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CAPE estimates Navy's two-ship buy will save $3.1B -- $900 million less than service projections


The Pentagon's office for independent cost estimates has concluded the Navy's two-ship buy of the third and fourth Gerald Ford-class aircraft carriers will save $3.1 billion -- $900 million less than what the service touted last week following the contract award, a new Congressional Research Service report revealed.


"The Department of Defense's Office of Cost Assessment and Program Evaluation (CAPE) developed an independent estimate of savings for the two-ship procurement and forecast savings of $3.1 billion [in then-year dollars], or approximately 11 percent," states a Feb. 1 CRS report concerning the Gerald Ford-class carrier.


Footnotes in the report cite certification documents the Pentagon was required to send to Congress 30 days prior to awarding the $14.9 billion contract to Huntington Ingalls Industries.


Navy acquisition executive Hondo Geurts told reporters Jan. 31 following the contract award that procuring the ships in a dual-buy format would save the Navy $4 billion. The total cost of both ships is expected to be $24 billion.


The CRS report also states the difference in estimates is attributed to government-furnished equipment and production change orders. This means the two entities, CAPE and the Navy, came to different conclusions about the final cost of the GFE required for the two ships, and how much that price could be reduced.


Production change orders refer to differences in construction -- and the associated costs -- between the Enterprise (CVN-80) and the unnamed CVN-81.


What is not clear from the CRS report is the baseline cost estimate CAPE used when assessing the savings for the two-ship buy. If the Pentagon office used the Navy's baseline, then the difference between the two projections is $900 million. If CAPE calculated its own baseline, that gap may be larger or smaller, depending on what CAPE assessed as the cost of procuring each aircraft carrier individually.


Speaking for CAPE, Defense Department spokesman Christopher Sherwood confirmed the office's savings projection is $3.1 billion in then-year dollars in a Feb. 6 statement to Inside the Navy. He also said CAPE prepared "an independent estimate of the baseline acquisition costs for CVN-80 and CVN-81."


"This CAPE baseline cost estimate for CVN-80 and CVN-81 is based on cost information from predecessor Ford-class carriers -- specifically CVN-78 and CVN-79," Sherwood said.


"CAPE then forecast savings from this baseline cost estimate for a two-ship carrier buy using the parameters of the negotiated two-ship contract, including associated changes to the Ford-class program and other government costs," he continued.


Geurts told reporters last week the Navy's baseline estimate is $28 billion if the ships were procured individually and $24 billion using a dual-buy format.


Asked about the difference in projections, Navy spokesman Capt. Danny Hernandez reiterated the $4 billion figure is based on the service's baseline estimate.


"The savings generated (government-furnished equipment and shipbuilder) are up to $4 billion when compared to the Navy's original cost estimate to procure these CVNs individually," he said in a Feb. 4 statement to Inside the Navy. "Since [the fiscal year 2019 budget] already accounted for at least $1B of potential savings, a two-CVN buy would save an additional $3B."


Traditionally, the services' cost estimates are always more optimistic than third-party assessments from entities such as CAPE or the Congressional Budget Office.


Capitol Hill defense hawks largely touted the Navy's $4 billion figure last week following the contract award. Among them was Rep. Rob Wittman (R-VA), who was an outspoken advocate for the Navy to execute the two-ship buy.


Asked today about CAPE's conclusions, Wittman noted the Navy's original projection was only $2.5 billion in savings.


"No matter what, savings of over 10 percent is in our nation's best interest and I look forward to this contract's successes," he told ITN in a written statement.

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