality of the submarines we face also diminished?
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    Mr. O'ROURKE. The quality in general——

    Mr. TAYLOR [continuing]. On a one-for-one basis are they actually probably a little bit better than what we are facing——

    Mr. O'ROURKE. No, the quality has gone up.

    Mr. TAYLOR. Okay. Again, if you are going to build something that is carrying $2 billion of America's treasure or several hundred of its great young people, would you want your ASW capability to be worse than previous generations of ships or at least as good?

    Mr. O'ROURKE. I would want the ASW capability of my fleet to be sufficient to provide——

    Mr. TAYLOR. Okay.

    Mr. O'ROURKE [continuing]. Sufficient protection to the fleet.

    Mr. TAYLOR. So if it is not on this ship, is it fair to say that you would have to have another ship traveling with this ship to protect it from submarines?

    Mr. O'ROURKE. Or another ASW system of some kind—could be airborne, could be bottom-based sensors. And in fact, ASW is a collective game, so it is the entire architecture of ASW systems.
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    Mr. TAYLOR. What is the cost of those other things?

    Mr. O'ROURKE. Well, it depends on what the system is, but they all have their costs.

    Mr. TAYLOR. Okay. So it is fair to say that if it is onboard the ship, you are going to pay for this one way or the other. You are either going to pay for it to be on the DD(X), or you are going to pay for it to be on the LCS, or you are going to pay for it to be on some other ship, but we are going to pay for it.

    The question is whether or not we are going to have a stand-alone platform that can do these things or a platform that has to carry other ships, other sailors——

    Mr. O'ROURKE. Right. The question is what is the lowest cost to the Navy as a whole for providing the total collective amount of ASW capability that it needs.

    Mr. TAYLOR. Does a substantial part of our ASW capabilities come from helicopter platforms?

    Mr. O'ROURKE. Yes.

    Mr. TAYLOR. And unmanned helicopter platforms?

    Mr. O'ROURKE. In the future it may come from unmanned air vehicles. Right now it is almost principally manned helicopters.
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    Mr. TAYLOR. Okay. So you note that this vessel would have a large helicopter flight desk and hangar. Is that a bad thing?

    Mr. O'ROURKE. Is it bad to build hangars and not put helicopters in them? We have 84 Aegis cruisers and destroyers. The majority of those can have two helicopters in them, and a lot of them do not have helicopters in them.

    So we have a lot of hangar space right now we are not using. Do you want to build more hangar space you are not going to use?

    Mr. TAYLOR. If it is a stand-alone platform, is that a good thing?

    Mr. O'ROURKE. Good thing.

    Mr. TAYLOR. Okay. And again, if it is not a stand-alone platform, you are going to be paying for another platform to be traveling with this platform to provide that capability. Is that a fair assumption?

    Mr. O'ROURKE. Yes.

    Mr. TAYLOR. Okay.

    Mr. Work—Mr. O'Rourke, excuse me. I was very much intrigued with—oh, command and control. I have not visited all of them. I have visited the Blue Ridge. I have visited the Mount Whitney.
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    What are the capabilities of those two vessels to defend themselves?

    Mr. O'ROURKE. Oh, not very much. Very limited point defense.

    Mr. TAYLOR. Other than a Marine on the deck with an M–16, not a whole lot, right?

    Mr. O'ROURKE. Small weapons.

    Mr. TAYLOR. But if you had a command and control on a DD(X) that could defend itself, you would say that was probably a safer place to have your——

    Mr. O'ROURKE. In the same way that we have command and control facilities on the Aegis cruisers today, that is right.

    Mr. TAYLOR. Mr. Work, in fairness, heard your predictions that you did not see this huge a threat coming. So, in fairness, I am going to ask you, did you see the American invasion of Panama coming in the fall of 1989?

    Mr. WORK. No, sir, I did not.

    Mr. TAYLOR. I did not either, so it is okay. Did you see the American involvement in Bosnia coming?

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    Mr. WORK. No, sir.

    Mr. TAYLOR. I did not either. Did you see the Iraqis getting ready to invade Kuwait in the summer of, I guess, 1990, it was?

    Mr. WORK. No, sir.

    Mr. TAYLOR. Okay. I did not see that one coming either. But we responded to all those things, did not we?

    Mr. WORK. Yes, we did.

    Mr. TAYLOR. And it was pretty good that we had the capabilities to respond to all those things, even though you and I did not see them coming.

    Mr. WORK. Yes, sir. Absolutely.

    Mr. TAYLOR. Okay.

    I think I made my point, Mr. Chairman.

    Mr. WORK. Well, sir, if I could——

    Mr. TAYLOR. I hope I made my point.

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    Mr. WORK. If I could, sir, again, it has to do with the overall network.

    Mr. TAYLOR. Right.

    Mr. WORK. The way the Navy is now assembling its fleet is that not every single platform will be multimission. They are disaggregating capabilities and putting them on a wide variety of platforms.

    So for example, the reason why the Navy believes that it can reduce the number of submarines down to 41 is because of all the networking capability that Mr. O'Rourke talked about—the dipping sonars, distributed sensors.

    So the question on the eight to 12 DD(X)s is do we need the strike capacity on the ship. Absolutely not. We have more strike capacity in this fleet than—actually, we can not fill all of the VLS holes that we have right now with weapons. So we do not need more VLS holes.

    The size of the VLS cell is a very nice thing on the DD(X). It is a 28 inch by 28 inch, which would allow you to put in a larger diameter missile. But those could be placed on other ships. The AGS is a very intriguing capability. Those could be placed on other ships.

    So the question is not—there are only going to be eight to 12 of the radars associated with the DD(X)s, these new multifunction—et cetera. Then they are going to shift to a whole new system for the CG(X).
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    If you were to ask me is the capability of the network that is being designed right now, with all of the improvements that are in line with bringing in overhead sensors, with bringing on the extended range interceptors, we could do without the eight to 12 combat systems on the DD(X), have more capacity than I think would be necessary, and pursue those individual capabilities on different platforms that aggregate as part of a network to give a very good capability.

    Mr. TAYLOR. To what extent did you consult with the Marines on this? And I really was pleased to hear Admiral Clark yesterday. I thought he did the best he has ever done in defending his platform. I was very pleased with Mr. Young's remarks. I thought he did the best he had ever done.

    But from my way of seeing things, the most compelling case for this has always come from the Marines, the need for that fire support at shore, 80 miles to 100 miles inland. To what extent when reaching your conclusions did any of you speak with the Marine Corps?

    Mr. WORK. Sir, in preparation for the report that we did, I probably interviewed, on an individual basis as well as in group settings, over 200 officers in both the Navy and the Marine Corps and spoke at length with the tradeoffs that would be required.

    And I agree with you that the AGS, the advanced gun system, is a capability that the Marines would dearly love to have. The only question is could that particular system be put on a different platform, and the answer is yes.

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    So I am not saying that—the DD(X) in my mind would be the best ship, by far. But could you pursue the capabilities of that ship in a different way? And in my judgment, you could.

    Mr. MARSHALL. Mr. Chairman, would the gentleman——

    Mr. TAYLOR. Sure.

    Mr. MARSHALL. Mr. Chairman, I think that the gentleman from Mississippi, my good friend Mr. Taylor, who is going to buy me breakfast tomorrow morning, did a masterful job for subbing for Perry Mason in his cross examination here.

    The witnesses did not break down and start crying and admit they are wrong, though. And what I think would be——

    Mr. TAYLOR. Yet. [Laughter.]

    Mr. MARSHALL. Well, and frankly, Mr. Taylor, they are not going to. It would be very helpful to me, at least, and I suspect the panel, if we asked for a rebuttal in a sense from the proponents of the DD(X) addressing, in my mind, two specific questions.

    One is the notion that the DD(X) is essentially a redundant capacity, given the nature of the threats that we are likely to face with this networked system that we have, and the missiles that you have described, and et cetera, et cetera, et cetera.

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    We are going to be able to do, within reason, everything that we might think we would have to do. Obviously, you can dream up scenarios that nothing we could create would be able to meet.

    But it would be interesting to hear a rebuttal with regard to that point that Mr. Work has now made three or four times.

    And then it would also, to me, at least, be interesting to hear the Navy's description of the choices it would make if it had to go through this process that you described us having gone through with regard to Aegis system, and then to describe the diminished capacity that this platform would have as a result of being forced to make those choices.

    And it seems to me that those—that a one-page or two pages, because I would prefer not to be deluged with paperwork, rebuttal of those two questions would be helpful to us. It would certainly be helpful to me.

    Mr. BARTLETT. We are going to submit questions for the record to the Navy, and if you will give us specifically the questions you would like asked, we will ask those questions, and we will get an answer from the Navy.

    I had several——

    Mr. TAYLOR. Excuse me, Mr. Chairman.

    Mr. BARTLETT [continuing]. Questions that I—oh, you had one more question?
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    Mr. TAYLOR. One more question, and it is for the panel.

    Mr. BARTLETT. All right.

    Mr. TAYLOR. One of the threats that a number of naval officers have expressed to me is the concern that at some point a foe uses a swarm of small boats, a very inexpensive, low-tech way to go after a highly valuable symbol of America.

