[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]







              THE COAST GUARD'S INTEGRATED DEEPWATER SYSTEM

=======================================================================

                                (110-4)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                COAST GUARD AND MARITIME TRANSPORTATION

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            JANUARY 30, 2007

                               __________


                       Printed for the use of the
             Committee on Transportation and Infrastructure













                     U.S. GOVERNMENT PRINTING OFFICE

34-776 PDF                 WASHINGTON DC:  2007
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office  Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800  Fax: (202) 512-2250 Mail Stop SSOP, 
Washington, DC 20402-0001













             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia    JOHN L. MICA, Florida
PETER A. DeFAZIO, Oregon             DON YOUNG, Alaska
JERRY F. COSTELLO, Illinois          THOMAS E. PETRI, Wisconsin
ELEANOR HOLMES NORTON, District of   HOWARD COBLE, North Carolina
Columbia                             JOHN J. DUNCAN, Jr., Tennessee
JERROLD NADLER, New York             WAYNE T. GILCHREST, Maryland
CORRINE BROWN, Florida               VERNON J. EHLERS, Michigan
BOB FILNER, California               STEVEN C. LaTOURETTE, Ohio
EDDIE BERNICE JOHNSON, Texas         RICHARD H. BAKER, Louisiana
GENE TAYLOR, Mississippi             FRANK A. LoBIONDO, New Jersey
JUANITA MILLENDER-McDONALD,          JERRY MORAN, Kansas
California                           GARY G. MILLER, California
ELIJAH E. CUMMINGS, Maryland         ROBIN HAYES, North Carolina
ELLEN O. TAUSCHER, California        HENRY E. BROWN, Jr., South 
LEONARD L. BOSWELL, Iowa             Carolina
TIM HOLDEN, Pennsylvania             TIMOTHY V. JOHNSON, Illinois
BRIAN BAIRD, Washington              TODD RUSSELL PLATTS, Pennsylvania
RICK LARSEN, Washington              SAM GRAVES, Missouri
MICHAEL E. CAPUANO, Massachusetts    BILL SHUSTER, Pennsylvania
JULIA CARSON, Indiana                JOHN BOOZMAN, Arkansas
TIMOTHY H. BISHOP, New York          SHELLEY MOORE CAPITO, West 
MICHAEL H. MICHAUD, Maine            Virginia
BRIAN HIGGINS, New York              JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri              MARIO DIAZ-BALART, Florida
JOHN T. SALAZAR, Colorado            CHARLES W. DENT, Pennsylvania
GRACE F. NAPOLITANO, California      TED POE, Texas
DANIEL LIPINSKI, Illinois            DAVID G. REICHERT, Washington
DORIS O. MATSUI, California          CONNIE MACK, Florida
NICK LAMPSON, Texas                  JOHN R. `RANDY' KUHL, Jr., New 
ZACHARY T. SPACE, Ohio               York
MAZIE K. HIRONO, Hawaii              LYNN A WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                CHARLES W. BOUSTANY, Jr., 
JASON ALTMIRE, Pennsylvania          Louisiana
TIMOTHY J. WALZ, Minnesota           JEAN SCHMIDT, Ohio
HEATH SHULER, North Carolina         CANDICE S. MILLER, Michigan
MICHAEL A. ACURI, New York           THELMA D. DRAKE, Virginia
HARRY E. MITCHELL, Arizona           MARY FALLIN, Oklahoma
CHRISTOPHER P. CARNEY, Pennsylvania  VERN BUCHANAN, Florida
JOHN J. HALL, New York
STEVE KAGEN, Wisconsin
STEVE COHEN, Tennessee
JERRY McNERNEY, California

                                  (ii)























        SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION

                 ELIJAH E. CUMMINGS, Maryland, Chairman

GENE TAYLOR, Mississippi             STEVEN C. LaTOURETTE, Ohio
RICK LARSEN, Washington              DON YOUNG, Alaska
CORRINE BROWN, Florida               HOWARD COBLE, North Carolina
JUANITA MILLENDER-McDONALD,          WAYNE T. GILCHREST, Maryland
California                           FRANK A. LoBIONDO, New Jersey
BRIAN HIGGINS, New York              TED POE, Texas
BRIAN BAIRD, Washington              JOHN L. MICA, Florida
TIMOTHY H. BISHOP, New York            (Ex Officio)
JAMES L. OBERSTAR, Minnesota
  (Ex Officio)

                                 (iii)






















                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    vi

                               TESTIMONY

 Allen, Admiral Thad W., Commandant, U.S. Coast Guard............    12
 Mackay, Leo S., Jr., President, Integrated Coast Guard Systems..    44
 Teel, Phillip, President, Northrop Grumman Ship Systems.........    44

          PREPARED STATEMENT SUBMITTED BY A MEMBER OF CONGRESS

Oberstar, Hon. James L., of Minnesota............................    62

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

 Allen, Admiral Thad W...........................................    65
 Mackay, Leo S., Jr..............................................   151
 Teel, Phillip...................................................   155

                       SUBMISSIONS FOR THE RECORD

Allen, Admiral Thad W., Commandant, U.S. Coast Guard:

  Response to question from the Subcommittee.....................    25
  Response to question from the Subcommittee.....................    32
  Response to question from the Subcommittee.....................    35
  Response to question from the Subcommittee.....................    39
  Response to question from the Subcommittee.....................    41
  ``Blueprint for Acquisition Reform in the U.S. Coast Guard,'' 
    report.......................................................    79



[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]




