NATIONAL HARBOR, Md.—Two weeks into the Navy’s top job, John Phelan is wrestling with eye-popping program costs and “unacceptable” shipbuilding delays.
“Every missed milestone in shipbuilding and maintenance is a risk to our national security. The need to rebuild and modernize our fleet is now more urgent than ever and has become, in my mind, a national emergency,” said Navy Secretary John Phelan during a keynote speech at the Sea-Air-Space conference on Wednesday. “We will set realistic, achievable schedules, and we will commit to them. We will eliminate the waste and inefficiencies that drain resources without delivering results. We will demand accountability of the shipbuilding enterprise because every dollar, every day, and every decision counts.”
Phelan, who ran his own investment firm and has no military experience, stressed his plan to focus on procurements and acquisition reform during his tenure.
“I see numbers on things that are eye-opening to me,” he said, noting that the service is in early-stage contract reviews. “[At] my old firm, we built the finest hotel in Hawaii, top-rated [at] $800,000 a key. And that has some pretty nice marble and some pretty nice things in it,” Phelan said, comparing it to a barracks that cost $2.5 million a key—the cost of building a structure divided by the number of occupants. Last year, the Marine Corps named bringing substandard barracks up to healthy living conditions a top budget priority for fiscal year 2025.
Many of Phelan’s comments echoed those made during his nomination hearing in February, particularly about contract reviews and the need for a “shared-risk” philosophy with industry.
“I am candidly fearful of what I am going to find when I read some of these contracts and get in there, in terms of their pro-to-the-private-sector side. But we need to go in there, take a look at them. If they need to be restructured then we are going to have to do that. But we have to get back to more of a concept of shared risk. I think it is fine for the private sector to earn a profit. They should make a profit based on the risk that they are taking,” he said.
Those contract reviews, which are now underway, will look at decision processes so the Navy can get an “appropriate risk-adjusted rate of return on our investments,” Phelan said on Wednesday. “In many ways, warfare is like a business. Our military must operate at optimal efficiency, maximizing its resources to ensure that every American tax dollar spent delivers results that strengthen our defense.”
Phelan didn’t say how he would curb shipbuilding cost overruns and delays, just that “these are solvable problems.”
“There are a number of questions that we need to get answered. I think understanding our strategy first and then developing what the force posture looks like from that strategy, and then understanding what that then would cost is what we have to do. And so we will reverse-engineer from that,” he said.
