FOR OFFICIAL USE ONLY

THE UNDER SECRETARY OF DEFENSE

3010 DEFENSE PENTAGON
WASHINGTON , DC 20301-3010

ACQUISITION,
TECHNOLOGY,
A ND LOGISTICS

LIAN

4 2017

MEMORANDUM FOR SECRETARY OF THE NA VY

SUBJECT: OHIO Replacement Program Milestone B Acquisition Decision Memorandum
Purpose: The Navy requests Mi lestone (MS) B approval to formally in itiate the OHIO
Replacement Program entry into the Engineering and Manufacturing Development (EMO)
phase. The Program Director is RDML (Sel) David Goggins, the Program Executive Officer is
RADM Michael Jabaley, and the Service Acquisition Executive is the Honorable Sean Stackley.
Decisions:

I approve MS B for the OHIO Replacement Program and entry into the EMO phase.

I designate the OHIO Replacement Program as an Acquisition Category ID Major Defense

Acquisition Program.

I direct the program to be funded to the Navy Cost Position (Attachment 1) in the
President's Budget 20 18.

I approve a Low Rate Initial Production (LRIP) quantity of 12, which is the total buy and
necessary due to the earliest date at which Operational Test and Evaluation could be
conducted on the lead ship.

I approve the Exit Criteria for the EMO phase (Attachment 2).

I assign the following Affordability Caps (Constant Year (CY) 17$)

o

Average Procurement Unit Cost: $8.0B;

Average Annual Operations and Suppo11 Cost Per Hull (includes USNS Waters and
disposal costs): $13 1M.

Tasking/Action Items: The Navy shall :

Brief the Defense Acqui sition Executi ve on the outcome of negotiations prior to award of
the Integrated Product and Process Development (IPPD) contract.

Return annually for an In Progress Review (IPR) to assess program cost, schedule, and
perfo1mance leading up to the Construction Start decision in Fiscal Year (FY) 2020.

Address award of the Long Lead-Time Material contract (anticipated

during the next annual IPR.

FOR OFFICIAL USE ONLY

3 rd

quarter FY 20 18)

FOR OFFICIAL USE ONLY

Discussion: A MS B Defense Acquisition Board review was conducted on November 4, 2016.

Additionally, I held a detailed technical review at the shipbuilder facilities on October 4, 2016.
Based on these reviews it is clear that significant efforts have been made to control current and
future costs of the program and to mitigate schedule risk. The cost control efforts have been
effective, but cost control must remain a priority for the balance of the program. There are also
significant risks remaining in the development program and tight schedule margins that leave
little room for potential future impacts.
The portfolio based affordability analysis that normally supports affordability cap
designations indicates that in order to procure these vessels, the Department will need additional
resources (greater than those currently included in the ship construction portfolio) beyond the
Future Years Defense Program. A similar situation occurred during construction of the OHIO
class in the 1980s. The very high priority of this program implies that it will be funded even if
increased budgets are not obtained.
As a result, affordability caps have been assigned that are consistent with current cost
estimates and reasonable margins for cost growth. Relative to MS A, these estimates have been
updated to adjust Base Year from 2010 to 2017, a standard practice to match Base Year with the
year of MS B approval. The MS A unit cost affordability target ($4.9B in CY2010$ using Navy
indices) used a unique metric, "Average Follow-on Ship End Cost," which only accounted for
hulls 2-12. I directed for MS B that the affordability cap for the unit cost be measured by using
the Average Procurement Unit Cost (APUC) which includes all 12 hulls. The Affordability Cap
of$8.0B in CY2017$ is based upon the approved APUC estimate of $7.3B plus 10%.
The procurement cost of the program has shown progressive improvement relative to the
originally envisioned program prior to the 2011 MS A decision. In inflation-adjusted, constant
FY 2017 dollars (CY2017$) the total reduction from the original procurement cost estimates has
been nearly 40% (nearly $50B). This reduction was accomplished by the combined effects of
reducing the planned quantities from 14 to 12 ships, selecting a smaller diameter ship and missile
tubes, reducing the number of missile tubes from 20 to 16, and the integration of a "life-of-ship"
reactor. Estimated costs have also improved since the MS A estimate as a result of additional
actual cost data and synergy with the VIRGINIA class program ramping up to two ships per
year; as well as the introduction of the VIRGINIA class Multi-Year Procurement contract. The
Navy will continue to aggressively pursue cost reduction opportunities. Given the maturity of
the design at this point, however, future decreases will be more difficult to achieve.
I have made or waived the required certifications and determinations set forth in section
2366b of title 10, United States Code (U.S.C).

