THE ANNUAL COST OF CORROSION FOR NAVY SHIPS

Transcription

1 THE ANNUAL COST OF CORROSION FOR NAVY SHIPS UPDATE REPORT MEC81T3 Eric F. Herzberg Trevor K. Chan Paul N. Chang Amelia R. Kelly Muthu V. Kumaran Norman T. O'Meara, PhD JANUARY 2010

2 NOTICE: THE VIEWS, OPINIONS, AND FINDINGS CON- TAINED IN THIS REPORT ARE THOSE OF LMI AND SHOULD NOT BE CONSTRUED AS AN OFFI- CIAL AGENCY POSITION, POLICY, OR DECISION, UNLESS SO DESIGNATED BY OTHER OFFICIAL DOCUMENTATION. LMI ALL RIGHTS RESERVED.

3 The Annual Cost of Corrosion for Navy Ships: Update MEC81T3/JANUARY 2010 Executive Summary According to a recently published study, the annual cost of corrosion to the Department of Defense for infrastructure and equipment is estimated to be $22.5 billion. 1 Congress, concerned with the high cost of corrosion and its negative effect on military equipment, facilities, and infrastructure, enacted legislation in December 2002 that endowed the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics (USD[AT&L]) with the overall responsibility of preventing and mitigating the effects of corrosion on military equipment and infrastructure. 2,3 To perform its mission of corrosion prevention and mitigation, fulfill congressional requirements, and respond to Government Accountability Office (GAO) recommendations, the USD(AT&L) established the Corrosion Prevention and Control Integrated Product Team (CPC IPT), a cross-functional team of personnel from all the military services and representatives from private industry. Under the leadership and sponsorship of the USD(AT&L), LMI measured the cost of corrosion for Navy ships using data from FY2006 and FY2007. Using a method approved by the CPC IPT, we estimated the FY2007 corrosion cost for Navy ships to be $3.2 billion. 4 This study is a repeat of a similar one LMI performed in 2005, which employed the same methodology and used FY2004 as a measurement baseline. Based on updated data, we noted corrosion costs for Navy ships increased from $2.4 billion to $3.8 billion between FY2004 and FY2006, and then decreased to $3.2 billion in FY2007. The increase in corrosion costs between FY2004 and FY2006 was the result of both an increase in labor maintenance costs 5 and a sharp increase in corrosion cost as a 1 Under Secretary of Defense (Acquisition, Technology and Logistics), DoD Annual Cost of Corrosion, July The Bob Stump National Defense Authorization Act for Fiscal Year 2003, Public Law , 2 December 2002, p Public Law was enhanced by Public Law , The National Defense Authorization Act for Fiscal Year 2008, 28 January 2008, Section The cost estimation method was documented in a report by the CPC IPT, Proposed Method and Structure for Determining the Cost of Corrosion for the Department of Defense, August The FY2006 and FY2007 labor rates were 10.3 percent and 13.8 percent higher than the respective FY2004 labor rate. iii

4 STUDY METHOD percentage of maintenance cost for commercial depot maintenance. The primary causes for the decrease in corrosion costs between FY2006 and FY2007 were a decrease in labor maintenance costs (due to the Navy de-commissioning 16 ships) and a moderate improvement in corrosion cost as a percentage of maintenance cost for commercial depot maintenance and organic field-level maintenance. The method we use to measure cost focuses on tangible direct material and labor costs, as well as indirect costs, like research and development (R&D) and training. The corrosion cost estimation is a combined top-down and bottom-up approach. The top-down portion uses summary-level cost and budget documentation to establish maintenance spending ceilings for depot maintenance and field-level maintenance for both organic and commercial maintenance activity. This establishes a maximum cost of corrosion in each area of maintenance. The bottom-up portion uses detailed work order records to aggregate actual occurrences of corrosion maintenance and activity. This establishes a minimum level of corrosion costs in each maintenance area. Where necessary, we use statistical methods to bridge any significant gaps between the top-down and bottom-up figures to derive a final estimation for the cost of corrosion in each area of maintenance. Our cost estimation method also segregates costs by their source and nature, using the following three schemas: Depot corrosion costs incurred while performing depot maintenance, or DM Field corrosion costs incurred while performing organizational or intermediate maintenance, referred to as field-level maintenance, or FLM Outside normal reporting (ONR) corrosion-related costs not identified in traditional maintenance reporting systems 6 Corrective costs incurred while addressing an existing corrosion problem Preventive costs incurred while addressing a potential future corrosion issue Structure direct corrosion costs incurred by the body frame of a system or end item Parts direct corrosion costs incurred by a removable part of a system or end item. NAVY SHIPS CORROSION COSTS We estimated Navy ship costs according to the three schemas for each category of Navy ships, for a total of 240 vessels (see Figure ES-1). 6 These costs are not distributed within the other two schemas. iv

5 Executive Summary Figure ES-1. Cost of Corrosion for Navy Ships (FY2007) Ship Number 240 Cost Percentage of total Ship Number 120 Cost Percentage of total Ship Number 1 Cost Percentage of total Schema Cost (in millions) Percentage of total DM corrosion costs DM corrosion costs $2, % FLM corrosion costs FLM corrosion costs $ % ONR corrosion costs ONR corrosion costs $ % Corrective corrosion costs Corrective corrosion costs $1, % Preventive corrosion costs Preventive corrosion costs $1, % Structure corrosion costs Structure corrosion costs $1, % Parts corrosion costs Parts corrosion costs $1, % The Navy incurs the highest corrosion-related costs during DM, which represents more than 63 percent of the total corrosion cost for Navy ships. Even more informative is the percentage of corrosion-related DM costs compared to the total DM costs for ships more than 37 percent and the percentage of corrosionrelated FLM costs to total FLM costs for ships less than 16 percent. From a percentage-of-maintenance standpoint, corrosion costs incurred as part of ships undergoing DM are more than double those of ships going through FLM. The high ONR corrosion costs are driven by the large population of shipboard personnel who have a skill specialty other than maintenance but who still perform corrosion maintenance. Typically, only a small fraction of this work is recorded in the maintenance reporting system. CORROSION COST FOCUS AREAS Based on the study results, two cost areas stand out as noteworthy. The first is the corrosion cost as a percentage of maintenance cost for commercial DM labor. One can see from Table ES-1 that the commercial labor required for corrosionrelated DM (as a percentage of all maintenance labor) is more than four times the equivalent organic DM labor percentage. This bears further investigation. v

