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

                             DEEPWATER: CHARTING A
                            COURSE FOR SAFER WATERS

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

                                 JOINT HEARING

                                   before the

                            SUBCOMMITTEE ON BORDER,
                     MARITIME, AND GLOBAL COUNTERTERRORISM

                                    with the

                          SUBCOMMITTEE ON MANAGEMENT,
                         INVESTIGATIONS, AND OVERSIGHT

                                     of the

                         COMMITTEE ON HOMELAND SECURITY
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 17, 2007

                                   __________

                               Serial No. 110-38

                                   __________

           Printed for the use of the Committee on Homeland Security

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

      Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                                   index.html

                                   __________

                         COMMITTEE ON HOMELAND SECURITY

     BENNIE G. THOMPSON, Mississippi,
                 Chairman

    PETER T. KING, New York              LORETTA SANCHEZ, California,
    LAMAR SMITH, Texas                   EDWARD J. MARKEY, Massachusetts
    CHRISTOPHER SHAYS, Connecticut       NORMAN D. DICKS, Washington
    MARK E. SOUDER, Indiana              JANE HARMAN, California
    TOM DAVIS, Virginia                  PETER A. DeFAZIO, Oregon
    DANIEL E. LUNGREN, California        NITA M. LOWEY, New York
    MIKE ROGERS, Alabama                 ELEANOR HOLMES NORTON, District of
    BOBBY JINDAL, Louisiana              Columbia
    DAVID G. REICHERT, Washington        ZOE LOFGREN, California
    MICHAEL T. McCAUL, Texas             SHEILA JACKSON LEE, Texas
    CHARLES W. DENT, Pennsylvania        DONNA M. CHRISTENSEN, U.S. Virgin
    GINNY BROWN-WAITE, Florida           Islands
    MARSHA BLACKBURN, Tennessee          BOB ETHERIDGE, North Carolina
    GUS M. BILIRAKIS, Florida            JAMES R. LANGEVIN, Rhode Island
    DAVID DAVIS, Tennessee               HENRY CUELLAR, Texas
                                         CHRISTOPHER P. CARNEY,
                                         Pennsylvania
                                         YVETTE D. CLARKE, New York
                                         AL GREEN, Texas
                                         ED PERLMUTTER, Colorado

     Jessica Herrera-Flanigan, Staff
        Director & General Counsel
       Rosaline Cohen, Chief Counsel
       Michael Twinchek, Chief Clerk
     Robert O'Connor, Minority Staff
                 Director

            SUBCOMMITTEE ON MANAGEMENT, INVESTIGATIONS,AND OVERSIGHT

          CHRISTOPHER P. CARNEY,
          Pennsylvania, Chairman

    MIKE ROGERS, Alabama                 PETER A. DeFAZIO, Oregon
    TOM DAVIS, Virginia                  YVETTE D. CLARKE, New York
    MICHAEL T. McCAUL, Texas             ED PERLMUTTER, Colorado
    PETER T. KING, New York (Ex Officio) BENNIE G. THOMPSON, Mississippi
                                         (Ex Officio)

      Jeff Greene, Director & Counsel
          Brian Turbyfill, Clerk
      Michael Russell, Senior Counsel

         SUBCOMMITTEE ON BORDER, MARITIME, AND GLOBAL COUNTERTERRORISM

       LORETTA SANCHEZ, California,
                Chairwoman

    MARK E. SOUDER, Indiana              JANE HARMAN, California
    BOBBY JINDAL, Louisiana              ZOE LOFGREN, California
    DAVID G. REICHERT, Washington        SHEILA JACKSON-LEE, Texas
    MICHAEL T. McCAUL, Texas             JAMES R. LANGEVIN, Rhode Island
    GUS M. BILIRAKIS, Florida            HENRY CUELLAR, Texas
    PETER T. KING, New York (Ex Officio) AL GREEN, Texas
                                         BENNIE G. THOMPSON, Mississippi
                                         (Ex Officio)

          Alison Rosso, Director
           Denise Krepp, Counsel
        Carla Zamudio-Dolan, Clerk
      Mandy Bowers, Minority Senior
         Professional Staff Member

                                      (ii)

                                C O N T E N T S

                                  ----------
                                                                       Page

                                   STATEMENTS

    The Honorable Loretta Sanchez, a Representative in Congress From
      the State of California, and Chairwoman, Subcommittee on
      Maritime, and Global Counterterrorism..........................     1
    The Honorable Mark E. Souder, a Representative in Congress From
      the State of Indiana, and Ranking Member, Subcommittee on
      Maritime, and Global Counterterrorism:
      Oral Statement.................................................     2
      Prepared Statement.............................................     3
    The Honorable Christopher P. Carney, a Representative in Congress
      From the State of Pennsylvania, and Chairman, Subcommittee on
      Management, Investigations, and Oversight......................     6
    The Honorable Mike Rogers, a Representative in Congress From the
      State of Alabama, Ranking Member, Subcommittee on Management,
      Investigations, and Oversight:
      Prepared Statement.............................................     7
    The Honorable Yvette D. Clarke, a Representative in Congress From
      the State of New York:
      Oral Statement.................................................    30
      Prepared Statement.............................................    30
    The Honorable James R. Langevin, a Representative in Congress
      From the State of Rhode Island.................................    38
    The Honorable Sheila Jackson Lee, a Representative in Congress
      From the State of Texas:
      Oral Statement.................................................    66
      Prepared Statement.............................................    65
    The Honorable Ed Perlmutter, Representative in Congress From the
      State of Colorado..............................................    33
    The Honorable David G. Reichert, a Representative in Congress
      From the State of Washington...................................    36

                                   Witnesses
                                    Panel I

    Captain Steven T. Baynes, Chief, Atlantic Area Response
      Enforcement Branch, United States Coast Guard:
      Oral Statement.................................................    25
      Prepared Statement.............................................    10
    Read Admiral Gary T. Blore, Program Executive Officer, Integrated
      Deepwater System, United States Coast Guard:
      Oral Statement.................................................     8
      Prepared Staement..............................................    10
    Mr. Richard Skinner, Inspector General, Department of Homeland
      Security:
      Oral Statement.................................................    18
      Prepared Statement.............................................    20

                                    Panel II

    Mr. James E. Anton, Sector Vice President and General Manager,
      U.S. Coast Guard Programs, Northrop Grumman:
      Oral Statement.................................................    54
      Prepared Statement.............................................    56
    Mr. Fred Moosally, President, Lockheed Maritime Systems and
      Senors:
      Oral Statement.................................................    44
      Prepared Statement.............................................    46

                                 For the Record

    Letter submitted by the Honorable Loretta Sanchez................    51
    Article submitted by the Honorable Mark E. Souder................     4

                                    Appendix

    Additional Questions and Responses:
      Responses from Mr. Richard L. Skinner..........................    71
          Attachments................................................    79

                          DEEPWATER: CHARTING A COURSE
                                FOR SAFER WATERS

                                  ----------

                             Thursday, May 17, 2007

                 U.S. House of Representatives,
                        Committee on Homeland Security,
                  Subcommittee on Border, Maritime, and
                               Global Counterterrorism,
                                         joint with the
                    Subcommittee on Management, Investigations,
                                                  and Oversight
                                                        Washington, DC.
        The subcommittees met, pursuant to call, at 2:23 p.m., in
    Room 311, Cannon House Office Building, Hon. Loretta Sanchez
    [chairwoman of the Subcommittee on Border, Maritime, and Global
    Counterterrorism] presiding.
        Present from the Subcommittee on Border, Maritime, and
    Global Counterterrorism: Representatives Sanchez, Jackson Lee,
    Langevin, Cuellar, Green, Souder and Reichert.
        Present from the Subcommittee on Management,
    Investigations, and Oversight: Representatives, Carney, Clarke,
    Perlmutter and Rogers.
        Ms. Sanchez. The Subcommittee on Border, Maritime and
    Global Counterterrorism and the Subcommittee on Management, and
    Investigations and Oversight will come to order.
        The two subcommittees are meeting today to receive
    testimony on Deepwater: Charting a Course for Safer Waters.
    Good afternoon, and I thank the witnesses for joining us and
    for their testimony on the Coast Guard's Deepwater procurement
    program.
        We are interested, of course, in the Deepwater Program
    because we all recognize that the Coast Guard desperately needs
    new and modernized assets.
        The Coast Guard has a wide variety of challenging missions,
    and the list seems to get longer. These missions include
    intercepting illegal migrants and drug smugglers, securing our
    Nation's ports, providing assistance to recreational boaters,
    and we are also very proud of the Coast Guard's excellent
    operations during Hurricane Katrina, which was one of the
    highlights in, I think, one of the situations where our
    government response was not so great.
        Given the Coast Guard's critical role in our Nation's
    security, they must ensure that they receive air and sea assets
    needed to perform their missions. And unfortunately, we have
    heard and we know some of the Deepwater program has encountered
    serious setbacks. And over the past several years, many
    investigations have been conducted, findings have been
    reported, and recommendations for change have been made, and I
    believe that these situations are valuable because it is really
    a way for the program to be able to be turned around for us to
    fully understand the problems that occurred, what caused them,
    and how we can better get back on track.
        We all have to be vigilant in overseeing the progress of
    the Deepwater program and ensuring that it operates effectively
    and delivers to the Coast Guard its much-needed assets. And I
    hope this hearing actually assists in that process.
        I have a number of questions about the setbacks in the
    Deepwater program and what is being done to identify the root
    of those problems so we can learn from the mistakes, of course,
    specifically the 123-foot patrol boat conversions that we still
    seem to be a little hazy on what is going on and how we are
    going to get those assets back into the water. We need to fully
    understand what happened so that our engineers can use that
    information in the future.
        I am also interested in implementing--in what is going on
    with the procurement process for the Coast Guard for future
    programs because, of course, this is a very, very big program.
        I am looking forward to having the dialogue and to
    listening to my colleagues, of course, bring up their issues.
    We are all concerned about it, and I would like to thank the
    Ranking Member Souder and the Chairman and the Ranking Member
    of the Subcommittee on Management, Investigations, and
    Oversight for their interest in this important issue.
        Ms. Sanchez. And the Chair now recognizes the Ranking
    Member of--is that true? No. The Ranking Member of the
    Subcommittee on Border, Maritime, and Global Terrorism, the
    chairman from Indiana.
        Mr. Souder. The largest and most complete acquisition
    effort of the Deepwater proposal includes 91 cutters, 124 small
    service craft and 244 new or converted airplanes, helicopters
    and unmanned aerial vehicles.
        We are here today to look at what has been accomplished to
    date, where the needs remain, how contract mismanagement is
    being addressed, and what additional resources are necessary to
    ensure the Coast Guard is able to continue its missions while
    waiting for the delivery of Deepwater assets.
        I think we are all aware we are dealing with a 25-year
    acquisition program with a $24 billion price tag; that
    challenges, anticipated and unforeseen, will always arise.
    However, we have seen a significant amount of money expended on
    Deepwater and are now looking at eight 110 patrol boats that
    are now useless because of a flawed modification proposal,
    delays in the Fast Response Cutter, and hull problems with the
    National Security Cutter, in addition to other problems.
        I also want to talk to the witnesses about the Deepwater
    air assets, including problems with the vertical UAV and what
    air support is available to continue the hit-run counterdrug
    mission.
        I would like to provide a special welcome to Captain Steven
    Baynes, a Chief of the Major Cutter Forces for the Atlantic
    Area. Captain Barnes formerly commanded the Coast Guard Cutter
    Decisive, a legacy 210 that faced a multitude of operational
    and quality-of-life issues. This included fuel pump leaks,
    faulty radar in global positioning systems and an inability to
    deploy the over-the-horizon small boat farther than the line of
    sight due to poor radio communications. Many of these problems
    were chronicled in the U.S.A. Today article where the reporter
    described the list of the ship as in shambles.
        I ask unanimous consent to place the article in the record.
        [The information follows:]

          Prepared Opening Statement of the Honorable Mark Souder, a
              Representative in Congress From the State of Indiana

        Thank you Madame Chair. The largest and most complex acquisition
    effort in Coast Guard history, the Deepwater proposal includes 91
    cutters, 124 small surface craft, and 244 new or converted airplanes,
    helicopters, and unmanned aerial vehicles.
        We are here today to look at what has been accomplished to date,
    where the needs remain, how contract mismanagement is being addressed,
    and what additional resources are necessary to ensure that Coast Guard
    is able to continue its missions while waiting for the delivery of
    Deepwater assets.
        I think we are all aware that when dealing with a 20-25 year
    acquisition program with a $24 billion price tag, challenges--
    anticipated and unforeseen--will arise.
        However, we have seen a significant amount of money expended on
    Deepwater and are now looking at eight 110 patrol boats that are now
    useless because of a flawed modification proposal, delays in the Fast
    Response Cutter, and hull problems with the National Security Cutter,
    in addition to other problems.
        I also want to talk to the witnesses about the Deepwater air
    assets, including problems with the vertical UAV and what air support
    is available to continue the Hitron counterdrug mission.
        I would like to provide a special welcome to Captain Steve Baynes,
    the Chief of Major Cutter Forces for the Atlantic Area. Captain Baynes
    formerly commanded the Coast Guard Cutter DECISIVE, a legacy 210 that
    faced a multitude to operational and quality of life issues. This
    included fuel pump leaks, faulty radar and global positioning systems,
    and an inability to deploy the over the horizon small boat further than
    line of site due to poor radio communications. Many of these problems
    were chronicled in a USA Today article, where the reporter described
    the ship as ``in shambles.'' I ask unanimous consent to place the
    article in the hearing record.
    (Note: article is attached.)
        I think that Captain Baynes' testimony will provide us a better
    picture of the state of the Coast Guard's legacy assets and reinforce
    why Deepwater modernization is critical.
        I would also like to take an opportunity to thank Captain Baynes
    for his service and the work of the crew of the Decisive in the
    aftermath of Hurricane Katrina. While many of the crew had lost homes,
    belongings and had displaced families, they helped distribute food and
    water and provided other critical services.
        I hope at the end of this hearing, we have a better understanding
    of how the Deepwater problems occurred and what is necessary to move
    the program forward to ensure that the Coast Guard has robust and
    reliable capabilities. The Nation needs these assets to protect its
    citizens from illicit drugs, illegal migrants, and terrorist threats.
    Congress has a responsibility to ensure that resources are available
    and that taxpayer money is spent responsibly.
        Thank you Madame Chair. I yield back the balance of my time.

                                 For the Record

    Sailing far from smooth on Coast Guard's Decisive
    By Mimi Hall, USA TODAY
    Posted 7/5/2005 11:18 PM
    KEY WEST--The 210-foot Coast Guard cutter Decisive is an imposing
    figure on the horizon as it slices through turquoise waters 10 miles
    off the Florida shore.

    But from the bridge above the deck to the bilge below, Cmdr. Steve
    Baynes' ship is in shambles.

    It's week three of a six-week patrol, and the Decisive has a fuel pump
    leak, a broken water heater, haphazard radar and global-positioning
    system, faulty air conditioning, a major hydraulic leak in a patrol
    boat, high-frequency radios that don't work and a broken anchor winch.

    When they're not racing to make emergency repairs, members of Baynes'
    crew, some suffering from mold-related respiratory problems, replace
    the saturated rags tied around cold-water pipes that drip onto their
    bunks at night. They also mop up sewage that routinely backs up and
    floods their quarters.

    In their spare time, they lift weights in a tiny laundry room where
    rusty washers and dryers hum and a wall-mounted thermometer reads 100
    degrees.

    And they labor over machine tools, making parts from scratch for
    mechanical equipment so old that the manufacturers have long since gone
    out of business.

    Coast Guard officers such as Baynes and the men and women they lead
    have been contending with such problems for years.

    FLEET SHOWING ITS AGE
    Many of the Coast Guard's primary oceangoing vessels and planes are
    nearing the end of their projected life, and millions of dollars in
    scheduled maintenance is needed.

    Aircraft           Projected life     Fleet average     Maintenance cost
                                           age
    HC-130             30 years           21.9              $17.4 million
    HU-25              20 years           22.1              $0.2 million
    HH-60              20 years           12.6              $35.9 million
    HH-65              20 years           17.6              --

    Ships              Projected life     Fleet average     Maintenance cost
                                           age
    378-foot           40 years           35.3              $13.7 million
    270-foot           30 years           17                $2.9 million
    210-foot           49 years           37.3              $1.9 million
    110/123            20 years           15.4              $4.1 million

    Source: Government Accountability Office

        While the average age of the Navy's frigates, destroyers and
    other ``surface combatants'' is 15.2 years, and the average age of its
    supply and refueling ships is 20.5 years, the Coast Guard uses ships
    nearly twice as old, according to the Government Accountability Office.
    The average age of the Coast Guard's 14 210-foot cutters is 37.3 years,
    and the average age of its dozen 378-foot cutters is 35.3 years.

    ``It's just getting more and more difficult to keep these old dogs
    going,'' says Baynes, commander of the Decisive's 75-member crew.

    The Coast Guard's unofficial motto is ``We can do more with less.''

    ``As admirable as that stance is,'' Sen. Olympia Snowe, R-Maine, says,
    ``the cold, hard truth remains that the Coast Guard is experiencing a
    record number of casualties and mishaps like never seen before, and
    it's becoming simply unsafe for our young men and women to serve aboard
    these aging assets.''

    Given the Coast Guard's new anti-terrorism duties, ``it's a disgraceful
    state of affairs,'' says maritime security expert Stephen Flynn, a
    former Coast Guard officer.

    With homeland security added to the Coast Guard's responsibilities,
    security experts and members of Congress say it's time to give the
    Coast Guard the tools it needs to help protect the nation. They're
    pushing to speed up a 20- to 25-year, multibillion-dollar program to
    replace the Coast Guard's ``deepwater'' fleet, the 88 large ships and
    186 aircraft capable of operating many miles offshore.

    New mission
    The Decisive has been patrolling U.S. waters for nearly 40 years. In
    the 1970s, it enforced fishing zones in the frigid waters off northern
    New England. In the 1980s and 1990s, it was based in Florida, where the
    crew seized more than 125 tons of cocaine and marijuana and rescued
    more than 2,500 Haitian and Cuban migrants trying to get to the USA.

        Today, the Decisive mostly patrols Caribbean waters, sometimes a
    few hundred miles offshore, as part of what has become the Coast
    Guard's most important mission: protecting the nation from terrorism.

        That work is being compromised by a fleet that was well beyond its
    prime even before the Sept. 11 terrorist attacks.

        Last summer, the 9/11 Commission reported, ``While commercial
    aviation remains a possible target, terrorists may turn their attention
    to other modes. Opportunities to do harm are as great, or greater, in
    maritime or surface transportation.''

        The Coast Guard, which became part of the Homeland Security
    Department in 2003, is responsible for stopping terrorists who could
    try to smuggle weapons of mass destruction into the USA through its
    ports.

        In addition to its traditional missions of boat safety, migrant and
    drug interdiction and fisheries enforcement, the maritime military
    service must board and inspect cargo ships bound for U.S. ports, share
    intelligence about threats and possible efforts to smuggle terrorists
    or weapons into the country, and conduct surveillance on the high seas.

        Like much of the Coast Guard's ``deepwater'' fleet, the Decisive is
    in very rough shape.

    Baynes says its problems affect its new mission:

     About half the time, he can't send his 24-foot ``over-the-
    horizon'' boat on night patrols to look for migrants, drug smugglers or
    anyone trying to illegally enter the USA because the ship's high-
    frequency radios and Global Positioning System devices aren't working.
    To send six-man teams out of sight of the ship without radios and GPS
    would put them in too much danger, Baynes says.
     His ship often can't detect other vessels even a couple of
    miles away because its radar system is old and temperamental. When it
    goes down--which it does at least once a day--Baynes' crew relies on a
    small, inexpensive radar system available at any marine supply store
    for use by recreational boaters.

    ``We're pretty limited in figuring out who's out there and what they're
    doing,'' Baynes says.

     The communication systems are so primitive that ``half the
    time, we can't even talk to other Coast Guard ships,'' he says.

     ``Crewmembers have to spend so much time on repairs and
    maintenance--often 18 hours a day--there's no time for training or
    safety classes.

     ``Crew fatigue is one of the biggest things I'm worried
    about,'' Baynes says.

    Chief engineer Lt. Greg Tarpey says he can't even begin to catalog all
    the things that have gone wrong on the Decisive since it set sail May
    31.

    Migrant rescues
    While contending with all the breakdowns, crewmembers have had to
    handle scores of migrants plucked out of the perilous waters. In mid-
    June, on the 18th day of the Decisive's latest patrol, Baynes and his
    crew took on 99 Cuban migrants. One group of 26 had been floating on a
    ramshackle boat for 21 days. When the Coast Guard found them, two were
    unconscious.

        Baynes is mindful of what probably would have happened to the
    migrants if his cutter hadn't been patrolling the area. He's also
    mindful of the new stakes after 9/11. After 20 years in the service,
    he's used to the ``do more with less'' approach.

        But the problems have become ``a constant drain on us,'' he says.
    ``It's going to get to where one day, I'm just going to have to call my
    commanders and say, 'I can't sail.' ''

        Mr. Souder. I thank Captain Baynes. I think his testimony
    today will provide us with a better picture of the state of the
    Coast Guard's legacy assets and reinforce why Deepwater
    modernization is absolutely critical.
        I would also like to take the opportunity to thank Captain
    Baynes for the service and work of the crew Decisive in the
    aftermath of Hurricane Katrina. While many of the crews had
    lost homes, belongings, and had displaced families, they helped
    distribute food and water and provided other critical services.
        I hope at the end of this hearing we have a better
    understanding of how Deepwater problems occur and what is
    necessary to move the program forward to ensure that the Coast
    Guard has robust and reliable capabilities.
        The Nation needs these assets to protect its citizens from
    illicit drugs, illegal migrants, and terrorist threats.
    Congress has a responsibility to ensure that resources are
    available and that taxpayer money is spent responsibly.
        Thank you, Madam Chair, and I yield back the balance of my
    time.
        Ms. Sanchez. The Chair now recognizes the Chairman of the
    Management, Investigations, and Oversight Subcommittee, the
    gentleman from Pennsylvania Mr. Carney for an opening
    statement.
        Mr. Carney. Thank you, Madam Chair.
        I am glad we could work together to hold these hearings. I
    would also like to commend Chairman Thompson for his hearings
    on these issues. Also, I would be remiss if I didn't recognize
    my friends, Ranking Members Mr. Souder and Mr. Rogers, for your
    cooperation here as well.
        The problems afflicting Deepwater are clearly nonpartisan.
    We must examine and correct Deepwater as a matter of national
    security and of fiscal responsibility. I am glad to know that
    we have also--that we also have a full slate of experts with us
    today from the Coast Guard, the Office of the Inspector
    General, DHS, as well as industry partners involved in
    Deepwater contract.
        Before I came to Washington, I was shocked to learn about
    the compounding problems with Deepwater. Between election day
    and my swearing in, eight Coast Guard cutters were dry-docked
    as a result of significant and potentially catastrophic flaws
    that were part of the Deepwater modifications. I don't want to
    dwell on this, but not having eight ships patrolling our
    Nation's shores is a serious issue, especially at a time when
    we could have a mass exodus out of Cuba. As a lieutenant
    commander in the Navy, I was happy to learn that the service
    was able to fill some gaps with six of its own patrol boats.
    That said, using Navy patrol boats to fill the Coast Guard
    mission is robbing Peter to pay Paul. We don't have the naval
    capacity between the Coast Guard and the Navy to be sharing
    boats right now as much as we would like to.
        I was relieved to hear last month that the Coast Guard was
    taking over the role of lead systems integrator from the
    Lockheed Martin and the Northrop Grumman team. That relief,
    however, was short-lived. It was replaced by a simple but
    overriding concern: Can the Coast Guard and the Department of
    Homeland Security successfully manage the Deepwater project
    themselves? There was apparently a lack of ability when the
    contract was first awarded, and I think we all want to ensure
    that the appropriate number of qualified staff are now in place
    to provide the management this project so desperately needs.
        I think there is now a common understanding, even with the
    Coast Guard, that to date the Coat Guard relied too heavily on
    contractors to run the Deepwater program and provide services
    that the Coasties should be performing themselves.
        I want to assure that the Coast Guard and DHS have the
    necessary resources to manage Deepwater to a successful
    completion. The shortage of qualified procurement staff and
    contract officers at DHS and the Coast Guard worries me. The
    staff currently in place may be talented, but they are
    overburdened, which undoubtedly led to the Coast Guard to
    delegate so much of its responsibility to ICGS.
        Also, we have heard about the problems afflicting the naval
    aspects of Deepwater, but what about the aviation piece? Are
    there problems that have yet to surface with older equipment
    that is being upgraded similar to the issues with the 110-foot
    cutters that were upgraded to the 123-foot that is now dry-
    docked?
        The Coast Guard's role has certainly expanded since the
    Deepwater deal was struck. Congress needs to ensure that all
    aspects of the program are managed well and completed
    successfully. We don't have the luxury of hoping that all of
    this will work itself out on its own. Our national security is
    on the line. So is $24 billion of taxpayers' funds. We have to
    be careful with that. We need to ensure that we are getting a
    return on that investment. Sitting here today, I don't think we
    are.
        I look forward to hearing your thoughts on Deepwater so
    far, as well as your answers on what I am sure will be some
    tough questions. Thank you.
        Ms. Sanchez. Thank you to the gentleman from Pennsylvania.
        Ms. Sanchez. The Chair now recognizes the Ranking Member of
    the Subcommittee on Management, Investigations, and Oversight,
    the gentleman from Alabama Mr. Rogers, for an opening
    statement.
        Mr. Rogers. Thank you, Madam Chair.
        Since we have just been notified we are going to be called
    for votes in about 30 minutes, in the interest of time, I would
    ask unanimous consent to offer my opening statement for the
    record and take this opportunity to welcome our witnesses, and
    I look forward to hearing from them.
        Ms. Sanchez. Great.
        [The information follows:]

       Prepared Statement of the Honorable Mike Rogers, Ranking Member,
           Subcommittee on Management, Investigations, and Oversight

        Thank you, Chairwoman Sanchez.
        Today this joint Subcommittee hearing will examine financial and
    operational problems associated with the Coast Guard's acquisition
    program, known as Deepwater.
        First, I also want to welcome our witnesses--and welcome back the
    Inspector General, who has testified often before the Management
    Subcommittee.
        Deepwater began in 1998 as a 24 billion dollar acquisition over 25
    years to repair or replace the Coast Guard's air and maritime fleet.
        In 2001, the Government Accountability Office identified Deepwater
    as quote--``risky''--close quote--and susceptible a waste, fraud, and
    abuse.
        The folks at the GAO were right.
        Six years later, audits by the GAO and Inspector General have
    uncovered extensive mismanagement, lack of oversight, operational
    failures, and millions of dollars wasted.
        Unfortunately, this sounds way too familiar to what we found in the
    border security camera program.
        In the 109th Congress, the Management, Integration, and Oversight
    Subcommittee, examined the camera system on our borders known as the
    Integrated Surveillance Intelligence System, or ISIS, and found
    extensive mismanagement, financial waste, and operational failures.
        Last September, DHS announced the award of the new Secure Border
    Initiative contract, known as SBInet.
        This multi-year, multi-billion dollar program is intended to cover
    both the Northern and Southern borders with an extensive network of
    cameras, sensors, and other technologies.
        We held a hearing on the contract, where the Inspector General
    testified and questioned whether DHS can effectively manage a new major
    acquisition program like SBInet.
        A number of problems in the Deepwater program appear to be similar
    to those we found in ISIS and, unfortunately, to those that appear to
    be developing in SBInet.
        DHS must get both contracts right.
        At stake is not only safeguarding billions of taxpayers' dollars,
    but also the security of our country's land boders, ports, and
    coastlines.
        Therefore, I look forward to hearing form the Inspector General
    today about the similar problems facing both Deepwater and SBInet and
    what steps need to be taken to ensure their proper management.
        I also look forward to hearing from our witnesses about what went
    wrong and what lessons were learned that can be used to improve both
    programs.
        Thank you, Chairwoman Sanchez.
        I yield back.

