I want to thank you very, very much for your testimony. You have been most responsive.

Secretary CLAYTOR. Thank you. It is always a pleasure.

Senator PROXMIRE. Our next witness is John T. Gilbride, chairman of the board, Todd Shipyards Corp., New York, N.Y.

Mr. Gilbride, go right ahead. If you want to summarize your prepared statement, that is fine, or you can deliver it as you have it.

STATEMENT OF JOHN T. GILBRIDE, CHAIRMAN OF THE BOARD, TODD SHIPYARDS CORP., NEW YORK, N.Y., ACCOMPANIED BY EDWIN J. PETERSON, FFG PROGRAM MANAGER, LOS ANGELES DIVISION; AND WARD E. SQUIRES, VICE PRESIDENT AND ASSISTANT GENERAL MANAGER, ADMINISTRATION, TODD PACIFIC SHIPYARDS CORP.

Mr. GILBRIDE. Mr. Chairman, Senator Warner, ladies and gentlemen, appearing with me on my left is Edwin J. Peterson, FFG program manager at our Los Angeles division, and his counterpart at our Seattle division, Ward E. Squires, vice president and assistant general manager, administration, Todd Pacific Shipyards Corp.

We have submitted a rather lengthy prepared statement and I have some notes I will summarize. I will give you in a few minutes our background and the progress that we are making.

As to the background, Todd Shipyards was organized in June of 1916. During virtually the entire succeeding 63-year period we have been engaged exclusively in shipbuilding, conversion, and repair. Of our seven shipyards located on the Atlantic, Gulf, and west coasts, FFG construction takes place at our Seattle and Los Angeles divisions. The Seattle division is located on 61 acres and it has three shipways, two of which are capable of producing 500-foot vessels and three drydocks.

The division has contracts to build and deliver eight FFG's at an approximate rate of three per year. The division has increased its manpower over the last 27 months from 620 to 3,000 people, which is our planned peak manpower.

The Los Angeles division is located on 90 acres in San Pedro, Calif. It has two shipways, both of which are capable of producing 600-foot vessels and two drydocks. The division has contracts to build and deliver nine FFG's at an average rate of three per year and the manpower buildup is essentially the same at that division, a peak of 3,000. Since 1972 Todd Shipyards Corp. and Bath Iron Works have participated with the Navy in the design, support and construction of the FFG's. Out of this participation there has evolved a beneficial competition among the three shipyards and a constructive dialog between the Navy and the shipyards concerning the Navy's requirements and the shipyards' production capabilities.

From this experience I have come to believe that significant factors contributing to the success of this program are the mutual trust and commitment of the bulk of the various parties involved, the "fly before you buy" procurement policy, the risk allocation formula in the FFG contract and, finally, the progress of the program itself. The principal

effort on this program is shipbuilding and not claims preparation or other adversarial tasks.

The "fly before you buy" procurement of FFG's is predicated upon the wisdom of designing, constructing and thoroughly testing a lead ship with an experience interval occurring prior to the construction and delivery of follow ships.

There is a 2-year planned interval between the delivery of the lead ship and the first follow ship. Moreover, comprehensive land-based testing of major ship systems has been accomplished prior to installa tion in the lead and follow ships.

Final construction plans and other documents are delivered to the follow shipbuilders after validation by the Navy. The validated docu. mentation assures the follow shipbuilder that if he constructs the vessel in accordance with such documentation, he will be in compliance with the specifications.

The Navy implements changes and contract modifications only on a bilateral basis. This dialog with the builder affords the Navy the opportunity to assess any additional cost or schedule delays attendant to the change prior to its incorporation in the construction contract.

At this stage not all the document has been validated by the Navy However, the extent of validation and continuing progress in this area represents a significant improvement in the coordination of follow ship construction and is a deterrent in one of the root causes of past shipbuilder claims.

While the FFG lead ship was constructed under a cost-plus-incentive-type contract, follow ships have been awarded under fixed-priceincentive-type contracts with escalation provisions. The FFG follow ships are priced to target cost and target profit and allow escalation of labor and materials based on indexes prepared for the Navy by the Bureau of Labor Statistics. Cost incurrence up to 125 percent of the target cost is shared by the Government and the shipbuilder on a 70-30 percent basis. Consequently, both the Navy and the shipbuilder have a clear picture of their financial responsibilities and risks in this

program.