 
                COAST GUARD'S INTEGRATED DEEPWATER SYSTEM

                              ----------                              


                       Tuesday, January 30, 2007,

        House of Representatives, Subcommittee on Coast 
            Guard and Maritime Transportation, Committee on 
            Transportation and Infrastructure, Washington, 
            DC.
    The subcommittee met, pursuant to call, at 11:00 a.m., in 
room 2167, Rayburn House Office Building, the Honorable Elijah 
E. Cummings [Chairman of the subcommittee] presiding.
    Mr. Cummings. This hearing will come to order.
    First, I want to thank all of you for being here. I want to 
take this opportunity to welcome all the members of the 
Subcommittee on Coast Guard and Maritime Transportation to our 
first meeting.
    I am deeply honored to have been selected by Chairman Jim 
Oberstar and my colleagues on the Transportation and 
Infrastructure Committee to chair this very distinguished 
Subcommittee. I know that most of our Subcommittee members have 
a long tenure with the Subcommittee and with the maritime 
industry, and I truly look forward to working with Ranking 
Member LaTourette and with each member of the Subcommittee to 
accomplish our ambitious agenda for the 110th Congress.
    Before we begin today's hearing, let me speak briefly about 
that agenda.
    Our Subcommittee will balance oversight of the Coast Guard 
with our effort to support and strengthen our national maritime 
industry, and to ensure that maritime transportation is more 
closely integrated into what must be a truly multimodal 
transportation network in this Country.
    The Coast Guard is a critical part of our homeland security 
system and, as was demonstrated by the terrible aftermath of 
Hurricane Katrina, a critical part of our Nation's emergency 
response capability. I intend to be an advocate for the service 
and for all of the men and women who are putting their lives on 
the line everyday in defense of our great Nation.
    Our Subcommittee will ensure that the Coast Guard is an 
effective steward of taxpayers' resources. And we begin that 
effort with today's hearing on the troubled deepwater 
procurement.
    Importantly, however, we will also closely examine whether 
the Coast Guard has adequate resources to enable it to 
implement its significant homeland security responsibilities 
while also fulfilling its other critical missions, including 
drug interdiction, search and rescue, and maritime safety 
oversight.
    I appreciate the leadership of Commandant Allen and his 
dedication to the effectiveness and excellence, and I look 
forward to working closely with him.
    Since assuming the chairmanship of this Subcommittee, I 
have had many invaluable opportunities to meet with many 
different members of the maritime community to begin 
discussions with them about the issues they face, including 
security concerns, the maritime security program, short sea 
shipping, and the Jones Act. I appreciate the welcome I have 
received from the maritime community and our Subcommittee looks 
forward to working closely with labor, management, and all 
actors in the community to craft practical solutions to our 
shared challenges.
    To that end, we will also work to foster pragmatic dialog 
between the members of the commercial maritime community and 
the United States Coast Guard to ensure that each group 
understands what the other needs to succeed in what should be 
their complementary pursuits.
    The security of U.S. ports and the cargo transported 
through them will be a major priority for this Subcommittee. 
The House of Representatives has already passed H.R. 1, which 
not only implemented the recommendations of the 9/11 
Commission, but exceeded these recommendations by phasing in 
requirements that will lead to the scanning of all cargo bound 
for United States ports. The Subcommittee on Coast Guard and 
Maritime Transportation will work closely with the Committee on 
Homeland Security, ably led by Chairman Bennie Thompson, to 
examine the gaps that remain in port security and to fill these 
gaps in ways that will protect our Nation from emerging threats 
while not unduly slowing the flow of commerce through our 
ports.
    Obviously, this is an ambitious agenda, and we begin today 
with a hearing on the Coast Guards Deepwater procurement 
program.
    Deepwater is a program of procurements projected to cost 
$24 billion dollars and currently expected to take 25 years to 
complete. The procurements encompass the rehabilitation or new 
construction of 91 cutters, 124 small craft, surface craft, and 
244 new or converted aircraft, including both helicopters and 
fixed-wing airplanes.
    This is the most complex procurement the Coast Guard has 
ever undertaken, and it is made even more complex by the Coast 
Guard's decision to employ a private sector systems integrated 
team comprised of Lockheed Martin and Northrop Grumman, rather 
than fulfilling that function with its own personnel.
    Obviously, the Deepwater procurement process has had 
significant and highly publicized problems, including a failed 
effort to rehabilitate and modernize eight 110-foot legacy 
cutters and problems with the initial design of the fast 
response cutter that required the design process to be halted.
    The seriousness of the concerns about Deepwater have, 
however, now been raised to a whole new level. The Department 
of Homeland Security's Office of Inspector General has issued a 
report criticizing almost every aspect of the procurement of 
the National Security Cutter, the most expensive asset to be 
acquired under the Deepwater program. The IG found that the NSC 
will likely not meet the performance standards specified by the 
Deepwater contract because its construction was guided by a 
flawed design. The IG indicates that the senior leadership of 
the Coast Guard and of the Integrated Coast Guard Systems team 
was warned about the design flaws by numerous studies, 
including studies by the Coast Guard and the United States 
Navy, yet refused to make design corrections or to slow the 
development of the cutter to respond to these concerns.
    In other words, DHS's IG's report would suggest that the 
Coast Guard and its contractors have knowingly and willfully 
spent close to $1 billion, a figure that is likely to rise, to 
build a flawed ship, and that as a result of this decision the 
United States taxpayer is likely to now have to pay for repairs 
on brand new vessels which may nonetheless still not serve 
their full anticipated service life.
    The IG is unequivocal in stating that the design failures 
plaguing the NSC occurred specifically because the Coast Guard 
yielded too much authority for the NSC program to the 
integrated team. Further, the IG claims that the Coast Guard 
was resistant to its investigation and that it has failed to 
properly document the decisions taken during the development of 
the NSC.
    This is one of the most troubling Inspector General reports 
I have read during my 11 year tenure as a member of the 
Congress of the United States.
    The purpose of our hearing today is to understand the 
nature and the causes of the problems that have been 
encountered in the Deepwater procurement program, and to hear 
from the Coast Guard and from the two firms serving as systems 
integrated--Northrop Grumman and Lockheed Martin--the specific 
steps that each party will be taking to correct this 
procurement process.
    The DHS's IG's report, coupled with the previous failure of 
the 120-foot patrol boat, calls into serious question whether 
we can trust the Coast Guard and its contractors to take the 
steps necessary to produce reliable assets that meet all 
quality standards.
    Be sure that our Subcommittee will require accountability 
of the Coast Guard and of Northrop Grumman and Lockheed Martin. 
Our Subcommittee will not allow taxpayer money to continue to 
be wasted on failing projects.
    I have read the testimony that our witnesses have provided. 
I appreciate the detail of some of the testimony and hope that 
our witnesses will use this opportunity to begin to respond to 
the findings of the Homeland Security Department Inspector 
General's report.
    If the IG's findings are accurate, they demand that 
fundamental changes be implemented in the Deepwater 
procurement. In particular, they suggest that the Coast Guard 
must quickly move to hold the contractors implementing 
Deepwater to a higher technical standard.
    I look forward to hearing from each of today's witnesses 
the specific corrective actions that will be taken going 
forward to establish systems capable of producing effective 
designs and managing reliable production processes for every 
asset to be rehabilitated or constructed through Deepwater.
    As I previously said to Admiral Allen, it is also 
particularly important that the Coast Guard demonstrate it is 
capable of exercising effective control over Deepwater. 
Ultimate responsibility of this procurement, and for the 
procurement model under implementation, rests with the Coast 
Guard, and I look forward to hearing how the Coast Guard will 
meet this awesome responsibility.
    And to the members of the Committee, I have also talked to 
the Commandant and made it clear to him, and we have agreed, 
that he will come before us again in 120 days so that we can 
review the progress that he will testify to today.
    And with that I yield to my distinguished good friend, the 
Ranking Member, Congressman LaTourette, for his opening 
statement.
    Mr. LaTourette. Mr. Chairman, thank you very much and, 
first of all, I want to congratulate you on being named as the 
chairman of this important Subcommittee, and we look very much 
forward to working with you and the majority members in the 
110th Congress.
    From our side, I would say that on the Republican side of 
the ball on this Subcommittee, although this is a new posting 
for me, we have a wealth of talent in that former chairman of 
the full committee, Mr. Young, is a member; the former past 
chairman of this Subcommittee for six years, Mr. LoBiondo, is a 
member; in a previous Congress, the chairman of the Coast Guard 
Maritime Committee, before it merged with the Transportation 
and Infrastructure Committee, Mr. Coble, is a member; and we 
also want to welcome Mr. Poe, as well.
    As I indicated, Chairman Cummings, we look forward to 
working with you to assist the Coast Guard to maintain the 
resources and authorities necessary to support all of the 
service's traditional and maritime security missions. One of 
the most important responsibilities of this Subcommittee is to 
carry out meaningful oversight over all facets of the Coast 
Guard and the maritime transportation system.
    There is no more important issue facing the Coast Guard now 
than the delays and setbacks that are jeopardizing the success 
of the Integrated Deepwater System program. Deepwater was 
originally designed to provide the Coast Guard with a system of 
systems that would be composed of an optimal mix of assets 
designed to accomplish all of the Coast Guard's offshore 
missions. The plan called for the near complete replacement of 
the Coast Guard's legacy fleet with an integrated fleet of new 
cutters, small boats, and aircraft that would be equipped with 
enhanced capabilities.
    We are now five years in to the original Deepwater 
contract, and we continue to hear about a stream of new and 
serious problems with several of the assets that were designed 
and are being constructed throughout the program. The Coast 
Guard, under the direction of this Subcommittee, has already 
halted the project to lengthen the 110-foot patrol boat class 
due to serious structural deficiencies in the new 123-foot 
patrol boat's design. As a result, the Coast Guard has 
suspended operations on the eight vessels that were converted.
    The loss of these eight vessels, combined with the ongoing 
deterioration of the legacy 110-foot class, is reducing the 
Coast Guard's readiness levels and could potentially prevent 
the Coast Guard from achieving mission success.
    Additionally, the Coast Guard has found problems with the 
design of the fast response cutter which will eventually 
replace the 110-foot patrol boat fleet. The Coast Guard is now 
in the process of searching for another design that can be 
quickly constructed to supplement the existing 110s while the 
FRC design is modified. The 110s are the workhorses of the 
Coast Guard. We must replace these vessels as quickly as 
possible, while making sure that the legacy vessels remain safe 
and fully capable until the replacement vessels are available.
    Just yesterday, as Chairman Cummings indicated, the 
Inspector General of the Department of Homeland Security 
released a troubling report on the development of the National 
Security Cutter under Deepwater. The report states that the NSC 
as currently designed will not meet the performance 
specifications that were proscribed by the Coast Guard in the 
original Deepwater contract. The report notes that the Coast 
Guard is not in agreement with several of the report's 
findings, and I hope that at today's hearing we will hear more 
about the problems that the Coast Guard has encountered with 
this asset and others, and what corrections and adjustments the 
Coast Guard intends to take.
    I am extremely concerned by the report's conclusions that 
Deepwater assets do not meet the Coast Guard's required 
standards; even more concerned that the Coast Guard seems to be 
lowering its standards to accept these assets, rather than 
demanding that the program's integrator produce assets at the 
level that are called for in the original contract.
    At the same time, I understand that the Coast Guard needs 
to have some degree of flexibility regarding the replacement 
vessel for the 110-foot patrol boat, and I encourage the Coast 
Guard and the program integrator to design and acquire a cost-
effective patrol boat as soon as possible. The loss of more 
than 50 mission days a year is clearly unacceptable.
    The Deepwater program and the assets that will be required 
under Deepwater are critical to the Coast Guard future mission 
success. The Coast Guard must take a more active supervisory 
role in the review of asset design and construction, and the 
award of contracts and subcontracts to prevent the occurrence 
of even more delays and problems in the future.
    We are at a critical junction if the Deepwater program is 
to succeed. I hope that this and successive hearings will help 
all parties get this program back on track. The men and women 
of the Coast Guard carry out brave and selfless service to our 
Nation each and every day. In my home State of Ohio, the Coast 
Guard safeguards the lives of merchant mariners and 
recreational boaters, maintains safe and efficient maritime 
commerce on our lakes and rivers, and secures our ports and 
shore side facilities from maritime attack. We need to make 
sure that the Deepwater program is carried out in a way that 
the best, most capable equipment are acquired to allow these 
Coast Guardsmen to carry out their important missions.
    I want to thank the witnesses for appearing this morning. I 
look forward to their testimony.
    And I thank you, Mr. Chairman, for yielding.
    Mr. Cummings. I want to thank you, Mr. LaTourette.
    I yield now to the gentleman from Mississippi, Mr. Taylor.
    Mr. Taylor. Thank you, Mr. Chairman.
    Commandant, thank you for being here. Commandant, let me 
begin by again thanking you and all the men and women of the 
Coast Guard for the great job you did during and after 
Hurricane Katrina. Obviously, a number of us have some serious 
problems with this program, with the 110-foot program, on the 
other side with the LCS program, and it does seem to be a 
problem that has spread throughout the industry that we need to 
get a handle on.
    I am often hearing that people, off-the-cuff, say, well, 
this is a first of a fleet problem and, therefore, you can 
expect it. Maybe if you are going to build 50 ships of one 
kind, like we did with the DDG-51s. But when you all are 
building eight and your first two have serious flaws, something 
is wrong. And all of the formulas that I am looking at, and all 
the formulas that Congress has presented, both from the Coast 
Guard and from the Navy, the only way we get to the number of 
ships that we need is for that ship to be functional and fully 
capable for 30 years for the life of that ship.
    So I guess I am troubled more than most when I see reports 
that within, the Coast Guard organization, they were telling us 
early on that these ships were not going to last for 30 years, 
that possibly within 3 years we would have serious structural 
problems and that the Coast Guard, in effect, moved the goal 
post from 230 days of patrolling a year down to 180.
    Now, I would hope that you would come to this Committee 
with some solutions. And I would hope that one of the things we 
will look at is some form of unified shipbuilding command 
utilizing the expertise of the Navy, so that we are not 
duplicating it within the Department of Homeland Security and 
the Department of Defense, and, above all, I am seeing the same 
thing with LCS. There is a quote in here where someone says 
that self-certification is in effect no certification. I 
believe that to be true. The programs we are counting on the 
contractors to self-certify have let us down now on the 110, on 
this program, on the LCS, and we have got to fix that. So I 
want to hear what you have to say on this.
    But, again, thank you for what you did in Hurricane 
Katrina, what all the Coast Guardsmen did. But like everyone 
else on this panel, we hate to see money wasted. We hate to see 
resources that ought to be in the inventory tied up at the 
dock, as in the case of the 110s. And we want to work with you 
to find some solutions on that.
    Thank you very much, Mr. Chairman.
    Mr. Cummings. Thank you very much, Mr. Taylor.
    I am very pleased that the Ranking Member of the 
Transportation Committee is with us. I now yield to Mr. Mica. 
And thank you very much for being with us.
    Mr. Mica. Well, thank you. I am pleased to join you today. 
And congratulations to you Mr. Cummings. You and I have worked 
as chair and ranking member before and had great cooperation. 
He has done some incredible things to represent his area, 
Baltimore, and I have been up there with him; put tremendous 
personal effort into the well being of the citizens of that 
community, and I look forward to working with you now as I take 
over the Republican side of the Committee.
    And congratulations to Mr. LaTourette. I don't think he 
could have a better colleague take the helm of a very critical 
assignment, and some of that we are going to hear about today. 
But Steve LaTourette is undoubtedly one of the most qualified 
members of our side of the aisle and I asked him to take on 
this responsibility.
    I didn't realize some of the trouble that we have had with 
some of these programs dealing with the Coast Guard. The first 
thing I learned, the Deepwater program, the Coast Guard's 
program to recapitalize its aging fleet of vessels, aircraft 
and support systems, was actually in deep trouble, and there 
has been a number of hearings, I understand eight over the past 
three years, and I am sure Mr. LaTourette and the Chairman of 
the Subcommittee will continue their work to make certain that 
we get these programs back on track.
    First, I also want to join others in expressing my support 
for the men and women of the Coast Guard. They do an incredible 
job; first line of defense and guardian of the seas. I think 
everybody was so proud of the work they did--again I have to 
repeat it--with Katrina, just an incredible record of success 
and effort. We thank you for that.
    I am concerned about some of the things I have heard just 
in the past few weeks, taking over, again, the Republican side 
of the Transportation Committee. We had the deaths of two 
divers aboard the polar icebreaker HEALY. The Admiral has 
reported to me on that. Of course, I was unfortunate to have 
the family of one of those lost, a young lady in service to the 
Coast Guard, from my district. We need to make certain that we 
have in place measures to ensure that that will never happen 
again, and I have been assured that, and I know that Admiral 
Allen will take care to make certain that, again, those errors 
are not repeated.
    New Coast Guard assets, however, must be equipped with 
systems and capabilities to carry out all of the Coast Guard's 
important missions. The success of Deepwater is absolutely 
critical, and I am supportive of the program, but I am 
concerned about the failure that I too learned of the 110-foot 
patrol boat conversion project and the strain that it is 
putting on asset capabilities in my own home State of Florida. 
I was briefed there are some eight vessels I guess sidelined. 
These are workhorses of our fleet and it has decreased our 
capability to deal with critical missions. The loss of these 
vessels diminishes the force projection capabilities in Florida 
and also jeopardizes the Coast Guard missions to interdict both 
illegal narcotics and undocumented illegals before they reach 
the United States.
    I am also especially concerned about how a forced reduction 
would impact the Coast Guard's capability to handle mass 
migration or disruption. We anticipate the death of the Cuban 
dictator and other events that may proceed. I have discussed 
this with Admiral Allen. Tomorrow I will do a closed door 
briefing with the Admiral, a closed door briefing with members 
of the Florida delegation, invite members of this Subcommittee 
to participate so that we can hear your plans in case we do get 
slammed or hit by, again, the disruption from the impending 
death of the Cuban dictator.
    So for the reasons I have stated, I continue to be 
supportive of this Subcommittee's work, will do anything I can 
to work with the Chair, the Ranking Member, and all members of 
the Subcommittee and Committee to make certain that we have the 
best Coast Guard, they have the best equipment, and we are able 
to complete any mission or challenge. And with that, I thank 
you and yield back.
    Mr. Cummings. Mr. Mica, thank you.
    Mr. Larsen.
    Mr. Larsen. Thank you, Mr. Chairman.
    As part of the Deepwater program, three Coast Guard H-65 
helicopters located in the Pacific Northwest have undergone 
successful engine overhauls. Five more in the Pacific Northwest 
will undergo the same overhaul. One of these overhauled 
helicopters participated in the successful rescue on the 
Olympic peninsula that would not have been possible without 
that Deepwater investment.
    Unfortunately, these kinds of success stories in the 
Deepwater program seem to be too few and too far between, 
subsumed by the tidal wave of bad news coming out of the 
program itself. Problems with procurement, contract management 
and oversight lead to cost overruns, lead to structural 
deficiencies in maritime assets and, therefore, warranted 
attention. To many, the Deepwater program seems to be, well, in 
deep water. For the sake of taxpayers, we must get to the 
bottom of these troubles. The Deepwater program is our 
Country's first line of defense to securing our shores.
    I hope to get out of this hearing today an understanding of 
how the Coast Guard intends to fix the problems with Deepwater. 
Our intent is to ask tough questions and get candid answers. I 
have serious concerns over the ballooning price tag of 
implementing Deepwater and expect answers as to how the Coast 
Guard plans to control these costs. I also expect an answer as 
to why the first two of eight National Security Cutters were 
built after the Coast Guard's chief engineer found the 
structural design to have significant flaws.
    I look forward to taking a closer look at Deepwater and how 
to fix its problems. We in Congress owe it to those who elected 
us to ensure their money is being spent wisely and that this 
important program is implemented effectively, and the Coast 
Guard can expect our help in ensuring that that does happen.
    So I look forward to today's testimony Mr. Chairman. Thank 
you for my time, and I yield back.
    Mr. Cummings. Thank you very much.
    Mr. Coble.
    Mr. Coble. Thank you, Mr. Chairman. Mr. Chairman, I too 
want to congratulate you and the distinguished gentleman from 
Ohio as you all lead this very important Subcommittee.
    Admiral Allen, good to have you back on the Hill.
    Some of my congressional colleagues, Mr. Chairman, call me 
one of the vocal cheerleaders of the Coast Guard. I may not be 
a head cheerleader, but I remain on the cheerleading squad.
    I am very high on the Coast Guard and I am very high on 
you, Admiral, personally. I think the Coast Guard is in good 
hands with you and your able staff at the helm. There are two 
sides to every story, and the issue before us is no exception. 
I look forward to hearing from you Admiral.
    And, Mr. Chairman, you may have mentioned this in your 
opening statement, but I assume that we will hear from the IG 
at some appropriate time?
    Mr. Cummings. Yes. We wanted to have the IG here today, but 
there were some conflicts. So, yes, we will have the IG here 
hopefully within the next few weeks.
    Mr. Coble. I thank you.
    In closing, I will reiterate what has been said by others. 
Naturally, we are concerned if there has been recklessness, for 
want of a better word, regarding the expenditure. I am sure we 
will get to the bottom of that. But I repeat, Admiral, I 
appreciate very much what you and the men and women of the 
Coast Guard do, and I will continue to be a cheerleader.
    And with that, Mr. Chairman, I yield back.
    Mr. Cummings. Thank you very much.
    Mr. Baird.
    Mr. Baird. I have a number of questions. In case I don't 
get to them, let me just put the marker down that I am 
interested in what the Coast Guard plans to do, in the interim, 
to fill the gap that is going to be created by the problems 
with the 123s, and, also, I have sort of a core question of are 
the same people who presided over the errors that we are going 
to be learning about today those who are going to be making the 
decisions about how to fill the replacements? Because I have 
grave concerns about their competence and reasoning to do so. 
And I am sorry to say that, but I think the evidence may 
suggest that if the same people are going to fix the problem 
that created the problem, we ought to look at an alternative.
    I yield back.
    Mr. Cummings. I am very pleased to yield to the former 
chairman of this Subcommittee, Mr. LoBiondo.
    Mr. LoBiondo. Thank you, Mr. Chairman. Congratulations to 
you. I am looking forward to the hearing.
    I want to echo Mr. Taylor's comments. I don't know how to 
begin to express how troubled and disappointed I am with all 
the news that is coming out, where we have repeatedly been 
assured that the worst is behind us, and it seems like it just 
doesn't end. So, Admiral Allen, you have a big challenge, and I 
look forward to hearing your testimony.
    Mr. Cummings. Thank you very much.
    Mr. Higgins? I am sorry, Mr. Bishop.
    Mr. Bishop. Thank you, Mr. Chairman.
    I too will probably not be here to ask questions, but I, 
like I am sure all of my colleagues on this panel, are deeply, 
deeply concerned about how Deepwater has evolved thus far, and 
I guess I would ask that we be assured or that you provide us 
with some degree of confidence that the process that led us to 
this point is a process that will not be carried forward from 
this point on. I mean, when I look and recognize that we have 
spent over $100 million and all we really have to show for it, 
if I understand it correctly, are eight boats that we can no 
longer use and a design for a patrol boat that is unworkable, 
and then when I think about what that $100 million could be 
used for elsewhere in this Country--how many kids we can help 
get a college degree, how many units of housing we could build, 
how many seniors we could assist--it is just simply 
unacceptable.
    So I very much hope--and I live in a coastal region and the 
Coast Guard in our region is magnificent. I have nothing but 
the highest regard for the service that the Coast Guard 
provides to boaters in our region. But I very much hope that 
the excellence that they demonstrate in how they perform their 
daily responsibilities will also manifest itself in how we move 
forward with this Deepwater project.
    Thank you, Mr. Chairman. I yield back.
    Mr. Cummings. I want to thank you very much, Mr. Bishop.
    Now, Mr. Poe.
    Mr. Poe. Mr. Chairman, thank you very much, and 
congratulations again.
    I represent Southeast Texas, and the Sabine Neches Riverway 
is the primary source of commerce. As you know, the Port of 
Beaumont ships about one-third of the military cargo that goes 
to Iraq and Afghanistan out of that little bitty port, number 
one port of deployment in the United States for that military 
cargo. Of course, we had a hurricane that most Americans have 
forgotten about, Hurricane Rita. Came right up to Sabine Neches 
Riverway, wiped out one town; Sabine Pass doesn't exist 
anymore. And certainly concerned about the widening and 
deepening of that channel. Patrolled by the Coast Guard; they 
do an excellent job.
    One concern on a different note that we will talk about 
eventually is the numbers of people in the Coast Guard, because 
half the Coast Guard that is assigned to that area are 
reservists on active duty, have been on active duty for a long 
time, and they are from all over the Country; they are even 
from Minnesota. So when we get through the communication 
problem with those folks, they do an excellent job
    But I am concerned about all the things that have been 
mentioned by all the other Committee members and look forward 
to the testimony. But I do want to publicly thank the Coast 
Guard for the excellent work they do under all the hardship 
circumstances that they have down there in Southeast Texas.
    And thank you, Mr. Chairman.
    Mr. Cummings. I want to thank you, Mr. Poe.
    Now we will turn to Admiral Allen.
    And, Admiral Allen, I just want to make it very clear that 
I said to our Committee yesterday in an organizational meeting 
that we want to act in a bipartisan manner. I think that you 
have heard basically a common theme, and that is, one, we want 
to trust and we want to make sure that the Coast Guard, and 
anybody or any organization doing anything for the Government 
of the United States of America, that those dollars are spent 
effectively and efficiently.
    I will tell you, in my little brief introduction of you, 
that I have the utmost confidence in you and the Coast Guard. I 
saw you--the first time I met you was down in Katrina, and I 
admire you for what you have done. As to the men and the women 
of the Coast Guard, you know, this Committee thanks every one 
of them, because I know, I have seen what they do with regard 
to drug interdiction, putting their lives on the line everyday. 
I have seen many of the wonderful things they have 
accomplished.
    And basically what we are getting to here, and the reason 
why I am saying this is because I am trying to make sure you 
tell us what we are trying to get to. We want to make sure that 
when they go out to sea and do the jobs that we expect them to 
do, particularly in this post-9/11 era, that they have the very 
best equipment that we can find. And that is what is important 
to us. And I know that in my conversations with you--and thank 
you very much for our several conversations, and you have made 
it clear that you are a no nonsense person. I know that you 
are. So now we want to hear solutions; where we go, how were 
the mistakes made before and how do we correct those so that 
they don't happen again.
    But I say this last but not least, that the Coast Guard 
can't wait for the best equipment and the American people can't 
wait. So we want to see if we can get solutions, move this 
process along, and demand accountability and trust.
    Before I go to you, I am so pleased to have the Chairman of 
our Committee to come by, Jim Oberstar. Many of us call him the 
guru of transportation, and I have given him another name, the 
guru of the Coast Guard. And he has just been just a tremendous 
chairman. I am so glad that you had a moment to stop by. Thank 
you, Mr. Chairman. I now yield to you.
    Mr. Oberstar. Thank you very much. I will take only a 
moment.
    Congratulations, Mr. Cummings, on assuming the chairmanship 
of the Coast Guard Subcommittee. You have had a long 
relationship with the Coast Guard through the Port of Baltimore 
and your vigilance over the Chesapeake Bay is a long 
appreciation by your constituents, as I have seen from our 
visits there.
    I want to welcome Mr. LaTourette, who previously chaired 
the Railroad Subcommittee and did a splendid job there on 
behalf of rail passengers and freight rail interests and rail 
safety. I welcome you to a new assignment, that of the Coast 
Guard.
    Admiral Allen, welcome. You have, as you proved during 
Katrina, been a stand-up Admiral, a stand-up public servant. 
You were sent into an extraordinarily difficult situation and 
handled it with great skill and reflected great credit on the 
Coast Guard, on yourself, and on the Executive Branch of 
Government at a time when people were despairing that any help 
would be forthcoming. And you took personal charge of the live 
fire issue on the Great Lakes; sent Admiral Crawley out to 
undertake hearings which he conducted himself in each of the 
locations where the live fire exercise was scheduled, and he 
suspended those activities.
    Time and again, my appreciation of the Coast Guard, as 
Chairman Cummings said, is unbounded. But the Deepwater program 
is a black moment for the Coast Guard. It is a dark chapter in 
an otherwise brilliant service to the public. But it is not 
unprecedented. The FAA was in the same situation in the 1980's, 
as the Federal Aviation Administration was moving to vast 
modernization of the air traffic control system and engaged in 
contracts with private sector and design, engineering, and 
deployment of air traffic control technologies that were way 
beyond the state of the art.
    And what we found was that the FAA did not understand how 
to manage multibillion dollar contracts. We couldn't tell where 
the FAA left off and the contractor began, and vice versa. The 
FAA was self-certifying. That is not acceptable. The Coast 
Guard was allowing the industry to self-certify. That is not 
acceptable. And I think you understand that.
    And I appreciate this very thick document, which I read 
over the weekend. It is the work of the Inspector General of 
the Department of Homeland Security. I think, as Chairman 
Cummings said, we want to hear where the Coast Guard is headed 
now. And I think I understand the problems, how it got out of 
hand, but I want to hear from you how you plan to address it.
    As in the case of the FAA, when Mr. Hinson became 
administrator of FAA and brought in the GSA to review their 
contractual situation, brought in Navy contractors, that is, 
Navy contract supervisors for the Department of the Navy, who 
were overseeing multibillion dollar contractors, what they 
found was that if FAA had simply followed the rules of 
procurement of GSA, not the new rules that they were looking 
for, they would have saved money, they would have produced a 
better product, they would have done it close to time. And I 
think we will find that is the same situation with the Coast 
Guard.
    So let us proceed Mr. Chairman.
    Welcome, again, Admiral Allen. I thank all of our members 
for being here.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Admiral Allen.

