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


 
MANAGEMENT OF MASSIVE HOMELAND SECURITY CONTRACTS: DEEPWATER AND SBINET 
=======================================================================
                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            FEBRUARY 8, 2007

                               __________

                           Serial No. 110-19

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSISGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California               TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York             DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania      CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York         JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois             TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts       CHRIS CANNON, Utah
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      DARRELL E. ISSA, California
BRIAN HIGGINS, New York              KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky            LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa                PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   VIRGINIA FOXX, North Carolina
    Columbia                         BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota            BILL SALI, Idaho
JIM COOPER, Tennessee                ------ ------
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
                  David Marin, Minority Staff Director



















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 8, 2007.................................     1
Statement of:
    Duke, Elaine, Chief Procurement Officer, U.S. Department of 
      Homeland Security; Greg Giddens, Director, SBI Program 
      Executive Office, U.S. Department of Homeland Security; 
      Admiral Thad Allen, Commandant, U.S. Coast Guard, 
      accompanied by Rear Admiral Gary Blore, Deepwater Executive 
      Office, U.S. Coast Guard; Jerry W. McElwee, vice president, 
      Boeing SBINET Program, Boeing Advanced Systems; Leo Mackay, 
      president, Integrated Coast Guard Solutions (Lockheed 
      Martin); and Philip Teel, president, Northrop Grumman Ship 
      Systems....................................................    97
        Allen, Admiral Thad......................................   115
        Blore, Rear Admiral Gary.................................   132
        Duke, Elaine.............................................    97
        Giddens, Greg............................................   104
        Mackay, Leo..............................................   140
        McElwee, Jerry W.........................................   133
        Teel, Philip.............................................   146
    Walker, David, Comptroller General, U.S. Government 
      Accountability Office; and Richard Skinner, Inspector 
      General, U.S. Department of Homeland Security..............    25
        Skinner, Richard.........................................    49
        Walker, David............................................    25
Letters, statements, etc., submitted for the record by:
    Allen, Admiral Thad, Commandant, U.S. Coast Guard, prepared 
      statement of...............................................   117
    Davis, Hon. Tom, a Representative in Congress from the State 
      of Virginia, prepared statement of.........................    15
    Duke, Elaine, Chief Procurement Officer, U.S. Department of 
      Homeland Security, prepared statement of...................   100
    Giddens, Greg, Director, SBI Program Executive Office, U.S. 
      Department of Homeland Security, prepared statement of.....   106
    Mackay, Leo, president, Integrated Coast Guard Solutions 
      (Lockheed Martin), prepared statement of...................   142
    McElwee, Jerry W., vice president, Boeing SBINET Program, 
      Boeing Advanced Systems, prepared statement of.............   136
    Skinner, Richard, Inspector General, U.S. Department of 
      Homeland Security, prepared statement of...................    52
    Teel, Philip, president, Northrop Grumman Ship Systems, 
      prepared statement of......................................   148
    Walker, David, Comptroller General, U.S. Government 
      Accountability Office, prepared statement of...............    28
    Waxman, Chairman Henry A., a Representative in Congress from 
      the State of California:
        Prepared statement of....................................     8
        Staff memo...............................................     3


MANAGEMENT OF MASSIVE HOMELAND SECURITY CONTRACTS: DEEPWATER AND SBINET

                              ----------                              


                       THURSDAY, FEBRUARY 8, 2007

                          House of Representatives,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2157, Rayburn House Office Building, Hon. Henry A. Waxman 
(chairman of the committee) presiding.
    Present: Representatives Waxman, Maloney, Cummings, 
Kucinich, Davis of Illinois, Tierney, Clay, Watson, Lynch, 
Higgins, Yarmuth, Norton, Cooper, Hodes, Sarbanes, Davis of 
Virginia, Burton, Shays, Mica, Souder, Platts, Duncan, Issa, 
Foxx, and Sali.
    Staff present: Phil Schiliro, chief of staff; Phil Barnett, 
staff director and chief counsel; Kristin Amerling, general 
counsel; Karen Lightfoot, communications director and senior 
policy advisor; David Rapallo, chief investigative counsel; 
John Williams, deputy chief investigative counsel; Margaret 
Daum, counsel; Molly Gulland, assistant communications 
director; Anna Laitin, professional staff member; Earley Green, 
chief clerk; Teresa Coufal, deputy clerk; Caren Auchman, press 
assistant; Davis Hake and Sam Buffone, staff assistants; David 
Marin, minority staff director; Larry Halloran, minority deputy 
staff director; Jennifer Safavian, minority chief counsel for 
oversight and investigations; Keith Ausbrook, minority chief 
counsel; Ellen Brown, minority legislative director and senior 
policy counsel; John Brosnan, minority senior procurement 
counsel; Steve Castor and Charles Phillips, minority counsels; 
Edward Kidd, minority professional staff member; John Cuaderes, 
minority senior investigator and policy advisor; Patrick Lyden, 
minority parliamentarian and member services coordinator; Brian 
McNicoll, minority communications director; and Benjamin 
Chance, minority clerk.
    Chairman Waxman. The meeting of the committee will please 
come to order.
    For the last days, we have been examining wasteful spending 
in Iraq. With today's hearing, the committee turns its 
attention to fraud, waste, and abuse inside the United States.
    We are going to examine the booming industry of Federal 
contracting by focusing on two enormous contracts awarded by 
the Department of Homeland Security.
    The first contract is the Coast Guard's $24 billion 
Deepwater contract. The Deepwater contract was supposed to 
modernize the Coast Guard's aging fleet.
    Instead, it has produced a series of lemons that have cost 
the taxpayers hundreds of millions of dollars.
    The second contract is the Department's $30 billion 
contract with Boeing to design and build a comprehensive border 
security plan. The program, SBInet, is just getting off the 
ground.
    Deepwater and SBInet are at completely different stages of 
the procurement process, but they share something important in 
common: virtually every detail is being outsourced from the 
Government to private contractors.
    The Government is relying on private contractors to design 
the programs, build them, and even conduct oversight of them. 
As the Deepwater experience shows, this can be a prescription 
for enormous fraud, waste, and abuse.
    Today, the committee will release disturbing information 
about the largest and most ambitious element of the Coast 
Guard's Deepwater program: the new 425-foot National Security 
Cutter. In March 2005, the Deepwater Program Office asked the 
Navy to evaluate the vulnerability of the ship to fatigue.
    The Navy followed through and, 9 months later, provided a 
damaging assessment of the new ship to the Deepwater Program 
Office. According to the documents we have obtained, the Navy 
report included a series of ``bottom line'' warnings--printed 
in red ink--that concluded the ship would not last for its full 
30-year life span.
    What happened next raises many questions. The Deepwater 
Office transmitted an edited version of the Navy report to the 
Commandant of the Coast Guard. The briefing slides given to the 
Commandant were nearly identical to the slides prepared by the 
Navy with one critical exception: all of the Navy's ``bottom 
line'' conclusions about the ship's problems had been deleted. 
This took place just months before the Coast Guard renewed and 
extended the Deepwater contract.
    My staff has prepared a memorandum that describes these 
events in detail, and I ask that, by unanimous consent, it be 
made part of the record.
    [The information referred to follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Waxman. It is bad enough that the Coast Guard 
ignored the warnings and decided to renew the Deepwater 
contract, but we now see the Homeland Security Department 
making the same mistakes on the SBInet contract. As Yogi Berra 
once said, ``This is like deja vu all over again.''
    I am also releasing a memorandum today with new information 
about the SBInet contract. My staff has been examining what 
steps the Department is taking to oversee the multi-billion 
dollar contract with Boeing to secure our borders. What we have 
learned is that there seems to be no task too important to be 
outsourced to private contractors.
    As of December, the Department of Homeland Security had 
hired a staff of 98 to oversee the new SBInet contract. That 
may seem like a lot of progress until you ask who these 
overseers are. More than half are private contractors. Some of 
these contractors even work for companies that are business 
partners of Boeing, the company they are supposed to be 
overseeing. And from what we are now learning from the 
Department, this may be just the tip of the iceberg.
    We need to correct our mistakes, not repeat them. The 
Deepwater contract is a textbook case of what not to do. Yet, 
Deepwater seems to be the model for SBInet. We will explore 
these and related issues this morning, and I look forward to 
learning more from the testimony we will receive.
    [The prepared statement of Chairman Henry A. Waxman 
follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Waxman. At this time I want to recognize Mr. 
Davis, the ranking member of the committee.
    Mr. Davis of Virginia. Thank you very much, Chairman 
Waxman.
    Today, we examine two critical acquisitions by the 
Department of Homeland Security: the Coast Guard's Deepwater 
Shipbuilding and Aircraft Replacement Program and the SBInet, 
an ambitious border security effort by the Customs and Border 
Patrol. Both are vital components of the Department's plans to 
meet its evolving mission in the years ahead. Both multi-
billion dollar programs promise great operational benefits. And 
both pose substantial risks to homeland security and fiscal 
integrity if they are not done right.
    So I am pleased that the committee will examine these 
programs, and I look forward to today's testimony and future 
hearings on improving Federal procurements. These large-scale, 
complete, multi-year acquisitions are being undertaken using a 
lead system integrator. That approach has its critics, and both 
programs offer important lessons on the advantages and the 
pitfalls of that particular contracting vehicle.
    Deepwater, 4 years into a planned 25 year project, has 
experienced well documented troubles. The Government 
Accountability Office, the DHS Inspector General, and other 
congressional committees have found the Coast Guard's Vanguard 
Fleet Replacement Program in danger of running aground. Most 
recent reports suggest the program is finally getting back on 
course. But with so many critical sets of eyes already trained 
on the program, this committee's challenge today will be to 
bring a fresh perspective, not simply to rehash old complaints 
about the Deepwater program or the systems integrator concept 
in general.
    And Deepwater can serve as a cautionary tale for SBInet. 
Work on the integrated border security program has just begun. 
The contract is only 4 months old and currently within budget. 
But issues regarding the adequacy of oversight mechanisms, cost 
controls, and contractor performance assessments that plague 
Deepwater are already being raised about the program, and 
legitimately so. There is a great deal at stake, and we should 
take every opportunity to use our oversight, vigilant 
watchfulness, to keep SBInet on schedule and within cost.
    That having been said, we need to be just as careful to 
distinguish between faults specific to particular programs and 
any general conclusions about the appropriateness or efficacy 
of the lead systems integrator concept. It can be done well and 
there are circumstances in which it is the best method to 
acquire the best value for the Government.
    Deepwater may yet prove to be such a program. In the late 
1990's, under the Clinton administration, faced with the 
realities of an aging fleet of ships and aircraft, the Coast 
Guard chose to use a private contractor as a lead systems 
integrator for its most ambitious acquisition program ever. 
They chose that method because the Coast Guard did not have the 
staff, the technical expertise, or perhaps the desire to divert 
substantial internal management resources to a complicated 
acquisition. And, I might add, the diminution of the Federal 
staff was a concept coming out of the Clinton administration in 
their reinventing government initiatives, where they would 
bring down the number of Federal employees and contract out 
more, a conscious effort coming out of that administration.
    They evaluated their options, including asking the Navy for 
help, and determined none would be better than using its lead 
systems integrator approach. Similar considerations were 
explored by DHS and SBInet, and their conclusions, so far, seem 
just as sound.
    In attempting to secure the homeland, we face a disbursed 
and adaptable adversary. Our efforts to empower personnel, 
strengthen infrastructure, and integrate complex technologies 
against that threat have to be just as nimble and just as 
innovative. Detailed examination of these programs and the 
contracting modes used to build them will help us reach that 
goal.
    Again, Chairman Waxman, I appreciate your holding this 
hearing today.
    [The prepared statement of Hon. Tom Davis follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Waxman. Thank you very much, Mr. Davis.
    What I would like to do without objection is to have all 
Members submit their opening statements for the record, and I 
will call on Members who wish to make opening statements orally 
for no more than 2 minutes.
    Let me indicate that we are very fortunate to have on our 
committee Representative Elijah Cummings, and that he is here 
with us today. He is the chairman of the Coast Guard 
Subcommittee of the Transportation and Infrastructure 
Committee, so I particularly look forward to his comments and 
am so pleased he is participating with us in this hearing, 
because this is an issue that he knows a great deal about.
    Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman, and I do 
thank you for holding this hearing. As you know, I held a 
hearing to investigate Deepwater last week in the subcommittee 
that I chair, the Subcommittee on Coast Guard and Maritime 
Transportation.
    As I said last week, the Inspector General's report on 
Deepwater is one of the most disturbing reports that I have 
read during my entire 11-year tenure in the Congress of the 
United States. The $24 billion, 25-year program represents the 
most complex procurement that the Coast Guard has ever 
undertaken. And yet, according to the IG report and the 
findings of our committee, the Coast Guard chose to further 
complicate the process by hiring private contractors to serve 
as the systems integrator, tasking them with both identifying 
program requirements and implementing them.
    The conflict of interest that arises from this scenario is 
obvious to even the most casual observer. We cannot expect 
private contractors to police themselves. Perhaps, not 
surprisingly, the Deepwater procurement process has had a 
series of failures, and we are still trying to figure out who 
is going to pay for the failures. Most recently, the IG 
reported that the first two National Security Cutters, designed 
to be the largest ships in the Coast Guard's fleet, are not 
likely to meet performance standards specified in the Deepwater 
contract.
    Like many of the agencies that were combined into DHS, the 
Coast Guard found itself in the situation of both trying to 
implement new missions and, at the same time, acquire new 
assets to support those changing missions, while developing the 
management systems needed to control those acquisitions. The 
Coast Guard's example would suggest that some critical 
management tasks simply cannot be outsourced to contractors, 
and I hope that DHS and, indeed, our entire Federal Government 
will learn from this example.
    At this point, our top priority is to get the Deepwater 
procurement back on the right track so that it produces 
reliable assets that the Coast Guard can use to protect our 
Nation for years to come. Admiral Allen, to his credit, has 
committed to making the necessary changes, and those of us in 
the Congress will be working with him to make sure that 
happens.
    Again, this is a hearing about accountability, competence, 
and trust, and I am looking forward to hearing from the 
witnesses, and I want to thank you, Mr. Chairman, for your 
comments. I yield back.
    Chairman Waxman. Thank you very much for your comments, Mr. 
Cummings.
    The Chair recognizes Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman, for having this 
hearing.
    I am sorry, Mr. Walker, I missed your presentation 
yesterday at Homeland Security.
    Chairman Waxman. Thank you, Mr. Shays. Don't feel 
obligated. I appreciate your not feeling obligated to give an 
opening statement, but Members do have that opportunity.
    I believe Mr. Souder is next.
    Mr. Souder. Thank you, Mr. Chairman.
    As the ranking member of the Border Security and Maritime 
Security Subcommittee over in Homeland Security, I have some 
deep concerns about some of the way this is progressing on the 
secure border initiative. There are obvious concerns about how 
best to control our borders, and how we do this initiative 
accurately and whether the costs have been correctly stated. 
And I have expressed that, and I believe there needs to be 
accountability, but some of us believe that this question is 
partly because--and hasn't been stated because some oppose a 
fence and oppose a natural secure border, and that this is a 
delaying problem, not a budgeting problem.
    After the Homeland Security hearing yesterday, I am deeply 
concerned that some of this is a delaying tactic, and has 
nothing to do with budgeting. It seems that our witnesses 
thought that the 700 miles of fence was something to be studied 
and debated, rather than a specific law requiring it to be 
built; that the study is supposed to be for the areas that 
aren't fenced and for how to back up the fence. It is not 
within the authority of the IG or the Comptroller to try to 
rewrite specific legislation of Congress, whether they agree or 
not. Bluntly said, you have not been elected to do this.
    Now, this is often discussed in the secure border 
initiative about how complex it is and how it needs to be done 
correctly, and we shouldn't waste money, and I absolutely agree 
that there needs to be more accountability, as Mr. Walker said 
yesterday, on subcontracting. But the fence is a specific 
requirement to be built; we already have fencing areas. And 
this administration should not hide behind, nor should Congress 
hide behind, oh, well, we need to study this for a long time.
    The American people are getting increasingly skeptical, as 
we had a debate yesterday, and I am sure we will have more 
today, about how the Border Patrol agents were handled. We seem 
more concerned about how to stop getting things done on 
securing our border than getting our border secure. I believe 
we need to carefully study our basic border defense--how to do 
the north border, how to do the south border--but not to delay 
building the fence and not have secure borders in this country.
    Chairman Waxman. Thank you very much.
    Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman. I am not going to 
make a long statement, but the importance of the Coast Guard to 
my particular district and region of the country is paramount, 
and we are all concerned, of course, about border protection. I 
think that we have--you know, the serious questions that we 
want to hear today is who should define the program and 
objectives, and who should determine when they are met, whether 
or not the Coast Guard and the Customs and Border Protection 
agencies really do not have the human capacity to fulfill those 
obligations; and the wisdom of allowing one single entity, a 
private entity to set both the standards and design, and 
monitor whether or not compliance and execution has gone the 
way it should.
    I look forward to the answers to that. I think they will be 
instructive as to how we move forward in this area, and I want 
to thank you, Mr. Chairman, for bringing this important hearing 
to be today. Thank you.
    Chairman Waxman. Thank you very much.
    Mr. Sali.
    Mr. Sali. Yielding to the Chairman's admonition that we not 
feel obligated to make a comment, I will forego that.
    Chairman Waxman. Thank you very much.
    Mr. Duncan.
    Mr. Duncan. Well, thank you very much, Mr. Chairman. And I 
really don't have a formal opening statement, but I will 
mention this, that an article yesterday or from yesterday's 
hearing said Homeland Security officials previously said SBInet 
would cost between $2 billion and $5 billion, but Skinner said 
it could cost as much as $30 billion. When pressed by Rogers to 
provide a ballpark estimate of the program's cost, SBI Director 
Gregory Giddens balked, ``I wish I could answer that with 
greater clarity.''
    I think we need to look very, very closely at the costs 
associated here, because like so many huge Government projects, 
there seem to be all sorts of cost overruns and low estimates 
on the front end and then huge cost overruns on the end of it. 
And when you are talking about $30 billion or more, you are 
talking about a huge amount of money. So I think we need very 
close oversight on this project, and I thank you for calling 
this hearing.
    Chairman Waxman. Thank you very much, Mr. Duncan.
    Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. I will submit my 
remarks for the record, but I do want to say, prior to coming 
to Congress, I had an opportunity to work as an iron worker for 
about 20 years. I was educated, I got my associate's degree in 
welding engineering, worked at the General Dynamics Shipyard, 
so I probably know just about enough in this matter to be 
dangerous.
    I have read all the documents, the audits, and based on the 
audits and investigations conducted by GAO and the Inspector 
General, as well as thousands of pages of documents provided by 
the Department to this committee, DHS's oversight of Deepwater 
and SBInet is severely limited by the prime negotiator 
contracts that actually vest almost all of the authority over 
this program--the design, construction, operation, and quality 
control--with the private contractors hired to do the work.
    The documents indicate that the Government, DHS, has 
contracted out the oversight of contractors to contractors. 
That is the problem. And in the case of SBInet, for example, 
DHS's expenditure plan identifies 60 of the 98 personnel 
assigned to manage the contract program as private contractors.
    The last time I saw this type of model for managing a 
project was the Big Dig in Boston. This is exactly what they 
did; they fused the oversight function with the engineering and 
construction function. Everybody was in the same tent. Nobody 
was watching out for the owner, who in this case is the U.S. 
taxpayer.
    This is a terrible model. I see a lot of it. And generally 
what we see is when this model is in place, we see just 
colossal failures here and huge cost overruns.
    So I am delighted that we are having this hearing, Mr. 
Chairman. I am glad you are leading the way with Mr. Davis. And 
we have a lot of work to do here, but if this was the private 
sector, I will tell you, there would be some people getting 
their papers, their walking papers over what has gone on in 
these two projects. So this is very, very serious, huge losses, 
and somebody has to be held responsible.
    Thank you, Mr. Chairman. I yield back.
    Chairman Waxman. Thank you very much, Mr. Lynch.
    Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman. I will put the majority 
of my opening statement in the record, but I want to thank the 
chairman and the ranking member for having this hearing today. 
I believe this hearing should, in its best case, not be about 
the contracting mistakes alone of this 25-year program, an 
ambitious one by the Coast Guard, but, rather, be a fair and 
impartial look at the fundamental problems we have throughout 
our open and classified procurement process today.
    It is very clear that the admirals and captains sitting out 
here at the end of their careers in fact could not have been 
properly told as young ensigns that they were going to enter a 
25-year career and they were going to oversee a multi-billion 
dollar 25-year program, and that they would come in as an 
ensign and go out as a captain and they were going to own that 
program. That is not the way the U.S. military works; it is not 
the way the Coast Guard works; it is not even the way our non-
uniform services work.
    So it is very clear to me that we are going to have to have 
contractor relationships throughout the process in which people 
are hired and they are on a program for potentially decades, 
and that is not going to happen with active government, and 
particularly not active duty alone.
    Having said that, it is also clear that we do not know how, 
as a government, to share that responsibility, and that 
developing what Mr. Lynch said, a way not to repeat the Big Dig 
mistakes, is an obligation of this oversight committee.
    So I look forward to delving further into how the 
relationship between the Government, the developing 
contractors, and the actual building contractors needs to be 
done not just on this project, but on $3 trillion economy or $3 
trillion Governments broad projects.
    And I would only say one last thing. This was begun under 
President Clinton's watch. It is very clear that it will be 
President Chelsea Clinton before we will have reformed it 
entirely.
    I yield back.
    Chairman Waxman. Thank you, Mr. Issa.
    Mr. Cooper.
    Mr. Cooper. No opening statement.
    Chairman Waxman. Mr. Hodes.
    Mr. Hodes. Thank you, Mr. Chairman. I just want to make a 
few comments.
    The problems with the processes and relationships that we 
are reviewing here highlight for me the challenge we face in 
how we do Government business in this new era of homeland 
security. The American people expect and deserve transparency, 
efficiency, cost-effectiveness, and getting it right in these 
complex relationships between Government and contractors.
    Ultimately, as Members of Congress, it is up to us to learn 
from what are clearly glaring errors in these projects, the 
Deepwater and the SBInet, and make it better as quickly as we 
can, because in an age when we are facing tremendous budgetary 
challenges and the enormous challenge of fiscal responsibility 
for the American people, we can't afford to keep getting it 
wrong.
    So as a new Member of Congress, I know I have a lot to 
learn, but I want to hear what we can do to make sure that this 
doesn't happen anymore.
    Thank you very much. I yield back.
    Chairman Waxman. Thank you, Mr. Hodes.
    In recognizing Mr. Mica, I want to point out that he is the 
ranking member of the full Transportation and Infrastructure 
Committee, which has jurisdiction over this issue. So I am 
pleased that he is with us today.
    Mr. Mica.
    Mr. Mica. Thank you, Chairman Waxman. I feel a little bit 
like--was it last Friday was Groundhog Day--that this is 
Groundhog Day, that we are repeating this, because on January 
30th we did conduct a full oversight investigation on the same 
matter in the jurisdiction of the Coast Guard Subcommittee 
under Transportation and Infrastructure, but I guess sometimes 
we have to beat a dead horse and we have to also beat a cracked 
vessel hull here. But I think the exercise is good.
    I heard some of the junior Members talking, and you don't 
want this repeated, but I have to put it a little bit in 
context.
    We are dealing with a project that started in 2002. It 
started under the Department of Transportation, actually, under 
the jurisdiction of the Coast Guard. We changed that out, as 
you know, to DHS, and DHS has assumed some of the 
responsibility. We have had two admirals, Admiral Collins--he 
is not here, is he?
    Allen, you are going to take the heat, but he has come on 
board and actually put in places I think some good protections 
so this won't happen again.
    I come from the private sector, and when you take a project 
and you are going to move forward on it, you try to bring in 
the best people. It appears they did bring in the best. 
Lockheed was well known for its communications ability, Grumman 
for its shipbuilding, probably the best in the world. But any 
unique development program for new National Security Cutter and 
also the problem we had with--we looked at the problem we had 
with eight patrol boat cutters that will be retrofitted, and 
that program also went south.
    The lessons learned, that you do need good oversight of 
these projects. You need some single acquisition responsibility 
and oversight, and I think that has been put in place, so I 
feel pretty good about that. Comparing this project and these 
mistakes with the Boeing, I guess, project and border 
protection is kind of comparing apples and oranges because we 
were developing a different product with these vessels, the new 
vessels, in any event. Most of what Boeing is going to do is 
off-the-shelf systems integration, and I think they should be 
successful.
    But the lesson learned is really good oversight and also 
oversight from Congress in some continuum. And as we move these 
departments and responsibilities around, there have been 
problems, and Mr. Walker is great at finding what they were and 
enunciating them. But we can learn from this, and I believe 
that we have, and changes by Admiral Allen, now that you are 
here now, are being made and I am pleased with them.
    Thank you.
    Chairman Waxman. Thank you, Mr. Mica.
    Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman. I would like to 
submit prepared opening remarks for the record, but I would 
like to open by saying that there is a methodology in the 
world, and it seems to be adopted as doctrine, irrefutable 
doctrine, in many Government circles: that the private sector 
is always more efficient and effective than the Government 
sector. And I think what we have seen in this particular 
situation is evidence to the contrary.
    Having been in the private sector for quite a while, the 
reason the private sector can be more efficient is that there 
is oversight provided by customers and by shareholders and by 
the public, and what I think we need to be aware of, and I 
think that these hearings will help illuminate, is that if the 
Government is going to employ private contractors for a great 
percentage of its business, that it needs to provide proper 
oversight, because the normal controls of the private sector 
aren't always present.
    So thank you, Mr. Chairman, for holding these hearings, and 
I look forward to hearing from the witnesses.
    Chairman Waxman. Thank you, Mr. Yarmuth.
    Mr. Kucinich, do you wish to make an opening statement or 
you have it for the record?
    Mr. Kucinich. Actually, I would like to make a brief 
opening statement.
    Chairman Waxman. The gentleman is recognized.
    Mr. Kucinich. Thank you very much.
    We have seen that privatization has meant profit for a few 
at the expense of the many, the many being the taxpayers of the 
United States, but also at the expense of, for example, the 
Coast Guard. The contractors having control and influence over 
Government acquisition has meant that the financial interest of 
the contractors are regarded.
    But when you look at a program like the so-called prime 
integrator contract, Deepwater, you have Coast Guard ships that 
are not designed and constructed in a way that relates to the 
functional effectiveness of the Coast Guard. You see ships that 
have serious cracks and other structural problems. You see 
structural weaknesses in the new 425-foot National Security 
Cutter. What a great metaphor that is, that our National 
Security Cutter has cracks in it because of the ineffectiveness 
and of oversight by the Government itself. And it is good that 
this committee is undertaking such an oversight effort.
    I thank the Chair.
    Chairman Waxman. Thank you, Mr. Kucinich.
    Ms. Watson.
    Ms. Watson. I too want to thank you, Mr. Chairman, for 
holding these hearings.
    Today we need to determine if the prime contractors truly 
understand the needs of their Government clients or purposely 
change these designs to fit their own preferences and products.
    We also need to determine if the prime contractors played a 
meaningful role or were an obstacle to direct communication and 
assistance between the Government agencies and the 
subcontractors actually doing the work.
    More importantly, we need to determine why these Government 
agencies fail to do due diligence in monitoring the performance 
or lack of performance of these contractors, and why they 
waited so long to call in third party auditors to uncover the 
deficiencies.
    And, last, we need to determine what impact the setbacks in 
these two projects will have in our overall security programs 
and whether these problems are unique or symptomatic of a 
larger problem in the Department of Homeland Security.
    And I hope the witnesses today will be able to give an 
honest assessment of what went wrong with these projects and 
how we can prevent similar occurrences in the future. And I 
also hope that my colleagues will take a critical look at 
whether the concept of the prime interrogator is a feasible and 
cost-effective model for the procurement of large Government 
projects or another example of the fox guarding the hen house.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Ms. Watson.
    Mr. Higgins.
    Mr. Higgins. Thank you, Mr. Chairman. I appreciate your 
taking the initiative to do this hearing, and I think it is 
very important just generally with respect to the Congress's 
oversight role here. What we are finding over the last several 
days in many aspects, the contracting out of various functions 
within agencies is not producing cost-cutting stimulus, it is 
resulting in a lot of waste, which is precluding various 
Government agencies from doing other responsibilities that come 
under their jurisdiction.
    I represent an area of Buffalo, NY, where we have a shore 
facility that is in need of attention, but it is not being 
addressed because of the problems, I believe, having to do with 
the integrated Deepwater systems. So my hope is that as the 
previous hearings have, this hearing will shed light and 
promote transparency and accountability into a system that is 
in desperate need of accountability and transparency.
    Thank you, sir.
    Chairman Waxman. Thank you, Mr. Higgins.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman. And thank you for 
your continued vigilance to ensure that taxpayer dollars are 
being well spent when the Federal Government contracts with 
private businesses. The hearings of the last 2 days have been 
serious examinations of our Federal procurement process, and I 
appreciate your leadership.
    That the Federal Government depends on private sector 
businesses for certain services is nothing new, but I remain 
concerned that we have exceeded the limits of what can be 
characterized as a healthy reliance on private contractors for 
the provision of Government services. Yesterday we heard about 
the role that contractors play in the conflict in Iraq. That 
literally hundreds of companies playing multiple roles and 
answering to different masters leads to confusion in a war zone 
is without question. But as we heard yesterday, it can also 
lead to tragedy when the lines are blurred between combat 
operations and support services.
    Today we are examining Department of Homeland Security 
contracts to determine if, with the so-called integrator model, 
the Department has relinquished too much authority by allowing 
contractors to not only execute a contract, but also design the 
scope of that contract. Both the Deepwater Coast Guard program 
and the Southern Border Initiative are costly and serious 
programs. The congressional district I represent includes the 
Baltimore Harbor and neighbors the Curtis Bay Coast Guard Yard, 
so I have a particular interest in the upgrade of the Coast 
Guard fleet.
    I hope this hearing will help to shine light on the issues 
associated with the integrator model of contracting, and I hope 
it results in a better understanding of what steps the 
Department of Homeland Security must take to improve its 
management of both of these important initiatives.
    Mr. Chairman, I yield back the remainder of my time and 
look forward to hearing from the panel.
    Chairman Waxman. Thank you very much.
    Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman, for continuing your 
oversight of making Government really work better for the 
American people and for the values and goals of the American 
Government.
    What I find so incredibly frustrating, Mr. Chairman--and I 
will say Mr. Walker and Mr. Skinner--is that we see the same 
story over and over again. It is like a broken record. The 
administration wastes billions and billions on fundamentally 
flawed contracting processes and approaches, and really lacks 
oversight. The $8.8 billion that they lost or they could not 
account for that we heard earlier in this week. But it reminds 
me of the movie of Groundhog's Day; we keep seeing the same 
problem over and over again.
    So what I hope to learn from your testimony today and to 
hear from you is what we in Congress can do to stop this 
seemingly endless continuing cycle of waste, fraud, and abuse, 
and mismanagement in the Government contracting process.
    I yield back the balance of my time.
    Chairman Waxman. Thank you very much, Mrs. Maloney.
    I want to now turn to our witnesses to receive testimony 
today.
    Oh, Mr. Clay, I didn't see you come in. Do you wish to be 
recognized?
    Mr. Clay. Yes, just for a short statement, Mr. Chairman.
    Chairman Waxman. Certainly. The gentleman is recognized.
    Mr. Clay. Thank you for that. And I thank Ranking Member 
Davis for holding today's hearing on the management of the 
Deepwater and SBInet contracts.
    It is extremely disturbing that the Coast Guard has been 
systematically rewarding Deepwater contractors whose products 
contain crucial structural flaws. The Deepwater program's goal 
was to replace an aging Coast Guard fleet with new and improved 
ships. Instead, the poor design and construction of these ships 
will prevent them from carrying out their mission objective.
    Giving these contractors high marks for their poor 
performance and extending their contracts for substandard 
equipment is criminal. Someone is dropping the ball, and I look 
forward to hearing testimony that explains who is being held 
accountable for this lax oversight. It is my hope that today's 
hearing will not only shed light on the policy of DHS as to its 
procurement practices, but also to learn if the Government is 
efficiently managing taxpayer dollars by relying so heavily on 
private contractors.
    That ends my statement, Mr. Chairman. I yield back the 
balance of my time.
    Chairman Waxman. Thank you very much.
    Unless any other Members wish to be recognized for an 
opening statement, we will proceed to the witnesses.
    We are honored to have with us David Walker, Comptroller 
General of the United States and head of the U.S. Government 
Accountability Office; and Richard Skinner, the Inspector 
General of the U.S. Department of Homeland Security. We welcome 
both of you.
    It is our policy in this committee to swear in all 
witnesses, and I would like to ask you to rise and hold up your 
right hands.
    [Witnesses sworn.]
    Chairman Waxman. Thank you very much. The record will 
indicate that the witnesses answered in the affirmative.
    Your prepared statements are going to be in the record in 
its entirety, but what we would like to ask each of you to do 
is to give us a brief summary of the testimony and to try to 
keep it within 5 minutes.
    Mr. Walker, we are going to call on you first.

