Navy and Coast Guard Shipbuilding: Navy Should Reconsider Approach to Warranties for Correcting Construction Defects

The U.S. government spends about $17 billion per year building ships to support national defense and homeland security. Defects often become evident shortly after a ship is delivered. Warranties and guarantees are both mechanisms to fix defects for which shipbuilders are responsible. Warranties give the government a contractual right to direct the correction of defects at the contractor’s expense. Guarantees are Navy-specific contractual mechanisms that provide for the correction of defects; but unlike warranties are not covered in the Federal Acquisition Regulation (FAR). The House report accompanying the National Defense Authorization Act for Fiscal Year 2015 included a provision for the Government Accountability Office (GAO) to review warranties and guarantees in government shipbuilding programs. This report assesses the extent to which (1) warranties and guarantees reduce the government’s exposure to additional costs and risks of poor quality and (2) how the Navy and Coast Guard use acquisition regulations and guidance to implement warranties and guarantees. GAO reviewed the Navy’s and Coast Guard’s guaranty or warranty practices and policies and selected six case studies, comprised of four Navy ships—representing ships built in the last five years—and two vessels the Coast Guard most recently purchased. The Department of Defense (DOD) with the Navy should take steps to structure contracts so shipbuilders cannot earn profit for correcting defects for which they are responsible; determine whether a warranty is appropriate; and establish a guaranty objective and guidance. DOD partially concurred with the recommendations and it plans to complete a study by September 2016.

Language

  • English

Media Info

  • Media Type: Digital/other
  • Features: Appendices; Figures; References; Tables;
  • Pagination: 47p

Subject/Index Terms

Filing Info

  • Accession Number: 01597453
  • Record Type: Publication
  • Report/Paper Numbers: GAO-16-71
  • Files: TRIS
  • Created Date: Mar 3 2016 2:07PM