CNN has a remarkable story today about the vast difference in cost between warships built in the US and those built in Japan:
The country’s newest Maya-class destroyers are armed with 96 VLS cells that can fire both anti-ballistic and anti-submarine missiles, while the “quality of its sensors and systems stands at the very top end of the spectrum.”...Those 96 VLS cells put the Mayas on par with the newest of the US Arleigh Burkes, but there’s a crucial difference between them: The Arleigh Burkes cost $2.2 billion; the Mayas cost a billion dollars less.
....And it’s not just the Mayas. Take Japan’s Mogami-class frigates; speedy, stealthy 5,500-ton warships with 16 VLS cells that fire surface-to-air and anti-ship missiles. All done with a crew of 90 and a price tag of about $372 million each. By contrast, the first of the US Navy’s under development Constellation-class frigates are expected to cost three times as much and require twice as many crew.
These Japanese ships, along with others from South Korea, are designed to be very similar to American ships:
All these Japanese and South Korean vessels are designed to incorporate US technology, weapons, spy radars and the Aegis command and control system.
So why the vast difference in cost?
Cost overruns, endemic in US defense contracting, are not common in Japan, Schuster says, because — unlike the US — the country holds manufacturers to their estimates.
“A Japanese shipbuilder’s bid is an absolute. If they finish it below expected cost, they make a larger profit. If they encounter delays and mistakes, the builder has to correct it at their own expense,” Schuster said.
That sounds . . . a little too easy. There has to be more to it than "we won't pay a nickel more than you bid." Requirements change, specs change, and timetables change. It's hardly possible in the real world for a bid to stay frozen in the face of that.
And yet, unless there are some accounting tricks involved, there's the bare fact that the Japanese ships are similar but cost billions less than US versions. How? Are the US ships not actually all that similar? Or is our procurement really so screwed up that we pay twice as much for basically the same ship?
We're still on Earth of the Original Timeline right? Right?!
Military contracting in the United States in complicated by design -- that is, parts and assembly must be split among as many states and locations therein (otherwise known as Congressional districts) as possible in order to get and keep support from lots of senators and lots and lots of representatives.
YES! This is why - also set asides for small businesses, disabled veteran owned businesses and certified native owned companies, women owned, and other minorities.
There is a public good to spreading the $$$ around but it comes at a cost.
But, that's not why US built ships and the like cost more. It isn't some black guy or woman getting a $100K contract. It's the big guys who've learned how to milk the contracting system.
The US navy seems to build a lot of iffy ships with awkward seeming designs that are junked after two years service, which seems like a ridiculous and purposeful waste.
Maybe CNN needs to clarify where it got its numbers. DDG-51 Flight III was commissioned around the same time as the Maya-class, so consider the following:
That was a fixed price tag less than $1B per unit. Even if we assumed the most current version of the DDG-51 Flight III contracts, it's not the $2.2B cited by CNN.
Furthermore, the price tag of the Maya-class ship depends greatly on the timing of the USD-JPY valuation that is cited.
Thanks for the links.
I don't know where CNN got their numbers, though if they just looked at outlays and ships built, then current cost per ship could be very high. It will drop as successive ships are built and delivered. Of course it also depends on how the contracts are written.
I presume other points made by CNN are valid, e.g. number of crew needed for similar vessels. And the littoral combat ships have been a bit of a disaster.
That's how much the primary shipbuilder got. Much of the equipment (the Aegis system, etc) is installed after the ship is launched by other contractors and adds about 1-1.2 billion to the cost.
Those are the initial contract bids and are not likely to be what the final cost is. Some of the cited reasons for high costs would be reflected in the final price tag being much higher than the initial budget. Even absent corruption or cronyism it is not unusual for variations etc to result in a final cost 1.5 to 2x higher than the inital project scope.
It is my understanding that shipbuilding in general is hopelessly uncompetitive in the US and the only work the yards get is military and maybe a few Jones Act. So the problem isn't specific to the military, we don't produce civilian ships here either.
bingo
The US never made the transition from wood hulled sailing ships to metal hulled steam powered ships. The Yankee clippers were great ships, economically produced, but by the middle of the 19th century, the US lost its mojo. It cost twice as much to build a ship in the US than in the UK or elsewhere. By the 1930s, the only US ship building was thanks to the Jones Act and for the military. This is nothing new. The good news was that when the US entered World War II, we still had something of a ship building capacity and some ships available.
P.S. I have no idea of what happened. Was it the rise of the railroads sucking away talent? Was it British dominance of the seas? The US was noted for using wood instead of metal for things like boilers, so was it our underdeveloped steel industry?
