NAVAL SUBMARINE LEAGUE 2016 CORPORATE MEMBER RECOGNITION DAYS

Thank you, John, one of the more interesting introductions.I want to make two apologies, first of all.My remarks are going to be fairly high level and fairly focused on shipbuilding.I’m not going to get down into the details of combat systems and weapons and where we’re headed in those.I think, actually, Joe Tofalo and Chas Richard have done an excellent job of covering them so far.And so with only 30 minutes, I want to focus on what is keeping me up at night and what we’re really, really working towards.

The second apology is that I’m going to leave right after my remarks because I have to go brief the appropriators.We’re starting today with HAC-D.This is the first year where Tim Prince has not been on HAC-D, and so we’re meeting his replacement and hopefully getting off to a good start.We’ve been briefing the authorizers already and have had great success at getting our message across, and great signals of support from them. But, of course, the appropriators who actually put the money in the budget, that can be a different story.

I may have dozed off a little bit, but I think the analogy is, I’m the dog that has caught the bear and is now trying to eat it.

Some days that bear eats you.Some days you eat the bear.But this is what we’re facing.This is an expanded version of what Chas Richard showed with his chicklet chart where he said, the building blocks are up above.That’s what this is.When you look at this you need to think of two things, challenges and opportunities.

The challenges of continuing to build two per year Virginia-class submarines, adding in VPM, adding in acoustic superiority, and now building the Ohio Replacement Program at the same time, all the while we have teams going off and starting to think about the next SSN after Virginia, this becomes quite the challenge.But with it, it provides opportunities.The opportunities are what we’re focusing on this summer.

It’s what we’ve been talking to the authorizers about.It’s what we’re going to start talking to the appropriators about.You’ve already heard it signaled in Secretary Stackley’s testimony.I did an interview with Megan Eckstein of USNI and she posted it earlier this week and it really kind of lays out what we’re trying to do.

If you look at that number one in FY ’21 on the Virginia-class line, imagine me circling it with a laser pointer so it burns into your retina.

What I’m doing is I’m explaining why this number is so important.The reason it’s so important is, if you think back to Chas’s chart, it fills in one of those empty boxes in every single year that we have a trough.The ship authorized in 2021 will deliver in 2026 and hopefully, with the shipbuilder’s Drive to 55we’ll actually get it done in 2025.That’s when the trough starts.

So it will be in commission.It will be in operation.It will be providing operational availability to the type commanders for the entire width of that trough, filling in one empty box on the bottom of each of those years.

So it’s an incredibly important ship.The problem is, this one down here.The Ohio Replacement is authorized in this year and also, by the way, it’s the last year of sequestration, the last year that the Budget Control Actis in effect.So it’s a very challenging year for adding to the budget.

So what are we doing?Well, it’s a two-pronged approach.The first thing that we’re doing is we are working hard to squeeze every bit of cost that we can out of Virginia.

We’re continuing to do what we’ve done before in design for affordability, in scrubbing the cost estimate, challenging assumptions, and saying can we make the per unit cost less? There’s a certain benefit that you would have just by adding that 10thship back to the block.And then when you couple that with other cost reduction efforts, you start to accrue some savings.

The second thing we’re doing—and this is where the opportunity comes in—the opportunity of all of this work, plus aircraft carriers authorized every five years, really starts to give you the opportunity of innovative acquisition and procurement strategies that will save all of us money, but especially the government.No offense, but what I’ve been telling my team is, when you’re building aircraft carriers, SSBNs, and SSNs all at the same time, someone is going to be smart enough to take advantage of that and get your efficiencies, volume discounts, better pricing from the suppliers.Someone’s going to get that advantage, and it better be the United States government participating in that advantage.

If we can do that, if we can couple cost savings on Block 5, the added benefit of adding that 10thship back in for a per unit cost decrease, along with cross-class procurement savings,at the same time you’re doing Ohio Replacement, we can get enough savings—and I’m not speaking numbers here yet—but we can get enough savings where it becomes so attractive that the incremental additional amount that you have to put into the budget for that second Virginia in 2021;it becomes so attractive that when combined with the value of that ship, because it fills in that one box every single year;it becomes an absolute clear understanding that that’s the right thing to do.That’s what we’re working on this summer.