    How would the DD(X) as configured respond to that? Would it be adequate to a swarm of 50 small boats coming at it once, or is that a capability that for the sake of saving a few bucks, we ought to take off the ship?

    Mr. O'ROURKE. The Navy has argued that——

    Mr. TAYLOR [continuing]. Stand-alone thing, since we do not always get to have the luxury of sending several ships all to some place where we——

    Mr. O'ROURKE. The Navy has argued that its principal program for dealing with the swarm boat threat is the littoral combat ship. But the DD(X) would have at least two ways of dealing with that threat if it had to confront it by itself or confront the portion of it that had made its way through the LCSs, and that is the ship's—first is the ship's overall survivability.

    The DD(X) can withstand an attack like the one that was inflicted on the Cole, except it could still operate. So the ship would not be disabled, in the Navy's view, the way the Cole was.
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    And second, the DD(X) has medium caliber guns that could be very useful in countering smaller boats, 57 millimeter guns, I think they are. And those guns would be incorporated into an integrated combat system, so that they would be used in a very efficient manner.

    Mr. TAYLOR. Is that a substantial portion of the cost of this vessel or a small portion?

    Mr. O'ROURKE. The 57 millimeter guns—probably a small portion. The guns themselves are relatively small and inexpensive, and the ship structure associated with it is probably relatively small.

    Mr. TAYLOR. If tasked to a stand-alone situation or nearly stand-alone situation, in your opinion, could this vessel defend itself from a swarm of 50 small boats?

    Mr. O'ROURKE. Of 50 swarm boats.

    Mr. TAYLOR. Just picked a number out of the air.

    Mr. O'ROURKE. I do not know. It would have an ability to deal with swarm boats, but I do not know what the number is.

    Mr. WORK. Sir, the Navy has estimated that the DD(X) would be 15 percent more capable than the DDG–51 in a swarm boat scenario. I am not certain what analysis they used on the number of boats, but comparing the two vessels, it is about 15 percent better than the DDG–51.
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    Mr. TAYLOR. Okay. Thank you, gentlemen. You have been very great.

    Mr. BARTLETT. Thank you very much.

    I have some questions I would like to ask and maybe have some for the record after that. Of all of the capabilities that would be on the DD(X), I gather that the one that would not be easily covered by another platform would be naval surface fire support, is that correct?

    Mr. WORK. Well, sir, the AGS—yes, that is the only platform right now with it planned, but the new radar, the multifunction radar and the volume search radar, which would go on that ship, also would be unique to that class as far as the surface combatants.

    Mr. BARTLETT. The question I am asking is if we did not build the DD(X), where would we put the naval surface fire support capability that the Marines very desperately want? I think we need to look at that—where would the Navy put that—because I see that as one of the downsides of not going ahead and building the——

    Mr. O'ROURKE. Right, but that is——

    Mr. BARTLETT [continuing]. DD(X).

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    Mr. O'ROURKE [continuing]. A capability you could put onto a smaller alternative to the DD(X). You could preserve that capability while——

    Mr. BARTLETT. Yes.

    Mr. O'ROURKE [continuing]. Reducing other things. And just one other point. And Congressman Taylor mentioned, you know, communication with the Marine Corps. The Navy and the Marine Corps have their own communication issue right now on naval surface fire support.

    GAO reported a few months ago that there still is, at this late date, no consensus approved naval surface fire support requirement between the Navy and the Marine Corps, let alone between the Department of the Navy and OSD.

    So when you ask a question about how would you fill the naval surface fire support requirement, the first question is what requirement. We do not have one that has been settled on, as far as I understand.

    Mr. BARTLETT. There is just a generic concern on the part of the Marines, I think, that if we were going to do an amphibious landing that they would like naval surface fire support.

    Mr. O'ROURKE. I understand.

    Mr. BARTLETT. And we do not have a demonstrable capability, and that gives them some concern. I would like to go to Mr. Francis.
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    You mentioned that in a best case, everything would be A-okay, and at the other end of the spectrum, in a worst case, it would be DD(X) at any cost. At the end of the day, are we going to be closer to the best case or the worst case?

    Mr. FRANCIS. Well, that is a tough question.

    Mr. BARTLETT. Well, that is why I asked you.

    Mr. FRANCIS. I think, based on the numbers that we have talked about, the Navy comes in with an estimate of $3.3 billion for the lead ship and declining over time. We are just beginning to look at that estimate for the subcommittee.

    I have had the briefing on the estimate. It is an intelligent estimate at this point. I do not know how accurate it is, but the Navy has done some good things in it.

    On the other end of the spectrum, we have heard up to $4.7 billion. I think at this point that is probably a reasonable range. I would guess the ship's cost is going to be somewhere between those two. So I would not be—my assessment at this point would not be open-ended, that the ship could cost anything. I think that is a pretty good range.

    The question then would become are we willing to accept something up to $4.7 billion for that lead ship, and then go down the learning curve for the rest of the ships. And my guess is that decision will probably reside here versus in the department.

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    So the bottom is in looking at the scope of the program and the risk, and there is a fair amount of unknowns, I would treat that $3.3 billion as a floor and expect the cost to be somewhat above that, bounded by the $4.7 that we have heard today.

    Mr. BARTLETT. Thank you. I am glad you mentioned our constitutional role. I have the Constitution here. It says its the Congress' responsibility to provide and maintain a Navy. I think that perhaps more of the decisions need to be made in the Congress. We are to make the rules for the government in regulation of the land and naval forces, too.

    Mr. O'Rourke, I am going to ask you to do something that we ask our uniformed people to do when they are sitting at the witness table, and that is to take off their uniform and answer a question without the uniform. So I am going to ask you to do the equivalent of taking off your uniform.

    You mentioned that there were three options. One is to terminate the LCS, and that would give more funding to provide two DD(X)s a year. The second is to procure modified DDG–51s. And your third option was to put the new technologies in a new ship rather than going ahead with the DD(X) and the CG(X).

    Now, I know that in your capacity in Congressional Research Service (CRS) you can not give us advice, so I am asking you to take off your uniform. If you were standing outside looking in, which of those three options would you opt for?

    Mr. O'ROURKE. The CRS uniform is super-glued to the skin. [Laughter.]
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    It does not come off. My hair came off, but that uniform did not.

    So what I will tell you is this. Of those three options, the one we understand today the least, the one that we understand the details of the least, is the third. And that is why I think that Representative Marshall's comment makes sense.

    As I said at the end of my testimony, I do not know that a smaller ship with reduced capabilities would make for a better course of action. But we do not understand what that smaller ship really might look like in different variants. And until we at least have some more information on that, we do not really have a basis for making an informed decision.

    So I will keep my super-glued uniform on, and I will say that of the three options, the one that I would like to know more about would be what that kind of a ship would look like if the Navy were to make a good faith effort to make that smaller ship as good as it could be.

    Mr. BARTLETT. Thank you very much.

    Dr. Gilmore and Dr. Labs, do you have a track record of how good prognosticators you are? You have given us some numbers, and Mr. O'Rourke gave us some numbers also.

    If, in fact, your numbers as to what these ships are ultimately going to cost are what they are going to cost, then these exceed, as Mr. Marshall brought out, the top figures that the Navy people gave us yesterday above which this platform would be unaffordable.
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    Now, one way to judge whether or not your estimates are creditable is to look at your estimates through history of what these platforms are going to cost, and how well did you do. Were you on target? Did you project they would cost more than they, in fact, cost? Or did they cost more than you projected?

    It may take a little work for you to compile this, but could you, for the record, give us a history of all the prognostications you have made, all three of you?

    And, Mr. Work, if you have made them also, and all of you—Mr. Francis, if you have made those—we would like for the record a history of the credibility of your prognostications. If a prophet's prophecies come true, he is to be believed, and we want to see how many of your prophecies came through.

    Can you do that for us?

    Dr. GILMORE. Sure.

    Mr. BARTLETT. Provide that for the record, because that would be very useful to us in making a judgment as to where we go from here.

    And my last question, Mr. Work—what other platforms—and you were mentioning after your four questions to which you gave us your answer—you suggested other platforms that this technology could go on.

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    What we are dealing with, of course, is the possibility that with the increased cost the DD(X) is going to be little more than a technology demonstration platform. There are seven oceans out there, and some of them are pretty big. And I hear numbers more like five ships we are going to be able to afford rather than the eight to 12 that they were talking about yesterday.

    What other platform might we put these on? If you could give us that for the record, too, because it will take more time than we would like to take here for you to go through that.

    If you could give us that technology by technology—there are 12 of them—which platforms would you see them going on, so that we could have a really good technology demonstration, so that we would capitalize on the investments that we have made in these technologies.

    I want to thank you all very much for your very good testimony. And we will now excuse you and welcome our second panel.

    And for a few minutes, I need to turn the chair over to my good colleague. This, by the way, is a very important subcommittee. We have more subcommittee chairs on this subcommittee than any other. And I think we have three on this subcommittee.

    Mr. Saxton is one of them, and I will ask him to take the chair for a few minutes. I have an office commitment I really need to get to in just a few minutes.

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    Thank you.

