NATIONAL HARBOR, MD -- The Navy is in the early stages of reviewing all its existing contracts, according to new Navy Secretary John Phelan, who today outlined his intent to draw upon his non-defense, private-sector experience to improve shipbuilding performance, reform defense acquisitions and run the service more like a business.
Delivering his first public remarks since being confirmed by the Senate in March, Phelan emphasized the Trump administration’s focus on shipbuilding and questioned why many of the Navy’s acquisition programs are plagued by cost overruns and schedule delays.
“We are currently in the early stages of reviewing all of our contracts and also understanding how the decision process works,” he said during the Navy League’s Sea-Air-Space conference. “I'm still trying to understand why things take as long as they do. I'm trying to understand why they cost as much as they do.”
Speaking to an audience of defense contractors and service personnel, Phelan emphasized his business background and status as a newcomer to the Navy and the military industrial base.
He emphasized his intent to pursue sweeping changes within the service, describing plans to re-assess how the Navy evaluates risk, increase “risk sharing” with industry, improve the efficiency of resource allocations and accelerate production.
However, he stopped short of discussing specific solutions. Asked how he plans to revitalize the maritime industrial base, Phelan told the audience to “stay tuned,” saying he is beginning to meet with Navy contractors and visit public and private shipyards.
As the Navy gears up for potential near-term conflict with China, it is facing widespread maintenance and production delays across its shipbuilding portfolio.
Analysis by the Government Accountability Office found the service’s established approach to shipbuilding to be “fundamentally flawed.” GAO Contracting and National Security Acquisitions Director Shelby Oakley recently told lawmakers cost overruns and schedule delays are the result of Navy mismanagement.
A recent GAO report calls for “systemic change” to the service's shipbuilding practices and provides a series of recommendations including finalizing ship design before beginning construction. According to the report, GAO has provided 90 recommendations to the Navy since 2015 but 60 of these recommendations remain unaddressed.
Today, Phelan also indicated he believes the U.S. could benefit from the establishment of new domestic shipyards and said the Navy will look to expand “public-private partnerships where one plus one equals three.”
Though he didn't elaborate what these partnerships will look like, incentivizing private capital to invest in the maritime industrial base is expected to be a focal point in a pending executive order on shipbuilding.
Last year, the Navy helped investment group CapZone Impact Investments LLC purchase 355-acres of shipyard property in Mobile, AL to be managed by the private equity fund with the goal of expanding maritime industrial base capacity. The venture utilizes tax incentives established by the 2017 Tax Cuts and Jobs Act, passed during the first Trump administration.
There has been increased discussion of private capital expanding its role in shipbuilding in recent weeks. On Monday, management and consulting firm McKinsey published a report encouraging private equity to invest in shipbuilding and take on management responsibilities within the maritime industrial base.
In addition to shipbuilding and acquisition reform, Phelan said his second and third focal areas are warfighting culture and personnel. These three areas will broadly support Navy readiness, Phelan’s No. 1 priority, he said.