Interesting point about US shipbuilding being slow to switch over. Do you have any references I could follow up?
Speculation only in much of what follows, however in terms of volume production the US iron and steel industry was extremely high-output (and many firms high-productivity) for the last quarter of the 19C. But the bulk of output was likely rails and structural steel, heavy machinery, land transportation in general. The places I'd look for maritime uses would be on the Great Lakes and propulsion for river traffic.
Well into the 20C high-quality wood was both available and cheap, even in the East. As cheaply as steel could be made in the US by then, it could be that wood was at least "good enough" for a lot of uses-- railroads only went to metal bridges because they kept upping their car and locomotive weights but still used wood for most of their general freight cars, except the parts that had to be metal (frames, couplers, wheels). At least in the Northeast, based on what I've seen and remember, the big iron and steel traffic structures like high-level bridges only date back to about the New Deal era.
IIRC the Navy was pretty notorious for not keeping up with the Joneses until something like the 1890s. As far as a metal salt-water merchant marine goes, I'd have to speculate again that cheap wood, plus experience working with it, would have been major factors. I'd also have to bet that the big preponderance of our shipping would have been coastwise traffic, where minimal building cost would have been really crucial, and that a lot of the traffic would have been handled at smaller ports that might not have been really able to handle the kinds of shipping or volume of goods that would have been cost-effective in iron or steel hulls.
OTOH, the British had a sea-borne empire to keep together and not much wood to build their ships with by the mid-19C. So their options were more limited that way. Also, afaik they and some other European countries pretty well dominated the high-value trans-oceanic merchant traffic that could justify paying premium design and construction costs.
Part of the problem is the military who insist the latest bleeding edge technology on each new ship, plane, or tank. But even when they are operating on their own dime US defense contractors have demonstrated an inability to meet schedule and budget. Boeing planned (if you call an optimistic wet dream a plan) the 787 to take 4 years and $6B. It actually took 7 years and $16B, with the result that Boeing will never make money on a technologically successful airplane. The problem in part is that today’s business managers are taught to believe that everything will take half the time it normally does and can be done at half the cost if you just drive the employees hard enough. A project schedule is a sort of road map, a tool to allocate resources and schedule tasks, and when your road map is fictitious it means one ends up allocating resources and scheduling tasks in all sorts of wasteful and inappropriate ways.
Following the development of the 787, Boeing rushed through the development of the 737MAX. Various safety issues were apparent toward the end of the development but Boeing management swept them under the rug in order to remain on schedule and save money, a brilliant business decision that resulted in a 2 year grounding and cost Boeing over $2B.
Very true--in many sectors. For managers, it becomes a game of hot potato. How can I get off this project before it blows up in my face...
The 787 was a failed experiment in capitalism. They outsourced everything they could and lost quality and specification control. They eliminated cross subsidies, an important element of corporate structure, and stinted on essential but low value components. They put managers in charge rather than engineers because managers operated more efficiently. Boeing is only alive because the US government is keeping it on life support as a counterweight to Airbus and, soon, China.
Yeah, they moved the manufacturing to South Carolina to avoid the unions in Washington and quality plunged.
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Shocking! Just shocking. What a surprise. Maybe we should tell the guys giving out the contracts that they can’t seek employment in the industry that they are contracting with. This goes for industry as well as government/ military types..
It’s an corrupt ethically dubious insiders game. Everyone knows the rules and scratch each other’s back. They then switch sides and continue.
I wonder if there are comparable figures readily available for aircraft or armored vehicles. The Navy has a long standing reputation for poor project management. Some of which I have personal experience with.
My spouse has that experience as well and says it stems from constant churn of personnel. The same teams don't stay with projects as they launch and mature. The constant shifting of people on and off projects means all institutional knowledge gets lost multiple times during the execution phase.
The rules around bidding also come into play. The rules say they have to take the lowest bid, so the game becomes to come in lowest and then get the costs back up through change orders and scope revisions.
Weirdly, the US Navy is the best, most efficient and effective builder of nuclear power plants. If a nuclear powered submarine or aircraft carrier is over budget, it's not the nuclear power part. They've got that. There were a few blog posts over at Construction Physics on this. The Navy has two client shipyards and is one of the few nuclear power plant design groups to build physical mock ups of their reactors to make sure they can be built in 3D space.
I agree that they have shown some pretty poor project management, but the nuclear program works weirdly well.
No one should be surprised by this. FFS, the 60 Minutes show ran segments on government spending overruns decades ago. One in particular was about (IIRC) $500 hammers and toilet seats. Why would battleships be different?
I’m confident that we’ll be told we gotta keep up though, no matter the cost.