One major factor contributing heavily in the success of the program is the continuity in assignment of its key personnel. Both the Navy and the shipyards have taken special consideration to retain their top management and design people within the project. This policy has enhanced the progressive evolution and stability of the program while securing the benefits derived from combined knowledge and understanding.

Finally, I believe that the FFG construction progress to date at our Los Angeles and Seattle divisions augurs well for the overall success of the program. As of December 16, 1978, we have launched five FFG's. Those launchings are ahead of the stipulated contract dates by an aggregate 327 days. The full report of our contract milestone at both divisions is contained in the prepared statement distributed to the subcommittee.

The growth of the FFG contracts at both of our divisions, due to change orders through November 30, 1978, has produced a modest 4.5 percent incremental adjustment in the target costs, as reported in our prepared statement. Together, these statistics demonstrate the success

of the FFG program. The first flight of six FFG's awarded to Todd in February 1976 is approximately 58 percent completed. We are well within the contract cost constraints and delivery requirement.

Let me conclude by stating that Todd Shipyards Corporation has extensive experience in the construction of destroyers and frigates of many types. During World War II Todd produced 45 of those destroyers. Since World War II, we have been building SSG's, DLG's, and DE's, and we think the FFG program is one of the finest in which we have participated.

That is my informal remarks, Mr. Chairman.

[The prepared statement of Mr. Gilbride follows:]

PREPARED STATEMENT OF JOHN T. GILBRIDE

I. FFG PROGRAM BACKGROUND

For many years the United States Shipbuilders have advocated series construction of singular class naval vessels spanning a number of years and incorporating as few changes as possible. Such programs provide a shipbuilder the opportunity to commit his manpower and facility resources for developing maximum production efficiency.

A large measure of the FFG program success to-date, and its excellent forecast for continued success in meeting cost and schedule goals, may be attributed to the careful, effective and continual planning by the Navy's Project Management Organization from inception to the present.

In late 1971 the U.S. Navy solicited all interested shipyards for a proposal to assist them in the engineering design development of the FFG. As a result of this solicitation, in early 1972 the Navy chose two competing yards-Bath Iron Works and Todd-Seattle-to participate in the design of this class vessel.

For almost two years, the design refinement effort continued and the two involved shipyards, along with other domestic competitors, were able to plan their resources for an ongoing construction program. When the contract design phase was completed, the lead ship was negotiated with Bath and the Todd support contract came to an end. In early 1975 the Navy solicited all destroyer-capable building yards for FFG construction proposals, and in early 1976 two Todd yards and Bath competitively received contracts to construct a total of 11 FFGs. Later the Navy again solicited capable yards for a second flight of FFGs which resulted in an additional award of 8 ships in early 1977 to the same three yards. This award also contained options for 9 more ships in the subsequent year. It is our present understanding that the Navy is contemplating the construction of more FFGs through 1984.

With the support of the Congress, this original objective of carrying out the series construction of a large number of ships to a stable design is now at the threshold of realization.

II. PROJECT STABILITY AND CONTINUITY

The 28 FFGs follow ships presently under contract among three shipyards extend production through 1982. With the reasonable expectation of additional ships the yards involved are concentrating their efforts toward refining their planning, production and management techniques; establishing a solid experienced labor force; and programming capital investments; all toward achieving the maximum cost effectiveness in the overall FFG program.

A substantial lead time (2 years) was allowed between lead ship and initial follow ship delivery. This permitted incorporating lessons learned while building the lead ship as well as early operational results into the follow ship design and construction.

Another contribution to all prospective builders was the availability, during proposal preparation and cost estimating, of a significant number of working drawings showing details normally not available to a bidder. This early availability of working drawings also provided builders with a basis for advance planning in manpower acquisition. As an example, after award, Todd-Seattle was able to build its shipyard manpower from 620 people a few months after FFG

contract award to the current level of over 3,000, during a period of approximately 27 months.

As a result of having obtained definite long-term contracts for construction of FFGs, Todd made a corporate decision for the mutual benefit of the Navy and Todd. The commitment was made to dedicate the total shipbuilding facilities at both our Seattle and Los Angeles shipyards for the exclusive building of FFGs. Since the inception of these contracts those two yards have not bid on any other new construction proposals, either Navy or commercial, which may have interfered with the FFGs. Todd has concentrated its management, financial and productive capabilities toward making the FFGs a totally successful program. At both shipyards Todd has invested new talent and capital to insure its performance proficiency. Todd has improved its material handling facilities, construction platens and shipways, shop and assembly areas, data processing abilities and upgraded our outfitting piers.

