CHANGES TO ANY SHIPBUILDING PROGRAM CAN NUMBER IN THE THOUSANDS AND INCREASE THE PRICE OF SHIPS BY MILLIONS OF DOLLARS. THE NAVY MAKES FORMAL CHANGES BY MODIFYING A SHIPBUILDING CONTRACT IN WRITING. CONSTRUCTIVE CHANGES RESULT FROM NAVY ACTION OR INACTION WHICH CAUSES THE SHIPBUILDER TO DO ADDITIONAL OR DIFFERENT WORK THAN IS SPECIFIED IN THE CONTRACT. IF THE NAVY AND THE SHIPBUILDER AGREE THAT A CONSTRUCTIVE CHANGE OCCURRED BECAUSE OF THE NAVY, IT CAN BECOME A FORMAL CHANGE. IF THEY DISAGREE ABOUT THE CHANGE, THE CONSTRUCTIVE CHANGE MAY FORM THE BASIS FOR A SHIPBUILDER'S CLAIM. CLAIMS REACHED $2.7 BILLION IN 1978. TO PREVENT THE NAVY FROM SPENDING UNNECESSARY MONEY BECAUSE OF CONSTRUCTIVE CHANGES TO CONTRACTS, THE SECRETARY OF THE NAVY SHOULD ENSURE THAT ENOUGH TIME WILL BE ALLOWED TO CORRECT LEAD-YARD PLANS BEFORE THEY ARE USED BY FOLLOW YARDS. GUIDELINES SHOULD ALSO BE ESTABLISHED FOR USE IN FIXED-PRICE INCENTIVE SHIPBUILDING CONTRACTS TO SPREAD THE RISK BETWEEN THE CONTRACTOR AND THE NAVY. NAVY CONTRACTING OFFICERS SHOULD BE DIRECTED TO DISCONTINUE NEGOTIATING SHIPBUILDING CONTRACTS WHICH PAY ESCALATION ON COSTS NOT AFFECTED OR AFFECTED TO A LESSER DEGREE BY INFLATION. ESCALATION SHOULD ALSO BE DISCONTINUED ON COSTS INCURRED AFTER THE DELIVERY DATE SET IN THE CONTRACT. THE BUREAU OF LABOR STATISTICS' INDEXES OF THE SHIPBUILDING INDUSTRY SHOULD CONTINUE TO BE USED AS THE BASIS FOR ESCALATION RATHER THAN THE NAVAL SHIP PROCUREMENT PROCESS STUDY RECOMMENDATION TO PAY SHIPBUILDERS' ACTUAL LABOR ESCALATION. (AUTHOR ABSTRACT MODIFIED--RCB)