    Mr. SAXTON [presiding]. Okay, we are going to get started here again with our next panel as soon as we can all get set. Could we ask that you go ahead and resume your seats, please?

    For our second panel today, we are pleased to welcome representatives from the DD(X) industry team. Mr. Philip A. Teel, President, Northrop Grumman Ship Systems; Mr. Michael W. Toner, Executive Vice President, Marine Systems, General Dynamics Corporation; Mr. Michael M. Hoeffler, Vice President and Project Manager, DD(X) Future Surface Combat Program, Raytheon Company; Mr. James W. Schoppenhorst, Director, DD(X) Program, BAE Systems, Armament Systems Division; and Mr. Fred Moosally, President, Maritime Systems and Sensors, Lockheed Martin Corporation.

    Gentlemen, we welcome you. You are here where the rubber meets the road, for it is your industry that must effectively build the ships that are both affordable and meet the critical operational requirements of the fleet. We look forward to your testimony.

    Mr. Teel, please, you may begin.


    Mr. TEEL. Thank you, sir.

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    Mr. Chairman, distinguished members, thank you for the opportunity to testify before you today on the status of DD(X) and on the way ahead for the program, shipbuilding plans in general and our industry.

    As you probably know, I was recently selected as president of the ship systems sector of Northrop Grumman. I am new to shipbuilding, but I have got over 34 years of technical and program management experience in the defense industry, and most of that has been with the Navy and naval programs.

    I can say that I am familiar with many of the business challenges that face the shipbuilding industry today. My most recent experience was leading an organization in the integrated systems organization, which was the old Grumman Corporation, airborne early warning and electronic warfare systems. Again, the primary customer was the United States Navy.

    On the DD(X) status, as recently as yesterday here before your committee, I think the Navy did an exceptional job responding to where the DD(X) program is and making it clear and making a compelling case for the platform requirement, program maturity and schedule, and putting the cost for the ship into its appropriate context.

    You asked me to speak to the program's status, technology and design maturity, the acquisition strategy, industrial base considerations, and potential cost reduction measures. I addressed all of those areas in my prepared testimony, and I will touch on them here.

    DD(X) is arguably the most transformational surface ship design and ship development program the U.S. Navy has undertaken. As prime, Northrop Grumman selected and managed a large group of subcontractors and industry partners, and we are proud of that team's performance on phase three of this program.
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    In close partnership with the Navy, we have been able to manage concurrency and integration challenges. Northrop Grumman has led six integration teams with our partners, consisting of more than 100 companies in 35 states, comprised of over 4,000 engineers.

    We in the industry have transformed in several ways to meet this new responsibility of integrating these teams together. The Navy has transformed in the last decade as well, shifting many of the key program management responsibilities to our industry, and we have made significant investments in the industry to respond to that new role.

    This change in character in the relationship between industry and the customer should be a key consideration in future acquisition strategies. We have built a new model for the execution of this ship development program that, in large part, draws from the experiences of other industries and integrates that with the experiences of the shipbuilding industry.

    A recent GAO report on Navy shipbuilding cost growth argues for just such an approach in program development, because it leads to more credible and realistic cost estimates for first-of-class ships by initiating the detailed design before going into and competing for production.

    The acquisition strategy that the Navy is proposing now seeks to meet the goal of a mature design before considering competition. And I will add that we do not shy from the prospects of competition. As you are aware, we competed for and won phase three of this program.

    The DD(X) team has successfully fulfilled contractual and schedule requirements on phase three. We laid out a robust risk reduction plan, and the risks have been retired as anticipated, certainly a great source of concern for critics over six months ago, and maybe still today.
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    This is perhaps the greatest irony. Now that the program has defied the critics who did not believe this transformational program could be delivered on schedule, it is now most threatened by fiscal rather than requirement and technology readiness concerns.

    Not because the costs for the program have spiraled out of control, or the failure of the national team concept, but because the Navy simply has less to spend on ship programs.

    The American shipbuilding industry knows and appreciates who our customers are. We know our customers expect great ships at the lowest possible cost. For Northrop Grumman, that means a large investments in capital improvements not only by the corporation but also by our host states of Louisiana and Mississippi.

    These investments are being made with a program of record that required expansion and modernization. Improvements in facilities, automation, design tools, best practices across our industry both in this country and in other countries, proven process improvement methodologies have yielded great results today.

    We are now seeing new efficiencies in production, reduced build cycles, reduced amount of rework as a result of these efforts.

    We have also reorganized the way we approach supply chain management. We organized across all of our eight ship class and buy in quantities that support all of Northrop Grumman's shipbuilding to reduce the overall cost to the customer.
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    We have changed and realigned our management structures so that we focus on managing classes of ships, rather than ship by ship, to help rapidly transition learning between classes and between ships in those classes.

    We are no longer two shipyards. We have streamlined to one sector, and we have sourcing facilities in Louisiana and Mississippi to build ships in either locality and in some cases the same ship. This gives us the opportunity to manage resources more effectively and help mitigate the large growth and retraction cycles that we have seen over the past few years.

    This is the way we will build DD(X). The results for us and our customers have been dramatic. We have improved production processes on the new DDGs and we have reduced each ship by over 500,000 man hours.

    Construction span times on the LHD are expected to decrease more than 10 percent, and LPD construction times will shrink more than 20 percent, millions of dollars in cost reductions that will be passed on to our customer.

    We are tracking a decreased baseline cost for the LHD–8s, which will reduce the cost of that ship by over $12 million, and about $30 million in materials.

    Sector-wide, we have validated over $60 million per year in overall cost reductions in our operations. Unfortunately, there are limits on how much we can achieve in future savings, given the low production rates that are currently projected.

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    As shipbuilding projections are reduced and slipped into the future, the return on capital investment declines. As fewer ships in each class are built, the cost per ship goes up and the savings per ship goes down.

    We have continued to move ahead with the business decisions to modernize our facilities and processes. We are at the point where we must have a reliable long-range shipbuilding blueprint in order for industry to shape itself responsibly.

    Our customer does know this, and they have their fiscal responsibilities and obligations as well. The Members of Congress who have come out in significant numbers to support shipbuilding understand these national security issues and are working hard to ensure we maintain an acceptable level of ship construction to meet the country's requirements, and we are grateful for that support.

    We are at a strategic crossroads as we determine the industrial capacity the Nation needs to build ships to protect its vital interests. In many respects DD(X) has become a lightening rod to best define and resolve these issues.

    The first decade of the 21st century is marked by fiscal challenges which are leading to low rate production of the Navy's capital ships. Low rate production slows the rate of technology insertion in addition to increasing the cost of those ships.

    The decision to implement transformational concurrent technology timed for insertion in the first of the DD(X) class, we believe, is and was the best way to ensure fielding credible solutions to future threats.
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    Paying for the nonrecurring costs of development once for many of the technologies on DD(X) will, as the Navy's pointed out, assist new classes of ships in the future—the CVN–21, CG(X) would be a couple of examples. And they allow the Nation to amortize the investment over all of those ships.

    Developing a common hull form with the inherent shipboard capabilities of DD(X) to become CG(X), as in the case of Spruance to Ticonderoga, further returns the initial investment that provides the stability for planning that is so important for the future of our industry.

    The cost of a more gradual approach might save resources in the short term but the cost will be far greater in the long term. The Navy has argued these points convincingly, stating that a less capable DD(X) does not deliver applicable savings, and a modified DDG with a few of the DD(X) technologies would not satisfy critical requirements and would not be cost-effective.

    We recently completed an independent analysis examining the overall impact of the effectiveness of our process improvement efforts on the DDG program.

    One of the findings that is probably one of the most significant was that we have a significant—and not surprising—we have a significant loss of learning with irregular build cycles and irregular build intervals, with the introduction of green labor, the reduction as those cycles go the other direction, and then the reintroduction of new green labor.

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    A steady rate with shorter intervals between start of fab promotes a stable workforce, generates improved learning, and significantly reduces production cost. The analysis clearly supports arguments for stable shipbuilding.

    We know that the Navy does not exist to keep us in business. However, the decisions we make today will shape our naval force structure for decades to come. Ships take a long time to design and build. And because the effects of those decisions, we may easily slip into a false sense of security until the Navy and the industry find ourselves in extremis.

    While the fiscal challenges faced by the Department of Navy are real, the consequences of not building to the requirements it has defined will likely be irreversible in the shipbuilding industry, capacity gone without reconstitution.

    The issue at hand is not sticker price or schedule challenges, but rather how much the Nation is willing to spend for the fleet it requires. Shipbuilding plans that significantly change yearly severely disrupt our industrial base.

    This is not a shipbuilding problem only. It is a national industrial problem. DD(X) is a program that shrunk from 18 to 24 ships and to now 8 to 12 in just a year.

    The high cost to the Nation for this turbulence measured in dollars and in lost capabilities to shape world events, respond to crisis and fight wars—with planning stability, we can adjust our investments and right-size our industry.

    We have delivered a successfully development program on DD(X). By any measure it is worthy of a national commitment. The program is part of a larger picture: the strategy to frame a comprehensive shipbuilding plan.
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    The future of the U.S. Navy and the American shipbuilding industry will be governed by a national determination to build a fleet based on clearly defined force requirements consistently funded by a long-term resourcing plan.