That’s what Admiral Mulloy was talking about when he started talking about not so much the value of the national sea-based deterrence fund, but the value of the authorities that come along with it.So in the FY ’16 NDAA they have already given us Economic Order Quantity procurement authority, Advance Construction authority, and Incremental Funding of specific components.We are going to go ask for more within the next budget cycle, the PB ’18 budget cycle.We’re going to ask for things like Continuous Production.Admiral Mulloy talked about that.

The missile tubes and the missile tube modules are a great example because of the profile for Ohio Replacement where you authorize one in ’21, then you take two years off, then you get the second one, then you take a year off, and then you go one each year for the rest of the class.That saw-tooth is a challenge for industry to ramp up, both at the shipbuilders and at the vendors who are making the parts that go into the missile tubes.So if we can get continuous production authority and ramp up to a stable manning profile and reap the benefits of the learning curve as we go into that, then that accrues real savings.It does require some shifting of money earlier, bringing money outside of FYDP into the FYDP, so we’re working with Chas and with Congress to make sure that everyone understands the business case for that so that we can get that in next year’s legislative proposals.

So, that’s the main point of this slide, challenges and opportunities, a tremendous amount of increased work for the industrial base. With it brings the opportunity for cross-class procurement savings, innovative acquisition strategies, building stuff ahead of need that gives real return on investment for the money that you’re putting into it. And it allows those savings adequately enough to where it becomes obviously the right thing to do to add that second submarine in 2021.And then that goes to addressing what Admiral Harris and General Breed love have all been saying, that we don’t have enough attack submarines and we need more.

Virginia-class.Where are we on this?We have kind of realized that we’ve fallen into a groove here with each contract block having a theme.So Blocks I and II were all about getting off the ground and getting into a production routine where we could start marching down the learning curve, getting the time required to build the submarines to be shorter, and then getting under-budget delivery and holding it there.It was very successful as we reached the end of Block II.

We moved into Block III.That was two for four in 12.One thing that I want to stress about this, we’ve talked about NORTH DAKOTA and her deployment already.NORTH DAKOTA is the first submarine of Block III, 784, the first one to have the large aperture bow array instead of the sonar sphere, the two Virginia Payload Tubes instead of 12 VLS cells.And she was fully certified for all Special Operations Forces: dry deck shelter, lock out trunk; and deployed prior to her PSA.

That’s the one thing that we didn’t talk about in all the discussion of REMUS 600s, Project 1319, first operational employment of UUV from a submarine in a tactical situation real-world mission for a combatant commander.And it was before that ship even went into PSA.So that is a real testament to the quality of the submarine that is being delivered from the yards.Again, it’s ahead of schedule, under budget and in a condition where she could deploy to a real-world theater, work for a combatant commander and do great things, and then come back into PSA.

Block IV was the reduction of total ownership cost focus.That was where we said, we don’t like the fact that our Virginia-class submarines are programmed to have four major depot-level availabilities during their life,and only available to do 14 deployments. So we want to reduce the number of availabilities down to three and increase the number of deployments from 14 up to 15.Those design changes have been approved and are complete and are laid into the contract for Block IV.

The first Block IV submarines won’t come out for a couple of years, but when they do there will be more operational availability for the fleet commanders.That’s important because as you go into this trough you have fewer than the 48 requirement—if that is still the requirement, it may very well be higher by then.So the submarines that you do have you want to be able to use them more than you can and not have to go into a depot level availability at the frequency that we do under the earlier classes in the first ships of this class.

That brings us to Block V.As we’ve said before, by the time we get to Block V we’ll stop talking about Virginia with VPM, it will just be a Block V Virginia.Everybody will understand that, starting with the second ship in Block V and going out through the rest of the Virginias, we’ll have the Virginia Payload Module.