        Ms. Sanchez. And the Chair will advise members of the
    committee that they if they have opening statements, they could
    submit them for the record.
        Ms. Sanchez. So we will get started. And I hope we have a
    little bit more than 30 minutes so that we can get through this
    first panel. As you know, we are going to have two panels. The
    first panel--and I welcome our witnesses.
        Our first panel consists of Rear Admiral Gary T. Blore, the
    program executive officer of the Coast Guard's Integrated
    Deepwater System. There is a lot of biography and background on
    this, but in the interest of time, I think I will try to cut
    through that.
        Our second witness is Mr. Richard Skinner, inspector
    general for the Department of Homeland Security. Welcome. We
    have seen you before our committee and before the overall
    committee. So we welcome you.
        And the third witness is Captain Steve Baynes. Captain
    Baynes is currently the Chief of the Coast Guard's Atlantic
    Area Response Enforcement Program. You have a long biography
    also.
        I will cut it short here and thank you gentlemen for being
    before us. You each will have 5 minutes to summarize your
    testimony, whatever it is you really want to tell us, and then
    we will begin the questioning.
        So I will begin with Admiral Blore.

      STATEMENT OF RADM GARY T. BLORE, PROGRAM EXECUTIVE OFFICER,
         INTEGRATED DEEPWATER SYSTEM, UNITED STATES COAST GUARD

        Admiral Blore. Thank you.
        Good afternoon, Mr. Chairman, distinguished members of the
    subcommittee. I respectfully request that my written statement
    be entered into the official record.
        I am grateful for the opportunity to discuss with you what
    your Coast Guard is doing to strengthen the Integrated
    Deepwater System program. I am also pleased to be here with my
    departmental colleague Mr. Skinner, and to note how valuable it
    is to have Captain Steve Baynes at the table to represent the
    operational perspective on this issue.
        In regards to our Coast Guard operations, we must always
    bear in mind that the Deepwater program is not an academic
    exercise. Rather, Deepwater is about giving real people the
    real tools they need to do real-world missions, securing our
    maritime borders, saving lives, ensuring national security and
    protecting natural resources.
        The Coast Guard awarded the Deepwater contract in June of
    2002 to Integrated Coast Guard Systems, a joint venture of
    Northrop Grumman and Lockheed Martin. From the beginning,
    Deepwater's scope was broad, encompassing recapitalization,
    modernization and sustainment of legacy cutters, aircraft and
    command and control, and communication systems.
        In 2005, the Department of Homeland Security approved a
    revised post-September 11th mission needs statement and
    implementation plan for Deepwater. That revised plan, as
    mentioned, represents a 25-year, $24 billion program, the
    largest in Coast Guard history.
        In preparing to come before you, I considered whether to
    highlight the challenges that we have faced and the hard
    lessons we have learned and are building upon, but your hearing
    theme, charting a course for safer waters, leads me to direct
    these opening remarks towards our efforts to develop and
    implement a plan of action as we move forward.
        As you know, the Commandant has led the charge in our
    efforts to strengthen Deepwater. In fact, Admiral Allen's first
    action as Commandant was to direct a consolidation of all Coast
    Guard acquisition functions, aggregating the 15 Deepwater
    projects with the service's other acquisition programs under a
    single management organization.
        With the Commandant's full support, we have begun to
    implement the blueprint for acquisition reform, our plan for
    restructuring and reprioritizing the service's acquisition
    enterprise. The plan will strengthen our capabilities and
    program execution, support, contracting and human capital
    management.
        On July 13th, I will transition to lead the consolidated
    directorate, as Rear Admiral Robbigo, seated behind me, will
    have stepped into my place as Program Executive Officer of
    Deepwater.
        Fundamentally, the acquisition consolidation is aimed at
    balancing our program's approach to cost, schedule and
    performance. Of course, I agree with the inspector general that
    lower risk in each of these areas is best, but in the Coast
    Guard, holding out for the lowest risk solutions or approaches
    hasn't always been the option. I believe the inspector general
    would agree with me that we have real-world requirements to
    meet today even as we are executing programs to deliver future
    capabilities. This doesn't mean that the tyranny of daily
    activities should allow us to compromise good acquisition
    program management, but rather that the importance of mission
    execution should inform acceptable risks.
        Regarding program management, by incorporating
    recommendations from the Department of Homeland Security and
    DOD senior leadership, OMB, GAO and this Congress, and under
    the direction of our Commandant, the program has incorporated
    12 significant initiatives during the last year. These include
    government transitioning into the role of systems integrator,
    independent third-party assessments, a more robust relationship
    with NAVSEA and NAVAIR, reinvigorating the business case
    analysis and strengthening acquisition training.
        In conclusion, while I believe the Nation continues to be
    well served by its Coast Guard, I also believe recapitalization
    is paramount to our ability to conduct future missions.
        As you will hear from Captain Baynes, our crews have seen
    firsthand the advantages Deepwater equipment brings to the
    fight, and they want and deserve more. We have assembled a team
    of dedicated personnel who are revitalizing our acquisition
    forces to reinstitute project and process discipline.
        I ask for your continued support for the Deepwater program
    to enable us to build on the progress made in recapitalizing
    the Coast Guard.
        Thank you. I look forward to your questions.
        [The statement of Admiral Blore follows:]

      Prepared Joint Statement of RAdm Gary T. Blore and Capt Gary Steven
                                     Baynes

    Introduction
        Good afternoon, Chairpersons Carney and Sanchez, and distinguished
    members of the Subcommittees. It is an honor to be here today to
    discuss the state of the Integrated Deepwater System, its recent
    milestones and challenges, and provide you with the Coast Guard's
    proposed way forward.
        It is my goal this morning to provide you the facts related to this
    program and reassure you of the Coast Guard's absolute commitment to
    sound stewardship, robust oversight and to review the corrective
    actions the Coast Guard's is taking to ensure this critical
    recapitalization program is able to effectively re-outfit our fleet to
    meet 21st-Century threats and requirements.
        Our ability to save lives, prevent and respond to terrorist
    attacks, interdict drugs and alien smugglers, and protect ports,
    waterways and natural resources depends on our successful
    accomplishment of that goal. We have to get this right: the Coast
    Guard's future readiness depends on it. America depends on it. I echo
    the commitment of our Commandant, Admiral Allen, to do just that.
    Past as Prologue
        Before I discuss the current state of Deepwater and the program's
    way ahead, I ask you to bear with me briefly to consider how we got
    here. By the mid 1990s, most of our ships and aircraft were approaching
    the end of their service lives. Our cutter fleet was then, and remains,
    one of the oldest among the world's naval fleets. Some of our cutters
    are old enough to be eligible for Social Security! In light of a
    looming aviation and surface fleet block obsolescence, it wasn't
    sensible to attempt piecemeal, one-for-one replacement of each class of
    assets. We also didn't have the capacity in the late 1990's to manage
    that many projects in parallel.
        Because of these anticipated challenges, we knew an innovative
    approach was required. And because maritime threats were evolving in
    the post-Cold War environment in which Deepwater was conceived, we knew
    expectations for maritime security were changing as well, so our asset
    mix would need to support these dynamic requirements. We determined,
    therefore, that it would be most cost effective and efficient to
    acquire a wholly-integrated system of ships, aircraft, sensors and
    communications systems, or, as it is commonly called, a ``system of
    systems''. The idea is based on the concept that the whole is greater
    than the sum of its parts; all elements combine to generate greater
    capabilities across the entire system. Given that, our goal is not to
    replace ships, aircraft, and sensors with more ships, aircraft, and
    sensors, but to provide the Coast Guard with the functional
    capabilities required to safely achieve mission success.
        This wholly-integrated acquisition strategy called for progressive
    modernization, conversion and recapitalization using a mix of new and
    legacy assets, replacing those that are obsolete, while upgrading
    existing ones until a new fleet is acquired. This complex strategy, and
    the fact that the Coast Guard had not built a ship the size of the
    National Security Cutter for more than three decades, drove our
    decision to engage the services of a commercial systems integrator with
    proven technical expertise in the acquisition of large systems.
    Following a rigorous, multiple year selection process, the result was
    our contract with Integrated Coast Guard Systems (ICGS), a joint
    venture of Lockheed Martin and Northrop Grumman.
        Adding to the program's complexity was adoption of an innovative
    performance-based acquisition strategy. Compared to more traditional
    methods, performance-based acquisition is designed to promote
    innovation and spread risk more evenly between government and industry.
        Following nearly ten years of planning, beginning in 1993, the
    Coast Guard moved toward contract award believing that we had addressed
    many of the concerns likely to arise from this transformational
    acquisition strategy. However, like most Americans, we never expected
    the larger challenge that lay ahead for the Coast Guard and the nation
    in the wake of the terrorist attacks of September 11, 2001. Following
    the Service's transfer to the Department of Homeland Security in March
    2003, we conducted a Performance Gap Analysis, drafted a new Mission
    Needs Statement, and developed a revised, post-September 11th
    Implementation Plan to ensure Deepwater capabilities would support new
    mission sets assigned to the Coast Guard. All of these steps were
    carried out in full consultation with the Administration and Congress.
    As Deepwater requirements were expanded in the post-September 11th
    environment, the program's timeline expanded and its overall projected
    cost increased from $17 to $24 billion.

    Where we are Today in Deepwater
        Last month, I completed my first year at the helm of the largest
    acquisition program in Coast Guard history. Five years into this 25
    year acquisition we've achieved many successes, but also faced daunting
    challenges--and indeed learned some lessons the hard way--but I assure
    you that education has not been wasted. As a result of those lessons
    learned and with the full support of the Commandant and the Department
    of Homeland Security (DHS), we are taking aggressive action every day
    to strengthen program management and execution and to ensure past
    mistakes will not be repeated.
        While acknowledging that we need to learn from past mistakes, we
    also need to leverage off the positive experience of significant recent
    accomplishments. Deepwater assets are in the fleet today, contributing
    to the successful execution of an array of Coast Guard missions.
        Phase 1 of our three-phase conversion of our workhorse helicopter,
    the HH65, is on schedule. As of the end of March, all air stations with
    HH-65 Dolphin helicopters are now flying the ``C'' model with new
    Turbomeca Arriel 2C2 engines and upgraded gearboxes, installed as part
    of our legacy asset modernization program. With a 40 percent power
    increase and greater reliability, the HH-65C has re-established itself
    as the deployable mainstay of our helicopter fleet and played an
    invaluable part during the Coast Guard's response to Hurricane Katrina.
    And, just 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 a well-
    trained Coast Guard aircrew, flying a newly delivered HH-65C
    helicopter--recently re-engined as part of the Deepwater program. That
    rescue would not have been possible without Deepwater.

        We have also recently marked crucial shore-based facility
    milestones. During a ribbon cutting ceremony on March 14, a new
    Deepwater training facility was dedicated at the Coast Guard's training
    center in Petaluma, CA. The facility houses high-tech shipboard
    operation simulators and state-of-the-art radar and electronics systems
    and will provide critical command, control, communications, computers,
    intelligence, surveillance, and reconnaissance (C\4\ISR) training for
    Coast Guard and U.S. Navy crews. And, the Coast Guard Communications
    Area Master Station Atlantic (CAMSLANT) in Chesapeake, VA is being
    remodeled and upgraded to support Deepwater's interoperable systems.
    Specifically, the 22-year old building is being outfitted with High
    Frequency Automatic Link Establishment (HF-ALE) systems, Automatic
    Identification Systems (AIS), and a Global Positioning System/
    Differential Global Positioning System (GPS/DGPS). This new Deepwater-
    funded equipment will allow CAMSLANT to execute its core mission to
    maintain and deploy contingency communications and provide command and
    control support for disaster recovery, special operations, and other
    emergencies.

        Also in late March, the crew of CGC SHERMAN made use of Deepwater-
    enhanced command and control capabilities while seizing more than
    42,000 tons of cocaine from the Motor Vessel GATUN off the coast of
    Panama. SHERMAN's commanding officer noted that this largest bust in
    Coast Guard history would not have been possible before the service's
    high--and medium-endurance cutters were equipped with Deepwater-
    provided upgraded tracking capabilities and the ability to communicate
    securely over great distances, which was provided by Deepwater.
        On April 26, 2007, the first 110-foot Island Class patrol boat to
    enter the Deepwater-funded Mission Effectiveness Project (MEP)--CGC
    TYBEE--was returned to the fleet following a very successful year-long
    MEP process. This project includes refurbishing and replacing aging and
    obsolete equipment on the ships and is improving operational
    effectiveness across the fleet. The goal of the MEP is to maintain
    effective missions for legacy cutters and patrol boats until those
    vessels can be replaced by new and more capable Deepwater assets such
    as the Offshore Patrol Cutter (OPC) and the Fast Response Cutter (FRC).
        This is an exciting time, with two National Security Cutters (NSC)
    under construction in Mississippi and HC-144A maritime patrol aircraft
    Nos. 1 and 2--the first new aviation assets acquired under Deepwater--
    being missionized at the Aviation Repair & Supply Center in North
    Carolina. Aircraft No. 3 is expected to be delivered for missionization
    later this year and Nos. 4 and 5 are already in production. Aircraft
    Nos. 4 and 5 were contracted for in January 2007 at a cost of approx.
    $34.89 million per aircraft. Earlier this month, we put aircraft Nos. 6
    thru 8 on contract, at a price of approx. $33.99 million per aircraft.
    This is a cost reduction of almost $900,000 per aircraft between Nos. 4
    and 5 and Nos. 6 thru 8. These are but a few examples of the program's
    progress and results.

        These milestones and successes just begin to illustrate the
    tremendous need for Deepwater. As Deepwater's system of assets continue
    to be delivered, we'll meet or exceed not just capability requirements,
    but patrol and response capacity needs as well.

    Room for Reflection
        As I indicated earlier, we are committed to benefiting from lessons
    learned. Obviously, one area where we are very disappointed is the 123-
    foot patrol boats. Based on initial budget constraints, the conversion
    of these cutters was planned as a bridging strategy until we could
    deliver the more capable Fast Response Cutter (FRC). The decision to
    proceed with these conversions was based on consideration of limited
    resources, a growing gap in patrol boat hours, and identified risk
    associated with the conversion design. At the time, the conversion was
    seen as the lowest risk option given available resources and
    operational requirements.
        But, early hull deformation led the Coast Guard to re-examine the
    plan for the 123-foot patrol boats and halt conversions in May 2005 at
    just eight hulls, instead of 46 as originally planned. When repeated
    efforts to repair the hulls proved unsuccessful and even more
    significant structural problems surfaced, last November Admiral Allen
    suspended operation of the cutters until a comprehensive engineering
    solution was identified. When a feasible solution couldn't be found,
    the Commandant announced his decision last month that these eight
    cutters will be permanently decommissioned. As the Program Executive
    Officer for Deepwater, I have worked with the Commandant, DHS OIG, GAO,
    and this Congress to ensure that adequate managerial and oversight
    changes have been made in this acquisition program to prevent false
    starts, such as the 123-foot patrol boat program, from being repeated.
        I'd also like to take just a moment to discuss the National
    Security Cutter (NSC). The Inspector General reported his findings
    earlier this year from an audit of the NSC earlier this year. That
    report highlighted concerns with our approach to potential fatigue
    structural integrity issues with the NSC hull. The issue here, which we
    have communicated to the DHS OIG and which we have been actively
    addressing for several years, is a question of fatigue life over the
    course of the cutter's 30-year service life.
        I want to be very clear that there has never been a question of
    crew or ship safety related to the ship's structure, nor have we ever
    anticipated any operational restrictions related to its design. As you
    are well aware, we drive our ships hard, so service and fatigue life of
    new cutters is of critical concern to us. An early Coast Guard review
    of the design of the NSC indicated that the ship might experience
    fatigue-level stresses sooner than anticipated. Because we want to
    ensure that all of our ships meet the service and fatigue life
    requirements our missions demand, we are implementing changes and
    enhancements to the design of the NSC.
        Some have wondered why we didn't suspend construction of the first
    NSC when we learned of these concerns. The Coast Guard's decision to
    continue production of the NSC reflects more than simply the naval
    engineering perspective. It also encompasses considerations of cost,
    schedule, and performance. After extensive research and deliberation
    and with all of these considerations in mind, the Coast Guard decided
    that the need for enhancements to NSC No. 1 could be effectively
    addressed by later retrofits and did not justify the schedule and cost
    risk associated with stopping the production line. These kinds of
    issues are not unusual in production of a first-in-class vessel, and I
    believe the decision to move forward was prudent. We will fix NSC No. 1
    and 2 during post-delivery availabilities and design the fix into
    future hulls' production. In fact, through ongoing meetings and
    negotiations between the Coast Guard and CEOs from Northrop Grumman and
    Lockheed Martin, we've recently reached agreement on the engineering
    solution to resolve all fatigue concerns with NSCs No. 3-8.

    Moving Beyond
        As the Deepwater program has evolved, we have reinvigorated our
    workforce planning process and continue the effort to increase staff to
    the appropriate level to allow effective government oversight and
    ability of the government to perform as the system integrator. I
    appreciate Congress acting to authorize additional billets for this
    endeavor. As a direct result of these efforts, the Coast Guard will
    have 52 full-time government personnel at our Gulf Coast PMRO by the
    end of this fiscal year. The Navy's Supervisor of Shipbuilding Office
    (SUPSHIP) also assigned 12 people to our PMRO in Pascagoula, Miss.,
    where they are supporting construction of the NSC at Northrop Grumman
    Ship Systems. During a trip to Pascagoula last month, I had a chance to
    visit with many of these acquisition and technical professionals and I
    am confident their active oversight of contractor performance during
    NSC construction will pay dividends.
        Obtaining more appropriate staffing levels also means the Coast
    Guard is able to better respond to contractor requests for deviation
    and waivers. These requests demand intense scrutiny from the government
    prior to any action being taken; to facilitate this, we've developed a
    new Class I Engineering Change Proposal (ECP)/Request for Deviation
    (RFD)/Request for Waiver (RFW) review process, a recommendation of our
    DHS OIG. This process requires that, prior to implementation; each ECP/
    RFD/RFW is reviewed in detail by a board of technical experts and
    contracting officers, based on pre-determined guidelines. It also
    mandates thorough documentation of each contractor request, the formal
    review process, and decision of the Coast Guard in regard to each
    request. This will facilitate timely and consistent handling of each
    ECP/RFD/RFW.
        The Coast Guard will use the American Bureau of Shipping (ABS) to
    certify Deepwater equipment and vessels according to High Speed Naval
    Craft (HSNC) and Naval Vessel rules as appropriate. Specifically, the
    Coast Guard is working with industry to maximize the use of HSNC
    standards for our patrol boats and smaller surface assets and Naval
    Vessel rules for the National Security Cutter and Offshore Patrol
    Cutter. By implementing this certification expectation, we can ensure
    that equipment and assets meet requirements and that standards are
    enforced consistently. There is a growing market today for external
    rules and standards bodies, and we'll use those rules and bodies to
    assist with certification in the future. But, the government needs to
    be the final arbiter of those standards.

    Leading Change
        The lessons we have are being applied across the program. In fact,
    these lessons are improving acquisition management throughout the Coast
    Guard.
        The role of the Coast Guard's technical authority has been
    reaffirmed and the dynamic relationship between the technical authority
    and acquisition programs has been strengthened. This means that for all
    vessel designs and design changes, the Coast Guard will not proceed
    with contract award or contract changes without agreement from the
    technical authority. Fatigue enhancements to the National Security
    Cutter are an illustration of this constructive relationship. While
    contractors follow direction from program and contracting officers,
    those officers don't give direction until first consulting and reaching
    agreement with the Coast Guard technical authority.
        We are also improving the effectiveness of our Integrated Product
    Teams (IPTs). These teams can serve a useful function by enabling
    regular oversight of the contractor and by providing an avenue for
    resolution of non-major technical concerns or, where concerns persist,
    an avenue for them to be raised to program managers and contracting
    officers. Our IPTs were previously chaired by Integrated Coast Guard
    Systems (ICGS) and haven't always functioned as envisioned. That needed
    to change. So, based on direction to all program managers, each IPT is
    now led by a government employee and IPT charters are being examined to
    determine if/where additional changes should be made.
        The complexity of the Deepwater program and the diverse missions of
    planned assets makes design review a crucial element of the successful
    execution of this program. To ensure that designs and assets will meet
    Coast Guard needs, we have increased our use of independent, third-
    party review and analysis for all new starts or substantial design
    changes. Inherent in this initiative is a renewed commitment to utilize
    full business case analyses for all new acquisition decisions to
    instill confidence that we are building and buying the right tools for
    our Coast Guard men and women and at best value for taxpayers.
        Of particular note, we recently contracted with the Defense
    Acquisition University (DAU) to conduct a ``quick-look'' review of
    Deepwater to examine the program's key management and technical
    processes, performance-based acquisition strategy, organizational
    structure and our contract with ICGS. The Coast Guard's Research and
    Development Center has also completed a study of the planned Deepwater
    Vertical-Launch Unmanned Aerial Vehicle; in the study's second phase,
    we are re-examining the way ahead for unmanned vehicles based on
    recommendations from that analysis. And, we've initiated an independent
    review of workload and workforce management issues. Based on findings
    and recommendations from these and other independent reviews, we will
    make ``course corrections'' where needed in order to guarantee
    successful execution of the Deepwater program.
        Our ongoing and positive relationship with the Naval Sea and Air
    Systems Commands have provided the Coast Guard with valuable third
    party assessments. It is the preference of the Coast Guard that future
    third party assessments be kept within the government whenever
    possible. Specifically, NAVSEA's Carderock Surface Warfare Center has
    provided us with valuable design reviews and recommendations. As
    funding allows, we will continue this exchange to the maximum extent
    possible.
        Our partnerships and cooperative relationships with the U.S. Navy
    and others extend beyond third party assessments. The Coast Guard is
    leveraging sound principles of systems engineering and integration to
    derive high levels of sub-system and component commonality, improve
    interoperability with the U.S. Navy and other agencies, and achieve
    significant cost avoidances and savings. This approach conforms with
    and directly supports the National Fleet Policy.
        As the Program Executive Officer of Deepwater, I have a formalized
    collaborative partnership with my Navy counterparts in order to
    identify common systems, technologies and processes for improved
    interoperability. By incorporating common and interoperable Navy
    systems into Deepwater assets, the Coast Guard has also avoided paying
    unnecessary costs.
        As examples, the National Security Cutter (NSC) and Off-Shore
    Patrol Cutter (OPC) will use 75 percent of the Navy's AEGIS Command and
    Decision System. Deepwater assets also will incorporate Navy Type/Navy
    Owned systems, including the 57mm deck gun, selected for major
    Deepwater cutters and the Navy's Littoral Combat Ship and DD(X)
    programs. The Operation Center Consoles on the NSC use 70 percent of
    the design of the Navy's Display Systems (AN/UYQ-70). And, by using
    more than 23,000 lines of software code from the Navy's Antisubmarine
    Warfare Improvement Program (AIP) in the CASA Maritime Patrol
    Aircraft's command and control systems, we are maximizing the use of
    mission systems that are installed on more than 95 percent of the
    world's maritime surveillance aircraft. The CASA Maritime Patrol
    Aircraft will utilize more than 50 percent of the functionality of the
    Navy's P-3 Aircraft Improvement Program system. For example, the U.S.
    Navy and Coast Guard personnel routinely train side-by-side at the
    Coast Guard's training facility in Petaluma, California.

    A Consolidated Coast Guard Acquisition Directorate
        One of the most significant changes we are making in the Coast
    Guard's acquisition community is bringing together all acquisition-
    related activities--traditional programs as well as system-of-system,
    policy, and research and development--under one organization.
    Consolidating our acquisition efforts will provide immediate benefits,
    including better allocation of human capital assets (such as
    contracting officers and acquisition professionals) along with an
    integrated ``product line'' approach to our management of acquisitions,
    thereby allowing projects to be handled by knowledgeable and
    experienced personnel with the same linkages to the technical
    authorities.
        Defense Acquisition University's (DAU) Quick Look study report of
    the Deepwater program concluded that our recently developed Blueprint
    for Acquisition Reform plan, which outlines many of the change
    management efforts related here, ``is comprehensive and responsive to
    the human capital, organization, process and governance related
    findings and recommendations.''
        Along with our analysis to right-size staffing levels, we have
    reinvigorated our acquisition training and certification process to
    ensure that technical and support staff, program managers and
    contracting officers have the requisite skills and education needed to
    manage complex acquisitions. Our desired end state is to become the
    model for mid-sized federal agency acquisition and procurement, in full
    alignment with the Department of Homeland Security acquisition
    objectives.

    Other Insights
        Some insights gained over the past year and during the program's
    first five years, may not be as intuitive as the need to increase
    staffing or refine oversight processes. In that vein--and this has
    particular relevance to the 123-foot patrol boats--we must consider the
    ever-present tension between the trend in government agencies to seek
    to purchase Commercial Off-the-Shelf (COTS) equipment and the sometimes
    conflicting requirement to certify that equipment to federal agency
    standards. Often, these competing desires cannot be reconciled without
    making trade-offs from one or the other. The fact is, while COTS
    equipment is often less expensive, easier to buy and more available, it
    seldom meets the sometimes very long list of federal agency performance
    requirements. The practical impact is that contracting officers and
    program managers are left trying to balance affordability, schedule and
    risk in meeting contract requirements.
        The requirement on the 123-foot patrol boats for low-smoke cabling
    is one example of this challenge. When this safety-related requirement
    is pitted against the competing requirement to use COTS equipment in
    onboard systems, program and contracting officers must consider trade-
    offs. If COTS equipment contains pre-fabricated circuitry that utilizes
    non-low smoke cables, the cost to modify that equipment can be very
    steep--not to mention schedule impacts from such modifications. Often,
    COTS equipment may even have components that meet certification
    standards but that lack manufacturer testing data to the needed level
    of specificity. Program and contracting officers must thus seek to
    balance performance, cost, and schedule factors and make decisions
    based on perceived risk. The federal government needs to balance using
    COTS equipment and certifying that equipment to all federal agency
    standards, in order to best serve the public.
        We've also learned a great deal about performance-based contracts,
    especially as they relate to complex acquisitions like a Coast Guard
    cutter. When Deepwater was developed it was envisioned as a purely
    performance-based acquisition. The thought was that we'd simply lay out
    performance requirements of our assets and then allow industry the
    freedom to design and build assets that met those requirements. What
    we've found is that this approach doesn't work in our complex system
    acquisition.
        While there may be some elements of performance-based acquisition
    that we would wish to retain, we have concluded that our Deepwater ship
    contracts should be much more specification-based. That means the
    government has a responsibility to establish specifications, including
    certification requirements, and to not change them mid-stream without
    good cause. Requirements are dynamic and the need for detailed
    specification and constant collaboration and oversight from the
    government is intense. Based on this realization, we're working with
    industry to redefine future procedures and contract development to
    ensure more adequate, detailed specification and oversight. In fact,
    Admiral Allen recently signed a joint letter of strategic intent with
    the CEOs of Lockheed Martin and Northrop Grumman to encourage further
    alignment as we move toward the new award term.
        This leads me to a final, critical point--one which perhaps seems
    obvious on the face of it, but which has been brought home to me in
    more ways over the last 12 months than I can enumerate. The contract is
    the key to a successful acquisition. It's while the contract is being
    developed and negotiated that the government maintains the greatest
    influence in the acquisition process. Granted, the government must
    always be heavily involved in contractor oversight to ensure that
    assets are designed, constructed and delivered to meet requirements.
    But, those requirements and specifications must be clearly established
    within the contract document. In fact, while the contract is the key to
    a successful acquisition--stable requirements are a key to a successful
    contract. It is absolutely essential that the contract be precise.
    Specifications must be clear. Requirements must be documented.
    Construction parameters must be defined. Expectations must be
    understood. And swift and appropriate action must be taken to enforce
    contracts when contractor performance falls short of our expectations.