    Thank you for allowing me to testify today, and I will answer any questions.

    [The prepared statement of Mr. Teel can be viewed in the hard copy.]

    Mr. SAXTON. Mr. Teel, thank you very much.

    We will now move to Mike Toner from General Dynamics (G.D.).


    Mr. TONER. Mr. Chairman and members of the subcommittee, thank you for inviting my testimony on the Navy's DD(X) next-generation destroyer program.

    It is a privilege to be here representing the shipbuilders of General Dynamics Marine Systems. We strongly support the DD(X) program and the need for the program to move forward fully funded.

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    Let me first comment on the situation confronting the Navy and its shipbuilding partners today. This industrial base sector and its resources—most importantly its skilled designers, engineers and production workers—are focused on delivering the next-generation fleet with an unprecedented number of first-of-a-class ships—Virginia class submarines, T-AKE, LCS, DD(X), CVN–21, LPD–17, LHA-R.

    I do not need to tell you as a ship builder, first-of-a-class ships are hard, hard sledding, as we are hearing about today.

    We are doing so in a time of unprecedented instability, yet we remain focused on successfully meeting these challenges. However, some semblance of a long-term stability and predictability needs to be restored to the Navy's shipbuilding plans and acquisition strategies.

    Some have said the shipyards today are full and have a stable environment. I understand how they could say that, but it is not about today. It is about the decisions required to be made today based on an unpredictable future.

    General Dynamics and Bath Iron Works (BIW) have been engaged in preparations to design and build the Navy's next-generation destroyer since 1998, when an acquisition strategy was formulated to leverage the collaborative talents of both General Dynamics and our industry partner, Northrop Grumman Ship Systems.

    This collaboration was designed to extend through all program phases, from initial design through detailed design and the anticipated ship construction program.
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    BIW has had secondary roles in the DD(X) preliminary design and engineering development modules during phase three. And accordingly, I am not in a position to speak about their specific status today, although it is my general belief that they are of a status allowing the process to proceed to detailed design.

    With Navy support, last summer Northrop Grumman Ship Systems and BIW agreed our roles for detailed design would be shared at a near-equal percentage in the program's next phase. An immediate start of detailed design is crucial to maintain the schedule and to avoid the loss of highly skilled engineers and designers.

    Ongoing efforts to reduce costs of building U.S. Navy ships at Bath have been dramatically assisted by a major investment made by the shareholders of General Dynamics, with support from the State of Maine and the City of Bath, in a new, more efficient ship-construction facility.

    Since the state-of-the-art land level transfer facility became operational, BIW has reduced the overall ship-construction durations by more than 25 percent. The water-borne ship construction work, the most costly period of construction, has been reduced by 50 percent.

    Interestingly, a global shipbuilding industrial base study of June 2005 released by the Office of the Deputy Undersecretary of Defense for Industrial Policy shows a 20 percent to 34 percent improvement at BIW versus a similar survey conducted in 2000 and shows that BIW yard is slightly better than the international yards that were in the study. This is the little shipyard that can.
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    The last three DDGs delivered by BIW were completed with progressively fewer engineering and support and production hours per ship. Such productivity improvements result in savings that are shared 50–50 with the government, resulting in lower cost to the taxpayers.

    Naval shipbuilding is an undertaking that requires decisions about investments in facilities, equipment and critical workforce skills be made years in advance. BIW continues to take necessary and at times difficult steps to prepare the yard for a future that likely will involve low-rate production, including dramatic reduction in overhead and support personnel and implementation of lean practices across the shipyard.

    These changes are being demonstrated today in DDG–51 construction. BIW will be an affordable, high-quality producer of surface warships for the Navy's DD(X) and CG(X) construction requirements even at low-rate production.

    Congressional implementation of two successive multiyear procurements, each covering four fiscal years' worth of DDG–51 contracts for each surface combat shipbuilder significantly enhanced stability and predictability. There has been little stability or predictability, especially recently, in the DD(X) program.

    Fiscal year 2004 and 2005 budgets provided a basis to assume that there would be a total of 12 DD(X) ships to be procured over the Future Years Defense Plan. The fiscal year 2006 budget suggests that only five will be procured over the next six years, although CNO Admiral Clark stated the total requirement for DD(X) may be more on the order of ten ships.
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    Since the outset of the next-generation destroyer program in 1998, the Navy has consistently pursued an acquisition strategy until earlier this year involving both surface combatant shipbuilders in all program phases. Instead of implementing the traditional lead yard-follow yard approach, the Navy has BIW and Northrop Grumman Ship Systems designers, engineers and manufacturing trades preparing together to cost-effectively design and construct the next-generation destroyer class at the two shipyards.

    Less than one week after the submission of the fiscal year 2006 president's budget, a proposed change in the acquisition strategy to a winner-take-all competition for design and construction was announced. The most recent proposed plan has some positive elements, particularly having both shipbuilders proceed now, collaboratively and equally, into detailed design.

    However, the proposal to have two concurrent lead ships and a fiscal year 2009 competition with the implication that it could determine a single yard for all subsequent production raises a number of concerns. We have a difficult time understanding how a decision to eliminate the prospect of a future shipbuilder competition for a major category of warship and result in reliance on a single source would ultimately save money, foster innovation and otherwise serve the national interest in the future.

    We are grateful this Congress was concerned enough by that proposal's ramifications to impose a statutory prohibition on department's ability to implement such a strategy in the DD(X) program.

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    I am encouraged that Undersecretary Krieg has committed to this committee to consider the industrial base implications in the decision process leading to any changes in the currently approved acquisition strategy for the first six shifts to evenly allocate them between Northrop Grumman Ship Systems and General Dynamics' Bath Iron Works.

    Some have expressed the view that alternating ship allocations between two shipbuilders provides no government leverage, no cost control, no competitive pressures, no motivation to design the ship with urgency and collaboration.

    That view ignores the demonstrated success of several other recent Navy warship programs. Navy acquisition officials have successfully managed the construction of major warships through dual-source procurements for decades.

    Statements have been made that the planned DD(X) quantities will not support steady state employment levels at two shipyards and that the yards will face unmanageable peaks and valleys as they deliver a ship, live through a one-year gap, and then build the next ship.

    In reality, there is never really a level employment in a shipyard because of the nature of the business. We recognize this and we are aggressively reengineering ourselves for cost-effective, low-rate production until the Nation again decides it needs new surface combatants in quantity.

    To anticipate the benefit from a decision to rely on a single shipyard for major surface combatants is short-sighted and will, more likely, lead to higher costs, less innovation and dramatically reduced industrial capacity surge production for future needs.
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    I firmly believe that industry must continue to work with the Navy to hold down the acquisition costs to DD(X) and the other shipbuilding programs. General Dynamics is committed to that effort.

    So what is the right path for proceeding to the next generation of major surface combatant warships and major surface combatant force for our Navy? This is my opinion. Congress should full fund the fiscal year 2006 DD(X) Program R&D request. DD(X) research, development, test and evaluation funds are critical to retire risks in major technologies which promise significant capability advances.

    Congress should fully fund the fiscal year 2006 DD(X) shipbuilding and conversion, Navy (SCN) advance procurement as authorized by the Senate Armed Services Committee, $766 million, with $200 million—$100 million for each shipbuilder—earmarked for ship detailed design.

    OSD should immediately grant authority to commence detailed design and release fiscal year 2005 funds designated for such work to proceed. As supported by the Navy and industry, this detailed design work should involve both shipbuilders equally.

    The Navy and industry should hold a summit to discuss and agree upon the DD(X) acquisition strategy for DD(X) follow ships that is fiscally responsible, retains two shipyard surface combatant industrial base, and provides a viable execution strategy for the program.

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    Today I know of no reason based on the results of the engineering developments to delay any capability. But as the integration of capability proceeds, the Navy acquisition manager should have the flexibility for selective delay of specific capability, if necessary, to manage overall program risk and cost.

    Mr. SAXTON. Mr. Toner, I am sorry, but we are going to run into a bit of a time problem here in a bit. We are going to have some votes around five o'clock. And my guess is that members will be wanting to do some other things. So if you could kind of hit the high points and——

    Mr. TONER. I am just about done, sir.

    Mr. SAXTON. Great. Thank you.

    And while I am saying this, if the other witnesses would kind of summarize their testimony for us in five minutes or six minutes, we would appreciate it.

    Mr. TONER. The last two points I have are the first shipbuilder should be allowed to start the lead ship construction as soon as the detailed design will support it, and the second shipbuilder should start its first ship after initial lessons learned from the early phases of the lead ship to be incorporated.

    We are committed to making this ship a reality and to perform as necessary. Subject to your questions, this completes my testimony.

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    [The prepared statement of Mr. Toner can be viewed in the hard copy.]

    Mr. SAXTON. Thank you very much, Mr. Toner. Appreciate your cooperation.

    Mr. Hoeffler of Raytheon?

    Mr. HOEFFLER. Yes, sir.

    Mr. SAXTON. Please proceed, sir.

    Mr. HOEFFLER. Sir, did you mean five minutes or six minutes each for our statements?

