New USN sub funding proposal to combat growth in labor costs
USNI News
New Navy sub funding proposal to combat growth in labor costs raises questions in Congress, White House
By Sam LaGrone
13 September 2024
Virginia-class submarine with the Virginia Payload Module
This post was updated to include additional information on the 17 submarines that have been the subject of contract negotiations between the Navy and shipbuilders.
Facing ballooning costs for shipbuilders, the Navy is proposing restructuring how it pays for submarine and aircraft carrier workers to allow more flexibility for shipyards to raise wages and build infrastructure, USNI News has learned.
Since the start of the pandemic in early 2020, the cost to produce submarines has risen more than 20 percent with the bulk of the cost increases tied up in workforce. The rising cost of labor prompted major wage increases across the shipyards, as shipbuilding companies competed against service industry jobs rivaling the pay for an entry-level shipyard worker.
The Navy wants to take some of the labor money obligated for submarines not yet under construction and pull it forward to use on the current worker wage shortfall in an acquisition change called Shipyard Accountability and Workforce Support (SAWS).
Submarine and aircraft carrier labor at shipbuilders Electric Boat and HII Newport News Shipbuilding in Virginia broadly come in two types – the touch labor workers who work on specific hulls, like welders and pipefitters, and support services shipbuilders, like supervisors and crane operators who work all across the yard.
SAWS would take the money frozen for support services labor from the individual contracts not yet under construction and create a large pool of funds for shipbuilders to both boost wages and make capital improvements without asking Congress for additional appropriations, several people familiar with the idea told USNI News over the last several days.
The Navy’s pitch under SAWS would pay the yards an annual service fee for the shipbuilders who work across the yard and keep the touch labor costs tied to each individual hull. The idea would separate payments for the two workforces and would increase flexibility across both yards over the life of the submarine programs.
Proponents say the arrangement would solve a near-term wage issue for shipyard workers and prevent jarring cost increases like the $1.95 billion funding anomaly the White House requested Congress add to the already $9.4 billion appropriated in the Fiscal Year 2024 budget for two Virginia-class attack submarines. The bulk of those additional funds were to pay for labor costs. However, not everyone is convinced.
SAWS was considered as part of the arrangement for the two FY 2024 boats – SSN-812 and SSN-813 – as part of a larger negotiation for a total of 17 submarines, but the Office of Management and Budget said no to the proposal, instead asking for the anomaly, USNI News understands. In addition to the 2024 boats, the Navy and EB are negotiating multi-year deals for the next ten Block VI attack boats and five Build II Columbia-class ballistic nuclear missile submarines.
Following the decision from OMB for the FY 2024 boats and amidst the other negotiations some in Congress, the Navy and the shipbuilders have asked OMB and the administration to take a close look at SAWS.
“The SAWS plan would provide the workforce support necessary to increase ship production rates – all without requiring additional appropriation. While not a silver bullet, this proposal stands to improve the way the Navy does business on critical defense programs,” Sen. Roger Wicker (R-Miss.), the ranking member on the Senate Armed Services Committee, told USNI News on Friday.
In a statement, Wicker compared SAWS to other service contract arrangements like launch services for military satellites and fees associated with aircraft and missile production.
SASC Seapower chairman Sen. Tim Kaine (D-Va.) provided USNI News a statement that was short of an endorsement and asked the White House to take a second look at SAWS in the context of the U.S. deal with the U.K. and Australia to provide Canberra Virginia-class nuclear attack submarines.
“The Australia-U.K.-U.S. partnership is a once-in-a-generation national security agreement, and it’s going to take a once-in-a-generation investment in our submarine industrial base to meet it. I urge the Biden Administration to take a careful look at this proposal to determine if it is the best path forward to do that,” reads the statement.
General Dynamics spokesperson Jeff Davis told USNI News, “we support the Navy’s initiative to improve submarine construction schedules by allowing us to accelerate investments in throughput and increase wages for our workforce.”
In a statement to USNI News HII said, “we are aware of and supportive of a Navy initiative to explore innovative approaches to address the narrowing wage gap between entry-level pay and that of other industries, as well as infrastructure to create efficiencies and increase production. For specifics on SAWS, I refer you to Navy.”
A Navy spokesperson declined to comment on SAWS when contacted by USNI News on Friday.
This week both Secretary of the Navy Carlos Del Toro and shipbuilders will appear in separate closed sessions with the House Appropriations Committee to discuss shipbuilding in general and SAWS in particular, several defense and legislative officials told USNI News this week.
Congressional appropriators have been more leery of the proposal since it would reduce funding control over submarine contracts, USNI News understands.