    In Summary
        All of the program management changes I have described are
    positioning the Coast Guard to take on more responsibility as the
    system integrator for the Deepwater program, and to be sound and
    effective stewards, regardless of who the integrator is.
        In conclusion, I want to assure you we are listening to concerns of
    the Inspector General, the Government Accountability Office, Congress,
    and this committee, and are benefiting from their recommendations.
    We've learned from our past and are making changes to successfully step
    out into the future. Open and honest dialogue between the Coast Guard
    and our stakeholders is essential and we'll continue to advise you of
    challenges and successes, and to make additional changes where needed.
        This is an exciting time for the Coast Guard and for Deepwater. Our
    past challenges have made us stronger today. All one has to do is look
    at the operational capabilities already being provided to the fleet to
    see the tremendous impact Deepwater is making. From the Coast Guard's
    record drug seizure in March to the enhanced rescue and response
    capabilities demonstrated in Olympic National Forest and during our
    response to Hurricane Katrina, Deepwater-upgraded assets are
    contributing to overall mission success. Deepwater is helping to build
    a 21st Century Coast Guard. The capabilities and capacity we are
    delivering will better enable the service to push out and secure our
    maritime borders and protect Americans all along our shores.
        Together, we're going to deliver those capabilities. We are making
    the changes necessary to propel the program to ultimate success and
    provide the critical cutters, aircraft and sensors needed to meet our
    dynamic mission requirements. We are all anxious for positive results.
    We are on the path to change and I am confident that it is the correct
    path.
        Thank you for the opportunity to testify before you today. I am
    happy to answer any questions you may have.

        Ms. Sanchez. Mr. Skinner.

    STATEMENT OF RICHARD L. SKINNER, INSPECTOR GENERAL, DEPARTMENT
                          OF HOMELAND SECURITY

        Mr. Skinner. Good afternoon. As always, it is an honor to
    be here. I am especially pleased to have the opportunity to be
    able to testify side by side with Admiral Blore and Captain
    Baynes. I believe together we can paint a clearer picture of
    the challenges facing the Deepwater program and the efforts
    under way to improve the management and oversight that is very
    important in this complex acquisition program.
        Over the past 2-1/2 years, my office has completed four
    audits, including the Deepwater program. They involve one 123-
    foot cutter extension, the National Security Cutter, the
    command-and-control information technology systems, and
    reengining of the HH-65 helicopters.
        Four common themes and risks have emerged in each of these
    audits. The first, the dominant influence of expediency, that
    is schedule concerns, trumped performance concerns. It is best
    illustrated by the National Security Cutter procurement. The
    Coast Guard proceeded with the construction of the NFC knowing
    well in advance that its technical experts had engineering
    design and future performance concerns. The Coast Guard
    repeatedly told us that the decisions regarding the NFC
    reflected more than simply the naval engineering perspective.
    Rather, they also encompass considerations of cost, schedule
    and performance. However, the Coast Guard has been unable to
    provide any documentation to support this. The design and
    performance concerns still remain outstanding today, and the
    cost to mitigate these concerns has yet to be determined.
        Second, the terms and conditions of the contract were
    flawed. Under the Deepwater program, the Coast Guard
    essentially agreed to ride shotgun, turning the reins over to
    the systems integrator. Consequently, the Coast Guard was
    reluctant to exercise its authority to influence the design and
    production of its own assets. This was demonstrated in all four
    of our audits over the past 2-1/2 years.
        Third, our reviews have raised concerns with the definition
    and clarity of operational and performance specifications. This
    has compromised the Coast Guard's ability to hold the
    contractor accountable for its performance. For example, the
    performance specifications associated with the upgrading the
    information systems on the Coast Guard's 123-foot cutter did
    not have a clearly defined expected-level performance, causing
    the Coast Guard to accept delivery of assets that did not meet
    its anticipated requirements.
        And finally, and simply put, the Coast Guard does not have
    a sufficient staff or sufficient number of staff in the mix of
    expertise to manage an acquisition as large and complex as the
    Deepwater program. This is most evident in the areas of program
    management, acquisition management and financial management.
        Also, many of the staff who have been assigned to the
    Deepwater program have little experience or training in such a
    large, complex, performance-based contract.
        As you heard today from Admiral Blore, the Coast Guard
    recognizes these challenges, and, through its recently
    published blueprint for acquisition reform, has taken
    aggressive action to strengthen program management and
    oversight. The blueprint outlines the Coast Guard's plans for
    reorganizing, rebuilding its acquisition workforce, including
    such actions as reasserting the technical authority of the
    Chief Engineer, its Chief Engineer; using independent, third-
    party assessments of performance; consolidating acquisition
    activities under one directorate; and redefining the terms
    and--the contract terms and conditions, including provisions to
    ensure that the government involvement in subcontract--to
    ensure government involvement in subcontract management in make
    or buy decisions.
        Furthermore, and most importantly, I believe, Admiral Blore
    has pointed this out, the Coast Guard is increasing its
    staffing for the Deepwater program and reinvigorating its
    acquisition, training and certification processes to ensure
    that staff has the requisite skills and education needed to
    manage the program. However, many of these corrective measures
    will take time, such as building an acquisition or procurement
    workforce to manage the broad scope and complexity of the
    program. Until this is accomplished, the Coast Guard needs to
    proceed with caution, taking advantage of all of the tools at
    its disposal to mitigate risk and avoid future problems. The
    devil is in the details.
        The Coast Guard needs to develop a performance baseline;
    that is, something which you can measure the progress being
    made to achieve the goals outlined in the blueprint. These
    include the specific numbers of--and types of acquisition
    professionals needed; when they are scheduled to arrive on
    board; and the financial costs associated with realignment,
    reorganizing, retraining and rebuilding of the acquisition
    workforce.
        I would like to conclude just by simply pointing out that
    our office is highly committed to the oversight of this
    program. We have embedded auditors and inspectors in the
    Deepwater program and will continue to provide that oversight
    as they proceed over the next several years, just like other
    procurements that we have within the Department; for example,
    the SBInet and the FEMA acquisition programs.
        This concludes my remarks. I will be happy to answer any
    questions.
        Ms. Sanchez. Thank you.
        [The statement of Mr. Skinner follows:]

                    Prepared Statement of Richard L. Skinner

    Introduction
        Good afternoon, Chairwoman Sanchez, Chairman Carney, and Members of
    the Subcommittees. I am Richard L. Skinner, Inspector General for the
    Department of Homeland Security (DHS). Thank you for the opportunity to
    discuss the challenges facing the United States Coast Guard, in
    particular, its Deepwater Program.
        My testimony today will address the contract and program management
    challenges associated with the Deepwater Program and how these
    challenges have impacted specific Deepwater assets. I will also address
    the actions and challenges associated with the Coast Guard's decision
    to reorganize its acquisition workforce as outlined in their Blueprint
    for Acquisition Reform.
        I want to note that Admiral Allen has been very responsive to our
    audit recommendations and has begun to institute changes that, if fully
    implemented, should improve program delivery. I have imbedded OIG staff
    into the Deepwater Program and will continue to monitor the
    effectiveness of these corrective actions and other aspects of the
    Deepwater Program. Given the broad scope of Deepwater, we have also
    prepared a scorecard summarizing the overall status of the program. We
    will release the scorecard soon as part of our Semiannual Report to
    Congress. The scorecard summarizes our existing work, supplemented by
    interviews with Coast Guard officials to update their efforts to
    enhance the Coast Guard's acquisition management system. We plan to
    produce this scorecard on an annual basis, along with scorecards
    covering other key management challenges throughout the Department of
    Homeland Security.

    Deepwater Program
        The Integrated Deepwater System Program (Deepwater) is a $24
    billion, 25-year acquisition program designed to replace, modernize,
    and sustain the Coast Guard's aging and deteriorating fleet of ships
    and aircraft. The Deepwater acquisition strategy provided for private
    industry to not only propose and develop an optimal system-of-systems
    mix of assets, infrastructure, information systems, and people
    solutions designed to accomplish all of the Coast Guard's Deepwater
    missions, but also to provide the assets, the systems integration,
    integrated logistics support, and the program management. Under a more
    traditional acquisition strategy, the government would have provided
    the program management support needed to oversee the administration of
    the contract.
        In June 2002, the Coast Guard awarded Integrated Coast Guard
    Systems (ICGS) with a 5-year contract to serve as the Deepwater systems
    integrator. The current base contract expires in June 2007 and the
    Coast Guard may authorize up to five additional 5-year award terms. In
    May 2006, the Coast Guard announced its decision to award ICGS an
    extension of the Deepwater contract for 43 out of a maximum 60 months
    for the next award term beginning in June 2007. ICGS is a joint venture
    of Northrop Grumman and Lockheed Martin. The 2002 award decision
    followed a multiyear competitive phase where two other industry teams
    vied with ICGS.

    Deepwater Program Management and Oversight
        We have identified several common themes and risks from our audits
    of assets and information technology systems being acquired under the
    Deepwater contract. These include the dominant influence of expediency,
    unfavorable contract terms and conditions, poorly defined performance
    requirements, and inadequate management and technical oversight. These
    deficiencies contributed to schedule delays, cost increases, and asset
    designs that did not meet minimum Deepwater performance requirements.
        Systems Integrator Approach--The Coast Guard's decision to
    outsource program management to the systems integrator fully empowered
    the contractor with authority for making day-to-day decisions regarding
    all aspects of the contract. According to the Coast Guard, its
    acquisition workforce did not have the requisite training, experience,
    and certification to manage an acquisition the size, scope, and
    complexity of the Deepwater Program. Further, the Coast Guard was
    reluctant to exercise a sufficient degree of authority to influence the
    design and production of its own assets. As a result, the Systems
    Integrator (ICGS) assumed full technical authority over all asset
    design and configuration decisions while the Coast Guard's technical
    role was limited to that of an expert ``advisor.''
        However, there was no contractual requirement that the Systems
    Integrator accept or act upon the Coast Guard's technical advice,
    regardless of its proven validity. Furthermore, there are no contract
    provisions ensuring government involvement into subcontract management
    and ``make or buy'' decisions. The Systems Integrator decided who is
    the source of the supply. Also, as the primary management tool for the
    Coast Guard to contribute its input on the development of Deepwater
    assets, the effectiveness of the contractor-led Integrated Product
    teams (IPTs) to resolve the Coast Guard's technical concerns, has been
    called into question by both the Government Accountability Office (GAO)
    and my office.
        Contractor Accountability--Our reviews have raised concerns with
    the definition and clarity of operational requirements, contract
    requirements and performance specifications, and contractual
    obligations. For example, in our National Security Cutter (NSC) report,
    we reported that the Coast Guard and the American Bureau of Shipping
    jointly developed standards that would govern the design, construction,
    and certification of all cutters acquired under the Deepwater Program.
    These standards were intended to ensure that competing industry teams
    developed proposals that met the Coast Guard's unique performance
    requirements. Prior to the Phase 2 contract award, the Coast Guard
    provided these design standards to the competing industry teams. Based
    on their feedback, the Coast Guard converted the majority of the
    standards (85% of the 1,175 standards) to guidance and permitted the
    industry teams to select their own alternative standards. Without a
    contractual mechanism in place to ensure that those alternative
    standards met or exceeded the original guidance standards, the
    competing teams were allowed to select cutter design criteria.
        Additionally, the Deepwater contract gave the Systems Integrator
    the authority to make all asset design and configuration decisions
    necessary to meet system performance requirements. This condition
    allowed ICGS to deviate significantly from a set of cutter design
    standards originally developed to support the Coast Guard's unique
    mission requirements, and ICGS was further permitted to self-certify
    compliance with those design standards. As a result, the Coast Guard
    gave ICGS wide latitude to develop and validate the design of its
    Deepwater cutters, including the NSC.
        Deepwater Performance Requirements Are Ill-Defined--Vague contract
    terms and conditions have also compromised the Coast Guard's ability to
    hold the contractor accountable by making possible competing
    interpretations of key performance requirements. For example, the
    performance specifications associated with upgrading the information
    systems on the Coast Guard's 123'Island Class Patrol Boats did not have
    a clearly defined expected level of performance. Also, in our review of
    the Helicopter Interdiction Tactical Squadron (HITRON) lease, we
    determined that vague contract performance requirements challenged the
    Coast Guard's ability to assess contractor performance. In another
    example, the performance specifications for the NSC were not clearly
    defined, which resulted in disagreements, both within the Coast Guard
    and between the Coast Guard and ICGS, regarding the actual intent
    behind the cutter performance requirements.
        Deepwater Cost Increases--The cost of NSCs 1 and 2 is expected to
    increase well beyond the current $775 million estimate, as this figure
    does not include a $302 million Request for Equitable Adjustment (REA)
    submitted to the Coast Guard by ICGS on November 21, 2005. The REA
    represents ICGS's re-pricing of all work associated with the production
    and deployment of NSCs 1 and 2 caused by adjustments to the cutters'
    respective implementation schedules as of January 31, 2005. The Coast
    Guard and ICGS are currently engaged in negotiations over the final
    cost of this REA. ICGS has also indicated its intention to submit
    additional REAs for adjusted work schedules impacting future NSCs,
    including the additional cost of delays caused by Hurricane Katrina.
        In addition, the $775 million cost estimate for NSCs 1 and 2 does
    not include the cost of structural modifications to be made to mitigate
    known design deficiencies. The cost of these modifications and the cost
    of future REAs could add hundreds of millions of dollars to the total
    NSC acquisition cost. We remain concerned that these and other cost
    increases within the Deepwater Program could result in the Coast Guard
    acquiring fewer and less capable NSCs, FRCs, and OPCs under the
    Deepwater contract.

    Impact on Coast Guard Operational Capabilities--Short and Long Term
        The problems the Coast guard is experiencing with the Deepwater
    Program could impact the Coast Guard's short and long-term operational
    capabilities. For example, while the re-engining of the HH-65B
    helicopters resulted in aircraft with significantly improved
    capabilities, the program has experienced schedule delays and cost
    increases. The delivery of the first 84 re-engined HH-65Cs will be
    completed by the end of this month, 11 months beyond the Commandant's
    original July 2006 deadline. Extending the delivery schedule
    unnecessarily exposed HH-65B aircrews to additional risk due to the
    rate in which in-flight loss of power mishaps were occurring.
        There are also problems with Coast Guard's acquisition of the
    Vertical Unmanned Aerial Vehicle (VUAV). VUAVs have the potential to
    provide the Coast Guard's flight-deck-equipped cutters with expanded
    air surveillance, detection, classification, and identification
    capabilities. Currently, the VUAV acquisition is over budget and more
    than 12 months behind schedule. On May 8, 2007, the Coast Guard issued
    a second work stop order and the Commandant recently testified that the
    VUAV was under review by Coast Guard's Research and Development Center.
    The review is expected to provide recommendations for the way ahead
    with the VUAV.
        Not having VUAV capability would significantly reduce the long-
    range surveillance capability of the NSC and the Offshore Patrol Cutter
    (OPC) from 58,000 square nautical miles to that of the Coast Guard's
    Hamilton class high endurance cutters (13,500 square nautical miles).
    This represents a 76% reduction in Deepwater surveillance capability.
    The Coast Guard's Revised Deepwater Implementation Plan of 2005 called
    for the acquisition of 45 VUAVs at a total cost of approximately $503.3
    million. As of March 31, 2007, the Coast Guard had obligated $113.6
    million (76.9%) of the $147.7 million to the project. According to the
    Coast Guard estimates, it would take an additional $50 million and 18
    months to deliver the first two VUAV systems.
        The increased cost, schedule delays, and structural design problems
    associated with the 123-foot patrol boat have further impacted the
    Coast Guard's patrol boat operational hour and capability gap. The
    Coast Guard is attempting to mitigate the problem by extending an
    agreement with the U.S. Navy to continue the operation of the 179-foot
    ``Cyclone'' class patrol boats from 2009 to 2011, and to extend the
    operational capability of the 110-foot Island Class fleet through the
    use of multiple crews. While the increased operations tempo will help
    in the short-term, it will further increase the wear and tear (e.g.,
    equipment breakdowns and other unscheduled casualties, etc.), on these
    aging patrol boats in the long term. As a result, we expect the
    maritime patrol boat gap (which has been reported to be in excess of
    20,000 hours) to increase rather than decrease until which time the
    service life extensions on the 110's are completed and the FRC-Bs
    deployed.

    Recent OIG Reports
        Over the past 2 years, my office has issued reports on various
    assets being acquired under the Deepwater contract including:
             the re-engining of the HH-65B helicopter;
             the acquisition and implementation of Deepwater
            command, control, communications, computers, intelligence,
            surveillance, and reconnaissance (C\4\ISR) systems;
             the acquisition of the national security cutter, and,
             the modernization of the 110/123-foot maritime patrol
            boat.
        We found serious cost, schedule, performance, and management
    oversight issues with each of the aforementioned Deepwater projects.

        Re-engining of the HH-65B--We reviewed the Coast Guard's HH-65
    Dolphin helicopter re-engining project. The review was initiated in
    response to concerns that the re-engining requirements specified for
    the HH-65 helicopter were not sufficient for the needs of the Coast
    Guard over the Deepwater project time frame. Specifically, the HH-65
    was experiencing a sharp increase in the number of in-flight loss of
    power mishaps that jeopardized the safety of HH-65 flight crews. We
    also identified concerns that the ICGS proposal did not meet the Coast
    Guard's desire to have 84 HH-65s re-engined by July 2006, as originally
    mandated by the Commandant.
        Our review of the HH-65 re-engining project determined the
    replacement of the HH-65 engines with the Ariel 2C2 engine would
    resolve the safety and reliability issues that had plagued the HH-65
    fleet for much of the past decade. Our report also determined that it
    would be timelier and more cost-effective to have the re-engining
    performed at the Coast Guard Aircraft and Repair Supply Center (ARSC)
    rather than to have responsibility for the re-engining placed under the
    auspices of ICGS. The Coast Guard's Assistant Commandant for Operations
    made a similar recommendation in May 2004.
        The Coast Guard did not concur with any of our HH-65
    recommendations. Coast Guard officials opined that ICGS minimized the
    operational, legal, cost, and contract performance risks associated
    with the re-engining. The Coast Guard also said it believed that it
    received significant benefits from the current ICGS contract that far
    outweighed the benefits of having Coast Guard aviation manage the
    project. We did not and do not believe that these benefits have been
    demonstrated in this instance. To date, 84 re-engined HH-65s have been
    delivered to the Coast Guard. The remaining 11 HH-65 helicopters are to
    be delivered to the Coast Guard by the end of fiscal year 2007. As of
    March 31, 2007, the Coast Guard had obligated $324 million (94.4%) of
    the $343 million funded for the project.
        C\4\ISR Systems Review--We also reviewed the Coast Guard's efforts
    to design and implement C\4\ISR systems to support the Deepwater
    Program. We determined that the Coast Guard had limited influence over
    contractor decisions toward meeting information technology
    requirements. The lack of discipline in change management processes
    provided little assurance that the requirements remain up-to-date or
    effective in meeting program goals. Certification and accreditation of
    Deepwater C\4\ISR equipment was difficult to obtain, placing systems
    security and operations at risk. Further, although the Deepwater
    Program had established information technology testing procedures, the
    contractor did not follow them consistently to ensure the C\4\ISR
    systems and the assets on which they are installed performed
    effectively.
        Recently, the Coast Guard provided an update regarding the progress
    being made to implement the recommendations contained in our report on
    C\4\ISR systems. In its response, the Coast Guard stated that the
    language contained in the Deepwater contract, including the contract's
    ``award term'' criteria, will be revised to further clarify contractor
    responsibilities for developing Deepwater C\4\ISR systems.
        NSC Review--We also conducted a review of the Coast Guard's
    acquisition of the NSC to determine the extent to which the cutter will
    meet the cost, schedule, and performance requirements contained in the
    Deepwater contract. We determined that the NSC costs have significantly
    increased and, as designed and constructed, will not meet performance
    specifications described in the original Deepwater contract. Due to
    design deficiencies, the NSC's structure provides insufficient fatigue
    strength to achieve a 30-year service life under Caribbean (General
    Atlantic) and Gulf of Alaska (North Pacific) sea conditions.
        The Coast Guard's technical experts first identified and presented
    their concerns about the NSC's structural design to senior Deepwater
    Program management in December 2002, but this did not dissuade the
    Coast Guard from authorizing production of the NSC in June 2004, or
    from its awarding the systems integrator a contract extension in May
    2006. We were unable to ascertain the basis underlying the Coast
    Guard's decision to proceed with the production of the first two
    cutters that had known design flaws. To mitigate the effects of these
    deficiencies, the Coast Guard has advised us that it intends to modify
    the NSC's design to meet the service and fatigue life requirements
    specified in its contract. However, this decision was made after the
    Coast Guard authorized production of 2 of the 8 cutters being procured.
        NSC 1 was christened on November 11, 2006, and final delivery to
    the Coast Guard is scheduled for December 2007 or January 2008. NSC 2
    is under construction and scheduled for delivery during the summer of
    2008. As of March 31, 2007, Coast Guard had obligated $769.6 million
    (50.6%) of the $1,519.7 million funded for the project.
        We recommended that the Coast Guard ensure the NSC is capable of
    fulfilling all performance requirements outlined in the Deepwater
    contract and improve the level of Coast Guard technical oversight and
    accountability. Although the Coast Guard has concurred with these
    recommendations, their written responses (to date) have not provided
    the requisite details. For example, the Coast Guard's 90-Day response
    did not specify whether the Engineering Change Proposals (ECPs)
    prepared by the Coast Guard and ICGS to address the structural design
    and performance issues associated with the NSC, would be fully-
    evaluated by an independent and qualified third party (e.g., U.S.
    Navy's Surface Warfare Center--Carderock Division). The response also
    did not include a detailed and verifiable plan (e.g., timelines,
    quarterly reporting requirements, identity of responsible parties, or
    the cost) as recommended in the final NSC report. We believe that such
    details need to be forthcoming before the Coast Guard goes ahead and
    authorizes construction of NSCs 3 through 8. In the meantime, we plan
    to monitor the Deepwater Program closely and report on the
    effectiveness of the Coast Guard's corrective actions.
        110'/123' OIG Hotline Allegation--In response to an OIG Hotline
    allegation, we reviewed certain deliverables under the Coast Guard's
    110/123-foot Island Class Patrol Boats (123-foot patrol boats).
    Specifically, the complainant alleged that:
             the safety of the 123-foot patrol boat's crew was
            compromised by the contractor's failure to utilize low smoke
            cabling;
             the contractor knowingly installed external C\4\ISR
            systems aboard the 123-foot patrol boats that did not meet
            specific environmental requirements outlined in the Deepwater
            contract;
             the cable installed during the upgrade of the 123-foot
            patrol boat's C\4\ISR system represented a security
            vulnerability; and,
             the video surveillance system installed aboard the
            123-foot patrol boat did not meet the vessel's physical
            security requirements.
        We determined that low smoke cabling was not installed and that
    there were instances where the contractor installed C\4\ISR equipment
    aboard the 123-foot cutters that did not meet the design standards set
    forth in the Deepwater contract.
        Our review raised many concerns about the Coast Guard's program and
    technical oversight of the Deepwater contractor responsible for the
    110'/123' Modernization Project. For example, the contractor purchased
    and installed hundreds of non-low smoke cables prior to Coast Guard's
    approval of the Request for Deviation. In effect, the Coast Guard
    accepted delivery and operated four 123' cutters without knowing the
    extent of the hazards associated with the use of the non-low smoke
    cabling. The contractor also purchased and installed hundreds of
    C\4\ISR topside components aboard the 123' cutter and prosecutor
    knowing that they either did not meet contract performance requirements
    or compliance with the requirements had not been verified. Had the
    Coast Guard reviewed the contractor's self-certification documentation
    more thoroughly, it would have determined that the contractor had not
    complied with the specified weather environment standard. For these
    reasons, we are concerned that similar performance issues could impact
    the operational effectiveness of C\4\ISR system upgrades recently
    installed aboard its legacy fleet of cutters.
        We recommended that the Coast Guard investigate and address the low
    smoke cabling and environmental issues associated with the equipment
    installation and take steps to prevent similar technical oversight
    issues from affecting the remaining assets to be modernized, upgraded,
    or acquired through the Deepwater Program. The Coast Guard concurred
    with our findings and recommendations and said it is in the process of
    implementing corrective measures. Subsequent to our review and for
    reasons unrelated to the issues identified during our inquiry, the 123-
    foot cutter fleet has been withdrawn from service and will be formally
    decommissioned.

    Coast Guard's ``Way Forward''--Blueprint for Acquisition Reform
        To its credit, the Coast Guard recognizes that urgent and immediate
    changes are needed to meet the management challenges facing its
    Deepwater acquisitions program. As part of its endeavors to improve the
    Deepwater Program, the Coast Guard recently issued its Blueprint for
    Acquisition Reform (Blueprint), which catalogues many of the
    aforementioned challenges and risks that have impeded the efficient
    execution of the Deepwater contract. According to the Coast Guard,
    implementing this Blueprint will enhance its ability to execute asset-
    based ``traditional'' acquisition projects, effectively use a
    governmental or commercial entity as a systems integrator for complex
    acquisitions, and execute minor acquisitions contracts for goods and
    services.
        According to the Coast Guard, the Blueprint outlines its plans for
    reorganizing and rebuilding its acquisition workforce. Specifically,
    the Blueprint calls for the:
             Consolidation of all Coast Guard acquisition functions
            under one directorate;
             Reassertion of Coast Guard's technical authority;
             Use of independent, third party assessments; and,
             Redefinition of the contract terms and conditions.
        While the Blueprint contains a number of key initiatives, the Coast
    Guard should adopt measures of performance or desired outcomes that
    would enable it to assess the progress being made. These include the
    specific numbers and types of acquisition professionals needed, when
    they are scheduled to arrive onboard, and the financial cost associated
    with the realignment, reorganization, retraining, and rebuilding of its
    acquisition workforce.
        The Coast Guard is beginning to take aggressive action to resolve
    some of the management oversight issues identified in recent OIG
    reports. In the long term, if all goes as planned, the Coast Guard's
    reorganization of its Acquisitions Directorate will be fully
    implemented during fiscal year 2010. But in the meantime, the Coast
    Guard is planning to move ahead with the second phase of the Deepwater
    contract with Award Term I, which will entail the estimated expenditure
    of more than $3 billion dollars over a 43 month period starting June
    2007.

    Conclusion
        We are encouraged that the Coast Guard recognizes these challenges
    and is beginning to take aggressive action to strengthen program
    management and oversight--such as technical authority designation; use
    of independent, third party assessments; consolidation of acquisition
    activities under one directorate; and redefinition of the contract
    terms and conditions, including award fee criteria. Furthermore, the
    Coast Guard is beginning to implement its plan to increase its staffing
    for the Deepwater Program, and to reinvigorate its acquisition training
    and certification processes to ensure that staff has the requisite
    skills and education to manage the program.
        These steps should improve the Coast Guard's ability to oversee
    major acquisitions. However, we are mindful that the Coast Guard's
    system-of-systems approach will require the highest levels of planning
    and coordination to mitigate cost overruns, schedule delays, asset
    performance shortcomings, or potential operational gaps due to delays
    in asset acquisition. Most importantly, we believe that there is
    considerable risk associated with Coast Guard assuming the lead systems
    integrator role at this time without having fully implemented its
    Blueprint for Acquisition Reform, specifically without having closed
    the Deepwater human capital gap. We also believe the Coast Guard should
    exercise caution and take a slower or phased approach to assuming the
    systems integrator role.
        In conclusion, we remain committed to the oversight of the
    Deepwater Program and other major acquisitions within the department.
    We are working with the Coast Guard to identify milestones and due
    dates to assess the most appropriate cycle for reporting the program's
    progress. If properly and fully-implemented, Coast Guard's steps should
    significantly increase its level of management oversight over the air,
    surface, and C\4\ISR assets that are acquired or modernized under the
    Deepwater Program. We look forward to working closely with the Coast
    Guard to continue the improvement of the efficiency, effectiveness, and
    economy of the Deepwater Program.
        Chairwoman Sanchez and Chairman Carney, this concludes my prepared
    remarks. I would be happy to answer any questions that you or the
    Members may have.

        Ms. Sanchez. And now Captain Baynes, 5 minutes.

