performance, cost, but for various reasons a decision is made to put the item in production.

In the past, I think there has been much criticism of excessive concurrency with high risk items, because it has been well established that if you have to go back and redesign and modify something after it has gone into production, the costs rise significantly.

Some element of concurrency is probably warranted for low-risk items where you have a fairly good confidence, high-level confidence that the problem can be resolved with minimum costs. But in the FFG-7 program, I think you have to differentiate between the ship, that is, the basic hull and propulsion system itself, and the weapons systems and the electronics systems that are going onboard.

There is no concurrency-I don't think there is that much difficulty in building a hull of a ship. The problems are with the weapons systems and electronics, and there are certain elements of concurrency in many of those programs.

Senator PROXMIRE. Was untested equipment included on the lead ship, and did this equipment cause problems after the ship was delivered?

Mr. STOLAROW. We don't have any test results. Oh, well-OK. I am reminded that we have talked about the sonar system.

Senator PROXMIRE. That was untested.

Mr. STOLAROW. It was basically a new system, a cheaper system than the one originally intended for the ship, and they have had some serious problems in reliability and effectiveness of that system. That is being worked out

Senator PROXMIRE. You say it was cheaper than originally intended? Mr. STOLAROW. A different sonar was intended for the ship. In order to keep the costs down, a less expensive, less effective sonar was substituted.

Senator PROXMIRE. What was the difference in the cost?

Mr. STOLAROW. Well

Senator PROXMIRE. From my understanding, there wasn't much, in percentage at least. Do you have that? Can you get us that for the record?

Mr. STOLAROW. Yes.

[The following information was subsequently supplied for the record:]

ESTIMATED COSTS OF SQS-23 AND SQS-56 SONARS

SQS-23 sonar, $2.85 to $2.93 million each; SQS-56 sonar, $1.80 to $2.04 million each.

Senator PROXMIRE. Are there items of weapons and equipment that are supposed to go on the FFG that were not on the lead ship when it was delivered?

Mr. STOLAROW. Yes. One I mentioned was the close-in weapons system.

Senator PROXMIRE. Will equipment be missing from others?

Mr. STOLAROW. I don't think there is any doubt about it. It depends when the ship is delivered. and this program will stretch over several years, and when the ship is delivered. I don't think you can say for any item which ship will be delivered with or without it.

Senator PROXMIRE. Will the LAMPS-Mk III, the helicopter, be on the first 23 ships when they are delivered?

Mr. STOLAROW. Probably not. That helicopter will not be available to the Navy until 1984.

Senator PROXMIRE. What helicopter will be on the ship?

Mr. STOLAROW. The LAMPS-Mk I helicopter, the less effective one that is being replaced.

Senator PROXMIRE. Did I understand that this ship was originally designed for three missions-antisubmarine, antiaircraft, and antisurface ship-and that it no longer is being considered as an antiaircraft weapons system. Or I should say, it is no longer being considered as an antisurface ship.

Mr. STOLAROW. It is still being considered a multipurpose ship. However, the antisurface capability will not be great due to a change in the mission of the LAMPS-Mk III helicopter.

Senator PROXMIRE. So one of the three missions is no longer viable. Mr. STOLAROW. Right, to some degree.

Senator PROXMIRE. That means the utility of the ship, in view of its cost, is reduced further. Certainly, antisurface ship is an important part of its mission. So we are getting a less capable ship for more money, costing more money.

Mr. STOLAROW. I think the way to look at it is that because of the space limitations, any one ship probably cannot perform all three-can be available for all three of those missions at any one time.

Senator PROXMIRE. When we bought this ship, it is like being a house, we had the notion it could be used for an antisurface ship and now we are told it cannot be. We are told we bought a house that had a furnace, and we get into it and find in January it doesn't have one. Will there be enough LAMPS-Mk I's for all the FFG's, and will that LAMPS-Mk I be sufficient

Mr. STOLAROW. There are not enough LAMPS helicopters to equip all the Navy's ships that are supposed to carry LAMPS-Mk I heliconters. The Navy's present plans call for shifting aircraft on and off ships as ships come in for overhaul and repair. So, during the next several years, there will not be enough helicopters available for all of the Navy ships that will require helicopters.