6 Table ES-1. Navy Ships Corrosion Labor Cost as a Percentage of Maintenance Cost Corrosion cost (in millions) Corrosion cost as a percentage of maintenance cost Level of maintenance FY2004 FY2007 FY2004 FY2007 Organic DM labor $263 $ % 15.0% Commercial DM labor $870 $1, % 63.6% The second area of interest is the amount of preventive maintenance, particularly painting, being performed. We stratify the corrosion costs of Navy ships by the expanded ships work breakdown structure (ESWBS) and depict the four highest costs in Table ES-2. Table ES-2. Highest Navy Ships Corrosion Cost Ranking by ESWBS for FY2007 Rank ESWBS ESWBS description Corrosion cost (in millions) Maintenance cost (in millions) Corrosion percentage Painting $486 $ % Docking and undocking $276 $ % Ballast tanks $240 $ % Staging and scaffolding (ship s force work) $109 $ % Painting, a preventive measure, is by far the highest corrosion cost. This is borne out in Table ES-3, where we show the corrective and preventive costs. Table ES-3. Navy Ships Corrective and Preventive Corrosion Cost Corrosion cost (in millions) Category FY2004 FY2007 Corrective $927 $1,020 Preventive $1,040 $1,577 Total $1,967 $2,597 In Table ES-3, we see an increase in preventive corrosion costs, such as painting, inspection, coating, and quality assurance, of more than $500 million from FY2004 to FY2007. During the same period, corrective corrosion costs rose only slightly, despite a 21 percent increase in the labor rate during the same period. There may be an opportunity to reduce preventive corrosion costs without adversely affecting corrective corrosion costs. vi

7 Contents Chapter 1 Objectives, Method, and Background STUDY OBJECTIVES STUDY METHOD BACKGROUND Maintenance Structure Corrosion Organization Determination of Ships List Chapter 2 Determination of Navy Ships Corrosion Cost NAVY SHIPS DM COST OF CORROSION (NODES A AND B ) Organic Depot Corrosion Costs (Nodes A1 and B1 ) Commercial Depot Corrosion Costs (Nodes A2 and B2 ) FLM Cost of Corrosion (Nodes C and D ) Outside Normal Maintenance Reporting Cost of Corrosion (Nodes E, F, and G ) FINAL NAVY SHIPS CORROSION COST TREE (NODES A THROUGH G ) Chapter 3 Summary and Analysis of Navy Ships Corrosion Costs NAVY CORROSION COST COMPARISON BY STUDY YEAR AND NODE PATTERN OF RISING AND FALLING CORROSION COSTS Increase in Corrosion Cost between FY2004 and FY Decrease in Corrosion Cost between FY2006 and FY Focus on Commercial DM Corrosion Cost Percentage NAVY CORROSION COSTS BY SHIP CATEGORY NAVY CORROSION COSTS BY WBS NAVY CORROSION COSTS CORRECTIVE VERSUS PREVENTIVE COSTS NAVY CORROSION COSTS PARTS VERSUS STRUCTURE COMPARISON OF FY2004 AND FY2007 NAVY SHIPS CORROSION COSTS vii

8 Appendix A Ships Included in the Study Appendix B Navy Corrosion Cost Data Sources by Node Appendix C Searchable Form of Corrosion Keywords Appendix D Work Breakdown Structure Codes Appendix E Summary of Navy Survey Results Appendix F Staffing Level of Non-Maintainers by Ship Category Appendix G Abbreviations Figures Figure 1-1. Navy Corrosion Prevention and Control Organization Figure 2-1. Navy Sustainment Corrosion Cost Tree (FY2007) Figure 2-2. Navy Ships Depot Corrosion Costs ($ in millions) Figure 2-3. Navy Ships Organic DM Labor Corrosion Cost ($ in millions) Figure 2-4. Search Method Using Fault Description to Flag Corrosion-Related Work Figure 2-5. Navy Ships Organic DM Materials and Services Cost ($ in millions) Figure 2-6. Navy Ships Commercial Depot Costs ($ in millions) Figure 2-7. Navy Ships FLM Corrosion Costs ($ in millions) Figure 2-8. Navy Ships Organic FLM Labor Corrosion Cost Figure 2-9. Navy Organic FLM Materials Corrosion Cost ($ in millions) Figure Navy Commercial FLM Corrosion Costs ($ in millions) Figure Navy Ships ONR Corrosion Costs ($ in millions) Figure Final Navy Ships Corrosion Cost Tree Figure 3-1. Breakouts of FY2007 Navy Ships Corrosion Costs by Node Tables Table 1-1. Cost-of-Corrosion Studies to Date and Future Efforts Table 1-2. Numbers of Navy Ships by Category in Corrosion Study viii