       STATEMENT OF CAPTAIN STEVEN BAYNES, CHIEF, ATLANTIC AREA
             RESPONSE ENFORCEMENT BRANCH, U.S. COAST GUARD

        Captain Baynes. Good afternoon, Chairwoman Sanchez and
    distinguished members of the subcommittees. I am Captain Steve
    Baynes of the U.S. Coast Guard, Chief of Major Cutter Forces
    for the Atlantic Area. It is an honor to be here to discuss my
    experiences as a commanding officer of a major cutter and also
    to discuss in my present assignment some of our efforts in
    sustaining the legacy major cutter fleet.
        During my tenure as commanding officer of an almost 40-
    year-old 210-foot cutter, Coast Guard Cutter Decisive, from
    2004 to 2006, we experienced numerous engineering and
    communication casualties mainly dealing with antiquated or
    obsolete systems. A large part of the crew's efforts were
    geared toward emergency casualty repairs, routine preventative
    maintenance. Only due to the extraordinary efforts of the crew
    were we able to successfully complete all our assigned
    missions. In many instances, my engineers had to manufacture
    parts from scratch to effect repairs because the equipment was
    so old, the parts no longer existed.
        However, Decisive was also the benefactor of several
    Deepwater upgrades, and I personally observed firsthand some of
    the positive contributions of these upgrades during real-time
    operations.
        For example, during Katrina, Decisive pulled into Gulfport,
    Mississippi, 4 days after landfall and successfully coordinated
    the maritime response along the entire Mississippi coastline
    and inland waterways. This coordination of over 20 interagency
    assets was only made possible due to the numerous Deepwater
    command-and-control upgrades that the Decisive had received
    which greatly enhanced the cutter's capabilities.
        In my present assignment as Atlantic Area Chief of Major
    Cutter Forces, which includes 30 major cutters on the east and
    gulf coast, my main concern is their readiness. Over the years,
    these legacy assets have experienced declining readiness to
    perform their assigned missions due to obsolete, unsupportable
    or maintenance-intensive equipment. We have seen an increased
    trend of casualties to our aging systems on board these
    cutters. The increased use of the cutters' routine maintenance
    funding to cover the cost associated with these increased
    casualties creates an additional burden on our engineers by
    further limiting the use of these funds for preventative
    maintenance.
        In order to counter this trend, the Deepwater program
    funded a comprehensive Mission Effectiveness Project, MEP, for
    medium endurance cutters that was started in 2005 to bridge the
    gap between our legacy fleet and our Deepwater fleet. This
    extensive maintenance project will provide these cutters with
    capability enhancements and replacement of antiquated and
    labor-intensive equipment. Therefore, our engineers can get
    back to conducting routine preventive maintenance vice
    emergency repairs.
        However, due to funding constraints, we are not replacing
    all major systems on board, only those having a high rate of
    casualties. Therefore, we still continue to be challenged with
    sustaining our legacy cutter fleet until a Deepwater fleet
    comes on line.
        In conclusion, the Coast Guard men and women on board our
    cutters continue to do an exceptional job maintaining equipment
    on hand and successfully completing all assigned missions. But
    in order for us to push out our borders, keeping all maritime
    threats as far away from U.S. soil as possible, the Coast Guard
    is going to need more modern, more capable and more reliable
    assets. Therefore, it is imperative that the new fleet be
    delivered on time.
        Thank you for the opportunity to testify before you today.
        Ms. Sanchez. And in the interest of time, Mr. Carney, if
    you are ready with your questions, I will let you go ahead.
        Mr. Carney. Thank you, Madam Chair.
        And Inspector General Skinner, in your prepared testimony,
    you spoke of, quote, the Deepwater human capital gap, unquote.
    Very interesting phrase, I think. Can you explain what you mean
    by this, and tell me what impact it is having on the program
    now and how you think it should affect the Coast Guard's plans?
        Mr. Skinner. One of the issues that we are concerned about
    is the impact that it is going to have on the Coast Guard as it
    assumes additional responsibilities as the systems integrator.
    In their acquisition reform, the blueprint for acquisition
    reform, the Coast Guard has announced that it intends to start
    assuming those responsibilities and, by the year 2010, to have
    complete control or to act as a systems integrator for this
    major acquisition.
        If you look at the workforce that is currently within the
    Coast Guard, they do not have right now adequately--an adequate
    number or adequately trained staff to provide oversight over
    its acquisition programs, particularly something as large and
    complex as the Deepwater program.
        Mr. Carney. I know in your report that you encountered
    significant difficulties obtaining information that you needed
    to do your work, and, Admiral Blore, I know that the Coast
    Guard has done a complete turnaround and is now cooperating
    well with the IG, and I want to commend you on that. But as I
    recall, there were also difficulties getting information from
    ICGS and its parent companies.
        Inspector General Skinner, has this improved?
        Mr. Skinner. No, it was not. I must say that our
    relationship with the Coast Guard itself has improved very
    noticeably. There are some issues out there that we are still
    negotiating with. But with--so far as our relationship with the
    contractor, that we are not getting the access to people or
    records that we think we should have.
        Mr. Carney. Will you include clauses in any future
    contracts requiring your contractors to comply with the
    inspector general?
        Admiral Blore. We would certainly look at that. I think--it
    is the government's intent to fully cooperate with the IG. I
    think where we are taking the Deepwater acquisition, there
    would not be any information that companies would hold that we
    wouldn't share. I would have to check directly with the
    contracting officer, and I would be happy to get back to your
    question as far as a specific clause, but we are diligently and
    aggressively enforcing all of the clauses in the Federal
    acquisition regulations, and any information that is due to
    flow to the government will be shared with the IG at the same
    time we get it.
        Mr. Carney. So that is a maybe?
        Admiral Blore. I would just like to ask the technical
    question of the contracting officer, but it is certainly our
    intent that any information that the inspector general needs,
    the inspector general would have, because, one, it is his
    benefit to do his research, and it is to our benefit to see his
    recommendations.
        Mr. Carney. Mr. Skinner, can you detail the problems you
    have had?
        Mr. Skinner. Right now let me give you the examples that we
    experienced with the National Security Cutter review. We asked
    to interview to get a full perspective. We had the Coast Guard
    perspective. We wanted the contractor perspective as to the
    issue that we were raising with the cutter, the problems with
    the design of the cutter. We asked to have access to some of
    their employees so that we could interview those employees.
        The contractor would not allow us direct access to those
    employees. We were first asked or required to document or
    submit a list of questions, every question we wanted to ask the
    employee; plus the employee, the contractor insisted that a
    supervisor, manager or legal counsel sit in on all of the
    interviews, violating confidentiality issues, and that is
    totally unacceptable in our perspective.
        Mr. Carney. Is that standard procedure?
        Mr. Skinner. No. This is the first time that I have ever
    encountered anything like this in 39 years of business.
        Mr. Carney. I yield my time.
        Ms. Sanchez. I go to our Ranking Member Mr. Souder for 5
    minutes.
        Mr. Souder. You say you haven't seen this in 39 years. Have
    you been in a similar situation where there might be legal
    liability? In other words, we have got cracked ships. I mean,
    it wouldn't seem illogical to have an attorney present, but
    denying access would seem to be pretty extreme.
        Mr. Skinner. I have to go through my memory here, but I
    am--the access that we are asking for here in no way would
    interfere with any type of criminal liability or any other form
    of liability that may lay ahead as a result of the negotiations
    going on right now to mitigate or to find who caused the
    problem, or where the problem first was discovered, and who was
    responsible for it.
        Mr. Souder. You are saying none of these interviews would
    affect the--
        Mr. Skinner. No. They would not have. What we were trying
    to get, a set of facts from people that were working on this,
    information dealing with the cost, information--getting their
    perspective as to any issues that may have been raised during
    the course of the construction or the design of the ships.
        Mr. Souder. If information was concealed.
        Mr. Skinner. If that was ever an issue, Congressman, we
    would have vetted that through appropriate channels within the
    Department as well as our own office to obtain legal counsel
    review.
        Mr. Souder. Is it possible that you could find in this
    information something that had been concealed, and then
    wouldn't it all of a sudden become--
        Mr. Skinner. Yes, it could.
        Mr. Souder. I am not defending the company.
        Mr. Skinner. Yes. It could. And then in that case we may
    have opened a criminal or civil investigation.
        Mr. Souder. We come back to a fundamental question I have
    been having difficulty understanding, trying to read everything
    I can and track this. That is how much of this--I mean, clearly
    you made a statement that the criteria for what was expected
    wasn't clear. How much--I mean, clearly one of the things is
    don't have cracks in the ship. It has to float. Helicopters
    have to fly. Presumably that was in the guidelines.
        What wasn't in the guidelines and how much is--is this--the
    length of how long it was supposed to go until a potential
    crack would appear, but that wouldn't necessarily be why you
    would have to dry-dock it immediately. How much of this looks
    like it was conceptually flawed from the beginning, and how
    much of this could be actually either rushing too fast, not
    clearing logical engineering things? I mean, some of this stuff
    just seems kind of incredible.
        Mr. Skinner. Before the construction, the task order was
    given to the integrated--systems integrator to begin
    construction. The Coast Guard's own engineers spotted problems
    with the design. The Coast Guard--
        Mr. Souder. You mentioned that a couple of times. By
    ``problems,'' do you mean there is a 5 percent chance that
    something could be here, or where we think that this thing may
    actually crack?
        Mr. Skinner. Over the lifetime, we entered into a contract
    to build a cutter that would have a 30-year lifetime under
    certain conditions. The Coast Guard's own engineers studied the
    design and expressed concerns that the design would not meet
    the specifications of that contract; that is, a cutter that
    would work under severe conditions for 30 years.
        Mr. Souder. Admiral Blore, why wouldn't--if your own
    engineers were questioning whether these boats were going to,
    in effect, repeat what we are seeing in the old boats--I mean,
    I have been out on so many of these boats, they are trying to
    stitch these things together, trying to figure out how to catch
    a cocaine dealer while they are trying to figure out how to get
    the radio to work, how to have the engine not die, the amount
    of time they have been spending in ports trying to stitch this
    stuff together.
        Why wouldn't there have been an absolute panic inside the
    Coast Guard if your own engineers were saying, hey, we don't
    think these new boats were going to work?
        Admiral Blore. I understand the question. Just one comment
    before I start in regards to the inspector general comments on
    criminal activity.
        If the Coast Guard thought a company was withholding
    information from us, we would turn it over to the Department of
    Justice. I just want to make sure, you know, while we would
    expect the inspector general to do that also, you don't need
    the inspector general to do it, we would do it because that
    would be--if they engaged in that sort of activity.
        I think it is important to separate the National Security
    Cutter from the 123s, and sometimes in the conversations, since
    we have been speaking about both of them, I think we are
    primarily talking about the National Security Cutter, which did
    have an issue as far as the Coast Guard was concerned with
    fatigue life, meaning that within the 30 years of its use, we
    would have to do some major repairs. We don't want to do major
    repairs within the 30 years of its life because it is always
    more expensive when the cutter has already been built, and we
    have to pull the cutter out of service to do that. So that is
    why we have an enhancement. We have technical agreement with
    the company on how that enhancement will be done.
        In regards to did our engineers know this, yes, they did.
    There were numerous changes made in the design from the
    original submission in 2002. Many changes were made to the
    National Security Cutter. Both I and the Commandant have
    testified that in the period of 2004, 2005, we should have
    taken more aggressive action on what our engineers presented
    us. We did take action. We work with the Chief Engineer of the
    Coast Guard. We worked with a division of NAVSEA called
    Carderock, to develop a solution typical referred to as the
    one-break solution, so that the National Security Cutter will
    meet its performance requirements.
        So we are very aware of it. We just feel that we have in
    place the necessary changes so that it is not an issue.
        Mr. Souder. Wasn't it in the contract that they had to
    float for 30 years without major overhaul?
        Admiral Blore. The contract specification was for a 30 year
    service life. I think industry's perspective on that--you may
    want to ask directly of industry. My understanding of that is
    they felt the design attributes that they were using which met
    naval standards would infer the 30-year fatigue life. We
    disagreed with that primarily because we don't use the naval
    combatant as a naval combatant. We use a naval combatant as a
    Coast Guard cutter, which puts different strains on it, puts
    different times under way, different days under way per year on
    a different ocean environment.
        And that is why we feel there are certain enhancements that
    need to be made, as the inspector general said, so it can be
    used for 30 years without a major repair.
        Ms. Sanchez. Ms. Clarke for 5 minutes.
        Ms. Clarke. Thank you very much, Madam Chair.
        Thank you, Mr. Chair.
        Madam Chair, I would like to ask that my statement be
    placed--my opening statement be placed into the record.
        Ms. Sanchez. Without objection.
        Ms. Clarke. Thank you.
        [The information follows:]

    Prepared Statement of the Honorable Yvette D. Clarke, a Representative
                       in Congress From State of New York

        Madame Chairwoman and Mr. Chairman:
        Although I have been a member of this committee for only a short
    time, I have quickly come to learn that one of the most pervasive
    problems within the Department of Homeland Security is how it handles
    contracting. Although the Coast Guard's Deepwater program was begun
    prior to the creation of the Department, this program appears to
    epitomize these problems at DHS.
        The Coast Guard provides an invaluable service to America by
    securing the waters around our country. When I travel back home, I
    regularly see Coast Guard boats patrolling the waters and keeping New
    York City safe.
        Deepwater was expected to provide the new equipment necessary for
    the Coast Guard to continue this mission into the 21st century.
    Instead, it has provided some unusable boats and a great lesson in how
    not to handle government procurement.
        I hope recent changes to the program will turn the Deepwater
    program around and provide the Coast Guard with the equipment they need
    to protect our nation.