 TESTIMONY OF ADMIRAL THAD W. ALLEN, COMMANDANT, UNITED STATES 
                          COAST GUARD

    Admiral Allen. Thank you, sir. It is a pleasure to be here 
today Mr. Chairman, Mr. LaTourette, Ranking Member. Chairman 
Oberstar, it is always a pleasure. And the members of the 
Committee. I thank you for your past leadership, our 
collaboration, and your support here today, and your very valid 
questions regarding what is going on in Deepwater with the 
Coast Guard.
    I think, quite clearly, we have all demonstrated, in the 
comments made previously and in mine here, that Deepwater is 
critically important to the Coast Guard in sustaining future 
readiness to put the right tools in the hands of our people, as 
has been stated. I have no higher purpose, as the Commandant, 
than to put those tools into the hands of our people and to do 
it efficiently, effectively, and mindful of the stewardship 
responsibilities we have.
    Deepwater is essential to the Coast Guard's future. In many 
ways it is the Coast Guard's future. We have to get it right. 
And getting it right means several things, and what I would 
like to talk about is three major topics. Then I would like to 
go to the specific platforms and answer any questions you may 
have about that.
    Mr. Chairman, I have a statement for the record. I would 
like to submit that and then open with an oral statement. Thank 
you.
    Mr. Cummings. With no objection, it will be submitted. 
Thanks.
    Admiral Allen. First, internally, the Coast Guard must 
create the right organizational structure. And beyond 
organizational structure, we must create the right culture to 
reconcile competing interests that are in the best interests of 
the Coast Guard and the Nation. We are doing that. We have been 
doing that since last year.
    Formerly as Chief of Staff, and now as the Commandant, I 
directed a series of top-to-bottom studies. One of those 
studies will create a single acquisition organization to 
improve the management of human capital, professionalize 
program management, and align us with the new service-wide 
mission service organization. What this will do, it will take 
the technical authority that is providing oversight regarding 
standards, the program management of the acquisition, and put 
them to work for the same Admiral so adjudication of conflict 
will be less of a problem or will be no problem at all.
    I have also clarified and strengthened the role of the 
Assistant Commandant for Engineering and Logistics, and you 
will commonly see that person referred to in the report as the 
technical authority. I clearly designated the Assistant 
Commandant for Engineering and Logistics as the technical 
authority several months ago and, after consultant with the IG, 
I have just issued a directive which states the technical 
authority is--and this is a quote from the directive--``the 
authority responsibility and accountability to establish, 
monitor, and approve technical standards, tools, and processes 
related to acquisition.'' There is no ambiguity about the 
technical authority in the Coast Guard, who it is, where the 
accountability resides, and what his tasking is.
    Second, we must collaborate effectively with our industry 
partners and, where appropriate, provide direction that 
preserves the Government's interests and the performance 
required of our cutters and planes. We are doing that as well.
    Since assuming my duties as Commandant, I have met or 
talked with both Mr. Stevens of Lockheed Martin and Mr. Sugar 
of Northrop Grumman on several occasions. We held a meeting on 
the 19th of January which was frank, open, and in many ways 
very insightful. We have put together a joint team that will 
provide recommendations to assure how we can best align and 
optimize the relationship in the next award time, and define 
those responsibilities of the Government and the contractor and 
where responsibility lies.
    Mr. Chairman, we understand the Coast Guard's role. I 
understand my responsibility and the terms of acquisition for 
the Coast Guard and where the Government's interest needs to be 
protected, and that resides with me, sir.
    Third, we must maintain cordial, productive relationships 
with oversight bodies. They have legitimate roles in this 
endeavor. We are doing that. And to the extent that we can 
provide, or improve on, guidance to our people, we will do that 
as well.
    This morning, the testimony that I submitted for the 
record, Mr. Chairman, was sent to every member of the Coast 
Guard, along with an email from me, and I will quote one 
paragraph from my all-hands message this morning. ``External 
scrutiny from the Inspector General and other overseers will 
raise questions on the Deepwater acquisition throughout its 
life. As public servants, we are not only subject to their 
oversight, but it is a central feature of the appropriations 
and authorization process. I welcome external review, as it 
enables us to improve our processes, become more effective 
stewards of taxpayer dollars, and better serve the American 
public.''
    I have made it unequivocal where we stand in regards to our 
dealings with the IG to my people in the Coast Guard. I have 
met with the Inspector General and the Deputy Secretary to talk 
about the issues contained in the report. And let me be clear 
here, because there are technical issues we will have to 
resolve. To the extent there is any ambiguity regarding our 
position on the NSC IG audit, let me clearly state here we 
concur and have implemented five of the six recommendations 
made. Regarding the sixth recommendation, we have deferred to 
the Department of Homeland Security to establish a policy 
regarding how the IG interacts with the various components.
    Now, having said that, there are technical issues related 
to how contracts are interpreted that we have to work out with 
the IG. I have committed to the Inspector General to issue a 
report within 90 days that lays out our plan to move ahead. We 
are both in agreement that the National Security Cutter must 
have a 30 year service life to best serve the men and women of 
the Coast Guard and carry out the missions to which we are 
assigned.
    As was noted by one of the members, Deepwater has provided 
new valuable capability of the Coast Guard in the form of new 
fixed wing aircraft, re-engined helicopters, and significant 
upgrades for our legacy cutters, one of which I rode over the 
holidays in Winward Pass. Our people are happy with the 
products. However, we acknowledge the issue with the NSC, the 
123 conversions and FRC.
    I am prepared to talk about each one of these, but I will 
wait for your questions to answer on the specific platforms. 
Thank you, sir.
    Mr. Cummings. Thank you very much. Let me start off where 
you left off when you were talking about the FRC, the Fast 
Response Cutter. Admiral, as you probably know, last year this 
Committee directed the Coast Guard to competitively compete the 
construction of that Fast Response Cutter among all United 
States shipyards. Are you willing to do that?
    Admiral Allen. Yes, sir. The acquisition is actually 
divided into two parts, a solicitation for a design and a 
construction of what we would call a parent craft, and then a 
communications integration piece that will allow it to be 
interoperable with the other assets that are out there. Those 
solicitations have been made through ICGS. There is complete 
open competition. It will be built in the United States and, 
when that contract is awarded, it will be openly competed.
    Mr. Cummings. Now, you know, I am sure you read the IG 
report, have you not?
    Admiral Allen. Yes, sir.
    Mr. Cummings. And you told us the things that you want to 
do to--and, by the way, we appreciate the fact that you have 
looked at that report and, of the six recommendations, you are 
going to, I think you said, carry through with five of them; 
Homeland Security will deal with the other one. But, you know, 
so that we don't go through this again, and as I have told you 
many times, one of the things we are most concerned about is 
trust and accountability. How do you explain the repeated 
failures in the procurement of ships under this program, the 
Deepwater program?
    Admiral Allen. I think you almost have to look at each 
individual platform, between the National Security Cutter, the 
123 conversion, and then the FRC. They happened at different 
stages of the life cycle of this procurement and some of these 
decisions that we are talking about were actually made two to 
three years ago. And while we in the Coast Guard had visibility 
of them and knew about such things as there was a fatigue life 
issue with the National Security Cutter, and while we briefed 
staff, I think very clearly there should have been a more 
specific focused communication to our overseers in Congress to 
make sure that you were absolutely aware of it, because it 
wasn't our intent to withhold the information.
    That said, I think, regarding the National Security Cutter, 
early issues within our technical community that normally would 
have been vetted at integrated product team meetings failed to 
resolve conflicting views and competing positions on the 
structural life of the ship. I think what bothered us at the 
time was we didn't have a way inside the Coast Guard to get 
that thing raised to the highest level and get a decision made 
and get on with it. Because of that there was a lot of study, 
discussion, let's check it one more time, and, quite frankly, 
there was some computer modeling that was not available when we 
built ships before that was done to help us in that decision 
making.
    By the time all that was in front of the decision makers in 
the Coast Guard, we were at a point in the National Security 
Cutter production where to stop production and redesign the 
ship at that point would have caused an irrecoverable loss in 
schedule and costs associated with that. And while it is not 
documented maybe as well as it should be on paper that is 
auditable by the IG, the decision of the Coast Guard leadership 
at that time was to deal with the structural problems moving 
forward and retrofit the first and second NSCs rather than to 
stop production, given the schedule and costs associated with 
that, sir.
    Mr. Cummings. Now, looking back at that decision, I mean, I 
know this is kind of Monday morning quarterbacking, but would 
you agree with that decision? That is, what you just said. 
Would you have agreed with the decision that they made with 
regard to the NSC?
    Admiral Allen. I think, quite clearly, it is arguable 
either way. Sitting where we were at, with a program of record, 
funding, and a workforce ready to start assembling the modules 
down at Pascagoula, with the long lead time materials already 
acquired and the detailed design done, that is a lot of work 
headed towards a ship that would have to be stopped and started 
again. I think, arguably, that is not a bad business decision 
to make.
    I will tell you this, though, and the IG would tell you 
too, that the business case is not apparent, is not analyzed, 
nor is it in writing where it is traceable or auditable, so 
there doesn't appear to be a basis on which the decision was 
made. Absent that, one could infer that the responsibility was 
abdicated to accept what the contractor provided. I think there 
was informed decision-making; I don't think it was well 
documented.
    Mr. Cummings. Now, with regard to the cutter, and you go 
back to the point--you made three points in your opening 
statement of things that you wanted to address a little 
differently. I am just wondering how do--if we reach an impasse 
like that again, how does--I guess it would have to come within 
your first two points. How does what you are trying to do now, 
how would that resolve that issue? Because, again, you are 
talking about time, you are talking about apparently opinions 
that differ, and you are talking about vessels that don't do 
what we expect them to do.
    Admiral Allen. Yes, sir.
    Mr. Cummings. That is a big problem.
    Admiral Allen. In our attempt to put management focus on 
the preparation of proposals for the Deepwater Project, we 
created a new organizational entity in the Coast Guard, the 
actual Deepwater Program Office itself, and put a flag officer 
in charge of it with an SES as the deputy. When we did that, we 
did that separate from our engineering technical staff, and 
then our operational people that owned the requirements for 
what we were trying to buy. Automatically, you have a triangle 
there, and when you have three different positions trying to 
adjudicate that, unless you have procedures and an 
organizational culture of collaboration to make that happen, it 
is not going to be easy to find a central point of consensus if 
there is a disagreement. We had some of those early on. One of 
them was about the fatigue life of the NSC.
    The organizational structure that I am putting in place in 
the Coast Guard, that will be in place in the next few months, 
will take the technical authority, the contracting organization 
and the program manager and put them in the same organization, 
working for the same Admiral who I can hold accountable for 
that performance. And, in fact, the guy who is going to do that 
is sitting right behind me, Rear Admiral Ron Rabago, who is a 
former Coast Guard CO at the yard and a former cutterman 
himself, naval engineer and sailor, sir.
    Mr. Cummings. Thank you very much.
    Mr. LaTourette.
    Mr. LaTourette. Thank you very much, Mr. Chairman.
    Admiral, the IG report has received wide circulation; it 
was delivered to the Hill on Friday and I was saddened to read 
about it in the newspaper over the weekend, before you had the 
opportunity to come here and address us. But I took from at 
least the published accounts and other things that perhaps the 
Coast Guard is not in agreement with some of the findings of 
the Inspector General, and I would like to focus first on the 
National Security Cutter and ask you a few questions that were 
referenced, again, in printed accounts and in the IG's report.
    Can you share with us what the original performance 
requirement regarding days of sea and days underway was for the 
National Security Cutter?
    Admiral Allen. Yes, sir. I think this is the pivotal issue 
between the Inspector General and the Coast Guard right now, 
because I think almost everything else is resolvable. And this 
is something we are just going to have to make sure we have an 
agreement on and come back to you all and tell you this. This 
is the nub of the issue.
    Our current policy for deploying cutters limits them to 185 
days away from home port. We don't do that because the ship 
can't do it, we do that because it is not fair to our people or 
the perstempo, if you will, for the same reasons there are 
deployment limits on forces overseas in Iraq.
    Under the Deepwater concept, we intend to use four crews 
for three vessels and multicrew the vessels. That will allow us 
to achieve 230 days away from home port.
    Now, there is a difference between days away from home port 
and usable days at sea, if you will, and let me explain that, 
if I could. Even under 185 day limit that we have right now, if 
you consider a boat leaving Alameda or Seattle and we have to 
transit to the Bering Sea or the middle of the Pacific, you may 
end up using considerable days in transit. So when you actually 
get out to the operating environment, you may yield only 130 or 
140 days a year, including port calls and where you might have 
to go for maintenance.
    So our intent was, in establishing 230 days away from home 
port as a standard, that we would yield between 170 or 180 
days. Now, what we are dealing with the IG about currently is 
whether or not the standard is should the ship be designed to 
be in the operating environment for 230 days, subjected to wave 
stress, and so forth, or should it be designed to operate 
between 170 and 180 days in those operating environments, which 
is where we think it will be in terms of how much you 
strengthen the vessel.
    And, as you know, there are no shock absorbers on ships; 
they have natural flex and you have to build in the resistance 
to flexing and bending in the service life of the ship to be 
able to withstand it, and you are actually building in shock 
absorbers for the cutter. We are basing that on 170 to 180 day 
standard. The IG would assert the contract says 230 days. It is 
an issue of contract interpretation. We believe the contract 
clearly states 230 days away from home port, 170 to 180 mission 
days.
    We get into semantical loops around underway, days away 
from home port. This needs to be clarified completely and 
reported back to everybody, sir.
    Mr. LaTourette. Well, Admiral, then, are you representing 
to the Subcommittee that the NSC is currently designed, or with 
the modifications that the Coast Guard has proposed, meets the 
specifications in the Deepwater contract?
    Admiral Allen. Our position is to meet the specification of 
the Deepwater contract for the 30 year service life, the ships 
could presume to be operating between 170 and 180 days in the 
mission area, and that is defined as whether you are out in the 
Pacific or the Atlantic. That produces a certain amount of 
historical wave action and stresses on the ship that can be 
modeled by a computer. The difference is do you model 30 years 
at 170 or 180 days, or 30 years at 230 days, and that takes a 
much strengthened and a much stiffer ship to be able to handle 
that, and a much more heavy and expensive ship. You are almost 
buying more performance than you need to accommodate transits 
and days away from home port.
    Mr. LaTourette. Another portion of the Inspector General's 
report that dealt with the National Security Cutter represents 
that as early as December 2002 there were technical experts 
within the Coast Guard that were raising concerns about the 
design of the NSC, and there was also a memo in March of 2004 
from the Assistant Commandant for Systems that urges the Coast 
Guard's Deepwater Program management delay the start of 
construction until some of those concerns could be resolved.
    As Chairman Cummings has sort of echoed in his opening 
remarks, I think we should look at how we are going to go 
forward, but in order to go forward, I think we do have to 
examine what has transpired. Can you share with us how the 
Coast Guard handled the concerns of the Assistant Commandant 
and, secondly, why the Coast Guard authorized construction on 
the NSC to begin before those technical concerns had been 
resolved?
    Admiral Allen. Let me preface my remarks by just stating 
that this was a decision that was made--some of these decisions 
were made two, three, and four years ago, and I am 
characterizing leadership at the time. I was there and heard 
some things, was privy to it, it may not be exact, but 
basically, as I stated to Chairman Cummings, the potential 
irrevocable loss of schedule days and costs associated with 
that at a certain point start to reach the cost of retrofitting 
when you are building the first hull in the class of a ship.
    The decision taken by Coast Guard management, whether you 
agree with it or not, the decision that was taken was that they 
would continue to take a look at the structural issues that 
were raised in the memo, and to the extent that retrofitting 
was needed, that would be done on the first and second hulls 
after delivery so as not to break production and incur costs 
and schedule delays there.
    I think the IG would tell you there should have been a 
business case analysis that traded those off so you knew what 
you were doing against the other. One of the problems w e have 
in dealing with the IG is that is not documented anywhere on 
paper that is traceable or auditable, and one of the things we 
have talked to the IG about going forward is creating better 
documentations of decisions, rationale for senior leaders, 
taking action, and then making that visible and transparent.
    Mr. LaTourette. And, Admiral, the last question that I 
would have for you on this subject is one of the selling points 
of having this integrated system and then having the 
integrators go out and look for the best product was that if 
the product didn't meet the specifications, didn't comply with 
the contracts, there was the ability to go back on the 
integrator. We now have two examples, one the conversion of the 
123-foot boats, and they are sitting, they are not usable based 
upon some structural deficiencies; and there is a $302 million 
request for equitable adjustment on the NSC.
    Can you tell us--again, I think almost every member of the 
Subcommittee talked about the need to watch the public purse. 
Can you tell us what action the Coast Guard is taking to recoup 
those wastes costs from the system integrator?
    Admiral Allen. I will do that. Let me again preface it with 
just a comment that this puts me in somewhat of a conflicted 
position, as I talked to the Chairman about. We are trying to 
produce vessels and put them in the hands of our people. That 
takes a certain amount of collaboration and getting on with 
business, if you will, and how you are going to solve problems. 
That becomes difficult to do if you think everything you lay on 
the table in a meeting may be subject to discovery in a 
potential lawsuit. And these are serious discussions that I 
need to have with the COs of both corporations going forward, 
and these are the kinds of discussions we are having.
    What I am choosing to do is making sure that we lock down 
requirements, we understand where we are going, especially with 
the NSC, the future of the 123s and the Fast Response Cutter; 
there will be a bridging hull for that. There will probably 
come a day when we need to adjudicate where responsibility lies 
for the value received by the Government. I am not sure there 
is enough information right now that would lead us to do that, 
but I can't let that stand in the way of making the decisions 
and building the cutters.
    I will tell you this, as I have told you before, I am 
accountable to make sure if there is value due to the 
Government that was not received, to act in the manner that 
preserves the Government's interest, and I will do that working 
with the other stakeholders.
    Mr. LaTourette. I appreciate that very much. As you know, 
the integrator recently received a 43 month contract extension 
for the work that they have done, and it is my understanding, 
on the scores that were assessed to determine how good a job 
they were doing, they ranged between 60 and 76 percent, which, 
from my perspective, is not so good. And I would just opine, 
unsolicited, that the integrator owes it to the American 
taxpayer to fulfill the contracts according to the 
specification. And as it was sold to the Congress that there 
was recourse, I would hope that that recourse would be taken 
swiftly in accordance with the other concerns that you have.
    Thank you, Chairman.
    Mr. Cummings. Thank you very much.
    Mr. Taylor.
    Mr. Taylor. Thank you, Mr. Chairman.
    Commandant, again, thank you for the great work the Coast 
Guard did after Katrina. And I have to say that because it 
leads into my disappointment in this program, in the 110 
program, and, conversely but not unrelated, to the LCS program, 
which is built by a lot of the same people. And I am seeing a 
pattern here.
    In the 110 program you have eight vessels that were fully 
capable before they went to the shipyard; now you have got 
eight pieces of junk sitting at the dock maybe good for a river 
patrol boat if we give it to Columbia or somebody, but that you 
can't take out to sea. Is that fairly accurate?
    Admiral Allen. We are under------
    Mr. Taylor. And no one is at fault. The shipyard says they 
didn't do it. Everyone says it is somebody else's problems. 
Well, the taxpayers are stuck with the bill and the Coast Guard 
got what were eight capable ships sitting at the dock that are 
useless.
    Then we have this. We have the Assistant Commandant saying, 
in 2002, that he had--a man who has got all sorts of masters 
degrees, a naval architect, naval engineer saying something is 
wrong here, we need to fix it before we build the ship, and 
apparently nobody is listening.
    In the case of the LCS we have got a ship that is 70 
percent complete but now at twice the original cost.
    So, again, the timing is not good for the Coast Guard, but 
two-thirds of those problems are in your shop. And in one case 
you have an insider, a highly capable insider of your 
organization saying we have got a problem, let's fix it now.
    Now, let's take it a step further. We are saying, well, we 
will fix it a little bit later. Well, my recollection is that 
you were going to retire 378s as each one of these comes 
online. So as we give that 378 away to a third world country or 
we scrap it, that capability is gone. You have now got to bring 
the first two cutters back in to get fixed. Well, you have just 
lost one-eighth of your capability every time you tap one of 
those ships.
    So why wasn't the decision made early on to listen to the 
Assistant Commandant and, secondly, to fix those things when we 
had the opportunity? Again, I thought I heard you say--and I am 
going to give you an opportunity to correct me, but I thought I 
heard you say, well, we really can live with the 180 days a 
year. With all due respect, if Hurricane Katrina taught us 
anything, it is we have got to prepare for the worst.
    And we really can't count on having all eight cutters. We 
could have a Cole-like incident where someone blows up one of 
the eight and you are counting on seven to do the work of 
eight. If you are tying up two, you are now counting on five to 
do the work of eight. I just don't buy that, Commandant. Good 
gosh, the one thing you beat into my head, or your predecessors 
beat into my head a long time ago, was prepare for the worst, 
and you are not doing that; you are sugar-coating it, and it 
troubles me. And I think we need to get this fixed right now.
    The second thing is we have some programmatic problems, 
both here and in the Navy, where apparently all sorts of money 
can get wasted, ships can get delayed, things can get screwed 
up and no one is responsible. So I am asking for your guidance. 
As the senior officer in the United States Coast Guard, what 
are your recommendations to fix that this doesn't continue?
    Admiral Allen. Yes, sir. As I indicated earlier, there is a 
structural and a cultural issue to this. The memo that was 
written and the information was passed in 2003 and 2004 went 
out of one Assistant Commandant's office into another. Under 
the new acquisition structure that is being provided right now, 
that technical authority, the contracting officer, and the 
program manager for the acquisition work for the same Admiral, 
accountable to me, and we will not have that happen again.
    I am explaining what happened two or three years ago and 
the implications of those decisions. Right or wrong, the 
decisions were taken and the window was closed. I control what 
I control now in the organization that I run, and I have made 
it pretty clear to the Committee how I am going to stand my 
watch, and the watch will be that we will resolve those issues 
at the lowest level possible. If they cannot be resolved, I 
expect them to walk in my door and tell me about it. That is 
part of the ethics and the ethos of the Coast Guard that people 
expect, and that is how I am going to run my outfit.
    Mr. Taylor. Commandant, the Assistant Commandant who waved 
the flags that something was wrong, where is he now, is he 
still on active duty?
    Admiral Allen. He is retired. He is Rear Admiral Errol 
Brown. In fact--I am sorry, he is recalled to active duty. He 
is leading the top-to-bottom review of the Coast Guard Academy 
that I convened.
    Mr. Taylor. If I may, he ought to be leading this program, 
with all due respect. Apparently he is the one who caught it; 
no one listened to him, and I, quite frankly, think you placed 
him in the wrong place over at the Academy.
    Admiral Allen. He retired. I brought him back for a special 
job. He is not in the Coast Guard any longer. He agreed to come 
back from retirement to do this special task force for me, to 
take a look at the Coast Guard Academy and issues up there.
    The engineers that are sitting behind me have been tasked 
to do the same type of thing that he did and that speak truth 
to power and walk in my door and tell me that, sir.
    Mr. Taylor. Who on active duty now would have gotten these 
memos and either ignored them or rejected them?
    Admiral Allen. The Chief of Engineering, the Program 
Executive Office, the Commandant and the Vice Commandant are 
all retired.
    Mr. Taylor. Thank you, Mr. Chairman.
    Mr. Cummings. Just before we go to Mr. Coble.
    Let me just ask you this, just following up on something 
Mr. Taylor said. Is it better to have greater strength than 
less strength as far as the ships are concerned?
    Admiral Allen. I would like to address that.
    Mr. Cummings. I know it is more expensive, but I think Mr. 
Taylor makes a very good point. I mean, we are post-9/11. We 
have got all kinds of problems. I am just wondering, when we 
see where we are now, would it have been better to have--would 
it be better to have greater strength and err on the side of 
strength, as opposed to not having the strength.
    Admiral Allen. I can't state strongly enough that this is 
not an issue of suboptimizing performance of this hull. It is 
understanding that we are going to increase the days away from 
home port to yield greater mission effectiveness in the 
operating areas where we operate. We do not get 180 days a year 
out of the cutters we have now; it is more down like around 130 
or 140. So there is a significant increase in capability. That 
is the reason we are only purchasing 8 rather than 12. But it 
is premised on the fact that we will multiple crew them and we 
will get 230 days away from home port out of every cutter. So 
the yield remains the same; we get better mission performance 
because they are more effective.
    Now, the loss--I think where Mr. Taylor was going, if they 
are laid up for retrofit afterwards, you are going to lose days 
there. The fact of the matter is the plan, as developed, when 
the decisions were made, were due to the retrofits as part of 
normally scheduled yard periods so there would not be a loss of 
days associated with the retrofits.
    Mr. Cummings. Mr. Coble.
    Mr. Coble. Thank you, Mr. Chairman.
    Admiral, as I said previously, good to have you back on the 
Hill. The gentleman from Ohio put his oars in waters that I was 
going to pursue, and that is the 110-foot cutters which were 
deemed not seaworthy, and then the composite patrol boat which 
failed tank and model tests. My question, Admiral, was going to 
be--and I think Mr. LaTourette addressed it--the possibility--
and this may be a premature question--the possibility of 
recouping some of those costs. If you think that is a viable 
course to pursue, I hope you will do it. You probably can't 
address that with certainty now, but I think it is a fair 
question, albeit a premature question.
    Admiral Allen. Well, I think it is premature for the 
National Security Cutter and the FRC. I think it is on point 
for the 123s, should we not return them to service, sir.
    Mr. Coble. Admiral, there is a gap between the number of 
patrol boat and marine patrol aircraft hours the Coast Guard 
needs to complete its mission and the number that will be 
actually available due to problems with integration. What will 
Deepwater do to address the patrol boat symbol for Nash 
aircraft hour gap, A, and what is being done in the interim to 
address these concerns?
    Admiral Allen. Well, let me give you a quick answer to the 
aircraft side, because I really would like to focus on the 
surface side, if I could, sir.
    We recently took delivery of our first new surveillance 
aircraft, CASA 235; arrived over the holidays, it is down in 
Elizabeth City. We have that production line up and running, 
and it is our goal to accelerate the delivery of those 
aircraft, because they are the replacements for our Falcons, as 
you know, and that will provide us the initial bridging into 
the maritime patrol aircraft hours gap.
    The more problematic gap was the one that existed for 
patrol boats, before we had the problem of laying up the eight 
123s. So we have a problem of trying to achieve the patrol boat 
gap, but we also have the problem of trying to mitigate the 
loss of the 123s. If I could, I would like to give you a couple 
of things that we are doing there.
    Mr. Coble. That would be fine.
    Admiral Allen. Tactically, in the near term, we are going 
to take the eight crews from the 123s that were laid up and we 
are going to double crew 110-foot cutters. That is a new 
operating concept of the future; we have done it with 179-foot 
patrol craft and we are doing it with other cutters. So we will 
recoup probably about 11,000 hours by double-crewing the 
existing 110s with the crews off the 123s and use their 
operating money to operate those ships longer.
    Near term, if there is an issue tactically with a mission 
surge or something like that, we have the capability to 
redirect our medium endurance cutters; we have coastal patrol 
boats. We actually have, from time to time, in special 
operations have used our large buoy tenders, and that is what 
we would intend to do.
    There is some good news here, though. The good news is that 
after discussions with my counterpart, Mike Mullen, Chief of 
Naval Operations, he has agreed to extend the loan of the WPC-
179s to the Coast Guard for five more years. They were 
scheduled to go out of the inventory in 2008, which would have 
exacerbated the capability shortfall. Based on our close 
relationship and his desire to help us in what is obviously a 
pretty tough time for us, we are going to enter into 
negotiations and redraft a memo of understanding to all us to 
keep those vessels, which I am eternally grateful to Mike 
Mullen for.
    In the meantime, we need to move at best speed to get a 
replacement FRC out there as soon as we can. As I said earlier, 
we are going to openly compete that hull, and we hope to have 
that thing on contract very shortly.
    Mr. Coble. Thank you, Admiral. I think I have time for one 
more question. You and I previously discussed Rescue 21 some 
months ago, Admiral, and you told me at that time you were 
working with General Dynamics to deploy the program, and I 
understand that it has been implemented in the east region of 
the Gulf Coast and around Seattle, and moving toward full rate 
production. How effective is the program?
    Admiral Allen. I would call the program stabilized, moving 
at a full rate production. We got passed on the technical 
issues related to software integrated; we have worked out most 
of the technical bugs, if you will. We are ready to roll. We 
need to get these systems out there because they bring great 
value to the Country. Right after we installed them in St. 
Pete, we had two spectacular saves there. They are up and 
operating in the Port Angeles and Puget Sound region now.
    The biggest concern I have--and I meet with the CEO of 
General Dynamics two or three times a year also, just as I am 
with the Deepwater CEOs--is the unpredictability of when you go 
in to put a tower up, environmental issues associated and just 
the physical difficulties of getting a tower in. The technology 
is there, we just need to produce it. We are moving as fast as 
we can. I believe this program is stabilized.
    Mr. Coble. Thank you, Admiral.
    I yield back, Mr. Chairman.
    Mr. Cummings. Thank you very much.
    As we go on to Mr. Oberstar, let me just ask you this. What 
is the--you know, I guess the NSCs cost what, about $450 
million?
    Admiral Allen. That is a very good question Mr. Chairman. 
Depending on the changes that are agreed upon for the 
structural issues, the full implementation of post-9/11 
changes. We still need to come to closure on and definitize 
some of the aspects of those changes. The original contract 
price was a little over--we started with a little over $200 
million. That has crept up because of 9/11 requirements, damage 
caused by Katrina. One of the things we owe you as soon as we 
get the final answer to the fatigue issue is to come back and 
finalize that estimate and give it to you, sir.
    Mr. Cummings. Well, what I was trying to get to, I was just 
thinking if we are spending $450 million or less on a vessel, 
do we have any kind of warranty? I mean, I am just curious. In 
other words, a warranty against cracks for, say, 30 years, is 
that something unreasonable? And I know you have said to Mr. 
LaTourette and to other members--because I am just trying to 
make sure we get to the bottom line here--that you have got 
your legal team looking at some things and you are concerned 
about litigation, and I understand all of that. But I guess I 
am trying to get to, I mean, if we buy a car, you usually get a 
warranty. Well, it seems to me that--I mean, is there anything 
that says, with regard to the integrated system, the team, do 
they say we guarantee that you are going to have 30 years 
without cracks?
    Admiral Allen. It is a layered system, sir, and what I 
would like to do, if I can answer for the record and give you a 
detailed explanation, because there are issues regarding system 
performance, in other words, what the entire system, once it is 
networked together, is supposed to be capable of. But as you 
produce each platform, there are specifications that that 
platform is supposed to achieve as part of the system. There 
are warranty issues at some level; when you get to the higher 
level it is actually performance against the specification that 
is in the contract. I would be happy to lay it out in a tiered 
level, but it is a multitier system.[Information follows:]

