U.S. Navy Needs to Rethink Private Sector Industrial Base Investments

The U.S. Government Accountability Office (GAO) has published a report indicating that the Navy needs a new approach to its reliance on the private sector.

The Navy relies on contracts with private companies—the "industrial base"—to build and, in many cases, repair ships. These companies are critical to the Navy's plans to increase its fleet size and improve the fleet's readiness for missions. But ships are often ready much later than expected and at a much higher cost.

The shipbuilding industrial base has not met the Navy's goals in recent history, says the GAO. The Navy's shipbuilding plans have consistently reflected a larger increase in the fleet than the industrial base has achieved. Yet, the Navy continues to base its goals on an assumption that the industrial base will perform better on cost and schedule than it has historically. The shipbuilders have infrastructure and workforce challenges that have made the Navy's goals difficult to accomplish.

The Navy has not historically met ship repair goals either, although this has improved since 2019. The industrial base has grown since then, and representatives from some companies that GAO spoke with stated they often had more capacity than the Navy used. But companies may not be able to take on unplanned work due to infrastructure or workforce limitations. For example, a dry dock of the right size may not be empty when needed.

The Department of Defense (DOD)—specifically the Navy and Office of the Secretary of Defense (OSD)—spent billions to support the shipbuilding industrial base. This included funding for infrastructure and workforce improvements for shipbuilders and their suppliers. But it has yet to fully determine the effectiveness of that support (i.e., its return on investment), though it has taken steps to do so.

More specifically, DOD spent over $5.8 billion on the shipbuilding industrial base from fiscal years 2014 through 2023. It plans to spend an additional $12.6 billion through fiscal year 2028. DOD spent this funding on contract incentives and direct investments.

However, the Navy and OSD are not fully coordinating their shipbuilding investments to prevent duplication or overlap in spending. For example, the Navy and OSD do not coordinate across all investment efforts—such as between submarines and surface ships—though they both make related investments in workforce and infrastructure for these ship categories.

Further, the Navy has yet to fully establish performance metrics, such as measurable targets that link to the agency's goals that would enable it to consistently evaluate the effectiveness of its investments in building a larger fleet or achieving other intended outcomes.

Without better visibility across investments and established performance metrics, the Navy and OSD cannot ensure their investments in the shipbuilding industrial base are an effective use of federal funds to help build a larger fleet, says GAO.

The Navy plans to make direct investments in the ship repair industrial base as it has for shipbuilding. However, the Navy has yet to fully assess how much infrastructure, such as dry docks, it needs to meet its ship repair goals when considering other than peacetime needs. Without understanding its needs, the Navy risks funding more infrastructure than necessary, which could interrupt the competitive environment.

The lack of an overall strategy to guide management of the ship industrial base hinders Navy efforts to address several challenges, such as:

Changing plans for future work. The Navy has struggled to provide industry with a stable workload projection. The Navy's plans for building and repairing ships vary from year to year, hindering efforts to encourage the industry to invest in needed infrastructure.

Competing priorities. The Navy seeks to increase opportunities for competition in shipbuilding and repair, while simultaneously seeking to protect existing companies. These priorities can be at odds. A more competitive environment could help expand the industrial base, but some companies could struggle to remain viable if they do not win contracts.

Developing a ship industrial base strategy would help the Navy better address these challenges to improve the likelihood of achieving its shipbuilding and ship repair goals, says GAO. Until the Navy implements a ship industrial base strategy, it will not be able to effectively align or assess its actions to manage the industrial base for shipbuilding and repair.

GAO is making six recommendations to DOD, including that it improves visibility across investments; and that the Navy establish metrics for its investments; assess its repair needs; and create a ship industrial base strategy.

DOD did not provide formal comments on this report, but the Navy noted in draft comments that it generally concurred with the substance of the recommendations.