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Navy Ship Propulsion: Viability of New Engine Program in Question (Letter Report, 06/07/96, GAO/NSIAD-96-107).

Pursuant to a congressional request, GAO provided information on the
Navy's intercooled recuperated (ICR) engine program, focusing on the:
(1) Navy's need for the engine; (2) cost, schedule, and performance of
the program; and (3) impact of the Navy's test and development
strategies.

GAO found that: (1) some Navy officials are questioning the economic
viability of the ICR engine program and have raised concerns over
placing ICR engines on naval destroyers, since most destroyers are
equipped with reliable propulsion systems; (2) engine development costs
pose a significant economic investment, but are likely to pay off in the
future; (3) some officials believe the engine should not be used on
naval destroyers given the few number of new U.S. destroyers involved,
adequacy of current destroyer engines, high cost of incorporating the
engine, uncertainty of future integration plans, and current state of
ICR development; (4) the Navy has not recovered from initial recuperator
failure that resulted from design, manufacturing, and quality assurance
problems; (5) a contractor is instituting a recovery plan to redesign
future recuperators, but the plan is not allowing sufficient time to
evaluate test data prior to ordering production ICR engines; (6) the
Navy has interrupted work on redesigning future recuperators because of
funding reductions, contractor quality control problems, manufacturing
problems, and delivery delays; and (7) the Navy needs to decide how and
when it will use the Philadelphia ICR test facility and if it will test
the ICR engine at sea.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-96-107
     TITLE:  Navy Ship Propulsion: Viability of New Engine Program in 
             Question
      DATE:  06/07/96
   SUBJECT:  Navy procurement
             Advanced weapons systems
             Military vessels
             Research and development costs
             Shipbuilding industry
             Naval warfare
             Cost analysis
             Testing
IDENTIFIER:  Navy Intercooled Recuperated Gas Turbine Engine
             DDG-51 Destroyer
             Philadelphia (PA)
             Pyestock (United Kingdom)
             Navy Ship Propulsion System
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Military Research and
Development, Committee on National Security, House of Representatives

June 1996

NAVY SHIP PROPULSION - VIABILITY
OF NEW ENGINE PROGRAM IN QUESTION

GAO/NSIAD-96-107

Navy Ship Propulsion

(707113)


Abbreviations
=============================================================== ABBREV

  ICR - intercooled recuperated
  DOD - Department of Defense

Letter
=============================================================== LETTER


B-271195

June 7, 1996

The Honorable Curt Weldon
Chairman, Subcommittee on Military
 Research and Development
Committee on National Security
House of Representatives

Dear Mr.  Chairman: 

In response to your request, we are providing this report, which
discusses the Department of the Navy's development of a new ship
propulsion system, the intercooled recuperated (ICR) gas turbine
engine.  Our review focused on the (1) Navy's need for the engine;
(2) cost, schedule, and performance of the engine testing program;
and (3) impact of the test results and funding issues on the
program's test and development strategies. 


   BACKGROUND
------------------------------------------------------------ Letter :1

The ICR gas turbine engine program was established in the mid-1980s
to develop an improved surface ship propulsion system that would be
fuel efficient.  In December 1991, the Navy awarded a contract to the
Westinghouse Electric Corporation for the advanced design and an
option for full-scale development of the engine.\1 Their engine
development team includes Rolls-Royce Public Limited Company (United
Kingdom), AlliedSignal Aerospace Incorporated, and CAE Electronics. 

The engine is essentially an advanced gas turbine engine, similar to
the one used on a large commercial aircraft.  It is being adapted for
marine use by adding a recuperator, an intercooler, and other major
components.  Housed in a special enclosure, the engine also has a
lube oil module, an off-engine intercooling module, and a digital
control system specifically built for shipboard application.  A
critical component of the engine is the recuperator.  The recuperator
uses engine exhaust to preheat compressed air before fuel combustion,
allowing the engine to use less fuel.  For example, the Navy expects
the ICR engine to achieve a weighted average improvement of 30
percent in fuel efficiency for a mechanical drive destroyer.  Figure
1.1 shows a cut-away drawing of the ICR gas turbine engine in its
planned enclosure. 

   Figure 1.1:  Cut-away Drawing
   of the ICR Gas Turbine Engine
   in Its Enclosure

   (See figure in printed
   edition.)

   Source:  Westinghouse Electric
   Corporation.

   (See figure in printed
   edition.)

Portions of the ICR program are a collaborative effort among the
United States, British, and French navies.  Memorandums of
understanding, signed between the United States and the two other
countries, relate to the development of an advanced, fuel efficient
ship propulsion system to satisfy common operational requirements and
meet emerging environmental emission standards.  The memorandum of
understanding with the United Kingdom calls for the joint development
and qualification testing of the ICR engine.  Specifically, the
United Kingdom is responsible for providing an ICR test facility
along with fuel, utilities, and manpower to support up to 2 years, or
1,500 hours, of developmental testing.  The memorandum was signed on
June 21, 1994, for a 5-year period.  The 10-year memorandum signed by
France, in August 1995, calls for the joint adaptation and testing of
an ICR engine upgrade for reducing exhaust emissions. 