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Mr. Cummings. I would like for you to get that to us, and I 
was just wondering if there is something that can be done, as 
you all continue to work out your differences, whether we can 
have something that sort of--I mean, if it is now sufficient 
now, I mean, that might be part of your discussions, that is 
all.
    Admiral Allen. Yes, sir. Lessons learned. I understand.
    Mr. Cummings. Mr. Oberstar.
    Mr. Oberstar. Thank you, Mr. Chairman.
    Admiral, this contract is a performance requirements 
contract, correct? In light of what you know now, and the 
experience that you have had with this, would you do it the 
same way again? You didn't do this, you didn't order this 
contract, but it was done. Would the Coast Guard do this again?
    Admiral Allen. I will give you a two part answer to that, 
sir. I think we should do it this way. I think we need to learn 
how to do it better in the future. I think performance-based 
contracting and a systems approach is the way to go, but if you 
are going to do that you need to understand how you ought to be 
organized in terms of competency, capacity, and capability to 
be able to manage a contract like that with a systems 
integrator. I think we were not as integrated on the Coast 
Guard side. I think the concept is sound.
    But to go to the second answer, I think, moving forward--
and I am going to turn my hat around as a former chairman of 
the Joint Requirements Council of the Department for three 
years--the Coast Guard and the Department of Homeland Security 
have to become competent in managing complex system integrator 
contracts. We do not have a Naval Sea Systems Command and we do 
not have a Wright-Pat Air Force Base. We do not have those huge 
system integration type capacities inside the Department, nor 
will we ever get it. I think it is incumbent on the Coast Guard 
to learn from Deepwater. I think it is incumbent on the Coast 
Guard to learn from SBI. It is incumbent on the Department to 
learn from both acquisitions how to do this, because it has to 
be a basic competency of the Coast Guard and the Department 
going forward, sir.
    Mr. Oberstar. The latter is correct. The Coast Guard needs 
to know better how to handle major contracts, just as the FAA 
stumbled badly in the late 1980's and early 1990's and then got 
turned around when David Ansen, Administrator of FAA, brought 
in outside counsel, if you will, from the Navy, from GSA, to 
help FAA produce better good documents, do better oversight, 
better contract management, and be more specific in their 
specifications.
    Admiral Allen. Yes, sir.
    Mr. Oberstar. Now, performance contract, the European--
French, German, Dutch, Belgian, Italian--transportation 
ministries build highways and bridges the same way, with a 
performance; want the road to be of so many lanes, want it to 
carry so much traffic, want it to have a 50-year life span. You 
build it to meet those specifications and you warrant it. So 
the contractor is obligated.
    We do highway design and bridge design, engineering 
construction, bidding very differently in the United States. 
AASHTO, the American Association of State Highway 
Transportation Officials, has a manual that has very clear 
specifications for what the subbase should look like, what the 
base should be, what the content of the concrete and the 
concrete bed and the content of the asphalt in an asphalt bed 
should be, and the contractor is held to a bid document that 
meets those specifications. It has worked well. We should have 
better standards for highway construction.
    I wonder whether this performance-based contracting really 
is, as you said, the best way to go, especially if you have 
language in the bid document that allows the contract, as the 
IG report says, to self-certify compliance with standards. 
Would you do that again?
    Admiral Allen. Probably not, sir. And I will give you this 
example.
    Mr. Oberstar. I hope you say will not.
    Admiral Allen. Yes, sir. We are about ready to complete the 
FRC, as I said. That will be ABS class, sir.
    Mr. Oberstar. All right. Because we had this little sort of 
difference of views with the Coast Guard a few years ago about 
self-certification of vessels subject to Coast Guard 
certification. If the Coast Guard certified a vessel, and then 
it had a problem and the Coast Guard then went out and 
inspected the failure, it is inspecting its own certification; 
you need an independent party like the NTSB to come in and 
review. We had quite a discussion with your predecessor over 
several months about that matter, and finally resolved that the 
NTSB should have a role in inspection of vessel failures where 
a Coast Guard had been certification agent.
    So in this situation, to allow a contractor to cut square 
holes and the Coast Guard knows from experience that those 
openings are subject to stress at the corners and subject to 
failure, and then allow the contractor to say, well, but that 
is OK. And then if you come in and say, well, it is not all 
right and we want this change, they are subject to a change 
order and you are paying for that change order.
    Admiral Allen. Yes, sir. Roger, loud and clear. One of the 
things we have to adjudicate going forward in the Deepwater 
contract, especially the NSC contract--and we have had 
conversations about this--is standards. There are several 
different types of engineering standards out there which you 
can build to. There are traditional standards which naval 
combatants are built to, but we are now informed by new ways to 
model construction through something called finite element 
analysis, where you can actually load ships over their life 
cycle and kind of be able to predict where those stresses are 
at.
    We have never had those tools available when we built large 
cutters before, for instance, when the 378s were being built. 
And some of the interaction between the contractor and the 
Coast Guard right now is the intersection of existing 
shipbuilding standards and specifications that are used for 
naval combatants and some of these new tools that are coming in 
to check the risk and what the stresses will do over the life 
of a cutter. These have to be brought into the process, sir.
    Mr. Oberstar. Under the changes that you specified at the 
outset, you said that the Coast Guard will have authority 
over--I forget exactly your words--and accountability and 
approval of authority to do work. But the contract remains in 
effect, doesn't it? So even with your proposal, will your 
proposed adaptations to the IG report include authority for the 
Coast Guard to override the integrated contractor and not have 
to pay for change orders?
    Admiral Allen. On the first part, the technical authority 
and who makes that decision is now clear, and the Coast Guard 
is the Chief Engineer of the Coast Guard reporting to me to be 
able to make the determination of whether or not it is in 
conformance with the standards. After that it becomes an issue 
of contract law, how the contract is written and whether 
performance is required.
    So as you stated earlier, as we move forward we are going 
to have to understand how these contracts need to be structured 
to make sure that, when there is ambiguity about performance, 
we can assign responsibility and accountability. As we move 
into the next award term, the award term criteria are going to 
be very important, and we won't finalize those until the work 
group that has been established by the two COs and myself is 
reported back to us.
    Mr. Oberstar. So you will change that language and retain 
authority for the Coast Guard to make approvals, and not allow 
contractor to self-certify?
    Admiral Allen. Where we need to implement the procedures 
that allow the technical authority to do his job, we will do 
that, sir. It is going to be--the contract is really a series 
of contracts, as you know; different contract line items and 
DTOs. As we move forward, we will move business practices into 
place that will ensure that we can guarantee performance, sir.
    Mr. Oberstar. But for the existing contract, your order 
does not change the language of the contract.
    Admiral Allen. Well, as I said earlier, I think there are 
issues with the NSC and the 123s that we are going to have to 
figure out. After conversations with the Chief Executive 
Officers, we need to put everything on the table, see where we 
are at, and then we will move from there, sir. I roger your 
concern.
    Mr. Oberstar. I think it would be beneficial for us to 
invite the Coast Guard back, Mr. Chairman and Mr. Ranking 
Member, when you have a new approach, a new contracting 
document to share that with us in open session.
    Admiral Allen. Yes, sir. I have offered to come back in 120 
days.
    Mr. Oberstar. Welcome external review, and that is very 
much in keeping with Admiral Allen, and I think we will want to 
see what changes you propose in future contracting authority 
for the Coast Guard so that there is not repetition of this 
major stumble.
    Mr. Cummings. Would the Chairman yield? Mr. Chairman, 
before you got here, I had said that in my conversations with 
the Admiral, he has agreed to come back in 120 days to address 
some of these issues then, because I felt that we really needed 
to stay on top of this.
    Mr. Oberstar. Thank you.
    Mr. Cummings. And he has agreed, I mean graciously agreed, 
with no hesitation, and we do appreciate that.
    Mr. Oberstar. Thank you. Thank you, Mr. Chairman, for 
initiating that. I regret that I have to step out of these 
hearings; a lot of other things.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Mr. LoBiondo?
    Mr. LoBiondo. Thank you, Mr. Chairman.
    Admiral, the IG has raised some serious concerns about the 
ability of the service to resolve disputes, such as those with 
the National Security Cutter through the integrated product 
teams. Do you feel that the integrated product teams are 
working? And what assurances can you give us that the Coast 
Guard's concerns are being heard and properly addressed?
    Admiral Allen. They clearly didn't work as they should have 
early on; otherwise, these issues, when they were failed to be 
properly addressed, at least by our representatives from the 
technical community, created a lot of cultural divide, I would 
say, inside the Coast Guard. I made it very clear to everybody 
working for me right now that that is not going to happen 
again. To the extent that the IPT process is the way we are 
going to manage these issues at the deck plate level, there has 
to be open collaboration, and if for some reason there is a 
disagreement, it must be immediately raised for adjudication, 
and it has got to be raised high enough where flag officers 
with responsibility are held accountable for that. I have had 
that conversation with my staff and they all know that, sir.
    Mr. LoBiondo. And can you give the Committee any 
assurances, where red flags are waved to you that impact our 
ability to decide, that that information will be shared with 
the Committee?
    Admiral Allen. Absolutely sir. I think especially you are 
well aware of when tough things happen, they don't get better 
with age, and most all of you get a direct call from me when 
something doesn't happen, sir, and I will continue to do that.
    Mr. LoBiondo. Both the IG and the GAO have raised serious 
concerns about the service's ability to manage and properly 
oversee the program due to lack of personnel and lack of 
personnel competency, I believe, as they put it. What do you 
intend to do to deal with this issue and how will it affect the 
Deepwater procurement schedule?
    Admiral Allen. A couple of things, sir. By creating the new 
acquisition organization that I mentioned earlier, we will take 
all of the, for instance, all the 1102 series contracting 
officers will all be managed within the same organizational 
framework. Rather than having stovepipe competing contracting 
shops, if you will, there will be a contracting shop where 
everybody is managed from a human resource standpoint by the 
same flag officer. It is part of a much larger blueprint for 
acquisition reform that I am carrying out inside the Coast 
Guard that I started actually back before the change of 
command, when I was Chief of Staff. This will align us with the 
Department of Homeland Security and align us with best 
practices. We have been consulting with the Defense Acquisition 
University on how we should be properly structured, given the 
feedback we got from oversight groups from Deepwater, and I am 
prepared to submit for the record that blueprint for 
acquisition reform to the Committee that will provide in detail 
the steps that I have been talking about here today.
    Mr. LoBiondo. Thank you.
    Mr. Cummings. Thank you very much.
    Mr. Larsen.
    Mr. Larsen. Thank you, Mr. Chairman.
    There was a question earlier about the cost of the cutters, 
and I just want to clarify something as far as that, Admiral 
Allen. The IG's report indicates that the original cost for the 
first two were about $517 million, and then with post-9/11 
changes and other items, inflation, the cost of the first two 
would be about $775 million. And then, according to the IG, the 
request for equitable adjustment was about $302 million. 
Assuming that number is right, we are looking at, for the first 
two cutters, a cost of around $500 million or so each. Is that 
accurate, is that what you think?
    Admiral Allen. I would say that is an estimate on the high 
side, subject to definitization of task orders that are out 
there and where we are going with the request for equitable 
adjustment. A lot of that leads back to the work groups that 
are established right now to resolve how we are going to deal 
with the fatigue standards on the ships, how much retrofitting 
will be done; and there are tradeoffs in there. So I would say 
the potential is that figure. Where it actually will end up, 
what the request for equitable adjustment will be and exact 
cost of retrofitting to achieve the fatigue life of the ship, 
we are still in the process of determining that, and I would be 
happy to provide you a more detailed answer for the record and 
at 120 days come back and give you an update.
    Mr. Larsen. OK.
    I have further questions. My yellow light has come on. I 
haven't been at this for five minutes. So if someone wants to 
keep my accurate time, I would appreciate it.
    Mr. Cummings. No problem. We have got you.
    Mr. Larsen. With regards to the FRC, you are moving 
possibly towards a replacement patrol boat, the FRC-B class, as 
you call it in your testimony, expecting RFPs for design no 
later than March 1st. Who will assess those RFPs?
    Admiral Allen. The solicitation will be made through 
Integrated Coast Guard Systems. They will receive two types of 
proposals, one is for a technical proposal on the hull itself, 
the other one will be a comms integration package. Northrop 
Grumman is dealing with the hull part of it; the systems 
integration package will be dealt with by Lockheed Martin. But, 
again, we will have visibility on that.
    Mr. Larsen. Who will make the decision, then, on the RFPs?
    Admiral Allen. They will make a proposal to us and it will 
be up to us whether to accept or reject it, and as I stated 
earlier, we will make sure there is competition and that------
    Mr. Larsen. Are either of the integrators involved with 
putting together an RFP?
    Admiral Allen. They are our instrumentality of doing that. 
Northrop Grumman is working on the hull side of it and Lockheed 
Martin is working on the comms side.
    Mr. Larsen. I'm sorry, are they putting together their own 
proposal?
    Admiral Allen. It is being openly competed. I don't have 
the exact entities who are competing . I can get back and get 
you an answer to that.
    [The information received follows:]