EVERY time these stories run, when you look a little deeper you find there are multiple details that get left out because, OMG, it turns out journalists are not very good at telling the full truth.
Let's consider that hammer. Well, firstly it's a lie:
https://www.govexec.com/federal-news/1998/12/the-myth-of-the-600-hammer/5271/
But secondly different environments require different things. I can imagine that, for example, on a submarine a toilet seat, and even a hammer, need to be rather carefully designed to minimize noise (since the whole point of submarines is to be invisible)...
Thirdly the US, for better or worse, operates its military as a large part of the R&D department for the country. This means that large amounts of stuff gets charged to the military that ultimately has huge spillover effects for the entire economy - the entire SBIR program is things like this. And, honestly, it works pretty damn well. The US gets the research done, the research gets productized, there's remarkably little waste or corruption, but you also get the benefits of the competition and variety of the public sector.
Fourthly, one consequence of the US military being run so much by R&D is that everything that's done is leading edge. And leading edge costs! It's rather easier and cheaper to copy a given ship design than to implement that ship design the first time, especially if half or more of the cost the first time is in things you don't even see, all the alternatives that were tried and rejected before the goals were reached.
Fifth, again for better or worse, the US sells a LOT of military equipment. Like as in ~40% of world arms exports. So what do you think is going on here? If these were so outrageously expensive, why would countries be buying them? And if Boeing is selling the goodies to Peru at a cheaper rate than it sells them to the Pentagon, you don't think THAT would be the subject of quite a few Congressional speeches?...
Look, these stories about supposedly outrageous US costs are not new. They were not new when Reagan was trotting them out. And yet we still hear them. So what are we to conclude?
That a ridiculously inefficient and corrupt system manages to somehow just keep working and delivery the goods (across multiple wars) by magic? You want to see what a REAL corrupt and inefficient military procurement system looks like? Look at Russia right now (as opposed to the USSR days where, for all its faults, heavy-duty corruption was not present)...
OR
That every time some politician shoots their mouth about this, if they are capable of learning (which is something of an if) they are taken aside by someone who knows WTF is going on and has the real world explained to them, they way I have tried to do in this comment.
Great. Tax the rich and Congress can pass a budget. Then the military industrial complex can live like rest of us.
Actually there was a fair amount of corruption in the USSR - I took a course in their methods of economic planning (those famed "5 year plans") back in the early 70s. It wasn't the brutal kleptocracy of today, but there was plenty of low and high level gaming and corruption. At the higher levels, it was about gaming the goals of the planners and figuring out how to undermine the plan AND get a bonus for meeting the letter of the production goals while expending as little effort and money as possible.
At lower levels, a lot of petty theft, bartering of pilfered goods, casual sabotage, and malingering. One of my college friend who spent quite a bit of time preparing and installing computer systems for the Moscow Olympics had some hilarious stories about his visits.
One I particularly remember was about all the rooms at their hotel in Moscow being bugged, but they could not keep the air conditioning working in the big room filled with reel to reel tape recorders. So you could go up the grand staircase from the lubby and look through the open double doors to watch the reels (and fans) spinning away while the dour guards glared ineffectually at the gawkers.
2 passages from the OP
(1) These Japanese ships, along with others from South Korea, are designed to be very similar to American ships:
All these Japanese and South Korean vessels are designed to incorporate US technology, weapons, spy radars and the Aegis command and control system.
(2) Requirements change, specs change, and timetables change.
The Japanese and S. Koreans are not aiming at a moving target. Like many not-yet-developed economies, they are trying to copy something that is already up and running. So for them, it is not the case that Requirements change, specs change, and timetables change.
South Korea and Japan have relatively robust shipping industries yes? The US does not.
Thanks for this Kevin.
I think the short version is "freedom isn't free" but the long answer has already been written and analyzed a long, long time ago.
I don't think this comparison is anything new. For as much as anyone anywhere wants to complain about anything the new USA economy seems entirely driven by billionaires taking advantage of us all.
And we keep going along with it. Twitter somehow became the new source of everything related to media. How is that working out? We (personal and professional all have a moment.
We could just not use twitter and sink J Alfred Gottrock and all his creepy investors into the toilet. But you choose not to.
The US government and the economic system generally is thoroughly corrupt. Capitalism. It’s gods will. Anyway, no one wants to build warships in the US. Silly.
Quit complaining. You don’t want to buy warships anyway.
Anybody ever see "The Pentagon Wars" about the Bradley Infantry Fighting Vehicle?
This is the best explanation I've ever seen for why stuff costs so much: "An examination of this expensive, convoluted road to nowhere reveals that the root causes are the Pentagon’s shifting goal posts, a lack of realistic expectations about what can be technologically achieved, and an apparent unwillingness to accept the solutions offered by the arms industry."
