[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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