     STATEMENTS OF DAVID WALKER, COMPTROLLER GENERAL, U.S. 
    GOVERNMENT ACCOUNTABILITY OFFICE; AND RICHARD SKINNER, 
    INSPECTOR GENERAL, U.S. DEPARTMENT OF HOMELAND SECURITY

                   STATEMENT OF DAVID WALKER

    Mr. Walker. Thank you, Chairman Waxman, Ranking Member 
Davis, other members of the committee. It is a pleasure to be 
before you today to discuss GAO's reviews of the Department of 
Homeland Security's acquisition challenges in general and the 
U.S. Coast Guard's Deepwater program in particular.
    In January 2003, the GAO designated DHS's implementation 
and transformation effort as a high risk area because of the 
size and complexity of the effort and the existing challenges 
faced by many of the components of the 22 different entities 
that were merged into the Department of Homeland Security. 
Although DHS has made progress in addressing a number of these 
challenges, there are major items that remain which, therefore, 
keeps it on our high-risk list.
    In fiscal 2006, DHS reported obligating $15.6 billion for 
acquisitions, making it the third largest Federal department in 
spending taxpayer dollars in this area. DHS is undertaking 
large, complex investments as the Federal Government is 
increasingly relying upon contractors for roles and missions 
previously performed by Government employees. Contractors have 
an important role to play in the discharge of the Government's 
responsibilities, and in some cases the use of contractors can 
result in improved economy, efficiency, and effectiveness.
    At the same time, they don't always result in improved 
economy, efficiency, and effectiveness. And there may be 
occasions when contractors are used to provide certain services 
because the Government lacks another viable and timely option. 
In such cases, the Government may actually be paying more, and 
taking on more risk, for such services as opposed to providing 
certain services by Federal employees. Furthermore, giving more 
flexibility and responsibilities to contractors results in more 
risk to the Government and to the taxpayers, which must be 
actively managed.
    In this environment of increased reliance on contractors, 
sound planning, effective contract execution, and ongoing 
oversight are critical for success. We have previously 
identified the need to examine the appropriate role for 
contractors to be among the greatest challenges facing the 
Government in the 21st century.
    And, I might add, we may be talking about DHS today, we may 
be talking about Deepwater today, but this is a systemic 
problem which, Mr. Chairman, I would respectfully suggest may 
be meritorious of having a separate hearing just on the 
contracting issue by itself.
    DHS has a stated goal of integrating the acquisition 
function more broadly across the Department. We have reported 
that this goal has not yet been accomplished and we have 
identified a number of key impediments to achieving it.
    From the outset, we have expressed some concerns about the 
risk involved with the Coast Guard's acquisition strategy for 
the Deepwater program. In 2004, we reported that, well into the 
contract's second year, key components needed to manage the 
program and to oversee the system integrator's performance had 
not yet been effectively implemented. It was clear that there 
was a possibility of expectation gaps between what the Coast 
Guard may have wanted and what they might ultimately receive.
    We also reported that, despite documented problems in 
schedule, performance, cost control, and contract 
administration through the first year of the Deepwater 
contract, the contractor had received a rating of 87 percent, 
which fell in the ``very good'' range and resulted in an award 
fee of $4 million of a maximum $4.6 million being paid. The 
Federal Government all too frequently is subject to great 
inflation, not having adequate performance metrics, and paying 
award fees based upon attitude and efforts, rather than real 
results. That is a systemic problem and it needs to be 
addressed.
    However, a number of actions have been taken and others 
remain to be taken in order to try to get control of the 
Deepwater situation. I must say that Admiral Allen inherited a 
number of problems. I would also like to say for the record 
that I have known Admiral Allen for many years; I have great 
respect for his leadership ability and I know that he is taking 
this issue very, very seriously. And you will hear from him 
later.
    We have ongoing work with regard to both SBInet as well as 
the Deepwater program which we will be issuing in the near 
future.
    And, in summary, let me just say we may be talking about 
DHS acquisitions and Deepwater in particular today, but let me 
reiterate, this is a systemic problem throughout the entire 
Federal Government. The taxpayers lose billions of dollars a 
year. We have identified, Mr. Chairman and Ranking Member 
Davis, 15 Government-wide systemic problems in the contracting 
area, and I would respectfully request at some point in time to 
have the opportunity to appear before this committee to discuss 
those, because I think they merit such a hearing.
    Thank you.
    [The prepared statement of Mr. Walker follows:]

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    Chairman Waxman. Thank you very much, Mr. Walker. I share 
your concerns and we will continue to look at the picture as 
well.
    Mr. Skinner.

                  STATEMENT OF RICHARD SKINNER

    Mr. Skinner. Good morning, Mr. Chairman and members of the 
committee.
    Before I go into details, there are a couple of points I 
would like to note, and they are also things that members of 
the committee have also raised in their opening statements.
    First of all, people have to understand when the Department 
was stood up in March 2003, it was shortchanged. On one side of 
the ledger it acquired entire operational assets and programs 
of 22 disparate agencies. On the other side of the ledger it 
did not acquire a proportionate share of the acquisition 
management assets needed to support those programs and 
operations.
    To compound matters, DHS was asked or was required--the 
acquisition management function was asked to service whole new 
components that were stood up as a result of the creation of 
the Department of Homeland Security. For example, the Science 
and Technology Directorate, the Intelligence Analysis 
Directorate, and the Infrastructure Protection Directorate.
    The Government's greatest exposure to fraud, waste, and 
abuse is undoubtedly in the area of procurement. As already 
pointed out by members of this committee, the problem is not a 
new one; it dates back to the Federal Government's nearsighted 
policies of the early 1990's to reduce the Federal work force. 
While acquisition management capabilities were being downsized, 
the procurement workload was on the rise.
    This phenomenon is most profound within DHS, the Department 
of Homeland Security, where reliance on the private sector is 
critical. Forty percent of the Department's budget in year 2006 
was spent on contracts, $16 billion. The Department, in 
essence, however, is in a catch-22. The urgency of its mission 
demands rapid pursuit of major investment programs; it cannot 
wait until its acquisition management infrastructure is in 
place or fully staffed. And, without a systems command or a 
program management capability to provide managers with 
expertise, business processes and tools, DHS's large, complex 
performance-based contracts, such as Deepwater and SBInet, are 
at risk of cost overruns, delayed delivery schedules, poor 
performance and, yes, waste.
    DHS recognizes these problems and is acting aggressively to 
correct them. However, many of these corrective measures will 
take time, such as building a procurement work force to manage 
the Department's massive workload. Until this is accomplished, 
DHS needs to proceed with caution and take advantage of all the 
tools at its disposal to mitigate risk and avoid future 
problems.
    I am sure you will hear from the next panel about the 
precautions and plans that the Department's Procurement Office, 
the Coast Guard, and the Customs and Border Security Office are 
taking or planning to take to safeguard Department's contract 
dollars in the future. Some common themes and risks that have 
emerged from our audits over the past several years are the 
dominant influence of expediency, poorly defined requirements, 
and inadequate oversight of staffing.
    With regard to Deepwater, the Department of Transportation 
created in the late 1990's to replace, modernize, and sustain 
the Coast Guard's aging and deteriorating fleet of ships and 
aircraft. In June 2002, the Coast Guard awarded the Integrated 
Coast Guard Systems with a 5-year term, 30-year contract to 
serve as the Deepwater systems integrator.
    Five months later, in February 2003, the U.S. Department of 
Transportation Office of Inspector General reported that the 
Coast Guard lacked sufficient management controls and capacity 
to oversee the program. That was 4 years ago. The program was 
initiated without the people and processes needed to manage the 
effort, even with the outsourcing of program management to a 
systems integrator. This lack of a proper foundation for the 
Deepwater program remains a challenge to this day and, as a 
result, the Coast Guard has encountered a number of challenges 
which have resulted in cost increases, schedule delays, and 
reduced operational performance.
    The Deepwater contract essentially empowered the contractor 
with authority for decisionmaking. Therefore, the Coast Guard 
was reluctant, in our opinion, to exercise a sufficient degree 
of authority to influence the design and production of its own 
assets. Furthermore, general ambiguities in the Deepwater 
contract terms and condition have compromised the Coast Guard's 
ability to hold the contractor accountable for its performance.
    The Coast Guard recognizes these challenges and I can 
assure you Admiral Allen takes them very, very seriously, and 
he has assured us--and you will hear from him later today--that 
they will take aggressive corrective action to turn this 
around.
    Concerning the SBInet program, it too is a performance-
based strategy with a systems integrator to develop solutions 
to manage, control, and secure the borders. The Department 
awarded the SBInet systems integrator contract to the Boeing 
Co. in September 2006. We have been monitoring the Department's 
implementation of the SBInet program and recently provided a 
risk advisory with recommendations to address weaknesses in the 
program. The Department has agreed with our recommendation and 
said it is planning to pursue corrective actions.
    As described in that report, our main concern about SBInet 
is that DHS embarked on a multi-million dollar acquisition 
project without having laid the foundation to oversee and 
assess contractor performance and cost control and schedule. 
Deja vu, Deepwater all over again. Prior to the award, DHS has 
not properly defined, validated, and stabilized operational 
requirements. Moreover, until the operational and contract 
requirements are firm, effective performance management and 
cost and schedule control are precluded.
    We also reported that the Department does not have the 
capacity needed to plan, oversee, and execute the SBInet 
program, to administer its contracts, and control cost and 
schedule. DHS needs to move quickly to establish the 
organizational capacity to oversee, manage, and execute the 
program.
    Also, in all fairness, I should note that we also reported 
that the SBInet program has taken steps to mitigate risk and 
avoid some of the problems encountered by the Deepwater 
program. For example, unlike the Deepwater acquisition, DHS 
retained decision authority; included contract provisions 
ensuring Government involvement in the subcontract management 
or in make-or-buy decisions; the system integrator is not 
necessarily the source of supply; adopted shorter contract 
terms which included off-ramps in the contract; used concept 
demonstrations and incremental approaches before committing to 
a long-term solution and investment.
    I would like to conclude by saying that my office is highly 
committed to the oversight of these and other major 
acquisitions within the Department. It is an area where we 
continue to focus considerable resources. This year, we plan to 
issue a report card on the Department's management of its 
procurement responsibilities, the Deepwater program, the SBInet 
program, and FEMA'S procurement program. We also plan to issue 
a series of reports on the Department's management of both the 
SBInet and the Deepwater program.
    Mr. Chairman, that concludes my remarks. I would be happy 
to answer your questions, any questions you or the Members may 
have.
    [The prepared statement of Mr. Skinner follows:]

