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Copyright © National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Letter Report Division on Earth and Life Studies and Transportation Research Board of the National Academies of Sciences, Engineering, and Medicine Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs The National Academy of Sciences was established in 1863 by an Act of Congress, signed by President Lincoln, as a private, nongovernmental institution to advise the nation on issues related to science and technology. Members are elected by their peers for outstanding contributions to research. Dr. Marcia McNutt is president. The National Academy of Engineering was established in 1964 under the charter of the National Academy of Sciences to bring the practices of engineering to advising the nation. Members are elected by their peers for extraordinary contributions to engineering. Dr. C. D. Mote, Jr., is president. The National Academy of Medicine (formerly the Institute of Medicine) was established in 1970 under the charter of the National Academy of Sciences to advise the nation on medical and health issues. Members are elected by their peers for distinguished contributions to medicine and health. Dr. Victor J. Dzau is president. The three Academies work together as the National Academies of Sciences, Engineering, and Medicine to provide independent, objective analysis and advice to the nation and conduct other activities to solve complex problems and inform public policy decisions. The Academies also encourage education and research, recognize outstanding contributions to knowledge, and increase public understanding in matters of science, engineering, and medicine. Learn more about the National Academies of Sciences, Engineering, and Medicine at www.national-academies.org. The Transportation Research Board is one of seven major programs of the National Academies of Sciences, Engineering, and Medicine. The mission of the Transportation Research Board is to increase the benefits that transportation contributes to society by providing leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Board’s varied committees, task forces, and panels annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individuals interested in the development of transportation. Learn more about the Transportation Research Board at www.TRB.org. Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Transportation Research Board of the National Academies of Sciences, Engineering, and Medicine 500 Fifth Street, NW Washington, DC 20001 July 11, 2017 The Honorable Elaine C. Duke Secretary of Homeland Security Washington, D.C. 20528 Dear Secretary Duke: In the Coast Guard Authorization Act of 2015, 1 Congress required the Secretary of the Department of Homeland Security to enter into an arrangement with the National Academies of Sciences, Engineering, and Medicine (National Academies) for an assessment of alternative strategies for minimizing the costs incurred by the federal government in procuring and operating heavy polar icebreakers. In response to this requirement, the National Academies formed a committee with expertise in naval architecture, ship construction, polar science, polar ship operations, icebreakers, and maritime finance. Names of committee members and members’ biographical statements are shown in Appendix F. The committee’s statement of task is given in Appendix A. To fulfill its charge, the committee met four times over a 6-month period and was briefed by multiple stakeholders (see Appendix G for a summary of the committee’s information-gathering activities). In view of the breadth of the statement of task and the limited time for the report’s completion, the committee and congressional staff agreed that the report should focus on strategies to minimize life-cycle costs of polar icebreaker acquisition and operations. The letter report that follows was reviewed in draft form by a group of independent experts according to the policies and procedures approved by the National Academies’ Report Review Committee (see Appendix H for names of the reviewers). The committee’s overall findings and recommendations start on page 1, and supporting information is referenced in the appendices that follow. The committee is pleased to provide this letter report to inform the decisions that the administration and Congress must make to ensure the nation’s continual access to and presence in the Earth’s polar regions. 1 See Section 604, Public Law 114–120 (Coast Guard Authorization Act of 2015), dated February 8, 2016. https://www.congress.gov/114/plaws/publ120/PLAW-114publ120.pdf. i Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Sincerely, Richard West Committee Chair cc: Admiral Paul F. Zukunft, Commandant, U.S. Coast Guard ii Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Contents ABBREVIATIONS .................................................................................................................................................iv INTRODUCTION ...................................................................................................................................................1 FINDINGS AND RECOMMENDATIONS...........................................................................................................1 APPENDICES A COMMITTEE ON POLAR ICEBREAKER COST ASSESSMENT: STATEMENT OF TASK ............9 B MISSION NEED, THE POLAR ENVIRONMENT, AND ICEBREAKER CAPABILITY ....................11 C OWNERSHIP AND OPERATING MODELS .............................................................................................25 D ICEBREAKER ACQUISITION STRATEGY, DESIGN AND COST PROJECTIONS, AND OPERATING COSTS ....................................................................................................................................37 E ICEBREAKING FLEETS OF OTHER NATIONS ...................................................................................85 F COMMITTEE ON POLAR ICEBREAKER COST ASSESSMENT: MEMBERS AND BIOGRAPHICAL INFORMATION ............................................................................................................89 G INFORMATION-GATHERING ACTIVITIES OF THE COMMITTEE ................................................95 H ACKNOWLEDGMENT OF REVIEWERS.................................................................................................97 iii Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs ABBREVIATIONS ABS ADM AESC AMSEA AT BC BLG BLS BMAX BOEM BOM BT CAIV CCGS CER CFR CFR CN CORE COTS CRS CTD DAFHP DHP DHS DMIDSHIPS DOD ECN EH EMI EMP FARs FAS FBI FCCOM FESCO FMV FRED FT FY GAO GFE GFM Gould American Bureau of Shipping Admiral Arctic Executive Steering Committee General Dynamics American Overseas Marine acceptance trials British Columbia bulk liquids and gases United States Bureau of Labor Statistics maximum beam immersed section of the boat Bureau of Ocean Energy Management bill of materials builders trials cost as an independent variable Canadian Coast Guard Ship cost estimating relationship Code of Federal Regulations Council on Foreign Relations cubic number Consortium for Oceanographic Research and Education commercial off-the-shelf Congressional Research Service conductivity, temperature, and depth days away from home port developed horsepower (at the propeller) Department of Homeland Security distance from deck to keel amidships Department of Defense engineering change notice high-tensile-strength steel electromagnetic interference enhanced maintenance program Federal Acquisition Regulations financial accounting standards Federal Bureau of Investigation facilities capital cost of money Far Eastern Shipping Company fair market value Federal Reserve Economic Data feet fiscal year Government Accountability Office government-furnished equipment government-furnished material Research Vessel Laurence M. Gould iv Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs HEC HP HPIB HQM HSPD HVAC HY IAW ILS IMO INSURV ISO LWT LLTE LMSR LNG LOA M MAC MACRS MARAD MHR MIL-SPEC MIL-STD MM MPS MSC MT M/V MW NASA NASEM NASSCO NATO NAVAIR NAVSEA NOAA NRC NSC NSF NSPD OH OMB ONR OPC ORD Herbert Engineering Corporation horsepower heavy polar icebreaker high-quality market Homeland Security Presidential Directive heating, ventilation, and air conditioning high-yield-strength steel in accordance with integrated logistics support International Maritime Organization Board of Inspection and Survey International Organization for Standardization lightweight long-lead-time equipment large, medium speed roll-on/roll-off ships liquefied natural gas length overall meter months after contract award modified accelerated cost recovery system Maritime Administration man-hour military specifications defense or military standard millimeter maritime prepositioning ships Military Sealift Command metric ton motor vessel megawatt National Aeronautics and Space Administration National Academies of Sciences, Engineering, and Medicine National Steel and Shipbuilding Company North Atlantic Treaty Organization Naval Air Systems Command Naval Sea Systems Command National Oceanic and Atmospheric Administration National Research Council National Security Council National Science Foundation National Security Presidential Directive overhead Office of Management and Budget Office of Naval Research offshore patrol cutter operational requirements document v Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Palmer PDA PDD PEO PIB PIRS QAC RADM REA RFM ROM ROV R/V SCIF SEES Sikuliaq SNAME SOC SOLAS SQ FT SRP SUPSHIP SWBS SWIPA TBD TRB TSAC UAS UAV UNOLS USA USAP USC USCG USCGC USD USM USN UUV VADM WACC WAGB WHOI Research Vessel Nathaniel B. Palmer postdelivery availability Presidential Decision Directive Program Executive Office polar icebreaker polar icebreaker requirements study quarters after contract award Rear Admiral request for equitable adjustment release for manufacture rough-order-of-magnitude remotely operated vehicle research vessel secure communications and intelligence facility science, engineering and education for sustainability Research Vessel Sikuliaq Society of Naval Architects and Marine Engineers start of construction Safety of Life at Sea square feet stern reference point Supervisor of Shipbuilding, Conversion and Repair ship work breakdown structure snow, water, ice, and permafrost in the Arctic to be determined Transportation Research Board United States Coast Guard’s Towing Safety Advisory Committee unmanned aerial system unmanned aerial vehicle University-National Oceanographic Laboratory System United States of America United States Antarctic Program United States Code United States Coast Guard United States Coast Guard Cutter United States dollar United States dollars, millions United States Navy unmanned undersea vehicle Vice Admiral weighted average cost of capital Coast Guard Icebreaker Woods Hole Oceanographic Institute vi Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs LETTER REPORT ON POLAR ICEBREAKER COST ASSESSMENT INTRODUCTION The United States has strategic national interests in the polar regions. In the Arctic, the nation must protect its citizens, natural resources, and economic interests; assure sovereignty, defense readiness, and maritime mobility; and engage in discovery and research. In the Antarctic, the United States must maintain an active presence that includes access to its research stations for the peaceful conduct of science and the ability to participate in inspections as specified in the Antarctic Treaty. The committee’s charge (see Appendix A) was to advise the U.S. House of Representatives and the U.S. Senate on an assessment of the costs incurred by the federal government in carrying out polar icebreaking missions and on options that could minimize lifecycle costs. The committee’s consensus findings and recommendations are presented below. Unless otherwise specified, all estimated costs and prices for the future U.S. icebreakers are expressed in 2019 dollars, since that is the year in which the contracts are scheduled to be made. Supporting material is found in the appendices. FINDINGS AND RECOMMENDATIONS 1. Finding: The United States has insufficient assets to protect its interests, implement U.S. policy, execute its laws, and meet its obligations in the Arctic and Antarctic because it lacks adequate icebreaking capability. For more than 30 years, studies have emphasized the need for U.S. icebreakers to maintain presence, sovereignty, leadership, and research capacity—but the nation has failed to respond (see Appendix B). The strong warming and related environmental changes occurring in both the Arctic and the Antarctic have made this failure more critical. In the Arctic, changing sea ice conditions will create greater navigation hazards for much of the year, and expanding human industrial and economic activity will magnify the need for national presence in the region. In the Antarctic, sea ice trends have varied greatly from year to year, but the annual requirements for access into McMurdo Station have not changed. The nation is ill-equipped to protect its interests and maintain leadership in these regions and has fallen behind other Arctic nations, which have mobilized to expand their access to ice-covered regions. The United States now has the opportunity to move forward and acquire the capability to fulfill these needs. Appendix B provides a broader discussion and supporting material concerning U.S. icebreaking needs and the changing polar environment, and Appendix E provides additional information about the icebreaking capability of other nations. 1 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 2. Recommendation: The United States Congress should fund the construction of four polar icebreakers of common design that would be owned and operated by the United States Coast Guard (USCG). The current Department of Homeland Security (DHS) Mission Need Statement (DHS 2013) contemplates a combination of medium and heavy icebreakers. The committee’s recommendation is for a single class of polar icebreaker with heavy icebreaking capability. Proceeding with a single class means that only one design will be needed, which will provide cost savings. The committee has found that the fourth heavy icebreaker could be built for a lower cost than the lead ship of a medium icebreaker class (see Appendix D, Table D-10). The DHS Mission Need Statement contemplated a total fleet of “potentially” up to six ships of two classes—three heavy and three medium icebreakers. Details appear in the High Latitude Mission Analysis Report. The Mission Need Statement indicated that to fulfill its statutory missions, USCG required three heavy and three medium icebreakers; each vessel would have a single crew and would homeport in Seattle. The committee’s analysis indicated that four heavy icebreakers will meet the statutory mission needs gap identified by DHS for the lowest cost. Three of the ships would allow continuous presence in the Arctic, and one would service the Antarctic. As noted in the High Latitude Report, USCG’s employment standard is 185 days away from home port (DAFHP) for a single crew. Three heavy icebreakers in the Arctic provide 555 DAFHP, sufficient for continuous presence. In addition, the medium icebreaker USCG Cutter Healy’s design service life runs through 2030. If greater capacity is required, USCG could consider operating three ships with four crews, which would provide 740 DAFHP. The use of multiple crews in the Arctic could require fewer ships while providing a comparable number of DAFHP. For example, two ships (instead of the recommended three) operating in the Arctic with multiple crews could provide a similar number of annual operating days at a lower cost, but such an arrangement may not permit simultaneous operations in both polar regions and may not provide adequate redundancy in capability. More important, an arrangement under which fewer boats are operated more often would require more major maintenance during shorter time in port, often at increasing cost. In addition, if further military presence is desired in the Arctic, USCG could consider ice-strengthening the ninth national security cutter. One heavy icebreaker servicing the Antarctic provides for the McMurdo breakout and international treaty verification. The availability of the vessel could be extended by homeporting in the Southern Hemisphere. If the single vessel dedicated to the Antarctic is rendered inoperable, USCG could redirect an icebreaker from the Arctic, or it could rely on support from other nations. The committee considers both options to be viable and believes it difficult to justify a standby (fifth) vessel for the Antarctic mission when the total acquisition and lifetime operating costs of a single icebreaker are projected to exceed $1.6 billion. Once the four new icebreakers are operational, USCG can reasonably be expected to plan for more distant time horizons. USCG could assess the performance of the early ships once they are operational and determine whether additional capacity is needed. USCG is the only agency of the U.S. government that is simultaneously a military service, a law enforcement agency, a marine safety and rescue agency, and an environmental protection agency. All of these roles are required in the mission need statement for a polar icebreaker. USCG, in contrast to a civilian company, has the authorities, mandates, and competencies to conduct the missions contemplated for the polar icebreakers. Having one agency 2 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs with a multimission capability performing the range of services needed would be more efficient than potentially duplicating effort by splitting polar icebreaker operations among other agencies. The requirement for national presence is best accomplished with a military vessel. In addition, USCG is fully interoperable with the U.S. Navy and the nation’s North Atlantic Treaty Organization partners. USCG is already mandated to operate the nation’s domestic and polar icebreakers. Continuing to focus this expertise in one agency remains the logical approach (see Appendix B). Government ownership of new polar icebreakers would be less costly than the use of lease financing (see Appendix C). The government has a lower borrowing cost than any U.S.based leasing firm or lessor. In addition, the lessor would use higher-cost equity (on which it would expect to make a profit) to cover a portion of the lease financing. The committee’s analysis shows that direct purchase by the government would cost, at a minimum, 19 percent less than leasing on a net present value basis (after tax). There is also the risk of the lessor going bankrupt and compromising the availability of the polar icebreaker to USCG. For its analysis, the committee not only relied on its extensive experience with leveraged lease financing but also reviewed available Government Accountability Office reports and Office of Management and Budget rules, examined commercial leasing economics and current interest rates, and validated its analysis by consulting an outside expert on the issue (see Appendix C). Chartering (an operating lease) is not a viable option (see Appendix C). The availability of polar icebreakers on the open market is extremely limited. (The committee is aware of the sale of only one heavy icebreaker since 2010.) U.S. experience with chartering a polar icebreaker for the McMurdo resupply mission has been problematic on two prior charter attempts. Chartering is workable only if the need is short term and mission specific. The committee notes that chartering may preclude USCG from performing its multiple missions (see Appendix B and Appendix C). In the committee’s judgment, an enlarged icebreaker fleet will provide opportunities for USCG to strengthen its icebreaking program and mission. Although the number of billets that require an expert is small compared with the overall number of billets assigned to these icebreakers, more people performing this mission will increase the pool of experienced candidates. This will provide personnel assignment officers with a larger pool of candidates when the more senior positions aboard icebreakers are designated, which will make icebreaking more attractive as a career path and increase the overall level of icebreaking expertise within USCG. Importantly, the commonality of design of the four recommended heavy icebreakers will reduce operating and maintenance costs over the service life of these vessels through efficiencies in supporting and crewing them. Having vessels of common design will likely improve continuity of service, build icebreaking competency, improve operational effectiveness, and be more cost-efficient (see also Appendix C and Appendix D). 2 3. Recommendation: USCG should follow an acquisition strategy that includes block buy contracting with a fixed price incentive fee contract and take other measures to ensure best value for investment of public funds. Icebreaker design and construction costs can be clearly defined, and a fixed price incentive fee construction contract is the most reliable mechanism for controlling costs for a program of this complexity. This technique is widely used by the U.S. Navy. To help ensure best long-term 2 VADM F. Midgette, USCG, briefing to the committee, April 13, 2017. 3 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs value, the criteria for evaluating shipyard proposals should incorporate explicitly defined lifecycle cost metrics (see Appendix D). A block buy authority for this program will need to contain specific language for economic order quantity purchases for materials, advanced design, and construction activities. A block buy contracting program 3 with economic order quantity purchases enables series construction, motivates competitive bidding, and allows for volume purchase and for the timely acquisition of material with long lead times. It would enable continuous production, give the program the maximum benefit from the learning curve, and thus reduce labor hours on subsequent vessels. The acquisition strategy would incorporate (a) technology transfer from icebreaker designers and builders with recent experience, including international expertise in design, construction, and equipment manufacture; (b) a design that maximizes use of commercial offthe-shelf (COTS) equipment, applies Polar Codes and international standards, and only applies military specifications (MIL-SPEC) to the armament, aviation, communications, and navigation equipment; (c) reduction of any “buy American” provisions to allow the sourcing of the most suitable and reliable machinery available on the market; and (d) a program schedule that allows for completion of design and planning before the start of construction. These strategies will allow for optimization of design, reduce construction costs, and enhance reliability and maintainability (see Appendix D). 4. Finding: In developing its independent concept designs and cost estimates, the committee determined that the costs estimated by USCG for the heavy icebreaker are reasonable. However, the committee believes that the costs of medium icebreakers identified in the High Latitude Mission Analysis Report are significantly underestimated. The committee estimates the rough order-of-magnitude (ROM) cost of the first heavy icebreaker to be $983 million. (See Appendix D, Table D-6.) Of these all-in costs, 75 to 80 percent are shipyard design and construction costs; the remaining 20 to 25 percent cover governmentincurred costs such as government-furnished equipment and government-incurred program expenses. If advantage is taken of learning and quantity discounts available through the recommended block buy contracting acquisition strategy, the average cost per heavy icebreaker is approximately $791 million, on the basis of the acquisition of four ships. The committee’s analysis of the ship size to incorporate the required components (stack-up length) suggests an overall length of 132 meters (433 feet) and a beam of 27 meters (89 feet). This is consistent with USCG concepts for the vessel. Costs can be significantly reduced by following the committee’s recommendations. Reduction of MIL-SPEC requirements can lower costs by up to $100 million per ship with no loss of mission capability (see Appendix D, Table D-12). The other recommended acquisition, design, and construction strategies will control possible cost overruns and provide significant savings in overall life-cycle costs for the program. Although USCG has not yet developed the operational requirements document for a medium polar icebreaker, the committee was able to apply the known principal characteristics of the USCG Cutter Healy to estimate the scope of work and cost of a similar medium icebreaker. 3 See O’Rourke and Schwartz 2017 for an overview of the advantages and limitations of block buy contracting and multiyear procurement. 4 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs The committee estimates that a first-of-class medium icebreaker will cost approximately $786 million. The fourth ship of the heavy icebreaker series is estimated to cost $692 million. Designing a medium-class polar icebreaker in a second shipyard would incur the estimated engineering, design, and planning costs of $126 million and would forgo learning from the first three ships; the learning curve would be restarted with the first medium design. Costs of building the fourth heavy icebreaker would be less than the costs of designing and building a first-of-class medium icebreaker (see Appendix D, Table D-10). In developing its ROM cost estimate, the committee agreed on a common notional design and basic assumptions (see Tables D-2, D-3, D4, and D-5). Two committee members then independently developed cost estimating models, which were validated internally by other committee members. These analyses were then used to establish the committee’s primary cost estimate. Uncertainties of the cost estimate are identified and discussed further in Appendix D. 5. Finding: Operating costs of new polar icebreakers are expected to be lower than those of the vessels they replace. The committee expects the operating costs for the new heavy polar icebreakers to be lower than those of USCG’s Polar Star. While USCG’s previous experience is that operating costs of new cutters are significantly higher than those of the vessels they replace, the committee does not believe this historical experience applies in this case. There is good reason to believe that operating costs for new ships using commercially available modern technology will be lower than costs for existing ships (see Appendix D). The more efficient hull forms and modern engines will reduce fuel consumption, and a well-designed automation plant will require fewer operation and maintenance personnel, which will allow manning to be reduced or freed up for alternative tasks. The use of COTS technology and the minimization of MIL-SPEC, as recommended, will also reduce long-term maintenance costs, since use of customized equipment to meet MIL-SPEC requirements can reduce reliability and increase costs. A new vessel, especially over the first 10 years, typically has significantly reduced major repair and overhaul costs, particularly during dry-dock periods, compared with existing icebreakers—such as the Polar Star—that are near or at the end of their service life (see Appendix D). The Polar Star has many age-related issues that require it to be extensively repaired at an annual dry-docking. These issues will be avoided in the early years of a new ship. However, the committee recognizes that new ship operating costs can be higher than those of older ships if the new ship has more complexity to afford more capabilities. Therefore, any direct comparisons of operating costs of newer versus older ships would need to take into account the benefits of the additional capabilities provided by the newer ship. USCG will have an opportunity to evaluate the manning levels of the icebreaker in light of the benefits of modern technology to identify reductions that can be made in operating costs (see Appendix C). 6. Recommendation: USCG should ensure that the common polar icebreaker design is science-ready and that one of the ships has full science capability. 5 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs All four proposed ships would be designed as “science-ready,” which will be more cost-effective when one of the four ships—most likely the fourth—is made fully science capable. Including science readiness in the common polar icebreaker design is the most cost-effective way of fulfilling both the USCG’s polar missions and the nation’s scientific research polar icebreaker needs (see Appendix D). The incremental costs of a science-ready design for each of the four ships ($10 million to $20 million per ship) and of full science capability for one of the ships at the initial build (an additional $20 million to $30 million) are less than the independent design and build cost of a dedicated research medium icebreaker (see Appendix D, p. 103). In briefings at its first meeting, the committee learned that the National Science Foundation and other agencies do not have budgets to support full-time heavy icebreaker access or the incremental cost of design, even though their science programs may require this capability. Given the small incremental cost, the committee believes that the science capability cited above should be included in the acquisition costs. Science-ready design includes critical elements that cannot be retrofitted cost-effectively into an existing ship and that should be incorporated in the initial design and build. Among these elements are structural supports, appropriate interior and exterior spaces, flexible accommodation spaces that can embark up to 50 science personnel, a hull design that accommodates multiple transducers and minimizes bubble sweep while optimizing icebreaking capability, machinery arrangements and noise dampening to mitigate interference with sonar transducers, and weight and stability latitudes to allow installation of scientific equipment. Such a design will enable any of the ships to be retrofitted for full science capability in the future, if necessary (see Appendix D, p. 103). Within the time frame of the recommended build sequence, the United States will require a science-capable polar icebreaker to replace the science capabilities of the Healy upon her retirement. To fulfill this need, one of the heavy polar icebreakers would be procured at the initial build with full science capability; the ability to fulfill other USCG missions would be retained. The ship would be outfitted with oceanographic overboarding equipment and instrumentation and facilities comparable with those of modern oceanographic research vessels. Some basic scientific capability, such as hydrographic mapping sonar, should be acquired at the time of the build of each ship so that environmental data that are essential in fulfilling USCG polar missions can be collected. 7. Finding: The nation is at risk of losing its heavy polar icebreaking capability— experiencing a critical capacity gap—as the Polar Star approaches the end of its extended service life, currently estimated at 3 to 7 years. The Polar Star, built in 1976, is well past its 30-year design life. Its reliability will continue to decline, and its maintenance costs will continue to escalate. Although the ship went through an extensive life-extending refit in 2011–2012, the Polar Star’s useful life is estimated to end between 2020 and 2024. As USCG has recognized, the evaluation of alternative arrangements to secure polar icebreaking capacity is important, given the growing risks of the Polar Star losing its capability to fulfill its mission (see Appendix B). 6 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 8. Recommendation: USCG should keep the Polar Star operational by implementing an enhanced maintenance program (EMP) until at least two new polar icebreakers are commissioned. Even if the committee’s notional schedule for new polar icebreakers is met, the second polar icebreaker would not be ready until July 2025 (see Appendix D, Figure D-2). The committee’s proposed EMP could be designed with planned—and targeted—upgrades that allow the Polar Star to operate every year for its Antarctic mission. The necessary repairs could be performed in conjunction with the ship’s current yearly dry-docking schedule within existing annual expenditures, estimated to average $5 million. In particular, the EMP would require improvements in the ship’s operating systems, sanitary system, evaporators, main propulsion systems, and controllable pitch propellers. In the committee’s judgment, the EMP could be accomplished within USCG’s average annual repair expenditures for the Polar Star, which currently range between $2 million and $9 million (see Appendix B). References Abbreviation DHS Department of Homeland Security DHS. 2013. Polar Icebreaker Recapitalization Project Mission Need Statement Version 1.0. Washington, D.C. O’Rourke, R., and M. Schwartz. 2017. Multiyear Procurement (MYP) and Block Buy Contracting in Defense Acquisition: Background and Issues for Congress. Congressional Research Service, Washington, D.C., June 2. https://fas.org/sgp/crs/natsec/R41909.pdf. 7 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 8 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Appendix A Committee on Polar Icebreaker Cost Assessment: Statement of Task SEC. 604. NATIONAL ACADEMY OF SCIENCES COST ASSESSMENT. (a) Cost Assessment.