9 Contents Table 2-1. Navy Ships Depot Organic and Commercial Corrosion Costs ($ in millions) Table 2-2. Using ESWBS to Calculate Navy Ships Organic DM Labor Corrosion Costs Table 2-3. Navy FLM Ships Corrosion Costs ($ in millions) Table 2-4. Staffing Levels and Cost by Military Component for Navy Field- Level Maintainers Table 2-5. FY2007 OP-31 Budget Exhibit for Navy Ships Table 2-6. Navy Ships FLM Labor Cost for FY Table 2-7. Summary of Time Spent on Corrosion Maintenance Onboard Ships by Non-Maintenance Personnel Who Perform Maintenance Table 2-8. Navy Ships FY2007 Corrosion RDT&E Projects Table 2-9. Navy Ships FY2007 Corrosion Training Requirements by Skill Specialty Table 3-1. Navy Ships DM and FLM Corrosion Costs ($ in millions) Table 3-2. Navy Ships Corrosion Cost by Node and Sub-Node Table 3-3. Navy Ships Corrosion Cost by Fluctuating Cost Nodes ($ in millions) Table 3-4. Navy Ships Commercial DM Cost Comparison ($ in millions) Table 3-5. Corrosion Cost by Ship Category Table 3-6. Navy Submarines Corrosion Cost Ranking by SWLIN for FY Table 3-7. Navy Ships Corrosion Cost Ranking by ESWBS for FY Table 3-8. Breakdown of Non-Submarine ESWBS 631 (Painting) Corrosion Costs Table 3-9. Navy Ships Corrective and Preventive Corrosion Cost (FY2007) Table Navy Ships Preventive to Corrective Corrosion Cost Ratio Table Navy Ships Corrective and Preventive Corrosion Cost for Each Corrosion Study Year Table Navy Ships Corrosion Cost by Parts versus Structure Table Cost Comparison Differences Between the FY2004 and FY2007 Navy Ships Corrosion Cost Studies (in millions) ix

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11 Chapter 1 Objectives, Method, and Background According to a recently published study, the cost of corrosion to the Department of Defense infrastructure and equipment is estimated to be $22.5 billion each year. 1 Congress, concerned with the high cost of corrosion, enacted legislation in December 2002 that endowed the Office of the Under Secretary of Defense for Acquisition, Technology and Logistics (USD[AT&L]) with the overall responsibility of preventing and mitigating the effects of corrosion on military equipment and infrastructure. 2,3 To perform its mission of corrosion prevention and mitigation, fulfill congressional requirements, and respond to Government Accountability Office (GAO) recommendations, the USD(AT&L) established the Corrosion Prevention and Control Integrated Product Team (CPC IPT), a cross-functional team of personnel from all the military services and representatives from private industry. In response to a GAO recommendation to develop standardized methodologies for collecting and analyzing corrosion cost, readiness, and safety data, 4 the CPC IPT created a standard method to measure the cost of corrosion for DoD s military equipment and infrastructure. 5 Because the data-gathering effort is large and complex, the CPC IPT plans to measure the total DoD cost of corrosion in segments. In April of 2006, the CPC IPT published the results of its first study using the standard corrosion cost estimation method. We present the results of the initial studies and the timeline for future corrosion studies in Table Under Secretary of Defense (Acquisition, Technology and Logistics), DoD Annual Cost of Corrosion, July The Bob Stump National Defense Authorization Act for Fiscal Year 2003, Public Law , 2 December 2002, p Public Law was enhanced by Public Law , The National Defense Authorization Act for Fiscal Year 2008, Section 371, 28 January GAO, Opportunities to Reduce Corrosion Costs and Increase Readiness, GAO , July 2003, p DoD CPC IPT, Proposed Method and Structure for Determining the Cost of Corrosion for the Department of Defense, August

12 Table 1-1. Cost-of-Corrosion Studies to Date and Future Efforts Study year Study segment Annual cost of corrosion Data baseline Army ground vehicles $2.0 billion FY2004 Navy ships $2.4 billion FY DoD facilities and infrastructure $1.8 billion FY2005 Army aviation and missiles $1.6 billion FY2005 Marine Corps ground vehicles $0.7 billion FY Navy and Marine Corps aviation $3.0 billion FY2005 and FY2006 Coast Guard aviation and vessels $0.3 billion FY2005 and FY Air Force aviation and missiles $5.4 billion FY2006 and FY2007 Army ground vehicles $2.4 billion FY2006 and FY2007 Navy ships $3.2 billion FY2006 and FY Repeat Navy and Marine Corps aviation Air Force aviation and missiles For the study year, LMI was tasked by the CPC IPT to measure the cost of corrosion for Navy ships, Army ground vehicles, and the Air Force. This is the fourth segment of the CPC IPT plan. The Navy ships and Army ground vehicles analyses are repeat efforts of previously studied segments. Future studies continue the repetition of past studies to assist the services with identifying trends over time. We chose to present the most recent study results in three separate reports to ensure ease of use for each service. The results of the Navy ships portion of the costof-corrosion study are presented in this report. STUDY OBJECTIVES The specific objectives of this study are threefold: Measure the most recent annual sustainment cost of corrosion for Navy ships. Identify corrosion cost reduction opportunities for Navy ships. Analyze trends and draw conclusions using both the initial and most recently concluded Navy ships cost-of-corrosion studies. 1-2

13 Objectives, Method, and Background STUDY METHOD BACKGROUND The study method we applied is the same as detailed in the original report. For the sake of brevity, we do not repeat a detailed description of the method herein. Readers who want more information are referred to Chapter 1 of the original report, The Annual Cost of Corrosion for Army Ground Vehicles and Navy Ships, April To ensure consistency, we used the same definition of corrosion as was used by Congress: The deterioration of a material or its properties due to a reaction of that material with its chemical environment. 6 We have applied this definition of corrosion for each corrosion study. The Navy maintenance organization is framed by the types of weapon systems. The Naval Sea Systems Command (NAVSEA) is the technical authority for maintenance and upgrades to nearly all non-aviation-related equipment, such as hulls, machinery, electrical systems, and ordnance subsystems. Funding for maintenance is mostly administered by the Atlantic and Pacific Fleet commanders, whereas NAVSEA funds most investment upgrades and new construction. Within NAVSEA, the Logistics, Maintenance, and Industrial Operations (SEA 04) directorate provides technical oversight of ship maintenance operations, provides technical authority for four naval shipyards, and maintains central databases of certain field-level and depot ship maintenance activities. The Naval Systems Engineering (SEA 05) directorate, the technical and engineering services organization, includes the Ships Integrity Division (SEA 05P), which includes the Corrosion Control Branch (SEA 05P23), the focal point for ship corrosion issues. Maintenance Structure Navy maintenance can generally be categorized as either depot maintenance (DM) or field-level maintenance (FLM): Depot maintenance, the most complex repair work performed by civilian artisans, is performed in a government-owned and -operated (organic) Navy facility or at a commercial contractor facility. Field-level maintenance is performed by the ships crews as well as other organizations equipped to carry out limited, albeit more complex, repairs (called intermediate maintenance). 6 Op. cit., Public Law , p