    Mr. SAXTON. Yes, sir.


    Mr. HOEFFLER. Thank you. Mr. Chairman, Ranking Member Taylor, and members of the committee, thank you for the opportunity to testify before you today.

    Good afternoon. My name is Mike Hoeffler. I am Raytheon's DD(X) program manager. I am pleased to be here today and have this opportunity to present to the members of this committee the significant successes Raytheon has made in the execution of the DD(X) program. I seek your continued support to deliver this overwhelming advantage to our nation's war-fighters.
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    The men and women who compose Raytheon are proud to be leaders of the industry team that is providing our country and our Navy and Marine Corps a revolutionary new generation of surface combatants. The best and the brightest of our nation's industry are fielding revolutionary capabilities for DD(X) that will keep the peace as well as win the war.

    As you heard yesterday from the Navy, the DD(X) will have an incredible capability against antiship cruise missiles, a far superior ability to protect the sea base, and can operate in areas where other surface combatants will not go, and won't be seen on an enemy's radar until it is too late for them. DD(X) will do all of this with just 114 sailors.

    These vastly improved capabilities are directly tied to the technologies being delivered by the men and women of Raytheon and our industry teammates. Our products form the core mission capability of DD(X) that will be used as the nucleus of future upgrades, both forward and back fit, across the Navy's fleet.

    Raytheon is the systems integrator for the DD(X) program, with our industry partners, including Lockheed Martin, BAE and a robust consortium of small businesses. In our role as system integrator, we are responsible for ensuring DD(X) mission success.

    We have developed system requirements with the U.S. Navy, performed systems engineering and developed five of the ten engineering development models (EDM). The first of the EDMs, the total ship computing environment, is the heart of DD(X) and includes the Navy standard command and control system.

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    This software computing environment automates and integrates all the functions, modes and missions, enabling DD(X) to dramatically reduce manning. Total ship computing environment also enables reduced ownership cost, life cycle cost, while significantly improving war-fighting capability.

    Raytheon's total ship computing environment is on schedule and on budget. The first two deliveries have been accepted, certified and are running today at the naval open architecture facility at Naval Surface Warfare Center (NSWC) in Dahlgren, Virginia.

    With our open architecture design, we can deliver newer and more advanced software applications without redesign of the underlying hardware, delivering new capabilities that are easily upgraded throughout the life of the ship.

    Our modular software approach ensures technology refresh, commonality of applications and will save costs as new capabilities are introduced. This open architecture software meets the Navy's needs across the fleet and is planned for use forward and backwards on the family of ships.

    The total ship computing environment—using this across the fleet significantly reduces future life cycle software maintenance costs for the Navy.

    The dual band radar, comprised of an X-Band SPY–3 radar and an S-Band volume search radar, is a multifrequency next-generation radar that enables the war-fighter to operate and target enemies in the high clutter environment of the littorals.

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    The design reduces our own ship's radar signature, it significantly reduces manning and lowers total ownership costs while providing multifunction capability that betters the littoral anti-air warfare performance of any radar in the fleet. The SPY–3 has been operating for over a year at Wallops Island, Virginia, and it has passed its tests.

    The volume search radar engineering development model is being built and will be delivered for land-based testing in June of 2006. And contrary to what we heard a little bit earlier in some of the testimony, this dual band radar is planned to be used on CVN–21. SPY–3 is planned to be used on CG(X), while the volume search radar will actually grow for the ballistic missile role.

    Raytheon is also leading the development of the integrated undersea warfare system, designed to provide a significant improvement in antisubmarine warfare and mine detection, again in the littoral environment, while reducing shipboard manning through automation.

    The undersea warfare capability, coupled with the ship's low acoustic noise signature, allows DD(X) to successfully perform its antisubmarine warfare mission. When DD(X) is executing its mine warfare mission, our system allows DD(X) to detect and avoid mines in stride as no other U.S. Navy combatant can.

    This system has completed sea-based testing of both the medium and high frequency bow arrays to validate mine avoidance and submarine automated detection.

    The Mark 57 vertical launch system is the Navy's next-generation missile launcher. The design handles the Navy's current missiles, including the Standard Missile–2, the Evolved Sea Sparrow Missile (ESSM), the vertical launch anti-submarine rocket (ASROC) and Tomahawk, while providing the flexibility to quickly field new and more robust weapons for increased firepower in response to evolving threats.
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    Additionally, our Mark 57 vertical launch system was designed to significantly reduce whole life support costs when compared with the current fleet launchers. And finally, the vertical launch system EDM has met all of its schedule milestones.

    Raytheon is also responsible for the design of new communications apertures that vastly increase communications capabilities, improve survivability and performance, all while reducing ship detectability, manning and maintenance costs.

    Testing of our apertures at China Lake, California, has demonstrated that we have met our radar cross section requirements.

    Raytheon's system integrator team has been working on phase three ship design contract for three years. We have designed, built and successfully tested five Raytheon engineering development models, including critical design reviews on each with the Navy.

    We are on schedule and within one percent of cost, and Raytheon expects to complete the contract without any overruns. We just completed the full ship critical design review with the Navy captains. It was four weeks ahead of schedule and demonstrated that we met the requirements.

    This is a trend on DD(X). We have met all of our other milestones on schedule, with the exception of one event that was two weeks late. This is a significant and notable accomplishment for a program of this magnitude and complexity.

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    In summary, Mr. Chairman and members of the committee, Raytheon is a proven and trusted partner to the Navy, delivering and overwhelming DD(X) advantage to our war-fighters.

    [The prepared statement of Mr. Hoeffler can be viewed in the hard copy.]

    Mr. SAXTON. Mr. Hoeffler, thank you very, very much.

    Mr. Schoppenhorst, BAE Systems.


    Mr. SCHOPPENHORST. Thank you.

    Mr. Chairman and members of the subcommittee, I am director of DD(X) programs at BAE Systems' armaments systems division and have been program manager on the advanced gun system since 1998, and I would like to thank you for the opportunity to report on the status of the weapon systems that BAE Systems is developing for DD(X).

    As part of the DD(X) team, BAE Systems is responsible for development of AGS, the advanced gun system, and the long range land attack projectile (LRLAP). Before briefly discussing the system, I just want to say that our engineering development phase has met all milestones and is on schedule and within cost.

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    The AGS weapon system includes a 155 millimeter vertical load gun, 300-round automated magazine, and the long range land attack projectile. Two AGSs per DD(X) comprise the main battery of the DD(X) class of ships.

    LRLAP is an advanced 155 millimeter munition using a GPS-aided inertial navigation system to attain very precise accuracy to ranges of 83 nautical miles. This precision gives DD(X) the capability to conduct surgical strikes, mass fires, scale response to targets and sustain suppression fires.

    The AGS EDM program covers a period of 37 months, from August 2002 through September of 2005. The objective of the EDM program is to reduce risk. Throughout its development, the AGS program has leveraged the extensive modeling and simulation capabilities of BAE Systems to analyze requirements and perform comprehensive testing in a virtual environment.

    At the completion of the EDM phase, all high risks will have been retired. As a result, AGS technologies meet the technical readiness levels required for DD(X) and are sufficiently matured at this stage of the program.

    The proof of success of any development program is the success of the testing phase. The gun and magazine have completed simulation tests, component testing, factory acceptance test, as well as gun proof firings and initial live fire sequences at Dugway proving grounds.

    The final milestone for this phase is a land-based 56 round test firing, and we expect to successfully complete that test shortly.
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    The LRLAP testing program has used extensive laboratory modeling and testing prior to guided flight testing. To date, in four separate guided flights, we have successfully completed guided flights to end points of up to 46 nautical miles, as well as a successful command guided flight to 59 nautical miles. In this phase, LRLAP will complete two more guided flights, demonstrating range beyond 70 nautical miles.

    From program inception, the AGS has been developed with affordability as a goal. Cost reduction initiatives have included the vertical load gun design, reducing parts counts by over 300, a completely automated magazine and gun mount operation, decreasing manpower, and a modular magazine design delivered to shipbuilders completely outfitted, reducing ship construction time.

    LRLAP has integrated several components from subsystems from existing programs, including the deeply integrated guidance navigation unit being developed under the Army's common guidance program.

    BAE Systems' armament systems division currently employs 250 highly skilled technical employees for development of AGS. A similar capability on large-scale naval gun development does not exist in the country.

    BAE Systems also has the only large caliber naval gun manufacturing facility in the United States. As production ends on the Mark 45 gun mount, it will be replaced by AGS production. Significant program delays will result in some loss of these capabilities.

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    In summary, the advanced gun system is a key component of the DD(X) and will greatly increase the Navy's ability to provide fire support to forces ashore. With AGS, DD(X) will have rapid response, all-weather fires capability.

    Although the AGS EDM program has had many technical challenges, our design team has successfully met program objectives. Through modeling, simulation and extensive hardware testing, we have validated system performance and demonstrated war-fighting capabilities. BAE Systems looks forward to delivering these needed capabilities to the U.S. Navy.

    Mr. Chairman, this concludes my statement. I look forward to your questions.