—The Secretary of the department in which the Coast Guard is operating shall seek to enter into an arrangement with the National Academy of Sciences under which the Academy, by no later than 365 days after the date of the enactment of this Act, shall submit to the Committee on Transportation and Infrastructure and the Committee on Science, Space, and Technology of the House of Representatives and the Committee on Commerce, Science, and Transportation of the Senate an assessment of the costs incurred by the Federal Government to carry out polar icebreaking missions. An ad hoc committee shall: (1) describe current and emerging requirements for the Coast Guard’s polar icebreaking capabilities, taking into account the rapidly changing ice cover in the Arctic environment, national security considerations, and expanding commercial activities in the Arctic and Antarctic, including marine transportation, energy development, fishing, and tourism; (2) identify potential design, procurement, leasing, service contracts, crewing, and technology options that could minimize life-cycle costs and optimize efficiency and reliability of Coast Guard polar icebreaker operations in the Arctic and Antarctic; and (3) examine: (A) Coast Guard estimates of the procurement and operating costs of a Polar icebreaker capable of carrying out Coast Guard maritime safety, national security, and stewardship responsibilities including: (i) economies of scale that might be achieved for construction of multiple vessels; and (ii) costs of renovating existing polar class icebreakers to operate for a period of no less than 10 years. (B) the incremental cost to augment the design of such an icebreaker for multiuse capabilities for scientific missions; (C) the potential to offset such incremental cost through cost-sharing agreements with other Federal departments and agencies; and (D) United States polar icebreaking capability in comparison with that of other Arctic nations, and with nations that conduct research and other activities in the Arctic. (b) Included Costs: For purposes of subsection (a), the assessment shall include costs incurred by the Federal Government for: (1) the lease or operation and maintenance of the vessel or vessels concerned; (2) disposal of such vessels at the end of the useful life of the vessels; 9 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs (3) retirement and other benefits for Federal employees who operate such vessels; and (4) interest payments assumed to be incurred for Federal capital expenditures. (c) Assumptions: For purposes of comparing the costs of such alternatives, the Academy shall assume that: (1) each vessel under consideration is (A) capable of breaking out McMurdo Station and conducting Coast Guard missions in the Antarctic, and in the United States territory in the Arctic (as that term is defined in section 112 of the Arctic Research and Policy Act of 1984 (15 U.S.C. 4111)); and (B) operated for a period of 30 years; (2) the acquisition of services and the operation of each vessel begins on the same date; and (3) the periods for conducting Coast Guard missions in the Arctic are of equal lengths. (d) Use of Information.—In formulating cost pursuant to subsection (a), the National Academy of Sciences may utilize information from other Coast Guard reports, assessments, or analyses regarding existing Coast Guard Polar class icebreakers or for the acquisition of a polar icebreaker for the Federal Government. 10 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Appendix B MISSION NEED, THE POLAR ENVIRONMENT, AND ICEBREAKER CAPABILITY The United States has strategic national interests in the Arctic and the Antarctic. For more than 30 years, studies have emphasized the need for the United States to maintain polar icebreaking capability and have reaffirmed the importance of U.S. presence and leadership in promoting stewardship and in conducting science and research in high latitude regions. A U.S. presence in high latitude regions requires reliable year-round access to support economic interests, search and rescue needs, defense and security readiness, environmental protection, maritime mobility, and scientific research. In the Antarctic, the United States maintains three year-round research facilities and verifies compliance with international treaty obligations, both of which may require icebreaking ability during any season. In the Arctic, the United States conducts scientific research, supports its citizens who live and work in the region, and maintains commercial and political relations with the other seven Arctic nations. Since the Navy transferred all icebreaking responsibility in 1965, the United States Coast Guard (USCG) has performed the nation’s primary icebreaking duties, as defined in Title 14 USC § 2 (see https://www.gpo.gov/fdsys/pkg/USCODE-2011-title14/pdf/USCODE-2011title14-partI-chap1-sec2.pdf). USCG’s six major operational mission programs oversee 11 statutory missions as outlined in the Homeland Security Act of 2002. As detailed in its 2013 Mission Need Statement, USCG must ensure that it can support current and future icebreaking requirements in the polar regions (DHS 2013). U.S. polar ice operations support nine of the Coast Guard’s 11 statutory missions (DHS 2013; O’Rourke 2017b). In support of the research stations in the Antarctic, the USCG mission—called Operation Deep Freeze—requires a heavy icebreaker to break through the ice to reach McMurdo Station each January. After it creates a channel through the ice, the heavy icebreaker will need to keep the channel open and escort resupply vessels to prevent them from being encased in the ice. The summer Arctic sea ice cover has continued to decrease over the past 30 years, although significant areas are still ice covered during the summer and the other seasons. Even with the decreased summer sea ice in the polar regions, the need for polar icebreakers will not be eliminated. Commercial and civilian traffic arising from emerging economic opportunities and potential military operations is likely to grow, and such activities would require more support from polar icebreaking (NRC 2007; O’Rourke 2017b). For example, the Arctic Marine Shipping Assessment 2009 Report (Arctic Council 2009) documented that cruise ship traffic had increased dramatically around Greenland; also, in 2016, the cruise ship Crystal Serenity made a transit through the Northwest Passage. 4 USCG owns two heavy-duty polar icebreakers: the Polar Star, which originally entered service in 1976, and the Polar Sea, which entered service in 1978 and has been out of commission since 2010, when it was placed in caretaker status. The Polar Star, which had been in dry dock, was refurbished and reentered service in 2013. USCG also owns a medium-duty polar icebreaker, the Healy, which entered service in 2000 and is primarily devoted to science missions in the Arctic. For many years, the primary need for a heavy-duty polar icebreaker has been for support of science missions and Operation Deep Freeze in the Antarctic. 4 See https://www.nytimes.com/2016/09/25/opinion/sunday/where-ice-once-crushed-ships-open-waterbeckons.html; also, https://rctom.hbs.org/submission/the-battle-at-the-top-of-the-world/. 11 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs An examination of USCG’s aging fleet of heavy polar icebreakers makes the need for a modern fleet evident. The Polar Star is more than 10 years beyond its intended 30-year service life, and the Healy is halfway through its 30-year projected life. Even after refurbishment in 2012, the Polar Star’s service would only extend until 2023. Ten years have passed since the previous 2007 National Academies report stated that the Polar Star and the Polar Sea “are becoming inefficient to operate…require substantial and increasing maintenance efforts to keep vital ship systems operational, and technological systems are becoming increasingly obsolete. This situation has created major mission readiness issues” (NRC 2007, 15). The lead time for completing a new heavy polar icebreaker is reported to be at least 4 years, which suggests starting construction as soon as 2019. USCG performs multiple missions in support of its statutory missions and U.S. interests in the polar regions, and it will require additional polar icebreakers to fill a potential capability gap between the end of service life of the Polar Star and the acquisition of a new heavy-duty polar icebreaker. Acquisition of new polar icebreakers poses difficult budget trade-offs for USCG, which is in the midst of a multiyear, billion dollar plan to update its vast and aged capital assets. The plan provides for acquisition of new cutters each year at an annual cost that leaves little for all other assets, including polar icebreakers. Current budget constraints are compounded by high cost estimates. With limited exceptions, U.S. law requires that vessels operated by the U.S. government be built by a U.S. shipyard, which has not built a heavy-duty polar icebreaker since the 1970s (O’Rourke 2017b). The cost of building a heavy-duty icebreaker in the United States is estimated at $1 billion, roughly three times what a foreign-built icebreaker is estimated to cost. The anticipated high cost and federal budget constraints have led Congress to request a study to identify options for procuring and operating a polar icebreaker at the lowest possible life-cycle cost. The following sections discuss the missions and icebreaking needs of the United States, the changing polar environments, and current and future U.S. icebreaking capability. USCG Missions USCG is a military service and branch of the United States armed forces, according to Title 14 of the U.S. Code, with seven primary duties (see 14 U.S. Code § 2—Primary duties). Primary duty number four 5 makes USCG the principal provider of icebreaking capabilities. USCG has six major operational mission programs, which oversee 11 statutory missions. 6 Of the 11 missions (listed below), six are considered “non–homeland security missions” and five are considered “homeland security missions.” For USCG, a “Mission Need Statement” identifies the changes necessary for a program to satisfy a mission deficiency or to enhance a capability. The “need” can be met by either material or nonmaterial solution. The Polar Icebreaker Mission Need Statement outlines the material gaps for the polar icebreaker program. Polar Ice Operations cover nine (bolded below) 5 See 14 U.S. Code § 2 (https://www.gpo.gov/fdsys/pkg/USCODE-2009-title14/pdf/USCODE-2009title14-partI-chap1-sec2.pdf). USCG “shall develop, establish, maintain, and operate, with due regard to the requirements of national defense, aids to maritime navigation, ice-breaking facilities, and rescue facilities for the promotion of safety on, under, and over the high seas and waters subject to the jurisdiction of the United States.” 6 See http://www.overview.uscg.mil/Missions/. 12 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs • 1. 2. 3. 4. 5. 6. of the 11 USCG missions; descriptions of all 11 missions are found in the Mission Need Statement (DHS 2013, 2–4). Six non–homeland security missions Marine safety Search and rescue Aids to navigation Living marine resources Marine environmental protection Ice operations • 1. 2. 3. 4. 5. Five homeland security missions Ports, waterways, and coastal security Defense readiness Other law enforcement Drug interdiction (not specifically related to polar icebreakers) Migrant interdiction (not specifically related to polar icebreakers) • • • • • The authority of USCG in polar regions is also specified in Titles 16, 33, 42, 43, 46, and 50 of the U.S. Code (DHS 2013; NRC 2007). 7 In addition to meeting statutory mission requirements, the icebreakers enable the country to meet other national goals. Icebreakers are a critical component of the Arctic and Antarctic strategies, as evidenced in presidential and national security directives and in agency agreements on polar policy and icebreaking. The United States Antarctic Program, managed by the National Science Foundation (NSF), was established in Presidential Memorandum 6646 8 in 1982. Policies for the Antarctic are shaped mainly by the Antarctic Treaty of 1959. They include Use of “Antarctica for peaceful purposes only,” Facilitation of “scientific research in Antarctica,” Facilitation of “international scientific cooperation in Antarctica,” Facilitation of “the exercise of the rights of inspection provided for in the Article VII of the Treaty,” and Preservation and conservation of “living resources in Antarctica” (DHS 2013, 6). Similarly, visible U.S. presence and maintenance of an active program have been of national importance as evidenced by pursuit of four fundamental objectives from Presidential Decision Directive 26. 9 Arctic policy is often set on the national level by presidential and national security directives to meet “the national security and homeland security needs relevant to the Arctic region, protecting the Arctic environment and conserving its biological resources, and ensuring that natural resource management and economic development in the region are environmentally sustainable” (DHS 2013, 6). For example, National Security Presidential Directive (NSPD) 66– Homeland Security Presidential Directive (HSPD) 25, signed by President George W. Bush in 7 A more detailed list of USCG’s authority under the U.S. Code is given by DHS 2013, Table 1.2, p. 5, and by NRC 2007, Appendix C, pp. 113–116. 8 https://www.nsf.gov/geo/plr/ant/memo_6646.jsp. 9 See PDD/NSC-26, 1994 (https://fas.org/irp/offdocs/pdd/pdd-26.pdf). 13 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 2009, emphasizes the continued importance of U.S. presence in the Arctic by establishing an Arctic Region Policy (NSPD 66/HSPD 25). 10 President Obama continued to emphasize the Arctic Region with the 2013 National Strategy for the Arctic Region (White House 2013); the 2014 Implementation Plan for the National Strategy for the Arctic Region (White House 2014); and Executive Order 13689, Enhancing Coordination of National Efforts in the Arctic (White House 2015), which established the Arctic Executive Steering Committee. The 2014 Implementation Plan aimed to “sustain federal capability to conduct maritime operations in iceimpacted waters” by ensuring that the United States “maintains icebreaking and ice-strengthened ship capability with sufficient capacity to project a sovereign U.S. maritime presence, support U.S. interests in the Polar Regions, and facilitate research that advances the fundamental understanding of the Arctic” (White House 2014, 8). 11 Scientific Missions Nation’s Need for and Support of Science The United States has a long-standing commitment to and record of supporting ground-breaking scientific research and exploration in the polar regions, including the ice-covered waters around Antarctica and the Arctic Ocean basin. Continued leadership in polar science research requires that the United States maintain access to these regions (NRC 2007). Polar research is critical both for advancing fundamental discovery in numerous disciplines and for understanding dramatic ongoing environmental changes and the broader impacts of those changes, including impacts on human communities. The U.S. Antarctic Program provides many resources that describe the importance of Antarctic and Southern Ocean research to the nation, 12 and the significance of Arctic research was articulated by science ministers from 25 governments, including the eight Arctic States, at the recent Arctic Science Ministerial. 13 Polar Icebreakers and the Support of Science The importance of icebreaking ships for enabling scientific research in the polar regions has been discussed in a number of recent Academies reports, which have emphasized the growing need for ice-capable ships that provide access to the Arctic and the Antarctic. A previous committee concluded that research support missions and USCG’s mission are compatible and that configuring USCG ships with “appropriate science facilities” can be advantageous and costeffective (NRC 2007, 9). Shipboard access to the polar regions throughout the year is essential 10 See https://fas.org/irp/offdocs/nspd/nspd-66.htm. 11 https://obamawhitehouse.archives.gov/sites/default/files/docs/implementation_plan_for_the_national_stra tegy_for_the_arctic_region_-_fi....pdf. 12 The reasons for performing scientific research in the Antarctic are given at https://www.nsf.gov/geo/plr/antarct/treaty/opp10001/big_print_0910/bigprint0910_1.jsp. 13 This event, which occurred on September 28, 2016, discussed the importance of improving collaborative science efforts in the Arctic. See https://obamawhitehouse.archives.gov/the-press-office/2016/09/28/joint-statement-ministers. 14 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs for answering critical research questions for various science fields on subjects such as ocean–ice interactions, marine ecosystems, and marine food webs (NRC 2014; NRC 2015b). Heavy polar icebreakers provide access to the Antarctic and support science missions in the region by breaking out a channel each year (Operation Deep Freeze) so that ships can deliver vital supplies to McMurdo Station and South Pole Station, and they carry out a wide array of other field activities. Icebreakers occasionally escort research ships for studies of difficult-to-reach polar waters, such as the Amundsen Sea Embayment, which is a critical area for studying the West Antarctic Ice Sheet (NRC 2015c). However, the nation’s “aging and dwindling” polar icebreaking capability jeopardizes the accomplishment of this important research. This concern was recognized recently by the U.S. Arctic Research Commission. 14 Icebreakers and Other Agencies The National Aeronautics and Space Administration (NASA), the National Oceanic and Atmospheric Administration (NOAA), the Office of Naval Research (ONR), the Bureau of Ocean Energy Management (BOEM), and NSF all support oceanographic research projects in polar regions, many of which require vessels with science and ice navigation capability. NSF’s mission is the conduct of basic research; NOAA has significant interest in fisheries ecosystems, seafloor mapping of the Extended Continental Shelf in support of the Law of the Sea, navigation, and weather systems; NASA’s mission includes discovery and understanding of earth system science; BOEM has described ecosystems in support of science-informed decisions used in responsible stewardship of Arctic environments during development of marine mineral and energy resources; and the Navy’s national security interests include Arctic navigation. The challenging nature of polar oceanographic work requires considerable collaboration across agencies and sharing of limited assets, and USCG and 15 other agencies collaborate and share through regular participation in the Interagency Arctic Research Policy Committee. In view of the pivotal role of polar oceans in global circulation and earth and ecosystem processes and their national security importance, maintenance of polar oceanographic research capability is vital for the nation. As the agency charged with support of basic research in geosciences and biosciences, NSF is the largest federal sponsor of polar oceanographic projects and takes a leading role in operating research vessels on behalf of the nation. NSF owns or operates three ice-capable vessels: the Research Vessel (R/V) Sikuliaq, the R/V Laurence M. Gould (Gould), and the R/V Nathaniel B. Palmer (Palmer). While NSF is the primary sponsor of cruises on the Sikuliaq, the Palmer, and the Gould, other agencies, such as NOAA, ONR, and NASA, have acquired ship time on these vessels through interagency cooperative arrangements for their own missionrelated science. Funding agencies also have access to the USCG Cutter Healy, a medium icebreaker built as a science platform to support research and agency objectives primarily in the Arctic. The Healy has significant science capability and is available for science cruises for 3 or 4 months per year, primarily on behalf of NSF, NOAA, and ONR. NSF’s Antarctic Program also requires a heavy icebreaker to open a shipping channel to McMurdo Station each year, typically in January. This mission is beyond the icebreaking capability of any of the research icebreakers listed above, including that of the Healy. The 14 The most recent Report on the Goals and Objectives for Arctic Research appears at https://www.arctic.gov/reports_goals.html. 15 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs channel extends from the ice edge as far as 100 miles to McMurdo Station’s ice pier and allows vessels carrying food, fuel, and other supplies to reach the station, where they are stored or distributed to field camps or Amundsen–Scott South Pole Station. In the past, this function has been served by the heavy icebreakers Polar Sea or Polar Star. As these ships fell into disrepair, the Antarctic Program has been required to charter foreign vessels, such as the Russian icebreakers Krasin and Vladimir Ignatyuk and the Swedish icebreaker Oden, to fulfill its mission of maintaining research stations and supporting science. The charter approach has distinct drawbacks. After several years of successfully breaking the channel to McMurdo and supporting the U.S.–Swedish science partnership, the Swedish Maritime Administration determined that Oden was needed in the Arctic year-round and therefore withdrew from the arrangement (O’Rourke 2017b). The Krasin conducted the 2006 breakout of McMurdo but lost a propeller during the mission. Although it completed the mission, the Krasin was unavailable afterward, having been chartered by a private company to work in the Arctic (NRC 2007). The lack of available heavy icebreakers has created a critical gap in needed services. While U.S. vessels provide significant access to ice-covered regions, the lack of heavy icebreaking capability has limited the research community to questions in regions accessible to medium icebreakers at best. The need for research-capable heavy icebreakers has been acknowledged in numerous studies (NRC 2007; NRC 2014; UNOLS 2012). However, the construction of a dedicated, science-capable heavy icebreaker is costly, and no single science agency has a sufficient budget to undertake it. Scientists have sailed on heavy icebreakers such as the Polar Sea and the Polar Star and have obtained novel data that would otherwise be unavailable to the research community, because those ships can access ice-covered regions inaccessible by other research vessels, including the Healy. For example, data collected during the Trans-Arctic Section in 1994 on the Polar Sea revealed greater-than-expected levels of primary production (Gosselin et al. 1997). 15 Similarly, the Oden provided a unique platform and access to Antarctic ice-covered seas that U.S. vessels do not have. However, the Polar Sea, the Polar Star, and the Oden are not built for science, and the ability to conduct science operations on these platforms is limited. Historically, science of opportunity has been accommodated on polar class vessels during the Antarctic breakout and on USCG Arctic deployments, but the scope of such science is limited by the science capabilities of those heavy icebreakers and the time requirements of the primary mission. Increasingly, investigation of research questions requires access to polar seas in winter or deeper penetration into ice-covered regions than current capabilities allow (NRC 2014). The availability of polar icebreakers with a greater capability would enable new research in both regions (NRC 2007). This suggests that a U.S.-owned and -operated heavy icebreaker with scientific capability could serve science agencies and the research community as well as USCG. The Healy is a good example of a science-capable ship that serves USCG as well as the other agencies. 15 For examples of data obtained from USCG heavy icebreakers, see Gosselin et al. 1997, Johnson and Niebauer 1995, and U.S. Army Cold Regions Research and Engineering Laboratory 1996. 16 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Changing Conditions and Activity in the Polar Regions The dramatic changes occurring across the Arctic region have been summarized in numerous reports, including the recent Snow, Water, Ice and Permafrost in the Arctic assessment, which was developed by leading Arctic scientists (AMAP 2017). As noted in the report, “With each additional year of data, it becomes increasingly clear that the Arctic as we know it is being replaced by a warmer, wetter, and more variable environment. This transformation has profound implications for people, resources, and ecosystems worldwide” (AMAP 2017, 3). The assessment notes that sea ice thickness in the Arctic Ocean during the summer has declined by 65 percent between 1975 and 2012, and sea ice extent (while variable) also shows a long-term downward trend. Such changes actually increase ice-related hazards, because sea ice is becoming more mobile and less predictable. The Arctic Ocean will continue to be ice covered during the winter season, but the lengthening of the shoulder seasons and the ice-free summer season provide greater opportunity and temptation for vessel access. As once-inaccessible waters have opened up, human industrial and economic activity related to oil and gas exploration and production, mining, fishing, commercial shipping, and tourism has grown rapidly (GAO 2016; O’Rourke 2017a). These activities raise opportunities for economic growth and development of Arctic-based communities, but they also raise many risks that could affect a fragile Arctic ecosystem and lead to greater likelihood of events requiring icebreaker responses. Changes in the Arctic environment can have numerous global-scale influences as well— for example, through sea level rise (from loss of the Greenland ice sheet), feedbacks that amplify global climate change (from permafrost carbon emissions and changing albedo due to loss of ice and snow cover), influences on mid-latitude weather patterns (from Arctic warming influences on the behavior of the jet stream), and risks to major fisheries resources (NRC 2015a). The protections of the Antarctic Treaty, signed in 1959, have lessened the impact of human activities in Antarctica. However, the Antarctic continent and the Southern Ocean have important influences on the Earth system, including ocean circulation, the distribution of heat and regulation of climate, and the potential for significant sea level rise with loss of the West Antarctic Ice Sheet (NRC 2015b). Access to the region helps the scientific community to improve its understanding of how Antarctic influences can affect U.S. national interests. Current Capacity The United States requires a reliable polar icebreaker fleet to project an active and influential national presence in the polar regions throughout the year. As mentioned above, USCG has three multimission polar icebreakers in its inventory: the Polar Star, the Polar Sea, and the Healy (see Table B-1). In addition to performing the statutory missions of other USCG ships, the polar icebreakers support scientific research. Of the three, only the Polar Star and the Healy remain in active service. The Polar Sea was removed from service in 2011 after a major engine casualty in 2010, and it remains out of service. The Polar Star’s life extension in 2011–2012 is estimated to end between 2020 and 2024. The original design service life for polar icebreakers is 30 years. Of its two polar icebreakers, USCG reports that only the Polar Star is regarded as a “heavy” polar icebreaker capable of independently performing the annual breakout and resupply of McMurdo Station in the Antarctic. The Healy is a younger ship, commissioned in 2000, but it is a less 17 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs powerful icebreaker than those of the polar class and cannot operate independently at various times of the year in the Arctic and the Antarctic. The Polar Star currently performs one annual mission—the McMurdo resupply. On its return from the Antarctic, the Polar Star goes into dry dock for maintenance and repairs. The TABLE B-1 Current USCG Polar Icebreaker Information Year Entered Maxi Service Polar LOA Beam mum Displaceme (years Icebreaker (feet) (feet) Power nt (tons) in (HP) service) Polar Star 399 83.5 75,000 13,200 Polar Sea 399 83.5 75,000 13,200 Healy 420 82.0 30,000 16,000 1976 (41) 1978 (39) 2000 (17) Icebreaking Crew Capability Size at 3 knots (feet) 6 6 4.5 Detachmenta 134– 146 134– 146 67– 85 20–35 20–35 35–50 NOTE: HP = horsepower; LOA = length overall. a Detachments can include scientists and other personnel. SOURCE: NRC 2007; ABS Consulting 2010b; DHS 2013; O’Rourke 2017b. Table generated by the committee. loss of its only heavy polar icebreaker would leave the United States without a key capability. 16 In view of the physical nature of icebreaking, the age of the ship, and the condition of its critical systems, the ship requires annual dry-docking to maintain its capacity. Concerns that the Polar Star could become stuck in the ice while performing its mission (without adequate redundancy in the fleet) or might not be able to leave dry dock in any given year are legitimate. The Polar Star’s reliability will continue to decline and its maintenance costs will continue to grow as its operating systems and technology become increasingly obsolete. The Polar Sea, inactive since its 2010 engine casualty, has become a parts donor for the Polar Star. There is considerable risk in assuming that the Polar Star can remain fully operational until 2020–2024, even with its recent extensive revitalization (ABS Consulting 2011). Current and Future Needs The need for the United States to maintain polar icebreaking capability and sovereign presence and leadership in the polar regions has been reaffirmed in studies for more than 30 years (USCG 1984; USCG et al. 1990; NRC 2007; DHS 2013; NSC 2014; CFR 2017; see also PDD/NSC-26 and NSPD-66/HSPD-25). The 2007 National Research Council (NRC) committee stated that the U.S. national presence in the high latitude regions required reliable year-round access by ships 16 USCG Commandant, ADM Paul Zukunft, speaking at the Center for Strategic and International Studies, May 3, 2017. 18 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs that could break thick, multiyear ice and that are operated by USCG to support its statutory requirements (NRC 2007). To meet U.S. national interests, the 2007 report recommended construction of two new polar icebreakers to replace the Polar Sea and the Polar Star and preservation of the number of heavy-duty polar icebreakers in the U.S. fleet at that time. Two ships were needed to meet simultaneous operations, maintenance, and redundancy requirements. Although it is not a formalized agency agreement, the U.S. Navy’s 2010 Naval Operations Concept (NOC) for Implementing Maritime Strategy describes how the U.S. Navy and USCG operate together to fulfill the Navy’s need for continuous icebreaker presence in the Arctic and the Antarctic. 17 According to the NOC document, “Emerging and expanding missions in the Arctic and Antarctic Polar Regions highlight the importance of these vessels in the context of the National Fleet” (U.S. Navy 2010, 91). Icebreakers align with five of six parts of the Navy’s Maritime Strategy Core Capabilities, including forward presence, maritime security, humanitarian assistance and disaster response, sea control, and deterrence, and “are the only means of providing assured surface access” (U.S. Navy 2010, 92). The 2010 NOC document calls for a continuous surface ship presence in both the Arctic and the Antarctic to ensure access to and assertion of U.S. policy in the two polar regions. Maintaining presence in the regions requires three polar icebreakers each for the Arctic and the Antarctic. Accordingly, the current fleet is not able to meet the continuous presence requirement in either polar region, nor does the current fleet meet a requirement for redundancy. The High Latitude Study Mission Analysis Report, released in 2010, identified USCG’s responsibilities in the Arctic and the Antarctic and projected USCG’s activities during the next 30 years. The report indicates capability and capacity gaps and how those gaps will affect USCG’s mission areas. In the Arctic, the following four missions will be significantly affected: defense readiness; ice operations; marine environmental protection; and ports, waterways, and coastal security. In the Antarctic, capability and capacity gaps will significantly affect defense readiness and ice operations (see Figure B-1). FIGURE B-1 Impacts of gaps on performance of USCG’s 11 missions. (Source: ABS Consulting 2010a, 10, Table 3). 17 The 2010 NOC document states the following: “The current Icebreaker demand requires a 1.0 presence in the Arctic and 1.0 in the Antarctic” (U.S. Navy 2010, 101, Endnote 30). 