00:00Thank you. Mr. O'Lauro.
00:03Thank you very much, Mr. Chairman, and I know there's been a discussion in my absence
00:08about the Virginia class submarine contract, so I don't want to have you be repetitive,
00:14but I just wanted to, a couple things in this area, and we know that the contract announcement came
00:20at the end of April, we were supposed to get it at the end of February, but the April 30th contract
00:25modification indicated that future Virginia class procurement will not be conducted through,
00:31quote, block multiyear contracts, as has previously been the case, but instead through one-off cost
00:37plus incentive fee contracts. You've noted that the April 30th contract modification
00:43that obligated the December continuing resolution money was renegotiated to appropriately, quote,
00:50share risk between the Navy and the industry, end quote. You have indicated that this will serve as a
00:55template for future shipbuilding contracts, whatever the contracting method that the Navy uses.
01:01We have the same goal, getting production back on schedule and on budget.
01:06Can you explain in more detail how shifting contract mechanisms will achieve that goal
01:12and create, as you described, quote, more value for the American taxpayer?
01:17Thank you for the question, Ranking Member, and again, thank you for the support to this committee,
01:24for the Virginia. I think at the end of the day we had a very tight timeframe in which to try to get
01:30something put together quickly in order to continue the production on Virginia. What we ended up doing
01:38was we had a cost plus contract which was eating us alive, and as you delay out schedule, you know,
01:46that's pretty tough. So we had to get money to them for workforce.
01:52We had to send a demand signal to the private sector to put money into their facilities and invest.
01:58I think what I liked about what we were able to do on this contract is we shifted it from cost plus with a cap of,
02:09call it, with 130% ceiling to fixing it up to 86% of the cost, but we brought the ceiling up to 138%.
02:18So we ended up fixing the price more on this, which our view was to put pressure on them to try to perform and get quicker.
02:28So the template is going to be more of a fixed price with some incentives.
02:35And I think what we're missing to some extent is in sending them to move faster. So in a cost plus contract,
02:42the longer you wait, the more money you make. And that's what we have. And, you know, we have to look also at one of the
02:52things, you know, again, and it's still early, but we have to figure out who else can help us build these.
02:59And if there's modules, we can have done somewhere else to get this done because we have a sole source supplier.
03:06And that is a big constraint. And there are a number of infrastructure constraints that exist as well,
03:13both at the public shipyards and at the private shipyards. So to give you an example, one of the workers I met at Norfolk
03:20told me that she has to get to the office. She has to get to the yard at five in the morning.
03:26Her shift starts at seven because of the parking is so bad that she wants to get a spot because she has to get home to her
03:33child after her shifts over. That's crazy.
03:37We need to fix that. And we need to come up with some ways to do that.
03:40But specifically to your question, we were able to fix this now.
03:44And I think when we get to the next contract, we will look to try to modify that more and have more shared risk with them,
03:52which is kind of locking in margins, locking in numbers, and also trying to rationalize the supply base.
04:01I think, you know, we've done some very good work with 3D printing, which the Admiral can talk about in Danville.
04:07I visited a company on the West Coast that does 3D printing that I think has what appears to be a pretty good solution to our munitions problem, potentially.
04:19We have to get more advanced. We need to try things. This is a very â it's a thing the Navy does not like to do. And we need to get better at that.
04:31I just would say the fixed price and, again, just tracking what those incentives are so that we don't find ourselves back in a situation where you've got the cost-plus issue.
04:46And, you know, obviously as you spread it out, there's much more money involved, but we try to get that under control.
04:53So I appreciate what you're doing and would want to really understand our regular communication about how that's working
05:02and what that means in dollars and cents and what that means, you know, and using that model.
05:08It's important for us to know what these models are, as my colleagues have said, because we're dealing with the money here, you know,
05:16and being able to really get you what you need, but not at, you know, at any price at all and production being slower than it usually is.
05:31I understand the frustration. You know, I've been on it 50 days and I feel like I'm in a perpetual game of whack-a-mole whenever I find something new.
05:41Okay. I don't have great news. I don't think it's going to be good. I'm going to be very honest. The numbers are eye-opening to me.
05:49I am still trying to get through it and really sort through what's real, what's on us, and what's on them.
05:57Thank you. I'm tired of the COVID excuse. I'm tired of a lot of these things. I hear, you know, we have 139-year-old facility.
06:04I'm like, when you signed the contract, it was 134 years old. So I'm not sure that's my problem.
06:11And so we're working on that.
06:12Great. Thank you. And we want to be helpful in that. Mr. Chairman, can I ask one more quick question?
06:16Real quick.
06:17Okay. Very, very quick. This is just about the future of military shipbuilding.
06:21Let me just say it this way. With Congress, we've invested billions of dollars in the submarine industrial base.
06:28We need a clear sense of what oversight and accountability mechanisms the Navy has in place to ensure, again, that the money is well spent.
06:38And we need to know how you're going to continue to engage with this subcommittee and the Congress to ensure that we're kept up to date on the Navy's work in this area.
06:49And very, very quickly, we've seen the Army last two weeks, Secretary Hegseth, he's interested in reevaluating programs for structures surface-wide.
06:57We receive little or no warning on those changes. And I would hope that if the Secretary's office is looking at something similar for the Navy and the Marine Corps,
07:06that we would receive advance notice and would be consulted on the decisions. And can you commit to that?
07:15I'm sorry. Give me the question you're asking. I'm sorry.
07:19I want you to commit to letting us know what, you know, what restructuring is, what service is.
07:26Like Hegseth just said we're going to reevaluate the forest structure service-wide. No warning about any of that.
07:35And we don't know if they're planning anything similar for the Navy or for the Marine Corps.
07:40And we need to be engaged and involved in that conversation.
07:43So obviously the administration has, the President and Secretary Hegseth, have put forth a plan to flatten and streamline the flag officer and general officer structure
07:55to ensure decisions are being made closer to the warfire. And so we are looking at that as we speak, per that instruction,
08:04and complying with that order. We are trying to figure out how to streamline and make things more efficient.
08:12And we are doing our best as to that. And that's what I can tell you.
08:19Well, I would just say this to you. If those conversations are going on with regard to the Navy,
08:27that's something that this committee should know about and be engaged and involved in.
08:31We just don't want to be told that this is it. This is the fait accompli. Hell no. Hell no.
08:39So I'm hoping that you can commit. We don't want a failure to communicate.
08:45We don't want a failure. This is the KZR technique.
08:47We have said this. This is the KZR technique.
08:49The Scarecrow technique is done by building with NJR technique.
08:51Now, theĐľŃи will have to do anything that you use for air, some water-based săă¨ăăăăăžă.
08:55And that's what we need. It is the KZR technique.
08:57This is the KZR technique. This is a KZR technique technique.
08:59This is the KZR technique technique. This is the KZR technique technique technique.
09:05This is the KZR technique technique technique. This is the KZR technique technique technique.
Comments