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    Chairman Waxman. Thank you very much, Mr. Skinner.
    Mr. Skinner, you testified about the structural problems 
with the National Security Cutter. This ship, which is 425 feet 
long, is the largest and most ambitious element of the 
Deepwater program. The Deepwater contract is supposed to 
provide the Coast Guard with eight of these ships, but the 
first ship has been plagued with problems. Your report last 
week found that it will not meet the performance specifications 
in the contract; it does not have an adequate fatigue life to 
serve the Coast Guard for 30 years.
    The question of the ship's fatigue life has been a 
consistent one over the past several years. In 2002, technical 
experts at the Coast Guard warned of problems, sending emails 
and memos to the Deepwater program office. Three years later, 
the Coast Guard asked the Carderock Division of the Naval 
Surface Warfare Center to analyze the ship's fatigue life. In 
December 2005, the Navy prepared a preliminary report, as well 
as a summary in slides. These slides contained alarming 
conclusions that were highlighted in red letter, and I would 
like to put them up on the screen. We have provided them to 
you.
    Here is one slide. It says, ``Bottom line, stresses are too 
high for Cat E--meaning Category E--details to last 30 years'' 
and the arrow points to the word ``problem'' with an 
exclamation point. Another slide said, ``Bottom line, stresses 
are too high to allow details, longitudinal weld, or E details 
but weld, to last 30 years.'' Another arrow pointing to the 
word ``problem.''
    These slides were provided to senior Deepwater officials in 
the Program Management Office who are responsible for the 
oversight and management of the entire program. Later, that 
Office created a briefing for the Commandant of the Coast. This 
briefing occurred just 6 days later. The Commandant's briefing 
had the same information, but the critical warnings were 
stripped. Let me show you on the screen. Page 8 of the original 
briefing has that clear red warning. Page 5 of the Commandant's 
briefing is identical except for the missing red type; it is 
gone.
    Mr. Skinner, I would like to get your views about this. It 
appears that someone modified these slides to strip out 
critical warning information that was originally included. Do 
you agree?
    Mr. Skinner. It certainly appears that way. And I am not 
sure, I wasn't present when they briefed the Commandant 
concerning this, but I can say that we were aware of the 
Carderock study. We were aware that--we prepared slides for the 
Commandant briefing. We asked for those slides in early 
December of, I believe it was, 2005, and we waited a week, 
still didn't receive the slides. We were getting a little 
impatient; we pushed the issue. Our counsel talked to the Coast 
Guard counsel.
    Later that evening--it was actually after 7:00--the slides 
were delivered to us. However, they were not the Carderock 
slides; the red lettering had been removed. In the interim, we 
received, back-channel, the actual copies of those slides and 
later that week or the following week we then received the 
originals that had the red lettering.
    I think this was somewhat indicative of the Coast Guard's 
attitude with regard--at least at that point in time--with 
regards to the transparency of what was taking place. 
Throughout the entire course of 2005--matter of fact, we had to 
cancel our--we had to delay our review, stop the audit for 5 
weeks until we resolved some access issues to document some 
personnel and the rules of engagement for the audit. And 
throughout that whole course the Coast Guard and officials that 
we were talking to during that period of time were simply 
denying that there were any problems, and if they did say there 
were problems, they referred to them as just some small 
technical ambiguities that needed to be addressed.
    Chairman Waxman. Well, were you concerned that the 
Commandant didn't get the full picture, they sent them slides 
with the information taken off?
    Mr. Skinner. I was not aware that the Commandant himself 
did not get the full picture. I was concerned that we did not 
get the full picture, that we had to push very hard and involve 
our counsels to be able to get access to documents so that we 
could proceed with our work.
    Chairman Waxman. Do you know why the Program Management 
Office would delete this important information?
    Mr. Skinner. I beg your pardon, sir?
    Chairman Waxman. Do you know why they would delete this 
important information?
    Mr. Skinner. I don't want to really speculate, but it would 
certainly appear that they did not want to admit to the fact 
that they were having flaws with the Cutter because of the 
commitment they had made, they had already invested a lot of 
money to proceed with the construction of the Cutter.
    Chairman Waxman. Did you determine who actually doctored 
these slides?
    Mr. Skinner. No, I haven't.
    Chairman Waxman. You don't know if it was one individual 
or----
    Mr. Skinner. No, I don't. We determined who delivered them 
to us, but I can't say exactly who doctored them.
    Chairman Waxman. Surely, others at the----
    Mr. Skinner. If you want to refer to it as doctoring them. 
I don't know who changed them.
    Chairman Waxman. Changed them. Surely, others at the 
Commandant's briefing must have noticed these major 
alterations. Do you know whether that was the case or not?
    Mr. Skinner. No. I wasn't present and I don't believe 
anyone in our staff was present during that briefing.
    Chairman Waxman. Do you know whether any support 
contractors were involved in the preparation, review, or 
production of the Commandant's briefing?
    Mr. Skinner. That is possible, but I don't know.
    Chairman Waxman. You don't know. And can you tell us how 
you ultimately found out about the changes in these briefing 
slides?
    Mr. Skinner. Officials from the Carderock advised us that 
they had completed--because we were monitoring--we were in the 
middle of an audit and we knew that Carderock was doing a study 
of the design, and they advised us that they had completed 
their work and they were preparing a slide or a brief for the 
Commandant or for Coast Guard officials, and we then went to 
the Coast Guard to ask for those slides. The Carderock 
officials pointed out to us that they had serious concerns with 
the design.
    Chairman Waxman. How unusual is it for you to ask for 
information and have this kind of--what--deflection--to be the 
nicest about it--deflection of giving you the answers?
    Mr. Skinner. This is highly unusual. I have been in the IG 
community long before the IG Act, 38 years. I have never 
experienced anything quite like this.
    Chairman Waxman. Do you find it troubling?
    Mr. Skinner. Very troubling. So troubling that I did bring 
it to the attention of the Commandant, and I also went and 
brought it to the attention of the Deputy Secretary and I 
brought it to the attention of the General Counsel of the 
Department of Homeland Security.
    Chairman Waxman. Well, sugar-coating the information may 
have made life easier for the program managers, but it is 
certainly a disservice to the Commandant and to you and to the 
taxpayers of this country.
    Mr. Skinner. Most certainly.
    Chairman Waxman. Mr. Davis.
    Mr. Davis of Virginia. Thank you very much.
    Let me just start, General Walker, with you. The taxpayers 
do lose billions of dollars every year on contracting. It is 
for a lot of different reasons, isn't it? I have always argued 
that waste and fraud and abuse don't come in neatly tied 
packages together, they are layered throughout the bureaucracy 
in the way we do business, and contracting--Government has gone 
to more and more outsourcing. The way we contract, the way we 
oversee it--and that is a debate we should have, a full day of 
that, because I think there are some serious issues.
    One of the difficulties, it seems to me, is the more 
transparency you build into it, sometimes, the more inefficient 
you become, too. So there becomes a tradeoff. We spend so much 
time in Government sometimes making sure nobody steals a dollar 
that you can't get much of anything else done. And we have had 
these constant debates through time, trying to find the right 
balance and the right type of contract, whether it is a 
services contract or whether it is a general production or the 
like.
    Do you want to make any general comments about that?
    Mr. Walker. I do.
    Mr. Davis of Virginia. You have been involved with this for 
years.
    Mr. Walker. First, I think we have to understand that there 
are many, many contracting arrangements that work very well for 
the taxpayers, that are very economical, that are very 
efficient. So I don't think we want to paint with a broad brush 
here.
    At the same point in time, the fact is we are relying on 
contractors, for a variety of reasons, to a much greater extent 
than we ever have, in roles and responsibilities, in many 
cases, we never have before, and then that represents 
additional risk.
    I would like to provide for the record, Mr. Davis, 
something that I was asked to do by Chairman Skelton of the 
Armed Services Committee, and that is to come up with a 
definition of waste, and to give specific examples of waste as 
it relates to contracting activities. And, quite frankly, it is 
a shared responsibility. In some cases it is because the 
executive branch doesn't do its job; in some cases because the 
contractor doesn't do its job; in some cases because the 
legislative branch does or doesn't do something. So I would 
like to provide that for the record, if I may.
    Chairman Waxman. Is there objection?
    [No response.]
    Chairman Waxman. We would be pleased to receive that for 
the record.
    Mr. Davis of Virginia. Thank you very much.
    Mr. Skinner, let me just ask from your perspective, in this 
case what went wrong? Was it the Government that went wrong, 
the lack of direction? Was it the fact that in the initial 
design they knew there were some chances that were going to be 
taken, there were some risks involved? Is this the fault of the 
Government not appropriately overseeing this thing and giving 
appropriate direction to the contractor, or is this something 
where a contractor has run amok?
    Mr. Skinner. I think you have to go back to the contract 
itself, and at that time--this was a novel approach that we 
were taking here, to do a systems-of-systems approach, 
partnering with the private sector, incidentally, which I think 
was an excellent idea, because you really need, in projects 
like this, to partner with the private sector.
    Mr. Davis of Virginia. Well, let me just ask you. There was 
no in-house capability to do this completely within Government?
    Mr. Skinner. None at all.
    Mr. Davis of Virginia. Was there any in-house capability to 
properly oversee this?
    Mr. Skinner. Not--no.
    Mr. Davis of Virginia. OK.
    Mr. Skinner. That was a problem that was reported in 2003, 
and it is a problem that we are having today.
    Mr. Davis of Virginia. So, frankly, it is a part of looking 
at this, you are talking about at the governmental level we 
need to bring in more high level trained professionals in the 
procurement area, regardless.
    Mr. Skinner. Yes. And not only in just procurement types, 
but also program managers, engineers, and others to form a 
team.
    Mr. Davis of Virginia. And I would opine from the pay 
scales we are offering now, are we even competitive with the 
private sector? Anybody think they can----
    Mr. Skinner. I would say not. And the reason I could say 
that is because I am in a recruitment mode in our office, and 
we are trying to hire procurement types, and it is very, very 
difficult.
    Mr. Davis of Virginia. And once you train them, can you 
retain them, I mean, with the pay levels we have?
    Mr. Skinner. My goal is if I can get someone and train them 
and keep them 3 years, I am successful.
    Mr. Davis of Virginia. Mr. Walker.
    Mr. Walker. Mr. Davis, I think you raise an excellent 
point. I think we have to understand what went wrong and why, 
and what are the systemic problems that we need to address in 
order to minimize the possibility of what happened before.
    It is one thing to contract out more discretion and more 
responsibility, but when you do that, it means you have higher 
risks. You cannot totally contract out oversight 
responsibilities. And, therefore, it is really critically 
important that the Federal Government have enough people with 
the right kind of skills and knowledge to manage cost, quality, 
and performance.
    We may need to change our compensation strategies for 
highly skilled people. We may need to change our recruiting 
practices and how we can bring people in. It will save the 
taxpayer a lot of money if we go about it the right way.
    Mr. Davis of Virginia. Pay me now or pay me later, it just 
seems to me. I have always felt in these large procurements 
like this, if management brings this thing on time and under 
budget, you ought to bonus them. It is worth it compared to 
what you are paying them in the out years.
    How much of this has been a problem with a change in terms 
of the needs, the requirements change that has come through, 
with these procurements?
    Mr. Skinner. I am sorry, I am not sure I understand.
    Mr. Davis of Virginia. How much of the problem is created 
because of a change in requirements from the beginning, when 
this was envisioned, to where we are today?
    Mr. Skinner. You have to anticipate change. You have to 
expect that.
    Mr. Davis of Virginia. But a lot of cost increases come 
from changes.
    Mr. Skinner. Yes, they do. And when this project was 
initiated, keep in mind it was before 9/11, so there were 
changes that were absolutely necessary.
    Mr. Davis of Virginia. Were they significant changes?
    Mr. Skinner. I can't----
    Mr. Davis of Virginia. Well, I guess we can ask the next 
group. I mean, it is one thing to say, well, this was going to 
be $3 billion and now it is $10 billion, or whatever, but you 
have to take a look at what the Government then changes along 
the way and that there are costs. I spent 25 years in 
procurement before I came to Congress. I mean, we recognize how 
this happens, and many times it is the Government's changes 
that build in these extra costs that weren't anticipated at the 
time.
    Mr. Walker.
    Mr. Walker. That is an excellent point, in fact, it is one 
of the 15 items. You have already hit on a couple of the 15 
items. The Government needs to do a much better job of defining 
the requirements up front, based upon needs versus wants, that 
are affordable and sustainable over time. It is one thing for 
there to be a change in requirements because of subsequent 
events. For example, 9/11 was a subsequent event. That caused 
certain types of needs to happen; not just with regard to 
Deepwater, but on the Capital Visitor Center. It caused a 
number of changes on that. That might be understandable.
    On the other hand, all too frequently there are changes in 
requirements that have nothing to do with subsequent events 
that are based on preferences, wants versus needs; not 
necessarily here, but systemically.
    Mr. Davis of Virginia. Thank you very much.
    And also, Mr. Skinner, just to ask you, even when you 
outsource some of the oversight--and I think there are times 
when you may want to do it--you still need people that are 
overseeing the overseers----
    Mr. Skinner. That is correct.
    Mr. Davis of Virginia [continuing]. To be highly skilled 
and trained, and at least know when to ask the right questions. 
Did they have capability in-house?
    Mr. Skinner. No.
    Mr. Davis of Virginia. So therein lies the systemic 
problem.
    Mr. Skinner. At that point in time, in our opinion, no, 
they did not have that capability. That is the capability that 
they must build and that is the commitment that Admiral Allen 
has made to build that capability.
    Mr. Davis of Virginia. So you have a contract, a huge 
contract, with a number of changes in there, and no in-house 
capability to really oversee it and ask the right questions, 
and no appropriate direction sometimes to the contractor 
because the people inside--no fault of theirs, but systemically 
we don't have people to even ask the right questions and give 
it the right direction.
    Mr. Skinner. That is correct. And we have to keep in mind 
this goes throughout the Deepwater program, not just dealing 
with the Cutters.
    Mr. Davis of Virginia. Well, it is more than just 
Deepwater, isn't it? General Walker, isn't this across 
Government?
    Mr. Walker. This is a systemic problem throughout the 
Federal Government.
    Mr. Davis of Virginia. Mr. Chairman, I would just say, as 
we work our way through, one of the purposes of these 
hearings--and what separates this from what some of the other 
committees are doing is we take a broader view at this, try to 
get at the policy implications, both from a Civil Service 
perspective and an outsourcing perspective, to try to save the 
taxpayers money.
    Chairman Waxman. Would you yield?
    Mr. Davis of Virginia. I would be happy to.
    Chairman Waxman. It just seems to me what we are saying is 
that if there is no infrastructure, the money is not going to 
be well spent. If we find examples where they haven't thought 
through, in the Government, what exactly they want, so they 
outsource even thinking through what they want and then they 
outsource doing it, and then they outsource the oversight.
    Isn't that what we are finding, Mr. Walker?
    Mr. Walker. That has been done, and that obviously provides 
additional discretion. With additional discretion means 
additional risk. And as was said by Mr. Davis, you have to have 
somebody to oversee the overseers if you have outsourced that.
    Mr. Davis of Virginia. I think with a good in-house cadre 
this can work, but you have to have that, and then with the 
changes as you talk about. You get a good program manager or 
somebody there, you are lucky to keep them 3 years. For these 
longer projects it just doesn't work.
    Chairman Waxman. Well, this was $30 billion.
    Mr. Walker. Right. And one of the challenges, one of the 
other items on the list of 15 is you need the right kind of 
program manager with the right kinds of skills and knowledge, 
and they need to stay on the job long enough, rather than being 
pre-programed to turn over, which is another accountability 
challenge.
    Mr. Skinner. That is another concern that we have as well, 
is the turnover rate. For the few they do have, there is a 
constant turnover; they are not committed to the project long-
term. We are finding this in Deepwater. We are concerned about 
this in SBInet as well because the people working there now, 
most of them are detailees, they are not committed for the 
long-term. And we are finding this--well, like Mr. Walker said, 
this is a Government-wide problem, not just a DHS issue.
    Mr. Davis of Virginia. One last question. Do you see this 
thing turning around at this point? Do you think this is 
heading in the right direction?
    Mr. Skinner. I do. I really believe in the leadership that 
is being provided by Admiral Allen. I know that they are making 
some real drastic changes right now with regards to the way 
that contract is going to be managed. My biggest concern now is 
getting the resources needed to manage it. That is as with 
regards to Deepwater, and it is also our major concern with 
SBInet. We learned lessons from Deepwater when we entered into 
the SBInet contract, but we still don't have the resources, in 
our opinion, to provide oversight and to ensure that funds are 
going to be spent efficiently.
    Mr. Davis of Virginia. If I can just make one brief 
comment. I think that most of us can agree getting those 
resources is critical, and sometimes in Government's efforts to 
cut expenditures we are stupid, because we cutoff fingers and 
toes instead of losing weight throughout the system in the way 
we do business in that a few dollars up front could save us 
billions of dollars. Is that fair?
    Mr. Skinner. Yes, that is very fair.
    Mr. Davis of Virginia. Mr. Walker.
    Mr. Walker. Real quickly, with your indulgence, Mr. 
Chairman, I think the other thing you need to focus on is I 
have a great deal of respect for Admiral Allen, and he is on 
the case. You know, time will tell, but I think we have the 
right person on the job. They may need your help. They may need 
your help with regard to authorities to be able to have 
additional flexibilities to be able to attract and retain the 
kind of people necessary to oversee the overseers. That might 
require legislative change in addition to financial resources.
    Chairman Waxman. Thank you both. Even with good intentions, 
the job can't get done if you don't have the resources to do 
it.
    Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    First of all, let me thank you gentleman for being here and 
for your testimony. Let me say from the outset, and what I said 
before the Coast Guard Subcommittee on Transportation, that I 
have the utmost confidence in Admiral Allen. I believe that he 
is an honorable man and I know that he will do a great job.
    But then that leads me to this set of questions.
    Mr. Skinner, you wrote in your report that prior to the 
award of the Deepwater contract to the integrators, the Coast 
Guard converted many of the design standards it had previously 
specified to guidance and did not incorporate a contractual 
mechanism to ensure that those alternative standards met or 
exceeded the original guidance standards it had developed. Is 
that true?
    Mr. Skinner. Yes.
    Mr. Cummings. And do you know why that was done? In other 
words, they changed their own standards, is that right?
    Mr. Skinner. It is hard to say if they actually changed 
their own standards. The contract was so vaguely worded, there 
was disagreement within the Coast Guard by the contractors, the 
contracting officer, the systems engineers. There was 
disagreement as to what those standards were. For example, from 
2000 all the way through 2005, we thought we were building a 
ship to be underway for 230 days for 30 years. The 2005 is the 
first documentation--matter of fact, all evaluations done by 
Carderock and others of the Cutter did a base on that standard. 
The language in the contract said 230 days. The navigational 
rules define 230 days as anchors up, so to speak.
    Mr. Cummings. So we could have had some better contract 
attorneys putting this thing together?
    Mr. Skinner. The vagueness of the contract, the terms and 
the specifications in the contract were so vague, it gave the 
contractor discretion to define what those standards would be.
    Mr. Cummings. Speaking of vagueness, Mr. Walker, you know, 
you were talking about back in 2004, and in your testimony you 
said despite documented problems in schedule performance, cost 
control, and contract administration throughout the first year, 
the program executive officer--and who is that, by the way--
awarded the contract an overall rating of 87 percent, which 
fell in the very good range. And this is what I am concerned 
about: and then it says this rating resulted in an award fee of 
$4 million of a maximum $4.6 million. That is like a bonus, is 
that right?
    Mr. Walker. That is correct.
    Mr. Cummings. Help me with this.
    Mr. Walker. Well, this is----
    Mr. Cummings. I mean, our constituents are looking, trying 
to figure out it would take them half a lifetime to make $4 
million. We have boats that aren't even floating and they are 
trying to figure out why is somebody getting a bonus.
    Mr. Walker. This is another example of a systemic problem. 
The Government has a number of contract provisions that provide 
for incentive and award fees, but many times those provisions 
provide for those incentive and award fees based upon attitude 
and effort, rather than outcomes. And one of the things that 
has to happen is that we need to focus these incentive and 
award fees on cost, schedule, performance, outcome-based 
indicators----
    Mr. Cummings. I have to stop you there.
    Mr. Walker. No problem.
    Mr. Cummings. I beg you to tell me what do you mean getting 
a bonus based on attitude?
    Mr. Walker. Well, what I mean is----
    Mr. Cummings. Because I am sure a lot of people would like 
to know.
    Mr. Walker. What I mean by that is the contractor did what 
they were supposed to do, they produced this particular 
document, they did something that resulted in an output within 
the timeframes, they were cooperative, they worked together in 
a constructive fashion with the related Government officials, 
but not necessarily outcome-based. And that is the problem, 
clearly defining on what basis there are going to be incentive 
award fees paid.
    By the way, I think we need two other things. We also need 
to have exit clauses in contracts. If things aren't going the 
way that they should be going, we ought to be able to pull the 
plug and the taxpayers shouldn't have to pay a dime.
    Mr. Cummings. If you had an exit--Mr. Walker, I want you to 
get to No. 2, but if you had an exit clause here, would you be 
recommending to the Congress that the plug be pulled? I mean, 
irrespective of somebody great like Admiral Allen.
    Mr. Walker. We are not--we haven't finished our work. We 
are going to be issuing a report on Deepwater in the near 
future. I don't really want to speculate on that.
    The other thing that we need, Mr. Cummings, is in addition 
to incentive and award fees for good positive performance, we 
need penalties short of exit clauses. You need to have a 
balance. We don't have a balance.
    Mr. Cummings. So right now we have a lot of disputes, but 
we don't have the mechanisms contractually to even address 
them, is that what you are saying?
    Mr. Walker. In all too many cases that is true.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Cummings.
    Mr. Shays.
    Mr. Shays. Thank you, Mr. Chairman.
    I would like to switch with Mr. Mica. Thank you.
    Mr. Mica. Well, this isn't quite as bad as it all sounds. I 
mean, when I took this responsibility over the Coast Guard on 
the Republican side a month or so ago, I was absolutely 
petrified because the Coast Guard has such a great reputation 
of performance in Katrina and whatever else they do; it is a 
great agency. It is one of the darker moments. I tried to find 
out what went wrong.
    First of all, this is a total of about eight new National 
Security Coast Guard cutters?
    Mr. Skinner. That is just----
    Mr. Mica. That is the whole project?
    Mr. Skinner. Yes.
    Mr. Mica. There are two of them here that were constructed 
and, actually, those are usable. They are not usable for the 
lifetime that they were looking at; they will have to be--there 
will have to be some upgrades for some reason, again, it didn't 
meet the specs in this design, as I am told. The three through 
eight will, is that correct?
    Mr. Skinner. It is my understanding that----
    Mr. Mica. OK, so they may have taken corrective action and 
we can save those two. I don't even want to get into the eight 
that we tried to retrofit that are tied and moored to Key West. 
If Castro drops dead, I am still wondering what we are going to 
do, but I feel Allen has a plan, so I don't feel too bad about 
it.
    The other thing, let's put this in perspective as well. 
First of all, somebody said Government is more efficient than 
the private sector. I heard it from the other side. That is 
unbelievable. This is a Government failure, it is not the 
private sector. The Government ordered this; the Government was 
to oversee it.
    Also, this is a very unique project. This is development of 
a new class of Coast Guard cutter, correct?
    Mr. Skinner. That is correct.
    Mr. Mica. OK. Never before built. Now, who were we going to 
have design it? They didn't have that capability. Did they have 
that capability in-house?
    Mr. Skinner. No.
    Mr. Mica. OK. Could we get a committee in Congress to 
design it? God help us. The Government doesn't build anything. 
A lot of folks don't understand this. It is privatization, oh 
my God.
    So there are parts of this, there is the development of the 
specifications, which I guess the Coast Guard should probably 
have better people.
    And I even have to disagree with the ranking member here, 
Davis. Somebody told me the average life is 3 years--sorry, Mr. 
Davis--[laughter]--3 years for keeping one of these folks 
onboard. We can't pay them; you can't keep them onboard. This 
started in 2002; here are we in 2007. We would be through two 
of these project people. We ought to be looking at even instead 
of trying to do this in-house writing the specs, doing that in 
the private sector, because you cannot, you will not retain 
those people to do that. Again, folks here don't understand 
that.
    Then you have not only the turnover I described from 
Collins to Allen and in between two agencies, and the changes 
in Congress--I got this baby about 4 or 5 weeks ago. So you 
have to have somebody who can set the specs, somebody who can 
design it. There are only two--really, if you look at who we 
have available, you have two vendors available, the best. They 
picked them, Northrop Grumman and Lockheed. They are the best, 
aren't they?
    Then you start looking at shipbuilding, our shipbuilding 
capability. Sorry, Mr. Walker. Exit clause? They are not going 
to buy it because there is nobody else to go to. That is how 
limited our national capability is in even doing these 
projects. Of course, we could go to China, we could go to 
Korea, we could go to Scandinavia.
    So we can sit around and bash and dash, but it is a little 
bit more complex than that.
    Now, Admiral Allen was brought in--and you will hear from 
him later--some remedies. The sky is not totally falling; we 
will get those other eight done. These can be repaired and 
resolved.
    We do need better oversight, but it can't all be done by 
Government or Government agencies in-house; some of it we are 
going to have to retain professionals. Am I correct or 
incorrect?
    Mr. Skinner. That is correct.
    Mr. Walker. If I can, but let me----
    Mr. Mica. Don't argue with me.
    Mr. Walker. No, no, a couple of--no, I think it is 
important, Mr. Mica.
    Mr. Mica. I am just kidding.
    Mr. Walker. Which, by the way----
    Mr. Mica. I'll tell your father.
    Mr. Walker [continuing]. You are probably going to be my 
Congressman in the future, when I move back to Florida.
    Deepwater is more than the eight National Security Cutters, 
it is a range of surface and air assets.
    Second, it is a shared responsibility for where we are; it 
is not just the Government, but the Government has some 
responsibility.
    Mr. Mica. Well, they had responsibility----
    Mr. Walker. No doubt.
    Mr. Mica [continuing]. Under the contract.
    Mr. Walker. A lot.
    Mr. Mica. And I've seen these contracts. I mean, we could 
spend the rest of the day. They do go south on us and then 
there is no resource for the Government. If it was the private 
sector, I would sue the bastards.
    Mr. Walker. My comment on exit clauses is a generic 
comment, not specifically here. We need to be doing that in 
general terms. Sometimes they are more viable than others.
    And the last thing is, on structural integrity, there are 
two issues: how can you utilize and for how long will you be 
able to utilize that. Both are relevant.
    Chairman Waxman. The gentleman's time has expired.
    Mr. Mica. May I have just one----
    Chairman Waxman. No, I am sorry. We have to move on to 
other people.
    Mr. Mica. Would somebody yield me half a minute?
    Chairman Waxman. The next one on the list is Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman.
    I want to thank our witnesses this morning as well.
    Just as an introductory remark, there are many of us that 
worried about this whole situation of starting up the 
Department of Homeland Security and putting the Coast Guard in 
it, an agency that we really feel very strongly about and the 
good work that they have done, and then shorting them of all 
the resources that they need to continue to carry out their 
work.
    Mr. Skinner, I think your remarks in that regard are well 
taken.
    We also--this is shared responsibility. There are some 
Government failures here and there are some industry failures, 
and that is what the nub of this whole thing is: how are we 
going to work this out so we make improvements on that without 
trying to assign it just to one category or another. But I 
think the industry certainly has not done a great job on this, 
and Government's inability to oversee it has compounded it.
    Mr. Walker, this morning you were quoted in the paper as 
saying, with regard to renewing a $16 million--a contract 
renewal and giving $16 million in bonuses, that you didn't even 
think it passed the straight face test.
    Mr. Walker. That was with regard to the payment of some 
incentive and award fees in the past that are based upon 
attitude and effort, rather than concrete outcomes, right.
    Mr. Tierney. Exactly. You know, I think we have these 
contracts. You know, maybe the first thing we do is get all new 
lawyers here, because the contracts are ridiculous. But when 
you set it up so you have the fox guarding the hen house 
arrangements, you know, it is not a good deal. Corporations 
have a business of the bottom line; Government has the business 
of making sure the projects get done and get done properly on 
that.
    Have either of you gentlemen ever sat in a meeting with 
these teams and been uncertain as to who was the representative 
of Government and who was the representative of private 
industry?
    Mr. Walker. I have had a number of occasions where my staff 
has told me that they have been in meetings and you had no way 
of knowing who was a civil servant and who was a contractor.
    Mr. Tierney. Mr. Skinner.
    Mr. Skinner. Yes, and I have had the same experience, as 
well as my staff.
    Mr. Tierney. I mean, it just shows through here--I mean, we 
have been polite about this, I think. I am surprised there is 
not a little more intensity in outrage in some of these. But 
you talk, Mr. Skinner, about doctoring of documents. We showed 
some documents where things mysteriously disappeared, some 
warnings. But didn't you, at one point, have to suspend your 
investigation here?
    Mr. Skinner. Yes, for 5 weeks.
    Mr. Tierney. This is a role that you, Mr. Walker, play. We 
rely on you gentlemen, the Inspector General's Office, the 
Government Accountability Office, to help Congress oversee. 
There has been a lot of criticism about Congress not doing 
enough oversight, and it is well taken. But when we are going 
to do our oversight, we are relying on your entities to help us 
with that.
    Can you explain why you suspended your investigation, Mr. 
Skinner?
    Mr. Skinner. Just because of the rules of the engagement or 
the ground rules that were established by the Coast Guard as 
far as to how we would conduct our review. We had concerns that 
we were not getting unfettered access to documents. We did not 
have unfettered access to individuals during interviews. The 
Coast Guard insisted that if we interviewed anyone, their 
manager must sit in. They insisted that if we made contact with 
any of the employees, they had to report that back to their 
manager. All documents had to be vetted through a central 
source. It was taking--it created long delays for us to obtain 
documents. I felt that this was impeding in our authority, so, 
therefore, I stopped the audit and then start discussing a--
requesting that we need to change the ground rules; you have to 
understand what our authorities and responsibilities are.
    Incidentally, Admiral Allen did issue a waiver lifting the 
draft requirements that they had originally imposed, and over 
the last several months----
    Mr. Tierney. Excuse me, Mr. Skinner. I understand 
apparently everybody at the table is very happy with Mr. Allen, 
and that may be well deserved, but the fact of the matter is 
there are guidelines existing for the Department of Homeland 
Security and the Inspector General's Act of 1978 that make it 
pretty darn clear that what they were doing was wrong, that you 
should have had access to that. Am I right?
    Mr. Skinner. Yes, that is my opinion.
    Mr. Tierney. I mean, you had the whole Management Directive 
0810.1, to be specific, that should make it clear and not even 
arguable by these people that they cannot restrict access to 
your entity for this. And I think that is an area this 
committee ought to go in, as to why do these companies who have 
these relationships with these private individuals--you can't 
even tell who at the table is the private contractor and who is 
the Government person--all of a sudden telling you you can't 
have access to documents about a contract that has gone belly 
up and then giving up $16 million in bonuses on that. That is 
something we ought to look at, and we need your help to 
identify those instances so we find out who in those agencies 
is doing it and put some systems in place so they can't get 
away with impeding the responsibilities that you have to help 
us. I thank you for that.
    And I yield back, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Tierney.
    Mr. Souder.
    Mr. Souder. Thank you, Mr. Chairman.
    I want to say up front how important I think your mission 
is and how vital your mission is, and how both of you have been 
a great leader. By definition, auditors are a pain in the neck 
and oversight committees are a pain in the neck, but when you 
have a bloated monopoly system like the Federal Government, 
without the people in your services, we couldn't even begin to 
hold it accountable.
    I have some criticisms today, but it is not about your work 
in general and not about your agencies. I have three questions 
that I want to put on the record. They derive some from our 
discussions yesterday of Homeland Security.
    No. 1, you expressed concerns yesterday about the Coast 
Guard leaders wanting to sit in on all interview sessions when 
you were auditing--Mr. Tierney just kind of alluded to some of 
this--and how it potentially inhibits your ability to do 
oversight. Yet, when the minority asked to see information 
related to our ability to do oversight after the case of the 
jailing of two Border Patrol agents from their injury of a drug 
smuggler as he fled from arrest, your position was that only 
the chairman could have the documents. Why should you get full 
access for auditing purposes, yet deny it to Members of 
Congress in their ability to audit?
    Second, Congressman McCaul, also a Homeland Security 
Ranking Member, was required to file a Freedom of Information 
Act to receive this basic oversight information that had been 
given to the majority. Now that we have read it, we more 
clearly understand why the Government wanted to conceal 
evidence. It raises grave concerns about the underlying border 
patrol policies as to how they protect the border, as well as 
how this report was mischaracterized to provide cover for the 
prosecution of Federal agents. Do you believe that depriving 
documents from Members of Congress increases the risk of 
coverup?
    My third question is in the case of these agents, employees 
of the Inspector General made statements that have falsely 
defamed, possibly permanently, implying racist motives in a 
premeditated intent to murder, among other things. No such 
evidence exists in the reports, as was alleged.
    Yesterday, Mr. Skinner, you stated that you were upset and 
that those false statements were also made to you, and that you 
reprimanded your employees. How were they reprimanded? 
Yesterday, you also stated that the Border Patrol agents on a 
hill a considerable distance from the shooting, but were not 
prosecuted, had made false statements. Their discipline was 
that they were fired.
    The question is do you believe there is a double standard 
for statements that are made in different agencies of the 
Government? I am not necessarily saying that your people should 
be fired for the false statements, but the Border Patrol people 
were fired and they weren't even in the immediate proximity of 
the thing. This raises fundamental questions, and I would be 
interested in your responses.
    Mr. Skinner. Thank you, Congressman, and I am glad you 
raised this issue.
    First, I would just like to say that it is not--as far as 
the Border Patrol agents, the decision to prosecute versus take 
administrative action is not ours, that is the Assistant U.S. 
Attorney at Department of Justice.
    But I made some notes here in anticipation of a question, 
and I would like to read from these notes because I want to be 
perfectly clear and I want to make sure I don't miss anything 
about the misrepresentations I think that are occurring with 
regard to this issue on this particular case.
    First, at no time did any member of my staff knowingly and 
willingly lie to Congress about the investigation of Ramos and 
Campion, or any other matter. Anyone who states that my staff 
knowingly lied, willingly lied is slandering them.
    Second, in a closed briefing on September 26th, members of 
my staff reported that Ramos and Campion said they wanted to 
shoot a Mexican. My staff reported that to me as well, and they 
reported it to Chairman McCaul and others in a closed briefing. 
At the time my staff made that statement, they believed it was 
true, although we later learned it was inaccurate. In fact, Mr. 
Campion had stated in a sworn statement that my intent was to 
kill the alien, and I think Ramos was also trying to kill the 
alien. The alien Mr. Campion and Mr. Ramos attempted to kill 
had come from Mexico and escaped back to Mexico.
    The statement that Ramos and Campion supposedly wanted to 
shoot a Mexican was never reported in any document by my office 
or by the Department of Justice; never was introduced at the 
trial of Ramos or Campion, which had been completed 6 months 
earlier, March 2006; and never was reported by my office to 
anyone other than Chairman McCaul and other congressional 
members and staff in attendance at that particular briefing. 
The briefing my office provided to them, to Chairman McCaul and 
the other members, was initiated at his request in his capacity 
as chair of the subcommittee investigations. Chairman McCaul 
and the others understood that the information my office was 
providing was not public and was not to be made public; it was 
for official use only, for the committee's use in discharging 
their official business.
    At the time of the briefing, Mr. Ramos and Mr. Campion had 
not been sentenced. Sentencing did not occur until October. At 
the time of the briefing, three other members of the Border 
Patrol who had engaged in misconduct, but were not prosecuted, 
had not been referred to CBS for administrative discipline; we 
were still preparing those documents. That did not occur until 
the last week of January 2007. Indeed, at the time of the 
briefing, my office had not even written its report of 
investigation, which is not unusual. Oftentimes, we don't even 
write a report of investigation. In this case we did because it 
involved three other Border Patrol agents and administrative 
action needed to be taken.
    The ROI was not written until November 21st, 2 months after 
the briefing. The only reason the inaccurate statement that 
Ramos and Campion allegedly said they wanted to shoot a Mexican 
had become public is because Congressman McCaul and others had 
publicized this and reported it to the media. They have 
publicized inaccurate information and that was not used in the 
trial. None of that information that we briefed that was 
inaccurately reported to McCaul and other members was ever 
introduced in the trial, there is a misconception there. That 
played no role in the prosecution or sentencing of Ramos and 
Campion, and that was provided to them in confidence, with the 
understanding that it was not to be made public.
    At the time Campion and Ramos attempted to kill the alien 
by shooting him in the back, he was unarmed and running away 
from them. Evidence introduced at the trial proved that. That 
is why they were convicted. At the time Campion and Ramos 
attempted to kill the alien and shoot him in the back, they did 
not even know that he was an illegal alien. They didn't know if 
he was an alien or not. At the same time, when they shot at him 
as he ran away, they did not even know if there were drugs in 
the van; they found that out after the fact, after they shot 
him.
    Mr. Tierney. Mr. Skinner, we will take the rest of your 
statement on this issue. I gather you were prepared for this 
question, or make it part of the record.
    Mr. Skinner. It has been coming up at every hearing this 
week.
    Mr. Tierney. It is a little off track of the hearing. I 
didn't want to interrupt you.
    Mr. Skinner. I understand.
    Mr. Davis of Virginia. Sounds like he is giving the same 
answer, though, at every hearing, right?
    Mr. Skinner. Yes.
    Mr. Tierney. Do you have much further to go?
    Mr. Skinner. No.
    Mr. Tierney. OK. We will make the whole----
    Mr. Skinner. I do, but I will stop now.
    Mr. Tierney. We will put it all in the record.
    Mr. Skinner. Thank you.
    Chairman Waxman. Without objection.
    Mr. Tierney. And send it to another committee. [Laughter.]
    Chairman Waxman. Mr. Lynch.
    Mr. Issa. Mr. Chairman, could I ask unanimous consent that 
his statement be made available to us in real time, that copies 
be made so that we have them and not have to wait for the 
record?
    Chairman Waxman. We will do our best.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Souder. I would also like to say for the record that I 
don't agree with some of the statements that were made, and the 
court record, if released, would contradict some of it.
    Chairman Waxman. Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    I want to get back to what we were discussing before, 
especially in the discussion with Ranking Member Davis and Mr. 
Waxman about accountability about the whole function of 
oversight on all these projects, not just with respect to the 
Coast Guard or DHS.
    Mr. Walker, are you familiar with the project management 
oversight program that is operated through the Department of--
well, the Federal Transit Administration?
    Mr. Walker. Not personally I am not, no.
    Mr. Lynch. OK. What they do there--and it may suggest a 
model--is that at the very outset, when these projects are 
announced, there is an immediate process where an internal 
engineering firm is hired as a project management oversight 
consultant, and they are working for the owner. In this case it 
would be the taxpayer, essentially, but also the Department or 
the Coast Guard.
    Basically what that engineering firm does--and I have seen 
it work on transit projects, and I don't know why we don't use 
it everywhere else--well, I know it is required under TEA-21--
but we actually hire an engineering firm to work on the same 
team with the Government employees to make sure the taxpayer 
doesn't get robbed. And that is what I am seeing here.
    I heard earlier one of my esteemed colleagues say this 
isn't as bad as it looks. Now, we have $774 million, two 
cutters with defective hulls, and with stress loads on those 
hulls that have compromised the safety of those vessels. Now, 
it may not look too bad from a hearing room, but if you are 
serving for the Coast Guard on those cutters, or if you are a 
family member of someone on one of those cutters, it does look 
pretty bad. Do you agree with that statement, that this doesn't 
look too--it is not as bad as it looks?
    Mr. Walker. Well, that is a personal opinion of one of the 
members. I think there are serious problems here that need to 
be addressed.
    Mr. Lynch. Mr. Skinner. If it doesn't look that--you know, 
I am just taken aback by that statement, it is not as bad as it 
looks. I can't imagine it looking any worse.
    Mr. Skinner. Those are the opinions of the shipbuilder. I 
am not an engineer, so I can't say one way or another. But it 
is my understanding that these ships are seaworthy today. The 
question is will they be seaworthy in 30 years----
    Mr. Lynch. Right.
    Mr. Skinner [continuing]. Under the conditions they have to 
be used.
    Mr. Lynch. Right. Look, again, why are we not adopting a 
process where there is actually an engineering firm working as 
a project manager oversight consultant for our side so that our 