    [The prepared statement of Mr. Schoppenhorst can be viewed in the hard copy.]

    Mr. SAXTON. Thank you very much, sir.

    Mr. Moosally, Lockheed Martin Corporation.


    Mr. MOOSALLY. Mr. Chairman, distinguished members of the subcommittee, thank you for this opportunity to appear before you to discuss the DD(X) shipbuilding program and Lockheed Martin's contribution toward this effort.
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    Lockheed Martin is proud to be a major partner of the DD(X) program. In December 2002, we joined the DD(X) team at the request of the U.S. Navy. The reason the Navy recruited us to the program is the first example of a theme that will be repeated throughout my statement: the Navy knows the value of leveraging existing investment and proven technology to develop and transition to new technology.

    The request to support the team centered on our world-class capabilities in radar development, command and control, advanced undersea warfare, total ship systems engineering and ship computing environments and networks.

    Much of our success on DD(X) has been through what I call mature starting points that stem from leveraging our collective expertise and experience from Aegis. For the war-fighters of the future, Aegis and DD(X) will complement each other for decades.

    We came to this program with 30 years of experience in the design, development and continuous evolution of the Navy's most advanced and longest-running integrated combat system, Aegis, and the SPY family of radar, the world's most powerful and capable naval radar.

    During that time, Lockheed Martin has established a solid record of on-time, on-budget and quality performance. Those performance attributes are the result of a culture of professionals who seek to excel in all that we do for the U.S. Navy. They define the skills and the dedication of our work force.

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    Congress has been crucial in directing and supporting all of these efforts, particularly in the field of radar development. For example, congressional foresight and encouragement to move S-Band radar to the forefront of the combat system development has been critical.

    For that leadership and direction, I know I am speaking for the entire Navy and industry team and for the soldiers, Marines and sailors that will be protected by DD(X) when I say thank you to every member in this room.

    The technology background that Lockheed Martin brings to DD(X) is extensive. Through the foresight of and funding from Congress, we achieved results in the development of the S-Band advanced radar, which provided the Navy the flexibility to consider alternatives for the DD(X) volume search radar.

    Considering the maturity of our S-Band technology, the Navy in 2003 switched the volume search—from L-band to S-band, thus leveraging the previous investment and our success.

    A key procurement goal for DD(X) is the use of commercial off-the-shelf (COTS) hardware and open architecture software. Here, again, we have proven the development base to support DD(X).

    Lockheed Martin is the prime integrator for the submarine force's acoustic rapid COTS insertion program, which provides regular capability refreshes at costs well below the old military specifications (MILSPEC) and proprietary systems costs.
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    We leveraged that expertise when we worked with the Navy to develop Aegis open architecture. As a result, in our role as the command and control developer for DD(X), we are now bringing proven COTS and open architecture capability and experience to the command and control development needs of DD(X).

    These technology advances require an infrastructure to mature and evolve. Again, the Navy has an infrastructure it is leveraging for this purpose. For example, the Navy and Lockheed Martin maintain a tremendous investment that supports ongoing development in the whole spectrum of maritime warfare mission areas.

    This investment includes existing facilities and human resources throughout the country that are supporting DD(X) design, analysis, integration and tests and are lowering the overall development cost and risk to the Navy.

    These facilities and labs continually push the envelope on command and control software, network centric solutions, systems integration, computing infrastructure, human systems integration, life cycle support and, of course, radar development at Lockheed Martin sites across the country.

    DD(X) will be a vital member of the Navy's family of surface combatants. It is important to consider how 8 to 12 DD(X) ships will complement the current fleet of Aegis-equipped ships in the development needs and in missions.

    As I look ahead 20 years to 2025, our nation will be defended by a family of surface ships with complementary capabilities to counter all potential threats.
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    In addition to the highly capable DD(X) ships, more than 80 percent of the Navy's multimission surface combatants will be Aegis-equipped ships. Additionally, our allies and friends—Japan, Spain, Norway, Korea and, potentially, Australia and others—will be fighting side by side with us in their Aegis-equipped ships.

    I mentioned that our Aegis open architecture expertise provides good leverage for leading the command and control development for DD(X). As we develop the capability for DD(X), key components of the Navy's investment will be re-used to modernize the Aegis fleet.

    We are already demonstrating this by using software developed for Aegis open architecture in the combat management systems for the littoral combat ship and the Coast Guard's national security cutter. This development and re-use model mitigates risk, provides seamless interoperability and creates great cost efficiencies for the Navy.

    DD(X) is a multimission ship that will build on and work the technologies preceding it. From a mission perspective, I can envision a Navy with incredible force projection and defense-in-depth capabilities.

    Especially vital will be the support DD(X) will provide to Marines ashore. Littoral combat ships will scour the coastal regions as fleet nodes expand the eyes and ears of the fleet. Aegis-equipped ships and their eventual replacements, CG(X), will continue their multimission role, with an emphasis on anti-air and ballistic missile defense.

    And with the SPY–1D(V) radar, Aegis ships have added capabilities for operations in the littorals, providing an overlapping capability to support DD(X).
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    Lockheed Martin is already leveraging its expertise and experience to deliver DD(X). The Navy has defined its mission for DD(X), and it is pursuing a procurement approach that wisely takes full advantage of past development investments with an eye toward the use of that technology throughout the fleet.

    We are delivering in the ways that support our national security and recognize good stewardship of tax dollars. We are delivering new capabilities, and we are leveraging development investments that reduce both risk and cost.

    Thank you.

    [The prepared statement of Mr. Moosally can be viewed in the hard copy.]

    Mr. BARTLETT [presiding]. Thank you all very much for your testimony. I am sorry that I could not have been here for all of the testimony. Were all five of you here during the first panel? Were all five here? Okay.

    What I would like you to do, if it is possible that Mr. Taylor missed a question that should have been asked, if you will please give us that question, we will give it to the members of the prior panel, and they are going to respond for the record, and that will be a public record and you will see what their answer is.

    So if there are any questions that might have been asked along the vein that Mr. Taylor was asking questions, would you please give us those questions? We will make sure that they get an answer.
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    Mr. Taylor?

    Mr. TAYLOR. Gentlemen, again, as some of you know, I have been building a boat. That is why I am very much aware of the price of steel. It is not like lightning hit me on the road to Damascus.

    Given Mr. O'Rourke's analogy, if one-third of the cost of the ship is steel, and the price of that steel more than doubles, by doing some quick on-the-back-of-an-envelope math, then steel becomes more than half the cost of the ship, unless everything else that is going into that ship is also going up in cost at the same rate.

    So we know what steel is. What other cost drivers do you see that could help explain the enormous growth—and it is enormous growth—of the cost of this vessel?

    Mr. TONER. Maybe I will take a crack at that just from a shipbuilder's standpoint. The amount of technology that we are putting on board the ship is spectacular, and it is technology that is absolutely needed, and it is going to be growth technology that we are going to use on other platforms.

    But as we start to develop that technology, and we hear the fact that the EDMs—and I do not know what all the status of the EDMs because we have not been involved in it that much, but, you know, I believe that they are ready to go into detailed design.

    And as we start into detailed design and we go to the integration of those technologies into the ship, it is going to be a significant impact, I think, on producing the ship.
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    And we have to go take that into consideration, and I think there is enough experience on the Navy's side and certainly on our side to recognize that there is going to be some growth associated with that.

    I think additionally that when you go look at it, we are taking an electronic design—and I am going to talk primarily from the design aspect of the ship. Electronic designs by nature are extremely expensive because you put into the design all the details associated with building the ship.

    So when you get to your arrangement portion of your shipbuilding time frame, everything is in it, from the coffee cup holder in the maneuvering spaces to the cable runs from the lower level galleys. Every piece of detail needs to be into that.

    And there is a tendency as we get closer into the design not to want to do that, because it is hard. It takes a lot of work. And if we keep that stress, that we make the arrangement complete, and then produce the drawings after that, we have a chance to be able to go get this ship right—lead ships are lead ships.

    They are going to be expensive. They are always expensive because you do not know what you do not know as you put the ship together. But maximizing the capability of that design and then putting in the integration portion of that design—experiences that we got out of the Virginia class when we did that—they are going to be cross drivers in that mix of work, because the tendency is going to want to be let's go start building the ship, and we will jump off a little too early, and we will get ourselves in trouble.
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    So there is a cost. I think the Navy recognizes that and sees that in their analysis. I think that is part of the number.

    Mr. BARTLETT. If the gentleman would yield for just a moment——

    Mr. TAYLOR. Certainly.

    Mr. BARTLETT [continuing]. We are expecting a long series of votes. They tell us five o'clock. They frequently slip beyond that. But whenever it begins, when you hear the bells go off, we will have roughly ten minutes after that.

    So with that in mind—and they have said around five, I suspect it may be after five—and after the bells ring, we have about ten minutes. It will be a very long series of votes, and so we probably ought to adjourn the hearing. We will give you questions for the record if we are not able to ask them.

    But considering that, if we can keep our questions and our answers short, we can get more of them in. And if we need to expand on the written record either the members of the panel or the congressperson here can indicate they would like more information and we can simply put it in the record if that is okay.