14 For the purpose of the cost-of-corrosion studies, we created a third category of maintenance costs that we refer to as outside normal reporting (ONR). These are maintenance costs that typically are not reported in maintenance production or financial systems. Examples include the maintenance labor hours of nonmaintenance specialty personnel, research and development, new facilities, and purchase card expenses. Navy ship maintenance was recently reorganized, with activities being consolidated into regional naval support activities (NSAs) and regional maintenance centers (RMC). In some cases, the NSAs and RMCs are consolidated with shipyards under the control of a new NAVSEA directorate, SEA 04Y. In general, the NSAs and RMCs include former intermediate maintenance facilities, a supervisor of shipbuilding, conversion and repair offices that administer maintenance contracts, and fleet technical support centers that assist shipboard crews with maintenance issues. The Pearl Harbor and Puget Sound naval shipyards and intermediate maintenance facilities support maintenance in Hawaii and the Pacific Northwest, respectively. The Southeast and Southwest RMCs support maintenance in the Mayport, Florida, and San Diego, California, areas. The Norfolk Ship Support Activity, which includes Norfolk Naval Shipyard, supports maintenance in the mid-atlantic region. Portsmouth Naval Shipyard in Kittery, Maine, supports submarine depot maintenance in the northeast and intermediate submarine maintenance with detachments at New London, Connecticut, and Point Loma, California. Corrosion Organization The National Defense Authorization Act for 2009, Section 905, Corrosion Control and Prevention Executives (CCPE) for the military departments, requires that each military department designate a CCPE. It also lists specific responsibilities for those designees. In January of 2009, the Navy appointed a corrosion executive. This position is currently held by the Division Director of Ship Structures and Materials within NAVSEA s Ship Integrity Division (SEA 05P), which is highlighted in Figure

15 Objectives, Method, and Background Figure 1-1. Navy Corrosion Prevention and Control Organization Naval Sea Systems Command Logistics, Maintenance, and Industrial Operations (SEA 04) Naval Systems Engineering (SEA 05) Naval Shipyards SupShips SeaLogCen SEA 05C SEA 05E SEA 05I SEA 05P SEA 05D SEA 05H SEA 05L SEA 05P23 The Corrosion Control Branch of the Ship Integrity Division (SEA 05P23, highlighted in Figure 1-1) is a technical authority for ship-related corrosion issues within NAVSEA. SEA 05P23 has several corrosion responsibilities: Establish technical requirements for preservation. Define acceptable processes based on industry best practices. Support the fleet with problem analysis. Provide risk assessments and analysis. Make recommendations to acquisition authorities regarding corrosionrelated specifications for inclusion in new ship acquisition contracts. Determination of Ships List To capture the cost of corrosion prevention and repair for Navy ships, we selected ships that were identified as battle force ships in either FY2006 or FY2007. The battle force ships count is used by the Office of the Secretary of Defense (OSD), Congress, industry, and the media as a standard measure of the Navy s fleet size. We excluded ships operated by the Military Sealift Command (MSC), as there are significant differences between MSC-operated ships and commissioned Navy battle force ships. MSC operates support and strategic sealift ships with crews of civilian mariners and a small contingent of military personnel. Maintenance on MSC ships is performed almost exclusively by commercial firms under contracts 1-5

16 negotiated and administered by MSC, and apart from the infrastructure that maintains Navy battle force ships. Excluding the MSC ships, we identified 240 battle force ships as the basis for this study. We excluded support, mine warfare, and reserve category B ships that are listed in the official Naval Vessel Register, but are not categorized as battle force ships. We also did not include minor vessels (such as small boats, landing craft, and service craft) that are not listed in the Naval Vessel Register. We group the 240 ships into five categories, as depicted in Table 1-2. Table 1-2. Numbers of Navy Ships by Category in Corrosion Study Ship category Number of ships Aircraft carrier 12 Amphibious 35 Surface warfare 102 Submarine a 70 Other ships b 21 Total 240 a Includes 52 SSN attack submarines and 18 SSBN/SSGN ballistic missile or guided missile submarines. b Includes 18 mine warfare ships and 3 support ships. Appendix A lists by category, class, hull number, and name the 240 ships for which FY2007 costs were accumulated in this study. 1-6

17 Chapter 2 Determination of Navy Ships Corrosion Cost The total annual sustainment cost of corrosion estimate for Navy ships in FY2007 is $3.17 billion. For FY2006, the estimate is $3.79 billion. For purposes of discussion, we focused on FY2007 data, as it is the most recent. We discuss the results from FY2007, as well the previous study (FY2004) in Chapter 3. We developed the cost tree in Figure 2-1 to help determine the cost of corrosion for Navy ships. It serves as a guide for the remainder of this chapter. Figure 2-1. Navy Sustainment Corrosion Cost Tree (FY2007) $83.9 billion DoD maintenance $58.4 billion Non-Navy maintenance $9.9 billion Total Navy DM $15.6 billion Total Navy FLM $0.5 billion Total Navy ONR Laborrelated cost services related Materials and of corrosion cost of corrosion Laborrelated cost services related Materials and of corrosion cost of corrosion Labor of non-maintenance ship personnel Priority 2 and 3 costs Purchase cards Navy ships only A B C D E F G $1,510 million $496 million $780 million $47 million $328 million $3 million $7 million $3.17 billion in annual Navy ships corrosion cost We started the cost tree with the total FY2007 cost of maintenance throughout DoD of $83.9 billion. 1 Eliminating non-navy costs and segregating the cost tree into three major groups total Navy DM, total Navy FLM, and Navy ships ONR resulted in the second level of the tree. At this point in the analysis, the cost figures for DM and FLM represent total Navy maintenance costs. 1 The Estimated Total Cost of DoD Material Maintenance for FY2007, LMI briefing to OSD, p