19 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Future gaps may affect recurring mission requirements, such as the McMurdo resupply, and could affect USCG’s readiness to respond to less predictable, quickly occurring events, such as those involving the use of military capabilities. The rapid aging and deterioration of the USCG polar icebreaker fleet are the main reasons for this mission impact (ABS Consulting 2010a). According to Title 14 of the U.S. Code, the United States has an obligation to maintain its polar icebreaking capacity. To mitigate the growing icebreaking capability gap requires the country to recapitalize its polar icebreaking fleet. USCG is the one federal government organization that is mandated to conduct operations involving icebreaking, law enforcement, and military exercises. The authoring committee of the 2007 NRC report identified three serious gaps arising from reduced icebreaking capability: ability to perform the McMurdo break-in and resupply, USCG missions in the Arctic, and guaranteed access to ice-covered seas (NRC 2007, 81). On the basis of modeling, the High Latitude Study concludes that USCG requires up to six icebreakers—three heavy and three medium polar icebreakers—to accomplish its statutory missions. To maintain the continuous presence in both polar regions called for in the NOC 2010 document, USCG requires six heavy and four medium icebreakers. Figure B-2 summarizes USCG’s requirements for meeting its mission demands in the high latitude regions and indicates that the required number of icebreakers does vary on the basis of statutory missions. Failure to recapitalize the nation’s polar icebreaking capability will leave USCG unable to maintain an active and influential presence or to meet current and projected mission demands in the polar regions (DHS 2013). FIGURE B-2 Summary of icebreaker capacity demand and current capacity gap. IB = icebreaker. (Source: DHS 2013, 9, Table 1.3.3.) As described above, USCG is a military service and branch of the United States armed forces, according to Title 14 of the U.S. Code, and the primary provider of icebreaking capabilities. USCG oversees 11 statutory missions (listed above) that are clearly documented; nine of the 11 missions encompass polar ice operations. Previous studies have shown the need for polar icebreakers to fulfill USCG statutory missions and to meet other national goals. These studies have indicated ever-widening gaps in the nation’s ability to meet its requirements in the high latitude regions. Addressing Limited Capability As detailed in Appendix D, the committee offers an acquisition strategy that will address these gaps. In addition, the committee presents design and cost projections for new polar icebreakers. 20 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs While the Mission Need Statement indicates that “a fleet of up to six” polar icebreakers (three heavy and three medium) may be required, the committee suggests that four heavy icebreakers will meet the current capacity and capability gaps identified in the Mission Need Statement. The first three heavy icebreakers would meet USCG’s need for its statutory missions and a continuous presence in the Arctic, and the fourth heavy icebreaker could perform the annual McMurdo breakout, with one of the first three icebreakers providing emergency backup. As noted in Appendix D, designing for a single class of polar icebreaker rather than for two (one heavy and one medium) is likely to provide considerable cost savings. In addition, the acquisition strategy calls for a block buy for the four ships. The cost projection for the fourth heavy icebreaker suggests that it could be built for a lower cost than the first ship of a medium icebreaker class, which would provide additional savings. Once the new polar icebreakers are in service, USCG can reassess the capacity gap and determine whether additional ships are needed. Transition Strategy The authors of the 2007 NRC report emphasized not only the need to build new polar icebreakers but also the need to maintain USCG’s existing polar class icebreaker (the Polar Sea) as the interim capability during construction. The 2007 NRC report presented two strategies to keep the Polar Sea operational through 2014 as a backup to the new proposed polar icebreakers. Both strategies depended on the Polar Sea receiving its major maintenance upgrade in 2006. The first strategy required the Polar Sea to be taken out of service for more than an entire year. The second strategy placed the Polar Sea in an enhanced maintenance program (EMP) to receive specific annual upgrades but allowed the ship to stay in service for the rest of the year. Both strategies targeted major systems of the Polar Sea identified for replacement or upgrades (NRC 2007, 87–88): • • • • • • • • Engine and propulsion system, Black and gray water systems, Boilers and evaporators, Cranes, Navigation and electronic systems, Controllable pitch propeller systems and hydraulic control, Habitation spaces and systems, and Science laboratory facilities. However as of 2017, the Polar Sea is no longer being maintained for use as a polar icebreaker; it is now considered a parts donor in support of the Polar Star. The current committee’s notional total program schedule for the construction of four new polar icebreakers assumes a start date for the first polar icebreaker in the third or fourth quarter of 2019, as estimated by USCG. Such a schedule would commission the first ship in May 2024 and the second ship in July 2025 (see Appendix D, Figure D-2, for total program schedule). Even if this schedule is met, USCG may need to keep the Polar Star operational as a backup until the second new polar icebreaker is commissioned. As did the authoring committee of the 2007 report, the current committee suggests that USCG implement an EMP as a strategy for keeping 21 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs the Polar Star mission capable until July 2025. As mentioned above, continued operation of the Polar Star does introduce additional risk, including that of catastrophic failure. While touring the Polar Star in April 2017, the committee learned from the engineering staff that the ship is placed in dry dock annually for maintenance—primarily because of the controllable pitch propeller 18 units. This annual maintenance ranges in cost from $2 million to $9 million and averages an estimated $5 million. Implementation of an EMP could allow the Polar Star to receive necessary upgrades and continue to operate until the second new polar icebreaker is in service. If the EMP is performed in conjunction with the ship’s current annual dry-docking, the committee believes that the Polar Star’s operational life could be extended through 2025. USCG could develop the EMP specifically for the Polar Star, with upgrades, repairs, and replacements of critical operating components recognized by the current engineering staff and originally identified as issues in the Polar Sea 10 years earlier. The EMP could address maintenance and performance problems with the controllable pitch propeller systems, evaporators and boilers, engine gears, main propulsion systems, and sanitation systems. In the committee’s judgment, the proposed EMP could be scheduled and accomplished within USCG’s present service availability for the Polar Star and within the current average annual expenditures estimated at $5 million. 19 References Abbreviations ABS American Bureau of Shipping AMAP Arctic Monitoring and Assessment Programme CFR Council on Foreign Relations DHS Department of Homeland Security GAO Government Accountability Office NRC National Research Council NSC National Security Council UNOLS University-National Oceanographic Laboratory System USCG U.S. Coast Guard ABS Consulting. 2010a. United States Coast Guard High Latitude Region Mission Analysis (HLRMA) Capstone Summary. Arlington, Va. ABS Consulting. 2010b. United States Coast Guard High Latitude Study Mission Analysis (HLRMA) Report Volume 1: Polar Icebreaking Needs. Arlington, Va. ABS Consulting. 2011. U.S. Polar Icebreaker Recapitalization: A Comprehensive Analysis and Its Impacts on U.S. Coast Guard Activities. Arlington, Va. 18 More detail about maintenance issues with controllable pitch propellers is given by USCG 2013, p. 6. Approximate costs of major system upgrades for the Polar Star and estimates for the Polar Sea are given by USCG 2013, Appendix B. 19 22 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs AMAP. 2017. Snow, Water, Ice and Permafrost in the Arctic (SWIPA). Summary for PolicyMakers. Oslo, Norway. http://www.amap.no/documents/download/2888. Arctic Council. 2009. Arctic Marine Shipping Assessment 2009 Report. http://www.institutenorth.org/assets/images/uploads/articles/AMSA_2009_Report_2nd_print.pdf CFR. 2017. Arctic Imperatives Reinforcing U.S. Strategy on America’s Fourth Coast. New York. DHS. 2013. Polar Icebreaker Recapitalization Project Mission Need Statement Version 1.0. Washington, D.C. GAO. 2016. Coast Guard: Arctic Strategy Is Underway, but Agency Could Better Assess How Its Actions Mitigate Known Arctic Capability Gaps. GAO-16-453. Washington, D.C. Gosselin, M., M. Levasseur, P. A. Wheeler, R. A. Horner, and B. C. Booth. 1997. New Measurements of Phytoplankton and Ice Algal Production in the Arctic Ocean. Deep Sea Research Part II: Topical Studies in Oceanography, Vol. 44, No. 8, pp. 1623–1625, 1627–1644. http://www.sciencedirect.com/science/article/pii/S0967064597000544. Johnson, M., and H. J. Niebauer. 1995. The 1992 Summer Circulation in the Northeast Water Polynya from Acoustic Doppler Current Profiler Measurements. Journal of Geophysical Research, Vol. 100, No. C3, pp. 4301–4307. http://onlinelibrary.wiley.com/doi/10.1029/94JC01981/pdf. NRC. 2007. Polar Icebreakers in a Changing World: An Assessment of U.S. Needs. National Academies Press, Washington, D.C. NRC. 2014. The Arctic in the Anthropocene: Emerging Research Questions. National Academies Press, Washington, D.C. NRC. 2015a. Arctic Matters: The Global Connection to Changes in the Arctic. National Academies Press, Washington, D.C. NRC. 2015b. Sea Change: 2015–2025 Decadal Survey of Ocean Sciences. National Academies Press, Washington, D.C. NRC. 2015c. A Strategic Vision for NSF Investments in Antarctic and Southern Ocean Research. National Academies Press, Washington, D.C. NSC. 2014. Implementation Plan for the National Strategy for the Arctic Region. White House, Washington, D.C. http://www.virginia.edu/colp/pdf/national-strategy-arctic-region.pdf. O’Rourke, R. 2017a. Changes in the Arctic: Background and Issues for Congress. Congressional Research Service, Washington, D.C., May 16. https://fas.org/sgp/crs/misc/R41153.pdf. 23 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs O’Rourke, R. 2017b. Coast Guard Polar Icebreaker Modernization: Background and Issues for Congress. Congressional Research Service, Washington, D.C., March 20. https://fas.org/sgp/crs/weapons/RL34391.pdf. UNOLS. 2012. A New U.S. Polar Research Vessel (PRV): Science Drivers and Vessel Requirements. Final Report of the UNOLS PRV SMR Refresh Committee. U.S. Army Cold Regions Research and Engineering Laboratory. 1996. The 1994 Arctic Ocean Section: The First Major Scientific Crossing of the Arctic Ocean. Special Report 96-23. Hanover, N.H. http://www.dtic.mil/dtic/tr/fulltext/u2/a322259.pdf. USCG. 1984. United States Polar Icebreaker Requirements Study. Washington, D.C. USCG. 2013. USCGC Polar Sea Business Case Analysis: 2013 Report to Congress. Washington, D.C., Nov. 7. USCG, Department of Transportation, Department of Defense, NSF, and Office of Management and Budget. 1990. Polar Icebreaker Requirements Report. Washington, D.C., Oct. U.S. Navy. 2010. Naval Operations Concept 2010: Implementing the Maritime Strategy. White House. 2013. National Strategy for the Arctic Region. Washington, D.C., May 10. White House. 2014. Implementation Plan for the National Strategy for the Arctic Region. https://obamawhitehouse.archives.gov/sites/default/files/docs/implementation_plan_for_the_nati onal_strategy_for_the_arctic_region_-_fi....pdf. White House. 2015. Executive Order 13689—Enhancing Coordination of National Efforts in the Arctic (3 CFR 13689, Executive Order 13689). Washington, D.C., Jan. 21. 24 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Appendix C OWNERSHIP AND OPERATING MODELS The first consideration with regard to the lease–purchase and ownership decision for the U.S. Coast Guard (USCG) is whether the polar icebreaker is a USCG cutter. A USCG cutter must be a public vessel to perform many of USCG’s statutory missions (GAO 2016). Under federal law, a public vessel must be owned by the United States or on a demise charter [46 USC 2101(24)], which USCG would crew, operate, and maintain, but not own (46 CFR 169.107). In the past, the U.S. government has obtained vessels through direct purchase or with lease financing (demise chartered). Most USCG and Navy vessels have been obtained through direct purchase. There are several examples of the use of lease financing for noncombatant vessels by the Navy’s Military Sealift Command (MSC), which is responsible for the chartering or leasing of auxiliary vessels 20 for the Department of Defense: • • In 1982, the Navy entered into long-term leases for five T-5 replacement tankers. They were to be purpose-built for MSC and chartered for a 5-year base term with three 5-year options (total term charter with all options of 20 years for each vessel). Civilian mariners operated all five tankers. Also in 1982, the Navy awarded 13 contracts for the building and chartering of maritime prepositioning ships (MPS). Each vessel had a term charter between the operating company and MSC with a 5-year base term plus four 5-year options (total term charter with all options of 25 years for each vessel). The MPS program included five purposebuilt ships (General Dynamics or Bobo class), three converted U.S.-built ships (Waterman class), and five converted (in a U.S. shipyard) foreign-built ships (Maersk class). Civilian mariners operated all 13 of the prepositioning ships. There was a significant contingent of Navy personnel (mostly Marines) on each MPS to maintain the prepositioned warfighting equipment on board. These leases were reviewed by the Government Accountability Office (GAO) in a June 25, 1999, report. The report reached the following conclusions (GAO 1999, 12): The Navy’s decisions in the early 1970s and early 1980s to enter into long-term ship leases were based primarily on the decision to acquire ships without a large up-front obligation of procurement funds. The Navy also believed leasing was more cost-effective than purchasing the ships. These decisions were supported by certain assumptions that were used in the absence of clear guidance. Different economic assumptions would have supported purchasing, rather than leasing, these ships. Our legal opinions clarified requirements for such leases, and current budgetary legislation and scoring guidance now emphasize up-front budgeting for such leases. The elimination of tax advantages for leasing, together with more detailed guidelines for conducting lease versus purchase analyses, will make it more difficult to support long-term leasing on a cost-effectiveness basis. 20 Auxiliary vessels are supply, research, or other noncombatant vessels. 25 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs As suggested in the 1999 GAO report, long-term leasing under more detailed guidelines can make the option less cost-effective. Current guidelines from the Office of Management and Budget (OMB) under Circular A-94 indicate that the acquisition of a polar icebreaker through a lease requires a separate lease–purchase analysis to prove that it is a less costly option than direct purchase. In addition, in accordance with OMB Circular A-11, lease–purchase and capital leases of an asset are to be scored up front, which makes avoidance of the up-front budget impact of a purchase through leasing unattractive as a budget strategy. A polar icebreaker under a long-term lease would fall under one of those leasing options as opposed to a short-term operating lease, which would not require up-front budgeting. A GAO report from 2016 on USCG’s Arctic capability included Figure C-1, which shows the factors affecting the decision to lease a polar icebreaker. FIGURE C-1 Factors affecting the decision to lease a polar icebreaker. (Source: GAO 2016, 40.) The committee’s assessment of the lease-versus-buy decision is based on the following: • • • • Identification of the various options available under the lease-versus-buy decision; The ability to meet USCG’s operational requirements, as stated in the Polar Icebreaker Operational Requirements Document (Industry Version, November 2015); The comparative cost to the government of leasing versus buying a polar icebreaker; and Operating cost impacts of the identified manning options (civilian or USCG personnel). Each of the above items is covered in the balance of this appendix. Leasing Options Leasing options were identified from two perspectives, as follows: • Capital costs: Use of leasing as a form of 100 percent financing for a ship. Lease financing is typically done with a financing company (known as the lessor) purchasing and owning the ship. The lessor then arranges for a bareboat charter (also known as a demise charter) of the vessel to the ship operator (the lessee), typically for a term of 15 to 26 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 25 years. With changes in the tax laws, leases can now include a fixed end-of-lease purchase price. Previously, leases could only include fair market value purchase clauses. • Manning options: While lease financing is not required for this option [numerous Navyowned noncombatant vessels, such as the large, medium speed roll-on/roll-off ships (LMSRs), are manned by civilian mariners], the following two manning options for polar icebreakers are examined: o Civilian mariners only (or the “MSC model”). Only licensed civilian mariners are employed on board the polar icebreaker. The civilian mariners are contracted by MSC with a private “ship manager” (such as General Dynamics’ American Overseas Marine Division or Crowley Marine) to provide a civilian crew for the icebreaker. This is usually done through a competitive bidding process. o USCG only (or the “USCG model”). Only USCG personnel are employed in operating the vessel. The existing USCG polar icebreakers (the Polar Star and the Healy) use this manning model. The committee also considered the option of a long-term lease of a polar icebreaker to perform the annual McMurdo Station break-in in Antarctica and to support other national, nonmilitary activities. The acquisition process would be similar to the National Science Foundation’s (NSF’s) agreement for the Nathaniel B. Palmer and Laurence M. Gould vessels, which were built and are owned privately by Edison Chouest Offshore. The original contract included a 10-year lease by NSF for the Palmer and a 5-year base lease with an option for a 10year extension for the Gould (ABS Consulting 2012). Construction costs for the vessels were partially amortized over the lease life (ABS Consulting 2012). NSF uses the vessels under a service contract agreement with Lockheed Martin (previously Raytheon Polar Services Company), which charters the vessels from their owner (NRC 2007). This type of lease would be an operating lease, and in accordance with OMB Circular A-11, budget authority only covers up to 5 fiscal years after the authority expires unless there is specific language in the appropriation stating otherwise (OMB 2016a). Comparative Cost of Leasing Versus Buying a Polar Icebreaker The cost of leasing versus buying a polar icebreaker was analyzed from a financial perspective. A “scoring analysis” using OMB Circular A-11 was not conducted. The committee’s cost analysis examined the likely annual lease payment for a polar icebreaker and is described in detail below. Weighted Average Cost of Capital The weighted average cost of capital (WACC) is the rate at which a company expects to pay its security holders to finance assets and is used as the discount rate in calculating the net present value of the assets. WACC is calculated as shown in Equation C-1. The parameter values are included in Table C-1. 27 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs where 𝐷𝐷 𝐸𝐸 WACC (%) = 𝑟𝑟𝐷𝐷 ∗ � � ∗ (1 − 𝑇𝑇) + 𝑟𝑟𝐸𝐸 ∗ � � 𝑉𝑉 𝑉𝑉 (Equation C-1) 𝑟𝑟𝐷𝐷 = current market rate for debt, 𝐷𝐷 debt = , 𝑉𝑉 total value 𝑇𝑇 = tax rate, 𝑟𝑟𝐸𝐸 = cost of equity, and equity 𝐸𝐸 = . 𝑉𝑉 total value Cost of Equity The cost of equity was calculated as the sum of the risk-free rate of return and the equity risk premium, as shown in Equation C-2. The equity risk premium is the Ibbotson value, adjusted up to account for currently low interest rates on the basis of the Saint Louis Federal Reserve’s highquality corporate bond interest rate (Ibbotson 2017; Federal Reserve Bank of Saint Louis 2017). 21 Parameter values are shown in Table C-1. Cost of equity (%) = 𝑟𝑟𝐸𝐸 = 𝑟𝑟𝑓𝑓 + 𝑟𝑟𝑝𝑝 (Equation C-2) where r f is the risk-free rate of return and r p is the equity risk premium. For this analysis, the cost of equity is 10.61 percent and the WACC is 4.6 percent. The result was an after-tax WACC of 4.6 percent. A 4.6 percent WACC after tax is considered a conservative discount rate for this analysis (i.e., it results in a lower expected lease payment to the lessor than would the use of less conservative input). 22 21 The unadjusted historical equity risk premium is 6.9 percent (from Ibbotson 2017) and is based on the average equity risk premium from 1926 through 2015. However, in the current low interest rate environment, the security market line “misses” the zero beta risk-free Treasury bond rate or the expected return on an investment. This indicates that either the equity risk premium is too low or the risk-free return on U.S. Treasury bonds is too low. The estimated adjustment to the slope of the security market line results in an adjustment of 80 to 100 basis points in the equity risk premium. The committee used a 90–basis point (0.9 percent) adjustment to the historical equity risk premium to account for this phenomenon. That adjustment is based on work by the Brattle Group with regard to returns on securities in the current low interest rate environment. That research showed that as interest rates decreased, the targeted return on equity increased. 22 The development of the WACC (after tax) was informed by a discussion with Michael Vilbert of the Brattle Group, a recognized expert on this topic. 28 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs TABLE C-1 WACC Parameters, Values, and Sources Parameter Value Source rD 4.68% D/V 0.80 T 0.35 rE 10.61% rf 2.8% 6.9% 7.8% (adj.) 0.20 rp E/V U.S. Department of the Treasury, 30-year high quality market corporate bond spot rate, from Federal Reserve Economic Data, Federal Reserve Bank of Saint Louis Committee member expertise with leveraged lease financing. This is a highly leveraged percentage that is related to the risk of a U.S.-backed lease. Internal Revenue Service Calculated as shown in Equation C-2 OMB Circular A-94 Ibbotson 2017, adjusted up by 0.9 from historical equity risk premium rate Calculated as 1 – (D/V) SOURCE: Generated by the committee. The committee calculated the cost of leasing for a company and to the government on the basis of commonly used cash flow analysis techniques accounting for depreciation, taxes, asset life, and the time value of money. Table C-2 gives the main parameter values. Table C-3 gives the cash flow analysis. Figure C-2 shows a flowchart of the calculations, which are described by column. TABLE C-2 Cash Flow Analysis: Main Parameters, Values, and Sources Parameter Value Source Vessel In accordance with committee’s estimate (average cost $791 million capital cost of a series of four heavy polar icebreakers) Asset life 30 years In accordance with the statement of task Scrap value $2.33 million MACRS % Varies LWT of 11,650 tons (same as Healy) and $200 per LWT 10-year MACRS in accordance with IRS Publication 946, How to Depreciate Property, Section 4.10 Corporate 35% Internal Revenue Service tax rate WACC 4.6% Calculated as shown in Equation C-1 Government OMB Circular A-94, Appendix C (revised November 2.8% discount rate 2016) NOTE: LWT = lightweight tonnage. MACRS = modified accelerated cost recovery system (system used for tax depreciation in the United States). SOURCE: Generated by the committee. 29 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs The basic calculations between columns in Table C-3 are described as follows. Calculations cover the 30-year asset life unless noted otherwise. Negative cash flows are identified with parentheses in the spreadsheet and are shown with a “–” symbol here. The purpose of this calculation is to estimate the bareboat charter rate and therefore the after-tax bareboat cash flow that would set the sum of net present value of the cash flow (Column I) equal to zero—in other words, the annual payment that the federal government would need to make to the charter company for the company to achieve its risk-adjusted after-tax rate of return on its investment in the vessel. FIGURE C-2 Flowchart of cash flow analysis for leasing. (Source: Generated by the committee.) Column A Year 0—vessel capital cost = –$791,000,000. 30 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Year 31—scrap value = $2,330,000. Column B Years 1 to 11—MACRS % depreciation. Column C Pretax bareboat cash flow = charter day rate * 365 days. Charter day rate = value calculated in the spreadsheet so that the net present value over 30 years is zero. Column D Vessel depreciation = –vessel capital cost * vessel MACRS % (Column B). The vessel is fully depreciated after 12 years. Column E Bareboat income = pretax cash flow (Column C) + vessel depreciation (Column D). Column F Corporate tax = –bareboat income (Column E) * corporate tax rate. Column G After-tax bareboat cash flow: Year 0 = –$791,000,000. Other years = pretax cash flow (Column C) + corporate tax (Column F). Column H 1 Discount factor = (1+WACC)𝑛𝑛−0.5 where n is the number of years (any number between 1 and 30); 0.5 accounts for payments at midyear. Column I Bareboat cash flow present value = after-tax bareboat cash flow (Column G) * discount factor (Column H). Column J Discount factor, calculated with the formula used for Column H but for the federal government [with n = 30 and rate (used in place of the WACC) = 2.8 percent; 0.5 accounts for payments at midyear]. Column K Tax flow to government present value = corporate tax (Column F) * discount factor (Column J). Column L Bareboat less tax, net government cash flow = –pretax bareboat cash flow (Column C) – corporate tax (Column F). This is the cost to the government for leasing, with account taken of the tax that the government will receive from the charter company. 31 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Column M Present value of lease = bareboat less tax, net government cash flow (Column L) * discount factor (Column J) This is the present value of the lease. The sum of the values in this column is the net present value, $939 million (shown above Column M). Finally, the committee used the Goal Seek feature in Excel (Table C-3) 23 to estimate the bareboat charter day rate by setting the net present value (sum of Column I) equal to zero and varying the bareboat charter day rate cell. The result was a bareboat charter day rate of $142,605, which is $52 million per year (the value shown in Column C) after multiplication by 365 days per year. The committee then calculated the corporate tax owed in Column F (at 35 percent; the leasing company was assumed to have other income to offset early year losses, which reduces the lease rate). The corporate tax (Column F) cash flow was reduced by the “discount factors” calculated with a rate of 2.8 percent (the OMB 2016b designated discount rate) to estimate the after-tax net present value of $123 million. There may also be a small tax payment due to the government on the interest received by a lending institution providing funds to the leasing company (the lease was assumed to be leveraged). TABLE C-3 Cash Flow Analysis Capacity Newbuild Cost BB Charter Rate/day $791,000,000 0.5 $142,605 A Year 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Scrap Difference in cost to the U.S. of direct buy versus lease financing 365 35.00% B C D Pre-Tax Bareboat Charter Vessel Vessel Vessel Capital MACRS % Cash Flow Depreciation ($791,000,000) 17.50% $52,050,774.08 ($138,425,000) 16.50% $52,050,774 ($130,515,000) 13.20% $52,050,774 ($104,412,000) 10.56% $52,050,774 ($83,529,600) 8.45% $52,050,774 ($66,839,500) 6.76% $52,050,774 ($53,471,600) 6.55% $52,050,774 ($51,810,500) 6.55% $52,050,774 ($51,810,500) 6.56% $52,050,774 ($51,889,600) 6.55% $52,050,774 ($51,810,500) 0.82% $52,050,774 ($6,486,200) $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $52,050,774 $0 $2,330,000 $2,330,000 $0 E F Bareboat Income Corporate Tax ($86,374,226) ($78,464,226) ($52,361,226) ($31,478,826) ($14,788,726) ($1,420,826) $240,274 $240,274 $161,174 $240,274 $45,564,574 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $52,050,774 $2,330,000 $30,230,979 $27,462,479 $18,326,429 $11,017,589 $5,176,054 $497,289 ($84,096) ($84,096) ($56,411) ($84,096) ($15,947,601) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($18,217,771) ($815,500) G GOAL SEEK: 4.60% $0 H I After-Tax Bareboat Leasing Firm Bareboat CF Cash Flow Discount Factor Present Value ($791,000,000) 1.0000 ($791,000,000) $82,281,753 0.9778 $80,452,157 $79,513,253 0.9348 $74,326,211 $70,377,203 0.8937 $62,893,070 $63,068,363 0.8544 $53,882,863 $57,226,828 0.8168 $46,741,979 $52,548,063 0.7809 $41,032,922 $51,966,678 0.7465 $38,794,397 $51,966,678 0.7137 $37,088,334 $51,994,363 0.6823 $35,476,188 $51,966,678 0.6523 $33,897,990 $36,103,173 0.6236 $22,514,520 $33,833,003 0.5962 $20,170,942 $33,833,003 0.5700 $19,283,883 $33,833,003 0.5449 $18,435,835 $33,833,003 0.5209 $17,625,081 $33,833,003 0.4980 $16,849,982 $33,833,003 0.4761 $16,108,969 $33,833,003 0.4552 $15,400,544 $33,833,003 0.4352 $14,723,274 $33,833,003 0.4160 $14,075,787 $33,833,003 0.3977 $13,456,776 $33,833,003 0.3802 $12,864,986 $33,833,003 0.3635 $12,299,222 $33,833,003 0.3475 $11,758,339 $33,833,003 0.3323 $11,241,242 $33,833,003 0.3176 $10,746,885 $33,833,003 0.3037 $10,274,268 $33,833,003 0.2903 $9,822,436 $33,833,003 0.2776 $9,390,475 $33,833,003 0.2653 $8,977,509 $1,514,500 0.2594 $392,933 J K U.S. Govt. Tax flow to Govt. Discount Factor Present Value 1.0000 0.9863 ($29,816,431) 0.9594 ($26,348,146) 0.9333 ($17,103,897) 0.9079 ($10,002,549) 0.8831 ($4,571,195) 0.8591 ($427,215) 0.8357 $70,278 0.8129 $68,364 0.7908 $44,609 0.7692 $64,690 0.7483 $11,933,495 0.7279 $13,260,943 0.7081 $12,899,750 0.6888 $12,548,395 0.6700 $12,206,610 0.6518 $11,874,134 0.6340 $11,550,714 0.6168 $11,236,103 0.6000 $10,930,062 0.5836 $10,632,356 0.5677 $10,342,759 0.5523 $10,061,049 0.5372 $9,787,013 0.5226 $9,520,440 0.5084 $9,261,129 0.4945 $9,008,880 0.4810 $8,763,502 0.4679 $8,524,808 0.4552 $8,292,614 0.4428 $8,066,745 0.4367 $356,148 L M BB less Tax Net Govt CF Present Value ($82,281,753.15) ($79,513,253) ($70,377,203) ($63,068,363) ($57,226,828) ($52,548,063) ($51,966,678) ($51,966,678) ($51,994,363) ($51,966,678) ($36,103,173) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($33,833,003) ($81,153,448) ($76,286,879) ($65,682,431) ($57,257,932) ($50,539,467) ($45,143,433) ($43,427,988) ($42,245,125) ($41,116,372) ($39,975,174) ($27,015,790) ($24,627,466) ($23,956,679) ($23,304,163) ($22,669,419) ($22,051,964) ($21,451,327) ($20,867,049) ($20,298,686) ($19,745,804) ($19,207,980) ($18,684,806) ($18,175,881) ($17,680,818) ($17,199,239) ($16,730,778) ($16,275,075) ($15,831,785) ($15,400,570) ($14,981,099) NOTE: The spreadsheet is available at http://onlinepubs.trb.org/onlinepubs/sp/IcebreakerLeaseBuycalculation2.xlsx. SOURCE: Generated by the committee. The net present value of the cost to the government of leasing a $791 million asset with a 30-year life (through use of a capital lease that is based on the committee’s assumptions and 23 -19% Present Value of Lease Cost to U.S. (after tax) ($938,984,627) 0.5 Cost of Direct Purchase to U.S. $791,000,000 Added cost of leasing ($147,984,627) 2.80% $123,036,160 The spreadsheet is available at http://onlinepubs.trb.org/onlinepubs/sp/IcebreakerLeaseBuycalculation2.xlsx. 32 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs analysis, including tax payments by the lessor to the U.S. Treasury, and OMB’s 2.8 percent discount rate) would be $939 million. The $939 million is $148 million, or 19 percent, more than the $791 million direct purchase cost. On the basis of the committee’s calculations, an increase in the WACC applied to the analysis (after tax) to 6 percent would raise the cost of leasing to 35 percent more than the cost of buying. Historically, the WACC (after tax) for leasing firms has been on the order of 10 to 15 percent higher than the current WACC for maritime assets. The committee would expect the cost of leasing to increase with higher WACC assumptions and thus make the leasing option even less attractive for the federal government. At a 35 percent corporate tax rate, the leasing cost is 19 percent higher than the cost of direct purchase. A reduction in the corporate tax rate from 35 percent to 0 percent would result in the cost of the lease being approximately 24 percent higher than the cost of direct purchase. The following are among the reasons for the higher cost of leasing as opposed to buying: • • The U.S. government is considered the lowest-risk borrower (U.S. government securities are considered “risk free”). Therefore, it can borrow funds at a lower cost than any other organization. The 30-year high quality market corporate bond spot rate in March 2017 was 4.68 percent (Federal Reserve Bank of Saint Louis 2017). Leasing companies require a return on equity (the current equity risk premium over the riskfree rate is on the order of 7.8 percent) that would meet the profit expectations of the lessor on the transaction. Leasing costs the government more than buying because the rate that leasing firms pay to borrow funds exceeds the rate at which the government can borrow (GAO 2016). In addition, leasing firms use equity (which costs more than debt) and require a return (profit) on the equity used (GAO 2016). This analysis does not consider the “transaction” costs inherent in a leveraged lease transaction (leveraged lease transaction costs involve legal and financial adviser fees that significantly increase the cost to the government). The conclusion that purchasing a USCG cutter for icebreaking is less costly to the government than leasing would also apply to a non-USCG option. Such an option would be to lease a U.S.