The U.S.  Navy estimates the ICR program's developmental total cost\2
to be $415 million, with $223.6 million having been spent through
fiscal year 1995.  These amounts include foreign financial
contributions of $15.8 million from the United Kingdom and $15
million from France.  Although the Navy has classified the engine as
a preplanned product improvement program\3 for the DDG-51 destroyer,
it will not decide on whether it will install the ICR engine on the
destroyer until January 1997.  The British and French navies are
completing the design of a multinational frigate, known as the
Horizon, and are considering the engine as its propulsion system. 
The only operational ICR test facility established, to date, is at
Pyestock, United Kingdom. 


--------------------
\1 In January 1996, the Westinghouse Electric Corporation division
responsible for the ICR engine was sold to the Northrop Grumman
Corporation. 

\2 Total developmental program cost assumes exercising all contract
options, which includes five ICR gas turbine engines, development
test, U.S.  Navy qualification and shock tests, and ship integration
testing. 

\3 A preplanned product improvement for an ongoing system is defined
as an improvement that goes beyond current system performance to
achieve needed operational capability. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

After more than 4 years of advanced development, some Navy officials
are questioning whether the ICR engine will provide a viable and
timely return for the large investment needed to develop it.  One
high level Navy official has recommended that the engine not be
funded in the future because it does not provide a reasonable
prognosis for long-term benefit, while another has stated that the
program has marginal merit in light of other priorities.  A Center
for Naval Analyses report notes that the engine's development costs
are significant, questions the affordability of the engine, and
concludes that the economic payoff for the engine is so long term
that it might not be an attractive investment. 

Although the ICR program is designated a preplanned product
improvement for the DDG-51 destroyer program, several Navy officials
(including officials from that program office) have raised concerns
about the practicality of placing the engine on the destroyer since
it is already equipped with a capable and reliable propulsion system. 
The Center for Naval Analyses, in a 1994 cost-benefit analysis,
concluded that the engine should not be used on the destroyer due to
the high cost involved.  Given the (1) small number of new U.S. 
destroyers involved, (2) adequacy of the current destroyer engine,
(3) high cost and difficulty of incorporating the engine into the
destroyer, (4) uncertain status of DDG-51 integration plans, and (5)
current state of ICR development, we believe the Navy should at least
wait for a more appropriate new ship for the ICR engine. 

The Navy is experiencing serious problems in the development and
testing of the ICR engine's recuperator and has yet to recover from a
January 1995 recuperator failure that resulted from design,
manufacturing, and quality assurance problems.  As of April 1996, a
modified recuperator had operated for only about 120 hours.  This,
along with earlier testing, is approximately 9 percent of the 1,500
hours the Navy had hoped to achieve under the memorandum of
understanding with the United Kingdom.  While the contractor has
instituted a Navy-approved recovery plan to redesign future
recuperators, the plan did not provide sufficient time to evaluate
test data prior to key redesign activities.  This was due to a need
to meet a planned, late 1996 decision date to order production ICR
engines for the international Horizon frigate. 

In November 1995, the Navy halted work on redesigning future
recuperators because of funding reductions, contractor quality
control problems, manufacturing problems, and delivery delays.\4 The
Navy is working with the primary contractor to resolve these
problems, in part, by restructuring the ICR program.  For example,
officials are considering reducing contractual requirements, such as
the number of preproduction engines purchased, and rescheduling
program milestones.  These programmatic changes can be expected to
reduce the scope of the developmental program and to cause testing
delays and cost growth.  The possibility of cost growth also raises
questions about the viability of the Navy's estimate of $415 million
to develop the ICR engine.  For example, the Navy has not yet
adjusted program cost estimates to reflect schedule slippage and
technical difficulties. 

As the Navy restructures the ICR engine's development program, it
faces two major decisions concerning the test program's
infrastructure.  The first decision is how and if it will use a $5.4
million ICR test facility that it built in Philadelphia.  Currently,
the Navy plans to conduct almost all of its ICR engine developmental
testing at the test site in the United Kingdom.  The second is
whether it will test the ICR engine at sea in a pilot ship.  The cost
to test the engine at sea is estimated to range from $5.8 million to
$12.5 million. 


--------------------
\4 As of May 21, 1996, the stop work order was still in effect. 


   THE VALUE OF AND NEED FOR THIS
   PROGRAM ARE BEING QUESTIONED
------------------------------------------------------------ Letter :3

In a September 1995 letter to the Navy's Deputy Chief of Naval
Operations (Resources, Warfare Requirements and Assessments), the
Navy's Commander in Chief, Atlantic Fleet, recommended that the ICR
engine not be funded in the future, noting that "in this year's .  . 
.  budget process, the ICR Gas Turbine Engine Program stands out as a
major cost without a realistic prognosis for long-term benefit." He
stated that the engine's long-term cost-benefit projections are
speculative at best and that its technology will most likely become
obsolete before a return on its investment is realized.  He also
stated that the engine is not a viable candidate for existing ships
due to its large size, weight, and cost.  In an October 1995 reply,
the Deputy Chief of Naval Operations stated that the Navy may decide
the fate of the engine program as it finalizes its budget submission
for fiscal year 1998. 