position is not being co-opted by all these contractors that 
are working on the other side? I agree we need to use some, you 
know, private sector employees, but they have to be on our 
team, working to save the taxpayer money; they can't be--
because the contractors, let's face it, they are out for more 
profit. We are trying to pay as little amount of money as 
possible as taxpayers; they are trying to make as much money as 
possible on their side. There is an adversarial relationship 
that has been set up here. But the way we have structured this 
whole deal is that they have all the expertise and all the 
weight on their side, and the treasury is being looted here, 
the taxpayer is being fleeced. And, you know, we have two 
defective cutters here. We knew that they were defective. We 
have documents that were edited to delete the red letter 
warnings that the hulls were not, you know, structurally stable 
with the original design. And yet I am hearing it is not as bad 
as it looks. I just--go ahead, I am sorry.
    Mr. Walker. Well, let me say that while I was not familiar 
and am not familiar directly with the Federal Transit 
Administration's approach, I am familiar generically with the 
approach that you are talking about. In fact, we have used it 
ourselves at GAO. I mean, when there are circumstances when we 
need highly scientific or technical expertise and we didn't 
have adequate capacity internally, we contracted independently 
and they worked side-by-side with us and for us. So there are 
ways to deal with this. But even when you do that, you have to 
have some expertise in-house so that you are not just totally 
turning it over.
    Mr. Lynch. Absolutely. I agree with that. I am just 
saying--I am sorry, Mr. Skinner, you----
    Mr. Skinner. And the Coast Guard, in fact, did have that 
expertise. They do have engineers there and they did review the 
design before the Coast Guard decided to move forward with the 
construction of those ships. And those technical experts, the 
Coast Guard's own people admitted we have problems here.
    Mr. Lynch. OK. Would it help--I know that Congress required 
that system to be adopted by the Federal Transit 
Administration. It has worked well. I have seen two projects in 
my district where one is $14 billion and it is way over budget, 
and that is under the system that we have seen working here 
with Deepwater and SBInet; the other was the system I just 
described, where there is actually an oversight project 
management oversight consultant hired. Would it help if we, as 
Congress, also required these projects to proceed under that 
same structure?
    Mr. Skinner. That could be one solution. But there is also 
alternative solutions as well.
    Mr. Lynch. OK.
    Chairman Waxman. The gentleman's time has expired.
    Mr. Lynch. Thank you, Mr. Chairman. I yield back.
    Chairman Waxman. Thank you, Mr. Lynch.
    Mr. Duncan. Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman. And I will be brief. As 
I said in my opening statement, I look forward to this hearing 
because I think it is the opening salvo in what needs to be a 
broader look at how we get into these problems.
    So, quickly, Mr. Walker, I want to followup a little bit. 
In your opening statement you talked about 15 percent--sorry, 
15 similar--we will call them fiascos as a technical term--that 
are taking place within the Government that you have already 
identified. The question is you say they are systemic. Would 
you say that, in fact, how we are approaching recruitment and 
maintenance of expertise in the Federal Government--in other 
words, Federal employees--is part of the problem? And would you 
also say that the second part of it is how we view contract 
relationships for out-of-house expertise? Not the production, 
but the expertise.
    Mr. Walker. Yes, I think they are both a problem. And what 
I said was there are 15 systemic problems that exist throughout 
Government. Those aren't particular projects, those are 15 
recurring problems that apply to thousands of projects, and I 
am going to provide that for the record.
    Mr. Issa. I appreciate that. Now, this particular project--
and I said I wasn't going to dwell on it, but at one point it 
was considered a possibility that the Navy would do this as a 
prime contractor, if you will, on the Government side because 
the Navy has built this class and larger ships in the past. 
From what you both have looked at, looking back, would that 
have fundamentally changed if this had either been a Navy lead 
or what we like to call a purple project, where the best were 
taken from all, if you will, naval sea assets both in the Coast 
Guard and Navy?
    Mr. Skinner. I don't want to speculate if it would have 
improved it, but I can say that the Navy does have a system 
command capability which the Coast Guard did not. So, in that 
regard, you would have better oversight and control over the 
shipbuilding and the design.
    Mr. Issa. So as Mr. Lynch might say, you couldn't do worse 
than we did; you could only likely do better had we done that.
    Mr. Skinner. Yes.
    Mr. Issa. Will you come back, Mr. Walker, to us, if 
invited, with concrete suggestions of career path changes and 
in-house Government procurement that would lead to a broadening 
of this capability that you are saying we lack, and with any 
solutions to de-conflict contractors who provide you expertise? 
Are you prepared to come back if invited?
    Mr. Walker. We would be happy to work with the committee on 
that, yes.
    Mr. Issa. Thank you. I look forward to that and I yield the 
balance of my time to Mr. Mica.
    Mr. Mica. Just a couple of quick points on what Mr. Lynch 
was talking about.
    First of all, we did catch this on the first two. This is a 
program of eight. The six will be built right. The others can 
be corrected; it is a diminution of the life service. OK?
    If Mr. Lynch and others want to come and get examples of 
horrendous Government waste and abuse, I would be glad to spend 
hours with him.
    I do have a question, though, that relates to the award of 
the fee, and this may concern me, it might be something we have 
to correct. They were given performance awards from time to 
time. Now, I have heard huge amounts of money given out here in 
testimony--at least from the dias, maybe not from testimony. 
But were the awards given as work was performed, No. 1? And, 
No. 2--because, again, they are given in, I think, 12 months or 
certain periods of time--was that work performed? The second 
part of it would be, is there recourse for sort of failure or 
recouping any of the awards that were given after we found out 
that there were in fact errors? Because certain work was 
performed according to the contract, as I understand it. Could 
you answer that? And I would like to look at some mechanism for 
recouping taxpayer dollars.
    Mr. Skinner. Let me say first, if I may, David, go first, 
is that it is very unlikely you are going to recoup any of that 
money. Why? Because in the contract--the problem lies in the 
wording in the contract. The contract--the award fee, it is my 
understanding, was based on delivered assets. So the other 
problems that were existing during the period covered by that 
award fee--for example, the Fast Response Cutter, the 110, 123 
conversion; the design problems that we experienced with the 
National Security Cutter----
    Mr. Mica. But it wasn't lump sum, it was given in 
increments, as I understand it. Correct me if I am wrong. And 
then what work was performed, does anyone feel----
    Mr. Walker. Well, it is based upon efforts for a particular 
contract period, and it is based upon deliverables that were 
supposed to be delivered during that contract period. And, 
quite frankly, I would suggest that we shouldn't be paying 
incentive and award fees until we actually start getting some 
product. You know, cost, quality, performance. So, I mean, part 
of it is how do we design these contracts. You may want to give 
bigger incentive and award fees based upon successful 
experience when you are actually getting a product that is on 
time, within budget, meeting performance specifications.
    Mr. Mica. We have no recoup, finally?
    Mr. Walker. To my knowledge, they are not designed for 
that. And that is another example of how we need to re-look at 
these contracting arrangements to provide for that.
    Mr. Skinner. That is exactly what the Coast Guard is doing 
now, is redesigning this particular contract so that they can 
do that.
    Chairman Waxman. The gentleman's time has expired.
    Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman. The Chinese must be 
laughing now. I visited, last year, a Chinese shipyard, where 
they can build any ship in the world of any size in 6 months. 
We don't have that capability. And here we are arguing among 
ourselves, and some of it is ideology, some of it is 
practicality, some of it is just being new to Government.
    I share the witnesses' concern that this is a Government-
wide problem, and I look forward to tackling it on that basis. 
I would like to ask my colleagues to take a look at an IG 
reform bill that I have had in place for some time that would 
strengthen the position folks like Mr. Skinner so that he would 
have more clout to do his job properly within the Department, 
because we need to make sure that several problems with IGs are 
cured.
    The fact that there has been no accountability so far in 
this is truly amazing, and I was about to ask Mr. Issa's 
question. When, in previous responses, people said, well, we 
didn't have the in-house capability, I immediately thought to 
myself, well, what about the U.S. Navy. And the choice here 
seems to have been to go private before we go purple, and that 
is truly astonishing to me because we are all on the same team. 
We are all here to protect taxpayer dollars and to protect the 
security of the United States. But neither was done in this 
case, for a multitude of small reasons.
    There has to be a way to bring a new generation of craft 
on, and I appreciate Admiral Allen who is apparently held in 
very high regard, but this is so much larger than one person. 
This is a systemic problem that needs a systemic cure. And I 
hope that Government isn't viewed as the enemy here, and I hope 
that more private sector contractors care about hulls that last 
for 30 years, even if you use them 231 days a year or 179 days 
a year. I mean, to skimp on national security requirements like 
that is truly astonishing. Do you want to be aboard a craft 
that isn't rated for longer than a few years?
    So I think as we tackle these systemic problems, we, as a 
committee, need to be open-minded and look toward all 
alternatives, including strengthening the Federal Civil Service 
so that we can hire and retain people who can help us do a 
better job--it sounds like in this case, particularly, 
Government lawyers--so that the obvious mistakes of this 
contract are not repeated in the future.
    I commend you gentlemen. I look forward to the next panel.
    Chairman Waxman. The gentleman still has some time. Would 
you yield to me?
    Mr. Cooper. I would be delighted to yield.
    Chairman Waxman. Some people asked us why we put a hearing 
about Deepwater and SBInet together, and the purpose was to see 
if we learned our lessons from past mistakes.
    Mr. Skinner, in November 2006, your office issued a high-
risk management advisory for the SBInet program. It said, ``The 
Department does not have the capacity needed to effectively 
plan, oversee, and execute the SBInet program, administer its 
contracts, and control cost and schedule. The Department's 
acquisition management capacity lacks the appropriate work 
force, business processes, and management controls for planning 
and executing a new start major acquisition program such as 
SBInet.''
    Well, this is pretty sobering, considering that the SBInet 
program plans to spend $30 billion. Does the program office 
have the capacity to manage the SBInet program? And wasn't this 
the same problem as Deepwater?
    Mr. Skinner. Yes, initially at Deepwater. And the 
Department currently does not have the capacity, either the 
Procurement Office or CBP, the Customs and Border Patrol, to 
oversee a project like this if we go full throttle. As it now 
stands, there are about 90-plus people that are providing 
technical oversight in acquisition management, program 
management for this. What the Department is doing, which they 
learned from Deepwater, is not to enter into a 25-year contract 
and to go full throttle and try to get everything done at once.
    Chairman Waxman. How many of those 90 are contractors?
    Mr. Skinner. In our opinion, way too many. Approximately 
65. I don't have the exact numbers in front of me, but there 
are more contractors than there are Government employees. And 
many of the Government employees are just on detail.
    We only have one major tasking right now. We can manage 
that tasking. There are several taskings, but we can manage the 
taskings that are now out there, that are being performed by 
the contractor. But as we grow, and particularly as we start to 
grow this spring and this summer, we are going to start getting 
very tight. We need additional resources. This spring and this 
summer we intend to--the Department intends to issue additional 
taskings. With the 98 people, they are not going to be capable 
to manage the existing taskings as well as start preparing for 
the new awards and the new taskings. And if we don't get people 
on board quickly, we can get ourselves in a very poor position 
to where this thing can get out of control.
    Chairman Waxman. Well, isn't that a recipe for hiring more 
private contractors?
    Mr. Skinner. I think we need a mix. You can't----
    Chairman Waxman. But you are not happy with the mix we have 
now.
    Mr. Skinner. No, right now. But we are in the process of 
taking and looking behind the scenes at exactly what these 
people are doing, and we haven't made a determination what that 
mix should be or what the actual numbers should be. But on the 
surface it does not look like, in our opinion, that we have 
sufficient departmental officials assigned to this project.
    Chairman Waxman. Thank you.
    Mr. Duncan.
    Mr. Duncan. Thank you, Mr. Chairman. First, let me say that 
I have long appreciated the work Mr. Walker has done in trying 
to warn the country about the dangers we face in future pension 
liabilities, and I appreciate, Mr. Walker, your recommendation 
about exit clauses in these contracts. I think that is a good 
suggestion. And I think the work that both of you are doing is 
very, very important.
    Two years ago, the International Herald Tribune had a major 
article about what they called the revolving door at the 
Pentagon, and they said in there that in the decade of the 
1990's, over 300 retired admirals and generals had been hired 
by the top 20 largest defense contractors. And we see that 
throughout the Federal Government. It used to be when private 
contracting by Federal departments and agencies really started 
becoming a big thing, it was being done because the private 
sector could almost always do these things more efficiently and 
more economically than the Government itself could. But as the 
Government has gotten bigger and bigger, we are seeing more and 
more multi-billion dollar contracts, and so many of these 
contracts we read about are just exorbitant, ridiculous profits 
or markups such as the contracts we heard about in here 
yesterday. Then we read about these ridiculous cost overruns.
    When a Federal agency messes up, they almost always say 
they are underfunded or their technology is outdated. When a 
Federal contractor has a huge cost overrun, they say it is 
because the Federal agencies changed their requirements or 
specifications in the middle of the contract, or various 
excuses like that.
    But what we are seeing more and more is that almost all 
these really big Federal contracts are sweetheart insider-type 
deals of one sort of another based on high-level Federal 
employees or retired admirals and generals who have been hired 
by these Federal contractors. And it is getting where we are 
really not saving any money by going to some of these huge 
contracts. So when I read, as I did in this article in the 
FederalTimes.com from yesterday, where it says that Homeland 
Security officials previously said SBInet would cost between $2 
billion and $5 billion, but Skinner said it could cost as much 
as $30 billion, when we are going so quickly from $2 billion to 
$5 billion up to $30 billion, and then when it says that the 
SBI Director, Giddens, says he couldn't even give a ballpark 
estimate of the cost of this program, that seems to me to be 
something that all of us should be very concerned about.
    So I have really two questions. One is are we about to see 
exorbitant costs and profits in this program? Are we on top of 
it enough to each of your satisfactions? Or are we going to be 
here 5 years from now, seeing that it has cost even more? I 
mean, you know, I have been involved in other hearings and read 
about other contracts where the cost estimates were so low, and 
then we come back 5 or 10 years later and it has just gone 
crazy. So I am wondering about that.
    And, second, I understand there is already some concern 
that much of the work that is being done in this program is 
work that is being duplicated by other sections of the Homeland 
Security Department or other parts of the Federal Government. 
And I would like your response to those two questions.
    Mr. Walker. Let me mention several comments.
    One, I do think one of the things that we have to look at 
is the conflict rules and look at the revolving door rules, and 
whether and to what extent those ought to be modified. Second, 
we need to make sure that we have meaningful competition. You 
know, there has been a significant consolidation within the 
defense industrial complex because of market forces and a 
variety of other things, some of which are beyond our control.
    Third, we need to really look hard at when we are doing 
cost-plus contracts. There are too many cost-plus contracts. 
And we need to focus on outcomes. We need to make sure that we 
are paying for, you know, on-time, on-budget, with the 
capabilities.
    But some of the things you talked about are true. I mean, 
Government doesn't well define or keeps on changing its 
requirements, and that is a major, major contributor to a lot 
of these problems, and a lot of that is unjustified, it is not 
related to subsequent events.
    Mr. Skinner. I would just like to add that just the mere 
nature or the type of contract that we have entered into here, 
a performance-based type contract, a systems-of-systems type 
contract is very, very risky, and you are absolutely right, if 
it is not properly managed, the costs can get out of control. 
It is imperative that we are able to define what our 
operational requirements are. It is imperative that we have to 
associate those requirements with our budgets and monitor very, 
very closely the costs associated with a project like this.
    Right now, SBI is proceeding with caution. I mean, we are 
doing a pilot down in Tucson, as you may know, and from that 
pilot, from those lessons learned, the Department speculates it 
will be in a better position to then define what its 
operational requirements and true costs will be throughout the 
Southwest.
    But when we talk about right now we are only speculating--
they are speculating it is going to cost $8 billion just for 
the Southwest. We are not talking about our northern borders 
yet. And there is a whole different scenario, a whole different 
environment up there we have to deal with. It is not talking 
about a lot of the support that is required or the other 
personnel costs associated with doing what we are doing here. 
So, you know, those costs are going to rise as we go on if we 
don't monitor them carefully, do performance evaluations. Is it 
worth the cost as we proceed, or do we need to exit out and 
find alternative ways to secure the borders?
    Mr. Duncan. Well, I hope you will make sure that the costs 
are justified by the work that is being done, and we really do 
need to look at the insider aspect of this revolving door 
throughout the Government, and this committee is the 
appropriate committee to do it, Mr. Chairman. And I know you 
share some of those same concerns. Thank you very much.
    Chairman Waxman. Thank you, Mr. Duncan.
    Mr. Hodes.
    Mr. Hodes. Thank you, Mr. Chairman.
    Gentlemen, thank you for coming today and sharing your 
expertise. I want to get to the question of who is in charge 
here.
    Yesterday, in the New York Times, there was an editorial 
and it talked about our Government becoming a government of the 
contractors, by the contractors, and for the contractors, 
something I am sure Abraham Lincoln never really contemplated. 
And the Deepwater debacle seems to me to be emblematic of 
problems that, before I came to Congress, I was seeing, and, 
frankly, the taxpayers and our constituents out there are very 
concerned about the capacity and capability of our agencies and 
our military to get it right when it comes to spending their 
money. I am hoping that this hearing and hearings like this are 
going to help reassure the taxpayers that we are now going to 
exercise real oversight over these issues.
    Mr. Skinner, in your prepared statement, on page 7, you 
talk about the outsourcing of program management, and you point 
out that, under the Deepwater contract, ICGS was the systems 
integrator and given full technical authority over all asset 
design and configuration decisions, and the Coast Guard's role 
was limited to that as an advisor, but that the contract said 
that ICGS doesn't have to listen to the advisor, the Coast 
Guard, who are going to end up using these ships and our folks 
are going to go out on them and out on the seas.
    If you give away the decisionmaking authority to the 
contractor, how can you ever be assured that you are going to 
get what you need to do the job?
    Mr. Skinner. Therein lies the problem, and you are 
absolutely right and that is exactly what we found, that the 
decisionmaking for the entire Deepwater program--not just for 
these cutters, by the way--rests with the contractor, and 
although the Coast Guard can advise, influence, and try to 
direct, they didn't have technical--they did not have the 
authority to override decisions made by the contractor. And 
that is one of the things I believe the current contract, the 
rewriting, as we speak, I believe, in redefining that, that we 
need to pull back that authority and give it back to the Coast 
Guard.
    Mr. Hodes. Mr. Walker, did you have something to add?
    Mr. Walker. I do. First, I think it is important that we 
recognize that there are a lot of high-quality contractors that 
do good work that we don't have problems, so I don't want to 
paint a broad brush, OK?
    Mr. Hodes. Absolutely.
    Mr. Walker. Second, I think we have to recognize the 
reality that civil servants have a duty of loyalty to the 
greater good, to the collective best interests of all. The 
private sector, which is the engine of growth and innovation in 
this economy, has a duty of loyalty to its shareholders. And we 
have good people in the private sector doing good work most of 
the time, who care about their clients, but, ultimately, civil 
servants have the duty of loyalty to the greater good, and 
there are certain things you must not delegate. Ultimately, 
responsibility and accountability has to come to civil 
servants, whether they be uniformed or non-uniformed. You 
should not delegate that.
    Mr. Hodes. I appreciate that. Let me just take it one step 
further with this question. I mean, we are aware of the 
difference between two single words--they are simple words--
``may'' and ``shall'' in contracts. And being aware of the law 
of unintended consequences and not wanting to inflict that on 
anybody, do you think it ought to be mandatory on military 
procurement contracts and this process that the contracting 
agency--whether it is the Coast Guard, the Army, the Marines, 
whoever it is--shall never delegate ultimate decisionmaking 
authority to a private contractor? Is that something that we 
ought to be looking at?
    Mr. Skinner. I think it is very important that the Congress 
provide this type of oversight. I think it is very important 
that we be asking those types of questions. I don't know if we 
want to jump in and just draw conclusions and possibly because 
of some incident or something that one occasion things went 
bad. We want to look at all the options and how we can correct 
this.
    Mr. Walker. My view is that you don't necessarily want to 
have a blanket, but I do believe that we need to have more 
restrictions than we have right now as to when and under what 
circumstances that is appropriate, similar to the fiduciary 
constructs that apply with regard to benefit plans and other--
--
    Mr. Hodes. Thank you. I appreciate it. That is what I was 
getting at.
    I yield back. Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Hodes.
    Mr. Burton.
    Mr. Burton. Thank you, Mr. Chairman.
    The latest GAO report gives high marks to program 
improvements, noting that communication and coordination 
between the Coast Guard and the contractors has improved, which 
should lead to better management and a sound Deepwater plan. 
Has it improved? And if so, to what degree? Do you agree or 
disagree with the GAO report?
    Mr. Walker. Well, first, Mr. Burton, there is no question 
that the Commandant is taking this matter very seriously, 
Admiral Allen. There is no question that a number of our 
recommendations have been adopted. But we are in the process 
right now of updating our work on Deepwater. We will be issuing 
something in the spring on that, and that will be the most up-
to-date information. But it has improved, but we will have a 
new report coming out in the near future.
    Mr. Burton. So they are heading in the right direction.
    Mr. Walker. I clearly think that it is being taken 
seriously and they are moving in the right direction.
    Mr. Burton. This Deepwater program is a 25-year, $24 
billion program that was supposed to modernize the Coast 
Guard's air and surface assets. This program was started--do 
you remember what year it was started?
    Mr. Skinner. I believe the program actually started back in 
the mid to late 1990's. The contract itself was awarded in 
2002.
    Mr. Burton. But the program was actually started under the 
previous administration, was it not?
    Mr. Skinner. During the--when it was with the Department of 
Transportation back in the mid-to late 1990's.
    Mr. Burton. But it was in the previous administration.
    Mr. Skinner. I don't track----
    Mr. Burton. According to my records.
    Mr. Skinner. I guess it was, yes.
    Mr. Burton. OK.
    Mr. Skinner. I can do the math in my head here.
    Mr. Burton. I guess the point I am trying to make is that, 
you know, I think both the previous administration and this 
administration thought they were heading this thing in the 
right direction, but obviously there has been some slipups and 
some miscues, so you are obviously correct that there have to 
be some improvements.
    Let me just ask you. It was said by one of my colleagues 
that there has been a lot of consolidation among contractors; 
some of the big contractors have joined together. Are there 
certain contracts that are being let where there are not enough 
contractors who are capable of doing a job, so that you pretty 
much have to go with one set of contractors who have the 
expertise?
    Mr. Walker. There is absolutely no question that there has 
been a consolidation of major defense contractors, and in many 
cases you may only have a couple of choices.
    Mr. Burton. How do you control, you know, them getting away 
with excessive spending or excessive waste if you only have 
just one or two contractors that are capable of doing the job? 
I mean, how do you control that?
    Mr. Walker. Well, while clearly that means the fewer people 
that you have that can effectively bid, it means we have less 
competition. But there are a lot of things that we can and 
should do. We need to nail down our requirements; we need to 
make sure they are based upon needs versus wants; we need to 
make sure that we are changing how we are doing our contracts 
to make them outcome-based; we need to change with regard to 
what we are doing in incentive fees, with regard to exit 
clauses, with regard to penalty provisions. There are a lot of 
things that we can and should do no matter how many players are 
on the field, but obviously the more qualified players on the 
field, the more checks and balances there will be with regard 
to pricing.
    Mr. Burton. But it does make it a lot more difficult when 
you only have one or two contractors that are capable of doing 
a job, because you have to deal with them, they are the only 
ones who can do it and you need to have the job done, so it is 
kind of difficult.
    Mr. Walker. Especially when you are dealing with national 
security assets. Obviously, when you are not dealing with 
national security assets, you have a little bit more 
flexibility. But when you are dealing with national security 
assets, it is even more complicated.
    Mr. Burton. But how would the--I don't want to belabor this 
point, but how would the Commandant of the Coast Guard deal 
with an intransigent contractor when he knew that was the only 
one that was capable of doing the job and had already gotten 
the contract?
    Mr. Walker. You would have to ask the Command about--I am 
not--I don't believe that there was only one contractor that 
was qualified to do this particular work, OK? I am not that 
familiar with the original award back there, but I am not sure 
that it was just only one that could do the work. But, again, 
there are things that could and should be done even if there 
was only one, some of the things I talked about before. And 
these aren't problems just with regard to Deepwater and they 
are not just problems with regard to DHS, I mean, they exist 
throughout Government.
    Mr. Skinner. There was more than one contractor and they 
did in fact choose the integrator based on some competition. I 
would like to point out that there are some laws and 
regulations dealing with fair pricing, and there are 
capabilities to go behind the scenes and to validate whether we 
are getting a fair price or are we being gauged. Simply because 
you are the sole owner or the sole contractor does not mean 
that you can gauge the Government.
    Mr. Burton. To illuminate this issue for some of our 
Members who may not be here now, can we get a list of 
suggestions that you might make on how you would deal with one 
or two contractors that have the inside track on getting these 
contracts because of their position and because of their size? 
I mean, if you have some ideas on how to do it, I think the 
committee would like to know how you deal with these guys, the 
big guys on the block that have the inside track on getting 
these contracts.
    Mr. Walker. Well, I think part of that goes back to my 
commitment to provide the 15 systemic problems and to work on 
the committee with dealing with it. Very capable staff says 
there were three teams that competed for this contract.
    Chairman Waxman. The gentleman's time has expired.
    Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman.
    Earlier, we heard from the other side the comment that 
characterized part of this hearing, anyway, as dash and bash or 
bash and dash, and that concerns me because I have heard 
nothing today other than a very sincere attempt by this 
committee to understand the contracting process and see how we 
can make it better.
    Having just been elected in 2006 and having been among the 
electorate, I know that one of the things they are most 
concerned about is whether this Government knows what it is 
doing and is spending its money wisely, and I think that is why 
Mr. Waxman is holding the gavel this year, so I am not going to 
apologize in any respect for the way this hearing has been 
handled and the objective. I want to talk a little bit about 
the SBInet program because that seems to me to illustrate 
possibly a little bit better some of the problems we have here.
    In January 2006, at the beginning of the procurement 
process for SBInet, DHS Deputy Secretary Michael Jackson--I am 
sure no relation; I hope not--told potential bidders for the 
contract ``We are asking you to come back and tell us how to do 
our business.'' Three months later, in the request for 
proposal, DHS still hadn't identified the specific Government 
needs; instead, they asked the private contractors--not 
Government officials--to figure out the right mix of 
technology, infrastructure, and personnel to secure the border.
    Mr. Walker, what are some of the risks of beginning a 
multi-billion program without any defined requirements, 
essentially saying we want you to defend our borders?
    Mr. Walker. Well, it is one thing when you are providing 
flexibility to the contract to determine how best to meet the 
capabilities that you need. But ultimately you have to nail 
down the specific requirements; what type of platforms you are 
going to have, in what type of quantities, with what type of 
capabilities, with what type of timeframe. Those are examples 
of requirements and obviously need to go in more detail. It is 
essential that you nail that down. If you do not nail that 
down, no matter what size the contract is, you are going to 
have problems.
    Mr. Yarmuth. An important part of managing a contract like 
this, like SBInet, is the development of program management 
plans, system engineering plans, and performance plans, 
outcome-based, as Mr. Walker might have referred to.
    Mr. Skinner, in this particular case, who is developing 
these plans, is this the contractor or is this DHS?
    Mr. Skinner. This is DHS developing these plans. They are 
still in process, and we don't expect to see results of 
anything of real significance probably until early summer.
    Mr. Yarmuth. In some of these cases--and correct me if I am 
wrong--it seems as though, or at least I got the impression, 
that we have, as part of the contracting process, the 
contractor is actually setting the performance standards, 
setting the reward guidelines. Is that true as well? And 
wouldn't that be a conflict of interest if that is occurring?
    Mr. Skinner. I am not aware of that occurring in either 
Deepwater or SBInet, or any other contract within DHS. And if 
it is occurring, it shouldn't be and it is occurring behind 
closed doors, not being talked about.
    Mr. Yarmuth. Thank you.
    I yield back.
    Chairman Waxman. Thank you very much, Mr. Yarmuth.
    Ms. Watson.
    Ms. Watson. I want to thank the Chair and Mr. Skinner and 
Mr. Walker.
    It boils down to this: that we got into this contract and 
subcontracting without the management and the analytical skills 
available in Government, and you said they are working on it. 
Has anybody--since we are looking at waste, and probably some 
fraud and some abuse, and certainly conflict of interest--has 
anybody been charged with any of this? Has anybody been let go? 
Has anybody been reprimanded? I mean, what are we doing? Are we 
just saying, as some of my colleagues think, oh, it is really 
not important, and when you look at it overall, this is small 
change, compared to the overall amount? You know, this cavalier 
attitude about the public's money in such a crucial kind of 
program. And we are giving bonuses out. That, to me, is 
bordering on criminal, because we are taking taxpayers' money 
to backfill and bonuses are being given out to people who have 
not performed.
    So I am sure I am the last one here, probably. In 
conclusion, what would be your best recommendations, and can 
you let me know if incompetence has been replaced with 
competence? And I think that competence ought to be in 
Government, and not civilian contractors who don't have the 
best public interest in mind. It is too critical an issue--
homeland security--to be so blase about it, and I just can't 
understand what is going on in this Government where this is 
the standard.
    And thank you, gentlemen, for spending the time and having 
the patience and answering our questions. Thank you.
    Mr. Walker. Ms. Watson, I would suggest that you may want 
to ask the Commandant whether or not anybody has been held 
accountable or not; he would be in the best position to know 
that. Second, I think it is important to note that we are not 
asserting that there wasn't a basis to pay that $4 million 
incentive or award fee; we are questioning whether or not the 
Government should be structuring contracts in a way that allows 
for the payment of those type of fees and circumstances that 
aren't placed on outcomes.
    Ms. Watson. I got that.
    Mr. Walker. And, last, I will send up, as committed, the 15 
systemic areas and will commit to work with this committee to 
try to address them, and I hope that the chairman decides to 
have a hearing on the systemic problem, because it clearly is 
deserving of it.
    Ms. Watson. I will conclude by saying this. I have been 
sitting here for hours. I stepped out for 5 minutes, came back 
in. I have heard everything that has been said, and I do get 
it. So we have to go up the line and down the line, Mr. 
Chairman, to find out what is being done. But the incompetence 
that we have heard about is just inconceivable to me.
    So, with that--and we are going to be looking, because I 
have to go back to my taxpayer constituency and tell them that 
the moneys we are putting out for all of these programs are 
going to be secured because they are going to be accounted for.
    Thank you so much, Mr. Chairman.
    Thank you, gentlemen.
    Mr. Davis of Illinois [presiding]. Thank you very much, Ms. 
Watson.
    Mr. Sarbanes.
    Mr. Sarbanes. Thank you, Mr. Chairman.
    A number of my colleagues have already kind of referred to 
the structural issues that we are talking here--Mr. Lynch and 
Mr. Hodes did--and that is the part that interests me the most. 
We are all talking about there being healthy tension between 
the procurer and the contractor, and the way I sort of envision 
that is it is sort of like a tug of war, and you have the 
Government, in this case, on one side, you have the private 
contractor on the other side, and the project is in the middle. 
And the goal is to make sure that they are both sort of pulling 
enough on each side that the project stays within the 
appropriate bounds as it moves forward.
    Now, what happens is if you get too many--if you get 
asymmetry in the resources on either side, or in the design or 
authority or scope of authority that is on either side, then it 
can pull too far in one direction or the other. You know, it 
can pull too far in the direction of the Government and you 
don't get what you need, and it can go in the other direction 
too. And when you don't have the right balance, parties are 
disserved and obviously the project doesn't get where it needs 
to go.
    So one of the questions I had was about these integrated 
product teams, which I guess was a feature of this integrator 
model, and the design of those teams. If you could just 
describe that briefly, I would like to come back and ask you 
whether structurally there is something wrong with that design. 
And I guess we could start with you, Mr. Skinner.
    Mr. Skinner. I don't know if I am a position to actually 
describe its entire structure----
    Mr. Sarbanes. OK.
    Mr. Skinner [continuing]. But it was made up of both the 
staffing technical experts from the contractor as well as from 
the Coast Guard. The integrated teams were a mechanism in which 
decisions would be made or problems could be addressed. I 
believe it was chaired by the contractor, as opposed to being 
chaired by the technical authority of the Coast Guard. So as 
the Coast Guard brought problems up through that process, 
through that team, to discuss issues or where they were going 
to go, they could advise we have problems. But it was only 
advice and the ultimate authority rested with the chair of the 
team, which was the contractor. That is my understanding how it 
was working.
    Mr. Sarbanes. And what is your perspective on that kind of 
a structure?
    Mr. Skinner. We questioned the utility of--you need a 
strong integrated project team; you need to bring the different 
expertise everywhere from the budgeteers to the accountants to 
your procurement officials, your technical reps and others, 
they are essential to the implementation of a performance-based 
contract, one such as Deepwater or SBInet. But the important 
thing is who ultimately has technical authority or who 
ultimately has legal authority to make the final decision as to 
which direction the Government wants to go.
    In the case of Deepwater, it is my understanding that 
ultimate authority rested with the contractor, not the 
Government.
    Mr. Sarbanes. Right.
    Mr. Skinner. We suggested that be changed.
    Mr. Sarbanes. Is the system integrator model, do you think, 
structurally flawed against this backdrop of what I said, of 
trying to kind of keep the project in the middle and make sure 
that you have--because you could have a situation--it doesn't 
appear to be the one here, but you could have a situation where 
you felt like you had sufficient resources on the Government 
side in terms of oversight, you know, procurement, a 
performance assessment, cost and schedule containment, all that 
kind of stuff--but because of a design feature in the way 
authority was ceded over to the contractor, all of those 
resources wouldn't make a difference. And I am trying to figure 
out whether, within this model itself, there are structural 
flaws and this is sort of, by definition, over the boundary.
    Mr. Walker. It is possible for the system integrator model 
to work if you have appropriate checks and balances in place in 
order to keep you on a reasonable path. It is very similar, 
quite frankly, to the Constitution, the checks and balances 
between the executive branch and the legislative branch: 
hopefully, both are focused on trying to do the right thing for 
the country, but there needs to be that check and balance. Same 
thing here, the contractors and the Government have a 
similarity of interest: we want positive outcomes for the 
benefit of the country. But there have to be adequate checks 
and balances, and you can't have an asymmetry too much. If you 
do, you are going to get in trouble.
    Mr. Sarbanes. Mr. Chairman, I just worry about whether the 
structure of it is such that there is just too much heavy 
lifting that has to be done to achieve those checks and 
balances on the Government end of this, and I think that is 
what we are trying to grasp here. Thank you.
    Mr. Davis of Illinois. Thank you very much.
    Chairman Waxman. The Chair will recognize himself. [Remarks 
made off mic.] Some of this is happening with virtually no 
guidance from the Government. A 2000 memo from a high-ranking 
Coast Guard official described it as giving the contractor a 
blank sheet of paper. We have seen the disastrous impacts of 
that approach in Deepwater, but now the Department is using the 
system integrator approach again, this time to secure the 
border in a contract called SBInet for Secure Border 
Initiative.
    In the committee, we have been examining what steps the 
Department has taken to prevent a repeat of the Deepwater 
abuses, and what have we found? What we have found is alarming. 
The Department appears to be relying on contractors, not 
Federal officials, to plan, award, and manage the SBInet 
Contract program.
    According to material provided to the committee by the 
Department, 13 individuals participated in the development of 
the acquisition plan for SBInet. The majority of these 
individuals, over 60 percent, were private contractors, not 
Government employees. When it came time to award the contract, 
DHS advised all the potential contractors that the Department 
would use private contractors to evaluate and analyze the bids.
    And now, as of December 2006, over 60 percent of the 
positions in the SBInet program management office are 
contractors. There is a staff of 98 people currently overseeing 
the SBInet contract. Sixty of these individuals work for 
private contractors, not the Government. In other words, the 
office that is supposed to be overseeing the contractors is 
itself staffed by contractors.
    Mr. Skinner, does this raise any concerns for you?
    Mr. Skinner. Yes, it does, and it is a concern we also 
shared with the Department, and it is an issue that we are 
currently looking at to see the impact that this could have on 
this acquisition.
    Mr. Davis of Illinois. Thank you.
    Mr. Walker, you addressed the issue of over-reliance on 
contractors in your testimony. Does this appear to be a case in 
which contractors are performing jobs that should be performed 
by Federal employees?
    Mr. Walker. Are you talking about the SBInet project, Mr. 
Davis, or Deepwater, or just in general?
    Mr. Davis of Illinois. In Deepwater, as well as in general.
    Mr. Walker. That is an area where I think there are some 
roles and responsibilities where civil servants should be more 
involved in the decisionmaking. I will tell you we have a 
report that is going to be coming out next week on SBInet, and 
I do think that the Government doesn't have the right checks 
and balances in place and doesn't have the right division of 
responsibilities in order to fully protect the taxpayer 
interest.
    Mr. Davis of Illinois. Just to followup, to rectify that, 
what do you think the Government needs to be doing?
    Mr. Walker. Well, among other things, we need to nail down 
the requirements; we need to re-look at the division of 
responsibility as to who has decisionmaking authority over 
certain types of critical decisions; we need to focus the 
contracting arrangements to delivering positive outcomes as it 
relates to cost, timing, and performance; we need to structure 
our incentives and accountability systems to either reward and/
or penalize those who are not meeting those objectives. Those 
are just a few off the top of my head.
    Mr. Davis of Illinois. Thank you. Thank you both very much.
    Mr. Walker. Oh, by the way, Mr. Chairman, we also need to 
make sure that we are taking steps to make sure we have enough 
people with the right skills and knowledge who can oversee 
whichever contractors are there. I mean, you know, you can 
contract out more and not have to have as many people to do the 
oversight of the overseers, but you have to have some, and they 
have to have the right skills and knowledge to be effective.
    Mr. Davis of Illinois. Thank you very much.
    And let me just ask, before we conclude, if Mr. Sarbanes 
has any further questions.
    [No response.]
    Mr. Davis of Illinois. Then thank you gentlemen very much.
    Mr. Skinner. You are welcome. Thank you.
    Chairman Waxman [presiding]. We very much appreciated the 
testimony of this panel. Now we are honored to welcome our 
second panel, which includes officials from the U.S. Department 
of Homeland Security. On this panel we have Elaine Duke, who is 
the Chief Procurement Officer for the Department of Homeland 
Security; Greg Giddens is the Director of the SBI Program 
Executive Office at DHS; Admiral Thad Allen is the Commandant 
of the U.S. Coast Guard. He is joined by Rear Admiral Gary 
Blore, who is the Executive Officer for the Deepwater Program 
at the Coast Guard. We also have with us from the contractor 
community Jerry McElwee, vice president for SBInet Program at 
Boeing Advanced Systems; Leo Mackay, president of Integrated 
Coast Guard Solutions; and Philip Teel, president of Northrop 
Grumman Ship Systems.
    We want to welcome all of you to our hearing today. It is 
unusual for this committee to have a panel with both agency and 
contractor witnesses, but for this hearing we want to explore 
that very relationship, so we appreciate your flexibility and 
your cooperation.
    It is the practice of our committee to swear in every 
witness, so if you would please stand and raise your right 
hands, I would like to administer the oath.
    [Witnesses sworn.]
    Chairman Waxman. Let the record acknowledge that each of 
the witnesses answered in the affirmative.
    What I would like to ask each of you to do is to give a 
summary of your full statement within 5 minutes. Your complete 
statement, if it is longer, will be made part of the record.
    Ms. Duke, let's start with you.