-owned heavy icebreaker solely for breaking out McMurdo and supporting other scientific missions in the Antarctic. For the federal government, regardless of an asset’s use, buying is less expensive than leasing for a long-term asset life of 30 years for the two reasons described above. Under the Palmer–Gould model of a shorter-term service contract, the lease would be an operating lease as long as it met the OMB-defined requirements (OMB 2016a). The lease would be for a maximum of 5 years unless a longer term was written into the appropriation (OMB 2016a). A polar icebreaker is more of a specialty vessel than the Palmer or the Gould. Thus, there may not be as high a demand for its use, and attracting a private company with a 5-year (perhaps longer) lease term for an expensive vessel may be more difficult. Another option to consider is the lease or purchase of a “retired” foreign polar icebreaker to support icebreaking during scientific missions in the Antarctic. This option is only possible if there are other polar icebreakers available having the required capability and meeting the requirements of U.S. law. According to USCG, none are available (GAO 2016). With regard to the possibility of purchasing a “retired” foreign polar icebreaker at a low capital cost, the 33 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs committee is aware of the sale of only one vessel in the past 10 years that could be considered a polar icebreaker (the Botnica), but it has insufficient power to break out McMurdo. 24 Operating Costs of the Various Manning Models As stated previously, the manning model is not dependent on the lease-versus-buy decision. The manning of a leased polar icebreaker by a USCG crew is conceptually possible. A previous National Academies report presented a table showing the difference in crewing costs between a USCG and a civilian crew (NRC 2007, 94, Table 10.1). The 2007 report suggested that the overall crew size would decrease with newer ships and upgrades in technology, as was the case with the Polar Star and the Healy (NRC 2007). The crewing model assumptions from the 2007 report included the following: • • • • • • • • • 300 annual operating days including days under way and working port calls; 65 days annually for maintenance, sustainment, and preparation; Current proven technology; An integrated electric power plant for propulsion and hotel services; shaft horsepower capabilities between the Healy and the Polar Star; Design to incorporate labor-saving features; Sailing crew that operates up to 4 consecutive months and supports an additional 60 personnel; Ship capable of round-the-clock operations; maximum 12-hour workday; No major installed weapons systems; and Use of U.S. citizens as crew members. The crewing estimate in the 2007 report assumed that USCG would be able to operate the ship, winches, cranes, boats, and any helicopters included on board. Additional crew would be required for some missions, such as major oil spill cleanup, but most missions would be met by the base crew of 60 billets. On-the-job training would occur on shore rotations, with less reliance on training while under way (NRC 2007, 94). Among the additional assumptions from the 2007 report are inclusion of standard personnel cost (pay, allowances, transfer, medical, and training) and use of the 2006 industry standard personnel costs schedule (NRC 2007, 94). The current committee used assumptions from the 2007 report to develop four alternative crew and manning combinations and the associated operating costs (see Table C-4). The commercial crew type costs are derived from industry input, and the USCG options are estimated on the basis of assumptions from the 2007 report listed above. The commercial estimates are for the current costs for crews on commercial Jones Act tankers and MSC auxiliary vessels. The annual cost for a commercial crew on a U.S.-flag vessel (e.g., tanker, containership) with 21 to 25 billets is on the order of $6 million to $7 million. MSC contracts for vessel 24 The Botnica was sold by Arctia Shipping, Finland’s government-owned icebreaker operator, to the Tallinn Port Authority in late 2012 for a reported $64.2 million. The Botnica is 317 feet long, has a beam of 78.7 feet, has a gross tonnage of 6,370 (a volumetric measure), and is diesel powered, with total installed power of 15,000 kilowatts. 34 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs TABLE C-4 Comparison of Alternative Crewing Models Crew Type Manning basis Billets Cost per day ($) Annual cost ($ millions) Commercial Commercial USCG USCG MSC modela Jones Act tankerb Lower crewing model PIBc Higher crewing model PIBd 31 21–25 60 120 20,500–28,000 12,000–17,000 17,721 28,800 7.5 to 10.2 6.0 to 7.0 6.5 10.5 NOTE: PIB = polar icebreaker. a MSC model crew cost input provided by MSC contractors under confidentiality agreement. b Jones Act tanker costs obtained from Jones Act tanker owners–operators under confidentiality restriction; cost range is due to differences in maritime union agreements and experience of specific crew members. c The lower USCG crewing model is based on an analysis from the 2007 National Academies study, and costs are inflated from 2006 to 2017 dollars (approximately 3 percent inflation per year). d The higher PIB crewing size is an estimate of the likely number of billets on the new polar icebreaker that also allows USCG to meet all of its statutory missions. Estimated annual crew costs were not available from USCG for either the lower or the higher crewing models. SOURCE: Generated by the committee. operations (crewing and maintenance) for full-service deployment range from $20,500 to just over $28,000 per day for a variety of operations ($7.5 million to $10.2 million per year) of different types of ships, including LMSRs, MPS, and other auxiliaries (e.g., remote radar systems). 25 Estimated crew costs per day of USCG vessels are similar to or slightly more than those for non-USCG crew costs. USCG-manned vessels have larger crew sizes, the primary factor in the higher costs. For a smaller USCG polar icebreaker crew of 60, crew operating costs are less than the MSC option even with double the crew size. For a new polar icebreaker, USCG could consider smaller crew sizing, which could reduce annual crew operating costs. The committee did not examine crew size for the performance of USCG missions. An option for one of the new polar icebreakers (not necessarily the first of its class) is a U.S.-government-purchased polar icebreaker that is crewed privately and used solely for the McMurdo break-in. The private crew costs could be similar to the MSC or Jones Act tanker models given in Table C-4. This polar icebreaker would not be able to perform USCG missions but could conduct science or other nonmilitary activities. Summary The lease-versus-buy analysis indicates that, with its large capital cost and a 30-year life, a polar icebreaker is less expensive for the government to buy than to lease, regardless of whether the option is for a USCG cutter or a privately owned or operated polar icebreaker. This essentially rules out the option of leasing rather than buying. 25 See MSC Summary of Charters spreadsheet, available at http://www.procurement.msc.navy.mil. 35 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs • • • USCG cutters must be manned by USCG crews to perform their missions, which rules out privately crewed USCG vessels. The options for crewing of a vessel for the breaking out of McMurdo Station depend on the crew size that USCG determines to be necessary for the polar icebreakers. A USCG crew size double that of a private crew is feasible with comparable cost. The operating cost of the higher crewing size would exceed the costs of a private crew. However, the non-USCG crew would be unable to perform any USCG statutory missions while the vessel was in the Southern Hemisphere. A government-purchased polar icebreaker with a private crew could be a feasible option for breaking out McMurdo Station. In view of the requirement for government purchase and the lack of foreign vessels available for lease, this could be a cost-effective option for supporting science missions at the South Pole once USCG has a fleet of at least four polar icebreakers. References Abbreviations ABS American Bureau of Shipping GAO Government Accountability Office or Government Accounting Office NRC National Research Council OMB Office of Management and Budget ABS Consulting. 2012. Leasing Options for U.S. Polar Icebreaker Capability. Arlington, Va. Federal Reserve Bank of Saint Louis. 2017. 30-Year High Quality Market (HQM) Corporate Bond Spot Rate (HQMCB30YR). https://fred.stlouisfed.org/series/HQMCB30YR. Accessed April 21, 2017. GAO. 1999. Defense Acquisitions: Historical Analyses of Navy Ship Leases. Report B-281374. Washington, D.C. GAO. 2016. Coast Guard: Arctic Strategy Is Underway, but Agency Could Better Assess How Its Actions Mitigate Known Arctic Capability Gaps. GAO-16-453. Washington, D.C. Ibbotson, R. 2017. Stocks, Bonds, Bills, and Inflation (SBBI) Yearbook. John Wiley and Sons. http://cosmofilmes.com/pdf/2017-stocks-bonds-bills-and-inflation-sbbi-yearbook. NRC. 2007. Polar Icebreakers in a Changing World: An Assessment of U.S. Needs. National Academies Press, Washington, D.C. OMB. 2016a. Circular A-11 Capital Programming Guide, Version 3.0. Washington, D.C. OMB. 2016b. Circular A-94 Appendix C Discount Rates for Cost-Effectiveness, Lease Purchase, and Related Analyses. Revised Nov. Washington, D.C. 36 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Appendix D Icebreaker Acquisition Strategy, Design and Cost Projections, and Operating Costs Contents ACQUISITION STRATEGY .................................................................................................... 39 Fixed Price Incentives Contract ............................................................................................ 40 Block Purchase ........................................................................................................................ 41 Life-Cycle Costs ...................................................................................................................... 41 Commonality of Design .......................................................................................................... 42 Technology Transfer............................................................................................................... 42 Use of Commercial Standards and Widely Used Machinery ............................................. 43 Reduce Risks of Cost Overruns and Delay ........................................................................... 44 Schedule and Sequencing as Key Factors in Acquisition Strategy .................................... 44 Overview .............................................................................................................................. 44 Detailed Schedule Considerations ..................................................................................... 46 ICEBREAKER DESIGN AND COST PROJECTIONS ........................................................ 53 Notional Design of New Heavy Icebreakers ......................................................................... 53 Comparable Vessels ............................................................................................................ 53 Icebreaker Size .................................................................................................................... 55 Science-Ready Aspects of the Design ................................................................................ 56 Lightship .............................................................................................................................. 56 Installed Propulsion Power ................................................................................................ 58 Heavy Icebreaker ROM Cost Estimate ................................................................................ 58 Cost Estimating Relationships ........................................................................................... 59 Labor and Material Costs .................................................................................................. 59 First-of-Class Nonrecurring Costs .................................................................................... 60 Learning Curve ................................................................................................................... 60 Indirect Costs and Cost Risk ............................................................................................. 60 Overview of Cost Assumptions .............................................................................................. 61 Heavy Icebreakers Cost Estimate ......................................................................................... 62 ROM Cost Estimate for Heavy Icebreaker Design and Construction ............................... 62 Cost of Science ......................................................................................................................... 64 Medium Icebreakers ............................................................................................................... 65 Advantages of One Contract and One Design for Multiple Icebreakers........................... 68 Impact of MIL-SPEC ............................................................................................................. 70 Definition of MIL-SPEC..................................................................................................... 70 Application of MIL-SPEC to Heavy Polar Icebreakers .................................................. 71 Impact of MIL-SPEC on Costs .......................................................................................... 72 Value of MIL-SPEC to Polar Icebreakers ........................................................................ 73 OPERATING AND MAINTENANCE COSTS ....................................................................... 74 Review of USCG’s Operating Costs for a New Icebreaker ................................................ 74 Operating Costs for Heavy Versus Medium Icebreakers ................................................... 75 Range of Uncertainty .............................................................................................................. 76 37 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Basic Work Scope of Medium Icebreaker Compared with Heavy Icebreaker............ 87 Engineering, Detail Design, and Planning ....................................................................... 87 Material and Equipment ................................................................................................... 88 Production Labor and Productivity ................................................................................. 88 Risk Margin ........................................................................................................................ 89 Learning Rate ..................................................................................................................... 89 Profit.................................................................................................................................... 89 Total Shipyard Contract Cost Variance .......................................................................... 90 References ........................................................................................................................... 92 38 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs ACQUISITION STRATEGY Acquisition strategy will have a significant impact on overall program cost and performance. The objective is to achieve affordable construction and life-cycle costs for the new polar icebreaker fleet. The committee proposes an acquisition strategy that will reduce the likelihood of hazards such as higher costs, delays, poor performance in service, and lack of reliability. The following section describes proven practices for managing the costs of such an acquisition program. Acquisition strategy encompasses a wide range of activities and processes that determine how vessel construction goes forward. Among the key factors of a vessel acquisition program are the following: 1. Number of vessels to be contracted at one time. 2. Type of specification presented to the contracting shipyards: a. A performance specification laying out requirements and standards to be met but leaving the design to the contractor, b. A prescriptive specification requiring construction in accordance with an already prepared design with already detailed system requirements, or c. Some combination of the above. 3. Availability of timely funding that matches shipyard funding needs (progress payments schedule), including consideration of the major equipment purchase schedule. 4. Capability of the vessel purchaser (the U.S. government in this case) to provide the resources needed for review and approval of shipyard design documents and to make design decisions in a timely manner. 5. Maintenance of design fixity after contract award to avoid ongoing and late design changes, which are disruptive to cost and schedule. This applies equally to the government (change orders or construction changes), the shipyard (build strategy changes), the classification society (regulatory interpretations), and the supplier base (changes in equipment or scope of supply). 6. Flexibility in scheduling and sequencing, which will allow the shipyard to optimize the design and construction schedules for cost-effectiveness on the basis of completion of the design before construction and best utilization of the learning advantage attained from series ship production. 7. Capability of the shipyard to support detail and production design needs and whether it has the processes, procedures, physical plant, and resources available for efficient construction of the vessel. 8. Degree to which the latest technology improvements can be incorporated into the design and construction of the vessel so that the desired performance is achieved. The committee offers the following suggestions on how the United States can achieve cost-effectiveness in its acquisition strategy for new polar icebreakers on the basis of consideration of the above factors. 39 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Fixed Price Incentives Contract Several contracting methods are typically applied to government shipbuilding projects. The most common are “cost plus fixed fee” and “fixed price incentive fee.” Cost plus fixed fee is appropriate for projects involving significant research and development of new technologies. The government accepts the execution risk; in exchange, the contractor is obligated to provide its best effort, with no guarantee of success. At the other extreme, firm fixed price contracts are used when risks are well known and can be reasonably estimated. For this type of contract, the contractor incurs all the risks of an overrun and receives all the benefits of an underrun. For fixed price incentive fee contracts, the government and contractor share all risk above the target price until the contract reaches its ceiling price, when it will convert to a firm fixed price contract. Any benefits of performing under the target price are shared by the government and the contractor. Fixed price incentive fee contracts are often used in shipbuilding to manage risk on complex but nondevelopmental ships. For polar icebreakers, technology transfer will allow the development of a well-defined specification that uses existing technologies, which will make a fixed price incentive fee contract more appropriate. The fact that the design and specification can be fixed in advance allows the shipyard to predict design and construction costs with greater certainty and thus to reduce the risk premium incorporated in the price. Along with the fixed price incentive fee contract, other incentives can motivate contractor performance in specific areas and allow for some sharing of risks and rewards relative to performance. This type of contract will result in predictable and controlled costs for the government as purchaser. As explained in a recent Government Accountability Office (GAO) document concerning fixed price incentive contracts, the U.S. Coast Guard (USCG) could apply three such standard incentives for shipyards, such as a negotiated target price with the shipyard following analysis of responses to a request for proposal and ship specification, a 50/50 cost share, and a 120 percent maximum share of cost overruns or underruns (GAO 2017, 7–9). In the case of a heavy polar icebreaker, the cost of a 50/50 share line with a 120 percent cap could be as much as $82 million for the first ship and almost $265 million for all four ships. The GAO report also discusses other incentives such as technology transfer incentives, milestone-based incentives, and facilities improvements incentives that are specific to the type of project being performed (GAO 2017, 28). In the case of icebreakers, such incentives could be appropriate for improvements to facilities, equipment, and training for the application of best practices for welding and nondestructive testing related to thick, high-yield-strength plating; for underwater hull coatings that reduce ice resistance; or for “ice-phobic” topside coatings that reduce accumulation of ice on superstructure and masts. The normal contracting procedures would be followed under which the successful shipyard would propose the improvements to be made to the facilities, the cost of those improvements, the projected advantages to be attained by such improvements, and the cost incentives to be gained. The cap would presumably be negotiated at a 50/50 share and set at a certain amount. 40 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Block Purchase A block buy authority for this program will need to contain specific language for economic order quantity purchases for materials, advanced design, and construction activities. A block buy contracting program 26 with economic order quantity purchases enables series construction, motivates competitive bidding, and allows for volume purchase and for the timely acquisition of material with long lead times. It would enable continuous production, give the program the maximum benefit from the learning curve, and thus reduce labor hours on subsequent vessels. Shipyards gain a learning advantage (also called “learning curve”) when they build multiple ships to the same design. Many of the difficulties encountered in the first ship are overcome in the second and later ships. Production workers are better able to do the same job the second time because they are familiar with it and frequently see a better way of carrying out a specific activity. This learning process has been found to reduce production labor hours on the second ship to 80 to 90 percent of those on the first ship, depending on the issues that arise with the first ship and the distinctiveness of the vessel design in comparison with the shipyard’s experience. The reduction in labor hours continues with follow-on ships at a similar rate, so that by the fourth ship in series, production labor hours can be less than 80 percent of those of the first ship. For the learning advantage to be most effective, a proper time interval would need to occur between the ships’ hulls (as discussed below in the section on schedules). Reductions in material costs can also occur with multiple ship purchases, but they tend to be smaller than the reductions in labor hours. A block purchase of multiple ships of the same design increases shipyard interest in the proposed building contract, which will lead to a more competitive bidding process. It will also justify increased investment in improvements geared to enhance capability and efficiency of construction of the type of vessel planned for block purchase. Both of these factors can lower overall cost and improve shipyard performance in building the vessels, which would be to the government’s advantage in a contract of the fixed price with incentives type. Life-Cycle Costs New construction projects often focus on the minimization of initial acquisition costs and not on overall life-cycle costs, which can lead to significantly higher overall program costs. Life-cycle cost considers both the initial cost and the cost of operating and maintaining a system or machinery unit over its lifetime; how long it can operate before it needs to be overhauled or replaced is taken into account. Future costs, particularly on long-term investments, are discounted when decisions are made on life-cycle cost by methods such as net present value. Full evaluation of the costs of the system over the lifetime of the vessel is important in proper assessment of which option has the lowest overall cost. Since new polar icebreakers are expected to operate for 30 to 40 years, overall life-cycle cost is a key consideration. Incorporating the metrics of life-cycle costs in the evaluation criteria for shipyard bid proposals will ensure proper consideration of the impact of life-cycle costs on the total cost to the government. 26 See O’Rourke and Schwartz 2017 for an overview of the advantages and limitations of block buy contracting and multiyear procurement. 41 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Commonality of Design Commonality of design with existing vessels and between vessels intended for similar service is another factor leading to cost-effective construction. Commonality of design is one of the main reasons large-scale Asian shipyards are able to achieve higher productivity and lower material costs than U.S. shipyards. The more efficient Asian yards build large commercial vessels at a construction cost 60 to 75 percent less than that of U.S. yards. They normally construct vessels similar to ones they have previously built and make incremental changes that do not affect their productivity. Commonality allows them to design new ships quickly and incur few design errors, since most aspects of the new design will be similar to those of proven vessels. Commonality of design with existing vessels in an owner’s fleet also allows for ease of maintenance and training, since officers and crew are able to transfer easily between vessels and repair staffs are better able to manage systems they know well. Even if a decision were made to build separate heavy and medium icebreakers, a common design could help reduce overall costs, since many of the components and features in the two vessels would be the same or similar. Technology Transfer Technology transfer from shipyards and engineers experienced in icebreaker design, operation, and construction is another area providing opportunities for cost reductions. Icebreaker technology—particularly with regard to construction techniques—is available from Japan and Korea as well as from Northern Europe. It is important that the designers and the contracted shipyard for the new U.S. polar icebreakers obtain the best of that technology and incorporate it into the vessels. The USCG design team will need to remain flexible in its specifications and requirements to allow the use of best technology and improved design features and approaches from abroad. Before leading foreign technologies can be transferred into the United States, the USCG design team and relevant shipyards would need to seek relief from certain provisions of International Traffic in Arms Regulations, which restrict and control the transfer of certain dualuse (both commercial and military) technologies. In briefings by U.S. shipbuilders, the committee learned that several major U.S. commercial shipyards have significantly reduced their design and construction costs for large tankers and containerships through technology transfer agreements with major Korean shipyards. There is every reason to expect that these types of arrangements will be made and have a similar impact on the cost of icebreakers built in the United States. The committee believes that U.S. construction costs for a polar icebreaker are about three times higher than costs at competitive international shipyards but that this factor can be reduced by up to a third through international technology transfer. The committee notes that in the successful Oden procurement (Liljestrom and Renborg 1990), the shipyard adopted an organizational feature that gave oversight of winterization and icebreaking engineering and design features to a program management team. That small team identified risks associated with system design for high latitude operations, proposed alternatives for risk mitigation, and monitored implementation in vessel design and engineering. Cost as an 42 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs independent variable 27 could be applied to ensure reasonable trade-offs between performance and cost. For example, sewage discharge in ice-covered waters is prohibited by the Polar Code, and a ship must shift to an ice-free location to discharge treated sewage. Solutions to this problem may include increased size of black water tanks and garbage waste tanks or highperformance marine sanitation devices with membrane bioreactor plants. Use of Commercial Standards and Widely Used Machinery Another key to cost-effective acquisition of new icebreakers is the degree to which lower-cost commercial practice can be incorporated into the vessel. Since the intended service is largely outside military functions, the committee believes, in general, that the new icebreakers can be built to commercial standards without reference to military specifications (MIL-SPEC), except when such equipment may be warranted. International Maritime Organization (IMO) and class standards for vessels intended for polar service are high, and ships built to these standards will be well suited for the primary mission requirements of icebreaking and supporting missions in polar waters. The use of commercial standards and commercially available equipment could result in the following advantages: 1. An easily producible design that can incorporate design features of recently built and proven icebreakers from experienced foreign shipyards; 2. Incorporation of widely proven best commercial practices that lead to efficient operation, easy maintainability, and reliable service; 3. Significantly lower construction cost than a more specialized specification based on full incorporation of USCG cutter and resulting military-specific requirements; and 4. Incorporation of standard machinery and equipment with a long record of service. This may require opening up acquisition to more of the world market, where most of the best marine machinery is produced. Specialized, unique, and one-off machinery that may not function as well or be as reliable as top-of-the-line industry standard machinery and that will be difficult and expensive to service should be avoided. This is a failing frequently encountered in vessels built to specialized requirements, such as military-specific requirements, or built with application of strict country-of-origin requirements, such as “buy American.” Both of these types of requirements will increase risk and cost to the icebreaker program. Full understanding of the international commercial standards developed and applied in Europe during the past several decades will be important. The engineers and designers of the USCG polar icebreakers would benefit from talking to foreign operators, the people who maintain these foreign icebreakers, and the suppliers who provide the equipment and logistics for foreign icebreakers. For example, what pipe joints and electrical connections are susceptible to breakage during the shock of ramming ice? What types of joints and electrical connections are prohibited in foreign icebreakers? 27 http://www.acqnotes.com/acqnote/careerfields/cost-as-an-independent-variable. 43 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Reduce Risks of Cost Overruns and Delay Many steps can be taken to reduce the risk of cost overruns and delays. They are well established in the commercial shipbuilding industry and should be applied to government construction projects. 1. Clarify the specification before contract through comprehensive review with shipyard personnel so that the shipyard fully understands the government’s intent. 2. Have a complete and consolidated specification by contract signing so that the shipyard can design and plan for the project in a timely manner and be ready to begin work at contract start date. 3. Encourage a zero change mentality after contract signing, except when changes will enhance the production effort or are needed to ensure a safe ship environment. As mentioned above, changes disrupt shipyard schedules and increase costs through delay, disruption, and work-arounds far in excess of the cost of the change itself. 