In November 1995, a high level Navy official informed us that the
Navy's need for the engine was marginal compared to other current
priorities and that he believed the Center for Naval Analyses' ICR
report does not make a compelling economic case for the continued
development of the engine.  However, he also noted that the
Department of Defense (DOD) supported the international aspects of
the program and that the results of the upcoming developmental
testing will be critical to determining the program's future. 


      CENTER FOR NAVAL ANALYSES
      STUDY RAISES AFFORDABILITY
      AND OTHER CONCERNS
---------------------------------------------------------- Letter :3.1

In a September 1994 cost-benefit analysis for the Assistant Secretary
of the Navy (Research, Development and Acquisition), the Center for
Naval Analyses looked at the ICR engine and an improved version of
the current DDG-51 engine.  The report, which was prepared prior to
the initial test of the engine and recuperator, states that "(t)he
economic payoff for a fuel-efficient engine is so long-term that it
might not be an attractive investment in the private sector, but the
eventual benefits of either improved engine are not in doubt, only
the near-term affordability." The analysis stated that the Navy's
1993 ship building plans for gas turbine surface ships are less then
half what they were expected to be in 1987 and that such a large
reduction could call into question the idea of a costly ICR engine
development paid for by fuel savings.  Further, the remaining
development costs for the engine were significant.  It would take
until at least 2026 for the cost savings from the engine to equal the
Navy's investment, and the Navy needed to determine what priority it
should give to the engine's development.  The analysis concluded that
while existing contractual and political obligations would make
cancellation of the engine an unpleasant choice, the high cost to
develop the engine--estimated to be an average of $40 million per
year through fiscal year 1999--means that program cancellation must
be considered an option.  In a December 1994 letter to the Chairman
of the House Committee on Armed Services, the Secretary of the Navy
stated that the report's analysis supported the continued development
of the ICR engine because of potential future fuel savings. 


      ENGINE'S USE IN NAVY
      DESTROYER IS QUESTIONABLE
---------------------------------------------------------- Letter :3.2

According to the Navy, the ICR engine is expected to provide military
advantages, such as increased range and time on station for the
DDG-51, which the Navy considers desirable and which formed the basis
for DOD's approving the engine as a preplanned product improvement
for the DDG-51.  However, Navy officials have raised concerns about
the viability of placing the engine on the DDG-51.  Officials from
the DDG-51 program office stated that the destroyer is currently
equipped with a reliable gas turbine engine and that equipping it
with the unproven ICR engine is a questionable decision.\5

They noted that the Navy's next generation surface combatant, planned
for 2003, appeared to be a better candidate for the engine because it
could be designed from the start to accept the engine.  An ICR
program official also called the ICR engine's use on the DDG-51
questionable but noted that this decision gives the Navy an immediate
need for the engine.  He agreed that the Navy's next generation
surface combatant would be a better candidate since it could be
designed to accept a new propulsion system. 

In 1992, we reported that the ICR program lacked adequate management
controls, such as milestone reviews and comprehensive, independent
cost estimates.\6 In February 1994, the Under Secretary of Defense
designated the ICR engine program as a preplanned product improvement
for the DDG-51 destroyer in an effort to improve its management and
ensure that it was subject to the approval of the Defense Acquisition
Board and an independent cost estimate.  The decision, however, on
whether to actually use the ICR engine on the DDG-51 will not take
place until January 1997.  In addition, the first production engines
would not be installed in a DDG-51 until over 7 years later, in 2004. 
The initial engine is expected to be ordered in 2001.  If the engine
is used on the DDG-51, the Navy now plans to put it on only the last
nine destroyers to be built. 

The Center for Naval Analyses cost-benefit analysis of the ICR engine
concluded that the engine should not be used on the DDG-51 due to the
high cost to fit the engines on ships that were not designed for them
and the small number of destroyers (14 at that time) remaining to be
built.  The analysis also noted that the projected break-even point
between the cost savings generated by the engine and the Navy's
investment, based on
79 possible candidate ships (including the DDG-51 destroyers), would
not occur until about 2026.  If the engine is not put on the DDG-51,
as the analysis recommends, then the number of identified candidate
ships would be reduced to 65.  In either case, the analysis noted
that the cost of replacing the DDG-51 engine is significant.  The
analysis estimates that the cost to equip a new DDG-51 with two ICR
engines is $12.4 million (in fiscal year 1994 dollars) more than the
current engines.  This increase in cost includes design,
shipbuilding, and engine costs.  This cost compares with the $4.9
million cost increase estimate for the other gas turbine engine in
this study (a more fuel-efficient version of the current engine). 
The analysis suggests that the Navy confirm this estimate before
acting on its recommendation. 

The Westinghouse contract requires the development of an ICR engine
that will occupy the same space as the existing engine in the DDG-51. 
Current plans call for each new destroyer to be equipped with two ICR
engines and two existing gas turbine engines.  These plans present
design and integration problems for the DDG-51 because the ship's
engine compartment will need to be redesigned to accommodate the
larger ICR engine.  Since the ICR engine module is expected to weigh
two and one-half times more than the existing engine system, the
engine compartment will require substantial modification to achieve
the structural strength needed to support the added weight of the
engine.  In addition, with two different propulsion systems on each
ship, the Navy will have to maintain individual logistics for each
system. 