Chas talked about this, the reason that we’re doing the VPM.The key here is that we are well on our way towards finishing the design and being ready to build the VPM starting with that second ship in fiscal year ’19.The prototyping is well underway.The design is well underway.

Again, this is one of those challenges and opportunities.It’s a challenge because it’s at the same time that we’re designing Ohio Replacement.But it’s also an opportunity because there are a lot of similarities between the 87-inch tubes that go into the VPM and the 87-inch tubes that go into Ohio Replacement.They’re not identical by any means, but there are a lot of similarities and there are a lot of things that we can do to increase the efficiency of the industrial base that is building the components for the missile tubes.

So where are we? We have all but one of the key decisions done. When we started to do the design we said okay, there are a number of things that we have to enshrine in granite before we can officially set ship’s length with the insertion of the module.

All of those have been done with the exception of one.All the work is done.All the discussions are done.We’re awaiting the final stroke of the pen from a briefing to a couple of four-stars that are very interested in it.This one is the one where we say okay, we understand that with the additional length to the Virginia the maneuvering characteristics will be affected. And we want to make sure that we understand how they’re affected and what we can do to continue to operate in the way we operate attack submarines even with this additional 84 feet of hull in there.

We have done all of that work.We have built the case.We’ve explained it.Now we’re just waiting for final approval.But once that’s done, we’ll be able to set ship’s length and that will allow us to go off and start marching down the hierarchy of design products and be ready to go into construction when we get the advanced procurement and advanced construction authority in fiscal year ’17 for that second ship in ’19.

This is the VPM design schedule.It’s actually a live chart and we’re starting to march up the Scurve. This is, of course, very high level.We have much more detailed metrics on design products and we’re starting to look at leading indicators to make sure we stay on track.

The other thing—and it’s not real important that you can read all this, I can’t even read all this because I don’t have my glasses on—but we have three separate vendors that are working on prototyping the missile tube that goes into the integrated tube and hull combining to make the Virginia Payload Module.It’s very similar to the way that we produce Ohio Replacement missile tubes in a quad-pack, except since these are all inline, you make two and then join the two two-packs together to make a four-tube missile Virginia Payload Module.

This actually is a picture of the first prototype of the integrated tube and hull.This is the crown of the hull right here, and risers for what will become parts of the missile tube.The interesting thing here is the difference between casting and forging.

As we’re doing both Virginia Payload Module and ORP at the same time, we’re looking at the viability of both methods for constructing this significant component which is part of the pressure hull.And again, this is challenges and opportunities.We’re doing thing son a scale that have not been done before and challenging some of the industrial base.

There is actually kind of an interesting side here.One of the vendors—and I won’t name him—but one of the vendors found out that when you do this crown plate, after it is done there’s a tendency of the corners to come back up a little.And so you have to use a cold press to regain the shape.

Their supplier, who they were using to do this cold press, when they went to do this, that was when they found that the press which had been installed decades ago, never was actually mounted to the base of the facility.It had the concrete pour around the feet, but all of the bolts that were supposed to be holding it down to the foundation were not there.And so when they went to press this corner back down, the press came up.That’s the challenging part.The opportunity is, again, we’re challenging the base, we’re doing things on a scale that we haven’t done before, and we need to figure out what’s the best way to do it and trade those lessons between the two programs.

This is what I was talking about before, building individual tubes, joining them together in a two-pack.You’ve got the hull cylinders here.It goes into a part of the hull cylinder and then join those two pieces together for the Virginia Payload Module.

Acoustic superiority, we talked about this. The key here is we are going full speed.The SOUTH DAKOTA, SSN-790, is our test platform.We are also doing earlier, individual tests on other ships.The Large Vertical Array has already been installed and operated at-sea on DALLAS.It has been installed and operated at-sea on MARYLAND, albeit just during their sea trials coming out of overhaul.But now that they’re done, we’re going to be collecting a lot more data.