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Larsen. Thanks. With regards to Chairman Oberstar's 
questions about self-certification, it seemed from your answer 
that you left open the possibility that self-certification 
would still be possible in the future in contract changes for 
the next term.
    Admiral Allen. I believe I corrected my answer, sir. I 
understand the issue there. For instance, moving forward on 
ship construction and design, we will have ABS involvement, for 
example, for the construction of the FRC. We understand 
certification is required, and we will do that moving forward.
    Mr. Larsen. With regards to your reorganization on the 
acquisition with--is it Admiral Blore?
    Admiral Allen. Yes.
    Mr. Larsen. Will that acquisition organization be 
responsible, then, for the decisions made on procurement? You 
said at one point that you wanted to push decisions down to the 
lowest level. Is that the lowest level within the Coast Guard 
or is that the lowest level within the organization, which 
would include the system integrators?
    Admiral Allen. Under the new organizational structure that 
is in the acquisition reform blueprint that I will submit to 
the Committee, Admiral Blore will become the Chief Acquisition 
Officer of the Coast Guard; all acquisitions, not just 
Deepwater. Work for him will be Admiral Rabago, who is sitting 
behind me, who will focus just on the Deepwater portion. We are 
bringing him in because of his expertise in naval engineering 
and architecture, the fact that he is former CO of the Coast 
Guard Yard.
    Mr. Larsen. Right. So in terms of pushing decisions for 
Deepwater, in answer to an earlier question you mentioned 
pushing some decisions about Deepwater acquisition down to the 
lowest level. Are those decisions at the lowest level within 
the Coast Guard or at the lowest level within the organization 
for Deepwater, which would include the integrators? I am 
assuming the integrators on your organizational chart are 
nearer the bottom and then there is a connection up into the 
Coast Guard organization.
    What I am getting at is part of the problems I am reading 
in the IG report have to do with the issues of technical 
authority, who is making these decisions; and some of those 
decisions were not made by--the Coast Guard was not as involved 
as the IG believed it should have been in some of these 
decisions.
    Admiral Allen. Right. And what the technical authority will 
do, it will establish standards, and if those standards aren't 
met, he will make the decision whether or not they are being 
met, and he will play a much more aggressive role. I am not 
sure that that role was as well defined or adhered to back when 
those decisions were made in 2003, 2004. In addition, we are 
contemplating changes inside Coast Guard Headquarters with a 
technical authority and the Chief Acquisition Officer, Admiral 
Blore will work for the same three star Admiral. That is where 
I mentioned earlier the single point accountability for 
reconciling technical authority and acquisition and program 
management.
    Mr. Larsen. OK.
    Mr. Chairman, I probably have used my legal five minutes.
    Mr. Cummings. You did.
    Mr. Larsen. Thank you.
    Mr. Cummings. Mr. Baird.
    Mr. Baird. Admiral, thank you for your testimony today and 
for your service. It is a difficult position you are in today, 
and we appreciate. You are as committed as we are, I know, to 
making sure your crews have the equipment they need and that 
the taxpayers' money is well served.
    I am particularly interested in the issue of filling the 
gap here. You talk about aggressively examining the purchase of 
four 87-foot patrol boats. Have you made decisions on that, 
what would be purchased and how?
    Admiral Allen. Well, there are a number of options. One of 
the reasons we were looking at 87-foot coastal patrol boats is 
they are in production, there are contract vehicles out there. 
The biggest issue we have right now is a source of funds and 
how that might move, given the appropriation structure and all 
that kind of stuff. The answer is to throw everything we have 
got at the problem. So you need that, you need the extension of 
the loan of the WPC-179s from the Navy, which we have been 
successful in negotiating. So it is kind of an all-hands-on-
deck evolution.
    Mr. Baird. Right, and I respect that is what you have got 
to do. What is the time frame for delivery of the 87-footers, 
do you know?
    Admiral Allen. Well, they are already in production. If you 
will, I will answer you for the record, but I think it is 
fairly quickly, I think we are talking like 12 to 18 months.
    [The information received follows:]

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Baird. OK, I would like to chat with you about that.
    Admiral Allen. But if I could adjust that for the record, I 
would appreciate it.
    Mr. Baird. Separately, if I might, I would like to chat 
with you and your staff about the capacity of those 87-footers 
and their longevity and performance vis-a-vis other 
alternatives that are available in the marketplace.
    Admiral Allen. Happy to do that. I would also say that, in 
conjunction with the Navy and funded by the Navy, we are 
procuring 87-foot coastal patrol boats for force protection 
duties that we are doing with the Navy.
    Mr. Baird. I would like to chat with you about that broad 
issue, if I might. Maybe we can find a time to do that.
    Admiral Allen. Happy to do that, sir.
    Mr. Baird. Who will decide--one of the questions I have, I 
think we talked about your staff. We recognize that you weren't 
in your current position when some of these contracts were 
made, but you are dealing with contractors, and the contractors 
must have people who made what I think are decisions that have 
dramatically, if not defrauded, certainly cost the taxpayers 
money. Are you going to make sure that the contractors you are 
dealing with are not employing the same people in the same 
capacity as future decisions are made?
    Admiral Allen. Well, as you might well imagine, it is not 
my purview to meddle in the internal affairs of private sector 
organizations, who they hire and fire.
    Mr. Baird. I am not sure it is not, Admiral. I tell you 
what, if I was hiring a contractor who came over to my house 
and he was going to fix my bathroom, and he had a plumber tear 
the bathroom apart and not put it back together and he said 
don't sweat it, Mr. Baird, I will send the same guy over to fix 
it, I would say the heck you will.
    Admiral Allen. Well, having said that, I have a 
responsibility to work with the CEOs and put enough discipline 
into the system where we what we want out of it. How that plays 
out inside the contractor's shop is for their senior management 
to work on. I am trying to start at the highest level with the 
leadership that I have with the two CEOs and create a new 
paradigm on how we are going to work on accountability on both 
sides of the organization, sir.
    Mr. Baird. I appreciate that, sir.
    Mr. Chairman, I don't know that I will be here when the 
respective businesses testify, but I certainly hope this 
Committee will ask them to speak to this Committee about how 
they plan to correct this.
    Let me go back to my example. Are there any consequences? I 
mean, how much do we guestimate the taxpayer is out? How much 
money has been wasted here?
    Admiral Allen. I would hazard a guess on the 123s only 
because if we don't return them to service, the amount of money 
that was obligated under Deepwater contract is little less than 
$100 million; there are probably some other costs there. The 
NSC has yet to be adjudicated and, quite frankly, the NSC 
hasn't been operated yet and we don't know how the fatigue life 
is going to work on that. We have every reason to believe the 
ship is going to operate as intended.
    So the only smoking gun, if you will, right now is if there 
is no value accrued for the investment made in the 123s and we 
don't return them to service, we would have to look at that.
    Mr. Baird. And what amount might that be?
    Admiral Allen. The acquisition value right now is a little 
under $100 million.
    Mr. Baird. Is there any consequence to the folks who are 
responsible for this?
    Admiral Allen. Well, I think you have to establish the 
details, what decisions were made, what information was known, 
and I have set up basically the equivalent of an internal audit 
to take a look at how the decision was made on the acceptance 
of the 123 extension at the time that we accepted the proposal 
from Deepwater. That information will be developed and anything 
that comes out, I will be completely transparent and will be 
made available to the Committee.
    Mr. Baird. My question would be is there a way that the 
public can get their money back.
    Admiral Allen. Well, I think you have to figure out how the 
decisions were made and where accountability lies, and then 
things will have to take their course, sir.
    Mr. Baird. OK. The IG's report has basically a statement 
about--I will just read it out loud: ``The impediments we 
experienced in obtaining access to personnel information and 
documentation associated with the NSC acquisition are 
unacceptable in light of the statutory mandates of our 
office,'' etc., etc. Basically it sounds like the IG was trying 
to investigate this to get at the bottom of it and they just 
ran into roadblock after roadblock after roadblock. What is 
being done to prevent that? These folks have a statutory 
mandate to look out for the well being of the taxpayers. What 
is being done to make sure they can do their job?
    Admiral Allen. Yes, sir. That is the one item that I 
referred to early on that was referred to the Department for a 
Department-wide policy. I meet weekly in a group called The 
Gang of 7, it is all the component commanders in the Coast 
Guard, if you will, meeting with the Deputy. We have 
recommended to the Deputy and the Secretary that they 
standardize guidance from the Department on how each one of the 
components should interact with the IG so we don't have 
different rules. And, quite frankly, you have commanding 
officers of units out there and IG auditors will arrive.
    We need to make sure everybody understands what is the 
responsibility of the unit, what is the responsibility of the 
auditors, notification of how we want to do that. In some cases 
we are trying to facilitate the gathering of information for 
them. In some cases they interpret that to be controls being 
placed on their access. And what I want is absolute clarity so 
we don't have a problem again in the future, sir.
    Mr. Baird. I appreciate that. If I just close with when we 
get back to this 87-foot. When I chat with you, I hope that, 
one of my problems is that people who have focused on the 
current design of the 87-footers may have been also involved 
with the decision-making that has led to the failures we have 
seen thus far.
    So I hope we can take an open-ended approach and look more 
at alternatives that are out there, specifications in terms of 
performance, not just saying let's just go with the existing 
vessels. We may be able to find a better vessel for less money, 
more available and more tested in the real world already. And I 
hope to chat with you and yield back my time. Thank you, 
Admiral.
    Mr. Cummings. Mr. Baird, it is my understanding that the IG 
is currently working on a report with regard to the 123s, and I 
expect that we will have that before the Admiral returns to us 
in 120 days.
    What we are going to do now, to the members of the 
Committee, we are going to go to a limited round. Not everyone 
has questions. We will got Mr. LaTourette, then we will go to 
Mr. Taylor, and then I will close it out, unless somebody else 
has something.
    Mr. LaTourette. Thank you very much, Mr. Chairman.
    Admiral, briefly, when you are done, we are going to talk 
to the representatives from the integrators, and I just want to 
get your response to this before we begin. We have been talking 
about whether or not items meet the specifications in the 
contract and whether there are engineering difficulties. I want 
to talk about the issue of competition. Do you know the 
percentage of contracts that are let by the integrator to 
either Northrop Grumman, Lockheed Martin, or their 
subsidiaries, what percentage of the Deepwater contracts are 
being performed by those folks?
    And then the second part of that question, so I don't 
overburden the Chairman, is just an issue that you and I talked 
about earlier on the subject of competition. You mentioned, in 
response to a question or in your remarks, the delivery of the 
first CASA 235. And on the issue of competition I think I 
advised you that a vendor came into my office and claims that 
you are paying $44 million for this CASA 235 and that they can 
deliver it for $21 million at the platform. And all the 
upgrades to make it compatible, I mean, certainly don't cost 
another $21 million.
    So, one, if you know, what percentage of contracts go to 
Northrop Grumman, Lockheed Martin, and/or their subsidiaries; 
and, secondly, just on the CASA 235, could you put my mind to 
rest why that person's observation is not an accurate one?
    Admiral Allen. Yes, sir. We have data. It is extensive 
data, so I wouldn't try to answer for the record, if that is 
OK, but there is extensive competition. Integrated Coast Guard 
Systems is required to provide that data to us. They deal with 
hundreds of vendors around the Country and we would be glad to 
make that available for the record, sir, including what work 
was directed to either Lockheed or Northrop Grumman. That is 
all transparent, sir.
    [The information received follows:]

