BIW’s cost, schedule projections for Zumwalt are unreliable, agency says

The Pentagon agency that oversees contracts says it can’t rely on cost and schedule projections from Bath Iron Works in a $22 billion program to build three Zumwalt-class destroyers for the Navy.

The Defense Contract Management Agency wrote in an assessment that it “has no confidence in” the data because BIW, a subsidiary of defense contractor General Dynamics Corp., hasn’t shown that the company remedied 56 serious deficiencies the agency first cited in 2011. The flaws were in the shipbuilder’s “earned value management system,” which tracks how effectively milestones for the destroyers are being met.

The finding of “no confidence” means the agency considers data produced by Bath Iron Works “unreliable and inaccurate,” agency spokesman Mark Woodbury said in an email. The agency “identified systemic deficiencies in scheduling processes” and “estimates of cost at completion that were not being updated based upon performance trends” with the vessels, he said.

While Woodbury says the contracting agency hasn’t been given documentation that the flaws it cited have been remedied, the company and the Navy say 49 of the 56 issues have been resolved and the rest are awaiting approval.

The agency’s assessment comes at a time when the Navy’s Zumwalt-class destroyer program is under increased scrutiny because of cost overruns and delays at BIW in delivering of the first of three ships.

One of two types of Navy destroyers under construction at BIW, the ships are the most technologically advanced destroyers ever built for the Navy and are designed to bring its powerful weapons systems close to land. But delivery of the first ship – the USS Zumwalt – has been delayed more than a year as BIW, the Navy and contractor Raytheon complete construction and testing of the ship’s complex, all-electric systems. And the delays completing the first ship are affecting work on the other Zumwalt-class and Arleigh Burke-class destroyers under construction at BIW.

There have even been suggestions the Pentagon could cancel the third ship, although Navy officials have said they are committed to all three.

The dispute identified by the Pentagon assessment concerns one of six internal systems that it says are necessary to measure a company’s progress on weapons contracts. The systems are considered “the first line of defense against fraud, waste and abuse,” the Pentagon’s inspector general said in a June report.

The Navy awarded $8.6 billion in contracts to BIW from fiscal 2010 to 2014, including $4.74 billion for the Zumwalt-class destroyer, according to Bloomberg Government data. The estimated procurement cost for all three Zumwalt vessels, not including development, has increased by 37 percent since 2009 to $12.3 billion, according to the Congressional Research Service.

“Bath Iron Works is continuously improving its processes in coordination with its Navy customer,” General Dynamics spokeswoman Lucy Ryan said in an email. She said 49 of the 56 issues cited have been formally resolved with the Navy, and the remaining seven await the services’ approval.

“We are also collaborating with the Navy, DCMA and other shipbuilders to define the proper application” of the earned value management system to shipbuilding, she said.

AGENCY ITSELF UNDER SCRUTINY

The Navy, which has direct oversight of its contractors’ business systems, didn’t decertify Bath’s system, which could have resulted in withholding payments. Instead, it issued a deficiency report in April 2012 and approved the company’s corrective action plan in 2013.

Since then, the service has been working with Bath “to improve the overall effectiveness” of its earned value system and “resolve the outstanding deficiencies,” Capt. Thurraya Kent, a Navy spokeswoman, said in an email.

The Defense Contract Management Agency itself has come under scrutiny by another Pentagon watchdog.

Last month, the Defense Department’s Inspector General issued a report that was critical of the DCMA for not issuing timely “final determination letters” in 17 of 21 cases, which “likely caused delays in correcting significant business system deficiencies and lengthened the time the government was unable to rely on data generated by the business systems.” The audit also found the agency did not withhold a percentage of payments to contractors who were found to have deficiencies in 8 of the 21 cases reviewed.

Construction of the three Zumwalt-class destroyers as well as two Arleigh Burke-class destroyers continues at BIW, which is one of Maine’s largest private employers with nearly 6,000 workers.

Dockside testing of the USS Zumwalt will begin in Bath this month, while at-sea testing is expected to begin in December. On Saturday, BIW christened the 35th Arleigh Burke-class destroyer built at the shipyard.

Tensions between management and BIW’s largest labor union remain elevated, however, as the two sides try to reduce costs and increase efficiency to help the shipyard compete for future Navy contracts and a contract for a new Coast Guard offshore patrol cutter.