Overhaul Costs in Public and Private Shipyards: A Case Study

Abstract

Abstract : This study investigated whether overhaul costs differ in public and private shipyards, using data on overhauls of the Sturgeon class of nuclear attack submarines between 1971 and 1979. We began by estimating a cost function and using the regression coefficients to estimate the production cost of a hypothetical overhaul for each shipyard in each year. For the most part, it was found that estimated naval shipyard costs did not differ significantly from estimated private yard costs. There were, however, several instances in which naval yard costs were significantly higher than private yard costs. Among the reasons for the differences in estimated production costs in our sample were higher wage rates and a lower cost of capital in the naval shipyards. Experience levels also differed among shipyards, but were not consistently higher or lower for the naval shipyards. There may be a difference in overhaul quality, but such a difference did not show up in the measures of material condition that we examined. One difference that did emerge strongly concerned the length of time per overhaul, which was lower in the naval shipyards.