  STATEMENTS OF ELAINE DUKE, CHIEF PROCUREMENT OFFICER, U.S. 
 DEPARTMENT OF HOMELAND SECURITY; GREG GIDDENS, DIRECTOR, SBI 
PROGRAM EXECUTIVE OFFICE, U.S. DEPARTMENT OF HOMELAND SECURITY; 
 ADMIRAL THAD ALLEN, COMMANDANT, U.S. COAST GUARD, ACCOMPANIED 
 BY REAR ADMIRAL GARY BLORE, DEEPWATER EXECUTIVE OFFICE, U.S. 
 COAST GUARD; JERRY W. MCELWEE, VICE PRESIDENT, BOEING SBINET 
   PROGRAM, BOEING ADVANCED SYSTEMS; LEO MACKAY, PRESIDENT, 
INTEGRATED COAST GUARD SOLUTIONS (LOCKHEED MARTIN); AND PHILIP 
         TEEL, PRESIDENT, NORTHROP GRUMMAN SHIP SYSTEMS

                    STATEMENT OF ELAINE DUKE

    Ms. Duke. Chairman Waxman, Ranking Member Davis, and 
members of the committee, I am Elaine Duke, the Chief 
Procurement Officer for the Department of Homeland Security. I 
am pleased to be here today with my other panel members. Thank 
you for the opportunity to appear before you to discuss DHS 
procurement practices, the management and oversight of complex 
acquisitions within the Department, specifically the Deepwater 
and SBInet contracts.
    These programs are two of our most complex and visible 
contracts. The Secretary and Deputy Secretary, as well as other 
DHS leaders, are personally engaged in monitoring, planning, 
executing, and assessing these programs. We want to assure that 
these programs succeed in meeting our mission needs.
    In fiscal year 2006, DHS obligated approximately $17 
billion in contract dollars. Our preliminary small business 
accomplishments show approximately 34 percent were awarded 
under the various small business programs, exceeding the goal 
by over 11 percent.
    My vision as Chief Procurement Officer is to create a high 
performance acquisition organization that is aligned with the 
DHS mission. My top priorities in implementing this vision are, 
first, to make good business deals. Meeting mission 
requirements while being good stewards of the taxpayer dollars 
involves the entire acquisition team. Second, to build and 
strengthen the DHS acquisition work force to manage risk. This 
requires developing and maintaining a work force that is the 
right size and has the requisite skill mix and talent. Third, 
to strengthen contract administration. The acquisition team can 
take proactive measures to make the deal work and ensure that 
products and services purchased meet contract requirements and 
mission needs. Here, we can also leverage resources through 
partnering with technical experts in the Federal Government, 
such as the Defense Contract Management Agency and Defense 
Contract Audit Agency.
    My initial focus in providing departmental oversight is to 
design an acquisition management infrastructure that will 
optimize our human capital talent in the program and 
contracting offices. Additionally, I will ensure that processes 
are in place to oversee the effective issuance and 
administration of task orders under these contracting vehicles. 
DHS, the U.S. Coast Guard, and Customs and Border Protection 
are committed to acquisition management and oversight of these 
contracts and programs.
    In my oversight role, I am making sure that appropriate 
resources are in place. The fiscal year 2007 budget provided 
funding to hire additional acquisition personnel. Higher 
staffing levels will improve DHS's ability to monitor 
department contracts and effectively identify and correct poor 
contract performance.
    My staff and I are specifically concerned with ensuring 
that adequate competition occurs throughout the life-cycle of 
our acquisitions, that small businesses receive their fair 
share, that the right people with the right skills are staffed 
in both the program and contracting offices, that there is a 
focus on contract management to ensure that acquisition and 
program offices adequately monitor contract performance, and 
processes are in place to control effective issue and 
administration of task orders. We have agreements with the 
Defense Contract Audit Agency and Defense Administrative 
agencies to provide specialized technical support to us in 
those areas. We also want to ensure that our contracting 
officer representatives and program and project staff are 
trained in monitoring contract performance.
    My staff and I have been working closely with the Coast 
Guard and Customs and Border Protection to ensure good 
acquisition management. I actively participate in both 
acquisitions and will participate in the Department program 
review activities, including meetings of the Investment Review 
Board. I will be actively involved in reviewing both programs, 
and this entails regular reviewing the planning documents, the 
solicitations, the awards, and contract administration 
activities. Moreover, my office led the formation of a program 
management council which will develop the policies, procedures, 
and other tools needed for the DHS program managers to succeed. 
Finally, DHS has implemented earned value management with high 
priority programs and program management periodic reporting to 
assess performance of our major programs on a quarterly basis.
    In terms of staffing this acquisition office, we are 
actively recruiting and forming an intern program, in addition 
to recruiting for more traditional sources. We have a strategy 
of developing relations with local universities that have 
accredited contracting curricula to attract collegiate talent 
at the junior level instead of waiting until graduation. We are 
devising a recruitment strategy to attract mid-level 
professionals that includes targeting military personnel who 
possess requisite skills, and including participating with the 
Department of Veterans Affairs program for hiring injured 
veterans.
    We have taken the lead to create a centralized recruiting 
system and we have centrally funded a Department-wide intern 
program for 66 interns in the fiscal year 2006 budget 
submission.
    With respect to the SBI contract, I concur with the 
Inspector General on staffing issues, and we continue to work 
on fully staffing the program and contracting offices in this 
area.
    I appreciate having to be before the committee today and 
look forward to your questions.
    [The prepared statement of Ms. Duke follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Waxman. Thank you very much for your testimony.
    Mr. Giddens.

                   STATEMENT OF GREG GIDDENS

    Mr. Giddens. Chairman Waxman and Ranking Member Davis and 
other members of the committee, thank you for the opportunity 
to appear before you today. I am Greg Giddens, the Director of 
the Secure Border Initiative Program at Customs and Border 
Protection. I am a 27-year public servant and spent most of 
that time in the acquisition and program management field.
    As Mr. Walker, I hope we can use this hearing as a 
springboard for real productive dialog on how to accomplish the 
goal I know we all share: getting the capabilities and 
capacities delivered to the operation user quickly and in a way 
that provides real stewardship for the American taxpayer. I 
welcome your and the committee's interest and believe it is 
critical we mature our ability to manage these large programs 
not just within the Department of Homeland Security, but across 
the Federal Government.
    The Secure Border Initiative at the Department of Homeland 
Security is a comprehensive approach to both border security 
and immigration reform. The approach requires simultaneous 
progress on three different goals. The first is gain effective 
control of our borders, the second is to increase enforcement 
of our customs and immigration laws, and the third is 
supporting the passage of a temporary worker program.
    The SBInet program supports the first goal, gaining 
effective control of the border. As part of the Department of 
Homeland's solution for border security, Customs and Border 
Protection will use the SBInet program and its prime contract 
to design, acquire, deploy, and sustain the technology and 
tactical infrastructure necessary to achieve control at and 
between the ports of entry.
    In establishing this contract, Customs and Border 
Protection selected a vehicle that gives the Government the 
flexibility it needs when a solution is not repetitive and 
where risk changes throughout the program. The vastly different 
terrain, threats, and evolving nature of the operation 
environment require a solution that is flexible, adaptable, and 
tailored to the specific needs. This contract allows Customs 
and Border Protection to acquire border security solutions in 
discreet, workable phases, implemented through task and 
delivery orders, without committing the Government to acquire 
additional capability from the SBInet prime contractor.
    We have applied a number of lessons learned to SBInet from 
other major acquisitions. They include mechanisms to ensure 
value at the subcontractor level, to allow Customs and Border 
Protection to separately complete work to support program 
implementation, and the establishment of the right number and 
type of resources to manage the effort with separate Government 
office and private contractor teams.
    We believe that strong program management and contract 
oversight will ensure successful execution of SBInet. We will 
manage the SBInet in-house for greater connectivity to the 
operators and control the program through direct oversight. We 
have established a robust program management structure to 
oversee the successful implementation of the solution and we 
are rapidly building upon that foundation. The SBInet project 
team includes certified program managers and senior contract 
specialists.
    Let me make just one clarification. The Government provides 
management and oversight of SBInet. We do have support 
contractors on our staff, but they are support contractors, 
like Miter and others. They are support, they are not providing 
oversight for the Boeing prime contract. And they all sign non-
disclosure agreements to be part of the Government team.
    Quite simply, there is no risk-free approach to a program 
of this size and scope. As is appropriate with a program of 
this value and importance, the Government Accountability Office 
and the Department of Homeland Security Office of Inspector 
General have already begun evaluating SBInet and offering 
recommendations. The recommendations received to date have 
provided useful and collaborative improvement upon the SBInet 
program management and execution. Attention to enhancing 
organizational capacity, increasing requirement definition 
tailored to specific tasks as the program matures, and diligent 
oversight of cost, schedule, and performance are essential 
elements of program management embraced by both the Department 
and Customs and Border Protection.
    Managing large programs is a difficult task, it is what 
some refer to as big ``A'' Acquisition; it involves 
orchestrating the intersection of requirements generation and 
management, budget formulation and execution, acquisition of 
procurement strategies, contract award and management, and 
science and technology explorations and development. There are 
lots of moving parts that must be managed in a cohesive, 
integrated fashion.
    If we want a future where the Government is managing 
complex programs in a way that delivers value-based 
performance, we must work to make it so. I believe it will take 
us working together focusing not just on oversight, but on 
foresight, being able to see what the future can be, and then 
joining together to make it so. We should expect no less and we 
should accept no less on behalf of the American public. Without 
a dramatic shift in the way that we, as a Nation, protect our 
land borders, we leave ourselves and our citizens vulnerable. 
We recognize the challenges that lie ahead. By securing our 
borders with the right mix of personnel, technology, and 
infrastructure, we will fulfill our mission of protecting our 
country and its citizens.
    Sir, I again thank you for appearing before the committee 
and look forward to answering your questions.
    [The prepared statement of Mr. Giddens follows:]

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    Chairman Waxman. Thank you very much, Mr. Giddens.
    Admiral Allen.

