To estimate the cost of those future submarines, CBO used data for the ships’ closest analogue—the Virginia class submarines that had already been built. From 1998, when production of the class began, to early 2017, when CBO performed its analysis, the Navy had purchased 22 Virginia submarines: 12 were serving in the fleet, and 10 more were in various stages of construction. To arrive at its cost projections, CBO started with the actual cost of $6.0 billion for the first Virginia class submarine. The agency then subtracted from that total the $2.3 billion that the Navy spent for nonrecurring engineering and detailed design—onetime expenses that are reflected solely in the cost of building the first submarine and that do not carry over to subsequent vessels.
On the basis of cost data for that lead ship and for 21 additional submarines that have been completed or authorized thus far, CBO estimated a learning effect of 95 percent: As successive ships are built, the cost of a ship twice as far in the production sequence is 95 percent of that of the ship to which it is being compared. So, for example, costs drop by 5 percent from the second ship to the fourth, by another 5 percent from the fourth to the eighth, and so on…
At the same time that CBO applied the learning effect to the estimates for Virginia class submarines, it applied the rate effect where appropriate. When submarines are purchased at a rate of 2 per year (a practice that began in 2011 and that was anticipated to continue in most years through 2025 under the Navy’s 2017 plan), the cost per submarine is reduced by 10 percent; that reduction is added to the reduction attributable to the learning effect.
In the final step, CBO applied a factor to account for the difference between general inflation in the U.S. economy and inflation specific to the shipbuilding industry. That real growth would have increased the cost of submarines purchased in 2025 by 12 percent. After making all of those adjustments, CBO estimated that the 40th Virginia class submarine would cost $3.2 billion.
That was from “How CBO Estimates the Cost of New Ships“.
Leave a Reply