WASHINGTON – The U.S. Navy’s cost estimate for its new Constellation-class frigate will end up being about 40 percent short of the final cost per ship, the Congressional Budget Office predicted Tuesday.
Eric Labs, the widely respected CBO analyst who produces assessments of Navy programs for lawmakers, calculated the cost of the ship would be about $1.2 billion per hull. The Navy’s estimate is $870 million per ship. The whole 10-ship contract, if executed, will cost about $12.3 billion, CBO estimated. The Navy estimates $8.7 billion.
The CBO analysis is based on a combination of factors including: the average cost of building similar ships per thousand tons; the cost of similar systems on similar ships; historical data of savings achieved across the life of a shipbuilding program; and it accounts for the fact that the growth of shipbuilding costs historically outpaces inflation in the overall economy.
Indeed, if the Navy’s estimate were to hold, it would be the least expensive surface combatant in the past 50 years, the report concluded.
If the CBO estimate holds true, it will be the latest in a series of programs that have well exceeded their cost estimates. The Navy has been roundly criticized for what the Congressional Research Service estimates is a 27 percent cost growth for the new carrier Gerald R. Ford, though at $13.3 billion the cost of the Ford exceeds the entire 10-ship FFG(X) buy, no matter whose estimate holds.
CBO allowed that the Navy has some good reasons to believe that it can keeps costs down, despite historically almost always underestimating the cost of its shipbuilding projects. The ship is based on a parent design of a ship that has been in production for years now, it is developing little in the way of new technology for it, and shipbuilder Fincantieri Marinette Marine is an experienced small surface combatant builder.
But “costs of all surface combatants since 1970, as measured per thousand tons, were higher,” CBO reports. Additionally, even when systems put on the ship are mature, as they were in the case of the Arleigh Burke-class destroyer, “costs have turned out to be higher than initially estimated.”
The Navy is also trying to pack a lot more into the parent FREMM design than it has previously accommodated, which could invite unexpected cost growth.
The Navy believes it has been conservative with the estimate, based partially on an independent Defense Department estimate that put the price even lower than the Navy’s $870 million per hull. But based on historical data, CBO is unconvinced.
“In its annual analysis of the Navy’s shipbuilding plan, CBO found that over the past 30 years, lead ships cost 26 percent more than the Navy’s original estimate, using a weighted average,” the report reads. “Nearly all of those lead ships cost at least 10 percent more than the original estimate.”