Ship Warranties - What's That?

ComNavOps has frequently documented the all too common occurrence of incomplete ships being delivered to, and accepted by, the Navy.  In addition, we’ve seen far too many examples of simply horrific levels of quality defects in the delivered ships.  The LPD-17 class was, probably, the poster child for manufacturing defects.

All of this is bad but even worse is that the Navy is paying to complete the ships and correct the defects.  If you buy a car you get a five year bumper to bumper warranty.  Shouldn’t we expect at least a minimal warranty on a ship?

The GAO looked at the cost of “warranty” work on Navy ships and had this to say (1),

“For five of the six Navy and Coast Guard ships GAO reviewed, guarantees did not help improve cost or quality outcomes. While the type and terms of each contract determine financial responsibility for correcting defects, the government, in most of the cases GAO examined, paid shipbuilders to repair defects. For the four ships with fixed-price incentive type contracts and guarantee clauses, the government paid the shipbuilder 89 percent of the cost—including profit—to correct these problems. This means the Navy and Coast Guard paid the shipbuilder to build the ship as part of the construction contract, and then paid the same shipbuilder again to repair the ship when defects were discovered after delivery—essentially rewarding the shipbuilder for delivering a ship that needed additional work.” [emphasis added]

We’re paying the shipbuilder twice!!!

Did you catch this part?  “…essentially rewarding the shipbuilder for delivering a ship that needed additional work …”  The shipbuilder has absolutely no incentive to deliver a complete and functioning ship – just the opposite, in fact.  Every defect or incompletion is an opportunity to get paid again!  This is beyond insane!

Aren’t warranties a standard part of shipbuilding contracts?  No, apparently not.

“Department of Defense guidance instruct[s] programs to, respectively, consider and document the use of a warranty, the use of warranties is not mandatory, and the Navy does not consider using them for ship contracts.”

You’re buying a multi-billion dollar product and you don’t want a warranty?  That seems insane especially given the recent slipshod performance history of shipbuilders.

The issue is even more basic than warranties.  The Navy is accepting incomplete and defective ships.  The shipbuilding contracts call for delivery of a complete ship and the various acceptance trials are supposed to ensure that happens.  But it’s not.  As GAO states,

“We found that some ship classes are routinely delivered with thousands of outstanding defects with the hull, mechanical, and electrical systems …”

A large part of the warranty issue can be bypassed by simply refusing to accept a ship until it’s actually completely built and trials prove that all the components work.  That has nothing to do with warranty – it’s just refusal to accept an incomplete product.  Failure to do so is gross negligence, incompetence, and a violation of the trust of the taxpayer. 

You might wonder what the magnitude of the warranty type issues is?  Obviously, the larger the ship, the more numerous and costly the warranty issues might be.  GAO offers this data point on the LCS warranty costs.

“For LCS 3 and LCS 4, the Navy spent $46 million and $77 million, respectively, under these post-delivery agreements to correct defects, complete ship construction, and assist with tests and trials, among other tasks.”

For a supposed $400M LCS shipbuilding contract (that figure is absolute garbage but we’ll use it for sake of this discussion) the warranty costs represent around 10%-20% of the original contract – that’s money being paid to do what was contracted to be done originally. 

None of us would do this in our personal lives.  We would consider it recklessly irresponsible and just plain stupid.  We’d find another supplier. 

The Navy doesn’t own the Navy, I the taxpayer do and I expect basic business principles, to say nothing of common sense, to be used in ship acquisition.  Every single Navy Admiral should be fired along with the entire NavSea leadership (NavSea is the organization responsible for the acceptance of incomplete and non-functional ships).

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(1)Government Accounting Office, “Navy and Coast Guard Shipbuilding”, March 2016, GAO-16-71

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