    Mr. TAYLOR. Mr. Chairman, again, with that in mind——

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    Mr. BARTLETT. Go ahead.

    Mr. TAYLOR [continuing]. For the record, I think it is fair to say the cost of gasoline has probably doubled in the past three years. The price of steel has more that doubled in the past two years.

    I would provide the panelists the opportunity to present to this committee any other large cost drivers. That I think the committee ought to be aware of, and I would just leave it at that and yield back the remainder of my time.

    Mr. BARTLETT. Mr. Saxton?

    Mr. SAXTON. Mr. Hoeffler, you used a term that I found quite interesting. You referred to a concept known as forward and backfit.

    Mr. HOEFFLER. That is right.

    Mr. SAXTON. And that leads me to ask you kind of a two-phase question. A, as we develop the DD(X) platform, some have suggested that it be used as kind of a test bed for proving technologies that could be used in CG(X). So that would refer to a concept, I guess, forward fitting.

    And I suspect that the other part of the term, backfit, would refer to using technology that would be developed for DD(X) and CG(X) on previous platforms, namely DDGs. Is that what you referred to, and particularly with regard to the first part of the question, using DD(X) as a test bed for CG(X)? What are your thoughts on those subjects?
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    Mr. HOEFFLER. Thank you for the question. The proving technologies is—we are actually building a ship to meet a threat that is emerging; also, as the Navy said yesterday, to go in areas where access is now denied the current ships.

    So these technologies on DD(X) actually have a very specific purpose. They all work together, and that is why they were defined the way they were. So we are not only proving the technologies but we are making a ship to address a specific mission, to address a specific set of threats.

    Now, if you will, beyond that, beyond DD(X) itself, is a ship and a platform. There is the forward fit application which is where we take the DD(X) technologies. Let's take the dual-band radar, for instance. Part of that radar can go directly onto CG(X).

    The radar for ballistic missile defense, which CG(X) would do, would be larger so it would build on the basis of our current dual-band radar but would get larger.

    If you take some of the other technologies—Mr. Moosally mentioned the open architecture. Our teams are working together. We are using some of the Aegis software. We are using some Raytheon software. We are putting that together. That open architecture software, unlike what was said before, will move directly forward to CG(X) for that combat system.

    That same open architecture software can be used on the CVN. The open architecture basis that we have can be used on future Navy ships—LHA(R). So that is the forward side.
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    The backfit side—I think Mr. Moosally also mentioned it in his testimony—that the open architecture capability and the software applications that we are both designing together can be used backwards on the existing Aegis class. So that is what I meant by my comment.

    Mr. SAXTON. Thank you very much.

    Let me turn to Mr. Moosally. I have, as you know, been a visitor at the Moorestown facility of Lockheed Martin on numerous occasions—a great place with great, dedicated professionals. How can we best utilize the infrastructure in Moorestown to benefit DD(X)?

    Mr. MOOSALLY. Yes, sir. I would like to—if you have seen it, you are familiar with it—there is a tremendous investment by the Navy in the infrastructure of the production test facilities, the integration test facilities.

    And I believe that this is another way the Navy can save a lot of money, by reutilizing those facilities for the DD(X) program and not rebuilding that integration test infrastructure somewhere else. And we have talked with the Navy about that, and I believe they are in favor of doing that.

    Mr. SAXTON. Thank you, Mr. Chairman.

    Mr. BARTLETT. Thank you.
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    Before I yield to Mr. Israel, who was here at gavel fall and then had to leave, let me just ask one quick, clarifying question. Hull cost is roughly one-third of the cost of the platform, I understand. What percent of hull cost is steel cost?

    Now, he has asked—he said that steel cost went up twice, so hull cost ought to go up twice, but steel is what percent of hull cost?

    Mr. TEEL. I think we have the numbers close, Mr. Chairman, but let me try to put it in context. I can not answer your——

    Mr. BARTLETT. Well, if you——

    Mr. TEEL [continuing]. Question exactly without——

    Mr. BARTLETT [continuing]. Would give us that for the record, because I am sure that——

    Mr. TEEL. I will.

    Mr. BARTLETT [continuing]. You have some man hours in building the hull and steel——

    Mr. TEEL. That is exactly right.

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    Mr. BARTLETT [continuing]. Is not the only cost factor in building the hull.

    Mr. TEEL. Total material for—if you look at DD(X) lead ship, about 50 percent of the cost of the lead ship is mission and weapon system. And about 50 percent, then, is the cost of what we would classically refer to as the ship, and the hull, mechanical and electrical (HM&E) and so forth.

    And then about half of that cost is labor, and then half the cost then again is material, but that is not all steel.

    Mr. BARTLETT. Yes.

    Mr. TEEL. A lot of that are the equipments that go into the HM&E portions of the ship itself. So we will get back with you with the answer——

    Mr. BARTLETT. Okay, if you would——

    Mr. TEEL [continuing]. Specifically how much.

    Mr. BARTLETT [continuing]. Because those are clearly unavoidable cost increases, and you should not be faulted because——

    Mr. TEEL. Yes, sir.

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    Mr. BARTLETT [continuing]. The Chinese bought steel.

    Mr. TEEL. Yes, we will put that in context.

    Mr. BARTLETT. Thank you. Thank you.

    Mr. Israel.

    Mr. ISRAEL. Mr. Chairman, thank you very much. I have to confess that I come to this hearing with some mixed feelings. I have been a strong supporter of DD(X), but DD(X) cost Long Island one of its best defense industry executives in Phil Teel, who ran Northrop Grumman Integrated Systems, which is near my district.

    Now he is in Pascagoula running Northrop Grumman's Ship Systems. My loss is Mr. Taylor's gain. And it is a big gain. I will say this. I do not know much about Pascagoula, but I do know that we have far better pizza, Chinese takeout and bagels in Long Island, and Mr. Teel is going to miss that a lot.

    Mr. TAYLOR. Shrimp and oysters.

    Mr. ISRAEL. But we can not compete on shrimp and oysters. So I am very comfortable knowing that Mr. Teel is running the show at Northrop Grumman Ship Systems, and I think that represents some very strong progress for DD(X) in general. I do have a fairly unrelated question for Mr. Hoeffler.

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    I hope you will not mind. I am going to put you on the spot just a little bit for your question. I think that we all appreciate the fabulous work that you and your industry team are doing in managing this very important and complex project.

    I am concerned, however, that when the Navy asks you to be more efficient in your operations, you are then compelled to make sure that those efficiencies are operational and to cut costs wherever you can in the name of efficiency. And sometimes that has some unfortunate human consequences.

    Several members of the Armed Services Committee sent a bipartisan letter to your chairman and CEO, Mr. Swanson, on July 1st. Mr. Schwarz from the committee, Mr. Simmons from the committee, Ms. Tauscher from the committee, and then three of our colleagues not on the committee sent a letter expressing some concern about a job action that is occurring at the facility by janitors who are bargaining to get livable wages and basic health benefits.

    And I just want to use this as an opportunity to respectfully urge you to use all the resources that you have to make sure that there is a successful outcome so the contract janitors can, like your own employees, receive the family health care and benefits that are necessary to meet their family's basic needs.

    This is a bipartisan request, and I appreciate your giving me an opportunity to raise it with you. And I certainly hope you will take it back and ensure that the success of this program depends on the success of all of the people related to it, including contract janitors.

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    Mr. HOEFFLER. Thank you, sir. I will take that back.

    Mr. ISRAEL. Thank you.

    Mr. Chairman, thank you very much for indulging me. I yield back.

    Mr. BARTLETT. Thank you.

    Mr. Langevin.

    Mr. LANGEVIN. Thank you, Mr. Chairman. Thank you. Thanks.

    Gentlemen, thank you for your testimony today. We appreciate the work that you all do.

    Mr. Hoeffler, I would just start with you, if I could. I have two questions. I am hoping we can get all of these in. I understand that the systems integration team for DD(X) consists of roughly 1,300 highly qualified, trained employees, including software, hardware and systems engineers.

    And I am proud to say that actually a significant number of them live in Rhode Island, and the system design work has progressed on schedule while meeting all of its performance benchmarks.

    As I say, I am concerned about the potential impact of cutbacks on the development. So could you describe how cuts or delays in DD(X) would impact your work on systems development?
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    Mr. HOEFFLER. Well, if the program is delayed, if some of the cuts that were put forward earlier by this committee were to take place, there will be a delay in the technologies. We heard yesterday that the delay in the DD(X) technologies would affect CVN.

    We heard that DD(X) technologies will be used on LHA-R. This is per the testimony of the CNO. As you said, we have about—actually, it is almost about 1,400 people on the program right now.

    About 1,000 of those are Raytheon employees in Arizona, California, Florida, Indiana, Massachusetts, Maryland, Rhode Island, Texas and Virginia. So the DD(X) is a very broad program.

    Mr. Moosally right now has about 240 people working on the program in New Jersey and in Syracuse. We have over 600 subcontractors in 46 different states working on the program.

    And I have to say I am not sure what sort of actual cuts will come out of the conference, but there would be a fairly severe impact on those number of people. I am not sure how I could place them on other employment within the company.