4. Support the shipyard’s design schedule by timely review and approval of shipyard drawings through investment in the necessary resources and organizational structure by the purchaser (USCG in this case). Ensuring that USCG has experienced and qualified persons in a position of authority to make timely decisions on design issues as they arise is important for the success of the program. In the committee’s judgment, such a strategy is best accomplished through engagement with experts having recent icebreaker design experience. Postponing decisions and looking for others to provide answers will only cause delay, because the shipyard will need clarity on how to proceed in a timely manner. 5. Ensure that the contracted shipyard has the capability and resources to carry out the project. Technical and administrative capability and production capacity are key factors in determining whether a shipyard can successfully build a vessel such as an icebreaker. Having cost as the sole determinant of contract award can lead to overruns and delays as the low-cost shipyard attempts to build these capabilities after the fact. 6. In line with the preceding point, government construction projects have more administrative and documentary requirements than a pure commercial ship construction contract, so the contracted shipyard needs experience in contract administration with these types of programs. Schedule and Sequencing as Key Factors in Acquisition Strategy Overview Acquisition, design, and construction schedules are key drivers of cost performance. The detailed design and construction schedule determines the total magnitude of time-related costs for both shipyard and government program management. The schedule also affects life extension decisions for the Polar Star and the date by which trained USCG crews for the new vessels must be available. A major reason for the success of Asian shipyards, starting with Japan in the 1960s and continuing in Korea, is a focus on the proper sequence of design and then construction; disruption of that sequence by perceived needs to start construction early are avoided. This 44 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs practice (which many say was followed in the United States during the high point in ship construction here from the 1940s to the 1960s) has been reapplied by U.S. shipyards in their successful efforts over the past 15 years in the rebuilding of the U.S. Jones Act tanker and containership fleets. The committee heard from shipyard executives on the importance of following the proper sequence of design and then construction in the successful building of ships on time and within budget. The key elements of the proper sequence are as follows: 1. Complete basic and detail design engineering before starting any construction of the vessels. Making changes on paper to a design is far less costly and disruptive than making changes in steel on the already-built ship. Changes are the enemy of productivity, schedule, and cost control. Change drives rework, which, through benchmarking to Korean and Japanese shipyards, averages about 1.5 percent rework for the first ship of a class for commercial ships. 28 In contrast, rework on first of class commercial ships in U.S. shipyards is often several times higher, and can even higher for more complex ships such as naval vessels. 2. Complete all construction planning and most production detail design before starting construction. As in the case of the sample schedule characterized in Figure D-1, a period on the order of 2 years can elapse between contract award and start of construction (SOC) for nonstandard vessels like icebreakers. Shipyards are always tempted to start construction sooner rather than later to show progress, keep workers gainfully employed, and advance receipt of progress payments based on construction milestones. The United States may also be tempted to accelerate the schedule because of the challenge of keeping the Polar Star fully operational, but this temptation is best avoided. Any gain would be false; problems arising from starting construction too early all too often come back to haunt the project. 3. Allow for advance procurement of long lead equipment and material to support the construction schedule. This can be affected by lack of timely funding. 4. Detailed planning and scheduling for the entire project need to be carried out before the SOC. The planning ought to cover the full range of engineering, procurement, construction, and test and trial activities. These activities are integrated and follow a rational sequence; one activity is not delayed by failure to complete a prerequisite activity. Many ship construction projects have floundered because of inadequate and poor planning. This recommendation stands in opposition to the concurrent engineering and planning methods that were a best international practice two decades ago, under which construction started shortly after the first functional design and production planning products were available for the early grand blocks. Concurrent engineering strategies often failed in the United States as development of subsequent areas of the ship design led to retroactive changes to predecessor blocks already in production. Some U.S. shipyards continue to use a concurrent engineering approach, and the committee encourages USCG to require bids to demonstrate past success on ship design and construction projects of complexity equal to or greater than that of a polar icebreaker. The first six months of a project following contract award often determine the success of cost management for the remainder of the construction period. 5. Construction of the second ship in a series should not begin until the first ship has at least been launched so that lessons learned from the first ship can be fully incorporated into the 28 From a general discussion among panel participants at the committee’s Seattle meeting, April 11, 2017. 45 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs second ship. Follow-on ships can be more closely spaced, since improvements in the design and construction processes will have been determined. Lack of timely funding is a frequently overlooked cause of delay and cost increases in government acquisition programs. The shipyard’s ability to follow its schedule in a cost-effective way is predicated on receipt of timely authorizations to proceed and receipt of requisite funding at the designated times. Delays in these items disrupt the schedule and can cause further delay and cost increases as the project progresses. Commercial owners normally have already set up a funding mechanism before they sign a contract, but government agencies frequently are held up by the need for legislative appropriations. The necessary authorizations and appropriation should be in place to suit the full schedule for the icebreaker program and to take advantage of savings available from block purchases. Detailed Schedule Considerations To illustrate what an efficient schedule would look like and what timely actions are needed to make such a schedule come to fruition, the committee has prepared a pro forma schedule timeline and discusses the importance of many of the items shown on the schedule. This is useful for planning with regard to when government action needs to take place, when funding is needed, and when the new icebreakers will likely come into service. First Ship Design and Construction Figure D-1 shows a notional timeline for Ship 1 that is intended to be generally representative of current construction practice in U.S. shipyards. Specific shipyards may offer schedules differing from that in the figure because of other program commitments, production labor force and subcontractor availability, and facility configurations. A key assumption is that all bidding shipyards will be willing to develop a long-lead-time equipment (LLTE) program before contract award. Such a program should identify material and equipment that cannot be purchased within the time available for construction set by the owner’s required ship delivery date for Ship 1. The program would likely require a 4- to 6-month engineering effort before contract award to develop purchase specifications, list candidate suppliers, and engage these suppliers in initial quotes and resolution of issues. Some shipyards may require as much as 8 months to manage the LLTE effort, with an overlap at the start of functional engineering. The shipyard would then down-select to two possible suppliers for each purchase specification. All qualified prime contractors should be ready to issue final purchase specifications for all items in the LLTE program within 1 month of award of the detail design and construction contract. In turn, the government must be prepared to fund acquisition of LLTE within 1 month after contract award to the winning shipyard. Another key assumption is that USCG will have all of its comments on the proposed contract design, proposed ship specification, and program plans available on the date of contract award. Ideally, meetings would be held with the shipyard to resolve all comments within 2 months of contract award. An omnibus change order would incorporate the comments into the ship specification and contract design. To the extent that requirements and classification interpretations can be known and deployed early, cost and schedule impacts will be minimized. 46 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs USCG has informed the committee that the new heavy polar icebreaker is expected to be classed in accordance with steel vessel rules of the American Bureau of Shipping (ABS), the U.S.-based classification society. During design and construction, ABS will provide class plan review, vendor-supplied equipment inspection, and shipyard survey services. While the new icebreaker will be delivered with a class certificate, it will not be maintained in class after delivery because of incompatibilities with USCG’s maintenance philosophy and technical authority organizational structure. 29 Both USCG and classification society comments on the functional engineering products would be received and resolved by the shipyard in a timely fashion, generally within 30 calendar days of submittal. In turn, shipyards will perform a timely revision of these functional engineering products (Rev. A in Figure D-1) for use in transition design and detail design. Conduct of a critical design review with the government and classification society is suggested approximately 12 months after contract award. The purpose of the review is to ensure both the shipyard and the government that the shipyard is ready for a substantive start to detail design and production planning. Approximately 85 percent of collaboration between engineering, design, supply chain, and production planners would have been conducted to refine and expand the build strategy for the icebreaker by the time of the critical design review. The committee estimates that 250 to 300 engineers, detail designers, and planners would be required at the peak for the preproduction effort, which is well within the capabilities of U.S. shipyards and design agents. At the critical design review, the shipyard would present a list of special icebreaker construction process instructions and standards to be developed and applied during detail design, production planning, and production. These standards may include thick plate and high-strength steel welding, alignment guides for thick plate in the ice belt, nondestructive testing for welds in thick plating, winterization requirements and insulation for systems, special coating requirements, and installation protocols for equipment not previously applied by the shipyard. These items (also mentioned as potential incentives above) would subsequently be included in the risk management plan and quality management plan for the icebreaker project by the shipyard. Both U.S. and overseas shipyards have successfully used a technique that builds three or four pilot blocks to test the ability of the engineering, detail design, and planning process to deliver complete and accurate data for construction of the ship in the specific shipyard and with the specific supply chain. Pilot blocks test the holistic shipbuilding process, not merely the design, and they must receive close attention from the shipyard’s program manager and staff. These blocks would be intended for installation in Ship 1 and would be constructed in the process lanes assigned for similar work throughout the program. Adequate time must be allowed in the schedule for documenting lessons learned from the pilot blocks and incorporating suggested changes from production and procurement into the detail design, bill of materials and purchase specifications, planning packages, and production information. As a result of the pilot program, major risks of introducing new technology for icebreaker construction would be significantly resolved before the SOC. At the conclusion of the lessons-learned process for the pilot blocks, the shipyard will issue a release for manufacture authorizing SOC. 29 Personal communication, Commander Bill Duncan, USCG, June 20, 2017. 47 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Months After Contract Award Pre-Award Duration, months -4 -3 -2 -1 Activity Long Lead Equipment (LLTE) Procurement - Develop Purchase Specifications 2 - Discuss Purchase Specifications with Suppliers 2 - Preliminary Selection of Qualified Suppliers 1 Contract Award - Final revision of ship specification/change order negotiation 2 - Procure LLTE 18 Functional Engineering -Develop Functional Engineering Products 9 - Classification Society Review & Approval 9 - Rev. A of Functional Eng. Products Responding to Class 9 - Develop Test Program & Systems Test Procedures 9 Detail Design - Develop Build Strategy & Details - Develop Design Standards for Icebreaker 6 - Transition Design 6 - Detail Design by Zone 12 - Develop Eng. Bill of Materials & Steel Bill 10 - Production Review of Detail Design & Comment Incorporation 10 Production Planning - Develop Special Icebreaker Construction Process Instructions 8 - Develop Production Planning Packages 10 - Develop Production Budgets 9 Start Construction - Fab & Assemble Pilot Blocks 6 - Incorporate Feedback From Production Pilots Into Detail Design 5 - Fab & Assembly Blocks 10 Keel Laying - Grand Block Assembly & Unit Construction 8 - Erection & Main Machinery Installation 10 Launch - Systems Completion & Grooming 12 - Power Through Boards 2 weeks after Launch 4 - Release of C I Spaces for Installation of GFE - Systems Testing - Builders Trials (BT) - Correction of BT Cards - Acceptance Trials (AT) - Correction of AT Cards Delivery - Post-Delivery Availability at Shipyard - Crew Familiarization Aboard Commissioning 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Milestones MAC Contract Award 0 Critical Design Review 12 Start Detail Design 12 Start of Construction 24 Keel 29 Launch 39 Delivery 50 Commissioning 54 33 34 35 #2 14.0 15.7 19.0 22.7 24.0 #3 18.0 19.7 23.0 26.7 28.0 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 QAC #1 8.0 9.7 13.0 16.7 18.0 #4 22.0 23.7 27.0 30.7 32.0 Critical Design Review Start Detail Design SOC Predecessor to SOC Pilot Blocks Keel Launch Power Through Boards 8 m prior to BT 6 2 weeks 6 weeks 1 week 3 weeks BT, AT & Trial Card Resolution Delivery 3 Ends 1 month after crew move aboard Commissioning FIGURE D-1 Notional timeline for first icebreaker acquisition (Ship 1). (C4I = command, control, communications, computers, and intelligence.) (Source: Generated by the committee.) Copyright National Academy of Sciences. All rights reserved. 48 Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 5 10 15 20 25 30 35 40 Keel laying can commence after assembly of an inventory of blocks and grand blocks sufficient for sustaining the planned rate of erection. In general, this milestone is 5 to 6 months after SOC. U.S. shipyards follow a pattern similar to the 1-3-8 30 pattern followed as best practice by international shipyards: work that takes 1 hour to complete in a workshop takes 3 to 5 hours to complete once the steel panels have been welded into units and 8 hours to complete after a block has been erected or after the ship has been launched. Work performed early in the cycle is therefore the most efficient, and U.S. shipyards attempt to plan and perform most work in the block assembly and grand blocking stages of construction. The period required to erect the ship from time of keel laying to launch is heavily dependent on the shipyard workforce and facilities. Yards with large cranes can build heavier grand blocks than can smaller facilities, which must perform a greater number of lifts to erect the vessel. Some U.S. shipyards use rubber-wheeled transporters or railroad bogies to move blocks and grand blocks; the capacity of these transport systems determines the number of grand blocks during ship construction. The impact on scheduling of design features such as location of the main diesel generators, which may be on the main deck, and “plug-and-play” options for azimuthing propulsion pods rather than stick-built propulsion shaft lines, propellers, and rudders is a suggested topic for discussion between the USCG program office and the shipyard during concept and preliminary design. Another scheduling issue that could be of interest to USCG is completion and turnover of the communications suite, secure communications and intelligence facility, operations center, and other locations where government-furnished equipment (GFE) is to be installed by government personnel or subcontractors. Weapons, if fitted, and weapons alignment would be included in this planning. In past auxiliary ship programs for the U.S. Navy (USN), the shipyard has been required to turn these spaces over to the government as much as 8 months before builder’s trials, which can be supported by this timeline. A 10-month period from keel to launch may be appropriate for a first-of-class polar icebreaker in a U.S. shipyard. For some shipyards, the launching or float-out date must be carefully timed for high tides because of the unique hull form of icebreakers. Launching would be planned to coincide with production progress of at least 85 percent to minimize work required pier-side after launch; follow ships would set a target of 90 percent production progress at launch. In general, all systems would be hydrotested or groomed before launch. Cabling would be pulled, connected, and tested for continuity before launch. The ship would be ready for start of load testing of electrical systems immediately after ship launch and after power is available through the ship’s switchboards. Installation of azimuthing drives rather than shaft lines and propellers that must be aligned on the ship erection location would also shorten the schedule. Work performed on board the ship is less efficient after launch when the ship is pier-side because of competition for crane lifts, restricted access for personnel, and the potential for damaging work already completed. A plan for well-coordinated system testing and compartment closeout that supports final outfit, paint, and load out of the ship before builder’s trials and acceptance trials are begun is important for cost control. Close collaboration between the shipyard and the classification society is required to develop this schedule with adequate time for 30 An icebreaker may follow a 1-5-8 pattern, which is typical for ships with densely packed main and auxiliary machinery spaces and close subdivision for damage control. Thus, installation of equipment and material as early as possible becomes a major goal of production planning. In such situations, the packaging of piping ducting and wireway grids on temporary fixtures, which allows these outfit items to be placed on the grand block in one lift, becomes economically feasible. 49 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 5 10 15 20 25 30 35 40 test and trials. A period of 6 months is suggested for trials and trial card 31 resolution for the first ship of the class. This period may overlap the completion of systems testing by splitting builder’s trials into two events: (a) propulsion trials and (b) supporting systems such as heating, ventilation, and air-conditioning; deck equipment; and other systems remaining to be tested. The latter event would include inclining; dock trials; aviation facility inspections (Naval Air Systems Command certifications); and shipwide surveys such as lighting, electromagnetic interference, hazards of electromagnetic radiation to operations, hazards of electromagnetic radiation to personnel, and hazards of electromagnetic radiation to fueling, which customarily precede trials at sea. The committee estimates that this schedule will require 750 to 800 equivalent workers at peak, with the largest concentration of manpower in the outfit trades (machinery, electrical, piping, ducting, and joiner), closely followed by steel trades. Such a schedule is within the capacity of U.S. shipyards. If the ship is expected to be in the water for more than 6 months before acceptance trials, dry-docking of the ship may be necessary for final application of paint on the underwater hull. This may disrupt other production work on board the vessel and limit access for crane lifts and personnel. A total period of 10 months from launch to delivery may be necessary to assure USCG that the ship is complete and ready for operation in all respects. Delivery of the first ship is therefore anticipated to be as much as 52 months (4 years 4 months) after contract award. After delivery of the ship, a postdelivery availability (PDA) is customarily accomplished to perform technology upgrades and refreshment that could not reasonably be accommodated through change orders during the design and construction of the first ship of the class. The PDA for a first ship of the class is usually 3 months in duration. This pier-side availability is accomplished as a separate contract from the Ship 1 detailed design and construction contract and is managed as repair availability. A period to allow the ship’s force to familiarize themselves with the ship and its operation before commissioning is also customary. Training is formally conducted during this period, and the performance of the ship’s force is assessed. The period in PDA as well as some period after crew move aboard is included. The committee suggests that USCG plan for a total period of 54 months (4 years 6 months) before committing a new icebreaker to operation in a high latitude mission. If the contract award is made in September 2019 as projected by USCG, the first ship will not be commissioned until late April or early May 2024, which will be after the completion of Operation Deep Freeze 2024 in approximately March 2024. Shortening of this schedule to November 2023 to allow a new polar icebreaker to break out McMurdo Station in January 2024 is highly unlikely. Follow Ships The period between delivery of the first ship of the class and delivery of Ship 2 must be carefully planned. This interval would need to be long enough to incorporate all changes required from clearance of trial cards from Ship 1 into the detailed design and production planning packages for Ship 2, as well as lessons learned and build strategy changes from Ship 1. The nature of errors to be corrected would be small, based on engineering change notices issued and incorporated into the detail design and planning packages from SOC onward. In this way problems would be resolved by the design–build teams in a timely fashion on Ship 1. This interval should be as short as feasible to minimize loss of learning among the production 31 A trial card is a deficiency encountered or identified during vessel construction or testing. 50 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 5 workforce between Ship 1 and Ship 2. Although learning occurs among people and not facilities, it must be documented carefully to attain its full value. The committee suggests that a period of 12 to 18 months be allowed between the delivery of Ship 1 and the delivery of Ship 2; the midpoint of that interval is 15 months. The committee suggests that the interval between SOC for Ships 2 and 3 and for Ships 3 and 4 be reduced to 12 months. Figure D-2 shows a notional total program timeline for the construction of four ships of the same design under one contract. After Ship 2, the program would deliver an icebreaker every year. The last icebreaker, Ship 4, delivers approximately 31 quarters (7 years 9 months) after contract award for the first ship. Figure D-2 incorporates several attributes that help minimize contract cost: 10 15 1. Ship 1 launches before SOC on Ship 2; since production of Ship 1 will be about 85 percent complete before launch, most required changes to the detail design and production information can be incorporated before SOC on Ship 2. 2. Only one build position is required (the previous ship is launched before the keel is laid for the next ship). 3. Only one outfit pier is required (delivery of the predecessor ship clears space at the dock). 4. Construction trades can be level-loaded with minimal downtime or overlap between ships. 51 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Activity Functional Engineering, Ship 1 Develop Detail Design, Ship 1 Start of Construction, Ship 1 Keel, Ship 1 Launch, Ship 1 Delivery, Ship 1 Commissioning, Ship 1 Revise Design, BOM, P Specs, Build Strategy, Ship 2 Start of Construction, Ship 2 Keel, Ship 2 Launch, Ship 2 Delivery, Ship 2 Commissioning, Ship 2 Start of Construction, Ship 3 Keel, Ship 3 Launch, Ship 3 Delivery, Ship 3 Commissioning, Ship 3 Start of Construction, Ship 4 Keel, Ship 4 Launch, Ship 4 Delivery, Ship 4 Commissioning, Ship 4 Quarter After Contract Award 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Build Position Outfit Pier Build Position Outfit Pier Build Position Outfit Pier Build Position Outfit Pier FIGURE D-2 Notional total timeline, all ships of class, polar icebreaker acquisition 4 × 1 strategy. (BOM = bill of materials; P = production.) (Source: Generated by the committee.) 52 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs ICEBREAKER DESIGN AND COST PROJECTIONS One task of the committee was to evaluate cost estimates for the new polar icebreakers. To carry out that task, a notional design that can form the basis for the cost estimate had to be developed. Members of the committee with expert knowledge of ship design and U.S. shipbuilding productivity and material costs collaborated to develop independent concept designs and roughorder-of-magnitude (ROM) cost models for polar icebreakers built in the United States on the basis of requirements laid out in the Polar Icebreaker Operational Requirements Document (ORD) (USCG 2015). After they had developed their own notional design, some members of the committee met with representatives of the USCG polar icebreaker design team at USCG headquarters in March 2017 to understand USCG’s initial design work and cost estimating approach for the heavy polar icebreaker. The design and cost estimates presented in this report are the result of the committee’s own work and were not influenced by the meeting with USCG; most of the committee’s design and estimation work was completed before the meeting at USCG headquarters. Notional Design of New Heavy Icebreakers The first step in developing a design sufficient for preparation of a cost estimate is to understand and characterize the data needed as cost estimate inputs. At this concept level, much of the necessary data can be determined from parametric analysis and comparison with existing vessels with similar characteristics. The committee conducted an extensive literature search to identify publicly available sources of information on icebreakers and developed its own notional design by using these references and parametric analysis. Comparable Vessels One method for developing the principal characteristics of a new heavy icebreaker is to consider existing vessels that can carry out similar missions. A recently designed vessel with requirements similar to those of the planned U.S. heavy icebreaker is the proposed Canadian Coast Guard new heavy icebreaker, the John G. Diefenbaker, a ship of approximately 150-meter length overall, fitted with a diesel–electric propulsion system of approximately 39 megawatts (MW) plus harbor and emergency generators. Even though the John G. Diefenbaker is a large ship, it reportedly has accommodations for only 125 people in total, 32 which includes 100 as the operating complement and 25 visitors or scientists. In a recent design competition for USCG’s offshore patrol cutter, USCG required accommodations for a ship’s force of 120 to 126 people. A new U.S. heavy icebreaker operated by USCG may have a similar level of manpower to perform its duties, with additional accommodations for scientists, a dive team, and the aviation detachment. While the John G. Diefenbaker has a smaller planned accommodation than does the new U.S. heavy icebreaker, 32 Polar Preliminary Concept Design Package, a PowerPoint presentation by the Government of Canada to Maritech, June 10, 2010. 53 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs accommodation of more persons in a vessel this size is feasible since its length is well in excess of the 128- to 132-meter required stack-up length estimated by the committee. Existing overseas icebreakers are good sources for size data. From 2010 to 2013, the United States did not have a heavy icebreaker available for the breakout of McMurdo Station. Icebreaking services were provided by chartered foreign-flag ships, including the Oden and the Vladimir Ignatyuk. Principal characteristics of these two foreign icebreakers are shown in Table D-1 in comparison with the Polar Star, which currently provides breakout for McMurdo Station. These ships are significantly smaller than either the Polar Star or the John G. Diefenbaker, yet they have succeeded in breaking out McMurdo Station. TABLE D-1 Comparison of Principal Characteristics of Heavy Icebreakers Characteristic Polar Star Vladimir Oden Prospective (WAGBIgnatyuk John G. 10) (former Diefenbaker Kalvik) Flag United Russia Sweden Canada States Commissioned 1976 1983 1988 2022 Builder and location Lockheed, Burrard Götaverken, Seaspan, Seattle Yarrows, Arendal, Vancouver, Victoria, Sweden British British Columbia Columbia Length overall (meters) 121.6 88 108 150 Maximum beam (meters) 25.5 17.8 31.0/25.0 28 Displacement, full load 13,200 4,234 13,000 23,500 (metric tons) Rated icebreaking thickness 1.8 1.8 1.9 2.5 at 3 knots continuous speed (meters) Propulsion plant Diesel– Diesel Diesel Diesel– electric or electric gas turbine Propulsion power (MW) 57.0 17.3 18.0 50.0 Total berths 187 34 88 125 Total price at contract 53 45 41 990 (millions of U.S. dollars) Estimated total price 292 112 93 990 (millions of 2017 U.S. dollars)a a The current year value was estimated by using http://usinflationcalculator.com. SOURCE: Generated by the committee. 54 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Icebreaker Size The size of heavy polar icebreakers is a strong determinant of the cost of ship acquisition and operation. Foreign heavy icebreakers often have much smaller crews than do USCG cutters. Because of the mandate in U.S. law for cutters to be prepared to perform all missions assigned to USCG, including search and rescue and federal law enforcement at sea, USCG ships are fitted with accommodations suitable for a large complement. They include aviation facilities for landing, refueling, and maintenance of large, heavy helicopters and hangars for their storage on board. The icebreaking performance to be achieved is not a strong determinant of ship length. The Polar Star, which is a heavy icebreaker capable of continuously breaking ice 1.8 meters (6 feet) in thickness at 3 knots, is 8 meters shorter than the Healy, which breaks ice 1.35 meters (4.5 feet) in thickness at the same speed. Under current icebreaker categorization, the Polar Star would be considered a Polar Class 2 icebreaker, while the Healy would be considered a Polar Class 3. In addition, an icebreaker with the size and capabilities of the proposed new Canadian heavy icebreaker would not likely be needed to support the breakout of McMurdo Station. As demonstrated in Table D-1, the Polar Star has a considerably smaller hull than the prospective John G. Diefenbaker. The minimum size of the heavy polar icebreaker will likely be driven by stack-up length resulting from USCG’s unique requirements: fantail length for safe towing operations; flight deck length for unrestricted landing of USCG’s HH-60 helicopters; a hangar for the HH-60, plus adjacent maintenance helicopter servicing facilities; a large accommodation block forward of the hangar with berths for at least 144 and perhaps as many as 176 people; and a conventional foredeck for anchor handling. After other icebreaker designs were researched, the twin azimuthing thrusters (or azipods) on the stern of the Polaris and the forebody of the Oden were selected as references for the stack-up length analysis. The notional concept design places all accommodation spaces on or above the main deck and extends the housetop to the 07 level, similar to the Oden. The main machinery spaces are located on the main deck (to the 02 deck), similar to the arrangement of the Healy. From this analysis, the committee determined that the minimum overall length of a new USCG polar icebreaker would be 128 to 132 meters (see Table D-2). Weight estimates for a heavy icebreaker of this size are as follows: a lightship (without service life margins) of approximately 12,720 metric tons and a full load displacement of about 18,360 metric tons (which includes service life margins). The 128-meter length is the minimum, and subsequent, more detailed calculations may show that this heavy icebreaker is not large enough to meet all stability and optimum powering criteria as well as the International Polar Code. Therefore, the committee has used a length overall of 132 meters for its cost estimates. TABLE D-2 Required Stack-Up Length for a USCG-Operated Heavy Polar Icebreaker Length Stack-Up Component (meters) Fantail, SRP to aft end of flight deck 10.2 Flight deck 25.5 Hangar block 20.4 Transverse weather passage 2.5 Stair tower 5.1 55 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Accommodations block Foredeck Length overall NOTE: SRP = stern reference point. SOURCE: Generated by the committee. 