18 We then split each of the three groups into the major pertinent cost categories. We labeled the cost categories as cost nodes. Nodes A through G depict the main segments of corrosion cost. Using three separate detailed cost trees for DM, FLM, and ONR, we determined the overall corrosion costs by combining the costs at each node. We present the documentation of data sources for each of the cost figures in each node in Appendix B. We start the detailed analysis by first examining Navy ships DM costs nodes A and B. NAVY SHIPS DM COST OF CORROSION (NODES A AND B ) DM corrosion costs are significant both at organic and commercial DM facilities. The total depot ship corrosion cost is $2.01 billion. This represents roughly 33.7 percent of total depot ship costs of $5.95 billion. As we detail in the original study, we used a combined top-down and bottom-up approach to determine the corrosion-related costs. The detailed depot corrosion cost tree (see Figure 2-2) illustrates how we determine the depot corrosion costs for Navy ships. Figure 2-2. Navy Ships Depot Corrosion Costs ($ in millions) $9,875 DM $5,311 Organic depot $4,564 Commercial depot $3,022 Labor $724 Overhead $1,565 Materials and services $2,579 Labor $623 Overhead $1,362 Materials and services $2,181 Ships labor $841 Non-ships labor $708 Ships materials and services $857 Non-ships materials and services $1,857 Ships labor $722 Non-ships labor $625 Ships materials and services $737 Non-ships materials and services $1,853 Noncorrosion $328 Corrosion A1 $612 Noncorrosion $96 Corrosion B1 $675 Noncorrosion $1,182 Corrosion A2 $225 Noncorrosion $400 Corrosion B2 We start with a top-down cost of $9.875 billion for Navy DM costs. We use an annual DM congressional reporting requirement to determine this cost. 2 The same 2 Deputy Under Secretary of Defense (Logistics and Materiel Readiness), Distribution of Department of Defense DM Workloads: Fiscal Years 2007 through 2009, April 2008, p

19 Determination of Navy Ships Corrosion Cost document details the split between organic depot costs ($5.311 billion) and costs incurred at commercial depots ($4.564 billion). This is reflected in the second level of the tree in Figure 2-2. Through continued top-down analysis, we determined the cost at each level in the tree until we reached the cost-of-corrosion nodes. We then used detailed bottomup data to determine the corrosion cost at each of these nodes. These costs are outlined in Table 2-1. Table 2-1. Navy Ships Depot Organic and Commercial Corrosion Costs ($ in millions) Maintenance provider Total ships materials and services cost Total ships labor cost Total ships overhead cost Total ships depot cost Corrosion materials and services cost Corrosion labor cost Corrosion maintenance cost Organic depot $708 $2,181 $325 $3,214 $96 $328 $424 Commercial depot $625 $1,857 $254 $2,736 $400 $1,182 $1,582 Total $1,333 $4,038 $579 $5,950 $496 $1,510 $2,006 The total ships overhead costs in the organic depot ($325 million) and commercial depot ($254 million) are the ships portions of the total organic depot overhead cost ($724 million) and commercial depot overhead cost ($623 million) from the depot corrosion cost tree in Figure 2-2. As shown in Table 2-1, there is a large difference between the corrosion costs incurred at commercial DM facilities ($1,582 million) and those incurred at organic DM facilities ($424 million). Organic Depot Corrosion Costs (Nodes A1 and B1 ) We continued our top-down analysis, starting at the top of the organic depot side of the cost tree in Figure 2-2. We split the $5.311 billion of organic depot costs into labor, overhead, and materials/services costs using cost figures from the 1307 report, which is an annual report compiled for OSD. The contractual cost reported in the 1307 report contains labor, materials, overhead, and other contract-related costs. We used the actual reported total costs for labor, materials, and overhead to apportion the contractual costs into their respective labor, materials, and overhead schema. We then separate the costs into what is incurred at Navy shipyards and what is incurred at other-than-navy shipyards. Because the Navy shipyards perform maintenance exclusively on ships, we included 100 percent of the reported shipyard costs in our study. To this point, we determined the labor, materials and services, and overhead cost figures by using a top-down costing method. Our next task was to extract the organic DM labor cost of corrosion from the total organic DM labor cost (node A1 ) 2-3

20 ORGANIC DM LABOR CORROSION COSTS (NODE A1 ) In Figure 2-3, we repeat the organic DM labor portion of the cost tree from Figure 2-2 for ease of comparison. Figure 2-3. Navy Ships Organic DM Labor Corrosion Cost ($ in millions) $3,022 Labor $2,181 Ships labor $841 Non-ships labor $1,853 Noncorrosion $328 Corrosion A1 We analyzed information provided by several Navy information systems that give detail on DM actions. We used the fault descriptions and corrective action text fields of the job orders to segregate the corrosion-related work from all other maintenance activities. Using a list of keywords that relate to corrosion (such as rust, paint, or preserve), we searched the text descriptions of each job order to identify jobs that involve corrosion. In Figure 2-4, we show how we used the fault description to highlight job orders that involve corrosion. We used the keyword rusted to flag the highlighted fault description. 2-4

21 Determination of Navy Ships Corrosion Cost Figure 2-4. Search Method Using Fault Description to Flag Corrosion-Related Work SHIP_HULL 3DIGIT_ESWBS JOB_ORDER_NUM FAULT_DESCRIPTION LCC DA01P163 REPLACE PRC DECK COVERING LCC DA01Z006 MASTS - INSP LCC DA WORN NYLON NETS LCC DA DETERIORATED VENT DUCTING LCC DA WORN NON-SKID LCC DA DETERIORATED STUFFING TUBES Flagged by Fault Description LCC NN RUSTED HAND RAILS ON O-3 LEVEL LCC DA VENT SCREENS DETERIORATED LCC EA A INSTALL ISOLATION VLV Data Challenges A complete list of the key corrosion words we used to segregate corrosion job orders is provided in Appendix C. Once the record was flagged as being corrosionrelated work, the labor cost associated with the job order became a corrosionrelated cost. We immediately ran into a challenge obtaining and analyzing the organic DM job orders. NAVSEA personnel determined that the text descriptions of the job orders may contain sensitive information concerning nuclear propulsion systems for ships and submarines. They determined the job orders were categorized as Navy Nuclear Propulsion Information (NNPI) and, therefore, could not be viewed except on an NNPI-certified computer terminal. The closest NNPIcertified terminal was in Norfolk, Virginia approximately 200 miles from LMI s headquarters in McLean, Virginia. This created several challenges: The data could not be previewed to determine if it was sent in the correct format from the shipyards. We made several trips to Norfolk to review the data, only to discover some of the data from the shipyards was not usable because of formatting issues. Because of the unusual nature of the situation, coordination to secure the shipyard data was difficult. Shipyards needed to resend data multiple times to overcome the formatting issues. These coordination challenges caused significant delays and additional costs for the study. 2-5