    We also employ a number of the Navy labs—NSWC, as I talked before, in Virginia; in Crane, Indiana; Panama City, Florida; test facilities at Wallops Island; test facilities at China Lake. So just on the system integrator side of this program, the program is very wide across the country.
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    Mr. LANGEVIN. Thank you.

    I mean, I think this is a significant factor that we need to pay attention to. If these things are delayed, obviously, it is going to have ripple effects far beyond just the immediate effects on the ship.

    Mr. Toner, if I could—and Mr. Teel—we have heard a number of different acquisition strategies for DD(X), from shared construction to winner-take-all competition to a combination of the two.

    Now, Congress clearly understands the potential industrial base impact on winner-take-all, and obviously we have expressed opposition to that option. I know that with Virginia class submarines we do share construction under a teaming arrangement between Electric Boat and Newport News.

    And so my question is while it may not be feasible for two shipyards to work on the same DD(X), what would be the impact on the industrial base and also the cost impact of having two shipyards share the work, perhaps each shipyard getting a ship every other year?

    Mr. TONER. I think that in our case, at BIW, we have to be prepared to function in a half-a-ship-a-year environment. And as I said in my opening statement, the acquisition strategy the Navy's put forward latest—i.e., the idea of a shared design, and start detailed design together and collaboratively—is the right answer.

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    The thing that we do not agree with, or at least I do not agree with, in my opinion, is to start two lead ships at the same time. I think that is going to drive a tremendous amount of cost.

    We have to have a separation between the start of the first ship and the start of the second ship, and it really depends on the adequacy of the design and where you are in the design at the time you start the construction.

    So, you know, there is a risk for any company that has that time frame. Is it a year? Is it 18 months? What is the normal span that you would expect? But you have to have some opening, some space between the start of the lead ships.

    And if we are going to build two lead ships, and it is up to us to maximize the learning on the second lead ship to minimize the lead ship effect. And I think that is the way we have to go about this thing and go forward.

    Mr. LANGEVIN. Anyone else want to comment?

    Mr. TEEL. I will not take a lot of time, Mr. Chairman, just a quick—I think your question about the nature of interleaving the buys, one company and then the other company, maybe a ship-a-year concept—we do something very similar today between us on DDG. We view a stable program as more important in the final analysis.

    Now, clearly, as in the case of Virginia class, it does create challenges, but we can work together, and have in the past as we do on that program, to keep the cost of the program down.
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    In addition to that, the DD(X) program was designed in a very modular way. The ship design is very modular, and that is part of why we believe that some of these approaches of building the ship at a lower cost than a cost per ton would forecast—we will be able do that, and we are pretty sure that we will be able to do that.

    And if we are designing the ship together, as we are, I think we can design ways that we can bring the cost down of this single ship per year build as well.

    Mr. LANGEVIN. I appreciate your input. I think that that is something that we need to be mindful of.

    Thank you. I yield back.

    Mr. BARTLETT. We really appreciate having all you here at the same time, and the bells have not rung yet, and we want to exploit this opportunity to get the most information from you that we can.

    So let me turn again to my ranking member, Mr. Taylor, for any follow-on questions or comments that he would choose to make.

    Mr. TAYLOR. Gentlemen, I think you are aware that there is some skepticism in Congress as to the cost of this ship and whether or not it is a value to the citizens.

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    I happen to be a proponent. That is a no-brainer. I represent South Mississippi where half of these ships, or at least half of these ships, are going to be made.

    So I was very pleased to see Admiral Clark and Secretary Young come out so strongly yesterday. Quite frankly, prior to that, I had been critical that they had not been nearly as strong a proponent as the Marine Corps had been. I thought the Marines had stuck to message, had a concise message and it did not waver.

    Given this unexpected amount of time that we have, to the greatest extent possible, what is the best argument that you could make for this ship?

    Mr. HOEFFLER. Could I start, sir? I have to say I appreciated the line of questioning you went through a little while ago. I was listening as you talked about the various missions for the ship.

    You know, this ship started at 18,000 tons at the end of the DD–21 program, and it has now actually been worked down to 14,000. And I have been in over 100 meetings.

    We get together here in Washington about every two weeks or three weeks where we actually work on how do we get the mission capability of the ship, how do we get the weight down, how do we get the cost down, how do we help the survivability of the ship, how do we help the stealth.

    As you went through the various missions, the advanced gun system—the fire support for the Marines is so critical. That would have taken care of the Black Hawk down situation in Mogadishu if we had had one of these ships.
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    It could have put a ring of fire around the Americans there to protect them. So I think the advanced gun system is very important. That adds weight to the ship.

    We talk about air warfare. This ship is going to go in close to land, typically all by itself. When it is doing that, it has to be able to do air defense like you asked, air warfare. It has the only radar that can protect it in such a littoral environment. That is one of the key parts of this ship.

    It also, because of its stealthy nature, because of the shape of the hull, the way it has been designed—the aircraft that come out looking for it can not see them until our missiles are on top of those aircraft.

    So the aircraft do not get a chance to launch their missiles. As was said yesterday, we shoot the archer. We do not have to stand around shooting the missiles that the aircraft has already shot toward us. That aircraft does not get to go home and send its friends back. That aircraft is down.

    In close like that, you have to do antisubmarine warfare, because that is a dangerous place. Our sonar suite has been optimized to work in the littoral environment.

    At the same time, we made it work in a mined environment, because when you are going in close in the shallow, that is where mines are very effective. And our current blue water fleet is not very good to go in there unless a minesweeper has been there first.

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    We talked about the total ship computing environment. That helps us reduce manning, but it also does something else. It increases our reaction—excuse me, it reduces our reaction time.

    So when we see threats, that system knows what to do, knows how to make the ship stealthy right away, knows how to control everything on the ship so it is best able to defend itself or go into its offensive capability with its guns, with his Tomahawks, with its missiles.

    Finally, sir, you asked about swarming boats. The answer to your question is a classified number. I am sure the Navy can give that to you. Understand that that has been thoroughly researched by the Navy. The mission of the ship—they have a good idea of what sort of swarming raid they would see.

    We have worked that out in great detail using our current two Mark 57 close-in guns, and this ship can protect itself from the largest raid the Navy expects with a very high probability. You can see I am passionate about the ship. I think it is really the right thing for the Marines. Thank you.

    Mr. TAYLOR. Thank you, sir.

    Mr. TEEL. I would just like to add just a summary. We have talked a lot across the country about transformational capabilities, and I think it was important to have that dialogue and rhetoric.

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    This ship truly does deliver that transformational capability in terms of what it can do relative to what our ship capabilities have today, and it does that at a cost, but at a cost that if you consider what its effectiveness is relative to the support of Expeditionary Strike Groups (ESGs), Carrier Strike Groups (CSGs), and Marines going ashore, is quite incredible.

    Mr. BARTLETT. Those are the promised bells, so we need to adjourn shortly. I would just like to note what hardly needs saying, and that is that we—that is, the whole system, the industry, the Navy, the Congress—faces a very difficult decision.

    This is not an easy decision to make. The DD(X) has a lot of stunning new technologies on board. It will be the envy of the world for a ship of its size. But the costs have gone up substantially.

    Yesterday we asked the military people what they thought a cost too high to afford was, and they gave us numbers that were below what the first panel today said the ship is likely to cost. And so we need to take a look at that.

    But it is not just about this ship. It is about the future and our necessity of maintaining an adequate industrial base. There will be a peer in the future.

    We have none now, but there will be a peer in the future, either resurgent Russia, and $60-a-barrel oil is putting a lot of money in their coffers, or a China which is coming on roaring with an economy that is growing at about ten percent a year, which, by the way, doubles in seven years. It is four times bigger in 14 years. It is eight times bigger in 21 years.
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    So if their military grows no faster than their economy, and if their economy keeps growing ten percent a year, they are going to have a military eight times bigger in just roughly two decades from now than they have now. I suspect that they will opt to put increasing percentages of their GDP into their military. So we very well may need a surge capability in the future.

    I would liken the present situation to the farmer that has seven horses and enough food for five. We clearly do not have enough workload to satisfy the bases, to keep all of the bases vigorous, and we split platforms, half here and half there. And the loser gets a consolation prize, either the next buy or to cooperate in this buy.

    This obviously can not go on forever. It is not fair to you. It is not fair to the American taxpayer. And it is not fair to the Navy. And this has been a pretty good example of Jevons Paradox, that for some problems the harder you work, the worse the problem gets.

    We knew a number of years ago that we had a workload problem. And we have worked really hard to try and fix that problem. It has not gotten any better. Our efforts to level the workload—we have split shifts. That raises the cost of shifts.

    And the CNO said that he was concerned that in the future we would have a military that had one ship, and one plane and one tank. You know, these things are getting so costly.

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    This is a very difficult, complex decision that we need to make. I know that you are going to be team players in helping to make the decision that is best for the country, because ultimately what is going to be best for you is what is best for our country. So we need your help and, if you are a Christian, your prayers that we make the right decisions here.

    I want to thank my colleagues here for their participation today.

    And thank you all very much for your testimony.

    And we will stand in adjournment now so we can go vote.

    [Whereupon, at 5:15 p.m., the subcommittee was adjourned.]