32.3 36.0 132.0 Science-Ready Aspects of the Design Scientific research is an important secondary mission that increases utilization of USCG icebreakers, particularly the Healy in Arctic waters. Science readiness incorporates critical design elements that would enable the ships to be cost-effectively retrofitted for full science capability. In the committee’s notional design, total enclosed net area for science facilities of 510 square meters (5,500 square feet) is included, similar to that of the Healy. Exterior (weather) space is also included both for an A-frame at the stern and cranes and side operational facilities, again similar to the Healy. Other science-ready features incorporated into the notional design are described in the section on cost of science. Lightship Vessel lightship weight is a primary data input for the committee’s independent cost estimating calculations. In the design of U.S. government vessels, a common U.S. practice follows the ship work breakdown structure (SWBS) for characterizing ship weight components by system. This is the system used by USN. At this early stage of design, the weight components categorized according to SWBS can be estimated by using parametric analysis on the basis of cubic number (CN = length overall × maximum beam immersed section of boat × distance from deck to keel amidships/100, in cubic meters), installed power (MW), and number of berths as a proxy for work scope. For a first iteration, weights for existing ships were scaled by SWBS groups to determine a starting point for algorithms that estimate the weight of polar icebreakers. Ships with an integrated diesel–electric propulsion plant were included. An attempt was made to replicate the lightship weights of known ships, including the Polar Star, the Healy, the Oden, and the Polaris. Adjustments were made until the correlation between the lightship estimates of existing polar icebreakers and the proposed algorithms was acceptable. Figure D-3 shows a close correlation between CN and total lightship weight. Ships below the line, such as the Polar Star, have lower weight than would be expected, and those above, such as the Healy, are heavier than would be expected. The committee’s estimates for lightship weights of heavy and medium icebreakers without margin fall just above and below the trend line, respectively. In general, there is close correlation between the committee’s CN–lightship weight line and international practice. A reasonably conservative approach to estimating lightship weight should be taken at this stage of design. As the design progresses, constraints on lightship weight can force less efficient solutions such as closer frame spacing, which can lead to higher construction and maintenance costs. 56 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 25,000 LIGHTSHIP (M.Tons) 20,000 Committee Estimate Heavy Icebreaker 15,000 Healy 10,000 Committee Estimate Medium Icebreaker Polar Star Oden 5,000 0 0 200 400 600 800 1,000 CNLOA (LOAxBxD/100) FIGURE D-3 Correlation between lightship weight and cubic number. (Source: Generated by the committee.) The committee’s independently developed lightship weight estimates for the new U.S. heavy icebreakers are summarized in Table D-3, which illustrates the expected range of values. The committee’s estimates utilize data for the Oden, which has a wide frame spacing that improves steel productivity but increases weight. The committee cautions against using the Polar Star, which has a comparatively low steel weight and lightship weight because of its tight frame spacing, since that could lead to lightship weight constraints later in the design process. The committee applied factors for the reported frame spacing of 850 millimeters and ice belt plating thickness of the Oden. TABLE D-3 Committee Lightship Weight Estimates by SWBS, Heavy Icebreaker SWBS Group Estimate 100—Structure 8,271 200—Propulsion 1,294 300—Electrical 724 400—Command and Control 80 500—Auxiliary Systems 1,301 600—Joiner 1,049 700—Weapons 20 Margin (7%) 892 Total lightship weight 13,631 NOTE: Values are in metric tons. SOURCE: Generated by the committee. 57 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Installed Propulsion Power Icebreaking capability is in part determined by power provided to the propellers. The Oden’s design was groundbreaking. A fraction of the propulsive power of previous heavy icebreakers, such as the Polar Star, was required. Power requirements are generally determined through model testing of a specific hull form; however, the committee does not have access to this research tool. The committee applied a factor 33 to the actual power of the Healy to determine the required power for a new heavy icebreaker. The factor indicates that required icebreaker developed horsepower varies with the 1.5 power of the thickness of the ice to be broken. Such an approach (basing the power prediction on the Healy) is conservative, and further model testing of a hull form using current technology is likely to result in lower required power predictions. Table D-4 shows the principal characteristics of the committee’s icebreaker. TABLE D-4 Principal Characteristics of Committee’s Heavy Polar Icebreaker for Cost Estimates Characteristic Committee HPIB 132 Flag United States Operator USCG Commissioned 2023 Builder and location To be determined, United States Length overall (meters) 132.0 Maximum beam (meters) 27.0 Depth at side to main deck (meters) 13.0 Lightship weight, without margins (metric tons) 12,720 Displacement, full load (metric tons) 18,360 Rated icebreaking thickness at 3 knots 1.8 continuous speed (meters) Propulsion plant Integrated diesel–electric Propulsion Twin azimuthing thrusters Fixed pitch propellers Propulsion power, developed horsepower 33.6 (MW) Total berths 144 SOURCE: Generated by the committee. Heavy Icebreaker ROM Cost Estimate Once a notional design has been prepared, a ROM cost estimate can be prepared on the basis of methodology consistent with U.S. shipbuilding practice. This approach provides a high-level 33 The factor was determined from research conducted by the Canadian National Research Council, Institute for Ocean Technology, Saint John’s, Newfoundland. See O’Brien and Lau 2010, p. 2, Equation 1. 58 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs estimate of U.S. shipyards bidding on this project, given their current practices and facilities. The techniques used in preparing the cost estimates are familiar to the committee members who prepared them. They were validated internally through preparation by several members of their own estimates and comparison and correlation of the results. Cost Estimating Relationships U.S. shipyards vary in their workloads, facilities, and workforces. Application of overhead, which is spread over the total number of production man-hours worked among the shipbuilding programs performed in the shipyard at the same time, varies significantly. Productivity, wage rates, and labor agreements also vary. For a realistic portrayal of the likely range of prices that may be experienced, the cost estimating methodology should consider these significant variations. Some cost models use a Monte Carlo simulation, which runs and averages a large set of estimates from standard cost estimating algorithms to develop a statistically accurate cost estimate. In view of the limited time for production of this report, a Monte Carlo approach was beyond the scope of the committee. In this study, a single estimate approach was applied. It is considered as representative of the likely outcome and a valid estimating technique for early program budgeting. For the heavy icebreaker estimate, cost estimating relationships (CERs) were developed from data on existing ships. Material and labor were scaled by CN, weights of SWBS groups, installed power (MW), and number of berths to develop CERs for the lead icebreaker. In this way, productivity for typical U.S. shipyards is portrayed realistically. All material costs were adjusted by an escalation factor to 2019 by accepted methods used in USN contracting. Material costs were also adjusted for known special costs, such as the premiums associated with highstrength steel utilized in the ice belt of the icebreaker hull and coatings to reduce the surface friction of ice during icebreaking. Material CERs include subcontracted labor costs for production and for engineering and logistics support. Scrap rates for steel were assumed to be consistent with observed U.S. shipyard experience on naval auxiliary ships. All material CERs include shipping, handling, and tariffs. Labor and Material Costs A composite labor rate representing a typical shipyard trade mix was developed from U.S. Bureau of Labor Statistics (BLS) data. The rate was not meant to apply to any specific shipyard or geographic region but to be representative of U.S. shipyards. The composite production labor rate was also adjusted by BLS escalation factors to 2019. Overhead rates represent average performance of a mix of U.S. shipyards. Production labor and overhead costs in the United States are 2.5 to 4.0 times the cost for similar work in Europe or Asia, not because of hourly labor rates but largely because of productivity associated with methods, practices, and facilities. Material costs are also escalated each year by the BLS escalation rate, so material costs increase for each ship of the class. This is modified for a block buy approach, in which no escalation is assumed for material and equipment ordered and paid for as part of a quantity purchase, such as all engines and generators for the class coming under the same purchase order. 59 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs MIL-SPEC procurement of approximately 20 percent of materials and equipment is assumed in accordance with USCG’s stated intention for the polar icebreakers. A premium is added for both material and shipyard labor to account for the added cost of purchasing and installing MIL-SPEC equipment. (See the separate section below for a discussion of the impacts of MIL-SPEC and opportunities for reducing the cost and risk that result from its application.) The committee endorses procurement according to best international commercial off-the-shelf standards for icebreakers, with no requirement for “buy-American” equipment procurement except as required by Federal Acquisition Regulations. First-of-Class Nonrecurring Costs Similarly, first-of-class CERs for engineering, detail design, integrated logistics support (ILS), planning, contract administration and program management, and procurement and warehousing were developed on the basis of ship size characteristics. In accordance with U.S. shipyard accounting practice, all expenses for the class of ship accrue to the first ship of the class. Specific ship expenses apply to each ship of the class. These CERs were then applied and analyzed for realism on the basis of U.S. auxiliary ship programs and foreign naval auxiliaries during the past 25 years. The experience and judgment of members of the committee were applied to adjust these CERs to eliminate known problems during the performance of the contracts. In this way, a “should have cost” estimate results. U.S. engineering, detail design, and planning costs total 2 to 2.5 times the costs in Europe or Asia. Follow-ship cost estimates for preproduction and administrative work are based on percentages of U.S. first ship costs. Learning Curve Follow-ship costs are estimated by applying a production learning factor to the second and following ships of each class in accordance with well-accepted industrial engineering theory (Dilworth 1979). 34 Each time the number of units of production doubles, a learning factor is applied. A learning rate of 0.85 was assumed. In this way, the number of production labor hours for the second ship is 85 percent of that of the first ship, and the number of production labor hours for the fourth ship is 85 percent of that of the second. 35 Annual escalation of the production labor rate is also assumed. Indirect Costs and Cost Risk The total icebreaker design and construction contract price includes a modest shipbuilder’s risk margin, profit, and financial accounting standards adjustments. The values assumed for these line items are in accordance with standards commonly used for U.S. government contracts. 34 35 R = log (learning rate)/log 2; Yn = (Y1)nR. The assumed 85 percent learning rate is based on committee members’ personal experience and on a discussion at the committee’s April 2017 meeting in Seattle with two shipyard executives, both with extensive familiarity in this area. 60 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs The government will incur costs for its own efforts in addition to the design and construction contract price. The committee accounts for these items to allow an “apples-toapples” comparison with USCG estimates but does not have the data needed to validate these figures. Among such items are key equipage essential to mission readiness, such as GFE and government-furnished material (GFM), communications equipment, arms, ammunition, and weapons. Government Program Executive Office (PEO) costs for salaries, administration, and travel are also included through committee members’ experience with other programs. A testand-trials program with an inspection by the Board of Inspection and Survey (funded by the government) is accounted for. A modest PDA budget is included to make the ship ready for commissioning and her first mission after delivery from the shipyard. The government runs some risk of growth in the cost of the contract, particularly for the first ship of the class. Since World War II, this growth has been as much as 25 to 35 percent of the total value of the contract (for U.S. naval auxiliaries), but it is commonly less than half that amount for commercial ships. In contrast, some U.S. auxiliary ship contracts in the past two decades have had little cost growth. The committee has chosen not to inflate the cost of the polar icebreakers by recommending a budget for settlement of requests for equitable adjustment (REAs) or for change orders authorized by the USCG PEO. The committee notes that a 20 percent cost overrun could be incurred in actual costs because of REAs, but the overrun will be addressed in future years if it occurs. Overview of Cost Assumptions Table D-5 summarizes the general assumptions applied to all cost estimates developed by the committee for the polar icebreaker project. Use of common assumptions ensures internal consistency among estimates. TABLE D-5 Assumptions Applied in Committee’s Cost Estimates Description Contract year Production learning rate Engineering and planning wrap rate, 2019 Production wrap rate, 2019 Shipyard risk margin Profit margin on labor, materials, and overhead Escalation, engineering and detail design Escalation, materials and equipment Escalation, shipyard labor HY-80 steel cost, 2019 HY-80 steel content EH-40 steel cost, 2019 Steel scrap rate Assumed Value 2019 85% $135/man-hour $79/man-hour 7.5% for Ship 1; 7.5% for Ship 2; 3.5% for Ship 3; 1.3% for Ship 4 12% 2.00%/year 2.75%/year 2.40%/year $1,500/metric ton 60% of ice belt, plus 100% of deck stringers, sheer strake, and turn of bilge crack arresters $660/metric ton 20% 61 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Total cost, GFM/GFE $102 million/ship Total cost, government PEO, $48 million/ship representatives, and SUPSHIP PDA $15 million/ship NOTE: SUPSHIP = Supervisor of Shipbuilding, Conversion, and Repair. SOURCE: Generated by the committee. Heavy Icebreakers Cost Estimate The Congressional Research Service (CRS) has published a report concluding that “a new heavy polar icebreaker might cost roughly $900 million to $1.1 billion to procure” (O’Rourke 2015). A subsequent CRS report (O’Rourke 2016) in November 2016 reiterated this estimate, stating the following: “The total acquisition cost of a new polar icebreaker that begins construction in FY2020 has not been officially estimated but might be roughly $1 billion, including design costs.” ROM Cost Estimate for Heavy Icebreaker Design and Construction Committee members independently developed cost estimating models as a means of assessing the likely cost of both the heavy and the medium icebreakers. Results were compared, analyzed, adjusted, and then summarized. The committee reached a consensus on the results before including them in this report. Comparison was then made with the overall cost estimate publicly available from USCG. The committee’s cost estimating methods and results are believed to be consistent with those of the Naval Sea Systems Command (NAVSEA) and USCG. The committee’s ROM estimates for design and construction of a series of up to four heavy icebreakers are summarized in Table D-6. TABLE D-6 Committee Independent Cost Estimate: U.S. Design and Construction of a Heavy Polar Icebreaker Cost Category Ship 1 Ship 2 Ship 3 Ship 4 Engineering, detail design, and 128 19 6 3 Materials and equipment 318 310 319 327 Production labor and overhead 255 221 208 169 120 93 82 78 821 643 614 577 22 22 22 22 planning Profit, risk margin, and facilities capital cost of money Total, shipyard contract GFM and GFE 62 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Change orders 78 30 29 29 Other government expenses 62 63 65 65 Total, government program expenses 162 115 116 116 Grand total per vessel 983 759 729 692 Overall program costs Total program budget, four ships 3,163 Average price, each of two 871 Average price, each of three 824 Average price, each of four 791 NOTE: Costs are in millions of U.S. dollars, 2019. SOURCE: Generated by the committee. The committee estimates that the first heavy icebreaker total program cost is likely to be $983 million (2019 dollars). The shipyard contract, government costs, and possible overruns are included in the estimate. If four heavy icebreakers are built in the United States, the expected average cost drops to $791 million for each of the four. These total program costs are consistent with those stated by the Commandant of USCG and in CRS reports provided to Congress. Government costs in these estimates total approximately 16 percent of the total program cost (if the first two ships are considered), which is consistent with experience over the past two decades. Historically, project overruns of 20 to 45 percent have been experienced on naval shipbuilding projects in recent decades, some of which may accrue to the government through REAs. 36 Another reference for estimating costs for a new U.S. heavy icebreaker is the published cost estimates for the Canadian Coast Guard’s John G. Diefenbaker. In 2013 the publicly reported program of record cost for this ship was C$1.3 billion37 (US$990 million); 38 whether this price includes Canadian government expenses outside of the shipbuilding contract is unclear. If escalation over the next 6 years is considered, the 2019 cost is likely to be US$1.2 billion per ship for a Diefenbaker-equivalent heavy icebreaker. An authorization by Congress for expenditures in the first year after contract award will be required to fund block purchase of long-lead contractor-furnished equipment, design and planning activities, procurement of GFE, and government program costs and expenses. 36 GAO 2017. The report notes: “Of the 11 ships delivered as of December 2015 under the six contracts, 8 experienced growth. In one case, costs grew nearly 45 percent higher than the negotiated target cost.” The report is available at http://www.gao.gov/assets/690/683085.pdf. 37 See http://www.nunatsiaqonline.ca/stories/article/65674coast_guard_new_1.3_billion_arctic_icebreaker_to_be_read y_by_2022. 38 Currency conversion as of February 25, 2017; data from http://www.bankofcanada.ca/rates/exchange/ceri/. 63 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Cost of Science Making the new icebreakers science-ready means incorporating design elements that allow costeffective retrofitting of the ships for full science capability if necessary during the ships’ service lives. Such design elements could include the following: 1. Structural supports for installation of side and aft A-frames; 2. Spaces in the ship to be used for laboratories and to accommodate winches; 3. Flexibility of accommodations so that a science contingent of up to 50 can be embarked for up to 2 months; 4. Deck tie-down capabilities to be used for vans and equipment; 5. Sufficient support strength for laboratory vans (up to 12,000 pounds each) on upper decks; 6. Platforms and stability calculations to support heavy critical science antennas on the mast or upper decks of the house; 7. A hull design that minimizes bubble sweep under transducers; 8. Transducer wells and flats to accommodate scientific echosounders; 9. Piping for underway science seawater systems, both inside the house and at key points on the deck; 10. Runs for cabling for the echosounders, particularly the multibeam systems; 11. Sufficient space on the aft deck to support the deployment of oceanographic moorings and large remotely operated vehicles; and 12. Hangar spaces, one that could be dedicated for a conductivity, temperature, and depth system and at least one other for flexible use (e.g., storage of autonomous vehicles). The committee recognizes that structural elements required for the deployment of unmanned aerial systems are consistent with those required for the deployment of helicopters. Thus, such elements are not cited as a science-specific design feature. The committee also notes that the cost of incorporating the above-listed elements into the ship if the full suite of scientific capabilities is required at a later date would be substantial. The committee estimated the incremental cost of including these elements and reinforcements in the original construction to be $10 million to $20 million per ship. The committee arrived at this cost by applying the same CERs used in preparing the overall construction cost estimate to the estimated structure, outfitting, and auxiliary systems needed to provide the capabilities listed above. Required additional structure on the vessel was estimated at about 5,500 square feet (net) of enclosed space that could become science laboratories, storage space, meeting rooms, and offices; overall accommodation space was increased by 25 persons. The assumption was made that accommodation space for another 25 science-related persons to reach the desired maximum of 50 persons could be arranged by using existing accommodation spaces normally housing persons for other missions. The cost of installing lighting, ventilation, and piping systems to support the future installation of a full suite of science equipment is included in the estimate. Dynamic positioning is considered a desirable feature during science missions, but provision for dynamic positioning was not included in the above science-ready cost estimate. The modifications necessary for providing this capability are too uncertain at this stage of the design. There are several levels of dynamic positioning, and which level was needed would have 64 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs to be determined. In addition, certification for dynamic positioning requires a high level of redundancy and independence of system operation that can have a major impact on propulsion, auxiliary machinery, electric distribution, and controls design, with a significant increase in cost that is difficult to determine. Whether provision for dynamic positioning is worth the cost is a decision the committee did not believe could be made at this time. Going beyond merely making the vessel science-ready and furnishing it fully with science capability will require installation of the actual science-related equipment and outfitting spaces for science. Overboarding equipment (e.g., winches, A-frames, cranes, load-handling systems) and ship-supplied installed instrumentation and facilities (e.g., hull-mounted acoustic sensors, meteorological sensors, a science seawater system equipped with sensors, environmental chambers, freezers, science networks, and satellite communications antennas) would be included. Appropriate equipment and capabilities for newer research vessels in the University-National Oceanographic Laboratory System fleet are described in the November 2015 USCG ORD. Such outfitting would require an outlay at acquisition of $20 million to $30 million per ship. 39 Medium Icebreakers USCG is developing an ORD for medium icebreakers. Neither an indicative design nor a cost estimate was available for review by the committee before completion of this report. The Healy (WAGB-20) is the sole medium icebreaker in the U.S. fleet. Table D-7 shows principal characteristics and prices for a number of recent foreign medium icebreakers equipped for research operations in the high latitudes. The committee notes that the Harry DeWolf–class vessels for Canada do not include extensive facilities for science but are limited to sovereignty and government presence missions. TABLE D-7 Comparison of Principal Characteristics of Medium Icebreakers Characteristic Healy (WAGB20) Flag United States 1999 Year commissioned Builder (location) Length overall (meters) 39 Shirase (AGB-5003) (Yamauchi and Tsukuda 2011) Japan 2009 LittonAvondale (New Orleans, LA) Universal Shipbuildin g (Kawasaki, Japan) 128 138 Araon (HHIC News 2009) Sikuliaqa Polaris Kronprins Haakonb Harry DeWolfc (AOPV-430) South Korea 2009 United States 2014 Finland Norway Canada 2016 2017 2018 Hanjin Heavy Ind. (Busan, South Korea) 109.5 Marinette Marine Corp. (Marinette, WI) Arctech (Helsinki, Finland) Fincantieri (Genoa, Italy) Irving Shipbuilding (Halifax, Nova Scotia) 79.5 110 100 103 D. Kristensen, Glosten Associates, briefing to the committee, April 11, 2017. 65 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Maximum beam (meters) Displacement, full load (metric tons) Rated icebreaking thickness at 3 knots continuous speed (meters) Propulsion plant 25 28 19 15.85 24 21 19 16,250 Approx. 20,000 Not published 3,665 13,000 Not published 6,440 1.35 1.5 1.0 0.9 1.8 1.0 1.0 Diesel– electric Diesel– electric Diesel– electric Diesel– electric Dual fuel diesel– electric Diesel– electric Diesel– electric Propulsion power (MW) Total berths Total price at contract 34.5 22.0 10.0 6.22 17.0 14.4 136 US$232 million 175 Unknown 85 ₩108 billion (approxi mately US$96 million) 46 US$200 million 55 NOK 1.4 billion (approximate ly US$167.2 million) 65 C$2.3 billion for 6 ships (US$287.5 million for each ship) 173 307 Estimated total priced (millions of U.S. dollars, 2017) 362 Unknown 116 217 19.0 24 €125 million (US$141 million) 148 NOTE: AOPV = Arctic offshore patrol vessel. a Sikuliaq specifications, https://www.sikuliaq.alaska.edu/ops/?q=node/19. b PowerPoint presentation, New Norwegian Icegoing Research Vessel Kronprins Haakon, Lasting og Lossing I IS. c http://www.navy-marine.forces.gc.ca/assets/NAVY_Internet/docs/en/aops-factsheet.pdf. d The current estimate value was calculated by using http://usinflationcalculator.com. SOURCE: Generated by the committee. The Healy primarily operates in the Arctic Ocean. It maps the subsea continental shelf boundary of Alaska, performs sovereignty patrols as part of USCG’s mandated mission, and acts as a platform for scientific research. The Healy, therefore, has accommodations for 136 people, including up to 51 scientists. The ship is well equipped for towing and handling the variety of sensor arrays and oceanographic gear required for ocean research. Two A-frames are located on the working deck, and several articulated cranes provide the capability of lifting loads of up to 14 tons on and off the ship to the water. The Healy is equipped with a dynamic positioning system and offers precise control of navigation during science operations. A well-equipped flight deck allows operations of USCG’s large HH60-R helicopters and provides hangar space for two smaller HH65 helicopters. Several cranes permit repositioning of equipment as well as USCG specific load transfers, with access to much of the aft section of the ship. Almost 400 square meters of space is provided in five laboratories, and up to eight International Organization for 66 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Standardization vans can be loaded aboard to provide additional science and workstation capabilities. In April 2012, the Healy escorted a tanker carrying an emergency fuel delivery to Nome, Alaska. This mission was the first winter delivery to Nome and required navigation through more than 300 nautical miles of pack ice ranging up to the ship’s design ice thickness of 1.35 meters (4.5 feet). The Healy also undertakes the important mission of asserting U.S. sovereignty over Alaskan coastal waters in the Arctic Ocean. Thus, it is designed to accomplish each of the statutory missions assigned to any USCG cutter. The committee estimates that the total program cost for the first medium icebreaker (a replacement for the Healy) is likely to be approximately $786 million, including the shipyard contract and government costs (Table D-8). Three medium icebreakers (the number of ships requested by USCG in its proposed 3 + 3 program) built in the United States and capable of performing USCG sovereignty missions and conducting research are each likely to cost $641 million on average. The committee’s average estimate of $641 million for each of three medium icebreakers is 13 percent higher than the $566 million listed in the United States Coast Guard High Latitude Region Mission Analysis Capstone Summary. TABLE D-8 Committee Independent Cost Estimate: U.S. Design and Construction of a Medium Polar Icebreaker Cost Category Ship 1 Ship 2 Ship 3 Ship 4 Engineering and detail design 126 19 6 3 Materials and equipment 222 216 221 227 Production labor and overhead 193 167 157 151 Profit, risk margin, and facilities capital cost of money 96 71 62 59 Total shipyard contract 638 473 446 440 GFM and GFE 22 22 22 22 64 24 22 22 Change orders Other government expenses 62 63 64 65 Total government program expenses 148 109 108 109 Grand total per vessel 786 582 554 549 Overall program costs Total program budget, four ships 2,470 Average price, each of two 684 Average price, each of three 641 Average price, each of four 618 NOTE: Costs are in millions of U.S. dollars, 2019. SOURCE: Generated by the committee. 67 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs In striking contrast, the Polaris was commissioned last year at a reported cost of only 125 million euros, or an estimated $150 million (in 2016). The cost reflects strong Finnish knowledge of icebreaker design and construction, a smaller and simpler ship, and no science facilities. However, the ship does include a liquefied natural gas fuel system and a third azipod (or azimuthing thruster) in the bow, both of which increase cost. The Polaris 40 is a regional Baltic medium icebreaker, with two azipods at the stern and one azipod in the bow and an integrated electric power plant totaling 22 megawatts. It is operated with a complement of only 16 people compared with the 85-person complement plus 51 berths for scientists on the Healy. The Healy is 18 years old, almost halfway through its expected service life of 40 years. A replacement will be needed for the Healy by 2039, with start of construction no later than 2036. With increased commercial shipping traffic in the Arctic, an additional medium icebreaker may be needed to fulfill sovereignty obligations before 2036. Advantages of One Contract and One Design for Multiple Icebreakers The committee used its cost models to investigate the economics of applying one design in one contract to construct four heavy icebreakers, as opposed to constructing three heavy icebreakers and one or possibly more medium icebreakers on the basis of a separate design. Table D-9 shows the principal characteristics assumed for each ship. Both ships have integrated electric power plants with azimuthing podded propulsion. The medium icebreaker is otherwise similar to the Healy. The heavy icebreaker is based on the committee’s estimate of the 132-meter minimum ship stack-up length necessary for meeting all USCG statutory missions suitable for an icebreaker as outlined in the November 2015 ORD issued by USCG, including aviation and scientific capability similar to that outlined by the ORD. The ORD indicated a berthing requirement for 195 persons, which the committee understands may be reduced. In the committee’s judgment, 195 berths is excessive. The committee’s estimate was based on a smaller accommodation size, as indicated in Table D-9; up to about 50 berths can be for mission- or detachment-related persons. TABLE D-9 Assumed Principal Characteristics of Committee’s Icebreaker Designs Characteristic Heavy Icebreaker Medium Icebreaker Length overall (meters) 132.0 128.0 Beam (meters) 27.0 25.0 Depth (meters) 13.0 13.0 Maximum draft (meters) 9.0 9.0 Polar Class 2 3 Lightship weight (metric 12,720 11,476 tons) Design displacement 18,360 17,120 (metric tons) Ice thickness at 3 knots 1.8 1.37 40 J. Toivola, New Icebreaker Technical Details, PowerPoint presentation to Europaan laajuine liikenneverkko by Finnish Transport Agency, March 1, 2014. 