Senator PROXMIRE. Those helicopters absolutely are essential for the antisubmarine missions?

Mr. STOLAROW. Yes.

Senator PROXMIRE. So surface ship is out, and antisubmarine is out for the time being on many of the ships, and they won't have the LAMPS-Mk III. which is the really effective submarine weapons system. that goes 100 miles, so it will be defective in that way, also. Mr. STOLAROW. The LAMPS-Mk III will not be available for 4 years.

Senator PROXMIRE. In 4 years, will there be enough LAMPS-Mk III's?

Mr. STOLAROW. No.

Senator PROXMIRE. When will they be equipped with the LAMPSMk III's?

Mr. STOLAROW. The late 1980's.

Senator PROXMIRE. Well, I want to thank you, very much, Mr. Stolarow, for a very, very helpful and responsive presentation. I wish you would stay for the rest of the testimony.

We are now going to have Mr. Harvie.

Mr. Harvie, I understand you are representing the Bath Iron Works. Is Mr. Sullivan here?

Mr. HARVIE. Mr. Sullivan is not here.

Senator PROXMIRE. Go ahead with your statement.

STATEMENT OF JAMES HARVIE, VICE PRESIDENT, MARKETING, BATH IRON WORKS CORP., BATH, MAINE

Mr. HARVIE. I am James Harvie, vice president, marketing, of Bath Iron Works Corp., a subsidiary of Congoleum Corp. of Milwaukee. I was formerly program manager for the FFG program at BIW. I am pleased to have the opportunity to appear before you today to discuss the FFG program.

Senator PROXMIRE. What city?

Mr. HARVIE. Milwaukee.

Senator PROXMIRE. Where is it located?

Mr. HARVIE. In the First Wisconsin Bank Building.

Senator PROXMIRE. Well, you are one of my bosses. Go ahead.

Mr. HARVIE. I will review briefly our view of the status of the program, how it is proceeding and the outlook for the future, and then describe what the Navy and Bath Iron Works have done to make it a successful program and the lessons we might learn from that program.

I am going to speak primarily to the equipment aspects and not the mission aspects that you have been referring to.

U.S.S. Oliver Hazard Perry, the FFG lead ship, was delivered ahead of the contract schedule as modified for changes. The original schedule was March 30, 1977. That contract delivery date was modified twice. First, in 1974, when an additional ship's service diesel generator set was added to the ship; and, second, in 1976 to reflect the cumulative effect of the many changes which had become necessary during the detail design development of the ship and factors beyond the control of either party.

The revised contract delivery date was December 30, 1977, and the actual delivery was November 30, 1977. Not only was the ship delivered ahead of her contract schedule, but she was a top-notch ship complete in all respects and proven thoroughly in her sea trials.

Eleven FFG ships are under contract to Bath Iron Works Corp. The contract delivery date and the Bath Iron Works proposed accelerated delivery date and the estimated progress as of mid-December, 1978, are shown in a schedule which I have provided for the record. The ships are being built to our accelerated schedule and we expect that they will be delivered an average of 7 weeks earlier than their contract schedule.

The first ship of this group has been launched and is 70-percent complete. The second ship will be launched in early March and is 58-percent complete. The keel for the third ship has been laid and it is now 36-percent complete. At this time, it appears that neither manpower,

facilities or materials will be any deterrent to meeting the accelerated schedules. Further, at this time, we do not foresee any Government changes which could cause a delay in the ship program.

The cost trends are favorable on the program. The lead ship ran over her target cost estimates at the shipyard largely due to unrecoverable inflation costs, but we understand that the total Navy cost was just within its target. The follow ships are trending below target costs. Large quantity material buys have helped as well as investments in facilities and new methods which were made by Bath Iron Works Corp.

Bath's acceleration of the schedule has also moved labor expenditures to an earlier time period, reducing the exposure to inflation. We have estimated that the acceleration will save the Navy a substantial amount of money as well as improving the profitability of the contracts for Bath Iron Works through the inventive cost-sharing provisions of the contracts.