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. LaTourette. I would appreciate that.
    Admiral Allen. Regarding the CASA, when we are buying 
airframes, we have a lot of different competitors that come in 
and want to do business with us. The problem is we are not 
always comparing apples to apples and not every airframe is the 
same airframe, even though they appear to be the same model. 
Based on avionics package and what you are buying with that 
base model, and what we intend to do with it in terms of 
missionization, they may or may not be the same. What I would 
like to do is give you a side-by-side comparison and we can 
send that over to you, sir
    [The information received follows:]

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. LaTourette. I appreciate that.
    Thank you, Mr. Chairman.
    Mr. Cummings. Thank you very much, Mr. LaTourette.
    Mr. Taylor.
    Mr. Taylor. Thank you, Mr. Chairman.
    Commandant, I would like to bring your attention to page 79 
of the audit and the diagram up on the wall.
    Admiral Allen. Yes, sir.
    Mr. Taylor. They are identifying in that things that they 
presume will fail in less than the 30-year design life of the 
ship, and in some instances less than 15 years. Now, the ones 
that are circled, at least two of them, appear to be on deck, 
so, given my limited experience, probably not that hard to fix. 
What troubles me, though, is the shaded areas down in the 
bilges of the ship, which by everyone's account is the hardest 
place to work, whether you have got to go back and add some 
stiffeners. You know, once you finish a ship, you have got 
paint, piping, electrical wires, you may have fuel down there 
that you have to remove before you can do any welding, 
degassing.
    And it goes back to the question when it was brought to 
your attention, in March of 2002, that we had problems, it 
would have been so much more efficient to have corrected these 
things before all of those sequential elements took place after 
that, the paint, the piping, the plumbing, the electrical 
wires, the insulation, the anti-fouling paint. Getting to those 
spaces had to get more difficult every day as more things are 
added to the ship. Again, I scratch my head and wonder as to 
why, given the opportunity, the Coast Guard didn't correct it 
in a timely manner.
    Admiral Allen. Sir, I can only restate at the time 
irrevocable loss of schedule and the cost risk associated with 
that, whether it was quantified and auditable or not, was the 
rationale for moving forward.
    Mr. Taylor. But doesn't the cost go------
    Admiral Allen. All I can tell you is that was the decision.
    Mr. Taylor. But doesn't the cost go up when the difficulty 
goes up? And the difficulty goes up as each compartment above 
it is sealed.
    Admiral Allen. Well, what I would like to do is come back 
to you, if I can, because what we are doing right now, we are 
having the active discussion between our technical 
representatives and ICGS about exactly how those reinforcements 
would be worked. I don't know as far as whether or not there 
are interferences or anything else, and we could give you a 
more technical answer for that, and we would really like to do 
that, sir.
    Mr. Taylor. Well, Commandant, again to the point, I want to 
see you build these cutters. I want to see the Navy build the 
LCS. I want the 110s converted and put back to sea. But all of 
these things occurring at the same time tells me that we have 
serious problems both within the Navy, within the Coast Guard, 
and somewhere in the industrial base, and no one ever says I 
screwed up. And that mind-set has got to change, because we are 
wasting hundreds of millions of the taxpayers' dollars, we are 
delaying ships, and if you take the attitude of, well, we will 
just use them for 15 years, it is a disposable ship, as the 
parent of somebody who may be manning one of those ships, I 
have got to say does that mean you have the same attitude that 
we have disposable crews? Disposable crews are not an option.
    Admiral Allen. Sir, I am not going to sit here and tell you 
that we shouldn't have identified that earlier and taken action 
to resolve it before we got to the issuance of the DTO for 
production. That would have been the best way to do that. That 
is not the right way to run an acquisition in the future. That 
is not the way we will do it in the future, sir.
    Mr. Taylor. Thank you, Mr. Chairman.
    Mr. Cummings. Thank you.
    Admiral, I want to thank you too, and I want to ask you 
about a question unrelated to what we have talked about here 
today, on another matter. You recently released a report 
regarding the deaths in August of 2006 of two Coast Guard 
divers assigned to the Cutter HEALY. In essence, the report 
found that the deaths were preventable and resulted from 
failures at all levels of the service. The report further found 
that the dive program on the HEALY was not adequately managed 
and, further, that the overall management structure and 
policies of the Coast Guard's dive program are inadequate to 
properly guide and manage the program.
    As I understand it, the Coast Guard assumed responsibility 
for dive safety inspections and other aspects of the dive 
program in the 1990's from the Navy, which had previously 
performed those duties. The findings of the accident report 
suggested that this program, the dive program, grew faster than 
the Coast Guard's ability or willingness to manage it properly. 
This is particularly troubling given that the dive program is 
so central to the Coast Guard's missions.
    Are there any other programs that you feel have grown 
faster than the Coast Guard's ability to adequately and safely 
manage them, particularly in the post-9/11 environment?
    Admiral Allen. Mr. Chairman, that is a very wise question. 
It mirrors a conversation that we had just two weeks ago, after 
the HEALY notifications were made. My senior management team 
and I were sitting around Headquarters and we said where is the 
next corner where, for some reason, grew too fast, somewhere 
lost it in the tyranny of the present that we need to be 
looking at around the Coast Guard. And, actually, I have asked 
all my Assistant Commandants to go around and do an assessment 
of where we may have issues out there where we could predict 
ahead of time if we were cognizant of the fact that we were 
starting to have a juniority problem because we were trying to 
grow too fast or we had maybe taken our eye off the ball, sir.
    I think you are absolutely right. I can't give you a 
specific program right now. There are some areas regarding 
human capital that I am concerned about competencies and 
capabilities, but I have got a team looking at how we are going 
to do HR to support the new organization. I would be happy to 
give you some thoughts in the future on that, sir.
    Mr. Cummings. And just on one other note, Admiral. As I sat 
here and I listened to you answering these questions, I must 
tell you that there is a book that I am reading, it is entitled 
``The Speed of Trust,'' and it talks about how when you trust a 
person, how easily things move along. And I must tell you that 
I think because this Committee has a tremendous trust in you, 
that we are able to move forward and believe strongly that you 
are going to do the right thing at the helm. And I just want 
you to know that we appreciate that. That is very, very 
significant.
    And so that we will be very clear, when you come back in 
120 days, what can we expect to hear from you? Now, I know that 
you have said a number of things already and we will get those 
to you, but the things off the top of your head, what can we 
expect in that 120 days?
    Admiral Allen. Well, sir, the first thing you can expect is 
I have committed to the IG to give him a report in 90 days on 
how we are going to respond to the recommendations. So at 120 
days there should be a check on the metric there; what does the 
IG say, what does the Coast Guard do about it, and what does 
the IG say about that. And we intend to be transparent and 
accountable regarding that.
    The second thing is we will have much more clarity on a few 
things going on: one, regarding where we are going with the 
Fast Response Cutter; what has happened with the technical 
evaluation of the 123-foot conversion; the IG report will be 
issued on the C4SR for the 123 programs. There are a number of 
things where we can come back and say since then this has 
happened and it is a good barometer of where we are going with 
this program. And we will continue to implement the 
reorganization that I talked about and, again, we will submit 
for the record the acquisition reform blueprint to you, sir.
    Mr. Cummings. If there are no other questions, then thank 
you very much.
    We will move to the second panel.
    We are very pleased to have Dr. Leo Mackay, President of 
Integrated Coast Guard Systems, and Mr. Phillip Teel, President 
of Northrop Grumman Ship Systems.
    Gentlemen, welcome and thank you for being with us.
    Mr. Mackay.

  TESTIMONY OF PHILLIP TEEL, PRESIDENT, NORTHROP GRUMMAN SHIP 
SYSTEMS; LEO S. MACKAY, JR., PRESIDENT, INTEGRATED COAST GUARD 
                            SYSTEMS