        Ms. Clarke. I just want to get straight to a question for
    the rear admiral and captain. With less equipment currently
    available to the Coast Guard, and with much of its current
    equipment aged, has there been any, any reduction in the
    ability to operate; and if not, do you believe that the Coast
    Guard would be forced to reduce its operations in the future if
    Deepwater maintains its current pace?
        Admiral Blore. I am going to let Captain Baynes jump in
    here in a minute.
        From a more global oversight, one of the tensions we have
    in Deepwater, which the Inspector General alluded to, is we
    have attempted to advance some things in the Deepwater program
    for the very reasons you stated, and there is always the
    tension of not making it so fast that you don't do the
    necessary prudence and due diligence to have good program
    management for acquisition. So we struggle with that on a daily
    basis.
        I do believe, and the Commandant has testified, that we
    have sufficient resources. We have a transition plan. The Coast
    Guard, since 1790, has developed the ability to surge resources
    where necessary. I guess for specific examples in Atlantic
    area, I am sure the captain probably has some examples.
        Captain Baynes. Yes, ma'am.
        We haven't seen any decline in operations in the Atlantic
    area mainly due to--we are--we have the bridging strategy for--
    called MEP, Mission Effectiveness Project, which is replacing a
    lot of the antiquated and obsolete systems on board our
    cutters.
        So again, like I said in my opening statement, the
    engineers can get back to the business of doing routine
    preventative maintenance rather than--I mean, routine
    preventive maintenance rather than emergency repairs.
        Also, we have received numerous Deepwater command-and-
    control upgrades that has greatly enhanced the cutters'
    capabilities out there. So we are still able to do our job.
        Ms. Clarke. Notwithstanding the fact that you sort of have
    to double up because you are missing eight cutters?
        Captain Baynes. What we are doing right now trying to
    mitigate the loss of those eight cutters is we are multicrewing
    eight of our 110s down in south Florida. We are also surging
    other capabilities out of other districts to the area. Like the
    87-footers. We have buoy tenders down there we use for migrant
    holding platforms, and also the WPCs, the 179-foot patrol
    craft. We just extended the lease with the Navy to extend them
    3 more years. We have those crafts for--until 2011.
        So we are doing things to cover the gaps for those loss of
    eight 123s until the FRCs come on line.
        Admiral Blore. I think the captain would agree with me. You
    are absolutely correct in your assertion we are missing patrol
    boat hours. That is a critical concern of the Coast Guard's.
    What we are talking about is our ability to compensate for
    that.
        Ms. Clarke. It is my understanding that the Navy is going
    to be taking their ships back shortly?
        Admiral Blore. The original agreement we had with the Navy
    was to operate the five 179s to the end of fiscal year 2008.
    The Commandant has just recently renegotiated, because we are
    going to lose all five of them at the end of 2008 for three of
    them to remain with the Coast Guard. So again, just one of many
    actions we are trying to take to compensate for further loss of
    patrol boat hours.
        Ms. Clarke. And let me just ask Captain Baner--I am sorry.
    Captain Baynes.
        It is my understanding that Coast Guard engineers were
    really alerted to, you know, the challenges that were being
    faced in Deepwater, and one would wonder, you know, why we
    would go forth knowing that the technicians who really
    understand how all of this stuff works have flagged it.
        I want to know whether you have heard of any instances of
    retribution of Coast Guard members and officers who may be
    forthcoming with information that are germane to all of our
    concerns here today.
        Captain Baynes. No, ma'am. I haven't heard of any
    retribution whatsoever.
        Ms. Clarke. So if you were directly contacted by the IG,
    you would have no trepidation or fear of complying with the
    IG's inquiry?
        Captain Baynes. No, ma'am.
        Ms. Clarke. Thank you, Madam Chair. I yield back.
        Ms. Sanchez. Admiral, I just have a quick question for you.
        So you took these eight ships, and they are out. You have
    six out in the Persian Gulf or somewhere out there, I am
    assuming, I think I heard. And then you were supposed to have
    five that are going to expire, but now you are going to get
    three of those back. You are still down quite a few ships.
        Admiral Blore. Yes, ma'am. We are. We are short on patrol
    boat hours. The things that the captain referred to are used
    sometimes of oceangoing buoy tenders in place of a patrol boat.
    Not an ideal replacement, but it provides us some hours. The
    Navy has also provided some assets. They are doing their own
    submarine security patrol in Puget Sound. And some of the
    main--where the main submarine bases are. The Coast Guard used
    to provide that. The Navy is picking it up so that we can use
    those patrol boat hours in the Coast Guard.
        Ms. Sanchez. So when you say you are double-crewing, does
    that mean instead of having 10 people on the boat, you have 20
    on the boat; or does that mean that one ship goes out, and then
    they come in, and they use the crews to go out for a second
    ship or the third ship?
        Admiral Blore. Yes, ma'am, or the latter. Some people have
    referred to it as like blue-gold crews. In the Coast Guard we
    are blue and white, so it would blue and white crews. But the
    idea that one crew takes it out; once they are at their
    endurance for 4 days, they bring it back. The next crew takes
    it out.
        And as the Captain mentioned, the challenge then really
    becomes an engineering challenge. You have a lot more personnel
    in the crew and can take the vessel out. But the vessel has
    limits. It needs more maintenance, more deep-level maintenance.
    You need to put more money into it.
        Ms. Sanchez. Thank you.
        To the Ranking Member Mr. Rogers.
        Mr. Rogers. Thank you, Madam Chair.
        I want to follow up on Ms. Clarke's question, Captain. I
    didn't hear you answer the first part of her question. That is.
    Why do you think that the Coast Guard didn't react to the
    warnings by the engineers about the structural problems?
        Captain Baynes. Sir, that is not in my area of expertise,
    but I will pass that to Admiral Blore.
        Admiral Blore. Because the acquisition program wasn't
    operating as well as it should have been back then. I think the
    inspector general has done us a great service by reviewing that
    era and making recommendations to us that we have incorporated.
        There is no reason that we shouldn't have been following
    more of the guidance of our own engineers, and that is not the
    way we are or organized today. Today we have a unique
    distinctive role by commandant instruction for the Chief
    Engineer and technical authority and Naval Administrator. He
    wears three hats of the Coast Guard. That is my colleague,
    Admiral Gabel, and we work with him on a daily, sometimes
    hourly, basis.
        Mr. Rogers. So in your opinion, this wouldn't happen now if
    you had those same warnings either by your engineers or by the
    outside experts?
        Admiral Blore. In my opinion, it would not happen now. It
    would not be repeated.
        Mr. Rogers. Why do you think the Coast Guard didn't act?
        Mr. Skinner. I do agree with Admiral Blore.
        Under the current organizational structure, it is a lot
    better today than it was 2 years ago in 2005 when we were
    conducting our review. And the Commandant made it very clear
    by--with a policy memo going out to everyone, not only the
    Coast Guard, but to others that are working on the Deepwater
    project, that reasserts the technical authority of its Chief
    Engineer.
        And now we have the acquisition folks that were also
    sitting outside of the Deepwater box are now part of the
    project management team. Also, the integrated project team head
    was at one time lead by the systems integrator. That is now
    being lead by a Coast Guard official. So that there has been
    some major changes in that regard.
        Mr. Rogers. Okay. Thank you.
        That is all I have.
        Ms. Sanchez. And thank you to the gentleman from Alabama.
        And the next one will be Mr. Perlmutter from the great
    State of Colorado.
        Mr. Perlmutter. Thank you, Madam Chair. Just a quick
    question.
        Admiral you said there was a difference--we were confusing
    the 123 and the National Security Cutter, and you sort of went
    halfway into it and didn't quite finish it. Can you give me the
    20-second distinction?
        Admiral Blore. Sir, I don't think I have a reputation for
    ever answering a question in 20 seconds, but the distinction I
    was trying to make is the National Security Cutter is a new
    construction, new design. It was primarily an issue of fatigue.
    So over a 30-year life, it was never an issue of structural
    strength or that sort of issue. The 123 issue is an old cutter,
    older cutter, that was being converted. So there is some
    legacy, what kind of good shape was it in as you did the
    conversion. There is the conversion itself, and the
    characteristic that it showed was deformation of the hull,
    which means the outside of the hull was actually wrinkling, and
    buckling of the deck; not actually a crack, but a deformation,
    which alerted the crews to the issues that was going on.
        So it is two different situations. I didn't mean to suggest
    anybody was confusing it, but they are just different.
        Mr. Perlmutter. Okay. What resource does the Coast Guard
    have for this ICGS or the loss of the eight ships, and what
    actions are you taking?
        Admiral Blore. Let me answer the second part, sir, if I
    could, because I think it answers the first part.
        We are frustrated in our attempts to bring the eight 123s
    back on line. We are disappointed in the acquisition. We are
    disappointed that we had to decommission eight Cutters.
        During the life of the program, several modifications were
    made to the cutters to bring those back on service--in service
    that did not work. Now that we have taken them out of service,
    we have formed a team. It has a lawyer on it, technical
    individuals, and contracting officers. They are basically going
    through a discovery period. We are coming to the end of that
    discovery period where they are basically presenting all of the
    facts that can be gathered so the government can build its
    case.
        I hope you would appreciate if I don't go into too much
    detail since industry is here, but the next logical step would
    be for us, if we determine the consideration is owed us in
    whatever form, to issue a letter of revocation which basically
    is the government saying we no longer accept the cutters; that
    you delivered them to us, we accepted them at the time, but we
    no longer accept them, knowing what the condition is, and we
    issued that letter this morning.
        Mr. Perlmutter. Okay. Thank you. So let us go forward then.
        The Defense Department has this stopgap. You know, if it
    goes over a certain percent, there is a cost overrun or delay,
    I don't know, Nunn-McCurdy. Do we have anything like that? I
    would ask you or Mr. Skinner for Coast Guard acquisitions or
    Coast Guard, you know, construction and new products or boats.
        Admiral Blore. In the Coast Guard we use the Major Systems
    Acquisition Manual, and we go by Department of Homeland
    Security regulations, which we call it a breach, which I think
    is the same term DOD would use, and we use 10 percent. So
    basically we are due to alert the Department at 8 percent. I
    think 10 percent is technically called a breach. And then they
    report that to the Office of Management and Budget.
        But we have a similar structure. I don't know if it is
    exactly the same as the Department of Defense.
        Mr. Perlmutter. Have you looked at sort of your personnel
    approach to this Department of Defense? And I noticed there was
    something in the notes from Homeland Security from Mr. Skinner,
    that DOD, you can actually have a kind of a career track in
    acquisitions, whereas opposed to you, as under--in the Coast
    Guard, you move--you know, you basically are assigned to one
    area and then maybe another area, then another area. You said
    you are moving out of this particular field. Are you making any
    changes in that respect?
        Admiral Blore. Yes, sir. And the inspector general and I
    are actually very close in the sense that human capital is an
    issue today, it is going to be an issue tomorrow, and we need
    to address it. I think it is important to have a matter of
    perspective. We are not the United States Navy. We don't intend
    to be. Naval Sea Systems Command is the same size as the Coast
    Guard. So the entire Coast Guard has as many employees as the
    Naval Sea Systems Command.
        Mr. Perlmutter. How many employees do you have?
        Admiral Blore. We have about 41--, 42,000 within the Coast
    Guard. Within the Deepwater program and within acquisition, we
    started at about 250. We have built that up to 450. We have a
    human capital plan that grows at about 10 percent per year.
    But, more importantly, and it is the way we are really
    investing in the inspector general's comment, is in the very
    beginning of Deepwater, the concept was a partnership between
    government and industry, which I think we have demonstrated has
    a lot of room for improvement.
        Really where we are today is a partnership between
    government and government. We are partnering with the United
    States Navy. We have a--I have NAVSEA embedded in my office. I
    have NAVSEA embedded in Pascagoula, Florida, in Mississippi at
    the shipyard. So we have heavily leveraged NAVSEA technical
    advice, contracting advice, naval engineering, naval
    architecture, and I think that is why we feel maybe a little
    more comfortable that while we still need to grow at 10 percent
    per year, do the training, and do the certification, where we
    lack bench strength, we will depend on our partners in the
    Navy.
        Mr. Perlmutter. Thank you, Madam Chair.
        Ms. Sanchez. Thank you from the gentleman from Colorado.
        Let me ask a quick question before I kick it over to the
    gentleman from Seattle. You are patterning in a sense to what
    the Department of Defense does in acquisition as far as you
    have--I believe you have captains slated to go in this arena.
        Do you have a career path, and aren't you worried that with
    no career path, people are going to get out, and then you are
    going to be in the same place you are where you have all of
    this turnover, and people don't really acquire the skills and
    have the ability to really do a Deepwater program and the type
    that you have?
        Admiral Blore. Well, I am always worried. That is my
    assignment here, to worry about acquisition.
        We are different in the way we are set up in that DOD, the
    Navy, does have a career path for their military personnel, and
    they do put those military personnel in program management
    positions.
        If you look at--and I would be happy to submit this for the
    record--the new organization that we are building for
    acquisition, we basically partner a military with a senior
    civilian. So if you have a military program manager, we have a
    senior civilian deputy. If you have a civilian program manager,
    we have a senior officer as a deputy. And that is one way we
    are leveraging the experience of our senior civilians and
    cross-training into the military.
        We are not large enough to have a career path within
    acquisition. We can certainly have it as a specialty where
    officers, such as the way we use our lawyers today, rotate in
    and out of legal, go back to a ship, back to legal, back to a
    ship. We will do that within acquisition. And there actually is
    some benefit to keep infusing that operational experience back
    into acquisition.
        But, Madam Chairwoman, you are absolutely correct that we
    don't have a career path, and we will always keep that
    partnership with our civilian corps so that we can have the
    right expertise in the right place.
        Ms. Sanchez. As the performance auditor, Mr. Skinner, do
    you have any comment on what the admiral is thinking about
    doing?
        Mr. Skinner. The proposals that they have in their
    blueprint most certainly come with a lot of risk. Our concern
    is if you have a military type that does not have acquisition
    management skills in charge, they have the authority, they are
    partnered with a civilian type that has the responsibility, and
    neither one has--the civilian does not have the authority,
    although they may have the responsibility. That is a concern
    that we have. It doesn't mean it can't work or won't work. I
    think it is something that we need to watch very, very
    carefully.
        I would like to applaud the Coast Guard for what--the
    actions they are taking to do the stopgap, that is, partnering
    with the Navy until they can build their resources, because
    right now they need to obtain additional resources, human
    capital, and the right mix of resources. By partnering with the
    Navy right now, it gives them an opportunity to do this. And
    because it is going to take years to do this, and it is the
    just reorganization itself is going to cause cultural change,
    and you just don't do this overnight or in 1 year. It is going
    to take 2 to 3 to 5 years to do this.
        Ms. Sanchez. I began my career as a performance auditor, so
    I have a little bit of background in it.
        Mr. Reichert for 5 minutes.
        Mr. Reichert. Thank you, Madam Chair.
        First of all, I am going to guess during the history of the
    Coast Guard, you had major equipment changes and major
    acquisitions and changes over the years?
        Admiral Blore. Yes, sir.
        Mr. Reichert. Did you have trained people in that area
    prior to this?
        Admiral Blore. I can only speak for the last 20, 25 years.
    At one point we did have a larger acquisition corps than we did
    about 2 or 3 years ago. I think we are about the largest
    acquisition corps other than like maybe during World War II,
    that sort of thing. But I don't know before World War II if we
    had acquisition corps.
        Mr. Reichert. So how many trained acquisition officers do
    you now have?
        Admiral Blore. Again, it is a specialty, not a career path,
    and if you will permit me, I will submit it for the record. It
    is again 450 total civilians and military working acquisition,
    but I will give you a breakout on the difference in numbers,
    and if you would like pay grades, too, so you can tell the
    difference between captains versus lieutenants and 15s versus
    12s.
        Mr. Reichert. And there was a mention of reassigning
    personnel to cover these positions. Where would those people
    come from, what assignments?
        Admiral Blore. It varies quite a bit, sir.
        You are speaking of the military?
        Mr. Reichert. You are going to be reducing some services
    somewhere else. You are taking these people from some other job
    to put in these jobs?
        Admiral Blore. No, sir, Because the overall Coast Guard is
    growing through the support of this Congress through the fiscal
    year 2007 budget and also the fiscal year 2008 budget. So there
    is--not a cutter there is missing a deck watch officer because
    they have been assigned to acquisition. We are fortunate in the
    fact now that our entire agency has grown.
        Mr. Reichert. How does the loss of these eight boats and
    your redeployment of your resources affect your air mission,
    helicopters; is there any affect there?
        Admiral Blore. I don't know that there is a direct effect,
    because the patrol boats are smaller and don't directly embark.
    The helicopters, certainly helicopters and fixed-wing work with
    the patrol boats and often, you know, direct or provide the
    actual intelligence for the patrol boats to respond. So in that
    sense, you know, that team still needs to be supported.
        Captain Baynes could probably talk more directly about how
    he is doing that, how he is moving assets to the right places.
        But there is still that team that needs to take place. A C-
    130 can identify somebody doing something wrong, but the C-130
    itself can't put a boarding team on board. That has to be done
    by a patrol boat.
        Mr. Reichert. And specifically to the Northwest, you
    mentioned there was some realignment on resources there. Can
    you touch on that again since I am from the Seattle area?
        Admiral Blore. I don't know that I meant to say there was a
    realignment of resources there. What I indicated was the Navy
    has picked up some of the submarine security patrols that
    previous to this was done by the Coast Guard. In fact, they, in
    a partnership with the Coast Guard, actually joined us on a
    contract for the 87-foot coastal patrol boat and bought coastal
    patrol boats specifically for the Navy so they can use in that
    mission.
        It is a very important mission, but it is a very specific
    mission to escort the submarines as they go back to base.
        Mr. Reichert. And Mr. Skinner mentioned that during your
    audit, you discovered that there was no clear defined
    expectation. Why was that? Why was there no clear defined
    expectation of performance?
        Mr. Skinner. It was just the way the contract was written,
    and also I believe you can attribute this to the fact that the
    Coast Guard at that point in time did not have the right
    expertise to ensure that the contract had the specification
    needed to ensure that they can measure outcomes.
        Mr. Reichert. And you also mentioned there was a--is it--
    scheduling concerns took priority over quality concerns. Why
    did that happen?
        Mr. Skinner. Well, since 9/11, the Coast Guard has
    tremendous demands being placed on them right now, and they
    have a deteriorating fleet. They needed to get something out
    there right away. It is not one of these things where we wanted
    to sit back, study it, study it, study it, and just put it out
    for years.
        And I believe--and I was referring to the National Security
    Cutter. While we knew there was design problems, we were told
    that we needed to get a ship on water as soon as possible, so
    they chose to expedite the construction of the ship before they
    studied the problems to see if--what the cost/benefit analysis
    would demonstrate, whether it would be worthwhile just fixing
    it before we started building it.
        Mr. Reichert. One last question.
        The National Security Cutter 1 and 2 went for a combined
    cost of 517 million to 775--. Who pays for that? Is the
    contractor on the hook for some of that money?
        Mr. Skinner. I believe right now we are paying that.
        Mr. Reichert. The Federal Government?
        Admiral Blore. And if I could, I think it is important to
    understand what the increase was for. Basically it has three
    large components. One component is requirements changes the
    government ordered in the cutter post-9/11. We did major
    changes to it. We lengthened the flight check. And we changed
    putting an intelligence center on and did some other things,
    really reflecting the post-9/11 environments. So we are paying
    for those changes that we made.
        There was Hurricane Katrina, which affects about 123--or
    124 million of that to the direct damage to the yard and the
    facility being used by the Coast Guard at the time.
        And the third, which is going to be an ongoing issue, is
    inflation and labor rates, because while in government we
    typically inflate contracts at about 1.8 percent. In naval
    shipbuilding, and I know my colleague Admiral Sullivan
    testified to this, we are seeing more than 5 to 6 percent
    inflation in shipbuilding construction. And the labor rates are
    affected both by higher rates in the gulf region and the fact
    that there is a lot more grade labor now than there was before
    because there was a lot of people that moved in and out. So
    that will be a challenge that we will have to keep dealing
    with.
        Mr. Reichert. Thank you both for your service.
        Ms. Sanchez. Mr. Langevin for 5 minutes.
        Mr. Langevin. Thank you, Madam Chair, and I want to thank
    the panel for the testimony here today.
        Some of the things I want to ask have already been touched
    on. You can have an opportunity to expand on them.
        Like many of my colleagues, I am concerned by the fact that
    the lengthening of the 100 ships, the 10-foot ships to 123
    feet, the Coast Guard literally cut them in half and added 13
    feet. I understand that in some cases this may have worked in
    the past. When the Navy attempted this method, I understand
    that they took much longer ships and added a much smaller
    portion to lengthen them, and another portion was added at the
    end of the ship, not in the middle. And I also understand that
    the Navy warned the Coast Guard that this extension would cause
    problems.
        So my question is what due diligence was done to suggest
    that this was going to work in the first place? And also--and I
    know Mr. Rogers had touched on this, and I will give you an
    opportunity to expand here on your answer--what systems are in
    place to ensure that a mistake of this magnitude isn't going to
    happen again? And also, what mechanisms are in place to ensure
    in the future that all warnings are actually heeded?
        Mr. Langevin. Beyond that--again for Mr. Skinner-the ships
    that were that length and had a life span of 15 years, they
    pretty much reached this point in time when they were
    lengthened.
        On top of that, it is my understanding that many of these
    ships may have also been put through, you know, enormous stress
    over the course of their lives. We all understand that when the
    Coast Guard needs to rescue someone, they go far above and
    beyond the call of duty, which is certainly commendable.
    However, I would imagine that these extreme conditions would
    take a toll on the ships. Can you explain if these and other
    factors were taken into account when the decision was made to
    lengthen the 110-foot ships versus buying new ships?
        Mr. Skinner. I think, Admiral Blore, if you could answer
    that question. That is something we didn't look at as far as
    the decisions to convert or not to convert.
        Admiral Blore. And, sir, to be brief, if I could submit
    some of this for the record.
        Admiral Blore. But, basically, the situation is the Navy
    has a patrol boat. The Coast Guard has a patrol boat. The
    Navy's patrol boat is 60 feet longer than the Coast Guard's
    patrol boat. They were basically built by the same company,
    similar designs. The Navy cut theirs close to the stern. The
    Coast Guard cut theirs close to the stern. The Navy had initial
    problems with their lengthening, which they overcame. The Coast
    Guard had problems, which we didn't overcome.
        The Navy did advise us at the time of the problems they did
    have. I will give you somewhat of a technical dissertation on
    why the problems the 123 has because of its size are different
    than the problems the 179 had.
        So it wasn't that we didn't hear from our colleagues in the
    Navy. We just feel it was a different situation. We have looked
    at it and run models of the changes they have proposed, would
    have been made if it would have affected the ship. But it does
    not. It does work for the 179, though, if you have a greater
    length.
        Mr. Langevin. So, just so I understand, you are saying that
    the place where they cut the ship is different for the Coast
    Guard--I mean, it was the same--
        Admiral Blore. I think it is similar. I am not as familiar
    with the 179 program.
        Mr. Langevin. It was my understanding that the ship was
    going to be cut in half, but the Navy's portion was that they
    are cutting them a much smaller section.
        Admiral Blore. Again, sir, I am not an engineer. I would be
    happy to provide that for the record. But I think the cut is
    actually reasonably close to the stern.
        Mr. Langevin. Let's go to the issue of how we ensure this
    is not going to happen.
        Admiral Blore. Yes, sir. Well, I think, as the IG
    mentioned, it is very, very important that we recognize the
    role of the technical authority and the chief engineer and the
    Coast Guard. So that is our primary means, because I go to him
    or her in the future for any technical opinion, ability to
    proceed with a new design or a major change.
        And we have those instructions out in a place, and I would
    be happy to provide those for the record as well.
        The other kind of combination of that is either the
    technical authority or I, on my own, can go out to an
    independent third-party review. We could do that either
    commercially or our method of choice is to go to NAVSEA,
    primarily the Carderock division, or we go to Dahlgren for
    weapons, but the standard structure of the Navy and ask for an
    independent third-party opinion.
        In this case, if we were doing it again, if we were going
    to take the 210, the Decisive, and make it longer, we would go
    to the technical authority and we would go to Carderock and ask
    for their naval architecture and naval engineering opinions.
        Mr. Langevin. Thank you.
        I yield back the balance of my time.
        Ms. Sanchez. I thank my friend from Rhode Island, and I
    believe that Mr. Souder had another question.
        Mr. Souder. I wanted to ask Mr. Skinner--and maybe the
    Admiral has an answer to this. It may have been in your
    technical answer there.
        In the bigger ships that are docked, there was a question
    in the contract why the Coast Guard didn't have it clear that--
    what they expected in 30 years. There was a lack of clarity in
    the contract. Looking at the contractor's questions here, that
    is one.
        But in the ships that are kind of--their sides are curving
    and their decks are buckling, I understood I think Mr. Skinner
    to say--that--and maybe it was Admiral Blore--that there was a
    disagreement about the state the boats were in when they were
    given to the contractor. In standard practice in government
    contracting, wouldn't that be sorted through? I mean, how did
    these things start to curve and buckle and why wouldn't that
    have been specified? It seems like just kind of like Contract
    101.
        Admiral Blore. Yes, sir. If I implied that, I didn't mean
    to. There was an inspection done by the contractor and the
    government upon transfer of the vessel to the contractor to do
    the change. What I meant to say, if it didn't come across
    clearly, was there is a certain amount of unknown about the
    structure of vessels. There are voids in areas of the ship that
    you just do not access during the life of the ship unless it
    has a problem.
        So especially with the Matagorda, which was the first one,
    what you don't know is what you don't know; and after the
    initial opening up of the Cutter, there was a long inspection,
    there was more work done and added to that contract than had
    originally been intended. But none of it suggested that there
    was going to be long-term buckling or deformation issues with
    the Cutter.
        Mr. Souder. Mr. Skinner, do you agree with that?
        Mr. Skinner. Congressman, we didn't actually review the
    circumstances surrounding the decision to extend the 110 to the
    123. We looked at other issues dealing with the actual
    equipping the ship.
        Ms. Sanchez. Admiral, so they took the first ship and they
    opened it up and they found that fatigue or what have you. The
    hull was worse than the company had envisioned. And the
    company's story is we were just told to enlarge the ship. We
    were not told to handle the defects that we found once we went
    in there.
        Who handled those defects? Did the company then get more
    contract to do that, to fix it to the point where they thought
    that they could begin to enlarge it?
        Admiral Blore. If I could submit an answer for the record.
        I actually worked in the budget shop then, but I remember
    that we did expand the contract. I can't remember right now if
    we expanded it with them or somebody else.
        But when we saw the conditions of the vessels, you know,
    some of the terms that are used--and help me here, Captain--
    some of the terms that are used are the replacement of plate,
    for example, on the hull. There had been an estimate in the
    contract of how much plate needed to be replaced. Well, we
    increase that because we saw that there were other parts of the
    Cutter plate that needed to be replaced.
        If I could, ma'am, I will submit for the record whether
    that was with ICGS or through a different company.
        Admiral Blore. There were stringers and stakes that were
    replaced. But, again, none of these gave the Coast Guard at the
    time or, I am assuming, the contractor, or they would have
    notified us, an indication that there would be long-term
    problems once you made those repairs.
        Ms. Sanchez. Okay. And the Coast Guard accepted the 123s
    with numerous defects, known defects.
        How have you changed this process for the National Security
    Cutter.
        Admiral Blore. Well, I don't know whether we accepted the
    123 with known defects or not. It is not unusual when you sign
    a DD250, which is the form that transfers custody from the
    contractor to the government, that there are some open
    discrepancies. I don't know that we would accept something with
    defects. Again, I would have to check that.
        But with the National Security Cutter, that is done by a
    technical team we have within Deepwater, by our contracting
    officers; and, once again, the chief engineer will be there. We
    have a variety of both builders' trials that it will go
    through. Then we are hiring, again, our colleagues in the
    United States Navy to come and do ship trials with it; and they
    will give us a complete list of everything. Every discrepancy
    that they feel needs to be worked off, that will be documented.
    And then the government will either work those off or often,
    again, on a complex project like this, there may be some things
    that are accepted by the government for later workoff.
        But, again, the important thing there is to not accept
    things that are very difficult to fix. But that is how it is
    done. There is going to be a long process starting--it has
    actually already started, but it really hits momentum starting
    in about November of this year through about April-ish of next
    year where the ship will be put through trials, and that is
    when all that will be documented. Everything from the paint is
    chipped on a particular door to the radar doesn't work, which
    obviously would be a much bigger discrepancy.
        Ms. Sanchez. It is like taking a new home when you get to
    do the walk-through and figure it out.
        Mr. Carney, do you have another question.
        Mr. Carney. I do, madam. Thank you very much.
        Admiral given that it was Carderock and not the Coast Guard
    that identified the serious hull girders issues associated with
    the NSC, is Carderock going to do independent third-party
    evaluations from here on out? Are they going to do the
    structural--
        Admiral Blore. Well, it won't always be Carderock; and let
    me just correct if I inferred it that way.
        We asked Carderock--they are in contract with us. We paid
    for the services we received from our sister service. So we
    hired Carderock to join our technical experts and help us since
    they had more familiarity with major ship construction. They
    consulted with us. We developed a technical solution. We have
    agreement with Northrop Grumman Ship Systems now on how that
    technical solution will be deployed. We are currently in
    contract negotiations over the cost.
        Once that solution is completely identified with cost and
    materials and all the red lining to the blueprint, which is
    typically what it is referred to, I know my chief engineer's
    intent is to go back to Carderock and say, this was our final
    solution; how about one more review?
        Beyond that, the chief engineer is actually going through
    the entire design with Carderock again with a standing contract
    that the chief engineer has with them for review of naval
    design.
        Mr. Carney. Could we get a timeline on when we expect all
    this process to be complete? That would be really useful.
        Admiral Blore. Yes, sir.
        Mr. Carney. In 2002--this is going back to the 110s 123s
    now. In 2002, we understand the Navy's combat craft department
    predicted there would be problems with the plan to stretch
    these boats the recommended significant--lengthening the hulls,
    et cetera. Why were the--they weren't--these recommendations
    were followed, is that correct?
        Admiral Blore. Well, again, sir, if I could submit it for
    the record.
        There is a difference in what I believe they call the
    section module that is between 179-foot Cutter and 123-foot
    Cutter on where the stresses appear both on the hull and on the
    keel section.
        Mr. Carney. But isn't it true that when they did the 179s
    they reinforced the girders or strengthened the girders on the
    179s and that was not done in the 110s, 123s?
        Admiral Blore. I don't know whether it was done on the 110s
    or 123s. I know there was a discussion between the Coast Guard
    naval engineers and the NAVSEA naval engineers as to whether
    the solution that they used to be applicable to a smaller
    patrol boat.
        Mr. Carney. Mr. Skinner, are you aware of that?
        Mr. Skinner. No, sir.
        Mr. Carney. Okay. It is our understanding that the Navy
    offered to do a very detailed analysis of your plan for about
    $60,000. Why was that not done?
        Admiral Blore. I have heard that also, sir. That is not
    correct. The Navy offered to start a process of reviewing some
    documents we had, and I think they estimated it would take a
    week or two, and they said we could do that for $60,000. It
    wasn't to go through all the engineering diagrams and
    blueprints, analyze it, run it through their computer models,
    propose a solution, implement a solution in the blueprints. It
    would be much more than that, but they did offer for $60,000 to
    start the process.
        Mr. Carney. All right. Thank you. Nothing further.
        Ms. Sanchez. Thank you, gentlemen.
        I would just ask the Admiral, when you submit that
    information of opening up the hull and figuring out what wasn't
    at the level that was anticipated for the contractor to do his
    or their work, if you would--if there are different pieces,
    major pieces--I am not talking about the paint chips on the
    door. But if there are major pieces and if there are different
    contractors, if you could give us that array, I would prefer it
    that way.
        I believe Ms. Clarke has one last question before we let
    the panel leave.
        Ms. Clarke. Thank you very much, Madam Chair.
        Because I just wanted to get a sense--we have heard a lot
    about the collaboration between the Coast Guard and the Navy at
    this very crucial time, and it seems to be a real heavy
    reliance right now. How soon, Rear Admiral, do you project to
    resume your autonomy under Homeland Security, given the current
    situation?
        Admiral Blore. Ma'am, first off, kind of as a philosophy
    the Coast Guard doesn't necessarily pride itself on autonomy
    from the Navy. We are a naval service. We will always be
    working with the Navy. Again, when you look at the size of
    NAVSEA and the Coast Guard, we will always be somewhat
    dependent of their services; and for the taxpayers' benefit,
    there is no reason to duplicate some of the services that the
    Navy has.
        What we have started laying out is a transition plan of
    about 12 to 18 months. In some areas of the Coast Guard we have
    much greater depth and acquisition, primarily in hull and
    machinery, and in some areas like the command and control
    C\4\ISR, the electronics, we have less. So you will see us
    reaching out to our Navy colleagues more on the electronic side
    and less on the hull and machinery side. That will be a balance
    as, you know, we go through life here for the next 10 or 15
    years when we are short on something, we will go to the Navy;
    and they do come to us for, frankly, patrol boat expertise and
    some other things that we have some strength in.
        Ms. Clarke. Back to General Skinner, do you have some
    comments on that?
        Mr. Skinner. It is my understanding that their reliance--
    the areas we are looking at, we weren't looking in the
    construction or the operational side of the house. We are more
    interested in the actual management side of the house, in
    managing these contracts. And the Navy is now--they--I know the
    Coast Guard has said that they have turned to the Navy to get
    some technical expertise in the management, acquisition
    management, program management, those types of things to help
    support them until they can bring their own people on board,
    which is going to take time.
        I believe the blueprint Admiral Blore says--
        Ms. Clarke. He said 12 to 18 months.
        Mr. Skinner. I thought it said 2010.
        Admiral Blore. Right. Well, there is a difference between
    the human capital plan, which is in the blueprint which the IG
    is referring to, and when we think we can fully function as a
    government system integrator, which is what I was referring to.
    So we are not stopping our capital improvements at the end of
    12 or 18 months, but that will be the first time that we will
    be--I wouldn't call it autonomous but semiautonomous of being
    completely a government system integrator. Until then, we will
    depend on our other partners in government to help us.
        Ms. Sanchez. Thank you, Ms. Clarke.
        We have one vote, the budget vote, on the floor. It is a
    15-minute vote. It already started. I suggest that we go--that
    we recess for a few minutes, 10 minutes, 15 minutes, whatever
    it takes. We will get over--we will take the vote, and those
    who return--I hope you all will--we can return for the second
    panel.
        I would like to thank the first panel of witnesses for
    their valuable testimony and the members for their questions.
    The members of the subcommittees may have additional questions
    for the witnesses, and we will ask you to respond quickly in
    writing to those questions.
        We are in recess, to return in about 10 to 15 minutes.
    Thank you.
        [Recess.]
        Ms. Sanchez. The committee is now back, and we have before
    us our second panel of witnesses.
        Our first witness is Fred Moosally, President of Lockheed
    Martin Maritime Systems and Sensors. He is a graduate of the
    United States Naval Academy, served the Nation for 24 years,
    during which he commanded a guided missile destroyer and a
    battleship. He is no stranger to Capitol Hill as he also served
    as the Navy's Deputy Chief of Legislative Affairs. He joined
    Lockheed Martin in 1997 and was appointed President of Lockheed
    Martin Maritime Systems and Sensors in October of 2002. He also
    serves as the Chairman of Integrated Coast Guard Systems.
        Our second witness is Mr. James E. Anton, the Executive
    Vice President of Integrated Coast Guard Systems. He is also a
    board member of ICGS, the Vice President and General Manager
    for Coast Guard Programs, Northrop Grumman ship systems. He is
    responsible for managing all aspects of the surface asset and
    surface support elements, the integrated Deepwater system for
    ICGS. He has also served in the United States Navy on a nuclear
    submarine and is a graduate of the Naval Nuclear Power School.
    He also holds a BS in business administration an MBA from the
    University of Southern Mississippi as well as a master's degree
    in computer science technology from the University of South
    Alabama. He joined ICGS management as second in command in
    April of 2003.
        Welcome, gentlemen.
        Ms. Sanchez. Without objection, the witnesses' full
    statements will be inserted into the record; and I now ask each
    witness to summarize his statement for 5 minutes, beginning
    with Mr. Moosally.

    STATEMENT OF FRED MOOSALLY, PRESIDENT, LOCKHEED MARTIN MARITIME
                          SYSTEMS AND SENSORS

        Mr. Moosally. Thank you. Good afternoon, distinguished
    Chairs and members of the Border, Maritime and Global
    Counterterrorism and Management, Investigations and Oversight
    Subcommittees. Thank you for allowing me the opportunity to
    discuss Lockheed Martin's role in Deepwater, the significant
    progress we are achieving and how together we can ensure the
    success of this program.
        A major recurring subject of Deepwater congressional
    oversight committee hearings has been the patrol boats and
    Cutters, specifically the effort to extend and refurbish the
    110-foot patrol boats. Based on the terms of the ICGS joint
    venture, Lockheed Martin had no role with respect to advising
    the Coast Guard, providing it information or the actual work of
    refurbishing these vessels except as those decisions involve
    command, control, communications equipment. There are issues,
    however, that have been raised with respect to the C\4\ISR that
    Lockheed Martin installed on these vessels; and I would like to
    address these issues in my statement.
        The DHS Inspector General's report discusses four issues:
    surveillance cameras uses part of the vessel's security system
    while in port, shielding of electronic cabling for preventing
    remote electronic eavesdropping, use of certain electronic
    cables coated with conventional material rather than materials
    that would yield lesser amounts of smoke in the event of fire,
    and operation of the C\4\ISR equipment in certain extreme
    weather conditions.
        The Inspector General did not find a basis for concern
    regarding the first issue.
        For the second issue, the government determined that the
    installed C\4\ISR system was not a security vulnerability; and
    the system was subsequently approved to operate in a classified
    environment. Accordingly, I will focus my remarks on the last
    two issues.
        Early in the 110-foot patrol refurbishment program,
    Lockheed Martin, working with the Coast Guard, acknowledged
    that certain off-the-shelf equipment would require a low-smoke
    cable deviation. It did not make sense on one hand to use
    commercial off-the-shelf equipment whenever possible to provide
    best value to the Coast Guard and then unnecessarily replace
    non-low-smoke cables that posed no safety threat to the crew or
    impaired operational performance. Replacing cabling on the off-
    the-shelf equipment with cabling that met general
    specifications would have jeopardized warranties on equipment
    and very possibly reduced its reliability and functionality.
        The Coast Guard elected to waive the requirement for
    certain cables as the best solution because they amounted to
    only a small portion of the cabling on the vessel and were
    largely located in exterior or well-ventilated locations.
        I want to make this very clear to the committee. This
    problem was already being actively worked with the customer in
    December, 2003, prior to the delivery of any vessel. Although
    we received verbal approval working collaboratively with the
    Coast Guard, paperwork for the request of deviation approval
    was delayed through administrative contract processes. The
    Coast Guard formalized the decision to approve our request for
    deviation on December 21, 2004.
        The actions in 2003 and 2004 are documented in
    communication which I have available for the committee.
        We made the right choices with the Coast Guard, but we had
    the wrong process. The process has been fixed.
        We have a similar situation regarding the requirement for
    the operation of C\4\ISR equipment in extreme weather
    conditions. In July, 2005, a Lockheed Martin engineering review
    in preparation for C\4\ISR engineering for the National
    Security Cutter was conducted. We came across information that
    led us to question whether the environmental specifications
    applied to the 110-foot patrol boat refurbishment program were
    sufficiently clear and, in certain instances, contradictory.
        Much of the available off-the-shelf equipment was built to
    function in extreme weather conditions. However, because it was
    commercial equipment, it had not been tested to determine
    whether it would meet the general specifications referenced in
    the Cutter classification matrix that was invoked after
    contract award.
        This information was presented to the Coast Guard, a
    collaborative joint working group evaluation was conducted, and
    a decision was requested as to whether off-the-shelf equipment
    should be used or, alternatively, equipment should be built to
    meet general specifications. The Coast Guard decided the most
    effective course of action was for Lockheed Martin to submit a
    request for deviation.
        Congress has led the effort to require the military and
    other elements of the government to rely more heavily on
    commercial off-the-shelf-products where appropriate. As a
    result, we have fewer examples of absurd requirements being
    mandated, resulting in expensive purchases such as $600
    hammers.
        But there are always trade-offs in terms of unique
    requirements and interpretations of general specifications.
    Those trade-offs must put the safety of personnel first and
    then balance mission effectiveness levels versus cost. In both
    the application of low-smoke and environmental regimens we
    believe the Coast Guard made the right decisions in selecting
    commercial off-the-shelf equipment with no impact of safety or
    mission effectiveness.
        We have learned many lessons in the startup of the
    Deepwater program and have implemented contract and program
    management process improvements throughout the program so that
    mistakes will not be repeated.
        I look forward to answering your questions.
        [The statement of Mr. Moosally follows:]

                     Prepared Statement of Fred P. Moosally

        Thank you for the opportunity to explain the progress we are
    achieving on the U.S. Coast Guard's Integrated Deepwater System
    program. Speaking for the men and women of Lockheed Martin, we are very
    proud to be associated with this critical program. The Coast Guard is a
    key national asset for assuring the security and safety of our
    country's maritime transportation system. Each of us, in accomplishing
    our daily tasks on the program, has a deep sense of the importance of
    achieving the very best for the Coast Guard and our nation.