In March 1995, two shipyards building the DDG-51, Ingalls
Shipbuilding Incorporated and Bath Iron Works Corporation, submitted
reports to the Navy concerning the feasibility of installing an ICR
engine in the DDG-51.  Ingalls reported that while the installation
was technically feasible, maintaining the ICR engine would be
difficult because it has about 30 percent more preventive maintenance
requirements than the current engine.  Also, Ingalls reported "unlike
the (current engine), most in-place maintenance activities will not
be convenient or expeditious due to the very limited access to the
ICR engine components." Bath Iron Works concluded that replacing two
of the present propulsion gas turbines with ICR gas turbines would
have a significant negative impact on the ship and a clear potential
for cost growth. 


--------------------
\5 In June 1994, a DOD information paper on the ICR engine noted that
acquisition and installation costs related to putting 26 ICR engines
in the last 13 destroyers to be built would be $249.3 million, in
then-year dollars.  Further, the cost of acquiring and installing two
ICR engines in a DDG-51 was estimated to be $13.5 million, in
then-year dollars, more per ship than two of the current engines. 

\6 1993 Navy Budget:  Potential Reductions and Rescissions in RDT&E
Programs (GAO/NSIAD-92-322BR, Sept.  29, 1992). 


   SERIOUS PROBLEMS EXPERIENCED IN
   DEVELOPING AND TESTING THE
   ENGINE'S RECUPERATOR
------------------------------------------------------------ Letter :4

The ICR engine's recuperator, a critical component necessary for
obtaining improved fuel economy, is experiencing serious
developmental and testing problems.  It failed after only 17 hours of
testing with the engine in January 1995.  The failure occurred almost
1-1/2 years after the Navy took the unusual step of initiating
full-scale development of the engine concurrently with its advanced
development.  Since the failure, the ICR program has experienced
technical and other problems that have severely affected program
cost, schedule, and performance. 


      RECUPERATOR FAILURE FORCES
      MAJOR PROGRAM RESTRUCTURING
---------------------------------------------------------- Letter :4.1

The engine, without a recuperator, started developmental testing in
July 1994.  In December 1994, when the Navy first tested the engine
with a recuperator, the engine demonstrated its potential
effectiveness by increasing engine power from 7,000 horse power to
11,500 horse power with no increase in fuel consumption.  In January
1995, however, the original recuperator failed after only 17 of 500
hours of planned testing.  Test operations were terminated when a
significant rise in the turbine inlet temperature occurred.  This
rise in temperature was attributed to the failure of the heat
exchanger, within the recuperator, due to numerous air leaks. 

Westinghouse, the primary contractor, identified 26 different
recuperator failures, many of which were due to basic flaws in the
unit's internal design and construction.  In response, the Navy
approved a contractor recovery plan to redesign the recuperator and
requested an additional $11 million from Congress to fund this
effort.\7 As a result, the Navy extended the advanced development
phase of the contract by 21 months, until September 1997.  The plan
allowed, however, key recuperator tests to be conducted concurrently
with the redesign of the recuperator.  One program official described
the plan as aggressive while another told us that this was necessary
to accomplish enough testing (such as a key 500-hour engine test) to
support a planned late 1996 decision to order production engines for
the Horizon frigate.\8

Between March and November 1995, the Navy reduced projected program
funding by $27.3 million between fiscal years 1996 and 2000.  In
November 1995, the Navy also ordered Westinghouse to stop work on
designing and manufacturing later generation recuperators.  The stop
order was issued due to the decline in program funding and the
inability of the contractor to meet the delivery date for the
modified recuperator.  This latter problem was due, in part, to
continuing contractor quality control problems.  According to the
Navy, the stop work order reduced the amount of concurrency in the
recuperator recovery program by allowing time to review and
incorporate various test results into thermal computer models and
evaluate test results from the modified recuperator.  The Navy also
requested that the contractor propose possible changes to current
contract requirements, including revising the schedule, estimating
cost by quarter, and eliminating test efforts related to integration
of the ICR engine into the DDG-51. 

In response to the funding reduction and the stop work order,
Westinghouse notified the Navy that while the technical problems
associated with the recuperator were understood and solutions were in
place, the engine's development would be delayed an additional
20 months, until May 1999.  In addition, Westinghouse recommended,
among other things, that the number of preproduction engines used for
developmental testing be reduced from five to two.  Westinghouse also
stated that cost growth has occurred and identified potential future
development and production cost risks.  Westinghouse agreed to
provide the Navy an overall recuperator recovery strategy by May
1996. 

In March 1996, an ICR program official told us that the impact of the
initial recuperator failure on the ICR program has been catastrophic
and that the Navy has yet to recover from it.  The Navy expects that
the developmental program's scope will be reduced, resulting in
testing delays and cost growth.  Navy and DOD officials told us, in
commenting on our draft report, that while they believe significant
progress has been achieved in solving the problems associated with
the recuperator failure, the ICR development program will not recover
its schedule slippage and that a technical recovery is only possible. 


--------------------
\7 The ICR program office estimates the cost of the recuperator
recovery program to be $25 million.  However, since the Navy has not
completed restructuring and rebaselining the program, this estimate
cannot be verified. 

\8 On March 1, 1996, we were informed that the decision to put the
ICR engine on the Horizon had been delayed until the summer of 1997. 
The first Horizon is expected to be operational in 2002. 