22 Once we determined the corrosion tasks using the text fields, NAVSEA security personnel determined these fields for all job orders needed to be erased before the data could be brought back to LMI and the analysis completed. This made it extremely difficult to understand and correct discrepancies within individual data records during the final analysis. For future corrosion studies for Navy ships, all parties agree the contractor needs to become NNPI-certified to avoid these difficulties going forward. Completion of Analysis of Organic DM Labor As a result of the data challenges above, we determined that, of the analysis performed at Norfolk, only the work done on the submarine job orders was usable. The submarine records sent from the Navy shipyards did not have the formatting issues that the surface ship data records had. The submarine records did not require any interpretation to place the correct data in the proper data fields. For surface ships, we determined corrosion costs for job orders through a method other than key corrosion words. We used the expanded ships work breakdown structure (ESWBS). The ESWBS is the Navy s standard system of coding maintenance work by location, type of equipment, and activity. The ESWBS code is assigned to each maintenance job order by the maintenance technician. A complete list of ESWBS codes is found in Appendix D. Because using the text descriptions for each job order for surface ships proved unreliable for FY2007 shipyard data, we used the corrosion cost percentages by ESWBS from the initial Navy ships study. We illustrate this technique using a notional example in Table 2-2. Table 2-2. Using ESWBS to Calculate Navy Ships Organic DM Labor Corrosion Costs Job order number Ship category ESWBS FY2007 data ESWBS description Corrosion percentage (FY2004 study) Labor cost FY2007 data Corrosion labor cost (FY2007) 36G Aircraft carrier 123 Tanks & voids 95.0 $1,000 $950 36G Amphibious 123 Tanks & voids 98.6 $2,000 $1,972 36N Other ships 123 Tanks & voids 99.4 $2,000 $1,988 36Q Surface warfare 123 Tanks & voids 92.4 $5,000 $4,620 36U Aircraft carrier 531 Distilling plant 15.8 $500 $79 38D Amphibious 531 Distilling plant 26.6 $1,000 $266 38G Other ships 531 Distilling plant 28.2 $2,000 $564 38G Surface warfare 531 Distilling plant 29.7 $4,000 $1,188 36G Aircraft carrier 123 Tanks & voids 95.0 $1,000 $

23 Determination of Navy Ships Corrosion Cost By using these two methods (corrosion key words for submarines and ESWBS for surface ships) to flag corrosion-related job orders from the detailed depot data provided, we accumulated the corrosion-related organic DM labor costs and segregated those costs from the total organic DM labor costs. In this way, we accumulated a total of $335.8 million in organic DM labor corrosion costs. As we depict in Figure 2-3, the top-down calculations for the organic DM labor costs are $2.181 billion. We accounted for $2.233 billion in labor costs from the bottomup data a total that is slightly higher than our top-down cost of $2.181 billion. To calculate the final corrosion costs for node A1, we multiplied the corrosion labor costs of $335.8 million by the ratio of $2.181 to $2.233 to close the top-down to bottom-up gap. The result is the corrosion cost in node A1 of $328 million. ORGANIC DM MATERIALS AND SERVICES CORROSION COSTS (NODE B1 ) We continued our bottom-up approach by extracting the organic DM materials and services cost of corrosion from the total DM materials. In Figure 2-5, we repeat the organic DM materials and services portion of the cost tree from Figure 2-2 for ease of comparison. Figure 2-5. Navy Ships Organic DM Materials and Services Cost ($ in millions) $1,565 Materials and services $708 Ships materials and services $857 Non-ships materials and services $612 Noncorrosion $96 Corrosion B1 All materials costs are associated with each job order and, therefore, are linked to the organic DM labor job order. The services we account for are drydock costs. Essentially, a drydock is a narrow basin that can be flooded to allow a vessel to enter and then be drained to permit the ship to rest on a dry platform. There is both an initial and daily charge for the use of this type of facility. Because each submarine job order was assessed to determine whether it is corrosion-related, determining the corrosion-related materials and services costs for these data records was straightforward. If the labor job order was corrosionrelated, so then were the materials and services associated with that job order. 2-7

24 For the surface ships job orders, we applied the same ESWBS technique and corrosion percentages to the materials and services costs for each data record as we did for the labor costs. As we depict in Figure 2-5, the top-down calculations for the organic DM materials and services costs are $708 million. We accounted for $646 million of these costs from the detailed bottom-up data. To calculate the final corrosion costs for node B1, we multiplied the corrosion costs by the ratio of $708 million to $646 million to close the top-down to bottom-up gap. The result is the corrosion cost in node B1, $96 million. Commercial Depot Corrosion Costs (Nodes A2 and B2 ) We followed a method similar to what we used for the organic DM costs to determine the commercial DM corrosion costs. Figure 2-6 is the commercial depot branch of the overall depot cost tree shown earlier in Figure 2-2. Figure 2-6. Navy Ships Commercial Depot Costs ($ in millions) $4,564 Commercial depot $2,579 Labor $623 Overhead $1,362 Materials and services $1,857 Ships labor $722 Non-ships labor $625 Ships materials and services $737 Non-ships materials and services $675 Noncorrosion $1,182 Corrosion A2 $225 Noncorrosion $400 Corrosion B2 TOP-DOWN ANALYSIS FOR COMMERCIAL DEPOT CORROSION COSTS We started our top-down analysis at the top of the cost tree in Figure 2-6. Because there is no reporting requirement similar to the 1307 reports for commercial depots, we applied the Navy s organic depot ratios for labor, overhead, and materials to the total commercial depot cost to determine the commercial depot labor, overhead, and materials totals. The results are the costs depicted in the second row of Figure