    The Deepwater Program
        The Deepwater program began in 1997 as competing teams were
    established to develop proposed solutions for bidding the program. In
    fact, proposals were submitted to the government less than two weeks
    after 9/11. Since then, the Deepwater program has successfully
    accomplished a number of changes. Most significant were those resulting
    from the dramatically increased Coast Guard operating tempo and new
    capability requirements in the post-9/11 environment. An excellent
    example is the HH-65 helicopters as legacy equipment began to wear out
    far more rapidly than had been projected. While the plan always
    included re-engining of this equipment, the original plan was to be
    accomplished over a longer time period. Nevertheless, the team was able
    to process the urgent requirement for re-engining and most of the fleet
    has already been upgraded and returned to service. It is this inherent
    flexibility that will facilitate our working with the new acquisition
    organization planned by the Coast Guard.
        Lockheed Martin is primarily responsible for four Deepwater
    domains: system engineering & integration, C\4\ISR (the command and
    control network), logistics and aviation (refurbishment of existing
    assets and production of new assets). Implementation of the Deepwater
    system-wide command and control network, C\4\ISR (command and control,
    computers, communications, intelligence, surveillance and
    reconnaissance), is important as this is the network `glue' that
    permits various assets including ships, aircraft and shore stations to
    work together to more effectively and efficiently achieve a common
    purpose. Use and reuse of commercial-off-the-shelf, government-off-the-
    shelf and fielded maritime systems are being maximized for commonality
    and interoperability. The application of off-the-shelf software permits
    the Deepwater program 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 will facilitate Coast Guard
    interoperability with civil and international systems, a key
    consideration given their mission mix. The National Security Cutter is
    using 75 percent of the U.S. Navy's open architecture command and
    decision system. The command and control system for the maritime patrol
    aircraft employs more than 50 percent of the functionality of the
    Navy's P-3 Anti-Surface Warfare Improvement Program. The operations
    center consoles on the National Security Cutter utilize more than 70
    percent of the design of the Navy's UYQ-70 display systems. Use and
    reuse of available software and systems is the key to commonality. In
    addition, this approach takes advantage of the work undertaken with the
    Navy to establish the best human system interface including workspace
    ergonomics, viewing characteristics, input devices and overall system
    architecture.
        The common architecture deployed across multiple types of assets
    allows for commonality of equipment and software systems and
    supportability of the entire Deepwater system. In general, the
    Deepwater C\4\ISR architecture ensures an `open systems' approach for
    design and implementation, providing a true web-enabled infrastructure.
    The Deepwater architecture adapts to technology insertion and enables
    the progression to future Coast Guard-wide C\4\ISR architectures. In
    ports and coastal areas, one of Deepwater's most significant capability
    enhancements will be its robust C\4\ISR system. This fundamental
    building block will improve the Coast Guard's ability to maintain
    maritime domain awareness focused on meeting the needs of decision
    makers engaged in operations at sea, ashore, and in the air. The
    network-wide system will ensure the Coast Guard possesses and maintains
    seamless interoperability with the forces and agencies of the
    Department of Homeland Security, the Department of Defense, and other
    federal and regional agencies--a true force multiplier in the fullest
    sense.
        I would like to specifically address concerns about competition as
    Deepwater continues to perform well in this area. The Federal
    Acquisition Regulations stipulate that a contractor is responsible for
    awarding and managing subcontracts as well as determining whether to
    make or buy particular items to ensure the lowest overall cost and
    technical risk to the government. The applicable regulations also
    require competition to be assessed regularly via formal government-
    conducted purchasing system reviews. These government audits evaluate
    the degree of price competition obtained and the treatment of
    affiliates.
        Lockheed Martin is currently subcontracting with nearly 350
    suppliers in 28 states. More than 200 of these are small or small
    disadvantaged businesses. In the period from September 2003 through
    December 2006, Lockheed Martin placed more than $606 million of orders
    with these suppliers. Competitive procurements in accordance with our
    government-approved procurement system total 43 percent of the
    subcontracts awarded. To assure price reasonableness to the government,
    the Competition in Contracting Act of 1984 excepts from the otherwise
    applicable requirement for competition follow-on procurements for
    continued development, production or highly specialized services,
    unique supplies or services available from only one source, or an
    unusual and compelling urgency that precludes full and open
    competition. When these are appropriately applied to each subcontract,
    the qualified percentage is raised to 94 percent of the subcontracts
    awarded.
        In fact, of every $100 of Deepwater funding obligated to the prime
    contract:
             $27 is used by Lockheed Martin for engineering and
            program management
             $37 is subcontracted by Lockheed Martin to third-party
            suppliers for goods and services
             $36 is used by other Deepwater partners (ICGS,
            Northrop Grumman and Northrop Grumman's third-party suppliers)
        We continually search for the most appropriate products, services
    and technology to assure best value to the Coast Guard customer. We
    have participated in six Innovation & Industry Days across the country
    and have more than 3,000 prospective supplier-product applications in
    our purchasing database.

    Lockheed Martin Deepwater Program Progress
        Working with our Coast Guard customer, Lockheed Martin has enabled
    deployment of more than 80 upgraded HH-65 helicopters featuring more
    powerful engines; delivered two new HC-144A maritime patrol aircraft
    with six more in various stages of contracting and construction;
    progressed through developmental test and evaluation of the HC-144A
    electronic mission system; commenced mission system and sensor
    installation on all six J-model HC-130 long range search aircraft; and
    sustained service of the eight MH-68A armed helicopters comprising the
    Coast Guard's helicopter interdiction squadron.
        We have upgraded command and control systems aboard all of the
    Coast Guard's 39 medium--and high-endurance cutters resulting in
    significant increases of illicit drug seizures. An important program
    milestone was recently achieved. The Coast Guard issued full authority
    to operate the Deepwater command and control system at its district
    command center in Miami. This system provides enhanced mission planning
    tools and facilitates rapid exchange of information through a common
    operating picture among Coast Guard commands, cutters and aircraft. The
    system is now being installed in San Juan, Puerto Rico, soon to be
    followed at major Coast Guard commands in Massachusetts, Virginia,
    Alaska, Washington, Hawaii, California and Louisiana.
        The Deepwater program is delivering and is making a real
    difference--impacting drug seizures, migrant interdictions and lives
    saved. In Washington, earlier this year, the Coast Guard performed a
    rescue utilizing an HH-65C helicopter under conditions that would have
    been impossible for the aircraft it replaced. This month, the cutter
    Sherman utilized its Deepwater-installed electronics to passively track
    a ship of interest, to board her without alerting her, and to
    coordinate the seizure of a record 21 tons of cocaine, with a street
    value of $300M, via secure satellite communications.
        Recent customer statements show how well the upgrades, equipment
    and new capabilities are being received:
             HH-65 Helicopter Re-Engining--``Restoring this kind of
            reliability and stability to our HH-65 fleet is a crucial
            milestone in improving readiness. The fact that it's being
            accomplished ahead of schedule reflects a true team effort by
            industry and our engineers, acquirers and operators.'' Coast
            Guard Chief of Aviation Forces
             Legacy Cutter C\4\ISR Upgrades--``The Deepwater
            Upgrade provides vastly improved communications and
            interoperability. In the past year this ship has operated from
            above the Arctic Circle to well below the equator. We have
            enjoyed 24/7 real time links to operational commanders and data
            base management regardless of our physical location. The
            upgrades have proven to be tough, dependable, and easily
            maintained.'' Commanding Officer of the USCGC Morgenthau
             National Security Cutter C\4\ISR Training Center--
            ``The contrast between our tools of 1983, and the tools of the
            future ships like the BERTHOLF is significant. I remember
            analog radar, message traffic by teletype, paper charts and
            maneuvering boards, Polaroid cameras, and slow criminal history
            checks by EPIC. No cell phones, no email--imagine that. I
            remember a true sense of independent operations. We were proud,
            but probably not as effective as we might have been if we had
            the tools of today. By contrast, our new National Security
            cutters will train. . .on computerized digital sensors, radar
            and charts, live sharable digital video, message traffic by PC,
            voice communications with anyone, clear or secure, and real
            time criminal histories and intelligence checks. They will
            benefit from a sense of connectedness and systemic information
            sharing making their days at sea safer and more efficient. The
            Coast Guard will have increased Maritime Domain Awareness to
            identify threats, and a Common Operating Picture to act when
            necessary--all to protect our coastlines and our citizens.''
            Commanding Officer Coast Guard Training Center
             Maritime Patrol Aircraft--``Today's delivery of the
            first MRS MPA is a critical milestone in our ongoing efforts to
            acquire and deliver more capable and interoperable assets and
            systems to our Coast Guard crews. When this aircraft and others
            like it enter operational service, they will help to narrow our
            existing gaps in maritime surveillance in many important
            ways.'' Deepwater Program Executive Officer
        Deepwater C\4\ISR is the enabler for the integrated system and is
    the major contributor to improved performance. It permits the Coast
    Guard to operate effectively with DoD, DHS, state and local government
    agencies. C\4\ISR provides coordinated tactics, multi-agency
    interoperability and common situational awareness necessary to achieve
    mission success. These capabilities are needed for all Deepwater assets
    including ships, aircraft, and shore site command centers.

    Commitment to Congress and the Coast Guard
        We have deep respect for Congressional oversight and are committed
    to achieving our very best for our nation and the Coast Guard. We have
    continually sought to improve on this program. In particular, we are
    attentive to the concerns that have been raised by the DHS Inspector
    General, the Government Accountability Office and Members of this and
    other Committees with Coast Guard oversight responsibilities. As such,
    we are continuing to improve engineering and program management
    processes to better meet the needs of the Coast Guard customer.
        I would like to take this opportunity to address the concerns
    raised by the DHS Inspector General. We have carefully reviewed each of
    the findings, and, where appropriate, have made improvements to
    Deepwater program processes to avoid past mistakes being repeated. I
    address each of the issues raised by the DHS Inspector General.

    Low Smoke Cables
        During a Lockheed Martin review of 123-foot Patrol Boat C\4\ISR
    specifications, it was determined that 85 out of approximately 490
    cables per ship could not be confirmed as having low-smoke properties.
    Many of these 85 ``cables'' are not large electrical cables. They are
    small cables such as those linking personal computers to printers.
    Others were small cables located inside commercial equipment, purchased
    as a result of the mandate to use as much commercial product as
    possible. The remainder of the 85 cables extend outside onto the mast
    or deck, and pose no threat to the boat or its personnel. Consistent
    with other military programs, a collaborative analysis of the non-low
    smoke cables determined that their use did not pose an undue safety
    risk. During the process of certifying the 123-foot patrol boat C\4\ISR
    design to the cutter certification matrix, the Coast Guard recommended
    submission of a `request for relief' from the low smoke requirement for
    specific cables. The program proceeded to make progress with a
    reasonable expectation that the request for waiver would be approved.
    As the Inspector General determined, approval of the request for waiver
    was secured after four 123-foot patrol boats had been delivered.
    Collaboratively, with our Coast Guard customer, we have established
    additional process controls to help avoid a future recurrence of such a
    documentation issue.

    C\4\ISR Environmental Requirements
        A Lockheed Martin engineering review in mid-2005 identified a
    potential issue regarding C\4\ISR environmental requirements. We
    immediately informed the Coast Guard of this issue, and a joint Coast
    Guard and Lockheed Martin working group was established to resolve this
    issue. Rather than embark on a costly and continuous certification test
    process, Lockheed Martin engineers evaluated each of the components and
    the associated environmental performance information. Where possible,
    Lockheed Martin obtained ruggedized components, such as a de-icing
    capability for the FLIR sensor. After the joint working group's
    consideration of the mission criticality of each component, its
    specification compliance, and its function aboard the boat, a request
    for waiver was jointly determined the best choice given customer
    imperatives and objectives. This approach permitted reconciliation of
    the program's acquisition strategy to maximize the use of ruggedized
    off-the-shelf commercial and government equipment with a multitude of
    military standards incorporated into the requirements. By submission of
    a contractor requested waiver, the Coast Guard was afforded the
    ultimate decision as to a course of action. Much like the findings
    regarding low-smoke cabling, the Inspector General recommended that the
    Coast Guard develop and implement a plan to improve the process for
    reviewing and adjudicating contractor requests for deviations and
    waivers to ensure that all requests are resolved and fully documented
    prior to implementation. We are actively supporting implementation of
    this and other Coast Guard program oversight process improvements.

    TEMPEST
        Next, in response to concerns regarding C\4\ISR TEMPEST
    capabilities, we note that the government determined that the installed
    C\4\ISR system is not a security vulnerability. In fact, an independent
    third-party, the U.S. Navy Space and Naval Warfare Systems Center
    (SPAWAR), performed a visual inspection and instrumented testing. All
    identified discrepancies were resolved to the customer's satisfaction
    and the 123-foot patrol boat C\4\ISR system was subsequently approved
    by the Coast Guard to operate in a classified environment. Lockheed
    Martin engineers chose a particular type of cable that was fully
    shielded and securely mounted to preclude compromising emissions as
    well as potential shielding degradation over time. Furthermore, SPAWAR
    determined that the system did not have compromising emissions and it
    was approved by the Coast Guard to operate in a classified environment.
    Based on input from the Coast Guard, the C\4\ISR system on the 123-foot
    patrol boat operated effectively and securely during the time the
    patrol boats were operational and was highly regarded by their crews.
    The capabilities provided by the C\4\ISR system enabled the crews to
    develop new and highly-effective operational techniques for
    intercepting drug traffickers and illegal immigrants.
        Before the February 2007 report of the Inspector General, we
    improved the C\4\ISR design process for the National Security Cutter.
    Electronic equipment cabinets have been designed with improved electro-
    magnetic interference, cryptographic system configuration and cable
    shielding. Classified network designs were provided to the certified
    TEMPEST test authority prior to customer design reviews to facilitate
    risk mitigation early in the design. Representatives of industry, the
    customer and an independent reviewer, Craig Ocean Systems, participated
    in a number of technical interchange meetings to review current designs
    and make changes prior to equipment production efforts. During cabinet
    production, integration and test, periodic technical interchange
    meetings were conducted with the customer to review all emergent
    TEMPEST issues and correct the associated documentation. Prior to
    system testing, the customer conducted a final design review with
    government experts to identify potential issues and make any necessary
    design changes. We believe the approach of mitigating potential
    problems before customer visual and instrumented testing is essential.
    Close customer involvement, including early reviews of the design
    documentation and delivery schedules will continue to assure that
    Congressional and customer interests are best served.

    Surveillance Cameras
        Finally, as the Inspector General found, the camera system on the
    123-foot patrol boats fully complies with the video surveillance system
    requirements. It was designed as part of an overlapping series of
    measures, including sentries and an intruder detection system. Lockheed
    Martin did not consider it prudent to unilaterally increase costs by
    providing functionality that the customer did not want or need.

    The Way Ahead
        We agree with the Coast Guard that the oversight has provided
    important recommendations for improvements to the Deepwater program. We
    are working with the Coast Guard as they have already begun to take the
    necessary steps to ensure successful execution of the Deepwater
    program. Our goal is to provide more capability to the Coast Guard
    sooner. We are dedicated to analyzing and recommending approaches for
    maximizing the value delivered to the Coast Guard, in accordance with
    the customer's view of value, not that of industry. This requires the
    best talent from each corporation. Lockheed Martin will continue to
    work closely with Coast Guard personnel to assure constant
    communications and improved working relationships. The strategic policy
    changes that have occurred since 9/11 must be factored into problem
    solving. The Coast Guard and the Department of Homeland Security have
    needs that can be satisfied by the Deepwater program and its approach
    to value delivery. The way forward will be challenging, but given the
    capabilities of the participants and the strategic imperative to better
    outfit our Coast Guard so the safety and security of our nation is
    improved, the Deepwater program is eminently achievable.

                                 For the Record

        Letter submitted by the Honorable Loretta Sanchez, Chairwoman,
                 Subcommittee on Maritime, and Global Terrorism

        Ms. Sanchez. Now Mr. James Anton, please, for 5 minutes or
    less.

     *ERR11*STATEMENT OF JAMES E. ANTON, SECTOR VICE PRESIDENT AND
      GENERAL MANAGER, U.S. COAST GUARD PROGRAMS, NORTHROP GRUMMAN

        Mr. Anton. Good afternoon, Chairperson Sanchez, Chairman
    Carney, and distinguished members of the committees; and thank
    you for the opportunity to appear before you to discuss the
    Deepwater program.
        I am the Executive Vice President of Integrated Coast Guard
    Systems and the Vice President of the Deepwater program for
    Northrop Grumman Ship Systems. As you may know, Northrop
    Grumman Ship Systems has nearly 70 years of experience
    designing, constructing, and maintaining ships of all types. In
    that time frame, NGSS' gulf coast operations has produced a
    total of 534 ships and has built nearly a quarter of the Navy's
    fleet.
        On behalf of Northrop Grumman and all the men and women
    working in support of this program, I would also like to thank
    these subcommittees for their strong support of the Coast Guard
    and the Deepwater program.
        The 110-foot patrol boats have seen extensive duty since
    their entry into service some 20 years ago. The 123 conversion
    was intended as an interim measure to enhance the capability of
    the aging patrol fleet until the new vessel, the Fast Response
    Cutter, was available to replace it. The conversion work was
    performed by Bollinger shipyards, the original builder of the
    110s under subcontract in Northrop Grumman. The conversion
    project underwent a traditional design and review process with
    contractor and Coast Guard personnel.
        After being awarded the patrol boat conversion work but
    before beginning the actual conversion work, the Coast Guard
    ICGS, NGSS and LM and Bollinger, with our joint venture
    partners, engaged in design reviews, including a preliminary
    design review, a critical design review and a production
    readiness review. During these reviews, the 123-foot conversion
    design was presented to the Coast Guard in increasing levels of
    detail.
        Although not a contract requirement, ICGS conducted the
    preliminary design review, or PDR, as part of the PDR process.
    Drawings and analysis were submitted to the Coast Guard for
    consideration and review. Half of the attendees at PDR were, in
    fact, Coast Guard personnel.
        The next phase was the critical design review, or CDR. In
    connection with CDR, the Coast Guard reviewed a series of
    design deliverables. CDR presentations included results from a
    number of design tests. The Coast Guard represented nearly half
    of the attendees at CDR.
        CDR was then followed by a production readiness review, and
    during the PRR the production process, procedures and state of
    the design to convert the 110 vessel into the 123 where were
    presented. As with the design reviews, the Coast Guard fully
    participated in the PRR process.
        Four days later, the Coast Guard delivered the Matagorda to
    Bollinger for conversion in Lockport, Louisiana.
        In addition to these various reviews with the Coast Guard,
    during the conversion of the first vessel, the Matagorda, the
    American Bureau of Shipping examined the design of the hull
    extension and new deckhouse and monitored key elements of the
    work being performed. The Coast Guard had a Program Management
    Resident Office on site at Bollinger to oversee the 123
    conversions. At the completion of each conversion and as part
    of the acceptance process, the Coast Guard, similar to what the
    Navy does, established an INSURV inspection board to examine
    the performance of the converted Cutter and make a formal
    recommendation of acceptance. At the conclusion of the
    Matagorda work, ABS issued a letter of approval for the
    conversion work and expressed no reservations with the
    feasibility of the conversion. Based on all these reviews and
    actions, the Coast Guard accepted delivery of the Matagorda.
    This same process was applied to each of the other seven patrol
    boats delivered to and accepted by the Coast Guard.
        To date, the problems associated with 123 conversion
    include buckling and hull deformation as well as shaft
    alignment problems. Neither the Coast Guard engineers nor our
    engineers have been able to determine the root cause for the
    123 patrol boat structural problems.
        On April 13, 2007, Admiral Allen decided to decommission
    the eight 123-foot patrol boats converted under the Deepwater
    program.
        We are committed and determined to identify the root cause
    of the structural problems. Reviews and analysis of the data
    available to industry on the 110 and 123 patrol boats continue
    in an effort to better understand the cause or causes of both
    hull buckling and shaft alignment problems; and we will
    continue to support the Coast Guard's effort to address its
    mission needs.
        Thank you again for the opportunity to discuss with you the
    Deepwater program.
        Ms. Sanchez. Thank you so much for your testimony.
        [The statement of Mr. Anton follows:]

                                 For the Record

                      Prepare Statement of James E. Anton

        Good afternoon Chairperson Sanchez, Chairman Carney and
    distinguished members of the Subcommittees.
        Thank you for the opportunity to appear before you today to discuss
    the Deepwater Program. As you know, within the Integrated Coast Guard
    Systems (ICGS) structure, a joint venture established by Northrop
    Grumman and Lockheed Martin, Northrop Grumman Ship Systems (NGSS) is
    responsible for hull, mechanical and electrical design construction,
    installation of Command, Control, Communications and Computers,
    Intelligence, Surveillance and Reconnaissance (C\4\ISR) equipment
    provided by Lockheed Martin, and overall support of the surface assets,
    such as the 110 foot to 123 foot converted Island Class Patrol Boats.
    References in this statement to ICGS or separately to Northrop Grumman
    or NGSS should be construed to mean the role of Northrop Grumman Ship
    Systems as part of ICGS.
        Northrop Grumman has nearly 70 years of experience designing,
    constructing and maintaining ships of all types. In that time, NGSS's
    Gulf Coast operations has produced a total of 534 ships--351 ships at
    Ingalls and 183 at Avondale--and has built 24 percent of the Navy's
    current fleet of 276 vessels. In just the last 30 years, we have
    completed 15 new designs representing a diverse group of military and
    commercial seagoing ships: LSD 49; CG47, DDG993, LHD1, LHD8, LSD41,
    LMSR, USCGC Healy (Polar Icebreaker), 2 Classes of T-AO (Kaiser &
    Cimarron), Polar, NSC, LPD17, Saar5, and DDG1000.
        On behalf of Northrop Grumman and all of the men and women working
    in support of this program, I would like to thank these Subcommittees
    for your strong support of the Coast Guard, and of the Deepwater
    Program. We look forward to working closely with you and the Coast
    Guard to ensure the success of this important modernization. The
    following statement contains information that I, on behalf of Northrop
    Grumman, am submitting based on my current knowledge, information and
    belief.
        The Coast Guard's current 110 foot patrol boats were built in the
    1980s and early 1990s by Bollinger Shipyards, Inc. These boats have
    seen extensive duty in support of the Coast Guard mission to save
    lives, interdict aliens and seize drugs. ICGS and its teammate, Halter
    Bollinger Joint Venture (HBJV), proposed to convert the 110 foot boats
    to 123 foot boats as an interim measure to improve the capability of
    this vessel until its FRC replacement entered operation in 2018.
        ICGS proposed the conversion concept as a means to provide the
    Coast Guard with the capability to continue to meet its mission
    objectives while remaining within the confines of program funding
    requirements. Deepwater competitors were required to propose a ``system
    of systems'' solution that did not exceed the funding limitation of
    $500 million per year. With new assets such as the National Security
    Cutter (NSC), Maritime Patrol Aircraft (MPA) and the Vertical Unmanned
    Air Vehicle (VUAV) being developed early in the program, it was not
    possible to design, develop and construct new patrol boats at program
    inception while keeping within annual funding limitations.
        Bollinger had designed and built the original 110 foot boats and
    was very familiar with their construction. Bollinger was awarded a
    contract for 16 110' Island class boats in August 1984 and another
    contract for 33 more boats in 1986. The design of the 110' Island class
    was approximately 20 years old and was based on an existing patrol boat
    developed by a British firm, Vosper Thornycroft (UK) Ltd. The 110'
    Island Class boats were commissioned between November 1985 and 1992.
    Notably, after the first boats came into service, it was discovered
    that the 110s suffered from hull problems when operated in heavy seas.
    As a correctional measure, heavier bow plating was added to hulls 17
    through 49 during construction and additional stiffeners were
    retrofitted to earlier hulls.
        Under the proposed Deepwater conversion plan, HBJV added a 13 foot
    extension to the 110', which was similar to the 9 foot extension they
    had successfully added to the Cyclone patrol boats starting in 2000.
    This extension accommodated a stern ramp for the launch and recovery of
    a small boat, used primarily to support boarding and rescue operations.
    In addition, the conversion installed an improved pilot house, enhanced
    C\4\ISR capabilities, and extensively improved habitability and
    maintenance. During the conversion process HBJV identified and renewed
    hull plating in areas where an ultrasonic thickness inspection
    indicated that the existing plating was deteriorated.
        At the time the proposal was submitted, some general knowledge
    about the condition of the 110s was available, and ICGS believed that
    replacement of the hull plating would adequately address and offset
    their deteriorated condition. This is consistent with the findings of
    the Coast Guard's 110' WPB Service Life Extension Board, published in
    March 2002, which recommended a program of systematic hull repairs,
    predominantly in documented problem areas, to address the hull
    deterioration problems that were impacting the operational availability
    of the 110s.
        As is typical of ship construction projects, periodic reviews of
    the 123' conversion design were held. Prior to each review, the
    contractors submitted numerous design documents, including engineering
    data, calculations and model test results, to the Coast Guard for its
    review and comment. Coast Guard comments were received in conjunction
    with each of the three primary design reviews, all of which included
    Coast Guard, NGSS, ICGS and HBJV representatives.
        The first such review was the Preliminary Design Review (PDR). The
    Preliminary Design Review was not a contract requirement, but was
    conducted by ICGS as part of the 110' to 123' design process. As part
    of the PDR process, approximately 43 contract-required data items
    (CDRLs), including 23 drawings and 14 analyses were delivered to the
    Coast Guard for consideration and review. During PDR, the Coast Guard
    was provided with an overview of procurement, model testing procedures
    and schedule, as well as the planned hull/structure inspection process,
    which included blasting the hull to the main deck, ultrasonic and
    visual inspection, as well as bulkhead Ultra Sonic Testing allowance.
    The Coast Guard represented 23 of the 46 attendees at PDR.
        The next phase was the Critical Design Review (CDR). In connection
    with CDR, the Coast Guard reviewed 47 design deliverables. In addition
    to 123' conversion design information and drawings, CDR presentations
    included design tests such as model basin testing for bare hull
    resistance, propeller and open water cavitation, self propulsion,
    planar motion maneuvering and course keeping, numerical simulations of
    turning circle and course keeping, and sea keeping. The Coast Guard
    represented 34 of the 75 in attendance at CDR.
        CDR was followed by a Production Readiness Review (PRR). During the
    PRR, the production process, procedures and state of the design to
    convert the 110' vessel into a 123' were presented. Following the PRR,
    ICGS received notification from the Coast Guard that ``ICGS had
    presented a comprehensive assessment of the state of the design
    development and readiness for production.'' The Coast Guard did not
    identify any risks associated with hull deformation or buckling. Four
    days later the USCG delivered Matagorda to Bollinger at Lockport,
    Louisiana for conversion.
        In addition to these various reviews with the Coast Guard, during
    the conversion of the first vessel, the Matagorda, the American Bureau
    of Shipping (ABS) examined the design of the hull extension and new
    deckhouse and monitored key elements of the work being performed. The
    Coast Guard had a Program Management Resident Office on site at
    Bollinger to oversee the 123' conversions. At the completion of each
    conversion and as part of the acceptance process, the Coast Guard
    established an INSURV board to examine the performance of the converted
    cutter and make a formal recommendation of acceptance. At the
    conclusion of the Matagorda work, ABS issued a letter of approval for
    the conversion work and expressed no reservations with the feasibility
    of the conversion. Based on all of these reviews and actions, the Coast
    Guard accepted delivery of the Matagorda. This same process was applied
    to each of the other seven patrol boats delivered to and accepted by
    the Coast Guard.
        The Performance Specification requirement calls for the 123' to be
    capable of unrestricted operation up through sea state 3, or seas
    averaging approximately four feet or less. Coast Guard operation
    restrictions are imposed beginning at sea state four, or seas less than
    eight feet, where the boats are to be able to sustain limited
    operations, altering course or reducing speed as required to maintain a
    ride which does not damage the boat or its machinery or overly fatigue
    the crew. The Performance Specification requires the 123' to be able to
    survive sea state 5, or seas averaging between eight and 13 feet,
    maneuvering as necessary to minimize damage or injury to the crew, and
    then be capable of returning to port under its own power once the seas
    have subsided.
        In September of 2004, after all 8 hulls had entered the conversion
    program and the first 4 hulls had been delivered, the Matagorda was
    forced to conduct a high speed transit to avoid Hurricane Ivan. This
    operational necessity forced the Coast Guard to transit in a sea state
    and speed where the cutter was operating near or above the design
    limits of the 123' conversion. Upon arrival at their destination, the
    crew discovered buckling of the side shell and main deck on the
    starboard side near midship. An engineering tiger team was formed
    consisting of Coast Guard and NGSS personnel. This team was dispatched
    to investigate the problem where it was discovered that the Matagorda
    had an inherent workmanship issue in the baseline 110' that existed
    prior to the conversion and contributed to the hull buckling.
    Specifically, a hidden, unwelded aluminum deck stringer was discovered
    immediately beneath the area where the failure occurred. Other boats
    were examined, and this unwelded stringer was also found on one
    additional hull undergoing conversion. When modeled using finite
    element analysis, the stresses in the panels which failed on Matagorda
    were significantly higher than the stresses shown when the model was
    run with this stringer intact. Based on this finding, the team believed
    this to be the primary cause of the buckling on Matagorda, and repairs
    were made accordingly.
        In addition, a reconstruction of the engineering analysis of the
    123' structure was conducted. Based on this, it was also discovered
    that an early calculation overstated the strength margin for the boat.
    A revised calculation using a common, agreed to set of assumptions by a
    Coast Guard, Northrop Grumman and Bollinger engineering team showed the
    123' would still meet the required operations defined in the
    Performance Specification.
        In an effort to further improve the structural integrity on the
    123s, three stiffener bands were installed; one at the upper edge of
    the side shell, one below this one and another on the edge of the main
    deck to increase the overall structural strength. While the finite
    element analysis and conventional calculations both agreed that the
    original hull, with the stringer under the deck intact, should be
    sufficient throughout the operating range of the 123', these additional
    stiffeners were considered to provide an added margin of strength.
        By March, 2005, 6 of the 123s had received the structural upgrade
    and had been delivered. Certain operational restrictions imposed on
    these boats by the Coast Guard following repairs to the Matagorda had
    been lifted. Then, during a transit from Key West to Savannah, Georgia,
    the Nunivak experienced hull deformation in an area aft of the new
    reinforcing straps. This deformation occurred in a different area from
    that of the Matagorda. Further, this was not an area which had
    indicated potential for high stresses under any conditions modeled in
    the earlier finite element analysis.
        An outside engineering firm, Designers and Planners, was engaged by
    the Coast Guard to perform a more detailed finite element analysis of
    the 123' hull, which showed that the overall hull structure design was
    adequate under all expected operating conditions up to the worst
    operating condition modeled. The analyses were not able to replicate
    the deformation seen on Nunivak. A more detailed look at specific
    regions on the hull showed an area with high potential for localized
    buckling in a section of the side shell where the original 110' hull
    had been constructed of exceptionally thin four-pound plate. Despite
    this finding, no actual failures had ever been experienced in this area
    on 110' or 123' patrol boats. As a precaution, this thin plate was
    replaced with heavier plating on those cutters undergoing the Post
    Delivery Maintenance Availability, with plans to eventually upgrade all
    the boats. Lastly, a metallurgical analysis of the deck material
    determined that the particular grade of aluminum used on the 110s is
    prone to corrosion and cracking in elevated heat and marine conditions.
    We provided that information as input to the testing and analysis that
    was being conducted by the USCG.
        In July 2005, then Coast Guard Commandant Admiral Collins' written
    testimony before Congress outlined the twofold reason for stopping the
    conversion process as follows: ``As the first eight 110' to 123'
    conversions were conducted, the Coast Guard found that the 110' WPB
    hulls were in much worse condition than anticipated. This extended the
    conversion timeline and would have increased projected costs for
    conversions after the first eight (the first eight were negotiated
    under a firm-fixed-price contract). An operational analysis of the 123'
    WPBs also identified high risks in meeting mission needs, particularly
    in the post-9/11 environment.'' Based on the deteriorated condition of
    the 110' hulls and post 9/11 requirements, the Coast Guard accelerated
    FRC design and construction by ten years to meet the shortfall in
    patrol boat hours.
        On April 13, 2007, Admiral Allen decided to decommission the eight
    123 patrol boats converted under the Deepwater Program. To date the
    problems associated with the 123' conversion include buckling or hull
    deformation and shaft alignment problems. In addition to the actions
    previously described, additional and substantial work has been (and
    continues to be) done to determine cause or causes. In addition to the
    repairs and reviews of structural calculations, the review process has
    continued by conducting two independent finite element analyses,
    modeling both the original and the upgraded hull, and completing
    metallurgical testing that revealed an issue in the main deck which
    exists on both the 123s and across the legacy 110 fleet. Extensive
    strain gage testing has been conducted on a 123' hull to validate the
    finite element model and to identify potential problem areas which the
    model may not show. The parent craft designer, Vosper Thornycroft, was
    engaged by the Coast Guard to evaluate the 123' hull and provide
    recommendations. Data has been collected on shaft alignment and
    maintenance procedures both during the conversion and since, so that
    the procedures for checking and correcting alignment can be validated
    for both the 110' and the 123'. Elements of the 123' design, including
    the propellers and the SRP stern-launch system are being reexamined and
    validated.
        We are committed and determined to identify the root cause of the
    structural problems. Reviews and analyses of available data on the 110'
    and 123' patrol boats continue in an effort to better understand the
    cause or causes of both hull buckling and shaft alignment problems.
    Until these efforts are complete, it is premature to speculate on the
    final cause.
        I want to assure the Subcommittees that Northrop Grumman will
    continue to work with the Coast Guard to address its mission
    requirements throughout the life of the Deepwater Program.
        Thank you for this opportunity to discuss with you the progress of
    the Deepwater Program.

