1) The USSR was never bound by the Washington/London Naval Treaties (only the USA, UK, France, Japan, and Italy. Germany was bound by Versailles (largely ignored by the time the game starts AND modified by the unilateral (France and Italy were not consulted) Anglo-German Navy Agreement of 1935.)
2) In-game it is mostly impossible to refit your existing Capital Ships while the treaty is in force, at least not in any meaningful way. [I wish there was a way to have the treaty only limit new construction but allow refits of existing units, not being able to add RADAR to my battleships until the war starts is annoying.] The Non-Democracies (Italy and Japan) have a little more leeway if they cheat, but still can't build (or refit) fully capable 'modern' capitals.
3) There is are reasons that the only extensive refits of major warships took place (or at least were started) during peacetime. Look at the Italian 'refits' of their BBs, roughly 3 1/2 years versus about 4 for the new build Littorios.
4) Yes I know that peacetime construction rates were less rushed than wartime rates, but the fact that no major refits were conducted once it became apparent that war was coming, much less already started, (unless the ship was still under construction or was already in the yards to repair major battle damage) tells us something about the economies of new versus repurposed when it comes to warships.
1.) I listed the USSR
specifically because they were an exception to refitting battleships outside of the treaty (as opposed to the idea of Italy refitting the Conte di Cavours and Andrea Dorias because they weren't allotted any other BBs). Their BBs needed massive work regardless though, considering one of the refitted ships had to be refloated after sinking.d
2.) You can refit BBs to a reasonable rate with the escalator clause, the only classes that are problematic there are the Nelson, Nagato, and Colorado classes (with 16-inch guns), as well as modern hulls. That is, however, why I stick mostly with battlecruisers for new ships when I stay in the naval treaty.
3 and 4.) I don't disagree with the extensive refits at all; I was, however, pointing out that there are both in-game reasons to refit ships rather than build new ones (faster than building new ships, particularly if the ships aren't very valuable otherwise) and historical equivalents, which were considered in many cases (most historic refits were done to turrets and superstructures, which are very hard to represent, but other refits for deck armor and torpedo protection were actually done on a large number of dreadnoughts and even carriers). Its a tradeoff between a benefit in the short-run versus getting more later, and it should be pointed out that while few conversions of capital ships were done late in the war, few capital ships were
built after the war started either.
The only battleship that was laid down during wartime--and
finished--was HMS Vanguard. Technically 4 of the Iowa class were laid down after the war started (and 2 finished), but the US was still neutral itself at the time.