                STATEMENT OF ADMIRAL THAD ALLEN

    Admiral Allen. Mr. Chairman, Ranking Member Davis, and 
members of the committee, my No. 1 goal today is to convey to 
you the critical importance of recapitalizing aging Coast Guard 
cutters, aircraft, and sensors.
    Deepwater is essential to the future of the Coast Guard; we 
do not have the luxury to restart this program. Our aging 
platforms cannot sustain the level of operations required in 
the current threat environment. Each year new cutters and 
aircraft are delayed, we lose more mission hours and our 
capabilities eroded by failing or unsustainable equipment. We 
have to get this right and we have to do it quickly.
    Getting it right means several things. First, internally in 
the Coast Guard, we must create the right organization and 
culture that focuses on effective management and contract 
oversight. We are doing that. When I was interviewed by 
Secretary Chertoff to be the Commandant, I proposed to create a 
single acquisition organization, improve program management, 
and align that organization with a new service-wide mission 
support structure. We are in the process of implementing those 
changes, and I will submit for the record our blueprint for 
acquisition reform.
    I have strengthened the role of the Assistant Commandant 
for Engineering and Logistics as the Coast Guard's technical 
authority for acquisitions. I have issued a service-wide 
directive which states this individual is the authority 
responsible and accountable to establish, monitor, and approve 
technical standards, tools, and processes. I have assigned Rear 
Admiral Ron Rabago to lead the Deepwater Program Office. Rear 
Admiral Rabago is a distinguished naval engineer, former cutter 
commanding officer, and former commanding officer of the Coast 
Guard Yard.
    We have sought external independent feedback on our 
acquisition process from the Defense Acquisition University and 
received a number of recommendations we are reviewing.
    Second, we must collaborate effectively with our industry 
partners and, when appropriate, provide direction that 
preserves the Government's interest and ensures the performance 
of our cutters and aircraft. Are we doing that?
    Since assuming my duties as Commandant, I have met and 
talked with both Mr. Stevens of Lockheed Martin and Mr. Sugar 
of Northrop Grumman on numerous occasions. We most recently 
held a meeting in January which was frank, open, and 
insightful. A team will provide recommendations to us shortly 
as to how we can best align and optimize the relationship for 
the next award term.
    We will adjust the terms of the contract going forward to 
ensure proper emphasis on cost control, competition, and 
program management. Where required, we will play a larger role 
in systems integration.
    Third, we must maintain cordial productive relationships 
with oversight bodies that have legitimate roles in this 
endeavor. We are doing that. To the extent that we can improve 
or better provide guidance to our people, we will do that as 
well.
    Two weeks ago I sent a personal message to every person in 
the Coast Guard, and it stated the following: 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 process. I 
welcome external review, as it enables us to improve our 
process, be more effective stewards of taxpayer dollars and 
better serve the American public.
    I have met regularly with the Inspector General. To the 
extent there is any ambiguity regarding our position on the NSC 
audit, let me clearly state that we concur and have implemented 
five or six recommendations made. Regarding the sixth and final 
recommendation, we are deferring to the Department of Homeland 
Security to establish policy.
    In the past 10 years, the Coast Guard has acquired a number 
of assets on-schedule, below estimated cost. Examples include 
our coastal patrol boat, large buoy tenders, and the Great 
Lakes icebreaker. However, in each case it was a single 
platform and systems integration was not a challenge. Our 
current challenge is to transform our competency as a mid-sized 
Federal agency to one capable of effectively managing a large, 
complex systems integration contract like Deepwater.
    And while there is current focus on two specific cutters, 
it should be recognized that Deepwater continues to provide new 
and valuable capability in the form of new fixed-wing aircraft, 
re-engined helicopters, and significant upgrades to our legacy 
cutters. I have flown in our helicopters; I have ridden our 
cutters on patrol in the Caribbean. Our people appreciate these 
tools. That is my promise to them as Commandant.
    We acknowledge there are issues with the fatigue life of 
the National Security Cutter, and I must emphasize fatigue life 
only. We should also acknowledge that this is the most capable 
cutter we have ever provided to our people. The decision to 
continue the constructions of hulls one and two was based on 
the determination at the time that stopping the production line 
after design was complete and long-lead time materials were 
procured would create an unrecoverable schedule loss and 
increase cost.
    We consciously evaluated its capability and elected to add 
additional critical post-9/11 capability that was reviewed and 
approved by the Department and the administration, and funded 
by the Congress. Costs associated with damages from Hurricane 
Katrina have also been funded by the Congress. These are not 
failed cutters.
    I suggested to Chairman Cummings at the hearing held on 
January 30th under his leadership that a second hearing be held 
in 120 days to assess our progress, and that hearing be held 
onboard the Cutter Bertholf in Pascagoula.
    We will resolve any remaining issues and have funding to 
complete the construction of hulls three and four in our fiscal 
year 2008 request.
    This program must move forward, and it is my responsibility 
to get it right.
    [The prepared statement of Admiral Allen follows:]

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    Chairman Waxman. Thank you very much, Admiral Allen.
    Rear Admiral Blore, do you have a statement you wanted to 
make?
    Admiral Blore. Yes, sir.
    Chairman Waxman. OK. Please, go ahead.
    Admiral Blore. Yes, Mr. Chairman, if I could.

              STATEMENT OF REAR ADMIRAL GARY BLORE

    Admiral Blore. Mr. Chairman, Ranking Member Davis, 
distinguished members of the committee, I am Rear Admiral Gary 
Blore, the Program Executive Officer of the Deepwater program. 
As you know, this $24 billion, 25-year effort is absolutely 
critical to the Coast Guard and our Nation's maritime security.
    In the mid-1990's, we recognized the need to replace and 
upgrade our aging fleet of cutters, small boats, and aircraft. 
The enormity of that task demanded a mission-based approach to 
the acquisition. Our vision was to work with industry partners 
to create a system-of-systems to provide the right mix of 
platforms and capabilities to meet 21st century mission 
requirements. Sitting here today, the circumstances have 
changed and we need to evolve the acquisition program 
accordingly.
    Recently, there have been a number of reports highlighting 
Deepwater projects. Some of what is being reported is true: we 
do face major challenges. But some of the reports include half-
truths or facts taken out of context. Allow me to give you two 
examples to help separate myth from reality.
    First, much has been said about the cost growth of the 
Deepwater program. The fact that overall cost projections have 
grown from $17 billion to $24 billion is true. But the 
assertion that the growth is due to cost overruns is false. 
Following the tragedy of 9/11 and the Coast Guard's transfer to 
the Department of Homeland Security, our mission requirements 
changed. After a detailed performance gap analysis, 
requirements for additional capabilities were approved by DHS. 
These new requirements are what drove most of the cost growth, 
not cost overruns.
    The second myth is that there are few Deepwater successes. 
While we have experienced setbacks during these early years, we 
are also witnessing Deepwater assets making a difference in the 
fleet already. Last July, a hiker in the Olympic National 
Forest fell down the side of a mountain and owes his life to a 
daring rescue by well trained Coast Guard air crew flying a 
newly delivered HH-65 Charlie model helicopter recently re-
engined by the Deepwater program. That rescue would not have 
been possible without Deepwater.
    Also, censoring communications upgrades on 39 cutters are 
directly contributing to Coast Guard missions worldwide. As 
stated in operators' trip reports, ``Secure chat is a leap 
forward in technological prowess. The possibilities of this 
application are staggering.'' Or from a joint maneuver by the 
Coast Guard Cutter Forward and the USS Doyle, ``Doyle and 
Forward were able to communicate directly with each other. The 
time from granting the statement of no objection for warning 
shots to rounds out of the barrel was 6 minutes. If the 
statement of no objection had been 10 minutes later, the go 
fast would have eluded us.''
    We appreciate this opportunity to present the facts and we 
value oversight. The GAO and DHS OIG have provided us with key 
recommendations for improvement, and we are implementing them. 
I regret the assertion that we are not fully cooperative with 
the OIG, especially during the audit of the National Security 
Cutter. There was never any intention to impede the IG's 
critical work. During the 18-month-long audit, we provided 
thousands of pages of documents and direct access to our 
electronic program data base. To the extent that our 
coordination activities were interpreted as interference, we 
will work to resolve those issues to the IG's satisfaction.
    While we are on the NSC, I would like to also reiterate 
there has never been a safety issue with the National Security 
Cutter, nor have any restrictions been placed on its 
operational performance. As I have stated, oversight by our 
Department, the OIG, GAO, and this committee is invaluable. So, 
you may ask, how, then, are we moving forward? With Admiral 
Allen's encouragement and guidance, we have already: 
strengthened the relationship between Deepwater and the Coast 
Guard's chief engineer; required the use of third-party 
independent expert analysis; engaged Defense Acquisition 
University to do a complete review of program management 
practices; increased use of written decision documents, along 
with creating an electronic data base in which to store them; 
begun major study efforts by third parties on both our unmanned 
aerial vehicle project and our composite patrol boat 
initiatives; re-established business case analysis as a 
fundamental cornerstone of the acquisition; and begun 
significant changes to our structure to create a single Coast 
Guard acquisition work force.
    In summary, we in Deepwater's second generation of program 
management recognize the confidence you have placed in us to 
adjust our acquisition strategy based on lessons learned, 
funding realities, and current events. It is our duty to 
realize the program's original promise by recapitalizing the 
Coast Guard while integrating best practices, resulting from 
both past challenges and current successes.
    Thank you again for this opportunity to appear before you. 
I look forward to answering your questions.
    Chairman Waxman. Thank you very much for your testimony.
    Mr. McElwee.

                 STATEMENT OF JERRY W. MCELWEE

    Mr. McElwee. Good afternoon, Mr. Chairman, Ranking Member 
Davis, and members of the committee. I am pleased to have the 
opportunity to talk about our plans and progress on the 
important SBInet program. The Boeing team does welcome the 
interest of the committee and look forward to working with you 
in your oversight role. This program will not succeed without 
the support of you and your colleagues in the Congress.
    This committee asked us to discuss how we developed our 
proposal, how we took lessons learned or problems from previous 
programs into account, and how we intend to interact with the 
Department on oversight activities.
    As you may know, the Boeing team was formed with people 
from across the entire enterprise and from nine companies Those 
nine companies plus Boeing have a collective 45 years of 
experience in working with Department of Homeland Security and 
in securing borders around the world.
    Forming a 100-plus person team from disparate backgrounds 
into a cohesive team to accomplish a difficult task requires a 
unifying theme or concept. For SBInet, we developed two central 
themes. First, focus on the Border Patrol agent to give him or 
her the tools necessary to be more effective and to reduce 
their personal risks. Our second central unifying theme was 
that SBInet is not a development program, it is a design 
integration and deployment program. It is analogous to a 
homebuilder who hires first an architect and then a general 
contractor to design and build 17 homes or, in this case, 17 
Border Patrol sector security solutions, all from a common 
design.
    With these two unifying concepts, we then applied our 
Boeing systems engineering processes to develop our fundamental 
designs. These processes are Boeing core competency and are 
based on standard time-testing engineering principles for 
managing large, complex projects.
    More importantly, they are continuously refined, as we 
learned both from our successful and our less-than-successful 
experiences. In the proposal phase, we performed several 
iterations of this systems engineering process using data 
provided by CBP and from our due diligence visits to both the 
Swanton and the Tucson sectors. We also talked extensively with 
former Border Patrol agents who helped our engineers understand 
the human dimension of how our borders are secured today.
    Our conclusion was that the best value over the life cycle 
of the program was a ground-based system using proven 
technology, literally available off-the-shelf. This became the 
basis of our successful proposal.
    We were certainly aware of the lessons learned from 
previous programs, and applied them both to our proposal and 
our proposed program management structure. First, we listened 
to our teammates and from their experiences. And we also, of 
course, learned from our experience with the Department of 
Homeland Security and with the TSA from our Boeing explosive 
detection system. The result is a program management structure 
that provides Customs and Border Protection and the Department 
of Homeland Security with virtually continuous and transparent 
insight into the health and status of the program.
    In summary, for SBInet, the Boeing team will find, procure, 
and integrate the best value, technology, and services to 
secure our Nation's land borders and deliver them to CBP and, 
more importantly, to the Border Patrol men and women securing 
our Nation today. To guide our search, we have a 40 percent 
small business goal for this program, which we intend to meet. 
We have established the dedicated Web site for SBInet suppliers 
and have received information from nearly 650 interested 
companies already. We will need these companies, as you know, 
to maintain a competition in the program, providing new 
technology and giving us the increased capacity that we will 
need to complete the tasks that lie ahead.
    In summary, we have made a good start on this important 
program. We are on track to meet the milestones and the task 
orders that have been initiated, and we look forward to your 
help as our Nation faces the current and future challenges to 
our security on the borders.
    Thank you, and I look forward to your questions.
    [The prepared statement of Mr. McElwee follows:]

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    Chairman Waxman. Thank you very much, Mr. McElwee.
    Mr. Mackay.

                    STATEMENT OF LEO MACKAY

    Mr. Mackay. Thank you, Mr. Chairman.
    Chairman Waxman. Pull the mic closer, and there is a button 
on the base.
    Mr. Mackay. Thank you, Chairman Waxman, Ranking Member 
Davis, and other distinguished members of the committee. Thank 
you for this opportunity to explain the progress being achieved 
in the U.S. Coast Guard's Integrated Deepwater System Program. 
Speaking for the men and women of Lockheed Martin, we are proud 
to be associated with this critical program.
    Deepwater is modernizing the Coast Guard by recapitalizing 
aging assets, providing new assets, and expanding capabilities. 
Lockheed Martin is responsible for four of five Deepwater 
domains: first, aviation--including refurbishment and upgrade 
of existing assets such as the HH-65 Charlie helicopter and the 
HC-138 aircraft; production of new assets, the HC-144 maritime 
patrol aircraft, the Mission IC-130J aircraft, and unmanned 
aerial vehicles; and management of a service contractor, the 
MH-68A HITRON helicopters--second, C4ISR, the command and 
control network, third, logistics, the processes and systems to 
support fielded assets; and, four, systems engineering and 
integration, the process to make sure all Deepwater assets can 
work together as a system.
    We work within the Integrated Coast Guard Systems joint 
venture with Northrop Grumman to ensure their communications, 
aviation, and logistics systems are properly coordinated with 
the program ships and ship systems. The purpose of ICGS is to 
provide for rapid allocation of work to the two companies and 
to ensure collaboration and cooperation between the two 
companies. Today, when I refer to ICGS or separately to 
Lockheed Martin, this means the role of Lockheed Martin as part 
of ICGS.
    Together, Lockheed Martin and Northrop Grumman are using 
more than 600 suppliers in 42 States plus the District of 
Columbia. We maintain an active data base of more than 3,000 
potential suppliers.
    In assessing the program, it is important to maintain 
emphasis on implementation of the Deepwater command and control 
network. C4ISR, a very awkward acronym 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. Modern civil, 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. The initial system 
deployment has already resulted in measurable progress with the 
Coast Guard's rescue, enforcement, and interdiction missions on 
the high seas.
    Lockheed Martin is accomplishing high rates of software 
reuse, as well as system commonality and integration by the 
rigorous application of proven systems engineering processes 
and capabilities. Overall, 65 percent of Deepwater software is 
reused from Government or commercial sources. In addition, the 
application of off-the-shelf software permits Deepwater to take 
advantage of the rapid changes in the commercial marketplace 
and the investments which commercial firms make in their best-
of-class technologies. This approach is the key to commonality, 
interoperability, efficiency, and effectiveness.
    All of the Coast Guard's 12 high-endurance and 26 medium-
endurance cutters have received two separate command and 
control system upgrades. As for shore sites, there are a total 
of 12 on contract to receive upgrades: two communication area 
master stations, eight districts, one sector, and one 
headquarters.
    The first medium-range surveillance maritime patrol 
aircraft, the newly designated HC-144, has been transferred to 
the Coast Guard. It arrived at Elizabeth City, NC, on December 
20, 2006, and it was 9 days ahead of its contractually 
scheduled delivery. It is now undergoing missionization that 
will be completed in April. The second aircraft was accepted by 
the Government on January 25, 2007, and the third aircraft is 
in flight testing.
    We are working to complete re-engining and upgrading of HH-
65 Charlie helicopters, with some 65 of 95 helicopters re-
delivered to the Coast Guard to date. These HH-65C Charlies can 
fly faster, twice as far, and with twice the payload of their 
predecessor. The service contract for the Helicopter 
Interdiction Tactical Squadron (HITRON), based in Jacksonville, 
FL, has been renewed for a 4th year. These eight helicopters 
are equipped with airborne use of force capability and have had 
a significant impact on illicit drug interdictions, and last 
May they celebrated their 100th successful interdiction.
    All of our designs and improvements are based on system 
engineering trade studies, analyses, and technical 
consideration. In addition, industry's performance has been 
closely supervised by the Coast Guard, with additional 
oversight by the Department of Homeland Security, the Congress, 
and the Government Accountability Office. Each of these 
multiple reviews has provided constructive recommendations as 
requirements continue to evolve.
    Thank you again for the opportunity to present and explain 
the progress we are achieving on the Deepwater program. I look 
forward to answering your questions. Thank you, sir.
    [The prepared statement of Mr. Mackay follows:]

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    Chairman Waxman. Thank you, Mr. Mackay.
    Mr. Teel.

                    STATEMENT OF PHILIP TEEL

    Mr. Teel. Good afternoon, Congressman Waxman, Ranking 
Member Davis, and distinguished members of the committee. Let 
me first apologize for the sound of my voice today; I seem to 
have caught a cold or something, so if you bear with me, I will 
struggle through it.
    I am the vice chairman of the Board of Directors of 
Integrated Coast Guard Systems and, as you said, the president 
of Northrop Grumman Ship Systems. And on behalf of both 
organizations and all the men and women working in support of 
the Integrated Deepwater Program, I thank you for the 
opportunity to appear before you today and discuss the issues 
associated with Deepwater.
    The Deepwater system consists of five domains, as Mr. 
Mackay said earlier: surface, aviation, C4ISR, integrated 
logistic support, and systems-of-systems, all compliment each 
other in a highly capable network of surface and aviation 
assets linked with the C4ISR systems. This system-of-system 
approach ensures the interoperability across all domains and 
avoids unnecessary redundancy in the systems.
    In June 2002, the Coast Guard selected an integrated Coast 
Guard systems to manage the integrated Deepwater system 
following a rigorous competition. The ICGS is a joint venture 
between Northrop Grumman Ship Systems and Lockheed Martin. The 
ICGS business structure provides the Coast Guard with direct 
access and active management participation by Northrop Grumman 
and Lockheed Martin, two leading Defense and Homeland Security 
contractors. At the same time, the Coast Guard is provided with 
a single point of contact to address Deepwater program matters 
expeditiously.
    The Coast Guard and ICGS jointly established a management 
structure consisting of working and governance teams. The 
working teams are comprised of Government and industry members, 
which are co-located in the Systems Integration Program Office 
in Rosslyn, VA, and at various productionsites around the 
country. Governance teams are comprised of executive level 
industry and senior Coast Guard personnel. Additional Coast 
Guard-composed teams provide oversight up to and including the 
Coast Guard acquisition executive, the Vice Commandant.
    The IPT, or integrated product team, process is the means 
by which ICGS and the Coast Guard work together to accomplish 
the operational requirements of the Deepwater program. While 
IPT decisions are consensus-based, IPTs do not make decisions 
impacting schedule, cost, or contract requirements. Such 
decisions at all times reside with the Coast Guard. Moreover, 
if any IPT member believes that an issue is not being resolved 
in the Coast Guard's best interest, he or she may raise the 
issue through several reviews, up to and including the Coast 
Guard's senior acquisition executive.
    As part of the IPT process, ICGS and the Coast Guard engage 
in programmatic and design reviews for each assets at various 
decision points. ICGS and the Coast Guard also work together on 
technical scoping reviews prior to the issuance of work orders 
under this contract. The Coast Guard remains the decisionmaking 
and contracting authority, and has retained the traditional 
contract management functions, including the right to issue 
unilateral change orders, to stop or terminate work, to order 
or not order assets and supplies, and to accept or reject work. 
ICGS takes very seriously the oversight responsibilities of the 
Coast Guard, Department of Homeland Security, the GAO, and 
Congress.
    ICGS has routinely provided support for audit team site 
visits to its facilities, has conducted management and 
technical staff meetings with audit teams, provided briefings 
and updates to auditors, and has supported document requests 
from the Coast Guard and independent reviewing bodies. In this 
regard, we remain committed to facilitating the important 
oversight responsibilities.
    Thank you for the opportunity, and I stand by for your 
questions.
    [The prepared statement of Mr. Teel follows:]
    