        Ms. Sanchez. I will remind each member that he or she has 5
    minutes to question the panel.
        Mr. Carney, would you like to go ahead and take your 5
    minutes?
        Mr. Carney. I would. Thank you Madam Chair.
        Mr. Moosally, first of all, thank you very much for your
    service to this Nation, distinguished career indeed. I am very,
    very proud to know you, sir.
        I was also very pleased to read in your statement that,
    quote, you have deep respect for congressional oversight, end
    quote. But I will say to both of you that I am concerned that
    ICGS's parents do not seem to have that same level of respect
    for oversight conducted by the DHS Inspector General.
        I was very disappointed to learn from the IG's audit report
    of the National Security Cutter, the ICGS, in concert with both
    Northrop Grumman and Lockheed Martin, sought to put onerous
    restrictions on the IG's ability to review this troubled
    program.
        Specifically, the IG was asked to submit all requests for
    documents in writing along with a detailed description of both
    the purpose of the request and the topics to be addressed.
    Because of these unacceptable preconditions, the IG conducted
    no formal interviews with ICGS, Northrop Grumman or Lockheed
    Martin personnel.
        Gentlemen, that is not how oversight is supposed to work.
    Will you commit today to providing the IG the access to
    documents and personnel it needs to perform the oversight
    function for which you express your respect?
        Mr. Moosally. If I could respond, Chairman Carney.
        First of all, let me say that I don't agree with Mr.
    Skinner's characterization. In his 39 years, he has never been
    asked for what is the subject. That is standard practice in
    industry when you have an IG ask you a question, that what is
    the subject, what is the topic; and we as a corporation have
    the responsibility to protect the rights of our people. That is
    why we would ask for our lawyer to be present. So I don't agree
    with this characterization.
        To my knowledge--and I will go back and check this--we were
    only asked one time to provide people; and we went back and I
    said, okay, what is the topic, what is the subject, and we
    would like to have a lawyer present. And we were never asked
    again.
        So to characterize that as this has been a continuous
    problem in my mind is not correct. And if asked properly under
    the right--absolutely.
        And, by the way, I think we have had like I don't know how
    many other investigations. We have had no problem having our
    people available for investigations. That is not a problem.
        Mr. Carney. Are lawyers always present, company lawyers
    always present?
        Mr. Moosally. If it calls for it, yes, we would like to
    have the lawyer present to protect the rights of our people.
        Mr. Carney. Understood. Okay.
        Mr. Anton. Could I just add one thing?
        Mr. Carney. Yes, please.
        Mr. Anton. I would also like to support what Mr. Moosally
    said.
        But I would also like to inform the committee that we have
    supported other Office of Inspector General audits, and those
    audits followed this very same process that Mr. Moosally
    characterized. We also put our request in writing. We never
    refused the audit, so to speak. We put our request in writing,
    and we never got a response.
        So I just wanted to add that for clarification.
        Mr. Carney. Thank you.
        Mr. Moosally, I believe the NSC 1 is due for visual
    inspection in June and the C\4\ISR TEMPEST inspection in July.
    Are there any potential problems with the systems that you are
    now aware of that have not been disclosed to the Coast Guard?
        Mr. Moosally. Mr. Chairman, we are working very closely
    with the Coast Guard. We did learn some lessons on the 123s,
    although I believe the outcome was very positive. It passed the
    TEMPEST inspection and was certified by the Coast Guard.
        What we are doing now I think is getting more
    collaborative, working together. It is kind of like the
    production line of the automobile industry where you put
    quality in from the start throughout the whole process.
        So we are working now with the Coast Guard. We have third-
    party people looking at what we are doing for TEMPEST and all
    the equipment; and I think you will see a much better outcome
    here, you know, because we do this all the time. We have got a
    30-year history of working with Ingalls and Bath Iron Works
    building DDG-51s and CG-47s. We know how to do this. When the
    requirements are laid down and we get together with the
    customer and work this out, we know how to do it; and I think
    you will see a much better outcome here as we go forward on the
    National Security Cutter.
        Mr. Carney. Thank you. Yield back.
        Ms. Sanchez. Mr. Souder, for 5 minutes or however much time
    you may consume.
        Mr. Souder. Mr. Moosally, when you said ``a lawyer present
    if it calls for it'', what did that mean?
        Mr. Moosally. We like to have a lawyer present to protect
    the rights of our people.
        Now if the people--excuse me, sir. Go ahead.
        Mr. Souder. Go ahead.
        Mr. Moosally. If the people decide they want to go on their
    own, don't want a lawyer, they can do that. We are not holding
    people back. We are not preventing--as you well know, if an
    individual in a company decides he wants to go talk to the IG,
    he can go do it.
        Mr. Souder. Have you had cases talking to the IG where you
    haven't had an attorney present?
        Mr. Moosally. I can't say 100 percent that that is true.
        Mr. Souder. Is the fact there is a potential economic
    dispute here more or less to protect company interests? What
    interests of the employee would you be protecting separate from
    the--
        Mr. Moosally. Well, I think if--there could be a
    possibility of individual culpability, that that would be what
    we would be protecting.
        Mr. Souder. And is it standard practice that you have to
    seek questions in advance?
        I would think one of the things an Inspector General would
    need is not necessarily organized response but would want to
    talk to the individual non-synchronized. The obvious reason the
    company lawyer is there is because you need to be able to put
    it in context.
        Mr. Moosally. Right. We usually ask--it is usually standard
    practice to ask what is the standard subject of your inquiry.
        Mr. Souder. So do you believe the Inspector General will
    come back if we ask him a follow--up question and say there was
    only one inquiry?
        Mr. Moosally. To my knowledge, to the best of my knowledge,
    I think that is the case.
        Mr. Souder. Well, one thing I also want to say is that it
    is important when we look at Deepwater, those of us who have
    really supported Deepwater, that in fact there have been many
    upgrades that they have worked on. You mention Morgenthau in
    your written testimony, which I have been on last summer and it
    has dramatically changed, as have a number of the other
    upgrades, particularly just on the ice cutter Mackinaw; and to
    watch the new technology on these boats compared to the old
    technology is amazing.
        But, Mr. Anton, there is this fundamental question of, if
    the--kind of the decks buckling and the hulls curving and the
    shaft isn't working right, that those are pretty significant
    things in a boat. My understanding from your testimony is that
    you still haven't figured out what triggered that. Do you
    believe it was the boat wasn't in as good a condition? Do you
    believe it wasn't clear in the contract? Where do you think the
    source of the problem is? I mean, for a boat, these are pretty
    much it, other than the engine isn't working.
        Mr. Anton. Let me take a minute and roll the tape back a
    little bit to what the commandant said when he took them out of
    commission. He basically said that they had done multiple
    analyses from various experts around the country and that they,
    the Coast Guard, cannot find a root cause.
        We have not given up on that. We just completed ship check
    of the vessels back, I believe, a month or so ago. We have
    requested--when the commandant made that request in April or
    made that statement in April, we requested immediately the
    analysis from the Coast Guard that they had.
        We received that analysis last week. That analysis is
    probably six to eight inches, whatever--wherever my hand is
    here is how thick that analysis is. So we have an ongoing
    investigation into the root cause, because we need to find the
    root cause. Because when we do we will understand where the
    accountability lies.
        Mr. Souder. Aren't there multiple potential root causes
    here? It sounds like--
        Mr. Anton. There could be. And for me to speculate on them,
    it just wouldn't be the right thing to do.
        Mr. Souder. Have you had this problem with other ships you
    have built?
        Mr. Anton. No, sir.
        Mr. Souder. Have you had one of the three, either deck or
    hull or shaft?
        Mr. Anton. Maybe I didn't hear the last question. Let me--
        Mr. Souder. I wondered how common this is to have this
    series of problems, where the boat basically is not useable;
    and, in this case, there were multiple reasons that appeared to
    be triggering it. The 30-year life figure is one question which
    may have been a specs question. The other, smaller boat seemed
    to have a whole different complex.
        Mr. Anton. Well, you know, I think you are right. It is a
    very complex problem, and there may be more than one
    contributing cause.
        Again, we have not given up on sorting that out. We are
    continuing our analysis. We are not going to rest until we
    exhaust what we can to figure this out.
        Mr. Souder. One of the things in the written testimony was
    that in one hurricane-type condition they were running at near
    capacity. But from my impression of studying the Coast Guard,
    they run it as high as they can--as they are chasing someone
    that is in a cocaine boat, they are going to be using all their
    assets at maximum to even try to keep up. If they are out in
    Alaska, and the waves are going to be big out there where the
    fisheries are, they are going to be on the edges of hurricanes.
    Was that not in the tolerances, that they might be working at
    maximum level for much of the time even?
        Mr. Anton. There is a misperception that the 123s, once
    converted, would be able to operate unrestricted and in the
    same environment as the 110s. The performance spec did not
    require for the 123 to operate unrestricted in sea states
    greater than 3.
        Mr. Souder. So in a misconception--was the misconception--
    you mean by that the Coast Guard thought that they would, and
    you didn't have it in your specs?
        Mr. Anton. No. There has been some of the testimony in
    previous hearings where the comment was made that the 123s were
    spec'd to be or something of that nature--and, again, I am
    operating from memory--that the 123s were spec'd to operate in
    the same environments as the 110; and that is not the case. The
    performance spec clearly annotates that it is unrestricted
    operations in sea state 3; and in sea state 4 and 5, there are
    restrictions placed on the operation of the vessel.
        Mr. Souder. Thank you.
        Ms. Sanchez. Gentlemen, I just received a copy of the
    letter sent to ICGS from the Department of Homeland Security,
    the contracting officer for the U.S. Coast Guard, with respect
    to the letter we talked about earlier today. I would like to
    submit it, with unanimous consent, for the record.
        I am trying to figure out how y'all did this. So your
    companies have a long history of working on the defense side,
    in particular on projects, and you have a long history of
    partnering with different companies; and even though some might
    call you competitors, on this particular one you are partnering
    together in a sense and, I am assuming, with Bollinger
    Shipyards and others. So you put this contracting together
    through a holding company or what have you, and you are the
    chairman--and you are the vice chairman or board member?
        Mr. Anton. Executive Vice President.
        Ms. Sanchez. Right. So you are used to working with each
    other, and you have got all this experience of doing ships and
    air and integrated systems and everything. Am I correct? I
    mean, you have done this before?
        Mr. Moosally. Certainly. That is our business. We put
    combat systems on ships.
        Ms. Sanchez. Okay. This contract had indefinite delivery,
    indefinite quantity, and it was performance-based, which I am
    told means as long as we think you are doing a good job we are
    going to be open-ended and keep you on and keep you doing
    things and decide how many or whatever we want and this is the
    way we are going to go. Am I correct? Is that more or less the
    type of contract you had?
        Mr. Moosally. More or less.
        Ms. Sanchez. Is this standard? Is this the type of contract
    you see? How often do you see that type of--nebulous-type-
    looking contract? Ten percent of the time? All the time?
        Mr. Anton. I don't believe that--and I would have to go
    back and check because Northrop Grumman is a very large
    corporation, but I do not believe that we have a performance-
    based award term contract at Northrop. I would have to go back
    and look, okay? Because when you--I just don't think we have
    one, okay? So that is the answer.
        Ms. Sanchez. You don't have--this one is not that? Or you
    don't have another one?
        Mr. Anton. This one is an award.
        Ms. Sanchez. So you have really never seen something like
    that? This is a strange animal?
        Mr. Anton. I am not going to say it is a strange animal.
    What I am going to say is I would have to go back and look. I
    don't believe--you know, I am really from the shipyard, so I
    can tell you that the shipyard to my knowledge does not have an
    award term performance-based contract. But I have to go back
    and check the rest of Northrop Grumman.
        Mr. Moosally. For Lockheed Martin, we do have some
    performance-based IDIQ contracts; and a lot of our contracts
    are based on incentive fees or award fees. It has to do with
    performance, but, you know, there is a lot of service-type
    companies but none IDIQ.
        Ms. Sanchez. What I am trying to get at, this is not a norm
    for the industry. You know, we are looking at this and we are
    trying to figure out--and I am sure you all probably will
    litigate this in the courts for a while, I would assume, with
    the government or whatever. But we are trying to decide what do
    we need to do with the Coast Guard to change its procurement
    system to make sure we get back on track. You know, was it a
    problem with the engineering? Was it a problem with the actual
    ships, that they just weren't good enough to even be upgraded?
    I mean, these types of things.
        So when I ask you about the contract, I am just trying to
    figure out, is this a very abnormal type of contract that we
    would see coming out? Which in a sense means the Coast Guard
    wasn't necessarily capable of handling this procurement.
        Mr. Moosally. I wouldn't call it abnormal, and I can't
    answer whether the Coast Guard is capable or not, you know.
        What it comes down to, we talk a lot, as I said in my
    opening statement, about the 110, 123 conversion. If you look
    at the other parts of the program, aviation side--you heard
    Captain Baynes talk about the C\4\ISR and what a great thing
    that has been for the Coast Guard down there, and Congressman
    Souder talked about it. So if you get outside of this specific
    program, there is a lot of good things that we are, I think,
    doing in the Deepwater program.
        Ms. Sanchez. Mm-hmm.
        Mr. Moosally. You know, the aviation side, the re-engining
    of HH 65.
        There is an example of when the prior commandant came to me
    and said, you know, Fred, we have engines shutting down while
    we are out rescuing people. We had to leave a swimmer in the
    water for 3 hours because they didn't have enough lift on the
    helicopter. He asked, could we re-engine these helicopters real
    fast; and we said yes. So now we have 80 of those helicopters
    out there that served in Katrina and have, you know, twice the
    power and so forth.
        So I wouldn't look at this thing, hey, there is a totally
    broken acquisition here. There is a problem, obviously. You
    have the letter up there. The 110, 123s have been the focus of
    this problem. And for these hearings, in my view, for the most
    part, I talked about the allegations here.
        Ms. Sanchez. Well, it happens to be that way simply
    because, as you know, it is just like with us. When we are the
    government, the taxpayers don't look at all the great things
    they are getting. They generally look at where did you mess up?
    Where did you get the $600 toilet seat or what have you?
        And part of oversight is that--I mean, my part from my
    subcommittee is to figure out, how do I get this back on track?
    You know, if we are going to keep the same players, how do they
    play well together so that we can get this done? Because absent
    the eight and the six and the five to three--I mean, I am not
    only short--not only not augmenting my Coast Guard where for
    homeland security I need to be doing that, but it is actually
    hindered at this point because it is down so many ships. So I
    am trying to figure out how do we move forward.
        But oversight, obviously, their job is, I would think, to
    look at what went wrong and how did it happen and who was
    asleep at the wheel or who didn't know what they were doing.
        Now having to deal with that kind of contract, would you
    look at a different way to do that kind of contract to deliver?
        Mr. Moosally. I think we have made suggestions to the Coast
    Guard in how to improve the contracting, the acquisition model
    that we are using. We certainly could provide something for the
    record, Chairwoman Sanchez, if you would like this.
        Ms. Sanchez. That would be great.
        Ms. Sanchez. Mr. Anton?
        Mr. Anton. We do--you know, as both--Lockheed Martin,
    Northrop Grumman have both made recommendations to the Coast
    Guard, and the Coast Guard is changing themselves, and so we--
    you know, I think I agree fully; and I am happy to take that
    for the record.
        Ms. Sanchez. Thank you.
        Ms. Sanchez. Ms. Jackson Lee, do you have any questions for
    our panel?
        Ms. Jackson Lee. I do.

           Prepared Statement of the Honorable Sheila Jackson Lee, a
               Representative in Congress from the State of Texas

        I thank the Chairman and Ranking Member for the opportunity to
    participate in this important hearing today. I look forward to hearing
    from the witnesses about this important issue of ensuring that we are
    employing the most effective and efficient safety measures and
    mechanisms necessary to keep our waters safe and secure. I am also
    pleased to welcome our distinguished panel of witnesses: Rear Admiral
    Gary T. Blore, Inspector General Richard Skinner, Captain Steven
    Baynes, Mr. Fred Moosally, and Mr. James Anton.
        Mr. Chairman, it is a great opportunity for all of us to be here
    for the purpose of discussing and considering the future of the
    Deepwater program and whether the Coast Guard has the sufficient
    program management capacity to run the program effectively. We
    certainly need to be informed as to whether we are using the optimal
    performing and most cost efficient tools to keep our waters safe from
    potential threats to the citizens of this country.
        In the mid-1990's, after realizing that many of the Coast Guard's
    aircraft and cutters were reaching the end of their operational lives,
    the Coast Guard decided to replace all of these assets in a single
    procurement program--the Integrated Deepwater System program, otherwise
    referred to as Deepwater. It is my understanding that the Coast Guard
    implemented Deepwater to replace or modernize the approximately 90
    ships and 200 Coast Guard aircraft used for missions typically taking
    place more than 50 miles offshore. I also understand that the primary
    missions carried out in this ``deepwater'' zone are drug and migrant
    interdiction operations, search and rescue, homeland security, and
    fisheries law enforcement.
        The contract called for new ships, aircraft, and command and
    control systems to be delivered within 20 years, though the contract
    with ICGS could extend to up to 30 years. Deepwater was a pre-9/11
    project, but post-911 the demands placed on the Coast Guard changed are
    dramatically different. Consequently, the cost estimate increased from
    $17 billion to $24 billion, and the mix of assets was altered to
    reflect the Coast Guard's greater role in homeland security.
        From its inception, Deepwater included funding to maintain the
    Coast Guard's existing air and sea fleet until new ships and aircraft
    came online. Unfortunately, in recent years additional funds have been
    required to maintain the existing fleet, while at the same time
    delivery schedules for new equipment has slipped. Hence, the efficiency
    of cost and proficiency of performance is now under question.
    Hopefully, we can gain some helpful insights from this hearing to help
    move us in the direction of remedying these apparent inefficiencies.
    Yes, we need to use whatever measures necessary to keep our waters
    secure, but at the same time we want to make sure we are not operating
    in an unnecessarily subpar manner, whether financially, or otherwise.
        Unlike the Department of Defense, which always has large systems
    under development and has an acquisition infrastructure in place to
    support these efforts, historically the Coast Guard has not purchased
    major assets with regularity. Thus, their acquisition and program
    management structure was--and is--not as well developed and mature as
    that at the Department of Defense.
        Performance based contracts have almost universally not worked well
    without a robust program management and oversight structure to support
    them, as well as a clear understanding that it is the government in
    charge, not the contractor. The troubles with Deepwater bear this out--
    the Coast Guard deferred excessively to ICGS and did limited oversight.
    The Coast Guard now acknowledges that it was ``naive'' and ``too
    reliant on the integrator''; in the Inspector General's words, the
    Coast Guard ``abdicated'' decisions to ICGS and failed to monitor to
    ensure that ICGS was not performing inherently governmental functions.
    The Inspector General said that there was a perception both within and
    without the Coast Guard that ICGS, not the government, was running the
    program.
        As I understand it, despite myriad problems, the Inspector General
    believes that Deepwater must go forward because of the problems the
    Coast Guard has in terms of its operational assets, and stopping
    Deepwater would set it backwards. If Deepwater remains in place, it is
    clear to me that Deepwater needs to be better managed and needs ongoing
    oversight--both from the Inspector General, and from Congress. I look
    forward to hearing from all of our witnesses today and hope to gain
    some valuable information to provide pertinent solutions to this very
    important homeland security concern.
        Thank you, Mr. Chairman, for convening this hearing. Again, welcome
    to the witnesses.
        I yield back the remainder of my time.

        Ms. Sanchez. You are recognized for 5 minutes.
        Ms. Jackson Lee. Thank you.
        For many of us on our committee, this hearing has a direct
    impact. I represent a portion of the Houston port; and,
    frankly, being one of the more unique ports in the Nation and
    around the world, inasmuch as it is somewhat man-made, it was a
    brainchild of many of our founding fathers and mothers of
    Houston to dredge an area and to allow us to grow a port, if
    you will.
        So when I first came to the understanding of the inception
    of Deepwater, which included funding to maintain the Coast
    Guard's existing air and sea fleet until new ships and aircraft
    came online, that was a good thing. But we find out in recent
    years that additional funds have been required to maintain the
    existing fleet, while at the same time delivery schedules for
    new equipment has slipped.
        The chairwoman and chairman--and I want to thank them both
    for this hearing. I think the chairwoman has just indicated
    that there is a letter from the Coast Guard that referred to
    the revocation of a contract and the dry docking of a certain
    number of ships because they are not able to function on rough
    seas. It seems to be that the Coast Guard's whole mantra, among
    their many other duties, is about making sure they are able to
    sail the seas and to be the kind of front line of defense
    there. To me that is horrific. That is horrible. That is
    certainly a cause for our concern.
        Let me raise this question. Do you agree with the Inspector
    General's assessment that the Coast Guard abdicated decisions
    to the ICGS, allowing the ICGS to perform inherently
    governmental functions? The Inspector General said there were
    no benchmarks. The Inspector General said that he had not seen
    in 39 years this kind of blocking. What is your response to
    that?
        Let me ask a second question so that you can both answer,
    and this will go to Mr. Anton.
        Mr. Anton, please tell me about the mitigation plan for the
    National Security Cutter. In particular, I would like to know
    what third parties you intend to bring in to certify that it
    will be done--that it will work, if you will. The first
    question.
        Mr. Moosally. Madam, I will answer the question on the--as
    I did earlier on the IG's allegation that in 39 years he has
    never seen somebody blocking talking to the IG. I don't agree
    with that statement as far as our invoking what we believe is
    the right kind of process to have, understand what the subject
    of the IG's questions are and to protect our people with a
    lawyer present.
        As far as the Coast Guard--I know a lot has been made about
    the Coast Guard basically abdicated their responsibilities to
    the ICGS team to Lockheed Martin and Northrop Grumman. I don't
    agree with that either. Because we have been involved with the
    Coast Guard in every part of this program and the IPTs that
    were--the Coast Guard was involved in. There was final
    decisions made by the Coast Guard that we ran through on
    equipment, et cetera. So I don't necessarily agree with that
    statement.
        I don't believe that they fully abdicated their
    responsibility to us, and we were kind of running around doing
    things on our own. I don't agree with that.
        Ms. Jackson Lee. I hope this committee will fix it, but,
    obviously, this program is wracked with problems. Obviously,
    the Inspector General had problems; and I think the Inspector
    General found gaping holes. That really speaks to the fact that
    we have got ships being dry docked because this program doesn't
    work.
        Mr. Anton, the mitigation question, please.
        Mr. Anton. On the National Security Cutter, there are some
    978 standards which are on contract. Those standards go from
    anywhere from structure to distributed systems to electronics
    and on to armament.
        Ms. Jackson Lee. My time is short. My question is whether
    or not you looked at any mitigation plan and was it not true
    that it was the Navy's CCD at Carderock, not the Coast Guard or
    you that found the problems? The defects?
        Mr. Anton. The CCD is the 110s, 123s. In relation to your
    question on certification of the National Security Cutter, we
    are required by contract to have ABS certify the structure of
    the National Security Cutter, to approve the design of the
    National Security Cutter structure, that it is in accordance
    with the specifications. We are also on contract for the Navy
    to come in and conduct the in-service inspection of the
    National Security Cutter at acceptance trials.
        We are on contract for 46 separate certifications from
    third-party agencies. For those that are not done by third
    party, we are required by contract to assemble all of the
    artifacts which demonstrate that we have met that standard and
    submit those to the Coast Guard, and we have begun that process
    today.
        Ms. Jackson Lee. And is that, in your mind, a mitigation
    plan for the structural defects?
        Mr. Anton. The National Security Cutter is designed in
    accordance with the contract specifications, and let me tell
    you what those entail.
        The contract specifications for the National Security
    Cutter have been in use in ship design since World War II.
    Those specifications were modified by the Coast Guard to cause
    this ship to be stronger than a ship that you would design
    using those specifications. We made modifications to the
    structure along the way at the Coast Guard's request; and, as a
    result, that ship is--not only was it designed to be stronger,
    the outcome of that ship is that it is stronger than the
    specification calls for.
        The issue is fatigue. And fatigue is how--the outcome of
    the model that you use to forecast when something is going to
    crack.
        There are two methodologies that are in use. One
    methodology is you calibrate the model using a known source,
    something that has operated for 30 years and has not cracked.
    Or you build the model up from the ground up. When you use the
    model and calibrate the model, the fatigue life of the vessel
    becomes greater than 30 years.
        Mr. Anton. When you build the model from the ground up is
    when the prediction comes in short of 30 years. But when you
    then use that same model to predict what you know, the DDG 2
    class that lasted 30 years without a crack, it predicted that
    class would crack in 8 years. So the model is a science that is
    yet to be proven.
        The Coast Guard has opted to--because there is a degree of
    difference in those two answers, the Coast Guard has opted to
    implement a fatigue enhancement on a National Security Cutter.
        Ms. Jackson Lee. I think the system shows that we have
    failed equipment. I appreciate the gentleman's answer, but it
    gives us a roadmap for greater improvement in this program, and
    I thank you for holding this hearing.
        Ms. Sanchez. Thank you to the gentlelady from Texas.
        To my ranking member.
        Mr. Souder. I wanted to make one brief comment for the
    record, because it appears that, at least in the 110, 123
    Cutter question, that the crux of the question is what
    conditions should these be sustained under.
        Now, obviously, buckling of the shaft, sides, vibrations,
    other types of questions are major flaws, particularly if they
    are severe, but the Coast Guard isn't like the Navy that goes
    out on time to target. The Coast Guard goes out when things are
    bad. And that sailboats and things don't tip over when the sea
    is flat. They tip over when the waves are biggest. And the
    commander has to have a flexibility on a 123, if he has got a
    123 out instead of a 110, to be able to do that.
        I have worked narcotics. I have met drug runners from
    Columbia and elsewhere. They watch to see what our conditions
    are when we aren't there, and they look for those conditions
    when they are going to move or right at the edge of those. And
    if our boats are out of position because we couldn't get there,
    because there are vibrations if the waves get over 8 feet or
    over 12 feet, it is not just the category of a hurricane. It is
    the level of the seas and their ability to move. It is whoever
    designed the concept and agreed to a concept or however it
    would work that says that the 123s can't operate in high-risk
    conditions for extended periods means that cocaine is going to
    come into this country, heroin is going to come into this
    country, people are going to drown because we had a conceptual
    flaw. And I think that is what is a lot under this debate.
        I thank the chairwoman.
        Ms. Sanchez. Thank you.
        I am going to give Mr. Carney some extra time to finish up
    here.
        Mr. Carney. Thank you, ma'am.
        Mr. Anton, who built the original 110s?
        Mr. Anton. Bollinger Shipyards.
        Mr. Carney. Do you know the original plating on the 110s--
    the original 110s--was on the same source?
        Mr. Anton. Same source as--
        Mr. Carney. Of all of the platings on the original 110s.
    Are they all from the same manufacturer?
        Mr. Anton. I can take that for the record. I don't know
    that answer.
        You are talking about the replacement plating against--
    what--the original plating of the ship; is that correct?
        Mr. Carney. Yes.
        Mr. Anton. So was the replacement plating from the same
    source as the original plating.
        I will have to take it for the record. I don't know.
        Mr. Carney. Was the plating on the original ships that was
    not a plate, are they all from the same source? Of the eight
    110s, all the plating on all--
        Mr. Anton. I don't know. I would have to--we would have to
    go back into the production records at Bollinger.
        Mr. Carney. When the Navy stretched their 170--foot Cyclone
    ships to 179 feet, they did one on a trial basis. Why didn't we
    do that with the 110s program?
        Mr. Anton. In hindsight, knowing what we know today and
    knowing the process breakdowns that we had and knowing the
    information that is out there that we didn't understand at the
    time, we could have done one and tested it. But we had no
    reason to believe that this wasn't going to work. We took due
    diligence in both the design process and the development
    process, and we had no reason to believe this wasn't going to
    work.
        Mr. Carney. Did you have reason to believe that the Cyclone
    would not work?
        Mr. Anton. I was not involved with the Cyclone program, so
    I can't answer that. Bollinger were the folks that did the PC-
    179.
        Mr. Carney. There is an enormous amount of frustration up
    here right now on this whole thing. Just common-sense things
    like doing the trial would have been great and would have saved
    maybe seven ships and hundreds of millions of dollars.
        Anyway, you know, living and learning is one thing, but we
    are now short eight ships. And while I agree the rest of
    Deepwater is generally--not perfectly, but generally--moving
    along in the right direction, this creates a major hole; and
    Mr. Souder is correct to point out the hole created by this. It
    seems just basic operating sorts of performance measures should
    have been done that weren't, and it is criminal.
        I yield back, Madam Chair.
        Ms. Sanchez. I thank the gentleman from Pennsylvania.
        I think you can feel the frustration on this side, and I
    think it is going to be even more frustrating for these two
    gentlemen and for our representatives at the Department of
    Homeland Security to get this all settled out. But we
    appreciate you gentlemen coming before us to try to give us
    some more insight into what has happened.
        Since there are no more members and no more questions--I
    will just tell you that we may have additional questions for
    you as witnesses, and we will ask you to respond quickly to
    those in writing.
        Hearing no further business in the committee, the
    subcommittee stands adjourned.
        [Whereupon, at 4:58 p.m., the subcommittees were
    adjourned.]

