Congress Faces Competing Plans to Cover Submarine Construction Labor Cost

When Congress returns to Washington this week, members will again face the multibillion-dollar question of how to ramp up production of the nation’s strategically important nuclear submarine fleet.

The White House is pushing a plan that adds a one-time $7.3 billion adjustment to a short term budget gap measure, much of which would be targeted at the Navy’s prime sub builder, the Electric Boat Division of General Dynamics in Groton, Connecticut, to cover shipyard salary overruns, workforce expansion and efforts to speed production of Columbia missile subs.

But there is another proposal that backers in the Navy, Congress and the shipbuilding industry say better addresses, on a long-term basis, a problem that is keeping submarine construction short of aggressive Navy production goals. That is the challenge of rebuilding the submarine industrial base of steelworkers, contractors and suppliers that was allowed to wither when the U.S. effectively stopped building submarines at the end of the Cold War.

The alternative plan, initially proposed by the Navy but recently eclipsed by the short-term White House spending plan, also would benefit EB financially, as well as the Navy’s secondary shipbuilder on the Virginia and Columbia class submarine programs, Huntington Ingalls Industries’ Newport News Shipbuilding in Virginia

The plan, known as the Shipbuilder Accountability and Workforce Support, or SAWS plan, would give shipyards greater flexibility in addressing a 20% spike in shipyard salaries that has occurred for a variety of reasons since the COVID-19 pandemic. Under SAWS, shipyards would be allowed to cover salary overruns on submarines under construction by accessing contract money awarded in advance for construction of future ships.

Labor costs have become a critical element of submarine construction at shipyards such as EB. The pandemic accelerated retirement of veteran shipbuilders and EB is now racing to hire and train replacements, while retaining existing workforce. The shipyard has hired at a rate 5,000 a year for two years. It now employs 23,000 in Groton and Quonset Point, R.I., and is striving for peak employment of 33,000.

As a measure of the importance it places on expanding the submarine industrial base, the Navy said that in the decade ending in 2027, it plans to have invested $3.5 billion in areas such as supplier and workforce development. While submarine construction has increased drastically, the number of suppliers to the industrial base has dropped to about 5,000 from the 17,000 companies in business during the last submarine construction surge in the 1980s, the Navy said.

Complicating recruitment efforts, according to a Navy study, is the narrowing gap between salaries paid to shipyard workers and those employed in other industries, such as retail. A wider gap in favor of steelworkers 40 years ago during the last push to rapidly rebuild the U.S. submarine force made recruitment easier. EB recently built generous raises into shipyard contracts to retain workers and attract recruits.

An expanded shipyard workforce is necessary to meet production goals the Navy says are necessary to satisfy U.S. security needs and its commitment to sell three to five Virginia class attack boats to Australia. At the center of both the U.S. security and treaty commitments is concern over the rapid expansion of the Chinese fleet.

At present, EB and Newport News are delivering about 1.5 Virginia class ships to the Navy. The Navy says it needs two a year to satisfy U.S security needs and 2.3 a year to meet its obligation to Australia under AUKUS, the joint Australia, United Kingdom and United States security agreement created to contain China.

U.S. Rep. Joe Courtney, D-2, an influential voice in naval shipbuilding as ranking member of the Armed Services Committee’s Seapower Subcommittee, said he prefers the long term SAWS approach to dealing with salary overruns to the short term White House plan that would provide a temporary fix by authorizing a one-time injection of an extra $6 billion into the Virginia class sub program.

“The one consensus policy that has not changed is that we have a strategic imperative to build more submarines, for our own fleet and also to execute AUKUS.” Courtney said. “The budget that was sent over last February failed to meet that policy goal and the request for an additional $6 billion validates the fact that the industrial base needs more investment. The question is whether this is the right approach in terms of just putting more money into it as opposed to a multi year structural policy change.”

EB has not publicly expressed a preference for either the White House or SAWS plan. But Newport News issued a statement in support of SAWS. It called the White House plan “a piecemeal approach” that will not yield “sustained production rate increases.” It said SAWS recognizes the realities of “a tight fiscal environment, increased wage expectations for skilled labor and extended supplier lead times.”

A congressional source said last week that there was a third proposal that had been circulated to address the problem of salary-related cost overruns. It was said to be a scaled down version of SAWS but details were not immediately available.

Under the White House plan, the Office of Management and Budget proposes adding $7.3 billion to a continuing budget resolution. Courtney said about $5.7 would go toward cost overruns on three Virginia class submarines and workforce development at EB and Newport News. The remaining $1.5 billion or so would be spent on the Columbia ballistic sub program, on which EB also is the Navy’s prime contractor.

Critics of the OMB plan have called it a temporary, one year fix for what could be continuing payroll related overruns.

“With a one a one year allotment, you can’t go in and say you are going to raise the pay rate for a welder if you don’t know if you are going to have the money in year two to keep paying him, ” an industry official said. “You cannot solve this problem in a year unless you are going to write a massive check.”

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