These installations are feeding the process of designing the software for processing the LVA.That’s already done.It’s included in APB ’15.I’ve seen it in operation out in Manassas at Lockheed Martin.It’s been in operation on the DALLAS and this is a phenomenal capability.This really brings a capability that we haven’t had before.It exploits certain aspects of the acoustic environment and aspects of what we know about how threat submarines operate and what their vulnerabilities are.It really does help.

Now, we only put one panel each on DALLAS and MARYLAND, so it’s not really tactically useful because you only have it on one side so it’s kind of like a shopping cart with one stuck wheel.You have to keep going around in circles to keep it focused on what you’re trying to listen to.But when we put both panels on SOUTH DAKOTA, she is going to be a fearsome character in the undersea domain.

In addition to the Large Vertical Array, we’re also installing an enhanced coating.We have done the trade studies and selected the coating.We have a test patch going on the NORTH DAKOTA.The full coating will be going on the SOUTH DAKOTA in her PSA and we will then, of course, go and test it and make sure that we like what we’re getting.For Ohio Replacement, we’re reserving space and weight to install that coating as necessary, and then it will go on all the Virginias after this one.

Machinery improvements within the hull, this is attacking specific vulnerabilities.We’ve already done a lot of these as back-fits on our current Virginias. Again, amazing results just by changing the impeller on a hydraulic pump, significant acoustic results.

This is a little more detailed view of the Large Vertical Array, again, already installed on DALLAS and MARYLAND.It is already looking to be such an advanced capability that we’re sitting down and saying okay, does it make sense to install this and then continue to have the lightweight wide aperture array?Or, should we just install multiple panels of this in place of the LWWAA?

And surprisingly enough, it’s not a real significant cost difference, as far as we can tell at this point.We need to learn more as we actually get into the man-hours required to install it on SOUTH DAKOTA.And then as we complete the procurement of those arrays and bring the procurement cost down, we’ll see if we can get it to make sense.

On to the Ohio Replacement Program.You’ve seen this slide before.I won’t spend a whole lot of time on it, parallel lines of effort to include international cooperation with the UK.They all have to progress towards the finish line and get there with adequate margin.

One of the things Secretary Stackley keeps telling us is on this program—because as you’ve heard there is no margin left—if you think you’re on schedule you’re really behind.If you think you’re behind, you’re really in trouble.So he has been pounding into us the need to not only stay on schedule but to buy back margin into the program, to get ahead of schedule.

So we’re working very hard with EB on the design.Newport News also has a factor in the design.We have come to an agreement on which shipbuilders will build which parts, and they’ll share in the design of those parts that they’re building.So we have got to get ahead of the curve in order to buy back margin and be able to account for the inevitable additional challenges that arise.

So where are we on this?The biggest thing is that this facility in Quonset Point is now built and christened.Fixtures from APCO and Sweden have been contracted for and are starting to arrive and be put in place.We will be ready to start fabrication of hull cylinders later this year.

This is an incredible event because again, you say we’re going to start building the first hull in 2021.Well yes, you’re right, but with RDT&E and prototyping certain parts of the submarine, we’re bending metal already.Once the fixtures are fully installed and tested and certified, we’re going to start building that first common missile compartment and it’ll be a glorious thing.

Technology development.Again the focus or the philosophy of Ohio Replacement was, as much as possible pull through from Virginia things that weren’t going to change on this that could either be absolutely brought forward with no changes at all, or scaled or adapted for use on Ohio Replacement.What that does is it significantly whittles down the things that you have to actually go and do technology development on.We have a technology readiness review that is required by progress to wards milestones.Out of all the technologies looking at what was the TRL, what was the impact to the ship, there really ended up only being two technologies that meet the level for advanced oversight by the Navy and OSD.

One of them is the advanced carbon removal unit and the other is a classified system that I can’t really talk about.But to talk about building a ship this large with state of the art technology, and being so far ahead on most of it that you really only have two specific instances that require that additional oversight, that’s a comforting factor.But again, it can’t let us rest easy.

Program challenges, and this is my final slide.This program challenge is specific to Ohio Replacement.But really, because of the primacy of the importance of that program, both to the PEO and to the Navy and to the nation, you can easily expand it into the challenges for the PEO.