                  Appendix: Additional Questions and Responses

                                  ----------

        Mr. Skinner, in your testimony, you state, ``According to the Coast
    Guard, its acquisition workforce did not have the requisite training,
    experience, and certification to manage an acquisition the size, scope,
    and complexity of the Deepwater Program.'' The Coast Guard has since
    changed their position and is in the process of staffing up their
    offices to manage Deepwater.

        Question 1.: Do you believe that with the addition of new staff,
    that the CG will now have the requisite training, experience and
    certification to manage this acquisition?
        DHS OIG Response: It is too early to tell. The Coast Guard clearly
    recognizes that urgent and immediate changes are needed to meet the
    management oversight and acquisition resource challenges facing its
    Deepwater Program. To address these challenges, the Coast Guard has
    developed and is currently implementing its Blueprint for Acquistion
    Reform and has stated its intention to assume many of the Deepwater
    systems integrator duties and responsibilities previously performed by
    Integrated Coast Guard Systems (ICGS). However, the Coast Guard's
    ability to effectively reorganize and manage the Deepwater Acquisition
    Program will be largely dependent on their ability to:
             identify the number and type of acquisition
            professionals needed to properly oversee the Deepwater
            Acquisition program;
             recruit and retain acquisition professionals;
             develop an in-house capability to train and certify
            acquisition professionals;
             develop and implement an acquisitions career path for
            its active duty and civilian personnel;
             document the rationale underlying key Deepwater
            acquisition decisions; and
             identify the financial costs associated with the
            realignment, reorganization, retraining, and rebuilding of its
            acquisition workforce.
        The Coast Guard has also acknowledged (and we agree) that it could
    take several years to fully implement the changes to its acquisitions
    program. Given the unknowns associated with these changes, we believe
    the Coast Guard needs to exercise caution and take a slower or phased
    approach to assuming the systems integrator role even if doing so were
    to result in minor delays in the delivery of key Deepwater assets such
    as the national security and fast response cutters.

        Question: 2.: Who do you believe that the Coast Guard has the
    expertise to be the systems integrator for the Deepwater Program?
        DHS OIG Response: We do not believe the Coast Guard currently has
    the expertise and neither does the Coast Guard. The Commandant has
    testified that the reason the Coast Guard went the ``systems
    integrator'' route was that it did not believe it had the requisite
    expertise to be the systems integrator for such a large and complex
    acquisition. Further, the Coast Guard has acknowledged that it could
    take several years to fully implement the much-needed changes to its
    acquisitions program of which the Deepwater Acquisition program is a
    major component. While we fully understand the Coast Guard's desire to
    getting a handle on their system integrator problems, assuming the
    systems integrator role before sufficient acquisition personnel and
    resources are identified and brought on board to support the changes
    could further increase the risks associated with the Deepwater
    Acquisition Program. For these reasons, we believe the Coast Guard's
    assumption of system integrator duties and responsibilities needs to
    occur in a carefully considered and methodical manner.

        Question 3.: Who should be held responsible for the problems with
    the Deepwater Program?
        DHS OIG Response: To date, we have not completed audit work
    designed to determine the culpability of DHS, Coast Guard, ICGS or its
    subcontractors for the cost, schedule, and performance problems
    associated with the Deepwater Program. However, there are several
    individuals that we believe have knowledge and a unique perspective of
    Deepwater's management and oversight problems. They include:
             Admiral James Loy, USCG (ret) who served as Commandant
            from May 1998 to May 2002), less than a month before the
            signing of the Deepwater contract between Coast Guard and ICGS.
            Prior to the establishment of the Department of Homeland
            Security in 2002, Admiral Loy served in the Department of
            Transportation as Deputy Under Secretary for Security and Chief
            Operating Officer of the Transportation Security Administration
            (TSA), and later as Under Secretary for Security. In these
            roles, he served as the first administrator of the newly
            created TSA. On December 4, 2003, Admiral Loy was sworn in as
            Deputy secretary, Department of Homeland Security. In April
            2005, he accepted a position with the Cohen Group as a
            consultant. Shortly thereafter (August 2005), he became a
            member of the Board of Directors, Lockheed Martin Corporation
            (parent company of ICGS).
             Admiral Thomas H. Collins, USCG (ret), who served as
            the Commandant from May 2002 to May 2006. Prior to his
            assignment as Commandant, he was Vice Commandant and served on
            the Innovation Council, which spearheaded Coast Guard-wide
            process improvement initiatives and directed system
            enhancements as the Coast Guard Acquisition Executive. Prior to
            that, he served as Chief, Office of Acquisition, at USCG HQ,
            where he laid the foundation for the Deepwater Acquisition
            Project.
             Vice Admiral Terry Cross, USCG (ret) retired on June
            2, 2006. As Vice Commandant, he served as the Agency
            Acquisition Executive and had requirements decision authority
            for major Coast Guard acquisitions requirements, including
            aircraft, boats, ships, technology systems and facilities. On
            October 18, 2006, less than five months after his retirement,
            Admiral Cross was named as European Aeronautic Defence Space
            Company (EADS North America) in the newly created position of
            Director of Homeland Security Programs. EADS is the
            manufacturer of the Dolphin HH-65 helicopter. They also are the
            contractor providing the new maritime patrol aircraft (CASA
            144) aircraft to the Coast Guard through ICGS and the Deepwater
            Program.
             Admiral Patrick M. Stillman, USCG (ret) served as the
            Program Executive Officer for the Deepwater Acquisition Program
            (2002-2006).
             Gregory L. Giddens was Coast Guard's Deputy Program
            Executive Officer for Deepwater under Admiral Stillman. He has
            since moved to Customs and Border Patrol as the current
            Director, Secure Border Initiative Program, Customs and Border
            Protection, Department of Homeland Security.

        Question 4.: Should Lockheed Martin or Northrop Grumman be forced
    to compensate the government for the shortcomings of the program?
        DHS OIG Response: We have not performed sufficient audit work to
    determine culpability by ICGS or its subcontractors for the problems
    associated with the Deepwater Program. We recommend that the Questions
    concerning contract compliance and consideration due to the government
    be directed to the Department and the Coast Guard.

        Question 5.: In your report, you state that your office encountered
    resistance from the Department in conducting your audits. Why do you
    think that the Department frustrated your efforts? Has the relationship
    improved?
        DHS OIG Response: Generally speaking, the relationship between the
    Coast Guard and the OIG has significantly improved over the past 12
    months. However, the Coast Guard continues to be slow in responding to
    our requests for information and documentation to clarify statements
    made by Coast Guard personnel. For example, the Coast Guard has not
    provided documentation showing that the ``One Break'' solution
    developed by its Engineering Logistics Command (ELC) will address the
    structural design and performance issues identified with the NSC.
    Consequently, it is not known whether the solution will permit the NSC
    to operate 185 days underway for 30 years under North Pacific and
    General Atlantic conditions.

        Question 6 and 7.: In your testimony you stated that prior to the
    Phase 2 contract award, the Coast Guard provided design standards to
    the competing industry teams. Based on their feedback, the Coast Guard
    converted the majority of the standards (85% of the 1,175 standards) to
    guidance and permitted the industry teams to select their own
    alternative standards. Why do you think this happened?
        DHS OIG Response: We cannot be certain. In June 1999, the Coast
    Guard and American Bureau of Shipping completed a multi-year effort to
    develop a Generic Cutter Certification Matrix (GCCM). The purpose of
    the matrix was to ensure that the 123' patrol boat, the fast response
    cutter (FRC), the National Security Cutter (NSC) and Offshore Patrol
    Cutter (OPC) would be capable of meeting the Coast Guard's crew safety
    and Deepwater mission requirements. However, the feedback from the
    three industry teams that intended to bid on the Deepwater contract was
    that the GCCM standards were too restrictive and would substantially
    increase their cutter design and construction costs. The Coast Guard
    subsequently converted 85% of the design standards to ``guidance.''
    When the Coast Guard issued the Deepwater request for proposal in June
    2001, it allowed the industry teams to select their own alternative
    standards to the ``guidance'' standards. The resulting cutter
    certification standards developed by the winning bidder (Integrated
    Coast Guard Systems of ICGS) contained potentially ill-defined or
    inappropriate design criteria that were inconsistent with the original
    intent of the GCCM.

        Question 8.: Why didn't the Systems Integrator step in if the
    proposed alternatives would not meet cutter design criteria?
        DHS OIG Response: We do not know why the systems integrator (ICGS)
    did not adopt the more stringent generic Cutter Certification Matrix
    developed by the Coast Guard and the American Bureau of Shipping (ABS).
    We cannot make a determination, principally due to ICGS' refusal to
    allow DHS OIG unfettered access to its personnel knowledgeable of these
    and other Deepwater-related decisions. However, we do know that the
    decision by ICGS to revise the cutter certification standards downward
    reduced cutter design and construction costs and increased the
    potential for profit. It also lowered the ``performance bar'' which
    made it significantly easier for ICGS and its shipbuilders to meet the
    minimum cutter performance requirements outlined in the Deepwater
    contract.

        Question 9.: During the hearing, you stated that ICGS prevented
    your office from gaining access to ICGS personnel. Please provide us
    with documentation on this denial of access.
        DHS OIG Response: Attached are three documents that outline the
    difficulties we experienced in obtaining access to Deepwater contract
    personnel and documentation. Additional information regarding this
    topic is available on request.
        Attachment 1 OIG work paper that summarizes our three-month effort
    to conduct interviews and request documents from ICGS and its Tier 1
    sub contractors.
        Attachment 2 Letter from Kevin O'Neill and RADM Patrick Stillmann
    dated 24 January 2006. The letter documents efforts to interview key
    Integrated Coast Guard Systems Integrator (ICGS) and Northrop Grumman
    Ship Systems (NGSS) employees. The letter states that:
            Both Northrop Grumman Ship Systems and Lockheed Martin have
            formal policies regarding responses to audit requests including
            requests for interviews of employees oversight bodies, such as
            the OIG. How those policies fit the circumstances surrounding
            the OIG audit discussed on 12 January 2006 is being evaluated.
            To facilitate that evaluation, ICGS and NGSS hereby request a
            meeting with representatives of the Coast Guard and the OIG to
            discuss the scope and schedule of the audit in order to develop
            an efficient approach that will protect the employers' and
            companies' interests as well as facilitate the OIG's audit
            objective. We ask that a USCG representative would contact Mr.
            Jay Boyd to schedule such a meeting in the near future.''
        To date, neither NGSS nor ICGS have provided the OIG with the
    written details of these policies.
        Attachment 3 Letter from Kevin J. O'Neill to the Coast Guard (RADM
    Patrick Stillman documenting the OIG's request that NGSS and Lockheed
    Martin clarify their position regarding responses to requests for
    documents or interviews of employees originating with the OIG.
        The evidence also indicates the problem remains unchanged. During a
    recent Deepwater entrance conference, the ICGS spokesperson boldly
    informed the OIG that the access issues that we encountered when we
    tried to obtain unfettered access to ICGS and NGSS employees and
    documentations remained unresolved. Specifically, ICGS wanted all OIG
    Questions in advance of all ICGS interviews. ICGS also stated their
    intention to have their counsel present at all OIG interviews. The
    Coast Guard's response on the other hand, continues to be that
    contractor access issues are a Department versus a Coast Guard problem.
    We respectfully disagree. In our view, any contractor that transacts
    billions of dollars worth of business with the government of the United
    States should be required to provide the government (in this case the
    OIG) with timely and unfettered access to all personnel and
    documentation associated with that business transaction.

        Question 10.: Has the access problem with ICGS been resolved? If
    not, why not?
        DHS OIG Response: The access to contractor personnel and
    information has never been resolved. The Coast Guard's response to the
    recommendation in the NSC report was to defer to the Department for
    action. Therefore, while access to contractors currently remains
    unchanged, the OIG is currently pursuing resolution with the Under
    Secretary for Management. In addition, the issue of government-wide OIG
    access to contractor records and personnel has been raised with the
    National Procurement Fraud Task Force as an item requiring legislative
    modification. As recently as last month, ICGS had informed the OIG that
    our contractor access issues remained unresolved.

      Questions from the Honorable Christopher P. Carney General Questions

        Question 11.: What is the average age of the Coast Guard's current
    helicopter inventory?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 12.: The Coast Guard is faced with increasing demands of
    new and evolving missions. I understand that USCG is currently without
    a master plan to address its aviation requirements in the near and
    long-term?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 13.: Has USCG neglected to properly plan to modernize its
    aviation assets such as helicopters?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 14.: The original Deepwater aviation solution included
    plans to upgrade and modernize the Coast Guard's inventory of
    rotorcraft. It is my understanding that the plan was scrapped in order
    to divert funds to ship programs. Where is USCG in the process of
    replacing the original Deepwater aviation plan with a new one, based on
    today's requirements?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 15.: USCG has fewer than 150 helicopters (41 HH-60Js and
    95 HH-65s). Is this enough to meet the emerging and forecast needs of
    the Coast Guard, including spares and attrition? When did the previous
    Aviation Master Plan (AMP) include replacement helicopters?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

         HH-65 Specific Questions, including Acquisition of Additional

                          New or Used HH-65 Airframes:

        Question 16.: I am aware of the significant investment made to
    resolve a ``safety of flight'' issue with the Coast Guard fleet of HH-
    65 helicopters. What other changes or modifications do you anticipate
    having to make on this legacy helicopter fleet?
        DHS OIG Response: The DHS OIG has not performed audit work, which
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 17.: What is the total coast of the HH-65 re-engining
    program?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 18.: Did Congress approve the expense of used airframes in
    the Coast Guard's budget? If so, when and for how much?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 19.: From where did you acquire the airframes?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 20.: What is the total cost, not just the unit cost, but
    all of the costs associated with modifying, upgrading, and readying for
    missions those aircraft?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 21.: I've heard some concerns that the HH-60 has some
    structural integrity problems and the HH-65 is hampered by shipboard
    landing limitations. Why does USCG continue investing in aircraft with
    reduced capability and inherent mission degradation issues instead of
    planning for their replacement?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

                           MH-68 Specific Questions:

        Question 22.: One of the biggest success stories I have heard
    coming out of Deepwater involves the elite drug interdiction squadron
    based at Cecil Field in Jacksonville, FL. I understand that the DEA
    soon will be removing its helicopters in the Caribbean, providing an
    even larger gap in our country's drug interdiction efforts. Does the
    Coast Guard have plans to continue that program?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 23.: Does it have plans to expand that program to other
    traffic areas such as the Gulf or West Coast? If so, how? Where will
    you get the aircraft from? If not, why? Do we not need such a program
    in these key areas?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

        Question 24.: Are you still planning to get rid of the eight MH-68
    helicopters currently performing these drug interdiction missions? How
    will you fill the void with your current ill-equipped fleet? Will you
    not have to take helicopters serving in other areas of the country away
    from their mission to serve in this role?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to respond to this Question. The Coast Guard should be
    able to answer this Question.

     Questions from the Honorable Mark E. Souder, Ranking Member, and the
                         Honorable Mike Rogers, Member

        Question 25.: Please walk us briefly through the timeline from the
    first identification of deficiencies with the NSC's design in December
    2002 to the Christening of NSC #1 in August of last year.

        DHS OIG Response: Below is a graphic timeline of events that
    depicts Coast Guard's knowledge of the National Security Cutter's (NSC)
    structural design flaws relative to major NSC acquisition milestones.

        Question 26.: In your opinion, why did the Coast Guard fail to act
    on the warnings of its lead engineer, or the independent structural
    analysis provided by multiple third parties?
        DHS OIG Response: The DHS OIG has not performed audit work that
    would enable us to fully respond to this Question. The Coast Guard
    should be able to answer this Question. However, we have testified that
    the dominant influence of expediency, unfavorable contract terms and
    conditions, poorly defined performance requirements, and inadequate
    management and technical oversight of the Deepwater contract by the
    Coast Guard were prime contributors to the cost increases, schedule
    delays, and performance problems associated with the national security
    cutter. It should also be noted that the Coast Guard advised us during
    the course of the National Security Cutter audit that:
        given the uncertainty of the validity of the ELC's concerns and the
    certainty of the significant delay and disruption cost the Government
    would incur, as well as the real urgency of delivering NSCs to the
    fleet to replace rapidly-deteriorating legacy assets, the Program
    Office decided to proceed with production.''

        Question 27.: Do you believe the Coast Guard's reorganization of
    its Deepwater, Acquisitions, and Systems Engineering directorates is a
    step in the right direction? What are some potential pitfalls you
    foresee with this approach?
        DHS OIG Response: As we stated in our response to Question 1, it is
    too early to tell. While the Coast Guard clearly recognizes that urgent
    and immediate changes are needed to meet the management oversight and
    acquisition resource challenges facing its Deepwater Program, there are
    many challenges ahead. For example, the Coast Guard's ability to
    effectively reorganize and manage the Deepwater Acquisition Program
    will be largely dependent on their ability to:
             Identify the number and type of acquisition
            professionals needed to properly oversee the Deepwater
            Acquisition program:
             Recruit and retain acquisition professionals:
             Develop an in-house capability to train and certify
            acquisition professionals;
             Develop and implement an acquisitions career path for
            its active duty and civilian personnel;
             Document the rationale underlying key Deepwater
            acquisition decisions; and,
             Identify the financial costs associated with the
            realignment, reorganization, retraining, and rebuilding of its
            acquisition workforce.
        The Coast Guard has also acknowledged (and we agree) that it could
    take several years to fully implement the changes to its acquisitions
    program. Given the unknowns associated with these changes, we believe
    the Coast Guard should exercise caution when evaluating and
    implementing its Deepwater Implementation plan even if doing so were to
    result in minor delays in the delivery of key Deepwater assets such as
    the national security and fast response cutters.

        Question 28.: I have a Question as to the several ``Requests for
    Deviation'' from the contract sought by ICGS. Presumably, any request
    for deviation should have minimal impact on performance and no impact
    on safety for a particular system. Can you please provide examples
    where deviations were granted that, in your opinion, had a negative
    impact on either performance or safety?
        DHS OIG Response: We reported in our 110'/123' Maritime Patrol Boat
    Modernization Project report (123' report) dated February 2007, that
    the Coast Guard approved a request for a deviation from ICGS for the
    use of non low smoke cable after the contractor installed the non-
    compliant cables in several 123' patrol boats that had already been
    accepted and were in operation by the Coast Guard.
        The intent of the low smoke cable requirement was to eliminate the
    use of polyvinyl chloride jackets to encase cables, which for years
    produced toxic fumes and dense smoke during shipboard fires. The
    contractor indicated in its May 2004 request for a deviation that
    approximately 680 cables (or 85 cables per cutter) did not meet the low
    smoke requirements identified in the contract. The contractor's request
    for a deviation from the low smoke cable requirement identified the
    cable, its type, and its function. It did not, however, indicate the
    flammability and toxicity characteristics of the sub-standard cables
    installed. We are concerned that the Coast Guard did not exercise due
    diligence in determining the flammability and toxicity characteristics
    of the replacement cables being installed prior to issuance of the
    deviation. Furthermore, the Coast Guard accepted delivery and operated
    four 123' cutters without knowing the full extent of the hazards
    associated with the use of the non-low smoke cabling.
        The 123' report also cited ICGS' attempt to continue with the
    installation of C\4\ISR topside equipment installed aboard the 123' and
    the short-range prosecutors (prosecutors) although they were aware that
    the equipment did not meet minimum Deepwater design and performance
    requirements.
        According to the Deepwater contract, the topside equipment aboard
    the 123' cutters and prosecutors was required to meet the environmental
    performance specifications as defined by the Cutter Certification
    Matrix and the prosecutor performance specifications. The purpose of
    these requirements was to ensure that the C\4\ISR systems installed
    aboard the 123' cutters and prosecutors remained fully operational when
    operated under extreme weather, sea, and atmospheric conditions. This
    is a critical requirement, given the frequency with which Coast Guard
    operates its cutters and small boats under such conditions.
        In the case of the 123' cutter Matagorda, the contractor
    incorrectly indicated on the certification documentation that there
    were no applicable requirements stipulated with regard to weather
    environment requirements, and that the certification is ``not really
    beneficial.'' However, the certification documentation specifically
    designates MIL-STD 1399C, Section 302, as the weather environment
    standard for certification requirements, which clearly stipulates
    minimum and maximum weather environment limits. Additionally, the
    certificates of conformance provided with the eight 123? cutters and
    eight prosecutors did not indicate that the Coast Guard had previously
    approved any deviation or waiver from the environmental performance
    requirements identified in the contract. The Coast Guard stated that it
    was unaware that the 123' cutters and prosecutors were not compliant
    with the environmental performance specifications until July 2005. By
    then it was too late as seven 123' cutters had already been delivered
    to and accepted by the Coast Guard.
        On August 29, 2006, Coast Guard received a letter from the
    contractor indicating that the C\4\ISR topside equipment installed
    aboard the 123' cutters and the prosecutors either did not meet minimum
    environmental requirements as specified in the Deepwater contract or
    had not been evaluated against environmental performance requirements
    specified in the Deepwater contract prior to installation. According to
    the contractor, testing each of these components would be ``time
    consuming, expensive, and of limited value.'' Instead the contractor
    stated its intention to submit Requests For Waivers for each of the
    topside components whose performance either did not meet contract
    requirements or had not been evaluated against contract environmental
    performance requirements. The contractor stated that the Requests For
    Waivers presented ?an acceptable and reasonable approach, since most of
    the environmental specifications guard against weather conditions the
    123' [cutter] and [prosecutors] will likely never experience in their
    assigned duties, and due to the fact the environmental requirements
    were clarified after the 123' [cutters] were produced and deployed.''

        However, we remain concerned that:
             The C\4\ISR topside equipment requirements for the
            123' cutter were clearly defined in the Cutter Certification
            Matrix. If the requirements, it were unclear, it was incumbent
            on the contractor to obtain the necessary clarification before
            purchasing, installing, and certifying the installation as
            meeting the requirements;
             The contractor could mistakenly assume that the 123's
            would be assigned only to moderate climates when it was a well-
            known fact that the Coast guard intended to deploy the 123'
            patrol boats along the U.S. Atlantic, pacific, and Gulf coasts
            where weather and sea conditions can be quite severe; and,
             The Coast Guard's original and revised Deepwater
            Implementation Plans called for the acquisition of at least 91
            short range prosecutors, the majority of which were to be
            deployed aboard the 123' cutter, the National Security Cutter,
            and the Fast Response Cutter. These cutters were originally
            intended to form the nucleus of the Coast Guard's Deepwater
            surface fleet. Given the Coast Guard's intention to deploy the
            National Security Cutter and Fast Response Cutter (or its
            replacement), offshore along the U.S. Atlantic, Pacific, and
            Gulf coasts, the contractor's assertion that prosecutors would
            not be operated in areas where severe environmental conditions
            could affect performance, was not accurate.
        The Coast Guard never had a chance to decide whether it would grant
    ICGS? pending request for deviation given the other more serious
    structural design and crew safety issues associated with the 123?
    patrol boat fleet. The 123? patrol boat was permanently withdrawn from
    service in April 2007.

        Question 29.: Admiral Allen recently stated that in order to have
    an integrated Deepwater, you need to have an integrated Coast Guard. Do
    you believe that if Admiral Allen combines the Acquisitions Directorate
    with the Program Executive Office for Deepwater, the Coast Guard will
    be able to manage this enormous contract?
        DHS OIG Response: I have testified that ``the devil is in the
    details'' concerning Coast Guard's ability and capacity to manage and
    assume the systems integrator role for Deepwater Program. The Coast
    Guard's Blueprint for Acquisition Reform is a strategic plan and does
    not contain the level of detail necessary to predict the future success
    of the Deepwater Program. Additionally, we believe there is
    considerable risk associated with the Coast Guard assuming the lead
    systems integrator role at this time without having fully implemented
    its Blueprint for Acquisition Reform. In particular, the Deepwater
    Program needs to overcome its human capital gap. The Coast Guard needs
    to exercise caution and take a slower or phased approach to assuming
    the systems integrator role.
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