    Mr. Mackay. Thank you, Mr. Chairman and Mr. Ranking Member. 
Congratulations on your ascensions to your new positions. I 
look forward to working with you and the members of this 
Committee.
    Thank you for the opportunity to explain the progress that 
we are achieving on the Coast Guard's Integrated Deepwater 
System program. Speaking for the men and women of Lockheed 
Martin, we are very proud to be associated with this critical 
program.
    The Deepwater program is modernizing the Coast Guard by 
recapitalizing aging assets, providing new assets, and 
expanding capabilities. Lockheed Martin is responsible for four 
Deepwater areas: first, aviation, which includes refurbishment 
of existing assets like the HH65C helicopters and the HC-130H 
aircraft; production of new assets such as the missionized 
C130J aircraft, the HC144 maritime patrol aircraft--the CASA, 
as the Commandant mentioned it--and the vertical takeoff and 
landing unmanned aerial vehicles; as well as management of 
service contracts such as the A109 HITRON helicopters stationed 
in Florida.
    Second, we are responsible for the command and control 
network and, third, for logistics, by which I mean the 
processes and systems to support fielded assets. Fourthly, we 
are responsible for systems integration and engineering to make 
sure all the assets can best work together as a team.
    We work within the Integrated Coast Guard Systems LLC, our 
joint venture with Northrop Grumman, our industry partner, to 
ensure that communication systems and logistic systems are 
properly coordinated with the programs, ships, and ship 
systems.
    The purpose of the ICGS joint venture is to provide for 
rapid allocation of work between the two companies, while at 
the same time achieving collaboration and cooperation. Today, 
when I refer to ICGS or separately to Lockheed Martin, this 
should be construed to mean the role of Lockheed Martin as part 
of ICGS. It is important to note that ICGS, in and of itself, 
is not a systems integrator, it depends on Lockheed Martin and 
Northrop Grumman to fulfill their specified taskings.
    Nor is it a replacement for Coast Guard decision-making. 
All designs and improvements are based on system engineering 
trade studies, analyses, and technical considerations. All 
major acquisition decisions are reviewed and approved by Coast 
Guard senior leadership. Together, Lockheed Martin and Northrop 
Grumman are utilizing more than 600 suppliers in 42 States, 
plus the District of Columbia, and we maintain an active 
database of more than 3,000 potential suppliers.
    Deepwater is delivering both new and upgraded fixed wing 
and rotary wing aircraft, new communications systems that are 
making a significant contribution to improve mission 
performance, and the logistics systems necessary to support 
fielded assets. We understand the Deepwater system will 
continue to evolve, as it has since its beginning. It is 
important to maintain emphasis on the implementation of the 
Deepwater systemwide command and control network.
    C4ISR, an acronym that stands for Command and Control, 
Computers, Communications, Intelligence, Surveillance and 
Reconnaissance, is the network ``glue'' that permits various 
assets, including ships, aircraft, and shore stations, to work 
together to achieve a common purpose. The C4ISR domain is of 
particular importance as modern civil and commercial and 
military systems are dependent on the value delivered by the 
integrating power of the network. This is the core 
responsibility of Lockheed Martin in the Deepwater program, and 
has already made measurable progress with the rescue, 
enforcement, and interdiction activities of the Coast Guard on 
the high seas.
    Lockheed Martin is accomplishing high rates of software 
reuse, as well as system commonality and interoperability by 
the rigorous application of proven system engineering processes 
and capabilities. The National Security Cutter, for example, 
uses 75 percent of the U.S. Navy's Open Architecture Command 
and Decision System. The Command and Control System for both 
Maritime Patrol Aircraft employs more than 50 percent of the 
functionality of the Navy's P-3 Anti-Surface Warfare 
Improvement Program. The Operations Center consoles on the 
National Security Cutter utilize more than 70 percent of the 
design of the Navy's UYQ-70 display systems and, overall, 65 
percent of Deepwater software is reused from government and 
commercial sources.
    This reuse of available software and systems is the key to 
commonality. Every one of the Coast Guard's 12 high-endurance 
and 27 medium-endurance cutters have received two separate 
command and control system upgrades, giving the fleet markedly 
improved capability to seize drugs, interdict migrants, and 
save lives.
    As for the shore sites, there are 12 total under contract 
to receive upgrades. This will facilitate Coast Guard 
interoperability with civil agencies--this application of off-
the-shelf software permits Deepwater to take advantage of the 
rapid changes in commercial marketplace and investments which 
commercial firms make, to leverage those for the Coast Guard.
    As the Commandant mentioned, the first medium-range 
surveillance patrol aircraft, the HC-144, was transferred to 
the Coast Guard on December 20th, 2006 and is now undergoing 
missionization, which will be completed in April. The second 
aircraft was accepted by the Government on January 25th, just a 
few days ago.
    At the same time, we are working to complete the re-
engining and upgrading of HH65 helicopters. We have completed 
65 of 95 helicopters to date, and this project was part of the 
original Deepwater program plan. At the direction of the Coast 
Guard, it was accelerated due to safety flight issues.
    Lockheed Martin and American Eurocopter are working with 
the Coast Guard aircraft and supply center, and are now 
producing upgraded helicopters, the HH65 Charlies, that can fly 
faster, twice as far, and with twice the payload.
    A service contract for the HITRON helicopters based in 
Jacksonville, Florida has been renewed for a fourth year. The 
eight helicopters are equipped with airborne use of force and 
have had a significant impact on the list of drug 
interdictions. The squadron, in fact, celebrated its hundredth 
successful interdiction last May.
    Our performance in industry has been closely supervised by 
the Coast Guard, with additional oversight from the Department 
of Homeland Security, this Congress, the GAO, and the Inspector 
General's Office. Each of the multiple reviews has provided 
constructive recommendations as requirements continue to 
evolve. The results so far indicate that Deepwater has made a 
difference in the effectiveness of the Coast Guard with regard 
to the numbers of drug seizures, migrant interdictions, and 
lives saved. Our overarching goal is to produce more capability 
for the operating forces of the Coast Guard and to produce 
those sooner.
    Thank you again for the opportunity to present and to 
explain the progress we are achieving in the Deepwater program. 
I look forward to answering your questions.
    Mr. Cummings. Thank you very much, Mr. Mackay.
    Mr. Teel?
    Mr. Teel. Good afternoon Chairman.
    Mr. Cummings. Good afternoon.
    Mr. Teel. Ranking Member LaTourette and the other 
Subcommittee members, I want to thank you for the opportunity 
to be here. On behalf of Northrop Grumman and all the men and 
women there who have built ships for over 70 years, I want to 
thank you for your support of the Deepwater program and of your 
long-term support of the Coast Guard.
    My written testimony and my summary remarks that I am about 
to make are intended to provide you with updated information 
regarding the 123, the Fast Response Cutter, and the design and 
surface life of the National Security Cutter.
    First I want to address the patrol boats. The 110 patrol 
boats have seen extensive duty, as we have talked about today, 
through their service lives over the last 20 years. The 123 
conversion was intended as an interim measure to extend the 
life and enhance the capabilities of that aging patrol fleet 
until the new vessels, the FRCs, were available to replace it. 
The conversion work was performed under subcontract of Northrop 
Grumman by Bollinger Shipyards, the original builder of the 
110s. The conversion project underwent an extensive design and 
review process with the contractor and Coast Guard and American 
Bureau of Shipbuilding. The due diligence was done.
    Six months after delivery of the first converted vessel, 
the Matagorda crew discovered buckling in her hull and on her 
deck. This discovery occurred immediately following a high 
speed transit in rough seas to avoid Hurricane Ivan. Coast 
Guard and Northrop Grumman analyzed the situation. We concluded 
that a workmanship condition arising from the original 110 
construction, not the conversion, was the primary cause of 
buckling, and repairs were made.
    In March 2005, six months later, another converted 123 
experienced hull deformation. The deformation was different 
from the first. Like the first, all previous structural 
analysis had not predicted this failure. At this time, six 
converted vessels had been converted and two were in process. 
The Coast Guard and the contractors each performed additional, 
more detailed structural analysis. Despite extensive effort, 
these analyses have not replicated the experiences with these 
vessels.
    Additional problems have arisen with these ships and the 
Coast Guard has removed them from service. We are working with 
the Coast Guard to re-review all data and analysis to isolate 
the cause or causes of the problem on these vessels. And once 
isolated and design solutions defined, the final path ahead 
will be laid out and we will work with the Coast Guard to deal 
with those issues.
    At the outset, the 110s and 123s would eventually be 
replaced with Fast Response Cutters. That was the original plan 
for Deepwater. In 2005, because of the problems with the 123s, 
the Coast Guard accelerated the design and construction of the 
FRC by 10 years. A worldwide market survey of existing patrol 
craft determined that no existing craft would fulfill all FRC 
requirements.
    To address the full set of requirements, Northrop Grumman 
proposed a new design. The design included a composite hull 
form with the potential to save $1 billion over the life of 
these vessels. The design is unique for patrol boats. This is 
driven by the need to stay within the Coast Guard's funding 
limits, yet satisfy a never-before-seen requirements demand on 
a patrol boat.
    Contrary to some accounts, the FRC did not fail model 
testing. A preliminary test was conducted improperly. When 
conducted properly, the FRC passed the test. Moreover, an 
independent analysis confirmed that the FRC design will meet 
performance requirements.
    To meet the shortfall in patrol boat hours, the Coast Guard 
has pursued selecting an existing, proven patrol boat that, 
with limited modifications, can meet its highest priority 
requirements. This is an interim measure, as this craft will 
not satisfy all requirements originally required for FRC, thus 
the need for a dual path, explained by the Commandant.
    Now let me turn to the National Security Cutter. The NSC is 
a state-of-the-art frigate size naval ship. The first of this 
eight class ship, the Bertholf, was launched earlier last year, 
in September, and will be delivered in fall of 2007. The second 
is now under construction. With regard to the allegations of 
inadequate ship structure, the NSC is designed to achieve a 30-
year service life. NSC was designed using the same structural 
design standards used successfully on Navy and Coast Guard 
vessels since World War II. Northrop Grumman has full 
confidence in the ability of the NSC to perform all of its 
intended missions.
    The issue under discussion with the Coast Guard deals with 
the long-term fatigue life related to various assumptions about 
operating conditions, as discussed earlier, it is not about 
whether the NSC, as designed, will be able to safely and 
effectively perform its mission over the range of operational 
environments.
    When predicting fatigue life, even the best of engineers 
may reach different conclusions. This is driven by the 
different assumptions about operating conditions. Coast Guard 
and Northrop Grumman technical experts are engaged in a 
meaningful dialog which will lead to final agreement on the 
fatigue structure and how the ship will be constructed in the 
future.
    With regard to NSC cost, the current NSC is not the ship 
that was proposed in 1998. NSC operational capabilities have 
substantially increased as a result of the post-9/11 Coast 
Guard requirement. The critical improvements, along with the 
impact of Hurricane Katrina, comprise the majority of the 
program's cost growth.
    Northrop Grumman is committed, along with Lockheed Martin, 
our ICGS partners, and the Coast Guard, to making this 
Deepwater program successful. Thank you. I welcome your 
questions.
    Mr. Cummings. Thank you very much.
    Let me go back to some of the things that I was asking the 
Admiral. The one thing that I am concerned about is I guess, 
Mr. Teel and Mr. Mackay, do you believe that the NSCs that you 
all have designed will not have fatigue cracks over 30 years? 
Do you believe that?
    Mr. Teel. Sir?
    Mr. Cummings. Mr. Teel?
    Mr. Teel. Oh, I wasn't sure I was on.
    Mr. Cummings. No, go ahead.
    Mr. Teel. Sir, fatigue analysis and fatigue projection is a 
fairly new science in shipbuilding. It has been something that 
has gone on in aircraft building for some years, and the 
techniques and tools that are used in aircraft building are 
beginning to be used more frequently in shipbuilding. And there 
are reasons for that: airplanes fall out of the sky; ships, 
while they can sink, usually you can deal with a crack and 
solve that problem and not have a catastrophic failure.
    Over the course of the last several years, we have been 
working with the Navy as it relates to LPD-17 fatigue 
forecasting, and DDG-1000 fatigue forecasting in trying to 
develop and refine tools and techniques to be able to predict 
from design, in the early phases of design, what fatigue 
cracking will occur and when on ships.
    The NSC, as I mentioned in my statement, is designed to the 
same set of standards that the DDGs, the LPDs, all prior Navy 
ships and, for that matter, prior Coast Guard ships, and those 
standards are to achieve 30 years. There have been no 
techniques to forecast that ability, and we are now 
collectively, as an industry, refining those.
    I apologize for going on, but------
    Mr. Cummings. No no no. No, that is fine. This is our 
problem. We have got people probably sitting, looking at this 
right now on C-SPAN, and they are trying to figure out, wait a 
minute, we are spending billions of dollars on a program and we 
are expecting that these vessels will last a certain period, 
and now do we hold you accountable and what standards do we 
use? And if there are no standards, then how do they know that 
they are getting everything out of their tax dollar?
    And as I listen to Mr. Taylor--and I know how frustrated he 
has been in this hearing--and others, I mean, it seems to us--
we want to know--most of the times, if somebody produces a 
product, they are willing to give some type of warranty.
    Mr. Teel. Yes, sir.
    Mr. Cummings. Where does that fall within this realm? And 
you never did answer my question. The question is the ship, the 
NSCs, do you believe that they will withstand cracks within 30 
years? In other words, they can get through 30 years without a 
crack.
    Mr. Teel. Sir, I don't know about whether they can. But I 
can comment on the fact that all naval vessels that are out 
there today are designed to the same set of standards. The 
occurrence of a crack and when that occurs is usually not 
something that we, as the designer and builder, know the exact 
day when it occurs. We do deliver the ships and they last for 
30-plus years, as the ships have that we have designed and 
produced.
    The occurrence of the crack or a crack in structure is not 
always known by us because it is during the operational life of 
that vessel, and that is part of the reason that, today, the 
Navy and all of shipbuilding are looking to find ways to 
forecast the occurrence of a crack. The life of the vessel is 
30 years. And, yes, I absolutely believe the NSC, as it is 
designed and built, will last 30 years. I cannot tell you when 
a crack might occur that would need repair, but the life of the 
vessel is 30 years.
    Mr. Cummings. In both the current report on the National 
Security Cutter and in a report issued in August 2006 on the 
design of information technology systems under Deepwater, the 
DHS Inspector General has asserted that you failed to meet 
technical standards on testing procedures established for 
procurements. How do you respond to that finding?
    Mr. Teel. Well, I can't comment on the IPTs. Maybe Dr. 
Mackay can.
    Mr. Cummings. Dr. Mackay?
    Mr. Mackay. With respect to the IPTs, we are certified by 
SPAWAR, which is a Navy organization with interim authority to 
operate and also with authorities to operate the systems on the 
ships, particularly the classified systems and SIPRNET. As a 
new procurement, we have worked through the issues with gaining 
and maintaining the authorities to operate, and worked through 
issues where we have worked with the Coast Guard, SPAWAR, and 
industry to set out procedures that streamline those 
activities. The 123s did have both an interim authority to 
operate the classified systems before they were withdrawn from 
service.
    Mr. Cummings. I think you heard me in what I said about the 
Admiral and this whole idea of trust and accountability, and, 
you know, I think one of the things that is happening here 
that, I mean, if you--I mean, you all heard, I think, what the 
Admiral said, that he is going to come back to us in 120 days. 
Are you all pretty much in agreement with the things he said? 
And if you are not, tell me what you are in disagreement with. 
Is there anything that jumps out at you that you disagree with 
with regard to what he said? Anything.
    Mr. Teel. No, sir, I have no disagreement with what the 
Commandant said. We are working with the Coast Guard on the 
issues associated with 123s. We will understand those problems, 
and those problems that are our problems will be resolved and 
we will take care of them. In the case of the NSC, we are 
working with the Coast Guard on the changes that they feel are 
required and we will get those changes defined and incorporated 
as quickly as possible.
    Mr. Cummings. Now, you heard him say that he was going to 
get back to us on the whole question--then I will turn this 
over to Mr. LaTourette--on the whole issue of the warranty. So 
is there any room for a warranty in this contract, this $24 
billion contract? Any kind of warranty.
    Mr. Teel. Well, in the case of the ships, there is a 
warranty. There is a warranty. I will get you, for the record, 
what that is, the length of time. But there is a warranty that 
that ship will perform in accordance with the requirements of 
the contract, and we stand behind that. I don't recall the 
length of time of the warranty.
    Mr. Cummings. Counsel tells me that for the 123-foot boat 
it is a year.
    Mr. Teel. OK.
    Mr. Cummings. That is not very long, is it?
    Mr. Teel. Well, sir------
    Mr. Cummings. By the time you get in the water, the 
warranty is up.
    Mr. Teel. Sir, the warranty is on the basis of when we turn 
the ship over. As with the case of an automobile or other 
things, the warranties are on the basis of the length of time 
operated. Once they are in the Coast Guard's care, then we have 
to warrant workmanship, and that workmanship continues long 
after the actual warranty of the full vessel operation. So 
workmanship is something that is always a guaranty. But I will 
get you a full explanation of the total and submit it to the 
record.
    Mr. Cummings. What does a cutter cost? The 123-footer, what 
do they cost?
    Mr. Teel. The conversion from 110 to 123 is about $8.5 
million each.
    Mr. Cummings. $8.5 million?
    Mr. Teel. Yes, sir.
    Mr. Cummings. So we get a year warranty for $8.5 million. 
Is that what you are saying?
    All right, Mr. LaTourette.
    Mr. LaTourette. Thank you, Mr. Chairman.
    Just for my edification, both of your testimonies indicate 
what you do, but could I just explore what your profession is 
by training? Mr. Teel, are you an engineer, for instance?
    Mr. Teel. Yes, sir.
    Mr. LaTourette. And Dr. Mackay?
    Mr. Mackay. I was from the Naval Academy. I was a naval 
officer first. There is a general engineering curriculum at the 
Naval Academy.
    Mr. LaTourette. Thank you very much. Just by sideline, the 
current Secretary of Transportation tells a story that you can 
tell the difference between an extrovert and introverted 
engineer because the extroverted engineer will stare at your 
shoes at a cocktail party, as opposed to their own. But that is 
another story.
    [Laughter.]
    Mr. LaTourette. I want to begin by a Watergate-like 
question, if I could, Mr. Teel, and ask you when, if ever, you 
were made aware of this?
    Mr. Teel. Well, I don't recall--first of all, I have been 
in this position for about, working with ships for about 18 
months. During the early days of my turnover, there were fairly 
extensive briefings on all the programs. I don't recall, until 
within the last six months or so, issues that were not headed 
toward resolution. And let me explain that. In the case of 
design of all systems, whether they are ships or aircraft or 
whatever, there are issues along the way about design this, how 
you design it, what the designs will be, and those get vetted 
and then the answers then become a part of the record of the 
review process. And that is the case with the National Security 
Cutter; the issues were reviewed. There were issues with 
structure. We have made structural changes, several structural 
changes as a result, over the course of the design of the 
National Security Cutter, as a result of the discussions and 
review with the Coast Guard on almost a continuous basis 
through the design process.
    So from that perspective there were issues. But from 
perspective that nothing was resolved, things were left to be 
resolved------
    Mr. LaTourette. You are not aware of any?
    Mr. Teel. Not aware, no, sir.
    Mr. LaTourette. And were you in the room when the 
Commandant was testifying?
    Mr. Teel. Yes, sir.
    Mr. LaTourette. OK. And there was discussion, and in the 
IG's report there is discussion about events occurring in 2002 
and a memo in 2004. You were not aware of those?
    Mr. Teel. Sir, I was aware of memos, but I was also aware 
of approval by the Coast Guard of the design that we were going 
forward with. So in my mind, and in our mind, that was a 
resolved issue to move forward with.
    Mr. LaTourette. OK. And as I understood your testimony, you 
believe that the first two National Security Cutters, the one 
that is almost done and the one that is in production, meet the 
requirements set out in the Coast Guard contract?
    Mr. Teel. Yes, sir.
    Mr. LaTourette. OK. And the issue of cost overruns, how is 
that mediated between your companies and the Coast Guard, who 
decides and how is it decided who eats the overrun? When is it 
something that you eat and when is it something that the Coast 
Guard has to take responsibility for?
    Mr. Teel. That is a discussion between the companies and 
the Coast Guard and the Coast Guard's contracting authority.
    Mr. LaTourette. And relative to the 123 conversions, 123-
foot conversions, are those discussions ongoing at the moment?
    Mr. Teel. The discussions are ongoing to determine what the 
cause of the problems are, yes, sir.
    Mr. LaTourette. Right. And I understood your testimony that 
you think due diligence was done and we don't know what 
happened at this moment in time.
    Mr. Teel. Yes, sir.
    Mr. LaTourette. OK. Based upon your testimony--I assume you 
saw the media coverage over the weekend.
    Mr. Teel. No, sir, I didn't.
    Mr. LaTourette. OK. Have you heard about it? It was pretty 
big news around.
    Mr. Teel. Yes, sir, I have.
    Mr. LaTourette. OK. The basic allegation that is made in 
the article, and I guess in the Inspector General's report, is 
that you all are delivering a product that costs more and 
doesn't perform, and I just want to give you the opportunity to 
say what you have to say about that.
    Mr. Teel. Well, sir, the National Security Cutter is, by 
all standards within our shipyard--and our shipyard has been in 
operation for 72 years--the best first-of-class vehicle that we 
have built. Prior to the storm, it set every record for first-
of-class ship built by that shipyard. The storm did impact 
that; delayed us some and added cost, but she still is ahead of 
most first-class ships, and certainly in the case of first-time 
workmanship and in terms of her ability to perform her intended 
mission she is an outstanding ship.
    Mr. LaTourette. The second issue that I talked to the 
Admiral about--and, Dr. Mackay, maybe you can chime in on this 
too--is there always some--when you have an integrated system 