      UNCERTAINTY OF COST GROWTH
      RAISES QUESTIONS ABOUT THE
      PROGRAM'S VIABILITY
---------------------------------------------------------- Letter :4.2

In our September 1992 report, we stated that "without reliable
estimates of both (1) the cost of acquiring the ICR engine and
related technology and (2) the corresponding savings in operational
cost that it might produce, it is our view that any return on the
sizeable investment this program represents is speculative at best."
Our view remains unchanged because of concerns about the realism of
the ICR engine's development schedule and concurrency in the recovery
plan test schedule; recognized difficulties in integrating the engine
into DDG-51 fleet; the overall high cost of the program; and total
program costs that are not fully covered in existing budget plans. 

Specifically, the Navy has not funded the cost to finalize and
perform ICR developmental testing at an established U.S.  facility
($17 million), to integrate an ICR engine into the DDG-51, or to
retrofit a pilot ship for testing at sea.  In addition, to keep total
program costs at $415 million, the Navy plans to reduce the scope of
its developmental test efforts and use funds intended for other test
purposes to offset the expected $25 million recuperator recovery
program cost. 

Also, in May 1994, the ICR engine contract was modified by deleting
special tooling and special test equipment costs since the contractor
agreed to fund these costs, if Navy funds were not available.  The
contractor is to maintain a separate account of these costs for
future recovery.  Future payment for such tools and equipment will
obviously increase total program costs. 


      PLANS FOR THE HORIZON
      FRIGATE DROVE ICR ENGINE
      SCHEDULE
---------------------------------------------------------- Letter :4.3

A major factor that drove the ICR engine's development schedule has
been the need to decide, by late 1996, whether the engine will be
used in the international Horizon frigate.  The 1994 memorandum of
understanding with the United Kingdom states that its goal was to
move a critical ICR engine preproduction decision milestone to
mid-1996, in order to advance the initial operating capability date
for both the DDG-51 and the Horizon frigate.  A Navy program official
acknowledged that meeting that date was part of the reason the Navy
approved an aggressive recuperator recovery plan, which included
redesign of the recuperator before receiving the results of key
tests. 

During 1995, the House Committee on Appropriations recommended, in
its report on the fiscal year 1996 DOD appropriations bill, that the
program be terminated because of concerns about serious technical
problems, high unit cost, and program cost-effectiveness.  In a July
13, 1995, letter to the Chairman of the House Appropriations
Committee, the British Ambassador expressed his concern about funding
for the ICR engine program.  He stated that the United Kingdom plans
to use the engine for its next generation of warships.  He noted,
however, that if U.S.  funding for the ICR program was eliminated by
Congress it would be incomprehensible to the British government and
it could help encourage a movement toward a protectionist European
defense market.  In an August 28, 1995, letter to the same Chairman,
the Secretary of Defense also expressed concern over the possibility
that all ICR program funds would be deleted and that the program
would be terminated in the House appropriations bill.  Noting that
the ICR engine is a candidate for all future nonnuclear Navy surface
ships, he stated that the United Kingdom and France are committed to
fielding the engine on their next generation of surface combatant
ships and that termination of the program would be a potential
embarrassment for the U.S.  government.  Full funding was restored to
the program as a result of the conference committee meeting between
the Senate and House.  An additional $15.4 million, primarily for the
recuperator recovery program, was also appropriated. 


      NECESSARY TEST DATA WILL NOT
      BE FULLY AVAILABLE
---------------------------------------------------------- Letter :4.4

Despite some progress made in improving the recuperator recovery
plan, the test data necessary for decision making will still be
limited.  The original recuperator recovery plan recommended that a
test unit and three additional generations of recuperators be
manufactured during the developmental effort.  Each would be designed
with a longer service life than the previous one and would provide
different solutions to address the failures.  However, much of the
testing of one generation would be conducted concurrently with the
redesign of the next generation recuperator, thus severely limiting
the contractor's ability to improve the redesign based on test
results.  For example, a series of recuperator core component tests
(there are eight of these heat exchanging cores in a recuperator)
were scheduled simultaneously with the redesign of the next
recuperator. 

To support the redesign efforts, a series of component tests are
planned with a full-sized recuperator core.  Such component testing
had not been performed on the original recuperator due to the
manufacturer's attempt to meet delivery schedules for developmental
testing.  The manufacturer was behind due to (1) delays in awarding
the subcontract to AlliedSignal, (2) refurbishing of the brazing
furnace to satisfy safety requirements, and (3) manufacturing
additional core units to replace poorly manufactured component units. 
The recovery plan concluded that these component tests "are crucial
to support the design evolution of the core configuration and are
more effective and provide earlier test data." Due to delays in
receiving these core component test results, which are necessary to
validate model predictions, the Navy directed the contractor to stop
testing the modified recuperator in January 1996.  This action was
necessary since the contractor had failed to provide substantiating
data from the core tests to allow certain engine test maneuvers. 
Furthermore, in later correspondence, the Navy denied a particular
test maneuver since the Navy believed the contractor's proposed
approach was inconsistent with the long-range requirement of
extending the modified recuperator's useful life for future testing. 
Within a week of being told to stop testing, the contractor resumed
engine testing with the modified recuperator. 