Military spending has long been aimed at unrealistic goals In the US, it started with Eli Whitney scamming the Continental Congress to pay for muskets with interchangeable parts. It didn't pay off until Whitney's son and Sam Colt finally delivered in the 1830s. There was the big plate steel scandal of the late 19th century with the Navy rejected steel plates for ships which had bubbles in them. It cost a fortune to fund new steel making processes to get the bubbles out. In both cases, the resulting technologies paid off in civilian application..
As someone who has worked with the U.S. Navy for decades, I would have to say out of the many good comments posted here, name99 and marcel proust are spot on. A few points to add/emphasize:
-- U.S. allies get at least the n-2 version of the latest and greatest combat systems and radars. Big difference in manufacturing costs and learning curve if every ship has exactly the same design that is not changing as it is being built. A complex Navy ship takes anywhere from 3-10 years to be built; as a result, the Navy is constantly changing the as-built design during construction to keep up with technology, even on ships within the same class. That is why comparisons to foreign shipbuilding costs...or even building a car or a house... are inapt.
-- Thanks to Reagan doing away with shipbuilding subsidies, (as James B. Shearer notes above) the U.S. does not have a commercial shipbuilding industry that can compete with Europe or Asia. And as a result, the U.S. doesn't have a large pool of labor that can support naval shipbuilding. The U.S. Navy shipbuilders are still recovering from COVID impacts to their workforces, which affects construction schedules...and thus cost. Also, as hokie annie alludes to above, by paying good union wages, labor costs to build Navy ships are substantially higher.
-- As for all the tired stories about corrupt defense contractors, it has been my experience that 99% of DoD contractors operate at a much higher ethical level than commercial industry, because if a contractor who relies on the DoD for most or all of its business is found to have defrauded the Government (false claims act), your business could be shut down in a heartbeat, or heavily fined and have an independent monitor imposed on the business, all being costs that go directly against the bottom line. This also impacts a contractor's ability to get new contracts. So a significant amount of Government contractor overhead is dedicated to training and compliance... and compliance training ... to mitigate the risk of inadvertent noncompliance, as well as to facilitate self-reporting. Don't see many manufacturing companies operating at that level of compliance outside of government contractors.
-- And one other canard that is often heard is how DoD contractors make a gazillion dollars in profit at taxpayer expense. For Navy shipbuilding, that is definitely not the case. Contract profit rates for fixed price incentive contracts is capped at 14% by the Navy. And because they are public companies that file annual earnings reports with the SEC, we can see that the shipbuilding business components of those companies have been making less than 10% profit for the past several years.
Hope this adds to everyone's understanding of the issues.
"Thanks to Reagan doing away with shipbuilding subsidies, (as James B. Shearer notes above) the U.S. does not have a commercial shipbuilding industry that can compete with Europe or Asia. And as a result, the U.S. doesn't have a large pool of labor that can support naval shipbuilding."
U.S. commercial shipbuilding was pretty unimpressive with those shipbuilding subsidies in place was pretty unimpressive as evidenced by this 1979 Baltimore Sun piece: https://drive.google.com/file/d/1UJwLSBXvXcNTMfApNGgJHJTSCD0qKh_w/view
As for competing with Europe and Asia, note this 1992 USITC report which states that there was little competition going on with no ship built for export since 1960 (page xi): https://www.usitc.gov/publications/332/pub2495.pdf
More details here: https://www.cato.org/blog/subsidies-misplaced-shipbuilding-nostalgia
COST:
Us peons think of cost as something lost. Lost from our wallet or bank account. At the national level there is a circular flow of money. If the "cost" is entirely within the national boarders, what goes out comes back. The issue is distribution: Who wins. At the national level the only "cost" is the external flows to foreign buyers of US bonds. Sometimes that "cost" buys the rest of the world, or most of it, accepting US World dominance.
That's a good point. Despite our foreign adventures, most of military spending winds up in the US economy whether it be construction, weapons contracts or salaries. Even US soldiers posted abroad spend most of their salaries in the US.
Not to be simplistic, but you can't compare the price of an apple to the price of an orange.
The Constellation class frigate is 1.5x the displacement of the Mogami class frigate (7291 vs 5500 tons). The bigger ship is going to be more expensive, and the Constellation appears to carry a much heavier armament.
The Maya destroyer vs. the Arleigh Burke is basically the same size, however.
The point about the absolute bid is a good one, but I also frankly don't care - not that it's not a problem, but trying to fix it would be tilting at windmills.
This just sounds like Fixed-Price Contracting, which the military does along with Cost-Plus Contracting.
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