25 Determination of Navy Ships Corrosion Cost We then used the organic DM ratios of ships-related funding to non-ships related funding for labor, overhead, and materials and services to determine the corresponding totals for commercial ships labor, overhead, and materials. Finally, we added the actual drydock totals to the materials costs to determine the final materials and services costs. This yields the final top-down costs of $1.857 billion for commercial DM labor and $625 million for commercial DM materials and services, as shown in Figure 2-6. Our next task was to extract the corrosion-related labor (node A2 ) and corrosionrelated materials and services (node B2 ) costs from the total ships commercial DM labor costs and total ships commercial DM materials and services costs. BOTTOM-UP ANALYSIS FOR COMMERCIAL DEPOT CORROSION COSTS We used the Navy Maintenance Database (NMD) as our primary source of detailed commercial bottom-up data. We segregated the corrosion-related labor records from the non-corrosion-related labor records using the same corrosion keywords that we applied for the organic depot data analysis. As depicted in Figure 2-6, the top-down calculations reveal the ships commercial depot labor costs are $1.857 billion. We accounted for $1.231 billion from the detailed bottom-up labor data in NMD. To calculate the final corrosion costs for node A2, we multiplied the corrosion costs we segregated using the corrosion keyword search methods by the ratio of $1.857 to $1.231 to account for the top-down to bottom-up gap. The result is the corrosion cost in node A2 of $1.182 billion. To determine the corrosion cost of node B2, we aggregated the materials and services costs associated with the labor maintenance records that we flagged through our corrosion search method. We then separated the corrosion materials and services costs from the other maintenance costs listed in the NMD database. From the results of our top-down analysis represented in Figure 2-6, we know the commercial depot materials and services costs for ships total $625 million. We accounted for $642 million of this amount through the bottom-up detailed commercial data. To calculate the final corrosion costs for node B2, we multiplied the corrosion costs we segregated using the corrosion keyword search method by the ratio of $625 million to $642 million to account for the top-down to bottomup gap. The result is the corrosion cost in node B2 of $400 million. FLM Cost of Corrosion (Nodes C and D ) FLM corrosion costs are significant, but they represent a lower percentage of overall maintenance costs than DM. The total ships FLM corrosion cost is $827 million. This represents 15.0 percent of the $5.505 billion total ships FLM cost, less than half the 33.7 percent corrosionrelated cost rate of DM. 2-9

26 The detailed FLM corrosion cost tree in Figure 2-7 guides our discussion. Figure 2-7. Navy Ships FLM Corrosion Costs ($ in millions) $15,563 FLM $11,726 Organic labor $1,838 Organic materials $1,728 Commercial maintenance $271 Overhead $4,852 Ships labor $6,874 Non-ships labor $488 Ships materials $1,350 Non-ships materials $60 Ships $1,668 Non-ships $107 Ships $164 Non-ships $4,077 Noncorrosion $775 Corrosion C1 $442 Noncorrosion $46 Corrosion D1 $50 Labor $1 Overhead $9 Materials $45 Noncorrosion $5 Corrosion C2 $8 Noncorrosion $1 Corrosion D2 TOP-DOWN ANALYSIS FOR FLM CORROSION COSTS We started our top-down analysis with the realization that we first needed to calculate the costs at the second level of the tree to determine the total Navy FLM costs. Unlike DM, there is no legal requirement to aggregate FLM costs and report them at the service level. Once we determined the costs for FLM labor, materials, commercial maintenance, and overhead (the second level of the tree in Figure 2-7), we calculated the cost at each subsequent level until we reached the cost-of-corrosion nodes. We then used detailed bottom-up data to determine the corrosion cost at each of these nodes. The corrosion cost at each node is outlined in Table 2-3. Table 2-3. Navy FLM Ships Corrosion Costs ($ in millions) Field-level cost area Total ships materials Total ships labor Total ships overhead Total ships maintenance Corrosion materials Corrosion labor Corrosion maintenance Organic $486 $4,852 $107 $5,445 $46 $775 $821 Commercial $9 $50 $1 $60 $1 $5 $6 Total $495 $4,902 $108 $5,505 $47 $780 $

27 Determination of Navy Ships Corrosion Cost We started our calculation of the FLM costs at labor, using data from the Defense Manpower Data Center (DMDC) to identify Navy personnel with maintenance skill specialties. These personnel come from different service components: active duty, the reserves, and the civilian workforce. Based on staffing levels and per capita pay rates, 3 the top-down FLM Navy labor cost is $ billion. Table 2-4 details these staffing levels, rates, and costs. Table 2-4. Staffing Levels and Cost by Military Component for Navy Field-Level Maintainers Component Staffing level Per capita cost Total cost (in millions) Active duty 125,658 $79,972 $10,049 Reserve 15,379 $24,177 $372 Civilian 15,456 $84,451 $1,305 Total 156,493 $11,726 We then moved to materials, identifying Navy field-level organic maintenance materials costs. We used information obtained from the Navy s OP-31 exhibit, Spares and Repair Parts. 4 A summary of the OP-31 document for FY2007 is presented in Table 2-5. Table 2-5. FY2007 OP-31 Budget Exhibit for Navy Ships Commodity category Initial total (in millions) Ships $397 Aircraft airframes $604 Aircraft engines $403 Combat vehicles $79 Other missiles $14 Other communications equipment $3 Other miscellaneous $338 Total $1,838 The cost of $1.838 billion is the Navy s estimate of spares and repair parts costs for FY2007 for FLM, excluding contract maintenance costs. We next moved to commercial maintenance in the third level of the cost tree. 3 Per capita rates are derived from the Department of Defense Fiscal Year 2007 President s Budget. 4 Operations and Maintenance, Navy Data Book Submitted in Justification of Estimates, February 2008, p This document was submitted as part of the Department of the Navy Fiscal Year 2009 Budget Estimates. 2-11