A blue ribbon panel that reviewed the recovery plan determined that
available test results were inadequate to predict future problem
areas and the recuperator's operational life and to validate
performance models.  Since the recuperator's failure, the engine
manufacturer has been testing the engine without a recuperator,
further limiting the amount of available test data and the
contractor's ability to validate performance models and engine
performance. 

According to Navy officials and documents, the need to have a
propulsion system available for ships in development, especially the
new multinational frigate, drove an aggressive recuperator recovery
plan to redesign recuperators without the benefit of results from
tests of individual cores and the environmental test data from a
special test unit.  Examination of the failed recuperator and
additional materials test results, however, contributed to the design
effort.  The special test unit, which was created using six cores
from the failed recuperator and two unused cores that had been set
aside due to questionable manufacturing quality, replaced the failed
recuperator.  The test objectives of the special unit included the
provision of data for refining, developing, and validating analytical
computer models.  Modeling new design concepts is a key factor in any
developmental effort.  The special unit operated for about 6 hours
and demonstrated that the recuperator could be operated safely by
gradually increasing engine power to obtain idle speed and having the
recuperator partially active.  The unit was extensively instrumented
to gain detailed information about the operational environment. 

One of the recuperator recovery plan's objectives was to deliver a
redesigned recuperator to the Pyestock test facility by October 31,
1995, but an additional schedule slippage delayed delivery until
December 1995.  The slippage, however, enabled the Navy to obtain
some additional preliminary core component test results that were
used to establish boundaries as to what test operations will be
performed.  For example, the engine could not initially exceed 40
percent of full power nor could the contractor restart a hot engine
without risking damage to the recuperator. 


   ISSUES CONCERNING THE TEST
   PROGRAM'S INFRASTRUCTURE
------------------------------------------------------------ Letter :5

As the Navy restructures the ICR engine's development program, it
faces two major decisions concerning the test program's
infrastructure.  The first decision is how and if it will use an ICR
test facility already built, but not operational, in Philadelphia. 
Prior to the recuperator failure, the Navy had hoped to advance
significantly the development of the ICR engine by conducting joint
testing in the United Kingdom and the United States.  The second
decision is whether it will test the ICR engine at sea in a pilot
ship.  Because of recuperator technical problems, funding reductions,
and schedule delays, the Navy will not be able to accelerate engine
development via planned joint land-based testing.  Currently, the
Navy plans to conduct almost all of its ICR engine developmental
testing at the test site in the United Kingdom.  In addition, it has
yet to resolve questions related to the need to test the engine at
sea. 


      LAND-BASED TESTING CRUCIAL
      TO ADVANCING THE ENGINE'S
      DEVELOPMENT SCHEDULE
---------------------------------------------------------- Letter :5.1

The Navy signed an advanced development phase contract with
Westinghouse in 1991.  In developing an ICR test facility,
Westinghouse considered three potential test sites and selected
Pyestock, United Kingdom, as its primary test site.  The subsequent
memorandum of understanding with the United Kingdom provided for the
United Kingdom to fund the operation of the test site for up to 2
years or 1,500 hours of testing.  This in-country support was
estimated to total $22 million in then-year U.S.  dollars.  The test
facility in Pyestock began testing the ICR engine (without a
recuperator) in July 1994. 

When the Navy advanced the ICR engine's development schedule in 1993
by 21 months, it created a need for another ICR land test site.  Both
the Navy and Westinghouse believed that with two operational
facilities they could conduct almost simultaneous engine tests in
support of the faster development schedule.  Based on the memorandum
of understanding with the United Kingdom, the United States would be
responsible for funding the Philadelphia test site.  This test site
would also perform required technical and operational testing for the
U.S.  Navy. 


      U.S.  TEST SITE BUILT BUT
      NOT OPERATIONAL
---------------------------------------------------------- Letter :5.2

While the Philadelphia test facility was completed in fiscal year
1995, it is not yet operational.  This is due, in part, to funding
reductions and recuperator technical problems that have resulted in
major delays in the developmental testing of the engine.  As a
result, there is currently no ICR engine and recuperator available
for testing at Philadelphia.  In addition, the Navy has not provided
adequate funding for the operation of the Philadelphia facility in
support of desired joint developmental and qualification engine
testing.  Complicating the situation is the fact that the recuperator
failure and the subsequent 41-month delay in the development program
have eliminated one of the primary justifications--to speed up the
engine's development--for two land-based test facilities.  The Navy
now plans for almost all developmental and qualification testing to
be conducted in Pyestock and, at the present time, use the
Philadelphia facility near the end of the program only for ICR engine
shock testing. 

The Navy and Westinghouse had originally expected that the
Philadelphia test facility would allow a second 500-hour
developmental test after a similar test had been performed at
Pyestock.  By conducting these tests almost simultaneously, the Navy
believed it could complete the engine's development 21 months early. 
The Philadelphia facility cost $5.4 million to construct.  The Navy
estimates the cost to fully equip and staff the Philadelphia test
facility for a 500-hour test to be $17 million:  $9 million in fiscal
year 1996 and $8 million in fiscal year 1997.  In the fiscal year
1996 budget, however, the Navy only received $4.5 million for this
test.  Navy officials told us that they would not partially fund this
test and that the $4.5 million is currently being withheld by the
Navy and may, sometime in the future, be rescinded. 