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    Chairman Waxman. Thank you. Thank you all for your 
testimony. We very much appreciate it. It has been very 
helpful.
    I am still trying to figure out about this change in the 
direction of the information that came from the test that was 
done in Carderock, and it seems like the findings from the Navy 
about the new Coast Guard cutter were changed by the Deepwater 
Program Office, and I want to return to that issue.
    Admiral Allen, I recognize you were not the Commandant when 
the Navy findings were altered. Do you know anything about what 
happened?
    Admiral Allen. Mr. Chairman, I had a discussion with the IG 
in the last couple weeks; it is the first time I had seen the 
two sets of slides. I told him I was going to take a look at it 
and get back to him with information. I would just provide a 
couple pieces of background information.
    The information provided by Carderock for that briefing was 
a status briefing that led to a final report that wasn't issued 
until August 2006, so it was a status report on the findings to 
that date, which had to be refined. The report was scheduled to 
go to the Coast Guard's technical authority, our chief 
engineer, who would then interpret it and provide input to the 
Deepwater project for what needed to be done to address the 
issues raised by Carderock.
    To the extent that there was concern that somehow the 
fatigue service life was not well known or that information was 
not provided, there were other slides in both briefs that say 
it in another manner; not in red ink, but the information 
remains in the brief, aside from the caveats that you showed 
us. So my commitment is to go back, look at that; I will give 
you the information. But I can provide you the slides or the 
information that was provided elsewhere in the brief.
    Chairman Waxman. Then why did they delete those red letter 
words?
    Admiral Allen. I made a commitment to the IG to look into 
it, sir, and I would be happy to get back to the committee. I 
was made aware of it in the last couple of weeks.
    Chairman Waxman. Mr. Giddens, you are running the SBInet 
program, but you previously helped run the Deepwater program, 
which I guess raises a question, since we put the two together 
as two problem programs. Do you know anything about these 
doctored slides? Were you aware of the Navy findings of serious 
problems with the Coast Guard Cutter?
    Mr. Giddens. I was not aware of the slides or any 
particular slides being doctored. I do remember that issue was 
discussed, as Admiral Allen indicated it was; in the briefing 
package the issue was raised.
    Chairman Waxman. But you weren't aware of it?
    Mr. Giddens. I was not aware of the changing of the 
markings, but the issue was raised in the briefing package.
    Chairman Waxman. And what is that briefing packet? That was 
the briefing to Admiral Allen?
    Mr. Giddens. It was a briefing. I believe it might have 
been to the Commandant. I am not sure who the----
    Admiral Allen. Mr. Chairman, if I could elucidate there a 
little bit. The briefing was held around December 8, 2005, a 
little over a year ago; it was a status briefing to the 
Commandant. It was on the status of the Carderock review, and 
at that point it was generally well known throughout the Coast 
Guard that there was a fatigue life issue that had to be 
addressed, sir.
    Chairman Waxman. Mr. Giddens, did you have a role in 
preparing the slide presentation to the Commandant that excised 
the Navy's most damaging findings?
    Mr. Giddens. Sir, as Admiral Allen indicated, that briefing 
was December 2005, and I was working, at that time, for the 
Department of Homeland Security.
    Chairman Waxman. Do you know who did it?
    Mr. Giddens. No, sir.
    Chairman Waxman. OK. Do you know whether any of the 
contractors were involved?
    Mr. Giddens. Sir, again, I was not working at the Coast 
Guard at that time. I don't have any additional information.
    Chairman Waxman. Do you know why they might have deleted 
that information?
    Mr. Giddens. No, sir.
    Chairman Waxman. Does anybody on the panel--well, let me--
rather than open it up--well, let me ask. Anybody on the panel 
know what happened, why it happened, and who did it?
    Admiral Blore. Mr. Chairman, if I could, I was not the 
Program Executive Officer then, but I was starting to 
transition into the Deepwater program. First, let me just say 
for context, it was never--it is not the same brief. The brief 
that was given to us by Carderock was a brief to the Deepwater 
program and our technical authority to understand specifically 
some structural and fatigue issues. The brief that was prepared 
for the Commandant was an update on the National Security 
Cutter. So when we use words like the slides were changed, none 
of the slides were transitioned directly over; the brief was 
recreated to brief the Commandant. And I would say----
    Chairman Waxman. They were the same slides, though.
    Admiral Blore. Some of them are the same slides because we 
were using the same information because it was an update on 
national security.
    Chairman Waxman. Why would somebody go to the trouble of 
deleting those words on those slides so that what was given in 
that briefing was not exactly the same as Carderock had 
originally submitted?
    Admiral Blore. Can't answer that question directly, sir, 
other than to say the seriousness of the issue is covered in 
the brief.
    Chairman Waxman. The seriousness of the issue is covered in 
the brief?
    Admiral Blore. The seriousness of the issue with the 
National Security Cutter, in the sense that we needed to do a 
fatigue structural enhancement upgrade for it, is covered in 
the brief.
    Chairman Waxman. Well, the timing of the deletions is 
important. Several months after the Navy findings were removed, 
the Coast Guard made a decision to renew the Deepwater contract 
with the same contractors. I don't know how the problem with 
the ship could be ignored when the renewal decision was made. 
When I read the Coast Guard's announcement of the renewal, it 
is full of praise for the contractor; there is no mention made 
of the huge problems uncovered by the Navy and no corrective 
action. That may be great for Lockheed and Northrop, but it is 
costing the taxpayers billions. Do you have any comment on 
that?
    Admiral Allen. Sir, first of all, I don't believe it will 
cost the taxpayers billions, and----
    Chairman Waxman. Well, let's hope not, but it is troubling. 
Mr. Skinner said it was very disturbing to him, and as we saw 
when this contract was renewed, there was no mention of any of 
this.
    Admiral Allen. Yes, sir. First of all, I think we need to 
be careful not make the fatigue issue on a National Security 
Cutter a surrogate measure for the entire acquisition, as was 
stated in the opening statements. The decision on the new award 
term--I will let Admiral Blore fill in any holes that I fail to 
cover here.
    The criterion for the award of the next award term was 
embedded in the contract and was awarded in 2002 and locked in 
at that time. Moving forward, we will change the award criteria 
for future awards to focus on performance, cost control, and 
project management, but the decision on how that would be 
awarded based on operational efficiency--and at that point the 
National Security Cutter had not been in service yet--did not 
impact that determination. We are changing that for the next 
award term. But the original criteria were locked in in 2002.
    Chairman Waxman. Well, it sounds like you are saying you 
made a decision that wasn't based on cost or performance.
    Admiral Allen. It was based on the criteria that was 
contractually agreed to in 2002, sir. That was the contract.
    Chairman Waxman. Maybe Rear Admiral Blore can further 
explain this, but----
    Admiral Blore. Yes, sir, it was based on----
    Chairman Waxman [continuing]. This wasn't great 
performance, was it? You did have a problem. You wanted them to 
build a ship and the ship was not going to meet your standards 
for 30 years, and that is what the people at Carderock had 
reported. Maybe it was known, maybe it wasn't known, but then 
the contract was renewed with all sorts of praise.
    Admiral Blore. Yes, sir. First off, it was not for the 
National Security Cutter, it was for the Deepwater program. The 
criterion that were on contract at the time----
    Chairman Waxman. This Cutter is part of the Deepwater 
program, isn't it?
    Admiral Blore. Yes, Mr. Chairman.
    Chairman Waxman. OK.
    Admiral Blore [continuing]. Was total ownership cost, 
operational effectiveness, and customer satisfaction. That was 
the contractual way that their past performance would be 
reviewed. And the contract has not been renewed. The contract 
was not renewed for 43 months. What was offered was the 
opportunity for an additional period of performance for 43 
months. We are currently working with our industry partners to 
negotiate a contract. If we negotiate a contract, that would be 
put in place in June 2007.
    Chairman Waxman. The week before--there was a document that 
says ``ICGS/NGSS participation, energy focused on deflecting 
governmental technical analysis and reinterpreting contract 
requirements, a little interest yet displayed to partner for 
solutions. Technical response, gradual back-peddling away from 
NGSS 2004 fatigue technical positions. No interest yet 
expressed to assume technical leadership.'' Are you familiar 
with this document?
    Admiral Blore. Yes, Mr. Chairman, I am.
    Chairman Waxman. Well, why all the praise for the 
contractor when this document seems to be critical?
    Admiral Blore. Sir, I can't speak to the praise for the 
contractor; I can speak to that document, which reflected the 
work that was going on between the Coast Guard, which, at the 
time, was proposing structural enhancements to get a 30-year 
fatigue life on the National Security Cutter and our 
relationship at that time with industry. Integrated product 
teams were mentioned before IPTs, and I think that reflects a 
lot of the atmosphere in the IPT at that time. The IPT is 
actually the lowest level these things are negotiated at----
    Chairman Waxman. Let me stop you right there, because I 
only have a few minutes, even less than a minute, but I want to 
ask Mr. Giddens a question before my time is up.
    As of December you had hired 98 people to oversee the 
SBInet contract. That sounds good, but the problem is that 65 
of these people don't work for the Government, they work for 
the contractor, as we were told earlier. During the first 
panel, we heard repeatedly about the problems with Deepwater 
contract. One of the features of Deepwater was your reliance on 
contractors to perform this oversight. My staff tells me you 
hired 135 people to oversee Deepwater and that over half of 
them, 76 of the overseers, are themselves contractors. It seems 
to me this was the same mistake in SBInet.
    We asked for a list of these contract employees working in 
the SBInet office, as well as the identities of the private 
companies they work for, and some of the individuals work for 
Booz Allen Hamilton, one of the Nation's largest consulting 
firms. But Booz Allen apparently has a number of ties to 
Boeing, the prime contractor. In fact, on Booz Allen's own Web 
site the company touts a business relationship with Boeing 
going back to 1970. Here is what it says: Booz Allen has a 
``solid working relationship'' with Boeing with ``deep 
knowledge and personal relationships from the group president 
to the people on the shop floor.''
    What is going on here, Mr. Giddens? Why are you hiring 
contractors with conflicts of interest to provide contract 
oversight?
    Mr. Giddens. First, sir, as I tried to state in my opening 
statement, support contractors do not provide oversight for 
Boeing, the prime contractor. That is a Government 
responsibility. The support contractors are just that: They are 
support.
    For this particular example, what Booz Allen Hamilton is 
doing in the office in this regard, they are supporting our 
mission engineering group. And they're going out, and working 
with the fill sectors, and gathering requirements so that we 
can bring those back, compile those, and then go back to the 
field and brief those requirements to make sure that we have 
correctly captured the operational conditions in the field.
    Chairman Waxman. Well, a majority of the people in your 
office are private contractors. You're relying on them to do 
the function that a Government ordinarily would do, yet it's 
contracted out and, in this case, contracted out with a company 
that may have a conflict of interest.
    Mr. Giddens. We have currently 56 percent of the staff, the 
support contractors, working for the Government. Those staff 
have to sign non-disclosure agreements, so they do not share 
the information that they see in the program office. We have a 
structure to support that.
    I would echo the concerns of the first panel that hiring 
Government employees in the program management acquisition 
world is a difficult task. We are looking to get to the end of 
this fiscal year to a balance of 48 percent to 52 percent in 
2008 and have more Government employees than we do support 
contractors. But again, they are support contractors, they do 
not provide an oversight function for Boeing. That is the 
Government's responsibility.
    Chairman Waxman. Mr. Davis.
    Mr. Davis of Virginia. As I look at this, it seems to me 
that there are really more problems associated with the ships 
as opposed to the airplanes and the C4ISR. Anyone want to 
comment on why that is the case?
    Admiral Blore. Let me say, sir, first, I agree with you, 
that we have tended to face most of our major challenges on the 
surface side. A lot of them are much more complex platforms 
than we are getting, for example, in aviation; as opposed to 
buying a CASA and converting it in aviation, we are building a 
ship from scratch.
    One thing I would say, though----
    Mr. Davis of Virginia. Do you attempt to be more innovative 
on the ship side than perhaps----
    Admiral Blore. I just think it is a much more complex 
structure. We do participate openly with the Navy; we do use 
NAFC. We have a Government regional office for the Coast Guard 
in Pascagoula, and we use the Navy's regional office in 
Pascagoula. So we do try to use--it came up before--Navy 
resources whenever we can.
    Admiral Allen. I would say I would separate out the 123 
conversion, which has been an issue for us, from the ships that 
are being designed from scratch. You normally will encounter 
some issues with the first in class that will require a 
retrofit, and then changes made for the subsequent hulls. That 
is something we are finding out with the National Security 
Cutter.
    The failure of the platforms on the 123s, which were 
extended 110 hulls, is an issue where we need to go back, and 
we are taking a look at it.
    Mr. Davis of Virginia. OK, thank you.
    Ms. Duke, let me ask you did the Coast Guard make the right 
decision in using a private contractor as the systems 
integrator for the Deepwater program? As we sit here today.
    Ms. Duke. I don't see using a systems integrator as the 
issue. A system integrator is a contract choice; it is 
appropriate where you have a large program. They had a huge 
amount of asset recapitalization that needed----
    Mr. Davis of Virginia. So with what you had at the time, 
you think it was the right decision.
    Ms. Duke. Yes.
    Mr. Davis of Virginia. At the beginning, the Coast Guard 
was obviously limited in their ability to manage a large 
program like that, and the previous panel has spoken on that to 
the GAO and the IG. What about today, do you have the ability 
to manage this today, or would you need more assets?
    Ms. Duke. I think that Admiral Allen has recognized the 
need for more assets in both the number of people and the 
structure and the consolidation of the authority and the 
decisionmaking, and his restructuring of the acquisition 
program within the Coast Guard is going to address those 
staffing and skill mix problems and authority problems that 
were present in the start of the contract.
    Mr. Davis of Virginia. This is a Coast Guard program, but 
what role does DHS play? What role is your organization playing 
in overseeing this?
    Ms. Duke. We are working with Admiral Allen in both his 
plan for restructuring the acquisition function within the 
Coast Guard and we are working with the restructuring of the--
his implementation plan for the new vision for the new 
Deepwater program. So we consult and we work with him, and he 
is very cooperative.
    Mr. Davis of Virginia. Yes, Admiral Allen?
    Admiral Allen. Consistent with my interview with Secretary 
Chertoff, when I was interviewed to become the Commandant, I 
said that we had internal reasons why we needed to look at the 
acquisition program, but a side benefit to all that, it aligns 
us organizationally and functionally with the Department of 
Homeland Security and achieves better functional integration 
for the Department.
    Mr. Davis of Virginia. OK. Let me ask the same question I 
asked Ms. Duke. There are those who criticized your acquisition 
approach, particularly using the private contractor to act as 
the systems integrator. In hindsight, as you sit here today, 
recognizing you weren't there at the beginning, was this a good 
decision? If you could do it all over, would you make that 
decision any differently?
    Admiral Allen. Given the conditions that existed at the 
time, I would have made the same decision. The problem we had 
was block obsolescence of our cutter and aircraft fleet that we 
needed to basically recapitalize them all at once, a limited 
funding stream, and a service that had recently been downsized 
by 4,000 people and $4 million a year as part of making 
Government smaller. We were forced to make some tradeoffs in 
how we would move ahead with the vessel and aircraft 
recapitalization. I think the original proposal was sound. I 
think the approach was sound. What happened was the same month 
that we received the proposals for evaluation there were the 9/
11 attacks. That was a major intervening variable. And when you 
start taking apart the requirements, as they said in the first 
panel, what should have been just a menu of items that we could 
pick that were already priced out within a contractual 
structure, all of a sudden had to be rewickered, and that is 
where you start getting behind in terms of the amount of people 
that are on the problem and resolving technical issues.
    Mr. Davis of Virginia. If you could go back to that stage, 
right after 9/11, when you were reconfiguring it, when the 
requirements changed, how would we do that differently?
    Admiral Allen. Well, that was the devil's dilemma that they 
had at the time. We could have pulled the solicitation back and 
resolicited new proposals with a new set of requirements.
    Mr. Davis of Virginia. That would put it out.
    Admiral Allen. You would have pushed it out and then you 
would have failing cutters and aircraft out there. So the 
question is do you proceed and make the adjustments, because 
this is a considerable change in requirements. Normally, we 
would not have done that.
    Mr. Davis of Virginia. But in hindsight, seeing where we 
are now--and this is hindsight, I am not criticizing the 
original decision--might that not have been a better way to go?
    Admiral Allen. It would have, but you would have run the 
risk at that time of facing block obsolescence or being able to 
have a capability gap where a platform would have failed and 
you would not be able to replace it.
    I would note today, on February 8th, we are retiring the 
Coast Guard Cutter Storis at age 65 that had World War II 
service.
    Mr. Davis of Virginia. GAO notes that the Coast Guard has 
declined to implement their recommendation to establish a 
baseline to determine whether the system-of-systems approach is 
costing more than the traditional acquisition approach. Seems 
reasonable. Could you explain your reasons for rejecting that 
recommendation?
    Admiral Allen. I will let Admiral Blore comment in a 
minute, but I think the original premise was that it is 
impossible, until we have the system up and operating, to 
generate the information by which we could do a comparison, 
and, technically, we didn't think it would be feasible at this 
time. It is not--we don't object to the basic premise.
    Admiral Blore. I would agree, sir. There is not a 
conceptual difference, it is just a matter of workload. We are 
trying to move more Government personnel into program 
oversight. This might be something that would be valuable to 
develop once Deepwater is a little further along and basically 
try to do an apples-to-apples comparison, but we just didn't 
have the resources to do it right now.
    Mr. Davis of Virginia. OK. Let me turn to the contractors. 
I will confess I am kind of a Northrop Grumman alumnus, having 
been general counsel at PRC, which is now part of the Northrop 
Grumman empire, and been a senior VP there before I came to 
Congress. But let me ask the contractors on this. Can you give 
us an example of how Deepwater's use of the systems integrator 
approach specifically benefited the Coast Guard? Because that 
seems to be a concern that has been raised by some of the 
Members today.
    Mr. Mackay. Well, Congressman Davis, where we--as I 
mentioned in my opening statement, we are pushing 
interoperability, commonality, the glue that holds the network 
together. With regard to that, we have been able to achieve 
about 65 percent software reuse, where we are using GOTS, 
Government off-the-shelf, and commercial off-the-shelf 
software, and we have also achieved some notable commonalities. 
For instance, the mission system of the HC-144, the new twin 
engine maritime patrol aircraft, uses about 50 percent or about 
23,000 lines of code from the Navy's AIP program for the P3, 
and there is about a 90 percent commonality between the mission 
system for the AC-144 and the mission system for the 
missionized C-130J, which we will redeliver to the Coast Guard 
here in September and we will complete that program by the end 
of calendar year 2008.
    Also, about 75 percent of the Aegis Open Architecture 
Command and Decision System from the U.S. Navy's very 
successful Aegis program is reused in the command and Op center 
of the National Security Cutter, and the displays and consoles 
that we use in that Op center are derived from the UIQ-70 
series that we use on the CVN-77 proposal. So we are getting a 
lot of commonality, a lot of reuse, starting to make the 
national fleet concept for the Coast Guard and the Navy and all 
the maritime services have common standard and common equipment 
and interoperability. I think the story that--not the story, 
the operational report that Admiral Blore quoted from, where 
you had a Navy frigate and a Coast Guard cutter operating 
together, talking on the same net, sharing technical data is 
indicative of that.
    Mr. Davis of Virginia. Information sharing.
    Admiral Blore. Yes, sir.
    Mr. Davis of Virginia. Admiral Allen, do you agree with 
that?
    Admiral Allen. Wholeheartedly. My good partner, Mike 
Mullen, and I have made a commitment to achieve commonality to 
the extent that we can. The deck gun on the LCS, the deck gun 
on the National Security Cutter are the same. The air search 
radars are the same. In fact, we are training Navy personnel at 
Coast Guard training commands on the operation of the radar.
    Mr. Davis of Virginia. Let me ask the contractors again. As 
we look back--I don't know if you were there at the beginning, 
but as you just take a look over the history of the program, 
what lessons have you learned from the early years of the 
Deepwater program? What could you have done differently? 
Recognizing you didn't write the requirements, but seeing some 
of the problems the program has had as it has moved down. From 
a contractor perspective. I have asked the Government what they 
would do different. What would you do differently?
    Mr. Mackay. I will let Mr. Teel comment as well, although 
neither of our tenure start back in the 2000 timeframe; we both 
joined the program in our respective roles in the middle of 
2005.
    I think----
    Mr. Davis of Virginia. For the record, I don't think 
anybody on this panel had anything to do with the original part 
of it. You are part of the solution, but you are familiar with 
what happened early on.
    Mr. Mackay. Yes, sir, fairly familiar.
    I think where we--there was just an ineluctable problem or 
an issue that has been brought up with respect to the timing of 
a very large exogenous event with 9/11. In fact, changing 
departments for the Coast Guard, the generation of a new 
mission needs statement, the refining of the requirements that 
went into platforms like the National Security Cutter or the 
VUAV, the requirements for those had a long gestation period 
that was affected by many of the factors that we have talked 
about today. In fact, the new mission needs statement was not 
generated for the program until July 2005, some 3 years after 
the original contract award; just a long period to look at all 
of the cross-cutting issues and the new capabilities that are 
generated when a service gets--not only changes home 
departments, but also picks up three discreet new national 
security and homeland security missions that revolve around 
tough things like counterterrorism. It is a joint problem. 
Working the requirements, I don't know how they could have been 
done more expeditiously, but that certainly would have helped.
    Mr. Davis of Virginia. Mr. Teel.
    Mr. Teel. Yes, sir. I would just add that in our governance 
model as it is associated with ICGS, both Leo and I and others 
in that leadership chain have recognized that the chart that 
was shown earlier is part of the dynamic tension that one sees 
within the IPTs, and we collectively believe--and part of what 
is being addressed by the Coast Guard and the changes that we 
are making within ICGS--are to allow those issues to get 
quicker access to decisionmaking outside the IPTs. I think 
there are some structural issues, and we are dealing with those 
and, in fact, have already made the changes to begin that 
process. So there are certainly changes there to get issues 
vetted more quickly.
    Mr. Davis of Virginia. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Waxman. Thank you, Mr. Davis.
    Admiral Allen has to leave fairly shortly to go to another 
meeting. I just wonder if members have questions of that.
    Mr. Cummings.
    Mr. Cummings. Yes.
    Chairman Waxman. Anyone else? If not, it is Mr. Cummings' 
time anyway, so I am going to recognize him and then, after he 
is finished, Admiral Allen, you would be free to go.
    Mr. Cummings. Was my timing running? [Laughter.]
    I see a green light and a red light. I just want to make 
sure. I will take the green. I mean, I will take the red. OK, I 
got the green.
    Admiral, first of all, as you know, I have the utmost 
confidence in you, I really do, and the Coast Guard. My 
concern, though, goes to several things that have taken place 
today. The chairman asked you some questions about the changed 
slides, or whatever, and I was thinking to myself if I had that 
situation, if I were you, and I had the situation where the 
civil equivalent of the FBI sat at that desk and said that he 
had received some altered documents during his investigation, I 
would be doing everything in my power to find out who did it, 
because it basically--it taints the operation.
    Admiral Allen. Yes, sir.
    Mr. Cummings. And that is a very, very serious--I have not 
seen that, by the way, since I have been here in the Congress, 
that an IG, to sit there and say something like that.
    Admiral Allen. Yes, sir. If I could clarify just a little 
bit.
    Mr. Cummings. Yes.
    Admiral Allen. First of all, I was not aware of it either, 
until the last couple of weeks. Mr. Skinner came to me directly 
and showed me the slides. What he presented were copies of 
slides that were used in briefs, OK, that we then provided to 
the IG. And the brief to the Commandant that doesn't have the 
red ink on it was part of a larger brief to the Commandant that 
contained other items. Now, why that was removed for the 
purpose of briefing the Commandant I have committed to Mr. 
Skinner to finding out.
    Mr. Cummings. Thank you.
    Admiral Allen. And I am committing to the committee to do 
that too, sir.
    Mr. Cummings. Yes. I just want to make sure you understand 
that is a very serious matter for us.
    Admiral Allen. I have to state, though, that the same 
information is included in a later slide that indicates the 30-
year service life is a problem. It is not in red, but the 
information wasn't totally removed from the brief.
    Mr. Cummings. But my concern is that the IG didn't get it 
from the Coast Guard, he had to go--the Coast Guard apparently 
would not give him that information, he had to get it through 
some other source.
    Admiral Allen. Yes, sir. And I have committed----
    Mr. Cummings. That really bothers us.
    Admiral Allen. We will get to the bottom of it and we will 
find answers.
    Mr. Cummings. Thank you. I have a limited amount of time.
    Let me go back to something else that is also of concern. 
This bonus thing, there is no one single Member of this 
Congress that if they had evaluated the performance of an 
employee, where the scheduled performance was not good--well, 
it wouldn't be cost control was bad, contract administration 
was not good, we would give them a bonus. And I am wondering 
what is the criteria for bonuses as we go forward and how are 
we going to determine that? And I am not trying to take 
anything away from anybody if they earn it, but, you see, our 
responsibility, if we don't--see, our constituents hold us 
accountable, so we have to hold you accountable. So I am just 
wondering--I would really like to know how we are going to go 
forward with bonuses. And if there are going to be bonuses, I 
would love for this committee to know that they are coming up 
so at least we can hear about them.
    Admiral Allen. Yes, sir. Let me give you a high level 
answer, and I will have Admiral Blore expand on that.
    The parameters by which these folks are evaluated, as we 
said earlier and as David Walker said earlier, are included in 
contractual agreements for a set period of time. What we need 
to do is take a look at the criteria and the period of time and 
restructure the contracts. We have already done that for the 
period that is starting in January, and that will be 
restructured in the new contract if we move forward to the new 
award term. But I will let Admiral Blore expand.
    Mr. Cummings. And I hope attitude isn't the criteria, 
because if that were the case, everybody sitting behind you 
would have a $4 million bonus.
    Admiral.
    Admiral Blore. Yes, sir. Attitude is not one of the 
criteria. And to give this kind of context, just in rough 
terms, the Deepwater program is about $1 billion a year. Within 
that $1 billion there is $40 million in a systems engineering 
bucket, so to speak. Of that $40 million, 10 percent is set 
aside for management reserve, which is $4 million. That $4 
million is divided in half for an award fee program that occurs 
every 6 months.
    When I became the program executive officer, the criteria 
was already established. I professionally don't think the 
criteria is at a high enough bar. I think I am hearing that 
from you also. I recently awarded a fee, so you should be aware 
of that, last week of 82.4 percent, so that would give them, 
monetarily, $1.6 million. That was the lowest award they have 
ever received from the Coast Guard in the history of the award 
fee.
    I do feel ethically bound to honor the criteria that was on 
contract. I was not able to change the criteria to January 1, 
2007; it has been changed. I would be happy to provide for the 
record the old criteria and the new criteria, which talks about 
cost control and competition.
    Mr. Cummings. Thank you. I would love to have that.
    Admiral Blore. Yes, sir.
    Mr. Cummings. Admiral Allen, just one other thing. During 
our Coast Guard Subcommittee hearing, you said that you would 
compete the Fast Response Cutter contract. And after hearing--
and I know you are already familiar with what Mr. Walker might 
have to say and the IG might have to say, but after hearing all 
of that, do we have clear standards for the Response Cutter? Do 
we have penalties; do we have an exit clause? Do we have 
anything--any kind of warranty? And, again, as I said to you in 
that other hearing, one of the things that Americans understand 
are warranties. Almost everybody buys a car. And the thought 
that we could spend money and not have any kind of guarantee is 
a major problem. So I was just wondering.
    But I want you to address all those things.
    Admiral Allen. Yes, sir. Regarding the Fast Response 
Cutters, it is really a two-part answer.
    Mr. Cummings. All right.
    Admiral Allen. The Fast Response Cutter A Class was being 
considered for construction as a composite hull design. We have 
done a risk assessment on that and we feel we need to resolve 
some technical issues before we go forward. To mitigate that 
acquisition, the Undersecretary for Science and Technology is 
going to be teaming with Northrop Grumman to produce a 
technology demonstrator to see if the technology works before 
we go to production of that vessel. So that will mitigate risk 
for the composite hull.
    In the meantime, as you know, we have a patrol at Hour Gap 
that has been exacerbated by the performance of the converted 
123 for cutters. We are moving at best speed there to award a 
contract under a parent craft design, and that means taking an 
existing design that is already out there, making minimal 
modifications to it, and getting it into production as fast we 
can to start filling that gap. That is what I referred to in 
