The Department of Defense’s $2.4 Billion ‘Submarine’ Mistake

Deloitte’s $2.4 Billion Contract to Build Submarines Shows How Badly Misaligned Defense Spending Has Become: Once again Congress is in the midst of a budget crisis that could again result in a government shutdown. Almost on cue, Defense Secretary Lloyd Austin is expressing grave concern about how a six-month continuing resolution to keep government funded will affect the military.

The problem for Defense, however, isn’t just the timely allocation of money. In fact, a recent big-ticket contract shows the argument that we lack money for defense is flawed. What we’re missing is not dollars, but smarter federal spending.

Consider the $2.4 billion deal administration inked in July with Deloitte Consulting to boost submarine construction, by an administration that had claimed there isn’t enough money in the budget to fund two needed nuclear attack submarines.

Deloitte will get $2.4 billion over five years to: “… provide labor, materials, and equipment needed to develop and expand the size and capability of the maritime submarine workforce and industrial base and speed the development of improved manufacturing technologies to supply chain.”

According to the Congressional Budget Office, the cost of building a new nuclear attack submarine today is $4.3 billion. At a day and age where the Navy’s requirement for submarines is 66 but only has 50.  So why not just spend that money to buy a submarine?

For many years subject matter experts, shipbuilders and naval leaders, have all warned of the rising cost to build warships given aging infrastructure, a shrinking labor force, and inconsistent budgeting. So a consulting firm would make sense to help sort that out, right?

Perhaps, but $2.4 billion for a five-year consulting job seems excessive, especially when the Navy is already contracting for help in this regard from BlueForge Alliance at a fraction of Deloitte’s cost. For comparison, the Department of Defense audits have contracted 1,600 auditors for a cost approximating $200 million.

Deloitte has been a main provider of Financial Improvement and Audit Remediation contract services to prepare and remediate Department of Defense Congressionally mandated audits. According to a 2024 Inspector General report: “…From FY 2018 to FY 2022, the DoD reported spending approximately $4.11 billion on audit remediation and support… over 5 years, the DoD made minimal progress to correct its financial management deficiencies.” As such, more accountants have not and will not alone remedy the problem.

More importantly, as China’s Navy continues a breakneck modernization and expansion outstripping ours, we need submarines, not power points.

To be fair, Deloitte is a well-known and renowned consulting firm with numerous studies ranging from support to military families to network security; and in 2017 did accounting work for the Navy. Yet this history has not delivered results in a clean audit nor adequate improvement like financial management of its Shipyard Infrastructure Optimization Program (SIOP).

As it stands today, Deloitte is not known as a shipbuilder, nor is it clear it could meaningfully contribute to the construction of submarines. As such, it is insightful that the Navy has been silent on this contract, as the Office of the Secretary of Defense (OSD) inked the deal. Action is needed to improve shipyard capacity and grow the number of naval suppliers as a June 2023 study by the Government Accountability Office and various congressional commission findings have shown.

While Deloitte is known for accounting work, its impact on improving shipbuilding is questionable. For example, Deloitte will be expected to expand the submarine shipbuilding supplier base and workforce. But its commitment to failing Diversity, Equity, and Inclusion (DEI) practices, that more and more companies are not seeing a return on investment, is not reassuring.

Deloitte in 2024 ranked #1 in global diversity, has consistently placed well in Human Rights Campaign corporate equity index, and often receives recognition for its efforts in DEI. It has paid for this too, investing $75 million in 2021 to establish its Making Accounting Diverse and Equitable and committing over $1.5 billion to creating an equitable society. Its own corporate DEI report belies an emphasis on racial quotas and identity, an approach that has cratered military recruiting.

That said, with this contract Deloitte is expected to develop and find new suppliers of nuclear submarine parts. As an energetic adopter of questionable DEI business practices, with little experience or presence in the highly technical industrial world of naval shipbuilding, there are rational reasons to doubt this contract will be a good return on investment for naval shipbuilding.

All told, the risk, costs and timing at the end of an administration make this deal suspect. Congress should seek transparency on how this deal came about, why is OSD and not Navy advocating for it, and how it will tangibly result in more nuclear submarines for the Navy.

About the Author: Brent D. Sadler

Brent D. Sadler, a 26-year veteran nuclear submarine and foreign area officer, is a Senior Research Fellow at The Heritage Foundation covering naval warfare and advanced technologies.