and the integrators also are in the business of building the 
assets, the issue of competition. And if you could just 
briefly--I think I heard your testimony, Dr. Mackay, about how 
many vendors you deal with all across the Country, but could 
you talk about the robust competition that exists? And the 
question that I asked the Admiral,--if it is within your 
knowledge; if it is not, if you could supplement the record--
what percentage of the contracts are let to Lockheed Martin, 
Northrop Grumman and/or your affiliates and subsidiaries.
    Mr. Mackay. Well, we do have very robust competition. We 
have an open business model and in addition to the numbers of 
subcontractors that we work with across the Country and in the 
District of Columbia, we have a database of some 3,000 other 
suppliers that we have generated in six industry days. Both 
Lockheed Martin and Northrop Grumman have procurement systems 
that function in accordance with Federal acquisition 
regulations, and those acquisition regulations govern 
competition and they also point out some exemptions from 
competition for things like follow-on production, a highly 
specialized service or a unique supply where competition does 
not result in best value to the Government.
    But if you look at the--since the inception of the program, 
if you look at the subcontracts that have been let in the 
Deepwater program, almost $800 million worth that are $550,000 
or greater--and that is a FAR stipulation--and you back out the 
FAR exceptions for best value for the Government, 85 percent of 
those dollars have been competed in an open manner.
    Mr. LaTourette. OK. And do you not have the information as 
to what percentage goes to your two companies?
    Mr. Mackay. The percentage to the two companies I will have 
to get that for you.
    Mr. LaTourette. Could you get that for me?
    Mr. Mackay. Yes, sir.
    Mr. LaTourette. And then just the last question, because 
Mr. Oberstar spent a good deal of time during his questioning 
of the Admiral, I see in your statement on page 7, Mr. Teel, 
you say that Northrop Grumman does not certify compliance. And 
I think I share Mr. Oberstar's concern that self-certification 
is a tricky business. So could you just amplify on that for a 
minute?
    Mr. Teel. Yes, sir. In the case of the 123s and in the case 
of the NSC, the oversight, we have ABS, the American Bureau of 
Shipbuilding, that are doing certifications on elements of the 
design and of the process. We don't approve our own designs and 
move forward. We submit those either to ABS or to the Coast 
Guard for approval to proceed to the next phase.
    We don't conduct a test and certify that it is acceptable. 
We either do that for the Coast Guard or their representative, 
and then that test is then reviewed on the basis of the data 
collected to the test procedure and provided to the Coast Guard 
to move forward.
    We are not in the business of self-certifying. We do not do 
that with any of our ships or vessels with the exception of 
some foreign customers that we actually do that.
    The issue in question is about how this is done and the 
mechanism and thoroughness and robustness of the outside review 
of what we do. We are doing what our requirement asks us, and 
we are not self-certifying.
    Mr. LaTourette. Thank you very much.
    Thank you, Chairman.
    Mr. Cummings. Thank you, Mr. LaTourette.
    Mr. Taylor?
    Mr. Taylor. Thank you, Mr. Chairman.
    I want to thank these gentlemen for being here.
    A couple of things, Mr. Teel, and again my hearing is not 
perfect and my memory is even worse, but I thought I heard you 
say that this buckling that took place on the 123s was a part 
of the problem with the original 110 foot hull. For 
clarification, is there a history on that 110 foot hull that 
has not been modified of buckling in the same places as we saw 
on the six ships or the eight ships that were stretched?
    Mr. Teel. Let me clarify. I think what my statement says 
was that on the Matagorda, the first ship that we found 
buckling, that is attributed to a legacy problem, a workmanship 
problem on the 110, not a class program but a problem with a 
bulkhead not being welded on the legacy 110s. That is not 
considered to be what has caused the problems with the other 
ships.
    Mr. Taylor. What do you think has caused the problem with 
the other ships?
    Mr. Teel. Sir, as my statement said, we haven't determined 
what has caused the problem. There are several possibilities. 
Those are all being examined with the Coast Guard, comparing 
data with them to understand. Part of that could be a condition 
of the legacy ships. Part of that could be we always have to 
question did we do the design adequately. We believe we did, 
but until we are finished with this process, we don't know. We 
are not sure.
    Were the ships operated in conditions that were above the 
conditions that were defined for these ships after the 
modification? Sometimes the Coast Guard is forced to operate in 
conditions that are beyond this mod's requirements and 
potentially others, sir, but those are the ones that are in 
question and that we are reviewing with the Coast Guard.
    Mr. Taylor. Back to the original question, did the 110 have 
a history of hull buckling, crackling or deformities prior to 
the conversion to the 123?
    Mr. Teel. There had been problems. I would like to submit 
that for the record because I don't fully understand the 
details of that. There were certainly issues associated with 
the condition of the ship in terms of its age and stress 
corrosion. We believed we understood that, and in fact part of 
the process of conversion was to replace parts of the hull and 
decks where we found a problem with the condition of the ship.
    Mr. Taylor. OK, I would like to take you back to this part 
of the Investigator General's report and again, bad ears, worse 
memory, but I thought I heard you say that there is no way to 
model stresses on a ship ahead of time which begs my question 
of where did the Inspector General come up with this and how 
did they predict that you would trouble in those areas in 15 
years or less.
    Mr. Teel. Sir, I didn't say there was no way to model 
stresses on the ship. The modeling of stresses on the ship and 
then the resultant impact of those stresses on the ship over 
the course of the life of the ship in a fatigue-failure 
analysis mechanism is what is only recently, the last several 
years, becoming understood and a science. So I was not saying 
that it couldn't be done.
    I also didn't say that you could not model it, and in fact 
we have been modeling it through detailed fatigue analyses for 
years, but being able to predict its outcome in terms of when 
cracks occur over the operating life of the ship is the part 
that is currently being developed and refined. I will put it 
that way.
    Mr. Taylor. When the Assistant Commandant pointed out what 
he thought to be what needed structural changes, I am curious, 
did anyone from the Coast Guard contact your yard or your 
corporate office and say what would it cost to fix this now, 
even if it requires some after the fact work as opposed to what 
would it cost to do this later?
    Was any sort of cost comparison, even in any verbal sense, 
run by your organization to get a ballpark figure of what it 
would to fix these things before the cutter went to sea?
    Mr. Teel. Sir, I am not certain that that was done. I will 
have to research our files and our data, and I will submit the 
answer for the record.
    Mr. Taylor. OK.
    Mr. Teel. Not to my knowledge, but I will research that and 
give you a response to the record.
    Mr. Taylor. OK, but just for the record, you are an expert 
shipbuilder. Is it an accurate assessment to say that when you 
discover a problem, it is a heck of a lot easier to fix it the 
first time before the void is filled with diesel fuel or lube 
oil or whatever, before the additional piping is run, before 
the additional electrical wires are pulled, before it is 
painted, while it is in your shipyard the first time and the 
crews are already down there? Is it cheaper to fix it then or 
to bring the ship back after it has been to sea for a while?
    Mr. Teel. Sir, once you have made the decision to make the 
change, it is clearly cheaper to fix it early, not later.
    Mr. Taylor. OK, thank you, Mr. Teel.
    Thank you, Mr. Chairman.
    Mr. Cummings. Mr. Coble?
    Mr. Coble. Thank you, Mr. Chairman.
    Gentlemen, good to have you with us.
    Not unlike my friend from Mississippi, my hearing is not 
perfect either, but I don't think this question has been put to 
you, either of you. What methods did the Integrated Coast Guard 
Systems and the contractors use to review the proposed designs 
of each asset that will be acquired under Deepwater Program and 
what role, if any, did the subcontractors have at implementing 
these methods?
    Mr. Mackay. Congressman, at the programmatic level, there 
are a series of programmatic reviews that I think are fairly 
typical in industry: a critical design review--let me see--a 
preliminary design review, a critical design review, production 
readiness review, test readiness review.
    At those reviews, both the team from industry which would 
be the appropriate domain head from ICGS, either Lockheed 
Martin or Northrop Grumman, and its principal subcontractors as 
well as technical authorities and programmatic authorities from 
the Coast Guard would review the data, and generally what is 
called a CDRL, a contract deliverable, is generated and sent to 
the Coast Guard. It is reviewed by the Coast Guard, and a 
decision to go forward, either without modifications or with 
other modifications and provisions, is made appropriate to the 
technical readiness at that particular gate.
    Mr. Coble. So the Coast Guard would end the loop with ICGS, 
the contractor, and the subcontractors?
    Mr. Mackay. Absolutely, sir.
    Mr. Coble. Did you all use the expertise of independent 
outside groups to verify the results of the reviews that were 
being formulated? That can be for Mr. Teel or Dr. Mackay, 
either one.
    Mr. Mackay. With respect to aircraft or C4ISR systems, the 
Coast Guard periodically avails itself. You will have to ask 
the Coast Guard which systems and programs precisely they have 
sought independent analysis on.
    On the industry side, again for aircraft, for C4ISR, we 
didn't avail ourselves to independent analysis.
    Mr. Coble. Mr. Teel?
    Mr. Teel. In the case of ship design, we don't routinely 
get outside assistance. It would depend on the complexity of 
the issue. In some cases, if our internal design people have, 
as you know and I didn't point out earlier, not only do you 
tell engineers by staring at their shoes but also whether they 
argue with one another. If the level of controversy is high 
enough internally with the engineers about a solution, we will 
get outside activity involved.
    Over the course of this program, there has been significant 
independent review, albeit after issues have been raised.
    Mr. Coble. I thank you.
    Finally, let me apply hindsight which inevitably is 20-20, 
always easy to say what you should have done. But, gentlemen, 
what steps should have been taken by the Coast Guard and 
industry engineers, if any, to identify design deficiencies in 
the 123 foot patrol boat, the Fast Response Cutter and/or the 
National Security Cutter?
    Mr. Teel. Maybe I could take each of those separately, sir.
    Mr. Coble. Sure.
    Mr. Teel. In the case of the 110 to 123 modifications, it 
is really difficult for me to look at what might have been done 
differently. I believe after we are finished with this current 
analysis with the Coast Guard, we will understand that, but 
today I can't tell you because I know that due diligence was 
done.
    Clearly, something differently needs to be done, and we 
will as a part of the response back to the Coast Guard, and 
when the Coast Guard comes back to you, we will make sure that 
we have contributed to the hindsight understanding of that and 
made recommendations about that.
    In the case of the FRC, sir, I believe that the FRC is a 
victim of an attempt to put more into a patrol boat vessel than 
it could take and our inability to be able to design that ship 
to accommodate those requirements because of cost caps. I am 
not sure there is anything to be changed. I think the lessons 
to be learned are that we probably should have moved faster as 
a team to get on with the next steps.
    In the case of the NSC, I do believe that the Commandant 
has defined those ways that we and the Coast Guard will be able 
to work more effectively together to vet all the issues more 
quickly than we did during the NSC design. I feel very strongly 
that the NSC is a very good ship.
    There are issues that have not been resolved about fatigue 
forecasting, and had we vetted those much earlier, we wouldn't 
be talking about this today.
    Mr. Coble. Thank you, gentlemen.
    Thank you, Mr. Chairman.
    Mr. Cummings. Thank you very much, Mr. Coble.
    To follow up on what you just said, we will probably be 
calling you back in 120 days too because we want to take a look 
and see where we are then, considering this is major for the 
Coast Guard as you well know.
    Mr. Teel. Yes, sir.
    Mr. Cummings. We want to make sure that we are all still 
singing from the same hymn book and hopefully the same tune.
    Mr. Larsen?
    Mr. Larsen. Thank you, Mr. Chairman.
    I am sure we are all familiar with the concept of the 
Rashomon Effect that law enforcement uses to explain how 
different people can see the same situation and give totally 
different stories. It is interesting that it is actually from a 
movie called Rashomon, and it follows the story of four people 
who saw the same incident. The movie ends with one individual 
just bawling his eyes because he understands that there is no 
truth in the world as a result of this.
    Through the process of this oversight hearing, I am trying 
to figure out what is not the truth but what is truth in this 
because I am hearing two different things being said on a 
variety of different issues. I think it is important that you 
do come back in 120 days because we are going to have a chance 
to chew on some of this stuff over the next four months and to 
try to put together some of the pieces that we have heard 
today.
    For instance, in your testimony, Mr. Teel, you say that 
Northrop Grumman does not self-certify compliance with 
structural requirements in the contract, but we heard from the 
Commandant that clearly there was a self-certification that I 
believe I heard he wants to fix as they move forward and as 
they do further awards. The IG's report on page 15 says the 
Coast Guard allowed the contractor to self-certify compliance 
with standards. It sounds to me like two different 
diametrically opposed things are being said, and somewhere 
there is truth in there.
    I want to know how you would make your statement comport 
with what the IG says needs to be done and with what the 
Commandant, I think, clearly recognizes as a problem in the 
current setup.
    Mr. Teel. Sir, I can only tell you what I understand about 
the situation. Now whether or not that is a result of multiple 
people seeing the same things differently, I cannot comment.
    What I can comment on is that self-certification is a 
definitional issue, and I am not trying to split hairs. I 
really am trying to say that when we go through any process of 
designing and building the ship, we are submitting data for 
approval and review to either ABS or the Coast Guard as it is 
defined in the contract.
    I honestly have not seen the latest version of the IG 
report. I have seen earlier versions. I also understand that 
there are issues with the level of review and the voracity of 
review that I believe the Commandant is addressing, and that 
may in fact be what the IG is addressing.
    The question about certifying our work would be one that 
said that we have no oversight and no review or approval of the 
steps or the tests that we go through, and we in fact do.
    Mr. Larsen. Mr. Mackay, maybe you can try to illuminate 
this question a little bit for me on self-certification. Is 
Lockheed Martin, is the issue of self-certification with you?
    Mr. Mackay. In the area of aviation and C4ISR, there isn't 
that issue that I am aware of. As I said, with respect to the 
C4ISR system, the Coast Guard works with the SPAWAR out of the 
Navy, of course, and with aviation there are myriad regulatory 
and oversight authorities.
    With respect to the HC-144 we just delivered, it was 
certified by INTA, a European aviation authority, and then I 
believe the Coast Guard is going to work with NAVAIR in this 
Country to certify. There is a surfeit of certification 
authorities on the aviation side.
    Mr. Larsen. Mr. Teel, with respect to the Fast Response 
Cutter replacement, the question I asked the Commandant, I 
would like to ask of you with regards to the RFP that is out 
and due, I think, March 31st if I recall.
    Will Northrop be doing the assessment of the RFPs?
    Mr. Taylor. In conjunction with the Coast Guard.
    Mr. Larsen. Is Northrop planning to do their own RFP?
    Mr. Teel. No, sir.
    Mr. Larsen. You will be not involved in the design.
    Mr. Teel. We will not be proposing a competitive approach, 
no.
    Mr. Carter. OK, so you will be out of that process to allow 
neutrality in that evaluation.
    Mr. Teel. Yes, sir.
    Mr. Carter. Thank you.
    Thank you, Mr. Chairman.
    Mr. Cummings. Thank you.
    Mr. LoBiondo?
    Mr. LoBiondo. Thank you, Mr. Chairman.
    Gentlemen, thank you for being here today.
    The IG has raised some serious questions and concerns about 
the ability of the Coast Guard to resolve disputes such as 
those with the National Security Cutter through the integrated 
product teams. We have had a lot of discussion on this in 
trying to understand it.
    How do you feel they are working? I mean what is your 
assessment of this as we try to struggle to get to the bottom 
of this and what assurances can you give that the Coast Guard 
concerns are being heard and maybe more important properly 
addressed?
    Mr. Mackay. Congressman, what I will say about the IPT 
process is it has certain strengths. It provides a great deal 
of transparency between industry and the Government as we work 
with these issues.
    I think the Commandant was very clear about some of the 
changes and improvements that he intends to make with respect 
to the overall management of the program, and he accurately 
characterized the spirit within which both Lockheed Martin and 
Northrop Grumman intend to work with him as he leads us in this 
transformation and to align industry with Government as they 
make changes to streamline and to very clearly compartmentalize 
several authorities and responsibilities with respect to this 
program and overall acquisition in the Coast Guard.
    Mr. Teel. I really don't have anything more to add other 
than that we welcome the changes and we will certainly respond 
in kind with the changes in our organizations that best reflect 
what the Coast Guard does and make sure that we match up well. 
We have been co-located with their teams from the beginning at 
the working level. We hope to continue that same level of 
activity, and getting a full participation of all of the Coast 
Guard functional specialists in that team environment is 
welcome.
    Mr. LoBiondo. I really hope that is the case because as you 
are keenly aware, we have had challenges from the very 
beginning, getting the program up and running, and we never had 
much of a margin for error, but we just have none left at all. 
There are critics, and you read a lot of the articles, some in 
Congress who believe the program should be abandoned and then 
come back and figure out how to do it. The Coast Guard is in 
too much of a dire need of the assets, but we can't sustain any 
more bad news.
    There are people out there that are decision-makers in this 
Congress who are not happy and are saying I told you so. 
Despite all the assurances we have had over the last couple of 
years, it turns out we find ourselves in hotter water than we 
have been before. I know that is not lost on you, but it is 
something that has got to be repeated over and over again.
    As we turn to the National Security Cutter, I am still 
having a hard time understanding why the cost was originally at 
around $500 million and now we are up to, I think, $960 
million. How do we explain this when somebody asks this 
question? Is there an easily understandable explanation that 
doesn't go into 50 pages of technical aspects?
    Mr. Teel. Yes, sir, I will attempt to do that. I will 
apologize ahead of time for the engineer in me.
    I don't identify with the numbers that you use, but there 
are significant changes to the National Security Cutter from 
the original ship that was proposed which is the baseline. 
Those changes came about as a result, as we have talked about, 
the Commandant and myself, of 9/11 requirements, and they are 
quite significant, and those changes resulted in a ship that is 
quite significantly different than that ship that was proposed.
    There are additional costs on the early ships as a result 
of Katrina. We have talked about that. The value of those 
ships, we believe is far greater than the cost will turn out to 
be. As the Commandant said, we are in the process of defining 
what those costs will be for the follow-on ships on the basis 
of the requirements for the fatigue structure if any is 
required, and it obviously appears that it is.
    What that ultimate cost will be, will be reported, as the 
Commandant said, as we get those refined and prior to the next 
report back to you.
    Mr. LoBiondo. Thank you, Mr. Chairman.
    Mr. Cummings. Thank you very much.
    Let me close this out. First of all, I want to thank you 
all for your testimony.
    Just following up on some of the things that Mr. Larsen 
said, certainly two or three people can look at one situation 
and see it differently, but the fact is that when the bottom 
line comes, when we get down to the bottom line, it does not 
appear that we are meeting our goals. I think the testimony 
from the Admiral and from you all has been very enlightening.
    I know that there are members of the Congress, and Mr. 
LoBiondo, I know is absolutely correct, there are members of 
Congress that are very concerned about this program, mentioning 
that they would like to see the funds cut off for it. I have 
heard that.
    We are determined to make this work, and we believe that 
when people sit down and reason and keep the goals of the 
American people's safety at heart, we can do this. This is 
America, and we can do this.
    The thing that certainly I think we also want to keep in 
mind is that when we talk about the Coast Guard, again we are 
talking about our young men and women who are going out there 
every day, putting their lives on the line. The whole basis of 
what we are doing here is trying to make sure that they have 
the very best equipment that they can have.
    Just the other day in a town hall meeting, a lady said to 
me, one of my constituents. I sit on the Board of the Naval 
Academy, and her daughter is a fourth year student at the Naval 
Academy. She said, Congressman, I know my daughter is going out 
there, and she is probably going to end up in Iraq or 
Afghanistan. But, she said, I just want to make sure that you 
do everything in your power to make sure she has the equipment 
that she needs.
    Well, I feel the same way, and I promised her that I would. 
I know every single member of this panel feels the same way, 
that we want to make sure that our Coast Guard and men and 
women who are doing just a phenomenal job under sometimes very 
trying circumstances, we want to make sure they have what they 
need.
    I hope that when you all sit down with the Coast Guard--I 
think we have been blessed to have a great Admiral in charge, 
and when you all sit down and try to work out whatever 
differences there may be, that you keep that big picture in 
mind because this is not about Lockheed Martin. This is not 
about Northrop Grumman. This is not about the Admiral. This is 
about the security of our Country.
    As Mr. LoBiondo said, we have spent a lot of time going 
through, trying to figure out what to do. We have been losing 
time, and we don't have time, any more time to lose.
    I ask you that when you go back to the table, consider 
everything that we have said, so that when we come back in 120 
days, that you will be able to report to us that we are moving 
forward.
    One of the things that we must do, we must--we must--we 
must stop the bleeding. I am very serious about that. This 
Congress is tired of reading the stories in the paper that 
seems like we just cannot get it right. I know we are saying it 
is somebody else's fault and all that. The bottom line is that 
we have got to have trust and we have got to have 
accountability.
    We look forward to working with you. I promise you this is 
going to be one of the number one issues that this Subcommittee 
deals with during this session, and we look forward to working 
with you and thanks a lot.
    That will end this hearing.
    [Whereupon, at 1:53 p.m., the subcommittee was adjourned.]





[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]