68 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs (meters) Maximum speed (knots) Total berths Propulsion power Propellers Propulsion type Main generators Auxiliary generators Endurance (days) Aviation 15 144 2 × 18.3 MW 2 pod propulsors Diesel–electric 4 × 7.9-MW medium speed diesels 3 × 2.9-MW medium speed diesels 90 Helicopter deck and hangar Science Science-ready SOURCE: Generated by the committee. 15 136 2 × 11.2 MW 2 pod propulsors Diesel–electric 4 × 6.3-MW medium speed diesels 2 × 2.9-MW medium speed diesels 80 Helicopter deck and hangar Science equipment installed The results of the committee’s cost estimating analysis, as measured by total estimated cost (including government program costs, GFM or GFE) are shown in Table D-10. Engineering, design, planning, ILS, and other nonrecurring costs are all accrued to the first ship of the class, so these costs are not incurred for any of the follow-on ships. Any new design will likely reincur the first ship nonrecurring costs. TABLE D-10 Total Estimated Cost for Design and Construction Ship Heavy Icebreaker Medium Icebreaker Ship 1 983 786 Ship 2 759 582 Ship 3 729 554 Ship 4 692 549 NOTE: Costs are in millions of U.S. dollars, 2019. SOURCE: Generated by the committee. As indicated in Table D-9, there is not much difference in size between a medium and a heavy icebreaker, which leads to the relatively small difference in cost between the two classes of icebreakers as shown in Table D-10 and discussed below. Previous analyses of icebreaker costs, such as the High Latitude Region Mission Analysis Report (ABS Consulting 2010), estimated the cost of medium icebreakers as about 70 percent of that of heavy icebreakers. The committee believes that such a difference is unrealistic in view of the expected USCG mission requirements for a medium icebreaker, with the Healy as a model for the medium icebreaker. In Table D-10, the medium icebreaker is estimated to cost 76 to 80 percent of the cost of a heavy icebreaker. This smaller difference helps explain the conclusion of the committee, discussed below, that the purchase of additional heavy icebreakers in a series is more cost-effective than the purchase of a mix of heavy and medium icebreakers with separate designs, in view of the limited ship numbers now under consideration. A requirement for three heavy icebreakers and possibly one or two medium icebreakers could mean having two designs built by two shipyards. This approach sacrifices the learning advantage a shipyard gains from series production (multiple 69 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs ships to the same design) for the first medium icebreaker, but the advantage would apply to the alternative fourth heavy ship. In Table D-10, the estimated all-in price of a fourth heavy icebreaker, $692 million, is $94 million less than the $786 million for the first medium icebreaker of a second design. As shown in Table D-11, the suggested acquisition strategy of four heavy icebreakers saves more than $1 billion compared with the government’s request of three heavy and three medium icebreakers. TABLE D-11 Total Estimated Acquisition Costs for Alternative Acquisition Strategies Strategy (Number and Type of Total Program Price Icebreakers) Four heavy 3,163 Three heavy, one medium 3,257 Three heavy, two medium 3,839 Three heavy, three medium 4,393 NOTE: Costs are in millions of U.S. dollars, 2019. SOURCE: Generated by the committee. Impact of MIL-SPEC The committee understands that USCG plans to acquire the polar icebreakers in part through MIL-SPEC requirements, with the remainder based on commercial or ABS class guidance. USCG estimates that some percentage of the new polar icebreaker will have MIL-SPEC requirements for design, materials, construction, and testing 41 but has not indicated what the mix of military and commercial might be. Definition of MIL-SPEC To ensure proper performance, maintainability and repairability, and logistical usefulness of military equipment, the U.S. Department of Defense, including USN, evolved defense standards and specifications. Each of the services applies standards appropriate to its purchasing needs, and in some cases services apply the same standards. Defense standards related to essential technical requirements for purchased materials that are unique to the military or are substantially modified commercial items are referred to as MIL-SPEC. 42 MIL-SPEC is similar to MIL-STD (short for defense or military standards). Both establish uniform engineering and technical requirements for processes, procedures, practices, and methods unique to the military. Five types of MIL-STD 41 Rear Admiral M. Haycock and J. Stefany, USCG, discussion at the committee’s first meeting, February 13, 2017. 42 Department of Defense Manual. Defense Standardization Program Procedures Number 4120.24-M, March 2000 and September 2014. 70 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs exist. They cover interfaces, design, manufacturing, standard practices, and testing. USN applies many MIL-SPEC and MIL-STD to the design, manufacture, and testing of equipment installed in USN ships. They are based on the need for specialized features and capabilities that enable the vessels to operate effectively in the often harsh environment faced by combatant vessels. USCG realizes that its cutters will face some of the same risks as military vessels and that in times of war or crisis USCG cutters can be incorporated into USN or perform missions similar to those of USN vessels. On that basis, USCG applies MIL-SPEC and MIL-STD to some aspects of the design and equipment for cutters, but not to the same extent as USN. The following discussion uses the term MIL-SPEC, which is intended to encompass all military standards that guide design, procurement, installation, testing, and maintenance of the ship or ship systems. These include Federal Standard, design data sheets, NAVSEA technical manuals, and other legacy documents that USCG may choose to invoke for its polar icebreakers. Application of MIL-SPEC to Heavy Polar Icebreakers While a certain percentage of each of the new polar icebreakers will have MIL-SPEC part requirements, the committee is uncertain which of the components might be subject to MILSPEC. The committee can only provide a general estimate as to which systems or components might use MIL-SPEC and be incorporated into the polar icebreaker specification. Among the systems to which MIL-SPEC might be applied are diesel engines, noise and vibration systems, propeller balancing systems, propulsion shafting systems, and air and exhaust systems. The rationale for invoking MIL-SPEC usually involves a desire to ensure long and reliable service of specific mission-critical components. In addition, there is a belief that such requirements would make these systems consistent with current USCG vessels and would support fleetwide standardization and ease of maintenance, training, and testing by USCG. MILSPEC would likely be applied to weapons systems, communications systems, and other military equipment installed on the icebreakers to make the systems interoperable with those of USN. USCG noted to the committee that MIL-SPEC may be invoked for specific components rather than as a whole, and invocation would be based on the perceived need for applying a different standard. 43 While this may seem a practical solution to the challenge of acquiring a high-standard polar icebreaker, it introduces the risk to a shipbuilder that a good and lower-cost commercial standard, such as those applied to icebreakers abroad, may not be accepted by USCG. As a consequence, the performance of early-stage functional engineering may be affected, and certain design approaches may be rendered infeasible. For example, specification of propulsion shafting material to a MIL-SPEC may not be in accordance with established offthe-shelf designs of azimuthing thrusters (pods) available from Europe. Despite the significant operational advantages of azimuthing pods, MIL-SPEC requirements could eliminate such equipment from consideration. If this is discovered after contract award, when functional engineering must proceed according to schedule, the delay, disruption, and offsetting acceleration would have major cost impacts on the program. 43 Rear Admiral M. Haycock and J. Stefany, USCG, discussion at the committee’s first meeting, February 13, 2017. 71 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Impact of MIL-SPEC on Costs Committee members have been involved in the design and construction of commercial vessels and U.S. government vessels where MIL-SPEC has been invoked and understand the trade-offs. At its Seattle meeting, the committee heard from shipyard executives who said that invoking MIL-SPEC requirements in a ship construction project, even in part, can have a major impact on the cost of the ships. A limited invocation, as planned by USCG, can increase material and construction costs by 10 to 25 percent and delay the schedule by months. 44 Costs and delays are subject to greater increases when the extent of MIL-SPEC is ambiguous and when application of MIL-SPEC is to be clarified at a later date or is up to the vessel buyer. Table D-12 shows how MIL-SPEC could add more than $100 million to the acquisition cost of the first of a series of heavy polar icebreakers and up to 15 percent to the overall acquisition cost of each vessel. TABLE D-12 Examples of Estimated Additional Cost of Invoking MIL-SPEC in Accordance with USCG Proposal Cost Element Ship 1 Ship 2 Ship 3 Ship 4 MIL-SPEC steel and welding differential MIL-SPEC material differential Non-MIL-SPEC material differential Subtotal, materials MIL-SPEC MIL-SPEC production and nonproduction labor and overhead MIL-SPEC engineering, design, standards, and ILS differential Subtotal, labor and overhead MIL-SPEC Profit on MIL-SPEC differential Total MIL-SPEC differential cost Addition to total ship acquisition cost 1.36 42.29 4.17 47.81 1.39 41.28 4.28 46.96 1.43 42.42 4.40 48.25 1.47 43.58 4.52 49.57 38.78 33.31 30.49 28.65 7.61 46.39 1.90 35.21 0.95 31.44 0.48 29.13 11.30 9.86 9.56 9.44 105.51 12.8% 92.02 14.3% 89.25 14.5% 88.15 14.5% NOTE: Costs are in millions of U.S. dollars, 2019. SOURCE: Generated by the committee. In addition, compliance with MIL-SPEC can be difficult to ensure, since shipyards cannot effectively erect barriers between areas where MIL-SPEC is required and where it is not. Shipyard executives with experience in this area agreed that the impact of MIL-SPEC requirements permeates the life cycle of the project. Invoking MIL-SPEC requirements even for 10 to 20 percent of the systems could have a profound impact on construction cost and design efforts related to systems for which MIL-SPEC requirements were not specifically invoked. 44 Discussion between the committee and shipyard executives participating on a panel at the committee’s Seattle meeting, April 11, 2017. 72 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Value of MIL-SPEC to Polar Icebreakers The committee believes that the application of MIL-SPEC and MIL-STD, as described above, may not be justified. In view of the unique nature of icebreaker service, the use of applicable international and commercial standards often can achieve better levels of safety and reliability than would be achieved by MIL-SPEC. The following are examples: 1. Application of damage stability requirements according to international standards would be more appropriate for an icebreaker and may lead to greater safety in ice conditions, while simplifying the design of the ship and reducing its cost. The IMO Polar Code, 45 which applies to icebreakers, has extensive damage requirements oriented to the type of damage expected from ice, with longitudinal extent of shell damage and opening to the sea along the waterline, of up to 4.5 percent of the length of the ship (about 20 feet). 46 The code also requires a high standard for stability after flooding from damage to the side shell (s 1 equal to 1 or greater) when the Safety of Life at Sea (SOLAS) damage stability requirement is applied. Because the ship will have more than 100 persons on board, some not nautically trained, application of SOLAS damage stability requirements for a passenger ship with more than 36 persons on board would be appropriate. In general, passenger ship damage stability requirements are significantly more severe than are those for cargo ships. Overall, the committee anticipates that applying international and polar damage stability requirements will result in a ship that is safer in ice conditions without having to manage the more costly and difficult-to-design changes needed to meet MILSPEC requirements for a ship anticipating combat. In assessing the subdivision and the appropriate damage stability criteria, the committee recognizes the high level of crashworthiness inherent in icebreakers due to the robust hull structure and plating required for operations in heavy ice. 2. Application of MIL-SPEC to shafting could significantly limit the availability of alternatives to conventional shafting. Podded propulsion system makers may not have equipment or designs in compliance with MIL-SPEC and may be unwilling to customize their equipment, except at a higher cost. Customizing a propulsion system design can lead to specialized designs that are difficult to service and obtain parts for, which would increase maintenance costs for the life of the vessel. In addition, shafting is one of the most reliable systems on a vessel, and many U.S.-flag Jones Act vessels are still operating after 40 years. Throughout the worldwide merchant fleet, shafting issues, even on older ships, are rare. Generally, if the shaft is installed, aligned, and lubricated properly, its life cycle is extremely reliable. The Polar Sea and the Polar Star encountered problems related to controllable pitch propellers, but these types of propellers are not planned for the new icebreakers. The committee believes that elimination of MIL-SPEC requirements for shafting and bearings will allow the use of best available technology and reduce costs without compromising reliability. 3. Diesel engines are likely planned for the new icebreaker. The major worldwide manufacturers of medium-speed diesel engines produce hundreds of engines per year, and these engines have a history of reliable operation and worldwide availability of parts 45 An explanation of the Polar Code (along with full text) can be found at http://www.imo.org/en/MediaCentre/HotTopics/polar/Pages/default.aspx. 46 IMO Resolution MSC.385(94)—Polar Code, 4.3.2, Stability in Damaged Conditions. 73 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs and service. Extensive testing will not make a poorly designed or hard-to-service engine reliable. The key to engine reliability is selection of an engine from a maker with a proven track record. The selection of engine suppliers will be reduced significantly if the new icebreakers are required to have U.S.-built engines that meet MIL-SPEC requirements. The result is likely to be an engine that is less reliable and less easy to maintain. USCG would be better served by procuring the best engines available and not restricting the engines’ country of origin. 4. For specialized communications, weapons, and other systems exclusive to USN, application of MIL-SPEC would be appropriate to ensure that the equipment meets special mission requirements and is compatible with equipment on other USCG and USN vessels. The equipment to which this applies is limited in nature and much of it is government furnished, so it would not have a significant impact on icebreaker cost. The committee believes that the adverse impacts on design, cost, and availability of reliable equipment outweigh any anticipated benefits that application of MIL-SPEC requirements to a new polar icebreaker might provide. The most cost-effective and reliable icebreaker for USCG is likely one that is designed and built to appropriate commercial and international standards for a polar icebreaker, similar to icebreakers in other nations around the world. OPERATING AND MAINTENANCE COSTS Review of USCG’s Operating Costs for a New Icebreaker While indications from USCG may differ, the committee expects the operating costs for the new heavy polar icebreakers to be less than those of the Polar Star. Previous USCG experience has suggested that operating costs of new cutters are likely to be higher than those of the vessels they replace, since new cutters are more expensive to crew, operate, and maintain. One estimate suggests that operating costs of new icebreakers would be 30 percent greater than the operating costs of the Healy (ABS Consulting 2010). The committee notes that the projected crew size for the polar icebreaker replacement could be similar to that of other USCG cutters, 120 to 126 berths. Whether this number includes the crewing for any mission or scientific support detachments is unclear. USCG was unable to provide estimates for the operating costs of the polar icebreaker replacement because the design and the crewing requirements have not been finalized. The committee’s experience with operating commercial ships is the opposite of USCG’s experience. In general, the engines and hull designs of new ships are more efficient than those of the vessels that they replace, so fuel consumption—usually one of the largest cost components of annual operating cost—is generally lower for new ships. Furthermore, newer ships, particularly in the first 10 years of life, will have fewer repairs and little wastage or deterioration. Major overhaul and repair costs, including dry dock costs, will be significantly lower than those of an old vessel requiring expensive repairs and more frequent maintenance because of hull corrosion and deteriorating machinery. The improved sensors and data tracking provided by modern technology permit greater use of planned and condition-based maintenance. The result is less 74 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs frequent and more just-in-time maintenance, which reduces annual cost. Modern machinery also is more reliable and allows greater time between overhauls. For these reasons, the committee believes that operating costs for the new icebreakers could be less than those of the Polar Star and the Healy. The exception is manning costs, which generally rise over time because of increased salaries and benefits. If crews on the new icebreakers are larger than or the same size as crews on existing ships, personnel costs will be higher. USCG, like the commercial shipping industry, could reevaluate the proposed crew size for the new icebreakers in light of the opportunities provided by modern automation systems. One caveat in the expectation of lower fuel and maintenance costs for the new icebreakers is the extent to which MIL-SPEC is applied. The committee’s lower cost expectation is predicated on the installation of efficient, reliable, commercial-off-the-shelf machinery and equipment from experienced and reputable makers. If the application of MIL-SPEC results in the installation of more customized machinery from smaller and more specialized makers, there is significantly greater risk of lower reliability and less efficiency, as was discussed in the section on MIL-SPEC. The experience of the marine industry and most other industries is that, with today’s complex automation, machinery failures are much more likely if the maker does not have a proven track record of good design, good service, and good availability of parts. In summation, the use of modern machinery presents the opportunity for greater efficiency and reliability than in the past, but with faulty implementation the opposite is more likely and the failures will be more severe than in the past. The use of customized and specialized machinery and equipment in other recent USCG cutters could be why USCG has experienced higher operating costs with new cutters. The same danger exists with the new icebreakers unless actions are taken to limit the requirements, such as MIL-SPEC, that lead to the installation of such machinery. Operating Costs for Heavy Versus Medium Icebreakers USCG was unable to provide projected operating costs for the new icebreakers to the committee, since these estimates were not yet developed. To estimate these operating costs, the committee used the annual projected 2019 operating cost for the Polar Sea—estimated at about $38.6 million—as presented in a recent report to the U.S. Congress (USCG 2013). The committee adjusted the estimated operating cost figures for the Polar Sea downward on the basis of expected reductions in maintenance and fuel costs for the new icebreaker to produce its $31.7 million estimate for the new polar icebreaker. With the assumptions of a “real” discount rate of 0.7 percent and a 30-year service life, the committee estimates the projected lifetime costs (acquisition and operating) for the four-ship fleet at $6.6 billion. If multiple crews are determined to be a viable option, continuous coverage in the Arctic could be provided with two icebreakers manned by three crews. If a single crewed vessel to service the Antarctic is included, the required number of ships could be reduced to three. The committee estimates that the overall acquisition plus lifetime operating costs for the four-ship scenario may be reduced by up to 13 percent as compared with the three-ship scenario. The committee emphasizes that these estimates are notional and based on the estimated operating costs (from more than 4 years ago) of the 40-year-old Polar Sea. The committee believes that acquisition of a fourth heavy icebreaker in lieu of a medium icebreaker would reduce overall acquisition cost. According to the committee’s estimates, this 75 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs strategy reduces up-front acquisition cost, but it could also be more cost-effective for operating costs over the life of the vessel. The three primary drivers of annual operating cost are often the vessel’s physical characteristics, the operating and voyage profile, and the maintenance schedule (such as when the vessel is dry-docked). The physical characteristics of heavy and medium icebreakers (see Table D-9), such as installed power, vessel size, type of machinery and propulsion systems, and number of persons on board, are similar, so cost factors based on these parameters are likely to lead to similar annual operating costs. Because the ice thickness requirements are significantly less severe for the medium than for the heavy icebreaker, the medium icebreaker’s propulsion power is estimated to be only about 60 percent of that of the heavy icebreaker, even though the vessels are similar in size. The primary difference between a medium and a heavy icebreaker is the thickness of ice it can break. The time that an icebreaker is actually breaking ice near or at its limit is a relatively small percentage of the ship’s life. Even if the assumption is made that more power will be used for breaking thicker ice, the overall fuel consumption difference over the ship’s life will be relatively minor. Most of an icebreaker’s fuel consumption occurs during transits to and from the operating areas. Since medium and heavy icebreakers are of comparable size, the fuel consumed during transit will be similar. Voyage profile and days in service are usually mission related and not necessarily related to the size of the icebreaker. Therefore, the daily costs for a medium and a heavy icebreaker operating the same voyage are likely to be similar. The heavier machinery and greater propulsion power of the heavy icebreaker could lead to higher annual maintenance costs. The main machinery and propulsion system maintenance costs are only one of several system maintenance costs incurred by the vessels, and overall maintenance costs for medium and heavy icebreakers are similar. For example, the budgetary cost estimate for annual main engine maintenance costs for commercial ships using distillate fuels, similar to what USCG vessels use, is approximately $0.85/megawatt-hour. On the assumption of about 3,000 hours underway per year and in view of the propulsion power for each vessel type, a notional estimate for the annual main engine maintenance budget for the heavy icebreaker is approximately $92,000; that for the medium icebreaker is about $56,000—a difference of about $36,000 per year. While USCG vessels can have higher maintenance costs than commercial vessels, the costs are not likely to be more than double those of commercial vessels. In the committee’s judgment, the differences in maintenance costs between a heavy and a medium icebreaker are likely to be small compared with the savings in acquisition costs that would arise from purchasing a fourth heavy icebreaker rather than a one-of-a-kind medium icebreaker. Range of Uncertainty The committee has provided ROM cost estimates. They were produced in a manner consistent with widely accepted shipyard practices and similar to the government’s internal procedures. However, the degree to which the estimates will correspond to the eventual costs of the ships that are built can be difficult to establish. During preparation of bids for shipbuilding contracts, uncertainty is sometimes assessed through Monte Carlo simulations. Hundreds of runs with sophisticated software unavailable to the committee are made to determine likely outcomes. To identify possible sources of cost variability, the committee analyzed key assumptions in the following areas: 76 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs • • • • • • • Basic work scope; Engineering, detail design, and planning; Material and equipment cost; Production labor and productivity; Risk margin applied by the shipyard; Learning rate assumed by the shipyard; and Profit margin assumed by the shipyard. Basic Work Scope of Medium Icebreaker Compared with Heavy Icebreaker Variance in the basic work scope will occur if the ship characteristics that the committee assumed differ from those set forth by USCG. Because USCG has not yet released the ORD for the medium icebreaker, the committee used the characteristics of the existing USCG medium icebreaker Healy as its estimate baseline. The committee acknowledges that a Healy-derived medium design may not be the smallest ship that will meet USCG mission needs. However, the design incorporates the smallest gross characteristics that the committee can envision for a USCG polar medium icebreaker equipped with aviation facilities, boats for search and rescue operations, and science facilities. The committee developed its own minimum characteristics for a heavy icebreaker meeting USCG’s heavy icebreaker ORD. The committee has a higher degree of confidence that the characteristics of the heavy icebreaker represent a realistic design. As a result of its analysis, the committee cautions that the work scope for the design and construction of a medium polar ice breaker may be overestimated by as much 5 percent and that the differences between a medium and a heavy icebreaker due to work scope can reasonably be considered to be ±5 percent. Engineering, Detail Design, and Planning Costs of the engineering and detail design are sources of uncertainty in cost estimates. Wage rates for engineering, detail design, and engineering may vary by up to 17 percent by discipline between the U.S. East Coast, the Gulf Coast, and the West Coast. Furthermore, engineering and detail design wage rates differ significantly between the United States, Canada, Europe, and Asia—all of which are candidates for providing design services for a polar icebreaker project. The scope of any effort that acquires expertise from abroad will be dependent on the business strategy of an individual shipyard. Another source of uncertainty is the total work scope of the engineering, detail design, and planning effort. Several members of the committee have experience with and knowledge of engineering and detail design scope for large projects that included the involvement of foreign shipyards. In general, U.S. shipyard engineering and detail design hours are higher than those of foreign shipyards and design agents. U.S. shipyards require a higher level of detail design development to support the production information needs of their workforce than do shipyards in Europe or Asia. To gauge the sensitivity of wage rates and work scope, the committee applied three scenarios to its estimate. The committee’s baseline estimate is represented by the high (more 77 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs conservative) cost. The variance in prices that may arise from the combination of wage rates and work scope is shown in Table D-13. TABLE D-13 Sensitivity Analysis: Engineering and Design Work Scope and Wage Rate Total Program Cost for Four Heavy Icebreakers, Single Design Low Medium Higha 903 938 983 Ship 1 749 752 759 Ship 2 728 728 729 Ship 3 723 723 724 Ship 4 3,103 3,141 3,195 Total Maximum variance, total program 92 NOTE: Costs are in millions of U.S. dollars, 2019. a The high category was used in the committee’s baseline cost estimation. SOURCE: Generated by the committee. Material and Equipment Normally, material and equipment costs are developed from material takeoffs from a preliminary design, which was not available to the committee. Moreover, the committee could not develop and issue preliminary purchase specifications to potential suppliers for large dollar-value items, as would be normal practice. However, the committee believes that its CERs are conservative for material and equipment, including subcontracts. The committee estimates that its material and equipment cost estimates may have a range of uncertainty of ±10 percent. Since these items represent approximately 49 percent of the total shipyard contract value for the baseline heavy icebreakers, the committee suggests that the uncertainty in total shipyard contract cost is approximately ±5 percent. Production Labor and Productivity Production labor rates and productivity within shipyards are closely held information that may influence competition. Thus, the uncertainty associated with these factors is difficult to quantify. The committee has relied on BLS in assessing likely variances in production wage and salary rates between regions where likely competitors are located. Furthermore, “wrap rates” are a multiple of overhead rates and wage rates. While they are also closely held data, overhead rates, as estimated by the committee, may vary as much as 20 percent among shipyards, depending on the volume of other work in a shipyard, the mix of commercial and naval work, and attention to overhead cost control. On the basis of benchmarking studies, productivity by trade varies significantly among U.S. shipyards. One method of assessing such variances is to examine a recent contract award for a large USCG job, which had a reported variance from the winning bid to the highest bid of 15 percent. 