House ‘Puzzled’ by Disparity in Shipyard Overhead Rates

After discovering there is a significant difference in overhead costs recorded by the Navy’s four shipyards, the House Appropriations Committee is recommending the service review its shipyard operations and eliminate unnecessary overhead charges, according to the draft committee report accompanying the fiscal 2012 defense spending bill.

The committee also called for funds in the spending measure to be shifted from overhead to depot maintenance to reduce overhead costs at the three shipyards with the highest overhead rates. Norfolk Naval Shipyard, Va., has the lowest rate, 29 percent, according to the committee report. Norfolk is followed by the shipyards at Puget Sound, Wash. (32 percent); Portsmouth, Maine (33 percent); and Pearl Harbor, Hawaii (43 percent).

The appropriators said they are concerned the costs are “excessive,” likely a result of the Navy’s decision to abandon a system in which the service financed the shipyards through the Navy Working Capital Fund. Under that system, the shipyards set prices for maintenance and repair that would cover their full operating costs, and the Atlantic and Pacific fleets reimbursed the shipyards with their appropriated funds. Costs were transparent and the shipyards were motivated to operate efficiently so their costs would remain competitive, according to the report.

In recent years, though, the Navy has switched to a financing mechanism known as mission funding, in which the shipyards receive direct appropriations. “That lack of transparency and efficiency incentives has resulted in large overhead costs,” the lawmakers concluded.

The committee approved the FY 2012 defense spending bill Tuesday; it is expected to be debated on the House floor next week.

Funding for Schools, Guam Move

One amendment the committee approved — sponsored by Rep. Marcy Kaptur (D-Ohio) — requires the secretaries of defense and veterans affairs to prepare a report on how the government can help lower the unemployment rate of veterans.

The spending measure would provide $250 million for the construction, renovation, repair or expansion of elementary and secondary public schools at military installations. Priority consideration for distributing the funds — which would flow through the Office of Economic Adjustment or be transferred to the Department of Education — should be given to bases with schools suffering the most severe capacity or facility condition deficiencies, according to the draft bill.

A separate provision would provide $33 million to help Guam’s civilian population deal with the relocation of 8,600 Marines from Okinawa. Needs the money could be used for include vehicles and supplies for civilian student transportation, preservation and repository of artifacts unearthed during military construction, and construction of a mental health and substance abuse facility.

The draft bill and committee report are available on the Appropriations Committee website.

Dan Cohen
Dan Cohen

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