III. COMMITMENT OF KEY PERSONNEL-TODD AND U.S. NAVY

Effective program implementation depends heavily on continuity of knowledge and understanding. It is our observation that this stability of personnel assignment was particularly well done in the Navy FFG community. For example, the first Navy Ship Acquisition Project Manager (SHAPM) created the project management organization and remained at its head through the award of the first follow ship contracts and the first Quarterly Production Progress Conference, a period of about five years. His successor has been associated with the program since 1971 when weapons selection decisions were being made. The Deputy Project Manager has been on the project since its inception.

Special consideration has been given to providing for continuity and proper timing in the assignment of key military and civilian personnel at other Navy activities involved in the program, such as Supervisor of Shipbuilding offices and land-based test sites.

In many cases, key Navy personnel have been rotated from headquarters to field positions and vice-versa or re-assigned among field positions within the program, thereby making maximum use of their program experience.

Similarly, the Class Design Agent has had the same project manager, with extensive design experience, since the establishment of the CDA project office. Todd, too, has maintained continuity in its key FFG program personnel. Of the eight residents in the Todd Ship System Design Support Office at the Naval Ship Engineering Center in 1972 and 1973. five retained key positions in the program. One is Program Manager in Seattle, one is Assistant Program Manager in Seattle, and one is Quality Assurance Director in Seattle, one is Senior Production Planner at Todd Los Angeles and one other joined Bath Iron Works as FFG Technical Director.

The General Manager at Seattle not only has held that position during the FFG program but was the Assistant Manager and then the General Manager during the FF 1052 and DDG-2 Class construction at the Seattle yard. Our present Assistant General Manager at the Todd Los Angeles Division was responsible for the engineering work done at the Seattle yard during FFG Ship System Design Support.

The combined knowledge and understanding of all of these Navy and Todd people in key positions throughout the FFG program management organizations has enhanced their effectiveness in implementing those policies and practices which are contributing to the timeliness and cost performance in the FFG construction program.

IV. CONTRACT FEATURES-FOLLOW SHIPS

In the FFG program, the Navy has lessened the shinvard exposure and improved the risk sharing features more equitably than had been provided in past shipbuilding contracts.

The philosophy has been recognized that the Shipbuilder generally should be expected to assume only those risks which he has some reasonable opportunity

to control. The risk mitigation and risk sharing features incorporated into the various phases of the FFG program have been well-conceived and undoubtedly contribute to the success of the program to date. This attitude of mutual respect for each other's problems and concurrence on a common goal provide guidance for success in delivering cost-effective fighting ships to the Fleet on time.

We submit the following comments which we feel have contributed toward providing better Government/Contractor relations.

a. Fixed price incentive

The "70/30" cost sharing feature of these Fixed Price Incentive Fee (FPIF) contracts mitigates the cost risk inherent in a firm fixed price contract. It allows an opportunity for the Contractor to gain rewards for extraordinary performance, and gives him limited protection against disastrous losses if he misses the established targets.

b. Escalation

The escalation provisions that have been included for both labor and materials are a dramatic improvement over past "economic price adjustment" clauses. However, there exists a continued disparity between the actual evolved labor rates and the allowable indices written into our contracts.

c. Bilateral changes

The Navy has adhered to its stated intent to implement changes in these contracts exclusively on a bilateral basis. This policy undoubtedly serves to identify potential cost/schedule risks prior to any Navy's commitment to those risks. However, complete avoidance from unilateral changes could add substantially and unnecessarily to the cost of enacting any future “mandatory" changes.

Our experience to date indicates that there has been unusually minimal growth for contracts of this size and time duration. For your information, we include the data on our original awards and their status as of the end of November 1978. These ships were awarded to us at the end of February in 1976, 1977 and 1978.

The terms in our contracts obligate the shipyard to submit timely reports of "contract problems". Such emphasis directs high-level attention to find solutions to major problems. This policy puts all parties on notice that definitive actions must be taken in order to mitigate cost/schedule impacts.

e. Milestone penalties

Our contracts establish a series of milestone events with appropriate dates which should be met to insure timely performance toward an orderly completion. Failure to meet these dates exposes the shipyard to progress payment withholding penalties thus compelling the Contractor to achieve milestone progress. The following data shows our performance to date at both Los Angeles and Seattle yards.

32-340 0 - 81 - 26