78 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Risk Margin The committee’s cost analysis models applied a risk margin of 7.5 percent to the basic estimate for engineering, detail design, planning, and production labor for Ships 1 and 2, decreasing to 3.75% each for Ship 3 and Ship 4. No risk margin was applied to the material estimate, and in fact, a 5 percent reduction in material costs was assumed for “tasking” the result of aggressive negotiation between the shipbuilder and key suppliers. The committee cannot predict the range of risk perceived by shipyards and their corporate parents on this contract. It has assumed a reasonable midrange set of expectations for the bids on the basis of its experience with bidding practices in several U.S. shipyards. Learning Rate As noted in the report, a balance between first ship cost and learning rate must be attained on the basis of each specific shipyard’s prior experience. Some U.S. shipyards have attained a high learning rate between ships while experiencing high first ship labor costs, but other shipyards typically bid lower first ship costs with little or no learning. Table D-14 shows the sensitivity of total program cost to assumed learning rates of 98, 91.5, and 85 percent. Overall, the spread in learning rate produces approximately a 5 percent growth in total program cost. TABLE D-14 Sensitivity of Total Program Costs to Assumed Learning Rate (Four Heavy Icebreakers, Single Design) 85% 91.5% 98% Ship No. Learning Learning Learning 983 983 983 1 759 778 796 2 729 756 785 3 724 757 792 4 Program 3,195 3,274 3,356 NOTE: Costs are in millions of U.S. dollars, 2019. SOURCE: Generated by the committee. Profit On the basis of the committee’s experience, its baseline cost analyses applied a 12 percent profit margin, similar to the level that several major defense contractors require for bid submittals on any new project. A profit margin of 10.5 percent is low for a must-win contract, and some smaller, closely held corporations may bid as low as 9 percent profit if the project is simple and low risk. The bid profit margin is not the same as the actual realized profit margin after the 79 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs contract is completed, which is often lower than expected. If a shipbuilder bids low on its profit margin, the contract may fail to perform to shareholders’ expectations. Table D-15 indicates that the maximum likely variance between a 9 and a 12 percent profit margin is a reduction in predicted total program cost of $69 million, or 2.2 percent. Whether this reduction can be realized through negotiation is doubtful. There is little prospect of repeat icebreaker construction after this project, which would make negotiation of a lower profit margin more acceptable to U.S. shipbuilding corporations. TABLE D-15 Sensitivity to Bid Value for Profit (Four Heavy Icebreakers, Single Design) 9% 10.50% Profit Profit 962 973 Ship 1 743 751 Ship 2 713 721 Ship 3 708 716 Ship 4 3,161 Total program cost 3,126 12% Profit 983 759 729 724 3,195 Maximum program variance = 69 (2.21%) NOTE: Costs are in millions of U.S. dollars, 2019. SOURCE: Generated by the committee. Total Shipyard Contract Cost Variance The variances of the different assumptions listed above are presented individually. Occurrence of all the extremes is unlikely. On the basis of its experience and judgment, the committee considers the range of uncertainty for the baseline cost estimates as ±15 percent for the medium icebreakers and ±10 percent for the heavy icebreakers. These uncertainties are intended to represent a range of plus-or-minus one standard deviation, similar to the practices of major U.S. shipbuilding corporations. Table D-16 shows how these variances may accrue to the committee’s estimates for total program cost. TABLE D-16 Total Program Cost with Uncertainties Ship 1 Ship 2 Ship 3 Ship 4 Heavy Icebreakers Baseline Var. 983 82 759 64 729 61 692 61 Low 901 695 668 631 High 1,065 823 790 753 Medium Icebreakers Baseline Var. 786 96 582 71 554 67 549 66 Low 690 511 487 483 High 882 653 621 615 80 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs NOTE: The assumed range of uncertainty is ±10 percent of the total shipyard contract for heavy icebreakers and ±15 percent of the total shipyard contract for medium icebreakers. Figures are in millions of U.S. dollars, 2019. SOURCE: Generated by the committee. Table D-17 shows an analysis of the recommendation to buy four heavy icebreakers for assumed learning rates. TABLE D-17 Impact of Learning Rate Assumption on Decision to Buy Four Heavy Icebreakers to a Common Design 85% 91.5% 98% Ship No. Learning Learning Learning 4 Heavy Icebreakers, Single Design 983 983 983 1 759 778 796 2 729 756 785 3 724 757 792 4 Program 3,195 3,274 3,356 3 Heavy + 3 Medium Icebreakers 983 1H 759 2H 729 3H 788 4M 582 5M 555 6M 4,396 983 778 756 789 597 576 4,479 983 796 785 798 611 598 4,571 NOTE: Costs are total acquisition costs in millions of U.S. dollars, 2019. SOURCE: Generated by the committee. As can be observed from Table D-17, the cost of a fourth heavy icebreaker is less than the cost of a new design for a fourth ship built as a medium icebreaker for the 85 and 91.5 percent learning rates ($724 million < $788 million; $757 million < $789 million). Moreover, total program acquisition costs are predicted to be approximately $1.2 billion less for four heavy icebreakers of a single design versus a 3 + 3 program for two designs. The four heavy icebreakers have a lower lifetime operational cost for maintenance, repair, fuel, logistics, and crewing versus the 3 + 3 program. The provision of four heavy icebreakers capable of performing in the Antarctic and the Arctic gives USCG the operational flexibility to manage mission assignments in either environment. 81 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs If there are two contracts, one for three heavy icebreakers and another for one new medium design, and the first contract is won with a 98 percent bid learning rate while the second for the medium design is won with an 85 percent learning rate, the total cost of Ship 4 will be slightly higher (by $4 million, the difference between $788 million and $792 million) than if four ships to the same design are bought. This amounts to approximately 0.5 percent of the total acquisition price for Ship 4 and is strongly outweighed by the commonality and operational flexibility advantages of having four identical ships. The committee believes that its recommendation to design and build four heavy icebreakers of one design versus three heavy icebreakers and one medium icebreaker or three heavy and three medium icebreakers is still valid. References Abbreviations ABS American Bureau of Shipping GAO Government Accountability Office HHIC Hanjin Heavy Industries and Construction USCG United States Coast Guard ABS Consulting. 2010. United States Coast Guard High Latitude Region Mission Analysis (HLRMA) Capstone Summary. Arlington, Va. Dilworth, J. B. 1979. Production and Operations Management: Manufacturing and Nonmanufacturing. Random House, New York. GAO. 2017. Navy Shipbuilding: Need to Document Rationale for the Use of Fixed-Price Incentive Contracts and Study Effectiveness of Added Incentives. GAO-17-211. Washington, D.C. HHIC News. 2009. HHIC Launches Araon, the First Korean-Made Icebreaking Research Vessel. June 11. Liljestrom, G., and B. G. Renborg. 1990. Experience Gained from the Design and Construction of the Icebreaker Oden. http://www.sname.org/HigherLogic/System/DownloadDocumentFile.ashx?DocumentFileKey=6 1a4267c-ed4b-476f-90d3-a85b03d07425. O’Brien, L., and M. Lau. 2010. Icebreaker Resistance Calculation for Various Hull Forms. SR2010-27. National Research Council Canada, Ottawa, Ontario. http://nparc.cisti-icist.nrccnrc.gc.ca/eng/view/object/?id=8cda01cc-3e69-4244-b1f4-bd0026226370. O’Rourke, R. 2015. Coast Guard Polar Icebreaker Modernization: Background and Issues for Congress. Congressional Research Service, Washington, D.C. 82 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs O’Rourke, R. 2016. Coast Guard Polar Icebreaker Modernization: Background and Issues for Congress. Congressional Research Service, Washington, D.C. O’Rourke, R., and M. Schwartz. 2017. Multiyear Procurement (MYP) and Block Buy Contracting in Defense Acquisition: Background and Issues for Congress. Congressional Research Service, Washington, D.C., June 2. USCG. 2013. USCGC Polar Sea Business Case Analysis: 2013 Report to Congress. Washington, D.C., Nov. 7. USCG. 2015. Polar Icebreaker Operational Requirements Document, Industry Version. Acquisition Directorate, Research and Development Center, Nov. Unclassified: https://www.uscg.mil/hq/CG9/icebreaker/pdf/USM signed USCG PIB ORD FOUO industry version.pdf. Yamauchi, Y., and H. Tsukuda. 2011. The Icebreaking Performance of Shirase in the Maiden Antarctic Voyage. Proceedings of the Twenty-First International Offshore and Polar Engineering Conference, Maui, Hawaii, June 19–24. 83 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 84 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Appendix E Icebreaking Fleets of Other Nations In assessing the icebreaking fleets of countries, the distinction between government-controlled icebreakers, privately controlled icebreakers, and commercial ice-strengthened vessels with limited icebreaking capability is important. From the committee’s perspective, the measure of a country’s ability to project presence in the polar regions is based on the number and capability of its government-controlled icebreakers. The committee used the following three factors to assess the icebreaker capability of a country’s polar icebreaking fleet: government control of vessels, polar or nonpolar activity, and power and size of vessels. • • • 47 48 Government control—Are the icebreakers owned and manned by the country in which they are flagged (registered)? Are the icebreakers functional in the polar regions? Are the icebreakers controlled by commercially oriented companies? For example, the Russian Federation icebreakers operated by Rosmorport or Rosatomflot are considered government controlled. However, icebreakers registered and operated by a commercially oriented company, such as Far Eastern Shipping Company in the Russian Federation, are not considered government controlled. Dedicated to nonpolar activity—If an icebreaker is government owned and controlled but dedicated to nonpolar activity, it is not included in the committee’s assessment of another nations’ polar icebreaking capability. For example, the U.S. Coast Guard’s (USCG’s) Mackinaw is dedicated to icebreaking on the Great Lakes but is not included in U.S. polar icebreaking capability. Likewise, the Botnica, used in icebreaking for Estonia’s ports, is not counted as a government-controlled polar icebreaker in this assessment. Large and powerful enough for polar icebreaking service—The committee’s starting census of global icebreakers is based on the IHS–Markit Sea-web vessel database. An icebreaker’s ability to break ice is a function of its installed horsepower, hull form, and size. Sea-web indicates installed horsepower for all of the designated icebreakers in the database. To determine whether a ship has an icebreaking hull form, its designation as an “icebreaker” is relied on. While displacement would be a good starting point in determining a vessel’s ability to break ice, displacement 47 is not available for most icebreakers. Gross tonnage, a volumetric measure (1 ton equals 100 cubic feet) of the enclosed space of a ship, is available for all the icebreakers in the Sea-web database. Icebreakers with propulsion plants exceeding 14,000 kilowatts and exceeding 4,000 gross tons were included in the determination of polar capability. This is a rough “filtering” of available data, but it provides an indication of a country’s polar icebreaking capability. Some icebreaking vessels are categorized as “research vessels (with ice capability)” but are not considered as “icebreakers”; the Sikuliaq is an example. The committee also reviewed the icebreakers included on USCG’s Major Icebreakers of the World chart (see the end of this appendix). 48 Displacement is the total weight of the water displaced by a vessel at its design draft. The chart can be found at http://www.uscg.mil/hq/cg5/cg552/ice.asp. 85 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Arctic Nation Icebreakers The following eight “Arctic” countries are members of the Arctic Council: the United States, Canada, Denmark, Finland, Iceland, Norway, the Russian Federation, and Sweden. Polar icebreaking fleets of the Arctic nations are identified in Table E-1. TABLE E-1 Polar Icebreakers of Arctic Nations Country Existing Under Construction Laid Up Total Canada 3 0 0 3 Finland 7 0 0 7 Norway 1 1 0 2 Russia 16 4 2 22 Sweden 4 0 0 4 United States 2 0 1 3 Denmark 0 0 0 0 Total 33 5 3 41 SOURCE: Generated by the committee on the basis of data from http://maritime.ihs.com/. The two U.S. icebreakers (existing) are the Polar Star and the Healy; the Polar Sea is in the “laid-up” category. The Russian Federation has two nuclear-powered polar icebreakers and two large diesel-powered icebreakers under construction. Norway has the Kronprins Haakon under construction. The committee notes that the “under construction” category—identified as “launched” or “keel laid”—may be understated because of lack of data for some icebreakers under construction. Denmark did not have any icebreakers that met the “polar capable, government-owned icebreaker” category. Non-Arctic Nation Icebreakers The countries with polar capable, government-owned icebreakers that are not Arctic nations are included in Table E-2. The Chinese government owns an icebreaker. The Xue Long was built in 1993 and is 15,352 gross tons. Its propulsion plant of 13,200 kilowatts is just under the committee’s 14,000-kilowatt lower limit. TABLE E-2 Polar Icebreakers of Non-Arctic Nations Country Existing Under Construction Laid Up Total Argentina 0 0 1 1 Germany 1 0 0 1 Korea, South 1 0 0 1 Japan 1 0 0 1 United Kingdom 0 1 0 1 Total 3 1 1 5 SOURCE: Generated by the committee on the basis of data from http://maritime.ihs.com/. 86 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Major Icebreakers of the World Source: http://www.uscg.mil/hq/cg5/cg552/ice.asp (Updated May 1, 2017) 87 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 88 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Appendix F Committee on Polar Icebreaker Cost Assessment: Members and Biographical Information Members RADM Richard D. West, U.S. Department of the Navy (retired), Coventry, Rhode Island, Chair Carin J. Ashjian, Woods Hole Oceanographic Institution, Woods Hole, Massachusetts Jay P. Carson, Independent Consultant, El Cajon, California Roberta R. Marinelli, Oregon State University, Corvallis R. Keith Michel, Webb Institute, Glen Cove, New York VADM David P. Pekoske, U.S. Coast Guard (retired), Potomac, Maryland (resigned June 5, 2017, before completion of the committee’s report) David G. St. Amand, Navigistics Consulting, Boxborough, Massachusetts Steven T. Scalzo, Scalzo Marine Services, LLC, Seattle, Washington Eugene A. Van Rynbach, Herbert Engineering Corporation, Annapolis, Maryland The National Academies of Sciences, Engineering, and Medicine Staff Studies and Special Programs, Transportation Research Board Mark S. Hutchins, Study Director Stephen R. Godwin, Scholar Stephanie Seki, Program Officer Polar Research Board, Division on Earth and Life Studies Amanda Staudt, Director Laurie Geller, Senior Program Officer Ocean Studies Board, Division on Earth and Life Studies Susan Roberts, Director 89 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Committee Biographical Information Rear Admiral Richard “Dick” D. West, Chair (U.S. Navy, retired), served as President and CEO of the Consortium for Oceanographic Research and Education/Ocean Leadership from 2002 to 2008. He led efforts of this Washington, D.C.–based nonprofit organization to promote ocean research and education within the U.S. federal government on behalf of the academic and private ocean research community. He has testified before Congress on marine-related policy issues and has addressed the United Nations on Safety of Life at Sea. Admiral West was also actively involved in three congressionally mandated federal advisory committees. He was a founding member of and served on the Hydrographic Services Review Panel for two terms from 2003 to 2011, a member of a federal investment in research review team, and a member and past chairman of the National Sea Grant College Program Advisory Board. He co-chaired a U.S. Navy navigation accident review panel in 2012, chaired a review of a National Science Foundation (NSF) program, and co-chaired an independent review of the National Oceanic and Atmospheric Administration’s fleet. He is a member of the Transportation Research Board’s Marine Board; is a board member of the Center for Coastal Studies, Provincetown, Massachusetts; serves on the University of Rhode Island Graduate School of Oceanography Dean’s Advisory Council and on the University of Connecticut Sea Grant Program; and is a founding board member of a charter high school. He helped establish the Sampson Veterans Memorial Cemetery in upstate New York and serves on the committee to bring the Vietnam Traveling Memorial Wall to upstate New York in 2017. Admiral West retired from the U.S. Navy in 2002. He served as Oceanographer and Navigator of the Navy and provided oceanographic, meteorological, geospatial, and navigation support to the U.S. Navy from 1999 to 2002. As the first Navigator of the Navy, he led the Navy’s transition to electronic navigation. As Oceanographer of the Navy, he was the Department of Defense representative to the U.S. Ocean Commission. Admiral West was a career Surface Warfare Officer; he served on several ships and on senior staffs in Washington, D.C., and overseas. Admiral West served in Vietnam with the riverine forces and was Commanding Officer of three ships, two during hostilities in the Persian Gulf. He also served as Commanding Officer of the U.S. Navy’s Surface Warfare Officers School, Newport, Rhode Island, where all U.S. Navy officers going to sea, from Division Officer to Commanding Officer, are trained. Carin J. Ashjian is a Senior Scientist in the Department of Biology and the Henry Bryant Bigelow Senior Scientist Chair at the Woods Hole Oceanographic Institution (WHOI). She graduated with a PhD in oceanography from the University of Rhode Island in 1991. She did postdoctoral work at Brookhaven National Laboratory, the University of Miami, and WHOI before joining the scientific staff at WHOI in 1996. Her research has focused on oceanography, zooplankton ecology, and biological–physical interactions in a range of the world’s oceans. Her recent work focuses on the impact of climate change on polar ecosystems and the greater Arctic system, including the human dimension. She has extensive seagoing experience (60 research cruises) on a range of research vessel types, including U.S. Coast Guard (USCG) icebreakers (the Polar Sea, the Healy), the NSF icebreaker Nathaniel B. Palmer, and the University-National Oceanographic Laboratory System (UNOLS) ice-capable Research Vessel Sikuliaq. She served 90 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs as Chief Scientist on three cruises on the Healy and on two cruises on the Sikuliaq as well as on other UNOLS vessels. She has served on several national committees focusing on science mission requirements, design, acquisition, or testing of UNOLS research vessels and icebreakers. She was a member and then chair of the UNOLS Arctic Icebreaker Coordinating Committee, for which she received the USCG Meritorious Public Service Award. Jay P. Carson is a naval architect and independent management consultant with more than 40 years of progressively responsible positions in challenging business and professional environments. Mr. Carson specializes in early stage ship design; requirements definition and deployment; functional engineering; and planning, scheduling, and budgeting. From 2002 to 2007 he worked at General Dynamics National Steel and Shipbuilding Company, where he held various technical and management positions before retiring as Vice President, Engineering. Mr. Carson earned a BS in naval architecture and marine engineering from Webb Institute and an MBA from Boston University. He is a Society of Naval Architects and Marine Engineers (SNAME) Fellow and winner of SNAME’s Vice Admiral E. L. Cochrane Award and William M. Kennedy Award. Roberta R. Marinelli serves as Dean for the College of Earth, Ocean, and Atmospheric Sciences. Before coming to Oregon State University, she was the Executive Director of the Wrigley Institute for Environmental Studies at the University of Southern California (USC). She played a leadership role in planning and implementing an expansion of academic and research programs in environmental studies at USC’s University Park Campus, and she directs the Philip K. Wrigley Marine Science Center on Santa Catalina Island. Dr. Marinelli also oversaw the George and Mary Lou Boone Center for Science and Environmental Leadership, a nexus where scientists and policy makers can meet to resolve environmental challenges. Dr. Marinelli was the Vice Chair of the Board of Trustees of the Consortium for Ocean Leadership, President of the Board of Directors of the Southern California Marine Institute, and a member of the Executive Committee of the Western Association for Marine Laboratories. She served on the Governing Board of the Southern California Coastal Ocean Observing System. Before her arrival at USC, Dr. Marinelli was Director of the Antarctic Organisms and Ecosystems Program in NSF’s Antarctic Sciences section. She helped lead the development of collaborative, interdisciplinary programs across NSF, including the International Polar Year; Climate Research Investments; and Science, Engineering, and Education for Sustainability. She was a tenured associate professor on the faculty at the University of Maryland’s Center for Environmental Science and an assistant professor at the Skidaway Institute of Oceanography. Dr. Marinelli received her master’s and doctoral degrees in marine science from the University of South Carolina and her bachelor’s degree from Brown University. She is a member of the American Geophysical Union, the Association for the Sciences of Limnology and Oceanography, and the Oceanography Society. R. Keith Michel, NAE, is president of Webb Institute. Before his appointment to that position in 2013, he worked for the Herbert Engineering Company (HEC), a naval architecture firm, for 38 years, where he served as President and Chairman of the Board. At HEC he worked on design, specification development, and contract negotiations for containerships, bulk carriers, and tankers. Mr. Michel has served on numerous industry advisory groups developing guidelines for alternative tanker designs, including groups advising the International Maritime Organization 91 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs (IMO) and USCG, and he served as chair of IMO’s Subcommittee on Bulk Liquids and Gases. That subcommittee was tasked with developing regulations concerning the subdivision of tankers, including criteria for the acceptance of alternative designs to double-hull tankers. His work has included development of methodology, vessel models, and oil outflow analysis. He was a project engineer for USCG’s report on oil outflow analysis for double-hull and hybrid tanker arrangements, which was part of the U.S. Department of Transportation’s technical report to Congress on the Oil Pollution Act of 1990. He has worked on the development of salvage software used by USCG and the Canadian Coast Guard, the U.S. Navy, the National Transportation Safety Board, the Maritime Administration (MARAD), the American Bureau of Shipping (ABS), Lloyd’s, and numerous oil and shipping companies. Mr. Michel was Chair of the Marine Board of the National Research Council (NRC) from 2002 through 2004 and has served on several NRC committees. In 2011 he received the W. Selkirk Owen Award for distinguished service from the Alumni Association of Webb Institute. He is a past president of SNAME. In 2002 he was the recipient of SNAME’s highest award, the David W. Taylor Medal. He is a Fellow and Honorary Member of SNAME; a National Associate of NRC of the National Academies of Sciences, Engineering, and Medicine; and past Chairman of the Webb Institute Board of Trustees. In 2014, he was elected to the National Academy of Engineering. Mr. Michel holds a BS in naval architecture and marine engineering from the Webb Institute of Naval Architecture. Vice Admiral David P. Pekoske, USCG (retired), is an Adjunct Professor at American University in Washington, D.C. He is a former Vice President, National Programs, at PAE and a former Group President of the National Security Group at A-T Solutions, Inc. Vice Admiral Pekoske’s expertise includes maritime security and maritime transportation. Before joining PAE/A-T Solutions, he served in USCG for 33 years until his retirement in 2010. In his last position, he served as Vice Commandant of USCG. He essentially served as second in command and chief operating officer and often represented the Commandant and Secretary of Homeland Security in National Security Council and Joints Chiefs of Staff settings. Vice Admiral Pekoske serves on numerous boards and scientific advisory committees. He is chairman of the Board of Directors for the InfraGard National Members Alliance (a national nonprofit organization sponsored by the Federal Bureau of Investigation focused on protecting the nation’s critical infrastructure) and is a member of the National Security Advisory Council of the U.S. Global Leadership Coalition (a network dedicated to strengthening U.S. leadership in the world through strategic investment in development and diplomacy). He earned a master of business administration degree from the Sloan School of Management, Massachusetts Institute of Technology; a master of public administration degree from the School of International and Public Affairs, Columbia University; and a bachelor of science degree in ocean engineering from the U.S. Coast Guard Academy. (Note: Mr. Pekoske resigned from the committee on June 5, 2017 after being nominated as Administrator of the Transportation Security Administration). David G. St. Amand, President of Navigistics Consulting, has more than 40 years of maritime industry experience; he has been a management consultant for the past 30 years. Mr. St. Amand holds a BS in naval architecture and marine engineering from Webb Institute and an MBA from the Amos Tuck School of Business Administration at Dartmouth College. He previously served on the Committee on the Assessment of U.S. Coast Guard Polar Icebreaker Roles and Future Needs and the Committee on Oil Pollution Act of 1990 Implementation Review of the National 92 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Academies. He has served on USCG’s Towing Safety Advisory Committee (TSAC) and has received USCG’s Public Service Commendation and Certificate of Merit for his work on TSAC. Steven T. Scalzo, Scalzo Marine Services, LLC, is the former Chief Operating Officer of Foss Marine Holdings, Inc., and former President and CEO of Foss Maritime. He joined Foss Maritime, a subsidiary of Foss Marine Holdings, in 1975. In his career at Foss Maritime, he held a variety of executive positions. In 2005, he assumed the position of Chief Operating Officer of Foss Marine Holdings, Inc., a holding and support company for investments in tug, barge, shipyards, terminals, and ancillary marine service companies. Mr. Scalzo is a graduate of the United States Merchant Marine Academy and received a master’s degree in law and commerce from Gonzaga University. He is a past member of the Marine Board of NRC, and he is active in legislative and regulatory issues affecting marine transportation safety at the international, national, and local levels. He is past chairman of USCG’s TSAC and the State of Washington Puget Sound Marine Safety Committee, and he was a member of the Executive Committee of the National Academies’ Transportation Research Board and a board member of the Webb Institute. He has also served as chairman of the American Waterway Operators, the tug and barge industry national trade association. He is a board member of the American Protection and Indemnity Club, Seattle University, and a trustee for the Coast Guard Foundation. Mr. Scalzo is the author of several tug escort technical papers. He is a co-author of Polar Icebreakers in a Changing World: An Assessment of U.S. Needs, a 2007 report of NRC. Eugene A. Van Rynbach is a Vice President at HEC and manager of the Annapolis, Maryland, office. He joined HEC in 2005 after he had accumulated an extensive background in the ship operation and engineering fields. Among his activities at HEC are management of the concept design for the National Security Multimission Vessel (new state maritime academy training vessel) for MARAD and preparation of a suite of roll-on/roll-off (RoRo) vessel designs for MARAD and other organizations for American Marine Highways. He has participated in liquefied natural gas propulsion system design, conversion of a RoRo ship to a partial containership, several newbuilding projects, vessel life extension studies, tanker piping system modifications, tanker barge construction cost estimates, technical support and plan approval management for a floating dry dock being built in China, and evaluation of steel renewals for ships undergoing repairs. Before joining HEC, Mr. Van Rynbach worked for 15 years as Manager of Technical Services for the containership operator Sea-Land Service and its offshoot U.S. Ship Management. His areas of responsibility included vessel construction, conversions, major modifications, technical engineering, development of procedures for complex repairs, evaluation of vessel capabilities and potential improvements, and provision of technical advice to management. In the 1980s Mr. Van Rynbach was a principal with the consulting firm J. D. Van Rynbach and Associates, Inc., for a 7-year period. Before that, he worked for 2 years for American President Lines in Oakland, California, as a staff engineer in the Marine Operations department and was involved with energy conservation efforts, vessel modifications, and vessel capability evaluations and improvements. From 1979 through 1980 he worked for Sea-Land Service. Before that, Mr. Van Rynbach worked for several years as a ship operating marine engineer. He obtained a U.S. marine engineer’s license as a 3rd engineer (motor vessels, unlimited horsepower). After graduation, Mr. Van Rynbach worked for several years as a Hull Technical Engineer for ABS. He was engaged in plan approval for new construction of ships and 93 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs mobile drilling rigs and worked on the engineering staff at a small shipping company in New York. Mr. Van Rynbach earned a BS with honors in mechanical engineering with a specialization in naval architecture from the University of California, Berkeley. He received an MS with honors in transportation management from State University of New York Maritime College, Fort Schuyler. He is a member of ABS and SNAME and received the Linnard Prize from SNAME for presenting the best paper at the 1995 SNAME Annual Meeting. 94 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Appendix G Information-Gathering Activities of the Committee In the course of preparing its report, the committee met four times. At its open session meeting in February 2017, the committee heard from John C. Rayfield, Staff Director, Subcommittee on Coast Guard and Maritime Transportation; Admiral Charles D. Michel, Vice Commandant, U.S. Coast Guard; Vice Admiral Charles W. Ray, Deputy Commandant for Operations, U.S. Coast Guard; Rear Admiral Michael J. Haycock, Director of Acquisitions Programs and Program Executive Officer, U.S. Coast Guard; Jay Stefany, Executive Director, Amphibious, Auxiliary, and Sealift Office, Program Executive Office, Ships, U.S. Navy; Commander Kelly E. Taylor, Deputy Director, Task Force Climate Change, U.S. Navy; Rear Admiral David A. Score, Director, Commissioned Officer Corps and Office of Marine and Aviation Operations, National Oceanic and Atmospheric Administration; Kelly K. Falkner, Director, Office of Polar Programs, National Science Foundation; and Evan T. Bloom, Director, Office of Ocean and Polar Affairs, U.S. Department of State. At its April 2017 meeting, the committee heard from the following people in open session: Fred Harris, President (retired), General Dynamics National Steel and Shipbuilding Company (NASSCO); Frank Foti, President and CEO, Vigor Industrial; Dirk Kristensen, Principal, Glosten; Justin Chin, Program Manager, General Dynamics NASSCO; Brendan P. Kelly, Executive Director of the Study of Environmental Arctic Change; Vice Admiral Fred M. Midgette, Commander, Pacific Area, U.S. Coast Guard; Commander William Woityra, Ice Operations Division Chief, Office of Waterways Management, U.S. Coast Guard; Commander Eben Phillips, Naval Engineering Department Head, Base Seattle, U.S. Coast Guard; Captain Michael Davanzo, Commanding Officer, Polar Star, U.S. Coast Guard; and David Forcucci, Healy Marine Science Coordinator, Base Seattle. The committee also toured the U.S. Coast Guard’s two polar icebreakers (the Polar Star and the Healy) and visited with their crews. 95 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs 96 Copyright National Academy of Sciences. All rights reserved. Acquisition and Operation of Polar Icebreakers: Fulfilling the Nation’s Needs Appendix H Acknowledgment of Reviewers This report has been reviewed in draft form by persons chosen for their diverse perspectives and technical expertise in accordance with procedures approved by the National Academies of Sciences, Engineering, and Medicine (NASEM) Report Review Committee. The purposes of the independent review are to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards of objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. The committee thanks the following for their review of this report: Rita Colwell, University of Maryland, College Park; Charles R. Cushing, C. R. Cushing and Company, Inc., New York City; Laurent Deschamps, SPAR Associates, Inc., Annapolis, Maryland; Arthur Divens, Sextant Executive Solutions, LLC, Beltsville, Maryland; Frank Foti, Vigor Industrial, Portland, Oregon; Chris Hendrickson, Carnegie Mellon University, Pittsburgh, Pennsylvania; Brendan Kelly, Monterey Bay Aquarium, Monterey, California; Richard P. Neilson, Webb Institute (retired), Kilmarnock, Virginia; Peter Noble, Noble Associates, LLC, Katy, Texas; Brian Salerno, United States Coast Guard (retired), Silver Spring, Maryland; James Swift, Scripps Institution of Oceanography, La Jolla, California; Kirsi K. Tikka, American Bureau of Shipping, Port Washington, New York; and Al Washburn, U.S. Naval Postgraduate School (retired), Monterey, California. Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of the report was overseen by the review coordinator, Susan Hanson, Clark University, and the review monitor, Charles F. Manski, Northwestern University. Appointed by NASEM, they were responsible for making certain that an independent examination of the report was carried out in accordance with institutional procedures and that all review comments were carefully considered. Responsibility for the final content of the report rests entirely with the committee and the institution. 97 Copyright National Academy of Sciences. All rights reserved.