Again, I take you back to the challenges and opportunities.The incredible amount of work that the industrial base and the Navy is embarking on over the next couple of decades really does tax what we have in-place.The challenges it brings in terms of ramping up the manning, ramping up the industrial facilities, being able to progress through each of these individual programs to success, that can’t be underestimated.

And we’re not underestimating them.But in addition to look-ing at them as challenges that you have to work through, you have your shoulder on the blocking sled, you can’t let it stop moving.Once it stops, then you’ve got to get breakaway torque again and that’s really hard.So keeping that blocking sled moving down the field while at the same time looking at the opportunities that they bring.

That is really what the business and financial management side of the PEO is working on this summer, building that case to Congress such that when you combine the savings that we’re going to scrub on Virginia, the savings that you would get anyway by adding a 10thship to Block V, and the savings that you can get with acquisition authorities on Ohio Replacement by combining this work under one umbrella, that combined amount of savings becomes so attractive when applied to that 10thship that the relatively incrementally small amount of money that the Navy would have to add tothe budget, it becomes an obvious decision.You know the value of that ship.Out of those 51 SSN years in the trough it retires 17 of them just by authorizing that one ship.

So that’s where the dog comes from the bumper and climbs into the car.Once the dog is in the car and riding pretty, having had that second ship in 2021, then we’ll come out of the BCA, like Joe Mulloy said, figure out where we’re going with the Navy and the nation as a whole, and then we’ll start looking at the other ones in the Virginia-class in the out-years.If the requirement has gone from 48 to something higher, every single time we’re only building one Virginia-class submarine it will become a debate and an argument about why it’s a good idea to add that second one in.Right now we’re just focused on 2021 and there’s a lot of additional work that would have to be made to do that in series down the road, but it’s clear that that is a potential of where we’re headed here.

So in closing, challenges and opportunities, and we’re here ready to work with you on both.John, do we have time for questions?

ADM. SCOTT VANBUSKIRK:Mike, earlier I asked a question about availability.It seems to me that the picture looks pretty good of what we’re fighting for on the construction side of the house and procurement side of the house.But the availability I was really getting to was the maintenance availability of our ships.It seems to me it’s great if you have 41 but if your availability isn’t there, we’re going to be screwed.

And I will tell you—this is more of an observation watching my brother Al Konetzniwork in the maintenance world, but it seems like there’s a lot of A sub O sub C, and by C I mean contracting in terms of delivering of contracts on-time to be able to do availabilities, or to be able to do procurement.And just by going after that A sub O, I will tell you,you can gain availability, and I’ll give you an example.Joe wanted an example.

But I would say for the last three contracts that our company has gotten the period of performance started before the contract was awarded.I think that’s what a lot of us see, that the efficiency of what we could have there would be much greater just getting out contracts that we know could be coming out.So I think you all can go back –my point is to go back and look, how are we delivering contracts?

And you can get back some availability back into the program along a lot of different lines, whether that’s LDUUV undersea stuff or really in the maintenance world.So that’s my, kind of, observation in here.We can’t cloud the issue a little bit with what we’re getting in construction.We’ve got to look at where that A sub O is in our contracting world.

ADM. JABALEY:Thanks, Admiral VanBuskirk.And I’ll tell you, I agree with you. Contracting is a sore spot almost every-where, and you really have to look at it in multiple ways.For instance, number one, within the PEO, NAVSEA 02, does our contracting and it is a constant fight to refine priorities and assess which one really needs to get done.They all need to get done, but what’s the dog closest to the sled, because they are undermanned.When you look at the continued attacks on GS manning within the Navy, within the Department of Defense, within the government, it’s not going to get better.

A second problem that we have is that NAVSEA does such a good job of training our contract specialists that when they finish their training pipeline they become immediate targets for other places in federal government contracting work.So there is somewhat of a throughput that hurts SEA-O2’s ability to stay on top of contracts.

