CIMSEC has just republished a post which is specific to Canada’s shipbuilding program, but it addresses a problem that will effect the Offshore Patrol Cutter (OPC) as well, inflation.
Their point is one that is often missed.
Inflation in the shipbuilding industry is higher than inflation in general.
The post states ” American warships have historically inflated at an annual rate of 9 to 11 percent based on a pay for view study by Rand Corporation, available here.” Figures I saw earlier suggest the shipbuilding inflation rate outpaces that for the economy in general by two to three percent annually
This difference in inflation rate means that even if well run, a shipbuilding program is almost always destined to go over budget and the longer it is stretched out, the worse it is going to get.
Inflation rates are recognized in the budgeting process, but only the overall rate, not the rate applicable to a particular industry.
Stretching the Offfshore Patrol Cutter program out over more than fourteen years will guarantee unfavorable comparisons between early estimates and actual performance.
This is the largest program in Coast Guard history and the largest in the Department of Homeland Security as well. Acquisition cost of the 25 ships are expected to be $10.523 billion, or an average of about $421 million per ship. The Coast Guard’s Request for Proposal (RFP) for the program, released on September 25, 2012, establishes an affordability requirement for the program of an average shipyard cost of $310M each for ships #4-9 in then year dollars. That does not include government furnished equipment (GFE).The longer the program stretches out, the less likely that becomes.