the hearing. That is going to be openly competed, and it will 
also be a third-party certification through American Bureau of 
Shipping for standards.
    Mr. Cummings. Now, what happens when--you know, one of the 
things I am concerned about is there was some discussion, I 
think, by the Rear Admiral about cost overruns, and basically 
he told us that there were certain things that were not 
accurate. Let me just say this. What happens when it is 
discovered that there is a problem and then it costs money to 
repair, to do the repair? I mean, in other words, we had some--
with the National Security Cutter, who pays that? In other 
words, the American people don't want to be paying twice. They 
pay for it and then folks come back and say, OK, it didn't 
work, so then they pay again. So I am just wondering who pays 
for that.
    Admiral Allen. Again, I will give you a high level answer 
and I will pass it to Admiral Blore to expand upon.
    The way the Deepwater program is structured, there are a 
series of delivery task orders that are issued, and these are 
various contractual arrangements. Some might be cost-plus, some 
may be for a firm fixed price, depending on the particular 
instrument by which the asset was ordered would carry a 
different duty on the part of the contractor and the Government 
and a different level of risk. But all of those infer a certain 
level of performance that the contractor is held to under the 
conditions of that contract, and they are enforceable, sir.
    Admiral Blore. Yes, sir, the short answer is if we couldn't 
work it out in other means, we would ask the contracting 
officer to enforce the terms and conditions of the contract or, 
if necessary, a lawyer to enforce the terms and conditions of 
the contract. I think what both the IG and GAO spoke to, which 
is accurate, is we need to pay more attention to our contracts, 
what is specifically written and what the terms and conditions 
are, and we are doing that now.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Cooper [presiding]. I thank the gentleman.
    I believe our friend from California, Mr. Issa, has a few 
questions for the Admiral.
    Mr. Issa. Thank you, Mr. Chairman. I will direct primarily 
to the Commandant, because I understand you have to go.
    Sort of the big picture question, Admiral, do you believe 
that joint is the preferable way, in other words, that we 
should have both the uniformed armed forces and the Coast 
Guard, even in peace time, be as purple as possible?
    Admiral Allen. Yes, sir, I am in favor of joint. I am also 
in favor of interagency, and I would be in favor of plaid if it 
made us work better, sir.
    Mr. Issa. So if--and we are back to Monday morning 
quarterbacking, but let's just assume that 9/11 was the 
beginning of the second cold war and that for the next 50 
years, in various States, we are going to be dealing with some 
of the problems we are dealing with here today around the 
world. What would you say this committee needs to--how can we 
empower you and your brothers and sisters in the other 
uniformed services to be able to work more jointly, to be able 
to create common platforms, take advantage, leverage each 
other's expertise and, of course, we would hope for cost 
savings in addition to maybe more reliable results?
    Admiral Allen. Sir, I would say that is embodied in the 
current national fleet policy statement that has been jointly 
signed by Mike Mullen and myself. It is a commitment to looking 
at joint interoperability. If you look at the Navy as the high-
end fleet of this country and the Coast Guard, in closer to 
shore, maybe smaller, how we seam up together to create a 
national fleet is of extreme importance. Our contractors just 
spoke about how much code is being reused in our command and 
control systems in the Deepwater system, it is also used in 
Navy aviation and surface platforms. We have commonality of air 
search radars between the LCS and the NSC, and we are both 
using the 57 millimeter deck gun across.
    I meet with Admiral Mullen probably every 2 or 3 months in 
war-fighter talks. We have people who focus exclusively on how 
we can get greater synergies. And we are constantly talking 
about their shipbuilding programs and our shipbuilding 
programs, and I also have met regularly with the Secretary of 
the Navy on shipbuilding programs. So we are focusing on it. We 
actually have a vessel out in San Diego that is being jointly 
crewed by Coast Guard and Navy folks in a test and evaluation 
period, the high-speed craft.
    Mr. Issa. The sea fighter?
    Admiral Allen. Yes.
    Mr. Issa. So-called X craft previously?
    Admiral Allen. Yes. And another good example is the great 
cooperation we got out of the Navy that allows us to extend the 
use of the 179-foot patrol craft to fill our patrol boat gap 
while we get the new Fast Response Cutter built. But we are 
side-by-side developing strategy together, and where we can we 
work together.
    Mr. Issa. Well, following up on the sea fighter, you know, 
it was commissioned I guess now it is going on 2 years ago. It 
spent a lot of time dockside. How much more do you have to go 
through to find out what the advantages of this high-speed 
ferry, its air landing capability, fueling, etc., how much more 
is there before you know whether to build unit two?
    Admiral Allen. Well, if I could, I would like to get 
together with Mike Mullen and give you an answer for the record 
on that, sir, because I am just not up to speed on the current 
data from the testing and so forth, and my answer may not be 
current. But happy to answer for the record.
    Mr. Issa. OK, I will put you on the spot where I can, 
though. How do you like it as a ship? How do you like it as a 
new category?
    Admiral Allen. I think it has some intriguing potential 
uses in our mission set. The question is we have to look at 
life cycle cost, the propulsion and so forth. I have had some 
discussions with Admiral Mullen about it, and I think at some 
point we are going to need to sit down and discuss what is the 
way forward and the potential utility for the Coast Guard. 
Obviously, large deck space can accommodate a lot of our 
missions. We have situations in the straights of Florida where 
we get in a position where we have a large number of migrants 
on the deck of a cutter that is really not designed to do that. 
But those are the things we might talk about.
    Mr. Issa. I appreciate that. I certainly recognize that the 
air conditioned down below capability is very good.
    Switching to Ms. Duke, now, you work for the Secretary of 
Homeland Security, is that right?
    Ms. Duke. Yes.
    Mr. Issa. How do you interface--the Commandant made it 
clear that he feels he has the authority to have these liaisons 
and joint operations, but you work for a single cabinet officer 
who has a budget. What is it that you can do in your daily 
life, or can't do, that allows you to leverage other hundreds 
of contracts and contractors in the rest of the Federal system?
    Ms. Duke. Well, as the senior contracting person for the 
Department of Homeland Security, I am part of the Office of 
Management and Budget Chief Acquisition Officer Council, so all 
the leaders in the contracting community, the Federal 
Government, are part of this, and we take on Federal 
initiatives from the contracting perspective. That is chaired 
by the OFPP Administrator, Paul Denett.
    Mr. Issa. OK. But does it have shortcomings? You know, 
today we are talking about whether or not there should have 
been a better integration of fleet Navy assets in this 
acquisition. Your organization was certainly part of the 
process of looking at your brethren in other procurements and 
saying, you know what, they have some expertise we should bring 
in to reduce the chances of exactly what has happened here 
happening. So what went wrong?
    Ms. Duke. Well, our focus from the contracting perspective 
is the business deal, not the technical aspects. The technical 
aspects are handled by the program management lead. So in terms 
of the business deal, what we have to look--the main thing we 
are doing at the Federal level is trying to rebuild the skill 
set of contracting and being able to bring the business deals 
to fruition.
    Mr. Issa. OK, Mr. Waxman, just one final followup.
    So if you are looking at the deal to contract and an 
admiral and a chain of command are looking at whether or not to 
go out of their chain of command for expertise, then where is 
the incentive to do so within a typical, you know, chain of 
command? Isn't there in fact a problem of not having an 
independent decisionmaker that says, wait a second, I believe 
we can do better if we go purple on this project? It doesn't 
sound like that was inherent in the system.
    Ms. Duke. I do think it rests with the Coast Guard, as 
Admiral Allen said, right now with the jointness of the 
military operations. I do know that he has the relationship 
with the Secretary, as I do, as one of the major components in 
the Department, and the Secretary has an interest in the 
jointness too, not only for the coast part, for preparedness, 
disaster response under our national response plan. So I think 
that is both shared by the component heads and our Secretary.
    Ms. Issa. Thank you for your indulgence, Mr. Chairman.
    Chairman Waxman [presiding]. Thank you, Mr. Issa.
    Mr. Cooper.
    Mr. Cooper. Two quick questions for the Admiral before you 
have to leave.
    Your understanding of the contract for the National 
Security Cutter, what was the fatigue life and what were the 
days underway that you thought were specified by the contract?
    Admiral Allen. Yes, sir. That is a great issue. Thank you 
for asking, because there is ambiguity in the contract. I think 
we need to be perfectly clear about what we are talking about.
    In the report produced by Carderock, it indicates a 
standard of 230 days. When we awarded the work order to them, 
we did not specify a number of days, and they inferred that 
from the performance specification that was awarded to ICGS. 
The understanding by the Coast Guard is that the vessel will be 
away from home port, not in home port, 230 days a year. If you 
discount transit times, places where you might be in a shipyard 
away from home port and so forth, that will yield somewhere 
around 180 days on mission, onsite.
    So the question is what should you use for accumulating the 
number of hours in the sea state for the purpose of the fatigue 
modeling. Both the Coast Guard and our contractors agree that 
the model is 230 days away from home port, but 185 days on 
mission or 180 days on mission, and that is what should be used 
to do the fatigue life calculations.
    Mr. Skinner and I now agree that is the interpretation. I 
have a legal opinion of what the contract language says, and 
Admiral Blore has actually made a contractual change to make 
that clear to everybody.
    Gary, you want to add anything?
    Admiral Blore. No, sir. We made the contractual change 
yesterday so there would be no more--it is our fault for 
introducing the confusion because in the performance 
specification, which is the reference, sometimes it is referred 
to as 230 days underway, but on page 8 there is a table that 
explains it. So we have changed it to make it clear that it is 
230 days away from home port.
    Mr. Cooper. How about fatigue life, years of service?
    Admiral Allen. What you do then is you take the number of 
days that you are going to be operating in the North Pacific 
environment or the Atlantic environment, and you use that for 
your calculation on the repetition of stresses on the hull, and 
the number in the contract, as adjusted, is what has been used 
all the way along, it is a commonly understood standard for 
both the Coast Guard and the contractor.
    Mr. Cooper. For non-sailors, non-coastees, how does this 
compare with old ships that we might be familiar with? You 
mentioned you are retiring a World War II ship today that 
lasted 65 years.
    Admiral Allen. That is another very good point, sir. The 
current High-Endurance Cutter that is deployed by the Coast 
Guard is deployed away from home port 185 days a year as a 
standard. That is a personnel tempo restriction. We can operate 
the ships longer than that, but we don't want our people gone 
any more than 185 days a year. That would yield us something on 
scene, after the transit times, down around 125, 130 days, or 
something like that.
    The goal with the National Security Cutter is to take three 
National Security Cutters and four crews, multiple-crew them 
and get 230 days away from home port with them and actually 
increase the capability of the cutters. That is the reason we 
are placing 12 High-Endurance Cutters with only 8 National 
Security Cutters.
    Mr. Cooper. But the length of life is 30 years, 40 years?
    Admiral Allen. Thirty. Thirty years, sir.
    Mr. Cooper. And that is the contractor understanding now 
too?
    Mr. Teel. Yes, sir.
    Mr. Cooper. But there had been confusion before that.
    Admiral Allen. To the extent--and I would agree with 
Admiral Blore there was some ambiguity because terms were used 
in different areas of the contract, and we have straightened 
that out.
    Mr. Cooper. What was the lawyer's name on the original 
contract?
    Admiral Allen. I would have to go back and look, sir.
    Mr. Cooper. If you could supply that for the committee, 
that would be helpful.
    I thank the chair.
    Chairman Waxman. Thank you very much.
    Admiral, I know you have to go to another appointment, so 
we are going to excuse you.
    Mr. Souder, do you have questions of the panel?
    Mr. Souder. I have questions for Mr. Giddens.
    Chairman Waxman. OK.
    If Mr. Souder would permit, just one quick question, and 
then we will get back to you.
    Ms. Norton. Just a short question.
    I want to thank you, Admiral Allen, for your work in the 
Gulf Coast, very much so. I was there and saw it firsthand. I 
want to just ask you one question. Do you think we are going to 
get a Coast Guard Headquarters this time?
    Admiral Allen. We hope so, ma'am.
    Ms. Norton. The President has put the money in his budget 
once again. I certainly appreciate that.
    Admiral Allen. We know it is a priority for the Secretary 
and the Deputy Secretary, and, as you know, we support the 
Secretary in this endeavor.
    Ms. Norton. Thank you.
    Chairman Waxman. Yes.
    Thank you very much, Admiral.
    Mr. Souder.
    Mr. Souder. Thank you, Mr. Chairman. Without Deepwater, 
there is no maritime security, and the new planes, which I saw 
before and after, and the upgraded boats are really critical to 
our mission, but I think all of Congress, as a whole, would be 
highly preferable if the new boats would work, and that just 
has been a very frustrating process for those who went way out 
on a limb to push this. The debate here and in the articles we 
have seen have been very discouraging. I appreciate, through my 
time as chairman, I have had a Coast Guard detailing and others 
and just have done whatever I can to boost it, and the type 
of--what I view as a lot of nitpicking in the sense of we knew 
what we were looking for in length, we knew what we were 
looking for in service, that they were going to be out in the 
Eastern Pacific for extended periods. And this type of stuff 
should have been clear from the beginning, and it has been 
incredibly exasperating.
    But I particularly wanted to focus on SBInet with Mr. 
Giddens, and I have some questions first. Do you believe that 
the entire land border will be secure by December 2008?
    Mr. Giddens. No, sir.
    Mr. Souder. Do you know what the cost to secure the entire 
land border would be?
    Mr. Giddens. Our cost estimate for securing the southwest 
border is approximately $8 billion, and our timeframe for that 
is in fiscal year 2013.
    Mr. Souder. You think it will be $8 billion to secure all 
the southwest border?
    Mr. Giddens. Yes, sir.
    Mr. Souder. You don't agree with the $30 billion estimate?
    Mr. Giddens. No, sir. For the southwest border, our current 
cost estimate, based on independent Government estimate, is $8 
billion. That includes the acquisition, as well as some of the 
integrative logistics and sustainment support through the year 
2013.
    Mr. Souder. And the current program that Boeing has is for 
6 years?
    Mr. Giddens. The current program that Boeing has is a 1-
year contract that is renewable for up to 6 years.
    Mr. Souder. So, presumably, you think this is at least 
going to take 6 years and $8 billion?
    Mr. Giddens. Yes, sir, for the southwest border.
    Mr. Souder. Do you know, in this study--here is my concern, 
and the concern of many of us who have supported and understand 
we need immigration reform, that in your statement--but suspect 
that there is not really a commitment to a secure border or 
secure IDs. And in your statement today there is a bold 
political statement mixed in with what you do as Homeland 
Security. It says gain effective control of the borders, 
strengthen interior enforcement in compliance with immigration 
and customs laws, and support passage of a temporary worker 
program, which is a political goal. And my question is you 
attributed that to Secretary Chertoff and then said your 
challenge is to execute SBInet. What in the world is a 
political goal doing in the Department of Homeland Security? At 
the very least it would be over in the Justice Department.
    And here is my question. If the political goal is for this 
administration to pass a bill which, quite frankly, I am 
favorable toward, by December 2008, but you just said that the 
land border won't be secure in 2008, that SBInet is working on 
a proposal that is renewable for up to 6 years, that there is a 
huge disparity and debate about the cost--I personally disagree 
with the $8 billion--how do you reconcile the political goal 
that has been stated here to implement a work permit program 
when you, yourself, just said under oath that you are not going 
to have the border secure?
    Mr. Giddens. Yes, sir. The statement that I made was 
focused on the southwest border, that is where our initial 
focus is for the SBInet program. That does not mean the 
Department, nor Customs and Border Protection, is not doing 
anything on the northern border. We have quite a bit of 
activity focused on the northern border, but----
    Mr. Souder. Do you believe the southwest border will be 
secure by December 2008?
    Mr. Giddens. No, sir. I still stand by my statement that 
the projection for that is 2013.
    Mr. Souder. My time is about to run out. Have you looked 
at--because if we do a work permit, they are time-limited work 
permits. That means they are going to have to go back across 
the border wherever they came from for a work permit. But if 
the border isn't secure, how does work permit work? What if 
somebody gets fired? What if somebody gets laid off? What 
happens to a work permit then? Have you had research into that 
and trying to figure out how in the world you would even manage 
an exit program? I know from talking to U.S. visit they haven't 
even been asked yet for an exit program, quite frankly, because 
they are looking at 2009 for airports, 2014 for maritime. The 
land border isn't going to have an exit program. How can you 
come before us and say that you can't have the border secure, 
but you have the political goal of passing a bill by 2008?
    Mr. Giddens. Sir, while we may not be complete with the 
southwest border until 2013, we will be making lots of progress 
even over the next couple of years in securing the southwest 
border. The purpose of my statement was try to set in context 
the SBInet program and how it supports the overall goals that 
the Department has that relate to secure border and immigration 
reform. It is part of a larger comprehensive Department of 
Homeland Security strategy.
    Chairman Waxman. Thank you, Mr. Souder. Your time has 
expired.
    Mr. Clay.
    Mr. Clay. Thank you, Mr. Chairman.
    I would like to ask Ms. Duke about why DHS did not follow 
proper procedures in awarding the SBInet contract. For example, 
the DHS Inspector General has testified that he is concerned 
the SBInet proposal did not go through the DHS's Investment 
Review Board or through its Joint Requirement Council. My 
understanding of these reviews is that they would have helped 
the SBInet program define their scope and acquisition strategy, 
which would give the SBInet program office a better ability to 
oversee the activities of the contractor.
    Ms. Duke, why did the Department feel the need to bypass 
these two boards?
    Ms. Duke. The SBInet program did go through the DHS 
Investment Review Board chaired by the Deputy Secretary.
    Mr. Clay. And through its Joint Requirement Council?
    Ms. Duke. The Joint Requirement Council is a subordinate 
board, it is, as being currently implemented, a preparatory 
board, and I do not know if it went through the JRC, but the 
IRB is the decision board, it is the DHS homeland security 
investment decision board, and that decision was formally made.
    Mr. Clay. OK.
    Mr. Giddens, do you have anything to add about the 
procedure?
    Mr. Giddens. No, sir, I believe Ms. Duke characterized that 
correctly.
    Mr. Clay. OK, let me say something to both of you, then. 
You know, I don't understand why the Department of Homeland 
Security failed to follow these practices in awarding the 
SBInet contract. These procedures are in place for a reason: to 
ensure that the interest of the Government and the taxpayers 
are protected.
    Let me ask a question of both of you. How many taxpayer 
dollars have to be wasted before we learn the lesson of being 
an efficient steward of taxpayer dollars? I guess neither one 
of you wants to tackle that one.
    Ms. Duke. Well, I think no taxpayer dollars have to be 
wasted. I think--I don't agree with the statement that 
procedures were not followed to award the SBInet contract, and 
I----
    Mr. Clay. Now, you just said they didn't go through the 
review.
    Ms. Duke. No, it didn't go through----
    Mr. Clay. It didn't go through the Joint Requirements 
Council.
    Ms. Duke. The investment review process under DHS is under 
revision, and that preparatory board for the IRB is a 
discretionary step. The investment review decision was made by 
the Deputy Secretary.
    Mr. Clay. All right.
    Let me go to Mr. McElwee. I would like to thank you for 
joining us, Mr. McElwee, and before I begin my questions I 
would like to say that, as of the present, I don't know of a 
single instance of waste or management on your end of the 
SBInet contract. Nevertheless, I would like to ask a few 
questions about why the DHS chose to entrust this crucial 
program to Boeing.
    In a hearing before this committee last summer, we heard a 
number of auditors and contract experts tell us about the 
problems with DHS contracts, and one of those problem contracts 
was a contract to install baggage screening machines in 
airports. Mr. McElwee, that contract was held by Boeing, wasn't 
it?
    Mr. McElwee. Yes, sir, it was.
    Mr. Clay. The original cost for the contract was estimated 
to be $508 million, but according to a DHS Inspector General 
report, costs for that contract ballooned to at least $1.2 
billion and the performance period was extended by an 
additional 18 months. What is more, according to media reports, 
the baggage screening equipment installed under the contract 
has suffered from high false alarm rates and GAO has reported 
that the machines suffer from a variety of operational 
inefficiency.
    How do you respond to these problems?
    Mr. McElwee. Sir, I wish I had the background details. I 
have not been associated with the EDS program. I have in fact 
worked other programs, but SBInet is the first one that I have 
worked with the Department of Homeland Security. I am sure we 
can provide you the background information on that.
    Mr. Clay. You sure you will?
    Mr. McElwee. Yes, sir.
    Mr. Clay. Can you provide me some background information--
--
    Mr. McElwee. Yes, sir.
    Mr. Clay [continuing]. To tell us about the ballooning of 
the cost and extending the additional contract period? I mean, 
look, you all bid on these contracts and then you come back and 
say, oh, we need more time and it costs more than twice as 
much.
    Mr. McElwee. Sir, I do have----
    Mr. Clay. Are you gaming the taxpayers here?
    Mr. McElwee. No, sir.
    Mr. Clay. Or gaming DHS?
    Mr. McElwee. The one comment I can make based on my 
understanding of the contract is that we were awarded the 
contract in nearly June 2002 to provide the baggage--yes, sir.
    Mr. Clay. My time is thin, and thank you for that response.
    Let me ask Ms. Duke one last question, Ms. Duke. The 
investment review process required by Department directive were 
bypassed and key decisions about the scope of the program and 
the acquisition strategy were made without the proscribed 
review and analysis or transparency. Do you agree with that 
statement?
    Ms. Duke. No, I do not.
    Mr. Clay. You do not.
    Ms. Duke. No.
    Mr. Clay. Well, this is in a report from your----
    Unidentified Speaker. No, it is from the Inspector General.
    Mr. Clay. This is from the IG. This is from the IG. You 
don't agree with what the IG said from DHS?
    Ms. Duke. Not in that specific case, no.
    Mr. Clay. You don't? Why? Why? Your own IG said it.
    Ms. Duke. Because the investment review board decision was 
made before the award of the SBI contract properly.
    Mr. Clay. Maybe DHS is gaming the taxpayers. You think that 
is possible?
    Ms. Duke. I can only answer----
    Mr. Clay. My time is up.
    Thank you, Mr. Chairman.
    Chairman Waxman. I think that question was rhetorical.
    Let me just, in conclusion, today, private for-profit 
contractors are woven into the fabric of every Federal agency. 
In fact, it is difficult to think of any area in which the 
Government does not rely on contractors, including for 
inherently governmental functions. For example, we held a 
hearing yesterday on private security contractors in Iraq. 
Today's hearing is about contractors running our Nation's 
borders and building ships to protect our ports and coastlines. 
We have had contractors interrogate detainees, we have even had 
contractors collect our taxes. I think anyone who has attended 
the sometimes bureaucratic meetings especially in the executive 
branch has had the experience of shaking hands around a table, 
but not necessarily knowing which person is a Government 
employee and which person is a contractor.
    Is that something you have seen, Ms. Duke, when you have 
been at meetings, that some are contractors and some are 
Government employees?
    Ms. Duke. Yes, that is true.
    Chairman Waxman. And Mr. Giddens, is that your experience 
as well?
    Mr. Giddens. Yes, sir, they are both at the meeting. I 
won't say it has never happened. The bulk of the meetings I 
remember we go around and introduce so everybody knows what the 
roles are at the meetings. So I don't agree with the assertion 
that there is not clarity about who is in control and who at 
the meetings are Government or support contractors.
    Chairman Waxman. And to your experience there has not been 
a problem?
    Mr. Giddens. Yes, sir. We go around the room and introduce 
to make sure everyone understands the role and the 
representation that they are there.
    Chairman Waxman. Well, you have private contractors working 
alongside Government employees in your office, right?
    Mr. Giddens. Yes, sir.
    Chairman Waxman. And, Ms. Duke, you must have private 
contractors, support contractors working in your office as 
well, don't you?
    Ms. Duke. Yes, we do.
    Chairman Waxman. OK.
    And, Rear Admiral Blore, I am sure the Coast Guard has some 
arrangements with private contractors who provide support 
services, is that correct, and, for the record--well----
    Admiral Blore. Yes, sir, it is correct. It is also true 
that on our ID badges we identify support contractors. But I 
won't argue the point that if a coat is on or the badge is 
turned around, you may not know you are speaking with a support 
contractor.
    Chairman Waxman. Do you know how many private support 
contractors are working alongside Government employees in the 
Deepwater Program Office?
    Admiral Blore. In the Deepwater Program Office, as was 
previously--somebody mentioned, sir, we started with 75, 
approximately, military and civilian, with a little bit more 
than that in contract support. This is not ICGS, this is direct 
contract support to the Government. We now have about 133 
military and civilian and about 80 support contractors, and we 
are in the process of building by about 40 more Government 
positions this fiscal year.
    Chairman Waxman. Which brings me to my larger question. 
Does anyone know how many contract employees are working at the 
entire Department of Homeland Security? Has anyone calculated 
that?
    [No response.]
    Chairman Waxman. We will see if we can get an answer to 
that.
    Does anyone know how many contract employees some of these 
large contractors have, Booz Allen, Miter, and others, in 
various offices throughout the Department? Anybody have an 
answer to that?
    [No response.]
    Chairman Waxman. We heard at yesterday's committee hearing 
that our own Department of Defense has no idea how many for-
profit security contractors it has hired directly or indirectly 
through self-contracts in Iraq. I gather we may have a similar 
experience here at DHS. Well, because of our committee's broad 
jurisdiction, we might be uniquely suited to investigating the 
pervasiveness of contractors throughout the Department of 
Homeland Security, and that is something I just want to put out 
there, because I think we need to get more information.
    Anybody else a concluding statement? Mr. Cooper.
    Mr. Cooper. Mr. Chairman, along the same lines, I would 
like to know how many retired military work at Boeing, 
Lockheed, and Northrop, and I am particularly interested in 
general officer level retirees who work directly related to the 
procurement process. I think that would be very helpful because 
I think one of our colleagues, Mr. Duncan, mentioned the 
possible revolving door problem earlier.
    Chairman Waxman. We will send a letter and hope we can get 
an answer to that question.
    Mr. Souder.
    Mr. Souder. Thank you, Mr. Chairman.
    I wanted to ask Mr. Giddens again, because I am not sure I 
heard it correctly, and I want to give him a chance to correct 
the record, and it ties to a broader point that we are doing 
with this hearing. You believe that $6 billion will secure the 
entire southwest border?
    Mr. Giddens. No, sir, I believe my answer was $8 billion.
    Mr. Souder. $8 billion will secure the entire southwest 
border?
    Mr. Giddens. For the southwest border. That is the 
technology and the tactical infrastructure. That does not 
include salaries for Border Patrol agents or field officers, 
that covers the acquisition and sustain cost to get us coverage 
on the southwest border.
    Mr. Souder. Basically, to complete the SBInet type program.
    Mr. Giddens. Correct. Yes, sir, the technology and the 
tactical infrastructure for that program.
    Mr. Souder. Isn't it true that we don't know what that is 
yet?
    Mr. Giddens. We have, since we awarded the contract last 
September, internally completed an independent Government cost 
estimate and that we have in the program office Boeing as part 
of the source selection activity completed their overall 
concept design and how they would lay it out, and we used that 
to form our initial estimate. But, sir, I don't want to tell 
you I can sit here today and, with pinpoint accuracy, project 
the cost of something that is going to happen in 2011, but we 
have to start with a baseline and then we have to manage that 
baseline, and our baseline is the $8 billion.
    Mr. Souder. Mr. Chairman, my concern with this is that, in 
looking at Government versus contractors, that when we review 
this and realize that it is much more likely to be a larger 
figure, that it doesn't get laid at the foot of the contractor. 
I believe there has been, for lack of a better word, low-
balling in the administration of the real cost. I believe the 
American people should know what the cost is, we ought to 
implement that cost; that there is a political will to do it.
    I believe we need comprehensive immigration reform, but we 
need to understand that part of that is making sure we have 
secure IDs and a secure border, and we ought to be up-front 
about the cost. And I just do not believe that any outside 
evaluation, anybody who has worked the border believes that is 
a realistic figure, and I am not going to embarrass Boeing 
right now to ask them what they think is a realistic figure. 
But part of the problem here is when the Government heads into 
a project, we should have a broader kind of context for what we 
are going into here and what it really requires, and that is my 
concern. I know that is the current administration's position, 
but I don't believe it is realistic.
    Thank you, Mr. Chairman.
    Chairman Waxman. Well, that is a good point. Of course, the 
question is if you have a southwest border, is that going to 
stop all illegal entry into this country? Because there are 
other parts of the country where people can come through, in 
the northern border. People often get off on airplanes and have 
a visa and then overstay their visas. And if there is such a 
tremendous magnet for people to come into the United States, 
they are going to be pretty creative. So after we spent $8 
billion and we see that sealed off, let's see how far we are in 
solving the problem. There might be a lot more that will have 
to be done.
    But that is a topic for another hearing and we will save it 
for them. Thank you all very much. That concludes our business. 
The committee is adjourned.
    [Whereupon, at 2:15 p.m., the committee was adjourned.]

                                 
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