We did some very hard work last year.When I was SEA-07, deputy commander for undersea warfare, one of the things that we did to help maintenance performance is we took three availabilities and contracted them out to the private sector.So the Montpellier, the Columbus and the Helena all were taken out of public shipyards to prevent from happening to them what had happened to Connecticut and Albany, frankly, where they’re sitting in a public shipyard behind an SSBN, behind an aircraft carrier, and just languishing.So we took those three availabilities out and competed two of them and sole source awarded one of them.

I think that if you asked EB and Newport News they’d tell you that we did a pretty good job of getting them the work package and the contracting process far enough in advance that they would be able to perform at the level that we’re asking them to perform to on completing those availabilities.And those availabilities are in ’16 and ’17 and one of them goes out into ’18, so we’ll see how those go.

The final part is for contracting specific parts, specific mainte-nance tasks within a bigger availability like the shipyards do with OII, again now another arena of contracting, another set of challenges.We recognize the problem exists.We continue to work on it.I’ll go back and talk to Moises Del Toro and Mark Whitney and say that we still have problems out there matching period of performance with our ability to award a contract, so that you’re already behind the eight ball when you start.We’ll try to get better, but it’s a good point.

ADM. VANBUSKIRK:I was asked to redirect, but really it’s about the demand signals that you and other Navy leaders and DOD leaders have issued to industry to be more aggressive in pursuing innovation and to have more skin in the game in their own independent R&D efforts.No doubt you’ve sent similar signals to your labs.My question really is, how can we best work together when the labs have the leading role in a new project or developing a new capability and we want to leverage industry’s commitment and capability as well?

ADM. JABALEY: Again a good question.I will tell you that the key is communications.Too often we are either actually hamstrung by what we can say due to contractual reasons and legal reasons, or we think we’re hamstrung by what we can actually say.Specific to the LDUUV issue that you brought up earlier, I’ll tell you what I know.

First of all, LDUUV is not under PEO SUBS, it’s under PEO LCS.PEO LCS used to be PEO LMW, Littoral and Mine Warfare.So at that point it made sense to assign it to it.When we reorganized that PEO into LCS the thought was LDUUV would certainly be employed from LCS at some point so we’ll leave it there in LCS.So that’s where it is.

Will it stay there?I don’t know.I will tell you that with the independent review team that Admiral Johnson led, and the changes which they are now directing, and considering additional changes within the LDUUV program, part of that discussion is also as it approaches Milestone B, who will be the resource sponsor for that and for other program of record UUVs as they come into being?

We’re in some what of a period of churn right now because within the last year we have stood up DASN Unmanned on the SECNAV staff.We have stood up OPNAV N99 as a resource sponsor for unmanned systems pre-Milestone B.All of that is kind of being digested by the system.

As that kind of grows and blossoms and we start transitioning programs to ultimate resource sponsors, there will be discussions about how much of the PMS 406, which is the program office that runs LDUUV and some other UUVs, what happens to that portfolio?So I can’t tell you where it will end up. I have some thoughts on where it should end up, and we’ll see what happens.But those discussions are going on from the resource sponsor aspect of it and within the acquisition structure aspect of it.

So coming back to the point of communications, when the direction was given to restructure the LDUUV program, I sat down with Brian Antonio and said one of the things we have to do is put out a clear comms strategy so industry knows where we’re headed.We can’t do that until we know where we’re headed, so this is where it’s hard.Brian’s got challenges in this, not the least of which is that his real job is fighting for LCS and figuring out how LCS becomes a frigate, and how many are we going to build and how is he going to deal with the operational issues that they’ve had?

So it becomes somewhat of a bandwidth issue, which is not a satisfactory answer, I know, but all I can tell you is keep asking.As we come through changes in the alignment, in the structure, we’ll hopefully be able to communicate those clearly to industry so you can understand where we’re headed and support it in the way that works for you.I hope that was helpful.

ADM. VANBUSKIRK: Thank you, I appreciate it. Yes, sir.

ADM. JABALEY: It didn’t feel helpful from here.