Naval Ship Production: A Claim Settled and a Framework Built

Abstract

Program overruns, contract disputes, and legal confrontation between defense contractors and the government escalated seriously over the 1970's. The author led the development and application of a computer simulation model to resolve a $500 million shipbuilder claim against the US Navy. By using the model to diagnose the causes of cost and schedule overruns on two multibillion-dollar shipbuilding programs. Ingalls Shipbuilding quantified the costs of disruption stemming from Navy-responsible delays and design changes; in June 1978, the Navy agreed out of court to pay $447 million of the claim. Use of the model (which was the basis for at least $200–300 million of the settlement) broke new legal ground, providing the defense and legal communities with a means by which adversary relationships can be avoided and equitable settlements of contract cost disputes achieved. Ingalls Shipbuilding (a division of Litton Industries, Inc.) now has extended the model to aid strategic decision making in managing its shipyard operations. Each phase of several shipbuilding programs—acquisition and utilization of manpower, scheduling and performance of work, and managerial decisions throughout the program—can be accurately simulated. Executives find it valuable as a test bed for evaluating the consequences of alternative policies in bidding and marketing, contract management, program work scheduling, resource management, and cost forecasting. Also, it provides a needed technique in the avoidance of contractor claims.

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