The Navy also had planned to conduct ICR related testing at another
test facility in Philadelphia.  Using the DDG-51 test facility, which
is built and operating, the Navy was going to accomplish tests
required for integrating the ICR engine into that class of ship. 
Because of funding reductions and other problems, the Navy is
considering eliminating this testing.  Also, the ICR test facility
was to have been used to test other future ship propulsion and power
projects.  If the facility is not made operational, this will not be
possible.  Thus, the Navy currently has an ICR test facility without
operational capability and an ICR engine test strategy that is in a
state of limbo. 


      NAVY UNDECIDED IF IT WILL
      TEST THE ENGINE AT SEA
---------------------------------------------------------- Letter :5.3

The Navy has not decided if it will test the ICR at sea because of
the high cost involved.  It estimates that it would cost between $5.8
million to $12.5 million to redesign a ship's engine room and install
an engine in a pilot ship.  While no decision has been made, this is
an important testing issue.  A DDG-51 program official stated that it
is Navy policy to test engines at sea.  A Navy testing official
stated that a land-based test facility, by itself, is not adequate to
fully evaluate the engine's operational effectiveness and suitability
because the facility does not represent a realistic ship and maritime
environment.  This is, in part, because the engine compartments on
surface combatants are very limited in space compared to other
surface ships (e.g., cargo ships), thereby presenting more challenges
for repairing or maintaining the engine.  Also, the Navy has not
decided what type of pilot ship the engine will be tested on.  A Navy
official stated that the type of pilot ship selected is important due
to the various electronic support equipment associated with the
engine. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

This report raises many questions about the viability of the ICR
engine program, and we believe DOD needs to reassess the need for and
future direction of the program.  Because the United States has
entered into joint agreements with the British and French navies to
develop this engine, the decisions on the future of the program are
complicated and sensitive.  We also believe that the use of the
engine on the DDG-51 destroyer is inappropriate.  Therefore, we
recommend that the Secretary of Defense reassess the Navy's
continuing need for the new engine.  In doing so, the Secretary needs
to carefully consider how current agreements with U.S.  allies affect
the program, identify what effect the Navy's ongoing efforts to
restructure and rebaseline the ICR program will have, and determine
what the Navy's surface combatant ship future requirements actually
are.  If it is determined that the program should continue, the
Secretary of Defense should direct the Secretary of the Navy to

  -- not use the engine in the DDG-51 destroyer;

  -- determine total program costs for developing and acquiring the
     engine relative to the Navy's requirements for future surface
     combatant ships, including costs for U.S.  test facilities
     and/or pilot ship engine testing;

  -- prepare a facility use plan for the U.S.  test site; and

  -- prepare a test plan and schedule for the engine that provide
     sufficient assurance that it can transition from development to
     production and be realistically available for use in any U.S. 
     ship. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

DOD said that it disagreed with our report, in large part, because
the Secretary of Defense is satisfied with the Center for Naval
Analyses' assessment and does not need to reassess the program at
this time, as we have recommended.  However, DOD's comments do not
address the difficulties the program has encountered since the
Center's 1994 assessment.  Specifically, with the January 1995
failure of the engine's recuperator, the program has experienced
serious design, manufacturing, and quality assurance problems.  In
response, the Navy instituted an aggressive recuperator recovery plan
to maintain as much of the engine's accelerated development schedule
as possible.  Only in November 1995, however, did the Navy realize
that this approach would not work and ordered work stopped on
redesigning the recuperator.  An ICR program official has described
the impact of the recuperator failure on the program as being
catastrophic and, as of May 21, 1996, the stop work order was still
in effect. 

DOD also disagreed with our recommendation to not use the engine in
the DDG-51 destroyer.  DOD commented that the ICR engine was expected
to provide military advantages to the DDG-51, such as increased range
and time on station.  While acknowledging that weight and size
relative to the size of the DDG-51 engine room are important, DOD
commented that it is technically feasible to put the engine on the
ship.  DOD did not comment, however, on our concerns about the high
cost of putting the engine on the DDG-51.  We would like to reiterate
that the Center's assessment recommended that the ICR engine not be
used in the DDG-51 because of the high cost to fit these engines in a
ship that was not designed for them.  Moreover, representatives from
the DDG-51 program office, and even the ICR program office, have said
that this is an inappropriate ship for the ICR engine. 

DOD commented that studies done by Ingalls Shipbuilding demonstrate
that putting the ICR engine on the destroyer is technically feasible. 
However, DOD's comments fail to note that Bath Iron Works concluded
that the engine would have a significant negative impact on the ship
and a clear potential for cost growth.  Further, weight is clearly an
issue when DOD tells us, in its technical comments, that the Navy
will, if necessary, reduce the amount of fuel carried on the
destroyer to counter the increased weight of the engine. 