2
FOR OFFICIAL USE ONLY

FOR OFFICIAL USE ONLY

Points of Contact: Colonel Michael Foster, Deputy Director for Acquisition Management,
Office of the Director for Acquisition Resources and Analysis at 703-697-0476 or
michael.e.foster.mil@mail.mil, and CAPT Woods R. Brown II, Undersea Warfare, Office of the
Assistant Secretary of Defense for Acquisition, at 703-697-2423 or
woods.r.brown.mil@mail.mil.

Frank Kendall

cc:
DAB Principals
DAB Advisors
Attachment 1: OHIO Replacement Program -- Navy Cost Position
Attachment 2: OHIO Replacement Program Exit Criteria

FOR OFFICIAL USE ONLY

FOR OFFICIAL USE ONLY

OHIO Replacement Program -- Navy Cost Position

($ in Millions I

Then Year)
RDT&E
Required
Procurerrent
Required
MILCON
Required

Prior

FY16

FYl7

FYl8

FYl9

FY20

FY21

FY22

FYl8-22 To Comp Program Total

5360.I

1367.0

1166.1

1089.8

728.1

590.9

396.6

259.3

3064.7

773.I

838.5

2876.4

1281.l

3607.8

5167.1

13771.0 100500.3

24.3

1.6

20.I

0.5

0.5

22.7

2064.7

126.3

13020.3
115044.4
173.4

Source: Navy Component Cost Position, September 26, 2016

ATTACHMENT I

4
FOR OFFICIAL USE ONLY

FOR OFFICIAL USE ONLY

OHIO Replacement Program Exit Criteria

(Engineering and Manufacturing Development Phase)

Criteria

Approach

Demonstrate readiness to construct Lead Ship in an 84 month

time span:
0
83% design maturity
0
Qualification testing complete and results assessed on the
following components:
Main Motor Mock Up prototype
Propulsion Lube Oil prototype
First Article Quad Pack
Main Propulsion Motor
Main Propulsor Drivers
Main Propulsor Controllers
Turbine Generators
0
The life-of-the-ship reactor core design, a Department of
Energy development effort, supports procurement of the lead
ship core and construction required-in-yard dates
Production Readiness Review (PRR) complete, action items
closed, meeting following criteria:
0
Qualification Launch Program at Surface Launch Test
Facility, China Lake; verified replication of DS launch
performance
0
Completion of the Phase III Manufacturing and Assembly
Plan
0
Strategic Weapon System (SWS) Ashore Test Facility
Test Bay 2 Initial Operating Capability (IOC) achieved;
ready to support start of SWS Verification and Validation
(V&V) testing to facilitate SWS shipyard need date
Integrated Power System (JPS) full scale prototype
0
testing complete in support of lead ship component
procurement
GDEB
and HII-NN construction manpower plan
0
completed and at the required levels per the Integrated
Enterprise Plan (IEP)
GDEB and HII-NN critical vendor facilitization plan
0
completed and at the required state per the IEP
Complete development of the Stem Area Systems (SAS) and
assess its ability to support Capability Development Document
requirements through:
Execution of the Critical Technology Maturation Plan for
0
Elements of the Stem Area System, PMS397 Memorandum
forthe Records 3091, Ser 397/S0564, dated June 20, 2016

FOR OFFICIAL USE ONLY

Assess at phased
Construction
Readiness Reviews,
semi-annual
Program Design
Reviews, annual In
Progress Reviews,
and Lead Ship
Authorization DAB

Provide status at
Lead Ship
Authorization DAB
Assess at phased
Construction
Readiness Reviews,
semi-annual
Program Design
Reviews, annual In
Progress Reviews,
and Lead Ship
Authorization DAB.
PRR Report and
follow up action
item closure
documentation

Assess development
and testing efforts at
semi-annual
Program Design
Reviews, annual In
Progress Reviews,
and Lead Ship
Authorization DAB