Contractual relations have been harmonious throughout the program. Starting at the local level, we have established and maintained cordial but businesslike relations with the supervisor of shipbulding who is the local Navy representative. We have also maintained from the outset of the program, excellent relations with the headquarters personnel at the Naval Sea Command. One of the most vital factors toward building these harmonious relationships has been the continuity of career personnel.

The FFG program was carefully planned so that the FFG project manager in NAVSEA had a 5-year tour of duty and many of his key naval officer personnel were rotated as their tours of duty came up from headquarters to field positions but within the same program, thus insuring that there was a good transfer or buildup of personnel who were very familiar with the program.

We set up an atmosphere of working problems out together rather than escalating or postponing solutions. We keep current with changes as they are proposed and attempt to work out the scope in advance so that we are aware of the impact on cost and schedule at the earliest possible moment, and to develop a method of incorporating the change that would minimize the impact on cost and schedule. We try to know what the Navy wants and why so we can work out a way to provide it expeditiously and at least cost.

Both NAVSEA and Bath Iron Works established strong project organizations staffed with experienced, high-caliber personnel charged with the total responsibility for success of the program.

The Navy's change policy has been very carefully considered for this program. First, they have weighed the military essentiality of each change carefully to insure that only truly necessary changes have been incorporated. We have from time to time proposed changes which have been necessary from a safety or operability standpoint and those too have been carefully reviewed to make certain that they were essential before we proceeded.

The goal has been to so insert changes in the program that no delay in the program results. A block approach to configuration and change control has been adopted by which changes are incorporated in the ships at each shipyard by fiscal year groups. This enables significant

changes to be made with minimum impact on work in process and also requires major changes, such as the stern redesign, to be incorporated at the outset of a contract rather than to be negotiated at a later time. There were a number of innovations in the FFG program, most of which were initiated by the Navy. They were developed by the Navy and shipyards working together. We considered the causes of problems with past programs and developed a program incorporating mutually developed solutions to these problems or ways of avoiding these problems.

We considered potential problems within this program as well and covered them either in the contracts or in the program plan. A major feature of the program was a careful approach to risk reduction or risk sharing on an equitable basis. This was done in several ways:

First, through adopting a schedule which provided time to plan, time to buy materials, then to build the ships.

This was the Navy's first "fly before buy" approach of evaluating lead ship design as thoroughly as possible before embarking upon construction of the follow ships. This led to a separation between the lead and follow ships of about 2 years.

We looked at both longer and shorter periods of time. It seems that 2 years was about the optimum time for the FFG, at least.

Two land-based test sites were built to prove out the areas of the ship when had the most potential for problems-the combat system and the propulsion system. The entire combat system was operating in a land-based test site at Sperry and the propulsion system was operating in a land-based test site at NAVSEC, Philadelphia, early in the ship construction period so that problems could be worked out before lead ship construction was well advanced.

Contract types were selected to be compatible with the degree of definition of the design. The design contract was a cost-plus-fixed-fee contract, while the lead ship was built under a cost-plus-incentive-fee contract. The follow ships are being built under fixed-price/incentivefee contracts. Thus the risk has been transferred progressively from the Government to the contractor as the degree of definition of the design has been improved.

In the contracts there has been a very careful definition of the responsibilities and obligations of both parties. Government-furnished information and material are carefully spelled out as to what is going to be furnished and when it is going to be furnished.

There is a contract data requirements list listing all of the documents which must be provided by the contractor, specifying time of delivery as well as format and content. The lead yard services which were to be provided by the Government or the lead shipbuilder to the follow ship builders were carefully spelled out as well as the plete standardization requirement.

very com

The work of building the follow ships has been spread geographically to three areas, to avoid overload of facilities or skills in any one area and to reduce the risk of a ripple effect from changes, should that

occur.

Follow ship contracts have included provisions for escalation recovery on labor, overhead, and material costs to allow setting tight target costs and use of relevant BLS indexes to compute payments for escalating costs.