Concerning our recommendation to determine total program costs for
developing and acquiring the engine, DOD stated that total program
costs have been estimated and the ICR engine should break even around
about 2020.  However, when we attempted to follow up on this
statement, we learned that, as of April 1996, the Navy had yet to
restructure and rebaseline the program.  The Navy is in the process
of restructuring the program to absorb the estimated $25 million cost
to implement the recuperator recovery plan and expected reductions in
out-year program funding.  To accomplish this, the Navy is
considering, among other things, reducing the number of preproduction
engines, under the contract, from five to two.  In addition, the Navy
has not fully funded all of the test activities, including the U.S. 
land-based test facility and a pilot ship to test the engine at sea. 
It may even eliminate the planned DDG-51 integration testing.  Thus,
total program costs are not fully known and we are concerned about
what test activities the Navy plans to reduce or eliminate to keep
total program costs down. 

In addition, the Center for Naval Analyses actually predicts the
break-even point, when savings would equal the development cost, as
being in 2026, not 2020 (based on the first engines being installed
in a fiscal year 1999 DDG-51).  Under current Navy plans, however,
ICR engines would not be installed until 2004, meaning that the
break-even point is likely to occur even later then 2026. 

Concerning our recommendation to prepare a test plan and schedule
that provides sufficient assurance that the engine can transition
from development to production and be realistically available for
future use, DOD stated that if the decision was made to use the ICR
engine on a particular ship, test planning and scheduling would be
incorporated into that ship's test and evaluation master plan. 
However, with the decision to put the engine on the DDG-51 at least a
half year away and a stop work order still in effect, we are more
concerned about the current test plan and schedule for the engine's
development.  Until the Navy restructures and rebaselines the program
we will be unable to determine if test concurrency has been
eliminated and if adequate time has been provided for developmental
testing and the evaluation of test results.  DOD also pointed out
that the United States has no cognizance over the Horizon program and
that the United Kingdom, France, and Italy would develop their own
test plans.  We have revised our recommendation to specify that it
only applies to U.S.  ship development. 

After carefully reviewing all of DOD's comments, we continue to
believe that the Secretary of Defense needs to reassess the ICR
engine program and the Navy needs to resolve problems with the ICR
engine's recuperator and sufficiently test the engine prior to
committing to its production, particularly since there appears to be
no pressing U.S.  requirement.  We are also concerned about the
growing cost of the program and, in particular, the cost to acquire
and install the engine in the DDG-51.  While the U.S.  Navy has
entered into cooperative agreements with the United Kingdom and
France, it is still funding about 93 percent of the engine's
estimated $415 million development cost.  Program restructuring,
schedule slippage, and expected cost increases will add to that
amount.  The decision of the program office to advance the engine's
schedule by concurrently conducting advanced development along with
full-scale development
1-1/2 years prior to testing the engine and recuperator together and
then, after the recuperator failure, to initiate an aggressive
recuperator recovery plan heightens our concern about program
management.  We also are concerned that the Navy may significantly
reduce the testing of the ICR engine in an attempt to offset program
cost growth and the additional cost caused by the recuperator
failure.  We also continue to question the Navy's proposal to put the
engine on the DDG-51 and its decision to manage the program as a
DDG-51 preplanned product improvement. 

DOD's comments are presented in appendix I.  In addition, DOD
provided, for our consideration, several factual and technical
corrections related to the report.  In response, we have made changes
to the report where appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To obtain information for this report, we reviewed various program
research and development documents, including the recuperator
recovery plan, early concept and feasibility design studies, test
plans and schedules, various development contracts and other program
documents.  We interviewed officials in the offices of the Under
Secretary of Defense (Comptroller/Chief Financial Officer), DOD's
Director of Operational Test and Evaluation, Assistant Secretary of
the Navy (Research, Development and Acquisition), Navy's Operational
Test and Evaluation Force, and the Naval Sea Systems Command's
Advanced Surface Machinery Program, Engineering Division, Land Based
Engineering Site, and Naval Surface Warfare Center.  We also reviewed
various DDG-51 program documents and interviewed officials in the
offices of the Under Secretary of Defense (Acquisition and
Technology) and the DDG-51 Program Office.  We also discussed our
report with the Naval Audit Service. 

To assess and analyze the risks associated with the recuperator
recovery plan, we attended two ICR bimonthly technical conferences
where program officials and contractors discussed technical and
testing issues, including engine performance, testing problems, and
the recuperator recovery program.  We compared information obtained
at these conferences with various program and technical documents. 

We conducted our review from May 1995 to May 1996 in accordance with
generally accepted government auditing standards. 


---------------------------------------------------------- Letter :8.1

We are also sending copies of this report to the Chairmen and Ranking
Minority Members, House Committees on National Security and on
Government Reform and Oversight, Senate Committees on Armed Services
and on Governmental Affairs, and Senate and House Committees on
Appropriations; the Director of the Office of Management and Budget;
and the Secretaries of Defense and the Navy.  We will also provide
copies to others upon request. 

This report was prepared under the direction of Thomas J.  Schulz,
Associate Director, Defense Acquisition Issues.  Please contact him
or me on (202) 512-4841 if you or your staff have any questions
concerning this report.  The major contributors to this report are
listed in appendix II. 

Sincerely yours,

Louis J.  Rodrigues
Director, Defense Acquisitions
 Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Thomas J.  Schultz
Brad Hathaway
John J.  D'Esopo
Joseph C.  Brown
David R.  Fisher
John P.  Swain

NORFOLK FIELD OFFICE

Robert L.  Coleman

*** End of document. ***