28 We identified Navy commercial FLM costs using the Navy active duty and reserves OP-32 exhibits from the same budget documents we used for organic FLM materials costs. Commercial maintenance costs are captured inside budget line 922, Equipment Maintenance by Contract. We isolated all costs associated with line 922 for each budget activity. The sum of the line 922 contract maintenance costs yielded $1.728 billion in Navy commercial FLM costs. Finally, we moved to overhead and calculated the overhead costs for organic FLM. A previous study of FLM costs determined overhead to be approximately 2 percent of total field-level costs. This does not include indirect labor or materials, but it does include utilities, fuel, and other miscellaneous costs. 5 We, therefore, calculate the overhead cost to be $271 million. 6 Adding the FLM labor and materials costs, commercial maintenance costs, and overhead costs resulted in a total Navy FLM cost of $ billion. Having determined the total Navy FLM costs, we continued our top-down analysis with the organic field-level labor costs. ORGANIC FLM LABOR CORROSION COST (NODE C1 ) We split organic field-level labor costs into ships and non-ships. Using DMDC data, we were able to determine the maintenance staffing level for each of the 240 ships in the study as well as other FLM ships maintainers not assigned directly to a ship. We show the active duty, reserve, and civilian staffing totals in Table 2-6. Table 2-6. Navy Ships FLM Labor Cost for FY2007 Military component Total staffing Pay rate Total cost (in millions) Active duty 52,995 $79,972 $4,238 Reserve 5,137 $24,177 $124 Civilian 5,802 $84,451 $490 Total 63,934 $4,852 Using the same per capita cost we derived previously, we determined the Navy ships organic FLM labor costs are $4.852 billion. Our next task was to extract the corrosion-related labor cost (node C1 from Figure 2-8) from this total using a bottom-up costing approach. 5 LMI, FLM Cost Visibility, Report LG301T7, Eric Herzberg et al., March 2005, p The $271 million is 2 percent of the organic FLM labor costs ($ billion) plus organic FLM materials costs ($1.838 billion). 2-12

29 Determination of Navy Ships Corrosion Cost Figure 2-8. Navy Ships Organic FLM Labor Corrosion Cost $11,726 Organic labor $4,852 Ships labor $6,874 Non-ships labor $4,077 Noncorrosion $775 Corrosion C1 We used data from Maintenance and Material Management Open Architectural Retrieval System (3M/OARS), the Navy s primary field-level maintenance system, to determine the corrosion-related FLM labor cost. We analyzed information provided by 3M/OARS for all closed work orders for FY2007 for each of the 240 ships in the study. Including material purchase data, the number of individual data records total approximately 1 million. By aggregating the individual 3M/OARS labor hours, we accounted for $568 million in ship-related labor costs from the detailed bottom-up labor data. This is approximately 12 percent of our top-down total of $4.852 billion from Figure 2-8. At first glance, this seems like a large gap; however, the top-down cost figure is determined by multiplying a staffing level by a per capita yearly rate. We determined the bottom-up cost of $568 million by aggregating direct hands-on maintenance labor hours and multiplying by $45.03 per hour the hourly equivalent of the per capita rate. 7 In other words, the top-down cost is the total yearly cost of the 63,934 personnel with a ship-related maintenance skill specialty from Table 2-6. The bottom-up cost reflects only the hours recorded for hands-on maintenance by the same number of personnel. 7 According to OMB Circular A-76 (March 2003), a civilian full-time equivalent (FTE) is 1,776 hours. Therefore, we used the per capita yearly rate divided by 1,776 hours to calculate the equivalent hourly rate. 2-13

30 We accounted for the gap between the top-down and bottom-up cost figures as follows: Roughly 48 percent of a typical maintainer s time is spent performing direct hands-on maintenance. 8 The remaining time is spent on leave, recovering from illness, in training, on travel, and performing other administrative duties. According to a survey we administered to Navy personnel, roughly 20 percent of hands-on maintenance performed by maintenance personnel onboard ship is not recorded in 3M/OARS. We include a summary of that survey in Appendix E. More than 15 percent of the shipboard maintainers (9,590 of 63,934) are both operators and maintainers. Their primary duty is to operate equipment, but, to improve efficiency or because of space limitations, they also maintain the equipment. The direct hands-on recorded maintenance hours for this group of operator-maintainers will be relatively small; their first responsibility is to operate equipment, and this is usually not recorded in 3M/OARS. 9 Based on these three factors, we expected to account for approximately $1.583 billion in recorded direct labor costs. 10 The $568 million in bottom-up labor costs we did capture represents 35 percent of the total expected maintenance record population. Although not as high as we would expect, the number of records we did capture is sufficient to be able to derive a valid cost estimate. 3M/OARS records do contain a data field ( Cause_Code ) that allows maintenance personnel to designate corrosion as a cause for the maintenance action. We added cause code as a search criterion to extract corrosion-related work for FLM. We then used the same corrosion keyword search technique as we applied to the depot data. By using the corrosion keyword search technique and cause code to flag and separate corrosion records from non-corrosion records, we accumulated corrosion labor costs of $90.7 million. 8 Performance Measures for U.S. Pacific Fleet Ship Intermediate Maintenance Activities, Deidre L. McLay, September 1992, p. 29. We used the utilization rates shown, subtracting 14.7 percent to account for leave, sickness, and other time personnel are planned to be away from their workplace that are not accounted for in the definition of utilization. 9 Although this group of personnel only partially performs maintenance, we are comfortable including their total yearly cost in the top-down information. Even during periods when they are operating equipment, they could be asked to perform maintenance tasks similar to the unrecorded tasks performed by the non-maintenance sailors we account for in node E. 10 The $1.583 billion is a product of the top-down labor total of $4.852 billion times 48 percent (actual hands-on maintenance time) times 80 percent (actual recorded hands-on maintenance time) times 85 percent (accounts for the fact that operator-maintainers will record very little maintenance). 2-14